HYDRIL CO, S-1/A, 2000-07-31

HYDRIL CO
S-1/A, 2000-07-31
OIL & GAS FIELD MACHINERY & EQUIPMENT

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000

REGISTRATION NO. 333-38954
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

---------------------

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

<TABLE>
<S> <C> <C>
DELAWARE 3533 95-2777268
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

3300 NORTH SAM HOUSTON PARKWAY EAST
HOUSTON, TEXAS 77032-3411
(281) 449-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

MICHAEL C. KEARNEY
3300 NORTH SAM HOUSTON PARKWAY EAST
HOUSTON, TEXAS 77032-3411
(281) 449-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

---------------------

Copies to:

<TABLE>
<S> <C> <C>
DARRELL W. TAYLOR KENDALL BISHOP PHILIP J. BOECKMAN
BAKER BOTTS L.L.P. O'MELVENY & MYERS LLP CRAVATH, SWAINE & MOORE
ONE SHELL PLAZA 1999 AVENUE OF THE STARS WORLDWIDE PLAZA
910 LOUISIANA LOS ANGELES, CALIFORNIA 90067 825 8TH AVENUE
HOUSTON, TEXAS 77002 (310) 553-6700 NEW YORK, NEW YORK 10019
(713) 229-1234 (212) 474-1000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
---------------

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering. [ ]
---------------

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering. [ ]
---------------

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 28, 2000

PROSPECTUS
7,500,000 SHARES

[HYDRIL LOGO]

COMMON STOCK

$ PER SHARE
---------------------

Hydril Company is selling 2,323,932 shares of its common stock and the
selling stockholders named in this prospectus are selling 5,176,068 shares. We
will not receive any proceeds from the sale of the shares by the selling
stockholders. The underwriters named in this prospectus may purchase up to
1,100,000 additional shares of common stock from us and the selling stockholders
under certain circumstances.

This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $14.00 and $18.00 per share. We
have applied to have our common stock listed on The Nasdaq Stock Market's
National Market System under the symbol HYDL.

---------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

---------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Hydril (before expenses) $ $
Proceeds to Selling Stockholders $ $
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.

---------------------
Joint Lead Managers
SALOMON SMITH BARNEY CREDIT SUISSE FIRST BOSTON
---------------------
DAIN RAUSCHER WESSELS SIMMONS & COMPANY
INTERNATIONAL
, 2000
<PAGE> 3

[INSIDE FRONT COVER - UNDETERMINED]
-----------------------------------
<PAGE> 4

[INSIDE FRONT GATE FOLD - LEFT SIDE]
------------------------------------

Pressure Control
Products

Schematic of a
semisubmersible
offshore drilling rig
and associated well,
including a blowout
preventer assembly.

Schematic of a drill Semisubmersible
stem valve, with the Schematic Schematic of a
label "Drill Stem Valves" ----) diverter, with the
and an arrow to its label "Diverter"
location on the and an arrow to
semisubmersible its location on
schematic. (------------ the semisubmersible
schematic.

Schematic of a gas
handler, with the
label "Gas Handler"
and an arrow to -------------) Schematic of an annular
its location Well (-------- blowout preventer,
on the well Schematic with the label
schematic. "Annular Blowout
Preventer" and an
arrow to its
Schematic of location on the
double ram blowout "BOP Stack"
preventer, with schematic.
the label "Double Ram
Blowout Preventer"
and an arrow to
its location
on the "BOP ------------) "BOP Stack"
Stack" schematic Schematic

<PAGE> 5
[INSIDE FRONT GATE FOLD - RIGHT SIDE]
-------------------------------------

Tubular Products

Schematic of a
drill pipe Well
connection, Schematic
with the label Schematic of a surface
"Wedge Thread(TM) casing connection, with
Drill Pipe Connection" the label "Surface and
Intermediate Casing
Well Connection" and an arrow
Schematic (------- to its location on the
well schematic.

Schematic of a casing
Well connection, with the label
Schematic (------- label "Integral Metal Seal
Casing Connection" and an arrow to
its location on the well schematic.

Schematic of a
production tubing
connection, with
the label "Integral Schematic of a casing connection
Metal Seal Tubing Well with the label "Extreme Load
Connection" and Schematic (------- Casing Connection" and an arrow to
an arrow to its its location on the well schematic.
location on the well
schematic.

<PAGE> 6
[INSIDE BACK COVER - UNDETERMINED]
--------------------------------
<PAGE> 7

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Cautionary Statement about Forward-Looking Statements....... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Dilution.................................................... 19
Capitalization.............................................. 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 33
Management.................................................. 45
Certain Relationships and Related Party Transactions........ 54
Principal and Selling Stockholders.......................... 56
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 64
U.S. Tax Consequences to Non-U.S. Holders................... 65
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 71
Index to Financial Statements............................... F-1
</TABLE>

------------------

Until , 2000, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

i
<PAGE> 8

PROSPECTUS SUMMARY

This summary only highlights information contained elsewhere in this
prospectus, but does not contain all of the information that may be important to
you. You should read this entire prospectus carefully, including the information
under "Risk Factors" and the financial statements and the related notes included
in this prospectus, before making an investment decision.

OUR BUSINESS

Hydril Company is a worldwide leader in engineering, manufacturing and
marketing premium tubular connections and pressure control products for oil and
gas drilling and production. Our premium tubular connections are used in
drilling environments where extreme pressure, temperature, corrosion and
mechanical stress are encountered, as well as in environmentally sensitive
drilling. These harsh drilling conditions are typical for deepwater,
deep-formation and horizontal wells. Our pressure control products are primarily
safety devices that control and contain fluid and gas pressure during drilling,
completion and maintenance of oil and gas wells in the same environments. We
also provide aftermarket replacement parts, repair and field services for our
installed base of pressure control equipment. These products and services are
required on a recurring basis because of the impact of the extreme conditions in
which pressure control products are used. We believe that the level of drilling
activity in harsh environments that require premium tubular connections and
advanced pressure control products will continue to grow as oil and gas
operators increasingly target deeper geological formations, shift their
exploration offshore and apply horizontal drilling techniques.

Throughout our history, we have been a technological innovator. For nearly
70 years, we have been developing products that assist the oil and gas industry
to commercially and safely explore and develop deep onshore and deepwater
reserves that were not previously accessible. Shortly after our inception, we
developed the first annular blowout preventer, a device which seals the well to
prevent uncontrolled flow of fluids and gases when a high pressure geological
formation is encountered. We have also developed premium tubular connection
products and technologies for use in critical drilling and production
applications where standard connections are unsuitable.

We continue to provide innovative products. At the end of 1999, we
introduced an advanced composite tubing product line as a cost-effective
alternative to steel pipe used in flowlines. Our advanced composite tubing is
lightweight, flexible, resistant to corrosion and fatigue, has low installation
cost and can be produced in lengths up to several thousand feet. We are also
currently participating in a joint industry project for the development of a
process called subsea mudlift drilling that, if successful, will make it
possible to economically drill for and produce oil and gas in ultra-deepwater in
excess of 7,000 feet. We are the technical leader, designer and equipment
manufacturer and have production rights to the subsea mudlift drilling equipment
developed by the project.

The end-users of our products are a broad group of major and independent,
domestic and international oil and gas companies as well as drilling
contractors. In the United States and Canada, we sell our premium tubular
connections through distributors. Outside the United States and Canada, we sell
our premium tubular connections directly to end-users and through distributors.
We sell our pressure control products directly to end-users.

We conduct our business on a global basis. We have approximately 1,350
employees and 13 manufacturing facilities in the United States, Canada,
Indonesia, Mexico, Nigeria and the United Kingdom, and 22 sales and service
offices worldwide. During 1999, approximately 60% of our revenues were derived
from equipment sales and services ultimately provided to end-users for use
outside of the United States.

Hydril was founded in 1933 by Frank R. Seaver who ran Hydril until his
death in 1964. From 1964 to 1986, Richard C. Seaver, the nephew of Frank Seaver,
served as our President. Richard Seaver is currently our Chairman of the Board,
and his son, Christopher T. Seaver, is our President and Chief Executive
Officer.

1
<PAGE> 9

OUR BUSINESS STRATEGY

Our goal is to build on our position as an industry leader in the
engineering, manufacturing and marketing of premium tubular connections and
pressure control products. To achieve this goal, we are pursuing the following
strategies:

- Focus on a portfolio of premium, high value added products.

- Develop new proprietary technologies and products.

- Emphasize product quality and capitalize on brand loyalty.

- Operate our business globally.

- Expand our business through selective acquisitions.

RISK FACTORS

Prospective investors should carefully consider the matters set forth under
the caption "Risk Factors," as well as other information set forth in this
prospectus. One or more of these matters could negatively impact the value of
your investment in us.

OUR EXECUTIVE OFFICES

Our principal executive offices are located at 3300 North Sam Houston
Parkway East, Houston, Texas 77032-3411, and our telephone number is (281)
449-2000. Hydril Company is a Delaware corporation.

2
<PAGE> 10

THE OFFERING

Common stock offered (1):
By us...................... 2,323,932 shares
By selling stockholders.... 5,176,068 shares
Total................. 7,500,000 shares
Shares outstanding after the
offering (2):
Common stock............... 7,500,000 shares
Class B common stock....... 14,202,972 shares
Total................. 21,702,972 shares
Voting rights
Common stock............... One vote per share
Class B common stock....... Ten votes per share

Use of proceeds................. We estimate that the net proceeds to us from
this offering will be approximately $33.2
million, based on an assumed initial public
offering price of $16.00 per share, the
midpoint of the range set forth on the cover
of this prospectus, before any proceeds from
the exercise of the underwriters'
over-allotment option. We intend to use the
net proceeds that we will receive from this
offering primarily:

- to expand our capacity to produce premium
tubular connections in the United States
and Canada and to upgrade machine tools
that we use in the manufacturing of our
pressure control products;

- to finance the continued development and
commercialization of new, advanced
technologies and products, including our
subsea mudlift drilling technology and
advanced composite tubing; and

- to provide working capital for the growth
of our business.

Proposed Nasdaq National Market
symbol........................ HYDL

---------------

(1) The shares being sold in this offering are common stock. Only currently
existing stockholders will hold class B common stock. Additionally, options
previously issued to officers will be exercisable for class B common stock.
Our common stock and class B common stock have identical rights, except for
voting and conversion rights. Holders of common stock have no conversion
rights. Holders of class B common stock may convert some or all of their
shares into the same number of shares of common stock at any time. In
addition, shares of class B common stock will automatically convert into the
same number of shares of common stock upon the occurrence of the following:

- if class B common stock is transferred to any person or entity other than
a holder of class B common stock or a person or entity related to current
holders of class B common stock;

- if at any time the number of outstanding shares of class B common stock
represents less than ten percent of the total number of outstanding
shares of common stock and class B common stock combined.

(2) The number of shares outstanding after the offering excludes 354,128 shares
of common stock issuable upon exercise of options to be granted to our
officers, directors and employees upon completion of the offering (based on
an assumed initial public offering price of $16.00 per share) and 702,000
shares of class B common stock issuable upon exercise of options previously
granted to our officers. The number of shares outstanding after the offering
assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised, we and each of the selling stockholders
who have not sold all of their shares will sell shares to the underwriters
on a pro rata basis based on the respective number of shares sold in the
offering. If the over-allotment option is exercised in full, we will issue
and sell an additional 348,736 shares of common stock and those selling
stockholders will sell an additional 751,264 shares of common stock.

3
<PAGE> 11

SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the following summary consolidated financial data along
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited and unaudited consolidated
financial statements and the related notes included elsewhere in this
prospectus. The information set forth below for the six months ended June 30,
1999 and 2000 is derived from our unaudited financial statements that include,
in our opinion, all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation in all material respects of the
financial position and results for the interim periods, when read in conjunction
with our annual financial statements and the notes to our annual financial
statements appearing elsewhere in this prospectus. The results of operations for
the six months ended June 30, 2000 are not necessarily indicative of results to
be expected for the full year.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Tubular............................. $ 66,687 $ 97,312 $111,472 $116,256 $ 75,362 $ 37,390 $ 46,002
Pressure control.................... 56,399 69,646 106,635 122,956 84,063 40,871 44,254
-------- -------- -------- -------- -------- -------- --------
Total revenues.................... 123,086 166,958 218,107 239,212 159,425 78,261 90,256
Cost of sales......................... 94,731 132,140 190,680 208,808 133,770 68,025 65,112
-------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 28,355 34,818 27,427 30,404 25,655 10,236 25,144
Selling, general and administration
expenses............................ 23,070 25,823 32,945 41,048 33,404 17,483 16,473
Gain on sale of manufacturing
facility(1)......................... -- -- 4,520 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)(2)............ 5,285 8,995 (998) (10,644) (7,749) (7,247) 8,671
Interest expense...................... -- 91 1,720 4,347 5,528 2,714 2,737
Other income (expense)................ 2,586 3,848 21,539(3) (6,979)(4) 2,311 1,585 4,212
Provision (benefit) for income
taxes............................... 2,702 3,941 6,501 (7,470) (3,729) (2,848) 3,450
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ 5,169 $ 8,811 $ 12,320 $(14,500) $ (7,237) $ (5,528) $ 6,696
======== ======== ======== ======== ======== ======== ========
Income (loss) per share -- basic and
diluted(5).......................... $ 0.27 $ 0.45 $ 0.64 $ (0.75) $ (0.37) $ (0.29) $ 0.35
Weighted average shares
outstanding(5)...................... 19,385 19,385 19,385 19,384 19,379 19,379 19,379
OTHER DATA:
Capital expenditures.................. $ 5,713 $ 9,705 $ 28,444 $ 15,767 $ 8,790 $ 6,189 $ 3,440
Depreciation.......................... 4,621 4,711 5,259 6,324 7,851 3,558 4,153
EBITDA(2)(6).......................... 9,906 13,706 4,261 (4,320) 102 (3,689) 12,824
Net cash provided by (used in)
operating activities................ (3,745) 1,828 (28,111) (17,515) 10,184 5,558 2,439
Net cash provided by (used in)
investing activities................ (14,726) (2,916) (10,098) (14,786) 6,314 8,915 178
Net cash provided by (used in)
financing activities................ -- 5,265 47,443 27,723 (12,060) (9,109) 927
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................... $ 60,239 $ 63,781 $ 89,078 $ 97,227 $ 81,378 $ 90,654 $ 90,673
Property, net......................... 32,538 37,647 64,418 73,861 74,579 76,264 73,150
Total assets.......................... 126,568 158,698 248,808 259,076 211,808 225,245 211,898
Long-term debt and capital leases,
excluding current portion........... -- -- 27,028 76,244 73,039 76,018 73,943
Other long-term liabilities........... 14,928 15,169 15,535 18,137 18,011 18,351 17,842
Total stockholders' equity............ 81,446 89,772 100,710 83,683 76,446 78,156 83,142
</TABLE>

4
<PAGE> 12

---------------

(1) We sold our Singapore manufacturing facility for $6.2 million in cash in
1997, resulting in a gain of approximately $4.5 million.

(2) Results of operations include $26.5 million of operating losses in 1997,
$27.5 million of operating losses in 1998, $3.7 million of operating losses
in 1999, $2.1 million of operating losses for the six months ended June 30,
1999, and $1.5 million of estimated operating losses for the six months
ended June 30, 2000, under long-term contracts to provide complete sets of
pressure control equipment for drilling rigs and the related control systems
for that equipment. Our 1999 results of operations also include a $10.5
million pre-tax charge to replace some of our blowout preventer equipment.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

(3) Other income for 1997 was comprised primarily of a gain on the sale of our
interest in XLS Holdings, Inc. We obtained a 50% interest in XLS Holding,
Inc. in 1994 as a result of our settlement of litigation with XL Systems,
Inc. and in consideration for our licensing to XL Systems of several of our
patented thread connections. Our interest in XLS Holding was accounted for
using the equity method. In 1997, we sold our 50% interest in XLS Holding to
Weatherford International, Inc. in exchange for Weatherford stock and
recorded a gain of $18.5 million.

(4) For 1998, other expense included a $6.1 million permanent decline in the
fair market value of the Weatherford stock obtained in 1997 and held for
sale, and $2.7 million for the cost of put options to sell the stock.

(5) Share and per share data have been retroactively restated to reflect the
reclassification of pre-offering shares of common stock into shares of class
B common stock and the dividend of five shares of class B common stock for
each share of class B common stock to be made prior to the offering.

(6) EBITDA consists of operating income (loss) before depreciation expense.
EBITDA is not a measure of financial performance under generally accepted
accounting principles. You should not consider it in isolation from or as a
substitute for net income or cash flow measures prepared in accordance with
generally accepted accounting principles or as a measure of our
profitability or liquidity. EBITDA is included as a supplemental disclosure
because it may provide useful information regarding our ability to service
debt and to fund capital expenditures. Additionally, the EBITDA computation
used herein may not be comparable to other similarly titled measures of
other companies.

5
<PAGE> 13

RISK FACTORS

You should consider carefully the following risk factors and all other
information contained in this prospectus before you decide whether to purchase
our common stock. Investing in our common stock is speculative and involves
significant risk. Any of the following risks could impair our business,
financial condition and operating results, could cause the trading price of our
common stock to decline and could result in a partial or total loss of your
investment.

RISKS RELATING TO OUR BUSINESS

A SUBSTANTIAL OR EXTENDED DECLINE IN OIL OR GAS PRICES COULD RESULT IN LOWER
EXPENDITURES BY THE OIL AND GAS INDUSTRY, THEREBY REDUCING OUR REVENUE.

Demand for our products and services is cyclical and substantially
dependent on the level of capital expenditures by the oil and gas industry for
the exploration for and development of crude oil and natural gas reserves. In
particular, demand for our premium tubular connections and our aftermarket
pressure control products and services is driven by the level of worldwide
drilling activity, especially drilling in harsh environments. Demand for our
pressure control products is directly affected by the number of drilling rigs
being built or refurbished. A substantial or extended decline in worldwide
drilling activity or in construction or refurbishment of rigs will adversely
affect the demand for our products and services.

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

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

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

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

- the cost of producing oil and gas;

- interest rates and the cost of capital;

- technological advances affecting energy consumption;

- environmental regulation;

- tax policies; and

- policies of national governments.

We expect prices for oil and natural gas to continue to be volatile and
affect the demand and pricing of our products and services. A material decline
in oil or gas prices could materially adversely affect our business.
Additionally, increases in oil and gas prices and greater level of exploration
and production expenditures of oil and gas companies may not be reflected in the
demand for our products and services.

WE HAVE INCURRED LOSSES IN RECENT PERIODS ON A CONSOLIDATED BASIS AND IN OUR
PRESSURE CONTROL SEGMENT AND MAY INCUR ADDITIONAL LOSSES IN THE FUTURE; IF WE
FAIL TO ACHIEVE OR SUSTAIN PROFITABILITY IN THE FUTURE, THE MARKET PRICE OF OUR
COMMON STOCK COULD BE ADVERSELY AFFECTED.

We incurred net losses of $7.2 million in 1999 and $14.5 million in 1998.
We also incurred a $5.5 million operating loss in 1997 prior to the recognition
of a $4.5 million gain on the sale of a manufacturing facility. Our revenue
declined in 1999 to $159.4 million from $239.2 million in 1998. From period to
period, our results have fluctuated significantly.

We entered into fixed-price contracts primarily in 1996 and 1997 to provide
complete sets of pressure control equipment with related control systems. We
incurred operating losses of $26.5 million in 1997,

6
<PAGE> 14

$27.5 million in 1998, and $3.7 million in 1999 relating to these fixed-price
contracts. Deliveries of the remaining equipment are expected to occur in 2000.
We expect to incur $1.5 million of operating losses in 2000 relating to
fixed-price contracts, which we recorded in the first quarter of 2000. Changes
in contract performance, conditions and estimated profitability may result in
revisions to estimated costs and income, and we may incur additional losses
under fixed-price contracts. Our 1999 results also include a $10.5 million
pre-tax charge to replace some of our pressure control equipment.

Including the losses described above, our pressure control segment reported
operating losses of $15.4 million in 1997, $22.1 million in 1998 and $16.2
million in 1999. Beginning in 1998, we replaced the management in our pressure
control segment, and we reorganized the segment on a functional basis with the
goal of reducing costs and increasing efficiency. The new management or the
reorganized structure of the pressure control segment may not result in reduced
operating losses or profitability for the segment. Excluding the project losses
described above, margins in recent periods for our pressure control business
have been low primarily because of excess capacity in the industry and higher
than expected engineering and production costs for some products. Through at
least 2001, we expect our revenues from our pressure control products to
continue to decline primarily because of the currently low level of rig
construction and refurbishment worldwide and the completion of our remaining
long-term projects. Pressure control represents approximately one-half of our
revenues, and if that segment does not improve, our consolidated results will be
materially and adversely affected.

In considering whether to invest in our common stock, you should consider
our historical financial results and the factors that caused those results. If
we fail to achieve or sustain profitability in the future, the market price of
our common stock could be adversely affected. If we do achieve profitability in
any period, we may not be able to sustain or increase such profitability on a
quarterly or annual basis.

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

There is a limited number of distributors who buy steel tubulars, contract
with us to thread the tubulars and sell completed tubulars with our premium
tubular connections. In 1999, our ten largest distributors accounted for 69% of
our premium tubular connections sales in the United States and Canada and 32% of
our premium tubular connections sales worldwide. Our ten largest distributors in
the first half of 2000 accounted for 80% of premium tubular connections sales in
the United States and Canada and 48% of premium tubular connections sales
worldwide. In the first half of 2000, our three largest distributors accounted
for 70% of premium tubular connections segment sales in the United States and
Canada and 41% of segment sales worldwide.

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

There can be no assurance that the current distribution system for premium
tubular connections will continue. For example, products may in the future be
sold directly by tubular manufacturers to end-users or through other
distribution channels such as the internet. If methods of distribution change,
many of our competitors may be better positioned to take advantage of those
changes than we are.

7
<PAGE> 15

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

Oil and gas operators and drilling contractors have undergone substantial
consolidation in the last few years. Additional consolidation is probable.

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

In 1999, our largest pressure control customer accounted for 24% of segment
sales and our ten largest pressure control customers accounted for 53% of
segment sales. In the first half of 2000, our two largest pressure control
customers accounted for 35% of segment sales and our ten largest pressure
control customers accounted for 63% of segment sales. In 1999, our largest
premium tubular connection customer accounted for 21% of segment sales and our
ten largest premium tubular connection customers accounted for 65% of segment
sales. In the first half of 2000, our four largest premium tubular connection
customers accounted for 59% of segment sales and our ten largest premium tubular
connection customers accounted for 70% of total segment sales.

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

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

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

- availability and capabilities of the equipment;

- ability to meet the customer's delivery schedule;

- price;

- reputation;

- experience; and

- safety record.

Many of our major competitors are diversified multinational companies, and
are larger and have substantially greater financial resources, substantially
larger operating staffs and greater budgets for marketing and research and
development than we do. They may be better able to compete in making equipment
available faster and more efficiently, meeting delivery schedules or reducing
prices. As a result, we could lose customers and market share to those
competitors. These companies may also be better able than us to successfully
endure downturns in the oil and gas industry.

WE MAY LOSE BUSINESS TO COMPETITORS WHO PRODUCE THEIR OWN PIPE.

In the United States and Canada and sometimes internationally, our premium
connections are added to steel tubulars purchased by a distributor from
third-party steel suppliers. After our premium connections are added, the
distributor sells the completed premium tubular to a customer at a price that
includes, but does not differentiate between, the costs of the steel pipe and
the connection. Pricing of premium tubular connections can be affected by steel
prices, as the steel pipe is the largest component of the overall price. We have
no control over the price of the steel pipe that is supplied for our
connections.

8
<PAGE> 16

During 1999, approximately 60% of our revenues were derived from equipment
sales and services ultimately provided to end-users for use outside of the
United States. Many of our larger competitors, especially internationally, are
integrated steel producers, who produce, rather than purchase, steel. Integrated
steel producers have more pricing flexibility for tubular connections given that
they control the production of both the tubular connections and the steel
tubulars to which the connections are applied. This inherent pricing and supply
control puts us at a competitive disadvantage, and we can lose business to
integrated steel producers even if we have a better product. Other steel
producers who do not currently manufacture tubulars with premium connections may
in the future enter the premium tubular connection business and compete with us,
including in the United States, where historically there have been few
integrated producers. Several foreign steel mills have formed a marketing group
that is licensed to produce and sell a competing tubular connections product
line outside of the United States and Canada.

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

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

- U.S. and overall world demand for tubular goods;

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

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

In many cases, foreign producers of tubular goods have been found to have
sold their products, which may include premium tubular connections, for export
to the United States at prices that are lower than the cost of production or
their prices in their home market or a major third-country market, a practice
commonly referred to as "dumping."

Antidumping duty orders currently cover imports of tubular goods from
Argentina, Italy, Japan, Korea and Mexico, and a countervailing duty order
currently covers imports from Italy. If the orders covering imports from these
countries are revoked in full or in part or the duty rates lowered, we could be
exposed to increased competition from imports that could reduce our sales and
market share or force us to lower prices. Tubulars produced by domestic steel
mills and threaded by us may not be able to economically compete with tubulars
manufactured and threaded at steel mills outside of the United States. See
"Business -- Our Competitors" for additional information.

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

Historically, there has been overcapacity in the pressure control equipment
industry. When oil and gas prices fall, cash flows of our customers are reduced,
leading to lower levels of expenditures and reduced demand for pressure control
equipment. Under these conditions, the overcapacity causes increased price
competition in the sale of pressure control products and aftermarket services as
competitors seek to capture the reduced business to cover their high fixed costs
and avoid the idling of manufacturing facilities. Because we have multiple
facilities that produce different types of pressure control products, it is even
more difficult for us to reduce our fixed costs since to do so we might have to
shut down more than one plant. During and after periods of increasing oil and
gas prices when sales of pressure control products may be increasing, the
overcapacity in the industry will tend to keep prices for the sale of pressure
control products lower than if overcapacity were not a factor. As a result, when
oil and gas prices are low, or are increasing from low levels because of
increased demand, our business and revenues will be adversely affected because
of either reduced sales volume or sales at lower prices or both.

9
<PAGE> 17

IF WE DO NOT DEVELOP, PRODUCE AND COMMERCIALIZE NEW COMPETITIVE TECHNOLOGIES AND
PRODUCTS, OUR REVENUE MAY DECLINE.

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

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

- successfully market new products; and

- obtain and maintain patent protection.

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

Additionally, the time and expense invested in product development may not
result in commercial applications and provide revenues. We could be required to
write off our entire investment in a new product that does not reach commercial
viability. Moreover, we may experience operating losses after new products are
introduced and commercialized because of high start-up costs, unexpected
manufacturing costs or problems, or lack of demand. For example, in recent years
we have sustained significant losses in our pressure control segment as a result
of projects to provide complete sets of pressure control equipment and related
control systems.

IF WE ARE NOT SUCCESSFUL IN DEVELOPING AND COMMERCIALIZING SUBSEA MUDLIFT
DRILLING TECHNOLOGY OR COMMERCIALIZING OUR ADVANCED COMPOSITE TUBING, OUR GROWTH
PROSPECTS WILL BE REDUCED.

We are working with a number of operators and drilling contractors to
develop a subsea mudlift drilling technology that, if successful, would enable
oil and gas operators to economically drill for and produce oil and gas in
ultra-deepwater in excess of 7,000 feet. However, we may not be able to develop
subsea mudlift drilling technology and, if developed, we may not be able to
successfully commercialize it. Our subsea mudlift drilling technology has not
yet been proven by the drilling of a test well. If the planned test well is
unsuccessful, we may have to abandon or delay the project. Moreover, there are
two other groups of companies in our industry that are also developing competing
technologies for deepwater drilling, and they may be ahead of us in completing
development of their technology. One of these groups is headed by Shell Oil
Company and the other by Transocean Sedco Forex. Published reports have noted
that the Shell group will drill a test well during 2000. Our group does not plan
to drill a test well until 2001. If one or both of these two groups develops a
commercially viable technology before we do, they may gain a significant
competitive advantage over us.

Moreover, the cost to implement the technology may be high and there may be
little demand for the completed technology. We are devoting significant
resources to the development of subsea mudlift drilling technology. We have
invested over $1.7 million thus far. We may have to invest substantially more
than what we have budgeted in order to successfully complete the project. In the
past, some participants in the project have withdrawn, and other participants
could withdraw prior to completion. This would mean losing the technical help of
these partners and that the remaining partners, including us, would have to
contribute more money to the project. It is also less likely that former
partners would become future users of the project's technology.

At the end of 1999, we introduced a line of advanced composite tubing that
is lightweight, flexible and resists corrosion and fatigue. We are marketing the
tubing for use in transporting oil and gas both out of the well and from the
well to storage facilities. We currently have a limited number of orders for our
advanced composite tubing. We do not yet know if we can commercialize it
successfully. The startup costs
10
<PAGE> 18

and expense to produce the tubing could be higher than we expect. Additionally,
the product may not perform as we expect, or we may not be able to adapt it to
other applications. Moreover, demand from customers may not develop. Companies
with greater financial and marketing resources have already developed and are
selling a proprietary tubing similar to our advanced composite tubing.

If we are unable to successfully develop and commercialize subsea mudlift
drilling or commercialize our advanced composite tubing, our growth prospects
will be reduced and the level of our future revenues may be materially and
adversely affected.

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

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

THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.

Our success depends heavily on the continued services of our senior
management. Our senior management consists of a small number of individuals
relative to other comparable or larger companies. These individuals are
Christopher T. Seaver, our President and Chief Executive Officer, Steven P.
Magee, our Managing Director-Western Hemisphere Tubular, Neil G. Russell, our
Managing Director-Eastern Hemisphere Tubular, Charles E. Jones, our Managing
Director-Pressure Control, and Michael C. Kearney, Chief Financial Officer and
Vice President-Administration. These individuals possess sales and marketing,
engineering, manufacturing, financial and administrative skills that are
critical to the operation of our business. We do not have employment or
non-competition agreements with any members of our senior management. If we lost
or suffered an extended interruption in the services of one or more of our
senior officers, our results of operations could be adversely affected.
Moreover, we may not be able to attract and retain qualified personnel to
succeed members of our senior management.

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

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

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<PAGE> 19

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

In 1999, approximately 60% of our total revenues were derived from services
or equipment ultimately provided or delivered to end-users outside the United
States, and approximately 30% of our revenues were derived from products which
were produced outside of the United States. We are, therefore, significantly
exposed to the risks customarily attendant to international operations and
investments in foreign countries. These risks include:

- political instability and civil disturbances;

- nationalization, expropriation, and nullification of contracts;

- changes in regulations and labor practices;

- changes in currency exchange rates and potential devaluations;

- changes in currency restrictions which could limit the repatriations of
profits;

- restrictive actions by local governments; and

- changes in foreign tax laws.

We have manufacturing facilities in Warri and Port Harcourt, Nigeria and in
Batam, Indonesia. Both of these countries have recently experienced civil
disturbances and violence. In Indonesia, civil unrest and violence occurred
during 1999 in Batam, where ethnic clashes between immigrants from north Sumatra
and eastern Indonesia led to riots and widespread damage, in East Timor, where
the East Timorese were seeking independence from Indonesia, and in Jakarta, in
connection with events relating to election of a new President. In Nigeria,
subsequent to the May 1999 elections that ended 15 years of military rule,
religious and tribal violence escalated, and tensions between the groups
continue to be high. Political violence and protests against oil companies
operating in Nigeria are common.

An interruption of our international operations could reduce our earnings
or adversely affect the value of our foreign assets. The occurrence of any of
these risks could also have an adverse effect on demand for our products and
services or our ability to provide them.

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

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

- errors in cost, design or production time estimates;

- engineering design changes;

- changes requested by customers; and

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

The variations and the risks inherent in engineered systems projects may
result in reduced profitability or losses on our projects. Depending on the size
of a project, variations from estimated contract performance can have a
significant impact on our operating results for any particular fiscal quarter or
year. Our significant losses in recent years on projects to provide complete
sets of pressure control equipment with related control systems are an example
of the problems we can experience with fixed-price contracts. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Overview" for additional information.

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<PAGE> 20

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

Fluctuations in quarterly sales and earnings could adversely affect the
trading price of our common stock. For the eight quarters ending December 31,
1999, our quarterly revenue varied from $38.8 million to $62.6 million. Our
quarterly sales may vary significantly from quarter to quarter depending upon:

- the level of drilling activity worldwide;

- the variability of customer orders, especially for tubular connections,
which are particularly unpredictable in international markets;

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

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

If we enter into pressure control long-term projects in the future, some of
our revenues would be derived from projects which are often performed over
periods of two to six quarters. As a result, our revenues and earnings could
fluctuate significantly from quarter to quarter as a result of the extent of any
delays in completing existing pressure control projects.

In addition, our fixed costs cause our margins to suffer when demand is low
and manufacturing capacity is underutilized.

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

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

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

ENVIRONMENTAL COMPLIANCE COSTS AND LIABILITIES COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION.

Our operations and properties are subject to increasingly stringent laws
and regulations relating to environmental protection, including laws and
regulations governing air emissions, water discharges, waste management and
workplace safety. Such laws and regulations can impose fines and criminal
sanctions for violations and require the installation of costly pollution
control equipment or operational changes to limit pollution emissions and
decrease the likelihood of accidental hazardous substance releases. We incur,
and expect to continue to incur, substantial capital and operating costs to
comply with environmental laws and regulations.

We use and generate hazardous substances and wastes in our manufacturing
operations. In addition, many of our current and former properties are or have
been used for industrial purposes. Accordingly, we could become subject to
potentially material liabilities relating to the investigation and cleanup of
contaminated properties, and to claims alleging personal injury or property
damage as the result of exposures to, or releases of, hazardous substances. In
addition, stricter enforcement of existing laws and regulations, new laws and
regulations, the discovery of previously unknown contamination or the imposition
of new or increased requirements could require us to incur costs or become the
basis of new or increased liabilities that could reduce our earnings and our
cash available for operations.

13
<PAGE> 21

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

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

OUR DEBT INSTRUMENTS CONTAIN COVENANTS THAT LIMIT OUR OPERATING AND FINANCIAL
FLEXIBILITY.

Under the terms of our revolving credit facility, we must maintain minimum
levels of tangible net worth, not exceed levels of debt specified in the
agreement, comply with a fixed coverage test and maintain a minimum level of
earnings before interest, taxes, depreciation and amortization. Under the note
purchase agreement relating to $60 million of 6.85% senior secured notes due
June 30, 2003, we are required to maintain minimum levels of tangible net worth.
Our senior secured notes may not be prepaid prior to maturity unless we pay the
noteholders a make-whole premium based on prevailing market interest rates,
which as of June 30, 2000 would require a payment of $65,000.

Our ability to meet the financial ratios and tests under our revolving
credit facility and our note agreement can be affected by events beyond our
control, and we may not be able to satisfy those ratios and tests. A breach
under the note agreement or our revolving credit facility could permit the
lenders to accelerate the debt so that it is immediately due and payable. No
further borrowings would be available under the revolving credit facility. If we
were unable to repay the debt, the lenders under the note agreement and our
revolving credit facility could proceed against our accounts receivable,
inventory, equipment, intellectual property, real property and stock of
subsidiaries that are pledged as collateral.

IF WE CANNOT OBTAIN THE FUNDS NEEDED TO MEET OUR INCREASING CAPITAL NEEDS, WE
MAY NOT BE ABLE TO CARRY OUT OUR BUSINESS STRATEGY.

Our primary cash needs are to fund capital expenditures, to further develop
and expand new product lines and to provide additional working capital. We
estimate that capital expenditures for the remainder of 2000 and 2001 will be
approximately $40 million, which will be used primarily to expand capacity and
continue to rebuild our computer controlled machines in our premium tubular
connection manufacturing facilities worldwide. If our plans or assumptions
change or are inaccurate, or we make any acquisitions, we may need to raise
additional capital. We have had negative or little cash flow during several
recent periods. We may seek to raise any funds we need through public or private
debt or equity offerings. If we raise funds through the issuance of equity
securities, the percentage ownership of our then-current stockholders may be
reduced and the holders of new equity securities may have rights, preferences or
privileges senior to those of our common stock. If we obtain funds through a
bank credit facility or through issuance of debt securities or preferred stock,
this indebtedness or preferred stock would have rights senior to the rights of
our common stock, and their terms could impose significant restrictions on our
operations. If we need to raise additional funds, we may not be able to do so on
favorable or acceptable terms, or at all. If we cannot obtain adequate funds on
acceptable terms, we may not be able to carry out our business strategy.

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<PAGE> 22

RISKS RELATED TO THIS OFFERING AND OUR STOCK AND THE TRADING MARKET FOR OUR
COMMON STOCK

YOUR COMMON STOCK WILL HAVE MUCH LESS VOTING POWER THAN THE CLASS B COMMON STOCK
AND, AS A RESULT, HOLDERS OF COMMON STOCK WILL HAVE NO ABILITY TO AFFECT THE
OUTCOME OF CORPORATE MATTERS, WHICH MAY CAUSE THE COMMON STOCK TO TRADE AT A
DISCOUNT TO WHERE IT OTHERWISE MAY TRADE.

The common stock you can purchase in this offering entitles you to only one
vote per share. Our class B common stock entitles its holders to ten votes for
each share. Upon completion of this offering, only those stockholders who hold
our shares prior to this offering and continue to hold shares will hold class B
common stock. After this offering, 68% of the class B common stock and 64% of
our total voting power will be beneficially owned by The Seaver Institute,
members of the Seaver family and trusts whose trustees include members of the
Seaver family. As a result, the Seaver family, individually and through these
trusts, will be in a position to exercise control over our management and
corporate affairs. In addition, class B common stock will constitute about 65%
of our total outstanding stock and about 95% of our total voting power. Thus,
holders of class B common stock will be able to control our management and
corporate affairs. The concentration of ownership and the control the class B
stockholders can exercise may cause our common stock to trade at a discount to
where it otherwise may trade. Our common stockholders will have no ability to
affect the outcome of votes for, among other things:

- election of directors;

- mergers and business combinations or other major corporate transactions;

- amendments to our charter and bylaws, including changes in the number of
authorized shares; and

- approval of benefit plans for management.

PROVISIONS OF OUR CHARTER, BYLAWS AND OUR NOTE AGREEMENT MAY DISCOURAGE
ACQUISITION BIDS AND CAUSE OUR COMMON STOCK TO TRADE AT A DISCOUNT TO WHERE IT
OTHERWISE MAY TRADE.

Our charter and bylaws contain provisions that may discourage acquisition
bids and may limit the price investors are willing to pay for our common stock.
Our charter and bylaws provide that:

- only one of the three classes of directors is elected each year;

- our stockholders cannot remove directors without cause;

- our stockholders cannot call special meetings of stockholders;

- our stockholders may not act by written consent in lieu of a meeting;

- a supermajority vote may be required to complete transactions with
holders of 10% or more of the aggregate voting power of our capital
stock; and

- advance notice is required for the stockholders to nominate directors or
submit proposals for consideration at stockholder meetings.

Our board of directors has the authority to issue up to 10 million shares
of preferred stock. The board of directors can fix the terms of the preferred
stock without any action on the part of our stockholders. The issuance of shares
of preferred stock may delay or prevent a change in control transaction or could
be used to put in place a poison pill. This may adversely affect the market
price and interfere with the voting and other rights of our common stock.

In addition, under the note purchase agreement relating to our $60 million
of 6.85% senior secured notes due June 30, 2003, a change in control would allow
the holders to require prepayment of some or all of the notes at 100% of their
principal amount plus a make-whole premium.

These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. As a result, they may limit
the price that some investors might be willing to pay in the future for shares
of our common stock. These provisions may also impede changes in our management.

15
<PAGE> 23

FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET PRICE.

Sales of a substantial number of shares of our common stock in the public
market after this offering, or the possibility that these sales may occur, could
cause the market price for our common stock to decline. These sales, or the
possibility that these sales may occur, also could make it more difficult for us
to sell our common stock or other equity securities in the future. See "Shares
Eligible for Future Sale" for more information.

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE OFFERING AND YOU COULD
LOSE ALL OR A PART OF YOUR INVESTMENT AS A RESULT.

There previously has been no public market for our common stock, and we
cannot predict the extent to which investor interest in us will lead to the
development of a liquid trading market. You may not be able to resell your
shares at or above the initial public offering price, which will be determined
through negotiations among us and the underwriters and may not be indicative of
prices that will prevail in the trading market.

The market price of our common stock may experience significant
fluctuations in response to:

- our operating results;

- changes in earnings estimates by securities analysts or our ability to
meet those estimates;

- news announcements regarding the oil and gas or related industries in
general or us or any of our customers or competitors;

- performance of similar companies in our industry; or

- other factors beyond our control.

The realization of any of the risks described in these "Risk Factors,"
including the possibility of substantial sales of our common stock, could cause
the market price of our common stock to decline significantly.

WE HAVE NO PLANS TO PAY, AND ARE CURRENTLY RESTRICTED FROM PAYING, DIVIDENDS ON
OUR COMMON STOCK; YOU WILL NOT RECEIVE FUNDS WITHOUT SELLING YOUR SHARES.

We have no plans to pay dividends in the foreseeable future. We intend to
invest our future earnings, if any, to fund our growth. Any payment of future
dividends will be at the discretion of our board of directors and will depend
upon, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual restrictions
applying to the payment of dividends, and other considerations that our board of
directors deems relevant. In addition, we are restricted from paying dividends
under our credit facility. Accordingly, you will have to sell some or all of
your shares of common stock in order to generate cash flow from your investment.
You may not receive a gain on your investment when you sell your shares and you
may lose the entire amount of your investment.

INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

Investors purchasing our common stock in this offering will incur immediate
and substantial dilution in net tangible book value per share. To the extent
that outstanding options to acquire our common stock are exercised, further
dilution will occur.

16
<PAGE> 24

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," contains forward-looking statements. These
statements relate to future events or our future financial performance,
including our business strategy and product development plans, and involve known
and unknown risks and uncertainties. These factors may cause our company's or
our industry's actual results, levels of activity, performance or achievements
to be materially different from those expressed or implied by the forward-
looking statements. These risks and other factors include those listed under
"Risk Factors" and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology.

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

When considering these forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this prospectus.

17
<PAGE> 25

USE OF PROCEEDS

We estimate that we will receive net proceeds of $33.2 million, or $38.4
million if the underwriters exercise their over-allotment option in full, from
the sale of shares of common stock offered by us in this prospectus, after
deducting underwriting discounts and commissions and estimated offering
expenses. This estimate assumes a public offering price of $16.00 per share,
which is the mid-point of the offering price range on the cover page of this
prospectus. We will not receive any proceeds from the sale of common stock by
the selling stockholders.

We intend to use the net proceeds from this offering during the next
eighteen months as follows:

- to expand our capacity to produce premium tubular connections in the
United States and Canada and to upgrade machine tools that we use in the
manufacturing of our pressure control products, at a total estimated cost
of between $30 and $40 million;

- to finance the continued development and commercialization of new,
advanced technologies and products, including subsea mudlift drilling
technology and advanced composite tubing, at a total estimated cost of
between $10 and $20 million; and

- to the extent of any remaining proceeds, to provide working capital for
the growth of our business.

Pending application of the proceeds for those purposes, we intend to invest
the excess cash in short-term investment grade securities, reduce our borrowings
under our revolving credit facility with Bank One Texas, National Association,
or a combination of both. The Bank One revolving facility matures July 1, 2001
and bears interest, at our election, at 0.75% over Bank One's prime rate or 2.5%
over LIBOR. At June 30, 2000, approximately $13.3 million was outstanding under
the Bank One revolving facility at a weighted average interest rate of 9.43%,
with another approximately $1.7 million available for borrowing, subject to
limitations.

DIVIDEND POLICY

We do not intend to declare or pay any dividends on our common stock in the
foreseeable future. Instead, we intend to retain any future earnings for use in
our business.

Our board will determine the payment of future dividends on our common
stock and the amount of any such dividends in light of:

- any applicable contractual restrictions limiting our ability to pay
dividends;

- our earnings and cash flows;

- our financial condition; and

- other factors our board deems relevant.

We are currently, and immediately following this offering will continue to
be, restricted from paying dividends under the terms of our credit facility. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" for additional information.

18
<PAGE> 26

DILUTION

Our net tangible book value at June 30, 2000 was approximately $82.4
million, or $4.25 per share of our common stock. Net tangible book value per
share represents our total tangible assets reduced by our total liabilities and
divided by the number of shares of common stock and class B common stock, in the
aggregate, outstanding. Dilution in net tangible book value per share represents
the difference between the amount per share that you pay in this offering and
the net tangible book value per share immediately after this offering.

After giving effect to the receipt of the estimated net proceeds from the
sale by us of 2,323,932 shares at an assumed public price of $16.00 per share,
our net tangible book value at June 30, 2000, would have been approximately
$115.6 million, or $5.33 per share of common stock or class B common stock. This
represents an immediate increase in net tangible book value per share of $1.08
to existing stockholders and an immediate decrease in net tangible book value
per share of $10.67 to you. The following table illustrates this dilution.

<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $16.00
Net tangible book value per share at June 30, 2000........ $4.25
Increase per share attributable to new investors.......... $1.08
-----
Net tangible book value per share after this offering....... $ 5.33
------
Dilution per share to new investors......................... $10.67
======
</TABLE>

The following table sets forth, as of June 30, 2000, the differences
between the amounts paid or to be paid by the groups set forth in the table with
respect to the aggregate number of shares of our common stock (including, in the
case of the existing stockholders, class B common stock) acquired or to be
acquired by each group.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER % AMOUNT % PER SHARE
------ - ------ - -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 19,379,040 85.1 $ 2,500,000 5.2 $ 0.13
New investors(1)............... 2,323,932 10.2 $37,182,912 76.8 $16.00
Option holders(2).............. 1,056,128 4.7 $ 8,698,688 18.0 $ 8.24
---------- ----- ----------- -----
Total................ 22,759,100 100.0 $48,381,600 100.0
========== ===== =========== =====
</TABLE>

---------------

(1) Before underwriters' commissions and our expenses and is based on an assumed
initial public offering price of $16.00 per share, the midpoint of the range
set forth on the cover of this prospectus.

(2) Includes 354,128 shares of common stock issuable upon exercise of options to
be granted to our officers, directors and employees upon completion of the
offering (based upon an assumed initial public offering price of $16.00 per
share) and 702,000 shares of class B common stock issuable upon exercise of
options previously granted to our officers.

If the underwriters' over-allotment option is exercised in full, the number
of shares of class B common stock held by existing stockholders will be reduced
to 13,451,708, or 61% of the aggregate number of shares of common stock and
class B common stock outstanding after this offering, and the number of shares
of common stock held by new investors will be increased to 8,600,000, or 39% of
the aggregate number of shares of common stock and class B common stock
outstanding after this offering.

19
<PAGE> 27

CAPITALIZATION

The following table presents our capitalization as of June 30, 2000, and
adjusted as of that date to reflect the sale of 2,323,932 shares of our common
stock in this offering and the application of the estimated net proceeds from
the offering. You should read the information below in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements.

<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 29,819 $ 62,999
======== ========
Current portion of long-term debt and capital leases........ $ 776 $ 776
======== ========
Long-term debt and capital lease obligations (excluding
current portion).......................................... $ 73,943 $ 73,943
Stockholders' equity(1):
Preferred stock, par value $1.00 per share, 10,000,000
shares authorized;
no shares outstanding, actual and as adjusted.......... -- --
Common stock, par value $0.50 per share, 75,000,000 shares
authorized;
no shares outstanding actual, and 7,500,000 shares
outstanding as adjusted............................... -- 3,750
Class B common stock, par value $0.50 per share,
32,000,000 shares authorized; and 19,379,040 shares
outstanding actual and 14,202,972 shares outstanding as
adjusted............................................... 9,690 7,101
Additional paid-in capital................................ -- 32,018
Retained earnings......................................... 73,452 73,452
-------- --------
Total stockholders' equity........................ 83,142 116,321
-------- --------
Total capitalization.............................. $157,085 $194,267
======== ========
</TABLE>

---------------

(1) Does not include 354,128 shares of common stock issuable upon exercise of
options to be granted to our officers, directors and employees upon
completion of the offering (based upon an assumed initial public offering
price of $16.00 per share) and 702,000 shares of class B common stock
issuable upon exercise of options previously granted to our officers. Share
and per share data have been retroactively restated to reflect the
reclassification of pre-offering shares of common stock into shares of class
B common stock and the dividend of five shares of class B common stock for
each share of class B common stock to be made prior to the offering.

20
<PAGE> 28

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Tubular................................... $ 66,687 $ 97,312 $111,472 $116,256 $ 75,362 $ 37,390 $ 46,002
Pressure control.......................... 56,399 69,646 106,635 122,956 84,063 40,871 44,254
-------- -------- -------- -------- -------- -------- --------
Total revenues.......................... 123,086 166,958 218,107 239,212 159,425 78,261 90,256
Cost of sales............................... 94,731 132,140 190,680 208,808 133,770 68,025 65,112
-------- -------- -------- -------- -------- -------- --------
Gross profit................................ 28,355 34,818 27,427 30,404 25,655 10,236 25,144
Selling, general and administration
expenses.................................. 23,070 25,823 32,945 41,048 33,404 17,483 16,473
Gain on sale of manufacturing facility(1)... -- -- 4,520 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)(2).................. 5,285 8,995 (998) (10,644) (7,749) (7,247) 8,671
Interest expense............................ -- 91 1,720 4,347 5,528 2,714 2,737
Other income (expense)...................... 2,586 3,848 21,539(3) (6,979)(4) 2,311 1,585 4,212
Provision (benefit) for income taxes........ 2,702 3,941 6,501 (7,470) (3,729) (2,848) 3,450
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... $ 5,169 $ 8,811 $ 12,320 $(14,500) $ (7,237) $ (5,528) $ 6,696
======== ======== ======== ======== ======== ======== ========
Income (loss) per share -- basic and
diluted(5)................................ $ 0.27 $ 0.45 $ 0.64 $ (0.75) $ (0.37) $ (0.29) $ 0.35
Weighted average shares outstanding(5)...... 19,385 19,385 19,385 19,384 19,379 19,379 19,379
OTHER DATA:
Capital expenditures........................ $ 5,713 $ 9,705 $ 28,444 $ 15,767 $ 8,790 $ 6,189 $ 3,440
Depreciation................................ 4,621 4,711 5,259 6,324 7,851 3,558 4,153
EBITDA(2)(6)................................ 9,906 13,706 4,261 (4,320) 102 (3,689) 12,824
Net cash provided by (used in) operating
activities................................ (3,745) 1,828 (28,111) (17,515) 10,184 5,558 2,439
Net cash provided by (used in) investing
activities................................ (14,726) (2,916) (10,098) (14,786) 6,314 8,915 178
Net cash provided by (used in) financing
activities................................ -- 5,265 47,443 27,723 (12,060) (9,109) 927
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................. $ 60,239 $ 63,781 $ 89,078 $ 97,227 $ 81,378 $ 90,654 $ 90,673
Property, net............................... 32,538 37,647 64,418 73,861 74,579 76,264 73,150
Total assets................................ 126,568 158,698 248,808 259,076 211,808 225,245 211,898
Long-term debt and capital leases, excluding
current portion........................... -- -- 27,028 76,244 73,039 76,018 73,943
Other long-term liabilities................. 14,928 15,169 15,535 18,137 18,011 18,351 17,842
Total stockholders' equity.................. 81,446 89,772 100,710 83,683 76,446 78,156 83,142
</TABLE>

21
<PAGE> 29

---------------

(1) We sold our Singapore manufacturing facility for $6.2 million in cash in
1997, resulting in a gain of approximately $4.5 million.

(3) Other income for 1997 was comprised primarily of a gain on the sale of our
interest in XLS Holding, Inc.. We obtained a 50% interest in XLS Holding,
Inc. in 1994 as a result of our settlement of litigation with XL Systems,
Inc. and in consideration for our licensing to XL Systems of several of our
patented thread connections. Our interest in XLS Holding was accounted for
using the equity method. In 1997, we sold our 50% interest in XLS Holding to
Weatherford International in exchange for Weatherford stock and recorded a
gain of $18.5 million.

22
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with
our consolidated financial statements included in this prospectus. The following
information contains forward-looking statements. See "Cautionary Statement About
Forward-Looking Statements."

OVERVIEW

We are a worldwide leader in engineering, manufacturing and marketing
premium tubular connections and pressure control products used for oil and gas
drilling and production. Demand for our products and services is cyclical and
substantially dependent on the activity levels in the oil and gas industry and
its willingness to spend capital on the exploration and development of oil and
gas reserves. The level of these capital expenditures is highly sensitive to
current and expected oil and gas prices. Our premium tubular connections are
marketed primarily to oil and gas operators, mainly for use in harsh
environments. Sales of premium tubular connections are driven by the level of
worldwide drilling activity, in particular deep-formation drilling and deepwater
drilling. We sell our pressure control products primarily to drilling
contractors, also for use in harsh environments. The main drivers for sales of
pressure control products are the level of construction of new drilling rigs and
the rate at which existing rigs are refurbished. Demand for our pressure control
aftermarket replacement parts, repair and field services is driven by the level
of worldwide drilling activity.

Beginning in late 1996, stabilization of oil and gas prices fueled
increased drilling activity and the construction of new drilling rigs and the
upgrade of many existing drilling rigs. During this period of increasing
activity, we expanded our premium tubular connection production capacity and
refurbished machine tools used in many of our premium tubular connection plants.
From 1997 to mid-1999, we spent $18.1 million to construct new premium tubular
connection manufacturing facilities in Indonesia and Mexico, and to expand and
upgrade an existing premium tubular connection manufacturing facility in
Houston, Texas that had been idle since 1986. Additionally, we implemented an
enterprise resource planning system in 1998 at a cost of $6.1 million.

In the second half of 1998 the price of oil began to fall and reached
levels as low as $10.44 per barrel for West Texas Intermediate crude compared to
over $25.00 per barrel in early 1997. The downturn in oil prices led our
customers to substantially curtail their drilling and exploration activity, as
well as the construction and refurbishment of drilling rigs, during the second
half of 1998 through 1999. The rig count in the United States and Canada, as
measured by Baker Hughes, fell from 1,481 rigs in February 1998 to 558 rigs in
April 1999. The rig count outside of the United States and Canada fell from 819
rigs in January 1998 to a low of 556 rigs in August 1999. This resulted in
substantially lower purchases of pressure control equipment and premium tubular
connections. In response to this lower demand for our products and services,
during 1999 we reduced our workforce in the United States by approximately 325
employees, or 20% of our total work force.

Since mid-1999, the price of oil has increased significantly due to OPEC
member countries reducing production and recovering worldwide demand for oil.
According to the Baker Hughes Rig Count, the United States average monthly rig
count for the first half of 2000 was 808 rigs, a 50% increase over the average
monthly rig count in the first half of 1999 of 537 rigs. The average monthly
Canadian rig count for the first half of 2000 was 362, an increase of 84% over
the average monthly Canadian count of 197 rigs for the same period in 1999.
These improvements in market fundamentals stimulated an increase in the demand
for our products in the United States and Canada, in particular premium tubular
connections and pressure control aftermarket replacement parts. We have not yet
seen a similar increase in orders for new pressure control capital equipment
because of the current low level of rig construction and refurbishment
worldwide. Demand for premium tubular connections outside of the United States
and Canada has also remained weak. The average monthly rig count outside of the
United States and Canada for the first half of 2000 was 602, compared to 609 for
the comparable period in 1999, a decrease of 1%.

23
<PAGE> 31

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

During 1999, approximately 60% of our revenues were derived from equipment
sales and services ultimately provided to end-users for use outside of the
United States and approximately 30% of our revenues were derived from products
that were produced outside of the United States.

We entered into fixed-price contracts primarily in 1996 and 1997 to provide
complete sets of pressure control equipment with related control systems. We
entered into the last of the remaining contracts in January 1999. We incurred
operating losses of $26.5 million in 1997, $27.5 million in 1998, and $3.7
million in 1999 relating to these fixed-price contracts. These fixed-price
contracts did not allow us to recoup all of our expenses from the design,
development and production of these integrated control systems which had no
prior prototypes. Deliveries of the remaining equipment are expected to occur in
2000. We expect to incur $1.5 million of operating losses in 2000 relating to
fixed-price contracts, which we recorded in the first quarter of 2000.
Generally, changes in contract performance conditions and estimated
profitability may result in revisions to estimated costs and income, and we
cannot assure you that we will not incur additional losses under fixed-price
contracts. We would only pursue new pressure control long-term projects that
would enable us to produce systems that we have previously designed and
manufactured.

Beginning in 1998, we replaced the management in our pressure control
segment, and we reorganized the segment on a functional basis with the goal of
reducing costs and increasing efficiency. Sales of pressure control products
represent approximately one-half our revenues, and we cannot assure you these
steps will result in reduced operating losses or profitability for the segment.

Revenues for our pressure control segment declined from $123.0 million in
1998 to $84.0 million in 1999. Through at least 2001, we expect our revenues
from pressure control products to continue to decline primarily because of the
currently low level of rig construction and refurbishment worldwide and the
completion of our remaining long-term projects. Excluding the project losses
discussed above, margins in recent periods for our pressure control business
have been low primarily because of excess capacity in the industry and higher
than expected engineering and production costs for some of our products.

Revenues. With the exception of revenues from pressure control long-term
projects, we record revenues for all products and services at the time such
products are delivered or services are provided. In 1999, 88% of our revenues
were recorded on this basis. For our pressure control long-term projects (which
are generally contracts from six to eighteen months in duration and an estimated
contract price in excess of $1 million), we recognize revenues using the
percentage-of-completion method, measured by the percentage of cost incurred to
estimated final cost. This method is used because we consider expended contract
costs to be the best available measure of progress on these contracts.
Provisions are made currently for the entire amount of anticipated losses on
uncompleted contracts. Changes in contract performance, conditions and estimated
profitability may result in revisions to estimated costs and income or loss and
will be recognized in the period in which those revisions are determined. It is
at least reasonably possible that estimates of contract costs could be revised
in the near term.

Gross Profit. Our gross profit is the difference between our revenues and
our cost of sales. Cost of sales for our products include purchased raw
materials and components, manufacturing labor, plant overhead expenses, a
portion of engineering expenses, and building and equipment depreciation. Our
fixed costs cause our margins to suffer when demand is low and manufacturing
capacity is underutilized. Also included in cost of sales are the cost of
product warranty, product liability insurance and last in, first out inventory
valuation adjustments. We do not take title to the tubulars we thread for the
United States and Canadian market, and therefore, own no inventories of tubulars
for sales in these countries. However, we purchase an inventory of tubulars for
fulfilling a portion of our existing orders outside of the United States and
Canada, which generate less than 10% of our total revenues. For our pressure
control products, we have inventory both internationally and domestically for
existing orders in process as well as a replacement

24
<PAGE> 32

parts inventory and some inventory for future capital equipment orders. A large
majority of our inventory is for our pressure control segment.

Selling, General and Administration Expenses. Our selling, general and
administration expenses include engineering expenses that relate to product
design, development and maintenance; and sales and marketing expenses, which
consists mostly of personnel and related expenses, marketing expenses, and
commissions paid to third-party agents selling our products. Also included are
general and administration expenses that relate to accounting, treasury,
information technology, human resources, legal expenses and corporate overhead.

Operating Income (Loss). Our operating income (loss) is gross profit less
selling, general and administration expenses. Operating income (loss) is
comprised of the operating income of each of our tubular and pressure control
segments and the portion of selling, general and administration expenses,
referred to as corporate administration, which are not allocated to either
segment.

Other Income (Expense). Our other income and expense includes investment
income from cash invested in short-term instruments and rental income generated
from leased properties not used in the operations of the business. Other income
and expense also have historically included gains and losses related to our
former investments in XLS Holding and subsequently in stock of Weatherford. In
1994, we obtained a 50% interest in XLS Holding as a result of the settlement of
litigation between Hydril and XL Systems and in consideration for our license to
XL Systems of several patented thread connections. Our investment in XLS Holding
was accounted for using the equity method. In 1997, we recorded a gain upon the
sale of our entire investment in XLS Holding to Weatherford in exchange for
Weatherford stock, a portion of which we sold later in 1997. In 1998, we
recorded a charge as a result of a permanent decline in the market value of the
Weatherford stock and the cost of purchased options to sell the stock. In 1999,
we recognized a slight gain when we disposed of the remaining Weatherford stock.

Information for our two segments is presented in the following table:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES
Tubular....................... $111,472 $116,256 $ 75,362 $ 37,390 $ 46,002
Pressure control.............. 106,635 122,956 84,063 40,871 44,254
-------- -------- -------- -------- --------
Total................. $218,107 $239,212 $159,425 $ 78,261 $ 90,256
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Tubular....................... $ 23,252 $ 25,073 $ 18,312 $ 9,678 $ 13,207
Pressure control.............. (15,361) (22,080) (16,216) (11,341) 1,322
Corporate administration...... (8,889) (13,637) (9,845) (5,584) (5,858)
-------- -------- -------- -------- --------
Total................. $ (998) $(10,644) $ (7,749) $ (7,247) $ 8,671
======== ======== ======== ======== ========
ASSETS
Tubular....................... $ 68,604 $ 72,643 $ 65,815 $ 68,450 $ 73,448
Pressure control.............. 97,487 118,185 82,513 94,426 72,543
Corporate administration...... 82,717 68,248 63,480 62,369 65,907
-------- -------- -------- -------- --------
Total................. $248,808 $259,076 $211,808 $225,245 $211,898
======== ======== ======== ======== ========
</TABLE>

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues. Revenues increased by $12.0 million, or 15%, to $90.3 million in
the six months ended June 30, 2000 from $78.3 million in the six months ended
June 30, 1999. Tubular revenues increased by $8.6 million, or 23%, and pressure
control revenues increased by $3.4 million, or 8%. The increase in

25
<PAGE> 33

tubular revenues was due to higher demand in the United States and Canada. The
increase in pressure control revenues was due to the relative stage of
completion of long-term projects in the first half of 2000 as compared to the
same period in 1999, and increased demand in the United States and Canada for
aftermarket replacement parts for pressure control equipment. However, as
discussed above, we expect pressure control revenues to decline through at least
2001 due to the completion of the long-term projects and the low level of new
capital equipment orders expected.

Gross Profit. Gross profit increased by $14.9 million, or 146%, to $25.1
million for the six months ended June 30, 2000 from $10.2 million for the same
period in 1999. Gross profit for tubular increased as a result of price
increases initiated in the second half of 1999 and 2000, and increased plant
efficiency from the relocation in July 1999 of our Houston threading plant from
our headquarters facility to our plant that had been idle since 1986. Gross
profit in pressure control increased because of higher sales of aftermarket
replacement parts that generated higher gross profits and smaller losses from
long-term projects. The increase in gross profit was also impacted by the
recording of a $9.0 million charge in the first half of 1999 to replace some of
our pressure control equipment. In 1999, our quality assurance department
detected that welds applied to some of our pressure control equipment were too
brittle for some drilling applications. These problem welds occurred only in a
metal alloy that was new to our manufacturing process. None of our customers
filed warranty claims or reported any adverse operational problems from the
affected pressure control equipment, and we are replacing all affected
equipment. Some of the affected pressure control equipment were still in our
manufacturing process and were also replaced.

Selling, General and Administration Expenses. During the first six months
of 2000, selling, general and administration expenses decreased by $1.0 million,
or 6%, to $16.5 million from $17.5 million in the 1999 period. This decrease was
primarily due to a reduction in engineering expense resulting from completion of
a significant portion of the engineering requirements associated with pressure
control long-term contracts. As a percentage of sales, selling, general and
administration expenses decreased from 22% in the first half of 1999 to 18% in
the first half of 2000.

Operating Income (Loss). Operating income increased by $15.9 million to
$8.7 million for the six months ended June 30, 2000 from a loss of $7.2 million
for the same period in 1999. Operating income for the first six months of 2000
for tubular increased by $3.5 million to $13.2 million from $9.7 million for the
same period in 1999. Operating income for pressure control increased by $12.7
million to $1.3 million from an operating loss of $11.4 million in the same
period in 1999. Corporate and administration expenses were $5.9 million in 2000
versus $5.6 million for the same period in 1999.

Interest Expense. Interest expense for each of the six months ended June
30, 2000 and June 30, 1999 was $2.7 million.

Other Income and Expense. For the six months ended June 30, 2000, other
income was $4.2 million and consisted of interest income received on invested
cash of $0.7 million and a legal settlement of $3.6 million related to our
purchase of put options to sell Weatherford stock. For the six months ended June
30, 1999, other income was $1.6 million, and included a $0.6 million gain on the
sale of property no longer used in operations, $0.6 million of interest income
from invested cash, $0.2 million of rental real estate income, and $0.3 million
from the sale of marketable securities.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

Revenues. Revenues decreased by $79.8 million, or 33%, to $159.4 million in
1999, from $239.2 million in 1998. Tubular revenues decreased by $40.9 million,
or 35%, and pressure control revenues decreased by $38.9 million, or 32%. The
decrease in our total revenues was due to a significant decline in demand for
both our tubular and pressure control products following the worldwide decrease
in drilling activity. Tubular revenues decreased in all our major worldwide
markets because of the industry downturn. United States tubular revenues
decreased 24% and non-United States tubular revenues decreased 41%. For 1999,
revenues from pressure control long-term projects declined by $20.8 million to
$18.9 million in 1999 from $39.7 million in 1998. Revenues from pressure control
equipment repairs and

26
<PAGE> 34

servicing decreased $9.0 million, or 51%, and revenues from aftermarket
replacement parts decreased $5.2 million, or 15%.

Gross Profit. Gross profit decreased $4.7 million, or 16%, to $25.7 million
for 1999 from $30.4 million in 1998. Gross profit decreased for tubular
connections due to a lower sales volume for tubular connections in both the
United States and international markets, and a one-time charge to replace some
of our pressure control equipment as a result of welds that were too brittle for
some applications. We accrued a $10.5 million pre-tax charge in 1999 to cover
the expense of correcting this problem, and we expect no significant charges for
2000. Losses from pressure control long-term projects were $22.6 million lower
in 1999 as compared with 1998 due to higher pricing on the projects completed
during the year.

Selling, General and Administration Expenses. For 1999, selling, general
and administrative expenses decreased by $7.6 million, or 19%, to $33.4 million
from $41.0 million in 1998. Engineering expense decreased by $0.9 million due to
lower requirements for pressure control equipment. Sales and marketing expense
decreased by $4.2 million because of decreased sales commissions given our lower
sales level. General and administration expense decreased by $4.4 million in
1999 due to a reduction in workforce and related costs in response to declining
business conditions, as well as reduced legal expense and a reduction in our bad
debt reserve. As a percentage of sales, these expenses increased to 21% in 1999
from 17% in 1998.

Operating Income (Loss). Operating loss for 1999 decreased by $2.9 million
to $7.7 million from 1998. Operating income for tubular connections decreased by
$6.8 million to $18.3 million in 1999, and the pressure control operating loss
decreased by $5.9 million from a loss of $22.1 million in 1998 to a loss of
$16.2 million in 1999. Corporate administration expenses were $9.8 million in
1999 versus $13.6 million in 1998.

Interest Expense. Interest expense increased $1.2 million from $4.3 million
in 1998 to $5.5 million in 1999 due to a full year of interest expense
associated with the $60 million aggregate principal amount of 6.85% senior
secured notes we issued in June 1998.

Other Income and Expense. For 1999, other income was $2.3 million and
included income from invested cash of $1.3 million, a gain on the sale of
surplus property of $0.6 million and a gain on the sale of marketable securities
of $0.3 million. For the year ended December 31, 1998, other expense was $7.0
million and included a $6.1 million charge as a result of a permanent decline in
the fair market value of marketable securities consisting of the Weatherford
stock held for sale, and a $2.7 million charge for the cost of purchase options
to sell these marketable securities, and partially offset by income on real
estate holdings of $1.1 million and income from invested cash of $0.9 million.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Revenues. Revenues increased by $21.1 million, or 10%, to $239.2 million in
1998 from $218.1 million in 1997. Tubular connections revenues increased by $4.8
million, or 4%, and pressure control revenues increased by $16.3 million, or
15%. Tubular connections revenues increased as a result of higher demand for our
connections outside the United States and Canada. Revenues for pressure control
long-term projects increased by $11.1 million from $28.5 million in 1997 to
$39.6 million in 1998 as a result of additional customer orders for pressure
control long-term projects.

Gross Profit. Gross profit increased $3.0 million, or 11%, to $30.4 million
for the year ended December 31, 1998 from $27.4 million for the same period in
1997. Gross profit for tubular connections increased as a result of higher sales
volumes outside the United States. For pressure control, gross profit decreased
as a result of higher manufacturing costs on the long-term projects resulting
from design changes and related production delays.

Selling, General and Administration Expenses. For 1998, selling, general
and administrative expense increased by $8.1 million, or 25%, to $41.0 million
from $32.9 million in 1997. Engineering expense increased by $1.0 million, or
19%, due to requirements to support higher equipment sales. Sales and marketing
expense increased by $2.2 million, or 13%, to support increased demand for
pressure control

27
<PAGE> 35

long-term projects. General and administration expense increased by $4.9
million, or 43%, due to additional bad debt reserves recorded in late 1998 to
cover potential losses arising from a fourth quarter 1998 industry decline,
higher consulting expenses incurred for projects to improve manufacturing
efficiency, and the implementation of the enterprise resource planning system
and related computer infrastructure. As a percentage of sales, these expenses
increased from 15% in 1997 to 17% in 1998.

Gain on Sale of Manufacturing Facility. During 1997, we sold our Singapore
manufacturing facility through a financial intermediary for $6.2 million in
cash, resulting in a gain of approximately $4.5 million.

Operating Income (Loss). Operating loss for 1998 increased by $9.6 million
to $10.6 million from an operating loss of $1.0 million in 1997. Operating
income for the tubular segment increased by $1.8 million to $25.1 million in
1998, and the pressure control operating loss increased by $6.7 million to a
loss of $22.1 million in 1998. Corporate administration expenses were $13.6
million in 1998 as compared with $8.9 million for 1997.

Interest Expense. Interest expense increased $2.6 million to $4.3 million
in 1998 from $1.7 million in 1997 as a result of interest paid on our senior
secured notes issued in June 1998.

Other Income and Expense. For 1998, other expense was $7.0 million and
included a $6.1 million charge as a result of permanent decline in the fair
market value of marketable securities, consisting of Weatherford stock held for
sale, and the $2.7 million cost of purchased options to sell these marketable
securities and offset by income from invested cash of $0.9 million and rental
income of $1.1 million. For 1997, other income was $21.5 million. In 1997, we
sold our 50% investment in XLS Holding to Weatherford International in exchange
for Weatherford stock and recorded a gain of $18.5 million. Also included in
other income in 1997 was $0.9 million of income from invested cash and $1.0
million of rental income.

QUARTERLY RESULTS OF OPERATIONS

Set forth below are quarterly unaudited results from operations for the
years ended December 31, 1998 and December 31, 1999, and the six months ended
June 30, 2000. This information is derived from our unaudited financial
statements that include, in our opinion, all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation in all material
respects of the financial position and results for the interim periods. This
information should be read in conjunction with our financial statements and the
notes to our financial statements appearing elsewhere in this prospectus. The
results of operations for the six months ended June 30, 2000 are not necessarily
indicative of results to be expected for the full year.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1999
-------------------------------------- --------------------------------------- 2000 2000
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $56,429 $60,448 $62,591 $ 59,744 $39,482 $38,780 $40,174 $40,989 $44,759 $45,497
Gross profit............ 11,768 11,974 11,233 (4,571) 9,067 1,169 8,297 7,122 11,919 13,225
Operating income
(loss)................. 3,574 3,199 833 (18,250)(1) 112 (7,359)(3) (27) (475) 3,883 4,788
Net income (loss)....... 1,462 1,096 (271) (16,787)(2) (13) (5,514)(3) (711) (999) 1,857 4,839(4)
Basic and diluted
earnings
(loss) per share....... 0.07 0.06 (0.01) (0.87) -- (0.28) (0.04) (0.05) 0.10 0.25
</TABLE>

---------------

(1) Includes expenses related to (a) additional bad debt reserves ($1,900) and
inventory obsolescence reserves ($2,800) recorded to cover potential losses
arising from a fourth quarter 1998 industry decline and (b) additional
reserves ($6,600) for pressure control project losses.

(2) Includes the decline in value ($8,882 pre-tax) of the Weatherford stock.

(3) Includes additional expenses of $9,000 to replace certain pressure control
equipment after we determined that the welds were too brittle for some
drilling applications.

(4) Includes a gain of $3,576 for the settlement of a dispute with a financial
institution from which the Company purchased put options in 1998.

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<PAGE> 36

Our quarterly operating results are subject to fluctuations and if we fail
to meet the expectations of securities analysts or investors in any quarter, our
share price could decline significantly. See "Risk Factors -- Risks Relating to
Our Business -- Our quarterly sales and earnings may vary significantly, which
could cause our stock price to fluctuate."

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading manufacturing facilities and capacity, to fund new
product development and to provide additional working capital. Our primary
source of funds have been cash flow from operations, proceeds from borrowings
under our bank facilities and a private placement of senior secured notes, and
reimbursement of costs related to the joint industry project in which we are
participating and government-funded research projects.

Cash used in operations in 1997 and 1998 was the result of increased
working capital requirements to support higher demand for our products and
services, and losses associated with pressure control long-term projects. Cash
provided by operations in 1999 was the result of a reduction in working capital
needs due to the downturn in the market. Cash provided by operations in the
first half of 2000 was the result of lower working capital requirements for the
U.S. and a $3.6 million cash receipt from a legal settlement related to our
purchase of put options to sell Weatherford stock.

Capital expenditures were $28.4 million, $15.8 million, $8.8 million, and
$3.4 million in 1997, 1998, 1999, and the six months ended June 30, 2000,
respectively. Capital expenditures during the three-year period from 1997 to
1999 included $18.1 million to construct new manufacturing facilities for
tubular connections in Indonesia and Mexico, and to relocate our Houston tubular
manufacturing facility. Additional capital expenditures of $6.1 million for an
enterprise resource planning system were incurred during 1997 and 1998. We
estimate that capital expenditures for the remainder of 2000 and 2001 will be
approximately $40 million, which will be used primarily to expand capacity and
continue the rebuild of our computer controlled threading machines in our
premium tubular connection manufacturing facilities worldwide.

In 1997, we sold a portion of the Weatherford stock obtained from the sale
of our 50% equity investment in XLS Holding for proceeds of $3.1 million. In
1999, we sold the remaining Weatherford stock for proceeds of $13.1 million.

In May 2000, we settled through mediation a dispute with a financial
institution related to our purchase of put options on marketable securities in
1998. As a result of this settlement, we received, after expenses, approximately
$3.6 million in May 2000. In July 2000, we sold certain real property not used
in our operations for proceeds of approximately $2.0 million, net of expenses
from the sale.

In a June 1998 private placement, we issued $60.0 million aggregate
principal amount of 6.85% senior secured notes due June 30, 2003. The primary
holder of the notes is Principal Mutual Life Insurance Company. The senior
secured notes may not be prepaid prior to maturity unless we pay the noteholders
a make-whole premium based on prevailing market interest rates, which as of June
30, 2000 would require a premium payment of $65,000. We also have a $15 million
revolving credit agreement with Bank One Texas, National Association, for
working capital requirements. The facility terminates on July 1, 2001. The
interest rate is prime plus 75 basis points or LIBOR plus 250 basis points.
Borrowings were $11.9 million as of December 31, 1999 and $13.3 million as of
June 30, 2000. The amount available for borrowing depends on our level of
accounts receivable, inventory and other assets. The senior secured notes and
the Bank One revolving credit agreement are both secured on an equal basis by a
pledge of accounts receivable, inventory, equipment, intellectual property,
material real property, and stock of our subsidiaries. The proceeds from the
note offering and borrowings under the credit facility were used to finance
expansion of our tubular connections plants in the United States and to fund
working capital requirements for our pressure control projects.

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<PAGE> 37

We also have two foreign lines of credit. We have an uncommitted line with
the Union Bank of Switzerland for $10 million which can be terminated at the
bank's discretion. The interest rate for this line of credit is LIBOR plus 100
basis points. We also have a committed line with Clydesdale Bank PLC, for $3.0
million, expiring February 28, 2001. The interest rate is the Bank of England's
base rate plus 150 basis points. There were no borrowings under either line as
of December 31, 1999 or June 30, 2000.

As of December 31, 1999 and June 30, 2000, we were in compliance with all
covenants and financial tests under our Bank One revolving credit agreement.
Under this agreement, we must maintain tangible net worth of not less than $75
million, plus 50% of net income since December 31, 1999, plus 100% of realized
proceeds from the issuance of any equity securities. We must also maintain a
debt-to-total capitalization ratio of not more than 55% and comply with an
interest coverage test of 1.5-to-1 through December 30, 2000 and 2-to-1
thereafter. We must also maintain cumulative earnings before interest, taxes,
depreciation and amortization of $12 million for the first nine months of 2000
and $17.5 million for the year ended December 31, 2000. In addition, our credit
agreement restricts us from paying dividends.

Our long term note agreement under which our 6.85% senior secured notes are
outstanding, has one financial event of default covenant, under which we must
maintain a tangible net worth of $75 million. As of December 31, 1999 and June
30, 2000, we were in compliance with this covenant. Additional financial tests,
if not passed, restrict our ability to incur additional indebtedness and make
acquisitions, investments and restricted payments, such as pay dividends and
repurchase capital stock. We currently satisfy each of these financial tests. A
change in control would allow the holders to require prepayment of some or all
of the notes at 100% of their principal amount plus a make-whole premium based
on prevailing market interest rates, which as of June 30, 2000 would require a
premium payment of $65,000.

Our subsea mudlift drilling project is funded by a group of leading oil and
gas companies headed by Conoco. Our expenditures to design and manufacture the
prototype equipment are reimbursed by Conoco on a monthly basis. We have
contributed approximately $1.7 million of the $13.0 million in total joint
industry project expenditures to date. We anticipate contributing approximately
$0.3 million of the approximately $32 million remaining total joint industry
project expenditures budgeted prior to the production stage. We anticipate that
our total remaining expenditures for the project through the end of 2001
(including the $0.3 million) will be approximately $5.0 million, all of which we
expect to fund from net proceeds from this offering. However, if, as has
happened in the past, project participants withdraw from the project, we may
have to contribute more than $0.3 million. The majority of our costs to develop
the advanced composites technology were funded by the National Institute of
Science and Technology, a federal agency. These expenditures are reimbursed on a
quarterly basis.

We are financing the cost of equipment and completed consulting contracts
with IBM over a five-year period beginning June 1997 through notes bearing
interest at rates ranging from 4.9% to 7.6% per annum. These contracts were for
equipment and consulting related to the implementation of our enterprise
resource planning system in 1998. The aggregate principal amount of notes
outstanding at December 31, 1999 was $1.3 million.

In each of 1997 and 1998, we paid dividends of $0.10 per share, or $1.9
million in total per year. Since 1999, we have been effectively precluded from
paying dividends under the terms of our long-term note agreement. We have no
plans to declare or pay any dividends on our common stock or our class B common
stock for the foreseeable future.

Our primary needs are to fund capital expenditures, to further develop and
expand new product lines, and to provide additional working capital. We intend
to use the proceeds from this offering to expand our capacity to produce premium
tubular connections in the United States and Canada and to upgrade machine tools
that we use in the manufacturing of our pressure control products at a total
estimated cost of between $30 and $40 million. In addition, proceeds will be
used to finance the continued development and commercialization of new, advanced
technologies and products, including subsea mudlift drilling technology and
advanced composite tubing at a total estimated cost of between $10 and $20
million, and for working capital.

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<PAGE> 38

We believe that the proceeds of this offering, cash from operations, and
available borrowings under our credit facility and lines of credit will be
sufficient to meet our liquidity needs for approximately the next eighteen
months. If our plans or assumptions change or are inaccurate, or we make any
acquisitions, we may need to raise additional capital. We have had negative or
little cash flow during several recent periods. We may seek to raise any funds
we need through public or private debt or equity offerings. If we raise funds
through the issuance of equity securities, the percentage ownership of our
then-current stockholders may be reduced and the holders of our new equity
securities may have rights, preferences or privileges senior to those of our
common stock. If we obtain funds through a bank credit facility or through
issuance of debt securities or preferred stock, this indebtedness or preferred
stock would have rights senior to the rights of our common stock, and their
terms could impose significant restrictions on our operations. If we need to
raise additional funds, we may not be able to do so on favorable terms, or at
all. If we cannot obtain adequate funds on acceptable terms, we may not be able
to carry out our business strategy.

BACKLOG

Our backlog at December 31, 1999 and June 30, 2000 was approximately $44.3
million and approximately $37.2 million, respectively. Our backlog consists of
firm customer purchase orders for which satisfactory credit or financing
arrangements exists and delivery is scheduled. We include in backlog orders for
tubular connections, pipe for international orders, pressure control capital
equipment and projects, and a small amount of pressure control aftermarket
replacement parts not in inventory. The reduction in backlog was due to
shipments of pressure control equipment and completion of pressure control
long-term projects. Included in backlog at June 30, 2000 are $1.3 million of
long-term contracts which we expect to complete in 2000. Except for the backlog
of pressure control products and projects, we do not consider backlog a
meaningful measure of business prospects.

TAX MATTERS

For the year ended December 31, 1999, we had deferred tax assets, net of
deferred tax liabilities, of $17.7 million. These assets are benefits to us as
long as we expect to have sufficient future income in the United States. Net
operating loss carryforwards, or NOLs, total approximately $15.0 million and
must be used entirely before the foreign tax credits, which total approximately
$5.5 million, can be used. The NOLs will expire in years through 2019. The
foreign tax credits will expire in years through 2004. We would lose the benefit
of our NOLs if we were to have a change of control. Section 382 of the Internal
Revenue Code of 1986, as amended, limits the ability of a corporation that
undergoes an "ownership change" to use its net operating losses to reduce its
tax liability. Although we believe that this offering will not trigger such an
ownership change, it is possible that a future offering of our common stock or
future transfers of our common stock will trigger an ownership change. In that
event, we would not be able to use our pre-ownership-change net operating losses
in excess of the limitation imposed by Section 382.

Management projections indicate that sufficient income will be generated in
future years to absorb the tax assets and therefore no valuation allowance was
required.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 requires an entity to recognize all
derivatives as an asset or liability measured at its fair value. Depending on
the intended use of the derivative, changes in its fair value will be reported
in the period of change as either a component of earnings or a component of
other comprehensive income. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Earlier application of SFAS 133 is
encouraged, but not prior to the beginning of any fiscal quarter that began
after issuance of the Statement. Retroactive application to periods prior to
adoption is not allowed. We have not completed the process of evaluating the
impact that could result from adopting SFAS 133.

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<PAGE> 39

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk. We have long-term debt and revolving lines of credit
subject to the risk of loss associated with movements in interest rates.

At December 31, 1999, we had $60 million of fixed rate senior notes, having
a fair value of $58.5 million. This instrument is fixed-rate and therefore, does
not expose us to the risk of earnings loss due to changes in interest rates.
However, the fair value of this instrument would increase by approximately $1.4
million if interest rates were to decline 10% from their level at December 31,
1999. In general, such an increase in fair value would impact earnings and cash
flows only if we were to reacquire a portion of this instrument prior to
maturity.

Our floating rate obligations aggregated $13.2 million at December 31, 1999
which include amounts borrowed under our U.S. revolving line of credit and our
long-term note payable. These floating-rate obligations expose us to the risk of
increased interest expense in the event of increases in short-term interest
rates. If the floating rates were to increase by 10% from December 31, 1999
levels, our consolidated interest expense would increase by a total of $10,100
per month.

At December 31, 1999 and at June 30, 2000, we did not hedge interest rate
exposure.

Foreign currency exchange rate. Our operations are conducted in certain
countries around the world in a number of different currencies. As such, future
earnings are subject to change due to changes in foreign currency exchange rates
when transactions are denominated in currencies other than our functional
currency, the U.S. dollar. In order to mitigate the effect of exchange rate
changes, a substantial portion of our contracts provide for collections from
customers in U.S. dollars. For 1999, 52% of the sales from our foreign
operations were in U.S. dollars and an additional 35% of sales from these
operations were in local currency but based on the exchange rate for the U.S.
dollar at the time of shipment.

We had no foreign currency denominated borrowings outstanding at December
31, 1999 or June 30, 2000.

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<PAGE> 40

BUSINESS

We are a worldwide leader in engineering, manufacturing and marketing
premium tubular connections and pressure control products used for oil and gas
drilling and production.

OUR BUSINESS STRATEGY

- Focus on a portfolio of premium, high value added products. We will
continue to focus on developing and manufacturing a portfolio of premium,
highly engineered products required for the drilling and production of
oil and gas in harsh environments. We believe that this focus will allow
us to continue to differentiate our products and services and enhance our
ability to achieve growth with attractive margins.

- Develop new proprietary technologies and products. We have grown
primarily through the introduction of new technologies and products. As
oil and gas operators shift their drilling focus towards deeper
geological formations and deepwater reserves in order to meet demand for
oil and natural gas, new technological developments will be needed to
economically and safely develop these reserves. We intend to continue to
grow by focusing our research and development efforts on these
opportunities and developing leading-edge technologies and product
solutions for our customers.

- Emphasize product quality and capitalize on brand loyalty. Customers
emphasize quality and reliability when selecting premium tubular
connections and pressure control equipment due to the high performance
and safety requirements for these products. Because of our focus on
quality and reliability, we believe we have established considerable
brand loyalty among our customers. We also believe that our brand name
facilitates market acceptance of new technologies and products we develop
and enhances our ability to maintain and gain market share.

- Operate our business globally. We intend to continue to deploy and expand
our facilities in selected strategic locations worldwide, including in
Brazil, Canada and the United States, to enhance our ability to serve the
increasingly global needs of our existing customers and facilitate access
to new geographic markets.

- Expand our business through selective acquisitions. We will seek
acquisitions that are complementary to our business and are able to
provide us with technologies or product lines that will enhance our
product and service offerings and technical expertise.

OVERVIEW OF OUR INDUSTRY

Demand for oilfield products, such as premium tubular connections and
pressure control equipment, is cyclical in nature and depends substantially on
the condition of the oil and gas industry and its willingness to spend capital
on the exploration and development of oil and gas. The level of these capital
expenditures is highly sensitive to existing oil and gas prices as well as the
oil and gas industry's view of such prices in the future. Increasing commodity
prices generally result in increased oil and gas exploration and production,
which translates into greater demand for oilfield products and services.
Conversely, falling commodity prices generally result in reduced demand for
oilfield products and services. Historically, changes in budgets and activity
levels by oil and gas exploration and production companies have lagged
significant movements in oil and gas prices.

Drilling activity was depressed in 1999 due to a reduction by oil and gas
operators of their capital expenditures in response to a 1998 collapse in oil
prices. Oil prices began to recover in the second quarter

33
<PAGE> 41

of 1999 primarily because OPEC stabilized oil prices through voluntary
production limits, which resulted in reduced oil inventories worldwide. Natural
gas prices in North America also strengthened considerably over this same time
as reduced drilling activity resulted in lower supply of natural gas. In
response to higher commodity prices, operators have increased their spending
budgets for 2000.

In recent years, the focus of drilling activity has been shifting towards
the less explored deeper geological formations and deepwater locations which
offer potentially prolific reserves. Operators have also increasingly relied on
advanced drilling technologies such as horizontal drilling to improve production
and recovery rates of oil and gas reservoirs. Demand for premium tubular
connections and advanced pressure control products is impacted by these changing
depth and drilling trends. We believe that the level of drilling activity in the
harsh environments that require these products will continue to grow as oil and
gas operators increasingly target deeper geological formations, shift their
exploration offshore and apply horizontal drilling techniques.

Market for Premium Tubular Connections

Tubular connections join sections of well casing, production tubing and
drill pipe which are different types of pipe, all known as tubulars, used in
various stages of drilling and production. The premium tubular connections
market is driven primarily by the number of wells drilled deeper than 15,000
feet. The majority of such wells have been drilled in North America to explore
and develop deep gas formations. Wells drilled over 15,000 feet require
substantially more premium connections than shallower wells. The following table
shows the number of wells drilled over 15,000 feet in the United States during
the years 1995 through 1999, and, according to Spears & Associates, estimated
for the years 2000 and 2001:

<TABLE>
<CAPTION>
NUMBER OF WELLS DRILLED
YEAR OVER 15,000 FT
---- -----------------------
<S> <C>
1995........................... 548
1996........................... 690
1997........................... 871
1998........................... 861
1999........................... 660
2000 (estimated)............... 764
2001 (estimated)............... 827
</TABLE>

The number of horizontal wells, which require connections with enhanced
mechanical characteristics drilled both onshore and offshore around the world,
also drives the market for premium tubular connections.

Premium tubular connections are also required for drilling in
environmentally sensitive areas. Oil and gas companies operating in locations
where environmental laws and regulations require a particularly high degree of
environmental safety, such as California, Alaska and Canada, might utilize
premium connections due to their superior sealing capability and reliability. As
environmental awareness increases worldwide, and as governments open for
exploration new environmentally sensitive areas, we believe demand for premium
tubular connections in such areas will likely continue to increase.

Market for Pressure Control Equipment

Pressure control products include a broad spectrum of equipment and parts
required for outfitting new drilling rigs and upgrading and maintaining existing
rigs. Demand for pressure control products depends on the level of construction
of new rigs and the replacement and upgrading of equipment for existing rigs. In
addition, as a result of the high level of wear and tear during operation,
pressure control equipment requires frequent maintenance and technical support
services.

The rig equipment market experienced strong growth in the most recent
mobile offshore rig construction up cycle which peaked midway during the 1996
through 1999 time period, driven by an upturn in drilling rig utilization. In
July 1998, there were 68 mobile offshore rigs under construction

34
<PAGE> 42

compared to 5 mobile offshore rigs in January 1996. While the level of new rig
construction and demand for equipment have declined during the recent year with
the number of mobile offshore rigs under construction totaling 26 in May 2000,
demand for replacement parts and equipment has been less volatile. The trend
towards drilling in deeper water creates a need for new types of pressure
control equipment. Without such new equipment, exploration and production of
many deepwater reserves may not be economically viable.

OUR PREMIUM TUBULAR CONNECTIONS BUSINESS

We manufacture and market premium tubular connections for casing,
production tubing and drill pipe. We also provide technical solutions and field
support services to address specific customer needs in the design, selection and
maintenance of tubular connections.

A conventional oil or gas well is drilled by attaching a drill bit to the
end of a series of sections of drill pipe joined by threaded connections.
Threaded connections are similar to the grooves on a bolt and enable sections of
drill pipe to be screwed together. Once connected, the drill pipe may be up to
several miles long, commonly referred to as a drill string. The entire drill
string must be removed from the well numerous times during the drilling process
to replace dull drill bits and accomplish other tasks. Removing the drill string
requires the disassembly and reassembly of the entire drill string. As a result,
threaded connections for drill pipe must be engineered to withstand numerous
assemblies without compromising the integrity of the connections. When the well
reaches sufficient depths during drilling, the drill string is pulled out of the
well and sections of larger diameter pipe known as casing, also joined by
threaded connections, are inserted into the well and cemented in place to
prevent the well from collapsing. Drilling is resumed until the next target
depth is reached and the process is repeated. Most wells use multiple concentric
casing strings that fit inside one another. The casing diameter reduces as depth
increases. Once the well has been drilled to the desired depth and cased,
production tubing is placed inside the casing. The production tubing also
consists of multiple sections of pipe that are joined with threaded connections.
In a completed well, oil and natural gas pass up through the production tubing
to the top of the well.

Casing, production tubing, and drill pipe are the types of oilfield
tubulars for which we produce premium connections. The term "premium" refers to
a proprietary, precision manufacturing process employed to produce a product
with performance characteristics superior to those of standard industry
connections. Premium connections can withstand extreme conditions encountered in
deepwater offshore wells and deep gas wells, as well as in horizontal well
drilling. They also provide pressure tight, highly reliable sealing necessary
for environmentally sensitive drilling. The technical complexity of these
premium connections requires a high degree of accuracy during manufacturing and
substantially more machining and inspection time than standard connections.

We utilize custom-designed, computer controlled machines in our premium
connection manufacturing facilities worldwide. All of our machine programs are
created and maintained on a central system in our technology center in Houston,
Texas and transmitted to each of our nine tubular connection manufacturing
locations worldwide. As a result, all Hydril connections of a particular type,
regardless of manufacturing location, are substantially identical, ensuring
interchangeability. We have completed the rebuild of approximately 70% of our 54
computer controlled machines and expect to rebuild the remaining machines by the
end of 2001.

To meet customer needs, we provide a full line of premium tubular
connection products and accessories, including connections for pipe of
nonstandard size or weight. Our various premium tubular connections exhibit
various high performance characteristics, such as:

- Tension resistance. Our premium integral thread designs have high tension
strength, which supports the weight of numerous sections of pipe strung
together in deep wells.

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<PAGE> 43

- Torque capability. Our premium thread connections, in particular our
proprietary Wedge Thread(TM) connections, are designed to have torque
capability that approaches pipe body strength in casing applications and
surpasses it in most drill pipe and tubing applications. This design
prevents connection damage due to overtorque, facilitates easier assembly
and disassembly and reduces wear and tear from recurring service to the
pipe.

- Compression and bending flexibility. Our premium threads are designed to
permit greater compression and bending of pipe strings than standard
connections which is particularly important in horizontal and
extended-reach wells.

- Clearance. Our integral connections are machined directly onto the pipe,
forming a smooth connection with little or no increase in diameter of the
pipe. Coupled connections, on the other hand, use a bulkier third pipe,
or coupling, to make a connection, resulting in less clearance inside the
well. This integral quality is particularly important in deep drilling
where well diameters become increasingly narrow because multiple strings
of casing, production tubing, or drill pipe are utilized in one well.

- Pressure tight sealing. Our metal-to-metal pressure tight sealing is
designed to prevent both gas and fluid leakage, a critical factor in the
case of extreme pressure and environmentally sensitive drilling.

- Corrosion resistance. Our plastic-coated tubing connections reduce
corrosion damage and extend the useful life of the connection.

- Uniformity and compatibility. Our connections are manufactured worldwide
with the same design, high tolerance specifications, and centrally
manufactured tools and gauges, which improves product uniformity and
compatibility.

We offer our customers technical services related to casing and tubing
string design. Computer well design software is utilized in the design and
specification of the tubulars and the thread connections. In addition, we offer
highly trained field service technicians to assist our customers worldwide. We
have 29 licensed repair facilities worldwide to support our tubular connections
business.

OUR PRESSURE CONTROL BUSINESS

We provide a broad range of pressure control equipment used in oil and gas
drilling, and well completion and maintenance. Our products regulate formation
and drilling fluid pressure during normal operations and prevent well blowouts
when the pressure of formation fluids and gases reaches critical levels.

The oil, gas and water contained in the geological formations into which a
well is drilled can be under extremely high pressure. This pressure increases
with greater water and drilling depth. When unanticipated formation pressure is
encountered, the pressure must be controlled to prevent an uncontrolled release
of the fluids and gases from the well, known as a "blowout." A blowout can have
catastrophic consequences, as the oil and natural gas may ignite or the
equipment and tubulars in the well may be suddenly propelled out of the well,
potentially resulting in injury or death of personnel, destruction of drilling
equipment, or environmental damage. Blowouts can cause the loss of a well and
significant downtime and additional expense. During drilling and maintenance
operations, it is therefore essential to regulate the pressure, and to provide
for mechanical safeguards to minimize the effects.

Our pressure control products include blowout preventers, diverters, gas
handlers, control systems, drill stem valves, production chokes, pulsation
dampeners and a variety of specialized elastomer products. We also provide
integrated pressure control systems, which typically include a series of blowout
preventers stacked on top of one another, along with other types of valves,
diverters and gas handlers, all of which are regulated through an
electro-mechanical control system. In addition, we provide replacement parts,
repair and field services to maintain our installed base of products.

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<PAGE> 44

Pressure Control Products

Blowout preventers. The key component of a pressure control system is a
high-pressure valve located at the top of the well called a blowout preventer.
When activated, blowout preventers seal the well and prevent fluids and gases
from escaping. Blowout preventers are safety devices and are activated only if
other techniques for controlling pressure in the well are inadequate.

We manufacture two types of blowout preventers:

- Annular blowout preventers, which we invented more than 65 years ago,
seal the well by hydraulically closing a large rubber collar around the
drill pipe or against itself if nothing is in the well.

- Ram blowout preventers seal the well by hydraulically driving metal rams
against each other across the top of the well; our ram blowout preventers
feature a new compact version that is designed for both rig upgrades and
new builds where space is limited.

Diverters. Diverters are safety devices used to redirect or vent the
uncontrolled flow of formation fluids and gases in a controlled manner during
offshore drilling operations. A diverter is used during drilling when there is a
danger of penetrating pressurized gas zones. Our diverters incorporate a
patented integral vent design that reduces the need for peripheral devices
normally required for the use of diverters.

Gas Handlers. In 1999, we introduced the first gas handler, a device which
is used in deepwater drilling operations to contain and vent excess gas from the
tubing system that connects the top of the well at the sea floor to the drilling
rig. Our proprietary design controls the release of any rapidly expanding gas
bubble rising to the surface through the tubing system that may endanger the
environment, personnel and the rig.

Drill Stem Valves. Manually operated drill stem valves are placed in the
drill string to control well pressure in order to prevent blowouts and drilling
fluid spillage during the installation and removal of drilling pipe. Our drill
stem valves incorporate automatic pressure balancing, which we were the first to
develop, that minimizes the torque required to operate them under pressure.

Pulsation Dampeners. Pulsation dampeners counterbalance the pulsing of
pressure fluids through pipelines that cause vibrations which may damage
pipework and valves. In addition to oilfield applications, our pulsation
dampeners are used in airport refueling systems and chemical refinery and
processing plants. Our pulsation dampeners have a field replaceable bottom
plate, which we were the first to develop, that reduces the number of costly
shop repairs.

Production Chokes. Production chokes are used to regulate the flow of oil,
gas and other formation fluids from producing wells with high pressures, high
flow rates and corrosive fluids. Our production chokes use a proprietary nozzle
configuration that reduces internal erosion from produced sand and debris
associated with many oil and gas wells.

Elastomers. Our line of rubber products includes parts used in annular and
ram blowout preventers, pulsation dampeners and other equipment. We specialize
in bonding rubber to metal and offer a wide variety of elastomer products in a
full range of sizes, pressure ratings and elastomer types.

Integrated Systems. Our pressure control systems integrate blowout
preventer equipment and other pressure control products with control systems,
usually for use in deep offshore, high pressure wells. Our systems use advanced
software, micro-electronics and materials technology and are capable of
operating in water depths of up to 10,000 feet. Our integrated pressure control
systems are primarily sold for use in connection with the construction or
refurbishment of drilling rigs.

Aftermarket Products and Services

Our aftermarket business is supported by our growing installed base of
pressure control products. Because our products are subjected to harsh drilling
conditions, they frequently require repair and

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<PAGE> 45

maintenance services, which include replacement parts for those consumed during
the drilling operation. We manufacture metal replacement parts, including ram
blocks, pistons, cylinders, seal seats and valves. Elastomer replacement parts
manufactured and sold include packing units for ram and annular blowout
preventers and seal kits. We also have a staff of field service personnel who
assist customers on site in the proper installation and use of our products.

We provide our aftermarket services through 9 domestic and 11 international
repair facilities owned by us, and through 19 authorized repair facilities.

OUR EMPHASIS ON RESEARCH AND DEVELOPMENT

We emphasize both the development of new products and the continuous
redesign and improvement of our existing products. We consider ourselves to be a
leader in the development of new technology and equipment designed to enhance
the productivity and safety of the drilling and production process in harsh
drilling environments.

Our current research and development efforts are primarily focused on
improvements in threaded connections, products for use in conjunction with
subsea mudlift drilling and advanced composite tubing. As of June 30, 2000, we
employed 64 persons on our engineering and design staffs, including mechanical,
electrical and software engineers, who were principally engaged in product
development and engineering research and development.

We believe that, in addition to the technical competence and creativity of
our employees, the success of our business depends on intellectual property
protection. As part of our ongoing research, development and manufacturing
activities, we have a policy of seeking patents, when appropriate, on inventions
concerning new equipment and product improvements. We hold numerous United
States and international patents and have numerous patent applications pending.
As we redesign and improve existing products, we are often able to obtain
extensions of patent lives beyond their original duration. In addition, our
trademarks are registered in the United States and various foreign countries.
Our competitors may be able to independently develop technology that is similar
to ours without infringing on our patents, and we may be unable to successfully
protect our intellectual property.

Although in the aggregate our patents and trademarks are important to the
manufacturing and marketing of many of our products, we do not consider any
single patent or trademark or group of patents or trademarks to be material to
our business as a whole. We also rely on trade secret protection for our
confidential and proprietary information. We routinely enter into
confidentiality agreements with our employees and suppliers. There can be no
assurance, however, that others will not independently obtain similar
information or otherwise gain access to our intellectual property.

Subsea Mudlift Drilling. We are currently developing, in conjunction with
major oil and gas companies and drilling contractors, a system of equipment and
drilling procedures which we believe will facilitate the exploration and
development of oil and gas reserves in geologic formations found in ultra-deep
water in excess of 7,000 feet. Conoco is the project leader and we are the
technical leader, designer and equipment manufacturer for this joint industry
project formed in 1996. Currently, six other companies are participating in the
joint industry project, including BP Amoco, Chevron, Texaco, Diamond Offshore,
Global Marine and Schlumberger. We have production rights to the technology
being developed in the project for this field of use and for the life of the
intellectual property. We have contributed approximately $1.7 million of the $13
million in total joint industry project expenditures to date. We anticipate
contributing approximately $0.3 million of the approximately $32 million
remaining expenditures budgeted prior to the production stage. In the past, some
participants in the project have withdrawn, and other participants could
withdraw prior to completion. If future withdrawals occur, we may have to
contribute more than $0.3 million. The project is in the development stage, and
a test well is scheduled to be drilled during 2001. There are two other groups
of companies in our industry that are also developing competing technologies for
deepwater drilling.

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<PAGE> 46

Available floating rigs and conventional drilling equipment cannot
efficiently tap the potentially prolific reservoirs found in ultra-deep waters.
During drilling, heavy fluids, known as drilling muds, are circulated under
pressure into the well to transport debris from the drilling process out of the
well. Drilling muds are the primary mechanism for controlling formation fluid
pressure and are mixed to varying weights that increase as the relevant
formation pressure increases to offset the formation pressure and prevent the
collapse of the well. The principal barrier to drilling in these formations
relates to the weight of the drilling mud circulating in the drilling system
which exerts excessive levels of pressure that may damage the geologic formation
and limit the amount of oil and gas that can be extracted. A potential solution
to this problem being pursued by our industry project is to have critical
components of the drilling mud recirculation system reside on the sea floor and
pump the mud from the sea floor, rather than from the rig. For this reason, the
joint industry project is called subsea mudlift drilling. Subsea mudlift
drilling should reduce the number of casing strings needed, increase production
rates and well diameter, and facilitate more demanding completions such as
horizontal wells. In addition, subsea mudlift drilling should enable better
control of well pressure, resulting in fewer pressure surges and fewer problems
with the circulation of drilling mud, with less equipment in the well.

Advanced Composite Tubing. At the end of 1999, we introduced an advanced
composite tubing product line as a cost-effective alternative to steel pipe used
in flowlines. Our advanced composite tubing is lightweight, flexible, resistant
to corrosion and fatigue, and can be produced in spoolable lengths up to several
thousand feet. Because it can be produced in such extensive lengths, advanced
composite tubing reduces the number of connections needed and is therefore
easier to install and is less expensive than other alternatives. This advanced
composite tubing is being marketed for use in transporting oil and gas both out
of the well and from the wellhead to storage facilities. We plan to make
additional diameter sizes and pressure ratings available within this product
line and are currently seeking other commercial applications for this product.
Companies with greater financial and marketing resources than us have already
developed and are selling proprietary tubing similar to our advanced composite
tubing.

OUR CUSTOMERS AND DISTRIBUTION

The end-users for our products are primarily major and independent,
domestic and international oil and gas companies, as well as drilling
contractors. During 1999, we sold products and services to approximately 1,500
customers, only one of which, Transocean Sedco Forex at 13%, accounted for more
than 10% of our consolidated revenues. For the first half of 2000, Ensco
Offshore, at 12%, accounted for more than 10% of our consolidated revenues. Each
of our tubular connections and pressure control products segments has its own
specialized sales staff, which enhances our sales personnel's knowledge of the
products they sell and the specific needs of the different end-users.

Premium Tubular Connections. In the United States and Canada, we sell our
premium tubular connection products primarily to a number of steel pipe
distributors who purchase the pipe from steel mills. However, we market our
tubular connections to the end-users, primarily oil and gas operators, because
it is the end-users who request that their distributors have our premium
connections applied to the pipe. Due to the use of distributors, we do not own
the pipe we thread and do not maintain an inventory of threaded or unthreaded
tubulars. Distributors tend to be less well established and present a higher
credit risk than the end-users.

Outside of the United States and Canada, we primarily sell our tubular
connections directly to oil and gas operators and trading companies. In these
markets, we thread tubulars owned by customers, as well as purchase tubulars for
threading and resale. As a result, we maintain a small inventory of tubulars for
our operations outside of the United States and Canada. Our premium tubular
connections are sold for use in 46 countries by our U.S. customers operating
abroad and by international customers. In 1999, one customer accounted for 21%
of our total sales of premium tubular connections, and our ten largest customers
in that segment accounted for 65% of segment sales. In the first half of 2000,
our four largest premium tubular connection customers accounted for 17%, 15%,
14% and 13% of segment sales. In the first half of 2000 our ten largest premium
tubular connection customers accounted for 70% of total segment sales.

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<PAGE> 47

Our premium tubular connection sales staff is managed from Houston, Texas
and consists of 37 sales employees located in 19 offices in the United States,
Canada, Indonesia, Singapore, Mexico, Nigeria, the United Arab Emirates and the
United Kingdom. We use manufacturer representatives in 42 countries worldwide.

Pressure Control Products. Pressure control products are sold both
domestically and internationally primarily to drilling contractors, although we
market our pressure control products to both operators and drilling contractors.
Certain lines of our pressure control equipment are also sold to rig
manufacturers, integrators of equipment and well operators. Aftermarket
replacement parts, repair and field services are provided to both drilling
companies and companies that rent pressure control equipment. We market our
pressure control products through our direct sales force, distributors and
authorized representatives. Our pressure control products are sold for use in 43
countries. In 1999, one customer accounted for 24% of our total sales of
pressure control products, and our ten largest customers in that segment
accounted for 53% of segment sales. In the first half of 2000, one pressure
control customer accounted for 19% and another customer accounted for 16% of
segment sales. Our ten largest customers in our pressure control segment in the
first half of 2000 accounted for 63% of segment sales.

Our pressure control sales staff is managed from Houston and consists of 42
sales employees located in 11 offices in the United States, Canada, Mexico,
Singapore and the United Kingdom. We use manufacturer representatives in 43
countries worldwide.

OUR COMPETITORS

Our products are sold in highly competitive markets. Many of our major
competitors are diversified multinational companies, and are larger and have
substantially greater financial resources, substantially larger operating staffs
and greater budgets for marketing and research and development than we do.

Premium Tubular Connections. In the premium tubular connections market, we
compete domestically with the Atlas Bradford product line of Grant Prideco, the
Hunting Interlock product line of Hunting PLC, the VAM product line joint
venture of Vallourec & Mannesmann and Sumitomo Metals and steel mills and
numerous other independent threaders. Internationally, we also compete with some
of our domestic competitors and with DST, a marketing group composed of Dalmine,
Siderca and TAMSA steel mills which is licensed to produce and sell the Atlas
Bradford product line internationally, Vallourec & Mannesmann, Sumitomo Metals
and Kawasaki Steel, each of which is vertically integrated through the ownership
of steel mills. Integrated steel mills can apply threaded connections to
tubulars they produce, which gives these competitors supply and pricing
advantages over companies such as ours, which apply threaded connections to
tubulars produced by others. Other steel producers who do not currently
manufacture premium connections may begin doing so in the future. If methods of
distribution change such that domestic or other foreign steel mills begin
providing premium threaded tubular goods directly to distributors or end-users,
they would have a competitive advantage over us.

We believe that we are one of the largest providers of premium tubular
connections to the oil and gas industry both in the U.S. and worldwide. We
believe that the principal competitive factors in the premium tubular
connections market are product design and engineering, product quality and
reliability, price, product uniformity and compatibility, and the ability to
provide timely field service and repair.

Foreign producers of tubular connections sometimes sell or "dump" their
products in the U.S. market at prices below cost. If not constrained by an
antidumping duty order, this practice allows foreign producers to capture sales
and market share from domestic producers. Antidumping duty orders require
special duties to be imposed to offset dumping. Countervailing duty orders
require duties to be imposed to offset production or export subsidies provided
by a foreign government to a foreign producer. Such orders normally reduce the
level of imported goods and improve prices in the United States market. Once an
order is in place, each year foreign producers, importers, domestic producers
and other parties may request an "administrative review" to determine the duty
rates to be applied to imports during the preceding year, and the duty deposit
rates for future imports from the companies covered by the review. In addition,
a

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<PAGE> 48

company that did not ship to the United States during the original period
examined by the U.S. government may request a "new shipper review" to obtain its
own duty rate on an expedited basis.

Antidumping and countervailing duty orders may be revoked as a result of
periodic "sunset reviews." Under the sunset review procedure, an order must be
revoked after five years unless the U.S. Department of Commerce and the
International Trade Commission determine that dumping is likely to continue or
recur and that material injury to the domestic industry is likely to continue or
recur. An individual exporter also may obtain revocation as to itself if the
U.S. Department of Commerce determines that the exporter made sales in the
United States in commercial quantities, and did not dump for three consecutive
years and is not likely to resume dumping. Orders also may be revoked in full or
in part based on changed circumstances. The International Trade Commission can
revoke orders based on changes in the product, industry or market that create
conditions in which revocation of the order would not be likely to lead to
continuation or recurrence of material injury to the domestic industry. The
Department of Commerce can find changed circumstances if domestic producers
accounting for substantially all domestic production have no further interest in
the order; or based on other changes such as the privatization of a
government-owned foreign producer receiving subsidies by virtue of state
ownership. In July 2000, the International Trade Commission and the U.S.
Department of Commerce began to conduct sunset reviews of the orders covering
Argentina, Italy, Japan, Korea and Mexico. These reviews are expected to be
completed by July 2001.

Pressure Control Products. We have three primary competitors in the
pressure control market, the Drilling Equipment Products Group of Cooper
Cameron, the Shaffer Division of Varco International, and the Petroleum and
Equipment Division of Stewart & Stevenson Services. We believe that we are the
largest manufacturer of annular blowout preventers worldwide and a leading
provider of subsea pressure control equipment. The principal competitive factors
in the pressure control products market are believed to be product quality and
reliability, product design and engineering, price, and the ability to provide
timely service and replacement parts.

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<PAGE> 49

OUR PROPERTIES

The following table details our principal facilities, all of which we own,
except as indicated below.

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE DESCRIPTION
-------- -------------- -----------
<S> <C> <C>
UNITED STATES
Houston, Texas...................... 281,000 Principal executive offices; pressure control
products manufacturing.
Houston, Texas...................... 100,000 Premium tubular connections manufacturing.
Houston, Texas...................... 59,000 Pressure control products manufacturing and
repair services; advanced composite tubing
manufacturing.
Houston, Texas...................... 100,000 Pressure control elastomer products
manufacturing.
Bakersfield, California (leased).... 4,800 Premium tubular connections manufacturing;
warehouses pressure control replacement parts.
Westwego, Louisiana................. 40,000 Premium tubular connections manufacturing.
INTERNATIONAL
Nisku, Alberta, Canada (leased)..... 20,000 Premium tubular connections manufacturing;
warehouses pressure control replacement parts.
Batam, Indonesia (leased)........... 30,000 Premium tubular connections manufacturing.
Veracruz, Mexico.................... 100,000 Premium tubular connections manufacturing.
Veracruz, Mexico (leased)........... 25,000 Thread protector manufacturing for tubular
connections.
Port Harcourt, Nigeria (leased)..... 10,000 Repair and service of premium tubular
connections.
Warri, Nigeria...................... 20,000 Repair and service of premium tubular
connections.
Aberdeen, Scotland.................. 20,000 Premium tubular connections manufacturing;
warehouses pressure control replacement parts.
</TABLE>

We have 21 sales and service offices worldwide in Alaska, California,
Louisiana, Texas, Wyoming, Canada, Dubai, Mexico, Nigeria, Singapore and the
United Kingdom, that provide sales and technical support. Most of these offices
provide service personnel to support rig operators. All of these offices are
under lease, with leases ranging in duration from one month to two years. Our
subsea mudlift drilling development group is located in a separate leased
facility in Houston, Texas. We also have approximately 147 acres of undeveloped
land surrounding some of the properties listed above and 75 acres of additional
undeveloped land.

OUR EMPLOYEES

As of June 30, 2000, we had a total of approximately 1,350 full-time and
full-time equivalent employees. Approximately 375 of those employees were
employed by our international subsidiaries and are located outside the United
States. As of June 30, 2000, we were a party to one collective bargaining
agreement which applied to approximately 67 employees located in Veracruz,
Mexico and is subject to annual review. We believe our relations with our
employees are good.

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<PAGE> 50

INSURANCE

Our operations are subject to the risks inherent in manufacturing products
and providing services to the oil and gas production industry. These risks
include personal injury and loss of life, business interruptions, loss of
production and property and equipment damage. Damages arising from an occurrence
at a location where our products are used have in the past and may in the future
result in the assertion of potentially large claims against us.

We maintain comprehensive insurance covering our assets and operations,
including product liability and workers' compensation insurance, at levels that
we believe to be appropriate. We attempt to obtain agreements from our pressure
control customers providing for indemnification against liability to others. Our
insurance is subject to deductibles and in some cases only applies to losses in
excess of significant amounts. In such cases, we bear the risk of loss for
claims below these deductibles or amounts. We cannot assure you that our
insurance coverage will be adequate in all circumstances or against all hazards
nor can we assure you that we will be able to maintain adequate insurance
coverage in the future at commercially reasonable rates or on acceptable terms.

REGULATIONS

Our business is affected by changes in public policy, federal, state and
local laws and regulations relating to the energy industry. The adoption of laws
and regulations curtailing exploration and development drilling for oil and gas
for economic, environmental and other policy reasons may adversely affect our
operations by limiting available drilling and other opportunities in the oil and
gas production industry.

Our U.S. and foreign operations are subject to increasingly stringent laws
and regulations relating to environmental protection, including laws and
regulations governing air emissions, water discharges, waste management and
workplace safety. Many of our operations, including our metal casting operations
and, at certain locations, painting operations, require permits that may be
revoked or modified, and that we are required to renew from time to time.
Failure to comply with such laws, regulations or permits can result in
substantial fines and criminal sanctions, or require us to purchase costly
pollution control equipment or implement operational changes or improvements.

Because we use hazardous substances in our manufacturing operations and
many of our current and former properties are or have been used for industrial
purposes, we may be responsible for remediating hazardous substances at our
properties or at third party sites to which we sent waste for disposal. These
properties and wastes may be subject to the Comprehensive Environmental
Response, Compensation, and Liability Act, commonly known as CERCLA or
Superfund, the Resource Conservation and Recovery Act and analogous state laws.
Under these laws, we may be required to remove previously disposed wastes and to
remediate property contamination or to perform remedial operations to prevent
future contamination.

CERCLA imposes liability, without regard to fault or the legality of the
original conduct, for the releases of hazardous substances into the environment.
Persons subject to CERCLA include the owner and operator of the disposal site or
sites where the release occurred and companies that generated, disposed or
arranged for the disposal of the hazardous wastes found at the site. Persons who
are responsible for releases of hazardous substances under CERCLA may be subject
to joint and several liability for the costs of cleaning up the resulting
contamination and for damages to natural resources. It is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.

We have been identified as a potentially responsible party at one CERCLA
site, the Operating Industries, Inc. Landfill Superfund site in California to
which we formerly sent waste oils and other materials for disposal. Based on the
number of other potentially responsible parties, the total estimated site
cleanup costs and our estimated share of such costs, we do not expect this
matter to materially affect us. We also have in the past been identified as a
potentially responsible party at other CERCLA or state cleanup sites. In each
case, we have resolved our liability without incurring material costs.

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<PAGE> 51

Although we believe that we are in substantial compliance with existing
environmental laws and regulations, we cannot assure you that we will not incur
substantial costs in the future. Moreover, it is possible that implementation of
stricter environmental laws, regulations and enforcement policies could result
in additional, currently unquantifiable costs or liabilities to us.

LEGAL PROCEEDINGS

We are involved in legal proceedings arising in the ordinary course of
business. In our opinion, these matters will not have a material adverse effect
on our financial position or results of operations.

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<PAGE> 52

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information regarding our executive officers
and directors as of June 30, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Richard C. Seaver......................... 78 Chairman of the Board
Christopher T. Seaver..................... 52 President, Chief Executive Officer and
Director
Charles E. Jones.......................... 40 Managing Director-Pressure Control
Steven P. Magee........................... 53 Managing Director-Western Hemisphere
Tubular
Neil G. Russell........................... 54 Managing Director-Eastern Hemisphere
Tubular
Michael C. Kearney........................ 51 Chief Financial Officer and Vice
President-Administration
Richard A. Archer......................... 73 Director
Jerry S. Cox.............................. 49 Director
Gordon B. Crary, Jr. ..................... 79 Director
Patrick T. Seaver......................... 50 Director
T. Don Stacy.............................. 66 Director
Lew O. Ward............................... 70 Director
</TABLE>

Richard C. Seaver is our Chairman of the Board, a position he has held
since 1992. Previously, Mr. Seaver served as a director from 1964 to 1994, as
President from 1964 to 1986, and as Secretary and General Counsel from 1957 to
1964.

Christopher T. Seaver is our President and Chief Executive Officer and a
director. He has served as President since June 1993 and as Chief Executive
Officer and as a director since February 1997. Mr. Seaver joined Hydril in 1985
and served as Executive Vice President in charge of our tubular and pressure
control businesses from 1991 until May 1993. He is a director and the treasurer
of the Petroleum Equipment Suppliers Association and a director and member of
the executive committee of the National Ocean Industries Association. Prior to
joining our company, Mr. Seaver was a corporate and securities attorney for
Paul, Hastings, Janofsky & Walker, and was a Foreign Service Officer in the U.S.
Department of State, with postings in Kinshasa, Congo and Bogota, Colombia.

Charles E. Jones is our Managing Director-Pressure Control, a position he
has held since March 1998. From March 1996 to March 1998, Mr. Jones served as
Director of Subsea Business for Cooper Cameron Corporation, a provider of oil
and gas drilling equipment. Mr. Jones served as Engineering Manager for Subsea
Offshore, formerly Dresser Industries, a manufacturer of oil and gas drilling
equipment from April 1995 to March 1996 and as Subsea Engineering Manager for
Kvaerner Oilfield Products, a mechanical engineering and manufacturing company,
from January 1994 to April 1995. Prior to holding these positions, Mr. Jones had
11 years of service with us.

Steven P. Magee is our Managing Director-Western Hemisphere Tubular, a
position he has held since June 1996. From March 1995 to July 1996, Mr. Magee
was Director-Latin America for our tubular business. During his 25 years of
service with us, Mr. Magee has held various management positions in our tubular
business, including international postings in Mexico and the United Kingdom.

Neil G. Russell is our Managing Director-Eastern Hemisphere Tubular, a
position he has held since March 1995. Between January 1994 and February 1995,
Mr. Russell served as Director-Eastern Hemisphere for our tubular business.
During Mr. Russell's 22 years of service with our company, he has held various
management positions in our tubular and pressure control businesses with
postings in Singapore, Switzerland, the United Kingdom and the United States.

45
<PAGE> 53

Michael C. Kearney is our Chief Financial Officer and Vice
President-Administration, positions he has held since August 1998. Prior to
joining our company, Mr. Kearney was a consultant with Kearney Associates, an
independent financial consulting firm, from September 1996 to August 1998. Mr.
Kearney served as Vice President and Treasurer of Zale Corporation, a specialty
retailer of fine jewelry, from March 1996 to September 1996. From 1992 to
November 1995, Mr. Kearney was Vice President and Treasurer of FoxMeyer Health
Corporation, a pharmaceutical distributor.

Richard A. Archer became a director in 1971. Mr. Archer has been primarily
engaged as an independent insurance consultant since December 1995. He served as
the chairman of the Board of Directors of Jardine Insurance Brokers, Inc. from
1986 to 1993, and served as Deputy Chairman of Jardine Insurance Brokers for
1995. Mr. Archer is a director of National Golf Properties Inc.

Jerry S. Cox became a director in January 1999. Currently, Mr. Cox is
Chairman and President of Cox & Perkins Exploration, Inc., an independent
exploration and production company, positions he has held since founding Cox &
Perkins in 1976.

Gordon B. Crary, Jr., became a director in 1970. Mr. Crary served as
Executive Vice President and a member of the Board of Directors and Executive
Committee of E.F. Hutton & Co., now a part of Salomon Smith Barney Inc., until
1987. He had 50 years of service with E.F. Hutton and Smith Barney.

Patrick T. Seaver became a director in 1979. Since 1985, he has been a
partner with the law firm of Latham & Watkins.

T. Don Stacy became a director in May 2000. Mr. Stacy served as President
and Chairman of the Board of Amoco Eurasia Petroleum Co., an oil and gas
exploration and production company, from February 1994 until his retirement in
August 1997. Mr. Stacy served as Chairman of Crestar Energy Ltd. from 1992 until
1996. Currently, he is a director of Noble Affiliates, Inc., Alberta Energy Co.,
Ltd. and Agrium Inc.

Lew O. Ward became a director in March 1997. Since 1981, he has served as
Chairman and Chief Executive Officer of Ward Petroleum Corporation, an
independent exploration and production company founded by Mr. Ward. Mr. Ward has
42 years of service with Ward Petroleum and its predecessors. He is past
Chairman of the Independent Petroleum Association of America and a recipient of
its Roughneck of the Year award.

Executive officers are elected by the board of directors annually.
Christopher T. Seaver and Patrick T. Seaver are the sons of Richard C. Seaver.
There are no other family relationships among any of our directors or officers.

CLASSIFIED BOARD

The Board of Directors is divided into three classes. The term of the Class
I directors, who are Christopher T. Seaver and Lew O. Ward, expires at the
annual stockholders' meeting for election of directors in 2001. The term of the
Class II directors, who are Richard A. Archer, Richard C. Seaver and T. Don
Stacy, expires at the annual stockholders' meeting for election of directors in
2002. The term of the Class III directors, who are Jerry S. Cox, Gordon B.
Crary, Jr. and Patrick T. Seaver, expires at the annual stockholders' meeting
for the election of directors in 2003. After 2003 for the Class I directors,
after 2002 for the Class II directors and after 2001 for the Class III
directors, each class will hold office until the third annual stockholders'
meeting for election of directors following the most recent election of such
class. The Company's classified Board of Directors could have the effect of
increasing the length of time necessary to change the composition of a majority
of the Board of Directors. In general, at least two annual meetings of
stockholders will be necessary for stockholders to effect a change in majority
of the members of the Board of Directors.

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<PAGE> 54

BOARD COMMITTEES

Our Board of Directors has an Audit Committee and Compensation Committee.
The Audit Committee, which consists of Messrs. Archer (Chairman), Cox and Crary:

- recommends to the board the annual selection of independent auditors;

- approves the plan and scope of the annual audit of our financial
statements and any other services provided by independent auditors and
the fees for the audit and those services;

- reviews Hydril's annual audited financial statements prior to publication
and discuss the results of the audit with management and independent
auditors; and

- discusses with management and independent auditors the design, quality
and adequacy of Hydril's internal controls.

The Compensation Committee, which consists of Messrs. Crary (Chairman),
Archer and Ward, reviews and recommends to the Board of Directors the
compensation and benefits of our executive officers, establishes and reviews
general policies relating to our compensation and benefits, and administers our
stock plans.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers has served as a member of a compensation
committee or board of directors of any other entity which has an executive
officer serving as a member of our board of directors.

DIRECTOR COMPENSATION

Directors who are our employees do not receive cash compensation for their
services as directors or members of committees of the board of directors. Our
non-employee directors will receive an annual fee of $25,000. Non-employee
directors who serve as chairman of a board committee receive an additional
$3,000 annually for serving in that capacity. Non-employee directors also will
receive a fee of $1,000 per day for attendance at each board of directors
meeting and $1,000 per day for attendance at each committee meeting. All
directors are reimbursed for out-of-pocket expenses incurred in attending
meetings of the board of directors or committees thereof and for other expenses
incurred in their capacity as directors.

The Hydril Company 2000 Incentive Plan provides for an automatic initial
grant in connection with this offering to each nonemployee director of a
nonqualified stock option to purchase a number of shares of common stock equal
to $75,000 divided by the initial public offering price, at an exercise price
per share equal to the initial public offering price. The options granted to
nonemployee directors will have a term of ten years, be fully vested upon the
completion of one year of service as a nonemployee director and become
exercisable in cumulative annual installments of one-third each, beginning on
the first anniversary of the date of grant. Each nonemployee director will
automatically be granted a nonqualified stock option each year following the
annual meeting of stockholders on shares of our common stock equal to $75,000
divided by the fair market value of a share of our common stock as of that date,
at an exercise price equal to the fair market value as of that date.

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<PAGE> 55

EXECUTIVE COMPENSATION

Annual Compensation

The following table sets forth information regarding the compensation of
our Chief Executive Officer and each of our four other most highly compensated
executive officers for the year ended December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (SHARES) COMPENSATION(1)
--------------------------- ---------- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Christopher T. Seaver.......... $249,966 $125,000 -- 270,000 $ 6,186
President and Chief Executive
Officer
Charles E. Jones............... 150,000 37,500 $75,000(2) 120,000 3,886
Managing Director -- Pressure
Control
Steven P. Magee................ 150,000 69,375 -- 120,000 5,650
Managing Director -- Western
Hemisphere Tubular
Neil G. Russell................ 118,625 47,450 -- 90,000 27,808
Managing Director -- Eastern
Hemisphere Tubular
Michael C. Kearney............. 140,400 49,140 -- 102,000 1,696
Chief Financial Officer and
Vice
President -- Administration
</TABLE>

---------------

(1) In the case of Mr. Russell, all other compensation consists solely of a
housing allowance of $27,808 related to his foreign assignment. In the case
of all other named executive officers, all other compensation consists of
the following amounts paid by Hydril:

<TABLE>
<CAPTION>
LIFE LONG-TERM
401(K) INSURANCE DISABILITY
CONTRIBUTIONS PREMIUMS PREMIUMS
------------- -------- ----------
<S> <C> <C> <C>
Christopher T. Seaver............................ $5,000 $750 $436
Charles E. Jones................................. 3,000 450 436
Steven P. Magee.................................. 4,875 450 325
Michael C. Kearney............................... 837 423 436
</TABLE>

(2) $75,000 was paid to Mr. Jones in March 2000 pursuant to an agreement between
us and Mr. Jones to compensate him for the value of stock options granted by
his prior employer which he forfeited upon leaving its employ.

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<PAGE> 56

Option Grants

In January 1999, options were granted to named executive officers under the
Hydril Company 1999 Stock Option Plan as set forth in the following table.
Following completion of the offering, the options will be exercisable for class
B common stock.

OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
--------------------------------------
SECURITIES GRANT DATE
UNDERLYING % OF TOTAL OPTIONS EXERCISE PRESENT
OPTIONS GRANTED GRANTED TO PRICE EXPIRATION VALUE
NAME (SHARES) EMPLOYEES IN 1999 (PER SHARE) DATE (PER SHARE)(2)
---- ----------------- ------------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Christopher T. Seaver..... 270,000 38 $4.32 1/09 $3.20
Charles E. Jones.......... 120,000 17 4.32 1/09 3.20
Steven P. Magee........... 120,000 17 4.32 1/09 3.20
Neil G. Russell........... 90,000 13 4.32 1/09 3.20
Michael C. Kearney........ 102,000 15 4.32 1/09 3.20
</TABLE>

---------------

(1) The options granted to the named executive officers vest in increments of
25% in November 2000 and January of each of 2001, 2002 and 2003.

(2) The grant date present value per share of options granted was estimated as
of the date of grant using the Black Scholes option-pricing model and the
following assumptions: dividend yield -- 0%; expected volatility -- 0%;
risk-free interest rate -- 4.76%; and maturity in years -- 6.35.

Option Values at December 31, 1999

No stock options were exercised during 1999 by any named executive
officers. The following table shows the number of shares of common stock
represented by outstanding stock options held by each of the named executive
officers as of December 31, 1999, including the value for "in-the-money"
options.

OPTION VALUES AT DECEMBER 31, 1999

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
YEAR-END (SHARES) YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christopher T. Seaver......................... 0 270,000 -- $3,153,600
Charles E. Jones.............................. 0 120,000 -- 1,401,600
Steven P. Magee............................... 0 120,000 -- 1,401,600
Neil G. Russell............................... 0 90,000 -- 1,051,200
Michael C. Kearney............................ 0 102,000 -- 1,191,360
</TABLE>

---------------

(1) Prior to this offering, there was no public market for common stock and,
therefore, the value of each unexercised in-the-money stock option is
calculated as the difference between an estimated initial public offering
price of $16.00 per share and the exercise price of the stock option.

Annual Pension Benefits

Hydril Company Retirement Plan. The following table shows estimated annual
pension benefits payable to our employees, including executive officers (except
for Mr. Russell who, because of his foreign posting, participates in a pension
plan through our subsidiary operating in the United Kingdom), upon

49
<PAGE> 57

retirement at age 65 based on credited service as of January 1, 2000, under the
provisions of the Hydril Company Retirement Plan.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
APPROXIMATE ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED
FINAL AVERAGE -------------------------------------------------------------
ANNUAL COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000............................... $31,313 $41,750 $52,188 $ 62,625 $ 73,063
150,000............................... 37,575 50,100 62,625 75,150 87,675
175,000............................... 43,838 58,450 73,063 87,675 102,288
200,000............................... 50,100 66,800 83,500 100,200 116,900
225,000............................... 56,363 75,150 93,938 112,725 131,513
</TABLE>

Subject to a cap under the terms of the plan which for 1999 was $160,000 and for
2000 is $170,000, final average annual compensation means the average annual
combined salary and bonus for the highest 60 months out of the final 120 months
of employment preceding retirement. The amounts shown in the table above are
determined on a single life annuity basis. As of December 31, 1999, the credited
years of service under the plan for the participating named executive officers
were: Mr. Seaver, 14 years; Mr. Jones, 13 years; Mr. Magee, 24 years; and Mr.
Kearney, 1 year. The benefits shown are subject to offset for social security.

CHANGE OF CONTROL AGREEMENTS

In January 1999, we entered into change in control agreements with each of
Christopher T. Seaver, Charles E. Jones, Steven P. Magee, Neil G. Russell and
Michael C. Kearney. If, after a change in control has occurred but before the
earlier of December 31, 2002 and the end of the calendar month in which the
named executive officer's 65th birthday occurs, his employment is terminated by
us without cause or by him for good reason, he is entitled to:

- payment of his full base salary through the date of termination at the
rate in effect when notice of termination is given, plus all other
amounts to which he is entitled under any compensation plan when such
payments are due;

- payment of a lump sum equal to the sum of 200% of his annual salary as in
effect as of his termination date or immediately prior to the change in
control, whichever is greater, plus 200% of his prior three year's
average annual bonuses;

- payment of all legal fees and expenses incurred by him as a result of his
termination, including fees and expenses incurred in contesting
termination or in seeking to enforce any right or benefit provided by the
agreement; and

- provisions of life, disability, accident and group health insurance
benefits, for two years after his termination, substantially similar to
those that he was receiving immediately prior to his termination.

For two years after a termination of employment that entitles the executive
to the above benefits, the terminated officer shall not, directly or indirectly,
disclose to others or use any of our confidential information nor solicit,
recruit or hire any of our employees.

INCENTIVE PLANS

Hydril Company 2000 Incentive Plan

The Hydril Company 2000 Incentive Plan was adopted by our Board of
Directors and approved by our stockholders in May 2000. The purpose of the plan
is to advance our interests and the interests of our stockholders by providing a
means to attract, retain, and reward eligible employees and directors and to

50
<PAGE> 58

enable such persons to acquire or increase a proprietary interest in Hydril,
thereby promoting a closer identity of interests between such persons and our
stockholders.

The plan authorizes the grant of options to purchase shares of our common
stock and certain other awards relating to our common stock to our officers,
employees, and nonemployee directors. In addition to options, stock appreciation
rights, or SARs, restricted stock, cash awards, stock awards and performance
awards may be granted under the plan. The number of shares of common stock
subject to outstanding awards issued under the plan may not exceed 1,950,000
shares, subject to certain dilution adjustments. Our and our subsidiaries' key
employees, including any director or officer who is also an employee, and our
nonemployee directors are eligible to be granted awards under the plan.
Nonemployee directors are only eligible to receive nonqualified stock options
under the plan.

Our Board of Directors has designated the Compensation Committee to
administer the plan. Subject to the express provisions of the plan, the
Compensation Committee has full authority, among other things, to select the
employees to whom awards will be granted, to determine the type and number of
awards to be granted to each participant, the number of shares of common stock
to which an award will relate, and all other terms and conditions of awards and
matters relating to awards (including forfeiture conditions). In addition, the
Compensation Committee may prescribe the form of award agreements, adopt rules
and regulations under the plan, interpret the plan and award agreements, and
make all other decisions under the plan.

Our Board of Directors may amend, modify, suspend or terminate the plan
without the consent of stockholders, except stockholder approval must be
obtained if required by law or regulation or under the rules of any stock
exchange or automated quotation system on which our common stock is then listed
or quoted, and the Board may, in its discretion, seek stockholder approval in
any circumstance in which it deems such approval advisable. Likewise, the
Compensation Committee may waive any conditions or rights under, or amend or
terminate, any award previously granted and any award agreement. In either case,
however, no amendment or termination of the plan or an award may materially
impair the rights of a participant under an outstanding award without the
consent of such participant.

Options. Options granted under the plan are either incentive stock options
intended to meet the requirements of Section 422 of the Internal Revenue Code,
or non-qualified stock options, which are not intended to meet such
requirements. Incentive stock options may be subject to certain special tax
treatment. The terms of each option are determined by the Compensation
Committee, not inconsistent with the terms of the plan, and are set forth in an
option agreement which evidences the grant of an option. In general, options are
subject to the following terms and conditions:

- The exercise price of such options must not be less than the fair market
value of our common stock on the date of grant.

- The time or times at which an option shall become exercisable are
determined by the Compensation Committee.

- The Compensation Committee will determine the option term, which is
generally for a period of 10 years.

- Options that are incentive stock options will be subject to such
additional terms as may be necessary in order to qualify as incentive
stock options.

- Only nonqualified stock options may be granted to nonemployee directors.

Other Awards. The following briefly describes the general terms of other
types of awards that may be granted to employees under the plan:

- SARs. Stock appreciation rights entitle the participant to receive an
amount equal to the excess, if any, of the fair market value of a share
on the date of exercise or other specified date over the grant price of
the SAR. The grant price, maximum term, methods of exercise and
settlement and other terms of SARs will be determined by the Compensation
Committee.
51
<PAGE> 59

- Stock Award. An award may be in the form of shares of our common stock,
including a reward of restricted stock. Restricted stock may not be
transferred and may be forfeited in the event of certain circumstances,
such as termination of employment prior to the end of a restriction
period.

- Cash Award. An award may be in the form of cash. The terms, conditions
and limitations applicable to a cash award are determined by the
Compensation Committee.

- Performance Awards. The plan authorizes the Compensation Committee to
grant awards that are paid, vested or deliverable solely on account of
one or more pre-established, objective performance goals set by the
Compensation Committee. Payment may be made in cash, shares of our common
stock or a combination thereof.

Nonemployee Director Awards. The plan provides for an automatic grant, in
connection with this offering, to each nonemployee director of a nonqualified
stock option to purchase a number of shares of our common stock equal to $75,000
divided by the initial public offering price, at an exercise price per share
equal to the initial public offering price. Furthermore, each nonemployee
director will automatically be granted a nonqualified stock option each year
following the annual meeting of stockholders on that number of shares of our
common stock equal to $75,000 divided by the fair market value of a share of our
common stock as of that date, at an exercise price equal to the fair market
value as of that date.

The options granted to nonemployee directors will have a term of ten years
following the date of grant and will have an exercise price equal to the fair
market value of our common stock subject to such option on the date of grant.
The options will be fully vested upon the completion of one year of service as a
nonemployee director and become exercisable in cumulative annual installments of
one-third, beginning on the first anniversary of the date of grant. The options
become fully exercisable if the nonemployee director terminates his or her
status as a member of our Board of Directors.

Hydril Company 1999 Stock Option Plan

The Hydril Company 1999 Stock Option Plan was adopted in January 1999.
Options for the purchase of a total of 702,000 shares of class B common stock
were granted in 1999 under that plan. Following the closing of this offering, we
do not intend to grant any further options under the Hydril Company 1999 Stock
Option Plan.

HYDRIL COMPANY EMPLOYEE STOCK PURCHASE PLAN

Our Board of Directors has adopted and our stockholders have approved our
employee stock purchase plan. The purpose of the stock purchase plan is to
strengthen our company by encouraging broad-based employee ownership of Hydril's
common stock. We will implement the stock purchase plan effective October 1,
2000. We intend for this plan to qualify under Section 423 of the Internal
Revenue Code. The plan will be administered and interpreted by the Compensation
Committee of our Board of Directors.

This plan permits eligible employees of Hydril and its subsidiaries to
purchase common stock through payroll deductions of up to 10% of their base
salary. Under this plan, no employee may purchase common stock having an
aggregate fair market value of more than $25,000 in any calendar year determined
as of the first day of each offering period. An owner of 5% or more of Hydril's
common stock may not participate in this plan. We have reserved for use under
this plan of a total of 220,000 shares of common stock, approximately 1% of the
common stock expected to be outstanding after the offering. The common stock
subject to be issued under the terms of the plan will be Hydril's authorized but
unissued shares, previously issued shares reacquired and held by us or shares
purchased on the open market.

The stock purchase plan currently provides for six-month offering periods.
However, the first offering period lasts only three months commencing on October
1, 2000 and ending on December 31, 2000. Subsequent offering periods will begin
on each January 1 and July 1. The price of the common stock purchased under this
plan will be the lesser of 85% of the fair market value on the first day of the
offering period and 85% of the fair market value on the last day of the offering
period. This plan terminates when

52
<PAGE> 60

all common stock reserved for use under this plan has been purchased, unless the
board terminates it at any earlier time or additional common stock is issued
under the plan with the approval of our stockholders. We have not yet issued any
shares of common stock under this plan.

Shares purchased under the plan may generally be sold only after the
expiration of 150 days from the date on which the shares were purchased. As a
result, share certificates will not be delivered to participants and will not be
transferable prior to the expiration of this 150-day holding period. However,
this holding requirement may be waived by the Compensation Committee, in its
sole discretion.

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<PAGE> 61

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

OFFERING BY SELLING STOCKHOLDERS

We are paying the expenses of the offering by the selling stockholders,
other than the underwriting discounts, commissions and transfer taxes with
respect to shares of stock sold by the stockholders and the fees and expenses of
any attorneys, accountants and other advisors separately retained by them.

REGISTRATION RIGHTS AGREEMENT

We and each of our stockholders who own more than 5% of our class B common
stock prior to this offering are parties to a registration rights agreement
dated as of , 2000. The registration rights terminate five years and
270 days after the date of this prospectus. See "Principal and Selling
Stockholders."

Demand Registrations. The stockholders party to the registration rights
agreement can demand that we file a registration statement after March 31, 2001,
for the purpose of selling their common stock in an underwritten offering. No
demand registration statement may be declared effective prior to the expiration
or waiver of the 270 day lock-up period. We are not required to file more than
one demand registration statement in any 12 month period or file more than an
aggregate of three demand registration statements prior to the termination of
the agreement. We are also not required to file a demand registration statement
unless the shares to be registered have a value of at least $50 million.

Shelf Registrations. Each stockholder party to the registration rights
agreement can request the registration of their shares for the nonunderwritten
offering and sale on a delayed or continuous basis on two occasions after the
expiration of the 270 day lock-up. We are not required to file a shelf
registration statement unless the shares to be registered have a value of at
least $15 million. We are also not required to effect a shelf registration
within 90 days of the effective date of another shelf or demand registration
statement filed under the registration rights agreement and are not required to
keep a shelf registration statement effective for more than 90 days. The shelf
registration rights are available only if we are eligible to use a Form S-3
registration statement.

Piggyback Registrations. The stockholders party to the registration rights
agreement also have piggyback registration rights if we propose to file a
registration statement with respect to an underwritten offering of common stock
for cash for our own account. This means that, upon the request of these
stockholders, we must register their shares under our registration statement.

General. The registration rights agreement provides that, in the case of
demand and piggyback registrations, the number of shares of common stock that
must be registered on behalf of stockholders is subject to limitation if the
managing underwriter determines that market conditions require such a
limitation. In the case of each of the demand and shelf registration provisions,
we may delay the filing or effectiveness of the registration statement up to one
time in any twelve-month period for 90 days if in the good faith judgment of our
board of directors such filing or effectiveness would be detrimental to Hydril
and its stockholders. If we have fixed plans to file a registration statement
within 90 days of a request for demand or shelf registration, we may delay
initiating such demand or shelf registration until 90 days after the
effectiveness of our planned registration statement. In the case of shares
registered under an effective shelf registration statement, if we determine that
the distribution of such shares would interfere with any pending financing,
acquisition, corporate reorganization or any other corporate development
involving us or our subsidiaries or would require premature disclosure of such
transaction, we may require the suspension of sales of such shares under the
registration statement for a reasonable period of time not to exceed 60 days.
The stockholders party to the registration rights agreement may not demand the
registration of more than 50% of their shares under a demand or shelf
registration statement prior to the first anniversary of the expiration of the
270 day lock-up.

The registration rights agreement sets forth customary registration
procedures. Under the registration rights agreement, we are required to pay all
expenses incident to our performance or compliance with the

54
<PAGE> 62

registration rights agreement, including all registration, listing and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, fees and expenses of our counsel and public accountants, fees and
disbursements of one counsel for the selling holders, but excluding underwriting
commissions and discounts with respect to shares of common stock sold by
stockholders. The registration rights agreement contains customary
indemnification and contribution provisions by us for the benefit of the selling
stockholders and any underwriters. Each selling stockholder has agreed to
indemnify us and any underwriter solely with respect to information provided by
the stockholder, with such indemnification being limited to the net proceeds
from the offering received by the stockholder.

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<PAGE> 63

PRINCIPAL AND SELLING STOCKHOLDERS

Prior to the offering, we had outstanding 19,379,040 shares of class B
common stock. The following table presents information regarding the current
beneficial ownership of our common stock and as adjusted to reflect the sale of
shares in this offering, assuming the underwriters' overallotment option is not
exercised, by:

- each person or group that we know beneficially owns more than 5% of our
common stock;

- each of our directors;

- our chief executive officer and each of our four other most highly
compensated executive officers;

- all our executive officers and directors as a group; and

- each selling stockholder.

Beneficial ownership is determined in accordance with rules of the SEC and
includes shares over which the indicated beneficial owner exercises voting
and/or investment power. As described in the notes to the table, voting and/or
investment power with respect to shares of our common stock held by various
trusts is shared by some of the named stockholders. Accordingly, those shares
are shown as beneficially owned by more than one person.

After this offering, 67% of the class B common stock, representing 63% of
our total voting power, will be beneficially owned by The Seaver Institute,
members of the Seaver family and trusts whose trustees include members of the
Seaver family. As a result, initially holders of our common stock will have no
ability to affect the outcome of voting for corporate matters, such as election
of directors, mergers, amendments to our charter and bylaws and approval of
benefit plans for management.

No directors, executive officers or relatives of Frank R. Seaver are
selling shares of common stock in the offering for their own account and all of
those persons have agreed that they will not, directly or indirectly sell any of
our shares of stock for a period of 180 days or, in the case of Richard C.
Seaver, 270 days, from the date of this prospectus without the prior written
consent of Salomon Smith Barney.

Except for the column showing the shares offered, the number of shares
referenced below are shares of class B common stock. The columns showing the
percent of outstanding shares beneficially owned after the offering and percent
of voting power after the offering are based on the total outstanding shares of
both common stock and class B common stock.

<TABLE>
<CAPTION>
VOTING
SHARES BENEFICIALLY SHARES BENEFICIALLY POWER
OWNED BEFORE THE OWNED AFTER THE AFTER
OFFERING OFFERING OFFERING
-------------------- SHARES ------------------- --------
NAME OF BENEFICIAL OWNER NUMBER % OFFERED(1) NUMBER % %
------------------------ ----------- ------ ---------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
The Seaver Institute(2)..................... 5,613,408 29.0 1,684,022 3,929,386 18.1 26.3
Pepperdine University(3).................... 3,935,184 20.3 1,180,555 2,754,629 12.7 18.4
Trust under Paragraph V of the Will of Frank
R. Seaver, Deceased(4)................... 2,250,000 11.6 675,000 1,575,000 7.3 10.5
Blanche Ebert Seaver Perpetual Trust(5)..... 2,238,816 11.6 671,645 1,567,171 7.2 10.4
Pomona College(6)........................... 1,328,352 6.9 398,506 929,846 4.3 6.2
Richard C. Seaver(7)........................ 6,626,316 34.2 1,400,645 5,225,671 24.1 34.9
R. Carlton Seaver, Jr.(8)................... 2,272,500 11.7 675,000 1,597,500 7.4 10.7
Bank of America, N.A.(9).................... 2,430,000 12.5 729,000 1,701,000 7.8 11.4
Myron E. Harpole(10)........................ 3,282,816 16.9 978,545 2,304,271 10.6 15.4
Northern Trust of California(11)............ 2,238,816 11.6 671,645 1,567,171 7.2 10.4
</TABLE>

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<PAGE> 64

<TABLE>
<CAPTION>
VOTING
SHARES BENEFICIALLY SHARES BENEFICIALLY POWER
OWNED BEFORE THE OWNED AFTER THE AFTER
OFFERING OFFERING OFFERING
-------------------- SHARES ------------------- --------
NAME OF BENEFICIAL OWNER NUMBER % OFFERED(1) NUMBER % %
------------------------ ----------- ------ ---------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DIRECTORS AND EXECUTIVE OFFICERS(12):
Richard A. Archer........................... 24,000 * -- 24,000 * *
Jerry S. Cox................................ -- -- -- -- -- --
Gordon B. Crary, Jr. ....................... 18,000 * -- 18,000 * *
Christopher T. Seaver....................... 32,100 * -- 32,100 * *
Patrick T. Seaver........................... 40,500 * -- 40,500 * *
T. Don Stacy................................ -- -- -- -- -- --
Lew O. Ward................................. -- -- -- -- -- --
Steven P. Magee............................. -- -- -- -- -- --
Neil G. Russell............................. -- -- -- -- -- --
Charles E. Jones............................ -- -- -- -- -- --
Michael C. Kearney.......................... -- -- -- -- -- --
All directors and executive officers as a
group (12 persons)(13)................... 2,072,100 10.7 -- 2,072,100 9.5 13.9

OTHER SELLING STOCKHOLDERS:
Earl E. Spencer Trust....................... 180,000 * 54,000 126,000 * *
First Congregational Church of Los
Angeles.................................. 150,000 * 45,000 105,000 * *
William S. Banowsky......................... 108,000 * 32,400 75,600 * *
Masonic Homes of California................. 45,000 * 45,000 -- -- --
Charles B. Runnels.......................... 36,000 * 10,800 25,200 * *
Harvard-Westlake School..................... 24,000 * 24,000 -- -- --
Hospital of the Good Samaritan.............. 20,340 * 20,340 -- -- --
The Bishop of the Protestant Episcopal
Church in Los Angeles.................... 15,000 * 15,000 -- -- --
Los Angeles County Museum of Natural History
Foundation............................... 12,000 * 12,000 -- -- --
Ann M. Drake................................ 12,000 * 12,000 -- -- --
Robert A. Drake............................. 12,000 * 12,000 -- -- --
George M. Hill.............................. 12,000 * 3,600 8,400 * *
William H. Satchell Trust................... 12,000 * 12,000 -- -- --
St. Nicholas Episcopal Church............... 9,000 * 9,000 -- -- --
Lois C. Kite................................ 5,700 * 5,700 -- -- --
Hugh L. Elkins.............................. 600 * 600 -- -- --
</TABLE>

---------------

* Less than 1%.

(1) All shares of common stock offered will be converted into common stock from
shares of class B common stock immediately prior to this offering.

(2) A non-profit corporation created in 1955 by Frank R. Seaver and Blanche E.
Seaver for such scientific, educational, charitable and religious purposes
as its board of directors shall from time to time determine. The business
address is 555 South Flower Street, Suite 4580, Los Angeles, CA 90071. The
shares beneficially owned before the offering include 4,485,600 shares
(23.1% of the shares outstanding) held by The Seaver Institute as trustee
of a trust created under Paragraph VIII of the Will of Frank R. Seaver,
Deceased, the beneficiaries of which are various educational and religious
institutions. The Board of Directors of The Seaver Institute is currently
comprised of 12 individuals, including Richard C. Seaver, Chairman of the
Board of Hydril; Christopher T. Seaver, President and Chief Executive
Officer of Hydril; and Richard A. Archer, a director of Hydril. Action by
or on behalf of The Seaver Institute is taken by a vote of a majority of
its directors.

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<PAGE> 65

(3) The business address is 2455 Pacific Coast Highway, Malibu, CA 90263. Jerry
S. Cox, a director of the Company, is one of 39 members of the Board of
Regents of Pepperdine University. Richard C. Seaver, Chairman of the Board
of Hydril, and Lew O. Ward, a director of Hydril, serve on a 70-member
advisory University Board of Pepperdine University.

(4) The business address is c/o Bank of America, 2049 Century Park East, Suite
200, Los Angeles, CA 90067. The beneficiaries as to principal are the
educational and religious institutions that are the beneficiaries of the
trust created under Paragraph VIII of the Will of Frank R. Seaver described
in footnote (2). The income beneficiaries are individuals who are relatives
of Frank R. Seaver. Richard C. Seaver, Chairman of the Board of Hydril, is
one of three trustees. See footnotes (7), (8) and (9).

(5) The business address is c/o Northern Trust of California, 355 South Grand
Avenue, Suite 2500, Los Angeles, CA 90071. The sole beneficiary is the
endowment for the Frank R. Seaver College of Pepperdine University. Richard
C. Seaver, Chairman of the Board of Hydril, is one of three trustees.

(6) The business address is Alexander Hall, 550 North College Avenue,
Claremont, CA 91711.

(7) Chairman of the Board of Hydril. Mr. Seaver's business address is 555 South
Flower Street, Suite 4580, Los Angeles, CA 90071. Except for 1,957,500
shares with respect to which Mr. Seaver exercises sole voting and
investment power (none of which are being offered hereby), the shares shown
in the table are owned beneficially and of record by the Trust under
Paragraph V of the Will of Frank R. Seaver (see footnote (4)), the Blanche
Ebert Seaver Perpetual Trust (see footnote (5)) and the Earl E. Spencer
Trust (see Other Selling Stockholders), as to each of which trusts Mr.
Seaver disclaims beneficial ownership.

(8) The business address is 444 South Flower Street, Los Angeles, CA 90071.
Except for 22,500 shares with respect to which Mr. Seaver exercises sole
voting and investment power (none of which are being offered hereby), the
shares shown in the table are owned beneficially and of record by the Trust
under Paragraph V of the Will of Frank R. Seaver, as to which Mr. Seaver
disclaims beneficial ownership. See footnote (4). He is one of three
trustees of that trust. R. Carlton Seaver, Jr. is the son of Richard C.
Seaver, Chairman of the Board of Hydril, and the brother of Christopher T.
Seaver, President and Chief Executive Officer of Hydril.

(9) The business address is as stated in footnote (4). Bank of America, N.A. is
one of three trustees of the Trust under Paragraph V of the Will of Frank
R. Seaver (see footnote (4)) and of the Earl E. Spencer Trust (see Other
Selling Stockholders) and disclaims beneficial ownership of the shares
shown in the table.

(10) The business address is 140 South Lake Avenue, Suite 274, Pasadena CA
91101. Except for 21,000 shares (none of which are being offered hereby),
the shares shown in the table are owned beneficially and of record by The
Blanche Ebert Seaver Perpetual Trust (of which Mr. Harpole is one of three
trustees) (see footnote (5)), the Earl E. Spencer Trust (of which Mr.
Harpole is one of three trustees) (see Other Selling Stockholders) and four
charitable trusts (of which Mr. Harpole is the sole trustee). Mr. Harpole
disclaims beneficial ownership of all of the shares owned by these trusts.
He is one of 12 directors of The Seaver Institute. See footnote (2).

(11) The business address is as stated in footnote (5). Northern Trust of
California is one of three trustees of The Blanche Ebert Seaver Perpetual
Trust and disclaims beneficial ownership of the shares shown in the table.

(12) Share ownership of directors and officers does not include shares issuable
upon exercise of options to purchase common stock as there are no such
options outstanding that are currently exercisable or that will become
exercisable within 60 days.

(13) Includes shares owned by Richard C. Seaver, Chairman of the Board of
Hydril, with respect to which he exercises sole voting and investment
power, but does not include shares owned beneficially and of record by
three trusts as to which he disclaims beneficial ownership. See footnote
(7).

All stockholders who hold more than 5% of the outstanding shares of class B
common stock prior to this offering have agreed that they will not, directly or
indirectly, sell any of our shares of stock for a period of 270 days from the
date of this prospectus without the prior written consent of Salomon Smith
Barney. In addition, we will enter into a Registration Rights Agreement upon the
consummation of this offering whereby we will agree to register under the
Securities Act shares of our common stock held of

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<PAGE> 66

record by each stockholder that holds 5% or more of our outstanding class B
common stock prior to this offering to facilitate the sales of common stock of
these stockholders. See "Certain Relationships and Related Party
Transactions -- Registration Rights Agreement." In connection with this
offering, stockholders who currently hold more than 0.5% but less than 5% of the
outstanding shares prior to this offering, as well as our directors and
executive officers and relatives of Frank R. Seaver, have agreed that they will
not, directly or indirectly, sell any of our shares of stock for a period 180
days from the date of this prospectus without the prior written consent of
Salomon Smith Barney.

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<PAGE> 67

DESCRIPTION OF CAPITAL STOCK

The following description of our common stock, preferred stock, restated
certificate of incorporation and restated bylaws as will be in effect upon the
closing of this offering are summaries thereof and are qualified by reference to
our restated certificate of incorporation and our restated bylaws, copies of
which have been filed with the Securities and Exchange Commission as exhibits to
the registration statement, of which this prospectus forms a part. The
descriptions of our common stock and preferred stock reflect changes to our
capital structure that will occur prior to the closing of this offering in
accordance with the terms of our restated certificate of incorporation.

Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.50 per share, 32,000,000 shares of class B common stock, par value
$0.50 per share, and 10,000,000 shares of preferred stock, par value $1.00 per
share. The number of authorized shares of any class or series of our capital
stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of holders of at least a majority of
the then outstanding voting stock, voting as a single class. On completion of
the offering, we will have outstanding 7,500,000 shares of common stock,
14,202,972 shares of class B common stock and no shares of preferred stock. No
separate class vote is required. If the over-allotment option is exercised in
full, we will have outstanding 8,600,000 shares of common stock and 13,451,708
shares of class B common stock.

Unless otherwise indicated in this prospectus, all amounts are adjusted for
a stock dividend that occurred on , 2000 consisting of a dividend of
five shares of class B common stock paid with respect to each outstanding share
of class B common stock.

Prior to this offering, there has been no public market for our common
stock. Although we have applied to list the common stock on the NASDAQ National
Market System, we cannot assure you that a market for our common stock will
develop or, if one develops, that it will be sustained.

COMMON STOCK

Upon completion of this offering, only those stockholders who held our
shares prior to this offering and continue to hold those shares will hold class
B common stock. All of the issued and outstanding shares of class B common stock
and the shares of common stock to be issued in this offering are or will be
fully paid and nonassessable. Except as described below, shares of common stock
and class B common stock will generally have identical rights.

In addition, under our restated certificate of incorporation, holders of
common stock and class B common stock will have no preemptive or other
subscription rights to purchase shares of our stock, nor are they entitled to
the benefits of any redemption or sinking fund provisions.

Voting Rights. The holders of common stock and class B common stock are
entitled to notice of and to attend all meetings of our stockholders and to vote
at all meetings together as a single class, except on matters where the holders
of a class are entitled to vote separately under law or pursuant to our restated
certificate of incorporation. The holders of common stock are entitled to one
vote per share on all matters to be voted on by stockholders generally,
including the election of directors. The holders of class B common stock are
entitled to 10 votes per share on all matters to be voted on by stockholders
generally, including the election of directors. There are no cumulative voting
rights. Accordingly, holders of a majority of the total votes entitled to vote
in an election of directors will be able to elect all of the directors standing
for election.

Liquidation Preferences. If Hydril is liquidated, dissolved or wound up,
the holders of common stock and class B common stock will be entitled to receive
distributions only after satisfaction of all of our liabilities and the prior
rights of any outstanding class of our preferred stock. If Hydril is liquidated,
dissolved or wound up, Hydril's assets legally available after satisfaction of
all of our liabilities and the prior rights of our preferred stock will be
distributed to the holders of common stock and class B common stock pro rata on
a per share basis.

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<PAGE> 68

Conversion Rights/Mandatory Conversion. Holders of common stock will have
no conversion rights. Holders of class B common stock may convert each share
into one share of common stock at any time. In addition, shares of class B
common stock will automatically convert into shares of common stock:

- if class B common stock is transferred to any person or entity other than
a holder of class B common stock or a person or entity related to current
holders of class B common stock.

- if at any time the number of outstanding shares of class B common stock
represents less than ten percent of the total number of outstanding
shares of common stock and class B common stock combined.

Dividends. The common stock and class B common stock are entitled to share
equally on a per share basis in any dividends declared by our board of
directors, subject to any preferential dividend rights of any outstanding
preferred stock. Dividends consisting of shares of common stock and class B
common stock may be paid only as follows:

- shares of common stock may be paid only to holders of common stock and
shares of class B common stock may be paid only to holders of class B
common stock; and

- the number of shares of class B common stock paid as a dividend on each
outstanding share of common stock must be equal to the number of shares
of common stock paid as a dividend on each share of common stock.

Modification, Subdivision and Consolidation. Any change to the provisions
in our restated certificate of incorporation adversely affecting the common
stock or the class B common stock requires the separate affirmative vote of the
class affected by such change, voting as a separate class. We may not subdivide
or consolidate the shares of common stock or the shares of class B common stock
without at the same time proportionately subdividing or consolidating the shares
of the other class.

PREFERRED STOCK

General. Our board has authority, without stockholder approval, to issue
shares of preferred stock in one or more series and to fix the number of shares
and terms of each such series. The board may determine the designation and other
terms of each series, including:

- dividend rights;

- conversion rights;

- voting powers;

- redemption rights; and

- liquidation preferences.

The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of common stock. It could also
affect the likelihood that holders of common stock will receive dividend
payments and payments upon liquidation. We have no present plans to issue any
preferred stock.

One of the consequences of our authorized but unissued common stock and
undesignated preferred stock may be to enable our board to make more difficult
or to discourage an attempt to obtain control of our company. Use of the common
or preferred stock for this purpose might also protect incumbent management. If,
in the exercise of its fiduciary obligations, our board were to determine that a
takeover proposal was not in our best interest, the board could authorize the
issuance of those shares without

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<PAGE> 69

stockholder approval. The shares could be issued in one or more transactions
that might prevent or make the completion of the change of control transaction
more difficult or costly by:

- diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group;

- creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board; and

- effecting an acquisition that might complicate or preclude the takeover.

In this regard, our charter grants our board broad power to establish the
rights and preferences of the authorized and unissued preferred stock. Our board
could establish one or more series of preferred stock which entitle holders:

- to vote separately as a class on any proposed merger or consolidation;

- to cast a proportionately larger vote together with the common stock on
any transaction or for all purposes;

- to elect directors having terms of office or voting rights greater than
those of other directors;

- to convert preferred stock into a greater number of shares of common
stock or other securities;

- to demand redemption at a specified price under prescribed circumstances
related to a change of control of our company; or

- to exercise other rights designed to impede a takeover.

CHARTER AND BYLAW PROVISIONS

These provisions may be amended only by the affirmative vote of holders of
at least 66 2/3% of the voting power of our capital stock.

Stockholder Action by Written Consent. Our charter provides that, except as
may otherwise be provided with respect to the rights of the holders of preferred
stock, no action that is required or permitted to be taken by our stockholders
at any annual or special meeting may be effected by written consent of
stockholders in lieu of a meeting of stockholders. Thus, this provision
prohibits stockholders from taking any action by written consent.

Amendment of the Bylaws. Under Delaware law, the power to adopt, amend or
repeal bylaws is conferred upon the stockholders. A corporation may, however, in
its certificate of incorporation also confer upon the board of directors the
power to adopt, amend or repeal its bylaws. Our charter and bylaws grant our
board the power to adopt, amend and repeal our bylaws at any regular or special
meeting of the board on the affirmative vote of a majority of the directors then
in office. Our stockholders may adopt, amend or repeal our bylaws but only at
any regular or special meeting of stockholders by an affirmative vote of holders
of 66 2/3% of the voting power of our capital stock present at the meeting or by
unanimous written consent.

Special Meetings of Stockholders. Our charter precludes the ability of our
stockholders to call special meetings of stockholders.

Supermajority Vote Required for Some Transactions with Related Parties. Our
charter also contains a "fair price" provision that applies to business
combination transactions with any person or group that beneficially owns at
least 10% of the aggregate voting power of our capital stock. To approve some
types of transactions between us and a related person, the "fair price"
provision requires the affirmative vote of the holders of

- at least 80% of the voting power, and

- at least 66 2/3% of the voting power not beneficially owned by the
related person.

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These votes apply to these transactions:

- a merger, consolidation or share exchange,

- a sale, lease, exchange, pledge or other disposition of assets having a
fair market value of at least $10 million,

- a transfer or issuance of securities,

- an adoption of a plan or proposal of voluntary liquidation or
dissolution,

- reclassifications of securities or recapitalizations, and

- some other types of transactions involving the related person.

The voting requirement will not apply to any transaction approved by our
continuing directors or any transaction in which the consideration to be
received by the holders of each class of our capital stock is

- the same in form and amount as that paid in a tender offer in which the
related person acquired at least 50% of the outstanding shares of that
class and consummated not more than one year earlier or

- not less in amount than the highest per share price paid by the related
person for shares of such class.

This provision could have the effect of delaying or preventing a change in
control in a transaction or series of transactions that did not satisfy the
"fair price" criteria.

Other Limitations on Stockholder Actions. Advance notice is required for
stockholders to nominate directors or to submit proposals for consideration at
meetings of stockholders. In addition, our stockholders may not remove directors
without cause.

Classified Board. Only one of three classes of directors is elected each
year. See "Management -- Classified Board."

DELAWARE ANTITAKEOVER LAW

We are subject to Section 203 of the Delaware General Corporation Law. That
section prohibits Delaware corporations from engaging in a wide range of
specified transactions with any interested stockholder. An interested
stockholder is any person, other than the corporation and any of its majority-
owned subsidiaries, who owns 15% or more of any class or series of stock
entitled to vote generally in the election of directors. Section 203 may tend to
deter any potential unfriendly offers or other efforts to obtain control of our
company that are not approved by our board. This may deprive the stockholders of
opportunities to sell shares of our common stock at prices higher than the
prevailing market price.

TRANSFER AGENT AND REGISTRAR

ChaseMellon Shareholder Services is the transfer agent and registrar for
our common stock.

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<PAGE> 71

SHARES ELIGIBLE FOR FUTURE SALE

After this offering, we will have 7,500,000 outstanding shares of common
stock, assuming no exercise of the underwriters' over-allotment option. All of
the shares of common stock sold in this offering will be freely tradable
immediately after this offering. Holders of our currently outstanding class B
common stock may convert their class B common stock into common stock and sell
their shares after this offering subject to the expiration of lock-up periods.
12,755,532 shares of our outstanding class B common stock, or 59% of our common
stock and class B common stock combined, may be converted into common stock and
will become available for sale following the expiration of lock-up agreements
that prohibit the sale of these shares for 270 days after the date of this
prospectus. 1,298,700 shares of our outstanding class B common stock, or 6% of
our common stock and class B common stock combined, may be converted into common
stock and will become available for sale, following the expiration of lock-up
agreements that prohibit the sale of these shares for 180 days after the date of
this prospectus. The remaining 148,740 shares of our outstanding class B common
stock, or 1% of our common stock and class B common stock combined, may be
converted into common stock and will become available for sale immediately after
this offering.

Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop because of sales of a
large number of shares in the open market following this offering or the
perception that those sales may occur. These factors also could make it more
difficult for us to raise capital through future offerings of common stock.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed "affiliates" of us, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of
(i) 1% of the then-outstanding shares of common stock (i.e., 75,000 shares
immediately after consummation of the offering, assuming no exercise of the
underwriters' over-allotment option) and (ii) the average weekly trading volume
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under rule 144 are also subject to certain
provisions as to the manner of sale, notice requirements and the availability of
current public information about us. Upon the consummation of the offering, none
of the shares of our class B common stock outstanding or shares of common stock
issuable upon conversion of class B common stock will be restricted securities
as that term is defined by Rule 144. We will enter into a registration rights
agreement upon the consummation of the offering whereby we will agree to
register under the Securities Act shares of common stock held by each of our
stockholders that own more than 5% of our class B common stock prior to this
offering.

In addition to the shares that will be outstanding after this offering,
there will be options to purchase 702,000 shares of class B common stock at
$4.32 per share that have been granted under our 1999 Stock Option Plan and
options to purchase 354,128 shares of common stock at a price per share equal to
the initial public offering price that have been granted under our 2000
Incentive Plan. Options that have been granted under the 1999 Stock Option Plan
become exercisable as to 25% of the shares covered in each of November 2000,
January 2001, January 2002 and January 2003. No part of the options that have
been granted under the 2000 Incentive Plan become exercisable until the first
anniversary of this offering. We intend to file a registration statement on Form
S-8 under the Securities Act to register the shares of common stock reserved or
to be available for issuance pursuant to the Hydril Company 2000 Incentive Plan
and the Hydril Company Employee Stock Purchase Plan. Shares of common stock
issued pursuant to such plans generally will be available for sale in the open
market by holders who are not affiliates and, subject to the volume and other
limitations of Rule 144, by holders who are affiliates.

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<PAGE> 72

U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. As used in this prospectus, the term "non-U.S. holder" is
a person other than:

- a citizen or individual resident of the U.S. for U.S. federal income tax
purposes,

- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision of the U.S.,

- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source or

- a trust, in general, if it is subject to the primary supervision of a
court within the U.S. and the control of one or more U.S. persons.

This discussion does not consider:

- U.S. state and local or non-U.S. tax consequences,

- specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
non-U.S. partnership, that the U.S. tax consequences of holding and
disposing of our common stock may be affected by certain determinations
made at the partner level,

- the tax consequences for the shareholders or beneficiaries of a non-U.S.
holder,

- special tax rules that may apply to certain non-U.S. holders, including,
without limitation, banks, insurance companies, dealers in securities and
traders in securities who elect to apply a mark-to-market method of
accounting or

- special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a "straddle", "hedge", or "conversion
transaction".

The following is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, applicable Treasury regulations, and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which may change, retroactively or prospectively. The following summary is for
general information. ACCORDINGLY, EACH NON-U.S. HOLDER SHOULD CONSULT A TAX
ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF OUR COMMON
STOCK.

DIVIDENDS

In the event that dividends are paid on shares of common stock, dividends
paid to a non-U.S. holder of common stock generally will be subject to
withholding of U.S. federal income tax at a 30% rate, or such lower rate as may
be provided by an applicable income tax treaty. Non-U.S. holders should consult
their tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.

Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the U.S. or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base", in the U.S., as provided in that treaty ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income basis
at regular graduated rates, but are not generally subject to the 30% withholding
tax if the non-U.S. holder files the appropriate U.S. Internal Revenue Service
form with the payor. Any U.S. trade or business income received by a non-U.S.
holder that is a corporation may also, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as
specified by an applicable income tax treaty.

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<PAGE> 73

Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
2000:

- a non-U.S. holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements;

- in the case of common stock held by a non-U.S. partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number and

- look-through rules will apply for tiered partnerships.

A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:

- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S.
holder,

- the non-U.S. holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the U.S. for more than 182 days in the taxable year
of the disposition and meets certain other requirements,

- the non-U.S. holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates or

- we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or the period that the
non-U.S. holder held our common stock.

Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that Hydril Company has not been and is not currently, and we do not anticipate
it becoming, a "U.S. real property holding corporation" for U.S. federal income
tax purposes. The tax relating to stock in a "U.S. real property holding
corporation" will not apply to a non-U.S. holder whose holdings, actually and
constructively, at all times during the applicable period, constituted 5% or
less of the common stock, provided that the common stock was regularly traded on
an established securities market.

FEDERAL ESTATE TAX

Common stock owned or treated as owned by an individual who is not a
citizen or resident of the U.S., as specially defined for U.S. federal estate
tax purposes, at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax or
other treaty provides otherwise and, therefore, may be subject to U.S. federal
estate tax.

66
<PAGE> 74

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, non-U.S. holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
U.S. For dividends paid after 2000, however, a non-U.S. holder of common stock
that fails to certify its non-U.S. holder status in accordance with applicable
U.S. Treasury Regulations may be subject to backup withholding at a rate of 31%
on payments of dividends.

The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker generally will be subject to
information reporting and backup withholding at a rate of 31% unless the holder
either certifies its status as a non-U.S. holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a non-U.S. holder of common stock to or through a non-U.S. office
of a non-U.S. broker will not be subject to backup withholding or information
reporting unless the non-U.S. broker is a "U.S. related person". In the case of
the payment of proceeds from the disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or a "U.S. related person",
information reporting, but not backup withholding, on the payment applies unless
the broker receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a non-U.S. holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:

- a "controlled foreign corporation" for U.S. federal income tax purposes,

- a foreign person 50% or more of whose gross income for certain periods is
derived from the conduct of a U.S. trade or business or

- effective after 2000, a non-U.S. partnership if, at any time during its
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.

Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them,
including changes to these rules that will become effective after 2000.

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.

67
<PAGE> 75

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we and the selling stockholders have agreed to sell to such
underwriter, the number of shares set forth opposite the name of such
underwriter.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc.................................
Credit Suisse First Boston Corporation...................
Dain Rauscher Incorporated...............................
Simmons & Company International..........................
--------
Total.......................................... 7,500,000
========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject of
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.

The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Dain Rauscher Incorporated and Simmons & Company
International are acting as representatives, propose to offer some of the shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the shares to certain dealers at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us and the selling stockholders that the underwriters do not intend to
confirm any sales to any accounts over which they exercise discretionary
authority.

A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make internet distributions on the same basis as other allocations.

We and the selling stockholders who are not selling all of their stock in
this offering have granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to 1,100,000 additional
shares of common stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

At our request, the underwriters will reserve up to 525,000 shares of our
common stock to be sold, at the initial price offering price, to our directors,
officers and employees, as well as individuals associated or affiliated with our
directors, officers and employees. This directed share program will be
administered by Salomon Smith Barney Inc. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase any reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus. We have agreed to
indemnify the underwriters against certain liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with sales of the
directed shares.

We and our stockholders who own more than 5% of the outstanding shares of
our class B common stock prior to this offering have agreed that, for a period
of 270 days from the date of this prospectus, and our directors, executive
officers, relatives of Frank R. Seaver and our stockholders who currently own

68
<PAGE> 76

between 0.5% and 5% of the outstanding shares of our class B common stock have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for common stock. Our stockholders who are subject to the
270-day lock-up agreements can demand that we file with the SEC a registration
statement for their stock at any time after March 31, 2001, but such
registration statement cannot be declared effective prior to the expiration or
waiver of the 270-day lock-up period. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time prior to the expiration of the lock-up period without notice.
Salomon Smith Barney Inc. has no present intent or arrangement to release any of
the securities subject to these lock-up agreements. The release of any lock-up
is considered on a case by case basis. Factors in deciding whether to release
shares may include the length of time before the lock-up expires, the number of
shares involved, the reason for the requested release, market conditions, the
trading price of our common stock, historical trading volumes of our common
stock and whether the person seeking the release is an officer, director or
affiliate of Hydril.

Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us, the selling stockholders, and the
representatives. The material factors considered in determining the initial
public offering price were our record of operations, our current financial
condition, our future prospects, our markets, the economic conditions in and
future prospects for the industry in which we compete, our management, and
currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies considered
comparable to us. There can be no assurance, however, that the prices at which
the shares will sell in the public market after this offering will not be lower
than the price at which they are sold by the underwrites or that an active
trading market in the common stock will develop and continue after this
offering.

We have applied to have our common stock listed on The Nasdaq Stock
Market's National Market System under the symbol HYDL.

The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.

<TABLE>
<CAPTION>
PAID BY US PAID BY SELLING STOCKHOLDERS
--------------------------- -----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Per share.........................
Total.............................
</TABLE>

In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
"Covered" short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters' over-allotment option. In determining
the source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out the
covered syndicate short involve either purchases of the common stock in the open
market after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make "naked" short sales of
shares in excess of the over-allotment option. The underwriters must close out
any naked short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who purchase
in the offering.

69
<PAGE> 77

Stabilizing transactions consist of bids for or purchases of shares in the open
market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.

Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the
over-the-counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.

We estimate that our total expenses for this offering will be $1,400,000.

Dain Rauscher Incorporated and Simmons & Company International have
performed investment banking and advisory services for us from time to time for
which they have received customary fees and expenses. The representatives may,
from time to time, engage in transactions with and perform services for us in
the ordinary course of their business.

We and the selling stockholders have agreed to indemnify the underwriters
against some liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.

LEGAL MATTERS

Certain legal matters relating to the issuance of the shares of common
stock offered by Hydril will be passed on for us by Baker Botts L.L.P., Houston,
Texas. Certain legal matters relating to the sale of shares by the selling
stockholders will be passed on by O'Melveny & Myers, Los Angeles, California.
Certain legal matters relating to the common stock offered by this prospectus
will be passed on by Cravath, Swaine & Moore, New York, New York, as counsel for
the underwriters.

EXPERTS

The financial statements as of December 31, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999, included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

70
<PAGE> 78

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement we have filed with the
SEC relating to our common stock. As permitted by SEC rules, this prospectus
does not contain all information we have included in the registration statement
and the accompanying exhibits and schedules we filed with the SEC. You may refer
to the registration statement, exhibits and schedules for more information about
us and our common stock. You can read and copy the registration statement,
exhibits and schedules at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can obtain information about the operation of
the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.

Following this offering, we will be required to file current reports,
quarterly reports, annual reports, proxy statements and other information with
the SEC. You may read and copy those reports, proxy statements and other
information at the SEC's Public Reference Room or through its Internet site. We
intend to furnish our stockholders with annual reports that will include a
description of our operations and audited consolidated financial statements
certified by an independent public accounting firm.

71
<PAGE> 79

HYDRIL COMPANY

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- December 31, 1998 and 1999
and June 30, 2000 (Unaudited).......................... F-3
Consolidated Statements of Operations -- Years Ended
December 31, 1997, 1998 and 1999 and Six Month Periods
Ended June 30, 1999 and 2000 (Unaudited)............... F-4
Consolidated Statements of Changes in Stockholders'
Equity -- Years Ended December 31, 1997, 1998 and 1999
and Six Month Period Ended June 30, 2000 (Unaudited)... F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1997, 1998 and 1999 and Six Month Periods
Ended June 30, 1999 and 2000 (Unaudited)............... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE> 80

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Hydril Company:

We have audited the accompanying consolidated balance sheets of Hydril Company
and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.

Houston, Texas

April 12, 2000 (August , 2000 as to Notes 4, 8, 11 and 13)

The accompanying consolidated financial statements reflect the increase in
authorized shares of common stock and preferred stock and the creation of class
B common stock, the conversion of the outstanding common stock into class B
common stock, and the five-for-one stock dividend of class B common stock to be
effected and accounted for as a stock split, all of which will be completed
before consummation of the offering. The above opinion is in the form which will
be signed by Deloitte & Touche LLP after the increase in authorized shares and
creation of the class B common stock, and conversion of the outstanding common
stock into class B common stock and upon consummation of such stock dividend,
all of which is described in Note 8 of the Notes to Consolidated Financial
Statements, and assuming that from April 12, 2000 to the date of such conversion
and stock dividend accounted for as a stock split, no other items shall have
occurred that would affect the accompanying consolidated financial statements
and notes thereto.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

July 28, 2000

F-2
<PAGE> 81

HYDRIL COMPANY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1998 1999 2000
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>

CURRENT ASSETS:
Cash and cash equivalents................................. $ 21,837 $ 26,275 $ 29,819
Marketable securities..................................... 13,139 -- --
Receivables:
Trade, less allowance for doubtful accounts: 1998,
$4,144; 1999, $3,710; 2000, $3,519..................... 44,800 31,387 36,708
Contract costs and estimated earnings in excess of
billings............................................... 26,782 8,116 7,477
Other................................................... 1,276 1,507 1,012
--------- --------- ---------
Total receivables................................... 72,858 41,010 45,197
--------- --------- ---------
Inventories:
Finished goods.......................................... 34,247 24,669 21,700
Work-in-process......................................... 15,023 14,078 12,206
Raw materials........................................... 8,672 6,664 6,097
--------- --------- ---------
Total inventories................................... 57,942 45,411 40,003
--------- --------- ---------
Deferred tax asset........................................ 9,318 10,342 10,342
Other current assets...................................... 3,145 2,652 2,283
--------- --------- ---------
Total current assets................................ 178,239 125,690 127,644
--------- --------- ---------
PROPERTY:
Land and improvements..................................... 16,917 17,732 17,625
Buildings and improvements................................ 34,110 38,288 38,021
Machinery and equipment................................... 123,765 127,535 124,196
Construction-in-progress.................................. 7,921 1,358 1,793
--------- --------- ---------
Total............................................... 182,713 184,913 181,635
Less accumulated depreciation and amortization............ (108,852) (110,334) (108,485)
--------- --------- ---------
Property, net....................................... 73,861 74,579 73,150
--------- --------- ---------
OTHER LONG-TERM ASSETS:
Deferred tax asset........................................ 700 7,318 6,809
Other assets.............................................. 6,276 4,221 4,295
--------- --------- ---------
TOTAL............................................... $ 259,076 $ 211,808 $ 211,898
========= ========= =========

CURRENT LIABILITIES:
Accounts payable.......................................... $ 29,382 $ 14,324 $ 12,945
Billings in excess of contract costs and estimated
earnings................................................ 11,078 7,306 2,390
Accrued liabilities....................................... 28,758 20,769 19,852
Short-term borrowings..................................... 8,336 -- --
Current portion of long-term debt......................... 895 498 516
Current portion of capital leases......................... 177 255 260
Income taxes payable...................................... 2,386 1,160 1,008
--------- --------- ---------
Total current liabilities........................... 81,012 44,312 36,971
--------- --------- ---------
LONG-TERM LIABILITIES:
Long-term debt, excluding current portion................. 75,815 72,721 73,756
Capital lease obligations................................. 429 318 187
Other..................................................... 18,137 18,011 17,842
--------- --------- ---------
Total long-term liabilities......................... 94,381 91,050 91,785
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital stock:
Preferred stock -- authorized, 10,000,000 shares of $1
par value; none issued or outstanding
Common stock -- authorized 75,000,000 shares of $.50 par
value; no shares issued or outstanding at December 31,
1998 and 1999 and June 30, 2000
Class B common stock -- authorized, 32,000,000 shares of
$.50 par value; 19,379,040 shares issued and
outstanding at December 31, 1998, 1999 and June 30,
2000................................................... 9,690 9,690 9,690
Retained earnings......................................... 73,993 66,756 73,452
--------- --------- ---------
Total stockholders' equity.......................... 83,683 76,446 83,142
--------- --------- ---------
TOTAL............................................... $ 259,076 $ 211,808 $ 211,898
========= ========= =========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 82

HYDRIL COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.................................. $ 218,107 $ 239,212 $ 159,425 $ 78,261 $ 90,256
COST OF SALES............................. 190,680 208,808 133,770 68,025 65,112
---------- ---------- ---------- ---------- ----------
GROSS PROFIT.............................. 27,427 30,404 25,655 10,236 25,144
---------- ---------- ---------- ---------- ----------
SELLING, GENERAL & ADMINISTRATION EXPENSES
Engineering............................. 5,205 6,179 7,059 4,148 3,107
Sales and marketing..................... 16,268 18,443 14,282 7,254 6,684
General and administration.............. 11,472 16,426 12,063 6,081 6,682
---------- ---------- ---------- ---------- ----------
Total............................ 32,945 41,048 33,404 17,483 16,473
---------- ---------- ---------- ---------- ----------
GAIN ON SALE OF MANUFACTURING FACILITY.... 4,520 -- -- -- --
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)................... (998) (10,644) (7,749) (7,247) 8,671
INTEREST EXPENSE.......................... (1,720) (4,347) (5,528) (2,714) (2,737)
OTHER INCOME (EXPENSE):
Interest income......................... 857 855 1,314 561 685
Rental income........................... 1,021 1,121 124 157 10
Equity in undistributed earnings of 50%
owned affiliate....................... 1,084 -- -- -- --
Gain on sale of investment in XLS
Holding............................... 18,521 -- -- -- --
Gain (loss) on marketable securities.... 75 (8,882) 253 253 3,576
Other................................... (19) (73) 620 614 (59)
---------- ---------- ---------- ---------- ----------
Total............................ 21,539 (6,979) 2,311 1,585 4,212
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES......... 18,821 (21,970) (10,966) (8,376) 10,146
PROVISION (BENEFIT) FOR INCOME TAXES...... 6,501 (7,470) (3,729) (2,848) 3,450
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)......................... $ 12,320 $ (14,500) $ (7,237) $ (5,528) $ 6,696
========== ========== ========== ========== ==========
INCOME (LOSS) PER SHARE -- BASIC AND
DILUTED................................. $ 0.64 $ (0.75) $ (0.37) $ (0.29) $ 0.35
WEIGHTED AVERAGE SHARES OUTSTANDING....... 19,385,040 19,384,248 19,379,040 19,379,040 19,379,040
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 83

HYDRIL COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
SHARES OF RETAINED COMPREHENSIVE
COMMON STOCK COMMON EARNINGS INCOME TOTAL
------------ ------ -------- ------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997................. 19,385,040 $9,690 $ 80,082 $ -- $ 89,772
COMPREHENSIVE INCOME:
Net Income............................. -- -- 12,320 -- 12,320
Unrealized gain on marketable
securities.......................... -- -- 557 557
---------- ------ -------- ----- --------
Total Comprehensive Income..... -- -- 12,320 557 12,877
---------- ------ -------- ----- --------
Dividends paid ($.10 per share).......... -- -- (1,939) -- (1,939)
---------- ------ -------- ----- --------
BALANCE, DECEMBER 31, 1997............... 19,385,040 $9,690 $ 90,463 $ 557 $100,710
========== ====== ======== ===== ========
COMPREHENSIVE LOSS:
Net Loss............................... -- $ -- $(14,500) $ -- $(14,500)
Other comprehensive income, net of tax;
Reclassification adjustment,
realized gain included in net loss,
net of tax.......................... -- -- -- (557) (557)
---------- ------ -------- ----- --------
Total Comprehensive Loss....... -- (14,500) (557) (15,057)
---------- ------ -------- ----- --------
Stock repurchase......................... (6,000) -- (31) -- (31)
Dividends paid ($.10 per share).......... (1,939) (1,939)
---------- ------ -------- ----- --------
BALANCE, DECEMBER 31, 1998............... 19,379,040 $9,690 $ 73,993 $ -- $ 83,683
========== ====== ======== ===== ========
COMPREHENSIVE LOSS:
Net Loss............................... -- $ -- $ (7,237) $ -- $ (7,237)
---------- ------ -------- ----- --------
Total Comprehensive Loss....... -- -- (7,237) -- (7,237)
---------- ------ -------- ----- --------
BALANCE, DECEMBER 31, 1999............... 19,379,040 $9,690 $ 66,756 $ -- $ 76,446
========== ====== ======== ===== ========
COMPREHENSIVE INCOME:
Net Income............................. -- $ -- $ 6,696 $ -- $ 6,696
---------- ------ -------- ----- --------
Total Comprehensive Income..... -- -- 6,696 -- 6,696
---------- ------ -------- ----- --------
BALANCE, JUNE 30, 2000 (UNAUDITED)....... 19,379,040 $9,690 $ 73,452 $ -- $ 83,142
========== ====== ======== ===== ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 84

HYDRIL COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 12,320 $(14,500) $ (7,237) $(5,528) $ 6,696
-------- -------- -------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.......................................... 5,259 6,324 7,851 3,558 4,153
Deferred income taxes................................. 2,500 (13,251) (7,643) (4,457) 1,205
Provision for doubtful accounts....................... 261 3,019 (317) (287) 50
Equity in earnings of 50% owned affiliate............. (1,084) -- -- -- --
(Gain) loss on XLS/marketable securities.............. (18,596) 8,882 (253) (253) --
(Gain) on sale of Singapore facility.................. (4,520) -- -- -- --
Loss on asset disposition............................. -- -- -- -- 626
(Gain) on sale of real estate holdings not used in
operations.......................................... -- -- (649) (649) --
(Gain) on put mediation settlement.................... -- -- -- -- (3,576)
Change in operating assets and liabilities:
Receivables......................................... (16,501) (3,869) 13,499 16,614 (4,876)
Contract costs and estimated earnings in excess of
billings.......................................... (9,077) (3,719) 18,666 16,623 639
Inventories......................................... (15,410) (9,672) 12,531 (1,225) 5,408
Other current and noncurrent assets................. (1,819) (4,234) 1,707 357 (353)
Accounts payable.................................... 6,667 246 (15,058) (11,811) (1,379)
Billings in excess of contract costs and estimated
earnings.......................................... (641) 6,523 (3,772) (5,375) (4,916)
Accrued liabilities................................. 11,159 3,179 (7,989) (989) (917)
Income taxes payable................................ 1,005 955 (1,226) (1,434) (152)
Other long-term liabilities......................... 366 2,602 74 414 (169)
-------- -------- -------- ------- -------
Net cash provided by (used in) operating
activities...................................... (28,111) (17,515) 10,184 5,558 2,439
-------- -------- -------- ------- -------
NET CASH FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate holdings not used in
operations............................................ -- -- 1,996 1,996 --
Proceeds from disposition of assets..................... -- -- -- -- 42
Net change in short-term investments.................... 9,057 -- -- -- --
Proceeds from sale of marketable securities............. 3,094 -- 13,108 13,108 --
Proceeds from exercise of put option.................... -- 981 -- -- --
Proceeds from put mediation settlement.................. -- -- -- -- 3,576
Proceeds from sale of Singapore plant................... 6,195 -- -- -- --
Disbursements for purchase/construction of Batam
plant................................................. (2,456) (1,427) -- -- --
Capital expenditures.................................... (25,988) (14,340) (8,790) (6,189) (3,440)
-------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities...................................... (10,098) (14,786) 6,314 8,915 178
-------- -------- -------- ------- -------
NET CASH FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................ 49,436 61,836 -- -- 1,297
Repayment of debt....................................... -- (31,976) (11,827) (8,999) (244)
Repayment of capital leases............................. (54) (167) (233) (110) (126)
Payment of dividends.................................... (1,939) (1,939) -- -- --
Repurchase common stock................................. -- (31) -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities...................................... 47,443 27,723 (12,060) (9,109) 927
-------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 9,234 (4,578) 4,438 5,364 3,544
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 17,181 26,415 21,837 21,837 26,275
-------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 26,415 $ 21,837 $ 26,275 $27,201 $29,819
-------- -------- -------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid........................................... $ 1,720 $ 4,347 $ 5,528 $ 2,667 $ 2,428
Income taxes (refunded) paid:
Domestic.............................................. (256) (134) 133 175 25
Foreign............................................... 2,952 4,842 3,629 2,254 1,920
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 85

HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999

AND THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 2000

($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(ALL INTERIM PERIOD BALANCES ARE UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations -- Hydril Company (the "Company") operates principally
in the oilfield equipment industry on a worldwide basis. Operations involve
engineering, manufacturing and marketing high performance specialty equipment
for use in the exploration and production of oil and gas. The Company's customer
base consists primarily of steel pipe distributors, major oil companies,
independent oil and gas producers and drilling contractors. The Company operates
in two business segments -- Tubular and Pressure Control (see Note 12 for
further information).

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

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

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

Revenues from long-term contracts, which are generally contracts from six
to eighteen months and an estimated contract price in excess of $1,000, are
recognized using the percentage-of-completion method measured by the percentage
of cost incurred to estimated final cost. Contract costs include all direct
material, labor and subcontract costs and those indirect costs related to
contract performance. Provisions are made currently for the entire amount of
anticipated losses on uncompleted contracts. Changes in contract performance,
conditions and estimated profitability may result in revisions to estimated
costs and income or loss and will be recognized in the period in which those
revisions are determined. It is at least reasonably possible that estimates of
contract costs could be revised in the near term. Revenues from long-term
contracts were approximately 13%, 17%, 12%, 10% and 14% of total revenues for
the years ended December 31, 1997, 1998 and 1999 and for the six months ended
June 30, 1999 and 2000, respectively.

Cash and Cash Equivalents -- Cash equivalents are highly liquid investments
including commercial paper and time deposits having original maturities of three
months or less.

Supplemental Cash Flow Information (Noncash Investing and Financing
Activities) -- In 1997, the Company sold its investment in XLS Holding Inc.
("XLS") with a book value of $4,755 and received 472,454 common shares of
Weatherford International Inc. ("WFI") with a market value of $23,276 resulting
in a gain of $18,521, net of legal expenses.

Allowance for Doubtful Accounts -- The Company maintains an allowance for
doubtful accounts based on its best estimate of accounts receivable considered
to be uncollectible. An analysis of the activity

F-7
<PAGE> 86
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the allowance for doubtful accounts for the years ended December 31, 1997,
1998 and 1999 is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Beginning balance.......................................... $ 939 $1,125 $4,144
Additions charged to expense............................... 261 3,019 (317)
Accounts written off....................................... (78) (7) (118)
Recoveries................................................. 3 7 1
------ ------ ------
Ending balance............................................. $1,125 $4,144 $3,710
====== ====== ======
</TABLE>

Marketable Securities -- Marketable securities are stated at market value
as determined by the most recently traded price of the security at the balance
sheet date. Securities are defined as trading securities or available-for-sale
securities under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."

Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. Securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and unrealized holding gains and losses are included in earnings.
Available for sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of accumulated
comprehensive income.

Declines in fair value of marketable securities are evaluated to determine
whether such declines are "other-than-temporary." Factors which the Company
considers in determining the existence of an "other-than-temporary" decline in
fair value include the length of time and extent to which market value has been
less than cost, and the intent and ability of the Company to retain the
investment until recovery of the market value. A decline determined to be
"other-than-temporary" is recognized in the statements of operations.

Inventories -- Inventories are stated at the lower of cost or market.
Inventory costs include material, labor and production overhead. Cost is
determined by the last in, first out ("LIFO") method for substantially all
pressure control products (approximately 89% and 90% of total gross inventories
at December 31, 1998 and 1999, respectively) and by the first in, first out
("FIFO") method for all other inventories. If the FIFO method had been used to
value all inventories, the cost would have been $13,239 and $12,136 higher at
December 31, 1998 and 1999, respectively.

The Company periodically reviews its inventory for excess or obsolete items
and provides a reserve for the difference in the carrying value of excess or
obsolete items and their estimated net realizable value. An analysis of the
excess and obsolete inventory reserve for the years ended December 31, 1997,
1998 and 1999 is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Beginning balance.......................................... $5,485 $5,901 $8,531
Provision for excess and obsolete inventory................ 1,234 3,296 2,423
Inventory disposed of during the year...................... (818) (666) (4,568)
------ ------ ------
Ending balance................................... $5,901 $8,531 $6,386
====== ====== ======
</TABLE>

Property -- Property, plant and equipment is recorded at cost. Expenditures
for renewals, replacements and improvements are capitalized. Maintenance and
repairs are charged to operating expenses as

F-8
<PAGE> 87
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred. Depreciation of property, including that under capital leases, is
based on the straight-line method. Rates are based upon the estimated useful
lives of the various classes of property, generally as follows:

<TABLE>
<S> <C>
Buildings and improvements............................. 20-45 years
Machinery and equipment................................ 3-12 years
</TABLE>

Upon retirement or other disposal of fixed assets, the costs and related
accumulated depreciation are removed from the respective accounts and any gains
or losses are included in the results of operations.

Depreciation expense was $5,259, $6,324, $7,851, $3,558 and $4,153 for the
years ended December 31, 1997, 1998 and 1999 and the six months ended June 30,
1999 and 2000, respectively.

Included in other assets within the consolidated balance sheets at December
31, 1998 and 1999 are $4,312 and $2,945, respectively, of real estate holdings.
These holdings are composed of land and buildings in the United States not
currently used in operations which may be sold if prices acceptable to the
Company can be obtained. Such holdings are reported at the lower of their
carrying amount or fair value less estimated costs to sell.

Gain on sale of manufacturing facility -- During 1997, the Company sold its
Singapore manufacturing facility, with a book value of approximately $1,680,
through a financial intermediary for cash of approximately $6,200, resulting in
a gain of $4,520.

Impairment of Long-Lived Assets -- The Company reviews its long-lived
assets for impairment when circumstances indicate that the carrying amount of an
asset may not be recoverable. The determination of recoverability is made based
upon the estimated undiscounted future cash flows of the related asset.

Research and Development Costs -- The Company engages in research and
development activities to develop new products and to significantly improve
existing products. Some of these activities are conducted with other industry
participants or government organizations who reimburse the Company for costs
incurred by the Company on their behalf. The Company expenses as incurred all
research and development costs that are not reimbursable by other parties.
Research and development expenses, net of reimbursement, were $1,207, $1,526,
$1,107, $820, and $581 for the years ended December 31, 1997, 1998 and 1999 and
the six months ended June 30, 1999 and 2000, respectively.

Stock-Based Compensation -- The Company accounts for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock at the date of
grant over the amount an employee must pay to acquire the common stock.

Environmental Liabilities -- The costs to remediate and monitor
environmental matters are accrued when such liabilities are considered probable
and a reasonable estimate of such costs is determinable.

Income Taxes -- The Company follows the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the future tax consequences of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
and (ii) operating loss and tax credit carryforwards for tax purposes. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period. United States deferred income taxes
have been provided on unremitted earnings of foreign subsidiaries.

Foreign Currencies Translation -- The Company's foreign operations are
closely integrated with and are extensions of the Company's U.S. operations.
Accordingly, the U.S. dollar is the functional currency for all of the Company's
foreign operations. Inventory, property, plant and equipment, cost of sales and

F-9
<PAGE> 88
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

depreciation are remeasured from the local currency to U.S. dollars at
historical exchange rates. Monetary assets and liabilities are remeasured at
current exchange rates on the balance sheet date. Income and expense accounts,
other than cost of sales and depreciation, are remeasured at weighted average
exchange rates during the year. Gains and losses resulting from those
remeasurements are included in the statements of operations.

Concentration of Credit and Customer Risk -- The Company sells its products
to a broad group of steel pipe distributors, major and independent domestic and
international oil and gas companies and national oil companies, as well as
domestic and international drilling contractors and rental companies. See Note
12 for further information on major customers. The Company performs ongoing
credit evaluations of its customers and provides allowance for probable credit
losses where necessary.

Recent Accounting Standards -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires an entity to recognize all derivatives as
an asset or liability measured at its fair value. Depending on the intended use
of the derivative, changes in its fair value will be reported in the period of
change as either a component of earnings or a component of other comprehensive
income. SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Earlier application of SFAS 133 is encouraged, but not
prior to the beginning of any fiscal quarter that began after issuance of the
Statement. Retroactive application to periods prior to adoption is not allowed.
The Company has not completed the process of evaluating the impact that could
result from adopting SFAS 133.

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

Interim Presentation (Unaudited) -- The accompanying consolidated interim
financial statements and disclosures have been prepared by the Company in
accordance with accounting principles generally accepted in the United States
and in the opinion of management reflect all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation in all material
respects of the financial position and results for the interim periods. The
results of operations for the six months ended June 30, 2000 are not necessarily
indicative of results to be expected for the full year. Certain financial
statement items in the interim 1999 period have been reclassified to conform to
the interim 2000 presentation.

F-10
<PAGE> 89
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

Accrued liabilities and other long-term liabilities as of December 31, 1998
and 1999 and June 30, 2000 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued liabilities:
Reserve for losses on projects (Note 3)............. $14,600 $ 7,478 $ 6,254
Employee benefits................................... 3,897 3,663 4,759
Taxes (property, sales, payroll, other)............. 2,503 2,601 2,389
Accrued payroll, bonus and severance................ 2,368 1,856 2,037
Other............................................... 5,390 5,171 4,413
------- ------- -------
$28,758 $20,769 $19,852
======= ======= =======
Other long-term liabilities:
Post retirement health and life benefits............ $12,657 $10,994 $10,994
Pension plan benefits............................... 5,228 6,461 6,516
Other............................................... 252 556 332
------- ------- -------
$18,137 $18,011 $17,842
======= ======= =======
</TABLE>

3. LONG-TERM CONTRACTS

The components of long-term contracts as of December 31, 1998 and 1999 and
June 30, 2000 consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs and estimated earnings on uncompleted
contracts......................................... $ 74,375 $ 39,450 $ 37,539
Less: billings to date.............................. (58,671) (38,640) (32,452)
-------- -------- --------
Excess of costs and estimated earnings over
billings.......................................... $ 15,704 $ 810 $ 5,087
======== ======== ========
Included in the accompanying balance sheets under
the following captions:
Contract costs and estimated earnings in excess of
billings.......................................... $ 26,782 $ 8,116 7,477
Billings in excess of contract costs and estimated
earnings.......................................... (11,078) (7,306) (2,390)
-------- -------- --------
Total..................................... $ 15,704 $ 810 $ 5,087
======== ======== ========
</TABLE>

Beginning in 1996, the Company entered into 17 fixed-price contracts to
provide complete sets of pressure control equipment, some with related control
systems. Of the original 17 projects, 15 have been completed and shipped as of
June 30, 2000 and the remaining two are expected to be shipped by October 31,
2000.

Losses incurred on these projects, including late delivery penalties, were
approximately $26,500, $27,500, $3,700, $2,100 and $1,500, respectively, for the
years ended December 31, 1997, 1998, 1999 and for the six months ended June 30,
1999 and 2000 respectively. Provisions for estimated losses are determined by
comparing total sales price to costs incurred plus estimated costs to complete
the contract. Provision for estimated losses have been made, to the extent
applicable, for all projects not completed as of June 30, 2000.

F-11
<PAGE> 90
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company incurred late delivery penalties when projects were not
delivered timely because of evolving engineering design, individual project
customization and limited manufacturing capacity. The late delivery penalties
are expected to be settled with customers shortly after our completion of
contract requirements by customers taking payment deductions from final
invoices. As of December 31, 1998 and 1999 and June 30, 2000, the Company has
accrued as part of the reserve for project losses $7,200, $6,097, and $4,321,
respectively, for late delivery penalties.

As of December 31, 1998 and 1999 and June 30, 2000, the Company had $394,
$2,327 and $1,700, respectively, of receivables representing amounts billed to,
but unpaid, by customers pending completion of the projects.

4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

The Company's borrowings as of December 31, 1998 and 1999 and June 30, 2000
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Short-term borrowings................................. $ 8,336 $ -- $ --
======= ======= =======
Long-term debt:
Senior notes.......................................... $60,000 $60,000 $60,000
Revolving lines of credit:
U.S. ............................................... 14,550 11,954 13,251
Foreign............................................. 430 -- --
IBM note financing.................................... 1,730 1,265 1,021
------- ------- -------
Total....................................... 76,710 73,219 74,272
Less current portion.................................. (895) (498) (516)
------- ------- -------
Total long-term debt........................ $75,815 $72,721 $73,756
======= ======= =======
</TABLE>

Short-term borrowings -- The Company had available a short-term credit
facility totaling $10,000 of which $8,336 was outstanding at December 31, 1998.
This short-term credit facility was terminated and the outstanding borrowings
were repaid on January 7, 1999. The interest rate at December 31, 1998 was
5.95%.

Senior notes -- On June 26, 1998, the Company issued $60,000 in senior
notes due June 30, 2003. The holders of the notes are Principal Mutual Life
Insurance Company $59,000 and Nippon Life Insurance Company of America $1,000.
The notes bear interest at a rate of 6.85% payable quarterly. The senior notes
may not be prepaid prior to maturity unless the Company pays the noteholders a
make-whole premium based on prevailing market interest rates, which as of June
30, 2000, would require a premium payment of $65.

Revolving lines of credit -- Since March 1998, the Company has had
available a secured U.S. revolving line of credit totaling $15,000 of which
$14,550 and $11,954 was outstanding at December 31, 1998 and 1999, respectively.
Interest on outstanding borrowings under this credit facility at December 31,
1999 was payable at LIBOR plus 325 basis points (9.4% at December 31, 1999). On
June 8, 2000, the U.S. revolving line of credit was amended to extend the
maturity of the revolving line of credit from June 30, 2001 to July 1, 2001 and
change the interest rate to, at the Company's election, the bank's prime rate
plus 75 basis points or LIBOR plus 250 basis points.

The foreign revolving lines of credit, committed and uncommitted, totaled
$13,000, of which none was outstanding at December 31, 1999. The uncommitted
line for $10,000 can be terminated at the bank's

F-12
<PAGE> 91
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discretion and the committed line for $3,000 expires February 28, 2001. Interest
on the outstanding borrowings under the foreign revolving lines of credit is
payable quarterly at rates ranging from LIBOR plus 100 basis points (7.10% at
December 31, 1999) to a bank base rate plus 150 basis points (7% at December 31,
1999).

Covenants -- The U.S. revolving line of credit requires the Company to
comply with certain covenants and financial tests. These include a requirement
to maintain minimum levels of tangible net worth, to not exceed levels of debt
specified in the agreement, to comply with a fixed coverage test and to maintain
a minimum level of earnings before interest, taxes, depreciation and
amortization. On February 21, 2000, and April 21, 1999, the Company and its
lender modified the U.S. revolving line of credit agreement to reduce certain of
the requirements. The Company was in compliance with the covenants and financial
tests, as modified, at each of December 31, 1999 and June 30, 2000. The
long-term note agreement for the senior notes has one financial event of default
covenant, which is a minimum tangible net worth test; and the Company was in
compliance with this covenant at each of December 31, 1999 and June 30, 2000.
Additional financial tests, if not passed, restrict the Company's ability to
incur additional indebtedness or make acquisitions, investments and restricted
payments, such as pay dividends and repurchase capital stock. At December 31,
1999, the Company did not meet the fixed charge test, but did satisfy this test
at June 30, 2000.

Collateral -- The senior notes and the U.S. revolving line of credit are
secured, on a pari passu basis, by accounts receivable, inventory, equipment,
intellectual property, certain real property, 100% of the stock of domestic
subsidiaries, and 65% of the stock of foreign subsidiaries.

IBM note financing -- The Company is financing certain equipment and
completed consulting agreements with IBM over a five-year period beginning June
1997. The notes bear interest at 4.90%-7.61% per annum.

Debt maturities -- The estimated remaining principal payments on the
outstanding debt, exclusive of capital lease obligations, as of December 31,
1999 are as follows:

<TABLE>
<CAPTION>
DEBT
MATURITIES TOTAL
---------- -------
<S> <C>
2000....................................................... $ 498
2001....................................................... 12,488
2002....................................................... 233
2003....................................................... 60,000
-------
Total............................................ $73,219
=======
</TABLE>

5. INCOME TAXES

The geographical sources of income (loss) before income taxes for the three
years ended December 31 1997, 1998 and 1999 were as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
United States......................................... $ 2,002 $(20,998) $(14,345)
Foreign............................................... 16,819 (972) 3,379
------- -------- --------
Income (loss) before income taxes..................... $18,821 $(21,970) $(10,966)
======= ======== ========
</TABLE>

F-13
<PAGE> 92
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision (benefit) for income taxes for the three years ended December
31, 1997, 1998 and 1999 consisted of the following:

<TABLE>
<CAPTION>
1997 1998 1999
------ -------- -------
<S> <C> <C> <C>
United States:
Current............................................... $ (37) $ 337 $ --
Deferred.............................................. 2,026 (12,957) (7,421)
Foreign:
Current............................................... 4,038 5,444 3,914
Deferred.............................................. 474 (294) (222)
------ -------- -------
Total......................................... $6,501 $ (7,470) $(3,729)
====== ======== =======
</TABLE>

The consolidated effective income tax rates (as a percentage of income
before income taxes) for the three years ended December 31, 1997, 1998 and 1999
varies from the United States statutory income tax rate for the reasons set
forth below:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
Nondeductible expenses...................................... 0.5% (0.5)% (0.7)%
Other....................................................... (1.0)% (0.5)% (0.3)%
---- ---- ----
Effective Rate............................................ 34.5% 34.0% 34.0%
---- ---- ----
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the amounts of assets and liabilities for accounting purposes and the
amounts used for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of December 31, 1998 and 1999 were as
follows:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory capitalization cost............................... $ 4,187 $ 3,567
Accrued expenses and other items not deductible for tax
purposes.................................................. 16,016 12,500
Net operating loss carryforward............................. -- 5,191
Alternative minimum tax and foreign tax credits............. 2,056 6,118
Other....................................................... 1,910 1,366
-------- --------
Total deferred tax assets......................... 24,169 28,742
Deferred tax liabilities:
Property, plant and equipment............................... (1,592) (2,319)
Unrepatriated foreign earnings.............................. (7,572) (8,763)
Marketable securities....................................... (4,427) --
Other....................................................... (560) --
-------- --------
Total deferred tax liability...................... (14,151) (11,082)
-------- --------
Net deferred tax asset...................................... $ 10,018 $ 17,660
======== ========
</TABLE>

At December 31, 1999, the Company had approximately $15,000 of net
operating losses available to offset future taxable income through the year
2019. In addition, the Company has approximately $600 of federal alternative
minimum tax credits which are available to reduce future federal income tax
payable, if any, over an indefinite period (although not below the tentative
minimum tax otherwise due in any year),

F-14
<PAGE> 93
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and approximately $5,500 of foreign tax credits which are available to reduce
future U.S. income taxes payable, if any, through the year 2004.

Under Internal Revenue Code Section 382, a limitation on the utilization of
net operating losses would be imposed in the event that the Company experiences
a change in control. The initial public offering of common stock will not
constitute a change in control with respect to this limitation.

6. EMPLOYEE BENEFITS

Post Retirement Benefits -- The Company has a defined benefit pension plan
covering substantially all of its U.S. employees. Benefits are based on the
employees' years of service and compensation. Plan assets consist primarily of
investments in equities and money market funds.

Additionally, the Company provides certain medical, life insurance and/or
dental benefits for eligible employees, hired before July 1, 1997, who have
retired under one of the Company's pension plans. Effective December 31, 1999,
the Company changed eligibility provisions for this plan, significantly reducing
the number of participants. Under the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," this change to the
plan resulted in the recognition of $2,225 of net curtailment gains in 1999.
Also effective December 31, 1999, the Company changed the plan to increase
premiums and reduce lifetime cap provisions. These negative plan amendments
resulted in an additional $4,579 of negative prior service cost and will be
amortized as a reduction of expense over the remaining life expectancy of fully
eligible participants.

F-15
<PAGE> 94
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The benefit obligation, value of plan assets, and funded status component
costs of the plans are as follows:

<TABLE>
<CAPTION>
POST RETIREMENT
PENSION BENEFITS HEALTH AND LIFE BENEFITS
----------------- -------------------------
1998 1999 1998 1999
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year.............. $18,143 $21,761 $ 11,513 $ 12,737
Service cost....................................... 1,255 1,521 401 372
Interest cost...................................... 1,316 1,489 822 804
Participant contributions.......................... -- -- 11 11
Plan amendments.................................... -- -- -- (4,579)
Curtailment (gain)/loss............................ -- -- -- (2,225)
Benefits paid...................................... (212) (281) (926) (895)
Actuarial (gain)/loss.............................. 1,259 (3,612) 916 457
------- ------- -------- --------
Benefit obligation at end of year.......... $21,761 $20,878 $ 12,737 $ 6,682
======= ======= ======== ========
Fair value of plan assets at beginning of year....... $15,090 $14,057 -- --
Actual return on plan assets....................... (822) (915) -- --
Employer contributions............................. 105 -- $ 915 $ 884
Participant contributions.......................... -- -- 11 11
Benefits paid...................................... (212) (281) (926) (895)
Administrative expenses............................ (104) (102) -- --
------- ------- -------- --------
Fair value of plan assets at end of year... $14,057 $12,759 $ 0 $ 0
======= ======= ======== ========
Reconciliation of plan funded status
Funded status...................................... $(7,704) $(8,119) $(12,737) $ (6,682)
Unrecognized actuarial (gain)/loss................. 1,250 (94) (834) (378)
Unrecognized transition obligation................. 792 599 -- --
Unamortized prior service cost..................... (55) (45) -- (4,579)
------- ------- -------- --------
Net amount recognized at year-end.......... $(5,717) $(7,659) $(13,571) $(11,639)
======= ======= ======== ========
Amounts recognized in the consolidated balance sheet
as accrued benefit liability at year end........... $(5,717) $(7,659) $(13,571) $(11,639)
======= ======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
POST RETIREMENT
PENSION BENEFITS HEALTH AND LIFE BENEFITS
------------------------ -------------------------
1997 1998 1999 1997 1998 1999
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost........................... $1,061 $1,255 $1,521 $ 319 $ 401 $ 372
Interest cost.......................... 1,189 1,316 1,489 804 822 804
Expected return on plan assets......... (1,032) (1,370) (1,251) -- -- --
Amortization of prior service cost..... (9) (9) (9) -- -- --
Amortization of transition
obligation.......................... 193 193 193 -- -- --
Recognized actuarial gain.............. (32) (53) -- (49) (18) --
------ ------ ------ ------ ------ -------
Net periodic cost.............. $1,370 $1,332 $1,943 $1,074 $1,205 $ 1,176
====== ====== ====== ====== ====== =======
Additional (gain) recognized due to:
Curtailment............................ $(2,225)
=======
</TABLE>

The assumed discount rate and salary increase rate used in determining the
benefit obligation were 7.75% and 4.50%, respectively, at December 31, 1999.
Such rates used at December 31, 1998 and 1997
F-16
<PAGE> 95
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

were 6.75% and 4.50% and 7.25% and 5.00%, respectively. The expected long-term
rate of return on pension plan assets at December 31, 1998 and 1999 was 9%. The
expected long-term rate of return on pension plan assets at December 31, 1997
was 8%.

A 9% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2000 in determining the benefit obligation for the post
retirement health and life plan. This rate is assumed to decrease gradually to
5% for 2004 and remain at that level thereafter.

The assumed health care cost trend rates have a significant effect on the
amounts reported for the post retirement health and life plan. A one percent
change in the assumed health care cost trend rates would have the following
effects:

<TABLE>
<CAPTION>
ONE PERCENT
--------------------
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components for
1999...................................................... $ 67 $ (57)
Effect on December 31, 1999 benefit obligation.............. 127 (125)
</TABLE>

Defined Contribution Plan -- The Company has an employee savings plan under
which U.S. employees can invest up to 12% of their earnings matched by an amount
from the Company equal to one-half of the first 6% of the employees'
contributions. The Company's contributions were $551, $710 and $898 in 1997,
1998 and 1999, respectively.

Other -- Substantially all of the Company's employees in foreign locations
are covered by either governmental-sponsored or Company-sponsored benefit plans.
The aggregate liabilities and expenses of these foreign plans are not material
to the consolidated financial statements.

7. OTHER INCOME

Investment in XLS Holding Inc. -- In 1994, the Company obtained a 50%
interest in XLS as a result of the settlement of litigation between the Company
and XL Systems, Inc. ("XL Systems") and in consideration for the licensing to XL
Systems of several of the Company's patented thread connections. The Company
valued its investment in XLS based upon an independent valuation. The Company's
investment in XLS was accounted for using the equity method.

Gain on XLS/Marketable securities -- In September 1997, the Company sold
its XLS shares in exchange for 472,454 registered common shares of WFI, which
represented less than 1% of WFI's outstanding common stock. Upon receipt of the
WFI stock, which was the only consideration for the Company's XLS shares, the
Company recognized a gain, net of expenses, of $18,521, based on a $49.65
weighted average market price of the WFI stock over the twenty days preceding
the close. Subsequently in 1997, the Company sold 64,447 of the WFI shares in an
ordinary brokerage transaction on the New York Stock Exchange for $3,725 in cash
and recognized a gain of $75.

In January 1998, the Company purchased two option contracts from a major
financial institution for a total of $2,745 to sell its remaining 408,007 shares
of WFI common stock for $44.53 per share (the "put price"). The put options were
purchased to provide protection against a decline in the market value of the WFI
shares. The put options were purchased with the proceeds from loans from such
financial institution, which were secured by a pledge of the WFI shares. Put
options covering 200,000 WFI shares were exercised by the Company immediately
prior to their expiration in July 1998 as a result of which the Company received
a cash settlement of approximately $981, representing the amount by which the
put price for those shares exceeded the market price at that time. Put options
covering the remaining 208,007 WFI shares were exercised by the Company
immediately prior to their expiration in January 1999, at which time the Company
received a cash settlement of approximately $5,102, again representing the

F-17
<PAGE> 96
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amount by which the put price for those shares exceeded the market price at the
time of exercise. At the time of exercise of each of the put options, the
related loans secured by the WFI shares underlying those put options were
repaid. Following both exercises, the Company retained the 408,007 shares of WFI
common stock covered by the put options. Subsequently in the first quarter of
1999, the Company sold the 408,007 shares of WFI common stock in ordinary
brokerage transactions on the New York Stock Exchange.

Marketable securities at December 31, 1998 included the 408,007 shares of
WFI common stock (including the 208,007 shares covered by put options discussed
above). At December 31, 1998, the Company determined that a $6,137 decline in
the fair value of the WFI shares was other-than-temporary, and accordingly, the
Company recognized this decline as part of other expenses in 1998. In 1999, the
Company realized a gain of $253 from the sale of the 408,007 shares.

Settlement Relating to 1998 Exercise of WFI Put Options -- In May 2000, the
Company settled through mediation a dispute with the financial institution from
which it purchased the put options in 1998 covering shares of WFI common stock.
As a result of this settlement, the Company received, after expenses, $3,576.

8. CAPITAL STOCK AND EARNINGS PER SHARE

Preferred Stock -- At June 30, 2000, the Company has authorized the
issuance of 1,000,000 shares of $1 par value preferred stock. At June 30, 2000
and December 31, 1999, there were no shares of preferred stock issued or
outstanding. Prior to the Company's initial public offering of common stock (the
"Offering"), the Company will amend its charter to authorize the issuance of
10,000,000 shares of preferred stock.

Common Stock -- At June 30, 2000 and December 31, 1999, the Company had
authorized the issuance of 4,000,000 shares of $.50 par value common stock and
3,229,840 of such shares were issued and outstanding. Prior to the Offering, the
Company will amend its charter to authorize the issuance of 107,000,000 shares
of common stock, divided into 75,000,000 shares of common stock, par value $.50
per share and 32,000,000 shares of class B common stock, par value $.50 per
share. The charter amendment will also provide that each share of then
outstanding common stock will be automatically be converted into one share of
class B common stock. The options outstanding for the purchase of 702,000 shares
of common stock will be converted into options for the purchase of 702,000
shares of class B common stock. The Company will then issue a stock dividend to
the class B common stockholders consisting of five additional shares of class B
common stock for each share of class B common stock outstanding. All share and
per share amounts in the consolidated financial statements have been
retroactively restated for the increase in authorized shares of common stock and
preferred stock and the creation of class B common stock, the conversion of
outstanding common stock into class B common stock and the five-for-one stock
dividend of class B common stock, which is accounted for as a stock split.

Upon completion of the Offering, only those stockholders who held shares of
common stock prior to the Offering will hold class B common stock. Shares of
common stock and class B common stock generally have identical rights except as
further described. The holders of common stock are entitled to one vote per
share on all matters to be voted on by stockholders generally, including the
election of directors, while the holders of class B common stock are entitled to
10 votes per share. Holders of common stock have no conversion rights while
holders of class B common stock may convert each share of class B common stock
into one share of common stock at any time. In addition, under certain
circumstances, shares of class B common stock will automatically convert into
shares of common stock.

The income (loss) per common share shown on the Consolidated Statements of
Operations reflects net income (loss), divided by the weighted average number of
common shares outstanding during the

F-18
<PAGE> 97
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respective years. The only potentially dilutive securities are the 702,000
options granted in 1999 (see Note 11). In calculating diluted income (loss) per
share, common shares issuable under stock options are added to the weighted
average common shares outstanding when dilutive. For the year ended December 31,
1999, all potentially dilutive securities are anti-dilutive and therefore are
not included in the Earnings per Share ("EPS") calculations. For the six months
ended June 30, 1999 and 2000, all potentially dilutive securities are also
anti-dilutive and therefore are not included in the EPS calculations.

9. COMMITMENTS AND CONTINGENCIES

Leases -- The Company's lease commitments are principally for operating
facilities and equipment. Leases for certain data processing equipment are
capitalized because these leases transfer ownership of the equipment to the
Company at the end of the lease term.

Obligations for minimum payments under noncancelable capital and operating
leases for the years ended December 31 are as follows:

<TABLE>
<CAPTION>
TOTAL OPERATING CAPITAL
------ --------- -------
<S> <C> <C> <C>
2000...................................................... $ 785 $ 510 $275
2001...................................................... 578 303 275
2002...................................................... 242 190 52
2003...................................................... 64 64 --
2004...................................................... 64 64 --
Greater than five years................................... 70 70 --
------ ------ ----
Total minimum lease payments.................... $1,803 $1,201 $602
Less: amounts representing interest....................... (29)
----
Present value of net minimum capital lease payments....... 573
Less: current portion..................................... 255
----
Long-term obligation............................ $318
====
</TABLE>

Property and equipment at December 31, 1999 included equipment under
capital leases with a net book value of $539. Rental expense was $1,417, $1,021,
$952, $736 and $571 in the year ended December 31, 1997, 1998 and 1999 and the
six months ended June 30, 1999 and 2000, respectively.

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

The Company has been identified as a potentially responsible party at one
site in California to which the Company formerly sent waste oils and other
materials for disposal. Based on the number of other potentially responsible
parties, the total estimated site cleanup costs and our estimated share of such
costs, the Company does not expect this matter to materially affect its results
of operations or financial condition.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments at December 31, 1998 and 1999 consisted
of cash and cash equivalents, short-term investments, marketable securities,
accounts receivable, accounts payable and debt. The carrying amounts of these
items (except for long-term debt) are a reasonable estimate of their fair values
because of the short maturity of such instruments or because their interest
rates approximate comparable market rates available to the Company.

F-19
<PAGE> 98
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of long-term debt was determined by discounting cash flows
based on contractual maturities at interest rates expected to be available to
the Company. The estimated fair value and carrying amount of long-term debt at
December 31, 1998 was $72,664 and $76,710, respectively. The estimated fair
value and carrying amount of long-term debt at December 31, 1999 was $71,676 and
$73,219, respectively.

11. EMPLOYEE STOCK OPTION PLAN

The Company's 1999 Stock Option Plan (the "Plan") provides for the granting
of options for the purchase of the Company's common stock to officers and key
employees of the Company. Such options vest over a four-year period and are
exercisable for a ten-year period. An aggregate of 1,050,000 shares of common
stock has been reserved for grants of which 348,000 were available for future
grants at December 31, 1999. In connection with the amendment of the Company's
charter discussed in note 8, each outstanding option for the purchase of a share
of common stock will be converted into an option for the class B common stock.

A summary of the status of the Company's stock option activity, and related
information for the year ended December 31, 1999, is presented below:

<TABLE>
<CAPTION>
1999
--------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at beginning of year............................ -- --
Granted..................................................... 702,000 $4.32
Exercised................................................... -- --
Forfeited................................................... -- --
-------
Outstanding at end of year........................ 702,000 $4.32
=======
Options exercisable at year-end............................. -- $ --
Weighted-average fair value of options granted during the
year...................................................... $3.20
</TABLE>

The following table summarizes information about stock options outstanding
as of December 31, 1999:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISE PRICE OF
EXERCISE REMAINING WEIGHTED AVERAGE EXERCISABLE EXERCISABLE
PRICE SHARES CONTRACTURAL LIFE EXERCISE PRICE SHARES SHARES
-------- ------- ----------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$4.32 702,000 5.3 $4.32 -- --
</TABLE>

Stock option agreements issued under the Plan provide that, prior to an
initial public offering of the Company's common stock: (i) during the period
beginning five years from the date of an option exercise, transfers and
assignments of common stock received upon such exercise ("Option Stock"), other
than upon death, are prohibited, (ii) all permitted transfers of Option Stock
are subject to a right of first refusal on the part of the Company, (iii) the
Company has the right to repurchase options and Option Stock upon termination of
the holder's employment for any reason, and (iv) in the event of termination of
employment by reason of death or disability, the holder may require the Company
to repurchase the holder's Option Stock or vested unexercised options. Upon
completion of the initial public offering, these restrictions are eliminated. As
of June 30, 2000, none of the options issued under the plan had vested and
accordingly the Company had no obligation to repurchase options or Option Stock.

All amounts above have been adjusted for the effects of the stock dividend
accounted for as a stock split described in Note 8.

F-20
<PAGE> 99
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SFAS 123 encourages, but does not require, companies to record compensation
cost for employee stock-based compensation plans at fair value as determined by
generally recognized option pricing models such as the Black-Scholes model or
the binomial model. Because of the inexact and subjective nature of deriving
stock option values using these methods, the Company has adopted the
disclosure-only provisions of SFAS 123 and continues to account for stock-based
compensation using the intrinsic value method prescribed in APB 25. Accordingly,
no compensation expense has been recognized for the Plan.

Had compensation cost for the Plan been determined based on the fair value
at the grant date for awards issued in 1999 consistent with provisions of SFAS
123, the Company's net loss would have been increased by $599 in 1999.

The pro forma fair value of options at the date of the grant was estimated
using the Black-Scholes model and the following assumptions:

<TABLE>
<CAPTION>
1999
-----
<S> <C>
Expected life (years)....................................... 6.35
Interest rate............................................... 4.76%
Volatility.................................................. 0%
Dividend yield.............................................. 0%
Weighted-average fair value per share at grant date......... $3.20
</TABLE>

12. SEGMENT AND RELATED INFORMATION

In accordance with SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", the Company has identified the following
reportable segments: Tubular and Pressure Control.

Hydril is a worldwide leader in engineering, manufacturing and marketing
premium tubular connections and pressure control products for oil and gas
drilling and production. The Company sells its products to a broad group of
steel pipe distributors, major and independent, domestic and international oil
and gas companies and drilling contractors. The Company's products are primarily
targeted for use in drilling environments where extreme pressure, temperature,
corrosion and mechanical stress are encountered, as well as in
environmentally-sensitive drilling. These harsh conditions are typical for
deepwater, deep-formation and horizontal oil and gas wells.

The Company's tubular segment manufactures premium tubular connections that
are used in harsh drilling environments. Hydril applies premium threaded
connections to tubulars owned by its customers and purchases pipe in certain
international markets for threading and resale. Hydril manufactures premium
threaded connections and provides services at facilities located in Houston,
Texas; Westwego, Louisiana; Bakersfield, California; Nisku, Alberta, Canada;
Aberdeen, Scotland; Veracruz, Mexico; Batam, Indonesia; and Warri, Nigeria.

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

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating income or loss.

F-21
<PAGE> 100
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial data for business segments is as follows:

<TABLE>
<CAPTION>
PRESSURE CORPORATE
TUBULAR CONTROL ADMINISTRATION TOTAL
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
As of and for the year ended December 31, 1997:
Revenues...................................... $111,472 $106,635 $ -- $218,107
Operating income (loss)....................... 23,252(a) (15,361) (8,889) (998)
Total assets.................................. 68,604 97,487 82,717 248,808
Capital expenditures.......................... 22,547 5,247 650 28,444
Depreciation and amortization................. 2,823 1,449 987 5,259
As of and for the year ended December 31, 1998:
Revenues...................................... $116,256 $122,956 $ -- $239,212
Operating income (loss)....................... 25,073 (22,080) (13,637) (10,644)
Total assets.................................. 72,643 118,185 68,248 259,076
Capital expenditures.......................... 10,247 2,528 2,992 15,767
Depreciation and amortization................. 3,330 1,674 1,320 6,324
As of and for the year ended December 31, 1999:
Revenues...................................... $ 75,362 $ 84,063 $ -- $159,425
Operating income (loss)....................... 18,312 (16,216) (9,845) (7,749)
Total assets.................................. 65,815 82,513 63,480 211,808
Capital expenditures.......................... 7,690 827 273 8,790
Depreciation and amortization................. 4,049 1,959 1,843 7,851
For the six months ended June 30, 1999:
Revenues...................................... $ 37,390 $ 40,871 $ -- $ 78,261
Operating income (loss)....................... 9,678 (11,341) (5,584) (7,247)
For the six months ended June 30, 2000:
Revenues...................................... $ 46,002 $ 44,254 $ -- $ 90,256
Operating income (loss)....................... 13,207 1,322 (5,858) 8,671
</TABLE>

(a) Includes a gain of $4,520 from the sale of a manufacturing facility.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue
United States................... $125,038 $143,685 $101,460 $46,453 $59,736
Canada and Mexico............... 24,463 29,060 23,357 11,180 14,609
-------- -------- -------- ------- -------
Subtotal North
America............... 149,501 172,745 124,817 57,633 74,345
-------- -------- -------- ------- -------
Eastern hemisphere.............. 68,606 66,467 34,608 20,628 15,911
-------- -------- -------- ------- -------
Total................... $218,107 $239,212 $159,425 $78,261 $90,256
======== ======== ======== ======= =======
Long-lived assets
United States................... $ 56,192 $ 62,060 $ 60,618
Canada and Mexico............... 7,703 9,253 9,238
-------- -------- --------
Subtotal North
America............... $ 63,895 $ 71,313 $ 69,856
-------- -------- --------
Eastern hemisphere.............. 6,203 8,824 8,944
-------- -------- --------
Total................... $ 70,098 $ 80,137 $ 78,800
======== ======== ========
</TABLE>

F-22
<PAGE> 101
HYDRIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For the year ended December 31, 1999, revenues from Customer A, of the
Company's Pressure Control segment, represented 13% of the Company's
consolidated revenues. No customer exceeded 10% of the Company's consolidated
revenues for the years ended December 31, 1997 and 1998.

13. SUBSEQUENT EVENT

In May 2000 the Company's Board of Directors approved the Hydril Company
2000 Incentive Plan (the "2000 Plan") which allows for the granting to officers,
employees, and nonemployee directors of stock based awards covering a maximum of
1,950,000 shares of common stock. The 2000 Plan provides for an automatic grant,
in connection with the Offering, to each nonemployee director of a nonqualified
stock option to purchase a number of shares of common stock equal to $75,000
divided by the initial public offering price, at an exercise price per share
equal to the initial public offering price. The aggregate number of shares is
expected to be 28,128, based on an assumed initial public offering price of $16
per share. Furthermore, each nonemployee director will automatically be granted
a nonqualified stock option each year following the annual meeting of
stockholders on that number of shares of the Company's common stock such that
the aggregate fair market value of such shares equals approximately $75,000. The
options granted to nonemployee directors will have a term of ten years, will be
fully vested upon the completion of one year of service as a nonemployee
director, will have an exercise price equal to the fair market value of the
Company's common stock subject to such option on the date of grant, and will
become exercisable in cumulative annual installments of one-third each,
beginning on the first anniversary of the date of grant.

In connection with the offering, the Company will grant 326,000 options to
officers and key employees to purchase an equal number of shares of common
stock. These options, which will be issued at the initial public offering price,
vest over a five-year period and have a term of ten years.

In July 2000, the Company's Board of Directors approved the Hydril Company
Employee Stock Purchase Plan (the "Stock Purchase Plan"), which will be
implemented October 1, 2000. The Stock Purchase Plan is a plan under which all
employees may purchase shares of the Company's common stock at the lower of 85%
of market value on the first or last business day of each six month period
beginning on each January 1 and July 1 (except for the first offering period
commencing on October 1, 2000 and ending on December 31, 2000). Such purchases
are limited to 10% of the employee's regular pay. A maximum aggregate of 220,000
shares of common stock have been reserved under the Stock Purchase Plan.

F-23
<PAGE> 102

================================================================================

7,500,000 SHARES

HYDRIL COMPANY

COMMON STOCK

[Company Logo]

------------

PROSPECTUS

, 2000

------------

SALOMON SMITH BARNEY

CREDIT SUISSE FIRST BOSTON

DAIN RAUSCHER WESSELS

SIMMONS & COMPANY
INTERNATIONAL

================================================================================
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses of the offering are estimated to be as follows:

<TABLE>
<S> <C>
SEC registration fees................................... $ 40,920
NASD filing fee......................................... 16,000
Listing fee............................................. 70,000
Legal fees and expenses................................. 540,000
Accounting fees and expenses............................ 500,000
Blue Sky fees and expenses (including legal fees)....... 30,000
Printing expenses....................................... 175,000
Transfer Agent fees..................................... 15,000
Miscellaneous........................................... 13,080
----------
Total......................................... $1,400,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

DELAWARE GENERAL CORPORATION LAW

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
that the Court of Chancery or such other court shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding
II-1
<PAGE> 104

referred to in subsections (a) and (b) of Section 145, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.

Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because such person has met the applicable
standard of conduct set forth in subsections (a) and (b). Such determination
shall be made, with respect to a person who is a director or officer at the time
of such determination, (1) by the board of directors by a majority vote of the
directors who were not parties to such action, suit or proceeding, even though
less than a quorum or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum or (3) if such
quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs by independent legal counsel in a written opinion or (4) by
the stockholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it ultimately is determined that such person is
not entitled to be indemnified by the corporation as authorized in Section 145.
Such expenses (including attorneys' fees) incurred by former directors and
officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the corporation deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

RESTATED CERTIFICATE OF INCORPORATION

The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists as of the date of the Restated
Certificate of Incorporation or as such provision may be thereafter amended,
supplemented or replaced or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended after the filing of
the Restated Certificate of Incorporation to authorize the further elimination
or limitation of the personal liability of directors, then the liability of a
director of the Company, in addition to the limitation on personal liability
described above, shall be limited to the fullest extent permitted by the amended
DGCL. Further, any repeal or modification of such provision of
II-2
<PAGE> 105

the Restated Certificate of Incorporation by the stockholders of the Company
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Company existing at the time of such
repeal or modification.

BYLAWS

The Bylaws provide that the Company shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law as amended from time to
time, indemnify all persons whom it may indemnify under that Section.

If California law is deemed to apply to the indemnification of the Company
of its agents, as that term is defined under Section 317 of the California
Corporations Code, then the Company shall, to the full extent permitted by
Section 317 of the California Corporations Code as amended from time to time,
indemnify all such agents whom it may indemnify under that Section.

The Company shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or other agent
against any liability asserted against or incurred by the agent in such
capacity, or arising out of the agent's status as such, whether or not the
Company would have power to indemnify the agent against such liability under the
provisions of these Bylaws.

UNDERWRITING AGREEMENT

The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.

INSURANCE

The Company intends to obtain a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Hydril Company has not sold any securities, registered or otherwise, within
the past three years, except as set forth below.

On June 25, 1998, the Company issued $60,000,000 in aggregate principal
amount of its 6.85% Senior Secured Notes due June 30, 2003 to Principal Mutual
Life Insurance Company and Nippon Life Insurance Company of America in
consideration of the payment to the Company of $60,000,000. In so doing, the
Company relied on the private placement provisions of Section 4(2) of the
Securities Act of 1933 (the "Securities Act") in claiming exemption for the
offering, sale and delivery of such securities from the registration provisions
of the Securities Act.

In 1999, Hydril Company granted to employees options to purchase 702,000
shares of common stock. Such transaction was exempt from the registration
requirements of the Securities Act by virtue of Rule 701 thereunder.

Prior to the offering to which this registration relates, the Company will
amend its charter to provide for two classes of common stock, consisting of
common stock and Class B common stock, and convert each share of its then
outstanding common stock into a share of Class B common stock. The Company will
then effect a stock dividend with respect to its Class B common stock, whereby
the holder of each outstanding share of Class B common stock will receive five
shares of Class B common stock.

II-3
<PAGE> 106

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.

3.1 -- Form of Restated Certificate of Incorporation.

3.2 -- Restated Bylaws of the Company.

4.1 -- Form of Specimen Common Stock Certificate.

4.2 -- Registration Rights Agreement among the Company and the
stockholders named therein.

5.1 -- Opinion of Baker Botts L.L.P.

10.1 -- Hydril Company 1999 Stock Option Plan.

10.2 -- Form of Change in Control Agreement.

10.3 -- Hydril Company 2000 Incentive Plan.

10.4+ -- Note Purchase Agreement dated as of June 25, 1998.

Hydril is a party to several other long-term debt
instruments under which the total amount of long-term
debt securities authorized does not exceed 10% of the
total assets of Hydril and its subsidiaries on a
consolidated basis. Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Registration S-K, Hydril agrees to furnish
a copy of such instruments to the Commission upon
request.

10.5 -- Form of Indemnification Agreement.

10.6 -- Employee Stock Purchase Plan.

21.1 -- List of subsidiaries of the Company.

23.1 -- Consent of Deloitte & Touche LLP.

23.2 -- Consent of Baker Botts L.L.P. (included in Exhibit 5.1)

24.1+ -- Powers of Attorney.

27.1 -- Financial Data Schedule.
</TABLE>

---------------
* To be filed by amendment.

+ Previously filed

All other schedules are omitted because the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related notes.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Company hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

II-4
<PAGE> 107

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each posteffective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 108

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 27th day of July, 2000.

HYDRIL COMPANY

By: /s/ CHRISTOPHER T. SEAVER
----------------------------------
Christopher T. Seaver
President, Chief Executive Officer
and Director

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons in the capacities
indicated on the 27th day of July, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ CHRISTOPHER T. SEAVER President, Chief Executive Officer and
----------------------------------------------------- Director (Principal Executive Officer)
Christopher T. Seaver

/s/ MICHAEL C. KEARNEY Chief Financial Officer and Vice President --
----------------------------------------------------- Administration (Principal Financial and
Michael C. Kearney Accounting Officer)

* Chairman of the Board
-----------------------------------------------------
Richard C. Seaver

* Director
-----------------------------------------------------
Richard A. Archer

* Director
-----------------------------------------------------
Jerry S. Cox

* Director
-----------------------------------------------------
Gordon B. Crary, Jr.

* Director
-----------------------------------------------------
Patrick T. Seaver

* Director
-----------------------------------------------------
T. Don Stacy

* Director
-----------------------------------------------------
Lew O. Ward

*By: /s/ CHRISTOPHER T. SEAVER
------------------------------------------------
Christopher T. Seaver
Attorney-in-fact
</TABLE>

II-6
<PAGE> 109

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.

3.1 -- Form of Restated Certificate of Incorporation of the

Company.

3.2 -- Restated Bylaws of the Company.

4.1 -- Form of Specimen Common Stock Certificate.

4.2 -- Registration Rights Agreement among the Company and the
stockholders named therein.

5.1 -- Opinion of Baker Botts L.L.P.

10.1 -- Hydril Company 1999 Stock Option Plan.

10.2 -- Form of Change in Control Agreement.

10.3 -- Hydril Company 2000 Incentive Plan.

10.4+ -- Note Purchase Agreement dated as of June 25, 1998.

10.5 -- Form of Indemnification Agreement.

10.6 -- Employee Stock Purchase Plan.

21.1 -- List of subsidiaries of the Company.

23.1 -- Consent of Deloitte & Touche LLP.

23.2 -- Consent of Baker Botts L.L.P. (included in Exhibit 5.1).

24.1+ -- Powers of Attorney.

27.1 -- Financial Data Schedule.
</TABLE>

---------------
* To Be Filed By Amendment.

+ Previously filed