Forward-Looking Statements
This document contains forward-looking statements within the meaning of the
Section 21E of the Securities Exchange Act of 1934, as amended, concerning, among other things, our outlook, financial projections and business strategies, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms such as "anticipate," "believe," "could," "estimate," "expect," "project" and similar terms. These statements are based on certain assumptions and analyses that we believe are appropriate under the circumstances. Such statements are subject to, among other things, general economic and business conditions, the level of oil and natural gas exploration and development activities, global economic growth and activity, political stability of oil-producing countries, finding and development costs of operations, decline and depletion rates for oil and natural gas wells, seasonal weather conditions, industry conditions, changes in laws or regulations and other risk factors outlined in the Company's Form 10-K for the fiscal year ended December 31, 2007, and other documents filed with the Securities and Exchange Commission, many of which are beyond the control of the Company. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise.

Results of Operations
Segment Discussion
Our business is segregated into three operating divisions, M-I SWACO, Smith Oilfield and Distribution, which is the basis upon which we report our results. The M-I SWACO segment consists of a majority-owned drilling fluid and environmental services joint venture operation. The Smith Oilfield segment is comprised of our wholly-owned drilling and completion services operations, which includes drill bits, directional drilling services and downhole tools. The Distribution segment consists of the Wilson distribution operations and a majority-owned interest in CE Franklin, Ltd., a publicly-traded Canadian distribution company. Finally, General Corporate primarily reflects expenses related to Corporate personnel, administrative support functions and long-term incentive compensation programs.
Subsequent to June 30, 2008, the Company modified its segment reporting disclosure to reflect the revised operating structure in place after the integration of the W-H business operations. Additionally, the Company does not allocate corporate expenses to the various reporting segments. In the following table, revenue and operating income amounts for all prior year periods have been recast to conform to the current year presentation.

                                     Three Months Ended September 30,                          Nine Months Ended September 30,
                                    2008                         2007                         2008                         2007
(dollars in thousands)       Amount           %           Amount           %           Amount           %           Amount           %
Financial Data:
Revenues:
M-I SWACO                  $ 1,364,269          48      $ 1,110,542          49      $ 3,878,452          50      $ 3,232,150          50
Smith Oilfield                 724,173          25          575,145          26        1,891,487          25        1,630,136          25
Distribution                   760,869          27          559,372          25        1,944,528          25        1,604,870          25

Total                      $ 2,849,311         100      $ 2,245,059         100      $ 7,714,467         100      $ 6,467,156         100


Geographic Revenues:
United States:
M-I SWACO                  $   333,043          12      $   276,446          12      $   966,429          12      $   880,431          14
Smith Oilfield                 419,932          15          329,808          15        1,059,438          14          900,649          14
Distribution                   582,183          20          411,682          18        1,467,930          19        1,185,406          18

Total United States          1,335,158          47        1,017,936          45        3,493,797          45        2,966,486          46


Canada:
M-I SWACO                       54,016           2           46,318           2          127,041           2          138,077           2
Smith Oilfield                  44,584           2           37,543           2          116,757           1          114,471           2
Distribution                   143,631           5          111,469           5          379,311           5          318,624           5

Total Canada                   242,231           9          195,330           9          623,109           8          571,172           9


Non-North America:
M-I SWACO                      977,210          34          787,778          35        2,784,982          36        2,213,642          34
Smith Oilfield                 259,657           9          207,794           9          715,292           9          615,016           9
Distribution                    35,055           1           36,221           2           97,287           2          100,840           2

Total Non-North America      1,271,922          44        1,031,793          46        3,597,561          47        2,929,498          45

Total Revenue              $ 2,849,311         100      $ 2,245,059         100      $ 7,714,467         100      $ 6,467,156         100


Operating Income:
M-I SWACO                  $   217,016          16      $   183,172          16      $   637,108          16      $   535,812          17
Smith Oilfield                 188,168          26          162,174          28          514,038          27          461,130          28
Distribution                    61,734           8           25,208           5          128,136           7           75,824           5
General Corporate              (23,837 )         *          (20,217 )         *          (67,627 )         *          (58,852 )         *

Total                      $   443,081          16      $   350,337          16      $ 1,211,655          16      $ 1,013,914          16

* not meaningful

                            Three Months Ended September 30,                       Nine Months Ended September 30,
                              2008                       2007                       2008                       2007
                      Amount            %         Amount         %           Amount           %         Amount         %
Market Data:
Average
Worldwide Rig
Count: (1)
United States             2,205           45        1,998          45           2,098           45        1,944          46
Canada                      365            7          313           7             318            7          307           7
Non-North
America                   2,326           48        2,087          48           2,225           48        1,979          47

Total                     4,896          100        4,398         100           4,641          100        4,230         100

Onshore                   4,287           88        3,819          87           4,053           87        3,669          87
Offshore                    609           12          579          13             588           13          561          13

Total                     4,896          100        4,398         100           4,641          100        4,230         100


Average
Commodity
Prices:
Crude Oil
($/Bbl) (2)         $    118.22                   $ 73.24                  $   113.52                   $ 66.22
Natural Gas
($/mcf) (3)                8.99                      6.56                        9.75                      7.03

(1) Source: M-I
SWACO.

(2) Average daily West Texas Intermediate ("WTI") spot closing prices, as quoted by NYMEX.

(3) Average daily Henry Hub, Louisiana spot closing prices, as quoted by NYMEX.

M-I SWACO
Revenues
M-I SWACO primarily provides drilling and completion fluid systems, engineering and technical services to the oil and gas industry. Additionally, these operations provide oilfield production chemicals and manufacture and market equipment and services used for solids-control, particle separation, pressure control, rig instrumentation and waste-management. M-I SWACO is significantly influenced by its exposure to the global offshore market, which constitutes approximately 50 percent of the revenue base, and to exploration and production spending for land-based projects outside of North America, which contributes over 30 percent of the segment's revenues. Offshore drilling programs, which accounted for 13 percent of the worldwide rig count during the first nine months of 2008, are generally more revenue-intensive than land-based projects due to the complex nature of the related drilling environment. M-I SWACO's revenues totaled $1.36 billion for the third quarter of 2008, an increase of 23 percent above the prior year period. Approximately 60 percent of the revenue improvement over the prior year period was attributable to a 12 percent growth in the average number of active land-based drilling rigs which favorably impacted business volumes in the United States, the Former Soviet Union ("FSU") and, to a lesser extent, Latin America. The segment's global offshore revenues grew 18 percent over the prior year quarter, driven by increased customer spending for drilling and completion fluids in the West Africa and North Sea markets. For the nine-month period, M-I SWACO reported revenues of $3.88 billion, a 20 percent increase over the amounts reported in the first nine months of 2007. Approximately two-thirds of the revenue increase is attributable to higher land-based drilling activity levels that favorably impacted business volumes in the FSU, the U.S. and Mexico. The remaining year-to-date revenue growth reflects improved offshore results in the North Sea and West Africa markets related to a favorable customer mix and new contract awards. Operating Income
Operating income for the M-I SWACO segment was $217.0 million for the three months ended September 30, 2008. M-I SWACO segment margins were 15.9 percent for the third quarter of 2008, reflecting a 60 basis point decline from the year-ago period. Several factors contributed to the operating margin performance, including the impact of hurricanes in the U.S. Gulf Coast area and a shift in business mix towards lower-relative margin land-based programs that resulted in a lower proportion of premium drilling fluid revenues. On an absolute dollar basis, third quarter 2008 operating income increased $33.8 million over the prior year quarter, reflecting the impact of a 23 percent increase in business volumes on gross profit, partially offset by growth in variable-based operating expenses associated with the expanding global business infrastructure. On a year-to-date basis, M-I SWACO operating margins declined 20 basis points from the prior year period as lower gross margins were substantially offset by improved fixed cost coverage. On an absolute dollar basis, nine-month operating income was $101.3 million above the first nine months of 2007 level, largely attributable to the impact of higher revenue volumes on the segment's reported gross profit, partially offset by growth in variable-based operating expenses associated with the expanding business base.

Smith Oilfield
Revenues
The Smith Oilfield segment provides three-cone and diamond drill bits, drilling tubulars, borehole enlargement tools, turbine motors, directional drilling, measurement while drilling, and logging-while-drilling services, as well as completions, coiled tubing, wireline and drilling related services. The Smith Oilfield segment has a high level of North American revenue exposure driven, in part, by the significance of increased unconventional drilling projects in the U.S. land-based market and the complexity of drilling projects - which drives demand for a wider range of product offerings. Smith Oilfield reported revenues of $724.2 million for the quarter ended September 30, 2008, an increase of 26 percent over the comparable prior year period. The majority of the year-on-year revenue growth reflects the inclusion of the W-H Energy Services ("W-H") operations from the August 25, 2008 acquisition date forward. Excluding the impact of the acquired operations, Smith Oilfield revenues were $580.4 million, modestly above the prior year level reflecting increased demand for drill bit products in the U.S. and Latin America markets, the introduction of borehole enlargement tools in Europe/Africa and product enhancements to turbodrilling product offerings. These improvements were substantially offset by the impact of a 74 percent decline in drill pipe sales volumes and, to a lesser extent, work disruptions caused by hurricanes in the U.S. Gulf Coast area in the latter part of the quarter. For the nine-month period, Smith Oilfield reported revenues of $1.89 billion, a 16 percent improvement over the comparable prior year period, also influenced by the W-H transaction. Excluding W-H, revenues increased $117.6 million, or seven percent as higher global activity levels and strong market penetration of three-cone drill bit products in the U.S. market more than offset the impact of a 40 percent decline in drill pipe sales volumes. Operating Income
Operating income for the Smith Oilfield segment was $188.2 million for the three months ended September 30, 2008. Operating margins were 26.0 percent for the third quarter of 2008, reflecting a 2.2 percentage point decline from the year-ago period. The addition of W-H's operations, which carries slightly lower margins on a comparative basis accounted for the margin decline. On an absolute dollar basis, third quarter 2008 operating income increased $26.0 million over the prior year quarter, again reflecting the impact of the W-H operations. On a year-to-date basis, Smith Oilfield operating margins declined 1.1 percentage points, influenced by the inclusion of the relatively lower-margin W-H operations and, to a lesser extent, higher operating costs. On an absolute dollar basis, nine-month operating income was $52.9 million above the first nine-months of 2007, as increased revenue volumes offset the growth in variable-based operating expenses associated with the expanding business base. Distribution
Revenues
The Distribution segment markets pipe, valves, fittings and mill, safety and other maintenance products to energy and industrial markets, primarily through an extensive network of supply branches in the United States and Canada. The segment has the most significant North American revenue exposure of any of the Company's operations with 95 percent of Wilson's third quarter 2008 revenues generated in those markets. Moreover, approximately one-fourth of the segment's revenues relate to sales to the downstream energy sector, including petrochemical plants and refineries, whose spending is largely influenced by the general state of the U.S. economic environment. Additionally, certain customers in this sector utilize petroleum products as a base material and, accordingly, are adversely impacted by increases in crude oil and natural gas prices. Distribution revenues were $760.9 million for the third quarter of 2008, 36 percent above the comparable prior year period. The majority of the period-to-period revenue growth was attributable to increased demand for line pipe and other operating supplies associated with unconventional onshore drilling projects and pipeline expansion projects in the United States. For the first nine months of 2008, the Distribution operations reported revenues of $1.94 billion, a 21 percent improvement over the comparable prior year period. The business growth was largely influenced by the U.S. operations, reflecting higher onshore drilling and completion activity and related demand. Operating Income
Operating income for the Distribution segment was $61.7 million, or 8.1 percent of revenues, for the three months ended September 30, 2008. Segment operating margins were 3.6 percentage points above the prior year quarter, translating into 18 percent incremental operating income as a percentage of revenues. The year-over year margin improvement was influenced by higher revenue volumes, which had a favorable impact on fixed-cost coverage, and improved line pipe product pricing. On an absolute dollar basis, operating income increased $36.5 million over the year-ago period reflecting the impact of a 36 percent increase in business volumes on gross profit, partially offset by growth in variable-based operating expenses. On a year-to-date basis, Distribution operating margins improved 1.9 percentage points, reflecting improved business volumes and product pricing related to line pipe expansion projects in the energy sector. On an absolute dollar basis, operating income was $52.3 million above the amount reported in the first nine months of 2007. The operating income variance reflects the impact of higher revenue volumes and improved gross profit levels, partially offset by growth in variable-based operating expenses.

Consolidated Results
For the periods indicated, the following table summarizes the results of
operations of the Company and presents these results as a percentage of total
revenues:

                              Three Months Ended September 30,                          Nine Months Ended September 30,
                             2008                         2007                         2008                         2007
                      Amount           %           Amount           %           Amount           %           Amount           %
Revenues            $ 2,849,311         100      $ 2,245,059         100      $ 7,714,467         100      $ 6,467,156         100

Gross profit            906,798          32          728,906          33        2,495,734          32        2,101,417          33
Operating
expenses                463,717          16          378,569          17        1,284,079          16        1,087,503          17

Operating income        443,081          16          350,337          16        1,211,655          16        1,013,914          16
Interest expense         24,169           1           17,103           1           56,714           1           53,242           1
Interest income            (732 )         -           (1,152 )         -           (2,380 )         -           (2,811 )         -

Income before
income taxes and
minority
interests               419,644          15          334,386          15        1,157,321          15          963,483          15
Income tax
provision               136,765           5          106,579           5          375,611           5          300,569           5
Minority
interests                73,036           3           60,974           3          213,603           3          182,870           3

Net income          $   209,843           7      $   166,833           7      $   568,107           7      $   480,044           7

Consolidated revenues were $2.85 billion for the third quarter of 2008, 27 percent above the prior year period. Excluding the impact of the W-H transaction, revenues increased 21 percent, reflecting growth in across the operations. The growth in the oilfield business volumes was driven by increased land-based activity and customer spending levels in North America and Europe/Africa, while strong, project-driven demand for line pipe and related products in the U.S. market influenced the growth in the Distribution operations. For the first nine months of 2008, consolidated revenues were $7.71 billion, 19 percent above the comparable 2007 period, with oilfield business volumes contributing the majority of the revenue growth. The combination of increased land-based activity levels, new contract awards and a favorable customer mix in certain offshore markets benefited oilfield operations in the Europe/Africa and Latin America regions, which contributed approximately 50 percent of the consolidated revenue improvement. To a lesser extent, the revenue expansion reflects the influence of increased project-related spending in North America - which drove a 33 percent increase in Distribution line pipe sales volumes.
Gross profit totaled $906.8 million for the third quarter, or approximately 32 percent of revenues, 70 basis points below the margins reported in the comparable prior year period. The gross margin comparison reflects an unfavorable shift in product mix within the M-I SWACO operations, the impact of work disruptions caused by hurricanes in the U.S. Gulf Coast area on all oilfield operations and a higher proportion of Distribution segment revenues which typically generate lower-relative margins. On an absolute dollar basis, gross profit increased $177.9 million, or 24 percent, over the prior year quarter, primarily influenced by higher sales volumes across all three reporting segments and the inclusion of the W-H operations. For the nine-month period, gross profit totaled $2.50 billion, or 32 percent of revenues, 10 basis points below the gross profit margins reported in the first nine months of 2007 influenced by a lower proportion of offshore revenues which impacted sales volumes of premium drilling fluids. On an absolute dollar basis, gross profit was $394.3 million above the nine-month period ended September 30, 2007, again, largely attributable to higher sales volumes across all three reporting segments.
Operating expenses, consisting of selling, general and administrative expenses, increased $85.1 million from the prior year quarter; however, as a percentage of revenues, decreased 60 basis points. Improved fixed cost coverage in the sales and administrative functions accounted for the operating expense percentage decline. Compared to the first nine months of 2007, operating expenses increased $196.6 million and decreased 20 basis points as a percentage of revenues. The majority of the absolute dollar increase for both comparisons was attributable to variable-related costs associated with the improved business volumes, including increased investment in personnel and infrastructure in support of the expanding business base.

Net interest expense, which represents interest expense less interest income, equaled $23.4 million in the third quarter of 2008. Net interest expense . . .