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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-7573
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PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of December 31, 1996, 68,493,182 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
November 30, 1996 and August 31, 1996 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three Months Ended November 30, 1996 and
November 30, 1995 3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Three Months Ended November 30, 1996 and 4
November 30, 1995
Notes to Unaudited Consolidated Condensed
Financial Statements 6 - 7
Report of Review by Independent Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 15, Letter Re Unaudited Interim 14
Financial Information
Exhibit 27, Financial Data Schedule (EDGAR version only)
PART 1. FINANCIAL INFORMATION
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
November 30, August 31,
1996 1996
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ASSETS
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Current assets:
Cash and cash equivalents $ 71,116 $ 61,738
Other short-term investments 15,637 16,247
Accounts and notes receivable 65,576 33,675
Rig materials and supplies 14,692 10,735
Other current assets 11,611 3,653
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Total current assets 178,632 126,048
Property, plant and equipment less accumulated
depreciation, depletion and amortization of
$353,706 at November 30, 1996, and $351,714
at August 31, 1996 382,859 124,177
Goodwill 141,286 -
Other noncurrent assets 37,903 25,734
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Total assets $740,680 $275,959
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 16,282 $ 584
Accounts payable and accrued liabilities 46,695 16,326
Accrued income taxes 7,230 6,217
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Total current liabilities 70,207 23,127
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Long-term debt 387,615 2,794
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Other long-term liabilities 11,466 5,990
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Preferred stock 25,000 -
Common stock, $.16 2/3 par value 10,904 10,888
Capital in excess of par value 255,358 254,955
Retained earnings (accumulated deficit) (18,859) (20,338)
Other (1,011) (1,457)
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Total stockholders' equity 271,392 244,048
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Total liabilities and stockholders' equity $740,680 $275,959
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See accompanying notes to consolidated condensed financial statements.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
November 30,
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1996 1995
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Revenues:
Land drilling $ 37,585 $ 41,504
Offshore drilling 5,286 -
Tool rental 1,713 -
Other 614 1,206
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Total revenues 45,198 42,710
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Operating expenses:
Land drilling 26,158 28,401
Offshore drilling 3,176 -
Tool rental 339 -
Other 923 1,391
Depreciation, depletion and
amortization 6,898 5,851
General and administrative 4,508 4,795
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Total operating expenses 42,002 40,438
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Operating income 3,196 2,272
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Other income and (expense):
Interest expense (2,610) (31)
Interest income 1,121 344
Other income (expense) - net 1,070 1,039
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Total other income and (expense) (419) 1,352
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Income before income taxes 2,777 3,624
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Income tax expense 1,298 1,737
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Net income $ 1,479 $ 1,887
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Earnings per share,
primary and fully diluted $ .02 $ .03
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Number of common shares used in
computing earnings per share:
Primary 66,170,374 55,678,060
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Fully diluted 66,315,399 55,705,953
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See accompanying notes to consolidated condensed financial statements.
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/TABLE
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Three Months Ended
November 30,
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1996 1995
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Cash flows from operating activities:
Net income $ 1,479 $ 1,887
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 6,898 5,486
Expenses not requiring cash 185 413
Change in operating assets and liabilities (8,142) 2,500
Other-net (762) (772)
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Net cash provided by (used in) operating activities (342) 9,514
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Cash flows from investing activities:
Capital expenditures (9,011) (8,389)
Acquisition of Mallard, net of cash acquired (308,366) -
Acquisition of Quail (65,900) -
Proceeds from the sale of equipment 5,849 1,687
Decrease (increase) in short-term
investments 610 (3,366)
Other-net (676) (826)
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Net cash provided (used) by investing
activities (377,494) (10,894)
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Cash flows from financing activities:
Proceeds from issuance of debt 387,274 -
Principal payments under debt obligations (324) (273)
Proceeds from exercise of stock warrants - 1,552
Other 264 (4)
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Net cash provided (used) by financing
activities 387,214 1,275
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Net change in cash and cash equivalents 9,378 (105)
Cash and cash equivalents at
beginning of period 61,738 20,752
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Cash and cash equivalents at
end of period $71,116 $20,647
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Supplemental cash flow information:
Interest paid $ 307 $ 109
Taxes paid $ 704 $ 701
Business acquisitions in November 1996: Mallard Quail
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Working capital, net of cash acquired $ 6,590 $ (340)
Property, plant and equipment 234,439 23,695
Purchase price in excess of net assets
acquired 98,223 42,545
Other assets 1,853 -
Noncurrent liabilities (7,739) -
Preferred stock issued (25,000) -
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Net cash used in acquisitions $308,366 $ 65,900
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Supplemental noncash financing activity:
In November 1996, the Company issued $25,000,000 of preferred stock as a
part of the acquisition of Mallard. (See Note 3.)
In November 1994, the Company acquired a limited partner's ownership
interest in two consolidated partnerships in exchange for a promissory
note in the amount of $1,850,000.
See accompanying notes to consolidated condensed financial statements.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements reflect all adjustments (of a normally
recurring nature) which are necessary for a fair presentation of (1) the
financial position as of November 30, 1996 and August 31, 1996, (2) the
results of operations for the three months ended November 30, 1996 and
November 30, 1995, and (3) cash flows for the three months ended November
30, 1996 and November 30, 1995. Results for the three months ended
November 30, 1996, are not necessarily indicative of the results which
will be realized for the year ending August 31, 1997. The year-end
consolidated condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The financial statements should
be read in conjunction with the Company's Form 10-K for the year ended
August 31, 1996.
2. Earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the period
including the effect of dilutive options when applicable. Common shares,
subject to vesting, granted under the 1969 Key Employee Stock Grant Plan,
1980 Incentive Career Stock Plan and the 1991 Stock Grant Plan are issued
and outstanding and are only considered in the computation of weighted
average shares outstanding when their effect on earnings per share is
dilutive.
3. On November 12, 1996, the Company acquired Mallard Bay Drilling, Inc.
("Mallard") and Quail Tools, Inc. ("Quail"), both of which were accounted
for by the purchase method of accounting.
The Company acquired all of the outstanding stock of Mallard for $335.0
million, including acquisition costs, for cash of $310.0 and $25.0 million
of preferred stock which will be converted into 3,056,600 shares of common
stock during the second quarter of fiscal 1997. Mallard operates 40
drilling and workover barges in the shallow waters of the Gulf of Mexico
and Nigeria, plus seven platform rigs in the Gulf of Mexico and offshore
Peru and Thailand.
The Company acquired all of the outstanding stock of Quail for $65.9
million, including acquisition costs. Quail is a provider of premium
rental tools used in difficult well drilling, production and workover
primarily to companies working in the Gulf of Mexico and Gulf Coast land
regions. The purchase prices of Mallard and Quail are both subject to
adjustment for changes in net assets that occurred between the agreement
and purchase dates. The excess of purchase price over the fair values of
the net assets acquired was $99.0 million for Mallard and $42.5 million
for Quail and has been recorded as goodwill, which is being amortized on a
straight-line basis over 30 years.
The following unaudited pro forma information presents a summary of the
first quarter consolidated results of operations of the Company and the
acquired entities as if the acquisition had occurred September 1, 1995.
(Thousands except per share amounts) 1996 1995
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Revenues $74,263 $67,758
Net income (loss) $ 152 $ 4,409
Earnings (loss) per common share $ - $ (.08)
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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
4. The Company financed the acquisitions of Mallard and Quail through the
issuance of $300,00,000 of Senior Notes and a term loan of $100,000,000.
Additionally, the Company issued $25,000,000 of preferred stock which will
be converted to 3,056,600 shares of common stock during the second quarter
of fiscal 1997.
The $300,000,000 Senior Notes, which were sold at a $2,355,000 discount,
have an interest rate of 9 3/4% and will mature in 2006. The $100,000,000
term loan was a part of commitment from a syndicate of financial
institutions to establish a Senior Credit Facility which consists of the
term loan and a $45,000,000 revolving credit facility.
The term loan bears interest, at the option of the Company, at prime to
prime plus 0.50% or at 1.75% to 2.25% above the one-, two-, three- and
six-month LIBOR rate, depending on the Company's debt-to-capital ratio (as
defined) and will be paid in quarterly payments with a final balloon
payment on November 30, 2002. The term note will have no prepayment
penalty, will be guaranteed by the principal subsidiaries of the Company
and will be secured by substantially all of the assets of the Company and
the assets and stock of the Subsidiary Guarantors. The term loan contains
customary representations and warranties and will restrict the Company's
ability to, among other things, incur indebtedness, merge or sell assets
and make investments. The Company is prohibited from paying dividends and
will also be required to maintain certain financial ratios.
The revolving portion of the Senior Credit Facility will be available,
subject to the satisfaction of customary borrowing conditions, for working
capital requirements and general corporate purposes. The revolver will
terminate on December 31, 1998 and will be secured by a first lien on the
Company's accounts receivable. Borrowings under the revolver will not be
permitted to exceed a borrowing base equal to 80% of the Company's
eligible accounts receivable.
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Report of Independent Accountants
To the Board of Directors and Shareholders
Parker Drilling Company
We have reviewed the consolidated condensed balance sheet of Parker
Drilling Company and subsidiaries as of November 30, 1996, and the related
consolidated condensed statements of operations for the three month periods
ended November 30, 1996 and 1995 and consolidated condensed statements of cash
flows for the three month periods ended November 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 1996, and the
related consolidated statements of operations, redeemable preferred stock and
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report, dated October 14, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of August 31, 1996, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
By: /s/ Coopers & Lybrand L.L.P.
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COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
January 13, 1997
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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During the first quarter of fiscal 1997, the Company recorded net income
of $1.5 million as compared to net income of $1.9 million for the first
quarter of fiscal 1996. On November 12, 1996, the Company acquired Mallard
Bay Drilling, Inc. ("Mallard") and Quail Tools, Inc. ("Quail") (see Note 3 of
Notes to Unaudited Consolidated Condensed Financial Statements). The
acquisitions were recorded using the purchase method of accounting;
accordingly, the results of operations for the first quarter of fiscal 1997
included 18 days of operations for both Mallard and Quail as well as the
interest expense and goodwill amortization related to the purchases.
The first quarter's total revenues of $45.2 million, an increase of $2.5
million from last year's first quarter, included $5.3 million of revenue from
Mallard's offshore barge and platform drilling operations and $1.7 million of
revenue from Quail's tool rental operations. The offshore drilling revenue was
generated primarily by 19 barge rigs under contract in the Gulf Coast region
and three barge rigs operating in Nigeria. Tool rental revenue was derived
from the rental of premium tools used in difficult well drilling, production
and workover operations primarily in the Gulf of Mexico and Gulf Coast land
regions.
Revenue from the Company's traditional land drilling operations decreased
$3.9 million compared to last year due principally to lower rig utilization in
the Asia Pacific region. In Papua New Guinea, where the Company currently has
two of its four contracted rigs on standby rates, revenue decreased due to
fewer operating days during the quarter. Revenue also decreased in New
Zealand due to the completion in fiscal 1996 of contracts for three rigs.
However, two of the rigs have recently resumed operations in New Zealand.
Revenue from the Company's U.S. land drilling operations increased $2.5
million due to an increase in rig utilization from 56 percent to 81 percent.
Most of the increase was due to contracting four additional rigs in Louisiana,
where the Company is currently operating six land rigs.
The Company's land drilling profit margin (revenue less drilling expense)
decreased $1.7 million from last year principally as a result of the decreased
revenue in the Asia Pacific region. Management anticipates that land drilling
profit margins will improve slightly during the remainder of the fiscal year.
Management believes that the profit margins generated by Mallard's offshore
drilling and Quail's tool rentals during the last 18 days of November are
indicative of the margins that will be sustained throughout the second
quarter.
Depreciation, depletion and amortization increased $.9 million due to $1.0
million of depreciation in the first quarter on Mallard's and Quail's assets
and $.2 million of goodwill amortization.
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RESULTS OF OPERATIONS (continued)
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Interest expense of $2.6 million consists of interest on $400.0 million of
borrowings used to finance the acquisitions and the amortization of the debt
issuance fees and costs. Interest income was $.8 million higher due to cash
and short-term investment balances averaging approximately $80 million during
the first quarter of fiscal 1997 versus approximately $24 million in the first
quarter of fiscal 1996.
Income tax expense, which consists primarily of international taxes,
decreased $.4 million due to lower land drilling revenue and profits in
certain international countries. The Company anticipates that domestic income
generated by Mallard and Quail will be offset by net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
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The Company financed the acquisitions of Mallard and Quail through the
issuance of $300.0 million of Senior Notes and a term loan of $100.0 million.
Additionally, the Company issued $25.0 million of preferred stock which was
converted into 3,056,600 shares of common stock during the second quarter of
fiscal 1997.
Cash and short-term investments increased $9.4 million primarily due to
the $387.3 million of cash borrowed, net of discount and issuance costs,
exceeding the cash acquisition cost of $374.3 million. Proceeds from the sale
of equipment and a portion of the excess borrowings were used to fund capital
expenditures which totaled $9.0 million during the first quarter of fiscal
1997.
The Company anticipates making approximately $75.0 million of capital
expenditures in fiscal 1997: approximately $30.0 million each for both land
and offshore drilling operations and $15.0 million for tool rental operations,
of which $12.5 million is for expansion in Victoria, Texas.
The $300.0 million Senior Notes, which were sold at a $2.4 million
discount, have an interest rate of 9 3/4% and will mature in 2006. The $100.0
million term loan was a part of a commitment from a syndicate of financial
institutions to establish a Senior Credit Facility which consists of the term
loan and a $45.0 million revolving credit facility.
The term loan bears interest, at the option of the Company, at prime to
prime plus 0.50% or at 1.75% to 2.25% above the one-, two-, three- and six-
month LIBOR rate, depending on the Company's debt-to-capital ratio (as
defined). The term loan will be repaid in quarterly installments with a final
balloon payment on November 30, 2002. The term loan has no prepayment
penalty, is guaranteed by the principal subsidiaries of the Company and is
secured by substantially all of the assets of the Company and the assets and
stock of the Subsidiary Guarantors. The term loan contains customary
representations and warranties and will restrict the Company's ability to,
among other things, incur indebtedness, merge or sell assets, and make
investments. The Company is prohibited from paying dividends and will also be
required to maintain certain financial ratios.
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LIQUIDITY AND CAPITAL RESOURCES (continued)
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The revolving portion of the Senior Credit Facility is available for
working capital requirements and general corporate purposes. The revolver
will terminate on December 31, 1998 and is secured by a first lien on the
Company's accounts receivable. Borrowings under the revolver will not be
permitted to exceed a borrowing base equal to 80% of the Company's eligible
accounts receivable.
In December 1996, stockholders approved an amendment to the Company's
Restated Certificate of Incorporation for the purpose of increasing the
authorized number of shares of common stock from 70,000,000 to 120,000,000.
Management believes that the current level of cash and short-term
investments, together with cash generated from operations, should be
sufficient to finance the Company's working capital needs and expected capital
expenditures during fiscal 1997. Should new opportunities requiring capital
arise, the Company may utilize the revolving portion of the Senior Credit
Facility or may consider seeking additional equity or long-term debt
financing.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15 Letter re Unaudited Interim Financial Information
Exhibit 27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K - Parker Drilling Company filed a Form 8-K on
September 19, 1996, stating that Parker and Energy Ventures
Incorporated had entered into a Stock Purchase Agreement on September
14, 1996, by which Parker will acquire Mallard Bay Drilling, Inc., a
wholly-owned subsidiary of EVI principally engaged in the offshore
contract drilling business.
Parker filed a Form 8-K on October 17, 1996, stating that Parker had
entered into a Stock Purchase Agreement on October 7, 1996, by which
Parker will acquire Quail Tools, Inc. from its former stockholders.
Quail is engaged in the tool rental business.
Parker filed a Form 8-K/A on October 24, 1996, amending the Form 8-K
filed on September 19, 1996, to include the Stock Purchase Agreement.
Parker filed a Form 8-K on November 25, 1996, stating that on November
12, 1996, Parker completed the previously-announced acquisitions of
Mallard and Quail.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parker Drilling Company
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Registrant
Date: January 13, 1997
By: /s/James J. Davis
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James J. Davis
Senior Vice President-Finance
and Chief Financial Officer
By: /s/Randy Ellis
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Randy Ellis
Controller and
Chief Accounting Officer
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