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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)
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
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OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM September 1, 1998 TO December 31, 1998
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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
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As of January 31, 1999, 76,916,274 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
December 31, 1998 and August 31, 1998 2
Consolidated Condensed Statements of Operations (Unaudited) -
Four Months Ended December 31, 1998 and 1997
3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Four Months Ended December 31, 1998 and 1997 4
Notes to Unaudited Consolidated Condensed
Financial Statements 5 - 8
Report of Independent Accountants 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit 15, Letter Re Unaudited Interim
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)
December 31, August 31,
1998 1998
------------ ----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 24,314 $ 45,254
Other short-term investments - 9,999
Accounts and notes receivable 105,810 113,050
Rig materials and supplies 18,755 22,596
Other current assets 13,224 13,993
---------- ----------
Total current assets 162,103 204,892
Property, plant and equipment less accumulated
depreciation and amortization of $445,464 at
December 31, 1998 and $432,325 at August 31, 1998 750,163 727,840
Goodwill, net of accumulated amortization
of $13,025 at December 31, 1998 and $10,216
at August 31, 1998 214,232 216,973
Other noncurrent assets 53,118 50,839
---------- ----------
Total assets $1,179,616 $1,200,544
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 31,404 $ 21,469
Accounts payable and accrued liabilities 72,437 90,709
Accrued income taxes 7,576 6,032
---------- ----------
Total current liabilities 111,417 118,210
---------- ----------
Long-term debt 630,479 630,090
Deferred income tax 41,253 47,400
Other long-term liabilities 32,517 26,882
Stockholders' equity:
Common stock, $.16 2/3 par value 12,815 12,794
Capital in excess of par value 341,699 341,099
Retained earnings 9,436 24,069
---------- ----------
Total stockholders' equity 363,950 377,962
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Total liabilities and stockholders' equity $1,179,616 $1,200,544
---------- ----------
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See accompanying notes to consolidated condensed financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Four Months Ended
--------------------
Dec. 31, Dec. 31,
1998 1997
-------- ---------
Revenues:
Land drilling $ 71,961 $ 90,740
Offshore drilling 53,935 47,695
Rental tools 10,245 10,887
Other 582 459
-------- --------
Total revenues 136,723 149,781
-------- --------
Operating expenses:
Land drilling 54,154 60,129
Offshore drilling 40,494 27,412
Rental tools 4,416 4,080
Other 932 677
Depreciation and
amortization 26,529 19,556
General and administrative 5,904 5,456
Provision for reduction in
carrying value of certain
assets (Note 6) 4,055 -
-------- --------
Total operating expenses 136,484 117,310
-------- --------
Operating income 239 32,471
-------- --------
Other income and (expense):
Interest expense (17,427) (16,310)
Interest income 619 3,703
Other income - net 301 6,204
-------- --------
Total other income and (expense)(16,507) (6,403)
------- --------
Income (loss) before
income taxes (16,268) 26,068
-------- --------
Income tax expense (benefit):
Current tax expense-foreign 4,512 7,022
Deferred tax benefit (6,147) -
-------- --------
(1,635) 7,022
-------- --------
Net income (loss) $(14,633) $ 19,046
-------- --------
-------- --------
Earnings (loss) per share,
Basic $ (.19) $ .25
-------- --------
Diluted $ (.19) $ .24
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Number of common shares used
in computing earnings per share:
Basic 76,828,879 76,517,686
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Diluted 76,828,879 78,546,274
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See accompanying notes to consolidated condensed financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Four Months Ended
December 31,
--------------------
1998 1997
-------- -------
Cash flows from operating activities:
Net income (loss) $ (14,633) $19,046
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 26,529 19,556
Expenses not requiring cash 1,875 1,055
Deferred income taxes (6,147) -
Provision for reduction in carrying
value of certain assets 4,055 -
Gain on disposition of OnSite investment - (4,562)
Change in operating assets and liabilities 153 (15,118)
Other-net (605) (1,284)
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Net cash provided by operating
activities 11,227 18,693
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Cash flows from investing activities:
Capital expenditures (52,711) (41,171)
Acquisition of Hercules - (194,452)
Acquisition of Bolifor (500) -
Proceeds from sale of OnSite investment - 7,998
Proceeds from the sale of equipment 1,481 1,435
Purchase of short-term investments - (230)
Proceeds from sale of short-term investments 9,999 3,068
Other-net 1,000 36
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Net cash used in investing
activities (40,731) (223,316)
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Cash flows from financing activities:
Proceeds from issuance of debt 10,000 32,000
Principal payments under debt obligations (1,441) (4,868)
Other 5 (16)
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Net cash provided by financing
activities 8,564 27,116
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Net change in cash and cash equivalents (20,940) (177,507)
Cash and cash equivalents at
beginning of period 45,254 209,951
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Cash and cash equivalents at
end of period $ 24,314 $ 32,444
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Supplemental cash flow information:
Interest paid $ 22,802 $ 17,461
Taxes paid $ 2,968 $ 3,823
See accompanying notes to consolidated condensed financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The Company has decided to change its fiscal year end from August 31 to
December 31, effective for the fiscal year beginning January 1, 1999. The
consolidated condensed financial statements included in this Form 10-Q
represent the period from September 1, 1998 through December 31, 1998, the
Company's transition period (the "Transition Period"), preceding the
beginning of the new fiscal year.
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 December 31, 1998 and August 31, 1998, (2) the
results of operations for the four months ended December 31, 1998 and
December 31, 1997, and (3) cash flows for the four months ended December
31, 1998 and December 31, 1997. Results for the four months ended
December 31, 1998 are not necessarily indicative of the results which will
be realized for the year ending December 31, 1999. The August 31, 1998
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, 1998.
2. In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," was issued. This statement replaced the previously
required presentation of primary earnings per share (EPS) with a
presentation of basic EPS that excludes dilutive securities from the
computation. It also requires a presentation of diluted EPS that is
computed similarly to the fully diluted EPS calculation previously
required. The requirements of this statement have been followed for all
earnings per share figures included in this Form 10-Q.
RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Four Months Ended
December 31, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $(14,633,000) 76,828,879 $(.19)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders + assumed
conversions $(14,633,000) 76,828,879 $(.19)
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------------ ----------- -----
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Four Months Ended
December 31, 1997
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 19,046,000 76,517,686 $ .25
Effect of Dilutive Securities:
Stock options and grants 2,028,588
Diluted EPS:
Income available to common
stockholders + assumed
conversions $ 19,046,000 78,546,274 $ .24
------------ ------------ -----
------------ ------------ -----
The Company has outstanding $175,000,000 of Convertible Subordinated Notes
which are convertible into 11,371,020 shares of common stock at $15.39 per
share. The notes were outstanding during the four months ended December
31, 1998 but were not included in the computation of diluted EPS because
the assumed conversion of the notes would have had an anti-dilutive effect
on EPS. In addition, at December 31, 1998, options to purchase 5,595,000
shares of common stock at prices ranging from $2.25 to $12.1875, were
outstanding but not included in the computation of diluted EPS because the
assumed exercise of the options would have had an anti-dilutive effect on
EPS due to the net loss in the current period.
3. On December 30, 1997, the Company acquired all of the outstanding capital
stock of Hercules Offshore Corporation, a Texas corporation ("HOC"), and
all of the outstanding capital stock of Hercules Rig Corp., a Texas
corporation ("HRC") and an affiliate of HOC (HOC and HRC being
collectively referred to as "Hercules"), for $195.6 million, including
acquisition costs. The purchase prices for the acquisitions were adjusted
for certain debt assumed by the Company, for capital expenditures incurred
subsequent to the purchase agreement date and for levels of working
capital at closing. Hercules owns three self-erecting platform rigs and
seven offshore jackup rigs.
The acquisition has been accounted for by the purchase method of
accounting, and the reported financial results include the Hercules
operations from the date of acquisition. The excess of purchase price
over the fair values of the net assets acquired was $83.9 million and has
been recorded as goodwill, which is being amortized on a straight-line
basis over 30 years.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
The acquisition of Hercules was primarily funded with proceeds from the
July 1997 issuance of the Company's $175 million 5 1/2% Convertible
Subordinated Notes.
The following unaudited pro forma information presents a summary of the
four months consolidated results of operations of the Company and
Hercules as if the acquisition of Hercules had occurred September 1,
1997.
(Thousands except per share amounts)
Four Months Ended
--------------------
Actual Pro Forma
Dec. 31, Dec. 31,
1998 1997
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Revenues $136,723 $175,185
Net income (loss) $(14,633) $ 19,712
Diluted earnings (loss)
per share $ (.19) $ .25
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
4. Information regarding the Company's operations by industry segment for the
four months ended December 31, 1998 and 1997 is as follows (dollars in
thousands):
December 31, December 31,
1998 1997
---------- -----------
Revenues:
Land drilling $ 71,961 $ 90,740
Offshore drilling 53,935 47,695
Rental tools 10,245 10,887
Other 582 459
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Net revenues $ 136,723 $ 149,781
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Operating income (loss):
Land drilling <1> 5,006 21,702
Offshore drilling (1,053) 12,427
Rental tools 3,086 4,637
Other (896) (839)
General and administrative (5,904) (5,456)
--------- ---------
Total operating income 239 32,471
Interest expense (17,427) (16,310)
Other income (expense)-net 920 9,907
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Income (loss) before income taxes $ (16,268) $ 26,068
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<FN>
<1>
(1) The four months ended December 31, 1998 includes provision of
$4,055 for reduction in carrying value of certain assets. (See note 6
below.)
5. In the third quarter of fiscal year 1998, ended May 31, 1998, the Company
reviewed the estimated useful life of its land drilling fleet used for
financial depreciation purposes. As a result, the estimated life was
extended from 10 to 15 years with a 5% salvage value for most of the major
rig components, resulting in a reduction in depreciation expense of
approximately $1.7 million for the four months ended December 31, 1998.
The Company's historical experience and a comparison with other firms in
the industry indicates that its land drilling equipment has a useful life
of at least 15 years. The depreciable lives for certain equipment,
including drill pipe, were not extended.
6. In December 1998, the Company determined that its operations in Argentina
do not meet its strategic objectives and, therefore, has decided that such
assets would be actively marketed for disposition. The assets in
Argentina consist of 13 drilling rigs and inventories related to these
rigs. The Company had previously recognized six of the thirteen rigs as
held for sale. The current decision includes all Argentina assets. Due
to depressed industry conditions an impairment loss of $4,055,000 was
recognized in December 1998. The net realizable value of the Argentina
assets is included in other non-current assets.
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 December 31, 1998, and the related
consolidated condensed statement of operations for the four month period ended
December 31, 1998 and consolidated condensed statement of cash flows for the
four month period ended December 31, 1998. 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, 1998, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report,
dated October 22, 1998, 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,
1998, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
By: /s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 16, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934. These
statements may be made directly in this document, referring to the Company, or
in other documents filed by the Company with the Securities and Exchange
Commission, and referred to in this Form 10-Q. All statements included in
this document, other than statements of historical facts, that address
activities, events or developments that the Company expects, projects,
believes or anticipates will or may occur in the future, including future
operating results, future capital expenditures and investments in the
acquisition and refurbishment of rigs and equipment, repayment of debt,
expansion and growth of operations, Year 2000 issues, and other such matters,
are forward-looking statements.
Forward-looking statements are based on certain assumptions and analyses
made by the management of the Company in light of their experience and
perception of historical trends, current conditions, expected future
developments and other factors they believe are relevant. Although management
of the Company believes that their assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties,
many of which are outside the control of the Company. These risks include
worldwide economic and business conditions, oil and gas market prices,
industry conditions, international trade restrictions and political
instability, operating hazards and uninsured risks, governmental regulations
and environmental matters, substantial leverage, seasonality and adverse
weather conditions, concentration of customer and supplier relationships,
potential changes in stock prices, upgrade and refurbishment projects,
competition, integration of operations, acquisition strategy, and other
similar factors (some of which are discussed in documents referred to in this
Form 10-Q.) Because the forward-looking statements are subject to risks and
uncertainties, the actual results of operations and actions taken by the
Company may differ materially from those expressed or implied by such forward-
looking statements.
OUTLOOK AND OVERVIEW
- --------------------
The loss recognized for the four months ended December 31, 1998 reflects
the significant decrease in rig utilization and in dayrates since the third
quarter of fiscal year 1998. Lower crude oil prices have negatively impacted
the revenue and profits of oil operators, who have responded by reducing
exploration and development expenditures. This decline in spending has
adversely affected the level of oilfield activity, and in turn, the revenue of
most companies in the oilfield service industry.
If the depressed level of oilfield activity persists, the Company
anticipates that it will continue to incur losses. Management believes that
cash provided by operations and funds available under the Company's revolving
credit facility will be adequate to meet working capital needs based on the
continuation of current rig utilization and dayrates, current projected levels
of capital expenditures and anticipated prepayments to offset construction
costs of a barge rig. In order to conserve cash, management is taking steps
to reduce certain discretionary capital expenditures, is reorganizing its
worldwide drilling operations to reduce operating and overhead costs, and is
considering the strategic sale of certain assets. Management is unable to
predict when and to what extent the level of oilfield activity will recover.
RESULTS OF OPERATIONS
- ---------------------
Four Months Ended Dec. 31, 1998 Compared with Four Months Ended Dec. 31, 1997
- -----------------------------------------------------------------------------
The Company has decided to change its fiscal year end from August 31 to
December 31, effective for the fiscal year beginning January 1, 1999. The
consolidated condensed financial statements included in this Form 10-Q
represent the period from September 1, 1998 through December 31, 1998, the
Company's transition period (the "Transition Period"), preceding the beginning
of the new fiscal year.
The Company's operations and results have been altered significantly by
the acquisitions of Mallard Bay Drilling, Inc. ("Mallard") and Quail Tools,
Inc. ("Quail") in November 1996, the acquisition of Bolifor in July 1997 and
the acquisition of Hercules in December 1997. The results of operations of
Mallard, Quail and Bolifor are included in both periods presented while
Hercules is only included subsequent to December 30, 1997, its date of
acquisition.
The Company recorded a net loss of $14.6 million for the Transition
Period compared to net income of $19.0 million recorded for the four month
period ended December 31, 1997. The depressed drilling market conditions
which began to affect the Company's utilization and dayrates in the second
half of fiscal 1998 continued to negatively impact the Company's results in
the Transition Period. Each of the Company's primary operating segments--land
drilling, offshore drilling and rental tools--experienced a reduction of
profit margin (revenue less direct operating expense) when comparing the two
periods. In addition, in the Transition Period, the Company recorded a $4.1
million impairment loss (classified as 'Provision for reduction in carrying
value of certain assets' on the Statement of Operations) on its rigs and
equipment in Argentina which are being held for sale.
Revenue decreased $13.1 million from $149.8 million in the four months
ended December 31, 1997 to $136.7 million in the Transition Period. Land
drilling revenue decreased $18.8 million to $72.0 million, largely due to
reduced rig utilization in Papua New Guinea, Argentina, Pakistan, Niger and
the continental United States. Additionally, in Indonesia, the Company's land
drilling revenue continued to be negatively impacted by the fiscal 1998
termination of the geothermal projects on which the Company was providing
management, technical and training support. The Company did record drilling
revenue increases in Ecuador and Kazakhstan due to increased utilization in
those countries.
Offshore drilling revenue increased $6.2 million to $53.9 million due to
the December 1997 acquisition of Hercules, whose operations produced revenue
of $13.6 million in the Transition Period. Mallard's offshore drilling
revenue decreased $7.4 million when comparing the Transition Period to the
four months ended December 31, 1997. Revenue from Mallard's domestic
operations decreased $14.5 million to $21.9 million due to lower utilization
and dayrates in both drilling and workover operations. Revenue increases from
Mallard's international operations in Nigeria and Venezuela partially offset
these domestic decreases, due to increased dayrates on one barge rig contract
in Nigeria and commencement of operations of barge Rig 76 in Venezuela in
September 1998.
Rental tool revenue declined $.6 million. Revenue generated from the
Company's Victoria, Texas facility, which opened in November 1997, somewhat
offset reduced revenue generated from rentals from the Company's New Iberia,
Louisiana facility.
RESULTS OF OPERATIONS (continued)
- ---------------------
The Company's overall profit margin, excluding the $4.1 million provision
for reduction in carrying value of certain assets, was 26.9% of revenue in the
Transition Period, as compared to 38.4% in the four month period ended
December 31, 1997. The reduced profit margin is due to revenue decreasing to
a greater degree than direct operating costs. Offshore drilling profit
margins were impacted by weakness in the shallow water jackup drilling market,
negatively affecting both utilization of and dayrates earned by these rigs.
Additionally, Mallard's transition zone barge drilling and workover rigs
operating in the Gulf of Mexico experienced lower utilization and earned lower
average dayrates in the Transition Period than in the same period of the prior
year. Land drilling profit margins declined primarily due to lower
utilization in most markets in which the Company operates.
Depreciation and amortization expense increased $7.0 million to $26.5
million in the Transition Period. Depreciation expense and amortization of
goodwill of $5.8 million related to the Hercules acquisition, were the primary
reasons for the increase. Depreciation expense recorded on fiscal 1998
capital additions also contributed to the increase, which was offset by a
reduction of approximately $1.7 million due to the extension of the
depreciable lives of the Company's land drilling fleet from 10 to 15 years in
the third quarter of fiscal 1998.
Interest expense increased $1.1 million due to higher debt levels
outstanding in the Transition Period than in the prior year period. In
calendar year 1998, the Company incurred an additional $150.0 million in
Senior Notes debt and borrowed $30.0 million under the revolving credit
facility. A portion of the proceeds from the $150.0 million in Senior Notes,
which were issued in March 1998, was used to repay $83.0 million under a bank
term loan. The increased interest expense from this additional debt was
offset somewhat by a $1.7 million increase in interest capitalized to
construction projects. Interest income decreased $3.1 million due to lower
average cash balances maintained during the Transition Period when compared to
the prior year period. The decrease in Other income - net, $5.9 million, was
primarily due to the gain of $4.6 million recorded during the four months
ended December 31, 1997, on the Company's disposition of its interest in
OnSite Technology L.L.C.
Income tax expense consists primarily of foreign tax expense and deferred
tax benefit. The decrease in foreign tax expense is directly attributed to
declining revenues and operating income during the Transition Period at
international locations. The deferred tax benefit is due to the net loss
incurred during the Transition Period.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash, cash equivalents and other short-term investments
of $24.3 million at December 31, 1998, a decrease of $30.9 million from the
August 31, 1998 balance. Primary sources of cash during the Transition Period
were $11.2 million provided by operating activities, as reflected on the
Consolidated Statements of Cash Flows, and $10.0 million borrowed under the
Company's revolving credit facility. Capital expenditures of $52.7 million
were the Company's primary use of cash during the Transition Period.
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
Major capital projects on-going during the Transition Period included
the modification of barge Rig 71 (re-numbered 257), which is being modified
for a contract in the Caspian Sea, and the construction of new barge Rig 75
for a contract in Nigeria. It is anticipated that drilling operations under
both contracts will begin in mid-1999. Other major expenditures included the
modification of a land rig for a contract in Kazakhstan, which commenced
drilling during the Transition Period, and the construction of a new support
facility in New Iberia, Louisiana for the Company's drilling operations.
To finance the Company's November 1996 acquisitions of Mallard and Quail,
the July 1997 acquisition of the assets of Bolifor and the December 1997
acquisition of Hercules as well as the significant capital expenditures made
in fiscal year 1998 and during the Transition Period, the Company has issued
various debt instruments. The Company has total long-term debt, including the
current portion, of $661.9 million at December 31, 1998. The Company's Series
D 9 3/4% Senior Notes of $450.0 million are payable November 2006 and $175.0
million of 5 1/2% Convertible Subordinated Notes are payable July 2004. The
Convertible Subordinated Notes are convertible at the option of the holder
into shares of common stock of Parker Drilling Company at any time prior to
maturity at a conversion price of $15.39 per share.
The Company has a $75.0 million revolving credit facility which is
available for working capital requirements, general corporate purposes and to
support letters of credit. Availability under the revolving credit facility
is subject to certain borrowing base limitations based on 80% of eligible
accounts receivable plus 50% of supplies in inventory. At December 31, 1998,
$30.0 million was outstanding under the revolving credit facility and $12.9
million in letters of credit had been issued, leaving $32.1 million available
under the revolver. The revolving credit facility terminates on December 31,
2000.
Both the Senior Notes and the revolving credit facility contain customary
affirmative and negative covenants, including restrictions on incurrence of
debt and sales of assets. The revolving credit facility prohibits, among
other things, payment of dividends and the indenture for the Senior Notes
restricts the payment of dividends.
The Company anticipates cash requirements for capital spending will be
substantially less in calendar year 1999 (anticipated $85.0 million) than in
fiscal year 1998 ($196.1 million). The Company's two most significant on-
going construction projects, the modification of barge Rig 71/257 for service
in the Caspian Sea and the construction of barge Rig 75 for service in
Nigeria, are scheduled for completion in mid-1999. In addition, the Company
will receive prepayments from the operator to offset a substantial portion of
the expenditures required to modify Rig 71/257.
If the depressed level of oilfield activity persists, the Company
anticipates that it will continue to incur losses. Management believes that
cash provided by operations and funds available under the Company's revolving
credit facility will be adequate to meet working capital needs based on the
continuation of current rig utilization and dayrates, current projected levels
of capital expenditures and anticipated prepayments to offset construction
costs of a barge rig. In order to conserve cash, management is taking steps
to reduce certain discretionary capital expenditures, is reorganizing its
worldwide drilling operations to reduce operating and overhead costs, and is
considering the strategic sale of certain assets. Management is unable to
predict when and to what extent the level of oilfield activity will recover.
OTHER MATTERS
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Indonesian Operations
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The current economic conditions in Indonesia have created uncertainty
regarding the Company's Indonesian operations. The Company provides
management, technical and training support to an Indonesian-owned drilling
contractor, whose services include the drilling of geothermal wells related to
power plant projects. Due to the uncertain economic conditions in Indonesia,
certain of these power plant projects have been postponed or delayed. As a
result, payments from a significant customer for services provided by the
Indonesian contractor have been delayed. The Indonesian contractor has
initiated an arbitration against its customer for payment of outstanding
receivables. The Company believes that resolution of this matter will not
have a material adverse effect on the Company's results of operations or
financial position.
Year 2000
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The Company plans to achieve and maintain Year 2000 compliance with a
project consisting of seven phases. The phases include Awareness, Inventory,
Assessment, Detailed Analysis, Compliance Testing, Remediation and Monitoring
Compliance. Prior to establishing the Year 2000 project, the Company made a
decision to replace most of its outdated systems with state-of-the-art
integrated systems and standardized desktop systems. The Company spent much
of 1997 replacing critical financial, human resources and payroll systems with
new purchased software that is Year 2000 certified by the Information
Technology Association of America. The Year 2000 problem was not the main
reason for upgrading the information technology platform, however it will be
beneficial in achieving Year 2000 compliance.
The Company has completed the initial awareness phase, inventory and
assessment and partial testing of its core information technology systems.
The inventory and assessment of non-information technology systems including
telecommunication systems, business machines, security systems, premise
equipment, rig equipment and other embedded chip technology is partially
completed. The Company is surveying its critical supply chain and business
partners to establish their state of readiness. It is expected that all
critical systems testing and necessary remediation will be completed by the
end of the second quarter of calendar 1999. The remainder of calendar 1999
will be devoted to monitoring compliance, developing and testing contingency
plans.
At this time no system replacement dates were accelerated because of the
Year 2000 problem. The cost to date for the project has been in internal
salaries and purchasing some testing software. The software costs to date are
not deemed material. Approximately $400,000 has been budgeted for the Year
2000 project in calendar year 1999.
OTHER MATTERS (continued)
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The Company is confident that its critical business and operations
systems will be ready for the Year 2000. The greatest risks for Year 2000
problems include local accounting systems used in some countries, the
telecommunications/utility infrastructures in many foreign countries and the
vendor supply chain. Additional risks will be faced if key business partners,
suppliers, banks, utilities, communications, transportation or government
services are not compliant for the Year 2000. In the event the Company and/or
its suppliers and vendors are unable to remediate the Year 2000 problem prior
to January 1, 2000, operations of the Company could be significantly impacted.
In order to mitigate this risk, the Company is developing a contingency plan
to continue operations should it become necessary to do so. Such procedures
are expected to include alternative suppliers, communications, and
transportation plans. The contingency plan will be completed by the third
quarter of calendar 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Page
Exhibit 15 Letter re Unaudited Interim Financial Information 18
Exhibit 27 Financial Data Schedule [Edgar Version Only]
(b) Reports on Form 8-K - Parker Drilling Company ("Parker") filed a
report on Form 8- K on November 6, 1998 in which the Company
announced that it had entered into an Agreement and Plan of Merger
under which Superior Energy Services, Inc. ("Superior") would
become a wholly owned subsidiary of Parker. Parker and Superior
subsequently announced on January 7, 1999 that they had jointly
agreed to terminate their merger agreement, with Superior agreeing
to make a cash payment to Parker in settlement of certain
obligations under the merger agreement.
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
-----------------------
Registrant
Date: February 16, 1999
By: /s/ James J. Davis
-----------------------------------------
James J. Davis
Senior Vice President-Finance and
Chief Financial Officer
By: /s/ W. Kirk Brassfield
-----------------------------------------
W. Kirk Brassfield
Controller and
Chief Accounting Officer
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule [Edgar Version Only]