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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 March 31, 1999
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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
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As of April 30, 1999, 77,085,531 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
March 31, 1999 and December 31, 1998 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three Months Ended March 31, 1999 and 1998
3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1999 and 1998 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 16
Signatures 17
Exhibit 10(a) Parker Drilling Company Stock Bonus Plan
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)
March 31, December 31
1999 1998
-------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 24,798 $ 24,314
Accounts and notes receivable 97,967 105,810
Rig materials and supplies 14,728 18,755
Other current assets 10,704 13,224
---------- ----------
Total current assets 148,197 162,103
Property, plant and equipment less accumulated
depreciation and amortization of $458,941 at
March 31, 1999 and $445,464 at December 31,
1998 725,162 729,873
Goodwill, net of accumulated amortization
of $14,920 at March 31, 1999 and $13,025
at December 31, 1998 212,337 214,232
Other noncurrent assets 56,739 53,118
---------- ----------
Total assets $1,142,435 $1,159,326
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 31,151 $ 31,404
Accounts payable and accrued liabilities 75,287 72,437
Accrued income taxes 6,771 7,576
---------- ----------
Total current liabilities 113,209 111,417
---------- ----------
Long-term debt 629,318 630,479
Deferred income tax 35,553 41,253
Other long-term liabilities 12,719 12,227
Stockholders' equity:
Common stock, $.16 2/3 par value 12,842 12,815
Capital in excess of par value 342,154 341,699
Retained earnings (accumulated deficit) (3,360) 9,436
---------- ----------
Total stockholders' equity 351,636 363,950
---------- ----------
Total liabilities and
stockholders' equity $1,142,435 $1,159,326
---------- ----------
---------- ----------
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)
Three Months Ended
--------------------
March 31, March 31,
1999 1998
-------- ---------
Revenues:
Domestic drilling $ 28,417 $ 55,642
International drilling 50,941 62,934
Rental tools 7,267 8,671
Other 221 467
-------- --------
Total revenues 86,846 127,714
-------- --------
Operating expenses:
Domestic drilling 27,845 36,083
International drilling 35,018 39,748
Rental tools 2,557 3,718
Other 97 508
Depreciation and
amortization 19,976 18,409
General and administrative 4,404 4,667
Restructuring charges (Note 6) 2,200 -
Provision for reduction in
carrying value of certain
assets (Note 5) 1,500 -
-------- --------
Total operating expenses 93,597 103,133
-------- --------
Operating income (loss) (6,751) 24,581
-------- --------
Other income and (expense):
Interest expense (13,264) (12,908)
Interest income 387 562
Other income - net 4,124 (379)
-------- --------
Total other income and (expense) (8,753) (12,725)
-------- --------
Income (loss) before
income taxes (15,504) 11,856
-------- --------
Income tax expense (benefit):
Current tax expense-foreign 2,992 5,859
Deferred tax benefit (5,700) -
-------- --------
(2,708) 5,859
-------- --------
Net income (loss) $(12,796) $ 5,997
-------- --------
-------- --------
Earnings (loss) per share,
Basic $ (.17) $ .08
-------- --------
Diluted $ (.17) $ .08
-------- --------
Number of common shares used
in computing earnings per share:
Basic 76,959,672 76,701,670
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Diluted 76,959,672 77,880,396
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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)
Three Months Ended
March 31,
--------------------
1999 1998
-------- -------
Cash flows from operating activities:
Net income (loss) $ (12,796) $ 5,997
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 19,976 18,409
Expenses not requiring cash 1,064 1,486
Deferred income taxes (5,700) -
Provision for reduction in carrying
value of certain assets 1,500 -
Change in operating assets and liabilities 11,163 31,121
Other-net (2,440) (571)
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Net cash provided by operating
activities 12,767 56,442
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Cash flows from investing activities:
Capital expenditures (15,263) (56,279)
Acquisition of Hercules - (1,100)
Proceeds from the sale of equipment 4,355 1,710
Other-net - (801)
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Net cash used in investing activities (10,908) (56,470)
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Cash flows from financing activities:
Proceeds from issuance of debt - 153,739
Principal payments under debt obligations (1,309) (119,193)
Other (66) (157)
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Net cash provided by (used in)
financing activities (1,375) 34,389
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Net change in cash and cash equivalents 484 34,361
Cash and cash equivalents at
beginning of period 24,314 32,444
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Cash and cash equivalents at
end of period $ 24,798 $ 66,805
--------- ---------
--------- ---------
Supplemental cash flow information:
Interest paid $ 5,711 $ 6,950
Taxes paid $ 3,797 $ 3,570
See accompanying notes to consolidated condensed financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The Company has changed 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 January 1, 1999 through March 31, 1999, the first quarterly
period under the Company's 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 March 31, 1999 and December 31, 1998, (2) the
results of operations for the three months ended March 31, 1999 and March
31, 1998, and (3) cash flows for the three months ended March 31, 1999 and
March 31, 1998. Results for the three months ended March 31, 1999 are not
necessarily indicative of the results which will be realized for the year
ending December 31, 1999. 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 Three Months Ended
March 31, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $(12,796,000) 76,959,672 $(.17)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders + assumed
conversions $(12,796,000) 76,959,672 $(.17)
------------ ----------- -----
------------ ----------- -----
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 Three Months Ended
March 31, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 5,997,000 76,701,670 $ .08
Effect of Dilutive Securities:
Stock options and grants 1,178,726
Diluted EPS:
Income available to common
stockholders + assumed
conversions $ 5,997,000 77,880,396 $ .08
------------ ------------ -----
------------ ------------ -----
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 three months ended March 31,
1999 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 March 31, 1999, options to purchase 5,605,000 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.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
3. During the three months ended March 31, 1999 the Company has restructured
its worldwide drilling operations into two primary business units,
"Domestic Operations" and "International Operations." The Company makes
operating decisions and assesses performance based on these geographic
segments and based on services provided: land drilling, offshore drilling
and rental tools. Information regarding the Company's operations by
industry segment for the three months ended March 31, 1999 and 1998 is as
follows (dollars in thousands):
March 31, March 31,
1999 1998
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Revenues:
Domestic drilling
Land $ 7,060 $ 12,753
Offshore 21,357 42,889
International drilling
Land 38,436 54,450
Offshore 12,505 8,484
Rental tools 7,267 8,671
Other 221 467
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Net revenues $ 86,846 $ 127,714
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Operating income (loss):
Domestic drilling
Land 290 2,912
Offshore (10,027) 7,962
International drilling
Land 5,343 13,077
Offshore 3,486 2,820
Rental tools 2,564 3,254
Other (303) (777)
--------- ---------
Total operating income
by segment <1> 1,353 29,248
--------- ---------
Provision for reduction in
carrying value of certain
assets (1,500) -
Restructuring charges (2,200) -
General and administrative (4,404) (4,667)
--------- ---------
Total operating income (loss) (6,751) 24,581
Interest expense (13,264) (12,908)
Other income (expense)-net 4,511 183
--------- ---------
Income (loss) before income taxes $ (15,504) $ 11,856
--------- ---------
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<FN1>
<1> Total operating income (loss) by segment is calculated by
excluding General and administrative expense, Restructuring charges
and Provision for reduction in carrying value of certain assets from
Operating income (loss), as reported in the Consolidated Condensed
Statements of Operations.
4. 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 $1.3 million for the three months ended March 31, 1999. 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.
5. In December 1998, the Company determined that its operations in Argentina
do not meet its strategic objectives and 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.
In March 1999, the Company increased its allowance for doubtful accounts
by $1,500,000. Several of the Company's customers have encountered
financial difficulties, including the filing of bankruptcy, which has
resulted in their reduced ability to pay the Company for previously
provided services.
6. During the three months ended March 31, 1999 the Company has restructured
its worldwide drilling operations into two primary business units,
"Domestic Operations" and "International Operations". In connection with
this restructuring, certain duplicative administrative and operating
functions have been eliminated, resulting in $2.2 million in severance
costs. It is anticipated that substantially all incurred but unpaid
amounts ($2.0 million at March 31, 1999) will be paid in the current
calendar year.
7. The Company has received and anticipates receiving additional prepayments
from the operator to offset a substantial portion of the expenditures
required to modify barge Rig 257 for a contract in the Caspian Sea. These
prepayments, $41.8 million as of March 31, 1999, are being accounted for
similar to mobilization fees and, accordingly, have been reflected as a
reduction of capital expenditures in the Statements of Cash Flows and as a
reduction of property, plant and equipment in the Consolidated Condensed
Balance Sheets. Prepayments received as of December 31, 1998, $20.3
million, were previously included in other long-term liabilities and have
been reclassified on the Consolidated Condensed Balance Sheets to reflect
the above described accounting treatment.
Report of Independent Accountants
To the Board of Directors and Shareholders
Parker Drilling Company
We have reviewed the consolidated condensed balance sheets of Parker
Drilling Company and subsidiaries as of March 31, 1999 and December 31, 1998,
and the related consolidated condensed statement of operations for the three
month period ended March 31, 1999 and consolidated condensed statement of cash
flows for the three month period ended March 31, 1999. 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.
By: /s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
May 14, 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, anticipated cost savings, 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,
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 three months ended March 31, 1999 reflects
the continued weakness in most of the Company's drilling markets which has
resulted in a 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. Although crude
oil and natural gas prices have increased recently, management is unable to
predict when and to what extent spending by operators and rig dayrates and
utilization will be affected.
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. Management's
projections regarding the sufficiency of cash is contingent upon the
continuation of current rig utilization and dayrates, the commencement of
operations under two significant barge rig contracts in mid-1999, current
projected levels of capital expenditures and the timely receipt of prepayments
to offset construction and related costs for the modification of a barge rig.
RESULTS OF OPERATIONS (continued)
- ---------------------
In order to conserve cash, management has taken steps to reduce certain
discretionary capital expenditures, has reorganized its worldwide drilling
operations to reduce operating and overhead costs, and is considering the sale
of certain assets, the latter of which will be accelerated as needed in the
event assumptions to meet cash requirements are not realized. In addition,
the Company is pursuing project financing on the newly built Rig 75 destined
for Nigeria, which financing would provide an additional $25 million in
available funds. Management is unable to predict whether the financing can be
completed on terms acceptable to the Company.
Three Months Ended March 31, 1999 Compared with Three Months Ended March 31,
1998
- ----------------------------------------------------------------------------
The Company changed its fiscal year end from August 31 to December 31,
effective for the year beginning January 1, 1999. The consolidated condensed
financial statements included in this Form 10-Q represent the period from
January 1, 1999 through March 31, 1999, the first quarterly period under the
Company's new fiscal year, and the comparable period in the prior year.
The Company recorded a net loss of $12.8 million for the three months
ended March 31, 1999 compared to net income of $6.0 million recorded for the
three month period ended March 31, 1998. 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 current period. Each of the Company's primary operating
segments--domestic drilling, international drilling and rental tools--
experienced a reduction of profit margin (revenue less direct operating
expense) when comparing the two periods. In addition, in the current quarter,
the Company recorded a $1.5 million provision for doubtful accounts receivable
(classified as 'Provision for reduction in carrying value of certain assets'
in the Statement of Operations) and recorded restructuring charges
attributable to its worldwide reorganization of $2.2 million. The reorganized
worldwide drilling operations will have two primary business units, "Domestic
Operations" and "International Operations". In connection with this
restructuring, certain duplicative administrative and operating functions have
been eliminated. The Company anticipates the reorganization and other
consolidation efforts will result in annual cost savings of approximately $8.5
million.
Revenue decreased $40.9 million from $127.7 million in the three months
ended March 31, 1998 to $86.8 million in the current year's first quarter.
Domestic drilling revenue decreased from $55.6 million to $28.4 million, a
decrease of 48.9%. Domestic land drilling revenue decreased $5.7 million due
primarily to lower utilization in the lower 48 states. The Company's sole rig
in Alaska, Rig 245, was released from its contract during the current quarter,
also contributing to the reduced revenue from land operations in the United
States. Domestic offshore drilling revenue decreased $21.5 million,
reflecting continued weakness in barge, jackup and platform markets.
International drilling revenue declined $12.0 million from $62.9 million
in the calendar 1998 first quarter to $50.9 million in the current quarter.
International land drilling revenues decreased $16.0 million while offshore
drilling revenues increased $4.0 million. Primarily responsible for the land
drilling revenue decrease was reduced revenue in the Asia Pacific region,
RESULTS OF OPERATIONS (continued)
- ---------------------
including the countries of Pakistan, Papua New Guinea, New Zealand and
Indonesia. Land drilling revenues from operations in Latin America and the
independent states of the former Soviet Union were comparable when comparing
the two periods as markets in Colombia, Bolivia and Kazakhstan have not been
negatively impacted to the same degree as the Asia Pacific countries mentioned
previously. The increase of $4.0 million in international offshore drilling
revenue was due to the commencement of operations of barge Rig 76 in Venezuela
in September 1998. Revenue of $8.5 million contributed by three barge rigs
located in Nigeria was equal to the amount earned in 1998. In Nigeria, an
increase in dayrates on one of the barge rigs was offset by reduced revenue
from one barge rig placed on a standby rate in the current quarter.
Rental tool revenue declined $1.4 million or approximately 16%, due
primarily to reduced drilling activity in the Gulf of Mexico.
The Company's overall profit margin, excluding the $1.5 million provision
for reduction in carrying value of certain assets and $2.2 million in
reorganization charges, was $21.3 million or 24.6% of revenue in the current
quarter as compared to $47.7 million or 37.3% of revenue in the three months
ended March 31, 1998. The reduced profit margin and profit margin percentages
are due to revenue decreasing to a greater degree than direct operating costs.
Although dayrates have decreased in a number of the Company's markets, direct
operating costs have not decreased by a corresponding percentage.
Domestically, profit margins have been negatively impacted particularly in the
Company's offshore operations, in both shallow water jackup and barge
operations. Jackup dayrates have declined materially due to the lower number
of rigs operating in the Gulf of Mexico and also due to increased competition
for available contracts from rigs capable of operating in deeper waters, as
fewer deep water contract opportunities have been available. The Company's
transition zone barge drilling and workover rigs operating in the Gulf of
Mexico also experienced lower utilization and earned lower average dayrates in
the current period when compared to the same period of the prior year.
Domestic land drilling profit margins declined primarily due to lower
utilization and due to the release of Rig 245 from its contract in Alaska
during the current quarter.
International drilling profit margins declined $7.3 million due primarily
to the lower utilization in the Company's land drilling operations discussed
previously. The Company's international offshore barge drilling operations
had an increase in profit margin of $.9 million, due to the commencement of
operations of Rig 76 in Venezuela in September 1998.
Depreciation and amortization expense increased $1.6 million to $20.0
million in the current quarter. Depreciation expense recorded on 1998 capital
additions was the primary reason for the increase, which was offset by a
reduction of approximately $1.3 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 $.4 million due to higher debt levels
outstanding in the current quarter when compared to the prior year period,
offset by a $1.5 million increase in interest capitalized to construction
projects. The increase in Other income - net, $4.5 million, was primarily due
to gains recorded on the disposition of property, plant and equipment and from
a $2.1 million payment received from Superior Energy Services, Inc.
("Superior") as part of the agreement to terminate the Agreement and Plan of
Merger with Superior.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Income tax expense consists of foreign tax expense and deferred tax
benefit. Lower international drilling revenues and operating income has
resulted in a decrease in foreign tax expense when comparing the two periods.
The deferred tax benefit is due to the net loss incurred during the three
months ended March 31, 1999.
The Company had cash, cash equivalents and other short-term investments
of $24.8 million at March 31, 1999, an increase of $.5 million from the
December 31, 1998 balance. The primary sources of cash during the three month
period were $12.8 million provided by operating activities, as reflected on
the Consolidated Statements of Cash Flows, and prepayments from the operator
to offset a portion of the expenditures to modify Rig 257 for service in the
Caspian Sea. A decrease in accounts receivable due to collections was the
primary source of cash provided by operating activities.
Capital expenditures of $15.3 million were the Company's primary use of
cash during the quarter ended March 31, 1999. Major capital projects on-going
during the period included the modification of barge Rig 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. Payments received from the operator to
offset a portion of the expenditures to modify Rig 257 are reflected as a
reduction in capital expenditures in the Consolidated Statements of Cash
Flows. It is anticipated that drilling operations under both contracts will
begin in mid-1999. Other major expenditures included the modification of two
barge rigs for a contract with Texaco in the transition zones of the Gulf
Coast and the completion of construction of a new support facility in New
Iberia, Louisiana.
To finance the Company's 1996 and 1997 acquisitions and the significant
capital expenditures made in fiscal year 1998 and during the four months ended
December 31, 1998, the Company has issued various debt instruments. The
Company has total long-term debt, including the current portion, of $660.5
million at March 31, 1999. 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 March 31, 1999, $30.0 million was outstanding under the
revolving credit facility and $9.2 million in letters of credit had been
issued. Due to a decline in the amount of eligible accounts receivable, the
borrowing base as of March 31, 1999 was reduced to $68.5 million, leaving
$29.3 million available for borrowing. Subsequent to March 31, 1999, $10.0
million was drawn on the revolving credit facility, reducing the amount
available for borrowing to $19.3 million. It is possible that the borrowing
base could fall further, depending upon future business activity and resulting
accounts receivable balances. The revolving credit facility terminates on
December 31, 2000.
Both the Company's long-term debt indenture 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. Effective October 1,
1999 the covenant related to the Company's debt to total capital ratio will be
reduced from 70% to 65%. Although the Company is currently in compliance,
based on management's current financial projections, the Company will not be
in compliance with the covenant at October 1, 1999. The Company anticipates
receiving a waiver from this covenant. If a waiver is not received, the
Company will pursue other financing alternatives.
LIQUIDITY AND CAPITAL RESOURCES (continued)
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The Company anticipates cash requirements for capital spending will be
substantially less in calendar year 1999 ($40.0 million projected, net of
anticipated receipts to offset capital expenditures) than in fiscal year 1998
($180.0 million, net of receipts to offset capital expenditures). The
Company's two most significant on-going construction projects, the
modification of barge Rig 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.
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. Management's
projections regarding the sufficiency of cash is contingent upon the
continuation of current rig utilization and dayrates, the commencement of
operations under two significant barge rig contracts in mid-1999, current
projected levels of capital expenditures and the timely receipt of prepayments
to offset construction and related costs for the modification of a barge rig.
In order to conserve cash, management has taken steps to reduce certain
discretionary capital expenditures, has reorganized its worldwide drilling
operations to reduce operating and overhead costs and is considering the sale
of certain assets, the latter of which will be accelerated as needed in the
event assumptions to meet cash requirements are not realized. In addition,
the Company is pursuing project financing on the newly built Rig 75 destined
for Nigeria, which financing would provide an additional $25 million in
available funds. Management is unable to predict whether the financing can be
completed on terms acceptable to the Company. Although crude oil and natural
gas prices have increased recently, management is unable to predict when and
to what extent spending by operators and rig dayrates and utilization will be
affected.
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, and the drilling of wells in support
thereof, 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 commercial off the shelf
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,
assessment and testing of its core information technology systems. The
inventory, assessment and testing 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 inventory and assessment of drilling rig components
containing imbedded chips indicates that most do not have date related logic.
Testing is being conducted on components with date sensitive chips to
determine if a date related problem could occur. 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 June 30, 1999. The remainder of 1999 will be
devoted to monitoring compliance and contingency planning.
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.
The Company believes that its most likely worst-case scenario would be a
disruption of the supply chain. It is impossible for the Company to predict
the likelihood of such an occurrence or the extent of the impact on our
operations. As part of the contingency planning process to help mitigate
these risks the Company is looking at alternative suppliers. Contingency
plans will be customized as required for international locations to cover
personnel safety, rigs, division offices, crew rotations and rig supplies.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Page
Exhibit 10(a) Amended and Restated Parker Drilling Company
Stock Bonus Plan, effective as of January 1, 1999.
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 January 11, 1999 in which the Company
announced that it had jointly agreed with Superior Energy
Services, Inc. ("Superior"), to terminate the previously announced
Agreement and Plan of Merger under which "Superior" would become a
wholly owned subsidiary of Parker. Under the termination
agreement, Superior agreed 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: May 14, 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
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10(a) Amended and Restated Parker Drilling Company Stock Bonus Plan,
effective as of January 1, 1999.
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule [Edgar Version Only]