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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 JUNE 30, 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 June 30, 1999, 77,169,309 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
June 30, 1999 and December 31, 1998 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1999 and 1998
3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1999 and 1998 4
Notes to Unaudited Consolidated Condensed
Financial Statements 5 - 10
Report of Independent Accountants 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 19
Signatures 20
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)
June 30, December 31,
1999 1998
-------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 19,043 $ 24,314
Other short-term investments 300
Accounts and notes receivable 91,986 105,810
Rig materials and supplies 12,277 18,755
Other current assets 10,676 13,224
---------- ----------
Total current assets 134,282 162,103
Property, plant and equipment less accumulated
depreciation and amortization of $466,318 at
June 30, 1999 and $445,464 at December 31, 1998 719,271 729,873
Goodwill, net of accumulated amortization
of $16,601 at June 30, 1999 and $13,025
at December 31, 1998 208,220 214,232
Other noncurrent assets 56,312 53,118
---------- ----------
Total assets $1,118,085 $1,159,326
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 41,260 $ 31,404
Accounts payable and accrued liabilities 60,248 72,437
Accrued income taxes 6,670 7,576
---------- ----------
Total current liabilities 108,178 111,417
---------- ----------
Long-term debt 629,097 630,479
Deferred income tax 29,726 41,253
Other long-term liabilities 12,088 12,227
Stockholders' equity:
Common stock, $.16 2/3 par value 12,862 12,815
Capital in excess of par value 342,567 341,699
Retained earnings (accumulated deficit) (16,433) 9,436
---------- ----------
Total stockholders' equity 338,996 363,950
---------- ----------
Total liabilities and
stockholders' equity $1,118,085 $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 Six Months Ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- --------- -------- --------
Revenues:
Domestic drilling $ 28,871 $ 55,271 $ 57,288 $110,913
International drilling 46,811 57,973 97,752 120,907
Rental tools 6,288 7,877 13,555 16,548
Other 24 531 245 998
-------- -------- -------- --------
Total revenues 81,994 121,652 168,840 249,366
-------- -------- -------- --------
Operating expenses:
Domestic drilling 23,586 34,593 51,431 70,676
International drilling 31,680 42,020 66,698 81,768
Rental tools 2,818 3,361 5,375 7,079
Other 11 519 108 1,027
Depreciation and
amortization 20,326 17,613 40,302 36,022
General and administrative 3,791 4,694 8,195 9,361
Restructuring charges (Note 6) 800 - 3,000 -
Provision for reduction in
carrying value of certain
assets (Note 5) 3,750 - 5,250 -
-------- -------- -------- --------
Total operating expenses 86,762 102,800 180,359 205,933
-------- -------- -------- --------
Operating income (loss) (4,768) 18,852 (11,519) 43,433
-------- -------- -------- --------
Other income and (expense):
Interest expense (13,383) (12,368) (26,647) (25,276)
Interest income 282 817 669 1,379
Other income - net 1,096 (501) 5,220 (880)
-------- -------- -------- --------
Total other income and (expense) (12,005) (12,052) (20,758) (24,777)
-------- -------- -------- --------
Income (loss) before
income taxes (16,773) 6,800 (32,277) 18,656
-------- -------- -------- --------
Income tax expense (benefit):
Current tax expense-foreign 2,127 1,294 5,119 7,153
Deferred tax expense (benefit) (5,827) 2,100 (11,527) 2,100
-------- -------- -------- --------
(3,700) 3,394 (6,408) 9,253
-------- -------- -------- --------
Net income (loss) $(13,073) $ 3,406 $(25,869) $ 9,403
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share,
Basic $ (.17) $ .04 $ (.34) $ .12
-------- -------- -------- --------
Diluted $ (.17) $ .04 $ (.34) $ .12
-------- -------- -------- --------
Number of common shares used
in computing earnings per share:
Basic 77,118,498 76,733,708 77,039,523 76,717,778
---------- ---------- ---------- ----------
Diluted 77,118,498 77,223,736 77,039,523 77,580,927
---------- ---------- ---------- ----------
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)
Six Months Ended
June 30,
---------------------
1999 1998
--------- --------
Cash flows from operating activities:
Net income (loss) $ (25,869) $ 9,403
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 40,302 36,022
Expenses not requiring cash 2,208 2,332
Deferred income taxes (11,527) 2,100
Provision for reduction in carrying
value of certain assets 5,250 -
Change in operating assets and liabilities 2,414 44,936
Other-net (2,949) (876)
--------- ----------
Net cash provided by operating
activities 9,829 93,917
--------- ---------
Cash flows from investing activities:
Capital expenditures (35,867) (116,593)
Acquisition of Hercules - (1,147)
Acquisition of Bolifor - (2,189)
Proceeds from the sale of equipment 11,986 3,125
Purchase of short-term investments (300) -
Other-net 463 (802)
--------- ---------
Net cash used in investing activities (23,718) (117,606)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 10,252 152,809
Principal payments under debt obligations (1,568) (119,313)
Other (66) (157)
--------- ---------
Net cash provided by
financing activities 8,618 33,339
--------- ---------
Net change in cash and cash equivalents (5,271) 9,650
Cash and cash equivalents at
beginning of period 24,314 32,444
--------- ---------
Cash and cash equivalents at
end of period $ 19,043 $ 42,094
--------- ---------
--------- ---------
Supplemental cash flow information:
Interest paid $ 28,335 $ 24,416
Taxes paid $ 6,025 $ 6,859
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 June 30, 1999, the first six months
reported under the Company's new fiscal year, and the comparable period in
the prior 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 June 30, 1999 and December 31, 1998, (2) the
results of operations for the three and six months ended June 30, 1999 and
1998, and (3) cash flows for the six months ended June 30, 1999 and 1998.
Results for the six months ended June 30, 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. Our
independent accountants have performed a review of these interim financial
statements in accordance with standards established by the American
Institute of Certified Public Accountants. Pursuant to Rule 436(c) under
the Securities Act of 1933, their report of that review should not be
considered a part of any registration statements prepared or certified by
them within the meaning of Sections 7 and 11 of that Act.
2. Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires a presentation of basic earnings per share (EPS) that excludes
dilutive securities from the computation as well as a presentation of
diluted EPS that includes the effect of any dilutive securities in the
computation. 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
June 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $(13,073,000) 77,118,498 $(.17)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders $(13,073,000) 77,118,498 $(.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 Six Months Ended
June 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $(25,869,000) 77,039,523 $(.34)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders $(25,869,000) 77,039,523 $(.34)
------------ ----------- -----
------------ ----------- -----
For the Three Months Ended
June 30, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 3,406,000 76,733,708 $ .04
Effect of Dilutive Securities:
Stock options and grants 490,028
Diluted EPS:
Income available to common
stockholders $ 3,406,000 77,223,736 $ .04
------------ ------------ -----
------------ ------------ -----
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 Six Months Ended
June 30, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 9,403,000 76,717,778 $ .12
Effect of Dilutive Securities:
Stock options and grants 863,149
Diluted EPS:
Income available to common
stockholders $ 9,403,000 77,580,927 $ .12
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------------ ------------ -----
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 periods ended June 30, 1999
and 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, for the three and six months ended June 30, 1999,
options to purchase 5,405,000 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. For the three and six months ended June 30, 1998, options
to purchase 1,450,500 shares at prices ranging from $9.3125 to $12.1875
and 1,430,500 shares at prices ranging from $10.8125 to $12.1875,
respectively, were outstanding but not included in the computation of
diluted EPS because the options' exercise price was greater than the
average market price of common shares during the periods. During July
1999, the Company issued options on 1,884,000 shares of common stock.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
3. During the six months ended June 30, 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 and six months ended June 30, 1999 and 1998 is as follows
(dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- ---------- ---------
Revenues:
Domestic drilling
Land $ 4,575 $ 11,923 $ 11,635 $ 24,676
Offshore 24,296 43,348 45,653 86,237
International drilling
Land 34,135 49,348 72,571 103,798
Offshore 12,676 8,625 25,181 17,109
Rental tools 6,288 7,877 13,555 16,548
Other 24 531 245 998
-------- -------- -------- --------
Net revenues $ 81,994 $121,652 $168,840 $249,366
-------- -------- -------- --------
Operating income (loss):
Domestic drilling
Land (265) 2,285 25 5,197
Offshore (4,723) 9,207 (14,751) 17,168
International drilling
Land 4,743 6,571 10,086 19,648
Offshore 2,938 2,635 6,425 5,456
Rental tools 1,277 2,818 3,841 6,072
Other (397) 30 (700) (747)
-------- -------- ------- --------
Total operating income
by segment <1> 3,573 23,546 4,926 52,794
-------- -------- ------- --------
Provision for reduction in
carrying value of certain
assets (3,750) - (5,250) -
Restructuring charges (800) - (3,000) -
General and administrative (3,791) (4,694) (8,195) (9,361)
-------- -------- ------- --------
Total operating income (loss) (4,768) 18,852 (11,519) 43,433
Interest expense (13,383) (12,368) (26,647) (25,276)
Other income (expense)-net 1,378 316 5,889 499
-------- -------- ------- --------
Income (loss) before
income taxes $(16,773) $ 6,800 $(32,277) $ 18,656
-------- -------- -------- --------
-------- -------- -------- --------
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
<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 $2.6 million for the six months ended June 30, 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 to be disposed of 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. Due
to depressed industry conditions impairment losses of $4.1 million and
$2.1 million were recognized in December 1998 and in the current quarterly
period, respectively. The net realizable value of the Argentina assets is
included in other non-current assets.
In calendar 1999, the Company increased its allowance for doubtful
accounts by $3.2 million, including $1.7 million in the three months ended
June 30, 1999. Certain 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 six months ended June 30, 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 $3.0 million in severance costs,
including $.8 million in the current quarter. It is anticipated that
substantially all incurred but unpaid amounts ($1.0 million at June 30,
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, $55.3 million as of June 30, 1999, are being accounted for
similar to mobilization fees for a newly constructed drilling rig 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 were $20.3 million.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
8. Subsequent Event
On August 12, 1999 the Company signed a definitive agreement to sell its
thirteen lower-48 land drilling rigs to Unit Corporation for $40 million
cash plus 1.0 million shares of Unit common stock. The definitive
agreement contains customary conditions to closing and is subject to
Unit's completion of an offering of common shares, for which Unit has
filed a shelf registration statement.
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 June 30, 1999 and December 31, 1998,
and the related consolidated condensed statement of operations for the three
and six month periods ended June 30, 1999 and consolidated condensed statement
of cash flows for the six month period ended June 30, 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
August 3, 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, restructuring of credit
facility, borrowings or 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 and six months ended June 30, 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 mid 1998. Lower crude oil prices, throughout 1998 and into
early 1999, negatively impacted the revenue and profits of oil operators, who
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 positively affected.
Management anticipates that the Company will continue to incur losses
until there is a significant increase in the level of oil field activity.
Management believes, however, 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 projection 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 during the third quarter, current projected levels of capital
expenditures, and the replacement of the Company's current revolving credit
facility with a new facility on terms acceptable to the Company.
RESULTS OF OPERATIONS (continued)
- ---------------------
In order to conserve cash, management has taken steps to reduce certain
discretionary capital expenditures and has reorganized its worldwide drilling
operations to reduce operating and overhead costs. Management's current
estimate of the annual cost savings to be realized as a result of the recent
restructuring is $10.5 million. To raise cash in addition to that provided by
operating activities, the Company has sold certain of its non-strategic assets
and is considering the sale of additional non-strategic assets. On August 12,
1999 the Company signed a definitive agreement to sell its thirteen lower-48
land drilling rigs to Unit Corporation for $40 million cash plus 1.0 million
shares of Unit common stock. (See Note 8 in the Notes to Unaudited
Consolidated Condensed Financial Statements.) 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 June 30, 1999 compared with Three Months Ended June 30, 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 June 30, 1999, the first periods reported under the
Company's new fiscal year, and the comparable period in the prior year.
The Company recorded a net loss of $13.1 million, or $.17 per share in
the three months ended June 30, 1999 compared to net income of $3.4 million or
$.04 per share in the same period of the prior year. Continued weakness in
demand for the Company's contract drilling services, which began in mid 1998,
was the primary reason for the loss in the current quarterly period. Revenues
and profit margins (revenue less direct operating expense) decreased
significantly in the Company's domestic drilling segment and to a lesser
degree in its international drilling and rental tool segments, when comparing
the three months ended June 30 of 1999 and 1998, respectively. In the current
quarter, the Company did record a $3.8 million provision for reduction in the
carrying value of certain assets, including $2.1 million related to the
Company's Southern Argentina assets held for sale and $1.7 million related to
an increase in the Company's provision for doubtful accounts. In addition,
the Company's current year restructuring of its worldwide drilling operations
resulted in a charge of $.8 million in the current quarter.
Revenue decreased $39.7 million, or 33%, to $82.0 million, from the
$121.7 million recorded for the three months ended June 30, 1998. Domestic
drilling revenue decreased $26.4 million due to lower utilization and dayrates
earned on the Company's land and offshore rigs. Certain markets, including
the U. S. Gulf Coast land and shallow water jackup rig markets, experienced a
greater decrease in revenue than others, including the Rocky Mountain land
region where the Company has experienced greater demand for its rigs.
International drilling revenue decreased $11.2 million in the current
quarter due to a $15.2 million decrease in international land drilling revenue
offset by a $4.0 million increase in international offshore revenue. Lower
utilization was the primary reason revenues decreased in the international
land markets of Colombia, Peru, Argentina, Bolivia, Pakistan, New Guinea, New
Zealand and Indonesia. The Company did record revenue increases in the
independent states of the former Soviet Union due primarily to increased labor
contract revenues. International offshore barge drilling revenue increased
RESULTS OF OPERATIONS (continued)
- ---------------------
due to operations in the current year of barge Rig 76 in Venezuela. This
barge has completed operations and is currently being re-located to the U.S.
Gulf Coast market. Offshore barge revenues earned in Nigeria were comparable
to the prior year quarter as increased revenue due to a dayrate increase on
one rig was offset by reduced revenue from one barge rig placed on a standby
rate.
The decrease in rental tool revenue of $1.6 million, from $7.9 million to
$6.3 million, was due primarily to reduced drilling activity in the Gulf of
Mexico, the primary market for the Company's rental tools.
The Company's overall profit margin declined to $23.9 million or 29% of
revenue from $41.2 million or 34% of revenue when comparing the second quarter
of 1999 and 1998. Domestic land drilling profit margins decreased due
primarily to lower utilization in the Gulf Coast region and due to completion
of operations on Rig 245 in Alaska in the first quarter of calendar 1999.
Domestic offshore margins decreased due to weakness in demand for both the
Company's shallow water jackup and shallow water barge rigs in the current
quarter when compared to the prior year.
Depreciation and amortization expense increased $2.7 million to $20.3
million in the current year quarter due to depreciation expense recorded on
the Company's 1998 capital expenditures which were at historically high
levels. General and administrative expense decreased $.9 million due largely
to reduced costs associated with the Company's current year restructuring. As
noted previously, the Company recorded $.8 million of restructuring charges
and a $3.8 million provision for reduction in the carrying value of certain
assets in the current quarter. The provision for reduction in the carrying
value of certain assets included a $2.1 million charge related to the
Company's Southern Argentina land rig assets held for sale and $1.7 million
related to an increase in the Company's provision for doubtful accounts, as
certain of the Company's customers have recently filed for bankruptcy.
Interest expense increased $1.0 million due to higher average debt levels
outstanding during the current quarter. Other income - net increased $1.6
million due in part to gains recorded in the current quarter on the
disposition of property, plant and equipment. Income tax expense consists of
foreign tax expense and deferred tax benefit. The deferred tax benefit
recorded in the current quarter is due to the net loss incurred during the
three months ended June 30, 1999.
Six Months Ended June 30, 1999 compared with Six Months Ended June 30, 1998
- ---------------------------------------------------------------------------
The Company recorded a net loss of $25.9 million and $.34 per share in
the six months ended June 30, 1999 compared to net income of $9.4 million and
$.12 per share in the same period of the prior year. Weakness in worldwide
drilling markets which has resulted in lower revenue and profit margins,
restructuring charges of $3.0 million and a $5.3 million provision for the
reduction in carrying value of certain assets contributed to the net loss in
the current year.
Revenues and profit margins decreased $80.5 million and $43.6 million,
respectively, when comparing the six months ended June 30, 1999 and 1998.
Domestic revenues decreased $53.6 million to $57.3 million when comparing the
six month periods due to decreased utilization and dayrates in each of the
drilling markets in which the Company participates. Certain markets,
including the U. S. Gulf Coast land region, have been negatively impacted
during the drilling downturn to a greater extent than others, including the
RESULTS OF OPERATIONS (continued)
- ---------------------
Rocky Mountain land market. Domestic offshore operations, including barge,
jackup and platform rigs, have all experienced lower utilization and dayrates,
resulting in lower revenues earned in the current fiscal year when compared to
1998. Rental tool revenue of $13.6 million in the current year reflects a
decrease of $3.0 million, or 18%, reflective of decreased drilling in the Gulf
of Mexico.
International drilling revenue decreased $23.2 million due primarily to
decreased utilization in the Company's Latin American and Asia Pacific
markets. Revenues increased in the independent states of the former Soviet
Union due to increased labor contract revenue and rig utilization.
International offshore revenue increased in the current year period due to the
operations of the Company's Rig 76 in Venezuela in the current year. This rig
is currently being re-located to the domestic offshore market.
Profit margins have decreased in the domestic and international drilling
segments in which the Company operates and also in the rental tool segment.
Profit margins as a percent of revenue have remained relatively constant in
the international drilling and rental tool segments as dayrates and rental
rates have not been negatively impacted to the same degree as domestic
dayrates. In particular, dayrates and margins earned by the Company's jackup
rigs operating in the Gulf of Mexico have declined materially, when compared
to the 1998 period.
Depreciation and amortization expense increased $4.3 million to $40.3
million in the 1999 period due to depreciation expense recorded on the
Company's 1998 capital expenditures, offset to some degree 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. General and administrative expense decreased $1.2 million due in
part to the Company's current year restructuring of its worldwide drilling
operations, which has resulted in the current year restructuring charge of
$3.0 million.
The Company has recorded $5.3 million in charges for the provision for
reduction in the carrying value of certain assets in the current year. The
Company has reduced its estimate of proceeds to be received on the sale of the
Company's Southern Argentina land rig assets which resulted in a $2.1 million
charge in the current year. An increase in the Company's provision for
doubtful accounts resulted in the additional $3.2 million charge as certain of
the Company's customers have filed for bankruptcy protection due in part to
the depressed oil and gas prices experienced during the industry downturn.
Interest expense increased $1.4 million due to the Company's higher
average debt levels in the current year. Interest capitalized to construction
projects during the current year of $3.0 million exceeded the $1.7 million for
the six months ended June 30, 1998 by $1.3 million. Other income - net
increased $6.1 million due primarily to an increase in the amount of gains
recorded in 1999 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.
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 six months
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
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The Company had cash, cash equivalents and other short-term investments of
$19.3 million at June 30, 1999, a decrease of $5.0 million from the December
31, 1998 balance. The primary sources of cash during the six month period
were $9.8 million provided by operating activities, as reflected on the
Consolidated Statements of Cash Flows, prepayments from the operator to offset
a portion of the expenditures to modify Rig 257 for service in the Caspian Sea
and $12.0 million from the disposition of equipment. The Company has sold two
of its rigs in the current year, one domestic land rig and one offshore
platform rig. A decrease in accounts receivable due to collections was the
primary source of cash provided by operating activities.
Net capital expenditures of $35.9 million were the Company's primary use
of cash during the six months ended June 30, 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 the near future. Both rigs have arrived at their respective drilling
locations and are in the final stages of rigging up to begin drilling
operations. 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 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 $670.0
million at June 30, 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 June 30, 1999, $40.0 million was outstanding under the
revolving credit facility and $6.4 million in letters of credit had been
issued. Due to a decline in the amount of eligible accounts receivable, the
borrowing base as of June 30, 1999 was reduced to $59.7 million, leaving $13.3
million available for borrowing. 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 is
negotiating a new revolving credit agreement at the present time with
different banks which, if obtained, will have different covenants than those
noted and give the Company additional financing flexibility.
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
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 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 at their respective drilling locations and are
in the final stages of rigging up to begin drilling operations.
Until operators respond to the increase in crude oil prices and increase
spending, 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 projection 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 during
the third quarter, current projected levels of capital expenditures and the
replacement of the Company's current revolving credit facility with a new
facility on terms acceptable to the Company. In order to conserve cash,
management has taken steps to reduce certain discretionary capital
expenditures and has reorganized its worldwide drilling operations to reduce
operating and overhead costs. To raise cash in addition to that provided by
operating activities, the Company has disposed of certain non-strategic assets
and is considering the sale of additional non-strategic assets, the most
significant of which would be the sale of its "lower 48" land rig assets. 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
- ---------------------
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
- ---------
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. To date, testing of specific
drilling rig equipment has not revealed any date related problems. 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 September 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
Page
(a) Exhibits:
Exhibit 15 Letter re Unaudited Interim Financial Information 18
Exhibit 27 Financial Data Schedule [Edgar Version Only]
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed during the three months ended June 30,1999.
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: August 13, 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]