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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 SEPTEMBER 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 September 30, 1999, 77,272,602 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
September 30, 1999 and December 31, 1998 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Nine Months Ended September 30, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine Months Ended September 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 3, By-Laws as amended July 27, 1999
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)
September 30, December 31,
1999 1998
-------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 20,532 $ 24,314
Other short-term investments 300 -
Accounts and notes receivable 89,778 105,810
Rig materials and supplies 12,425 18,755
Other current assets 11,512 13,224
---------- ----------
Total current assets 134,547 162,103
Property, plant and equipment less accumulated
depreciation and amortization of $404,917 at
September 30, 1999 and $445,464 at December 31, 1998 679,958 729,873
Goodwill, net of accumulated amortization
of $21,296 at September 30, 1999 and $13,025
at December 31, 1998 205,961 214,232
Other noncurrent assets 71,148 53,118
---------- ----------
Total assets $1,091,614 $1,159,326
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,179 $ 31,404
Accounts payable and accrued liabilities 69,216 72,437
Accrued income taxes 7,596 7,576
---------- ----------
Total current liabilities 77,991 111,417
---------- ----------
Long-term debt 628,912 630,479
Deferred income tax 32,310 41,253
Other long-term liabilities 11,614 12,227
Stockholders' equity:
Common stock, $.16 2/3 par value 12,879 12,815
Capital in excess of par value 343,016 341,699
Retained earnings (accumulated deficit) (15,108) 9,436
---------- ----------
Total stockholders' equity 340,787 363,950
---------- ----------
Total liabilities and stockholders' equity $1,091,614 $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 Nine Months Ended
-------------------- -------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
-------- -------- -------- --------
Revenues:
Domestic drilling $ 27,206 $ 46,424 $ 84,494 $157,337
International drilling 45,868 61,880 143,620 182,787
Rental tools 6,978 7,695 20,533 24,243
Other 28 592 273 1,590
-------- -------- -------- --------
Total revenues 80,080 116,591 248,920 365,957
-------- -------- -------- --------
Operating expenses:
Domestic drilling 26,047 32,979 77,478 103,655
International drilling 31,719 45,102 98,417 126,870
Rental tools 2,801 3,695 8,176 10,774
Other 836 947 944 1,974
Depreciation and
amortization 20,944 19,435 61,246 55,457
General and administrative 4,106 3,830 12,301 13,191
Restructuring charges (Note 6) - - 3,000 -
Provision for reduction in
carrying value of certain
assets (Note 5) 5,357 - 10,607 -
-------- -------- -------- --------
Total operating expenses 91,810 105,988 272,169 311,921
-------- -------- -------- --------
Operating income (loss) (11,730) 10,603 (23,249) 54,036
-------- -------- -------- --------
Other income (expense):
Interest expense (15,048) (12,620) (41,695) (37,896)
Interest income 373 887 1,042 2,266
Gain on disposition of assets 34,330 102 37,279 981
Other income - net (590) (923) 1,681 (2,682)
-------- -------- -------- --------
Total other income (expense) 19,065 (12,554) (1,693) (37,331)
-------- -------- -------- --------
Income (loss) before
income taxes 7,335 (1,951) (24,942) 16,705
-------- -------- -------- --------
Income tax expense (benefit):
Current tax expense-foreign 3,402 1,373 8,521 8,526
Deferred tax expense (benefit) 2,608 400 (8,919) 2,500
-------- -------- -------- --------
6,010 1,773 (398) 11,026
-------- -------- -------- --------
Net income (loss) $ 1,325 $ (3,724) $(24,544) $ 5,679
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share,
Basic $ .02 $ (.05) $ (.32) $ .07
-------- -------- -------- --------
Diluted $ .02 $ (.05) $ (.32) $ .07
-------- -------- -------- --------
Number of common shares used
in computing earnings per share:
Basic 77,227,118 76,761,952 77,102,742 76,732,664
---------- ---------- ---------- ----------
Diluted 77,782,921 76,761,952 77,102,742 77,021,254
---------- ---------- ---------- ----------
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)
Nine Months Ended
September 30,
---------------------
1999 1998
--------- --------
Cash flows from operating activities:
Net income (loss) $ (24,544) $ 5,679
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 61,246 55,457
Loss (gain) on disposition of property,
plant and equipment (37,279) (981)
Expenses not requiring cash 2,746 3,219
Deferred income taxes (8,919) 2,500
Provision for reduction in carrying
value of certain assets 10,607 -
Change in operating assets and liabilities 17,909 59,900
--------- ----------
Net cash provided by operating
activities 21,766 125,774
--------- ---------
Cash flows from investing activities:
Capital expenditures (46,000) (169,447)
Acquisition of Hercules - (1,147)
Acquisition of Bolifor - (2,189)
Proceeds from the sale of equipment 51,862 4,061
Purchase of short-term investments (300) (9,999)
Other-net 463 (802)
--------- ---------
Net cash provided by (used in) investing activities 6,025 (179,523)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 10,252 172,692
Principal payments under debt obligations (41,763) (119,473)
Other (62) (282)
--------- ---------
Net cash provided by (used in)
financing activities (31,573) 52,937
--------- ---------
Net change in cash and cash equivalents (3,782) (812)
Cash and cash equivalents at
beginning of period 24,314 32,444
--------- ---------
Cash and cash equivalents at
end of period $ 20,532 $ 31,632
--------- ---------
--------- ---------
Supplemental cash flow information:
Interest paid $ 34,362 $ 29,563
Taxes paid $ 8,501 $ 10,144
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 September 30, 1999, the first nine
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 September 30, 1999 and December 31, 1998, (2) the
results of operations for the three and nine months ended September 30,
1999 and 1998, and (3) cash flows for the nine months ended September 30,
1999 and 1998. Results for the nine months ended September 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
September 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 1,325,000 77,227,118 $ .02
Effect of Dilutive Securities:
Stock options and grants 555,803
Diluted EPS:
Income available to common
stockholders $ 1,325,000 77,782,921 $ .02
------------ ----------- -----
------------ ----------- -----
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 Nine Months Ended
September 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $(24,544,000) 77,102,742 $(.32)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders $(24,544,000) 77,102,742 $(.32)
------------ ----------- -----
------------ ----------- -----
For the Three Months Ended
September 30, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ (3,724,000) 76,761,952 $(.05)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Income available to common
stockholders $ (3,724,000) 76,761,952 $(.05)
------------ ------------ -----
------------ ------------ -----
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 Nine Months Ended
September 30, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 5,679,000 76,732,664 $ .07
Effect of Dilutive Securities:
Stock options and grants 288,590
Diluted EPS:
Income available to common
stockholders $ 5,679,000 77,021,254 $ .07
------------ ------------ -----
------------ ------------ -----
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 September 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. For the three months ended September 30, 1999
options to purchase 5,319,500 shares at prices ranging from $4.500 to
$2.1875 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 for the quarter. In addition, for the nine
months ended September 30, 1999, options to purchase 7,231,000 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 months ended
September 30, 1998, options to purchase 5,626,000 shares at prices ranging
from $2.25 to $12.1875 were not included due to the net loss for the
period. For the nine months ended September 30, 1998, options to purchase
4,900,500 shares at prices ranging from $8.875 to $12.1875 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 at a share price of $3.1875.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
3. During the nine months ended September 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 nine months ended
September 30, 1999 and 1998 is as follows (dollars in thousands):
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- ---------- ---------
Revenues:
Domestic drilling
Land $ 6,000 $ 12,948 $ 17,635 $ 37,624
Offshore 21,206 33,476 66,859 119,713
International drilling
Land 30,694 52,146 103,265 155,944
Offshore 15,174 9,734 40,355 26,843
Rental tools 6,978 7,695 20,533 24,243
Other 28 592 273 1,590
-------- -------- -------- --------
Net revenues $ 80,080 $116,591 $248,920 $365,957
-------- -------- -------- --------
Operating income (loss):
Domestic drilling
Land (156) 2,516 (131) 7,716
Offshore (9,759) 1,068 (24,510) 18,240
International drilling
Land 2,546 6,390 12,632 26,045
Offshore 4,872 2,942 11,297 8,404
Rental tools 1,901 1,947 5,742 8,019
Other (1,671) (430) (2,371) (1,197)
-------- -------- ------- --------
Total operating income
by segment <1> (2,267) 14,433 2,659 67,227
-------- -------- ------- --------
Provision for reduction in
carrying value of certain
assets (5,357) - (10,607) -
Restructuring charges - - (3,000) -
General and administrative (4,106) (3,830) (12,301) (13,191)
-------- -------- ------- --------
Total operating income (loss) (11,730) 10,603 (23,249) 54,036
Interest expense (15,048) (12,620) (41,695) (37,896)
Gain on disposition of assets 34,330 102 37,279 981
Other income (expense)-net (217) (36) 2,723 (416)
-------- -------- ------- --------
Income (loss) before
income taxes $ 7,335 $ (1,951) $(24,942) $ 16,705
-------- -------- -------- --------
-------- -------- -------- --------
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, 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 nine months ended September 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 other equipment,
including drill pipe, were not extended.
5. In December 1998, the Company determined that its operations in Argentina
did not meet its strategic objectives and that such assets would be
actively marketed for disposition. The assets to be disposed of consisted
of thirteen drilling rigs and inventories related to these rigs. Due to
depressed industry conditions impairment losses of $4.1 million and $2.1
million were recognized in December 1998 and in June 1999, respectively.
Subsequent to September 30 the Argentina drilling rigs and inventories
(previously classified as held for sale) plus one additional drilling rig
were sold in two separate transactions for total consideration of
approximately $9.5 million. As of October 31, 1999 $7.1 million has been
received. The remainder will be collected during the fourth quarter.
In the third quarter it was decided that barge Rig No. 80 would be
actively marketed for disposition. The Company reduced the carrying value
by $2.5 million to record the rig at net realizable value. The net
realizable value of the rig is included in non-current assets.
During the second quarter the Company restructured its drilling operations
into two primary business units. As part of this plan, the Company
combined two office facilities in Louisiana into one location. The
carrying value of the vacated office building was reduced by $1.4 million.
The net realizable value of the building is included in non-current
assets.
In calendar 1999, the Company increased its allowance for doubtful
accounts by $3.2 million. 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 second quarter the Company 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 were
eliminated, resulting in $3.0 million in severance costs. It is
anticipated that substantially all incurred but unpaid amounts ($.3
million at September 30, 1999) will be paid in the current calendar year.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
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, $69.3 million as of September 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.
8. On September 30, 1999 the Company completed the sale of its thirteen
lower-48 land rigs to Unit Corporation for $40 million cash plus one
million shares of Unit common stock. The value of such common stock,
based on the closing price for Unit's common stock on September 30,
approximated $7.6 million. The Company recognized a pre-tax gain of $35.8
million during the third quarter. The sale of these land rigs resulted in
a 59.6% decrease of domestic land net property, plant and equipment.
9. On September 30, 1999 the Company terminated its $75.0 million revolving
credit facility. The outstanding balance of $40.0 million was repaid in
full with the proceeds received from the sale of the Company's thirteen
lower-48 land rigs (see note 8). On October 22, 1999 the Company entered
into a new $50 million revolving loan facility with a group of banks, led
by Bank of America, as agent bank. The new facility is available for
working capital requirements, general corporate purposes and to support
letters of credit. The revolver is collateralized by accounts receivable,
inventory and certain barge rigs located in the Gulf of Mexico. The
facility contains customary affirmative and negative covenants. The
facility will terminate on October 22, 2003.
On October 7, 1999 a wholly owned subsidiary of the Company entered into a
loan agreement with Boeing Capital Corporation for the refinancing of a
portion of the capital cost of barge Rig 75. The loan principal of
approximately $24.8 million plus interest is to be repaid in 60 monthly
payments of approximately $.5 million. The loan is collateralized by
barge Rig 75 and is guaranteed by the Parent.
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 September 30, 1999 and December 31,
1998, and the related consolidated condensed statement of operations for the
three and nine month periods ended September 30, 1999 and consolidated
condensed statement of cash flows for the nine month period ended September
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
October 29, 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 nine months ended September 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 on hand, cash provided by operations
and funds available under the Company's new revolving credit facility will be
adequate to meet working capital needs.
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 September
30, 1999 the Company sold its thirteen lower-48 land drilling rigs to Unit
Corporation for which it received $40 million cash plus 1.0 million shares of
Unit common stock. (See Note 8 in the Notes to Unaudited Consolidated
Condensed Financial Statements.) Subsequent to September 30, 1999 the Company
sold its Argentina land rigs and inventories (previously classified as held
for sale) plus one additional land rig for approximately $9.5 million. As of
October 31, 1999 the Company had received approximately $7.1 million and the
remainder is expected during the fourth quarter.
In addition to selling non-strategic assets, the Company raised
additional cash by finalizing the financing agreement on newly built barge Rig
75 of $24.8 million, on October 7, 1999. The Company finalized a new
revolving credit facility in the amount of $50 million after terminating the
$75.0 million revolving credit facility. For additional information on new
financing arrangements, see Note 9 in the Notes to Unaudited Consolidated
Condensed Financial Statements.
Three Months Ended Sept. 30, 1999 compared with Three Months
Ended Sept. 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 September 30, 1999, the first periods reported under
the Company's new fiscal year, and the comparable period in the prior year.
The Company recorded net income of $1.3 million, or $.02 per share in the
three months ended September 30, 1999 compared to a net loss of $3.7 million
or $.05 per share in the same period of the prior year. The current quarter
was positively impacted by a pre-tax gain on the sale of the lower-48 land
rigs of approximately $35.8 million. This gain was offset by a $5.4 million
provision for reduction in the carrying value of certain assets, including
$2.5 million related to barge Rig 80, $1.4 million related to the vacated
Louisiana office building and $1.5 million related to various provisions for
doubtful accounts and inventories. Contract drilling operations continued to
exhibit the weakness which began in mid 1998. 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 September 30 of 1999 and 1998, respectively.
Revenue decreased $36.5 million, or 31%, to $80.1 million, from the
$116.6 million recorded for the three months ended September 30, 1998.
Domestic drilling revenue decreased $19.2 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 other regions, such as the
Rocky Mountain land region, where the Company has experienced greater demand
for its rigs. (See Note 8 to the Notes to the consolidated Condensed
Financial Statements.)
RESULTS OF OPERATIONS (continued)
- ---------------------
International drilling revenue decreased $16.0 million in the current
quarter due to a $21.4 million decrease in international land drilling revenue
offset by a $5.4 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 revenues increased $5.4
million in the third quarter in 1999 as compared to 1998. This increase is
attributable to barge Rig 76 in Venezuela in the amount of $2.7 million and
barge Rig 257 in the Caspian Sea which contributed $3.5 million in revenues.
Barge Rig 76 completed its contract during the third quarter and has been
relocated to the Gulf Coast barge market. Barge Rig 257 began drilling
operations during the third quarter of 1999. These increases were partially
offset by slightly lower revenues in the Company's Nigerian barge operations.
The decrease in rental tool revenue of $.7 million, from $7.7 million to
$7.0 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 $18.7 million or 23% of
revenue from $33.9 million or 29% of revenue when comparing the third 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.
Depreciation and amortization expense increased $1.5 million to $20.9
million in the current year quarter due to depreciation expense recorded on
the Company's 1998 capital expenditures which were at historically high
levels. As noted previously, the Company recognized a $5.4 million provision
for reduction in carrying value of certain assets in the current quarter. The
current quarter provision for reduction in the carrying value of certain
assets included a $2.5 million charge related to barge Rig 80, $1.4 million
related to the vacated Louisiana office building and $1.5 million related to
various provisions for doubtful accounts and inventories.
Interest expense increased $2.4 million due to higher average debt levels
outstanding during the current quarter. Gain on disposition of assets
increased $34.2 million due to the $35.8 million gain recognized on the sale
of the thirteen lower-48 land rigs. Income tax expense consists of foreign
tax expense and deferred tax expense. The deferred tax expense recorded in
the current quarter is due to the pre-tax income recorded during the three
months ended September 30, 1999.
Nine Months Ended Sept. 30, 1999 compared with Nine Months Ended Sept. 30, 1998
- -------------------------------------------------------------------------------
The Company recorded a net loss of $24.5 million and $.32 per share in
the nine months ended September 30, 1999 compared to net income of $5.7
million and $.07 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 $10.6 million provision
for the reduction in carrying value of certain assets contributed to the net
loss in the current year. Partially offsetting the impact of the weak
drilling market and the noted charges was the $35.8 million pre-tax gain on
the sale of the thirteen lower-48 land rigs sold September 30, 1999 to Unit
Corporation. The sales price consisted of cash proceeds of $40.0 million plus
one million of common shares of Unit Stock (valued at approximately $7.6
million).
RESULTS OF OPERATIONS (continued)
- ---------------------
Revenues and profit margins decreased $117.0 million and $58.8 million,
respectively, when comparing the nine months ended September 30, 1999 and
1998. Domestic revenues decreased $72.8 million to $84.5 million 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, such as the 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
$20.5 million in the current year reflects a decrease of $3.7 million, or 15%,
reflective of decreased drilling in the Gulf of Mexico.
International drilling revenue decreased $39.2 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 and the
commencement of drilling operations in the Caspian Sea by barge Rig 257 during
the third quarter. Barge Rig 76 has been relocated to the Gulf Coast 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 $5.8 million to $61.2
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 $.9 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 $10.6 million in charges for the provision for
reduction in the carrying value of certain assets in the current year. During
the first quarter the Company 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. Subsequent to September 30, 1999 the Company sold
its Argentina land rig assets (previously classified as held for sale) plus
one additional land rig for $9.5 million. The sales price approximated the
net carrying value of the assets. In addition, the net carrying value of
barge Rig 80 was reduced by $2.5 million and the net carrying value of the
vacated office building in Louisiana has been reduced by $1.4 million. Rig 80
and the office building are being actively marketed. An increase in the
Company's provision for doubtful accounts and inventory has resulted in an
additional $4.6 million charge during the current year.
RESULTS OF OPERATIONS (continued)
- ---------------------
Interest expense increased $3.8 million due to the Company's higher
average debt levels in the current year. Interest capitalized to construction
projects during the current year approximated $3.0 million as compared to
approximately $3.5 million for the nine months ended September 30, 1998. Gain
on disposition of assets increased $36.3 million due primarily to the gain
recognized on the sale of the thirteen lower-48 land rigs. Other income - net
increased $4.4 million due primarily to a $2.1 million payment received in
January 1999 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. The deferred tax benefit is due to the net loss incurred during the
nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash, cash equivalents and other short-term investments of
$20.8 million at September 30, 1999, a decrease of $3.5 million from the
December 31, 1998 balance. The primary sources of cash during the nine month
period were $21.7 million provided by operating activities, as reflected on
the Consolidated Statements of Cash Flows, prepayments approximating $49
million from the operator to offset a portion of the expenditures to modify
Rig 257 for service in the Caspian Sea and $51.9 million from the disposition
of equipment. The disposition of assets includes the sale of the thirteen
lower-48 land rigs for cash proceeds of $40 million and the sale of two
additional rigs in the current year, one domestic land rig and one offshore
platform rig.
Net capital expenditures were the Company's primary use of cash during
the nine months ended September 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. Both rigs have commenced drilling at their respective drilling
locations. 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 $630.1
million at September 30, 1999. The outstanding $40.0 million balance of the
$75.0 million ING revolving credit facility was repaid in full with the
proceeds from the sale of the lower-48 land rigs on September 30, 1999. After
the outstanding letters of credit under the ING facility were cash
collateralized, the ING facility was terminated. Subsequently, the Company
entered into a new $50.0 million revolving loan facility with a group of banks
agented by Bank of America, National Association on October 22, 1999. This
new facility is available for working capital requirements, general corporate
purposes and to support letters of credit. The revolver is collateralized by
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
accounts receivable, inventory and certain barge rigs located in the Gulf of
Mexico. The facility contains customary affirmative and negative covenants.
Availability under the revolving credit facility is subject to certain
borrowing base limitations based on 80 percent of eligible receivables plus 50
percent of supplies in inventory. At the signing of the agreement
approximately $40.0 million was available. The revolver terminates on October
22, 2003. On October 7, 1999 a subsidiary of the Company entered into a loan
agreement with Boeing Capital Corporation for the financing of Rig 75. The
loan of $24.8 million plus interest is to be repaid in 60 monthly payments of
$.5 million. The loan is collateralized by Rig 75 and is guaranteed by the
Parent.
The Company anticipates cash requirements for capital spending will be
substantially less in calendar year 1999 (approximately $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, commenced drilling
operations during the third quarter and fourth quarter, respectively.
Until operators respond to the increase in crude oil and natural gas
prices and increase spending, the Company anticipates that it will continue to
incur losses. Management believes that cash on hand, cash provided by
operations, proceeds from asset sales and funds available under the Company's
revolving credit facility will be adequate to meet working capital needs.
Additionally 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. 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
- -------------
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 awareness, inventory, assessment, detailed
analysis and substantially completed its compliance testing on the company's
critical business and information technology systems as part of its seven
phase Year 2000 compliance project. Remediation has also been completed on
critical in-house developed systems. Selected non-critical systems were also
included in the process. For the remainder of 1999, the Company will continue
to monitor systems for compliance, evaluate its vendor supply chain and
evaluate implementing vendor-supplied updates required to maintain compliance.
Before 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, substantially reducing its technology
remediation requirements. The Company spent much of 1997 replacing critical
financial, human resources and payroll systems. The inventory and assessment
of drilling rig components containing embedded chips indicated that most do
not have date related logic. Testing conducted on components with date
sensitive chips has verified that a date related problem is unlikely to occur.
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 worst-case scenario would be a disruption
of international communications or its 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 and
communication options. 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 3 By-Laws as amended July 27, 1999
Exhibit 15 Letter re Unaudited Interim Financial Information 22
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 September 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: November 12, 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
- ------- -----------
3 By-Laws as Amended July 27, 1999
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule [Edgar Version Only]