1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
-----------------------
(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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission file number 1-7573
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PARKER DRILLING COMPANY
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(Exact name of registrant as specified in its charter)
<Table>
Delaware 73-0618660
-------------------------------- ---------------------------------
(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
-----------------------------------------------------------------
</Table>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of July 31, 2001, 92,114,839 common shares were outstanding.
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2
PARKER DRILLING COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets (Unaudited)
June 30, 2001 and December 31, 2000 2
Consolidated Condensed Statements of Operations
(Unaudited) Three and Six Months Ended
June 30, 2001 and 2000 3
Consolidated Condensed Statements of Cash Flows
(Unaudited) Six Months Ended June 30, 2001 and 2000 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 - 20
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit 15, Letter Re Unaudited Interim
Financial Information 24
3
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars In Thousands) (Unaudited)
ASSETS June 30, 2001 December 31, 2000
-------------- -----------------
Current assets:
Cash and cash equivalents $ 45,391 $ 62,480
Other short-term investments 864 811
Accounts and notes receivable 122,870 123,474
Rig materials and supplies 19,692 16,500
Other current assets 6,004 4,600
----------- -----------
Total current assets 194,821 207,865
----------- -----------
Property, plant and equipment less
accumulated depreciation and amortization
of $487,657 at June 30, 2001 and
$448,734 at December 31, 2000 678,955 663,525
Goodwill, net of accumulated amortization
of $31,527 at June 30, 2001 and $27,786
at December 31, 2000 192,868 196,609
Other noncurrent assets 38,327 39,420
----------- -----------
Total assets $ 1,104,971 $ 1,107,419
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,045 $ 5,043
Accounts payable and accrued liabilities 68,687 77,201
Accrued income taxes 6,493 9,422
----------- -----------
Total current liabilities 80,225 91,666
----------- -----------
Long-term debt 589,944 592,584
Deferred income tax 23,512 18,467
Other long-term liabilities 6,071 5,539
Stockholders' equity:
Common stock, $.16 2/3 par value 15,347 15,287
Capital in excess of par value 432,811 431,043
Accumulated comprehensive income -net unrealized gain on investments
available for sale (net of taxes of $197 at June 30, 2001 and
$190 at December 31, 2000) 351 339
Retained earnings (accumulated deficit) (43,290) (47,506)
----------- -----------
Total stockholders equity $ 405,219 $ 399,163
----------- -----------
Total liabilities and stockholders
equity $ 1,104,971 $ 1,107,419
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
4
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,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
U.S. drilling $ 55,487 $ 34,851 $ 105,243 $ 62,305
International drilling 59,261 42,580 110,682 81,248
Rental tools 18,167 9,527 31,864 17,356
------------ ------------ ------------ ------------
Total revenues 132,915 86,958 247,789 160,909
------------ ------------ ------------ ------------
Operating expenses:
U.S. drilling 28,808 23,893 56,427 46,737
International drilling 40,485 32,103 77,643 62,537
Rental tools 6,077 3,548 10,820 7,130
Other (5) 1 (9) (2)
Depreciation and amortization 24,217 21,004 47,095 42,029
General and administrative 5,009 4,444 9,880 9,447
Reorganization 5,194 -- 5,194 --
------------ ------------ ------------ ------------
Total operating expenses 109,785 84,993 207,050 167,878
------------ ------------ ------------ ------------
Operating income (loss) 23,130 1,965 40,739 (6,969)
------------ ------------ ------------ ------------
Other income and (expense):
Interest expense (13,768) (14,523) (27,290) (29,035)
Interest income 710 691 1,644 1,638
Gain on disposition of assets 375 974 1,450 1,948
Other income (loss) - net (704) 31 (318) 1,876
------------ ------------ ------------ ------------
Total other income and (expense) (13,387) (12,827) (24,514) (23,573)
------------ ------------ ------------ ------------
Income (loss) before income taxes 9,743 (10,862) 16,225 (30,542)
------------ ------------ ------------ ------------
Income tax expense (benefit):
Current tax expense-foreign 4,301 2,420 7,009 5,016
Deferred tax (benefit) 2,750 (3,800) 5,000 (11,200)
------------ ------------ ------------ ------------
7,051 (1,380) 12,009 (6,184)
------------ ------------ ------------ ------------
Net income (loss) $ 2,692 $ (9,482) $ 4,216 $ (24,358)
============ ============ ============ ============
Earnings (loss) per share,
Basic $ .03 $ (.12) $ .05 $ (.31)
------------ ------------ ------------ ------------
Diluted $ .03 $ (.12) $ .05 $ (.31)
------------ ------------ ------------ ------------
Number of common shares used in
computing earnings per share:
Basic 91,972,728 77,569,904 91,873,315 77,518,230
------------ ------------ ------------ ------------
Diluted 93,200,815 77,569,904 92,993,265 77,518,230
------------ ------------ ------------ ------------
See accompanying notes to consolidated condensed financial statements.
3
5
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,
--------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $ 4,216 $(24,358)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 47,095 42,029
Gain on disposition of assets (1,450) (1,948)
Expenses not requiring cash 2,664 2,595
Deferred income taxes 5,000 (11,200)
Change in operating assets and liabilities (15,355) (7,000)
-------- --------
Net cash provided by operating activities 42,170 118
-------- --------
Cash flows from investing activities:
Capital expenditures (net of reimbursements of
$13.0 million in 2000) (61,062) (25,634)
Proceeds from the sale of equipment 3,728 5,214
Purchase of short-term investments (53) (126)
Proceeds from sale of investments -- 2,051
-------- --------
Net cash used in investing activities (57,387) (18,495)
-------- --------
Cash flows from financing activities:
Principal payments under debt obligations (2,427) (2,248)
Other 555 --
-------- --------
Net cash (used in)
financing activities (1,872) (2,248)
-------- --------
Net change in cash and cash equivalents (17,089) (20,625)
Cash and cash equivalents at beginning of period 62,480 45,501
-------- --------
Cash and cash equivalents at end of period $ 45,391 $ 24,876
======== ========
Supplemental cash flow information:
Interest paid $ 27,529 $ 28,034
Income taxes paid $ 9,938 $ 8,717
Supplemental noncash investing activity:
Net unrealized gain on investments available
for sale (net of taxes $7 in 2001 and
$1,770 in 2000) $ 12 $ 3,147
See accompanying notes to consolidated condensed financial statements.
4
6
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. General - 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, 2001 and December 31, 2000, (2)
the results of operations for the three and six months ended June 30, 2001
and 2000, and (3) cash flows for the six months ended June 30, 2001 and
2000. Results for the six months ended June 30, 2001 are not necessarily
indicative of the results which will be realized for the year ending
December 31, 2001. The financial statements should be read in conjunction
with the Company's Form 10-K for the year ended December 31, 2000.
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 report within the meaning of Section 7 and 11 of that Act, and
the independent accountants liability under Section 11 does not extend to
it.
2. Earnings per share -
RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Three Months Ended
June 30, 2001
------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to common
stockholders $2,692,000 91,972,728 $.03
Effect of Dilutive Securities:
Stock options and grants 1,228,087
Diluted EPS:
Income available to common
stockholders plus
assumed conversions $2,692,000 93,200,815 $.03
========== ========== ====
5
7
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, 2001
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to common
stockholders $4,216,000 91,873,315 $ .05
Effect of Dilutive Securities:
Stock options and grants 1,119,950
Diluted EPS:
Income available to common
stockholders plus
assumed conversions $4,216,000 92,993,265 $ .05
========== ========== =======
6
8
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Three Months Ended
June 30, 2000
--------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS:
Income (loss) available to common
stockholders $(9,482,000) 77,569,904 $ (.12)
Effect of Dilutive Securities:
Stock options and grants --
Income (loss) available to common
stockholders plus assumed
conversions $(9,482,000) 77,569,904 $ (.12)
=========== =========== =======
For the Three Months Ended
June 30, 2000
--------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS:
Income (loss) available to common
stockholders $(24,358,000) 77,518,230 $ (.31)
Effect of Dilutive Securities:
Stock options and grants --
Income (loss) available to common
stockholders plus assumed
conversions $(24,358,000) 77,518,230 $ (.31)
============ ============ =======
The Company has outstanding $124,509,000 of Convertible Subordinated Notes which
are convertible into 8,090,254 shares of common stock at $15.39 per share. The
notes have been outstanding since their issuance in July 1997, 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 and six
months ended June 30, 2001, options to purchase 4,634,000 shares of common stock
at prices ranging from $8.8750 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 during the respective periods. For the
three and six months ended June 30, 2000, options to purchase 7,269,250 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 during the respective
periods.
7
9
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
3. Business Segments - The primary services the Company provides are as
follows: U.S. drilling, international drilling and rental tools.
Information regarding the Company's operations by industry segment for the
three and six months ended June 30, 2001 and 2000 is as follows (dollars in
thousands):
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
U.S. drilling $ 55,487 $ 34,851 $ 105,243 $ 62,305
International drilling 59,261 42,580 110,682 81,248
Rental tools 18,167 9,527 31,864 17,356
--------- --------- --------- ---------
Net revenues 132,915 86,958 247,789 160,909
--------- --------- --------- ---------
Operating income (loss):
U.S. drilling 15,727 624 26,857 (5,009)
International drilling 9,040 2,699 14,791 2,973
Rental tools 9,113 3,650 15,254 5,576
Other - net (547) (564) (1,089) (1,062)
--------- --------- --------- ---------
Total operating income
by segment (1) 33,333 6,409 55,813 2,478
--------- --------- --------- ---------
General and
Administrative (5,009) (4,444) (9,880) (9,447)
Reorganization (5,194) -- (5,194) --
--------- --------- --------- ---------
Total operating
income (loss) 23,130 1,965 40,739 (6,969)
Interest expense (13,768) (14,523) (27,290) (29,035)
Other income-net 381 1,696 2,776 5,462
--------- --------- --------- ---------
Income (loss) before
income taxes $ 9,743 $ (10,862) $ 16,225 $ (30,542)
========= ========= ========= =========
(1) Total operating income (loss) by segment is calculated by excluding General
and administrative expense and Reorganization expense from Operating
income, as reported in the Consolidated Condensed Statements of Operations.
8
10
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
4. Reorganization - During January 2001, the Company announced the relocation
of its corporate office to Houston, Texas, which is expected to be
completed during the third quarter of 2001. The relocation will be
accompanied by a reorganization of certain senior management positions and
of the management of the drilling operations. Management believes that the
Company will benefit from being closer to its customers, competitors and
vendors and anticipates long-term savings from the consolidation of offices
and other administrative cost-cutting steps. In the second quarter of 2001
$5.2 million of the estimated $8.2 million reorganization costs, which
includes employee moving expenses and severance costs, have been incurred.
The remaining $3.0 million is expected to be incurred in the third quarter
2001.
5. Contingency - Two subsidiaries of Parker Drilling Company ("Subsidiaries")
are named defendants in the lawsuit, Verdin v. R & B Falcon Drilling USA,
Inc., et. al., Civil Action No. G-00-488, currently pending in the U.S.
District Court for the Southern District of Texas, Galveston Division. The
plaintiff is a former employee of a drilling contractor engaged in offshore
drilling operations in the Gulf of Mexico. The defendants are various
drilling contractors, including the Subsidiaries, who conduct drilling
operations in the Gulf of Mexico. Plaintiff alleges that the defendants
have violated federal and state antitrust laws by agreeing with each other
to depress wages and benefits paid to employees working for said
defendants.
Plaintiff is seeking to bring this case as a "class action", i.e., on
behalf of himself and a proposed class of other similarly situated
employees of the defendants that have allegedly suffered similar damages
from the actions of defendants. At the present time, the court has not
ruled on the issue of whether the plaintiff has established the
requirements for bringing this case as a "class action" on behalf of other
similarly situated employees. At least six of the defendants have entered
into settlement agreements pursuant to which they have agreed to pay
settlement amounts although these settlements are a small fraction of the
amount claimed by plaintiff. The subsidiaries and certain of the other
defendants are attempting to negotiate a settlement agreement with the
plaintiffs. However, no assurances can be given at this time that such
negotiations will be successful. The Subsidiaries and certain other
defendants have denied the plaintiff's claims. Based on the information
obtained to date and consultation with legal counsel, management believes
the Subsidiaries have sufficient defenses to prevail in this case if it
should go to trial. Although management cannot predict the ultimate result,
management believes the outcome of this case will not have a material
adverse effect on the results of operations, cash flows or financial
position.
9
11
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
6. Subsequent Event - On July 6, 2001, the Ministry of State Revenues of
Kazakhstan issued an Act of Audit to the Kazakhstan branch of Parker
Drilling Company International Limited, a wholly owned subsidiary of the
Company ("PDCIL"), assessing additional taxes in the amount of
approximately $29,000,000 for the years 1998-2000. The assessment consists
primarily of adjustments in corporate income tax based on a determination
by the Kazakhstan tax authorities that payments by the customer, OKIOC, to
PDCIL of $99,050,000, in reimbursement of costs for improvements to Rig
257, to facilitate drilling in the Caspian Sea in connection with the
drilling contract between OKIOC and PDCIL (the "257 Contract"), are income
to PDCIL and, therefore, taxable. On July 12, 2001, PDCIL filed an Act of
Non-Agreement stating its position that such payments should not be taxable
and requesting that the Act of Audit be revised accordingly. Management,
based on consultation with its tax and legal advisors, believes that PDCIL
has sound legal arguments to object to the assessment. Although it is too
early to make a reasonable determination as to the probable outcome of this
matter, based on current information management does not believe it will
have a material adverse effect on the financial condition of the Company.
7. Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board issued FAS No. 141 and 142. FAS No. 141, Business
Combinations, requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. FAS No. 142,
Goodwill and Other Intangible Assets, changes the accounting for goodwill
from an amortization method to an impairment-only approach and will be
effective January 2002. The Company is currently considering the possible
effects of FAS No. 142 on its intangible asset valuation and accounting. If
it is applicable, the Company will be required to discontinue amortizing
the intangible assets and periodically assess them for impairment.
10
12
Report of Independent Accountants
To the Board of Directors and Shareholders
Parker Drilling Company
We have reviewed the consolidated condensed balance sheet of Parker
Drilling Company and subsidiaries as of June 30, 2001 and the related
consolidated condensed statements of operations for the three and six month
periods ended June 30, 2001 and 2000 and the consolidated condensed statement of
cash flows for the six month periods ended June 30, 2001 and 2000. 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 accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report, dated
January 31, 2001, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 2000, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
By: /s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
July 26, 2001
11
13
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 included in this document, or may be "incorporated by
reference," which means the statements are contained in other documents filed by
the Company with the Securities and Exchange Commission. 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 are "forward-looking statements,"
including without limitation:
*future operating results,
*future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment,
*repayment of debt,
*expansion and growth of operations, and
*anticipated cost savings.
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 its 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 and uncertainties
include:
*worldwide economic and business conditions that adversely affect market
conditions and/or the cost of doing business,
*fluctuations in the market prices of oil and gas,
*imposition of unanticipated trade restrictions and political
instability,
*operating hazards and uninsured risks,
*governmental regulations that adversely affect the cost of doing
business,
*adverse environmental events
*adverse weather conditions,
*concentration of customer and supplier relationships,
*unexpected cost increases for upgrade and refurbishment projects,
*competition,
*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. These risks and uncertainties should be considered by the reader in
connection with the forward-looking statements made from time to time in this
document.
12
14
RESULTS OF OPERATIONS (continued)
INTRODUCTION
The significant increase in oil and gas drilling and oil field tool rental
activity continued through the second quarter of 2001. Rig utilization rates and
dayrates for the Company's Gulf of Mexico drilling rigs showed continued
improvement, and the higher volume of rental tool activity resulted in record
rental tool revenues for the second quarter. As a result of these positive
trends, the Company recognized net income of $4.2 million for the six months
ended June 30, 2001, a significant improvement compared to the six months ended
June 30, 2000. Management is unable to predict the duration of present market
conditions, but based on continued spending by oil and gas operators, management
is encouraged about the Company's prospects for the remainder of 2001.
During January 2001, the Company announced the relocation of its corporate
office to Houston, Texas, which is expected to be completed during the third
quarter of 2001. The relocation will be accompanied by a reorganization of
certain senior management positions and of the management of drilling
operations. Management believes that the Company will benefit from being closer
to its customers, competitors and vendors and anticipates long-term savings from
the consolidation of offices and other administrative cost-cutting steps. In the
second quarter of 2001 $5.2 million of the estimated $8.2 million reorganization
costs, which includes employee moving expenses and severance costs, have been
incurred. The remaining $3.0 million is expected to be incurred in the third
quarter 2001.
Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000
The Company recorded net income of $2.7 million for the three months ended
June 30, 2001 compared to a net loss of $9.5 million recorded for the
three-month period ended June 30, 2000. Net income in the second quarter of 2001
is reflective of the continuing improvement in utilization and dayrates in
worldwide drilling operations and continued strong activity in the Company's
rental tool operations.
Three Months Ended
-------------------------------------------
June 30, 2001 June 30, 2000
------------------- --------------------
Revenues:
U.S. drilling $ 55,487 42% $ 34,851 40%
International drilling 59,261 45 42,580 49
Rental tools 18,167 13 9,527 11
-------- -------- -------- --------
Total revenues $132,915 100% $ 86,958 100%
======== ======== ======== ========
13
15
RESULTS OF OPERATIONS (continued)
The Company's revenues increased $45.9 million to $132.9 million in the
current quarter as compared to the second quarter of 2000. U.S. drilling
revenues increased $20.6 million due to increased utilization and dayrates in
all areas of operation. U.S. offshore drilling revenues increased $21.0 million.
Utilization on the workover and deep drilling barges increased from 66% to 80%
with a 36% increase in dayrates from the second quarter of 2000. Total barge rig
revenues increased $12.3 million in the current quarter. Jackup rig revenues
increased $7.5 million a 61% improvement from the second quarter of 2000.
Platform rig utilization improved from 48% to 60% and dayrates increased 17%
resulting in an additional $1.2 million in revenues for the current quarter as
compared to the second quarter of 2000.
International drilling revenues increased $16.7 million to $59.3 million in
the current quarter as compared to the second quarter of 2000. International
land drilling revenues increased $11.8 million while offshore drilling revenues
increased $4.9 million. Primarily responsible for the improvement in
international land drilling revenues was increased activity in Kazakhstan
resulting in additional revenues of $8.3 million. Since the second quarter of
2000, the Company has added six land rigs in Kazakhstan. Russia contributed
increased revenues of $2.2 million. Land drilling revenues increased $1.8
million in the Asia Pacific region primarily attributed to increased utilization
in New Guinea and New Zealand. Revenues declined $0.5 million in Latin America.
Increased revenues in Colombia were offset by a reduction in Ecuador due to the
completion of a contract in 2000 and decreased utilization in Bolivia.
The increase of $4.9 million in international offshore drilling revenues
was due primarily to the four barge rigs in Nigeria being on full dayrates most
of the second quarter of 2001. During the second quarter of 2000, the four barge
rigs in Nigeria were on standby rates due to community unrest. The rigs resumed
operations on full dayrates during the second and third quarters of 2000.
Rental tool revenues increased $8.6 million as Quail Tools reported record
revenues in the current quarter of $18.2 million. Quail Tools continues to
benefit from the strength of exploration and development spending in both the
shallow and deep waters of the Gulf of Mexico and the new rental tool facility
opened May 2000 in Odessa, Texas to service the West Texas drilling market. The
increase in revenues consists of $4.0 million from the New Iberia, Louisiana
operations, $3.1 million from the Victoria, Texas operations and $1.5 million
from the Odessa, Texas operations.
14
16
RESULTS OF OPERATIONS (continued)
Three Months Ended
----------------------------------------
June 30, 2001 June 30, 2000
------------------ -------------------
Profit margin:
U.S. drilling $26,679 48% $10,958 31%
International drilling 18,776 32 10,477 25
Rental tools 12,090 67 5,979 63
------- -------
Total profit margin $57,545 $27,414
======= =======
(Profit margin - revenues less direct operating expenses, in thousands; profit
margin percentages - profit margin as a percent of revenues).
Profit margin of $57.5 million in the current quarter reflects an increase
of $30.1 million. In the U.S., profit margin increased $15.7 million. U.S.
profit margin was positively impacted during the current quarter by increasing
utilization and dayrates in the Gulf of Mexico particularly from the workover
and deep drilling barges, and from the jackup rigs. Utilization for the 22 U.S.
barge rigs averaged 86% for the current quarter compared to 77% for the second
quarter of 2000. The average dayrate increased approximately 39% during the
current quarter as compared to the second quarter of 2000. Average dayrates for
the jackup rigs increased approximately 70% in the current quarter when compared
to the second quarter of 2000.
International drilling profit margin increased $8.3 million in the current
quarter as compared to the second quarter of 2000. International land drilling
profit margin increased $5.4 million to $11.9 million during the current quarter
due primarily to increased utilization in the Company's land drilling operations
as previously discussed. The international offshore drilling profit margin
increased $2.9 million to $6.9 million in the current quarter. This increase is
primarily attributed to four barge rigs in Nigeria on standby status at reduced
dayrates during most of the second quarter of 2000 due to community unrest, as
compared to working at full dayrates during the current quarter.
Rental tool profit margin increased $6.1 million to $12.1 million during the
current quarter as compared to the second quarter of 2000. Profit margin
percentages were 67% during the current quarter as compared to 63% for the
second quarter of 2000 due to significant increase in revenues and utilization.
Depreciation and amortization expense increased $3.2 million to $24.2
million in the current quarter. Depreciation expense increased due to 2000
capital additions, principally two newly built land rigs delivered to
Kazakhstan.
Interest expense decreased $0.7 million due primarily to the repurchase on
the open market of $50.5 million principal of the 5.5% Convertible Subordinated
Notes at an average price of 86.11 percent of face value during the fourth
quarter of 2000.
Income tax expense consists of foreign and deferred tax expense. The
consolidated effective income tax rate for the three months ended June 30, 2001
was approximately 72% as compared to approximately 13% for the corresponding
period in 2000. The increase in the effective tax rate was primarily due to
increased foreign tax expense for which the Company will not receive a full U.S.
tax credit.
15
17
RESULTS OF OPERATIONS (continued)
Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000
The Company recorded net income of $4.2 million for the six months ended June
30, 2001 compared to a net loss of $24.4 million recorded for the six-month
period ended June 30, 2000. Net income in the current period of 2001 is
reflective of the continuing improvement in utilization and dayrates in the U.S.
and international drilling operations and improved activity in the Company's
rental tool operations.
Six Months Ended
-------------------------------------------
June 30, 2001 June 30, 2000
------------------- -------------------
Revenues:
U.S. drilling $105,243 42% $ 62,305 39%
International drilling 110,682 45 81,248 50
Rental tools 31,864 13 17,356 11
-------- -------- -------- --------
Total revenues $247,789 100% 160,909 100%
======== ======== ======== ========
The Company's revenues increased $86.8 million in the current six-month
period as compared to the six months ended June 30, 2000. U.S. drilling revenues
increased $42.9 million due to increased offshore utilization and dayrates. U.S.
offshore drilling revenues increased $43.7 million. Jackup rig revenues
increased $16.7 million in the current six-month period as a result of increased
dayrates compared to the six months ended June 30, 2000. Barge rig revenues
increased $25.1 million during the current six-month period due to increased
dayrates and utilization. At the end of the current six-month period 19 of 22
barge rigs were on contract. Platform rigs revenues increased $1.9 million with
2 of 4 rigs working through most of the current six-month period.
International drilling revenues increased $29.4 million in the current
six-month period as compared to the six months ended June 30, 2000.
International land drilling revenues increased $23.0 million while offshore
drilling revenues increased $6.4 million. Primarily responsible for the increase
in international land drilling revenues was increased activity in Kazakhstan
which contributed additional revenues of $14.7 million due in large part to the
addition of six land rigs subsequent to the end of the prior period. Russia
contributed increased revenues of $2.0 million. The Asia Pacific region revenues
increased $4.8 million primarily attributed to New Zealand and New Guinea. The
increased revenue in New Zealand and New Guinea were partially offset by the
completion of a Nigerian contract in the six months ended June 30, 2000. Latin
American revenues increased $1.5 million. Increased revenues in Colombia and
Bolivia were offset by a reduction in Ecuador due to the completion of a
contract in 2000.
16
18
RESULTS OF OPERATIONS (continued)
The increase of $6.4 million in international offshore drilling revenues
was due primarily to the four barge rigs in Nigeria on full dayrates most of the
current six-month period. Revenues associated with the Nigerian barge rigs
increased $7.4 million during the current six-month period when compared to the
six months ended June 30, 2000. During most of the first six months of 2000 the
four barge rigs in Nigeria were on standby rates due to community unrest. The
rigs resumed operation at full dayrates during the second and third quarters of
2000. Rig 257, drilling in the Caspian Sea, experienced reduced revenues of $1.0
million in the current six-month period due to reduced dayrates during a 30-day
period to recover stuck pipe and during time required to move the rig to the
next drilling location at reduced dayrates.
Rental tool revenues increased $14.5 million as Quail Tools reported record
revenues in the current six-month period of $31.9 million. Quail Tools continues
to benefit from strength of exploration and development spending in both the
shallow and deep waters of the Gulf of Mexico and the new rental tool facility
opened May 2000 in Odessa, Texas to service the West Texas drilling market. The
increase in revenues consists of $6.3 million from the New Iberia, Louisiana
operations, $5.1 million from the Victoria, Texas operations and $3.1 million
from the Odessa, Texas operations.
Six Months Ended
-------------------------------------------
June 30, 2001 June 30, 2000
------------------- ---------------------
Profit margin:
U.S. drilling $ 48,816 46% 15,568 25%
International drilling 33,039 30 18,711 23
Rental tools 21,044 66 10,226 59
-------- --------
Total profit margin (loss) $102,899 $ 44,505
======== ========
(Profit margin - revenues less direct operating expenses, in thousands; profit
margin percentages - profit margin as a percent of revenues).
Profit margin of $102.8 million in the current six-month period reflect an
increase of $58.3 million from the $44.5 million recorded during the six months
ended June 30, 2000. The U.S. and international drilling segments recorded
profit margin percentages of 46% and 30% in the current period, as compared to
25% and 23% in the six months ended June 30, 2000. In the U.S., profit margin
increased $33.2 million. U.S. profit margin was positively impacted during the
current quarter by increasing utilization and dayrates in the Gulf of Mexico
particularly from the intermediate and deep drilling barges, and from the jackup
rigs. Utilization for the 22 U.S. barge rigs averaged 84% for the current
six-month period compared to 69% for the six months ended June 30, 2000. The
average dayrate increased 37% during the current six-month period as compared to
the six months ended June 30, 2000. Average dayrates for the jackup rigs
increased approximately 74% and utilization increased from 87% to 90% during the
current six-month period when compared to the six months ended June 30, 2000.
17
19
RESULTS OF OPERATIONS (continued)
International drilling profit margin increased $14.3 million in the current
six-month period compared to the six months ended June 30, 2000. International
land drilling profit margin rose $8.5 million to $20.3 million during the
current six-month period due primarily to increased utilization in Kazakhstan
and as previously discussed. The international offshore drilling profit margin
increased $5.8 million to $12.7 million in the current six-month period. This
increase is primarily attributed to four barge rigs in Nigeria on standby status
at reduced dayrates during most of the six months ended June 30, 2000 due to
community unrest.
Rental tool profit margin increased $10.8 million to $21.0 million during
the current six-month period as compared to the six months ended June 30, 2000.
Profit margin was 66% during the current period as compared to 59% for the six
months ended June 30, 2000 due to significant increased customer base and
revenues.
Depreciation and amortization expense increased $5.1 million to $47.1
million in the current six-month period. Depreciation expense increased due to
2000 capital additions, principally two newly built land rigs delivered to
Kazakhstan.
Interest expense decreased $1.7 million due primarily to the repurchase on
the open market of $50.5 million principal amount of the 5.5% Convertible
Subordinated Notes at an average price of 86.11 percent of face value during the
fourth quarter of 2000.
Income tax expense consists of foreign tax expense and deferred tax
expense. The consolidated effective income tax rate for the six months ended
June 30, 2001 was approximately 74% as compared to approximately 20% for the
corresponding period in 2000. The increase in the effective tax rate was
primarily due to increased foreign tax expense for which the Company will not
receive a full U.S. tax credit.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had cash, cash equivalents and other
short-term investments of $46.3 million, a decrease of $17.0 million from
December 31, 2000. The primary sources of cash for the six-month period as
reflected on the Consolidated Statement of Cash Flows were $42.2 million
provided by operating activities and $3.7 million from the disposition of
equipment.
The primary uses of cash for the three-month period ended June 30, 2001
were $61.1 million for capital expenditures and $2.4 million for repayment of
debt. Major projects during the current six-month period included expenditures
on three rigs in the Karachaganak field in Kazakhstan, the completion of new Rig
258 for the Tengiz field in Kazakhstan, and modifications to Rig 22J in the Gulf
of Mexico, the latter a result of its scheduled five-year Coast Guard
inspection.
18
20
RESULTS OF OPERATIONS (continued)
The Company has total long-term debt, including the current portion, of
$595.0 million at June 30, 2001. The Company entered into a $50.0 million
revolving credit facility with a group of banks led by Bank of America on
October 22, 1999. This 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. 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. Currently, the borrowing base is $50.0
million, of which none has been drawn down, and $13.0 million in letters of
credit have been issued. The revolver terminates on October 22, 2003.
The Company anticipates that working capital needs and funds required for
capital spending in 2001 will be met from existing cash, other short-term
investments and cash provided by operations. The Company anticipates cash
requirements for capital spending will be approximately $100 million in 2001.
Should new opportunities requiring additional capital arise, the Company may
utilize the revolving credit facility. In addition, the Company may seek project
financing or equity participation from outside alliance partners or customers.
The Company cannot predict whether such financing or equity participation would
be available on terms acceptable to the Company.
Subsequent to the end of the second quarter, Parker's operating subsidiary
in Kazakhstan, Parker Drilling Company International Limited ("PDCIL"), received
a tax assessment of approximately $29 million from the Kazakhstan tax
authorities. The assessment is based primarily on the determination of the
Kazakhstan tax authorities that approximately $100 million received by PDCIL
from OKIOC, the operator under the Rig 257 contract in the Caspian Sea, in
reimbursement for costs incurred to upgrade Rig 257 for drilling in the Caspian
Sea, is income to PDCIL and therefore taxable. Based on consultation with legal
and accounting experts, PDCIL believes it has strong legal bases to oppose the
assessment and intends to assert all its legal remedies. Although it is too
early to make a reasonable determination as to the probable outcome of this
matter, based on current information management does not believe it will have a
material adverse effect on the liquidity of the Company.
OTHER MATTERS
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued FAS No. 141 and
142. FAS No. 141, Business Combinations, requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
FAS No. 142, Goodwill and Other Intangible Assets, changes the accounting for
goodwill from an amortization method to an impairment-only approach and will be
effective January 2002. The Company is currently considering the possible
effects of FAS No. 142 on its intangible asset valuation and accounting. If it
is applicable, the Company will be required to discontinue amortizing the
intangible assets and periodically assess them for impairment.
19
21
RESULTS OF OPERATIONS (continued)
Legal Proceedings
Two subsidiaries of Parker Drilling Company ("Subsidiaries") are named
defendants in the lawsuit, Verdin v. R & B Falcon Drilling USA, Inc., et. al.,
Civil Action No. G-00-488, currently pending in the U.S. District Court for the
Southern District of Texas, Galveston Division. The plaintiff is a former
employee of a drilling contractor engaged in offshore drilling operations in the
Gulf of Mexico. The defendants are various drilling contractors, including the
Subsidiaries, who conduct drilling operations in the Gulf of Mexico. Plaintiff
alleges that the defendants have violated federal and state antitrust laws by
agreeing with each other to depress wages and benefits paid to employees working
for said defendants.
Plaintiff is seeking to bring this case as a "class action", i.e., on behalf of
himself and a proposed class of other similarly situated employees of the
defendants that have allegedly suffered similar damages from the actions of
defendants. At the present time, the court has not ruled on the issue of whether
the plaintiff has established the requirements for bringing this case as a
"class action" on behalf of other similarly situated employees. At least six of
the defendants have entered into settlement agreements pursuant to which they
have agreed to pay settlement amounts although these settlements are a small
fraction of the amount claimed by plaintiff. The subsidiaries and certain of the
other defendants are attempting to negotiate a settlement agreement with the
plaintiffs. However, no assurances can be given at this time that such
negotiations will be successful. The Subsidiaries and certain other defendants
have denied the plaintiff's claims. Based on the information obtained to date
and consultation with legal counsel, management believes the Subsidiaries have
sufficient defenses to prevail in this case if it should go to trial. Although
management cannot predict the ultimate result, management believes the outcome
of this case will not have a material adverse effect on the results of
operations, cash flows or financial position.
20
22
PART II. OTHER INFORMATION
Page
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15 Letter re Unaudited Interim Financial
Information 24
21
23
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, 2001
By: /s/ James J. Davis
---------------------------------
James J. Davis
Senior Vice President-Finance and
Chief Financial Officer
By: /s/ W. Kirk Brassfield
---------------------------------
W. Kirk Brassfield
Vice President and Controller
22
24
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
15 Letter re Unaudited Interim Financial Information
23