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 SEPTEMBER 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
PARKER DRILLING COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1401 Enclave Parkway, Suite 600, Houston, Texas 77077
-----------------------------------------------------
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code (281) 406-2000
-----------------------------------------------------------------
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 October 31, 2001, 92,152,089 common shares were outstanding.
PARKER DRILLING COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets (Unaudited)
September 30, 2001 and December 31, 2000 2
Consolidated Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2001 and 2000 3
Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2001 and 2000 4
Notes to Unaudited Consolidated Condensed
Financial Statements 5 - 9
Report of Independent Accountants 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 17
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit 15, Letter Re Unaudited Interim
Financial Information 21
1
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September December
30, 31,
2001 2000
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 71,218 $ 62,480
Other short-term investments 12 811
Accounts and notes receivable 110,853 123,474
Rig materials and supplies 20,666 16,500
Other current assets 4,197 4,600
----------- -----------
Total current assets 206,946 207,865
----------- -----------
Property, plant and equipment less
accumulated depreciation and amortization of $507,457
at September 30, 2001 and $448,734 at December 31, 2000 689,892 663,525
Goodwill, net of accumulated amortization of $33,397 at
September 30, 2001 and $27,786 at December 31, 2000 190,997 196,609
Other noncurrent assets 31,563 39,420
----------- -----------
Total assets $ 1,119,398 $ 1,107,419
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 4,890 $ 5,043
Accounts payable and accrued liabilities 79,926 77,201
Accrued income taxes 5,465 9,422
----------- -----------
Total current liabilities 90,281 91,666
----------- -----------
Long-term debt 588,833 592,584
Deferred income tax 26,581 18,467
Other long-term liabilities 5,414 5,539
Stockholders' equity:
Common stock, $.16 2/3 par value 15,366 15,287
Capital in excess of par value 433,248 431,043
Accumulated comprehensive income - net unrealized gain on
investments available for sale (net of taxes $(34) at
September 30, 2001 and $190 at December 31, 2000) (60) 339
Retained earnings (accumulated deficit) (40,265) (47,506)
----------- -----------
Total stockholders' equity 408,289 399,163
----------- -----------
Total liabilities and stockholders' equity $ 1,119,398 $ 1,107,419
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
------------- ------------- ------------ -------------
Revenues:
U.S. drilling $ 52,985 $ 39,894 $ 158,228 $ 102,203
International drilling 57,047 49,959 167,729 131,207
Rental tools 18,895 11,996 50,759 29,352
------------ ------------ ------------ ------------
Total revenues 128,927 101,849 376,716 262,762
------------ ------------ ------------ ------------
Operating expenses:
U.S. drilling 29,827 25,436 86,245 72,175
International drilling 38,414 35,971 116,057 98,508
Rental tools 6,750 3,986 17,570 11,116
Depreciation and amortization 24,330 21,011 71,425 63,040
General and administrative 4,925 5,492 14,805 14,939
Reorganization 2,306 -- 7,500 --
------------ ------------ ------------ ------------
Total operating expenses 106,552 91,896 313,602 259,778
------------ ------------ ------------ ------------
Operating income 22,375 9,953 63,114 2,984
------------ ------------ ------------ ------------
Other income and (expense):
Interest expense (13,772) (14,554) (41,062) (43,589)
Interest income 795 597 2,439 2,235
Gain on disposition of assets 326 7,953 1,776 9,901
Other income (loss) - net 9 749 (309) 2,625
------------ ------------ ------------ ------------
Total other income and (expense) (12,642) (5,255) (37,156) (28,828)
------------ ------------ ------------ ------------
Income (loss) before income taxes 9,733 4,698 25,958 (25,844)
------------ ------------ ------------ ------------
Income tax expense (benefit):
Current tax expense-foreign 3,408 5,032 10,417 10,048
Deferred tax expense (benefit) 3,300 700 8,300 (10,500)
------------ ------------ ------------ ------------
6,708 5,732 18,717 (452)
------------ ------------ ------------ ------------
Net income (loss) $ 3,025 $ (1,034) $ 7,241 $ (25,392)
============ ============ ============ ============
Earnings (loss) per share,
Basic $ .03 $ (.01) $ .08 $ (.32)
------------ ------------ ------------ ------------
Diluted $ .03 $ (.01) $ .08 $ (.32)
------------ ------------ ------------ ------------
Number of common shares used in
computing earnings per share:
Basic 92,117,651 80,258,339 91,955,655 78,438,141
------------ ------------ ------------ ------------
Diluted 92,589,301 80,258,339 92,876,615 78,438,141
------------ ------------ ------------ ------------
See accompanying notes to consolidated condensed financial statements.
3
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,
------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 7,241 $ (25,392)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 71,425 63,040
Gain on disposition of assets (1,776) (9,901)
Expenses not requiring cash 3,816 3,225
Deferred income taxes 8,300 (10,500)
Change in operating assets and liabilities 6,424 346
--------- ---------
Net cash provided by operating activities 95,430 20,818
--------- ---------
Cash flows from investing activities:
Capital expenditures (net of reimbursements of
$13.0 million in 2000) (90,286) (59,654)
Proceeds from the sale of equipment 5,828 10,141
Proceeds from the sale of investments 799 16,872
--------- ---------
Net cash used in investing activities (83,659) (32,641)
--------- ---------
Cash flows from financing activities:
Proceeds from common stock offering -- 87,313
Principal payments under debt obligations (3,588) (3,388)
Other 555 384
--------- ---------
Net cash provided by (used) in financing activities (3,033) 84,309
--------- ---------
Net change in cash and cash equivalents 8,738 72,486
Cash and cash equivalents at beginning of period 62,480 45,501
--------- ---------
Cash and cash equivalents at end of period $ 71,218 $ 117,987
========= =========
Supplemental cash flow information:
Interest paid $ 31,900 $ 33,410
Income taxes paid $ 14,374 $ 11,686
Supplemental noncash investing activity:
Net unrealized gain (loss) on investments available
for sale (net of taxes $(224) in 2001 and $358 in 2000) $ (399) $ 636
See accompanying notes to consolidated condensed financial statements.
4
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 September 30, 2001 and
December 31, 2000, (2) the results of operations for the three and nine
months ended September 30, 2001 and 2000, and (3) cash flows for the
nine months ended September 30, 2001 and 2000. Results for the nine
months ended September 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
September 30, 2001
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to common stockholders $3,025,000 92,117,651 $.03
Effect of Dilutive Securities:
Stock options and grants -- 471,650 --
Diluted EPS:
Income available to common stockholders
plus assumed conversions $3,025,000 92,589,301 $.03
========== ========== ====
For the Nine Months Ended
September 30, 2001
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to common stockholders $7,241,000 91,955,655 $.08
Effect of Dilutive Securities:
Stock options and grants -- 920,960 --
Diluted EPS:
Income available to common stockholders
plus assumed conversions $7,241,000 92,876,615 $.08
========== ========== ====
5
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
September 30, 2000
-------------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
Basic EPS:
Income (loss) available to common stockholders $(1,034,000) 80,258,339 $(.01)
Effect of Dilutive Securities:
Stock options and grants -- -- --
Diluted EPS:
Income (loss) available to common stockholders
plus assumed conversions $(1,034,000) 80,258,339 $(.01)
=========== =========== =====
For the Nine Months Ended
September 30, 2000
---------------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
Basic EPS:
Income (loss) available to common stockholders $(25,392,000) 78,438,141 $(.32)
Effect of Dilutive Securities:
Stock options and grants -- -- --
Diluted EPS:
Income (loss) available to common stockholders
plus assumed conversions $(25,392,000) 78,438,141 $(.32)
============ ============ =====
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 nine
months ended September 30, 2001, options to purchase 6,691,000 and 4,714,000,
shares, respectively, of common stock at prices ranging from $4.50 to $12.1875
and from $5.9375 to $12.1875, respectively, 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 nine months ended September 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 due to the net loss
incurred during the respective periods.
6
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 nine months ended September 30, 2001 and 2000 is as
follows (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
U.S. drilling $ 52,985 $ 39,894 $ 158,228 $ 102,203
International drilling 57,047 49,959 167,729 131,207
Rental tools 18,895 11,996 50,759 29,352
--------- --------- --------- ---------
Total revenues 128,927 101,849 376,716 262,762
--------- --------- --------- ---------
Operating income:
U.S. drilling 12,287 3,822 39,153 (1,646)
International drilling 8,847 6,105 23,638 8,475
Rental tools 9,031 5,518 24,285 11,094
Other (net) (559) -- (1,657) --
--------- --------- --------- ---------
Total operating income
by segment (1) 29,606 15,445 85,419 17,923
--------- --------- --------- ---------
General and
administrative (4,925) (5,492) (14,805) (14,939)
Reorganization (2,306) -- (7,500) --
--------- --------- --------- ---------
Total operating income 22,375 9,953 63,114 2,984
Interest expense (13,772) (14,554) (41,062) (43,589)
Other income - net 1,130 9,299 3,906 14,761
--------- --------- --------- ---------
Income (loss) before
income taxes $ 9,733 $ 4,698 $ 25,958 $ (25,844)
========= ========= ========= =========
(1) Total operating income by segment is calculated by excluding
General and administrative expense and Reorganization expense
from Total operating income, as reported in the Consolidated
Condensed Statements of Operations.
7
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. On September 4,
2001, the Company opened its new corporate office in Houston, Texas.
The reorganization included the consolidation of its corporate and
international drilling activities from Tulsa, Oklahoma, with its U.S.
offshore drilling operations already domiciled in Houston. The
relocation was accompanied by the reorganization of certain senior
management positions and the management of drilling operations.
Management believes that the Company will benefit from being closer to
its customers, competitors and vendors and anticipates increased
efficiency from the consolidation of its operational and administrative
functions. The total non-recurring expense for the move of the
corporate office to Houston approximated $7.5 million. During the
second quarter of 2001, $5.2 million was recognized, the remaining $2.3
million was recognized during the third quarter of 2001.
5. Legal Proceeding - Two subsidiaries of Parker Drilling Company
("Subsidiaries") are currently named defendants in the lawsuit, Verdin
vs. 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, Houston 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 alleged actions of defendants. Originally, the case
was pending in U.S. District Court for the Southern District of Texas,
Galveston Division. Recently, the case was transferred to the Houston
Division. The subsidiaries and certain of the other defendants recently
entered into a stipulation of settlement with the plaintiff, pursuant
to which the subsidiaries will pay $625,000 for a full and complete
release of all claims brought in the case. This settlement was
preliminarily approved by the Court on November 8, 2001. The settlement
amount and related fees were accrued during the third quarter 2001.
6. Contingency - On July 6, 2001, the Ministry of State Revenues of
Kazakhstan ("MSR") 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 are income, and therefore, taxable to PDCIL's
Kazakhstan Branch. PDCIL filed an Act of Non-Agreement stating its
position that such payment should not be taxable and requesting that
the Act of Audit be revised accordingly. Initial discussions with the
MSR have resulted in (1) the MSR determining that certain of the issues
require reauditing, (2) that the MSR requires further information on
certain items and (3) an invitation from the MSR to hold further
discussions on other matters relating to the assessment. Management
believes that it is too early to make a reasonable determination as to
the probable outcome of this matter.
8
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
7. Recent Accounting Pronouncements - In June 2001, the Financial
Accounting Standards Board ("FASB") issued FAS No. 141, 142 and 143.
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. FAS No.
143, "Accounting for Asset Retirement Obligations", requires the
capitalization and accrual of the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. FAS No. 143 will be
effective January 2003. In August 2001 the FASB issued FAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". FAS
144 supersedes FAS 121 and amends APB No. 30 for the accounting and
reporting for discontinued operations as it relates to long-lived
assets. FAS No. 144 will be effective January 2002.
The Company is presently evaluating the effect of these new
pronouncements on its financial position and results of operations and
believes FAS 142 will definitely impact the Company because it has
recorded a significant amount of goodwill related to prior
acquisitions.
9
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 September 30, 2001 and the related
consolidated condensed statements of operations for the three and nine-month
periods ended September 30, 2001 and 2000 and the consolidated condensed
statement of cash flows for the nine month periods ended September 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 consolidated condensed 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 auditing standards
generally accepted in the United States of America, 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 30, 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.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
October 31, 2001
10
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 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 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 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.
11
INTRODUCTION AND OUTLOOK
- ------------------------
The increase in oil and gas drilling activity that commenced during the
third quarter of 2000 continued to reflect positively on the financial results
for the nine months ended September 30, 2001. Higher volume of rental tool
activity resulted in record revenues from this segment of the Company's business
for the third quarter. As a result, the Company recognized net income of $7.2
million for the nine months ended September 30, 2001 a significant improvement
compared to a net loss of $25.4 million recognized for the nine months ended
September 30, 2000.
After reaching the highest levels of dayrates and utilization since
fall 1998, the Gulf of Mexico market began to soften significantly in the third
quarter 2001 due primarily to a reduction in drilling activity by operators in
response to declining natural gas prices and increasing gas storage levels in
the U.S.. However, due to the timing of the expiration of contracts on the
Company's barge and jackup rigs, average utilization and dayrates were only
modestly below second quarter 2001 levels. Since the end of the third quarter,
dayrates and utilization of the Company's seven jackup rigs have declined
significantly. Some softness has been experienced in the Company's Gulf of
Mexico barge rig business and the rental tool operations, but to a much lesser
extent than the jackup rigs. As a result, management anticipates that U.S.
drilling results will be substantially lower in the fourth quarter 2001.
Management anticipates that international barge utilization will be slightly
less in the fourth quarter due to downtime for repairs of one barge rig in
Nigeria, but that international land rig revenues will increase in the quarter
due to higher land rig utilization. Overall, management anticipates that the
decline in revenues from the Gulf of Mexico, rental tool and international barge
rig operations will result in a net loss for the fourth quarter 2001.
During January 2001, the Company announced the relocation of its
corporate office to Houston, Texas. On September 4, 2001, the Company opened its
new corporate office in Houston, Texas. The reorganization included the
consolidation of its corporate and international drilling activities from Tulsa,
Oklahoma, with its U.S. offshore drilling operations already domiciled in
Houston. The relocation was accompanied by the reorganization of certain senior
management positions and the management of drilling operations. Management
believes that the Company will benefit from being closer to its customers,
competitors and vendors and anticipates increased efficiency from the
consolidation of its operational and administrative functions. The total
non-recurring expense for the move of the corporate office to Houston
approximated $7.5 million. During the second quarter of 2001, $5.2 million was
recognized, the remaining $2.3 million was recognized during the third quarter
of 2001.
Three Months Ended September 30, 2001 Compared with Three Months Ended
- ----------------------------------------------------------------------
September 30, 2000
- ------------------
The Company recorded net income of $3.0 million for the three months
ended September 30, 2001 compared to a net loss of $1.0 million recorded for the
three months ended September 30, 2000. Net income in the third quarter of 2001
is reflective of the higher utilization and dayrates in worldwide drilling
operations that began in the fourth quarter of 2000 and the significant increase
in revenues from the Company's rental tool operations compared to the three
months ended September 30, 2000.
Three Months Ended
-------------------------------------------------------------
September 30, 2001 September 30, 2000
-------------------------- --------------------------
Revenues: (dollars in thousands)
U.S. drilling $ 52,985 41% $ 39,894 39%
International drilling 57,047 44% 49,959 49%
Rental tools 18,895 15% 11,996 12%
-------- -------- -------- --------
Total revenues $128,927 100% $101,849 100%
======== ======== ======== ========
12
RESULTS OF OPERATIONS (continued)
- ---------------------
The Company's revenues increased $27.1 million to $128.9 million in the
current quarter as compared to the third quarter of 2000. U.S. drilling revenues
increased $13.1 million due to increased dayrates in all areas of operation.
Total barge rig revenues increased $7.7 million in the current quarter, as a
result of a 32% increase in dayrates from the third quarter of 2000. Jackup rig
revenues increased $4.9 million a 37% improvement from the third quarter of
2000. Platform rig utilization improved from 45% to 52% and dayrates increased
21% resulting in an additional $1.1 million in revenues for the current quarter
as compared to the third quarter of 2000.
International drilling revenues increased $7.1 million to $57.0 million
in the current quarter as compared to the third quarter of 2000. International
land drilling revenues increased $4.9 million while international offshore
drilling revenues increased $2.2 million. Primarily responsible for the
improvement in international land drilling revenues was increased rig activity
in Kazakhstan resulting in additional revenues of $7.8 million. Land drilling
revenues increased $1.2 million in the Asia Pacific region primarily attributed
to increased utilization in Papua New Guinea and New Zealand. Revenues declined
$4.7 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 $2.2 million in international offshore drilling
revenues was due primarily to the four barge rigs in Nigeria being on full
dayrates for the third quarter of 2001. Early in the third quarter of 2000, the
four barge rigs in Nigeria were on standby status at reduced dayrates due to
community unrest.
Rental tool revenues increased $6.9 million as Quail Tools reported
record revenues in the current quarter of $18.9 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 serve the West Texas drilling market. The
increase in revenues consisted of $3.2 million from the New Iberia, Louisiana
operations, $1.9 million from the Victoria, Texas operations and $1.8 million
from the Odessa, Texas operations.
Three Months Ended
---------------------------------------------------------
September 30, 2001 September 30, 2000
------------------------ ------------------------
Profit margin: (dollars in thousands)
U.S. drilling $23,158 44% $14,458 36%
International drilling 18,633 33% 13,988 28%
Rental tools 12,145 64% 8,010 67%
------- -------
Total profit margin $53,936 $36,456
======= =======
(Profit margin - revenues less direct operating expenses; profit margin
percentages - profit margin as a percent of revenues.)
Profit margin of $53.9 million in the current quarter reflected an
increase of $17.5 million. In the U.S., profit margin increased $8.7 million.
U.S. profit margin was positively impacted during the current quarter by higher
dayrates in the Gulf of Mexico particularly from the deep drilling barges and
jackup rigs. The average dayrate for deep drilling barges increased
approximately 30% during the current quarter as compared to the third quarter of
2000. Average dayrates for the jackup rigs increased approximately 44% in the
current quarter when compared to the third quarter of 2000.
International drilling profit margin increased $4.6 million in the
current quarter as compared to the third quarter of 2000. International land
drilling profit margin increased $2.5 million to $10.6 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 $2.1 million to $8.0 million in the current quarter.
This increase is primarily attributed to the standby status at reduced dayrates
in 2000 for the four barge rigs in Nigeria as previously mentioned.
13
RESULTS OF OPERATIONS (continued)
- ---------------------
Rental tool profit margin increased $4.1 million to $12.1 million
during the current quarter as compared to the third quarter of 2000. Profit
margin percentages were 64% during the current quarter as compared to 67% for
the third quarter of 2000 due to wage and salary market adjustments and certain
non-recurring expenses.
Depreciation and amortization expense increased $3.3 million to $24.3
million in the current quarter. Depreciation expense increased due to capital
additions, principally from two newly built land rigs and major rig upgrades.
Interest expense decreased $0.8 million due primarily to the repurchase
in the open market of $50.5 million principal amount of the 5.5% Convertible
Subordinated Notes at an average price of 86.11% 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 September 30,
2001 was approximately 69% as compared to approximately 122% for the
corresponding period of 2000. The effective tax rate is primarily due to foreign
tax expense for which the Company will not receive a full U.S. tax credit.
Nine Months Ended September 30, 2001 Compared with Nine Months Ended September
- ------------------------------------------------------------------------------
30, 2000
- --------
The Company recorded net income of $7.2 million for the nine months
ended September 30, 2001 compared to a net loss of $25.4 million recorded for
the nine months ended September 30, 2000. Net income in the current period of
2001 is reflective of the improvement in utilization and dayrates in the U.S.
and international drilling operations and improved activity in the Company's
rental tool operations as compared to the nine months ended September 30, 2000.
Nine Months Ended
-------------------------------------------------------------
September 30, 2001 September 30, 2000
-------------------------- --------------------------
Revenues: (dollars in thousands)
U.S. drilling $158,228 42% $102,203 39%
International drilling 167,729 45% 131,207 50%
Rental tools 50,759 13% 29,352 11%
-------- -------- -------- --------
Total revenues $376,716 100% $262,762 100%
======== ======== ======== ========
The Company's revenues increased $113.9 million to $376.7 million in
the current nine-month period as compared to the nine months ended September 30,
2000. U.S. drilling revenues increased $56.0 million due to increased offshore
utilization and dayrates. Jackup rig revenues increased $21.6 million in the
current nine-month period as a result of increased dayrates compared to the nine
months ended September 30, 2000. Barge rig revenues increased $32.7 million
during the current nine-month period due to increased dayrates and utilization.
At the end of the current nine-month period 18 of 22 barge rigs and five of
seven jackup rigs were under contract. Platform rig revenues increased $3.0
million with two of four rigs working through most of the current nine-month
period.
International drilling revenues increased $36.5 million in the current
nine-month period as compared to the nine months ended September 30, 2000.
International land drilling revenues increased $27.9 million while offshore
drilling revenues increased $8.6 million. Primarily responsible for the increase
in international land drilling revenues was increased activity in Kazakhstan
which contributed additional revenues of $22.5 million due in large part to the
addition of six land rigs subsequent to the end of the prior period. Operations
in Russia contributed increased revenues of $2.4 million. The Asia Pacific and
Indonesia region revenues increased $7.0 million primarily attributable to New
Zealand and Papua New Guinea. The increased revenues in New Zealand and Papua
New Guinea were partially offset by the completion of contracts in Nigeria and
Madagascar in the nine months ended September 30, 2000. Latin American revenues
decreased $4.0 million. Increased revenues in Colombia were offset by a
reduction in Ecuador and Bolivia due to the completion of contracts in 2000.
14
RESULTS OF OPERATIONS (continued)
- ---------------------
The increase of $8.6 million in international offshore drilling
revenues was due primarily to the four barge rigs in Nigeria on full dayrates
for the current nine-month period. Revenues associated with the Nigerian barge
rigs increased $9.9 million during the current nine-month period when compared
to the nine months ended September 30, 2000. During most of the first seven
months of 2000 the four barge rigs in Nigeria were on standby status at reduced
dayrates due to community unrest. Rig 257, drilling in the Caspian Sea,
experienced reduced revenues of $1.2 million in the current nine-month period
due to reduced dayrates for rig moves and various other operations per contract.
Rental tool revenues increased $21.4 million as Quail Tools reported
record revenues in the current nine-month period of $50.7 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 serve the West Texas drilling
market. The increase in revenues consists of $9.5 million from the New Iberia,
Louisiana operations, $6.9 million from the Victoria, Texas operations and $5.0
million from the Odessa, Texas operations.
Nine Months Ended
-------------------------------------------------------------
September 30, 2001 September 30, 2000
-------------------------- --------------------------
Profit margin: (dollars in thousands)
U.S. drilling $ 71,983 45% $ 30,028 29%
International drilling 51,672 31% 32,699 25%
Rental tools 33,189 65% 18,236 62%
-------- --------
Total profit margin $156,844 $ 80,963
======== ========
(Profit margin - revenues less direct operating expenses; profit margin
percentages - profit margin as a percent of revenues.)
Profit margin of $156.8 million in the current nine-month period
reflects an increase of $75.9 million from the $80.9 million recorded during the
nine months ended September 30, 2000. The U.S. and international drilling
segments recorded profit margin percentages of 45% and 31%, in the current
nine-month period, as compared to 29% and 25% in the nine months ended September
30, 2000. In the U.S., profit margin increased $41.9 million. U.S. profit margin
was positively impacted during the current nine-month period by increased
utilization and dayrates in the Gulf of Mexico. Utilization for the U.S. barge
rigs averaged 82% for the current nine-month period compared to 74% for the nine
months ended September 30, 2000. The average dayrate increased approximately 35%
during the current nine-month period as compared to the nine months ended
September 30, 2000. Average dayrate for the jackup rigs increased approximately
62% and utilization increased from 86% to 87% during the current nine-month
period when compared to the nine months ended September 30, 2000.
International drilling profit margin increased $19.0 million in the
current nine-month period compared to the nine months ended September 30, 2000.
International land drilling profit margin rose $11.1 million to $30.9 million
during the current nine-month period due primarily to increased utilization in
Kazakhstan, as previously discussed. The international offshore drilling profit
margin increased $7.9 million to $20.8 million in the current nine-month
period. This increase is primarily attributed to the four barge rigs in Nigeria
on standby status at reduced dayrates during most of the first seven months of
2000 due to community unrest.
Rental tool profit margins increased $15.0 million to $33.2 million
during the current nine-month period as compared to the nine months ended
September 30, 2000. Profit margin was 65% during the current period as compared
to 62% for the nine months ended September 30, 2000 due to a significant
increase in customer base and revenues.
Depreciation and amortization expense increased $8.4 million to $71.4
million in the current nine-month period. Depreciation expense increased due to
capital additions, principally from two newly built land rigs and major rig
upgrades.
15
RESULTS OF OPERATIONS (continued)
- ---------------------
Interest expense decreased $2.5 million due primarily to the repurchase
in 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 nine months ended
September 30, 2001 was approximately 72% as compared to approximately 2% 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 September 30, 2001, the Company had cash, cash equivalents and
other short-term investments of $71.2 million, an increase of $7.9 million from
December 31, 2000. The primary sources of cash for the nine-month period as
reflected on the Consolidated Statement of Cash Flows were $95.4 million
provided by operating activities and $5.8 million from the disposition of
equipment.
The primary uses of cash for the nine-month period ended September 30,
2001 were $90.3 million for capital expenditures and $3.6 million for repayment
of debt. Major projects during the current nine-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.
The Company has total long-term debt, including the current portion, of
$593.7 million at September 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 $16.2 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 $110 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.
On July 6, 2001, the Ministry of State Revenues of Kazakhstan ("MSR")
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 are income, and
therefore, taxable to PDCIL's Kazakhstan Branch. PDCIL filed an Act of
Non-Agreement stating its position that such payment should not be taxable and
requesting that the Act of Audit be revised accordingly. Initial discussions
with the MSR have resulted in (1) the MSR determining that certain of the issues
require reauditing, (2) that the MSR requires further information on certain
items and (3) an invitation from the MSR to hold further discussions on other
matters relating to the assessment. Management believes that it is too early to
make a reasonable determination as to the probable outcome of this matter.
16
RESULTS OF OPERATIONS (continued)
- ---------------------
OTHER MATTERS
- -------------
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS No.
141, 142 and 143. 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. FAS No. 143,
"Accounting for Asset Retirement Obligations", requires the capitalization and
accrual of the fair value of a liability for an asset retirement obligation in
the period in which it is incurred if a reasonable estimate of fair value can be
made. FAS No. 143 will be effective January 2003. In August 2001 the FASB issued
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
FAS 144 supersedes FAS 121 and amends APB No. 30 for the accounting and
reporting for discontinued operations as it relates to long-lived assets. FAS
No. 144 will be effective January 2002.
The Company is presently evaluating the effect of these new pronouncements on
its financial position and results of operations and believes FAS 142 will
definitely impact the Company because it has recorded a significant amount of
goodwill related to prior acquisitions.
Legal Proceeding
Legal Proceeding - Two subsidiaries of Parker Drilling Company ("Subsidiaries")
are currently named defendants in the lawsuit, Verdin vs. 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, Houston 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 his behalf
and a proposed class of other similarly situated employees of the defendants
that have allegedly suffered similar damages from the alleged actions of
defendants. Originally, the case was pending in U.S. District Court for the
Southern District of Texas, Galveston Division. Recently, the case was
transferred to the Houston Division. The subsidiaries and certain of the other
defendants recently entered into a stipulation of settlement with the plaintiff,
pursuant to which the subsidiaries will pay $625,000 for a full and complete
release of all claims brought in the case. The settlement was preliminarily
approved by the Court on November 8, 2001. The settlement amount and related
fees were accrued during the third quarter 2001.
17
PART II. OTHER INFORMATION
Page
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 15 Letter re Unaudited Interim Financial 21
Information
18
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 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
19
INDEX TO EXHIBITS
Exhibit
Number Description
-----------
15 Letter re Unaudited Interim Financial Information
20