EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Parker Drilling Company
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, stockholders' equity and cash flows,
present fairly, in all material respects, the financial position of Parker
Drilling Company and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
January 29, 2002
1
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
Year Ended December 31,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
Revenues:
U.S. drilling $ 190,809 $ 148,416 $ 113,989
International drilling 231,527 185,100 182,908
Rental tools 65,629 42,833 27,656
------------ ------------ ------------
Total revenues 487,965 376,349 324,553
------------ ------------ ------------
Operating expenses:
U.S. drilling 112,480 99,197 102,098
International drilling 154,484 132,882 126,226
Rental tools 23,005 15,994 10,910
Depreciation and amortization 97,259 85,060 82,170
General and administration 21,721 20,392 16,312
Reorganization 7,500 -- 3,000
Provision for reduction in carrying
value of certain assets -- 8,300 10,607
------------ ------------ ------------
Total operating expenses 416,449 361,825 351,323
------------ ------------ ------------
Operating income (loss) 71,516 14,524 (26,770)
------------ ------------ ------------
Other income and (expense):
Interest expense (53,015) (57,036) (55,928)
Interest income 3,553 3,691 1,725
Gain on disposition of assets 2,316 17,920 39,070
Other (723) 2,243 1,326
------------ ------------ ------------
Total other income and (expense) (47,869) (33,182) (13,807)
------------ ------------ ------------
Income (loss) before income taxes 23,647 (18,658) (40,577)
Income tax expense (benefit) 12,588 4,323 (2,680)
------------ ------------ ------------
Income (loss) before extraordinary gain 11,059 (22,981) (37,897)
Extraordinary gain on early retirement of debt,
net of deferred tax expense of $2,214 -- 3,936 --
------------ ------------ ------------
Net income (loss) $ 11,059 $ (19,045) $ (37,897)
============ ============ ============
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $ 0.12 $ (0.28) $ (0.49)
Extraordinary gain $ -- $ 0.05 $ --
Net income (loss) $ 0.12 $ (0.23) $ (0.49)
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ 0.12 $ (0.28) $ (0.49)
Extraordinary gain $ -- $ 0.05 $ --
Net income (loss) $ 0.12 $ (0.23) $ (0.49)
Number of common shares used in computing
earnings per share:
Basic 92,008,877 81,758,825 77,159,461
Diluted 92,691,033 81,758,825 77,159,461
See accompanying notes to consolidated financial statements.
2
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
December 31,
------------------------
ASSETS 2001 2000
- ------------------------------------------------------------------- ---------- ----------
Current assets:
Cash and cash equivalents $ 60,400 $ 62,480
Other short-term investments 12 811
Accounts and notes receivable, net of allowance
for bad debts of $2,988 in 2001 and $3,755 in 2000 99,874 123,474
Rig materials and supplies 22,200 16,500
Other current assets 8,966 4,600
---------- ----------
Total current assets 191,452 207,865
---------- ----------
Property, plant and equipment, at cost:
Drilling equipment 1,063,454 940,381
Rental tools 74,085 55,237
Buildings, land and improvements 26,887 22,455
Other 25,606 26,066
Construction in progress 26,142 68,120
---------- ----------
1,216,174 1,112,259
Less accumulated depreciation and amortization 520,645 448,734
---------- ----------
Property, plant and equipment, net 695,529 663,525
---------- ----------
Deferred charges and other assets:
Goodwill, net of accumulated amortization of $35,268
in 2001 and $27,786 in 2000 189,127 196,609
Rig materials and supplies 9,201 12,414
Assets held for disposition 1,800 6,860
Debt issuance costs 8,247 10,311
Other 10,421 9,835
---------- ----------
Total deferred charges and other assets 218,796 236,029
---------- ----------
Total assets $1,105,777 $1,107,419
========== ==========
See accompanying notes to consolidated financial statements.
3
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
(Dollars in Thousands)
December 31,
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
- ---------------------------------------------------------------- ----------- -----------
Current liabilities:
Current portion of long-term debt $ 5,007 $ 5,043
Accounts payable 33,521 44,445
Accrued liabilities 38,152 32,756
Accrued income taxes 7,054 9,422
----------- -----------
Total current liabilities 83,734 91,666
----------- -----------
Long-term debt (Note 3) 587,165 592,584
Deferred income taxes 16,152 18,467
Other long-term liabilities 6,583 5,539
Commitments and contingencies (Note 10) -- --
Stockholders' equity:
Preferred stock, $1 par value, 1,942,000 shares
authorized, no shares outstanding -- --
Common stock, $0.16 2/3 par value, authorized
140,000,000 shares, issued 92,053,796 shares
(91,723,933 shares in 2000) 15,342 15,287
Capital in excess of par value 432,845 431,043
Accumulated other comprehensive income-net unrealized
gain on investments available for sale (net of taxes of
$227 in 2001 and $190 in 2000) 403 339
Retained earnings (accumulated deficit) (36,447) (47,506)
----------- -----------
Total stockholders' equity 412,143 399,163
----------- -----------
Total liabilities and stockholders' equity $ 1,105,777 $ 1,107,419
=========== ===========
See accompanying notes to consolidated financial statements.
4
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,059 $(19,045) $(37,897)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 97,259 85,060 82,170
Gain on disposition of assets (2,316) (17,920) (39,070)
Gain on early retirement of debt, net of
deferred tax expense -- (3,936) --
Provision for reduction in carrying value
of certain assets -- 8,300 10,607
Deferred tax expense (benefit) (1,899) (11,302) (13,888)
Other 4,625 5,320 3,503
Change in assets and liabilities:
Accounts and notes receivable 24,158 (47,954) 28,554
Rig materials and supplies (3,807) (1,981) (721)
Other current assets (4,366) 11,150 (3,263)
Accounts payable and accrued liabilities (4,484) 18,356 (21,569)
Accrued income taxes (2,784) 1,098 747
Other assets (1,440) 125 5,312
--------- -------- --------
Net cash provided by operating activities 116,005 27,271 14,485
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 7,628 31,912 63,868
Capital expenditures (net of reimbursements) (122,033) (98,525) (49,146)
Proceeds from sale of short-term investments 799 16,925 --
Other, net -- -- (127)
--------- -------- --------
Net cash provided by (used in) investing activities (113,606) (49,688) 14,595
--------- -------- --------
See accompanying notes to consolidated financial statements.
5
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(Dollars in Thousands)
Year Ended December 31,
----------------------------------
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $ -- $ -- $ 35,186
Proceeds from common stock offering, net -- 87,313 --
Payments for early retirement of debt -- (43,477) --
Principal payments under debt obligations (5,034) (4,854) (43,017)
Other 555 414 (62)
-------- -------- --------
Net cash provided by (used in)
financing activities (4,479) 39,396 (7,893)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,080) 16,979 21,187
Cash and cash equivalents at beginning of year 62,480 45,501 24,314
-------- -------- --------
Cash and cash equivalents at end of year $ 60,400 $ 62,480 $ 45,501
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 53,257 $ 56,608 $ 56,806
Income taxes $ 14,956 $ 14,527 $ 10,461
Supplemental noncash investing and financing activity:
1.0 million shares of Unit Corporation stock
received on sale of U.S. lower-48 land rigs $ -- $ -- $ 7,562
Net unrealized gain (loss) on investments
available for sale (net of taxes of $37 in 2001,
$717 in 2000 and $908 in 1999) $ 64 $ (1,274) $ 1,613
Note receivable for sale of platform rig $ -- $ -- $ 1,645
See accompanying notes to consolidated financial statements.
6
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and Shares in Thousands)
Retained Accumulated
Capital in Earnings Other
Common Excess of (Accumulated Comprehensive
Shares Stock Par Value Deficit) Income
------- -------- ---------- ------------ -------------
Balances, December 31, 1998 76,887 $ 12,815 $ 341,699 $ 9,436 $ --
Activity in employees' stock plan 500 83 1,738 -- --
Acquisition of stock from
certain employees (15) (3) (63) -- --
Other comprehensive income-net
unrealized gain on investments
(net of taxes of $908) -- -- -- -- 1,613
Net loss (total comprehensive
loss of $36,284) -- -- -- (37,897) --
------- -------- --------- -------- -------
Balances, December 31, 1999 77,372 12,895 343,374 (28,461) 1,613
Activity in employees' stock plan 552 92 2,656 -- --
Issuance of 13,800,000
common shares 13,800 2,300 85,013 -- --
Other comprehensive income-net
unrealized loss on investments
(net of taxes of $717) -- -- -- -- (1,274)
Net loss (total comprehensive
loss of $20,319) -- -- -- (19,045) --
------- -------- --------- -------- -------
Balances, December 31, 2000 91,724 15,287 431,043 (47,506) 339
Activity in employees' stock plan 330 55 1,802 -- --
Other comprehensive income-net
unrealized gain on investments
(net of taxes of $37) -- -- -- -- 64
Net loss (total comprehensive
loss of $11,123) -- -- -- 11,059 --
------- -------- --------- -------- -------
Balances, December 31, 2001 92,054 $ 15,342 $ 432,845 $(36,447) $ 403
======= ======== ========= ======== =======
See accompanying notes to consolidated financial statements.
7
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts
of Parker Drilling Company ("Parker Drilling") and all of its majority-owned
subsidiaries (collectively, the "Company").
Operations - The Company provides land and offshore contract drilling
services and rental tools on a worldwide basis to major, independent and
foreign-owned oil and gas companies. At December 31, 2001, the Company's rig
fleet consists of 27 barge drilling and workover rigs, seven offshore jackup
rigs, four offshore platform rigs and 41 land rigs. The Company specializes in
the drilling of deep and difficult wells, drilling in remote and harsh
environments, drilling in transition zones and offshore waters, and in providing
specialized rental tools. The Company also provides a range of services that are
ancillary to its principal drilling services, including engineering, and
logistics, as well as various types of project management.
Drilling Contracts and Rental Revenues - The Company recognizes revenues
and expenses on dayrate contracts as the drilling progresses
(percentage-of-completion method) because the Company does not bear the risk of
completion of the well. For meterage contracts, the Company recognizes the
revenues and expenses upon completion of the well (completed-contract method).
Revenues from rental activities are recognized ratably over the rental term
which is generally less than six months.
Cash and Cash Equivalents - For purposes of the balance sheet and the
statement of cash flows, the Company considers cash equivalents to be all highly
liquid debt instruments that have a remaining maturity of three months or less
at the date of purchase.
Other Short-Term Investments - Other short-term investments include
primarily certificates of deposit, U.S. government securities and commercial
paper having remaining maturities of greater than three months at the date of
purchase and are stated at the lower of cost or market value.
Property, Plant and Equipment - The Company provides for depreciation of
property, plant and equipment primarily on the straight-line method over the
estimated useful lives of the assets after provision for salvage value. The
depreciable lives for land drilling equipment approximate 15 years. The
depreciable lives for offshore drilling equipment generally range from 15 to 20
years. The depreciable lives for certain other equipment, including drill pipe
and rental tools, range from three to seven years. Depreciable lives for
buildings and improvements range from 10 to 30 years. Interest totaling
approximately $1.6 million, $0.5 million and $3.0 million was capitalized during
the years ended December 31, 2001, 2000 and 1999 respectively. When properties
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations. Management periodically evaluates the Company's assets to determine
that their net carrying value is not in excess of their net realizable value.
Management considers a number of factors such as estimated future cash flows,
appraisals and current market value analysis in determining net realizable
value. Assets are written down to their fair value if it is below its net
carrying value.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Goodwill - Goodwill is being amortized on a straight-line basis over 30
years commencing on the dates of the respective acquisitions. The Company
assesses whether the excess of cost over net assets acquired is impaired based
on the ability of the operation, to which it relates, to generate cash flows in
amounts adequate to recover the carrying value of such assets at the measurement
date. If an impairment is determined, the amount of such impairment is
calculated based on the estimated fair market value of the related assets. See
Note 14 regarding recent accounting pronouncements.
Rig Materials and Supplies - Since the Company's international drilling
generally occurs in remote locations, making timely outside delivery of spare
parts uncertain, a complement of parts and supplies is maintained either at the
drilling site or in warehouses close to the operations. During periods of high
rig utilization, these parts are generally consumed and replenished within a
one-year period. During a period of lower rig utilization in a particular
location, the parts, like the related idle rigs, are generally not transferred
to other international locations until new contracts are obtained because of the
significant transportation costs which would result from such transfers. The
Company classifies those parts which are not expected to be utilized in the
following year as long-term assets.
Other Assets - Other assets include the Company's investment in marketable
equity securities. Equity securities that are classified as available for sale
are stated at fair value as determined by quoted market prices. Unrealized
holding gains and losses are excluded from current earnings and are included in
comprehensive income, net of taxes, in a separate component of stockholders'
equity until realized. At December 31, 2001 and 2000, the fair value of equity
securities totaled $1.8 million and $1.7 million, respectively.
In computing realized gains and losses on the sale of equity securities,
the cost of the equity securities sold is determined using the specific cost of
the security when originally purchased.
Other Long-Term Obligations - Included in this account is the accrual of
workers' compensation liability, which is not expected to be paid within the
next year.
Income Taxes - The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under this
pronouncement, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Earnings (Loss) Per Share (EPS) - Basic earnings (loss) per share is
computed by dividing net income (loss), by the weighted average number of common
shares outstanding during the period. The effects of dilutive securities, stock
options and convertible debt are included in the diluted EPS calculation, when
applicable.
Concentrations of Credit Risk - Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist primarily of trade
receivables with a variety of national and international oil and gas companies.
The Company generally does not require collateral on its trade receivables.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
At December 31, 2001 and 2000, the Company had deposits in domestic banks
in excess of federally insured limits of approximately $57.6 million and $65.9
million, respectively. In addition, the Company had deposits in foreign banks at
December 31, 2001 and 2000 of $3.5 million and $3.3 million, respectively, which
are not federally insured.
The Company's customer base consists of major, integrated, independent and
foreign-owned oil and gas companies. For fiscal year 2001, ChevronTexaco was the
Company's largest customer with approximately 15 percent of total revenues.
Shell Petroleum Development Company of Nigeria was the Company's largest
customer for the years 2000 and 1999, accounting for approximately 10 percent of
total revenues in both years.
Derivative Financial Instruments. The Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), as amended by SFAS Nos. 137 and 138.
These statements require that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured by its fair value. These
statements also establish new accounting rules for hedge transactions, which
depend on the nature of the hedge relationship.
The Company uses derivative instruments to hedge exposure to interest rate
risk. For hedges which meet the SFAS No. 133 criteria, the Company formally
designates and documents the instrument as a hedge of a specific underlying
exposure, as well as the risk management objective and strategy for undertaking
each hedge transaction.
Fair Value of Financial Instruments. The carrying amount of the Company's
cash and short-term investments and short-term and long-term debt had fair
values that approximated their carrying amounts, except for the Company's 5.5%
Notes which had a carrying value of $124.5 million and a fair market value of
$110.7 million at December 31, 2001.
Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 2 - Disposition of Assets
On November 20, 2000, the Company sold its last remaining U.S. land rig,
Rig 245 in Alaska, for $20.0 million. The Company recognized a pre-tax gain of
$14.9 million during the fourth quarter of 2000.
On September 30, 1999, the Company completed the sale of its U.S. lower-48
land rigs to Unit Corporation for $40.0 million cash plus 1.0 million shares of
Unit common stock. The value of such common stock, based on the closing price
for Unit's common stock on September 30, 1999 approximated $7.6 million. The
Company recognized a pre-tax gain of $36.1 million during September 1999. During
September 2000,
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Disposition of Assets (continued)
the Company sold the 1.0 million shares of Unit common stock for $15.0 million.
The Company recognized a pre-tax gain of approximately $7.4 million during the
third quarter of 2000.
During October 1999, the Company sold its Argentina drilling rigs and
inventories (previously classified as assets held for sale) plus one operating
drilling rig, Rig 9 in Bolivia, for total consideration of approximately $9.3
million. The Company recognized a pre-tax gain of approximately $0.8 million
during October 1999 related primarily to the Bolivia rig.
In the third quarter of 1999, it was decided that barge Rig 80, the Gulf
Explorer, would be actively marketed for disposition and therefore was
reclassified to assets held for disposition. The Company reduced the carrying
value by $2.5 million to record the rig at its estimated net realizable value of
$9.0 million. During the fourth quarter of 2000, due to the continued sluggish
drilling market in Southeast Asia, the Company reduced the carrying value of the
Gulf Explorer by an additional $8.3 million. During March 2001, the Company sold
the Gulf Explorer for total consideration of $1.0 million. The Company
recognized a pre-tax gain of approximately $0.5 million.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Long-term Debt
December 31,
----------------------
2001 2000
--------- ----------
(Dollars in Thousands)
Senior Notes payable in November 2006 with interest
of 9.75% payable semi-annually in May and November,
net of unamortized discount of $1,145 and $1,381
at December 31, 2001 and 2000, respectively
(effective interest rate of 9.88%) $298,855 $298,619
Senior Notes payable in November 2006 with interest
of 9.75% payable semi-annually in May and November,
net of unamortized premium of $3,230 and $3,888
at December 31, 2001 and 2000, respectively
(effective interest rate of 8.97%) 153,210 153,868
Convertible Subordinated Notes payable in July 2004
with interest of 5.5% payable semi-annually in
February and August 124,509 124,509
Secured promissory note to Boeing Capital Corporation
with interest at 10.1278%, principal and interest
payable monthly over a 60-month term 15,589 20,110
Other 9 521
-------- --------
Total debt 592,172 597,627
Less current portion 5,007 5,043
-------- --------
Total long-term debt $587,165 $592,584
======== ========
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Long-Term Debt (continued)
The aggregate maturities of long-term debt for the five years ending
December 31, 2006 are as follows (000's): 2002 - $5,007; 2003 - $5,532; 2004 -
$129,565; 2005 - $0; 2006 - $449,980.
The Senior Notes, which mature in 2006, were initially issued in November
1996 and in March 1998 in amounts of $300 million (Series B) and $150 million
(Series C), respectively. The $300 million issue was sold at a $2.4 million
discount while the $150 million issue was sold at a premium of $5.7 million. In
May 1998, a registration statement was filed by the Company which offered to
exchange the Series B and C Notes for new Series D Notes. The form and terms of
the Series D Notes are identical in all material respects to the form and terms
of the Series B and C Notes, except for certain transfer restrictions and
registration rights relating to the Series C Notes. All of the Series B Notes
except $189 thousand and all of the Series C Notes were exchanged for new Series
D Notes per this offering. The Notes have an interest rate of 9.75 percent and
are guaranteed by substantially all subsidiaries of Parker Drilling, all of
which are wholly owned. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
subsidiaries to transfer funds to Parker Drilling in the form of cash dividends,
loans or advances. Parker Drilling is a holding company with no operations,
other than through its subsidiaries. The non-guarantors are inconsequential,
individually and in the aggregate, to the consolidated financial statements and
separate financial statements of the guarantors are not presented because
management has determined that they would not be material to investors. As
discussed in Note 4, the Company has entered into various interest rate swap
agreements to modify the interest characteristics of the Senior Notes so that
interest associated with the Senior Notes partially becomes variable.
In anticipation of funding the Hercules acquisition, in July 1997, the
Company issued $175 million of Convertible Subordinated Notes due 2004. The
Notes bear interest at 5.5% payable semi-annually in February and August. The
Notes are convertible at the option of the holder into shares of common stock of
Parker Drilling at $15.39 per share at any time prior to maturity. The Notes are
currently redeemable at the option of the Company at certain stipulated prices.
During the fourth quarter of 2000, the Company repurchased on the open market
$50.5 million principal amount of the 5.5% Notes at an average price of 86.11
percent of face value, recognizing an extraordinary gain of $3.9 million, net of
$2.2 million of tax. The Note repurchases were funded with proceeds from an
equity offering in September 2000, whereby the Company sold 13.8 million shares
of common stock for net proceeds of approximately $87.3 million. The amount of
outstanding Notes at the end of 2001 was $124.5 million.
On October 22, 1999, the Company entered into a $50.0 million revolving
loan facility with a group of banks led by Bank of America. The new facility is
available for working capital requirements, general corporate purposes and to
support letters of credit and bears interest at prime plus 0.50% or LIBOR plus
2.50%. At December 31, 2001, no amounts have been drawn down against the
facility but $15.1 million of availability has been used to support letters of
credit that have been issued. The revolver is collateralized by accounts
receivable, inventory and certain barge rigs located in the Gulf of Mexico. The
facility will terminate on October 22, 2003.
On October 7, 1999, a wholly-owned subsidiary of the Company entered into
a loan agreement with Boeing Capital Corporation for the refinancing of a
portion of the capital cost of barge Rig 75. The loan principal of approximately
$24.8 million plus interest is being repaid in 60 monthly payments of
approximately $0.5 million. The loan is collateralized by barge Rig 75 and is
guaranteed by Parker Drilling. The amount of principal outstanding at the end of
2001 was $15.6 million.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Long-Term Debt (continued)
Each of the 9.75% Senior Notes, 5.5% Convertible Subordinated Notes and
the revolving loan facility contains customary affirmative and negative
covenants, including restrictions on incurrence of debt and sales of assets. The
revolving loan facility contains covenants which require minimum adjusted
tangible net worth, fixed charge coverage ratio and limits annual capital
expenditures. The revolving loan facility prohibits payment of dividends and the
indenture for the 9.75% Senior Notes restricts the payment of dividends.
Note 4 - Derivative Financial Instruments
The Company is exposed to interest rate risk from its fixed-rate debt. The
Company has hedged against the risk of changes in fair value associated with its
$450.0 million 9.75% Senior Notes by entering into a fixed-to-variable interest
rate swap agreement with a notional amount of $50.0 million as of December 31,
2001. Subsequent to December 31, 2001, the Company entered into two additional
fixed-to-variable interest rate swap agreements with a total notional amount of
$100.0 million. The Company assumes no ineffectiveness as each interest rate
swap meets the short-cut method requirements under SFAS No. 133 for fair value
hedges of debt instruments. As a result, changes in the fair value of the
interest rate swaps are offset by changes in the fair value of the debt and no
net gain or loss is recognized in earnings. The estimated fair value of the swap
agreement at December 31, 2001 was not material.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Income Taxes
Income (loss) before income taxes and extraordinary gain is summarized as
follows (dollars in thousands):
Year Ended December 31,
----------------------------------------
2001 2000 1999
-------- -------- --------
United States $ 8,751 $(29,253) $(47,526)
Foreign 14,896 10,595 6,949
-------- -------- --------
$ 23,647 $(18,658) $(40,577)
======== ======== ========
Income tax expense (benefit) is summarized as follows (dollars in
thousands):
Year Ended December 31,
----------------------------------------
2001 2000 1999
-------- -------- --------
Current:
United States:
Federal $ 530 $ -- $ --
State -- -- 838
Foreign 13,957 15,625 10,370
Deferred:
United States:
Federal (1,846) (10,988) (13,552)
State (53) (314) (336)
-------- -------- --------
$ 12,588 $ 4,323 $ (2,680)
======== ======== ========
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Income Taxes (continued)
Total income tax expense (benefit) differs from the amount computed by
multiplying income (loss) before income taxes by the U.S. federal income tax
statutory rate. The reasons for this difference are as follows (dollars in
thousands):
Year Ended December 31,
----------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
% of % of % of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
-------- -------- -------- -------- -------- --------
Computed expected tax
expense (benefit) $ 8,276 35% $ (6,530) (35%) $(14,202) (35%)
Foreign taxes, net of
federal benefit 9,072 38% 10,156 54% 6,741 17%
Change in valuation
allowance (9,593) (41%) (6,097) (33%) -- --
Foreign corporation
losses 3,689 16% 4,253 23% 2,438 6%
Goodwill amortization 1,488 6% 1,488 8% 1,488 4%
Other (344) (1%) 1,053 6% 855 1%
-------- -------- -------- -------- -------- --------
Actual tax expense
(benefit) $ 12,588 53% $ 4,323 23% $ (2,680) (7%)
======== ======== ======== ======== ======== ========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Income Taxes (continued)
The components of the Company's tax assets and (liabilities) as of
December 31, 2001 and 2000 are shown below (dollars in thousands):
December 31,
----------------------
2001 2000
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 56,025 $ 61,796
Alternative minimum tax carryforwards 983 --
Reserves established against realization
of certain assets 1,874 2,304
Accruals not currently deductible
for tax purposes 6,388 6,476
-------- --------
65,270 70,576
Deferred tax liabilities:
Property, plant and equipment (65,079) (59,090)
Goodwill (6,180) (4,824)
Unrealized gain on investments held
for sale (227) (190)
-------- --------
Net deferred tax (liability) asset (6,216) 6,472
Valuation allowance (9,936) (24,939)
-------- --------
Deferred income tax liability $(16,152) $(18,467)
======== ========
The change in the valuation allowance in 2001 is the result of expired net
operating loss carryforwards and higher utilization of net operating loss
carryforwards previously reserved because they were expected to expire unused.
The Company has a remaining valuation allowance of $9,936,000 with respect to
its deferred tax asset for the amount of net operating loss carryforwards
expected to expire unused for the tax year ending August 31, 2002. However, the
amount of the asset considered realizable could be different in the near term if
estimates of future taxable income change.
At December 31, 2001, the Company had $155,623,000 of net operating loss
carryforwards. For tax purposes the net operating loss carryforwards expire over
a 20-year period ending August 31 as follows: 2002-$27,599,000; 2003-$0;
2004-$5,128,000; 2005-$0; thereafter-$122,896,000.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity
In September 2000, the Company sold 13.8 million common shares in a public
offering, resulting in net proceeds (after deducting issuance costs) of $87.3
million. The proceeds were used to acquire, upgrade and refurbish certain
offshore and land drilling rigs and for general corporate purposes, including
the repayment of debt (see Note 3).
Stock Plans
The Company's employee and non-employee director stock plans are
summarized as follows:
The 1994 Non-Employee Director Stock Option Plan ("Director Plan")
provides for the issuance of options to purchase up to 200,000 shares of Parker
Drilling's common stock. The option price per share is equal to the fair market
value of a Parker Drilling share on the date of grant. The term of each option
is 10 years, and an option first becomes exercisable six months after the date
of grant. All shares available for issuance under this plan have been granted.
The 1994 Executive Stock Option Plan provides that the directors may grant
a maximum of 2,400,000 shares to key employees of the Company and its
subsidiaries through the granting of stock options, stock appreciation rights
and restricted and deferred stock awards. The option price per share may not be
less than 50 percent of the fair market value of a share on the date the option
is granted, and the maximum term of a non-qualified option may not exceed 15
years and the maximum term of an incentive option is 10 years. All shares
available for issuance under this plan have been granted.
The 1997 Stock Plan is a "broad-based" stock plan, based on the interim
rules of the New York Stock Exchange, that provides that the directors may grant
stock options and restricted stock awards up to a maximum of 4,000,000 shares to
all employees of the Company who, in the opinion of the board of directors, are
in a position to contribute to the growth, management and success of the
Company. More than 50 percent of all awards under this plan have been awarded to
employees who are non-executive officers. The option price per share may not be
less than the fair market value on the date the option is granted for incentive
options and not less than par value of a share of common stock for non-qualified
options. The maximum term of an incentive option is 10 years and the maximum
term of a non-qualified option is 15 years. In July 1999 and April 2001,
2,000,000 and 1,000,000 additional shares, respectively, were registered with
the SEC for granting under the 1997 Stock Plan. As of December 31, 2001, there
were 622,000 shares available for granting.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
Information regarding the Company's stock option plans is summarized
below:
1994 Director Plan
-------------------
Weighted
Average
Exercise
Shares Price
------- --------
Shares under option:
Outstanding at December 31, 1998 190,000 $ 8.702
Granted 10,000 3.281
Exercised -- --
Cancelled -- --
------- --------
Outstanding at December 31, 1999 200,000 8.431
Granted -- --
Exercised -- --
Cancelled -- --
------- --------
Outstanding at December 31, 2000 200,000 8.431
Granted -- --
Exercised -- --
Cancelled -- --
------- --------
Outstanding at December 31, 2001 200,000 $ 8.431
======= ========
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
1994 Option Plan
---------------------------------------------
Incentive Options Non-Qualified Options
-------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- ---------- --------
Shares under option:
Outstanding at December 31, 1998 622,564 $ 7.227 1,586,936 $ 6.975
Granted -- -- -- --
Exercised -- -- -- --
Cancelled -- -- -- --
-------- -------- ---------- --------
Outstanding at December 31, 1999 622,564 7.227 1,586,936 6.975
Granted -- -- -- --
Exercised -- -- (18,750) 2.250
Cancelled -- -- -- --
-------- -------- ---------- --------
Outstanding at December 31, 2000 622,564 7.227 1,568,186 7.032
Granted -- -- -- --
Exercised (17,000) 4.500 (1,250) 2.250
Cancelled -- -- -- --
-------- -------- ---------- --------
Outstanding at December 31, 2001 605,564 $ 7.303 1,566,936 $ 7.036
======== ======== ========== ========
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
1997 Stock Plan
-----------------------------------------------
Incentive Options Non-Qualified Options
---------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- ---------- --------
Shares under option:
Outstanding at December 31, 1998 1,873,905 $ 10.750 1,321,595 $ 9.258
Granted 1,003,021 3.189 897,979 3.232
Exercised (1,011) 3.188 (239) 3.188
Cancelled (81,740) 11.410 (153,760) 10.813
---------- -------- ---------- --------
Outstanding at December 31, 1999 2,794,175 8.038 2,065,575 6.523
Granted 50,000 5.938 15,000 5.062
Exercised (92,094) 3.188 (24,370) 3.188
Cancelled (30,130) 8.564 (2,870) 3.188
---------- -------- ---------- --------
Outstanding at December 31, 2000 2,721,951 8.158 2,053,335 6.556
Granted -- -- 1,485,000 5.167
Exercised (137,061) 3.193 (31,915) 3.188
Cancelled -- -- -- --
---------- -------- ---------- --------
Outstanding at December 31, 2001 2,584,890 $ 8.421 3,506,420 $ 6.000
========== ======== ========== ========
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
Outstanding Options
-----------------------
Weighted
Average Weighted
Remaining Average
Number of Contractual Exercise
Plan Exercise Prices Shares Life Price
- -------------------------- ------------------ --------- ----------- ---------
1994 Director Plan $ 3.281 - $ 6.125 40,000 4.4 years $ 4.827
$ 8.875 - $ 12.094 160,000 5.5 years $ 9.332
1994 Executive Option Plan
Incentive option $ 4.500 217,554 3.0 years $ 4.500
Incentive option $ 8.875 388,010 5.4 years $ 8.875
Non-qualified $ 2.250 434,946 3.0 years $ 2.250
Non-qualified $ 8.875 1,131,990 5.4 years $ 8.875
1997 Stock Plan
Incentive option $ 3.188 - $ 5.938 810,725 4.4 years $ 3.358
Incentive option $ 8.875 - $ 12.188 1,774,165 5.2 years $ 10.735
Non-qualified $ 2.820 - $ 6.070 2,338,585 5.3 years $ 4.473
Non-qualified $ 8.875 - $ 10.813 1,167,835 5.6 years $ 9.053
Exercisable Options
-----------------------
Weighted
Average
Remaining
Number of Contractual
Plan Exercise Prices Shares Life
- -------------------------- ------------------ --------- -----------
1994 Director Plan $ 3.281 - $ 6.125 40,000 $ 4.827
$ 8.875 - $ 12.094 160,000 $ 9.332
1994 Executive Option Plan
Incentive option $ 4.500 217,554 $ 4.500
Incentive option $ 8.875 388,010 $ 8.875
Non-qualified $ 2.250 434,946 $ 2.250
Non-qualified $ 8.875 1,131,990 $ 8.875
1997 Stock Plan
Incentive option $ 3.188 - $ 5.938 230,747 $ 3.487
Incentive option $ 8.875 - $ 12.188 1,755,669 $ 10.734
Non-qualified $ 2.820 - $ 6.070 914,313 $ 4.086
Non-qualified $ 8.875 - $ 10.813 1,146,331 $ 9.020
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
The Company has three additional stock plans which provide for the
issuance of stock for no cash consideration to officers and key non-officer
employees. Under two of the plans, each employee receiving a grant of shares may
dispose of 15 percent of his/her grant on each annual anniversary date from the
date of grant for the first four years and the remaining 40 percent on the fifth
year anniversary. These two plans have a total of 11,375 shares reserved and
available for granting. Shares granted under the third plan are fully vested no
earlier than 24 months from the effective date of the grant and not later than
36 months. The third plan has a total of 1,562,195 shares reserved and available
for granting. No shares were granted under these plans in 2001, 2000 and 1999.
In prior years the Company purchased shares from certain of its employees,
who received stock through its stock purchase plan, at fair market value. At
December 2000, 497,323 shares were held in Treasury. The 604,870 shares held in
Treasury at December 31, 2001 include 98,293 shares purchased by the Company at
the fair market value of $289,479 for the Stock Bonus Plan contribution. The
Plan was funded in January 2002.
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the Company's stock option plans when the option price is
equal to or greater than the fair market value of a share of the Company's
common stock on the date of grant. Pro forma net income and earnings per share
are reflected below as if compensation cost had been determined based on the
fair value of the options at their applicable grant date, according to the
provisions of SFAS No. 123.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
Year Ended December 31,
-------------------------------------
2001 2000 1999
---------- ---------- ----------
(Dollars in Thousands)
Income (loss) before extraordinary gain:
As reported $ 11,059 $ (22,981) $ (37,897)
Pro forma $ 7,698 $ (25,941) $ (45,925)
Diluted earnings (loss) per share before extraordinary gain:
As reported $ 0.12 $ (0.28) $ (0.49)
Pro forma $ 0.08 $ (0.32) $ (0.59)
The fair value of each option grant is estimated using the Black-Scholes
option pricing model with the following assumptions:
Expected dividend yield 0.0%
Expected stock volatility 49.0% in 1999
51.6% in 2000
56.3% in 2001
Risk-free interest rate 3.9% - 6.7%
Expected life of options 5 - 7 years
The estimated fair values of options granted during the year ended
December 31, 1999, under the Director Plan was $16,500. Options granted in 2001,
2000 and 1999 under the 1997 Stock Plan had an estimated fair value of
$4,326,000, $203,000 and $3,263,000 respectively.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Common Stock and Stockholders' Equity (continued)
Stock Reserved For Issuance
The following is a summary of common stock reserved for issuance:
December 31,
---------------------------
2001 2000
---------- ----------
Stock plans 10,659,380 9,969,570
Stock bonus plan 81,715 106,375
Convertible notes 8,090,254 8,090,254
---------- ----------
Total shares reserved for issuance 18,831,349 18,166,199
========== ==========
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 25, 1998, to assure
that the Company's stockholders receive fair and equal treatment in the event of
any proposed takeover of the Company and to guard against partial tender offers
and other abusive takeover tactics to gain control of the Company without paying
all stockholders a fair price. The rights plan was not adopted in response to
any specific takeover proposal. Under the rights plan, the Company's board of
directors declared a dividend of one right to purchase one one-thousandth of a
share of a new series of junior participating preferred stock for each
outstanding share of common stock.
The rights may only be exercised 10 days following a public announcement
that a third party has acquired 15 percent or more of the outstanding common
shares of the Company or 10 days following the commencement of, or announcement
of an intention to make a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a third party of 15 percent or
more of the common shares. When exercisable, each right will entitle the holder
to purchase one one-thousandth share of the new series of junior participating
preferred stock at an exercise price of $30, subject to adjustment. If a person
or group acquires 15 percent or more of the outstanding common shares of the
Company, each right, in the absence of timely redemption of the rights by the
Company, will entitle the holder, other than the acquiring party, to purchase
for $30, common shares of the Company having a market value of twice that
amount.
The rights, which do not have voting privileges, expire June 30, 2008, and
at the Company's option, may be redeemed by the Company in whole, but not in
part, prior to expiration for $0.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS)
For the Twelve Months Ended December 31, 2001
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ---------- ---------
Basic EPS:
Net income $ 11,059,000 92,008,877 $ 0.12
Effect of dilutive securities:
Stock options -- 682,156 --
Diluted EPS:
Net income plus assumed conversions $ 11,059,000 92,691,033 $ 0.12
============ ========== =========
For the Twelve Months Ended December 31, 2000
---------------------------------------------
Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS:
Loss before extraordinary gain $(22,981,000) 81,758,825 $ (0.28)
Extraordinary gain 3,936,000 81,758,825 0.05
Net loss (19,045,000) 81,758,825 (0.23)
Effect of dilutive securities:
Stock options -- -- --
Diluted EPS:
Loss before extraordinary gain (22,981,000) 81,758,825 (0.28)
Extraordinary gain 3,936,000 81,758,825 0.05
Net loss $(19,045,000) 81,758,825 $ (0.23)
============ ========== =========
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS) (continued)
For the Twelve Months Ended December 31, 1999
---------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic EPS:
Net loss $(37,897,000) 77,159,461 $ (0.49)
Effect of dilutive securities:
Stock options -- -- --
Diluted EPS:
Net loss $(37,897,000) 77,159,461 $ (0.49)
============ ========== =========
The Company has outstanding $124,509,000 of 5.5% 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
fiscal year ended December 31, 2001, options to purchase 6,049,000 shares of
common stock at prices ranging from $5.00 to $12.1875, which were outstanding
during part of the period, were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares during the period. For the years ended December 31, 2000 and
1999, options to purchase 7,166,036 and 7,269,250 shares of common stock,
respectively, at prices ranging from $2.2500 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
during those periods.
Note 8 - Employee Benefit Plans
The Parker Drilling Company Stock Bonus Plan ("Plan") was adopted
effective September 1980 for employees of Parker Drilling and its subsidiaries
who are U.S. citizens and who have completed three months of service with the
Company. It was amended in 1983 to qualify as a 401(k) plan under the Internal
Revenue Code which permits a specified percentage of an employee's salary to be
voluntarily contributed on a before-tax basis and to provide for a Company
matching feature. Participants may contribute from one percent to 15 percent of
eligible earnings and direct contributions to one or more of 10 investment
funds. The Plan was amended and restated, effective January 1, 1999, to provide
for dollar-for-dollar matching contributions by the Company up to three percent
of a participant's compensation and $0.50 for every dollar contributed from
three percent to five percent. The Company's matching contribution is made in
Parker Drilling common stock and vests immediately. Each Plan year, additional
Company contributions can be made, at the discretion of the board of directors,
in amounts not exceeding the permissible deductions under the Internal Revenue
Code. The Company issued 343,289, 361,855 and 498,654 shares to the Plan in
2001, 2000 and 1999 with the Company recognizing expense of $1,927,100,
$1,742,193 and $1,492,099 in each of the periods, respectively.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Business Segments
The Company is organized into three primary business units: U.S. drilling
operations, international drilling operations, and rental tools. This is the
basis management uses for making operating decisions and assessing performance.
Year Ended December 31,
---------------------------------------------
Operations by Industry Segment 2001 2000 1999
- ------------------------------------ ----------- ----------- -----------
(Dollars in Thousands)
Revenues:
U.S. drilling $ 190,809 $ 148,416 $ 113,989
International drilling 231,527 185,100 182,908
Rental tools 65,629 42,833 27,656
----------- ----------- -----------
Total revenues 487,965 376,349 324,553
----------- ----------- -----------
Operating income (loss):
U.S. drilling 33,138 6,766 (31,478)
International drilling 37,583 19,553 26,737
Rental tools 30,016 16,897 7,890
----------- ----------- -----------
Total operating income
by segment (1) 100,737 43,216 3,149
General and administrative (21,721) (20,392) (16,312)
Reorganization (7,500) -- (3,000)
Provision for reduction in
carrying value of certain assets -- (8,300) (10,607)
----------- ----------- -----------
Total operating income (loss) 71,516 14,524 (26,770)
Interest expense (53,015) (57,036) (55,928)
Other income, net 5,146 23,854 42,121
----------- ----------- -----------
Income (loss) before income taxes $ 23,647 $ (18,658) $ (40,577)
=========== =========== ===========
Identifiable assets:
U.S. drilling $ 343,357 $ 356,090 $ 386,385
International drilling 424,022 412,839 357,906
Rental tools 70,365 57,550 43,356
----------- ----------- -----------
Total identifiable assets 837,744 826,479 787,647
Corporate assets 268,033 280,940 295,096
----------- ----------- -----------
Total assets $ 1,105,777 $ 1,107,419 $ 1,082,743
=========== =========== ===========
(1) Operating income by segment is calculated by excluding general and
administrative expense, reorganization expense and provision for
reduction in carrying value of certain assets from operating income,
as reported in the consolidated statements of operations.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Business Segments (continued)
Year Ended December 31,
---------------------------------------------
Operations by Industry Segment 2001 2000 1999
- ------------------------------------ ----------- ----------- -----------
(Dollars in Thousands)
Capital expenditures:
U.S. drilling $ 41,366 $ 22,221 $ 8,093
International drilling 53,732 55,215 29,937
Rental tools 24,210 16,168 7,221
Corporate 2,725 4,921 3,895
----------- ----------- -----------
Total capital expenditures $ 122,033 $ 98,525 $ 49,146
=========== =========== ===========
Depreciation and amortization:
U.S. drilling $ 44,300 $ 42,458 $ 39,787
International drilling 38,379 30,730 34,046
Rental tools 12,302 11,147 8,261
Corporate 2,278 725 76
----------- ----------- -----------
Total depreciation and amortization $ 97,259 $ 85,060 $ 82,170
=========== =========== ===========
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Business Segments (continued)
Year Ended December 31,
--------------------------------------------
Operations by Geographic Area 2001 2000 1999
- ------------------------------------ ----------- ----------- -----------
(Dollars in Thousands)
Revenues:
United States $ 256,438 $ 191,249 $ 141,645
Latin America 54,063 58,467 85,112
Asia Pacific 32,246 15,373 25,193
Africa and Middle East 58,988 55,671 36,852
Former Soviet Union 86,230 55,589 35,751
----------- ----------- -----------
Total revenues 487,965 376,349 324,553
----------- ----------- -----------
Operating income (loss):
United States 63,154 23,663 (23,587)
Latin America 2,385 6,554 14,661
Asia Pacific 11,304 (1,905) (1,964)
Africa and Middle East 11,933 8,562 8,503
Former Soviet Union 11,961 6,342 5,536
----------- ----------- -----------
Total operating income
by segment (1) 100,737 43,216 3,149
General and administrative (21,721) (20,392) (16,312)
Reorganization (7,500) -- (3,000)
Provision for reduction in
carrying value of certain assets -- (8,300) (10,607)
----------- ----------- -----------
Total operating income (loss) 71,516 14,524 (26,770)
Interest expense (53,015) (57,036) (55,928)
Other income, net 5,146 23,854 42,121
----------- ----------- -----------
Income (loss) before income taxes $ 23,647 $ (18,658) $ (40,577)
=========== =========== ===========
Identifiable assets:
United States $ 681,756 $ 702,639 $ 724,837
Latin America 93,722 93,896 102,348
Asia Pacific 39,963 41,602 60,458
Africa and Middle East 94,986 119,607 105,354
Former Soviet Union 195,350 149,675 89,746
----------- ----------- -----------
Total identifiable assets $ 1,105,777 $ 1,107,419 $ 1,082,743
=========== =========== ===========
(1) Operating income by segment is calculated by excluding general and
administrative expense, reorganization expense and provision for
reduction in carrying value of certain assets from operating income,
as reported in the consolidated statements of operations
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Commitments and Contingencies
At December 31, 2001, the Company had a $50.0 million revolving credit
facility available for general corporate purposes and to support letters of
credit. As of December 31, 2001, $15.1 million of availability has been reserved
to support letters of credit that have been issued. At December 31, 2001, no
amounts had been drawn under the revolving credit facility.
The Company has various lease agreements for office space, equipment,
vehicles and personal property. These obligations extend through 2008 and are
typically non-cancelable. Most leases contain renewal options and certain of the
leases contain escalation clauses. Future minimum lease payments at December 31,
2001, under operating leases with non-cancelable terms in excess of one year,
are as follows:
2002 $ 3,141
2003 2,870
2004 2,793
2005 2,616
2006 2,384
Therafter 4,773
--------
Total $ 18,577
========
Total rent expense for all operating leases amounted to $5.5 million for
2001, $3.7 million for 2000, and $4.0 million for 1999.
Certain officers of the Company entered into Severance Compensation and
Consulting Agreements with the Company (the "Agreements"). A total of nine
officers are currently signatories. The Agreements provide for an initial
six-year term and the payment of certain benefits upon a change of control (as
defined in the Agreements). A change of control includes certain mergers or
reorganizations, changes in the board of directors, sale or liquidation of the
Company or acquisition of more than 15 percent of the outstanding common stock
of the Company by a third party; provided that the board of directors has the
right to preclude triggering of a change of control when a third party acquired
15 percent of the outstanding voting securities if the board of directors
determines within five days that the circumstances of the acquisition did not
warrant implementation of the Agreements. After a change of control occurs, if
an officer is terminated within four years without good cause or resigns within
two years for good reason (as each are defined in the Agreements) the officer
shall receive a payment of three times his annual cash compensation, plus
additional compensation for a one-year consulting agreement at the officer's
annual cash compensation, plus extended life, health and other miscellaneous
benefits for four years.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters of
the United States, may be liable for the costs of removal and damages arising
out of a pollution incident to the extent set forth in the Federal Water
Pollution Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and
the Outer Continental Shelf Lands Act. In addition, the Company may also be
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Commitments and Contingencies (continued)
subject to applicable state law and other civil claims arising out of any such
incident. Certain of the Company's facilities are also subject to regulations of
the Environmental Protection Agency ("EPA") that require the preparation and
implementation of spill prevention, control and countermeasure plans relating to
possible discharge of oil into navigable waters. Other regulations of the EPA
may require certain precautions in storing, handling and transporting hazardous
wastes. State statutory provisions relating to oil and natural gas generally
include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and cleanup, obtaining drilling and dredging
permits and similar matters.
Verdin Lawsuit. 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 sought 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. The settlement was preliminarily
approved by the Court on November 8, 2001, and the Court will conduct a fairness
hearing on April 18, 2002, to determine whether the proposed settlement should
receive final approval. The settlement amount and related fees were accrued
during the third quarter 2001.
Kazakhstan Tax Issue. On July 6, 2001, the Ministry of State Revenues of
Kazakhstan ("MSR") issued an Act of Audit to the Kazakhstan branch ("PKD
Kazakhstan") 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 Offshore Kazakhstan International
Operating Company, ("OKIOC"), to PDCIL of $99,050,000, in reimbursement of costs
for modifications to Rig 257, performed by PDCIL prior to the importation of the
drilling rig into Kazakhstan, where it is currently working under contract to
OKIOC, are income to PKD Kazakhstan, and therefore, taxable to PKD Kazakhstan.
PKD Kazakhstan filed an Act of Non-Agreement stating its position that such
payment should not be taxable and requesting the Act of Audit be revised
accordingly. In November, the MSR rejected PKD Kazakhstan's Act of
Non-Agreement, prompting PKD Kazakhstan to seek judicial review of the
assessment. On December 28, 2001, the Astana City Court issued a judgment in
favor of PKD Kazakhstan, finding that the reimbursements to PDCIL were not
income to PKD Kazakhstan and not otherwise subject to tax based on the
U.S.-Kazakhstan Tax Treaty. The MSR has appealed the Astana City Court decision
to the Supreme Court, but has requested and received a postponement in the
hearing until March 21, 2002. Management believes that it is still not possible
to make a reasonable determination as to the probable outcome of this matter.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Commitments and Contingencies (continued)
The Company is a party to various other lawsuits and claims arising out of
the ordinary course of business. Management, after review and consultation with
legal counsel, considers that any liability resulting from these matters would
not materially affect the results of operations, the financial position or the
net cash flows of the Company.
Note 11 - Related Party Transactions
Since 1975 when the stockholders approved a Stock Purchase Agreement, the
Company and Robert L. Parker have entered into various life insurance
arrangements on the life of Robert L. Parker. To insure the lives of Mr. and
Mrs. Parker for $15.2 million and Mr. Robert L. Parker for $8.0 million the
Company is currently paying $0.6 million in annual premiums. Annual premiums
funded by the Company will be reimbursed from the proceeds of the policies, plus
accrued interest beginning March 2003 at a one-year treasury bill rate. The
Company may use, at its option, up to $7.0 million of such proceeds to purchase
Parker Drilling stock from the Robert L. Parker Sr. Family Limited Partnership
at a discounted price. Robert L. Parker Jr., chief executive officer of the
Company and son of Robert L. Parker, will receive one-third of the net proceeds
of these policies as a beneficiary.
Note 12 - Supplementary Information
At December 31, 2001, accrued liabilities included $8.2 million of accrued
interest expense, $5.3 million of workers' compensation and health plan
liabilities and $10.4 million of accrued payroll and payroll taxes. At December
31, 2000, accrued liabilities included $8.4 million of accrued interest expense,
$6.0 million of workers' compensation and health plan liabilities and $9.9
million of accrued payroll and payroll taxes. Other long-term obligations
included $3.8 million and $3.2 million of workers' compensation liabilities as
of December 31, 2001 and 2000, respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 - Selected Quarterly Financial Data (Unaudited)
Quarter
-------------------------------------------------------------------
Year 2001 First Second Third Fourth Total
- ------------------------------- --------- --------- --------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
Revenues $ 114,874 $ 132,915 $ 128,927 $111,249 $ 487,965
Gross profit (1) $ 22,480 $ 33,333 $ 29,606 $ 15,318 $ 100,737
Operating income $ 17,609 $ 23,130 $ 22,375 $ 8,402 $ 71,516
Net income (3) $ 1,524 $ 2,692 $ 3,025 $ 3,818 $ 11,059
Basic earnings per share: (2)
Net income $ 0.02 $ 0.03 $ 0.03 $ 0.04 $ 0.12
Diluted earnings per share: (2)
Net income $ 0.02 $ 0.03 $ 0.03 $ 0.04 $ 0.12
(1) Gross profit is calculated by excluding general and administrative
expense, reorganization expense and provision for reduction in
carrying value of certain assets from operating income, as reported
in the consolidated statement of operations.
(2) As a result of shares issued during the year, earnings per share for
the year's four quarters, which are based on weighted average shares
outstanding during each quarter, do not equal the annual earnings
per share, which is based on the weighted average shares outstanding
during the year.
(3) The fourth quarter includes a $9.6 million deferred tax benefit
resulting from a reversal of a valuation allowance. See Note 5.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 - Selected Quarterly Financial Data (continued) (Unaudited)
Quarter
-------------------------------------------------------------------
Year 2000 First Second Third Fourth Total
- ------------------------------- --------- --------- --------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
Revenues $ 73,953 $ 86,960 $ 101,849 $113,587 $ 376,349
Gross profit (1) $ (3,931) $ 6,409 $ 15,445 $ 25,293 $ 43,216
Operating income (loss) $ (8,934) $ 1,965 $ 9,953 $ 11,540 $ 14,524
Net income (loss) before
extraordinary gain $ (14,876) $ (9,482) $ (1,034) $ 2,411 $ (22,981)
Extraordinary gain $ -- $ -- $ -- $ 3,936 $ 3,936
Net income (loss) $ (14,876) $ (9,482) $ (1,034) $ 6,347 $ (19,045)
Basic earnings (loss) per
share: (2)
Income (loss) before
extraordinary gain $ (0.19) $ (0.12) $ (0.01) $ 0.03 $ (0.28)
Extraordinary gain $ -- $ -- $ -- $ 0.04 $ 0.05
Net income (loss) $ (0.19) $ (0.12) $ (0.01) $ 0.07 $ (0.23)
Diluted earnings (loss) per
share: (2)
Income (loss) before
extraordinary gain $ (0.19) $ (0.12) $ (0.01) $ 0.03 $ (0.28)
Extraordinary gain $ -- $ -- $ -- $ 0.04 $ 0.05
Net income (loss) $ (0.19) $ (0.12) $ (0.01) $ 0.07 $ (0.23)
(1) Gross profit is calculated by excluding general and administrative
expense, reorganization expense and provision for reduction in
carrying value of certain assets from operating income, as reported
in the Consolidated Statement of Operations.
(2) As a result of shares issued during the year, earnings per share for
the year's four quarters, which are based on weighted average shares
outstanding during each quarter, do not equal the annual earnings
per share, which is based on the weighted average shares outstanding
during the year.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, 142 and 143. SFAS No. 141, "Business Combinations", requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 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. SFAS 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. SFAS No. 143 will be effective January 2003. In August 2001 the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". SFAS No. 144 supersedes SFAS No. 121 and amends Accounting Principles
Board Opinion No. 30 for the accounting and reporting for discontinued
operations as it relates to long-lived assets. SFAS 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 that only SFAS
No. 142 will impact the Company because it has recorded a significant amount of
goodwill related to prior acquisitions and recorded annual amortization during
each of the last three years of $7.4 million. The Company is reviewing its
operations to identify the reporting units, including identification of the
related operating assets, goodwill, and liabilities. The Company will estimate
the fair value of the reporting units, deduct the estimated fair value of the
tangible net assets and compare the residual to the recorded goodwill
attributable to the reporting unit to determine if the recorded goodwill has
been impaired. The Company expects to complete the initial review during the
second quarter of 2002.
Note 15 - Subsequent Event
As discussed in Note 14, SFAS 142 is effective January 1, 2002. Under SFAS
142, goodwill is no longer amortized but will be reviewed annually for
impairment. For comparative purpose, the following table summarizes reported
results for the years ended December 2001, 2000, and 1999 as adjusted to remove
the amortization of goodwill (dollars in thousands, except per share amounts).
2001 2000(2) 1999
------- -------- --------
Net Income - as reported $11,059 $(19,045) $(37,897)
Goodwill amortization 7,482 7,482 7,531
Income tax impact (1) (1,131) (1,131) (1,148)
------- -------- --------
Net income - as adjusted $17,410 $(12,694) $(31,514)
======= ======== ========
Basic and Diluted earnings
per share:
Net Income - as reported $ 0.12 $ (0.23) $ (0.49)
Goodwill amortization 0.08 0.09 0.10
Income tax impact (1) (0.01) (0.02) (0.02)
------- -------- --------
Net income - as adjusted $ 0.19 $ (0.16) $ (0.41)
======= ======== ========
(1) Certain goodwill amounts are non-deductible for tax purposes;
therefore, the income tax impact reflects only the deductible
goodwill amortization.
(2) As reported - loss before extraordinary gain - $(22,981)
As adjusted - loss before extraordinary gain - $(16,630)
36