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, 2002
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
incorporation or organization) Identification No.)
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 requirement for the past 90 days. Yes X No
--- ---
As of October 31, 2002, 92,621,408 common shares were outstanding.
PARKER DRILLING COMPANY
INDEX
Page No.
Part I. Financial Information 2
Item 1. Financial Statements 2
Consolidated Condensed Balance Sheets (Unaudited)
September 30, 2002 and December 31, 2001 2
Consolidated Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2002 and 2001 3
Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2002 and 2001 4
Notes to Unaudited Consolidated Condensed
Financial Statements 5-15
Report of Independent Accountants 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
Part II. Other Information 28
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities or Dividend Arrearages 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
Officer Certification 31-32
</Table>
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 32,370 $ 60,400
Other short-term investments 12 12
Accounts and notes receivable, net 86,914 99,874
Rig materials and supplies 13,586 22,200
Other current assets (Note 4) 32,720 8,966
----------- -----------
Total current assets 165,602 191,452
----------- -----------
Property, plant and equipment less
accumulated depreciation and amortization of $581,608
at September 30, 2002 and $520,645 at December 31, 2001 660,297 695,529
Goodwill, net of accumulated amortization of $108,412 at
September 30, 2002 and $35,268 at December 31, 2001 115,983 189,127
Other noncurrent assets 34,640 29,669
----------- -----------
Total assets $ 976,522 $ 1,105,777
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 5,394 $ 5,007
Accounts payable and accrued liabilities 61,341 71,673
Accrued income taxes 3,801 7,054
----------- -----------
Total current liabilities 70,536 83,734
----------- -----------
Long-term debt 585,121 587,165
Deferred income tax 3,323 16,152
Other long-term liabilities 6,989 6,583
Minority interest 326 --
Contingencies (Note 8)
Stockholders' equity:
Common stock 15,437 15,342
Capital in excess of par value 434,638 432,845
Accumulated other comprehensive income - net unrealized
gain on investments available for sale (net of taxes $180
at September 30, 2002 and $227 at December 31, 2001) 321 403
Accumulated deficit (140,169) (36,447)
----------- -----------
Total stockholders' equity 310,227 412,143
----------- -----------
Total liabilities and stockholders' equity $ 976,522 $ 1,105,777
=========== ===========
See accompanying notes to unaudited 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,
---------------------------------- ---------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Drilling and rental revenues:
U.S. drilling $ 31,977 $ 52,985 $ 81,597 $ 158,228
International drilling 56,250 57,047 175,315 167,729
Rental tools 11,852 18,895 37,206 50,759
------------ ------------ ------------ ------------
Total drilling and rental revenues 100,079 128,927 294,118 376,716
------------ ------------ ------------ ------------
Drilling and rental operating expenses:
U.S. drilling 22,970 29,827 64,653 86,245
International drilling 34,214 38,414 112,124 116,057
Rental tools 5,255 6,750 16,650 17,570
Depreciation and amortization 25,053 24,330 73,036 71,425
------------ ------------ ------------ ------------
Total drilling and rental operating expenses 87,492 99,321 266,463 291,297
------------ ------------ ------------ ------------
Drilling and rental operating income 12,587 29,606 27,655 85,419
------------ ------------ ------------ ------------
Construction contract revenue 17,285 -- 81,948 --
Construction contract expense 16,515 -- 79,924 --
------------ ------------ ------------ ------------
Net construction contract operating income (Note 4) 770 -- 2,024 --
------------ ------------ ------------ ------------
General and administrative expense 6,097 4,925 18,583 14,805
Provision for doubtful accounts 1,500 -- 1,500 --
Reorganization expense -- 2,306 -- 7,500
------------ ------------ ------------ ------------
Total operating income 5,760 22,375 9,596 63,114
------------ ------------ ------------ ------------
Other income and (expense):
Interest expense (13,316) (13,772) (38,409) (41,062)
Interest income 159 795 711 2,439
Gain on disposition of assets 1,658 326 3,190 1,776
Minority interest expense (184) -- (184) --
Other income (expense) - net (196) 9 (4,431) (309)
------------ ------------ ------------ ------------
Total other income and (expense) (11,879) (12,642) (39,123) (37,156)
------------ ------------ ------------ ------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (6,119) 9,733 (29,527) 25,958
Income tax expense (benefit):
Current 5,901 3,408 14,751 10,417
Deferred (4,000) 3,300 (13,700) 8,300
------------ ------------ ------------ ------------
Income tax expense (benefit) 1,901 6,708 1,051 18,717
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change
in accounting principle (8,020) 3,025 (30,578) 7,241
Cumulative effect of change in accounting principle -- -- (73,144) --
------------ ------------ ------------ ------------
Net income (loss) $ (8,020) $ 3,025 $ (103,722) $ 7,241
============ ============ ============ ============
Earnings (loss) per share - basic:
Before cumulative effect of change in
accounting principle $ (0.09) $ 0.03 $ (0.33) $ 0.08
Cumulative effect of change in
accounting principle $ -- $ -- $ (0.79) $ --
Net income (loss) $ (0.09) $ 0.03 $ (1.12) $ 0.08
Earnings (loss) per share - diluted:
Before cumulative effect of change in
accounting principle $ (0.09) $ 0.03 $ (0.33) $ 0.08
Cumulative effect of change in
accounting principle $ -- $ -- $ (0.79) $ --
Net income (loss) $ (0.09) $ 0.03 $ (1.12) $ 0.08
Number of common shares used in computing
earnings per share:
Basic 92,510,985 92,117,651 92,365,791 91,955,655
Diluted 92,510,985 92,589,301 92,365,791 92,876,615
See accompanying notes to unaudited consolidated condensed
financial statements.
3
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (103,722) $ 7,241
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 73,036 71,425
Gain on disposition of assets (3,190) (1,776)
Cumulative effect of change in accounting principle 73,144 --
Expenses not requiring cash 6,130 3,816
Deferred income taxes (13,700) 8,300
Change in operating assets and liabilities (24,682) 6,424
---------- ----------
Net cash provided by operating activities 7,016 95,430
---------- ----------
Cash flows from investing activities:
Capital expenditures (39,238) (90,286)
Proceeds from the sale of equipment 5,459 5,828
Proceeds from the sale of investments -- 799
---------- ----------
Net cash used in investing activities (33,779) (83,659)
---------- ----------
Cash flows from financing activities
Principal payments under debt obligations (3,887) (3,588)
Proceeds from interest rate swap settlement (Note 6) 2,620 --
Other -- 555
---------- ----------
Net cash used in financing activities (1,267) (3,033)
---------- ----------
Net change in cash and cash equivalents (28,030) 8,738
Cash and cash equivalents at beginning of period 60,400 62,480
---------- ----------
Cash and cash equivalents at end of period $ 32,370 $ 71,218
========== ==========
Supplemental cash flow information:
Interest paid $ 29,172 $ 31,900
Income taxes paid $ 14,917 $ 14,374
Supplemental noncash investing activity:
Net unrealized gain (loss) on investments available
for sale (net of taxes $(46) in 2002 and $(224) in 2001) $ (82) $ (399)
See accompanying notes to unaudited 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, 2002 and December 31, 2001,
(2) the results of operations for the three and nine months ended September
30, 2002 and 2001, and (3) cash flows for the nine months ended September
30, 2002 and 2001. Results for the nine months ended September 30, 2002 are
not necessarily indicative of the results, which will be realized for the
year ending December 31, 2002. The financial statements should be read in
conjunction with the Company's Form 10-K for the year ended December 31,
2001.
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, 2002
---------------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ------------
Basic EPS:
Net loss $ (8,020,000) 92,510,985 $ (0.09)
Effect of dilutive securities:
Stock options and grants -- -- --
Diluted EPS:
Net loss $ (8,020,000) 92,510,985 $ (0.09)
============ ============ =======
5
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
2. Earnings Per Share (continued) -
For the Nine Months Ended September 30, 2002
-------------------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- ---------
Basic EPS:
Loss before cumulative effect of change
in accounting principle $ (30,578,000) 92,365,791 $ (0.33)
Cumulative effect of change in
accounting principle $ (73,144,000) 92,365,791 $ (0.79)
Net loss $ (103,722,000) 92,365,791 $ (1.12)
Effect of dilutive securities:
Stock options and grants -- -- --
Diluted EPS:
Loss before cumulative effect of change
in accounting principle $ (30,578,000) 92,365,791 $ (0.33)
Cumulative effect of change in
accounting principle $ (73,144,000) 92,365,791 $ (0.79)
Net loss $ (103,722,000) 92,365,791 $ (1.12)
============== ============ =======
For the Three Months Ended September 30, 2001
-------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- ---------
Basic EPS:
Net income $ 3,025,000 92,117,651 $ 0.03
Effect of dilutive securities:
Stock options and grants -- 471,650 --
Diluted EPS:
Net income $ 3,025,000 92,589,301 $ 0.03
============== ============ =======
For the Nine Months Ended September 30, 2001
-------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- ---------
Basic EPS:
Net income $ 7,241,000 91,955,655 $ 0.08
Effect of dilutive securities:
Stock options and grants -- 920,960 --
Diluted EPS:
Net income $ 7,241,000 92,876,615 $ 0.08
============== ============ =======
6
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
2. Earnings Per Share (continued) -
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 three and nine months ended September 30, 2002, options to
purchase 9,888,561 shares of common stock at prices ranging from $2.24 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
periods. 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.
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, 2002 and 2001 is as follows
(dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Drilling and rental revenues:
U.S. drilling $ 31,977 $ 52,985 $ 81,597 $ 158,228
International drilling 56,250 57,047 175,315 167,729
Rental tools 11,852 18,895 37,206 50,759
--------- --------- --------- ---------
Total drilling and rental revenues 100,079 128,927 294,118 376,716
--------- --------- --------- ---------
Operating income (loss):
U.S. drilling (1,144) 12,057 (13,708) 38,456
International drilling 10,514 8,600 30,152 22,900
Rental tools 3,217 8,949 11,211 24,063
--------- --------- --------- ---------
Total operating income by segment (1) 12,587 29,606 27,655 85,419
Net construction contract operating income 770 -- 2,024 --
General and administrative expense (6,097) (4,925) (18,583) (14,805)
Provision for doubtful accounts (1,500) -- (1,500) --
Reorganization expense -- (2,306) -- (7,500)
--------- --------- --------- ---------
Total operating income 5,760 22,375 9,596 63,114
Interest expense (13,316) (13,772) (38,409) (41,062)
Minority interest expense (184) -- (184) --
Other income (expense) - net 1,621 1,130 (530) 3,906
--------- --------- --------- ---------
Income (loss) before income taxes $ (6,119) $ 9,733 $ (29,527) $ 25,958
========= ========= ========= =========
(1) Operating income by segment is calculated by excluding net construction
contract operating income, general and administrative expense, provision
for doubtful accounts and reorganization expense from operating income, as
reported in the consolidated condensed statements of operations.
7
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
4. Construction Contract - The Company has historically only constructed
drilling rigs for its own use. At the request of one of its significant
customers, the Company entered into a contract to design, construct,
mobilize and sell ("construction contract") a specialized drilling rig to
drill extended reach wells to offshore targets from a land-based location
on Sakhalin Island, Russia for an international consortium of oil and gas
companies. The Company also entered into a contract to operate the rig on
behalf of the consortium. Generally Accepted Accounting Principles ("GAAP")
requires that revenues received and costs incurred related to the
construction contract should be accounted for and reported on a gross basis
and income for the related fees should be recognized on a percentage of
completion basis. Because this construction contract is not a part of the
Company's historical or normal operations, the revenues and costs related
to this contract have been shown as a separate component in the statement
of operations. Construction costs in excess of funds received from the
customer are accumulated and reported as part of other current assets. At
September 30, 2002, a net receivable of $27.2 million (construction costs
less progress payments) is included in other current assets. In October
2002, the Company received a $22.0 million progress payment related to this
receivable.
5. Goodwill - Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." In accordance with this accounting principle, goodwill
is no longer amortized but will be assessed for impairment on at least an
annual basis.
As an initial step in the implementation process, the Company identified
four reporting units that would be tested for impairment. The four units
qualify as reporting units in that they are one level below an operating
segment, or an individual operating segment and discrete financial
information exists for each unit. The four reporting units identified by
segment are as follows:
U.S. drilling segment: Barge rigs
Jackup and Platform rigs (1)
International drilling segment: Nigeria barge rigs
Rental tools segment: Rental tools business
(1) The jackup and platform rigs were aggregated due to the similarities in
the markets served.
As required under the transitional accounting provisions of SFAS No. 142,
the Company completed both steps required to identify and measure goodwill
impairment at each reporting unit. The first step involved identifying all
reporting units with carrying values (including goodwill) in excess of fair
value, which was estimated by an independent business valuation consultant
using the present value of estimated future cash flows. The reporting units
for which carrying value exceeded fair value were then measured for
impairment by comparing the implied fair value of the reporting unit
goodwill, determined in the same manner as in a business combination, with
the carrying amount of goodwill. The jackup and platform rigs reporting
unit was the only unit where impairment was identified. As a result,
goodwill related to the jackup and platform rigs was impaired by $73.1
million and was recognized as a cumulative effect of a change in accounting
principle retroactive to the first quarter. The Company will perform its
annual impairment review during the fourth quarter of each year, commencing
in the fourth quarter of 2002.
8
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
The following is a summary of net income and earnings per share as adjusted
to remove the amortization of goodwill (dollars in thousands, except per
share amounts):
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
Net income - as reported $ 3,025 $ 7,241
Goodwill amortization 1,870 5,611
Income tax impact (1) (283) (848)
------------- -------------
Net income - as adjusted $ 4,612 $ 12,004
============= =============
Basic earnings per share:
Net income - as reported $ 0.03 $ 0.08
Goodwill amortization 0.02 0.06
Income tax impact (1) - (0.01)
------------- -------------
Net income - as adjusted $ 0.05 $ 0.13
============= =============
Diluted earnings per share:
Net income - as reported $ 0.03 $ 0.08
Goodwill amortization 0.02 0.06
Income tax impact (1) - (0.01)
------------- -------------
Net income - as adjusted $ 0.05 $ 0.13
============= =============
(1) Certain goodwill amounts are non-deductible for tax purposes;
therefore, the income tax impact reflects only the deductible goodwill
amortization.
6. Derivative Financial Instruments - The Company is exposed to interest rate
risk from its fixed-rate debt. The Company has hedged against a portion of
the risk of changes in fair value associated with its $214.2 million 9.75%
Senior Notes by entering into three fixed-to-variable interest rate swap
agreements with a total notional amount of $150.0 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. During the nine month period ended
September 30, 2002, the interest rate swap reduced interest expense by $2.4
million.
On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term
(ending November 2006) of the debt instrument.
9
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
7. Exchange Offer - On May 2, 2002, the Company announced it had successfully
completed the exchange of $235.6 million in principal amount of new 10.125%
Senior Notes due 2009 ("New Notes") for a like amount of its 9.75% Senior
Notes due 2006 ("Outstanding Notes"), pursuant to an exchange offer
described in the Offering Circular dated April 1, 2002 (the "Exchange
Offer"). The consummation of the Exchange Offer was effected without
registration, in reliance on the registration exemption provided by Section
4(2) of the Securities Act of 1933, as amended, which applies to offers and
sales of securities that do not involve a public offering, and Regulation D
promulgated under that act. The Exchange Offer was made to a limited number
of existing holders of the Outstanding Notes that were institutional
accredited investors. The Company relied on representations from such
institutional accredited investors that the New Notes were acquired for
investment and not with a view to the distribution thereof. On July 1,
2002, the Company filed a registration statement on Form S-4 offering to
exchange the New Notes for notes of the Company having substantially
identical terms in all material respects as the New Notes (the "Exchange
Notes"). The offer to exchange the New Notes for Exchange Notes was
consummated on September 17, 2002. The New Notes and Exchange Notes will be
governed by the terms of the indenture executed by the Company, the
Subsidiary Guarantors and the trustee dated May 2, 2002, the terms of which
are substantially the same as the terms of the 1998 Indenture, as amended
by the Fourth Supplemental Indenture, as described below.
In connection with the Exchange Offer, the Company solicited consents to
certain amendments to the definitions and covenants in the indenture under
which the Outstanding Notes were issued, which all participants in the
Exchange Offer were deemed to have accepted. As a result of the
participation in the Exchange Offer of more than 50% of the holders of the
Outstanding Notes, the amendments to the 1998 Indenture were agreed, and
which amendments have been effected by the execution of the Fourth
Supplemental Indenture by the Company, the Subsidiary Guarantors and the
trustee (as amended, the "1998 Indenture"). As a result of the Exchange
Offer, the Company incurred fees of approximately $3.6 million, which were
expensed in the second quarter of 2002.
8. Contingency - 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 ("PDCIL"), a wholly owned
subsidiary of the Company, assessing additional taxes of approximately
$29.0 million for the years 1998-2000. The assessment consisted 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 $99.0 million, in
reimbursement of costs for modifications to Rig 257, performed by PDCIL
prior to the importation of the drilling rig into Kazakhstan, are income to
PKD Kazakhstan, and therefore, taxable to PKD Kazakhstan. PKD Kazakhstan
filed an Act of Non-Agreement that such reimbursements should not be
taxable and requested that the Act of Audit be revised accordingly. In
November 2001, 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 appealed the decision of the Astana City Court to the
Supreme Court, which confirmed the decision of the Astana City Court that
the reimbursements were not income to PKD Kazakhstan in March 2002.
Although the court agreed with the MSR's position on certain minor issues,
no additional taxes will be payable as a result of this assessment. The MSR
has until March 2003 to appeal this decision to a special panel of the
Supreme Court of Kazakhstan.
10
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
9. Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which 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. The Company does not
believe the adoption of SFAS No. 143 will have a material impact on its
financial position or results of operations.
In August 2001, 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 ("APB") No. 30 for the accounting and
reporting for discontinued operations as it relates to long-lived assets.
SFAS No. 144 became effective January 2002. The Company has adopted the
provisions of SFAS No. 144 and there was no resulting impact on its
financial position or results of operations.
In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements SFAS
No. 4, SFAS No. 44, and SFAS No. 64, Amendment of FASB Statement SFAS No.
13, and Technical Corrections." SFAS No. 145 is effective for the fiscal
years beginning after May 15, 2002. The Company has not yet adopted SFAS
No. 145 nor has it determined the effect of the adoption on the financial
position or results of operations.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002. The Company has no
such activities, thus the Company does not believe the impact of adoption
of SFAS No. 146 will be material.
10. Guarantor/Non-Guarantor Consolidating Condensed Financial Statements - All
of the Company's Senior Notes are guaranteed by substantially all
wholly-owned subsidiaries of Parker Drilling Company ("PDC"). There are
currently no restrictions on the ability of the subsidiaries to transfer
funds to PDC in the form of cash dividends, loans or advances. PDC is a
holding company with no operations, other than through its subsidiaries.
The non-guarantors were inconsequential, individually and in the aggregate,
to the consolidated financial statements and separate financial statements
of the guarantors were not presented because management had determined that
they would not be material to investors.
In August, 2002, Parker Drilling Company International Limited ("PDCIL")
entered into an agreement to sell two of its rigs in Kazakhstan to
AralParker, a Kazakhstan joint venture company owned 50% by PDCIL and 50%
by a Kazakhstan company. Because PDCIL has significant influence over the
business affairs of AralParker, its financial statements will be
consolidated with those of the Company.
AralParker, Casuarina Limited (a wholly-owned captive insurance company)
and Parker Drilling Investment Company are all non-guarantor subsidiaries
whose aggregate financial position and results of operations are no longer
deemed to be inconsequential and, accordingly the Company is setting forth
below consolidating condensed financial information of the parent (PDC),
the guarantor subsidiaries, and the non-guarantor subsidiaries as of
September 30 ,2002 and for the three and nine months then ended.
11
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, 2002
--------------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 21,163 $ 6,953 $ 4,254 $ -- $ 32,370
Other short-term investments -- 12 -- -- 12
Accounts and notes receivable, net 130,248 99,080 18,222 (160,636) 86,914
Rig materials and supplies 135 13,451 -- -- 13,586
Other current assets 27 32,557 42 94 32,720
----------- ----------- ----------- ----------- -----------
Total current assets 151,573 152,053 22,518 (160,542) 165,602
----------- ----------- ----------- ----------- -----------
Property, plant and equipment less
accumulated depreciation and amortization
of $581,608 at September 30, 2002 273 631,932 41,808 (13,716) 660,297
Goodwill, net of accumulated amortization of
$108,412 at September 30, 2002 -- 115,983 -- -- 115,983
Investment in subsidiaries and intercompany advances 804,643 473,074 21,956 (1,299,673) --
Other noncurrent assets 12,825 16,232 69 5,514 34,640
----------- ----------- ----------- ----------- -----------
Total assets $ 969,314 $ 1,389,274 $ 86,351 $(1,468,417) $ 976,522
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 5,394 $ -- $ -- $ -- $ 5,394
Accounts payable and accrued liabilities 33,265 197,888 5,714 (175,526) 61,341
Accrued income taxes 1,167 2,634 -- -- 3,801
----------- ----------- ----------- ----------- -----------
Total current liabilities 39,826 200,522 5,714 (175,526) 70,536
----------- ----------- ----------- ----------- -----------
Long-term debt 585,121 -- -- -- 585,121
Deferred income tax (41,976) 45,299 -- -- 3,323
Other long-term liabilities 1,533 5,456 -- -- 6,989
Minority interest -- -- -- 326 326
Intercompany payables 74,583 513,824 48,296 (636,703) --
Contingencies (Note 8) -- -- --
Stockholders' equity:
Preferred stock -- 20,000 -- (20,000) --
Common stock 15,437 61,749 121 (61,870) 15,437
Capital in excess of par value 434,638 903,844 5,330 (909,174) 434,638
Accumulated other comprehensive income
net unrealized gain on investments available for
sale (net of taxes $180 at September 30, 2002) 321 -- -- -- 321
Accumulated deficit (140,169) (361,420) 26,890 334,530 (140,169)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 310,227 624,173 32,341 (656,514) 310,227
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $ 969,314 $ 1,389,274 $ 86,351 $(1,468,417) $ 976,522
=========== =========== =========== =========== ===========
12
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended September 30, 2002
-----------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
--------- --------- ------------- ------------ ------------
Drilling and rental revenues:
U.S. drilling $ -- $ 31,701 $ -- $ 276 $ 31,977
International drilling -- 41,930 13,723 597 56,250
Rental tools -- 11,852 -- -- 11,852
--------- --------- --------- --------- ---------
Total drilling and rental revenues -- 85,483 13,723 873 100,079
--------- --------- --------- --------- ---------
Drilling and rental operating expenses:
U.S. drilling -- 22,694 -- 276 22,970
International drilling -- 24,252 9,365 597 34,214
Rental tools -- 5,255 -- -- 5,255
Depreciation and amortization -- 23,523 1,530 -- 25,053
--------- --------- --------- --------- ---------
Total drilling and rental operating expenses -- 75,724 10,895 873 87,492
--------- --------- --------- --------- ---------
Drilling and rental operating income -- 9,759 2,828 -- 12,587
--------- --------- --------- --------- ---------
Construction contract revenue -- 17,285 -- -- 17,285
Construction contract expense -- 16,515 -- -- 16,515
--------- --------- --------- --------- ---------
Net construction contract operating income (Note 4) -- 770 -- -- 770
--------- --------- --------- --------- ---------
General and administrative expense (1) 90 6,032 -- (25) 6,097
Provision for doubtful accounts -- 1,500 -- -- 1,500
--------- --------- --------- --------- ---------
Total operating income (90) 2,997 2,828 25 5,760
--------- --------- --------- --------- ---------
Other income and (expense):
Interest expense (14,487) (10,654) (395) 12,220 (13,316)
Interest income 11,022 929 428 (12,220) 159
Gain on disposition of assets -- 6,287 -- (4,629) 1,658
Minority interest expense -- -- -- (184) (184)
Other income (expense) - net (294) 2,227 (2,105) (24) (196)
Equity in net earnings of subsidiaries (8,130) -- -- 8,130 --
--------- --------- --------- --------- ---------
Total other income and (expense) (11,889) (1,211) (2,072) 3,293 (11,879)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (11,979) 1,786 756 3,318 (6,119)
Income tax expense (benefit):
Current 41 5,860 -- -- 5,901
Deferred (4,000) -- -- -- (4,000)
--------- --------- --------- --------- ---------
Income tax expense (benefit) (3,959) 5,860 -- -- 1,901
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of change
in accounting principle (8,020) (4,074) 756 3,318 (8,020)
Cumulative effect of change in accounting principle -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ (8,020) $ (4,074) $ 756 $ 3,318 $ (8,020)
========= ========= ========= ========= =========
(1) All field operations general and administrative expense are included in
operating expenses.
13
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30, 2002
-------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
--------- --------- ------------- ------------ -------------
Drilling and rental revenues:
U.S. drilling $ -- $ 81,321 $ -- $ 276 $ 81,597
International drilling -- 160,274 13,723 1,318 175,315
Rental tools -- 37,206 -- -- 37,206
--------- --------- --------- --------- ---------
Total drilling and rental revenues -- 278,801 13,723 1,594 294,118
--------- --------- --------- --------- ---------
Drilling and rental operating expenses:
U.S. drilling -- 64,377 -- 276 64,653
International drilling -- 101,441 9,365 1,318 112,124
Rental tools -- 16,650 -- -- 16,650
Depreciation and amortization -- 71,506 1,530 -- 73,036
--------- --------- --------- --------- ---------
Total drilling and rental
operating expenses -- 253,974 10,895 1,594 266,463
--------- --------- --------- --------- ---------
Drilling and rental operating income -- 24,827 2,828 -- 27,655
--------- --------- --------- --------- ---------
Construction contract revenue -- 81,948 -- -- 81,948
Construction contract expense -- 79,924 -- -- 79,924
--------- --------- --------- --------- ---------
Net construction contract operating
income (Note 4) -- 2,024 -- -- 2,024
--------- --------- --------- --------- ---------
General and administrative expense (1) 292 18,379 -- (88) 18,583
Provision for doubtful accounts -- 1,500 -- -- 1,500
--------- --------- --------- --------- ---------
Total operating income (292) 6,972 2,828 88 9,596
--------- --------- --------- --------- ---------
Other income and (expense):
Interest expense (41,948) (31,935) (395) 35,869 (38,409)
Interest income 32,454 2,855 1,271 (35,869) 711
Gain on disposition of assets -- 7,819 -- (4,629) 3,190
Minority interest expense -- -- -- (184) (184)
Other income (expense) - net (4,828) 2,509 (2,025) (87) (4,431)
Equity in net earnings of subsidiaries (102,767) -- -- 102,767 --
--------- --------- --------- --------- ---------
Total other income and (expense) (117,089) (18,752) (1,149) 97,867 (39,123)
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (117,381) (11,780) 1,679 97,955 (29,527)
Income tax expense (benefit):
Current 41 14,710 -- -- 14,751
Deferred (13,700) -- -- -- (13,700)
--------- --------- --------- --------- ---------
Income tax expense (benefit) (13,659) 14,710 -- -- 1,051
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle (103,722) (26,490) 1,679 97,955 (30,578)
Cumulative effect of change in
accounting principle -- (73,144) -- -- (73,144)
--------- --------- --------- --------- ---------
Net income (loss) $(103,722) $ (99,634) $ 1,679 $ 97,955 $(103,722)
========= ========= ========= ========= =========
(1) All field operations general and administrative expense are included in
operating expenses.
14
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30, 2002
-------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
--------- --------- ------------- ------------ ------------
Cash flows from operating activities:
Net income (loss) $(103,722) $ (99,634) $ 1,679 $ 97,955 $(103,722)
Adjustments to reconcile net income (loss)
to net cash provided by (used) in operating activities:
Depreciation and amortization -- 71,506 1,530 -- 73,036
Gain on disposition of assets -- (7,819) -- 4,629 (3,190)
Cumulative effect of change in accounting principle -- 73,144 -- -- 73,144
Expenses not requiring cash 2,759 3,439 -- (68) 6,130
Deferred income taxes (13,700) -- -- -- (13,700)
Equity in net earnings of subsidiaries 102,767 -- -- (102,767) --
Change in operating assets and liabilities (12,435) 2,083 (12,307) (2,023) (24,682)
--------- --------- --------- --------- ---------
Net cash provided by (used) in operating activities (24,331) 42,719 (9,098) (2,274) 7,016
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (81) 4,173 (37,530) (5,800) (39,238)
Proceeds from the sale of equipment 8 5,459 -- (8) 5,459
--------- --------- --------- --------- ---------
Net cash provided by (used) in investing activities (73) 9,632 (37,530) (5,808) (33,779)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Principal payments under debt obligations (3,887) -- -- -- (3,887)
Proceeds from interest rate SWAP settlement 2,620 -- -- -- 2,620
Intercompany advances, net (4,103) (53,470) 49,491 8,082 --
--------- --------- --------- --------- ---------
Net cash provided by (used) in financing activities (5,370) (53,470) 49,491 8,082 (1,267)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents (29,774) (1,119) 2,863 -- (28,030)
Cash and cash equivalents at beginning of period 50,937 8,072 1,391 -- 60,400
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 21,163 $ 6,953 $ 4,254 $ -- $ 32,370
========= ========= ========= ========= =========
15
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, 2002 and the related
consolidated condensed statements of operations for the three and nine month
periods ended September 30, 2002 and 2001 and the consolidated condensed
statement of cash flows for the nine month periods ended September 30, 2002 and
2001. 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, 2001, 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 29, 2002, 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, 2001, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
October 29, 2002
16
ITEM 2. 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 rig utilization, dayrates and rental tools activity,
*future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment,
*repayment of debt,
*maintenance of the Company's revolver borrowing base, and
*expansion and growth of operations.
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 it believes are relevant. Although management of
the Company believes that its assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties, many
of which are outside the control of the Company. These risks and uncertainties
include:
*worldwide economic and business conditions that adversely affect
market conditions and/or the cost of doing business,
*the strength in the U.S. economy and the demand for natural gas,
*fluctuations in the market prices of oil and gas,
*imposition of unanticipated trade restrictions and political
instability,
*operating hazards and uninsured risks,
*new or changes in governmental regulations that adversely affect the
cost of doing business,
*adverse environmental events,
*adverse weather conditions,
*changes in concentration of customer and supplier relationships,
*unexpected cost increases for upgrade and refurbishment projects,
*changes in 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 are referenced in connection with
forward-looking statements that are included from time to time in this document.
Each forward-looking statement speaks only as of the date of this Form 10-Q, and
the Company undertakes no obligation to publicly update or revise any
forward-looking statement.
17
INTRODUCTION AND OUTLOOK
The $8.0 million loss incurred for the three months ended September 30,
2002, reflects a $3.5 million improvement as compared to the $11.5 million loss
incurred during the second quarter of 2002. Gross margins improved in all
drilling segments, most notably in our U.S. offshore market, due primarily to
implementation of cost reduction measures, as dayrates were relatively
unchanged. The improvement during the third quarter in our Gulf Coast market is
primarily attributed to near 100% utilization for both the jackup rigs and the
deep drilling barges. Further improvements in results of operations for this
market were hindered by low utilization from our workover and intermediate barge
rigs and platform rigs. Overall, utilization for our jackup rigs and domestic
barge rigs during the third quarter of 2002 averaged 97% and 54%, respectively,
as compared to 78% and 50% for the second quarter of 2002.
Third quarter revenues in the international segment remained unchanged
as compared to the second quarter of 2002, as international land rigs
utilization continues to be negatively impacted by the release of four rigs in
Colombia and one rig in Kazakhstan during the second quarter. In addition,
although the two Nigerian barge rigs which were idle for a substantial portion
of the second quarter due to ABS inspection and repairs have completed such
repairs, only one received revenue during the third quarter. Though revenues
remained unchanged gross margins increased approximately $4.0 million due
primarily to reduced costs throughout the international segment.
We anticipate that overall utilization and revenues for the fourth
quarter of 2002 should approximate the third quarter. U.S. offshore revenues are
expected to increase, albeit at a slow pace, partially offset by reduced
revenues in the international segment. This reduction is the result of certain
rigs in New Zealand and Indonesia completing their drilling programs during the
third quarter with new contracts beginning in 2003. In addition, only one of the
two Nigerian barge rigs that were idle during the second quarter for ABS
inspections and repairs is now under contract, having signed a one year
extension. This rig has been placed on a reduced standby or "hot stack" rate
through the end of 2002, at which time the customer has the option to resume
drilling operations, continue the "hot stack" rate or terminate the contract.
Based on the current business outlook, we have updated our guidance regarding
the anticipated range for revenues and losses for the year 2002. We now
anticipate that revenues for the year will range from $390 to $400 million.
Based on these revised estimates of 2002 revenues, we are now anticipating a
loss in the range of $40 million plus or minus 5%, or a loss per share of $0.41
to $0.45. before the change in accounting principle, and approximately $111
million to $115 million or $1.19 to $1.24 per share after the cumulative effect
of the change in accounting principle for 2002 (see Note 5 of the Notes to
Unaudited Consolidated Condensed Financial Statements).
The Company's domestic contracts are usually well to well contracts.
Although it is common for international contracts to have multi-year terms, in
most cases this will not preclude the customer from terminating the contract
without cause prior to the scheduled termination date. When a customer exercises
its contractual right to terminate a contract without cause before the end of
the stated term, the contract may require the payment of an early termination
fee based on the Company's investment in the project. In addition, the customer
may have the obligation to pay a demobilization fee to return the rig to its
point of origin.
18
RESULTS OF OPERATIONS (continued)
Our drilling operations in Kazakhstan are a significant part of our
current international operations and our strategic growth for the future. Since
1993, our operations in Kazakhstan have grown from providing labor to our
principal customer to owning and managing 11 drilling rigs for several
operators. In the last few years, the government of Kazakhstan has requested
that vendors incorporate local content into their operations to stimulate the
development of a local oil and gas service industry and the Kazakhstan economy.
In order to take advantage of the significant growth potential and remain a
preferred vendor of the principal operators in Kazakhstan, it was advantageous
for us to partner with a local company. In June 2002, Parker Drilling Company
International Limited (PDCIL) entered into an agreement to sell two of its rigs
in Kazakhstan to AralParker, a Kazakhstan joint venture company owned 50% by a
Parker subsidiary and 50% by a Kazakhstan company, Aralnedra CJSC. The purchase
price of the rigs was $42.7 million, which represents the fair market value
according to an appraisal by an independent third party appraiser. The purchase
of the rigs is being financed by Parker Drilling Company over a five-year period
and is collateralized by a lien on the rigs and an assignment of the five-year
drilling contract and its proceeds. The transaction closed on August 15, 2002.
In addition, PDCIL will lease a third rig to AralParker, and will provide
management and technical services to the joint venture company. In light of the
Company's significant influence over the business affairs of AralParker, its
financial statements will be consolidated with the Company's financial
statements in accordance with GAAP. Although Aralnedra will effectively own 50%
of the two rigs, PDCIL will continue to receive approximately 90% of the cash
flow generated by the current five-year drilling contract through the proceeds
of repayment of the loan and the management and technical services contract.
Three Months Ended September 30, 2002 Compared with Three Months Ended
September 30, 2001
The Company recorded a net loss of $8.0 million for the three months
ended September 30, 2002 compared to net income of $3.0 million for the three
months ended September 30, 2001. The net loss in the third quarter of 2002 is
reflective of low utilization and dayrates in the U.S. Gulf of Mexico drilling
operations, reduced rental tool revenues and reduced revenues in the
international offshore operations when compared to the third quarter of 2001.
Three Months Ended September 30,
--------------------------------------------
2002 2001
------------------- --------------------
(Dollars in Thousands)
Drilling and rental revenues:
U.S. drilling $ 31,977 32% $ 52,985 41%
International drilling 56,250 56% 57,047 44%
Rental tools 11,852 12% 18,895 15%
---------- ----- ---------- -----
Total drilling and rental revenues $ 100,079 100% $ 128,927 100%
========== ===== ========== =====
The Company's drilling and rental revenues decreased $28.8 million to
$100.1 million in the current quarter as compared to the third quarter of 2001.
U.S. drilling revenues decreased $21.0 million due to lower dayrates and
utilization in the Company's Gulf of Mexico drilling operations. Total U.S.
barge rig revenues decreased $10.9 million in the current quarter, as a result
of a 27% decrease in utilization as compared to the third quarter of 2001.
Jackup rig revenues decreased $6.6 million in the current quarter as compared to
the third quarter of 2001 due to a 47% decrease in dayrates, which was partially
offset by an increase in average utilization. The jackup rigs current quarter
average utilization was 97% compared to 81% for the third quarter of 2001. The
platform rigs did not work during the third quarter of 2002 as compared to
revenues of $3.5 million in the third quarter of 2001.
19
RESULTS OF OPERATIONS (continued)
International drilling revenues decreased $0.8 million to $56.3 million
in the current quarter as compared to the third quarter of 2001. International
land drilling revenues increased $2.1 million while international offshore
drilling revenues decreased $2.9 million. Primarily responsible for the
improvement in international land drilling revenues was increased dayrates in
the CIS region that includes Kazakhstan and Russia, resulting in additional
revenues of $1.7 million. Higher rates were partially offset by one rig being
stacked in the Karachaganak field during the second quarter. Land drilling
revenues increased $1.7 million in the Asia Pacific region primarily due to
increased utilization in New Zealand and Indonesia. During the third quarter of
2002 one additional rig worked in both New Zealand and Indonesia as compared to
the prior year's third quarter. Revenues declined $1.7 million in Latin America
due primarily to a sharp decline in activity in both Bolivia and Colombia. As
previously noted a customer in Colombia released four rigs resulting in a $5.6
million decrease in revenues, which was partially offset by new contracts in
2002 in Ecuador and Peru. The Ecuador drilling contract was completed at the end
of the third quarter.
The decrease of $2.9 million in international offshore drilling
revenues was due primarily to Nigerian operations. Two of the four barge rigs in
Nigeria were idle for a substantial portion of the second quarter due to ABS
inspection and repairs. Upon completion of the inspection and repairs one barge
rig went back to work for the entire third quarter, but the contract for the
second barge rig was not renewed and did not work during the third quarter.
Currently both barge rigs are stacked with one rig on a reduced "hot stack"
rate. The customer has postponed some drilling activities until 2003 due to 2002
budgetary issues. We are cautiously optimistic that both barge rigs will go back
to work during 2003. The remaining two barge rigs in Nigeria worked throughout
2002 and are expected to operate through 2003.
Rental tool revenues decreased $7.0 million as Quail Tools reported
revenues in the current quarter of $11.8 million. Quail Tools continued to be
negatively impacted by the reduced activity in the U.S. drilling markets.
Revenues decreased $4.0 million from the New Iberia, Louisiana operations, $1.9
million from the Victoria, Texas operations and $1.5 from the Odessa, Texas
operations. The Evanston, Wyoming operations opened during the second quarter of
2002 and contributed revenues of $0.4 million.
<Table>
<Caption>
Three Months Ended September 30,
----------------------------------------------
2002 2001
------------------- -------------------
(Dollars in Thousands)
Drilling and rental profit margins:
U.S. drilling $ 9,007 28% $ 23,158 44%
International drilling 22,036 39% 18,633 33%
Rental tools 6,597 56% 12,145 64%
--------- ---------
Total drilling and rental profit margins 37,640 38% 53,936 42%
--------- ---------
Depreciation and amortization (25,053) (24,330)
Net construction contract operating income 770 --
General and administrative expense (6,097) (4,925)
Provision for doubtful accounts (1,500) --
Reorganization expense -- (2,306)
--------- ---------
Total operating income $ 5,760 $ 22,375
========= =========
</Table>
(Drilling and rental profit margin - drilling and rental revenues less direct
drilling and rental operating expenses; drilling and rental profit margin
percentages - drilling and rental profit margin as a percent of drilling and
rental revenues.)
20
RESULTS OF OPERATIONS (continued)
Drilling and rental profit margins of $37.6 million in the current
quarter reflected a decrease of $16.3 million from the third quarter of 2001. In
the U.S. drilling market, profit margins decreased $14.2 million. U.S. profit
margins were negatively impacted during the current quarter by lower utilization
and dayrates in the Gulf of Mexico as previously discussed. Average dayrates
decreased approximately 51% for jackup rigs and 10% for barge rigs in the
current quarter when compared to the third quarter of 2001.
International drilling profit margins increased $3.4 million in the
current quarter as compared to the third quarter of 2001. International land
drilling profit margins increased $4.5 million to $15.1 million during the
current quarter due primarily to increased average dayrates during 2002 and high
mobilization costs in 2001 in the CIS region. The international offshore
drilling profit margin decreased $1.1 million to $6.9 million in the third
quarter. This decrease is attributed to the ABS inspection and repairs in the
current quarter for the one barge rig in Nigeria that did not operate as
previously mentioned, and increased property taxes in the Caspian Sea
operations.
Rental tool profit margin decreased $5.5 million to $6.6 million during
the current quarter as compared to the third quarter of 2001. Profit margin
percentage decreased to 56% during the current quarter as compared to 64% for
the third quarter of 2001. The decline in profit margin was primarily
attributable to increased inspection and cleaning costs because a number of
rental tools are not presently under contract.
During the first quarter of 2002, the Company announced a new contract
to build and operate a rig to drill extended reach wells to offshore targets
from a land-based location on Sakhalin Island, Russia for an international
consortium. The revenue and expense for the project are recognized as
construction contract revenue and expense. The engineering fee is calculated on
a percentage of completion basis, of which $0.8 million was recognized during
the three months ended September 30, 2002.
General and Administrative expense increased $1.2 million to $6.1
million in the current quarter as compared to the third quarter of 2001. This
increase is primarily attributable to personnel costs, rent expense for the new
corporate office in Houston and professional fees.
During the third quarter a U.S. offshore customer filed for bankruptcy.
The Company increased its allowance for doubtful accounts by $1.5 million to
reserve for the potential loss.
Reorganization expense of $2.3 million for the three months ended
September 30, 2001 includes non-recurring expense for the move of the corporate
office to Houston and the reorganization of certain management positions.
Third quarter income tax expense consists of foreign tax expense of
$5.9 million and a deferred tax benefit of $4.0 million. Foreign taxes increased
$2.5 million as compared to the third quarter of 2001 due to an increase in
income taxes in Kazakhstan, Peru, Ecuador, Indonesia and New Zealand reflecting
an increase in gross margins. The deferred tax benefit was recognized due to the
loss generated during the third quarter of 2002.
21
RESULTS OF OPERATIONS (continued)
Nine Months Ended September 30, 2002 Compared with Nine Months Ended
September 30, 2001
The Company recorded a net loss of $30.6 million before the cumulative
effect of a change in accounting principle for the nine months ended September
30, 2002 compared to net income of $7.2 million recorded for the nine months
ended September 30, 2001. Adoption of SFAS No. 142 resulted in a $73.1 million
impairment of goodwill which was recognized as a change in accounting principle,
(see Note 5 of the Notes to Unaudited Consolidated Condensed Financial
Statements). The net loss in the current period of 2002 is reflective of lower
utilization and dayrates in the Gulf of Mexico drilling operations, declining
utilization in Latin America, and reduced revenues in the Company's rental tool
operations.
Nine Months Ended September 30,
-------------------------------------------------
2002 2001
--------------------- --------------------
(Dollars in Thousands)
Drilling and rental revenues:
U.S. drilling $ 81,597 28% $ 158,228 42%
International drilling 175,315 60% 167,729 45%
Rental tools 37,206 12% 50,759 13%
--------- ------ --------- -------
Total drilling and rental revenues $ 294,118 100% $ 376,716 100%
========= ====== ========= =======
The Company's drilling and rental revenues decreased $82.6 million to
$294.1 million in the current nine-month period as compared to the nine months
ended September 30, 2001. U.S. drilling revenues decreased $76.6 million due to
lower dayrates and utilization in the Company's Gulf of Mexico drilling
operations. Total barge rig revenues decreased $37.5 million in the current
nine-month period, as a result of a 35% decrease in utilization as compared to
the nine months ended September 30, 2001. Jackup rig revenues decreased $30.3
million in the current nine-month period as compared to the comparable nine
months in 2001 due to a 48% decrease in dayrates and a 11% decrease in
utilization. Platform rig utilization and dayrates decreased 45% and 26%,
respectively, resulting in an $8.8 million decrease in revenues.
International drilling revenues increased $7.6 million to $175.3
million in the current nine-month period as compared to the nine months ended
September 30, 2001. International land drilling revenues increased $11.5 million
while international offshore drilling revenues decreased $3.9 million. Primarily
responsible for the improvement in international land drilling revenues was
increased rig activity in the CIS region, where an increase of three rigs
resulted in additional revenues of $9.2 million. Land drilling revenues
increased $7.0 million in the Asia Pacific region due to increased utilization
in Papua New Guinea and Indonesia. Revenues increased $0.6 million in Kuwait as
additional labor contracts were added. Revenues declined $5.4 million in Latin
America due to decreased activity in Colombia and Bolivia partially offset by
new 2002 contracts in Ecuador and Peru. The contract in Ecuador was completed at
the end of the third quarter.
The decrease of $3.9 million in international offshore drilling
revenues was due primarily to Nigeria with two barge rigs down for ABS
inspections and repairs. Upon completing the repair work one of the barge rigs
returned to work to complete its contract during the third quarter. Due to
budgetary issues the customer has extended the contract for one of the two barge
rigs which rig has been placed on a reduced "hot stack" rate, pending resumption
of operations. We are cautiously optimistic that both barge rigs will return to
work in 2003.
22
RESULTS OF OPERATIONS (continued)
Rental tool revenues decreased $13.6 million as Quail Tools reported
revenues in the current nine-month period of $37.2 million. Quail Tools was
negatively impacted by the reduced drilling activity in the Gulf of Mexico
markets. Revenues decreased $6.1 million from the New Iberia, Louisiana
operations, $6.5 million from the Victoria, Texas operations, $1.6 million from
the Odessa, Texas operations, which were partially offset by revenues of $0.6
million from new operations in Evanston, Wyoming.
Nine Months Ended September 30,
------------------------------------------------
2002 2001
-------------------- -------------------
(Dollars in Thousands)
Drilling and rental profit margins:
U.S. drilling $ 16,944 21% $ 71,983 45%
International drilling 63,191 36% 51,672 31%
Rental tools 20,556 55% 33,189 65%
-------- --------
Total drilling and rental profit margins 100,691 34% 156,844 42%
-------- --------
Depreciation and amortization (73,036) (71,425)
Net construction contract operating income 2,024 -
General and administrative expense (18,583) (14,805)
Provision for doubtful accounts (1,500) -
Reorganization expense - (7,500)
-------- --------
Total operating income $ 9,596 $ 63,114
======== ========
(Drilling and rental profit margin - drilling and rental revenues less direct
drilling and rental operating expenses; drilling and rental profit margin
percentages - drilling and rental profit margin as a percent of drilling and
rental revenues.)
Drilling and rental profit margins of $100.7 million in the current
nine-month period reflected a decrease of $56.2 million from the nine months
ended September 30, 2001. The U.S. Gulf of Mexico drilling operations accounted
for $55.0 million of the decrease in profit margin. Lower average dayrates and
utilization for the U.S. fleet combined with increased barge rig labor and
insurance rates contributed to the decline in profit margins for the current
nine-month period compared to the nine months ended September 30, 2001.
International drilling profit margins increased $11.5 million in the
current nine-month period as compared to the nine months ended September 30,
2001. International land drilling profit margins increased $13.8 million to
$44.8 million during the current nine-month period due primarily to increased
utilization in the Company's land drilling operations as previously discussed.
The international offshore drilling profit margin decreased $2.3 million to
$18.4 million in the current nine-month period. The decrease is primarily
attributed to higher operating expenses, which resulted from increased property
taxes for Rig 257 in the Caspian Sea operations and reduced revenues due to
downtime in Nigeria.
Rental tool profit margins decreased $12.6 million to $20.6 million
during the current nine-month period as compared to the first nine months ended
September 30, 2001. Profit margin percentage decreased to 55% during the current
nine-month period as compared to 65% for the nine months ended September 30,
2001 due to increasing costs in relation to the decreased revenue levels. The
increase in operating expenses is primarily attributed to higher salary expense
and increased inspection and cleaning costs of rental tools, as previously
discussed.
23
RESULTS OF OPERATIONS (continued)
During the first quarter of 2002, the Company announced a new contract
to build and operate a rig to drill extended reach wells to offshore targets
from a land-based location on Sakhalin Island, Russia for an international
consortium. The revenue and expense for the project are recognized as
construction contract revenue and expense. The engineering fee is calculated on
a percentage of completion basis, of which $2.0 million was recognized during
the nine months ended September 30, 2002.
General and Administrative expense increased $3.8 million to $18.6
million in the current nine-month period as compared to the nine months ended
September 30, 2001. This increase is primarily attributed to increased rent
expense for the new corporate office in Houston and the new office in Tulsa,
severance for reduction in force, legal and professional fees and maintenance on
the former corporate headquarters in Tulsa, currently held for sale.
During the third quarter a U.S. offshore customer filed for bankruptcy.
The Company increased its allowance for doubtful accounts by $1.5 million to
reserve for the potential loss.
Reorganization expense of $7.5 million for the nine months ended
September 30, 2001 includes non-recurring expense for the move of the corporate
office to Houston and the reorganization of certain management positions.
Interest expense decreased $2.6 million due primarily to lower interest
rates associated with the three $50.0 million swap agreements signed in December
2001 and January 2002. The swap agreements were terminated in July 2002 (see
Note 6 of the Notes to Unaudited Consolidated Condensed Financial Statements).
Other expense of $4.4 million for the nine months ended September 30,
2002 includes $3.6 million related to the Exchange Offer (see Note 7 of the
Notes to Unaudited Consolidated Condensed Financial Statements) and $0.6 million
costs incurred for the attempted purchase of Australian Oil and Gas.
Income tax expense for the nine months ended September 30, 2002
consists of foreign tax expense of $14.8 million and a deferred tax benefit of
$13.7 million. Foreign taxes increased $4.3 million due primarily to $3.1
million in additional taxes paid during the first quarter in Colombia, primarily
related to the 2001 tax return and increased taxes in the Asia Pacific region.
The increases were offset by a reduction in the 2001 taxes accrued in Kazakhstan
resulting from the favorable court ruling received in March 2002. The deferred
tax benefit was recognized due to the loss generated during the current
nine-month period.
24
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company had cash, cash equivalents and
other short-term investments of $32.4 million, a decrease of $28.0 million from
December 31, 2001. The net cash provided by operating activities as reflected on
the Consolidated Condensed Statement of Cash Flows was $7.0 million. Due to the
reduced revenues during 2002, accounts and notes receivable decreased $13.0
million and accounts payable and accrued liabilities decreased $10.3 million. In
addition, net cash provided by operating activities includes, in other current
assets, a $27.2 million increase in net receivables relating to construction of
Rig 262 for the Sakhalin Island project. Payments totaling $22.0 million were
received during October from our customer and only minimal additional working
capital will be required until the rig begins operations in 2003. The Company is
under contract for the mobilization of the rig to Sakhalin Island and will also
receive a dayrate for rig-up on site.
Net cash used in investing activities was $33.8 million. This included
$39.2 million for capital expenditures net of proceeds from the sale of assets
of $5.5 million. Net cash used in financing activities was $1.3 million. This
included $3.9 million repayment of debt net of $2.6 million proceeds from the
settlement of three interest rate swap agreements.
The Company has total long-term debt, including the current portion, of
$590.5 million at September 30, 2002. The Company has a $50.0 million revolving
credit facility with a group of banks led by Bank of America. 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, less the amount utilized in support of letters of credit.
Currently, the borrowing base of $50.0 million is reduced by $15.6 million in
outstanding letters of credit, resulting in available revolving credit of $34.4
million. As of October 31, 2002 no amounts have been drawn down against the
revolving credit facility. The revolver terminates on October 22, 2003.
The Company anticipates that working capital funds required for capital
spending in 2002 will be met from existing cash, other short-term investments
and cash provided by operations. It is management's present intention to limit
capital spending, net of reimbursements from customers, to approximately $50
million in 2002, $39.2 million of which has been expended during the first nine
months of 2002. Should new opportunities requiring additional capital arise, or
should revenues not meet management's guidance projections, 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 to
fund certain capital projects. The Company cannot predict whether such financing
or equity participation would be available on terms acceptable to the Company.
The Company is exposed to interest rate risk from its fixed-rate debt.
The Company had hedged against the risk of changes in the fair value associated
with its 9.75% Senior Notes by entering into three fixed-to-variable interest
rate swap agreements with a total notional amount of $150.0 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. For the nine-month period ended September 30, 2002, the interest rate
swap reduced interest expense by $2.4 million.
25
LIQUIDITY AND CAPITAL RESOURCES (continued)
On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term (ending
November 2006) of the debt instrument.
See Notes 6 and 7 of the Notes to Unaudited Consolidated Condensed
Financial Statements for information regarding the Company's Exchange Offer
which was completed May 2, 2002.
OTHER MATTERS
Critical Accounting Policies
The Company considers certain accounting policies related to impairment
of property, plant and equipment, impairment of goodwill and the valuation of
deferred tax assets to be critical policies due to the estimation processes
involved in each. These policies and other significant accounting policies are
summarized in our annual report on Form 10-K for the year ended December 31,
2001.
Recent Accounting Pronouncements
In June 2001, FASB issued SFAS No. 143. SFAS No. 143, "Accounting for
Asset Retirement Obligations," which 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. The Company does not believe the
adoption of SFAS No. 143 will have a material impact on its financial position
or results of operations.
In August 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121 and amends APB No. 30 for the accounting and reporting for discontinued
operations as it relates to long-lived assets. SFAS No. 144 became effective
January 2002. The Company has adopted the provisions of SFAS No. 144 and there
was no resulting impact on its financial position or results of operations.
In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements
SFAS No. 4, SFAS No. 44, and SFAS No. 64, Amendment of FASB Statement SFAS No.
13, and Technical Corrections". SFAS No. 145 is effective for the fiscal years
beginning after May 15, 2002. The Company has not yet adopted SFAS No. 145 nor
has it determined the effect of the adoption on the financial position or
results of operations.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002. The Company has no
such activities, thus the Company does not believe the impact of adoption of
SFAS No. 146 will be material.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company has hedged against a portion of the risk of changes in fair
value associated with its $214.2 million 9.75% Senior Notes by entering into
three fixed-to-variable interest rate swap agreements with a total notional
amount of $150.0 million. The terms of the swap agreements are as follows:
Months Notional Amount Fixed Rate Floating Rate
- -------------------------------------- -------------------------------------- ------------------------
(Dollars in Thousands)
December 2001 - November 2006 $ 50,000 9.75% Three-month LIBOR
plus 446 basis points
January 2002 - November 2006 $ 50,000 9.75% Three-month LIBOR
plus 475 basis points
January 2002 - November 2006 $ 50,000 9.75% Three-month LIBOR
plus 482 basis points
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. During the nine month period ended September 30,
2002, the interest rate swap reduced interest expense by $2.4 million.
On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term (ending
November 2006) of the debt instrument.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, the
Company carried out an evaluation, under the supervision and with the
participation of the company's management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
There have been no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 2, 2002 the Company announced it had successfully completed the
exchange of $235.6 million in principal amount of new 10.125% Senior Notes due
2009 ("New Notes") for a like amount of its 9.75% Senior Notes due 2006
("Outstanding Notes"), pursuant to an exchange offer described in the Offering
Circular dated April 1, 2002 (the "Exchange Offer"). The Exchange Offer was
effected without registration, in reliance on the registration exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, which
applies to offers and sales of securities that do not involve a public offering,
and Regulation D promulgated under that act. The Exchange Offer was made to a
limited number of existing holders of the Outstanding Notes that were
institutional accredited investors. The Company relied on representations from
such institutional accredited investors that the New Notes were acquired for
investment and not with a view to the distribution thereof. On July 1, 2002, the
Company filed a registration statement on Form S-4 offering to exchange the New
Notes for notes of the Company having substantially identical terms in all
material respects as the New Notes (the "Exchange Notes"). The offer to exchange
the New Notes for Exchange Notes was consummated on September 17, 2002. The New
Notes and Exchange Notes will be governed by the terms of the indenture executed
by the Company, the Subsidiary Guarantors and the trustee dated May 2, 2002, the
terms of which are substantially the same as the terms of the 1998 Indenture, as
amended by the Fourth Supplemental Indenture, as described below.
In connection with the Exchange Offer, the Company solicited consents
to certain amendments to the definitions and covenants in the indenture under
which the Outstanding Notes were issued, which all participants in the Exchange
Offer were deemed to have accepted. As a result of the participation in the
Exchange Offer of more than 50% of the holders of the Outstanding Notes, the
amendments to the 1998 Indenture were agreed, and which amendments have been
effected by the execution of the Fourth Supplemental Indenture by the Company,
the Subsidiary Guarantors and the trustee filed herewith (as amended, the "1998
Indenture").
ITEM 3. DEFAULTS UPON SENIOR SECURITIES OR DIVIDEND ARREARAGES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed as part of this report:
<Table>
<Caption>
Exhibit
Number Description
--------- -----------
15 Letter re Unaudited Interim Financial Information
99.1 Sarbanes-Oxley Act of 2002 Certification - Chief Executive Officer
99.2 Sarbanes-Oxley Act of 2002 Certification - Chief Financial Officer
(b) Reports on Form 8-K: None
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parker Drilling Company
Registrant
Date: November 12, 2002
By: /s/ James W. Whalen
----------------------------------
James W. Whalen
Senior Vice President and
Chief Financial Officer
By: /s/ W. Kirk Brassfield
----------------------------------
W. Kirk Brassfield
Vice President and Controller
30
PARKER DRILLING COMPANY
OFFICER CERTIFICATION
I, Robert L. Parker Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parker Drilling
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Robert L. Parker Jr.
-------------------------------
Robert L. Parker Jr.
President and Chief Executive
Officer and Director
31
PARKER DRILLING COMPANY
OFFICER CERTIFICATION
I, James W. Whalen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parker Drilling
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ James W. Whalen
-----------------------------
James W. Whalen
Senior Vice President and
Chief Financial Officer
32
INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit
Number Description
--------- -----------
15 Letter re Unaudited Interim Financial Information
99.1 Sarbanes-Oxley Act of 2002 Certification - Chief Executive Officer
99.2 Sarbanes-Oxley Act of 2002 Certification - Chief Financial Officer
33