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 MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------- ---------------
COMMISSION FILE NUMBER 1-7573
PARKER DRILLING COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1401 Enclave Parkway, Suite 600, Houston, Texas 77077
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (281) 406-2000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Exchange Act of 1934). Yes [X] No [ ]
As of April 30, 2003, 92,946,676 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)
March 31, 2003 and December 31, 2002 2
Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 2003 and 2002 3
Consolidated Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2003 and 2002 4
Notes to Unaudited Consolidated Condensed
Financial Statements 5 - 13
Report of Independent Accountants 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Item 4. Controls and Procedures 25
Part II. Other Information 25
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities or Dividend Arrearages 25
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Officer Certifications 28 - 29
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2003 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents ............................. $ 84,402 $ 51,982
Accounts and notes receivable, net .................... 84,458 89,363
Rig materials and supplies ............................ 16,734 17,161
Other current assets .................................. 2,302 8,631
--------- ---------
Total current assets ............................ 187,896 167,137
--------- ---------
Property, plant and equipment less accumulated
depreciation and amortization of $625,581 at
March 31, 2003 and $604,813 at December 31, 2002 ...... 622,388 641,278
Goodwill, net of accumulated amortization of $108,412 at
March 31, 2003 and December 31, 2002 .................. 115,983 115,983
Other noncurrent assets ................................. 26,140 28,927
--------- ---------
Total assets ................................ $ 952,407 $ 953,325
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ..................... $ 6,603 $ 6,486
Accounts payable and accrued liabilities .............. 63,099 50,742
Accrued income taxes .................................. 6,501 4,347
--------- ---------
Total current liabilities ....................... 76,203 61,575
--------- ---------
Long-term debt .......................................... 581,733 583,444
Other long-term liabilities ............................. 9,897 7,680
Contingencies (Note 6)
Stockholders' equity:
Common stock .......................................... 15,491 15,465
Capital in excess of par value ........................ 435,333 434,998
Accumulated other comprehensive income - net unrealized
gain on investments available for sale .............. 452 664
Accumulated deficit ................................... (166,702) (150,501)
--------- ---------
Total stockholders' equity ........................ 284,574 300,626
--------- ---------
Total liabilities and stockholders' equity .. $ 952,407 $ 953,325
========= =========
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 March 31,
----------------------------
2003 2002
---- ----
Drilling and rental revenues:
U.S. drilling ................................... $ 28,261 $ 22,705
International drilling .......................... 54,254 71,593
Rental tools .................................... 12,613 12,111
------------ ------------
Total drilling and rental revenues ................ 95,128 106,409
------------ ------------
Drilling and rental operating expenses:
U.S. drilling ................................... 21,898 20,246
International drilling .......................... 37,670 48,487
Rental tools .................................... 5,416 5,609
------------ ------------
Total drilling and rental operating expenses ...... 64,984 74,342
------------ ------------
Drilling and rental gross margins ................. 30,144 32,067
------------ ------------
Construction contract revenue ..................... 2,266 17,652
Construction contract expense ..................... 2,266 16,398
------------ ------------
Construction contract gross margin (Note 5) ....... -- 1,254
------------ ------------
Depreciation and amortization ..................... 24,502 23,599
General and administrative expense ................ 5,085 6,913
------------ ------------
Total operating income ............................ 557 2,809
------------ ------------
Other income and (expense):
Interest expense ................................ (13,444) (12,460)
Interest income ................................. 206 352
Gain on disposition of assets ................... 676 923
Minority interest expense ....................... 73 --
Other income (expense) - net .................... 81 (142)
------------ ------------
Total other income and (expense) .................. (12,408) (11,327)
------------ ------------
Loss before income taxes and cumulative effect
of change in accounting principle ............... (11,851) (8,518)
Income tax expense (benefit):
Current ......................................... 4,350 7,751
Deferred ........................................ -- (5,200)
------------ ------------
Income tax expense ................................ 4,350 2,551
------------ ------------
Loss before cumulative effect of change in
accounting principle ............................ (16,201) (11,069)
Cumulative effect of change in accounting
principle ....................................... -- (73,144)
------------ ------------
Net loss .......................................... $ (16,201) $ (84,213)
============ ============
Loss per share - basic:
Before cumulative effect of change in
accounting principle .......................... $ (0.17) $ (0.12)
Cumulative effect of change in
accounting principle .......................... $ -- $ (0.79)
Net loss ........................................ $ (0.17) $ (0.91)
Loss per share - diluted:
Before cumulative effect of change in
accounting principle .......................... $ (0.17) $ (0.12)
Cumulative effect of change in
accounting principle .......................... $ -- $ (0.79)
Net loss ........................................ $ (0.17) $ (0.91)
Number of common shares used in computing
earnings per share:
Basic ........................................... 92,848,131 92,227,213
Diluted ......................................... 92,848,131 92,227,213
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)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net loss .............................................. $(16,201) $(84,213)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization ..................... 24,502 23,599
Gain on disposition of assets ..................... (676) (923)
Cumulative effect of change in accounting principle -- 73,144
Expenses not requiring cash ....................... 1,216 1,976
Deferred income taxes ............................. -- (5,200)
Change in operating assets and liabilities ........ 29,872 3,843
-------- --------
Net cash provided by operating activities ............. 38,713 12,226
-------- --------
Cash flows from investing activities:
Capital expenditures .................................. (6,935) (12,706)
Proceeds from the sale of equipment ................... 2,289 2,275
-------- --------
Net cash used in investing activities ................. (4,646) (10,431)
-------- --------
Cash flows from financing activities:
Principal payments under debt obligations ............. (1,647) (1,209)
Other ................................................. -- (67)
-------- --------
Net cash used in financing activities ................. (1,647) (1,276)
-------- --------
Net change in cash and cash equivalents ................. 32,420 519
Cash and cash equivalents at beginning of period ........ 51,982 60,400
-------- --------
Cash and cash equivalents at end of period .............. $ 84,402 $ 60,919
======== ========
Supplemental cash flow information:
Interest paid ......................................... $ 3,982 $ 5,111
Income taxes paid ..................................... $ 3,480 $ 1,302
Supplemental noncash investing activity:
Net unrealized gain (loss) on investments available
for sale (net of taxes $0 in 2003 and $(10) in 2002) $ (212) $ (19)
Change in fair value of interest rate swap ............ $ -- $ 1,685
Capital lease obligation .............................. $ 290 $ --
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 March 31, 2003 and December 31, 2002, (2)
the results of operations for the three months ended March 31, 2003 and
2002, and (3) cash flows for the three months ended March 31, 2003 and
2002. Results for the three months ended March 31, 2003 are not
necessarily indicative of the results which will be realized for the year
ending December 31, 2003. The financial statements should be read in
conjunction with the Company's Form 10-K for the year ended December 31,
2002.
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.
Stock-Based Compensation - The Company's stock-based employee compensation
plan is accounted for under the recognition and measurement principles of
the Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost related to stock options is reflected in net
loss, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," to stock-based employee compensation.
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
(Dollars in Thousands, Except Per
Share Amounts)
Loss before cumulative effect of change
in accounting principle ..................... $ (16,201) $ (11,069)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards ....................... (392) (717)
---------- ----------
Pro forma loss before cumulative effect of
change in accounting principle .............. $ (16,593) $ (11,786)
========== ==========
Loss per share before cumulative effect of change
in accounting principle
Basic as reported ........................... $ (0.17) $ (0.12)
Basic pro forma ............................. $ (0.18) $ (0.13)
Diluted-as reported ......................... $ (0.17) $ (0.12)
Diluted-pro forma ........................... $ (0.18) $ (0.13)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions for both quarters: no dividend yield;
expected volatility of 56.9%; risk-free interest rate of 4.88%; and
expected lives of options, 5-7 years.
5
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
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 March 31, 2003
-----------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS:
Net loss .............................. $(16,201,000) 92,848,131 $ (0.17)
Effect of dilutive securities:
Stock options and grants .............. -- -- --
Diluted EPS:
Net loss .............................. $(16,201,000) 92,848,131 $ (0.17)
============ ========== ========
For the Three Months Ended March 31, 2002
-----------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS:
Loss before cumulative effect of change
in accounting principle ........... $(11,069,000) 92,227,213 $ (0.12)
Cumulative effect of change in
accounting principle .............. $(73,144,000) 92,227,213 $ (0.79)
Net loss .............................. $(84,213,000) 92,227,213 $ (0.91)
Effect of dilutive securities:
Stock options and grants .............. -- -- --
Diluted EPS:
Loss before cumulative effect of change
in accounting principle ........... $(11,069,000) 92,227,213 $ (0.12)
Cumulative effect of change in
accounting principle .............. $(73,144,000) 92,227,213 $ (0.79)
Net loss .............................. $(84,213,000) 92,227,213 $ (0.91)
============ ========== ========
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 months ended March 31, 2003, options to purchases
9,553,809 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 period. For the three months
ended March 31, 2002, options to purchase 8,463,810 shares of common stock
at prices ranging from $2.25 to $12.1875, were outstanding but not included
in the computation of diluted EPS because the assumed exercise of the
options would have had an anti-dilutive effect on EPS due to the net loss
incurred during the period.
6
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
3. Business Segments - The primary services the Company provides are as
follows: U.S. drilling, international drilling and rental tools.
Information regarding the Company's operations by industry segment for the
three-months ended March 31, 2003 and 2002 is as follows (dollars in
thousands):
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Drilling and rental revenues:
U.S. drilling ................... $ 28,261 $ 22,705
International drilling .......... 54,254 71,593
Rental tools .................... 12,613 12,111
--------- ---------
Total drilling and rental revenues .. 95,128 106,409
--------- ---------
Operating income (loss):
U.S. drilling ................... (3,536) (7,577)
International drilling .......... 5,203 12,541
Rental tools .................... 3,975 3,504
--------- ---------
Total operating income by segment(1). 5,642 8,468
Construction contract gross margin .. -- 1,254
General and administrative expense .. (5,085) (6,913)
--------- ---------
Total operating income .............. 557 2,809
Interest expense .................... (13,444) (12,460)
Minority interest expense ........... 73 --
Other income (expense) - net ........ 963 1,133
--------- ---------
Loss before income taxes ............ $ (11,851) $ (8,518)
========= =========
(1) Operating income by segment is calculated by excluding net
construction contract operating income and general and
administrative expense from operating income, as reported in the
consolidated condensed statements of operations.
4. Reclassifications - Effective the first quarter of 2003 the Company
changed its accounting for reimbursable costs. In prior years, the Company
net the reimbursement with the cost in the Statement of Operations.
Beginning in the current quarter, the Company reflected the reimbursements
as operating revenues and the costs in operating expense. There is no
effect on total operating income. The prior quarter presented has been
reclassified to conform to the current presentation. The effect of making
this change was an increase in both total drilling and rental revenues and
total drilling and rental operating expenses of $9.1 million and $10.2
million for the quarter ended March 31, 2003 and 2002, respectively.
5. Construction Contract - The Company 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 subsequently
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 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.
7
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
6. 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
Civil Panel of 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 were payable as a result of this
assessment. The MSR had until the end of March 2003 to appeal the decision
of the Civil Panel to the Supervisory Panel of the Supreme Court of
Kazakhstan. As of April 30, 2003, no appeal has been made by the MSR, but
the MSR may petition the Supreme Court of Kazakhstan to reopen the case if
material new evidence is discovered. In addition, PDCIL has filed a
petition with the U.S. Treasury Department for competent authority review,
which is a tax treaty procedure to resolve disputes as to which country may
tax income covered under the treaty. The U.S. Treasury Department has
granted our petition and has initiated proceedings with the MSR which are
ongoing.
7. Goodwill - Effective January 1, 2002, the Company adopted 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 an annual basis.
As an initial step in the implementation process, the Company identified
four reporting units which had unamortized goodwill 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 its respective 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 the 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 of 2002. The Company
performed its annual impairment review during the fourth quarter of 2002
with no additional impairment required.
8
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
8. Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standard Board ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002 and establishes an accounting standard
requiring the recording of the fair value of liabilities associated with
the retirement of long-term assets in the period in which the liability is
incurred. Accordingly, we adopted this standard in the first quarter of
2003 and it did not have a material impact on our financial position or
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, No. 44, and No. 64, Amendment of FASB Statement No. 13,
and Technical Corrections." SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. We adopted this standard in the first
quarter of 2003 and it did not have a significant effect on our results of
operations or our financial position.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure - An Amendment of SFAS
No. 123." The standard provides additional transition guidance for
companies that elect to voluntarily adopt the accounting provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 does
not change the provisions of SFAS No. 123 that permit entities to continue
to apply the intrinsic value method of APB No. 25, "Accounting for Stock
Issued to Employees." As we continue to follow APB No. 25, our accounting
for stock-based compensation will not change as a result of SFAS No. 148.
SFAS No. 148 does require certain new disclosures in both annual and
interim financial statements. The interim disclosure provisions have been
included as Note 1.
In March 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This Statement amends
and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement will be effective for
contracts entered into, modified or designated as hedges after June 30,
2003. We will adopt this standard in July 2003 and do not expect it to
have a significant effect on our results of operations or our financial
position.
On January 17, 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, An Interpretation of Accounting Research Bulletin No.
51." The primary objectives of FIN 46 are to provide guidance on how to
identify entities for which control is achieved through means other than
through voting rights (variable interest entities ("VIE")) and how to
determine when and which business enterprise should consolidate the VIE.
This new model for consolidation applies to an entity in which either (1)
the equity investors do not have a controlling financial interest or (2)
the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support
from other parties. See Note 10 regarding our consolidation of AralParker,
a company in which we own a 50 percent equity interest. We are
consolidating AralParker because we exert significant influence and have
a financial interest in the form of a loan, in addition to our equity
interest.
9
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
9. Derivative Financial Instruments - The Company is exposed to interest rate
risk from its fixed-rate debt. The Company 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
assumed no ineffectiveness as each interest rate swap agreement met 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 swap agreements were offset by changes in the fair value of the debt
and no net gain or loss was recognized in earnings. During the first
quarter ended March 31, 2002, the interest rate swap agreements reduced
interest expense by $1.1 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, of which $0.2 million was
recognized during the first quarter of 2003.
10. Guarantor/Non-Guarantor Consolidating Condensed Financial Statements - Set
forth on the following pages are the consolidating condensed financial
statements of the restricted subsidiaries and our subsidiaries which are
not restricted by the Senior Notes. All of the Company's Senior Notes are
guaranteed by substantially all wholly owned subsidiaries of Parker
Drilling. 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. In prior years, 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")
sold two of its rigs in Kazakhstan to AralParker, a Kazakhstan closed
joint stock company which is owned 50 percent by PDCIL and 50 percent by a
Kazakhstan company, Aralnedra, CJSC. Because PDCIL has significant
influence over the business affairs of AralParker, its financial
statements are 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 providing
consolidating condensed financial information of the parent, Parker
Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries
as of March 31, 2003 and for the three months ended March 31, 2003.
10
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended March 31, 2003
-------------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
--------- --------- ------------- ------------ ------------
Drilling and rental revenues:
U.S. drilling ............................ $ -- $ 28,261 $ -- $ -- $ 28,261
International drilling ................... -- 41,902 12,937 (585) 54,254
Rental tools ............................. -- 12,613 -- -- 12,613
--------- --------- --------- --------- ---------
Total drilling and rental revenues ......... -- 82,776 12,937 (585) 95,128
--------- --------- --------- --------- ---------
Drilling and rental operating expenses:
U.S. drilling ............................ 3 21,895 -- -- 21,898
International drilling ................... -- 27,681 10,586 (597) 37,670
Rental tools ............................. -- 5,416 -- -- 5,416
--------- --------- --------- --------- ---------
Total drilling and rental operating expenses 3 54,992 10,586 (597) 64,984
--------- --------- --------- --------- ---------
Drilling and rental gross margins .......... (3) 27,784 2,351 12 30,144
--------- --------- --------- --------- ---------
Construction contract revenue .............. -- 2,266 -- -- 2,266
Construction contract expense .............. -- 2,266 -- -- 2,266
--------- --------- --------- --------- ---------
Construction contract gross margin ......... -- -- -- -- --
--------- --------- --------- --------- ---------
Depreciation and amortization expense ...... -- 22,936 1,566 -- 24,502
General and administrative expense ......... 37 5,048 -- -- 5,085
--------- --------- --------- --------- ---------
Total operating income (loss) .............. (40) (200) 785 12 557
--------- --------- --------- --------- ---------
Other income and (expense):
Interest expense ......................... (14,636) (11,660) (1,110) 13,962 (13,444)
Interest income .......................... 12,845 901 422 (13,962) 206
Gain on disposition of assets ............ -- 677 (1) -- 676
Minority interest expense ................ -- -- 73 -- 73
Other income (expense) - net ............. -- 81 12 (12) 81
Equity in net earnings of subsidiaries ... (13,498) -- -- 13,498 --
--------- --------- --------- --------- ---------
Total other income and (expense) ........... (15,289) (10,001) (604) 13,486 (12,408)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle ..................... (15,329) (10,201) 181 13,498 (11,851)
Income tax expense:
Current .................................. 872 3,478 -- -- 4,350
Deferred ................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Income tax expense ......................... 872 3,478 -- -- 4,350
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ (16,201) $ (13,679) $ 181 $ 13,498 $ (16,201)
========= ========= ========= ========= =========
11
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, 2003
---------------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
--------- --------- ------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ...................... $ 77,541 $ 5,002 $ 1,859 $ -- $ 84,402
Accounts and notes receivable, net ............. 90,552 98,624 17,909 (122,627) 84,458
Rig materials and supplies ..................... -- 16,734 -- -- 16,734
Other current assets and short-term investments 1 2,223 28 50 2,302
--------- ----------- --------- ----------- ---------
Total current assets ..................... 168,094 122,583 19,796 (122,577) 187,896
--------- ----------- --------- ----------- ---------
Property, plant and equipment, net ............... 152 596,714 39,116 (13,594) 622,388
Goodwill, net .................................... -- 115,983 -- -- 115,983
Investment in subsidiaries and intercompany
advances ....................................... 752,401 558,200 21,253 (1,331,854) --
Other noncurrent assets .......................... 19,433 14,210 146 (7,649) 26,140
--------- ----------- --------- ----------- ---------
Total assets ............................. $ 940,080 $ 1,407,690 $ 80,311 $(1,475,674) $ 952,407
========= =========== ========= =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .............. $ 5,673 $ 930 $ -- $ -- $ 6,603
Accounts payable and accrued liabilities ....... 37,542 168,712 7,288 (143,942) 69,600
--------- ----------- --------- ----------- ---------
Total current liabilities ................. 43,215 169,642 7,288 (143,942) 76,203
--------- ----------- --------- ----------- ---------
Long-term debt ................................... 581,733 -- -- -- 581,733
Deferred income tax .............................. (45,300) 45,300 -- -- --
Other long-term liabilities and minority interest 1,275 8,622 -- -- 9,897
Intercompany payables ............................ 74,583 497,709 40,773 (613,065) --
Contingencies (Note 6)
Stockholders' equity:
Common stock and capital in excess of par value 450,824 1,078,708 5,451 (1,084,159) 450,824
Accumulated other comprehensive income ......... 452 -- -- -- 452
Accumulated deficit ............................ (166,702) (392,291) 26,799 365,492 (166,702)
--------- ----------- --------- ----------- ---------
Total stockholders' equity ............... 284,574 686,417 32,250 (718,667) 284,574
--------- ----------- --------- ----------- ---------
Total liabilities and stockholders' equity $ 940,080 $ 1,407,690 $ 80,311 $(1,475,674) $ 952,407
========= =========== ========= =========== =========
12
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended March 31, 2003
-----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
------ --------- ------------- ------------ ------------
Cash flows from operating activities:
Net income (loss) ................................. $(16,201) $(13,679) $ 181 $ 13,498 $(16,201)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ................. -- 22,936 1,566 -- 24,502
Gain on disposition of assets ................. -- (677) 1 -- (676)
Expenses not requiring cash ................... 237 (7,303) -- 8,282 1,216
Equity in net earnings of subsidiaries ........ 56,383 -- -- (56,383) --
Change in operating assets and liabilities .... (4,485) 20,730 1,171 12,456 29,872
-------- -------- ------- -------- --------
Net cash (used in) provided by operating activities 35,934 22,007 2,919 (22,147) 38,713
-------- -------- ------- -------- --------
Cash flows from investing activities:
Proceeds from the sale of equipment ............... -- 2,289 -- -- 2,289
Capital expenditures .............................. -- (6,881) (54) -- (6,935)
-------- -------- ------- -------- --------
Net cash used in investing activities ............. -- (4,592) (54) -- (4,646)
-------- -------- ------- -------- --------
Cash flows from financing activities:
Principal payments under debt obligations ......... (1,647) -- -- -- (1,647)
Intercompany advances, net ........................ -- (18,631) (3,516) 22,147 --
-------- -------- ------- -------- --------
Net cash used in financing activities ............. (1,647) (18,631) (3,516) 22,147 (1,647)
-------- -------- ------- -------- --------
Net change in cash and cash equivalents ............. 34,287 (1,216) (651) -- 32,420
Cash and cash equivalents at beginning of period .... 43,254 6,218 2,510 -- 51,982
-------- -------- ------- -------- --------
Cash and cash equivalents at end of period .......... $ 77,541 $ 5,002 $ 1,859 $ -- $ 84,402
======== ======== ======= ======== ========
13
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 March 31, 2003 and the related
consolidated condensed statements of operations and cash flows for the
three-month periods ended March 31, 2003 and 2002. 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 auditing standards generally accepted in the United States, 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, 2002, 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, 2003, 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, 2002, 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
April 28, 2003
14
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 tool activity,
*future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment,
*repayment of debt,
*future sales of assets
*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 pace of recovery 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,
*political instability
*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,
*unanticipated cancellation of contracts by operators without cause,
*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.
15
OUTLOOK AND OVERVIEW
The Company's financial results for the first quarter of 2003 reflect a
continuation of the depressed market conditions in both the Gulf of Mexico and
international drilling markets. Rig utilization and dayrates have remained
depressed in the Gulf of Mexico since the fourth quarter of 2001. The Company's
international land drilling and offshore drilling markets experienced further
weakness in the first quarter of 2003 compared to the fourth quarter of 2002.
The Company's rental tool business improved during the quarter compared to both
the fourth quarter of 2002 and the first quarter of 2002.
While the downward trend in drilling activity in the Gulf of Mexico that
began in late 2001 was in response to declining demand and prices for natural
gas, due in part to the economic recession in the United States, this reduced
level of activity continued through 2002 and the first quarter of 2003 even as
the price for crude oil and natural gas increased. The continued decline in
activity is most likely attributable to several factors, including a focus by
exploration and production companies on improving their balance sheets by
directing cash to debt reduction, the lack of acceptable well prospects and in
some cases funding issues for independent operators. Due to the reduction in
drilling activity in the first quarter of 2003, barge rig utilization decreased
from 58 percent in the fourth quarter of 2002 to 52 percent in the first quarter
of 2003, which was an improvement versus the 44 percent experienced in the first
quarter of 2002 with average dayrates declining by approximately eight percent
and 11 percent versus the fourth quarter of 2002 and the first quarter of 2002,
respectively. Utilization for the jackup rigs decreased from 93 percent in the
fourth quarter of 2002 to 75 percent during the first quarter of 2003, which was
an improvement compared to the 53 percent experienced in the first quarter of
2002. Average dayrates for the jackup rigs improved by approximately four
percent and 15 percent when compared to the fourth quarter of 2002 and the first
quarter of 2002, respectively. The Company's rental tool business experienced an
improvement in activity versus both the fourth quarter of 2002 and the first
quarter of 2002. Rental tool revenues increased by 22 percent compared to the
fourth quarter of 2002 and by four percent compared to the first quarter of
2002, and gross margins increased to 57 percent from 50 percent in the fourth
quarter of 2002 and 54 percent in the first quarter of 2002.
Our drilling operations in the Commonwealth of Independent States (the
former Soviet Union, referred to hereinafter as the "CIS"), which includes
Kazakhstan and Russia, are a significant part of our current international
operations and the Company believes the region has potential for additional
growth in the future. Since 1993, our operations in Kazakhstan have grown from
providing labor to our principal customer to owning or managing 11 drilling rigs
for several operators, currently six drilling rigs are operating. In response to
the Kazakhstan government's request to incorporate local content and in order to
take advantage of the growth potential and remain a preferred vendor in
Kazakhstan, Parker partnered with a local company in July 2002. As a result of
the agreement with AralParker, a Kazakhstan closed joint stock company which is
owned 50 percent by Parker Drilling Company International Limited ("PDCIL") and
50 percent by a Kazakhstan company, Aralnedra CJSC, AralParker purchased two
rigs from PDCIL and PDCIL assigned the contract associated with such rigs to
AralParker. The purchase of the rigs by AralParker was financed by Parker
Drilling over a five-year period. In addition, PDCIL is leasing a third rig to
AralParker, and is operating the joint venture company pursuant to a management
and technical services contract. In light of the Company's significant influence
over the business affairs of AralParker, its financial statements are
consolidated with the Company's financial statements in accordance with
generally accepted accounting principles. Although Aralnedra effectively owns 50
percent of the two rigs, PDCIL receives approximately 90 percent of the cash
flow generated by the current five-year drilling contract, effective February
2002, through the proceeds of repayment of the loan and the management and
technical services contract.
16
OUTLOOK AND OVERVIEW (continued)
In November 2002, the Company and AralParker received notification from
TengizChevroil ("TCO") to suspend drilling operations upon completion of wells
being drilled in Kazakhstan's Tengiz field pending agreement on funding issues
facing the TCO partners. On January 27, 2003, the Company and AralParker
received notification to resume normal drilling operations in the Tengiz field,
except for a labor contract on a TCO-owned rig. While we received notification
of the suspension in mid-November, the rigs and crews were instructed to
continue drilling wells in progress as of the date of the suspension notice. As
a result, operations continued at near normal operating rates throughout most of
the suspension period, resulting in a minimal financial impact to the Company
and AralParker.
In the first quarter of 2003, international revenues declined by $6.2
million as compared to the fourth quarter of 2002 and by $17.3 million versus
the first quarter of 2002 with gross margins declining in the first quarter $4.5
million as compared to the fourth quarter of 2002 and $6.5 million versus the
first quarter of 2002. The decline in revenues and gross margins in the first
quarter of 2003 as compared to the fourth quarter of 2002 is attributable to the
CIS and Asia Pacific regions, with CIS accounting for approximately 80 percent
of the gross margin difference. The gross margin decline in the CIS is
attributable to approximately equal declines in both the Tengiz and Karachaganak
areas. During the fourth quarter the Company recognized a termination fee for
one rig in Karachaganak accounting for the reduction in gross margin. Currently
the Company is working one rig in Karachaganak down from three Company rigs
operating during the first quarter of 2002. While the Company does not
anticipate either of these areas will return to the level experienced in the
fourth quarter in the near future, it is optimistic that other areas of
opportunity will be available in the CIS. The decline of $17.3 million in
revenues during the first quarter of 2003 versus the first quarter of 2002
generally occurred across all areas of operation; however, 85 percent of the
$6.5 million decline in gross margin for the same period is related almost
equally to Latin America and Asia Pacific.
During the first quarter of 2003, cash flow from operations was $38.7
million versus $12.2 million for the first quarter of 2002. Management has
continued its efforts that began in 2002 to significantly reduce capital
expenditures, which were $45.2 million in 2002 as compared to $122.0 million in
2001. During the first quarter of 2003 the Company spent $6.9 million for
capital expenditures compared to $12.7 million in the first quarter of 2002. In
addition, management has continued to actively pursue the cost reduction program
that began in 2002, including its focus on reducing the level of working capital
required for day-to-day operations. As a result, the Company's cash position
improved to $84.4 million at March 31, 2003 from $52.0 million at year end.
Management anticipates that working capital needs and funds required for capital
spending in 2003 will be met with cash provided by operations. Based on
anticipated cash requirements for capital spending of less than $50.0 million in
2003, it is management's current intention to hold capital expenditures at or
below this level and to apply available free cash flow to repay long-term debt.
The amount of debt that can be repaid is dependent on the results of operations
and the proceeds from the sale of assets in 2003. Should new opportunities
requiring additional capital arise, that are not contemplated in management's
current capital expenditure budget, the Company will utilize existing cash and,
if necessary, borrowings under its revolving credit facility (this facility
terminates on October 22, 2003, see Liquidity and Capital Resources section for
additional information). In addition, the Company may seek project financing or
equity participation from outside alliance partners or customers. The Company
cannot predict whether such financing or equity participation would be available
on terms acceptable to the Company.
17
OUTLOOK AND OVERVIEW (continued)
During the Company's first quarter conference call with investors,
management revised its previously announced guidance for 2003 to a net loss
range of $0.26 to $0.30 per share. This estimate is based on management's belief
that both dayrates and utilization will increase modestly during the last half
of the year on the basis that current prices and expected demand for oil and gas
will stimulate an increase in drilling activity. Also, during the conference
call the Company reaffirmed its plan to sell assets by mid-year. Though the
exact assets that ultimately will be sold have not been identified, management
believes that the net proceeds after transaction fees and taxes of the assets
ultimately sold will allow the Company to reduce its long-term debt by $200
million. The Company has retained an investment banker to assist with the sale
of assets, but has not entered into any sales agreements at this time. The
guidance for 2003 does not reflect the impact of any asset sales. While there
are no assurances that the Company will be successful in its plan to sell
assets, the Company continues to believe that it will achieve its target.
If the Company is not successful in achieving at least a portion of the
targeted amount of proceeds from the assets sales, the Company does not
currently have the liquidity required to retire the Convertible Subordinated
Notes payable in August 2004; therefore, the Company is actively pursuing
alternate sources of liquidity to address this risk.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared with Three Months Ended March 31,
2002
The Company recorded a net loss of $16.2 million for the three months
ended March 31, 2003 compared to a net loss of $11.1 million before the
cumulative change in accounting principle recorded for the three months ended
March 31, 2002. The net loss in the first quarter of 2003 is reflective of lower
utilization in the Company's international land operations.
Three Months Ended March 31,
-----------------------------------------
2003 2002
----------------- ------------------
Drilling and rental revenues: (Dollars in Thousands)
U.S. drilling .................. $28,261 30% $ 22,705 21%
International drilling ......... 54,254 57% 71,593 67%
Rental tools ................... 12,613 13% 12,111 12%
------- --- -------- ---
Total drilling and rental revenues $95,128 100% $106,409 100%
======= === ======== ===
The Company's drilling and rental revenues decreased $11.3 million to
$95.1 million in the current quarter as compared to the first quarter of 2002.
U.S. drilling revenues increased $5.6 million due to increased utilization
partially offset by declining dayrates related to the barge rigs. Total barge
rig revenues increased $1.4 million in the current quarter, as a result of an
increase in utilization from 44 percent to 52 percent offset by an 11 percent
decrease in average dayrates. Jackup rig revenues increased $4.2 million in the
current quarter as compared to the first quarter of 2002 due to a 15 percent
increase in dayrates and utilization increased from 53 percent to 75 percent.
18
RESULTS OF OPERATIONS (continued)
International drilling revenues decreased $17.3 million to $54.3 million
in the current quarter as compared to the first quarter of 2002. International
land drilling revenues decreased $13.9 million while international offshore
drilling revenues decreased $3.4 million. All international land locations
experienced a decrease in revenues in the first quarter of 2003 as compared to
2002. Land revenues in the CIS region decreased $3.9 million primarily
attributed to our Kazakhstan operations. During the first quarter 2002 the
Company had three rigs operating in the Karachaganak field in Kazakhstan, two of
these rigs were released during the latter half of 2002. The reduction of two
rigs resulted in decreased revenues of $2.4 million. The Company's operations in
Tengiz accounted for the remainder of the reduced revenues. Upon resumption of
operations in January of 2003, TCO released one rig, owned by TCO, which the
Company provided labor services resulting in a decrease of revenues of $0.9
million. Revenues in Latin America decreased $7.2 million primarily due to
declining utilization in Colombia. During the first quarter of 2002 the Latin
America region averaged 7.5 rigs operating as compared to an average of 3.5 rigs
working during the first quarter of 2003. During the second quarter of 2002, a
customer released four rigs in Colombia and currently only one rig has resumed
operations. At this time the Company does not expect the customer to resume its
previous level of activity. Revenues in our Asia Pacific region decreased by
$3.4 million due primarily to three fewer rigs operating in the first quarter of
2003 as compared to the first quarter of 2002. In Indonesia revenues decreased
$1.2 million as the Company operated three rigs in 2002 compared to one rig
during the first quarter of 2003. In Papua New Guinea revenues decreased $2.1
million due to a one rig decrease in utilization and reduced labor contract
days.
The decrease of $3.4 million in international offshore drilling revenues
was due to reduced utilization in Nigeria. During the current quarter, three of
the four Nigerian barge rigs were on contract as compared to 100 percent
utilization during the first quarter of 2002. One barge rig has been stacked
since the completion of its contract during the third quarter of 2002. In
addition, during the current quarter two of the three barge rigs under contract
had drilling suspended due to civil unrest in the area. Both barge rigs remained
on force majeure rates which approximate 90 percent of the full dayrate. One
barge rig returned to full operations at the end of April 2003. The second
barge rig is expected to be placed on standby, (at a rate approximating 45
percent of full dayrate) until late in the third quarter of 2003.
Rental tool revenues increased $0.5 million as Quail Tools reported
revenues in the current quarter of $12.6 million. Revenues increased $0.4
million from the New Iberia, Louisiana operations, decreased $0.1 million from
the Victoria, Texas operations, decreased $0.1 million from the Odessa, Texas
operations and generated $0.3 million from its new operation in Evanston,
Wyoming.
Three Months Ended March 31,
--------------------------------------
2003 2002
------------------ ----------------
Drilling and rental gross margin: (Dollars in Thousands)
U.S. drilling .................... $ 6,363 23% $ 2,459 11%
International drilling ........... 16,584 31% 23,106 32%
Rental tools ..................... 7,197 57% 6,502 54%
-------- --------
Total drilling and rental gross margin 30,144 32% 32,067 30%
-------- --------
Depreciation and amortization .... (24,502) (23,599)
Construction contract gross margin -- 1,254
General and administrative expense (5,085) (6,913)
-------- --------
Total operating income ............... $ 557 $ 2,809
======== ========
(Drilling and rental gross margin - drilling and rental revenues less direct
drilling and rental operating expenses; drilling and rental gross margin
percentages - drilling and rental gross margin as a percent of drilling and
rental revenues.)
19
RESULTS OF OPERATIONS (continued)
Drilling and rental gross margin of $30.1 million in the current quarter
reflected a decrease of $1.9 million from the first quarter of 2002. In the U.S.
drilling market, gross margin increased $3.9 million. U.S. gross margin was
positively impacted during the current quarter by higher utilization and
dayrates in the Gulf of Mexico from the jackup rigs and increased utilization
from the barge rigs as previously discussed. Average dayrates for the jackup
rigs increased approximately 15 percent in the current quarter when compared to
the first quarter of 2002. Jackup rig utilization increased from 53 percent in
2002 to 75 percent in 2003. Barge rig utilization increased from 44 percent in
2002 to 52 percent in 2003.
International drilling gross margin decreased $6.5 million in the current
quarter as compared to the first quarter of 2002. International land drilling
gross margin decreased $6.2 million to $9.9 million during the current quarter
due to declining utilization in the Company's Latin America, Asia Pacific and
CIS regions as previously discussed. In Latin America where the gross margin
decreased $2.8 million, five rigs were working in Colombia in 2002, with only
two in 2003. One rig worked the entire first quarter of 2002 in Ecuador, but the
project was completed late in 2002. Partially offsetting Colombia and Ecuador,
Peru had one rig working the entire first quarter of 2003 compared to no rigs
operating in 2002. The Asia Pacific region gross margin decreased $2.7 million
in 2003. Indonesia had three rigs operating in 2002 compared to one in 2003.
Utilization in Papua New Guinea and New Zealand declined from 52 percent and 72
percent respectively in 2002, to 36 percent and 62 percent in 2003. The CIS
region gross margin for land operations decreased $1.0 million in 2003, entirely
due to a reduction in utilization in the Karachaganak field from three rigs in
2002 to one rig in 2003. The international offshore gross margin decreased $0.3
million to $6.7 million in the current quarter. This decrease is attributable to
75 percent utilization of the Nigeria barge rigs in 2003 compared to 100 percent
utilization in 2002.
Rental tool gross margin increased $0.7 million to $7.2 million during the
current quarter as compared to the first quarter of 2002. Gross margin
percentage increased to 57 percent during the current quarter as compared to 54
percent for the first quarter of 2002, due to a slight increase in revenues and
a three percent decrease in operating expenses.
Depreciation and amortization expense increased $0.9 million to $24.5
million in the current quarter. Depreciation expense increased due to capital
additions during 2002.
During the first quarter of 2002, the Company announced a new contract to
design, construct, mobilize and sell a rig to drill extended reach wells to
offshore targets from a land-based location on Sakhalin Island, Russia for an
international consortium. The Company also entered into a contract to
subsequently operate the rig on behalf of the international consortium. The
revenue and expense for the project are recognized as construction contract
revenue and expense. The estimated profit from the engineering, construction,
mobilization and rig-up fees is calculated on a percentage of completion basis.
For the first quarter ended March 31, 2003 there was no estimated profit
recognized as compared to $1.3 million for the first quarter of 2002. The total
estimated profit recognized to date under the design, construction, mobilization
and rig-up contract is $2.5 million all recognized during 2002. It is
anticipated that the rig will commence drilling in June 2003.
General and Administrative expense decreased $1.8 million to $5.1 million
in the current quarter as compared to the first quarter of 2002. The decrease is
attributed to the following: salaries and wages decreased $0.5 million as a
result of the reduction in force in June 2002; professional and legal fees
decreased $0.6 million; unscheduled maintenance of $0.2 million on the former
corporate headquarters in Tulsa during 2002; and the remaining decrease is a
result of the ongoing cost reduction program implemented last year.
Interest expense increased $1.0 million in the first quarter of 2003 as
compared to the first quarter of 2002. During the first quarter of 2002 the
Company entered into three $50.0 million swap agreements that resulted in $1.1
million in interest savings. The swap agreements were terminated during the
third quarter of 2002. In addition, interest expense increased due to the
exchange of $235.6 million in principal amount of new 10.125% Senior Notes due
2009 for a like amount of its 9.75% Senior Notes due 2006. The exchange offer
was effective July 1, 2002.
20
RESULTS OF OPERATIONS (continued)
Income tax expense consists of foreign tax expense of $4.4 million for the
first quarter of 2003. For the first quarter of 2002 income tax expense
consisted of foreign tax expense of $7.8 million and a deferred tax benefit of
$5.2 million. Foreign taxes decreased $3.4 million due primarily to $3.1 million
in additional taxes paid in Colombia during the first quarter of 2002, some of
which was attributable to prior years. The deferred tax benefit recognized
during the first quarter of 2002 was due to the loss generated. For the first
quarter of 2003 the Company incurred a net loss, however, no additional deferred
tax benefit was recognized since the sum of the Company's deferred tax assets,
principally the net operating loss carryforwards, exceeds the deferred tax
liabilities, principally the excess of tax depreciation over book depreciation.
This additional deferred tax asset was fully reserved through a valuation
allowance in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, the Company had cash and cash equivalents of $84.4
million, an increase of $32.4 million from December 31, 2002. The primary
sources of cash for the three-month period as reflected on the Consolidated
Condensed Statement of Cash Flows were $38.7 million provided by operating
activities and $2.3 million from the disposition of equipment.
The primary uses of cash for the three-month period ended March 31, 2003
were $6.9 million for capital expenditures and $1.6 million for repayment of
debt. Major projects during the current three-month period included expenditures
on drill pipe and tubulars for Quail Tools.
As of March 31, 2002, the Company had cash and cash equivalents of $60.9
million, an increase of $0.5 million from December 31, 2001. The primary sources
of cash for the three-month period as reflected on the Consolidated Condensed
Statement of Cash Flows were $12.2 million provided by operating activities and
$2.3 million from the disposition of equipment.
The primary uses of cash for the three-month period ended March 31, 2002
were $12.7 million for capital expenditures and $1.2 million for repayment of
debt. Major projects during the three-month period ended March 31, 2002 included
expenditures on Rig 228 operating in Peru and completion of spending on two rigs
in the CIS region.
The Company has total long-term debt of $588.3 million, including the
current portion of $6.6 million at March 31, 2003. 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. Currently, the borrowing base is $37.2 million, of which
none has been drawn down, and $12.2 million has been reserved for letters of
credit resulting in available revolving credit of $25.0 million. The revolver
terminates on October 22, 2003. The Company is in the process of renewing or
replacing the existing revolver with a larger facility, which would include a
term loan portion. The Company is seeking to obtain that facility so that a
portion of the proceeds available from the new facility could be used as a
source of funds in the event that the Convertible Subordinated Notes payable in
August 2004 have not been refinanced or retired. There are no assurances that
the Company will be successful in obtaining this facility.
The Company anticipates the working capital needs and funds required for
capital spending will be met from existing cash 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 2003. Should new
opportunities requiring additional capital arise, the Company may utilize the
revolving credit facility. In addition, the Company may seek project financing
or equity participation from outside alliance partners or customers. The Company
cannot predict whether such financing or equity participation would be available
on terms acceptable to the Company.
21
LIQUIDITY AND CAPITAL RESOURCES (continued)
The following tables summarize the Company's future contractual cash
obligations and other commercial commitments as of March 31, 2003.
After 5
1 Year 2 - 3 Years 4 - 5 Years Years Total
------ ----------- ----------- ----- -----
(Dollars in Thousands)
Contractual cash obligations:
Long-term debt - principal (1) $ 6,603 $128,092 $214,192 $235,612 $584,499
Long-term debt - interest (1) 52,266 91,884 60,764 38,766 243,680
Operating leases (2) ......... 3,317 4,281 3,432 1,816 12,846
------- -------- -------- -------- --------
Total contractual cash obligations $62,186 $224,257 $278,388 $276,194 $841,025
======= ======== ======== ======== ========
Commercial commitments:
Revolving credit facility (3) $ -- $ -- $ -- $ -- $ --
Standby letters of credit (3) 12,167 -- -- -- 12,167
------- -------- -------- -------- --------
Total commercial commitments ..... $12,167 $ -- $ -- $ -- $ 12,167
======= ======== ======== ======== ========
(1) Long-term debt includes the principal and interest cash obligations
of the 9.75% Senior Notes, the 10.125% Senior Notes, the 5.5%
Convertible Subordinated Notes, the secured 10.1278% promissory note
and the capital leases. Premiums related to the Senior Notes and
interest rate swap to market gain (see Note 9) are not included in
the contractual cash obligations schedule.
(2) Operating leases consist of lease agreements in excess of one year
for office space, equipment, vehicles and personal property.
(3) The Company has a $50.0 million revolving credit facility with an
available borrowing base of $37.2 million. As of March 31, 2003,
none has been drawn down, but $12.2 million of availability has been
used to support letters of credit that have been issued. The
revolving credit facility expires in October 2003.
The Company does not have any unconsolidated special-purpose entities,
off-balance-sheet financing arrangements or guarantees of third-party financial
obligations. The Company has no energy or commodity contracts.
22
OTHER MATTERS
Critical Accounting Policies
The Company considers certain accounting policies related to impairment of
property, plant and equipment, impairment of goodwill, the valuation of deferred
tax assets and revenue recognition to be critical accounting policies due to the
estimation processes involved in each.
Impairment of property, plant and equipment - Management periodically
evaluates the Company's property, plant and equipment to determine that their
net carrying value is not in excess of their net realizable value. These
evaluations are performed when the Company has realized sustained significant
declines in utilization and dayrates and recovery is not contemplated in the
near future. 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.
Impairment of goodwill - Management periodically assesses whether the
excess of cost over net assets acquired is impaired based on the estimated fair
value of the operation to which it relates, which value is generally determined
based on estimated future cash flows of that operation. If the estimated fair
value is in excess of the carrying value of the operation, no further analysis
is performed. If the fair value of each operation, to which goodwill has been
assigned, is less than the carrying value, we will deduct the fair value of the
tangible and intangible assets and compare the residual amount to the carrying
value of the goodwill to determine if an impairment should be recorded.
In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets," became
effective and as a result, the Company discontinued the amortization of $189.1
million of goodwill. In lieu of amortization, the Company performed an initial
impairment review of goodwill and as a result impaired goodwill by $73.1
million. The Company will perform an annual impairment review, in December,
hereafter. The impairment was recognized as a cumulative effect of a change in
accounting principle. The Company performed its annual impairment review during
the fourth quarter of 2002 with no additional impairment required.
Accounting for income taxes - As part of the process of preparing the
consolidated financial statements, the Company is required to estimate the
income taxes in each of the jurisdictions in which the Company operates. This
process involves estimating the actual current tax exposure together with
assessing temporary differences resulting from differing treatment of items,
such as depreciation, amortization and certain accrued liabilities for tax and
accounting purposes. These differences and the net operating loss carryforwards
result in deferred tax assets and liabilities, which are included within the
Company's consolidated balance sheet. The Company must then assess the
likelihood that the deferred tax assets will be recovered from future taxable
income, and to the extent the Company believes that recovery is not likely, the
Company must establish a valuation allowance. To the extent the Company
establishes a valuation allowance or increases or decreases this allowance in a
period, the Company must include an expense or reduction of expense within the
tax provision in the statement of operations.
Revenue recognition - 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.
23
OTHER MATTERS (continued)
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 and establishes an
accounting standard requiring the recording of the fair value of liabilities
associated with the retirement of long-term assets in the period in which the
liability is incurred. Accordingly, we adopted this standard in the first
quarter of 2003 and it did not have a material impact on our financial position
or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, No. 44, and No. 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002. We adopted this standard in the first quarter of 2003 and it
did not have a material impact on our results of operations or our financial
position.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No.
123." The standard provides additional transition guidance for companies that
elect to voluntarily adopt the accounting provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 does not change the
provisions of SFAS No. 123 that permit entities to continue to apply the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." As we continue to follow APB No. 25, our accounting for stock-based
compensation will not change as a result of SFAS No. 148. SFAS No. 148 does
require certain new disclosures in both annual and interim financial statements.
The interim disclosure provisions have been included as Note 10.
In March 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement will be effective for contracts entered into,
modified or designated as hedges after June 30, 2003. We will adopt this
standard in July 2003 and do not expect it to have a material impact on our
results of operations or our financial position.
On January 17, 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, An Interpretation of Accounting Research Bulletin No. 51."
The primary objectives of FIN 46 are to provide guidance on how to identify
entities for which control is achieved through means other than through voting
rights (variable interest entities ("VIE")) and how to determine when and which
business enterprise should consolidate the VIE. This new model for consolidation
applies to an entity in which either (1) the equity investors do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. See Note 10 regarding our
consolidation of AralParker, a company in which we own a 50 percent equity
interest. We are consolidating AralParker because we exert significant
influence and have a financial interest in the form of a loan, in addition to
our equity interest.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company is exposed to interest rate risk from its fixed-rate debt. The
Company 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 assumed no ineffectiveness as each interest rate
swap agreement met 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 swap agreements were offset by changes in the fair value of the
debt and no net gain or loss was recognized in earnings. During the first
quarter ended March 31, 2002, the interest rate swap agreements reduced interest
expense by $1.1 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, of which $0.2 million was recognized
during the first quarter of 2003.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES OR DIVIDEND ARREARAGES
None.
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on April 30, 2003 there were
represented in person or by proxy 81,756,157 shares out of 92,896,060 entitled
to vote as of March 12, 2003, the record date, constituting a quorum. The two
matters voted upon at the Annual Meeting were:
Election of Directors: The Stockholders elected two class I directors to
the board of directors of Parker Drilling Company to serve for a three-year
term, until 2006:
John W. Gibson Jr.
Votes cast in favor: 75,040,741
Votes withheld: 6,715,416
R. Rudolph Reinfrank
Votes cast in favor: 74,753,227
Votes withheld: 7,002,930
Election of independent accountants: PricewaterhouseCoopers LLP was
approved as the independent accountants for 2003 with:
Votes cast in favor: 66,191,323
Votes against: 15,136,726
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed as a part of this report:
Exhibit
Number Description
- ------ -----------
4.1 First Supplemental Indenture effective as of May 2, 2002 among the
Company, as issuer, certain subsidiary Guarantors (as defined therein)
and JPMorgan Chase Bank, as Trustee, respecting the 10 1/8% Senior Notes
due 2009
15 Letter re Unaudited Interim Financial Information
99.1 Section 906 Certification - Chief Executive Officer
99.2 Section 906 Certification - Chief Financial Officer
(b) Reports on Form 8-K:
The Company filed a Form 8-K on April 28, 2003 announcing its
operating results for the quarter ended March 31, 2003, and revised
2003 outlook.
26
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: May 13, 2003
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
27
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: May 7, 2003
/s/ Robert L. Parker Jr.
---------------------------------
Robert L. Parker Jr.
President and Chief Executive
Officer and Director
28
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: May 7, 2003
/s/ James W. Whalen
---------------------------------
James W. Whalen
Senior Vice President and
Chief Financial Officer
29
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
4.1 First Supplemental Indenture effective as of May 2, 2002 among the
Company, as issuer, certain subsidiary Guarantors (as defined
therein) and JPMorgan Chase Bank, as Trustee, respecting the 10 1/8%
Senior Notes due 2009
15 Letter re Unaudited Interim Financial Information
99.1 Section 906 Certification - Chief Executive Officer
99.2 Section 906 Certification - Chief Financial Officer
30