UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One) ---------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-7573
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PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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Securities registered pursuant Name of each exchange on
to Section 12(b) of the Act: which registered:
Common Stock, par value $.16 2/3 per share New York Stock Exchange, Inc.
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(Title of class)
Securities registered pursuant to section 12(g) of the Act:
N/A
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 31, 2000, 77,885,693 common shares were outstanding, and
the aggregate market value of the common shares (based upon the closing price
of these shares on the New York Stock Exchange) held by nonaffiliates was
$256.7 million.
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 4a. Executive Officers 20
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 67
PART III
Item 10. Directors and Executive Officers of the Registrant 67
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial Owners
and Management 67
Item 13. Certain Relationships and Related Transactions 67
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 68
Signatures 75
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K 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 directly in this document, referring to the Company, or
may be "incorporated by reference", referring to other documents filed 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, including future operating
results, future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment, borrowings, repayment of debt, expansion
and growth of operations, anticipated cost savings, and other such matters,
are forward-looking statements.
Forward-looking statements are based on certain assumptions and analyses
made by the management of the Company in light of their experience and
perception of historical trends, current conditions, expected future
developments and other factors they believe are relevant. Although management
of the Company believes that their assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties,
many of which are outside the control of the Company. These risks include
worldwide economic and business conditions, fluctuations in the market prices
of oil and gas, government regulations and environmental matters,
international trade restrictions and political instability, operating hazards
and uninsured risks, substantial leverage, seasonality and adverse weather
conditions, concentration of customer and supplier relationships, upgrade and
refurbishment projects, competition, integration of operations, acquisition
strategy and other similar factors (some of which are discussed in documents
incorporated by reference). Because the forward-looking statements are
subject to these 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.
PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT
Parker Drilling Company was incorporated in the state of Oklahoma in 1954
after having been established in 1934 by its founder Gifford C. Parker. The
founder was the father of Robert L. Parker, the chairman and a principal
stockholder, and the grandfather of Robert L. Parker Jr., president and chief
executive officer. In March 1976, the state of incorporation of the Company
was changed to Delaware through the merger of the Oklahoma corporation into
its wholly-owned subsidiary Parker Drilling Company, a Delaware corporation.
Unless otherwise indicated, the term "Company" refers to Parker Drilling
Company together with its subsidiaries and "Parker Drilling" refers solely to
the parent, Parker Drilling Company.
The Company is a leading worldwide provider of contract drilling and
drilling related services, operating in the transition zones of the Gulf of
Mexico and Nigeria, in the offshore waters of the Gulf of Mexico and the
Caspian Sea, and on land in Alaska and international oil and gas producing
regions. Historically, the Company operated exclusively on land, specializing
in deep, difficult wells and drilling in remote areas. In the last three
years, the Company diversified into the offshore drilling business through the
acquisition of Mallard Bay Drilling, Inc. ("Mallard"), and Hercules Offshore
Corp. and Hercules Rig Corp. (collectively, "Hercules") and the rental tool
business through the acquisition of Quail Tools, Inc., ("Quail"). In
addition, the Company expanded its international land fleet by acquiring the
drilling assets of Bolifor, a leading provider of land contract drilling
services in Bolivia. During 1999 the Company sold 26 land rigs, pursuant to
the Company's strategic plan to focus on offshore and international markets
where margins are consistently higher. Included were 13 lower-48 domestic
land rigs sold in September 1999 and 11 Argentina land rigs (previously
classified as assets held for disposition) sold during the fourth quarter.
The Company's current rig fleet consists of 28 barge drilling and
workover rigs, seven offshore jackup rigs, five offshore platform rigs and 51
land rigs. The Company's barge drilling and workover rig fleet is dedicated
to transition zone waters, which are generally defined as coastal waters to
depths of up to 25 feet. The Company's offshore jackup and platform rig
fleets currently operate in the Gulf of Mexico market. The Company's land rig
fleet generally consists of premium and specialized deep drilling rigs, with
38 of its 43 marketable land rigs capable of drilling to depths of 15,000 feet
or greater. In addition, 17 of the Company's land rigs are helicopter-
transportable, a market the Company continues to dominate throughout the
world. The diversity of the Company's rig fleet, both in terms of geographic
location and asset class, enables the Company to provide a broad range of
services to oil and gas operators around the world.
The oilfield services industry experienced a significant decline in
activity during the last 18 months. This decline followed two years of high
activity during which oil and gas companies had increased their exploration
and production budgets in response to increasing demand and stronger oil and
gas prices which resulted in dayrates and utilization at 15-year highs.
During the second half of 1998, oil prices declined to their lowest level in
13 years. The sharp drop in oil prices was the result of a surplus of crude
oil in worldwide markets, which had been brought about by reduced demand,
particularly in Southeast Asia, an increase in crude oil production by OPEC
producing countries in mid to late 1997, and recent warm winters in the United
States and Europe. The decline in crude oil prices adversely impacted the
revenues and profits of oil operators, who responded by reducing exploration
and development expenditures. This decline in spending adversely affected the
level of oilfield activity, and in turn, the revenues of most companies in the
oilfield services industry.
During calendar year 1999, crude oil prices increased significantly to
near record highs, ending the year at approximately $25.60 per barrel.
However, due to uncertainty regarding the stability of crude oil prices and
the restructuring of operations through mergers, operators have been slow to
increase their exploration and development spending. Only recently has the
Company experienced an increase in utilization for its Gulf of Mexico barge
and jackup rigs; however, the Company's utilization of its international land
rigs declined throughout 1999, and has yet to show a significant rebound.
TRANSITION ZONE OPERATIONS
The Company provides contract drilling services in the transition zones
which are coastal waters including lakes, bays, rivers, and marshes, of the
Gulf of Mexico, Caspian Sea and Nigeria, where barge rigs are the primary
source of drilling and workover services. Barge rigs are mobile drilling and
workover vessels that are built to work in eight to 25 feet of water. These
barge rigs are towed by tug boats to the drill site with the derrick laid
down. The derrick is a framework for hoisting and lowering equipment over a
drill hole and is also known as a mast structure. When the barge reaches the
drilling location, the hull is submerged until it rests on the sea floor,
which stabilizes the rig for drilling operations. The derrick is then raised
and drilling or workover operations are conducted with the barge in this
position.
Domestic Barge Drilling and Workover
The Company's principal domestic market for its barge drilling rigs is
the transition zones of the Gulf of Mexico, primarily in Louisiana and, to a
lesser extent, Alabama and Texas, where conventional jackup rigs are unable to
operate. This area historically has been the world's largest market for
shallow water barge drilling. The Company has a significant presence in this
market, with 23 drilling barges.
The barge market in the transition zones of the Gulf of Mexico has
undergone significant attrition and consolidation in recent years, with the
number of drilling rigs declining from over 120 in the early 1980s to
approximately 95 today, and the number of competitors decreasing over the same
period from more than 30 to only two significant contractors. During 1997 and
early 1998 drilling and workover activity increased significantly in the Gulf
of Mexico transition zones, spurred by (i) the increased use of 3-D seismic
technology that resulted in the identification of previously undiscovered
drilling prospects, (ii) the settlement of a royalty dispute between the State
of Louisiana and Texaco, whereby Texaco agreed to invest approximately $150
million to drill in Louisiana over a five-year period, and (iii) higher
natural gas prices. However, due to the decline in oilfield services activity
discussed previously, conditions in this market softened considerably in late-
1998. Drilling barge utilization increased during the fourth quarter of 1999,
although dayrates are still below peak levels reached in late 1997 and early
1998. However, utilization and dayrates in the workover barge market have not
shown any rebound to date, primarily the result of customer cash flow
limitations.
International Barge Drilling
The Company has focused its international barge drilling efforts in the
transition zones of West Africa and the Caspian Sea. The Company is the
leading provider of barge drilling services in Nigeria, with four of the eight
rigs in the market. International markets have historically been more
attractive due to the availability of long-term contracts and the opportunity
to earn dayrates higher than domestic rates.
The Company has operated in Nigeria since 1991 and currently has four
barge rigs in that market. Included is a new drilling barge (Rig 75) that
arrived on site in Nigeria in September. This barge rig has a five-year
contract with one of the Company's present customers in Nigeria. During the
fourth quarter of 1999, drilling operations were halted pending resolution of
local community issues. Three of the rigs were placed on standby status at
reduced dayrates. The fourth rig was on standby status for most of 1999 and
is expected to renew operations in the first quarter of 2000, with the
remaining three rigs expected to commence drilling operations during the
second quarter.
During 1999, the Company completed construction of barge Rig 257,
modified for drilling activities in the Caspian Sea. The barge rig is under
contract to a consortium of international operators for a three-year initial
term with seven one-year options. The rig was specially designed with a
closed-loop cuttings processing system, high-standard safety systems, and to
withstand the harsh climate conditions of the northern Caspian Sea. The rig
commenced drilling activities during September 1999.
OFFSHORE OPERATIONS
Jackup Drilling
The Company has seven shallow water jackup rigs that are mobile, self-
elevating drilling and workover units equipped with legs that can be lowered
to the ocean floor until a foundation is established to support the hull,
which contains the drilling equipment, jacking system, crew quarters, loading
and unloading facilities, storage areas for bulk and liquid materials,
helicopter landing deck and other related equipment. Five of the rigs are
cantilever design, a feature that permits the drilling floor to be extended
out from the hull, allowing drilling and workover operations to be performed
over existing platforms or structures. Jackup rigs with the cantilever
feature historically have achieved higher dayrates and utilization levels.
The other two rigs are slot-type design configured for the drilling operations
to take place through a keyway in the hull. These two rigs have the added
capability of operating in shallow water to a depth less than ten feet. Four
of the seven jackup rigs are mat-supported rigs and three are independent leg
rigs.
Platform Drilling
The Company's fleet of platform rigs consists of five modular self-
erecting rigs. These platform rigs consist of drilling equipment and
machinery arranged in modular packages that are transported to and self-
erected on fixed offshore platforms owned by oil companies. The Company
believes that the modular self-erecting design of the platform rigs provides a
competitive advantage due to lower mobilization costs and smaller "footprint."
LAND OPERATIONS
General
The Company's land drilling operations specialize in the drilling of
difficult wells, often in remote and harsh environments. Since beginning
operations in 1934, the Company has operated in 53 foreign countries and
throughout the United States, making it one of the most geographically diverse
land drilling contractors in the world.
International Operations
The Company's international land drilling operations have focused
primarily in Latin America, the Asia Pacific region and the states of the
former Soviet Union. Because many international drilling locations are
inaccessible by traditional land methods as in jungles, swamps and
mountainsides, the Company pioneered the heli-rig concept, whereby a
lightweight-design drilling rig is transported by helicopter or all-terrain
vehicle. Management believes that the Company's fleet of heli-rigs gives it a
significant competitive advantage. The Company traditionally has been a
pioneer in frontier areas and is currently working in China, Russia and
Kazakhstan and has recently worked in Vietnam.
In recent years, major and independent oil companies have directed a
greater portion of their exploration budgets to foreign markets. The Company
has benefitted from this trend due to its long-standing presence in foreign
markets and has been able to deploy rigs under longer term contracts at higher
dayrates and operating margins than in domestic land markets. The economic
malaise which has adversely affected Southeast Asia since late 1997
significantly reduced demand for oil in this region. In addition, the
resulting decrease in oil prices during this period caused operators to reduce
spending, leading to reduced drilling activity in the Company's markets.
Management is optimistic that the demand for drilling services in
international markets will rebound as economic activity in the Southeast Asian
countries recovers, worldwide demand for oil and gas increases and countries
dependent on oil and gas revenues seek to increase their production. The
Company has recently entered into several new contracts and has seen an
increase in bid requests which the Company believes will result in increased
land rig activity in 2000.
International markets differ from the domestic market in terms of
competition, nature of customers, equipment and experience requirements. The
majority of international drilling markets have the following characteristics:
(i) a small number of competitors; (ii) customers who are major, large
independent or foreign national oil companies; (iii) drilling programs in
remote locations requiring drilling equipment with a large inventory of spare
parts and other ancillary equipment; and (iv) drilling of difficult wells
requiring considerable experience.
South America. The Company has 24 land rigs (marketed and stacked)
located in the South American drilling markets of Colombia, Ecuador, Peru and
Bolivia. Most of the Company's rigs have been upgraded to meet the demands of
remote and difficult drilling in these areas.
Asia Pacific Region. The Company has 17 land rigs located in the Asia
Pacific drilling market. Included are nine helicopter transportable rigs
located in this region due to the remoteness of the mountainside and jungle
drilling required to meet customer demand. This market has been adversely
affected by political and economic instability. The Company experienced
weakening demand for its services in certain Asia Pacific markets in 1998 and
1999, notably Indonesia and Papua New Guinea.
Former Soviet Union. Five of the Company's rigs are currently located in
the markets of the former Soviet Union. After becoming the first western
drilling contractor to enter the Russian drilling market in 1991, expansion of
the Company's business in this country has been hampered by bureaucratic
inefficiencies, constantly changing tax and other laws and political issues
that have diminished the investment of capital by major and large independent
oil companies in Russia. As a result, the Company has relocated all four of
its drilling rigs from Russia to Kazakhstan. As anticipated, the recently
announced agreement regarding the pipeline to be built to transport crude oil
production from the Tengiz field in Kazakhstan has already increased
exploration efforts in this region. In addition to operating the Company's
own rigs, the Company was awarded a five-year alliance contract in 1997 by the
operator of the Tengiz field in Kazakhstan to operate and maintain its rigs,
provide expatriate and local drilling crews and manage its warehouse, drilling
base and mobile equipment fleet. The Company is currently modifying one of
its deep drilling land rigs in New Iberia for drilling operations in
Kazakhstan. It is anticipated that drilling operations will begin during the
third quarter of 2000. The Company will also begin construction of a new land
drilling rig in 2000 for a contract in Kazakhstan with drilling operations to
begin in 2001.
Domestic Operations
On September 30, 1999 the Company sold its 13 remaining lower-48 land
rigs to Unit Corporation for $40 million cash plus one million shares of Unit
common stock. The Company has one domestic land rig located on the North
Slope of Alaska which has been stacked since March 1999 due to low Alaska
crude oil prices in 1999 and merger discussions between the two dominant North
Slope operators.
Specialty Services
Helicopter Transportable Rigs. The Company specializes in drilling in
remote areas and harsh environments, primarily in international locations. A
significant factor contributing to the Company's success in obtaining drilling
contracts in remote areas is the use of rigs that are transportable by air,
land and water. These rigs have been specially designed and constructed by
the Company for quick assembly and disassembly under the proprietary
designations "Heli-Hoist" (Registered Trademark) rig, Transportable By
Anything (Registered Trademark) ("TBA") (Registered Trademark) rig and All-
Terrain ("AT2000E") (Registered Trademark) rig. Management believes that the
Company's 17 helicopter rigs comprise approximately 75% of the operational
helicopter transportable rigs worldwide. The Heli-Hoist (Registered
Trademark), TBA (Registered Trademark) and AT2000E (Registered Trademark) rigs
allow the Company to perform drilling operations in remote and otherwise
inaccessible locations such as jungle areas, mountainous areas and offshore
platforms.
Arctic Drilling. The Company has been one of the pioneers in arctic
drilling conditions and has developed technology to meet the demand for
increased drilling in an ecologically sensitive manner. For drilling
operations on the North Slope of Alaska, the Company developed a self-
contained mobile drilling unit capable of being moved in two modular pieces by
large tracks similar to the system used to move rocket thrusters for the space
program. The environmentally sensitive rig also has a complete closed-loop
mud system and cuttings processing system that eliminate the need for mud
pits.
RENTAL TOOLS
Quail, based in New Iberia, Louisiana, is a provider of premium rental
tools used for land and offshore oil and gas drilling and workover activities.
Approximately 60% of Quail's equipment is utilized in offshore and coastal
water operations. Since its inception in 1978, Quail's principal customers
have been major and independent oil and gas exploration and production
companies.
Quail rents specialized equipment utilized in well drilling, production
and workover applications. Quail offers a full line of drill pipe, drill
collars, tubing, high-and low-pressure blowout preventers, choke manifolds,
casing scrapers and junk and cement mills. During 1997, Quail entered into a
contract with a major oil company to be its preferred provider of rental tools
to the land and offshore Texas markets. In November 1997, Quail opened a new
rental tool facility in Victoria, Texas, in order to service the increasing
demand for tools in that region. Approximately 50% of Quail's revenues are
realized from rentals for production and workover activities.
During 1997 and early 1998, the rental tool industry experienced
increasing demand due to the trend toward outsourcing by oil companies of non-
core equipment and services and the significant increase in drilling activity
in the Gulf of Mexico. During the latter part of 1998 and early 1999, rental
tool activity in the Gulf of Mexico and Gulf Coast region declined due to the
reduction in oilfield services activity. Rental tool activity has rebounded
since mid-1999 with the increase in crude oil prices but has yet to return to
the previous peak levels.
Quail derives equipment rental revenues primarily from the daily rental
charges for its tools, pipe, and related equipment and, to a lesser extent, by
charging customers for ancillary parts and repairs, transportation of the
rental items to the customer's location, inspection of rental items as
specified by the customer, items it sub-rents from other rental tool
companies, the disposal of waste removed from the rental items after their
use, and the cost of rental items lost or damaged beyond repair. The
operating costs associated with Quail's rentals consist primarily of expenses
associated with depreciation, transportation, inspection, maintenance and
repair, and related direct overhead.
COMPETITION
The contract drilling industry is a competitive and cyclical business
characterized by high capital and maintenance costs.
The recent market downturn during the latter half of 1998 and through
1999 has caused the market to become very competitive, resulting in lower
dayrates and reduced utilization. In the Gulf of Mexico barge drilling and
workover markets, the Company competes with one significant competitor, R & B
Falcon. In the jackup market, there are numerous domestic offshore
contractors. In international markets, the Company competes with a number of
international drilling contractors but also with smaller local contractors in
certain markets. In international markets, experience in operating in certain
environments and customer alliances have been factors in the selection of the
Company in certain cases, as well as the Company's patented drilling equipment
for remote drilling projects. The Company believes that the market for
drilling contracts will continue to be competitive for the foreseeable future.
Certain of the Company's competitors have greater financial resources than the
Company, which may enable them to better withstand industry downturns, to
compete more effectively on the basis of price, to build new rigs or to
acquire existing rigs.
Management believes that Quail is one of the leading rental tool
companies in the offshore Gulf of Mexico. A number of Quail's competitors in
the Gulf of Mexico and in the Gulf Coast land markets are substantially larger
and have greater financial resources than Quail.
CUSTOMERS
The Company believes it has developed an international reputation for
providing efficient, safe, environmentally conscious and innovative drilling
services. An increasing number of the Company's customers have been seeking
to establish exploration or development drilling programs based on
partnering relationships or alliances with a limited number of preferred
drilling contractors. Such relationships or alliances can result in longer
term work and higher efficiencies that increase profitability for drilling
contractors at a lower overall well cost for oil operators. The Company is
currently a preferred contractor for operators in certain domestic and
international locations, which management believes is a result of the
Company's quality, service and experience.
The Company's drilling customer base consists of major, independent and
foreign national oil and gas companies. Shell Petroleum Development Company
of Nigeria, the Company's largest customer for 1999, accounted for
approximately 10% of total revenues. For fiscal year 1998, Chevron was the
Company's largest customer with approximately 15% of total revenues.
CONTRACTS
The Company generally obtains drilling contracts through competitive
bidding. Under most contracts the Company is paid a daily fee, or dayrate.
The dayrate received is based on several factors, including: type of
equipment, services and personnel furnished; investment required to perform
the contract; location of the well; term of the contract; and competitive
market forces. Meterage rate contracts are occasionally accepted in which the
Company is paid a rate per meter drilled upon reaching a specified depth.
The Company generally receives a lump sum fee to move its equipment to
the drilling site, which in most cases approximates the cost incurred by the
Company. Domestic contracts are generally for one well, while international
contracts are more likely to be for multi-well programs. The Company provides
drilling project services ranging from well design and engineering expertise
to site preparation and road construction in an effort to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services.
EMPLOYEES
At December 31, 1999, the Company employed 3,142 persons, down
approximately 23% from the 4,060 employed at December 31, 1998. The following
table sets forth the composition of the Company's employees:
December 31,
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1999 1998
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International Drilling Operations 1,768 2,392
Domestic Drilling Operations 1,112 1,368
Rental Tool Operations 89 93
Corporate and Other 173 207
RISKS AND ENVIRONMENTAL CONSIDERATIONS
The operations of the Company are subject to numerous federal, state and
local laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Numerous
governmental agencies, such as the U.S. Environmental Protection Agency
("EPA"), issue regulations to implement and enforce such laws, which often
require difficult and costly compliance measures that carry substantial
administrative, civil and criminal penalties or may result in injunctive
relief for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentrations of various substances that can be released into
the environment in connection with drilling and production activities, limit
or prohibit construction or drilling activities on certain lands lying within
wilderness, wetlands, ecologically sensitive and other protected areas,
require remedial action to prevent pollution from former operations, and
impose substantial liabilities for pollution resulting from the Company's
operations. Changes in environmental laws and regulations occur frequently,
and any changes that result in more stringent and costly compliance could
adversely affect the Company's operations and financial position, as well as
those of similarly situated entities operating in the Gulf Coast While
management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations, there is no assurance that
compliance can be maintained in the future.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities including mobile offshore
drilling rigs in or near waters of the United States, may be liable for the
costs of removal and damages arising out of a pollution incident to the extent
set forth in the Federal Water Pollution Control Act, as amended by the Oil
Pollution Act of 1990 ("OPA"), the Outer Continental Shelf Lands Act
("OCSLA"), the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), and the Resource Conservation and Recovery Act
("RCRA"), each as amended from time to time. In addition, the Company may
also be subject to applicable state law and other civil claims arising out of
any such incident.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills. A "responsible party"
includes the owner or operator of a vessel, pipeline or onshore facility, or
the lessee or permittee of the area in which an offshore facility is located.
The OPA assigns liability to each responsible party of oil removal costs and a
variety of public and private damages.
The liability for a mobile offshore drilling rig is determined by whether
the unit is functioning as a vessel or is in place and functioning as an
offshore facility. If operating as a vessel, liability limits of $600 per
gross ton or $500,000, whichever is greater, apply. If functioning as an
offshore facility, the mobile offshore drilling rig is considered a "tank
vessel" for spills of oil on or above the water surface, with liability limits
of $1,200 per gross ton or $10 million. To the extent damages and
removal costs exceed this amount, the mobile offshore drilling rig will be
treated as an offshore facility and the offshore lessee will be responsible up
to higher liability limits for all removal costs plus $75 million. A party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in the cleanup, liability limits likewise do not
apply. Few defenses exist to the liability imposed by the OPA. The OPA also
imposes ongoing requirements on a responsible party, including proof of
financial responsibility (to cover at least some costs in a potential spill)
and preparation of an oil spill contingency plan for offshore facilities and
vessels in excess of 300 gross tons. Amendments to the OPA adopted in 1996
require owners and operators of offshore facilities that have a worst case oil
spill potential of more than 1,000 barrels to demonstrate financial
responsibility in amounts ranging from $10 million in specified state waters
to $35 million in federal Outer Continental Shelf waters, with higher amounts,
up to $150 million, in certain limited circumstances where the U.S. Minerals
Management Service ("MMS") believes such a level is justified by the risks
posed by the quantity or quality of oil that is handled by the facility.
However, such OPA amendments did not reduce the amount of financial
responsibility required for "tank vessels." Since the Company's offshore
drilling rigs are typically classified as tank vessels, the recent amendments
to the OPA are not expected to have a significant effect on the Company's
operations. A failure to comply with ongoing requirements or inadequate
cooperation in a spill may even subject a responsible party to civil or
criminal enforcement actions.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating on the
Outer Continental Shelf. Specific design and operational standards may apply
to Outer Continental Shelf vessels, rigs, platforms, vehicles and structures.
Violations of environmental-related lease conditions or regulations issued
pursuant to the OCSLA can result in substantial civil and criminal penalties
as well as potential court injunctions curtailing operations and the
cancellation of leases. Such enforcement liabilities can result from either
governmental or citizen prosecution.
All of the Company's operating domestic barge drilling rigs have zero
discharge capabilities as required by law. In addition, in recognition of
environmental concerns regarding dredging of inland waters and permitting
requirements, the Company conducts negligible dredging operations, with
approximately two-thirds of the Company's offshore drilling contracts
involving directional drilling, which minimizes the need for dredging.
However, the existence of such laws and regulations has had and will continue
to have a restrictive effect on the Company and its customers.
CERCLA, also known as "Superfund," and comparable state laws impose
liability without regard to fault or the legality of the original conduct, on
certain classes of persons who are considered to be responsible for the
release of a "hazardous substance" into the environment. While CERCLA exempts
crude oil from the definition of hazardous substances for purposes of the
statue, the Company's operations may involve the use or handling of other
materials that may be classified as
hazardous substances. CERCLA assigns strict liability to each responsible
party for all response and remediation costs, as well as natural resource
damages. Few defenses exist to the liability imposed by CERCLA. The Company
believes that it is in compliance with CERCLA and currently is not aware of
any events that, if brought to the attention of regulatory authorities, would
lead to the imposition of CERCLA liability against the Company.
RCRA generally does not regulate most wastes generated by the exploration
and production of oil and gas. RCRA specifically excludes from the definition
of hazardous waste "drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy." However, these wastes may be regulated by
EPA or state agencies as solid waste. Moreover, ordinary industrial wastes,
such as paint wastes, waste solvents, laboratory wastes, and waste oils, may
be regulated as hazardous waste. Although the costs of managing solid and
hazardous wastes may be significant, the Company does not expect to experience
more burdensome costs than similarly situated companies involved in drilling
operations in the Gulf Coast.
The drilling industry is dependent on the demand for services from the
oil and gas exploration and development industry and, accordingly, is affected
by changes in laws relating to the energy business. The Company's business is
affected generally by political developments and by federal, state, local and
foreign laws and regulations that may relate directly to the oil and gas
industry. The adoption of laws and regulations, both domestic and foreign,
that curtail exploration and development drilling for oil and gas for
economic, environmental and other policy reasons may adversely affect the
Company's operations by limiting available drilling opportunities.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in three segments, domestic drilling services,
international drilling services and rental tool operations. Information about
the Company's business segments and operations by geographic areas for the
year ended December 31, 1999, the four months ended December 31, 1998 and the
two years ended August 31, 1998 and 1997 is set forth in Note 10 of Notes to
Consolidated Financial Statements.
Item 2. PROPERTIES
The Company owns and occupies a ten-story building in downtown Tulsa,
Oklahoma, as its home office. Additionally, the Company owns and leases
office space and operating facilities in various locations, but only to the
extent necessary for administrative and operational functions.
Land Rigs. The following table shows, as of December 31, 1999, the locations
and drilling depth ratings of the Company's 43 actively marketed land rigs:
Actively Marketed Land Rigs
Drilling Depth Rating in Feet
---------------------------------------------
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ -----
INTERNATIONAL:
South America 2 5 7 3 3 20
Asia Pacific 3 3 8 2 - 16
Africa and Middle East - 1 1 - - 2
Former Soviet Union - - 3 - 1 4
-- -- -- -- -- --
Total International 5 9 19 5 4 42
-- -- -- -- -- --
DOMESTIC:
Alaska - - - - 1 1
-- -- -- -- -- ---
Total Domestic - - - - 1 1
-- -- -- -- -- ---
TOTAL 5 9 19 5 5 43
-- -- -- -- -- ---
-- -- -- -- -- ---
In addition, the Company has 8 land rigs classified as cold stacked which
would need to be refurbished at a significant cost before being placed back
into service, with locations and drilling depth ratings as follows:
Cold Stacked Land Rigs
Drilling Depth Rating in Feet
---------------------------------------------
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ -----
INTERNATIONAL:
South America - - 4 - - 4
Asia Pacific 1 - - - - 1
Africa and Middle East 1 - - - - 1
Former Soviet Union 2 - - - - 2
-- -- -- -- -- --
Total International 4 - 4 - - 8
-- -- -- -- -- --
Barge Rigs. A schedule of the Company's deep and intermediate drilling barges
located in the Gulf of Mexico, as of December 31, 1999, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 50 ................ 2,000 1993 25,000 Active
Rig No. 51 ................ 2,000 1993 25,000 Active
Rig No. 53 ................ 1,600 1995 20,000 Active
Rig No. 54 ................ 2,000 1995 25,000 Active
Rig No. 55 ................ 2,000 1993 25,000 Active
Rig No. 56 ................ 2,000 1992 25,000 Active
Rig No. 57 ................ 1,500 1997 20,000 Active
Rig No. 76 ................ 3,000 1997 30,000 Active
Intermediate Drilling:
Rig No. 8 ................ 1,000 1995 14,000 Active
Rig No. 12 ................ 1,100 1990 14,000 Active
Rig No. 15 ................ 1,000 1998 15,000 Active
Rig No. 17 ................ 1,000 1993 13,000 Active
Rig No. 21 ................ 1,200 1995 13,000 Active
- --------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
A schedule of the Company's workover rigs, as of December 31, 1999, which
includes some rigs with shallow drilling capabilities, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Workover and Shallow Drilling:
Rig No. 6 ................ 700 1995 - Active
Rig No. 7 ................ 700 1995 - Stacked
Rig No. 9 ................ 650 1996 - Active
Rig No. 16 ................ 800 1994 8,500 Active
Rig No. 18 ................ 800 1993 8,500 Active
Rig No. 20 ................ 800 1995 8,500 Active
Rig No. 23 ................ 1,000 1993 11,500 Active
Rig No. 24 ................ 1,000 1992 11,500 Active
Rig No. 25 ................ 1,000 1993 11,500 Active
Rig No. 26 ................ 650 1996 - Active
- --------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
A schedule of the Company's international drilling barges, as of
December 31, 1999, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 72 ................ 3,000 1991 30,000 Active
Rig No. 73 ................ 3,000 1991 30,000 Active
Rig No. 74 ................ 3,000 1997 30,000 Active
Rig No. 75 ................ 3,000 1999 30,000 Active
Rig No.257 ................ 3,000 1999 25,000 Active
- --------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
Platform Rigs. The following table sets forth certain information, as of
December 31, 1999, with respect to the Company's platform rigs:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Rig No. 2 .............. 1,000 1982 12,000 Active
Rig No. 3 .............. 1,000 1997 12,000 Active
Rig No. 10 <2>........... 650 1989 - Active
Rig No. 41 .............. 1,000 1997 12,500 Active
Rig No. 47 .............. 750 1993 11,000 Stacked
- ------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
Workover rig.
Jackup rigs. The following table sets forth certain information as of
December 31, 1999, with respect to the Company's jackup rigs:
Maximum Maximum
Water Drilling
Depth Depth
Design(1) (Feet) (Feet) Status<2>
--------- -------- -------- ---------
Rig No. 11(3) .... Bethlehem JU-200 (MC) 200 - Active
Rig No. 14 ....... Baker Marine Big Foot (IS) 85 20,000 Active
Rig No. 15 ....... Baker Marine Big Foot III (IS) 100 20,000 Active
Rig No. 20 ....... Bethlehem JU-100 (MC) 110 25,000 Active
Rig No. 21 ....... Baker Marine BMC-125 (MC) 100 20,000 Active
Rig No. 22 ....... Le Tourneau Class 51 (MC) 173 15,000 Active
Rig No. 25 ....... Le Tourneau Class 150-44 (IC) 215 20,000 Active
- -----------------
IC--independent leg, cantilevered; IS--independent leg, slot; MC--mat-
supported, cantilevered.
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before placed back
into service.
Workover rig.
The following table presents the Company's utilization rates, rigs
available for service and cold stacked rigs for the year ended December 31,
1999 and the fiscal year ended August 31, 1998. With respect to the rigs
purchased in the Hercules acquisition, the period commenced on December 30,
1997.
1999 1998
---- ----
Transition Zone Rig Data
Domestic barge deep drilling:
Rigs available for service <1> 7.5 7.9
Utilization rate of rigs available for service <2> 78% 95%
Cold stacked rigs <1> 0 2.0
Domestic barge intermediate drilling:
Rigs available for service <1> 5.0 4.6
Utilization rate of rigs available for service <2> 59% 83%
Domestic barge workover and shallow drilling:
Rigs available for service <1> 9.0 8.6
Utilization rate of rigs available for service <2> 31% 62%
Cold stacked rigs <1> <3> 1.0 5.4
International barge drilling:
Rigs available for service <1> 4.4 3.0
Utilization rate of rigs available for service <2> 96% 98%
Cold stacked rigs <1> 0 1.0
Offshore Rig Data
Jackup Rigs:
Rigs available for service <1> 7.0 6.0
Utilization rate of rigs available for service <2> 66% 91%
Cold stacked rigs <1> 0 1.0
Platform Rigs:
Rigs available for service <1> 4.5 4.0
Utilization rate of rigs available for service <2> 56% 78%
Cold stacked rigs <1> 1.0 1.0
1999 1998
---- ----
Land Rig Data
International Land Rigs:
Rigs available for service <1> 45.2 49.0
Utilization rate of rigs available for service <2> 36% 81%
Cold stacked rigs <1> 8.0 11.0
Domestic Land Rigs <4>:
Rigs available for service <1> 11.0 14.6
Utilization rate of rigs available for service <2> 40% 86%
The number of rigs is determined by calculating the number of days
each rig was in the fleet, e.g., a rig under contract or available
for contract for an entire year is 1.0 "rigs available for
service" and a rig cold stacked for one quarter is 0.25 "cold
stacked rigs." "Rigs available for service" includes rigs
currently under contract or available for contract. "Cold stacked
rigs" includes all rigs that are stacked and would require
significant refurbishment before being placed into service.
Rig utilization rates are based on a weighted average basis
assuming 365 days availability for all rigs available for service.
Rigs acquired or disposed of have been treated as added to or
removed from the rig fleet as of the date of acquisition or
disposal. Rigs that are in operation or fully or partially
staffed and on a revenue-producing standby status are considered
to be utilized. Rigs under contract that generate revenues during
moves between locations or during mobilization/demobilization are
also considered to be utilized.
Includes one rig out of service five months due to damages to rig
in fiscal 1998.
Includes 13 domestic lower-48 land rigs through the date of sale,
September 30, 1999.
Item 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings that have resulted
from the ordinary conduct of its business. In the opinion of the Company's
management, none of these proceedings is expected to have a material adverse
effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Parker Drilling Company security
holders during the fourth quarter of 1999.
Item 4A. EXECUTIVE OFFICERS
Officers are elected each year by the board of directors following the
annual meeting for a term of one year and until the election and qualification
of their successors. The current executive officers of the Company and their
ages, positions with the Company and business experience are presented below:
(1) Robert L. Parker, 76, chairman, joined the Company in 1944 and was
elected a vice president in 1950. He was elected president in
1954 and chief executive officer in October 1977. Since December
1991, he has retained the position of chairman.
(2) Robert L. Parker Jr., 51, president and chief executive officer,
joined the Company in 1973 as a contract representative and was
named manager of U.S. operations later in 1973. He was elected a
vice president in 1973, executive vice president in 1976 and was
named president and chief operating officer in October 1977. In
December 1991, he was elected chief executive officer.
(3) James W. Linn, 54, executive vice president and chief operating
officer, joined the Company in 1973. He has general charge of the
Company's business affairs and its officers. Mr. Linn first
served in the Company's international division and in 1976 was
named northern U.S. district manager prior to being elected vice
president of U.S. and Canada operations in 1979. He was named a
senior vice president in September 1981 and was elected to his
current position in December 1991.
(4) James J. Davis, 53, senior vice president-finance and chief
financial officer, joined the Company in November 1991, in the
stated positions. From 1986 through 1991, Mr. Davis was vice
president and treasurer of MAPCO Inc., a diversified energy
company with interests in natural gas liquids marketing and
transportation, oil refining and retail motor fuel marketing. He
serves as a member of the board of directors of Dollar Thrifty
Funding Corp.
(5) Donald L. Goodson, 45, vice president and general manager,
international operations, joined the Company in 1976. He held
various accounting and finance positions prior to being named
contract manager for U.S. operations in 1981. In 1989, he was
named Indonesia division manager. In 1993 Mr. Goodson was
promoted to contract manager for the Middle East, Africa and
Colombia. He was named vice-president, Latin America region in
1996 and was elected to his current position in December 1999.
Item 4A. EXECUTIVE OFFICERS (continued)
(6) Thomas L. Wingerter, 47, vice president and general manager, North
American operations, joined the Company in 1979. In 1983 he was
named contract manager for the Rocky Mountain division. He was
promoted to Rocky Mountain division manager in 1984, a position he
held until September 1991 when he was elected vice president,
North American region. In March 1999, he was elected to his
current position.
(7) W. Kirk Brassfield, 44, corporate controller and chief accounting
officer, joined the Company in March 1998 in his stated position.
From 1991 through March 1998, Mr. Brassfield served in various
positions, including subsidiary controller and director of
financial planning of MAPCO Inc., a diversified energy company.
From 1979 through 1991, Mr. Brassfield served at the public
accounting firm, KPMG Peat Marwick.
OTHER PARKER DRILLING COMPANY OFFICERS
(8) John R. Gass, 48, vice president, international marketing, joined
the Company in 1977 and has served in various management positions
in the Company's international divisions. In 1985 he became the
division manager of Africa and the Middle East. In 1987 he
directed the Company's mining operations in South Africa. In 1989
he was promoted to international contract manager. In January
1996, he was elected vice president, frontier areas and assumed
his current position in March 1999.
(9) Leslie D. Rosencutter, 44, was elected vice president,
administration, in December 1989, and has responsibility for the
public relations and human resources departments. In March 1996,
she was elected Corporate Secretary. She previously had been
named assistant vice president, administration in 1987. She
joined the Company in 1974 as secretary to the controller and
later was secretary to the Robert L. Parker Trust. She has served
as executive secretary and administrative assistant to the
chairman prior to being elected an officer.
(10) David W. Tucker, 44, was elected treasurer in March 1999. He
joined the Company in 1978 as a financial analyst and served in
various financial and accounting positions before being named
chief financial officer of the Company's wholly-owned subsidiary,
Hercules Offshore Corporation, in February 1998.
(11) Phillip M. Burch, 48, was elected assistant treasurer in April
1983. He joined the Company in 1981 as a treasury analyst and
currently is responsible for domestic and international cash
management and corporate investments. In July 1992, he assumed
additional responsibilities for risk management.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Parker Drilling Company common stock is listed for trading on the New
York Stock Exchange under the symbol PKD. At the close of business on
December 31, 1999, there were 3,531 holders of record of Parker Drilling
common stock. Prices on Parker Drilling's common stock for the year ended
December 31, 1999, the transition period September 1, 1998 through December
31, 1998 and the fiscal year ended August 31, 1998 were as follows:
1999 Fiscal Year 1998
------------------ -------------------
Quarter High Low High Low
------- -------- -------- -------- --------
First $ 4.688 $ 2.250 $17.9375 $12.1875
Second 4.375 3.000 14.8750 8.8750
Third 5.625 3.312 12.0000 8.0625
Fourth 4.750 3.000 8.6250 4.0000
Transition
Period - - 6.3120 2.8120
No dividends have been paid on common stock since February 1987.
Restrictions contained in Parker Drilling's existing credit agreement prohibit
the payment of dividends and the indenture for the Senior Notes restricts the
payment of dividends. The Company has no present intention to pay dividends
on its common stock in the foreseeable future because of the restrictions
noted and because of its business plan to reinvest earnings in the Company's
operations.
Item 6. SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
Four Months
Year Ended Ended
December 31, December 31, Year Ended August 31,
--------------------------------------------
1999 1998 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenues $ 324,553 $ 136,723 $ 481,223 $ 311,644 $ 156,652 $ 157,371
Net income
(loss) $ (37,897) $ (14,633) $ 28,092 $ 16,315 $ 4,053 $ 3,916
Earnings (loss)
per share,
diluted $ (.49) $ (.19) $ .36 $ .23 $ .07 $ .07
Total assets $1,082,743 $1,159,326 $1,200,544 $ 984,136 $ 275,959 $ 216,959
Long-term debt $ 648,577 $ 630,479 $ 630,090 $ 551,042 $ 2,794 $ 1,748
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK AND OVERVIEW
The loss reported for the year ended December 31, 1999 reflects the
continued weakness in most of the Company's drilling markets which has
resulted in a significant decrease in rig utilization and in dayrates
since mid-1998. Lower crude oil prices throughout 1998 and into early
1999 negatively impacted the revenues and profits of oil operators, who
responded by reducing exploration and development expenditures. This
decline in spending adversely affected the level of oilfield activity,
and in turn, the revenues of most companies in the oilfield services
industry. Although crude oil and natural gas prices have increased
recently, oil operators have been slow to increase their exploration and
development spending. Management is unable to predict the timing and
extent that spending by operators, rig dayrates and utilization will be
positively affected by the increase in crude oil prices.
Management anticipates that the Company will continue to incur
losses until there is a significant increase in the level of oilfield
activity. Management believes, however, that cash on hand, cash
provided by operations and funds available under the Company's new
revolving credit facility will be adequate to meet working capital needs
and maintenance capital expenditures.
During 1999, the Company restructured the management of its
worldwide drilling operations eliminating approximately $10 million in
overhead and operating costs. In addition, management has preserved
cash by minimizing capital expenditures. The Company also sold certain
of its non-strategic assets and is considering the sale of additional
non-strategic assets. On September 30, 1999 the Company sold its 13
lower-48 land drilling rigs to Unit Corporation for $40.0 million cash
plus one million shares of Unit common stock. During the fourth quarter
the Company sold its Argentina land rigs and inventories (previously
classified as assets held for disposition) plus one additional Bolivia
land rig for approximately $9.3 million.
In addition to selling non-strategic assets, the Company raised
$24.8 million by refinancing the capital cost of newly built barge Rig
75. In October 1999 the Company also entered into a new revolving
credit agreement in the amount of $50.0 million which replaced the
previously existing $75.0 million revolving credit facility.
RESULTS OF OPERATIONS
Introduction
The Company's operations and future results have been altered
significantly by the acquisitions of Mallard and Quail in November 1996,
Bolifor in July 1997 and Hercules in December 1997. During the second quarter
of 1999, the Company reorganized its drilling operations and administrative
functions to reduce operating and overhead costs. Prior to the
reorganization, the Company's business segments were designated as land
drilling, offshore drilling and rental tools. Mallard and Hercules made up
the offshore drilling segment and since the time of their acquisitions, each
company maintained its existing organization structure, both operationally and
administratively. The reorganization in 1999 resulted in the consolidation of
the land and offshore drilling operations into two new segments, domestic
drilling operations and international drilling operations. Certain accounting
and other administrative functions previously performed by Mallard and
Hercules were consolidated into corporate. Quail was not significantly
affected by the reorganization. Results of operations for fiscal years ended
1998 and 1997 have been reclassified to reflect the new organization.
During 1998 the Company decided to change its fiscal year end from August
31 to December 31 effective for the calendar year beginning January 1, 1999.
Year Ended December 31, 1999 Compared to Year Ended August 31, 1998
The Company's net loss of $37.9 million in 1999 reflects a decrease of
$66.0 million over the net income of $28.1 million recorded in fiscal 1998.
The loss in 1999 is reflective of the significant decline in utilization and
dayrates that began in the fourth quarter of fiscal 1998 and continued
throughout 1999.
The Company's revenues decreased $156.7 million to $324.6 million as all
of the Company's market segments, domestic, international and rental tools,
recorded a decrease in revenues. International drilling revenues decreased
$66.6 million to $182.9 million for the year ended December 31, 1999, as
compared to the fiscal year ended August 31, 1998. International land
revenues were negatively impacted during 1999 by the downturn in the industry
and as a result, land revenues decreased $88.1 million to $127.5 million.
This decrease is primarily attributed to the significant reduction in
utilization across essentially all international land rig markets. During the
first and second quarters of fiscal 1998, international land rig utilization
averaged 81% as compared to 28% during the fourth quarter of 1999. The
average dayrates also decreased for comparable periods but only by
approximately 7%. Land drilling revenues decreased in all countries in which
the Company operated except Ecuador (increased $7.7 million), Vietnam
(increased $4.4 million) and Kazakhstan/Russia (increased $7.5 million).
Ecuador and Vietnam represented one-rig contracts that began toward the end or
after fiscal year 1998. The geographic areas most impacted by the industry
downturn during 1999 were Indonesia, Papua New Guinea and Bolivia.
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
International offshore revenues increased $21.5 million to $55.5 million
in 1999 as compared to fiscal year 1998. The increase is primarily
attributable to two new barge rigs, one each in Nigeria and the Caspian Sea.
Rig 257 in the Caspian Sea began drilling in September and Rig 75 in Nigeria
generated standby revenues pending commencement of drilling operations. In
addition, barge Rig 76 completed drilling operations in Venezuela, generating
approximately $10.8 million in revenues during 1999.
Domestic drilling revenues decreased $83.4 million to $113.7 million
during 1999 as compared to fiscal 1998. Domestic land drilling revenues,
arising from the Company's 13 U.S. lower-48 rigs and one rig in Alaska,
decreased $32.9 million during 1999. On September 30, 1999 the Company sold
the 13 lower-48 land rigs to Unit Corporation for $40.0 million in cash and
one million shares of Unit common stock. A pre-tax gain of $36.1 million was
recognized during the third quarter. The one remaining domestic land rig,
located in Alaska, has been stacked since March 1999 due to reduced drilling
activity in Alaska.
Domestic offshore revenues, arising from the Company's fleet of barge,
platform and jackup rigs located in the Gulf of Mexico, decreased $50.5
million during 1999 as compared to fiscal 1998. Rig utilization and dayrates
in the Gulf of Mexico offshore drilling market were particularly hurt by the
decline in oil and gas operators' spending. Barge drilling and workover rig
revenues decreased $32.6 million during 1999 due to approximately a 25%
decrease in dayrates and a decrease in barge rig utilization from an average
90% in fiscal 1998 to approximately 45% in 1999. Revenues related to the
seven jackups decreased $10.5 million during 1999 as compared to the eight
months of operations (Hercules acquired December 30, 1997) during fiscal 1998.
Jackup dayrates were particularly impacted by the downturn, declining from an
average $28,000 per day in fiscal 1998 to approximately $16,000 per day during
1999. Platform rig revenues decreased $7.4 million due to decreases in
dayrates and utilization. In addition, one platform rig which had operated in
the Gulf of Mexico was sold during 1999.
The Company's rental tool revenues decreased $5.1 million to $27.7
million during 1999 as compared to fiscal 1998. Rental tool revenues were
impacted during 1999 mainly due to depressed drilling activity in the Gulf of
Mexico.
Profit margins (revenues less direct operating expenses) of $85.3 million
in 1999 reflect a decrease of $84.2 million from the $169.5 million recorded
in fiscal 1998. The domestic and international drilling segments recorded
profit margin percentages (profit margin as a percent of revenues) of 12% and
31% in 1999, as compared to 35% and 33% in fiscal 1998. The significant
reduction in utilization and drilling dayrates during 1999 accounted for the
significant declines in profit margin percentages. The Company's rental tool
business had a slight increase in profit margin percentage to 61% from 58%.
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
Depreciation and amortization increased $13.6 million to $82.2 million in
1999 as compared to fiscal 1998. This increase is primarily attributable to
two major construction projects, Rig 257 and Rig 75, that completed
construction and began depreciating during the third quarter of 1999. In
addition, 1999 recognized a full year of depreciation expense on the assets of
Hercules and a full year of amortization of goodwill associated with the
purchase compared to only eight months depreciation and amortization in fiscal
1998. General and administrative expense increased $2.0 million, due
primarily to severance costs incurred as part of management's restructuring of
operations in early 1999 referred to previously. The consolidation of
operational and administrative activities as part of the Company-wide
restructuring is anticipated to generate significant cost savings in future
years.
Interest expense increased $6.5 million to $55.9 million during 1999.
Subsequent to fiscal 1998, the Company borrowed an additional $20.0 million on
its revolving credit facility that remained outstanding until September 30,
1999 when the outstanding balance of $40.0 million was repaid in full and the
revolving credit facility was terminated. The revolving credit facility was
repaid with the proceeds from the sale of the 13 lower-48 land rigs. In
October 1999, the Company entered into a new $50.0 million revolving credit
facility and refinanced $24.8 million of the capital cost to construct Rig 75.
These financing arrangements resulted in higher average outstanding debt
levels in 1999 than in fiscal 1998, resulting in the higher interest expense
reported in 1999. As of December 31, 1999, no funds have been drawn on the
new revolving credit facility. Interest capitalized on rig construction
projects during 1999 was $3.0 million as compared to $3.5 million in 1998.
Gain on disposition of assets of $39.1 million includes a $36.1 gain on the
sale of the 13 lower-48 land rigs.
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
In 1999, the Company generated an income tax benefit of $2.7 million as
compared to income tax expense of $16.4 million in fiscal 1998. The income
tax benefit of $2.7 million in 1999 consists of $11.2 million current tax
expense related primarily to foreign taxes and $13.9 million net deferred tax
benefit related to operating losses incurred during 1999. The income tax
expense of $16.4 million in fiscal 1998 consists of $14.3 million current tax
expense related primarily to foreign taxes and deferred tax of $2.1 million.
Year Ended August 31, 1998 Compared to Year Ended August 31, 1997
The Company's net income of $28.1 million in fiscal 1998 reflects an
increase of $11.8 million over the $16.3 million recorded in fiscal 1997.
Fiscal 1998 includes the entire year's results of operations of Mallard, Quail
and Bolifor, the Company's fiscal 1997 acquisitions. Fiscal 1997 includes
Mallard and Quail from their acquisition date of November 12, 1996 and Bolifor
from its acquisition date of July 1, 1997. Additionally, fiscal 1998 includes
the Hercules operating results from December 30, 1997, its date of
acquisition. Fiscal 1998's improvement over 1997 reflects the strong drilling
markets which existed primarily in the first half of the fiscal year. The
Company's fiscal 1998 results include a net loss of $1.1 million in the fourth
quarter, a reflection of weakening demand in several of the Company's markets.
The Company's revenues increased $169.6 million, to $481.2 million, as
each of the Company's market segments recorded an increase in revenues. The
Company's acquisitions have substantially increased revenues and affected the
comparability of the figures presented in each year. The table below
indicates sources of revenues by each of the Company's acquisitions:
Twelve Months ended August 31,
1998 1997
Domestic drilling
----------------- ---- ----
Parker land (excluding acquisitions) $ 50,706 $ 44,411
Mallard 98,351 72,837
Hercules 48,027 -
-------- --------
Total Domestic Operations Revenues $197,084 $117,248
-------- --------
International drilling
----------------------
Parker land (excluding acquisitions) $176,913 $127,238
Mallard 41,233 36,470
Bolifor 31,335 2,642
-------- --------
Total International Operations Revenues $249,481 $166,350
-------- --------
Rental Tools
------------
Quail $ 32,723 $ 25,457
-------- --------
RESULTS OF OPERATIONS 1998 AS COMPARED TO 1997 (continued)
Domestic drilling revenues increased $79.8 million, to $197.1 million.
The Hercules acquisition generated revenues of $48.0 million for the eight-
month period from the acquisition date. Mallard's domestic drilling
operations contributed $25.5 million to the increase in offshore revenues due
to higher average dayrates and an increase in utilization days as the Mallard
operations were included for the entire year in fiscal 1998. Weakness in
Mallard's workover and remedial markets resulted in a reduction in revenues
from these operations and offset some of the increase in revenues discussed
above. In the United States, the Company's land drilling revenues increased
$6.3 million due primarily to higher average dayrates than in fiscal 1997.
The Company's international drilling revenues increased $83.1 million to
$249.5 million. Latin America operations contributed an increase of $47.4
million, to $121.0 million. The rigs acquired in the Bolifor acquisition
contributed $28.7 million of the increase while operations in Colombia and
Peru also reflected significant increases. Higher utilization and dayrates on
certain of the rigs in these countries contributed to the increase. Land
drilling operations in Africa provided an increase in revenues of $7.6 million
due to the Company's operations in Niger in fiscal 1998. In the states
comprising the former Soviet Union, the Company's revenues of $19.8 million
reflected an increase of $12.8 million, due primarily to increased rig
utilization in Kazakhstan. In the Company's Asia Pacific land drilling
operations, revenues increased $8.5 million, where increased operating days in
Papua New Guinea offset the fiscal 1997 completion of contracts in Vietnam and
the Philippines. Although revenues increased in each of the markets noted in
fiscal 1998 when compared to fiscal 1997, the Company experienced declining
utilization and dayrates in several markets as contracts were completed. In
particular, the Company's Asia Pacific operations, including Papua New Guinea
and Indonesia, experienced a significant reduction in rig utilization and
customer demand in the latter part of fiscal 1998. Mallard's barge drilling
operations in Nigeria experienced an increase in revenues of $6.8 million, to
$33.9 million, due in part to the full year of operations and near 100%
utilization of the Company's three barge rigs in Nigeria during fiscal 1998.
The Company's rental tool revenues increased $7.3 million due to the
entire year's operations being included in fiscal 1998 and due to increased
revenues contributed by the Company's new Victoria, Texas rental facility.
These increases were offset by some weakening in rental tool demand in the
Company's core offshore Louisiana market.
RESULTS OF OPERATIONS 1998 AS COMPARED TO 1997 (continued)
Profit margins of $169.5 million reflected an increase of $61.1 million
from the $108.4 million recorded in fiscal 1997. The domestic and
international drilling segments recorded profit margin percentages of 35% and
33% in fiscal 1998, respectively, percentages which were comparable to those
recorded in fiscal 1997. The Company's rental tool business had a decrease in
profit margin percentage from 66% to 58%, due in part to lower margins earned
by the Company on tool sales, higher discounts given on tool rentals and
start-up costs at its new Victoria facility. The reduction in demand in
certain markets which began in the second half of fiscal 1998 reduced profit
margins as a percent of revenues in the Company's fourth quarter when compared
with the entire fiscal 1998.
Depreciation and amortization increased $22.3 million, reflecting a full
year of depreciation expense recorded on the assets purchased in the Mallard,
Quail and Bolifor acquisitions compared to the partial year in fiscal 1997,
depreciation expense related to the assets purchased in the Hercules
acquisition in December 1997, and amortization of goodwill associated with the
purchase price in excess of the fair market value of the assets purchased in
the Mallard, Quail and Hercules acquisitions. These increases were somewhat
offset by a change in the estimated useful life of the Company's land drilling
fleet used for financial depreciation purposes from 10 to 15 years, resulting
in a reduction of $2.6 million in fiscal 1998 depreciation expense (see Note 1
of Notes to Consolidated Financial Statements). General and administrative
expense increased $2.9 million, due in part to increased costs required to
support the Company's expanded operations.
Interest expense increased $16.5 million to $49.4 million, as debt
incurred in November 1996 and July 1997 to finance the Company's fiscal 1997
acquisitions remained outstanding all of fiscal 1998. This debt included the
$300 million Senior Notes issued in November 1996 and the $175 million
Convertible Subordinated Notes issued in July 1997. Additionally, in March
1998, the Company issued $150 million of 9 3/4 % Senior Notes, a portion of
which was used to repay the $83 million balance on the term loan of November
1996. These increases in interest expense were offset by $3.5 million of
interest charges capitalized to construction projects in fiscal 1998, compared
to $0.2 million in the prior year. Non-operating other income of $4.5 million
reflected an increase of $1.2 million which was attributable to the fiscal
1998 disposition of the Company's interest in OnSite Technology L.L.C. at a
gain of $4.6 million. Fiscal 1997's non-operating other income and expense
included a $1.6 million write down from a blowout which damaged barge Rig 52
and a $1.1 million gain from the sale of a subsidiary, Parker Kinetic Designs,
Inc.
Income taxes of $16.4 million with an effective tax rate of 37% increased
from the $7.2 million and 31% effective rate the Company experienced in fiscal
1997. Increased revenues and taxable income from the Company's foreign
operations were primarily responsible for the increased tax expense recorded
in fiscal 1998.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999, the Company had cash, cash equivalents and other
short-term investments of $46.3 million, an increase of $22.0 million from
December 31, 1998. In addition, the Company has $6.7 million of restricted
cash recorded as other current assets, in support of standby letters of
credit. Management anticipates that the restriction on this cash will be
released by the end of the first quarter of 2000. The primary sources of cash
in 1999, as reflected on the Consolidated Statement of Cash Flows, were $63.9
million from the disposition of equipment, $35.2 million from the issuance of
debt and $14.5 million provided by operating activities. The disposition of
assets includes the sale of the 13 lower-48 rigs to Unit Corporation for cash
proceeds of $40.0 million, the sale of rigs and equipment in Argentina with
proceeds of $9.3 million and the sale of one offshore platform rig with
proceeds to date of $5.5 million.
The primary uses of cash in 1999 were $49.1 million for capital
expenditures (net of reimbursements) and $43.0 million for repayment of debt.
Major projects during the year included the modification of barge Rig 257 for
a contract in the Caspian Sea and the construction of a new barge, Rig 75, for
a contract in Nigeria. Reimbursements from the operator to offset a portion
of the expenditures to modify Rig 257 are reflected as a reduction in capital
expenditures in the Consolidated Statement of Cash Flows. At year-end both
rigs were drawing daily revenues at their respective locations. Other major
expenditures included the modification of two barge rigs for a contract with
Texaco in the transition zones of the Gulf of Mexico, the completion of a new
support facility in New Iberia, Louisiana, and commencement of modifications
to Rig 249 for a contract to begin in the second half of 2000 in Kazakhstan.
To finance the Company's 1996 and 1997 acquisitions and the significant
capital expenditures made in 1998 and 1999, the Company has issued various
debt instruments. The Company has total long-term debt, including the current
portion, of $653.6 million at December 31, 1999. On September 30, 1999 the
outstanding balance of $40.0 million on the ING revolving credit facility was
repaid in full from the cash proceeds from the sale of the lower-48 land rigs.
After the outstanding letters of credit were cash collateralized, the ING
facility was terminated. Subsequently, the Company entered into a new $50.0
million revolving credit facility with a group of banks led by Bank of America
on October 22, 1999. This new 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. As of
December 31, 1999, the borrowing base was $40.4 million of which none had been
drawn down. The revolver terminates on October 22, 2003. On October 7, 1999
a subsidiary of the Company entered into a loan agreement with Boeing Capital
Corporation for refinancing the construction costs of Rig 75. The loan of
$24.8 million plus interest is to be repaid in 60 monthly payments of $0.5
million. The loan is collateralized by Rig 75 and is guaranteed by the
Parent.
Liquidity and Capital Resources (continued)
- -------------------------------
The Company anticipates that working capital needs and funds required for
capital spending in 2000 will be met from existing cash, other short-term
investments, cash provided by operations, reimbursements from the operator for
expenditures on Rig 257 and, if necessary, from proceeds from sale of the Unit
common stock and funds available under the Company's revolving credit
facility. The Company anticipates cash requirements for capital spending will
be approximately $38 million, net of reimbursements, in 2000. 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.
OTHER MATTERS
Business Risks
- --------------
Internationally, the Company specializes in drilling in remote locations
and under difficult geological or operating conditions. The Company's
international services are primarily utilized by international and national
oil companies in the exploration and development of reserves of oil.
Domestically, the Company primarily drills offshore in the Gulf of Mexico with
barge, jackup and platform rigs. Business activity is dependent on the
exploration and development activities of the major, independent and national
oil and gas companies that make up the Company's customer base. Generally,
temporary fluctuations in oil and gas prices do not materially affect these
companies' exploration and development activities, and consequently do not
materially affect the operations of the Company. However, sustained increases
or decreases in oil and natural gas prices could have an impact on customers'
long-term exploration and development activities which in turn could
materially affect the Company's operations. Generally, a sustained change in
the price of oil would have a greater impact on the Company's international
operations while a sustained change in the price of natural gas would have a
greater effect on domestic operations.
Year 2000
- ---------
The Company began preparing for Year 2000 in 1997 by replacing critical
financial, human resources and payroll systems with Year 2000 compliant off-
the-shelf software. The Year 2000 problem was not the main reason for
upgrading the information technology platform; however, it was beneficial in
achieving Year 2000 compliance. The Company also prepared contingency plans
to cover failures in its supply chain, communications, civil disturbances and
information technology systems.
The Company estimates that $225,000 was spent during 1998 and 1999 in its
Year 2000 compliance efforts. While the majority of those costs were internal
salaries, the Company's process for tracking internal costs did not capture
all of the costs incurred for each individual task on the project.
During the Year 2000 date transition, the Company did not experience any
material failure with its Information Technology or non-Information Technology
systems or key customers or suppliers. The Company will continue to monitor
mission critical applications, processes and vendors throughout the Year 2000
for any latent issues that may arise.
Other Matters (continued)
- -------------
Change in Fiscal Year
- ---------------------
On July 10, 1998, the Company decided to change its fiscal year end from
August 31 to December 31, effective January 1, 1999. The Company filed a
Quarterly Report on Form 10-Q with the Securities and Exchange Commission
covering the transition period of September 1, 1998 to December 31, 1998.
Indonesian Operations
- ---------------------
The current political and currency instability in Indonesia has created
uncertainty regarding the Company's Indonesian operations. The Company
provides management, technical and training support to an Indonesian-owned
drilling contractor, whose services include the drilling of geothermal wells
related to power plant projects. Due to the uncertain economic conditions,
certain of these power plant projects have been postponed or delayed. As a
result, payments from a significant customer for services provided by the
Indonesian contractor have been delayed. The Indonesian contractor initiated
two arbitration proceedings in late 1998 to collect these delinquent payments.
Recently, the arbitration panel awarded the contractor approximately $4.5
million including interest in the first proceeding. The contractor has
advised it will vigorously pursue collection of this award and prosecution of
a second arbitration proceeding in which the contractor is claiming
approximately $4.0 million.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Parker Drilling Company
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) of the Form 10-K, present fairly, in all
material respects, the financial position of Parker Drilling Company and its
subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999, August
31, 1998 and 1997, and the four months ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) of the Form 10-K, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 3, 2000
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Earnings Per Share
and Weighted Average Shares Outstanding)
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- ----------------------------------------------------------------------------------
Revenues:
Domestic drilling $113,715 $ 49,648 $197,084 $117,248
International drilling 182,908 76,248 249,481 166,350
Rental tools 27,656 10,245 32,723 25,457
Other 274 582 1,935 2,589
-------- -------- -------- --------
Total revenues 324,553 136,723 481,223 311,644
-------- -------- -------- --------
Operating expenses:
Domestic drilling 100,199 42,025 127,951 79,790
International drilling 126,226 52,623 167,651 110,189
Rental tools 10,910 4,416 13,749 8,549
Other 1,899 932 2,365 4,722
Depreciation and amortization 82,170 26,529 68,574 46,256
General and administrative 16,312 5,904 17,273 14,414
Restructuring charges 3,000 - - -
Provision for reduction in
carrying value of certain assets 10,607 4,055 - -
-------- -------- -------- --------
Total operating expenses 351,323 136,484 397,563 263,920
-------- -------- -------- --------
Operating income (loss) (26,770) 239 83,660 47,724
-------- -------- -------- --------
Other income and (expense):
Interest expense (55,928) (17,427) (49,389) (32,851)
Interest income 1,725 619 5,732 5,367
Gain on disposition of assets 39,070 605 2,289 2,775
Other 1,326 (304) 2,235 541
-------- -------- -------- --------
Total other income and (expense) (13,807) (16,507) (39,133) (24,168)
-------- -------- -------- --------
Income (loss) before income taxes (40,577) (16,268) 44,527 23,556
-------- -------- -------- --------
Income tax expense (benefit) (2,680) (1,635) 16,435 7,241
-------- -------- -------- --------
Net income (loss) $(37,897) $(14,633) $ 28,092 $ 16,315
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share,
Basic $ (.49) $ (.19) $ .37 $ .23
Diluted (.49) $ (.19) $ .36 $ .23
Number of common shares used in
computing earnings per share:
Basic 77,159,461 76,828,879 76,658,100 70,909,539
Diluted 77,159,461 76,828,879 77,789,390 71,760,543
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
December 31,
1999 1998
- -----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 45,501 $ 24,314
Other short-term investments 777 -
Accounts and notes receivable, net of
allowance for bad debts of $5,677 in
1999 and $3,002 in 1998 75,411 105,810
Rig materials and supplies 13,766 18,755
Other current assets 15,988 13,224
---------- ----------
Total current assets 151,443 162,103
---------- ----------
Property, plant and equipment, at cost:
Drilling equipment 956,957 957,672
Rental equipment 43,857 38,784
Buildings, land and improvements 20,657 23,329
Other 25,291 29,222
Construction in progress 38,154 126,330
---------- ----------
1,084,916 1,175,337
Less accumulated depreciation
and amortization 423,514 445,464
---------- ----------
Net property, plant and equipment 661,402 729,873
---------- ----------
Deferred charges and other assets:
Goodwill, net of accumulated
amortization of $20,304 in 1999
and $13,026 in 1998 204,090 214,232
Rig materials and supplies 13,363 8,900
Assets held for disposition 17,063 11,010
Debt issuance costs 13,202 15,052
Other 22,180 18,156
---------- ----------
Total deferred charges and other assets 269,898 267,350
---------- ----------
Total assets $1,082,743 $1,159,326
---------- ----------
---------- ----------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
December 31,
1999 1998
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,054 $ 31,404
Accounts payable 29,170 39,114
Accrued liabilities 29,562 33,323
Accrued income taxes 8,323 7,576
---------- ----------
Total current liabilities 72,109 111,417
---------- ----------
Long-term debt (Note 5) 648,577 630,479
---------- ----------
Deferred income tax 28,273 41,253
---------- ----------
Other long-term obligations 4,363 12,227
---------- ----------
Commitments and contingencies (Note 11) - -
Stockholders' equity:
Preferred stock, $1 par value, 1,942,000
shares authorized, no shares outstanding - -
Common stock, $.16 2/3 par value,
authorized 120,000,000 shares, issued
and outstanding 77,372,040 shares
(76,887,331 shares in 1998) 12,895 12,815
Capital in excess of par value 343,374 341,699
Comprehensive income - net unrealized gain
on investments available for sale (net of
taxes of $908) 1,613 -
Retained earnings (accumulated deficit) (28,461) 9,436
---------- ----------
Total stockholders' equity 329,421 363,950
---------- ----------
Total liabilities and stockholders' equity $1,082,743 $1,159,326
---------- ----------
---------- ----------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- -------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(37,897) $(14,633) $ 28,092 $ 16,315
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 82,170 26,529 68,574 46,256
Gain on disposition of
assets (39,070) (605) (6,851) (2,775)
Provision for reduction in carrying
value of certain assets 10,607 4,055 - -
Deferred tax expense (benefit) (13,888) (6,147) 2,100 -
Other 3,503 1,875 3,992 4,201
Change in assets and liabilities:
Accounts and notes receivable 28,554 7,569 8,886 (46,488)
Rig materials and supplies (721) (257) (5,544) (3,468)
Other current assets (3,263) 658 3,065 (2,661)
Accounts payable and accrued
liabilities (21,569) (10,232) 40,383 2,236
Accrued income taxes 747 1,544 1,128 (1,732)
Other assets 5,312 871 (306) (3,412)
-------- -------- -------- --------
Net cash provided by operating
activities 14,485 11,227 143,519 8,472
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 63,868 1,481 13,470 14,235
Capital expenditures
(net of reimbursements) (49,146) (52,711) (196,078) (87,426)
Acquisition of Mallard - - - (311,837)
Acquisition of Quail - - - (66,888)
Acquisition of Bolifor - (500) (2,189) (22,311)
Acquisition of Hercules - - (195,599) -
Purchase of short-term investments (777) - (18,708) (8,221)
Proceeds from sale of short-term
investments - 9,999 11,547 21,630
Other-net 650 1,000 (766) (5,458)
-------- -------- --------- --------
Net cash provided (used) in investing
activities 14,595 (40,731) (388,323) (466,276)
-------- -------- --------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(Dollars in Thousands)
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 35,186 $ 10,000 $204,692 $557,040
Proceeds from common stock offering - - - 61,341
Principal payments under debt
obligations (43,017) (1,441) (124,287) (12,284)
Repurchase of common stock - - (302) (432)
Other (62) 5 4 352
-------- -------- -------- --------
Net cash provided (used) by
financing activities (7,893) 8,564 80,107 606,017
-------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 21,187 (20,940) (164,697) 148,213
Cash and cash equivalents at beginning
of year 24,314 45,254 209,951 61,738
-------- -------- -------- --------
Cash and cash equivalents at
end of year $ 45,501 $ 24,314 $ 45,254 $209,951
-------- -------- -------- --------
-------- -------- -------- --------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 56,806 $ 22,802 $ 46,892 $ 21,116
Income taxes $ 10,461 $ 2,968 $ 13,207 $ 8,973
Supplemental noncash investing and
financing activity:
1.0 million shares of Unit
Corporation stock received on sale
of lower-48 rigs $ 7,562
Net unrealized gain on investments
available for sale (net of taxes
of $908) $ 1,613
Note receivable for sale of
platform rig $ 1,645
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Dollars in Thousands)
Capital Retained
in excess earnings
Preferred Common of par (accumulated
stock stock value deficit) Other
---------- -------- ---------- ------------ ---------
Balances, August 31, 1996 $ - $10,888 $254,955 $(20,338) $(1,457)
Acquisition of Mallard 25,000 - - - -
Conversion of preferred
stock into common stock (25,000) 509 24,491 - -
Activity in employees'
stock plans - 32 1,239 - 1,180
Acquisition of stock from
certain employees - (7) (425) - -
Issuance of 8,146,600 common
shares - 1,358 59,983 - -
Net income - - - 16,315 -
------- ------- -------- -------- -------
Balances, August 31, 1997 - 12,780 340,243 (4,023) (277)
Activity in employees'
stock plans - 20 1,152 - 277
Acquisition of stock from
certain employees - (6) (296) - -
Net income - - - 28,092 -
------- ------- -------- -------- -------
Balances, August 31, 1998 - 12,794 341,099 24,069 -
Activity in employees'
stock plans - 21 600 - -
Net (loss) - - - (14,633) -
------- ------- -------- -------- -------
Balances, December 31, 1998 - 12,815 341,699 9,436 -
Activity in employees'
stock plans - 83 1,738 - -
Acquisition of stock from
certain employees - (3) (63) - -
Comprehensive Income -
Net unrealized gain on
investments available for
sale (net of taxes of $908) - - - - 1,613
Net (loss) (total
comprehensive loss of
$36,284) - - - (37,897) -
------- ------- -------- -------- -------
Balances, December 31, 1999 $ - $12,895 $343,374 $(28,461) $ 1,613
------- ------- -------- -------- -------
------- ------- -------- -------- -------
The accompanying notes are an integral part of the consolidated
financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the
accounts of Parker Drilling Company ("Parker Drilling") and all of its
majority-owned subsidiaries (collectively, the "Company").
Operations - The Company provides land and offshore contract drilling
services and rental tools on a worldwide basis to major, independent and
foreign national oil and gas companies. The Company's rig fleet consists of
28 barge drilling and workover rigs, seven offshore jackup rigs, five offshore
platform rigs and 51 land rigs. The Company specializes in the drilling of
deep and difficult wells, drilling in remote and harsh environments, drilling
in transition zones and offshore waters and in providing specialized rental
tools. The Company also provides a range of services that are ancillary to
its principal drilling services, including engineering, logistics and
construction, as well as various types of project management.
Change in Fiscal Year - The Company changed its fiscal year end from
August 31 to December 31, effective for the fiscal year beginning January 1,
1999. The four-month transition period from September 1 through December 31,
1998 (the "Transition Period") preceded the start of the new year. The fiscal
years ended August 31, 1998 and 1997 have not been recast to conform to the
new year end of December 31.
Drilling Contracts - 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).
Cash and Cash Equivalents - For purposes of the balance sheet and the
statement of cash flows, the Company considers cash equivalents to be all
highly liquid debt instruments that had a remaining maturity of three months
or less at the date of purchase.
Other Short-term Investments - Other short-term investments include
primarily certificates of deposit, U.S. government securities and commercial
paper having remaining maturities of greater than three months at the date of
purchase and are stated at the lower of cost or market.
Property, Plant and Equipment - The Company provides for depreciation of
property, plant and equipment primarily on the straight-line method over the
estimated useful lives of the assets after provision for salvage value. In
the third quarter of fiscal 1998, the Company reviewed the estimated useful
life of its land drilling fleet used for financial depreciation purposes. As
a result, the estimated life was extended from 10 to 15 years with a five
percent salvage value for most of the major rig components, resulting in a
reduction in depreciation expense for 1999, four months ended December 31,
1998 and fiscal 1998 of approximately $5.2 million and $1.7 million and $2.6
million, respectively. The Company's historical experience and a comparison
with other firms in the industry indicates that its land drilling equipment
has a useful life of at least 15 years. The depreciable lives
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
for offshore drilling equipment, 15 to 20 years, remained unchanged. The
depreciable lives for certain other equipment, ranging from three to seven
years, including drill pipe, also were not extended. When properties are
retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations. Management periodically evaluates the Company's assets to
determine if they are not in excess of their net realizable value. Management
considers a number of factors such as estimated future cash flows, appraisals
and current market value analysis in determining net realizable value. Assets
are written down to reflect any decrease in net realizable value below their
net carrying value. In addition, interest totaling approximately $3.0
million, $1.7 million, $3.5 million and $0.2 million were capitalized in 1999,
four months ended December 31, 1998, fiscal 1998 and fiscal 1997,
respectively.
Goodwill - Goodwill is being amortized on a straight-line basis over 30
years commencing on the dates of the respective acquisitions. The Company
assesses whether the excess of cost over net assets acquired is impaired based
on the ability of the operation, to which it relates, to generate cash flows
in amounts adequate to cover the future amortization of such assets. If an
impairment is determined, the amount of such impairment is calculated based on
the estimated fair market value of the related assets.
Rig Materials and Supplies - Since the Company's foreign drilling
generally occurs in remote locations, making timely outside delivery of spare
parts uncertain, a complement of parts and supplies is maintained for each rig
either at the drilling site or in warehouses close to the operations. During
periods of high rig utilization, these parts are generally consumed and
replenished within a one-year period. During a period of lower rig
utilization in a particular location, the parts, like the related idle rigs,
are generally not transferred to other foreign locations until new contracts
are obtained because of the significant transportation costs which would
result from such transfers. The Company classifies those parts which are not
expected to be utilized in the following year as long-term assets.
Other assets - Other assets includes the Company's investment in
marketable equity securities. Equity securities that are classified as
available for sale are stated at fair value as determined by quoted market
prices. Unrealized holding gains and losses are excluded from earnings and
are reported net of taxes in a separate component of stockholders' equity
until realized. At December 31, 1999 and 1998, the fair value of equity
securities totaled $11.5 million and $1.3 million, respectively.
In computing realized gains and losses on the sale of equity securities,
the cost of the equity securities sold is determined using the specific cost
of the security when originally purchased.
Other Long-term Obligations - Included in this account is the accrual of
workers' compensation and deferred revenues related to prepayments received
for certain daywork drilling revenues. These prepayments are recognized over
the related contract term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Income Taxes - The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings (Loss) Per Share (EPS) - SFAS No. 128, "Earnings per Share," was
implemented by the Company during fiscal 1998. The statement requires a
presentation of both basic and diluted EPS. Basic earnings (loss) per share
is computed by dividing net income (loss), as adjusted for dividends on
preferred stock, by the weighted average number of common shares outstanding
during the period. The effect of dilutive securities is included in the
diluted EPS calculation, when applicable.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
trade receivables with a variety of national and international oil and gas
companies. The Company generally does not require collateral on its trade
receivables.
The current political and currency instability in Indonesia has created
uncertainty regarding the Company's Indonesian operations. The Company
provides management, technical and training support to an Indonesian-owned
drilling contractor, whose services include the drilling of geothermal wells
related to power plant projects. Due to the uncertain economic conditions,
certain of these power plant projects have been postponed or delayed. As a
result, payments from a significant customer for services provided by the
contractor have been delayed. The contractor initiated two arbitration
proceedings in late 1998 to collect these delinquent payments. Recently, the
arbitration panel awarded the contractor approximately $4.5 million, including
interest, in the first proceeding. The contractor has advised it will
vigorously pursue collection of this award and prosecution of a second
arbitration proceeding which the contractor is claiming approximately $4.0
million. The Company believes that resolution of this matter will not have a
material adverse effect on the Company's results of operations or financial
position.
The Company places substantially all its interest-bearing investments
with major financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. At December 31, 1999 and 1998, the
Company had deposits in domestic banks in excess of federally insured limits
of approximately $51.7 million and $19.9 million, respectively. In addition,
the Company had deposits in foreign banks December 31, 1999 and 1998 of $2.9
million and $4.8 million, respectively, which are not federally insured.
The Company's drilling customer base consists of major, independent and
foreign national oil and gas companies. Shell Petroleum Development Company
of Nigeria, the Company's largest customer of 1999, accounted for
approximately 10% of total revenues. For fiscal year 1998, Chevron was the
Company's largest customer with approximately 15% of total revenues.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments - The carrying amount of the
Company's cash and short-term investments and short-term and long-term debt
had fair values that approximated their carrying amounts.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 2 - Acquisitions
On December 30, 1997, the Company acquired all of the outstanding capital
stock of Hercules Offshore Corporation, a Texas corporation (HOC), and all of
the outstanding capital stock of Hercules Rig Corp., a Texas corporation (HRC)
and an affiliate of HOC (HOC and HRC being collectively referred to as
"Hercules"), for $195.6 million, including acquisition costs. The purchase
price for the acquisition was adjusted for certain debt assumed by the
Company, for capital expenditures incurred subsequent to the purchase
agreement date and for levels of working capital at closing. Hercules owned
three self-erecting platform rigs and seven offshore jackup rigs.
The acquisition has been accounted for by the purchase method of
accounting; and, the reported financial results include the Hercules
operations from the date of acquisition. The excess of purchase price over
the fair value of the net assets acquired was $83.9 million and has been
recorded as goodwill, which is being amortized on a straight-line basis over
30 years.
The acquisition of Hercules was primarily funded with proceeds from the
July 1997 issuance of the Company's $175 million 5 1/2% Convertible
Subordinated Notes.
On November 12, 1996, the Company acquired Mallard Bay Drilling, Inc.
("Mallard") and Quail Tools, Inc. ("Quail"). Both were accounted for by the
purchase method of accounting.
The Company acquired all of the outstanding stock of Mallard from Energy
Ventures, Inc. ("EVI") for $336.8 million, including acquisition costs, for
cash of $311.8 million and $25.0 million of preferred stock, which was
converted into 3,056,600 shares of common stock during the second quarter of
fiscal 1997. At the acquisition date, Mallard owned and operated 34 drilling
and workover barge rigs in the shallow waters of the Gulf of Mexico, Nigeria,
and Venezuela and four land drilling rigs in Argentina.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Acquisitions (continued)
The Company acquired all of the outstanding stock of Quail for $66.9
million, including acquisition costs. Quail is a provider of premium rental
tools used in well drilling, production and workover operations to companies
working in the Gulf of Mexico and Gulf Coast land regions. The excess of
purchase price over the fair value of the net assets acquired was $99.7
million for Mallard and $43.6 million for Quail and has been recorded as
goodwill, which is being amortized on a straight-line basis over 30 years.
The following unaudited pro forma information presents a summary of the
annual consolidated results of operations of the Company and the acquired
entities as if the acquisitions had occurred September 1, 1996.
For the Years ended August 31, 1998 1997
-------------------------------------------------------------
(Thousands Except Per Share Amounts)
Revenues $506,627 $403,993
Net income $ 30,876 $ 7,129
Earnings per common share $ .40 $ .10
(diluted)
In July 1997, the Company acquired substantially all of the assets of
Bolifor, a leading provider of contract drilling services in Bolivia, for
$25.0 million, of which $2.2 million and $0.5 million were paid in fiscal 1998
and during the four months ended December 31, 1998, respectively. The assets
of Bolifor primarily consisted of 11 land rigs located in Bolivia, Paraguay
and Argentina. The results of the acquisition were not material to the
results of operations and, accordingly, not included in the preceding table.
Note 3 - Disposition of Assets
On September 30, 1999, the Company completed the sale of its lower-48
land rigs to Unit Corporation for $40.0 million cash plus one million shares
of Unit common stock. The value of such common stock, based on the closing
price for Unit's common stock on September 30, approximated $7.6 million. The
Company recognized a pre-tax gain of $36.1 million during September.
During October 1999, the Company sold its Argentina drilling rigs and
inventories (previously classified as assets held for sale) plus one operating
drilling rig, Rig 9 in Bolivia, for total consideration of approximately $9.3
million. The company recognized a pre-tax gain of approximately $0.8 million
during October related primarily to the Bolivia rig.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Assets Held for Disposition
In December 1998, the Company determined that its operations in Argentina
did not meet its strategic objectives and, therefore, decided that such assets
would be actively marketed. The Argentina assets included 11 drilling rigs
and inventories related to these rigs. Due to depressed industry conditions,
impairment losses of $4.1 million and $2.1 million were recognized in December
1998 and June 1999, respectively. During the fourth quarter of 1999, the
Argentina drilling rigs and inventories (classified as assets held for sale)
plus one additional rig from Bolivia were sold in separate transactions for
total consideration of approximately $9.3 million (see Note 3).
In December 1999, it was decided to sell Rig 105 which had been operating
in the Bolivia market. The Company reduced the carrying value by
approximately $300,000 to record the rig at its estimated net realizable value
of $1.1 million. The sale of the rig is expected to close during the first
quarter of 2000 at its net realizable value. At December 31, 1999, the net
realizable value of the rig is included in assets held for disposition.
In the third quarter of 1999, it was decided that barge Rig 80, the Gulf
Explorer, would be actively marketed for disposition. The Company reduced the
carrying value by $2.5 million to record the rig at its estimated net
realizable value of $9.0 million. The net realizable value of the rig is
included in assets held for disposition.
During the second quarter of 1999, the Company restructured its drilling
operations into two primary business units. As part of the plan, the Company
combined two office facilities in Louisiana into one location. The carrying
value of the vacated office building was reduced by approximately $1.4 million
to its estimated net realizable value of $4.5 million. The net realizable
value of the building is included in assets held for disposition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Long-term Debt
December 31, 1999 1998
------------------------------------------------------------------------
(Dollars in Thousands)
Senior Notes payable in November 2006 with
interest of 9.75% payable semi-annually in
May and November, net of unamortized discount
of $1,616 and $1,852 at December 31, 1999
and 1998, respectively (effective interest
rate of 9.88%) $298,384 $298,148
Senior Notes payable in November 2006 with
interest of 9.75% payable semi-annually in
May and November, net of unamortized premium
of $4,545 and $5,202 at December 31, 1999
and 1998, respectively (effective interest
rate of 8.97%) 154,545 155,202
Convertible Subordinated Notes payable in
July 2004 with interest of 5.5% payable
semi-annually in February and August 175,000 175,000
Revolving Credit Facility with interest at
prime plus 0.50% or LIBOR plus 1.75% to 2.25%
(Facility was terminated on September 30, 1999.) - 30,000
Revolving Credit Facility with interest
at prime plus 0.50% or LIBOR plus 2.50% - -
Secured promissory note to Boeing Capital
Corporation with interest at 10.1278%.
Principal and interest payable monthly over a
60-month term 24,198 -
Other 1,504 3,533
------- --------
Total debt 653,631 661,883
Less current portion 5,054 31,404
-------- --------
Total long-term debt $648,577 $630,479
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate maturities of long-term debt for the five years ending
December 31, 2004, are as follows (000's): 2000 - $5,054; 2001 - $5,059; 2002
- - $5,001; 2003 - $5,532; 2004 - $180,056.
The Senior Notes, which mature in 2006, were initially issued in November
1996 and in March 1998 in amounts of $300 million (Series B) and $150 million
(Series C), respectively. The $300 million issue was sold at a $2.4 million
discount while the $150 million issue was sold at a premium of $5.7 million.
In May 1998, a registration statement was filed by the Company which offered
to exchange the Series B and C notes for new Series D Notes. The form and
terms of the Series D Notes are identical in all material respects to the form
and terms of the Series B and C Notes, except for certain transfer
restrictions and registration rights relating to the Series C Notes. All of
the Series B except $189 thousand and all of the Series C Notes were exchanged
for new Series D Notes per this offering. The Notes have an interest rate of
9 3/4% and are guaranteed by substantially all subsidiaries of Parker
Drilling, all of which are wholly owned. The guarantees are joint and
several, full, complete and unconditional. There are currently no
restrictions on the ability of the subsidiaries to transfer funds to Parker
Drilling in the form of cash dividends, loans or advances. Parker Drilling is
a holding company with no operations, other than through its subsidiaries.
The non-guarantors are inconsequential, individually and in the aggregate, to
the consolidated financial statements and separate financial statements of the
guarantors are not presented because management has determined that they would
not be material to investors.
In anticipation of funding the Hercules acquisition, in July 1997, the
Company issued $175 million of Convertible Subordinated Notes due 2004. The
Notes bear interest at 5.5% payable semi-annually in February and August. The
Notes are convertible at the option of the holder into shares of common stock
of Parker Drilling at $15.39 per share at any time prior to maturity. The
Notes will be redeemable at the option of the Company at any time after July
2000 at certain stipulated prices.
On September 30, 1999, the Company terminated its $75.0 million revolving
credit facility. The outstanding balance was repaid in full with the proceeds
received from the sale of the Company's 13 lower-48 land rigs (see Note 3).
On October 22, 1999, the Company entered into a new $50.0 million revolving
loan facility with a group of banks led by Bank of America. The new facility
is available for working capital requirements, general corporate purposes and
to support letters of credit. The revolver is collateralized by accounts
receivable, inventory and certain barge rigs located in the Gulf of Mexico.
The facility will terminate on October 22, 2003.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On October 7, 1999, a wholly owned subsidiary of the Company entered into
a loan agreement with Boeing Capital Corporation for the refinancing of a
portion of the capital cost of barge Rig 75. The loan principal of
approximately $24.8 million plus interest is to be repaid in 60 monthly
payments of approximately $0.5 million. The loan is collateralized by barge
Rig 75 and is guaranteed by the Parent.
Each of the 9 3/4% Senior Notes, 5 1/2% Convertible Subordinated Notes
and the revolving loan facility contains customary affirmative and negative
covenants, including restrictions on incurrence of debt and sales of assets.
The revolving loan facility prohibits payment of dividends and the indenture
for the 9 3/4% Senior Notes restricts the payment of dividends.
Note 6 - Income Taxes
Income (loss) before income taxes (in thousands) is summarized as
follows:
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
----------- ----------- --------- ---------
United States $(47,526) $(19,249) $ 7,682 $ 4,231
Foreign 6,949 2,981 36,845 19,325
-------- -------- -------- --------
$(40,577) $(16,268) $ 44,527 $ 23,556
-------- -------- -------- --------
-------- -------- -------- --------
Income tax expense (benefit) (in thousands) is summarized as follows:
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
----------- ----------- --------- ---------
Current:
United States:
Federal $ - $ - $ - $ 70
State 838 21 50 215
Foreign 10,370 4,491 14,285 6,956
Deferred:
United States:
Federal (13,552) (5,976) 2,042 -
State (336) (171) 58 -
Foreign - - - -
-------- -------- -------- --------
$ (2,680) $ (1,635) $ 16,435 $ 7,241
-------- -------- -------- --------
-------- -------- -------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
Total income tax expense (benefit) (in thousands) differs from the amount
computed by multiplying income (loss) before income taxes by the U.S. federal
income tax statutory rate. The reasons for this difference are as follows:
Four Months
Year Ended Ended
December 31, December 31, Years Ended August 31,
1999 1998 1998 1997
--------------- -------------- -------------- --------------
% of % of % of % of
pretax pretax pretax pretax
Amount income Amount income Amount income Amount income
--------------- -------------- -------------- --------------
Computed expected
tax expense
(benefit) $(14,202) (35%) $(5,694) (35%) $15,584 35% $ 8,245 35%
Foreign taxes 6,741 17% 2,919 18% 1,389 3% 192 1%
Utilization of loss
carryforwards - - % - - (1,973) (4%) (1,814) (8%)
Goodwill amortization 1,488 4% 584 4% 1,162 2% 959 4%
Other 3,293 7% 556 3% 273 1% (341) 1%
-------- ---- ------- ---- ------- ---- ------ ----
Actual tax expense
(benefit) $ (2,680) (7%) $(1,635) (10%) $16,435 37% $7,241 31%
-------- ---- ------- ---- ------- ---- ------ ----
-------- ---- ------- ---- ------- ---- ------ ----
The components of the Company's tax assets and (liabilities) as of December 31,
1999 and 1998, are shown below (in thousands):
December 31,
1999 1998
-------- ---------
Domestic:
Deferred tax assets:
Net operating loss carryforwards $ 83,209 $ 57,711
Reserves established against realization
of certain assets 2,430 1,097
Accruals not deducted for tax purposes 5,654 5,408
Property, plant and equipment - 635
-------- --------
91,293 64,851
Deferred tax liabilities:
Property, plant and equipment (79,549) (67,635)
Unrealized gain on investments held for sale (908) -
-------- --------
Net deferred tax asset (liability) 10,836 (2,784)
Valuation allowance (39,109) (38,469)
-------- --------
Deferred income tax (liability) $(28,273) $(41,253)
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
At December 31, 1999, the Company had $231,135,000 of net operating loss
carryforwards for tax purposes which expire over an 11-year period ending
August 31 as follows (000's): 2000-$22,426; 2001-$58,830; 2002-$32,947;
thereafter-$116,932. The Company has recorded a valuation allowance of
$39,109,000 with respect to its deferred tax asset. However, the amount of
the asset considered realizable could be different in the near term if
estimates of future taxable income change.
Note 7 - Common Stock and Stockholders' Equity
Stock Plans
The Company's employee and non-employee director stock plans are
summarized as follows:
The 1994 Non-Employee Director Stock Option Plan ("Director Plan")
provides for the issuance of options to purchase up to 200,000 shares of
Parker Drilling's common stock. The option price per share is equal to the
fair market value of a Parker Drilling share on the date of grant. The term
of each option is ten years, and an option first becomes exercisable six
months after the date of grant. Under the Director Plan, on the first trade
day of each calendar year, each person who is then a non-employee director of
the Company will be automatically granted an option to purchase 5,000 shares
of common stock.
The 1994 Executive Stock Option Plan provides for the granting of a
maximum of 2,400,000 shares to key employees of the Company and its
subsidiaries through the granting of stock options, stock appreciation rights
and restricted and deferred stock awards. The option price per share may not
be less than 50% of the fair market value of a share on the date the option is
granted, and the maximum term of a non-qualified option may not exceed fifteen
years and the maximum term of an incentive option is ten years.
The 1997 Stock Plan is a "broad-based" stock plan that provides for the
granting of a maximum of 4,000,000 shares to all employees of the Company who,
in the opinion of the board of directors, are in a position to contribute to
the growth, management and success of the Company through the granting of
stock options and restricted stock awards. The option price per share may not
be less than the fair market value on the date the option is granted for
incentive options and not less than par value of a share of common stock for
non-qualified options. The maximum term of an incentive option is ten years
and the maximum term of a non-qualified option is fifteen years. In July
1999, 2,000,000 additional shares were registered with the SEC for granting
under the 1997 Stock Plan. In July 1999, 1,896,000 shares were granted under
this plan, leaving 1,145,250 available for granting.
All shares have been granted under the 1994 Executive Stock Option Plan
and the 1994 Non-Employee Director Stock Option Plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information regarding the Company's stock option plans is summarized
below:
1994 1997
Director Stock
Plan Plan
------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------- ---------------------
Shares under option:
Outstanding at August 31, 1996 30,000 $ 5.344 - $ -
Granted 140,000 8.938 1,800,000 8.875
Exercised - - - -
Cancelled - - - -
------- --------- --------- ---------
Outstanding at August 31, 1997 170,000 8.303 1,800,000 8.875
Granted 20,000 12.094 1,410,500 11.798
Exercised - - - -
Cancelled - - (15,000) 12.188
------- --------- --------- ---------
Outstanding at August 31, 1998 190,000 8.702 3,195,500 10.149
Granted - - - -
Exercised - - - -
Cancelled - - - -
------- --------- --------- ---------
Outstanding at December 31, 1998 190,000 8.702 3,195,500 10.149
Granted 10,000 3.281 1,901,000 3.210
Exercised - - (1,250) 3.188
Cancelled - - (235,500) 12.188
------- --------- --------- ---------
Outstanding at December 31, 1999 200,000 $ 8.431 4,859,750 $ 7.338
------- --------- --------- ---------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information regarding the Company's stock option plans is summarized
below: (continued)
1994 Option Plan
----------------------------------------------
Incentive Non-Qualified
Options Options
---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------------------- ---------------------
Shares under option:
Outstanding at August 31, 1996 296,554 $ 4.500 489,794 $ 3.994
Granted 388,010 8.875 1,131,990 8.875
Exercised (62,000) 4.500 (30,348) 2.250
Cancelled - - - -
--------- --------- ---------- --------
Outstanding at August 31, 1997 622,564 7.227 1,591,436 7.500
Granted - - - -
Exercised - - (2,000) 2.250
Cancelled - - - -
--------- --------- ---------- --------
Outstanding at August 31, 1998 622,564 7.227 1,589,436 7.507
Granted - - - -
Exercised - - (2,500) 2.250
Cancelled - - - -
--------- --------- ---------- --------
Outstanding at December 31, 1998 622,564 7.227 1,586,936 7.516
Granted - - - -
Exercised - - - -
Cancelled - - - -
--------- --------- --------- --------
Outstanding at December 31, 1999 622,564 $ 7.227 1,586,936 $ 7.516
--------- --------- --------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Outstanding Options
-------------------------
Weighted Weighted
Average Average
Number of Remaining Exercise
Plan Exercise Prices Shares Contractual Life Price
- ------------------ ----------------- ---------- ---------------- --------
1994 Director Plan $ 3.281 - $ 6.125 40,000 7.6 years $ 4.829
$ 8.875 - $12.094 160,000 7.4 years $ 9.332
1994 Executive Option Plan
Incentive Option $ 4.500 234,554 5.0 years $ 4.500
Incentive Option $ 8.875 388,010 7.4 years $ 8.875
Nonqualified $ 2.250 - $4.500 454,946 5.0 years $ 4.127
Nonqualified $ 8.875 1,131,990 7.4 years $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 3.500 1,002,010 6.3 years $ 3.190
Incentive Option $ 8.875 - $12.188 1,792,165 7.7 years $10.750
Nonqualified $ 3.188 - $ 3.688 897,740 6.6 years $ 3.233
Nonqualified $ 8.875 - $12.188 1,167,835 7.5 years $ 9.054
Exercisable Options
--------------------------
Weighted
Number of Average
Plan Exercise Prices Shares Exercise Price
- ------------------ ----------------- ---------- --------------
1994 Director Plan $ 3.281 - $ 6.125 40,000 $ 4.829
$ 8.875 - $12.094 160,000 $ 9.332
1994 Executive Plan
Incentive Option $ 4.500 234,554 $ 4.500
Incentive Option $ 8.875 388,010 $ 8.875
Nonqualified $ 2.250 - $ 4.500 454,946 $ 4.127
Nonqualified $ 8.875 1,131,990 $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 3.500 375,270 $ 3.189
Incentive Option $ 8.875 - $12.188 842,852 $ 11.256
Nonqualified $ 3.188 - $ 3.688 386,857 $ 3.291
Nonqualified $ 8.875 - $12.188 368,748 $ 9.186
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Common Stock and Stockholders' Equity
The Company has three additional stock plans which provide for the
issuance of stock for no cash consideration to officers and key non-officer
employees. Under two of the plans, each employee receiving a grant of shares
may dispose of 15 percent of his/her grant on each annual anniversary date
from the date of grant for the first four years and the remaining 40 percent
on the fifth year anniversary. These two plans have a total of 11,375 shares
reserved and available for granting. Shares granted under the third plan are
fully vested no earlier than 24 months from the effective date of the grant
and not later than 36 months. The plan has a total of 1,562,195 shares
reserved and available for granting. No shares were granted under these plans
in 1999, the transition period, fiscal 1998 and 1997.
The fair market value of the common stock at date of grant which exceeds
the option price of shares granted under any of the plans is recorded as
deferred compensation and amortized to expense over the period during which
the restrictions lapse. Deferred compensation is shown as a deduction from
stockholders' equity. All such costs had been fully amortized as of August
31, 1998.
During 1999, the Company purchased 15,195 shares at an average price of
$4.31 per share from certain of its employees who had received stock grants
under the Company's stock plans. During fiscal 1998 and 1997, the Company
purchased 36,562 and 42,875 shares, respectively, from certain of its
employees who had received stock grants under the Company's stock plans and no
shares were purchased during the four-month transition period ended December
31, 1998. Total shares purchased from employees and treated as treasury stock
are 402,607 and 445,482 for the fiscal years ended August 31, 1998 and 1997,
respectively. Currently, 497,239 shares are held in Treasury. The Company
acquired the shares at then current market prices (weighted average price was
$8.28 per share in fiscal 1998 and $10.08 per share in fiscal 1997). The
proceeds were used to pay the employees' tax withholding obligations arising
from the vesting of shares under the Plans.
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the Company's stock option plans when the option price
is equal to or greater than the fair market value of a share of the Company's
common stock on the date of grant. Pro forma net income and earnings per
share are reflected below as if compensation cost had been determined based on
the fair value of the options at their applicable grant date, according to the
provisions of SFAS No. 123.
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- -----------------------------------------------------------------------------
Net Income (loss) (In thousands):
As reported $(37,897) $(14,633) $28,092 $16,315
Pro forma $(45,925) $(16,605) $21,922 $14,054
Earnings (loss) per share, diluted:
As reported $ (.49) $ (.19) $ .36 $ .23
Pro forma $ (.59) $ (.22) $ .28 $ .20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Common Stock and Stockholders' Equity (continued)
The fair value of each option grant is estimated using the Black-Scholes
option pricing model with the following assumptions.
Expected dividend yield 0.0%
Expected stock volatility 39.1% in fiscal year 1997
44.0% in fiscal year 1998
49.0% for the Transition Period
49.0% in 1999
Risk-free interest rate 5.4 - 6.7%
Expected life of options 5 - 7 years
The fair values of options granted during the year ended December 31, 1999 and
the fiscal years 1998 and 1997 under the Director Plan were $16,500, $115,000
and $605,000, respectively. Options granted in fiscal 1997 under the 1994
Executive Stock Option Plan and the 1997 Stock Plan, had fair values of
$6,321,000 and $8,100,200 respectively. Options granted in fiscal 1998 under
the 1997 Stock Plan had a fair value of $8,585,100. Options granted in 1999
under the 1997 Stock Plan had a fair value of $3,262,749.
Stock Reserved For Issuance
The following is a summary of common stock reserved for issuance:
December 31,
1999 1998
---------- ----------
Stock Plans 9,983,070 7,983,070
Stock Bonus Plan 965,621 1,301,792
Convertible Notes 11,371,020 11,371,020
---------- ----------
Total shares reserved for issuance 22,319,711 20,655,882
---------- ----------
---------- ----------
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 25, 1998, to assure
that the Company's stockholders receive fair and equal treatment in the event
of any proposed takeover of the Company and to guard against partial tender
offers and other abusive takeover tactics to gain control of the Company
without paying all stockholders a fair price. The rights plan was not adopted
in response to any specific takeover proposal. Under the rights plan, the
Company's Board of Directors declared a dividend of one right to purchase one
one-thousandth of a share of a new series of junior participating preferred
stock for each outstanding share of common stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The rights may only be exercised ten days following a public announcement
that a third party has acquired 15% or more of the outstanding common shares
of the Company or ten days following the commencement of, or announcement of
an intention to make a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a third party of 15% or more
of the common shares. When exercisable, each right will entitle the holder to
purchase one one-thousandth share of the new series of junior participating
preferred stock at an exercise price of $30, subject to adjustment. If a
person or group acquires 15% or more of the outstanding common shares of the
Company, each right, in the absence of timely redemption of the rights by the
Company, will entitle the holder, other than the acquiring party, to purchase
for $30, common shares of the Company having a market value of twice that
amount.
The rights, which do not have voting privileges, expire June 30, 2008,
and at the Company's option, may be redeemed by the Company in whole, but not
in part, prior to expiration for $.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS)
For the Twelve Months Ended December 31, 1999
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net income (loss) $(37,897,000) 77,159,461 $(.49)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Net income (loss) + assumed
conversions $(37,897,000) 77,159,461 $(.49)
------------ ---------- -----
------------ ---------- -----
For the Four Months Ended December 31, 1998
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net income (loss) $(14,633,000) 76,828,879 $(.19)
Effect of Dilutive Securities:
Stock options and grants -
Diluted EPS:
Net income (loss) + assumed
conversions $(14,633,000) 76,828,879 $(.19)
------------ ---------- -----
------------ ---------- -----
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS) (continued)
For the Twelve Months Ended August 31, 1998
----------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net income (loss) $28,092,000 76,658,100 $ .37
Effect of Dilutive Securities:
Stock options and grants 1,131,290
Diluted EPS:
Net income (loss) + assumed
conversions $28,092,000 77,789,390 $ .36
----------- ---------- -----
----------- ---------- -----
For the Twelve Months Ended August 31, 1997
----------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net income (loss) $16,315,000 70,909,539 $ .23
Effect of Dilutive Securities:
Stock options and grants 851,004
Diluted EPS:
Net income (loss) + assumed
conversions $16,315,000 71,760,543 $ .23
----------- ---------- -----
----------- ---------- -----
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted Earnings Per Share (EPS) (continued)
The Company has outstanding $175,000,000 of Convertible Subordinated Notes,
which are convertible into 11,371,020 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 twelve months ended December 31, 1999, and four months ended December 31,
1998, options to purchase 7,269,250 and 5,595,000 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 in the
current year. In addition, for the fiscal years ended August 31, 1998 and
1997, options to purchase 995,500, 400,000 and 20,000 shares of common stock
at $12.1875, $10.8125 and $12.0938, respectively, which were outstanding
during part of the period, were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price
of the common shares during the period.
Note 9 - Employee Benefit Plans
The Parker Drilling Company Stock Bonus Plan ("Plan") was adopted
effective September 1980 for employees of Parker Drilling and its subsidiaries
who are U.S. citizens and who have completed one year of service with the
Company. It was amended in 1983 to qualify as a 401(k) plan under the
Internal Revenue Code which permits a specified percentage of an employee's
salary to be voluntarily contributed on a before-tax basis and to provide for
a Company matching feature. Participants may contribute from one percent to
15 percent of eligible earnings and direct contributions to one or more of
seven investment funds. The Plan was amended and restated, effective January
1, 1999, whereby the Company makes dollar-for-dollar matching contributions up
to three percent of a participant's compensation and $.50 for every dollar
contributed from three percent to five percent. The Company's matching
contribution is made in Parker Drilling common stock. The Plan was amended
and restated on April 1, 1996, for the purpose of adding loans and daily
record keeping. The Plan was further amended, effective September 1, 1996, to
provide for immediate vesting of participants in the full amount of the
Company's past and future contributions. Each Plan year, additional Company
contributions can be made, at the discretion of the Board of Directors, in
amounts not exceeding the permissible deductions under the Internal Revenue
Code. The Company issued 498,654 shares to the Plan in 1999, 119,390 shares
to the Plan during the transition period, 119,809 shares to the Plan in fiscal
1998 and 100,777 shares to the Plan in fiscal 1997, with the Company
recognizing expense of $1,796,000, $374,000, $1,167,000 and $930,000 in each
of the periods, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Business Segments
In fiscal 1997, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and organized its segments
according to services provided: land drilling, offshore drilling and rental
tools. During the second quarter of 1999, the Company restructured its
worldwide drilling operations into two primary business units, domestic
operations and international operations. This is the basis management uses
for making operating decisions and assessing performance. Accordingly, the
Company has changed its segments to include domestic drilling, international
drilling and rental tools and has restated the segment information for the
four months ended December 31, 1998 and the fiscal years 1998 and 1997. The
primary services the Company provides are as follows: domestic land and
offshore drilling, international land and offshore drilling and rental tools.
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and
geographic area is as follows:
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- ------------------------------------------------------------------------------------
(Dollars in Thousands)
Operations by Industry Segment
- ------------------------------
Revenues:
Domestic drilling $ 113,715 $ 49,648 $ 197,084 $ 117,248
International drilling 182,908 76,248 249,481 166,350
Rental tools 27,656 10,245 32,723 25,457
Other 274 582 1,935 2,589
---------- ---------- ---------- ----------
Total revenues $ 324,553 $ 136,723 $ 481,223 $ 311,644
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Operating income (loss):
Domestic drilling $ (41,508) $ (7,814) $ 25,148 $ 14,298
International drilling 10,037 6,048 47,519 23,541
Rental tools 7,356 2,926 11,551 12,229
Other (2,655) (921) (558) (2,344)
---------- ---------- ---------- ----------
Total operating income (loss) (26,770) 239 83,660 47,724
Interest expense (55,928) (17,427) (49,389) (32,851)
Other income (expense) - net 42,121 920 10,256 8,683
---------- ---------- ---------- ----------
Income (loss) before taxes $ (40,577) $ (16,268) $ 44,527 $ 23,556
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Identifiable assets:
Domestic drilling $ 386,385 $ 446,820 $ 446,927 $ 241,952
International drilling 357,906 419,640 410,034 304,116
Rental tools 43,356 45,533 44,040 36,600
Other 13,034 16,696 15,984 17,664
---------- ---------- ---------- ----------
Total identifiable assets 800,681 928,689 916,985 600,332
Corporate assets 282,062 230,637 283,559 383,804
---------- ---------- ---------- ----------
Total assets $1,082,743 $1,159,326 $1,200,544 $ 984,136
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and
geographic area is as follows: (continued)
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
- ------------------------------------------------------------------------------------
(Dollars in Thousands)
Operations by Industry Segment
- ------------------------------
Capital expenditures:
Domestic drilling $ 8,093 $ 11,510 $ 64,652 $ 31,219
International drilling 29,937 37,355 115,999 42,265
Rental tools 7,221 3,638 14,133 11,538
Other 3,895 208 1,294 2,404
---------- ---------- ---------- ----------
Total capital expenditures $ 49,146 $ 52,711 $ 196,078 $ 87,426
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Depreciation and amortization:
Domestic drilling $ 39,787 $ 10,831 $ 35,912 $ 16,032
International drilling 34,046 12,728 24,092 23,857
Rental tools 8,261 2,425 6,943 4,311
Other 76 545 1,627 2,056
---------- ---------- ---------- ----------
Total depreciation
and amortization $ 82,170 $ 26,529 $ 68,574 $ 46,256
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Business Segments (continued)
Year Four Months Year Year
Ended Ended Ended Ended
December 31, December 31, August 31, August 31,
1999 1998 1998 1997
----------- ------------ ----------- ----------
(Dollars in Thousands)
Operations by Geographic Area
- -----------------------------
Revenues:
United States $ 141,644 $ 60,475 $ 231,744 $ 145,294
South America 85,112 35,820 121,048 73,545
Asia Pacific 25,194 8,368 65,867 57,688
Africa and Middle East 36,852 18,433 42,778 28,201
Former Soviet Union 35,751 13,627 19,786 6,916
---------- ---------- ---------- ----------
Total revenues $ 324,553 $ 136,723 $ 481,223 $ 311,644
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Operating income (loss):
United States $ (36,807) $ (5,809) $ 39,715 $ 22,622
South America 8,175 481 9,701 1,838
Asia Pacific (9,044) (390) 18,005 15,728
Africa and Middle East 6,497 4,302 12,381 6,582
Former Soviet Union 4,409 1,655 3,858 954
---------- ---------- ---------- ----------
Total operating income
(loss) $ (26,770) $ 239 $ 83,660 $ 47,724
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Identifiable assets:
United States 724,837 $ 739,687 $ 790,510 $ 680,020
South America 102,348 151,935 145,256 119,617
Asia Pacific 60,458 65,725 83,854 82,930
Africa and Middle East 105,354 93,102 82,041 89,682
Former Soviet Union 89,746 108,877 98,883 11,887
---------- ---------- ---------- ----------
Total identifiable assets $1,082,743 $1,159,326 $1,200,544 $ 984,136
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Commitments and Contingencies
At December 31, 1999, the Company had a $50.0 million revolving credit
facility available for general corporate purposes and to support letters of
credit. As of December 31, 1999, the Company pledged $6.7 million cash,
included as other current assets, as collateral to support letters of credit.
At December 31, 1999, no amounts had been drawn under the revolving credit
facility.
Certain officers of the Company entered into Severance Compensation and
Consulting Agreements with the Company in 1988 and 1992. In October 1996, the
officers executed revised Severance Compensation and Consulting Agreements (the
"Agreements"). The Agreements provide for an initial six year term and the
payment of certain benefits upon a change of control (as defined in the
Agreements). A change of control includes certain mergers or reorganizations,
changes in the board of directors, sale or liquidation of the Company or
acquisition of more than 15% of the outstanding common stock of the Company by a
third party. After a change of control occurs, if an officer is terminated
within four years without good cause or resigns within two years for good reason
(as each are defined in the Agreements) the officer shall receive a payment of
three times his annual cash compensation, plus additional compensation for a one
year consulting agreement at the officer's annual cash compensation, plus
extended life, health and other miscellaneous benefits for four years.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters of
the United States, may be liable for the costs of removal and damages arising
out of a pollution incident to the extent set forth in the Federal Water
Pollution Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and
the Outer Continental Shelf Lands Act. In addition, the Company may also be
subject to applicable state law and other civil claims arising out of any such
incident. Certain of the Company's facilities are also subject to regulations
of the Environmental Protection Agency ("EPA") that require the preparation and
implementation of spill prevention, control and countermeasure plans relating to
possible discharge of oil into navigable waters. Other regulations of the EPA
may require certain precautions in storing, handling and transporting hazardous
wastes. State statutory provisions relating to oil and natural gas generally
include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and cleanup, obtaining drilling and dredging
permits and similar matters. The Company believes that it is in substantial
compliance with such laws, rules and regulations.
The Company is a party to various lawsuits and claims arising out of the
ordinary course of business. Management, after review and consultation with
legal counsel, considers that any liability resulting from these matters would
not materially affect the results of operations, the financial position or the
net cash flows of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12 - Related Party Transactions
During fiscal 1998, the Company surrendered for its cash surrender value of
$2.0 million, an insurance policy it owned on the life of Mr. Robert L. Parker,
chairman and a principal stockholder. The Company was the beneficiary of this
policy which was issued pursuant to a Stock Purchase Agreement ("Agreement")
approved by vote of the stockholders at the 1975 Annual Meeting on December 10,
1975. This Agreement was entered into between the Company and the Robert L.
Parker Trust and provided that upon the death of Robert L. Parker, the Company
would be required, at the option of the Trust, to purchase from the Trust at a
discounted price the amount of Parker Drilling common stock which could be
purchased with the proceeds of the policy of $7,000,000. On August 3, 1994, the
Company and the Trust modified this Agreement so that the Company would have the
option, but not the obligation, to purchase the stock at a discounted price with
the proceeds or to retain the entire proceeds upon the death of Robert L.
Parker, thereby enabling the Company to surrender the policy for its cash
surrender value.
As a part of the agreement to terminate the option held by the Trust and to
grant the Company a limited option to purchase stock at a discounted price, the
Company has also agreed to pay a premium of $655,019 annually for a split dollar
last-to-die life insurance policy on Robert L. Parker and Mrs. Robert L. Parker.
Upon the deaths of Mr. Parker and Mrs. Parker, the Company will be reimbursed by
the Robert L. Parker Sr. and Catherine M. Parker Family Trust from the proceeds
of the policy for the full amount of premiums paid plus interest at the one-year
treasury bill rate on the premiums paid after 1999. Robert L. Parker and the
Company agreed in October 1996 that the Company would cash surrender a $500,000
Executive Life policy on his life and, in exchange, the interest on the above-
described policy would not begin accruing until March 2003. Additionally,
Robert L. Parker Jr., Chief Executive Officer of the Company and son of Robert
L. Parker, will receive as a beneficiary of the Trust one-third of the net
proceeds of this policy. The face value of the policy is $13,200,000.
Note 13 - Supplementary Information
At December 31, 1999, accrued liabilities included $9.6 million of accrued
interest expense, $5.4 million of workers' compensation liabilities and $4.0
million of accrued payroll and payroll taxes. At December 31, 1998, accrued
liabilities included $9.5 million of accrued interest expense, $3.4 million of
workers' compensation liabilities and $6.6 million of accrued payroll and
payroll taxes. Other long-term obligations included $3.0 million and $4.7
million of workers' compensation liabilities as of December 31, 1999 and 1998,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Selected Quarterly Financial Data (Unaudited)
Quarter
---------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
CALENDAR 1999
- -------------
Revenues $ 86,846 $ 81,994 $ 80,080 $ 75,633 $324,553
Gross profit (loss) (1) $ 1,353 $ 3,573 $ (2,267) $ 490 $ 3,149
Operating income (loss) $ (6,751) $ (4,768) $(11,730) $ (3,521) $(26,770)
Net income (loss) $(12,796) $(13,073) $ 1,325 $(13,353) $(37,897)
Earnings (loss)
per share:
Basic $ (.17) $ (.17) $ .02 $ (.17) $ (.49)
Diluted $ (.17) $ (.17) $ .02 $ (.17) $ (.49)
Quarter
----------------------------------------------------
First Second Third Fourth Total
--------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
FISCAL 1998
- -----------
Revenues $109,880 $125,217 $122,852 $123,274 $481,223
Gross profit <1> $ 28,715 $ 28,508 $ 27,634 $ 16,076 $100,933
Operating income $ 24,600 $ 24,078 $ 22,920 $ 12,062 $ 83,660
Net income (loss) $ 10,682 $ 12,226 $ 6,250 $ (1,066) $ 28,092
Earnings (loss)
per share:
Basic $ .14 $ .16 $ .08 $ (.01) $ .37
Diluted $ .14 $ .16 $ .08 $ (.01) $ .36 (2)
Gross profit is calculated by excluding general and administrative
expense, restructuring charges and provision for reduction in
carrying value of certain assets from Operating income, as
reported in the Consolidated Statement of Operations.
As a result of shares issued during the year, earnings per share
for the year's four quarters, which are based on average shares
outstanding during each quarter, do not equal the annual earnings
per share, which is based on the average shares outstanding during
the year.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
This item is not applicable to the Company in that disclosure is required
under Regulation S-X by the Securities and Exchange Commission only if the
Company had changed independent auditors and, if it had, only under certain
circumstances.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is shown in Item 14A "Executive
Officers" and hereby incorporated by reference from the information appearing
under the captions "Proposal One - Election of Directors" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held
April 27, 2000, to be filed with the Securities and Exchange Commission
("Commission") within 120 days of the end of the Company's year ended December
31, 1999.
Item 11. EXECUTIVE COMPENSATION
Notwithstanding the foregoing, in accordance with the instructions to
Item 402 of Regulations S-K, the information contained in the Company's proxy
statement under the sub-heading "Compensation Committee Report on Executive
Compensation" and "Performance Graph" shall not be deemed to be filed as part
of or incorported by reference into this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is hereby incorporated by reference
from the information appearing under the captions "Voting" and "Common Stock
Ownership of Directors and Executive Officers" in the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held April 27,
2000, to be filed with the Commission within 120 days of the end of the
Company's year ended December 31, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
to such information appearing under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held April 27, 2000, to be filed with the
Commission within 120 days of the end of the Company's year ended December 31,
1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Parker Drilling Company and subsidiaries
which are included in Part II, Item 8:
Page
----
Report of Independent Accountants 34
Consolidated Statement of Operations for the years
ended December 31, 1999, August 31, 1998 and 1997,
and the four months ended December 31, 1998 35
Consolidated Balance Sheet as of December 31, 1999 and 1998 36
Consolidated Statement of Cash Flows for the years
ended December 31, 1999, August 31, 1998 and 1997,
and the four months ended December 31, 1998 38
Consolidated Statement of Stockholders' Equity for
the years ended December 31, 1999,
August 31, 1998 and 1997 and the four months ended
December 31, 1998 40
Notes to Consolidated Financial Statements 41
PART IV
(continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(2) Financial Statement Schedule: Page
----
Schedule II - Valuation and qualifying accounts 68
(3) Exhibits:
Exhibit Number Description
- -------------- -----------
2(a) - Stock Purchase Agreement dated May 9, 1997 by and among
the Company, Parker Drilling Offshore Company and Trenergy
(Malaysia) BHD. (incorporated by reference to Exhibit 10(n)
to the Company's Quarterly Report on Form 10-Q for the
three months ended May 31, 1997).
2(b) - Stock Purchase Agreement dated May 9, 1997 by and among the
Company, Parker Drilling Offshore Company and Rashid & Lee
Nominees SDN BHD. (incorporated by reference to Exhibit 10(o)
to the Company's Quarterly Report on Form 10-Q for the three
months ended May 31, 1997).
2(c) - Definitive agreement between Parker Drilling Company and
Energy Ventures, Inc., for the purchase of Mallard Bay
Drilling, Inc. (incorporated herein by reference to the
Company's current report on Form 8-K filed September 19,
1996).
2(d) - Definitive agreement to acquire Quail Tools, Inc.
(incorporated herein by reference to the Company's current
report on Form 8-K filed October 17, 1996).
3(a) - Corrected Restated Certificate of Incorporation of the
Company, as amended on September 21, 1998 (incorporated by
reference to Exhibit 3(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended August 31, 1998).
3(b) - By-Laws of the Company, as amended July 27, 1999 (incorporated
by reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-Q for the three months ended September 30, 1999).
PART IV (continued)
(3) Exhibits: (continued)
Exhibit Number Description
- -------------- -----------
4(a) - Indenture dated as of March 11, 1998 among the Company,
as issuer, certain Subsidiary Guarantors (as defined therein)
and Chase Bank of Texas, National Association, as Trustee
(incorporated by reference to Exhibit 4.5 to the Company's
S-4 Registration Statement No. 333-49089 dated April 1, 1998).
4(b) - Indenture dated as of July 25, 1997, between the Company
and Chase Bank of Texas, National Association, f/k/a Texas
Commerce Bank National Association, as Trustee, respecting
5 1/2% Convertible Subordinated Notes due 2004 (incorporated
by reference to Exhibit 4.7 to the Company's S-3 Registration
Statement No. 333-30711).
PART IV (continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K (continued)
(3) Exhibits: (continued)
Exhibit Number Description
- -------------- -----------
10(a) - Amended and Restated Parker Drilling Company Stock Bonus Plan,
effective as of April 1, 1996 (incorporated herein by reference
to Exhibit 10(e) to Annual Report on Form 10-K for the year
ended August 31, 1996.)
10(b) - Form of Severance Compensation and Consulting Agreement
entered into between Parker Drilling Company and certain
officers of Parker Drilling Company, dated on or about
October 15, 1996 (incorporated herein by reference to
Exhibit 10(g) to Annual Report on Form 10-K for the period
ended August 31, 1996.)*
10(c) - 1994 Parker Drilling Company Deferred Compensation
Plan (incorporated herein by reference to Exhibit 10(h)
to Annual Report on Form 10-K for the year ended August
31, 1995.)*
10(d) - 1994 Non-Employee Director Stock Option Plan (incorporated
herein by reference to Exhibit 10(i) to Annual Report on
Form 10-K for the year ended August 31, 1995.)*
10(e) - 1994 Executive Stock Option Plan (incorporated herein
by reference to Exhibit 10(j) to Annual Report on Form
10-K for the year ended August 31, 1995.)*
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Accountants.
27 - Financial Data Schedule (Edgar version only).
99 - Additional Exhibit - Annual Report on Form 11-K To be
with respect to Parker Drilling Company Stock filed by
Bonus Plan. amendment
*Management Contract, Compensatory Plan or Agreement
PART IV (continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K (continued)
(b) Reports on Form 8-K:
The Company filed a Form 8-K on July 24, 1998, disclosing that the
Company decided to change its fiscal year-end from August 31 to
December 31, effective December 31, 1998. The Company filed a Form 8-K
on July 24, 1998, disclosing that the Board of Directors of the Company
authorized issuance of one Preferred Share Purchase Right for each
outstanding share of common stock.
PARKER DRILLING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
- -------------------------------- --------- --------- ---------- ----------
Balance Charged
at to cost Balance
beginning and at end of
Classifications of period expenses Deductions period
- -------------------------------- --------- --------- ---------- ----------
Year ended December 31, 1999:
Allowance for doubtful accounts
and notes $ 3,002 $ 3,270 $ 595 $ 5,677
Reduction in carrying value of
rig materials and supplies $ 2,572 $ 780 $ 1,813 $ 1,539
Deferred tax valuation allowance $38,469 $ 640 $ - $39,109
Four months ended December 31, 1998
Allowance for doubtful accounts
and notes $ 3,073 $ 40 $ 111 $ 3,002
Reduction in carrying value of
rig materials and supplies $ 2,312 $ 260 $ - $ 2,572
Deferred tax valuation allowance $38,469 $ - $ - $38,469
Year ended August 31, 1998:
Allowance for doubtful accounts
and notes $ 3,153 $ 160 $ 240 $ 3,073
Reduction in carrying value of
rig materials and supplies $ 2,846 $ 780 $ 1,314 $ 2,312
Deferred tax valuation allowance $44,086 $ - $ 5,617 $38,469
Year ended August 31, 1997:
Allowance for doubtful accounts
and notes $ 739 $ 737 $ (1,677) $ 3,153
Reduction in carrying value of
rig materials and supplies $ 1,797 $ 1,384 $ 335 $ 2,846
Deferred tax valuation allowance $61,844 $ - $ 17,758 $44,086
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Robert L. Parker Jr. Date: March 21, 2000
------------------------------
Robert L. Parker Jr.
President and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Parker Chairman of the Board and Director Date: March 21, 2000
By ------------------------
Robert L. Parker
/s/ Robert L. Parker Jr. President and Chief Executive
------------------------- Officer and Director
By Robert L. Parker Jr. (Principal Executive Officer) Date: March 21, 2000
/s/ James W. Linn Executive Vice President and Chief
------------------------- Operating Officer and Director Date: March 21, 2000
By James W. Linn
Senior Vice President - Finance
/s/ James J. Davis and Chief Financial Officer
By ------------------------- (Principal Financial Officer) Date: March 21, 2000
James J. Davis
/s/ W. Kirk Brassfield Corporate Controller
By ------------------------- (Principal Accounting Officer) Date: March 21, 2000
W. Kirk Brassfield
/s/ Earnest F. Gloyna
By ------------------------- Director Date: March 21, 2000
Earnest F. Gloyna
/s/ David L. Fist
By ------------------------ Director Date: March 21, 2000
David L. Fist
/s/ R. Rudolph Reinfrank
By ------------------------- Director Date: March 21, 2000
R. Rudolph Reinfrank
/s/ Bernard Duroc-Danner
By ------------------------ Director Date: March 21, 2000
Bernard Duroc-Danner
/s/ James E. Barnes
By ------------------------- Director Date: March 21, 2000
James E. Barnes