UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission File Number 1-7573 
PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter) 
Delaware
 
73-0618660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
5 Greenway Plaza, Suite 100,
Houston, Texas
 
77046
(Address of principal executive offices)
 
(Zip code)
(281) 406-2000
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
x
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of May 5, 2014 there were 121,135,984 common shares outstanding.




TABLE OF CONTENTS
 
 
Page
 
 


2



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
 
 
March 31,
2014
 
December 31,
2013
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
93,061

 
$
148,689

Accounts and notes receivable, net of allowance for bad debts of $11,292 and $12,853 at March 31, 2014 and December 31, 2013
264,437

 
257,889

Rig materials and supplies
44,488

 
41,781

Deferred costs
10,698

 
13,682

Deferred income taxes
8,973

 
9,940

Other tax assets
23,313

 
24,079

Other current assets
20,162

 
23,223

Total current assets
465,132

 
519,283

Property, plant and equipment less accumulated depreciation and amortization of $1,160,435 and $1,136,024 at March 31, 2014 and December 31, 2013
874,300

 
871,356

Debt issuance costs
13,484

 
14,208

Deferred income taxes
118,431

 
102,420

Other noncurrent assets
29,021

 
27,489

Total assets
$
1,500,368

 
$
1,534,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
18,801

 
$
25,000

Accounts payable and accrued liabilities
167,455

 
174,886

Accrued income taxes
17,195

 
7,266

Total current liabilities
203,451

 
207,152

Long-term debt
612,574

 
628,781

Other long-term liabilities
17,527

 
26,914

Long-term deferred tax liability
41,026

 
38,767

Contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
Common stock
20,164

 
20,075

Capital in excess of par value
660,742

 
657,349

Accumulated deficit
(60,163
)
 
(47,616
)
Accumulated other comprehensive income
1,783

 
1,888

Total controlling interest stockholders’ equity
622,526

 
631,696

Noncontrolling interest
3,264

 
1,446

Total equity
625,790

 
633,142

Total liabilities and stockholders’ equity
$
1,500,368

 
$
1,534,756

See accompanying notes to the unaudited consolidated condensed financial statements.


3



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
$
229,225

 
$
167,135

Expenses:
 
 
 
Operating expenses
166,025

 
116,746

Depreciation and amortization
34,337

 
29,512

 
200,362

 
146,258

Total operating gross margin
28,863

 
20,877

General and administration expense
(8,964
)
 
(12,845
)
Gain (loss) on disposition of assets, net
(129
)
 
1,148

Total operating income
19,770

 
9,180

Other income and (expense):
 
 
 
Interest expense
(12,039
)
 
(10,006
)
Interest income
32

 
59

Loss on extinguishment of debt
(29,673
)
 

Other
895

 
(165
)
Total other expense
(40,785
)
 
(10,112
)
Loss before income taxes
(21,015
)
 
(932
)
Income tax benefit
(8,623
)
 
(1,504
)
Net income (loss)
(12,392
)
 
572

Less: Net income (loss) attributable to noncontrolling interest
157

 
(20
)
Net income (loss) attributable to controlling interest
$
(12,549
)
 
$
592

Basic earnings per share
$
(0.10
)
 
$
0.00

Diluted earnings per share
$
(0.10
)
 
$
0.00

 
 
 
 
Number of common shares used in computing earnings per share:
 
 
 
Basic
120,368,650

 
118,867,678

Diluted
120,368,650

 
120,072,574


See accompanying notes to the unaudited consolidated condensed financial statements.


4



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)
 
 
Three Months Ended 
 March 31,
 
2014
 
2013
 
 
 
 
Comprehensive income:
 
 
 
Net income (loss)
$
(12,392
)
 
$
572

Other comprehensive loss, net of tax:
 
 
 
Currency translation difference on related borrowings
(804
)
 

Currency translation difference on foreign currency net investments
699

 

Total other comprehensive loss, net of tax:
(105
)
 

Comprehensive income (loss)
(12,497
)
 
572

Comprehensive (income) loss attributable to noncontrolling interest
(154
)
 
20

Comprehensive income (loss) attributable to controlling interest
$
(12,651
)
 
$
592


See accompanying notes to the unaudited consolidated condensed financial statements.


5



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
(12,392
)
 
$
572

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
34,337

 
29,512

Loss on extinguishment of debt
29,673

 

(Gain) loss on disposition of assets
129

 
(1,148
)
Deferred income tax benefit
(12,292
)
 
(1,607
)
Expenses not requiring cash
6,844

 
7,179

Changes in current assets and liabilities, net of effects of acquisition
 
 
 
Change in accounts receivable
(6,226
)
 
(18,557
)
Change in other assets
(394
)
 
(8,018
)
Change in accrued income taxes
150

 
1,560

Change in liabilities
(8,205
)
 
17,747

Net cash provided by operating activities
31,624

 
27,240

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(37,445
)
 
(30,023
)
Proceeds from the sale of assets
1,626

 
1,550

Net cash used in investing activities
(35,819
)
 
(28,473
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
400,000

 

Repayments of long term debt
(416,199
)
 

Repayments of term loan
(2,500
)
 
(2,500
)
Payments of debt issuance costs
(7,273
)
 
(307
)
Payments of debt extinguishment costs
(25,796
)
 

Excess tax benefit (expense) from stock based compensation
335

 
(159
)
Net cash used in financing activities
(51,433
)
 
(2,966
)
 
 
 
 
Net decrease in cash and cash equivalents
(55,628
)
 
(4,199
)
Cash and cash equivalents, beginning of year
148,689

 
87,886

Cash and cash equivalents, end of period
$
93,061

 
$
83,687

 
 
 
 
Supplemental cash flow information:
 
 
 
Interest paid
$
20,443

 
$
425

Income taxes paid
$
4,131

 
$
2,929


See accompanying notes to the unaudited consolidated condensed financial statements.


6



PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
1.
General
In the opinion of the management of Parker Drilling Company (Parker Drilling or the Company), the accompanying unaudited consolidated condensed financial statements reflect all adjustments normally recurring which we believe are necessary for a fair presentation of: (1) Parker Drilling’s financial position as of March 31, 2014 and December 31, 2013, (2) Parker Drilling’s results of operations for the three month periods ended March 31, 2014 and 2013, (3) Parker Drilling’s consolidated condensed statement of comprehensive income for the three month periods ended March 31, 2014 and 2013, and (4) Parker Drilling's cash flows for the three month periods ended March 31, 2014 and 2013. Results for the three month period ended March 31, 2014 are not necessarily indicative of the results that will be realized for the year ending December 31, 2014. The financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013.
Nature of Operations — Parker Drilling, together with its subsidiaries, is an international provider of contract drilling and drilling-related services and rental tools. We have operated in over 50 countries since beginning operations in 1934, making us among the most geographically experienced drilling contractors and rental tools providers in the world. We currently have operations in 24 countries, 10 of which we entered through our acquisition in 2013 of International Tubular Services Limited and certain of its affiliates (collectively, ITS) and other related assets (the ITS Acquisition). We own and operate drilling rigs and drilling-related equipment and also perform drilling-related services, referred to as operations and maintenance (O&M) work, for customer-owned drilling rigs on a contracted basis. We have extensive experience and expertise in drilling geologically difficult wells and in managing the logistical and technological challenges of operating in remote, harsh and ecologically sensitive areas. Our rental tools business supplies premium equipment to operators on land and offshore in the U.S. and select international markets. We have significant knowledge of the equipment needs of drilling operators and the logistical and product quality requirements of an effective rental tools supplier. We believe we are industry leaders in quality, health, safety and environmental practices.
Our business is currently comprised of five operating segments: Rental Tools, U.S. Barge Drilling, U.S. Drilling, International Drilling, and Technical Services. Our rental tools business provides premium rental tools for land and offshore oil and natural gas drilling and workover and production applications. Tools we provide include drill pipe, heavy-weight drill pipe, tubing, high-torque connections, BOPs, drill collars, casing running systems, tools for fishing services and more. Our U.S. barge drilling business operates barge rigs that drill for oil and natural gas in the shallow waters in and along the inland waterways and coasts of Louisiana, Alabama, and Texas. Our U.S. drilling business primarily consists of two new-design arctic-class drilling rigs in Alaska intended to address the challenges presented by the remote location, harsh climate and sensitive environment that characterize the Alaskan North Slope in addition to O&M work in support of ExxonMobil's Santa Ynez Unit offshore platform operations located in the Channel Islands region of California. Our international drilling business includes operations related to Parker-owned and customer-owned rigs. We provide O&M and other project management services, such as labor, maintenance, and logistics for operators who own their own drilling rigs, but choose Parker Drilling to operate the rigs for them. Our Technical services business includes engineering and related project services during Front End Engineering Design (FEED), pre-FEED and concept development phases of customer-owned drilling facility projects. During the engineering, procurement, commission and installation phase we focus primarily on drilling systems and we typically provide customer support during construction.
At March 31, 2014, our marketable rig fleet consisted of 13 barge drilling rigs and 23 land rigs located in the United States, Latin America and the Europe, Middle East, and Asia regions.
Consolidation — The consolidated condensed financial statements include the accounts of the Company and subsidiaries in which we exercise control or have a controlling financial interest, including entities, if any, in which the Company is allocated a majority of the entity’s losses or returns, regardless of ownership percentage. If a subsidiary of Parker Drilling has a 50 percent interest in an entity but Parker Drilling’s interest in the subsidiary or the entity does not meet the consolidation criteria described above, then that interest is accounted for under the equity method.
Noncontrolling Interest — We apply accounting standards related to noncontrolling interests for ownership interests in our subsidiaries held by parties other than Parker Drilling. The entities that comprise the noncontrolling interest include Primorsky Drill Rig Services B.V., ITS Arabia Limited, and International Tubular Services - Egypt SAE. We report noncontrolling interest as equity on the consolidated balance sheets and report net income (loss) attributable to controlling interest and to noncontrolling interest separately on the consolidated statements of operations.


7



Reclassifications — Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not materially affect our consolidated financial results.
Revenue Recognition — Contract drilling revenues and expenses, comprised of daywork drilling contracts, call-outs against master service agreements and engineering and related project service contracts, are recognized as services are performed and collection is reasonably assured. For certain contracts, we receive payments contractually designated for the mobilization of rigs and other drilling equipment. Mobilization payments received, and direct costs incurred for the mobilization, are deferred and recognized over the term of the related drilling contract; however, costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. For contracts accounted for under the milestone method of revenue recognition, revenue is recognized on achievement of specified procurement coordination and delivery events in regards to our customer's newly manufactured drilling rig. Reimbursements received for out-of-pocket expenses are recorded as both revenues and direct costs. For contracts that are terminated prior to the specified term, early termination payments received by us are recognized as revenues when all contractual requirements are met. Revenues from rental activities are recognized ratably over the rental term which is generally less than six months. Construction contract revenues and costs are recognized on a percentage of completion basis utilizing the cost-to-cost method.
Reimbursable Costs — The Company recognizes reimbursements received for out-of-pocket expenses incurred as revenues and accounts for out-of-pocket expenses as direct operating costs. Such amounts totaled $16.4 million and $14.8 million during the first quarters of 2014 and 2013, respectively. Additionally, the Company typically receives a nominal handling fee, which is recognized as earned in revenues in our consolidated statement of operations.
Use of Estimates — The preparation of financial statements in accordance with accounting policies generally accepted in the United States (U.S. GAAP) requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the date of the financial statements, and our revenue and expenses during the periods reported. Estimates are typically used when accounting for certain significant items such as legal or contractual liability accruals, mobilization and deferred mobilization, revenue and cost accounting for projects that follow the percentage of completion method, self-insured medical/dental plans, income taxes and valuation allowance, and other items requiring the use of estimates. Estimates are based on a number of variables which may include third party valuations, historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ from management estimates.
Purchase price allocation — We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values at the transaction date. Transaction and integration costs associated with an acquisition are expensed as incurred. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. We use all available information to estimate fair values, including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows. We typically engage third-party appraisal firms to assist in fair value determination of inventories, identifiable intangible assets, and any other significant assets or liabilities. Judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.
Intangible AssetsWe recorded $8.5 million to recognize the fair values of definite-lived intangible assets assumed in the ITS Acquisition. Definite-lived intangible assets recorded in connection with the ITS Acquisition primarily relate to trade names, customer relationships, and developed technology and will be amortized over a weighted average period of approximately 3 years. See Note 2 - Acquisition of ITS for further discussion of the ITS Acquisition and fair value estimates.
Concentrations of Credit Risk — Financial instruments that 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. We generally do not require collateral on our trade receivables.
At March 31, 2014 and December 31, 2013, we had deposits in domestic banks in excess of federally insured limits of approximately $50.8 million and $104.3 million, respectively. In addition, as of March 31, 2014 and December 31, 2013, we had deposits in foreign banks, which were not insured of $43.9 million and $50.1 million, respectively.
Our customer base primarily consists of major, independent, national and international oil and gas companies and integrated service providers. We depend on a limited number of significant customers. Our largest customer, Exxon Neftegas Limited (ENL), constituted 17.1% of our revenues for the three months ended March 31, 2014. Each of our

8



segments depends on a limited number of key customers and the loss of any one or more key customers could have a material adverse effect on a segment.
 
2.
Acquisition of ITS    
On April 22, 2013 we acquired ITS for an initial purchase price of $101.0 million paid at the closing of the ITS Acquisition. An additional $24.0 million was deposited into an escrow account, which is payable to the seller or to us, as the case may be, in accordance with the ITS Acquisition agreement (the Acquisition Agreement). As of March 31, 2014, $7.0 million of the escrow funds had been released to the seller. The ITS Acquisition closed simultaneously with the execution of the Acquisition Agreement on April 22, 2013.
Fair value of Consideration Transferred
  
The following details the fair value of the consideration transferred to effect the ITS Acquisition (dollars in thousands).

Cash paid to, or on behalf of, ITS and its equity holders
$
101,000

Cash deposited in escrow
19,000

Fair value of contingent consideration deposited in escrow for assets not acquired (1)
5,000

Total fair value of the consideration transferred
$
125,000

(1)    Based on the terms of the Acquisition Agreement, $5.0 million of the $24.0 million in escrow to be paid to the seller is contingent upon certain future liabilities that could become due by ITS in certain jurisdictions. Any payments in relation to these liabilities will be deducted from the $5.0 million escrow amount and the net balance of the escrow will be paid to the seller. We estimate that the entire $5.0 million in escrow will be paid to the seller, and therefore, the estimated fair value of the consideration in escrow related to these liabilities is $5.0 million. We do not expect to receive any amount back from escrow, and therefore did not record a receivable from the escrow. Any changes to the fair value of the contingent consideration in the future of less than $5.0 million will result in recording a receivable from escrow. The receivable will be recorded at fair value. As of March 31, 2014, the fair value of the receivable was $0.0 million.
Allocation of Consideration Transferred to Net Assets Acquired
We have finalized the determination of the fair values of the assets acquired and liabilities assumed as set forth below. The acquired assets and assumed liabilities were subject to adjustment during a one-year measurement period subsequent to the ITS Acquisition as permitted under GAAP. The estimated fair values of certain assets and liabilities, primarily receivables, intangible assets, property, plant and equipment, taxes, contingencies and noncontrolling interests required judgments and assumptions that resulted in adjustments made to these estimates during the measurement period. The measurement period adjustments were recorded to reflect new information obtained about facts and circumstances existing as of the ITS Acquisition and did not result from subsequent intervening events.


9



 
April 22, 2013
 
(In thousands)
 
 
Cash and cash equivalents
$
7,009

Accounts and notes receivable, net (1) 
48,184

Other current assets
1,803

Accounts payable and accrued liabilities (2)
(35,156
)
Accrued income taxes
(1,251
)
Working capital excluding rig materials and supplies
20,589

Rig materials and supplies
11,514

Property, plant and equipment, net (3) 
72,935

Investment in joint venture
4,134

Other noncurrent assets
2,818

Total tangible assets
111,990

Deferred income tax assets - current (4)
222

Deferred income tax assets - noncurrent (4) 
11,640

Intangible assets (5)
8,500

Total assets acquired
132,352

Other long-term liabilities
(211
)
Long-term deferred tax liability
(2,796
)
Net assets acquired
129,345

Less: Noncontrolling interest (6)
(4,345
)
Total consideration transferred
$
125,000

    
(1) Our provisional allocation included $54.7 million of gross contractual accounts receivable. During the 2013 fourth quarter, adjustments of $1.2 million were recorded as of December 31, 2013 resulting in final fair value of gross accounts receivable of $55.9 million. These adjustments were recorded to reflect recognition of receivables for revenue earned prior to the acquisition date. Additionally, the initial allocation included $5.9 million of allowance for doubtful accounts. During the 2014 first quarter, we recorded an additional $1.9 million allowance to reserve against receivables that existed as of the acquisition date and were deemed to be uncollectible based on new information obtained during the measurement period that existed at the time of acquisition.
(2) Our provisional allocation included $39.2 million of accounts payable and accrued liabilities. During the 2013 third quarter we recorded a reclassification of $4.0 million to reclassify reserves to property, plant, and equipment. This reclassification was reflected in our December 31, 2013 consolidated balance sheet but was not included in our disclosure of the Allocation of Consideration Transferred to Net Assets Acquired as of December 31, 2013. We have corrected this as of March 31, 2014 and do not believe the reclassification is material to our previously reported disclosure.
(3) Management determined that the fair value of the net assets acquired less noncontrolling interest equaled consideration paid. Therefore no goodwill was recorded. Our provisional allocation included an adjustment of $40.2 million to reduce the historical carrying value of the acquired property, plant and equipment to its estimated fair value at the date of acquisition. The measurement period adjustments to receivables, deferred income taxes, intangibles, and noncontrolling interests directly impacted the determination of the final fair value of the acquired property, plant and equipment, resulting in measurement period adjustments totaling $2.6 million to increase the fair value of property, plant and equipment.
(4) Our provisional allocation included $14.4 million of deferred tax assets. During the measurement period, adjustments of ($2.9) million and $0.4 million were recorded as of December 31, 2013 and March 31, 2014, respectively, resulting in final fair value of deferred tax assets of $11.9 million. Adjustments to deferred income tax assets primarily related to the differences between the final acquisition date fair value and tax basis of acquired property, plant and equipment.

10



(5) Our provisional allocation included $10.0 million and $0.2 million to reflect the estimated fair values of definite- and indefinite-lived intangible assets, respectively, for the ITS Acquisition. During the 2013 fourth quarter we recorded adjustments of $1.5 million and $0.2 million to reduce the value of the definite- and indefinite-lived intangible assets down to $8.5 million and zero respectively. Our depreciation and amortization expense for the year ended December 31, 2013 reflects this valuation adjustment. Definite-lived intangible assets recorded in connection with the ITS Acquisition, which primarily relate to trade names, customer relationships, and developed technology will be amortized over a weighted average period of approximately 3.4 years.
(6) Our provisional allocation included noncontrolling interest of $2.7 million. The estimated fair value of the noncontrolling interest was calculated as a percentage of the net assets acquired related to certain subsidiaries in which ITS holds less than a 100 percent controlling interest. The fair value of the net assets of these subsidiaries was primarily based on the income approach valuation model. During the 2014 first quarter, we obtained new information about the acquired subsidiaries that existed at the date of acquisition which resulted in an increase in the acquisition date fair value of $1.6 million, resulting in a final fair value of the noncontrolling interest of $4.3 million.
The impacts to our December 31, 2013 consolidated balance sheet for the revisions to the provisional allocation made during the 2014 first quarter are as follows:
 
Increase/(Decrease)
 
(In thousands)
 
 
Accounts and notes receivable, net
$
(1,859
)
Total current assets
(1,859
)
Property, plant and equipment
3,072

Deferred income tax assets - noncurrent
391

Total non-current assets
3,463

Total assets
$
1,604

 
 
Long-term deferred tax liabilities
(60
)
Total non-current liabilities
(60
)
Total liabilities
$
(60
)
 
 
Noncontrolling interest
$
1,664

Total liabilities and stockholder's equity
$
1,604

The impact of the revisions to the provisional allocation recorded during the 2014 first quarter, including the impact to depreciation expense related to the increase in property, plant and equipment, are not material to our historical consolidated financial statements or disclosures.

Acquisition Related Costs

Acquisition-related transaction costs, consisting of various advisory, compliance, legal, accounting, valuation and other professional or consulting fees, were nominal for the three month period ended March 31, 2014 and were $22.5 million for the year ended December 31, 2013. These costs were expensed as incurred and included in general and administrative expense on our consolidated condensed statement of operations. Debt issuance costs of $5.4 million associated with our $125 million term loan, fully funded by Goldman Sachs Bank USA as Sole Lead Arranger and Administrative Agent (the Goldman Term Loan) issued on April 18, 2013 were initially deferred to be amortized to interest expense over the life of the term loan. However, the Goldman Term Loan was repaid on July 30, 2013 with net proceeds from the issuance of $225.0 million aggregate principal amount of 7.50% Senior Notes due August 1, 2020 (see Note 8 - Long-Term Debt, for further discussion), and the unamortized deferred costs of $5.1 million were expensed during the third quarter of 2013.


11



Supplemental Pro forma Results
ITS’s results of operations have been included in our financial statements for periods subsequent to April 22, 2013, the effective date of the ITS Acquisition. ITS contributed revenues of $88.0 million and net income of approximately $10.0 million to Parker Drilling for the period from the closing of the ITS Acquisition through December 31, 2013. For the three months ended March 31, 2014 ITS contributed revenues of $27.8 million and net loss of approximately $2.0 million.
The following unaudited supplemental pro forma results present consolidated information for the three months ended March 31, 2013 as if the ITS Acquisition had been completed on January 1, 2012.  The pro forma results have been calculated after applying our accounting policies and include, among others, (i) the amortization associated with the fair value of the acquired intangible assets, (ii) interest expense associated with the Goldman Term Loan and (iii) the impact of certain fair value adjustments such as a decrease in depreciation expense related to the write-down in property, plant and equipment. The pro forma results do not include any potential synergies, non-recurring charges which result directly from the ITS Acquisition, cost savings or other expected benefits of the ITS Acquisition. The pro forma financial information does not necessarily represent what would have occurred if the transaction had taken place at the beginning of the period presented and should not be taken as representative of our future consolidated results of operations.

 
 
Three Months Ended 
 March 31, 2013
 
 
(Dollars in thousands except per share data)
Revenue
 
$
199,951

Net income
 
$
6,715

Net income attributable to Parker Drilling
 
$
6,735

Earnings per share - basic
 
$
0.06

Earnings per share - diluted
 
$
0.06

 
 
 
Basic number of shares
 
118,867,678

Diluted number of shares
 
120,072,574










12



3. Earnings per share (EPS)
 
 
Three Months Ended March 31, 2014
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
$
(12,549,000
)
 
120,368,650

 
$
(0.10
)
Effect of dilutive securities:
 
 
 
 
 
Restricted stock

 

 

Diluted EPS
$
(12,549,000
)
 
120,368,650

 
$
(0.10
)
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
$
592,000

 
118,867,678

 
$
0.00

Effect of dilutive securities:
 
 
 
 
 
Restricted stock

 
1,204,896

 

Diluted EPS
$
592,000

 
120,072,574

 
$
0.00

 
 
 
 
 
 

For the three months ended March 31, 2014 all common shares potentially issuable in connection with outstanding restricted stock unit awards have been excluded from the calculation of diluted EPS as the company incurred a loss during the quarter, and therefore, inclusion of such potential common shares in the calculation of diluted EPS would be anti-dilutive.


4. Accumulated Other Comprehensive Income    

Accumulated other comprehensive income consisted of the following:

 
Foreign Currency Items
 
(in thousands)
December 31, 2013
$
1,888

Current period other comprehensive income (loss)
(105
)
March 31, 2014
$
1,783


No amounts were reclassified out of accumulated other comprehensive income for the three months ended March 31, 2014.


5.
Reportable Segments
We report our business activities in five business segments: (1) Rental Tools, (2) U.S. Barge Drilling, (3) U.S. Drilling, (4) International Drilling, and (5) Technical Services. We eliminate inter-segment revenues and expenses.

The following table represents the results of operations by reportable segment:

13



 
 
Three Months Ended 
 March 31,
Operations by Reportable Industry Segment
2014
 
2013
 
(Dollars in Thousands)
Revenues:
 
Rental Tools (1)
$
80,506

 
$
57,082

U.S. Barge Drilling (1)
30,490

 
29,865

U.S. Drilling (1)
19,417

 
11,635

International Drilling(1)
85,469

 
64,650

Technical Services(1)
13,343

 
3,903

Total revenues
229,225

 
167,135

Operating gross margin:
 
 
 
Rental Tools (2)
13,345

 
21,507

U.S. Barge Drilling (2)
7,824

 
8,758

U.S. Drilling (2)
1,641

 
(4,052
)
International Drilling (2)
5,477

 
(5,645
)
Technical Services (2)
576

 
309

Total operating gross margin
28,863

 
20,877

General and administrative expense
(8,964
)
 
(12,845
)
Gain (loss) on disposition of assets, net
(129
)
 
1,148

Total operating income
19,770

 
9,180

Interest expense
(12,039
)
 
(10,006
)
Interest income
32

 
59

Loss on extinguishment of debt
(29,673
)
 

Other
895

 
(165
)
Loss from continuing operations before income taxes
$
(21,015
)
 
$
(932
)
 
(1)
For the three months ended March 31, 2014, our largest customer, ENL, constituted 17.1% of our total consolidated revenues and approximately 37.6% and 52.4% of our International Drilling and Technical Services segment revenues, respectively. For the three months ended March 31, 2013, our largest customer, ENL, constituted approximately 15.1% of our total consolidated revenues and approximately 38.5% of our International Drilling segment revenues.
(2)
Operating gross margin is calculated as revenues less direct operating expenses, including depreciation and amortization expense.

6.
Accounting for Uncertainty in Income Taxes
We apply the accounting guidance related to accounting for uncertainty in income taxes. This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. At March 31, 2014, we had a liability for unrecognized tax benefits of $12.4 million (which includes $5.6 million of benefits which would favorably impact our effective tax rate upon recognition) primarily related to foreign operations. As of March 31, 2013, we had a liability for unrecognized tax benefits of $10.0 million ($3.2 million of which, if recognized, would favorably impact our effective tax rate). In addition, we recognize interest and penalties that could be applied to uncertain tax positions in periodic income tax expense. As of March 31, 2014 and December 31, 2013, we had approximately $8.1 million and $7.9 million, respectively, of accrued interest and penalties related to uncertain tax positions.
During the first quarter ended March 31, 2014, we appealed notices of assessment related to deductions claimed in Kazakhstan by one of our subsidiaries. Management is currently evaluating the assessments and appellate process and

14



does not anticipate a material change to our financial position. We believe that it is reasonably possible that settlement of approximately $6.1 million included in the liability for unrecognized tax benefits may occur within the coming year.
 

7.
Income Tax Benefit/Expense
During the first quarter of 2014 we had an income tax benefit of $8.6 million compared to $1.5 million for the first quarter of 2013. The increase in current period income tax benefit is primarily due to the reduction of pre-tax earnings in the first quarter of 2014 when compared with pre-tax earnings reported for the 2013 first quarter primarily driven by the debt extinguishment costs recorded during the 2014 first quarter.


8.
Long-Term Debt
The following table illustrates our debt portfolio as of March 31, 2014 and December 31, 2013:
 
 
March 31,
2014
 
December 31,
2013
 
(Dollars in Thousands)
6.75% Senior Notes, due July 2022
$
360,000

 
$

7.50% Senior Notes, due August 2020
225,000

 
225,000

9.125% Senior Notes, due April 2018
8,875

 
428,781

Term Note, due December 2017
37,500

 

Total debt
631,375

 
653,781

Less current portion
18,801

 
25,000

Total long-term debt
$
612,574

 
$
628,781


6.75% Senior Notes, due July 2022
On January 22, 2014, we issued $360.0 million aggregate principal amount of 6.75% Senior Notes due 2022 (6.75% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Net proceeds from the 6.75% Notes offering plus a $40.0 million draw under the Secured Credit Agreement (as defined below) and cash on hand, were utilized to redeem $416.2 million aggregate principal amount of our outstanding 9.125% Notes due 2018 pursuant to a tender and consent solicitation offer commenced on January 7, 2014. See further discussion of the tender and consent solicitation offer below entitled "9.125% Senior Notes, due April 2018".
The 6.75% Notes are general unsecured obligations of the Company and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 6.75% Notes are jointly and severally guaranteed by all of our subsidiaries that guarantee indebtedness under our Secured Credit Agreement, our 7.50% Notes (as defined below) or our 9.125% Notes (as defined below, and collectively with the 7.50% Notes and the 6.75% Notes, the Senior Notes). Interest on the 6.75% Notes is payable on January 15 and July 15 of each year, beginning July 15, 2014. Debt issuance costs related to the 6.75% Notes of approximately $7.3 million ($7.1 million net of amortization as of March 31, 2014) are being amortized over the term of the notes using the effective interest rate method.
At any time prior to January 15, 2017, we may redeem up to 35 percent of the aggregate principal amount of the 6.75% Notes at a redemption price of 106.75 percent of the principal amount, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of certain equity offerings by us. On and after January 15, 2018, we may redeem all or a part of the 6.75% Notes upon appropriate notice, at a redemption price of 103.375 percent of the principal amount, and at redemption prices decreasing each year thereafter to par beginning January 15, 2020. If we experience certain changes in control, we must offer to repurchase the 6.75% Notes at 101.0 percent of the aggregate principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.
The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets, (ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital stock or subordinated indebtedness, (iii) make investments, (iv) incur or guarantee additional indebtedness, (v) create or incur liens, (vi) enter into sale and leaseback transactions, (vii) incur dividend or other payment restrictions affecting subsidiaries, (viii) merge or consolidate with other entities, (ix) enter into transactions with affiliates, and (x) engage in certain business activities. Additionally, the Indenture

15



contains certain restrictive covenants designating certain events as Events of Default. These covenants are subject to a number of important exceptions and qualifications.
7.50% Senior Notes, due August 2020
On July 30, 2013, we issued $225.0 million aggregate principal amount of 7.50% Senior Notes due 2020 (7.50% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Net proceeds from the 7.50% Notes offering were primarily used to repay the $125.0 million aggregate principal amount of the Goldman Term Loan, to repay $45.0 million of Term Loan borrowings under our Secured Credit Agreement and for general corporate purposes.
The 7.50% Notes are general unsecured obligations of the Company and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 7.50% Notes are jointly and severally guaranteed by all of our subsidiaries that guarantee indebtedness under our Secured Credit Agreement or any of our other series of Senior Notes. Interest on the 7.50% Notes is payable on February 1 and August 1 of each year, beginning February 1, 2014. Debt issuance costs related to the 7.50% Notes of approximately $5.5 million ($5.1 million, net of amortization as of March 31, 2014) are being amortized over the term of the notes using the effective interest rate method.
At any time prior to August 1, 2016, we may redeem up to 35 percent of the aggregate principal amount of the 7.50% Notes at a redemption price of 107.50 percent of the principal amount, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of certain equity offerings by us. On and after August 1, 2016, we may redeem all or a part of the 7.50% Notes upon appropriate notice, at a redemption price of 103.750 percent of the principal amount, and at redemption prices decreasing each year thereafter to par beginning August 1, 2018. If we experience certain changes in control, we must offer to repurchase the 7.50% Notes at 101.0 percent of the aggregate principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.
The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets, (ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital stock or subordinated indebtedness, (iii) make investments, (iv) incur or guarantee additional indebtedness; (v) create or incur liens; (vi) enter into sale and leaseback transactions; (vii) incur dividend or other payment restrictions affecting subsidiaries, (viii) merge or consolidate with other entities, (ix) enter into transactions with affiliates, and (x) engage in certain business activities. Additionally, the Indenture contains certain restrictive covenants designating certain events as Events of Default. These covenants are subject to a number of important exceptions and qualifications.
9.125% Senior Notes, due April 2018
On March 22, 2010, we issued $300.0 million aggregate principal amount of 9.125% Senior Notes due 2018 (9.125% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Net proceeds from the 9.125% Notes offering were primarily used to redeem the $225.0 million aggregate principal amount of our 9.625% Senior Notes due 2013 and to repay $42.0 million of borrowings under our senior secured revolving credit facility.
On April 25, 2012, we issued an additional $125.0 million aggregate principal amount of 9.125% Notes under the same indenture at a price of 104.0% of par, resulting in gross proceeds of $130.0 million. Net proceeds from the offering were utilized to refinance $125.0 million aggregate principal amount of the 2.125% Convertible Senior Notes due July 2012 (2.125% Notes).
On January 7, 2014, we commenced a tender and consent solicitation with respect to the 9.125% Notes. The tender offer price was $1,061.98, inclusive of a $30.00 consent payment, for each $1,000 principal amount of 9.125% Notes, plus accrued and unpaid interest. On January 22, 2014, we paid $453.7 million for the tendered 9.125% Notes, comprised of $416.2 million of aggregate principal amount of the 9.125% Notes, $25.8 million of tender and consent premiums and $11.7 million of accrued interest. In connection with the tender and consent solicitation, approximately $3.7 million of unamortized debt issuance premium and approximately $7.6 million of debt issuance costs were written off in the three months ended March 31, 2014. On April 1, 2014, we redeemed the remaining $8.8 million outstanding 9.125% Notes for a purchase price of $9.6 million, inclusive of a $0.4 million call premium and $0.4 million interest.
Amended and Restated Credit Agreement
On December 14, 2012, we entered into an Amended and Restated Credit Agreement (Secured Credit Agreement) consisting of a senior secured $80.0 million revolving facility (Revolver) and a senior secured term loan facility (Term Loan) of $50.0 million. The Secured Credit Agreement provides that, subject to certain conditions, including the approval

16



of the Administrative Agent and the lenders’ acceptance (or additional lenders being joined as new lenders), the amount of the Term Loan or Revolver can be increased by an additional $50.0 million, so long as after giving effect to such increase, the aggregate commitments are not in excess of $180.0 million.
Our obligations under the Secured Credit Agreement are guaranteed by substantially all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenues primarily outside the United States, each of which has executed guaranty agreements, and are secured by first priority liens on our accounts receivable, specified barge rigs and rental equipment. The Secured Credit Agreement contains customary affirmative and negative covenants with which we were in compliance as of March 31, 2014 and December 31, 2013. The Secured Credit Agreement matures on December 14, 2017.
Revolver
Our Revolver is available for general corporate purposes and to support letters of credit. Interest on Revolver loans accrues at a Base Rate plus an Applicable Rate or LIBOR plus an Applicable Rate. Under the Secured Credit Agreement, the Applicable Rate varies from a rate per annum ranging from 2.50 percent to 3.00 percent for LIBOR rate loans and 1.50 percent to 2.00 percent for base rate loans, determined by reference to the consolidated leverage ratio (as defined in the Secured Credit Agreement). Revolving loans are available subject to a borrowing base calculation based on a percentage of eligible accounts receivable, certain specified barge drilling rigs and rental equipment of the Company and its subsidiary guarantors. There were no revolving loans outstanding at March 31, 2014 and December 31, 2013. Letters of credit outstanding against the Revolver as of March 31, 2014 and December 31, 2013 totaled $6.0 million and $4.6 million, respectively.
Term Loan
The Term Loan originated at $50.0 million on December 14, 2012 and requires quarterly principal payments of $2.5 million, which began March 31, 2013. Interest on the Term Loan accrues at a Base Rate plus 2.00 percent or LIBOR plus 3.00 percent. The outstanding balance on the Term Loan at December 31, 2013 was zero. and as of March 31, 2014 the remaining balance on the Term Loan was $37.5 million. We are no longer able to re-borrow amounts under the Term Loan.

9.
Fair Value of Financial Instruments
Certain of our assets and liabilities are required to be measured at fair value on a recurring basis. For purposes of recording fair value adjustments for certain financial and non-financial assets and liabilities, and determining fair value disclosures, we estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability.
The fair value measurement and disclosure requirements of FASB Accounting Standards Codification Topic No. 820, Fair Value Measurement and Disclosures (ASC 820) requires inputs that we categorize using a three-level hierarchy, from highest to lowest level of observable inputs, as follows:

Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 — Direct or indirect observable inputs, including quoted prices or other market data, for similar
assets or liabilities in active markets or identical assets or liabilities in less active markets;
Level 3 — Unobservable inputs that require significant judgment for which there is little or no market data.
When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the entire measurement even though we may also have utilized significant inputs that are more readily observable. The amounts reported in our consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.
Fair value of our debt instruments is determined using Level 2 inputs. Fair values and related carrying values of our debt instruments were as follows for the periods indicated:
 

17



  
March 31, 2014
 
December 31, 2013
 
Carrying Amount
 
Fair Value
 
Carrying  Amount
 
Fair Value
 
(in thousands)
Long-term Debt
 
 
 
 
 
 
 
6.75% Notes
$
360,000

 
$
371,700

 
$

 
$

7.50% Notes
225,000

 
240,188

 
225,000

 
236,250

9.125% Notes
8,801

 
9,202

 
425,000

 
446,250

Total
$
593,801

 
$
621,090

 
$
650,000

 
$
682,500


The assets acquired and liabilities assumed in the ITS Acquisition were recorded at fair value in accordance with U.S. GAAP. Acquisition date fair values represent either Level 2 fair value measurements (current assets and liabilities, property, plant and equipment) or Level 3 fair value measurements (intangible assets).
Market conditions could cause an instrument to be reclassified from Level 1 to Level 2, or Level 2 to Level 3. There were no transfers between levels of the fair value hierarchy or any changes in the valuation techniques used during the three months ended March 31, 2014.
 

10.
Commitments and Contingencies
Asbestos-Related Claims
We are from time to time a party to various lawsuits in the ordinary course of business that are incidental to our operations in which the claimants seek an unspecified amount of monetary damages for personal injury, including injuries purportedly resulting from exposure to asbestos on drilling rigs and associated facilities. At March 31, 2014, there were approximately 15 of these lawsuits in which we are one of many defendants. These lawsuits have been filed in the United States in the states of California, Illinois and Mississippi.
We intend to defend ourselves vigorously and, based on the information available to us at this time, we do not expect the outcome to have a material adverse effect on our financial condition, results of operations or cash flows. However, we are unable to predict the ultimate outcome of these lawsuits. No amounts were accrued at March 31, 2014.
Customs Agent and Foreign Corrupt Practices Act (FCPA) Settlement
On April 16, 2013, the Company and the Department of Justice (DOJ) entered into a deferred prosecution agreement (DPA), under which the DOJ will defer for three years prosecuting the Company for criminal violations of the anti-bribery provisions of the FCPA relating to the Company’s retention and use of an individual agent in Nigeria with respect to certain customs-related issues, in return for: (i) the Company’s acceptance of responsibility for, and agreement not to contest or contradict the truthfulness of, the statement of facts and allegations that have been filed in a United States District Court concurrently with the DPA; (ii) the Company’s payment of an approximately $11.76 million fine; (iii) the Company’s reaffirming its commitment to compliance with the FCPA and other applicable anti-corruption laws in connection with the Company’s operations, and continuing cooperation with domestic and foreign authorities in connection with the matters that are the subject of the DPA; (iv) the Company’s commitment to continue to address any identified areas for improvement in the Company’s internal controls, policies and procedures relating to compliance with the FCPA and other applicable anti-corruption laws if, and to the extent, not already addressed; and (v) the Company’s agreement to report to the DOJ in writing annually during the term of the DPA regarding remediation of the matters that are the subject of the DPA, implementation of any enhanced internal controls, and any evidence of improper payments the Company may have discovered during the term of the agreement. If the Company remains in compliance with the terms of the DPA throughout its effective period, the charge against the Company will be dismissed with prejudice. The Company also settled a related civil complaint filed by the SEC in a United States District Court.

Demand Letter and Derivative Litigation
In April 2010, we received a demand letter from a law firm representing Ernest Maresca. The letter states that Mr. Maresca is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Settlement.” The letter requests that our Board of Directors take action against the individuals in question. In

18



response to this letter, the Board formed a special committee to evaluate the issues raised by the letter and determine a course of action for the Company. The special committee engaged its own counsel for the investigation and evaluated potential claims against all individuals identified in the demand letter. The special committee considered whether pursuing each of the individuals named in the demand letter was in the best interests of the Company based upon a variety of factors, including among others, whether the Company had a potential cause of action against the individual, the defenses the individual might offer to such a claim, the ability of the individual to satisfy any judgment the Company might secure as a result of a claim asserted, and other risks to the Company of pursuing the claims. After taking various factors into account, on July 29, 2013, the special committee recommended to the Board that the Company not pursue any action against the current and former officers and directors named in the demand letter, and the Board accepted such recommendation.

ITS Internal Controls
Our due diligence process with respect to the ITS Acquisition identified certain transactions that suggest that ITS' pre-acquisition internal controls may have failed to prevent violations of potentially applicable international trade and anti-corruption laws, including those of the United Kingdom. We have investigated such violations and have and will, as appropriate, make any identified violations known to relevant authorities, cooperate with any resulting investigations and take proper remediation measures (including seeking any necessary government authorizations). While it is possible that matters may arise where a contingency may require further accounting considerations, we do not believe that as a result of these matters a loss is probable and estimable at this time.


11.
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires that companies present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. This accounting guidance was effective for our first quarter in fiscal 2013 and did not impact the presentation of our condensed consolidated financial statements and related notes.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when: (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. This accounting guidance is effective for our first quarter in fiscal 2014 and does not impact our condensed consolidated financial statements.

12.
Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements
Set forth on the following pages are the consolidating condensed financial statements of Parker Drilling. The Company’s Secured Credit Agreement and Senior Notes are fully and unconditionally guaranteed by substantially all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenues primarily outside the United States, subject to the following customary release provisions:
in connection with any sale or other disposition of all or substantially all of the assets of that guarantor (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) a subsidiary of the Company;
in connection with any sale of such amount of capital stock as would result in such guarantor no longer being a subsidiary to a person that is not (either before or after giving effect to such transaction) a subsidiary of the Company;
if the Company designates any restricted subsidiary that is a guarantor as an unrestricted subsidiary;
if the guarantee by a guarantor of all other indebtedness of the Company or any other guarantor is released, terminated or discharged, except by, or as a result of, payment under such guarantee; or
upon legal defeasance or covenant defeasance (satisfaction and discharge of the indenture).
There are currently no restrictions on the ability of the restricted 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. Separate financial statements for each guarantor company are not provided as the Company complies with the exception to Rule 3-10(a)(1) of Regulation S-X, set forth in sub-paragraph (f) of such rule. All guarantor subsidiaries are owned 100 percent by the parent company.

19



We are providing consolidating condensed financial information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013. The consolidating condensed financial statements present investments in both consolidated and unconsolidated subsidiaries using the equity method of accounting.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 
 
March 31, 2014
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
30,649

 
$
15,916

 
$
46,496

 
$

 
$
93,061

Accounts and notes receivable, net
(12
)
 
122,122

 
142,327

 

 
264,437

Rig materials and supplies

 
2,578

 
41,910

 

 
44,488

Deferred costs

 

 
10,698

 

 
10,698

Deferred income taxes
(2
)
 
7,447

 
1,528

 

 
8,973

Other tax assets
50,772

 
(42,985
)
 
15,526

 

 
23,313

Other current assets

 
6,122

 
14,040

 

 
20,162

Total current assets
81,407

 
111,200

 
272,525

 

 
465,132

Property, plant and equipment, net
(19
)
 
564,469

 
309,850

 

 
874,300

Investment in subsidiaries and intercompany advances
2,043,180

 
(135,328
)
 
1,892,995

 
(3,800,847
)
 

Other noncurrent assets
(450,209
)
 
475,387

 
253,763

 
(118,005
)
 
160,936

Total assets
$
1,674,359

 
$
1,015,728

 
$
2,729,133

 
$
(3,918,852
)
 
$
1,500,368

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
18,801

 
$

 
$

 
$

 
$
18,801

Accounts payable and accrued liabilities
67,464

 
92,591

 
262,044

 
(254,644
)
 
167,455

Accrued income taxes
(4,420
)
 
6,767

 
14,848

 

 
17,195

Total current liabilities
81,845

 
99,358

 
276,892

 
(254,644
)
 
203,451

Long-term debt
612,574

 

 

 

 
612,574

Other long-term liabilities
5,036

 
6,664

 
5,827

 

 
17,527

Long-term deferred tax liability

 
50,229

 
(9,203
)
 

 
41,026

Intercompany payables
354,161

 
514,644

 
626,054

 
(1,494,859
)
 

Contingencies

 

 

 

 

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
20,164

 
18,049

 
43,003

 
(61,052
)
 
20,164

Capital in excess of par value
660,742

 
740,441

 
1,572,919

 
(2,313,360
)
 
660,742

Retained earnings (accumulated deficit)
(60,163
)
 
(413,657
)
 
208,594

 
205,063

 
(60,163
)
Accumulated other comprehensive income

 

 
1,783

 

 
1,783

Total controlling interest stockholders’ equity
620,743

 
344,833

 
1,826,299

 
(2,169,349
)
 
622,526

Noncontrolling interest

 

 
3,264

 

 
3,264

Total equity
620,743

 
344,833

 
1,829,563

 
(2,169,349
)
 
625,790

Total liabilities and stockholders’ equity
$
1,674,359

 
$
1,015,728

 
$
2,729,133

 
$
(3,918,852
)
 
$
1,500,368


20



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 
 
December 31, 2013
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
88,697

 
$
8,310

 
$
51,682

 
$

 
$
148,689

Accounts and notes receivable, net

 
101,299

 
156,590

 

 
257,889

Rig materials and supplies

 
3,002

 
38,779

 

 
41,781

Deferred costs

 

 
13,682

 

 
13,682

Deferred income taxes
(57
)
 
8,435

 
1,562

 

 
9,940

Other tax assets
54,524

 
(46,770
)
 
16,325

 

 
24,079

Other current assets

 
9,089

 
14,134

 

 
23,223

Total current assets
143,164

 
83,365

 
292,754

 

 
519,283

Property, plant and equipment, net
60

 
562,148

 
309,148

 

 
871,356

Investment in subsidiaries and intercompany advances
1,906,128

 
(336,570
)
 
1,667,937

 
(3,237,495
)
 

Other noncurrent assets
(457,954
)
 
468,864

 
250,983

 
(117,776
)
 
144,117

Total assets
$
1,591,398

 
$
777,807

 
$
2,520,822

 
$
(3,355,271
)
 
$
1,534,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
25,000

 
$

 
$

 
$

 
$
25,000

Accounts payable and accrued liabilities
75,268

 
92,546

 
261,436

 
(254,364
)
 
174,886

Accrued income taxes

 
725

 
6,541

 

 
7,266

Total current liabilities
100,268

 
93,271

 
267,977

 
(254,364
)
 
207,152

Long-term debt
628,781

 

 

 

 
628,781

Other long-term liabilities
5,037

 
6,743

 
15,134

 

 
26,914

Long-term deferred tax liability

 
51,747

 
(12,980
)
 

 
38,767

Intercompany payables
227,504

 
291,783

 
422,645

 
(941,932
)
 

Contingencies

 

 

 

 

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
20,075

 
18,049

 
43,003

 
(61,052
)
 
20,075

Capital in excess of par value
657,349

 
740,438

 
1,572,919

 
(2,313,357
)
 
657,349

Retained earnings (accumulated deficit)
(47,616
)
 
(424,224
)
 
208,790

 
215,434

 
(47,616
)
Accumulated other comprehensive income

 

 
1,888

 

 
1,888

Total controlling interest stockholders’ equity
629,808

 
334,263

 
1,826,600

 
(2,158,975
)
 
631,696

Noncontrolling interest

 

 
1,446

 

 
1,446

Total Equity
629,808

 
334,263

 
1,828,046

 
(2,158,975
)
 
633,142

Total liabilities and stockholders’ equity
$
1,591,398

 
$
777,807

 
$
2,520,822

 
$
(3,355,271
)
 
$
1,534,756






21



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

 
Three months ended March 31, 2014
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
Total revenues
$

 
$
123,431

 
$
149,132

 
$
(43,338
)
 
$
229,225

Operating expenses

 
76,548

 
132,815

 
(43,338
)
 
166,025

Depreciation and amortization

 
20,168

 
14,169

 

 
34,337

Total operating gross margin

 
26,715

 
2,148

 

 
28,863

General and administration expense (1)
(70
)
 
(8,464
)
 
(430
)
 

 
(8,964
)
Gain on disposition of assets, net
(79
)
 
(81
)
 
31

 

 
(129
)
Total operating income (loss)
(149
)
 
18,170

 
1,749

 

 
19,770

Other income and (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(12,715
)
 
(50
)
 
(2,499
)
 
3,225

 
(12,039
)
Interest income
439

 
176

 
2,642

 
(3,225
)
 
32

Extinguishment of debt
(29,673
)
 

 

 

 
(29,673
)
Other

 
128

 
767

 

 
895

Equity in net earnings of subsidiaries
10,489

 

 

 
(10,489
)
 

Total other income (expense)
(31,460
)
 
254

 
910

 
(10,489
)
 
(40,785
)
Income (benefit) before income taxes
(31,609
)
 
18,424

 
2,659

 
(10,489
)
 
(21,015
)
Total income tax expense (benefit)
(19,060
)
 
6,384

 
4,053

 

 
(8,623
)
Net income (loss)
(12,549
)
 
12,040

 
(1,394
)
 
(10,489
)
 
(12,392
)
Less: Net income (loss) attributable to noncontrolling interest

 

 
157

 

 
157

Net income (loss) attributable to controlling interest
$
(12,549
)
 
$
12,040

 
$
(1,551
)
 
$
(10,489
)
 
$
(12,549
)

(1) General and administration expenses for field operations are included in operating expenses.
























22



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

 
Three Months Ended March 31, 2013
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
Total revenues
$

 
$
104,342

 
$
86,300

 
$
(23,507
)
 
$
167,135

Operating expenses

 
58,578

 
81,675

 
(23,507
)
 
116,746

Depreciation and amortization

 
18,659

 
10,853

 

 
29,512

Total operating gross margin

 
27,105

 
(6,228
)
 

 
20,877

General and administration expense (1)
(45
)
 
(12,732
)
 
(68
)
 

 
(12,845
)
Gain on disposition of assets, net

 
1,108

 
40

 

 
1,148

Total operating income (loss)
(45
)
 
15,481

 
(6,256
)
 

 
9,180

Other income and (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(10,980
)
 
(24
)
 
(3,417
)
 
4,415

 
(10,006
)
Interest income
1,569

 
190

 
2,715

 
(4,415
)
 
59

Loss on extinguishment of debt

 

 

 

 

Other
37

 
101

 
(303
)
 

 
(165
)
Equity in net earnings of subsidiaries
179

 

 

 
(179
)
 

Total other income (expense)
(9,195
)
 
267

 
(1,005
)
 
(179
)
 
(10,112
)
Income (loss) before income taxes
(9,240
)
 
15,748

 
(7,261
)
 
(179
)
 
(932
)
Income tax expense (benefit)
(9,832
)
 
5,589

 
2,739

 

 
(1,504
)
Net income (loss)
592

 
10,159

 
(10,000
)
 
(179
)
 
572

Less: Net income (loss) attributable to noncontrolling interest

 

 
(20
)
 

 
(20
)
Net income (loss) attributable to controlling interest
$
592

 
$
10,159

 
$
(9,980
)
 
$
(179
)
 
$
592


(1) General and administration expenses for field operations are included in operating expenses.



















23



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)


 
Three Months Ended March 31, 2014
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
Comprehensive income:

 

 

 

 

Net income (loss)
$
(12,549
)
 
$
12,040

 
$
(1,394
)
 
$
(10,489
)
 
$
(12,392
)
Other comprehensive loss, net of tax:

 

 

 

 

Currency translation difference on related borrowings

 

 
(804
)
 

 
(804
)
Currency translation difference on foreign currency net investments
 
 
 
 
699

 
 
 
699

Total other comprehensive loss, net of tax:

 

 
(105
)
 

 
(105
)
Comprehensive income (loss)
(12,549
)
 
12,040

 
(1,499
)
 
(10,489
)
 
(12,497
)
Comprehensive (income) loss attributable to noncontrolling interest

 

 
(154
)
 

 
(154
)
Comprehensive income (loss) attributable to controlling interest
$
(12,549
)
 
$
12,040

 
$
(1,653
)
 
$
(10,489
)
 
$
(12,651
)


PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)


 
Three Months Ended March 31, 2013
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
Comprehensive income:

 

 

 

 

Net income (loss)
$
592

 
$
10,159

 
$
(10,000
)
 
$
(179
)
 
$
572

Other comprehensive loss, net of tax:

 

 

 

 

Currency translation difference on related borrowings

 

 

 

 

Currency translation difference on foreign currency net investments
 
 
 
 

 
 
 

Total other comprehensive loss, net of tax:

 

 

 

 

Comprehensive income (loss)
592

 
10,159

 
(10,000
)
 
(179
)
 
572

Comprehensive (income) loss attributable to noncontrolling interest

 

 
20

 

 
20

Comprehensive income (loss) attributable to controlling interest
$
592

 
$
10,159

 
$
(9,980
)
 
$
(179
)
 
$
592



24



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
 
Three Months Ended March 31, 2014
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(12,549
)
 
$
12,040

 
$
(1,394
)
 
$
(10,489
)
 
$
(12,392
)
Adjustments to reconcile net income (loss):

 

 

 

 

Depreciation and amortization

 
20,168

 
14,169

 

 
34,337

Loss on extinguishment of debt
29,673

 

 

 

 
29,673

Gain on disposition of assets
79

 
81

 
(31
)
 

 
129

Deferred income tax expense
(17,472
)
 
3,891

 
1,289

 

 
(12,292
)
Expenses not requiring cash
4,180

 
129

 
2,535

 

 
6,844

Equity in net earnings of subsidiaries
(10,489
)
 

 

 
10,489

 

Change in accounts receivable
11

 
(18,803
)
 
12,566

 

 
(6,226
)
Change in accrued income taxes
(4,420
)
 
7,206

 
(2,636
)
 

 
150

Change in other assets
12,746

 
(14,180
)
 
1,040

 

 
(394
)
Change in liabilities
(8,476
)
 
(34
)
 
305

 

 
(8,205
)
Net cash provided by (used in) operating activities
(6,717
)
 
10,498

 
27,843

 

 
31,624

 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(25,523
)
 
(11,922
)
 

 
(37,445
)
Proceeds from the sale of assets

 
472

 
1,154

 

 
1,626

Net cash (used in) investing activities

 
(25,051
)
 
(10,768
)
 

 
(35,819
)
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from debt issuance
400,000

 

 

 

 
400,000

Repayments of long term debt
(416,199
)
 

 

 

 
(416,199
)
Paydown on term note
(2,500
)
 

 

 

 
(2,500
)
Payment of debt issuance costs
(7,273
)
 

 

 

 
(7,273
)
Payment of debt extinguishment costs
(25,796
)
 

 

 

 
(25,796
)
Excess tax benefit from stock-based compensation
335

 

 

 

 
335

Intercompany advances, net
102

 
22,159

 
(22,261
)
 

 

Net cash provided by (used in) financing activities
(51,331
)
 
22,159

 
(22,261
)
 

 
(51,433
)
 
 
 
 
 
 
 
 
 
 
Net change in cash and cash equivalents
(58,048
)
 
7,606

 
(5,186
)
 

 
(55,628
)
Cash and cash equivalents at beginning of year
88,697

 
8,310

 
51,682

 

 
148,689

Cash and cash equivalents at end of year
$
30,649

 
$
15,916

 
$
46,496

 
$

 
$
93,061




25



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Three Months Ended March 31, 2013
 
Parent
 
Guarantor
 
Non-Guarantor
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
$
592

 
$
10,159

 
$
(10,000
)
 
$
(179
)
 
$
572

Adjustments to reconcile net income (loss)


 


 


 


 


to net cash provided by operating activities: