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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(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, 2000
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OR
[ ] 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
PARKER DRILLING COMPANY
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(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
incorporation or organization) Identification No.)
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 which
to Section 12(b) of the Act: registered:
Common Stock, par value $.16 2/3 per share New York Stock Exchange, Inc.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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, 2001, 91,730,183 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 $497.7
million.
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PARKER DRILLING COMPANY
TABLE OF CONTENTS
Page No.
PART I
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 Matter 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Registrant 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners
and Management 73
Item 13. Certain Relationships and Related Transactions 73
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 75
Signatures 80
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 its assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties, many
of which are outside the control of the Company. These risks and uncertainties
include worldwide economic and business conditions, fluctuations in the market
prices of oil and gas, the timing and extent of current or anticipated drilling
market conditions, level of spending by oil and gas operators, 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, capital expenditure overruns and delays on rig
upgrade and refurbishment projects, competition, integration of operations,
successful execution of acquisition strategies 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.
Each forward-looking statement speaks only as of the date of this Form 10-K, and
the Company undertakes no obligation to publicly update or revise any
forward-looking statement.
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, 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.
1
The Company is a leading worldwide provider of contract drilling and
drilling related services, operating in the coastal and 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 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 four 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 1999, the Company
sold 26 land rigs, pursuant to the Company's strategic plan to focus on offshore
and international land markets where margins are generally higher. Included were
13 lower-48 U.S. land rigs sold in September 1999 and 11 Argentina land rigs
(previously classified as assets held for disposition) sold during the fourth
quarter of 1999. In 2000, the Company sold its last U.S. land rig that was
located in Alaska.
The Company's current rig fleet consists of 27 barge drilling and workover
rigs, seven offshore jackup rigs, four offshore platform rigs and 47 land rigs.
The Company's barge drilling and workover rig fleet is dedicated to transition
zone waters, which are generally defined as coastal waters having depths from 5
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 37 of its 40
marketed land rigs capable of drilling to depths of 15,000 feet or greater. 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 service industry experienced a significant increase in
activity in the year 2000. This increase was the result of an increase in oil
and gas exploration activity by major and independent oil and gas operators,
particularly in North American land markets and the Gulf of Mexico, in response
to significantly higher prices for crude oil and natural gas and an increase in
demand for natural gas in the U.S. As a result, the U.S. oilfield service
industry experienced a significant improvement in both land and offshore rig
utilization and in rig dayrates. This improvement in industry conditions
followed a two-year period which saw crude oil and natural gas prices fall to
near-record low levels due to an oversupply of crude oil in world markets,
reduced demand for crude oil in developing countries, particularly southeast
Asia, and a succession of unusually warm winters in Europe and North America.
During this time, oil and gas operators reduced their spending significantly
which adversely affected the level of oilfield activity, and in turn, the
revenues of most companies in the oilfield service industry. Management is
unable to predict the duration of present market conditions, but based on a
continuation of current high commodity prices and spending by oil and gas
operators, particularly in the Company's Gulf of Mexico markets, management is
encouraged about prospects for 2001.
2
While the level of U.S. oil and gas operators' spending increased sharply
in the year 2000 for the reasons noted above, spending, and hence, oilfield
service activity has lagged in international markets. We believe this is
attributable to uncertainty regarding the stability of crude oil prices and the
restructuring of oil and gas operators due to mergers. Only recently has the
Company experienced an increase in bid inquiries and contracts in its core
international land markets.
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, the 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 5 to 25 feet of water. These barge rigs are
towed by tugboats to the drill site with the derrick laid down. The derrick,
also known as a mast structure, is a framework for hoisting and lowering
equipment over a borehole. When the barge reaches the drilling location, the
hull is submerged until it rests on the bottom 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.
U.S. Barge Drilling and Workover
The Company's U.S. 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 22
drilling and workover 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 the increased use of 3-D seismic
technology, higher natural gas prices, and the settlement of a royalty dispute
between the State of Louisiana and a major oil and gas exploration company.
However, conditions in this market softened considerably in mid-1998 through
1999. Drilling barge utilization began to increase during the second quarter of
2000, and averaged approximately 92% in 2000. By late 2000, drilling barge
dayrates had risen above the levels reached in the 1997-98 period. Utilization
and dayrates in the workover barge market have rebounded, but not to the degree
of drilling barges.
3
International Barge Drilling
The Company has focused its international barge drilling efforts in the
transition zones of West Africa and the Caspian Sea. International markets have
historically been more attractive due to the availability of long-term contracts
and the opportunity to earn dayrates higher than U.S. rates.
The Company is the leading provider of barge rigs in Nigeria, with four of
the eight rigs in this market. The Company has operated in Nigeria since
acquiring Mallard in 1996, with Mallard having operated in the country since
1991. The Company's barge rigs operate under long-term contracts, generally
three or more years in duration. Upon expiration, the contracts have typically
been renewed with the then-current operator. The local community problems that
plagued the area in late 1999 and early 2000 abated in the third and fourth
quarters of 2000 resulting in utilization at 100 percent in the fourth quarter
of 2000. When operations are suspended, the Company has generally received a
standby dayrate from the operator, and in the case of one barge rig in 2000 that
sustained damage, loss-of-hire insurance proceeds.
In 1999, the Company completed modification of a state-of-the-art barge rig
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 other specialized functions
to withstand the harsh climate conditions of the north Caspian Sea. The rig
commenced drilling activities during September 1999. In 2000, the rig finished
work on the first exploration well, the Kashagan East, and moved to the second
well, the Kashagan West.
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. 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.
4
Shallow water jackup rig utilization and dayrates in the Gulf of Mexico
declined to historically low levels in 1999. In 2000, however, utilization
increased steadily throughout the year as oil and gas operators increased their
spending in response to higher demand for natural gas and higher natural gas
prices. Utilization of the Company's jackup rig fleet averaged approximately 86
percent during 2000. Utilization was affected due to one rig being out of
service for six months to undergo inspection and repairs.
Platform Drilling
The Company's fleet of platform rigs consists of four 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 and erection 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. In 2000 the Company sold its last U.S.
land rig, thus exiting the U.S. land rig market.
International Operations
The Company's international land drilling operations have focused primarily
in Latin America, the Asia Pacific region and the republics 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. The Company traditionally has
been a pioneer in frontier areas and is currently working in China, Russia and
Kazakhstan.
International utilization is currently lagging the recent increase in U.S.
activity. Management is optimistic that the demand for drilling services in
international land markets will rebound as 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 that the Company believes will result in
increased land rig activity in 2001. Management is unable to predict the timing
or extent that international land drilling markets will rebound. During the year
2000, the Company's international land rig utilization averaged 35 percent.
5
International markets differ from the U.S. 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 typically 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.
Latin America. The Company has 21 land rigs (18 marketed and three cold
stacked) located in the Latin American drilling markets of Colombia, 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/Middle East/Africa. The Company has 18 land rigs (14 marketed
and four cold stacked) located in the Asia Pacific, Middle East and Africa
drilling markets. 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. The Asia Pacific 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, and did not recover in 2000.
Former Soviet Union. Eight of the Company's rigs are currently located in
the oil and gas producing regions of the former Soviet Union. After becoming the
first Western drilling contractor to enter the Russian drilling market in 1991,
few major oil company projects progressed during the remainder of the 1990's. As
a result, in 1999 the Company relocated all four of its drilling rigs from
Russia to Kazakhstan. In 2000, the Company re-entered the Russian market with
one rig contracted to work in the Kharyaga field in Russia on a multi-well
contract. In addition, the Company manages one platform rig in the waters off
the coast of Sakhalin Island under a project management contract.
As anticipated, the agreement regarding the pipeline to be built to
transport crude oil production from the Tengiz field in Kazakhstan has 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. A recent amendment to the alliance contract has
resulted in the addition of two land rigs which have been substantially modified
for service in the Tengiz field under a five-year contract. The first rig
commenced drilling in October 2000, and the second is anticipated to commence
operations in March 2001. By the end of 2001, the Company anticipates operating
nine land rigs in Kazakhstan.
6
U.S. Operations
In 1999 the Company sold its 13 remaining U.S. lower-48 land rigs to Unit
Corporation for $40.0 million cash plus one million shares of Unit common stock.
In September 2000, the Company sold these shares for net proceeds of $15.0
million. In November 2000, the Company sold its last U.S. land rig, which had
been stacked in Alaska for approximately two years, for $20.0 million cash.
Specialty Services
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. Although originally
developed for the North Slope of Alaska, these technological developments and
the Company's general expertise in arctic drilling are assets to the Company in
marketing its services to operators in international markets with similar
environmental considerations.
Project Management. The Company has been active in managing drilling rigs
owned by third parties, generally oil companies, that prefer to own the rig
equipment but do not have the technical expertise or labor resources to operate
the rig. During the year 2000, the Company operated nine project management
contracts in six countries.
RENTAL TOOLS
Quail Tools, 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 65 percent 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 and built a facility in Victoria, Texas, to
service this customer and others in the area. In 2000 Quail expanded operations
to include a facility in Odessa, Texas. Both Texas locations help Quail to
better service the increasing demand for tools in that region. Approximately 40
percent of Quail's revenues are realized from rentals for workover activities.
7
During the latter part of 1998 and through 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 and natural gas prices, and Quail achieved record
revenues and cash flow in the year 2000.
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, repair and related direct overhead.
COMPETITION
The contract drilling industry is a competitive and cyclical business
characterized by high capital and, in recent times, difficulty in finding and
retaining qualified field personnel.
The industry downturn that occurred during the latter half of 1998 and
through 1999 increased competition, resulting in lower dayrates and reduced
utilization. In the Gulf of Mexico barge drilling and workover markets the
Company competes with only one major competitor, R & B Falcon, now Transocean
Sedco Forex. In the jackup market, there are numerous U.S. offshore contractors.
In international land markets, the Company competes with a number of
international drilling contractors but also with smaller local contractors in
certain markets. However, due to the high capital costs of operating in
international land markets as compared to the U.S. land market, the high cost of
mobilizing land rigs from one country to another, and the technical expertise
required, there are usually fewer competitors in international land markets. In
international land and offshore 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, both land and offshore, 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, compete more effectively on the basis of price, build new rigs or
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 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 trend indicates that a number of the Company's customers
have been seeking to establish exploration or development drilling programs
based on partnering relationships or
8
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 and gas operators. The Company is currently a
preferred contractor for operators in certain U.S. and international locations,
which management believes is a result of the Company's quality of equipment,
personnel, service and experience.
The Company's drilling customer base consists of major, independent and
foreign-owned oil and gas companies. Shell Petroleum Development Company of
Nigeria, the Company's largest customer for 2000 and 1999, accounted for
approximately 10 percent of total revenues in both years. For fiscal year 1998,
Chevron was the Company's largest customer with approximately 15 percent 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.
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. U.S. contracts are generally for one to three wells with options, while
international contracts are more likely to be for multi-well long-term programs.
The Company provides project management services including logistics,
procurement, well design, engineering, 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, 2000, the Company employed 3,542 persons, increasing
approximately 13 percent from the 3,142 employed at December 31, 1999. The
following table sets forth the composition of the Company's employees:
December 31,
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2000 1999
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International Drilling Operations 2,109 1,768
U.S. Drilling Operations 1,175 1,112
Rental Tool Operations 107 89
Corporate and Other 151 173
9
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 market. 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 of oil removal costs and a variety of public and private
damages to each responsible party.
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 $10.0 million. To the extent damages and removal costs exceed this
amount, the mobile
10
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 $75.0 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 $10.0 million in specified state waters
to $35.0 million in federal Outer Continental Shelf waters, with higher amounts,
up to $150.0 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 U.S. 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 statute, the
Company's operations may involve the use or handling of other materials that may
be classified as hazardous substances. CERCLA
11
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 market.
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 U.S. 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.
12
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in three segments, U.S. drilling services,
international drilling services and rental tool operations. Information about
the Company's business segments and operations by geographic areas for the years
ended December 31, 2000 and 1999, the four months ended December 31, 1998 and
the year ended August 31, 1998, 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 support functions.
Land Rigs. The following table shows, as of December 31, 2000, the locations and
drilling depth ratings of the Company's 40 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:
Latin America -- 6 5 4 3 18
Asia Pacific 1 3 4 1 1 10
Africa and Middle East 1 2 1 -- -- 4
Former Soviet Union 1 3 1 -- 3 8
--- --- --- --- --- ---
Total 3 14 11 5 7 40
--- --- --- --- --- ---
13
In addition, the Company has seven 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:
Latin America -- 1 2 -- -- 3
Asia Pacific 3 1 -- -- -- 4
Africa and Middle East -- -- -- -- -- --
Former Soviet Union -- -- -- -- -- --
--- --- --- --- --- ---
Total 3 2 2 -- -- 7
--- --- --- --- --- ---
Barge Rigs. A schedule of the Company's deep and intermediate drilling barges
located in the Gulf of Mexico, as of December 31, 2000, 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
- --------------------
(1) "Active" denotes that the rig is currently under contract or available for
contract.
14
A schedule of the Company's workover rigs, as of December 31, 2000, 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(2) 700 1995 -- Active
Rig No. 9(2) 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(2) 650 1996 -- Active
- --------------------
(1) "Active" denotes that the rig is currently under contract or available for
contract.
(2) Workover rig.
15
A schedule of the Company's international drilling barges, as of December
31, 2000, 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 2000 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
- --------------------
(1) "Active" denotes that the rig is currently under contract or available for
contract.
Platform Rigs. The following table sets forth certain information, as of
December 31, 2000, with respect to the Company's platform rigs:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status(1)
---------- ----------- -------- ---------
Deep Drilling:
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
- --------------------
(1) "Active" denotes that the rig is currently under contract or available for
contract.
(2) Workover rig.
16
Jackup Rigs. The following table sets forth certain information as of
December 31, 2000, 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
- -----------------
(1) IC--independent leg, cantilevered; IS--independent leg, slot;
MC--mat-supported, cantilevered.
(2) "Active" denotes that the rig is currently under contract or available for
contract.
(3) Workover rig.
17
The following table presents the Company's utilization rates, rigs
available for service and cold stacked rigs for the years ended December 31,
2000 and 1999.
2000 1999
------ ------
Transition Zone Rig Data:
U.S. barge deep drilling:
Rigs available for service (1) 8.0 7.5
Utilization rate of rigs available for service (2) 92% 78%
U.S. barge intermediate drilling:
Rigs available for service (1) 5.0 5.0
Utilization rate of rigs available for service (2) 93% 59%
U.S. barge workover and shallow drilling:
Rigs available for service (1) 9.0 9.0
Utilization rate of rigs available for service (2) 44% 31%
Cold stacked rigs (1) 0 1.0
International barge drilling:
Rigs available for service (1) 5.0 4.4
Utilization rate of rigs available for service (2) 97% 96%
Offshore Rig Data:
Jackup Rigs:
Rigs available for service (1) 7.0 7.0
Utilization rate of rigs available for service (2) 86% 66%
Platform Rigs:
Rigs available for service (1) 4.0 4.5
Utilization rate of rigs available for service (2) 53% 56%
Cold stacked rigs (1) 0 1.0
18
2000 1999
------ ------
Land Rig Data:
International Rigs:
Rigs available for service(1) 40.0 45.2
Utilization rate of rigs available for service(2) 35% 36%
Cold stacked rigs(1) 7.0 8.0
U.S. Rigs(3):
Rigs available for service(1) .9 11.0
Utilization rate of rigs available for service(2) 0% 40%
(1) 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 cost before being placed back into service.
(2) 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.
(3) Includes 13 U.S. lower-48 land rigs through the date of sale, September 30,
1999, and one U.S. land rig located in Alaska, which was sold November 20,
2000.
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 2000.
19
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, 77, chairman, joined the Company in 1944 and was
elected vice president in 1950. He was elected president in 1954 and chief
executive officer and chairman in 1969.
(2) Robert L. Parker Jr., 52, 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, 55, 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, 54, senior vice president of finance and chief financial
officer, joined the Company in November 1991. 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) Thomas L. Wingerter, 48, vice president of 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 appointed vice president and
general manager - North American operations. In January 2001, he was
appointed to his current position.
20
Item 4A. EXECUTIVE OFFICERS (continued)
(6) W. Kirk Brassfield, 45, 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
(7) John R. Gass, 49, vice president of corporate business development,
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.
(8) Denis Graham, 51, vice president of engineering, joined the Company in
2000. Mr. Graham was the senior vice president of technical services for
Diamond Offshore Inc., an international offshore drilling contractor. His
experience with Diamond Offshore ranged from 1978 through 1999 in the areas
of offshore drilling rig design, new construction, conversions, marine
operations, maintenance and regulatory compliance.
(9) Patrick Seals, 37, vice president of shared services, joined the Company
in 1992 as an internal auditor. From 1993 through 1999, he held various
contracts and marketing management roles in the North American Division. In
late 1999, Mr. Seals assumed the role of general manager of e-business and
in January of 2001 was promoted to his current position. From 1985 to 1992,
he served in roles at the public accounting firm of Arthur Andersen,
Scrivner, Inc. and The Oklahoma Publishing Company.
(10) David W. Tucker, 45, 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.
21
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,
2000, there were 3,155 holders of record of Parker Drilling common stock. Prices
on Parker Drilling's common stock for the years ended December 31, 2000 and
1999, were as follows:
2000 1999
------------------------------ -------------------------------
Quarter High Low High Low
- ------- ---------- ---------- --------- ----------
First $ 5.125 $ 3.000 $ 4.688 $ 2.250
Second 6.875 3.750 4.375 3.000
Third 7.438 4.875 5.625 3.312
Fourth 7.125 3.938 4.750 3.000
No dividends have been paid on common stock since February 1987.
Restrictions contained in Parker Drilling's existing bank revolving loan
facility 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.
22
Item 6. SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
Revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
Net income (loss) $ (19,045)(1) $ (37,897) $ (14,633) $ 28,092
Earnings (loss) per
share, diluted $ (.23)(1) $ (.49) $ (.19) $ .36
Total assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
Long-term debt $ 592,584 $ 648,577 $ 630,479 $ 630,090
(1) Income (loss) before extraordinary gain was $(22,981) or $(.28) per share.
(In Thousands Except Per Share Data)
Year Ended Year Ended
August 31, August 31,
1997 1996
Revenues $ 311,644 $ 156,652
Net income (loss) $ 16,315 $ 4,053
Earnings (loss) per
share, diluted $ .23 $ .07
Total assets $ 984,136 $ 275,959
Long-term debt $ 551,042 $ 2,794
23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Introduction
The year 2000 was marked by a significant improvement in rig activity and
cash flow for the Company. Rig utilization and dayrates improved substantially
in the Company's Gulf of Mexico drilling markets, as a result of the increase in
spending by oil and gas operators in response to significantly higher oil and
gas prices and an increase in demand for natural gas in the U.S. In addition,
rental tool activity increased substantially for Quail. While the Company
reported a loss for the year 2000, operating results were substantially improved
over the prior year, and the Company's financial position and prospects going
forward have improved. Management is unable to predict the duration of present
market conditions, but based on a continuation of current high commodity prices
and spending by oil and gas operators, particularly in the Company's Gulf of
Mexico markets, management is encouraged about prospects for the year 2001.
The Company recently announced the relocation of its corporate office to
Houston, Texas, which is expected to be completed during the third quarter of
2001. The relocation will be accompanied by a reorganization of certain senior
management positions and of the management of drilling operations. Management
believes that the Company will benefit from being closer to certain customers,
competitors and vendors. In addition, management anticipates the long-term
savings from the consolidation of offices and other administrative cost-cutting
steps will offset the moving expenses for retained employees and severance costs
for terminated employees.
During the second quarter of 1999, the Company reorganized its drilling
operations and administrative functions to enable more efficient management and
administration of worldwide operations and 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, U.S. 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
year ended 1998 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.
24
RESULTS OF OPERATIONS (continued)
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The Company recorded a net loss of $23.0 million, before extraordinary
gain, for the year ended December 31, 2000, compared to a net loss of $37.9
million recorded for the year ended December 31, 1999.
The Company's revenues increased $51.8 million to $376.3 million in the
current year as compared to 1999. U.S. drilling revenues increased $34.7 million
to $148.4 million. U.S. offshore drilling revenues increased $50.8 million due
primarily to increased utilization and dayrates for the drilling barge rigs and
the jackup rigs. U.S. land drilling revenues decreased $16.1 million due to the
sale of the Company's 13 U.S. land rigs on September 30, 1999 and the sale of
Rig 245, located in Alaska, in November 2000. Rig 245 was stacked throughout the
current year.
International drilling revenues increased $2.2 million to $185.1 million in
the current period as compared to the year ended December 31, 1999.
International land drilling revenues decreased $14.5 million while international
offshore drilling revenues increased $16.7 million. Primarily responsible for
the international land drilling revenues decrease was the Latin America region,
which decreased $15.9 million. This decrease is attributed to reduced rig
utilization in Colombia, Ecuador and Peru. Revenues from the Bolivian operations
were relatively constant for the two periods but have recently decreased. In
addition, land drilling revenues decreased $9.7 million in the Asia Pacific
region due to completion of a one-well drilling contract in Vietnam, that ended
during the third quarter of 1999, and reduced utilization in Papua New Guinea.
Revenues in the Frontier region, which includes Russia, Kazakhstan, Africa and
the Middle East, increased $11.1 million during the current period as compared
to the year ended December 31, 1999. This increase is primarily attributed to
short-term drilling contracts conducted during the current year in Madagascar
and Nigeria (land contract). Additionally, a labor contract in Kuwait and
increased rig utilization in Kazakhstan contributed to the increase.
25
RESULTS OF OPERATIONS (continued)
International offshore drilling revenues increased $16.7 million to $72.2
million due primarily to barge Rig 257 in the Caspian Sea and barge Rig 75 in
Nigeria. Barge Rig 257, which commenced drilling in September of 1999,
contributed $24.8 million of revenues during the year ended December 31, 2000,
an increase of $16.2 million. With the addition of barge Rig 75 during the third
quarter of 1999, the Company has four barge rigs in the Nigerian offshore
market. Due to several episodes of community unrest, three of the four barge
rigs were on standby status during most of the first six months of the current
year. One rig, barge Rig 74, operated for approximately three and a half months
during the first six months. Despite the reduced revenues earned while on
standby, Nigerian offshore revenues increased $11.3 million to $47.4 million
during the current year. The increase is due to revenues earned by the new barge
Rig 75 and the start-up of drilling operations on Rig 74 which was on standby
during 1999. Since August 2000, drilling operations on the Nigerian barge rigs
have resumed at full dayrates. Offsetting the increased revenues in the Caspian
Sea and Nigeria was a $10.8 million decrease in international offshore revenues
due to the completion of a barge contract in Venezuela during the third quarter
of 1999.
Rental tool revenues increased $15.2 million due to the increased level of
drilling activity in the Gulf of Mexico. Contributing to this increase was the
New Iberia, Louisiana, operation in the amount of $7.7 million, $5.0 million
from the Victoria, Texas, operation and $2.5 million from the new Odessa, Texas,
operation which commenced operations in May 2000.
Profit margins (revenues less direct operating expenses, excluding
depreciation) of $128.3 million in the current period reflect an increase of
$43.0 million from the $85.3 million recorded during the year ended December 31,
1999. The U.S. and international drilling segments recorded profit margin
percentages (profit margin as a percent of revenues) of 33.2 percent and 28.2
percent, respectively, in the current year, as compared to 11.9 percent and 31.0
percent in 1999. U.S. profit margins increased $35.7 million. U.S. drilling
profit margins were positively impacted during the current year by increased
utilization in the Gulf of Mexico from the barge and jackup rigs. In addition,
average dayrates for the jackup rigs increased approximately 45 percent during
the current period when compared to the prior year. Offsetting the increased
U.S. offshore profit margins was the sale of all 13 U.S. lower-48 land rigs
during the third quarter of 1999. During the year ended December 31, 1999, the
U.S. lower-48 land rigs contributed profit margins of $1.7 million. In addition,
Rig 245, which was stacked in Alaska all year, was sold in November of 2000.
26
RESULTS OF OPERATIONS (continued)
International drilling profit margins declined $4.5 million to $52.2
million during the year ended December 31, 2000 as compared to 1999.
International land drilling profit margins declined $5.9 million to $29.5
million during the current period primarily due to lower utilization in the
Company's land drilling operations as previously discussed. The international
offshore drilling profit margins increased $1.4 million to $22.7 million.
Rental tool profit margins increased $10.1 million to $26.8 million during
the current year as compared to the year ended December 31, 1999. Profit margins
increased primarily due to the $15.2 million increase in revenue during the
current year. The profit margin percentage increased during the current period
to 62.7 percent from 60.6 percent for the previous year.
Depreciation and amortization expense increased $2.9 million to $85.1
million in the current year. Depreciation expense recorded in connection with
1998/1999 capital additions, principally barge Rig 257 and barge Rig 75, was the
primary reason for the increase. General and administrative expenses increased
$4.1 million in the current year as compared to 1999. This increase is primarily
attributed to travel costs, employee bonuses, franchise taxes, professional fees
and information technology projects.
Interest expense increased $1.1 million due to $3.0 million of interest
being capitalized to construction projects during the year ended December 31,
1999, as compared to $0.5 million capitalized during the current year. Gain on
disposition of assets decreased $21.2 million to $17.9 million for the current
year. On September 30, 1999 the Company sold its U.S. lower-48 land rigs to Unit
Corporation for $40.0 million cash plus one million shares of Unit Corporation
common stock. The Company recognized a pre-tax gain of $36.1 million during the
third quarter of 1999. In September 2000, the Company sold its one million
shares of Unit Corporation common stock and recognized a pre-tax gain of $7.4
million. In November 2000, the Company sold Rig 245 in Alaska for $20.0 million
and recognized a pre-tax gain of $14.9 million.
27
RESULTS OF OPERATIONS (continued)
Income tax expense consists of foreign tax expense and deferred tax
benefit. The deferred tax benefit is due to the loss incurred during the year
ended December 31, 2000.
Year Ended December 31, 1999 Compared to Fiscal Year Ended August 31, 1998
The Company's net loss of $37.9 million in 1999 reflects a decrease of
$66.0 million when compared to 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, U.S., 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 percent as compared to 28 percent
during the fourth quarter of 1999. The average dayrates also decreased for
comparable periods but only by approximately 7 percent. 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.
28
RESULTS OF OPERATIONS 1999 AS COMPARED TO 1998 (continued)
International offshore revenues increased $21.5 million to $55.5 million in
September 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.
U.S. drilling revenues decreased $83.4 million to $113.7 million during
1999 as compared to fiscal 1998. U.S. land drilling revenues, arising from the
Company's 13 U.S. lower-48 land 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 U.S. land rig, located in Alaska, was stacked
since March 1999 due to reduced drilling activity in Alaska.
U.S. 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 percent decrease in dayrates
and a decrease in barge rig utilization from an average 90 percent in fiscal
1998 to approximately 45 percent in 1999. Revenues related to the seven jackups
decreased $10.5 million during 1999 as compared to the eight months of
operations (Hercules was 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 reflected a decrease of $84.2 million from the $169.5 million recorded
in fiscal 1998. The U.S. and international drilling segments recorded profit
margin percentages (profit margin as a percent of revenues) of 12 percent and 31
percent in 1999, as compared to 35 percent and 33 percent 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 percent
from 58 percent.
29
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 was 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.
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 had 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 included a $36.1 million gain on the sale of the 13
lower-48 land rigs.
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 consisted 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 consisted of $14.3 million current tax expense
related primarily to foreign taxes and deferred tax of $2.1 million.
30
Liquidity and Capital Resources
As of December 31, 2000, the Company had cash, cash equivalents and other
short-term investments of $63.3 million, an increase of $17.0 million from
December 31, 1999. The primary sources of cash in 2000, as reflected on the
Consolidated Statement of Cash Flows, were $87.3 million of net proceeds from a
common stock offering, $31.9 million from the disposition of assets, $27.3
million provided by operating activities and $16.9 million from the sale of
investments. The net proceeds from the equity offering of $87.3 million were the
result of issuing 13.8 million shares of common stock during September 2000.
Proceeds from the disposition of assets included the sale of Rig 245 in Alaska
for $20.0 million, the sale of various non-marketable rigs and components and
reimbursements by our customers for equipment lost in the hole. Also, the
Company sold its one million shares of Unit Corporation stock in September 2000
for $15.0 million. The Unit stock (and $40.0 million cash) was received in 1999
in conjunction with the sale of the Company's 13 U.S. lower-48 land rigs to
Unit.
The primary uses of cash in 2000 were $98.5 million for capital
expenditures (net of reimbursements) and $48.3 million for repayment of debt.
Major projects during the year included completion of modifications to Rig 249
for a contract in Kazakhstan for Tengizchevroil (TCO). Additionally, Rig 258 was
constructed for the TCO project and is scheduled to arrive in Kazakhstan during
the first quarter of 2001. During 2000, Rig 259 was purchased and modified for a
new project in the Karachaganak field in Kazakhstan and should arrive during the
first quarter of 2001. Also, modifications were completed on Rig 25J in the Gulf
of Mexico as a result of its scheduled five-year Coast Guard inspection.
Repayment of debt included $43.5 million for the buyback of a portion of the
Company's 5.5% Convertible Subordinated Notes from proceeds from the equity
offering and $4.1 million on a five-year note with Boeing Capital Corporation
for Rig 75 in Nigeria.
The Company has total long-term debt, including the current portion, of
$597.6 million at December 31, 2000. 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 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
31
Liquidity and Capital Resources (continued)
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 rig materials and supplies. As of December 31, 2000, the
borrowing base was $50.0 million of which none had been drawn down but $14.6
million availability has been used to support letters of credit that have been
issued. 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 Parker Drilling.
The Company anticipates that working capital needs and funds required for
capital spending in 2001 will be met from existing cash, other short-term
investments and cash provided by operations. The Company anticipates cash
requirements for capital spending will be approximately $75 million in 2001.
Should new opportunities requiring additional capital arise, the Company will
utilize cash and short-term investments and, if necessary, its 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.
32
OTHER MATTERS
Business Risks
Internationally, the Company specializes in drilling geologically
challenging wells in locations that are difficult to access and/or involve harsh
environmental conditions. The Company's international services are primarily
utilized by major and national oil companies in the exploration and development
of reserves of oil. In the United States, the Company primarily drills offshore
in the Gulf of Mexico with barge, jackup and platform rigs for major and
independent oil and gas companies. 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
U.S. operations. Due to the locations in which the Company drills, the Company's
operations are subject to interruption, prolonged suspension and possible
expropriation due to political instability and local community unrest. Further,
the Company is exposed to liability issues from pollution arising out of its
operations. The majority of such risks are transferred to the operator by
contract or otherwise insured.
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 and throughout the year ended December
31, 2000, the Company did not experience any material failure with its
information technology or non-information technology systems or key customers or
suppliers.
33
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
Due to political and currency instability in Indonesia during 1997 and
1998, the development of certain power plant projects, in which the Company's
subsidiaries were involved by providing management, technical and training
support to an Indonesian drilling contractor, was postponed or delayed. As a
result, the customer, which was leading the development of the projects,
defaulted on payments to the Indonesian contractor, causing the Indonesian
contractor to initiate arbitration proceedings against two subsidiaries of the
customer to collect these delinquent payments. In 1999, the arbitration panels
awarded the Indonesian contractor approximately $8.5 million, including
interest. Due to the uncertainty over the economic viability of the power plant
projects and timing of repayment of guarantees by the Indonesian government, the
Indonesian contractor elected to accept a settlement of the outstanding awards,
which will result in the payment of approximately $6.0 million to the Company's
subsidiaries by the end of 2001.
34
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, 2000 and 1999, and the results of their operations and their
cash flows for the years ended December 31, 2000 and 1999, August 31, 1998, and
the four months ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America. 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 of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
January 30, 2001
35
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share and Weighted Average Shares Outstanding)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Revenues:
U.S. drilling $ 148,411 $ 113,715 $ 49,648 $ 197,084
International drilling 185,100 182,908 76,248 249,481
Rental tools 42,833 27,656 10,245 32,723
Other 5 274 582 1,935
------------ ------------ ------------ ------------
Total revenues 376,349 324,553 136,723 481,223
------------ ------------ ------------ ------------
Operating expenses:
U.S. drilling 99,193 100,199 42,025 127,951
International drilling 132,882 126,226 52,623 167,651
Rental tools 15,994 10,910 4,416 13,749
Other 4 1,899 932 2,365
Depreciation and amortization 85,060 82,170 26,529 68,574
General and administrative 20,392 16,312 5,904 17,273
Restructuring charges -- 3,000 -- --
Provision for reduction in
carrying value of certain assets 8,300 10,607 4,055 --
------------ ------------ ------------ ------------
Total operating expenses 361,825 351,323 136,484 397,563
------------ ------------ ------------ ------------
Operating income (loss) 14,524 (26,770) 239 83,660
------------ ------------ ------------ ------------
Other income and (expense):
Interest expense (57,036) (55,928) (17,427) (49,389)
Interest income 3,691 1,725 619 5,732
Gain on disposition of assets 17,920 39,070 605 2,289
Other 2,243 1,326 (304) 2,235
------------ ------------ ------------ ------------
Total other income and (expense) (33,182) (13,807) (16,507) (39,133)
------------ ------------ ------------ ------------
Income (loss) before income taxes (18,658) (40,577) (16,268) 44,527
------------ ------------ ------------ ------------
Income tax expense (benefit) 4,323 (2,680) (1,635) 16,435
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain (22,981) (37,897) (14,633) 28,092
Extraordinary gain on early retirement of
debt, net of deferred tax expense of
$2,214 3,936 -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ (19,045) $ (37,897) $ (14,633) $ 28,092
============ ============ ============ ============
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $ (.28) $ (.49) $ (.19) $ .37
Extraordinary gain $ .05 $ -- $ -- $ --
Net income (loss) $ (.23) $ (.49) $ (.19) $ .37
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ (.28) $ (.49) $ (.19) $ .36
Extraordinary gain $ .05 $ -- $ -- $ --
Net income (loss) $ (.23) $ (.49) $ (.19) $ .36
Number of common shares used in computing earnings per share:
Basic 81,758,825 77,159,461 76,828,879 76,658,100
Diluted 81,758,825 77,159,461 76,828,879 77,789,390
See accompanying notes to consolidated financial statements.
36
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands)
ASSETS December 31, December 31,
2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 62,480 $ 45,501
Other short-term investments 811 777
Accounts and notes receivable, net of
allowance for bad debts of $3,755 in 2000
and $5,677 in 1999 123,474 75,411
Rig materials and supplies 16,500 13,766
Other current assets 4,600 15,988
------------ ------------
Total current assets 207,865 151,443
------------ ------------
Property, plant and equipment, at cost:
Drilling equipment 940,381 956,957
Rental equipment 55,237 43,857
Buildings, land and improvements 22,455 20,657
Other 26,066 25,291
Construction in progress 68,120 38,154
------------ ------------
1,112,259 1,084,916
Less accumulated depreciation and
amortization 448,734 423,514
------------ ------------
Net property, plant and equipment 663,525 661,402
------------ ------------
Deferred charges and other assets:
Goodwill, net of accumulated amortization
of $27,786 in 2000 and $20,304 in 1999 196,609 204,090
Rig materials and supplies 12,414 13,363
Assets held for disposition 6,860 17,063
Debt issuance costs 10,311 13,202
Other 9,835 22,180
------------ ------------
Total deferred charges and other assets 236,029 269,898
------------ ------------
Total assets $ 1,107,419 $ 1,082,743
============ ============
See accompanying notes to consolidated financial statements.
37
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, CONTINUED
(Dollars in Thousands)
December 31, December 31,
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,043 $ 5,054
Accounts payable 44,445 29,170
Accrued liabilities 32,756 29,562
Accrued income taxes 9,422 8,323
------------ ------------
Total current liabilities 91,666 72,109
------------ ------------
Long-term debt (Note 5) 592,584 648,577
------------ ------------
Deferred income taxes 18,467 28,273
------------ ------------
Other long-term liabilities 5,539 4,363
------------ ------------
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
91,723,933 shares (77,372,040 shares in 1999) 15,287 12,895
Capital in excess of par value 431,043 343,374
Comprehensive income-net unrealized gain
on investments available for sale (net
of taxes of $190 in 2000 and $908 in 1999) 339 1,613
Retained earnings (accumulated deficit) (47,506) (28,461)
------------ ------------
Total stockholders' equity 399,163 329,421
------------ ------------
Total liabilities and stockholders' equity $ 1,107,419 $ 1,082,743
============ ============
See accompanying notes to consolidated financial statements.
38
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Four
Year Year Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (19,045) $ (37,897) $ (14,633) $ 28,092
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 85,060 82,170 26,529 68,574
Gain on disposition of assets (17,920) (39,070) (605) (6,851)
Gain on early retirement of debt,
net of deferred tax expense (3,936) -- -- --
Provision for reduction in
carrying value
of certain assets 8,300 10,607 4,055 --
Deferred tax expense (benefit) (11,302) (13,888) (6,147) 2,100
Other 5,320 3,503 1,875 3,992
Change in assets and liabilities:
Accounts and notes receivable (47,954) 28,554 7,569 8,886
Rig materials and supplies (1,981) (721) (257) (5,544)
Other current assets 11,150 (3,263) 658 3,065
Accounts payable and
accrued liabilities 18,356 (21,569) (10,232) 40,383
Accrued income taxes 1,098 747 1,544 1,128
Other assets 125 5,312 871 (306)
------------ ------------ ------------ ------------
Net cash provided by operating
activities 27,271 14,485 11,227 143,519
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 31,912 63,868 1,481 13,470
Capital expenditures
(net of reimbursements) (98,525) (49,146) (52,711) (196,078)
Acquisition of Bolifor -- -- (500) (2,189)
Acquisition of Hercules -- -- -- (195,599)
Purchase of short-term investments -- (777) -- (18,708)
Proceeds from sale of short-term
investments 16,925 -- 9,999 11,547
Other-net -- 650 1,000 (766)
------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (49,688) 14,595 (40,731) (388,323)
------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
39
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(Dollars in Thousands)
Four
Year Year Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $ -- $ 35,186 $ 10,000 $ 204,692
Proceeds from common
stock offering, net 87,313 -- -- --
Payments for early retirement
of debt (43,477) -- -- --
Principal payments under
debt obligations (4,854) (43,017) (1,441) (124,287)
Repurchase of common stock -- -- -- (302)
Other 414 (62) 5 4
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 39,396 (7,893) 8,564 80,107
------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 16,979 21,187 (20,940) (164,697)
Cash and cash equivalents at
beginning of year 45,501 24,314 45,254 209,951
------------ ------------ ------------ ------------
Cash and cash equivalents at
end of year $ 62,480 $ 45,501 $ 24,314 $ 45,254
============ ============ ============ ============
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 56,608 $ 56,806 $ 22,802 $ 46,892
Income taxes $ 14,527 $ 10,461 $ 2,968 $ 13,207
Supplemental noncash investing and
financing activity:
1.0 million shares of Unit
Corporation stock received on
sale of U.S. lower-48 land rigs $ -- $ 7,562 $ -- $ --
Net unrealized gain (loss) on
investments available for sale
(net of taxes of $717 in 2000
and $908 in 1999) $ (1,274) $ 1,613 $ -- $ --
Note receivable for sale of
platform rig $ -- $ 1,645 $ -- $ --
See accompanying notes to consolidated financial statements.
40
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, 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
(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
------------ ------------ ------------ ------------ ------------
Activity in employees' stock plans -- 92 2,656 -- --
Issuance of 13,800,000
common shares -- 2,300 85,013 -- --
Comprehensive Income -
Net unrealized loss on
investments available for
sale (net of taxes of $717) -- -- -- -- (1,274)
Net loss (total
comprehensive loss of $20,319) -- -- -- (19,045) --
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2000 $ -- $ 15,287 $ 431,043 $ (47,506) $ 339
============ ============ ============ ============ ============
See accompanying notes to the consolidated financial statements.
41
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts
of Parker Drilling Company ("Parker Drilling") and all of its majority-owned
subsidiaries (collectively, the "Company").
Operations - The Company provides land and offshore contract drilling
services and rental tools on a worldwide basis to major, independent and
foreign-owned oil and gas companies. At December 31, 2000, the Company's rig
fleet consists of 27 barge drilling and workover rigs, seven offshore jackup
rigs, four offshore platform rigs and 47 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
Company's transition period included the four months from September 1 through
December 31, 1998, (the "Transition Period").
Drilling Contracts and Rental Revenues - The Company recognizes revenues
and expenses on dayrate contracts as the drilling progresses
(percentage-of-completion method) because the Company does not bear the risk of
completion of the well. For meterage contracts, the Company recognizes the
revenues and expenses upon completion of the well (completed-contract method).
Revenues from rental activities are recognized over the rental term which is
generally less than six months.
Cash and Cash Equivalents - For purposes of the balance sheet and the
statement of cash flows, the Company considers cash equivalents to be all highly
liquid debt instruments that have a remaining maturity of three months or less
at the date of purchase.
Other Short-Term Investments - Other short-term investments include
primarily certificates of deposit, U.S. government securities and commercial
paper having remaining maturities of greater than three months at the date of
purchase and are stated at the lower of cost or market.
Property, Plant and Equipment - The Company provides for depreciation of
property, plant and equipment primarily on the straight-line method over the
estimated useful lives of the assets after provision for salvage value. The
depreciable lives for land drilling equipment approximate 15 years. The
depreciable lives for offshore drilling equipment generally range from 15 to 20
years. The depreciable lives for certain other equipment, including drill pipe,
range from three to seven years. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any gain or
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
loss is included in operations. Management periodically evaluates the Company's
assets to determine that their net carrying value is not in excess of their net
realizable value. Management considers a number of factors such as estimated
future cash flows, appraisals and current market value analysis in determining
net realizable value. Assets are written down to their fair value if it is below
its net carrying value. In addition, interest totaling approximately $0.5
million, $3.0 million, $1.7 million and $3.5 million were capitalized during the
years ended December 31, 2000 and 1999, the four months ended December 31, 1998,
and the fiscal year ended August 31, 1998, 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 international drilling
generally occurs in remote locations, making timely outside delivery of spare
parts uncertain, a complement of parts and supplies is maintained either at the
drilling site or in warehouses close to the operations. During periods of high
rig utilization, these parts are generally consumed and replenished within a
one-year period. During a period of lower rig utilization in a particular
location, the parts, like the related idle rigs, are generally not transferred
to other international locations until new contracts are obtained because of the
significant transportation costs which would result from such transfers. The
Company classifies those parts which are not expected to be utilized in the
following year as long-term assets.
Other Assets - Other assets 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 current earnings and are included in
comprehensive income, net of taxes, in a separate component of stockholders'
equity until realized. At December 31, 2000 and 1999, the fair value of equity
securities totaled $1.7 million and $11.5 million, respectively.
In computing realized gains and losses on the sale of equity securities,
the cost of the equity securities sold is determined using the specific cost of
the security when originally purchased.
Other Long-Term Obligations - Included in this account is the accrual of
workers' compensation liability.
43
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) - 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.
Due to political and currency instability in Indonesia during 1997 and
1998, the development of certain power plant projects, for which the Company's
subsidiaries were involved by their providing of management, technical and
training support to an Indonesian drilling contractor, was postponed or delayed.
As a result, the customer, which was leading the development of the projects,
defaulted on payments to the Indonesian contractor, causing the Indonesian
contractor to initiate arbitration against two subsidiaries of the customer to
collect these delinquent payments. In 1999, the arbitration panels awarded the
Indonesian contractor approximately $8.5 million including interest. Due to the
uncertainty over the economic viability of the power plant projects and timing
of repayment of guarantees by the Indonesian government, the Indonesian
contractor elected to accept a settlement of the outstanding awards, which will
result in the payment of approximately $6.0 million to the Company's
subsidiaries by the end of 2001.
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, 2000 and 1999, the
Company had deposits in domestic banks in excess of federally insured limits of
approximately $65.9 million and $51.7 million, respectively. In addition, the
Company had deposits in foreign banks at December 31, 2000 and 1999 of $3.3
million and $2.9 million, respectively, which are not federally insured.
The Company's drilling customer base consists of major, independent and
foreign-owned oil and gas companies. Shell Petroleum Development Company of
Nigeria was the Company's largest customer for the years 2000 and 1999,
accounting for approximately 10 percent of total revenues in both years. For
fiscal year 1998, Chevron was the Company's largest customer with approximately
15 percent of total revenues.
44
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.
The summarized unaudited pro forma information for the year ended August
31, 1998, as if the acquisitions of the Hercules companies had occurred
September 1, 1997 is as follows (in thousands except per share amount): revenues
- - $506,627; net income - $30,876; and earnings per share (diluted) - $.40.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Disposition of Assets
On November 20, 2000, the Company sold its last remaining U.S. land rig,
Rig 245 in Alaska, for $20.0 million. The Company recognized a pre-tax gain of
$14.9 million during the fourth quarter of 2000.
On September 30, 1999, the Company completed the sale of its U.S. lower-48
land rigs to Unit Corporation for $40.0 million cash plus 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, 1999 approximated $7.6 million. The
Company recognized a pre-tax gain of $36.1 million during September, 1999.
During September 2000, the Company sold the one million shares of Unit common
stock for $15.0 million. The Company recognized a pre-tax gain of approximately
$7.4 million during the third quarter of 2000.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During October 1999, the Company sold its Argentina drilling rigs and
inventories (previously classified as assets held for sale) plus one operating
drilling rig, Rig 9 in Bolivia, for total consideration of approximately $9.3
million. The Company recognized a pre-tax gain of approximately $0.8 million
during October 1999 related primarily to the Bolivia rig.
Note 4 - 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. During the fourth quarter of 2000, due to the continued
sluggish drilling market in Southeast Asia, the Company reduced the carrying
value of the Gulf Explorer by an additional $8.3 million. 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.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Long-Term Debt
December 31, 2000 1999
(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 $1,381 and $1,616 at December 31, 2000 and 1999, respectively
(effective interest rate of 9.88%) $ 298,619 $ 298,384
Senior Notes payable in November 2006 with interest of 9.75% payable
semi-annually in May and November, net of unamortized premium of $3,888
and $4,545 at December 31, 2000 and 1999, respectively
(effective interest rate of 8.97%) 153,868 154,545
Convertible Subordinated Notes payable in July 2004
with interest of 5.5% payable semi-annually in
February and August 124,509 175,000
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 20,110 24,198
Other 521 1,504
---------- ----------
Total debt 597,627 653,631
Less current portion 5,043 5,054
---------- ----------
Total long-term debt $ 592,584 $ 648,577
========== ==========
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate maturities of long-term debt for the five years ending
December 31, 2005 are as follows (000's): 2001 - $5,043; 2002 - $5,009; 2003 -
$5,536; 2004 - $129,565; 2005 - $0.
The Senior Notes, which mature in 2006, were initially issued in November
1996 and in March 1998 in amounts of $300 million (Series B) and $150 million
(Series C), respectively. The $300 million issue was sold at a $2.4 million
discount while the $150 million issue was sold at a premium of $5.7 million. In
May 1998, a registration statement was filed by the Company which offered to
exchange the Series B and C Notes for new Series D Notes. The form and terms of
the Series D Notes are identical in all material respects to the form and terms
of the Series B and C Notes, except for certain transfer restrictions and
registration rights relating to the Series C Notes. All of the Series B Notes
except $189 thousand and all of the Series C Notes were exchanged for new Series
D Notes per this offering. The Notes have an interest rate of 9 3/4 percent and
are guaranteed by substantially all subsidiaries of Parker Drilling, all of
which are wholly owned. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
subsidiaries to transfer funds to Parker Drilling in the form of cash dividends,
loans or advances. Parker Drilling is a holding company with no operations,
other than through its subsidiaries. The non-guarantors are inconsequential,
individually and in the aggregate, to the consolidated financial statements and
separate financial statements of the guarantors are not presented because
management has determined that they would not be material to investors.
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 percent 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. During the fourth quarter of 2000, the
Company repurchased on the open market $50.5 million principal amount of the
5.5% Notes at an average price of 86.11 percent of face value. The Note
repurchases were funded with proceeds from an equity offering in September 2000,
whereby the Company sold 13.8 million shares of common stock for net proceeds of
approximately $87.3 million. The amount of outstanding Notes at the end of 2000
was $124.5 million.
On October 22, 1999, the Company entered into a $50.0 million revolving
loan facility with a group of banks led by Bank of America. The new facility is
available for working capital requirements, general corporate purposes and to
support letters of credit. At December 31, 2000, no amounts have been drawn down
against the facility but $14.6 million of availability has been used to support
letters of credit that have been issued. The revolver is collateralized by
accounts receivable, inventory and certain barge rigs located in the Gulf of
Mexico. The facility will terminate on October 22, 2003.
49
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
Parker Drilling.
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.
50
Note 6 - Income Taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income (loss) before income taxes and extraordinary gain (in thousands) is
summarized as follows:
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
United States $ (29,253) $ (47,526) $ (19,249) $ 7,682
Foreign 10,595 6,949 2,981 36,845
------------ ------------ ------------ ------------
$ (18,658) $ (40,577) $ (16,268) $ 44,527
============ ============ ============ ============
Income tax expense (benefit) (in thousands) is summarized as follows:
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Current:
United States:
Federal $ -- $ -- $ -- $ --
State -- 838 21 50
Foreign 15,625 10,370 4,491 14,285
Deferred:
United States:
Federal (10,988) (13,552) (5,976) 2,042
State (314) (336) (171) 58
------------ ------------ ------------ ------------
$ 4,323 $ (2,680) $ (1,635) $ 16,435
============ ============ ============ ============
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:
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
-------------------- -------------------- -------------------- --------------------
% of % of % of % of
pretax pretax pretax pretax
Amount income Amount income Amount income Amount income
-------- -------- -------- -------- -------- -------- -------- --------
Computed expected
tax expense
(benefit) $ (6,530) (35%) $(14,202) (35%) $ (5,694) (35%) $ 15,584 35%
Foreign taxes 10,156 54% 6,741 17% 2,919 18% 1,389 3%
Utilization of loss
carryforwards -- -- -- -- -- -- (1,973) (4%)
Change in valuation
allowance (6,097) (33%) -- -- -- -- -- --
Foreign corporation
losses 4,253 23% 2,438 6% -- -- -- --
Goodwill
amortization 1,488 8% 1,488 4% 584 4% 1,162 2%
Other 1,053 6% 855 1% 556 3% 273 1%
-------- -------- -------- -------- -------- -------- -------- --------
Actual tax expense
(benefit) $ 4,323 23% $ (2,680) (7%) $ (1,635) (10%) $ 16,435 37%
======== ======== ======== ======== ======== ======== ======== ========
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Income Taxes (continued)
The components of the Company's tax assets and (liabilities) as of December
31, 2000 and 1999 are shown below (in thousands):
December 31,
2000 1999
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 61,796 $ 83,209
Reserves established against
realization of certain assets 2,304 2,430
Accruals not currently
deductible for tax purposes 6,476 5,654
---------- ----------
70,576 91,293
Deferred tax liabilities:
Property, plant and equipment (59,090) (76,188)
Goodwill (4,824) (3,361)
Unrealized gain on investments
held for sale (190) (908)
---------- ----------
Net deferred tax asset 6,472 10,836
Valuation allowance (24,939) (39,109)
---------- ----------
Deferred income tax liability $ (18,467) $ (28,273)
========== ==========
At December 31, 2000, the Company had $171,656,000 of net operating loss
carryforwards. For tax purposes the net operating loss carryforwards expire over
a 20-year period ending August 31 as follows (000's): 2001-$58,830,000;
2002-$32,947,000; 2003-$0; 2004-$5,184,000; thereafter-$119,195,000. The Company
has recorded a valuation allowance of $24,939,000 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.
53
Note 7 - Common Stock and Stockholders' Equity
In September 2000, the Company sold 13.8 million common shares in a public
offering, resulting in net proceeds (after deducting issuance costs) of $87.3
million. The proceeds will be used to acquire, upgrade and refurbish certain
offshore and land drilling rigs and for general corporate purposes, including
the repayment of debt (see Note 5).
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. All shares available for issuance under this plan have been granted.
The 1994 Executive Stock Option Plan provides that the directors may grant
a maximum of 2,400,000 shares to key employees of the Company and its
subsidiaries through the granting of stock options, stock appreciation rights
and restricted and deferred stock awards. The option price per share may not be
less than 50 percent of the fair market value of a share on the date the option
is granted, and the maximum term of a non-qualified option may not exceed 15
years and the maximum term of an incentive option is 10 years. All shares
available for issuance under this plan have been granted.
The 1997 Stock Plan is a "broad-based" stock plan, based on the interim
rules of the New York Stock Exchange, that provides that the directors may grant
stock options and restricted stock awards up to a maximum of 4,000,000 shares to
all employees of the Company who, in the opinion of the board of directors, are
in a position to contribute to the growth, management and success of the
Company. More than 50 percent of all awards under this plan have been awarded to
employees who are non-executive officers. The option price per share may not be
less than the fair market value on the date the option is granted for incentive
options and not less than par value of a share of common stock for non-qualified
options. The maximum term of an incentive option is 10 years and the maximum
term of a non-qualified option is 15 years. In July 1999, 2,000,000 additional
shares were registered with the SEC for granting under the 1997 Stock Plan. As
of December 31, 2000, there were 1,145,250 shares available for granting.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information regarding the Company's stock option plans is summarized below:
1994 Director Plan
---------------------------
Weighted
Average
Exercise
Shares Price
------------ ------------
Shares under option:
Outstanding at August 31, 1997 170,000 $ 8.303
Granted 20,000 12.094
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at August 31, 1998 190,000 8.702
Granted -- --
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 1998 190,000 8.702
Granted 10,000 3.281
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 1999 200,000 8.431
Granted -- --
Exercised -- --
Cancelled -- --
------------ ------------
Outstanding at December 31, 2000 200,000 $ 8.431
------------ ------------
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1994 Option Plan
Non-Qualified
Incentive Options Options
----------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Shares under option:
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
Granted -- -- -- --
Exercised -- -- (18,750) 2.250
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 2000 622,564 $ 7.227 1,568,186 $ 7.577
---------- ---------- ---------- ----------
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1997 Stock Plan
---------------------------------------------------
Non-Qualified
Incentive Options Options
------------------------ ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Shares under option:
Outstanding at August 31, 1997 739,685 $ 8.875 1,060,315 $ 8.875
Granted 1,149,220 12.022 261,280 10.813
Exercised -- -- -- --
Cancelled (15,000) 12.188 -- --
---------- ---------- ---------- ----------
Outstanding at August 31, 1998 1,873,905 10.750 1,321,595 9.258
Granted -- -- -- --
Exercised -- -- -- --
Cancelled -- -- -- --
---------- ---------- ---------- ----------
Outstanding at December 31, 1998 1,873,905 10.750 1,321,595 9.258
Granted 1,003,021 3.189 897,979 3.232
Exercised (1,011) 3.188 (239) 3.188
Cancelled (81,740) 11.410 (153,760) 10.813
---------- ---------- ---------- ----------
Outstanding at December 31, 1999 2,794,175 8.038 2,065,575 6.523
Granted 50,000 5.938 15,000 5.062
Exercised (92,094) 3.188 (24,370) 3.188
Cancelled (30,130) 8.564 (2,870) 3.188
---------- ---------- ---------- ----------
Outstanding at December 31, 2000 2,721,951 $ 8.158 2,053,335 $ 6.556
---------- ---------- ---------- ----------
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Outstanding Options
----------------------------
Weighted
Average Weighted
Remaining Average
Number of Contractual Exercise
Plan Exercise Prices Shares Life Price
- -------------------------- -------------------------------- --------- ------------- ----------
1994 Director Plan $ 3.281 - $ 6.125 40,000 5.4 years $ 4.827
$ 8.875 - $ 12.094 160,000 6.5 years $ 9.332
1994 Executive Option Plan
Incentive Option $ 4.500 234,554 4.0 years $ 4.500
Incentive Option $ 8.875 388,010 6.4 years $ 8.875
Non-qualified $ 2.250 - $ 4.50 436,196 4.0 years $ 4.207
Non-qualified $ 8.875 1,131,990 6.4 years $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 5.938 947,786 5.4 years $ 3.334
Incentive Option $ 8.875 - $ 12.188 1,774,165 6.2 years $ 10.750
Non-qualified $ 3.188 - $ 5.062 885,500 5.3 years $ 3.263
Non-qualified $ 8.875 - $ 10.183 1,167,835 6.6 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 - $ 12.094 136,000 $ 9.413
1994 Executive Option Plan
Incentive Option $ 4.500 234,554 $ 4.500
Incentive Option $ 8.875 388,010 $ 8.875
Non-qualified $ 2.250 - $ 4.500 436,196 $ 4.207
Non-qualified $ 8.875 1,131,990 $ 8.875
1997 Stock Plan
Incentive Option $ 3.188 - $ 5.938 357,100 $ 3.286
Incentive Option $ 8.875 - $ 12.188 1,339,034 $ 10.824
Non-qualified $ 3.188 - $ 5.062 553,135 $ 3.309
Non-qualified $ 8.875 - $ 10.183 686,366 $ 9.057
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Common Stock and Stockholders' Equity (continued)
The Company has three additional stock plans which provide for the issuance
of stock for no cash consideration to officers and key non-officer employees.
Under two of the plans, each employee receiving a grant of shares may dispose of
15 percent of his/her grant on each annual anniversary date from the date of
grant for the first four years and the remaining 40 percent on the fifth year
anniversary. These two plans have a total of 11,375 shares reserved and
available for granting. Shares granted under the third plan are fully vested no
earlier than 24 months from the effective date of the grant and not later than
36 months. The plan has a total of 1,562,195 shares reserved and available for
granting. No shares were granted under these plans in 2000 and 1999, the
transition period and fiscal 1998.
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, the Company purchased
36,562 shares from certain of its employees who had received stock grants under
the Company's stock plans. Total shares purchased from employees and treated as
treasury stock were 402,607 for the fiscal year ended August 31, 1998.
Currently, 497,323 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). 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.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Year Four Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(In thousands)
Income (loss) before
extraordinary gain:
As reported $ (22,981) $ (37,897) $ (14,633) $ 28,092
Pro forma $ (25,941) $ (45,925) $ (16,605) $ 21,922
Earnings (loss) per share
before extraordinary
gain, diluted:
As reported $ (.28) $ (.49) $ (.19) $ .36
Pro forma $ (.32) $ (.59) $ (.22) $ .28
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 44.0% in fiscal year 1998
49.0% for the Transition Period
49.0% in 1999
51.6% in 2000
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 year 1998 under the Director Plan were $16,500 and $115,000,
respectively. Options granted in fiscal 1998 under the 1997 Stock Plan had a
fair value of $8,585,100. Options granted in 2000 and 1999 under the 1997 Stock
Plan had a fair value of $202,900 and $3,262,749, respectively.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock Reserved For Issuance
The following is a summary of common stock reserved for issuance:
December 31,
2000 1999
---------- ----------
Stock Plans 9,969,570 9,983,070
Stock Bonus Plan 106,375 965,621
Convertible Notes 8,090,254 11,371,020
---------- ----------
Total shares reserved for issuance 18,166,199 22,319,711
========== ==========
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 25, 1998, to assure
that the Company's stockholders receive fair and equal treatment in the event of
any proposed takeover of the Company and to guard against partial tender offers
and other abusive takeover tactics to gain control of the Company without paying
all stockholders a fair price. The rights plan was not adopted in response to
any specific takeover proposal. Under the rights plan, the Company's Board of
Directors declared a dividend of one right to purchase one one-thousandth of a
share of a new series of junior participating preferred stock for each
outstanding share of common stock.
The rights may only be exercised 10 days following a public announcement
that a third party has acquired 15 percent or more of the outstanding common
shares of the Company or 10 days following the commencement of, or announcement
of an intention to make a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a third party of 15 percent or
more of the common shares. When exercisable, each right will entitle the holder
to purchase one one-thousandth share of the new series of junior participating
preferred stock at an exercise price of $30, subject to adjustment. If a person
or group acquires 15 percent or more of the outstanding common shares of the
Company, each right, in the absence of timely redemption of the rights by the
Company, will entitle the holder, other than the acquiring party, to purchase
for $30, common shares of the Company having a market value of twice that
amount.
The rights, which do not have voting privileges, expire June 30, 2008, and
at the Company's option, may be redeemed by the Company in whole, but not in
part, prior to expiration for $.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
61
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, 2000
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Loss before extraordinary gain $(22,981,000) 81,758,825 $ (.28)
Extraordinary gain 3,936,000 81,758,825 .05
Net loss (19,045,000) 81,758,825 (.23)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Loss before extraordinary gain (22,981,000) 81,758,825 (.28)
Extraordinary gain 3,936,000 81,758,825 .05
Net income (loss) + assumed
conversions $(19,045,000) 81,758,825 $ (.23)
============ ============ ============
For the Twelve Months Ended December 31, 1999
---------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $(37,897,000) 77,159,461 $ (.49)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Net loss + assumed
conversions $(37,897,000) 77,159,461 $ (.49)
============ ============ ============
62
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 Four Months Ended December 31, 1998
-------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net loss $(14,633,000) 76,828,879 $ (.19)
Effect of dilutive securities:
Stock options and grants --
Diluted EPS:
Net loss + assumed
conversions $(14,633,000) 76,828,879 $ (.19)
============ ============ ============
For the Twelve Months Ended August 31, 1998
-------------------------------------------
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Net income $ 28,092,000 76,658,100 $ .37
Effect of dilutive securities:
Stock options and grants 1,131,290
Diluted EPS:
Net income + assumed
conversions $ 28,092,000 77,789,390 $ .36
============ ============ ============
63
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 $124,509,000 of 5.5% Convertible Subordinated
Notes, which are convertible into 8,090,254 shares of common stock at $15.39 per
share. The Notes have been outstanding since their issuance in July 1997, but
were not included in the computation of diluted EPS because the assumed
conversion of the Notes would have had an anti-dilutive effect on EPS. For the
years ended December 31, 2000 and 1999, and four months ended December 31, 1998,
options to purchase 7,166,036, 7,269,250 and 5,595,000 shares of common stock,
respectively, 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 during
those periods. In addition, for the fiscal year ended August 31, 1998, 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 three months of service with the Company.
It was amended in 1983 to qualify as a 401(k) plan under the Internal Revenue
Code which permits a specified percentage of an employee's salary to be
voluntarily contributed on a before-tax basis and to provide for a Company
matching feature. Participants may contribute from one percent to 15 percent of
eligible earnings and direct contributions to one or more of 10 investment
funds. The Plan was amended and restated, effective January 1, 1999, to provide
for dollar-for-dollar matching contributions by the Company up to three percent
of a participant's compensation and $.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 361,855 and 498,654 shares
to the Plan in 2000 and 1999, 119,390 shares to the Plan during the transition
period and 119,809 shares to the Plan in fiscal 1998, with the Company
recognizing expense of $2,037,000, $1,796,000, $374,000 and $1,167,000 in each
of the periods, respectively.
64
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, U.S. 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 U.S. drilling, international drilling and rental tools and
has restated the segment information for the four months ended December 31, 1998
and the fiscal year ended August 31, 1998. The primary services the Company
provides are as follows: U.S. land and offshore drilling, international land and
offshore drilling and rental tools.
65
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and
geographic area is as follows:
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
Operations by (Dollars in Thousands)
Industry Segment
- ----------------------------
Revenues:
U.S. drilling $ 148,411 $ 113,715 $ 49,648 $ 197,084
International drilling 185,100 182,908 76,248 249,481
Rental tools 42,833 27,656 10,245 32,723
Other 5 274 582 1,935
------------ ------------ ------------ ------------
Total revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
------------ ------------ ------------ ------------
Operating income (loss):
U.S. drilling $ (2,713) $ (41,508) $ (7,814) $ 25,148
International drilling 569 10,037 6,048 47,519
Rental tools 16,667 7,356 2,926 11,551
Other 1 (2,655) (921) (558)
------------ ------------ ------------ ------------
Total operating income (loss) 14,524 (26,770) 239 83,660
Interest expense (57,036) (55,928) (17,427) (49,389)
Other income (expense) - net 23,854 42,121 920 10,256
------------ ------------ ------------ ------------
Income (loss) before taxes $ (18,658) $ (40,577) $ (16,268) $ 44,527
============ ============ ============ ============
Identifiable assets:
U.S. drilling $ 356,090 $ 386,385 $ 446,820 $ 446,927
International drilling 412,839 357,906 419,640 410,034
Rental tools 57,550 43,356 45,533 44,040
Other 11,943 13,034 16,696 15,984
------------ ------------ ------------ ------------
Total identifiable assets 838,422 800,681 928,689 916,985
Corporate assets 268,997 282,062 230,637 283,559
------------ ------------ ------------ ------------
Total assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
============ ============ ============ ============
66
Note 10 - Business Segments (continued)
Information regarding the Company's operations by industry segment and
geographic area is as follows: (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(Dollars in Thousands)
Operations by
Industry Segment
- ----------------------------
Capital expenditures:
U.S. drilling $ 22,221 $ 8,093 $ 11,510 $ 64,652
International drilling 55,215 29,937 37,355 115,999
Rental tools 16,168 7,221 3,638 14,133
Other 4,921 3,895 208 1,294
------------ ------------ ------------ ------------
Total capital expenditures $ 98,525 $ 49,146 $ 52,711 $ 196,078
============ ============ ============ ============
Depreciation and
amortization:
U.S. drilling $ 42,458 $ 39,787 $ 10,831 $ 35,912
International 30,730
drilling 34,046 12,728 24,092
Rental tools 11,147 8,261 2,425 6,943
Other 725 76 545 1,627
------------ ------------ ------------ ------------
Total depreciation and
amortization $ 85,060 $ 82,170 $ 26,529 $ 68,574
============ ============ ============ ============
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Business Segments (continued)
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
2000 1999 1998 1998
------------ ------------ ------------ ------------
(Dollars in Thousands)
Operations by Geographic Area
- -----------------------------
Revenues:
United States $ 191,249 $ 141,644 $ 60,475 $ 231,744
Latin America 58,467 85,112 35,820 121,048
Asia Pacific 15,373 25,194 8,368 65,867
Africa and Middle East 55,671 36,852 18,433 42,778
Former Soviet Union 55,589 35,751 13,627 19,786
------------ ------------ ------------ ------------
Total revenues $ 376,349 $ 324,553 $ 136,723 $ 481,223
============ ============ ============ ============
Operating income (loss):
United States $ 13,955 $ (36,807) $ (5,809) $ 39,715
Latin America 3,393 8,175 481 9,701
Asia Pacific (10,967) (9,044) (390) 18,005
Africa and Middle East 4,773 6,497 4,302 12,381
Former Soviet Union 3,370 4,409 1,655 3,858
------------ ------------ ------------ ------------
Total operating income (loss) $ 14,524 $ (26,770) $ 239 $ 83,660
============ ============ ============ ============
Identifiable assets:
United States $ 702,639 $ 724,837 $ 739,687 $ 790,510
Latin America 93,896 102,348 151,935 145,256
Asia Pacific 41,602 60,458 65,725 83,854
Africa and Middle East 119,607 105,354 93,102 82,041
Former Soviet Union 149,675 89,746 108,877 98,883
------------ ------------ ------------ ------------
Total identifiable assets $ 1,107,419 $ 1,082,743 $ 1,159,326 $ 1,200,544
============ ============ ============ ============
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Commitments and Contingencies
At December 31, 2000 and 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, 2000, $14.6 million availability has been reserved
to support letters of credit that have been issued. As of December 31, 1999, the
Company had pledged $6.7 million cash, included as other current assets, as
collateral to support letters of credit, which amount was released in March
2000. At December 31, 2000 and 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"). Subsequently, other officers have signed a form of the
Agreements, as revised in 1996, resulting in a total of nine officers who are
currently signatories. The Agreements provide for an initial six-year term and
the payment of certain benefits upon a change of control (as defined in the
Agreements). A change of control includes certain mergers or reorganizations,
changes in the board of directors, sale or liquidation of the Company or
acquisition of more than 15 percent of the outstanding common stock of the
Company by a third party; provided, that the amendments in 1996 gave the Board
the right to preclude triggering of a change of control when a third party
acquired 15 percent of the outstanding voting securities if the Board determines
within five days that the circumstances of the acquisition did not warrant
implementation of the Agreements. After a change of control occurs, if an
officer is terminated within four years without good cause or resigns within two
years for good reason (as each are defined in the Agreements) the officer shall
receive a payment of three times his annual cash compensation, plus additional
compensation for a one-year consulting agreement at the officer's annual cash
compensation, plus extended life, health and other miscellaneous benefits for
four years.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters of
the United States, may be liable for the costs of removal and damages arising
out of a pollution incident to the extent set forth in the Federal Water
Pollution Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and
the Outer Continental Shelf Lands Act. In addition, the Company may also be
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.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Commitments and Contingencies (continued)
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.
Note 12 - Related Party Transactions
Since 1975 when the stockholders approved a Stock Purchase Agreement, the
Company and Robert L. Parker have entered into various life insurance
arrangements on the life of Robert L. Parker. To insure the lives of Mr. and
Mrs. Parker for $15.2 million and Mr. Robert L. Parker for $8.0 million the
Company is currently paying $.6 million in annual premiums. Annual premiums
funded by the Company will be reimbursed from the proceeds of the policies, plus
accrued interest beginning March 2003 at a one-year treasury bill rate. The
Company may use, at its option, up to $7.0 million of such proceeds to purchase
Parker Drilling Company stock from the Robert L. Parker Sr. Family Limited
Partnership at a discounted price. Robert L. Parker, Jr., chief executive
officer of the Company and son of Robert L. Parker, will receive one-third of
the net proceeds of these policies as a beneficiary.
Note 13 - Supplementary Information
At December 31, 2000, accrued liabilities included $8.4 million of accrued
interest expense, $6.0 million of workers' compensation and health plan
liabilities and $9.9 million of accrued payroll and payroll taxes. At December
31, 1999, accrued liabilities included $9.6 million of accrued interest expense,
$5.4 million of workers' compensation and health plan liabilities and $4.0
million of accrued payroll and payroll taxes. Other long-term obligations
included $3.2 million and $3.0 million of workers' compensation liabilities as
of December 31, 2000 and 1999, respectively.
70
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)
YEAR 2000
- ---------
Revenues $ 73,953 $ 86,960 $ 101,849 $ 113,587 $ 376,349
Gross profit(1) $ (3,931) $ 6,409 $ 15,445 $ 25,293 $ 43,216
Operating income $ (8,934) $ 1,965 $ 9,953 $ 11,540 $ 14,524
Net income (loss)
before extraordinary
gain $ (14,876) $ (9,482) $ (1,034) $ 2,411 $ (22,981)
Extraordinary gain,
net of taxes $ -- $ -- $ -- $ 3,936 $ 3,936
Net income (loss) $ (14,876) $ (9,482) $ (1,034) $ 6,347 $ (19,045)
Basic earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (.19) $ (.12) $ (.01) $ .03 $ (.28)(2)
Extraordinary gain $ -- $ -- $ -- $ .04 $ .05 (2)
Net income $ (.19) $ (.12) $ (.01) $ .07 $ (.23)(2)
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (.19) $ (.12) $ (.01) $ .03 $ (.28)(2)
Extraordinary gain $ -- $ -- $ -- $ .04 $ .05 (2)
Net income (loss) $ (.19) $ (.12) $ (.01) $ .07 $ (.23)(2)
71
Quarter
------------------------------------------------------------------
First Second Third Fourth Total
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands Except Per Share Amounts)
YEAR 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)
(1) 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.
(2) As a result of shares issued during the year, earnings per share
for the year's four quarters, which are based on weighted average
shares outstanding during each quarter, do not equal the annual
earnings per share, which is based on the weighted average shares
outstanding during the year.
72
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 25, 2001, to be filed with the Securities and Exchange Commission
("Commission") within 120 days of the end of the Company's year ended December
31, 2000.
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 incorporated 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 "Principal Stockholders and
Security Ownership of Management" in the Company's definitive proxy statement
for the Annual Meeting of Stockholders to be held April 25, 2001, to be filed
with the Commission within 120 days of the end of the Company's year ended
December 31, 2000.
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 "Other Information" and "Related
Transactions" in the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held April 25, 2001, to be filed with the Commission
within 120 days of the end of the Company's year ended December 31, 2000.
73
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 35
Consolidated Statement of Operations for the years ended December 31, 2000 and
1999, August 31, 1998 and for the four months ended December 31, 1998 36
Consolidated Balance Sheet as of December 31, 2000 and 1999 37
Consolidated Statement of Cash Flows for the years ended December 31, 2000 and
1999, August 31, 1998 and for the four months ended December 31, 1998. 39
Consolidated Statement of Stockholders' Equity for the years ended December 31,
2000 and 1999, August 31, 1998 and for the four months ended December 31, 1998 41
Notes to Consolidated Financial Statements 42
74
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 79
(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).
3(c) - Rights Agreement dated as of July 14, 1998 between
the Company and Norwest Bank Minnesota, N.A., as
rights agent (incorporated by reference to Form 8-A
filed July 15, 1998).
75
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).
4(c) - Loan and Security Agreement dated as of October 22,
1999, between the Company and Bank of America,
National Association, as agent for the lenders,
regarding the $50.0 million revolving line of credit
for loans and letters of credit due October 22,
2003.
76
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 January 1, 1999
(incorporated herein by reference to Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1999).
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.
*Management Contract, Compensatory Plan or Agreement
77
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 September 14, 2000 disclosing that the
Company will sell up to 13,800,000 shares of its common stock pursuant
to an underwritten public offering, with an initial price to the public
of $6.625 per share.
The Company filed a Form 8-K on January 6, 1999 disclosing that the
Company and Superior Energy Services, Inc. had agreed to terminate their
merger agreement.
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.
78
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, 2000:
Allowance for doubtful accounts
and notes $ 5,677 $ 860 $ 2,782 $ 3,755
Reduction in carrying value of
rig materials and supplies $ 1,539 $ 780 $ (172) $ 2,491
Deferred tax valuation
allowance $ 39,109 $ (6,097) $ 8,073 $ 24,939
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
Year 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 December 31, 1999:
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
79
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 16, 2001
------------------------------
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
--------- ----- ----
By: /s/ Robert L. Parker Chairman of the Board and Date: March 16, 2001
------------------------------------ Director
Robert L. Parker
By: /s/ Robert L. Parker Jr.
------------------------------------ President and Chief Executive
Robert L. Parker Jr. Officer and Director
(Principal Executive Officer)
By: /s/ James W. Linn
------------------------------------ Executive Vice President and Date: March 16, 2001
James W. Linn Chief Operating Officer and
Director
By: /s/ James J. Davis
------------------------------------ Senior Vice President - Finance Date: March 16, 2001
James J. Davis and Chief Financial Officer
(Principal Financial Officer)
By: /s/ W. Kirk Brassfield Corporate Controller Date: March 16, 2001
------------------------------------ (Principal Accounting Officer)
W. Kirk Brassfield
By: /s/ Earnest F. Gloyna Director Date: March 16, 2001
------------------------------------
Earnest F. Gloyna
By: /s/ David L. Fist Director Date: March 16, 2001
------------------------------------
David L. Fist
By: /s/ R. Rudolph Reinfrank Director Date: March 16, 2001
------------------------------------
R. Rudolph Reinfrank
By: /s/ Bernard J. Duroc-Danner Director Date: March 16, 2001
------------------------------------
Bernard J. Duroc-Danner
By: /s/ James E. Barnes Director Date: March 16, 2001
------------------------------------
By: /s/ Simon G. Kukes Director Date: March 16, 2001
------------------------------------
Simon G. Kukes
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