UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2005
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM
_________ TO _________
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COMMISSION FILE NUMBER 1-7573
PARKER DRILLING
COMPANY
(Exact name of registrant as
specified in its charter)
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Delaware
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73-0618660
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1401 Enclave Parkway, Suite 600, Houston, Texas
77077
(Address of principal executive
offices) (Zip
code)
Registrants telephone number, including area code:
(281) 406-2000
Securities registered pursuant to Section 12(b) of
the Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered:
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Common Stock, par value
$0.162/3
per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 þ No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in Exchange Act
Rule 12b-2. Large
accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of our common stock held by
non-affiliates on June 30, 2005 was $631.3 million. At
January 31, 2006, there were 107,781,704 shares of
common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our definitive proxy statement for the 2006 annual
meeting of shareholders are incorporated by reference in
Part III.
TABLE OF
CONTENTS
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PAGE
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Business
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1
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Risk Factors
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7
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Unresolved Staff
Comments
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17
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Properties
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17
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Legal
Proceedings
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19
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Submission of
Matters to a Vote of Security Holders
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19
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Executive
Officers
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19
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Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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21
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Selected Financial
Data
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22
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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23
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Quantitative and
Qualitative Disclosures about Market Risk
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41
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Financial
Statements and Supplementary Data
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42
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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87
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Controls and
Procedures
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87
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Other
Information
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88
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Directors and
Executive Officers of the Registrant
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89
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Executive
Compensation
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89
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Security Ownership
of Certain Beneficial Owners and Management and Related
Stockholder Matters
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89
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Certain
Relationships and Related Transactions
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89
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Principal
Accounting Fees and Services
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89
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Exhibits and
Financial Statement Schedule
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90
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94
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First Amendment to Credit Agreement dated December 1, 2004 |
Subsidiaries of the Registrant |
Consent of Independent Registered Public Accounting Firm |
Robert L. Parker Jr., President and CEO, Rule 13a-14a/15d-14a Certification |
W. Kirk Brassfield, SVP and CFO, Rule 13a-14a/15d-14a Certification |
Robert L. Parker Jr., President and CEO, Section 1350 Certification |
W. Kirk Brassfield, SVP and CFO, Section 1350 Certification |
PART I
General
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 terms Company, we,
us and our refer to Parker Drilling
Company together with its subsidiaries and Parker
Drilling refers solely to the parent, Parker Drilling
Company. We make available free of charge on our website at
www.parkerdrilling.com, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports as soon as reasonably
practicable after we electronically file such material with, or
furnish to, the Securities and Exchange Commission
(SEC). Additionally, these reports are available on
an Internet website maintained by the SEC. The address of that
site is http://www.sec.gov. We voluntarily provide paper or
electronic copies of our reports free of charge upon request.
The address of the corporate headquarters is 1401 Enclave
Parkway, Suite 600, Houston, Texas 77077.
We are a leading worldwide provider of contract drilling and
drilling-related services. Since beginning operations in 1934,
we have operated in 51 foreign countries and the United States,
making us among the most geographically experienced drilling
contractors in the world. We have extensive experience and
expertise in drilling geologically difficult wells and in
managing the logistical and technological challenges of
operating in remote, harsh and ecologically sensitive areas. Our
quality, health, safety and environmental policies and
procedures are best in class.
Our revenues are derived from three segments:
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U.S. barge drilling;
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international land drilling and offshore barge drilling; and
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drilling-related rental tools.
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We also provide project management services (labor, maintenance,
logistics, etc.) for operators who own their own drilling rigs
and who choose to rely upon our technical expertise.
Our Rig
Fleet
The diversity of our rig fleet, both in terms of geographic
location and asset class, enables us to provide a broad range of
services to oil and gas operators worldwide. As of
December 31, 2005, our fleet of rigs available for service
consisted of:
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eight land rigs in the Commonwealth of Independent States
(CIS);
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nine land rigs in the Asia Pacific region;
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seven land rigs in Mexico;
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two barge drilling rigs in the transition zones
(coastal waters that include lakes, bays, rivers and marshes) of
Nigeria;
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one barge drilling rig in the inland waters of Mexico;
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the worlds largest arctic-class barge rig in the Caspian
Sea; and
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19 barge drilling and workover rigs in the transition zones of
the U.S. Gulf of Mexico.
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Our
Rental Tools Business
A subsidiary of Parker Drilling, Quail Tools provides premium
rental tools for land and offshore oil and gas drilling and
workover activities. Quail Tools offers a full line of drill
pipe, drill collars, tubing, high and low-
ITEM 1. BUSINESS (continued)
Our
Rental Tools Business (continued)
pressure blowout preventers, choke manifolds, junk and cement
mills and casing scrapers. Approximately two-thirds of Quail
Tools equipment is utilized in offshore and coastal water
operations of the Gulf of Mexico. Quail Tools base of
operations is in New Iberia, Louisiana. Expansions have included
two rental facilities in Texas and one in the Rocky Mountain
area. Quail Tools principal customers are major and
independent oil and gas exploration and production companies
operating in the Gulf of Mexico and other major U.S. energy
producing markets. Quail Tools also provides rental tools
internationally to Mexico, Russia and Equatorial New Guinea.
Our
Market Areas
U.S. Gulf of Mexico. The drilling
industry in the U.S. Gulf of Mexico is characterized by
highly cyclical activity where utilization and dayrates are
typically driven by current natural gas prices. Within this
area, we operate barge rigs in the shallow transition zones,
primarily in Louisiana, and to a lesser extent, in Alabama and
Texas. Drilling rigs and related gathering and transportation
systems in the area are subject to a variety of tropical storms,
ranging from minor disturbances to intensely destructive
hurricanes.
International Markets. The majority of
the international drilling markets in which we operate have one
or more of the following characteristics: (i) customers who
typically are major, large independent or national oil
companies, and integrated service providers; (ii) drilling
programs in remote locations with little infrastructure and/or
harsh environments requiring specialized drilling equipment with
a large inventory of spare parts and other ancillary equipment;
and (iii) difficult (i.e., high pressure, deep, hazardous
or geologically challenging) wells requiring specialized
drilling equipment and considerable experience to drill.
Historically there have been a small number of competitors in
international markets due to the remote locations and difficult
drilling conditions, however a number of national drilling
companies are now entering these markets due to a higher level
of sustained oil and gas prices. A substantial portion of
operations are in foreign countries and are subject to the risks
incidental to those operations as more fully described in
Item 1A Risk Factors.
Our
Strategy
Our strategy is to maintain and leverage our position as a
leading provider of drilling, project management and rental
tools services to the energy industry. Our goal is to position
our Company as the contractor of choice by providing innovative
drilling and rental tools services. During the fourth quarter of
2005, we implemented a five-year strategic plan that sets out
our strategy for accomplishing these goals. Key elements in our
strategy include:
Pursuing Strategic Growth
Opportunities. In our contract drilling
business, emphasis will be on creating a fleet of premium rigs
that will be utilized regardless of the position in the energy
business cycle. In 2006, we are involved in the construction of
nine new rigs, including four new land rigs for use in
international markets and one new deep drilling barge rig for
use in the U.S. Gulf of Mexico. In addition, our recently
announced joint venture in Saudi Arabia has contracted to
provide four new land rigs. Significant upgrades to convert a
barge rig to deep drilling capability for use in the
U.S. Gulf of Mexico market are also underway. Expansions
for our rental tools business are also planned for mid-2006 and
will include the addition of a new storage and inspection
location.
We will also continue to grow our project management business in
2006. In 2005, we were able to upgrade some of our labor
contracts to full operations and maintenance
(O&M) contracts and will continue to further use
our competitive advantages in safety, preventive maintenance,
inventory control and training to add more of these contracts.
These projects are expected to add attractive cash flows to our
current profitable base of operations without significant
capital outlays.
Sustaining the High Utilization of Our Barge and Land
Rigs. Another of our strategic objectives is
to sustain the high utilization of our barge and land rigs with
strategic placement and preventive maintenance that will
maximize operating efficiency and minimize down time. Rig
utilization increased to 78 percent in 2005 from
60 percent in 2004 due not only to improved market
conditions, but also to marketing strategies implemented in late
2004.
Focusing on an Efficiency-Based Operating Philosophy for
Operating Costs, Preventive Maintenance and Capital
Expenditures. We continue to be vigilant in
minimizing embedded administration and operations costs.
2
ITEM 1. BUSINESS (continued)
Our
Strategy (continued)
During 2005 we implemented systems that facilitate the review of
all costs and expect even further application of these processes
in 2006. Our operating philosophy emphasizes continuous
improvement of processes, equipment standardization and global
quality, safety and supply chain management. Capital
expenditures will be aligned with core objectives and aggressive
preventive maintenance programs.
Continuing to Reduce Our Debt to Capitalization Ratio and
Enhance Our Liquidity. Our initial debt
reduction goal of $200 million set in December 2002 was met
and exceeded in late 2005. Going forward we will continue to
improve our debt to capitalization ratio. Liquidity will also be
positively affected by reduced interest payments due to lower
levels of long-term debt, lower interest rates achieved through
exchange of higher priced debt with lower priced debt and the
elimination of the costs associated with debt retirement and
exchanges. We also successfully completed a $99.9 million
equity offering in mid-January 2006 from which the proceeds will
be used in growth projects.
Our
Competitive Strengths
Our competitive strengths have historically contributed to our
operating performance and we believe the following strengths
should make our outlook for the future strong:
Geographically Diverse Operations and
Assets. We currently operate in Bangladesh,
China, Colombia, Indonesia, Kazakhstan, Kuwait, Mexico, New
Zealand, Nigeria, Papua New Guinea, Russia, Turkmenistan and the
United States and have recently entered into a joint venture to
operate in Saudi Arabia. Since our founding in 1934, we have
operated in 51 foreign countries and the United States, making
us among the most geographically diverse drilling contractors in
the world. Our international revenues constituted approximately
59 percent of our total revenues in the twelve months ended
December 31, 2005. Our core international land drilling
operations focus primarily on the CIS region, where we have
eight land rigs; the Asia Pacific region, where we have nine
land rigs, including seven helicopter transportable rigs; and
Mexico, where we have been operating seven land rigs. Our
international offshore drilling operations focus on the Caspian
Sea, where we own and operate the worlds largest
arctic-class barge rig; Mexico, where we have one barge rig; and
Nigeria, where we have two barge rigs. We also have 19 drilling
and workover barge rigs in the transition zones of the
U.S. Gulf of Mexico.
Outstanding Safety, Preventive Maintenance, Inventory
Control and Training Programs. We have an
outstanding safety record in the operations of our barge and
land rigs. In 2005 we achieved the lowest Total Recordable
Incident Rate (TRIR) of any drilling contractor. Our
safety record, as evidenced by our low TRIR, has made us a
leader in occupational injury prevention for the last nine
years. This, along with integrated quality and safety management
systems, preventive maintenance, and supply chain management
programs, has contributed to our success in obtaining drilling
contracts, as well as contracts to manage and provide labor
resources to drilling rigs owned by third parties. Our training
center provides safety and technical training curriculums in
four different languages and provides regulatory compliance
training throughout the world.
Strong and Experienced Senior Management
Team. Our management team has extensive
experience in the contract drilling industry. Our chairman,
Robert L. Parker, joined Parker Drilling in 1948 and served as
our chief executive officer from 1969 to 1991. Robert L. Parker
Jr. joined Parker Drilling in 1973 and has served as our
president and chief executive officer since 1991. Under the
leadership of Mr. Parker and Mr. Parker Jr., we have
developed a reputation as a leading worldwide provider of
contract drilling services. David C. Mannon joined our senior
management team in late 2004 as senior vice president and chief
operating officer. Prior to joining Parker Drilling,
Mr. Mannon served in various managerial positions,
culminating with his appointment as president and chief
executive officer for Triton Engineering Services Company, a
subsidiary of Noble Drilling. He brings a broad range of over
24 years of experience to our drilling operations which
will enhance our ability to achieve our goals of increased
utilization and profitable growth. As part of our succession
planning, in October 2005, James W. Whalen, senior vice
president and chief financial officer was appointed to the board
of directors and named vice chairman and W. Kirk Brassfield was
named senior vice president and chief financial officer.
Mr. Brassfield joined Parker Drilling in 1998 and has
served in several executive positions including vice president,
controller and principal accounting officer. He brings
26 years of experience to the management team, including
14 years in the oil and gas industry.
3
ITEM 1. BUSINESS (continued)
Project
Management
We are active in managing and providing labor resources for
drilling rigs owned by third parties. In Russia, we mobilized a
new rig to Sakhalin Island which we designed, constructed and
sold to Exxon Neftegas Limited (ENL). Drilling
operations under a five-year O&M contract with ENL began in
June 2003. In the third quarter of 2004, we began supervising
construction of a second rig to drill in this area, the Orlan
platform. The platform was moved from its construction site in
Korea late in the third quarter of 2005 and began a five-year
O&M contract for ENL offshore Sakhalin in September 2005. We
also began a third O&M contract in late 2005 utilizing a
third party rig to perform workover operations in Sakhalin
Island for ENL.
We upgraded two of our labor service contracts in Papua New
Guinea to full O&M contracts in the third quarter of 2005.
As of December 31, 2005, we not only had O&M contracts
in Sakhalin Island and Papua New Guinea, but were actively
providing labor services on third party-owned drilling rigs in
Kuwait, China and Colombia.
Competition
The contract drilling industry is a highly competitive business
characterized by high capital requirements and challenges in
securing and retaining qualified field personnel.
We are one of two major contractors that compete in the
U.S. Gulf of Mexico barge drilling market. In international
land markets, we compete with a number of international drilling
contractors as well as smaller local contractors. National
drilling contractors have increased competition in international
markets in recent years. These national drilling contractors can
typically operate at lower costs due to reduced labor and import
costs. However, we are generally able to distinguish ourselves
from these national companies based on our technical expertise
and experience as well as our safety record. In international
land and offshore markets, our experience in operating in
challenging environments and our customer alliances have both
been factors in securing contracts. We believe that the market
for drilling contracts, both land and offshore, will continue to
be highly competitive for the foreseeable future. Our management
believes that Quail Tools is one of the leading rental tools
companies in the offshore Gulf of Mexico and other major
U.S. energy producing markets. See Item 1A for
additional information.
Customers
We have developed a reputation for providing efficient, safe,
environmentally conscious and innovative drilling services. An
increasing trend indicates that a number of our customers have
been seeking to establish exploration or development drilling
programs based on partnering relationships or alliances with a
limited number of preferred drilling contractors. Such
relationships or alliances can result in longer-term work and
higher efficiencies that increase profitability for drilling
contractors at a lower overall well cost for oil and gas
operators. We are currently a preferred contractor for operators
in certain U.S. and international locations which our management
believes is a result of our quality of equipment, personnel,
safety program, service and experience.
Our drilling and rental tools customer base consists of major,
independent and national-owned oil and gas companies and
integrated service providers. In 2005, ExxonMobil and its
ventures accounted for approximately 14 percent of our
total revenues, and ChevronTexaco and a consortium in which
Chevron is a partner, Tengizchevroil (TCO) accounted
for approximately 11 percent of our total revenues. Our ten
most significant customers collectively accounted for
approximately 61 percent of our total revenues in 2005.
Contracts
Most drilling contracts are awarded based on competitive
bidding. The rates specified in drilling contracts are generally
on a dayrate basis, and vary depending upon the type of rig
employed, equipment and services supplied, geographic location,
term of the contract, competitive conditions and other
variables. Our contracts generally provide for a basic dayrate
during drilling operations, with lower rates for periods of
equipment breakdown, adverse weather or other conditions, or no
payment if the conditions continue beyond a certain time. When a
rig mobilizes to or demobilizes from an operating area, the
contract typically provides for a different dayrate or specified
fixed payments, during the mobilization or demobilization. The
terms of most of our contracts are based on either a specified
period of time or the time required to drill a specified well or
number of wells. The contract term in some
4
ITEM 1. BUSINESS (continued)
Contracts (continued)
instances may be extended by the customer exercising options for
the drilling of additional wells or for an additional time
period, or by exercising a right of first refusal. Most of our
contracts may be terminated by the customer prior to the end of
the term without penalty under certain circumstances, such as
the loss or major damage to the drilling unit or other events
that cause the suspension of drilling operations beyond a
specified period of time. In certain cases we are able to obtain
a termination fee if the operator terminates a contract before
the end of the term without cause.
Rental tools contracts are typically on a dayrate basis with
rates based on type of equipment, investment and competition.
Insurance
and Indemnification
In our drilling contracts, we generally seek to obtain
indemnification from our customers for some of the risks related
to our drilling services. To the extent that we are unable to
transfer such risks to customers by contract or indemnification
agreements, we generally seek protection through insurance. To
address the hazards inherent in our business, we maintain
insurance coverage that includes physical damage coverage, third
party general liability coverage, employers liability,
environmental and pollution coverage and other coverage. We
believe that our insurance coverage is customary for the
industry and adequate for our business. However, there are risks
that such insurance will not adequately protect us against or
not be available to cover all the liability from all of the
consequences and hazards we may encounter in our drilling
operations. In addition, our 2006 insurance renewal negotiations
may be adversely affected as a result of the hurricanes in the
U.S. Gulf of Mexico and our other recent insurance claims.
Employees
The following table sets forth the composition of our employees:
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December 31,
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2005
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2004
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International drilling
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2,113
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2,110
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U.S. drilling
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564
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565
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Rental tools
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175
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169
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Corporate and other
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188
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170
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Total employees
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3,040
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3,014
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Environmental
Considerations
Our operations are subject to numerous federal, state, local and
foreign 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 our operations. Changes in environmental laws and
regulations occur frequently, and any changes that result in
more stringent and costly compliance could adversely affect our
operations and financial position, as well as those of similarly
situated entities operating in the Gulf Coast market. While our
management believes that we are in substantial compliance with
current applicable environmental laws and regulations, there is
no assurance that compliance can be maintained in the future.
5
ITEM 1. BUSINESS (continued)
Environmental
Considerations (continued)
The drilling of oil and gas wells is subject to various federal,
state, local and foreign laws, rules and regulations. As an
owner or operator of both onshore and offshore facilities,
including mobile offshore drilling rigs in or near waters of the
United States, we 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 Clean Water
Act (CWA), the Clean Air Act (CAA), the
Outer Continental Shelf Lands Act (OCSLA), the
Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), the Resource Conservation and Recovery
Act (RCRA), and comparable state laws, each as may
be amended from time to time. In addition, we 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 OPA 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
$0.5 million, 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, whichever is
greater. To the extent damages and removal costs exceed this
amount, the mobile offshore drilling rig will be treated as an
offshore facility and the offshore lessee will be responsible up
to higher liability limits for all removal costs plus
$75.0 million. The party must reimburse all removal costs
actually incurred by a governmental entity for actual or
threatened oil discharges associated with any Outer Continental
Shelf facilities, without regard to the limits described above.
A party also 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 for offshore
facilities and vessels in excess of 300 gross tons (to
cover at least some costs in a potential spill) and preparation
of an oil spill contingency plan for offshore facilities and
vessels. The OPA requires 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 believes such a level is justified by the
risks posed by the quantity or quality of oil that is handled by
the facility. For tank vessels, as our offshore
drilling rigs are typically classified, the OPA requires owners
and operators to demonstrate financial responsibility in the
amount of their largest vessels liability limit, as those
limits are described in the preceding paragraph. 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 environmentally 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 our operating U.S. barge drilling rigs have
zero-discharge capabilities as required by law, e.g. CWA. In
addition, in recognition of environmental concerns regarding
dredging of inland waters and permitting requirements, we
conduct negligible dredging operations, with approximately
two-thirds of our offshore drilling contracts involving
directional drilling, which minimizes the need for dredging.
However, the existence of such laws and regulations (e.g.,
Section 404 of the CWA, Section 10 of the Rivers and
Harbors Act, etc.) has had and will continue to have a
restrictive effect on us and our customers.
6
ITEM 1. BUSINESS (continued)
Environmental
Considerations (continued)
Our operations are also governed by laws and regulations related
to workplace safety and worker health, primarily the
Occupational Safety and Health Act and regulations promulgated
thereunder. In addition, various other governmental and
quasi-governmental agencies require us to obtain certain
miscellaneous permits, licenses and certificates with respect to
our operations. The kind of permits, licenses and certificates
required in our operations depend upon a number of factors. We
believe that we have all such miscellaneous permits, licenses
and certificates that are material to the conduct of our
existing business.
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, our operations may
involve the use or handling of other materials that may be
classified as hazardous substances. CERCLA assigns strict
liability to each responsible party for all response and
remediation costs, as well as natural resource damages. Few
defenses exist to the liability imposed by CERCLA. We have
received an information request under CERCLA designating a
subsidiary of Parker Drilling as a potentially responsible party
with respect to the Gulfco Marine Maintenance, Inc. Superfund
site in Freeport, Texas (EPA No. TXD055144539). We are
continuing to evaluate our relationship to the site and have not
yet estimated the amount or impact on our operations, financial
position or cash flows of any costs related to the site.
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, we do 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. Our business is affected generally by political
developments and by federal, state, local and foreign
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 our operations by limiting available
drilling opportunities.
FINANCIAL
INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC
AREAS
We operate in three segments, U.S. drilling, international
drilling and rental tools. Information about our business
segments and operations by geographic areas for the years ended
December 31, 2005, 2004 and 2003 is set forth in
Note 11 in the notes to the consolidated financial
statements.
ITEM 1A. RISK
FACTORS
The contract drilling and rental tools businesses involve a high
degree of risk. You should consider carefully the risks and
uncertainties described below and the other information included
in this
Form 10-K,
including the financial statements and related notes, before
deciding to invest in our securities. While these are the risks
and uncertainties we believe are most important for you to
consider, you should know that they are not the only risks or
uncertainties facing us or which may adversely affect our
business. If any of the following risks or uncertainties
actually occur, our business, financial condition or results of
operations could be adversely affected.
7
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business
Failure
to retain key personnel could hurt our operations.
We require highly skilled and experienced personnel to provide
technical services and support for our drilling operations.
Although we use our training center to train personnel and
promote from within, as the demand for drilling services and the
size of the worldwide rig fleet has recently increased, it has
become more difficult to retain existing personnel and shortages
of qualified personnel have arisen, which could create upward
pressure on wages and prevent us from retaining or attracting
qualified personnel in a cost-effective manner.
We
have substantial indebtedness. Our ability to service our debt
obligations is primarily dependent upon our future financial
performance.
We have substantial indebtedness in relation to our
stockholders equity. As of December 31, 2005, we had
stockholders equity of approximately $259.8 million
compared to approximately:
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$380.0 million of long-term debt;
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$13.3 million of operating lease commitments; and
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$10.3 million of standby letters of credit.
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Our ability to meet our debt service obligations depends on our
ability to generate positive cash flows from operations.
We realized positive cash flows from operating activities of
$122.6 million in 2005, $28.8 million in 2004, and
$62.5 million in 2003, and were successful with a
$99.9 million equity offering in January 2006.
However, we have in the past, and may in the future, incur
negative cash flows from one or more segments of our operating
activities. Our future cash flows from operating activities will
be influenced by the demand for our drilling services, the
utilization of our rigs, the dayrates that we receive for our
rigs, general economic conditions and by financial, business and
other factors affecting our operations, many of which are beyond
our control, and some of which are specified below. If we are
unable to service our debt obligations, we may have to:
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delay spending on maintenance projects and other capital
projects, including the acquisition or construction of
additional rigs, rental tools and other assets;
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sell equity securities;
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sell assets; or
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restructure or refinance our debt.
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Our substantial debt, and the covenants contained in the
instruments governing our debt could have important consequences
to you. For example, it could:
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result in a reduction of our credit rating, which would make it
more difficult for us to obtain additional financing on
acceptable terms;
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require us to dedicate a substantial portion of our cash flows
from operating activities to the repayment of our debt and the
interest associated with our debt;
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limit our operating flexibility due to financial and other
restrictive covenants, including restrictions on incurring
additional debt and creating liens on our properties;
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place us at a competitive disadvantage compared with our
competitors that have relatively less debt;
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expose us to interest rate risk because certain of our
borrowings and our Senior Floating Rate Notes, or interest rate
swaps related to those borrowings, are at variable rates of
interest; and
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make us more vulnerable to downturns in our business.
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We cannot give you any assurances that, if we are unable to
service our debt obligations, we will be able to sell equity
securities, sell additional assets or restructure or refinance
our debt. Our ability to generate sufficient cash
8
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business (continued)
flow from operating activities to pay the principal of and
interest on our indebtedness is subject to market conditions and
other factors which are beyond our control.
Our
current operations and future growth may require significant
additional capital, and our substantial indebtedness could
impair our ability to fund our capital
requirements.
Our business requires substantial capital (we anticipate that
our capital expenditures in 2006 will be approximately
$240 million, including approximately $40 million for
maintenance projects). We may require additional capital in the
event of significant departures from our current business plan
or unanticipated expenses. Sources of funding for our future
capital requirements may include any or all of the following:
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funds generated from our operations;
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public offerings or private placements of equity and debt
securities;
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commercial bank loans;
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capital leases; and
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sales of assets.
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Due to our highly leveraged capital structure, additional
financing may not be available to us, or, if it were available,
it may not be available on a timely basis, on terms acceptable
to us and within the limitations contained in the indentures
governing the 9.625% Senior Notes and our Senior Floating
Rate Notes and the documentation governing our senior secured
credit facility. Failure to obtain appropriate financing, should
the need for it develop, could impair our ability to fund our
capital expenditure requirements and meet our debt service
requirements and could have an adverse effect on our business.
Rig
upgrade, refurbishment and construction projects are subject to
risks, including delays and cost overruns, which could have an
adverse impact on our results of operations and cash
flows.
We often have to make upgrade and refurbishment expenditures for
our rig fleet to comply with our quality management and
preventive maintenance system or contractual requirements or
when repairs are required in response to an inspection by a
governmental authority. For example, in 2002, we were required
to make repairs to two of our barge rigs in Nigeria to maintain
our certification with the American Bureau of Shipping,
resulting in downtime of a total of five months during which
time we received no revenues. We may also make significant
expenditures when we move rigs from one location to another,
such as when we moved barge rig 72 from Nigeria to the
U.S. Gulf of Mexico in 2004. Additionally, we may make
substantial expenditures for the construction of new rigs. Rig
upgrade, refurbishment and construction projects are subject to
the risks of delay or cost overruns inherent in any large
construction project, including the following:
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shortages of material or skilled labor;
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unforeseen engineering problems;
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unanticipated change orders;
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work stoppages;
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adverse weather conditions;
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long lead times for manufactured rig components;
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unanticipated cost increases; and
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inability to obtain the required permits or approvals.
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Significant cost overruns or delays could adversely affect our
financial condition and results of operations. Additionally,
capital expenditures for rig upgrade, refurbishment or
construction projects could exceed our planned capital
expenditures, impairing our ability to service our debt
obligations.
9
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business (continued)
Volatile
oil and natural gas prices impact demand for our drilling and
related services.
The success of our drilling operations is materially dependent
upon the exploration and development activities of the major,
independent and national oil and gas companies that comprise our
customer base. Oil and natural gas prices and market
expectations can be extremely volatile, and therefore the level
of exploration and production activities can be extremely
volatile. Increases or decreases in oil and natural gas prices
and expectations of future prices could have an impact on our
customers long-term exploration and development
activities, which in turn could materially affect our business
and financial performance. Generally, changes in the price of
oil have a greater impact on our international operations while
changes in the price of natural gas have a greater effect on our
operations in the Gulf of Mexico.
Demand for our drilling and related services also depends upon
other factors, many of which are beyond our control, including:
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the cost of producing and delivering oil and natural gas;
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advances in exploration, development and production technology;
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laws and government regulations, both in the United States and
elsewhere;
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the imposition or lifting of economic sanctions against foreign
countries;
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local and worldwide military, political and economic events,
including events in the oil producing countries in the Middle
East;
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the ability of the Organization of Petroleum Exporting
Countries, (OPEC), to set and maintain production
levels and prices;
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the level of production by non-OPEC countries;
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weather conditions;
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expansion or contraction of economic activity, which affects
levels of consumer demand;
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the rate of discovery of new oil and gas reserves;
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the availability of pipeline capacity; and
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the policies of various governments regarding exploration and
development of their oil and gas reserves.
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Oil and gas prices have increased significantly since 2003 based
primarily on worldwide demand and political instability. There
is historical support that current prices are not sustainable
over the long term. Based on recent history of our industry,
fluctuations during the past several years in the demand and
supply of oil and natural gas have contributed to, and are
likely to continue to contribute to price volatility. Any actual
or anticipated reduction in oil and natural gas prices would
depress the level of exploration and production activity. This
would, in turn, result in a corresponding decline in the demand
for our drilling and related services which would adversely
affect our business and financial performance.
Most
of our contracts are subject to cancellation by our customers
without penalty with little or no notice.
Most of our contracts are subject to cancellation by our
customers without penalty with relatively little or no notice.
Also, customers may seek to renegotiate the terms of their
existing drilling contracts during depressed market conditions.
Although drilling conditions are currently favorable, in the
event the market becomes depressed, customers are more likely to
exercise their termination rights.
Our customers may also seek to terminate drilling contracts if
we experience operational problems and customers are more likely
to exercise their termination rights during depressed market
conditions. If our equipment fails to function properly and
cannot be repaired promptly, we will not be able to engage in
drilling operations, and customers may have the right to
terminate the drilling contracts. The cancellation or
renegotiation of a number of our drilling contracts could
adversely affect our financial performance.
10
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business (continued)
We
rely on a small number of customers, and the loss of a
significant customer could adversely affect us.
A substantial percentage of our revenues are generated from a
relatively small number of customers, and the loss of a major
customer would adversely affect us. In 2005, ExxonMobil and its
ventures accounted for approximately 14 percent of our
total revenues, and ChevronTexaco and a consortium in which
Chevron is a partner, TCO, accounted for approximately
11 percent of our total revenues. Our ten most significant
customers collectively accounted for approximately
61 percent of our total revenues in 2005. Our results of
operations could be adversely affected if any of our major
customers terminate their contracts with us, fail to renew our
existing contracts or refuse to award new contracts to us.
Contract
drilling and the rental tools business are highly
competitive.
The contract drilling and rental tools markets are highly
competitive, and no single competitor is dominant. Although the
drilling market is currently experiencing a strong upward trend,
during periods of decreased demand we historically experience
significant reductions in utilization. We anticipate that
current demand for oil and gas will result in higher utilization
rates for the foreseeable future. However, if commodity prices
decline again or other factors adversely affect demand for
drilling activity, our utilization rates and financial
performance will be adversely affected. Contract drilling
companies compete primarily on a regional basis, and competition
may vary significantly from region to region at any particular
time. Many drilling and workover rigs can be moved from one
region to another in response to changes in levels of activity,
provided market conditions warrant, which may result in an
oversupply of rigs in an area. In many markets in which we
operate, the number of rigs available has historically exceeded
the demand for rigs for extended periods of time, resulting in
intense price competition. Most drilling and workover contracts
are awarded on the basis of competitive bids, which also results
in price competition. Despite high commodity prices at present,
we believe that competition for drilling contracts will continue
to be intense for the foreseeable future. If we cannot keep our
rigs utilized, our financial performance will be adversely
impacted. The rental tools market is also characterized by
vigorous competition among several competitors. Many of our
competitors in both the contract drilling and rental tools
business possess significantly greater financial resources than
we do.
Our
international operations could be adversely affected by
terrorism, war, civil disturbances, political instability and
similar events.
We have operations in 12 foreign countries and have recently
contracted, through a joint venture, for work in Saudi Arabia.
Our international operations are subject to interruption,
suspension and possible expropriation due to terrorism, war,
civil disturbances, political instability and similar events and
we have previously suffered loss of revenue and damage to
equipment due to political violence. We may not be able to
obtain insurance policies covering such risks, especially
political violence coverage, or such policies may only be
available with premiums that are not commercially justifiable.
For example, significant civil unrest in Nigeria, which is
continuing, has resulted in the suspension of drilling
operations of our rigs in Nigeria for substantial periods during
the past two years and again beginning in February 2006. In
2003, civil disturbances resulted in the total loss of one of
our rigs in Nigeria, a substantial portion of which we recovered
from insurance.
Our
international operations are also subject to governmental
regulation and other risks.
We derive a significant portion of our revenues from our
international operations. In 2004 and 2005, we derived
approximately 59 percent of our revenues from operations in
countries outside the United States. Our international
operations are subject to the following risks, among others:
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foreign laws and governmental regulation;
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expropriation, confiscatory taxation and nationalization of our
assets located in areas in which we operate;
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hiring and retaining skilled and experienced workers, many of
which are represented by foreign labor unions;
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unfavorable changes in foreign monetary and tax policies and
unfavorable and inconsistent interpretation and application of
foreign tax laws; and
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foreign currency fluctuations and restrictions on currency
repatriation.
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11
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business (continued)
Our international operations are subject to the laws and
regulations of a number of foreign countries. Additionally, our
ability to compete in international contract drilling markets
may be adversely affected by foreign governmental regulations or
other policies that favor the awarding of contracts to
contractors in which nationals of those foreign countries have
substantial ownership interests. Furthermore, our foreign
subsidiaries may face governmentally imposed restrictions or
fees from time to time on the transfer of funds to us. While we
have been successful in most cases in contractually limiting
these risks by transferring the risk of loss to the operators,
we cannot completely eliminate such risk.
A significant portion of the workers we employ in our
international operations are members of labor unions or
otherwise subject to collective bargaining. We may not be able
to hire and retain a sufficient number of skilled and
experienced workers for wages and other benefits that we believe
are commercially reasonable.
We have historically been successful in limiting the risks of
currency fluctuation and restrictions on currency repatriation
by obtaining contracts providing for payment in
U.S. dollars or freely convertible foreign currencies.
However, some countries in which we may operate could require
that all or a portion of our revenues be paid in local
currencies that are not freely convertible. In addition, some
parties with which we do business may require that all or a
portion of our revenues be paid in local currencies. To the
extent possible, we limit our exposure to potentially
devaluating currencies by matching the acceptance of local
currencies to our expense requirements in those currencies.
Although we have done this in the past, we may not be able to
obtain such contractual terms in the future, thereby exposing us
to foreign currency fluctuations that could have a material
adverse effect upon our results of operations and financial
condition.
Compliance
with foreign tax and other laws may adversely affect our
operations.
Tax and other laws and regulations are not always interpreted
consistently among local, regional and national authorities. See
Note 12 in the notes to the consolidated financial
statements for an example of pending tax disputes. The ultimate
outcome of these disputes is not certain, and it is possible
that the outcome could have an adverse effect on our financial
performance. It is also possible that in the future we will be
subject to similar disputes concerning taxation and other
matters in Kazakhstan and other countries in which we do
business, and these disputes could have a material adverse
effect on our financial performance.
We are
subject to hazards customary for drilling operations, which
could adversely affect our financial performance if we are not
adequately indemnified or insured.
Substantially all of our operations are subject to hazards that
are customary for oil and gas drilling operations, including
blowouts, reservoir damage, loss of well control, cratering, oil
and gas well fires and explosions, natural disasters, pollution
and mechanical failure. Our offshore operations also are subject
to hazards inherent in marine operations, such as capsizing,
grounding, collision and damage from severe weather conditions.
Our international operations are also subject to risks of
terrorism, war, civil disturbances and other political events.
Any of these risks could result in damage to or destruction of
drilling equipment, personal injury and property damage,
suspension of operations or environmental damage. We have had
accidents in the past demonstrating some of these hazards. For
example, in June 2005, a well control incident resulted in a
fire and damage to a rig in Bangladesh, resulting in a total
loss of the drilling unit. In July 2005, we suffered damage to a
deep drilling barge rig which ran aground and overturned and in
November 2005 we sustained a well control incident in
Turkmenistan. Generally, drilling contracts provide for the
division of responsibilities between a drilling company and its
customer, and we generally obtain indemnification from our
customers by contract for some of these risks. However, the laws
of certain countries place significant limitations on the
enforceability of indemnification provisions that allow a
contractor to be indemnified for damages resulting from the
contractors fault. To the extent that we are unable to
transfer such risks to customers by contract or indemnification
agreements, we generally seek protection through insurance.
However, we have a significant amount of self-insured retention
or deductible for certain losses relating to workers
compensation, employers liability, general liability (for
onshore liability), protection and indemnity (for offshore
liability), and property damage. For further information, see
Note 12 in the notes to the consolidated financial
statements. There is no assurance that such insurance or
indemnification agreements will adequately protect us against
liability from all of the consequences of the hazards and risks
described above. The occurrence of an event not fully insured or
for which we are not indemnified against, or the failure of a
customer or insurer to meet its indemnification or insurance
12
ITEM 1A. RISK
FACTORS (continued)
Risk
Factors Related to Our Business (continued)
obligations, could result in substantial losses. In addition,
there can be no assurance that insurance will continue to be
available to cover any or all of these risks, or, even if
available, that insurance premiums or other costs will not rise
significantly in the future, so as to make the cost of such
insurance prohibitive.
Government
regulations and environmental risks, which reduce our business
opportunities and increase our operating costs, might worsen in
the future.
Government regulations control and often limit access to
potential markets and impose extensive requirements concerning
employee safety, environmental protection, pollution control and
remediation of environmental contamination. Environmental
regulations, in particular, prohibit access to some markets and
make others less economical, increase equipment and personnel
costs and often impose liability without regard to negligence or
fault. In addition, governmental regulations may discourage our
customers activities, reducing demand for our products and
services. We may be liable for damages resulting from pollution
of offshore waters and, under United States regulations, must
establish financial responsibility in order to drill offshore.
We are
regularly involved in litigation, some of which may be
material.
We are regularly involved in litigation, claims and disputes
incidental to our business, which at times involve claims for
significant monetary amounts, some of which would not be covered
by insurance. For example, in September 2005, one of our
subsidiaries was served with a lawsuit filed in the District
Court of Houston, Texas. See Note 12 in the notes to the
consolidated financial statements. We intend to defend ourselves
vigorously and, based on the information available to us at this
time, we do not expect the outcome of these lawsuits to have a
material adverse effect on our financial condition, results of
operations or cash flows; however, there can be no assurance as
to the ultimate outcome of these lawsuits.
Risks
Related to Our Common Stock
Market
prices of our common stock could change
significantly.
The market prices of our common stock may change significantly
in response to various factors and events, including the
following:
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the other risk factors described in this
Form 10-K,
including changes in oil and gas prices;
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a shortfall in rig utilization, operating revenue or net income
from that expected by securities analysts and investors;
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changes in securities analysts estimates of the financial
performance of us or our competitors or the financial
performance of companies in the oilfield service industry
generally;
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changes in actual or market expectations with respect to the
amounts of exploration and development spending by oil and gas
companies;
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general conditions in the economy and in the oil and gas or
oilfield service industries;
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general conditions in the securities markets;
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political instability, terrorism or war; and
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the outcome of pending and future legal proceedings, tax
assessments and other claims, including the outcome of our
dispute with the Ministry of Finance of the Republic of
Kazakhstan. See Note 12 in the notes to the consolidated
financial statements.
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Most of these factors are beyond our control.
A
hostile takeover of our Company would be
difficult.
We have adopted a stockholders rights plan. Some of the
provisions of our Restated Certificate of Incorporation and of
the Delaware General Corporation Law may make it difficult for a
hostile suitor to acquire control of our Company and to replace
our incumbent management. For example, our Restated Certificate
of Incorporation
13
ITEM 1A. RISK
FACTORS (continued)
Risks
Related to Our Common Stock (continued)
provides for a staggered Board of Directors and permits the
Board of Directors, without stockholder approval, to issue
additional shares of common stock or a new series of preferred
stock.
Risks
Related to our Debt Securities
Payment
of principal and interest on our notes will be effectively
subordinated to our senior secured debt to the extent of the
value of the assets securing that debt.
Our 9.625% Senior Notes and our Senior Floating Rate Notes
and the guarantees related to those notes are senior unsecured
obligations of Parker Drilling and certain of our domestic
subsidiaries that rank senior in right of payment to all current
and future subordinated debt. Holders of our secured
obligations, including obligations under our senior secured
credit facility, will have claims that are prior to claims of
the holders of our notes with respect to the assets securing
those obligations. In the event of a liquidation, dissolution,
reorganization, bankruptcy or any similar proceeding, our assets
and those of our subsidiaries will be available to pay
obligations on the notes and the guarantees only after holders
of our senior secured debt have been paid the value of the
assets securing such debt. Accordingly, there may not be
sufficient funds remaining to pay amounts due on all or any of
the notes.
We have granted the lenders under our senior secured credit
facility a security interest in (i) all accounts
receivable, and certain deposit accounts, of (a) Parker
Drilling Company and (b) substantially all of our material
direct and indirect domestic subsidiaries; (ii) the stock
of all of our direct and indirect domestic subsidiaries; and
(iii) substantially all of the personal property assets of
our rental tools business. In the event of a default on secured
indebtedness, the parties granted security interests will have a
prior secured claim on such assets. If the parties should
attempt to foreclose on their collateral, our financial
condition and the value of the notes would be adversely affected.
We are
a holding company and conduct substantially all of our
operations through our subsidiaries, which may affect our
ability to make payments on our notes.
We conduct substantially all of our operations through our
subsidiaries. As a result, our cash flows and our ability to
service our debt, including our notes, is dependent upon the
earnings of our subsidiaries. In addition, we are dependent on
the distribution of earnings, loans or other payments from our
subsidiaries to us. Any payment of dividends, distributions,
loans or other payments from our subsidiaries to us could be
subject to statutory restrictions. In addition, payment of
dividends or distributions from our joint ventures are subject
to contractual restrictions. Payments to us by our subsidiaries
also will be contingent upon the profitability of our
subsidiaries. If we are unable to obtain funds from our
subsidiaries we may not be able to pay interest or principal on
the notes when due, or to redeem our notes upon a change of
control, and we cannot assure you that we will be able to obtain
the necessary funds from other sources.
Our notes are guaranteed by certain of our direct and indirect
domestic subsidiaries, and an international subsidiary. As of
December 31, 2005, our non-guarantor subsidiaries and joint
ventures collectively owned approximately 18 percent of our
consolidated total assets and held approximately
$17.1 million of our consolidated cash and cash equivalents
of approximately $60.2 million. In 2005, our non-guarantor
subsidiaries and joint ventures had drilling and rental revenues
of approximately $156.8 million and total operating income
of approximately $1.6 million. The amount of our
consolidated total assets and cash and cash equivalents held by,
and the amount of our consolidated drilling and rental revenues
and operating income derived from, our non-guarantor
subsidiaries and joint ventures has increased in each of the
last three years, and we expect that this trend will continue as
we expand our international operations. See Note 5 to the
notes to the consolidated financial statements.
14
ITEM 1A. RISK
FACTORS (continued)
Risks
Related to our Debt Securities (continued)
The
subsidiary guarantees of our notes could be deemed fraudulent
conveyances under certain circumstances, and a court may try to
subordinate or void the subsidiary guarantees.
Under the federal bankruptcy laws and comparable provisions of
state fraudulent transfer laws, a guarantee could be voided, or
claims in respect of a guarantee could be subordinated to all
other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by
its guarantee:
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received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee; or
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was insolvent or rendered insolvent by reason of such
incurrence; or
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was engaged in a business or transaction for which the
guarantors remaining assets constituted unreasonably small
capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature.
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In addition, any payment by that guarantor pursuant to its
guarantee could be voided and required to be returned to the
guarantor, or to a fund for the benefit of the creditors of the
guarantor. The measures of insolvency for purposes of these
fraudulent transfer laws will vary depending upon the law
applied in any proceeding to determine whether a fraudulent
transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability,
including contingent liabilities, on its existing debts, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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We may
not be able to repurchase our notes upon a change of
control.
Upon the occurrence of specific change of control events
affecting us, the holders of our notes will have the right to
require us to repurchase our notes at 101 percent of their
principal amount, plus accrued and unpaid interest. Our ability
to repurchase our notes upon such a change of control event
would be limited by our access to funds at the time of the
repurchase and the terms of our other debt agreements. Upon a
change of control event, we may be required immediately to repay
the outstanding principal, any accrued interest on and any other
amounts owed by us under our senior secured credit facilities,
our notes and other outstanding indebtedness. The source of
funds for these repayments would be our available cash or cash
generated from other sources. However, we cannot assure you that
we will have sufficient funds available upon a change of control
to make any required repurchases of this outstanding
indebtedness.
In addition, the change of control provisions in the indentures
governing our notes may not protect the holders of our notes
from certain important corporate events, such as a leveraged
recapitalization (which would increase the level of our
indebtedness), reorganization, restructuring, merger or other
similar transaction, unless such transaction constitutes a
Change of Control under the indenture. Such a
transaction may not involve a change in voting power or
beneficial ownership or, even if it does, may not involve a
change that constitutes a Change of Control as
defined in the indenture that would trigger our obligation to
repurchase the notes. Therefore, if an event occurs that does
not constitute a Change of Control as defined in the
indenture, we will not be required to make an offer to
repurchase the notes and the holders may be required to continue
to hold their notes despite the event.
DISCLOSURE
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Form 10-K
contains statements that are forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. All statements contained in this
Form 10-K,
other than statements of
15
ITEM 1A. RISK
FACTORS (continued)
DISCLOSURE
NOTE REGARDING FORWARD-LOOKING
STATEMENTS (continued)
historical facts, are forward-looking statements for
purposes of these provisions, including any statements
regarding:
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stability of prices and demand for oil and natural gas;
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levels of oil and natural gas exploration and production
activities;
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demand for contract drilling and drilling related services and
demand for rental tools;
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our future operating results and profitability;
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our future rig utilization, dayrates and rental tools activity;
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entering into new, or extending existing, drilling contracts and
our expectations concerning when our rigs will commence
operations under such contracts;
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growth of the Company through acquisitions of companies or
assets;
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entering into joint venture agreements with local companies;
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our future capital expenditures and investments in the
acquisition and refurbishment of rigs and equipment;
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our future liquidity;
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availability and sources of funds to reduce our debt and
expectations of when debt will be reduced;
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the outcome of pending and future legal proceedings, tax
assessments and other claims, including the outcome of our
dispute with the Ministry of Finance of the Republic of
Kazakhstan;
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our recovery of insurance proceeds with respect to our damaged
assets;
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the availability of insurance coverage and contractual
indemnification for pending legal proceedings;
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compliance with covenants under our senior credit
facility and indentures for our senior notes; and
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expansion and growth of our operations.
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In some cases, you can identify these statements by
forward-looking words such as anticipate,
believe, could, estimate,
expect, intend, outlook,
may, should, will and
would or similar words. Forward-looking statements
are based on certain assumptions and analyses made by our
management in light of their experience and perception of
historical trends, current conditions, expected future
developments and other factors they believe are relevant.
Although our management believes that their assumptions are
reasonable based on information currently available, those
assumptions are subject to significant risks and uncertainties,
many of which are outside of our control. The factors listed in
the Risk Factors section of this
Form 10-K,
as well as any other cautionary language included in this
Form 10-K,
provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Each
forward-looking statement speaks only as of the date of this
Form 10-K,
and we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. Before you decide to
invest in our securities, you should be aware that the
occurrence of the events described in these risk factors and
elsewhere in this
Form 10-K
could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
16
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
We lease office space in Houston for our corporate headquarters.
Additionally, we own and lease office space and operating
facilities in various locations, primarily to the extent
necessary for administrative and operational support functions.
Land
Rigs
The following table shows, as of December 31, 2005, the
locations and drilling depth ratings of our 24 land rigs
available for service. Twenty of these rigs were under contract
and the remainder were available for contract as of
December 31, 2005.
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Drilling Depth Rating in
Feet
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10,000
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10,000-
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Over
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Region
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or Less
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25,000
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25,000
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Total
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Asia Pacific (1)
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1
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8
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9
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CIS (2)
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5
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3
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8
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Latin America (3)
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2
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5
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7
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Total
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1
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15
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8
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24
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(1)
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One rig was removed from the
marketable rig count August 1, 2005.
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(2)
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Two rigs are owned by AralParker.
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(3)
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Latin America includes rigs located
in Mexico.
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Barge
Rigs
The following table shows our four international deep drilling
barges as of December 31, 2005. All of these rigs were
under contract at December 31, 2005.
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Year Built
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Maximum
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or Last
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Drilling
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International
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Horsepower
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Refurbished
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Depth (Feet)
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Nigeria:
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Rig No. 73
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3,000
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2002
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30,000
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Rig No. 75
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3,000
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1999
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30,000
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Caspian Sea:
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Rig No. 257
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3,000
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1999
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30,000
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Mexico:
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Rig No. 53
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1,600
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2004
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20,000
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17
ITEM 2. PROPERTIES
(continued)
Barge
Rigs (continued)
The following table shows our 19 deep, intermediate, and
workover and shallow drilling barge rigs located in the
U.S. Gulf of Mexico. Fourteen of these barge rigs were
under contract and the remainder were available for contract as
of December 31, 2005.
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Year Built
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Maximum
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or Last
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Drilling
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U.S.
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Horsepower
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Refurbished
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Depth (Feet)
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Deep drilling:
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Rig No. 15
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1,000
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1998
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15,000
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Rig No. 50
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2,000
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2001
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25,000
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Rig No. 51
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2,000
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2003
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25,000
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Rig No. 54
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2,000
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1996
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25,000
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Rig No. 55
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2,000
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2001
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25,000
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Rig No. 56
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2,000
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2005
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25,000
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Rig No. 57
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1,500
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1997
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20,000
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Rig No. 72
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3,000
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2002
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30,000
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Rig No. 76
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3,000
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2004
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30,000
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Intermediate drilling:
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Rig No. 8
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1,000
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1995
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14,000
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Rig No. 17
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1,000
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1993
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13,000
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Rig No. 20
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1,000
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2005
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13,500
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Rig No. 21
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1,200
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2001
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14,000
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Workover and shallow drilling:
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Rig No. 6 (1)
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700
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1995
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Rig No. 9 (1)
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650
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1996
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Rig No. 12 (2)
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1,100
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1990
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14,000
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Rig No. 16
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1,000
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1994
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13,500
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Rig No. 23
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1,000
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1993
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13,000
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Rig No. 26 (1)
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650
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2005
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(1)
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Workover rig.
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(2)
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Currently being upgraded to a deep
drilling barge rig.
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18
ITEM 2. PROPERTIES
(continued)
Barge
Rigs (continued)
The following table presents our utilization rates and rigs
available for service for the years ended December 31, 2005
and 2004.
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Year Ended
December 31,
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Transition Zone Rig
Data
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2005
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2004
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U.S. barge deep drilling:
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Rigs available for service (1)
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8.8
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8.3
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Utilization rate of rigs available
for service (2)
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92
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%
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92
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%
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U.S. barge intermediate
drilling:
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Rigs available for service (1)
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4.0
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5.0
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Utilization rate of rigs available
for service (2)
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74
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%
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46
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%
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U.S. barge workover and
shallow drilling:
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Rigs available for service (1)
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6.0
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7.0
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Utilization rate of rigs available
for service (2)
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56
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%
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42
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%
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International barge drilling:
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Rigs available for service (1)
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4.2
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5.7
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Utilization rate of rigs available
for service (2)
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96
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%
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43
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%
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International Land Rig
Data
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Rigs available for service (1)
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29.9
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38.0
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Utilization rate of rigs available
for service (2)
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75
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%
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49
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%
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(1)
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The number of rigs available for
service is determined by calculating the number of days each rig
was in our fleet and was under contract or available for
contract. For example, a rig under contract or available for
contract for six months of a year is 0.5 rigs available for
service for such year. Rigs available for service exclude rigs
classified as assets held for sale. Our method of computation of
rigs available for service may or may not be comparable to other
similarly titled measures of other companies.
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(2)
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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 are
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
or demobilization are also considered to be utilized. Our method
of computation of rig utilization may or may not be comparable
to other similarly titled measures of other companies.
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ITEM 3.
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LEGAL
PROCEEDINGS
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For information on Legal Proceedings, see Note 12 in the
notes to the consolidated financial statements of this annual
report on
Form 10-K,
which information from Note 12 in the notes to the
consolidated financial statements is incorporated herein by
reference.
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ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to Parker Drilling Company
security holders during the fourth quarter of 2005.
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ITEM 4A.
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EXECUTIVE
OFFICERS
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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:
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(1)
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Robert L. Parker, 82, chairman, joined Parker Drilling in 1948
and was elected vice president in 1950. He was elected president
in 1954 and chief executive officer and chairman in 1969. Since
1991, he has held only the position of chairman.
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19
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ITEM 4A.
|
EXECUTIVE
OFFICERS (continued)
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(2)
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Robert L. Parker Jr., 57, president and chief executive officer,
joined Parker Drilling 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 named chief executive
officer. He has been a director since 1973.
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(3)
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David C. Mannon, 48, senior vice president and chief operating
officer, joined Parker Drilling in December 2004. From 1988
through 2003, Mr. Mannon held various positions, including
president and chief executive officer of Triton Engineering
Services Company, a subsidiary of Noble Drilling. From 1980
through 1988, Mr. Mannon served SEDCO-FOREX, formerly
SEDCO, as a drilling engineer.
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(4)
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W. Kirk Brassfield, 50, senior vice president and chief
financial officer, joined Parker Drilling in March 1998 as
controller and principal accounting officer. 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.
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(5)
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Denis J. Graham, 56, vice president of engineering, joined
Parker Drilling in 2000. Mr. Graham was previously 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.
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(6)
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Ronald C. Potter, 52, vice president and general counsel,
re-joined Parker Drilling in June 2003. From 2001 through May
2003, Mr. Potter was our outside legal counsel as a
shareholder of Conner & Winters, P.C. in Tulsa,
Oklahoma. From 1980 to 2001, he served Parker Drilling in
various positions, most recently as chief legal counsel and
corporate secretary.
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(7)
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Lynn G. Cullom, 51, principal accounting officer and corporate
controller, joined Parker Drilling in August 2004 as director of
corporate planning. From March 2001 through August 2004,
Ms. Cullom served in various accounting and reporting
director positions at El Paso Corporation. Ms. Cullom
served in various positions, including vice president of
financial reporting and planning for Coastal Mart, a subsidiary
of Coastal Corporation from September 1979 through February 2001.
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(8)
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Michael D. Drennon, 50, vice president, operations, joined
Parker Drilling in December 2005. From July 2000 through
November 2005, Mr. Drennon served as program director for
development of company operated discoveries in Angola for BP
p.l.c. Mr. Drennon served in various engineering,
operations and management assignments from 1977 through 2000
with Amoco and BP p.l.c.
|
Other
Parker Drilling Company Officer
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(9)
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David W. Tucker, 50, treasurer and director of investor
relations, joined Parker Drilling in 1978 as a financial analyst
and served in various financial and accounting positions before
being named chief financial officer of the Companys
wholly-owned subsidiary, Hercules Offshore Corporation, in
February 1998. Mr. Tucker was named treasurer in 1999 and
assumed the responsibilities of director of investor relations
in 2002.
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20
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Parker Drilling Companys common stock is listed for
trading on the New York Stock Exchange under the symbol
PKD. At the close of business on December 31,
2005, there were 2,264 holders of record of Parker Drilling
common stock. The following table sets forth the high and low
closing prices per share of Parker Drillings common stock,
as reported on the New York Stock Exchange composite tape, for
the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First
|
|
$
|
6.15
|
|
|
$
|
3.75
|
|
|
$
|
4.49
|
|
|
$
|
2.55
|
|
Second
|
|
|
7.21
|
|
|
|
4.50
|
|
|
|
4.14
|
|
|
|
2.65
|
|
Third
|
|
|
9.66
|
|
|
|
6.79
|
|
|
|
4.03
|
|
|
|
2.97
|
|
Fourth
|
|
|
11.82
|
|
|
|
7.41
|
|
|
|
4.42
|
|
|
|
3.56
|
|
Substantially all of our stockholders maintain their shares in
street name accounts and are not, individually,
stockholders of record. As of January 31, 2006, our common
stock was held by 2,245 holders of record and an estimated
30,113 beneficial owners.
No dividends have been paid on common stock since February 1987.
Restrictions contained in Parker Drillings existing credit
agreement and the indentures for the Senior Notes restrict the
payment of dividends. We have no present intention to pay
dividends on our common stock in the foreseeable future because
of the restrictions noted.
The information under the caption Equity Compensation Plan
Information in Parker Drillings definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on
April 28, 2006, to be filed with the 2006 Proxy Statement,
is incorporated herein by reference.
We purchased 78,049 shares at a price per share of $5.77 on
March 11, 2005 and 4,761 shares at a price of $7.90 on
August 6, 2005 from Parker Drilling executives resulting
from the vesting of a portion of a restricted stock grant issued
in July 2003 and August 2002, respectively. Upon vesting of the
restricted shares, tax withholding obligations to Parker
Drilling from the executives were satisfied by delivering back
to Parker Drilling some of the shares on which the restrictions
had lapsed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
of Shares Purchased
|
|
|
of Shares That May
|
|
|
|
|
|
|
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Announced Plans
|
|
|
Under the Plans
|
|
Date
|
|
Shares Purchased
|
|
|
Paid Per Share
|
|
|
or Programs
|
|
|
or Programs
|
|
|
March 11, 2005
|
|
|
78,049
|
|
|
$
|
5.77
|
|
|
|
|
|
|
|
|
|
August 6, 2005
|
|
|
4,761
|
|
|
$
|
7.90
|
|
|
|
|
|
|
|
|
|
Subsequent to December 31, 2005, we announced the offering
of 8,900,000 shares of common stock on January 18,
2006, pursuant to a Free Writing Prospectus dated
January 17, 2006 and a Prospectus Supplement dated
January 18, 2006. On January 23, 2006, we realized
$11.23 per share or a total of $99.9 million of net
proceeds before expenses, but after underwriter discount, from
the offering.
21
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following table presents selected historical consolidated
financial data derived from the audited financial statements of
Parker Drilling Company for each of the five years in the period
ended December 31, 2005. The following financial data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and related notes
appearing elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005 (1)
|
|
|
2004
|
|
|
2003 (2)
|
|
|
2002 (3)
|
|
|
2001
|
|
|
|
(Dollars in Thousands, Except
Per Share Data)
|
|
|
Income Statement
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
$
|
531,662
|
|
|
$
|
376,525
|
|
|
$
|
338,653
|
|
|
$
|
385,714
|
|
|
$
|
452,944
|
|
Total operating income
|
|
|
115,123
|
|
|
|
23,867
|
|
|
|
22,927
|
|
|
|
38,556
|
|
|
|
65,100
|
|
Income (loss) from continuing
operations
|
|
|
98,812
|
|
|
|
(50,565
|
)
|
|
|
(52,434
|
)
|
|
|
(21,193
|
)
|
|
|
2,327
|
|
Net income (loss)
|
|
|
98,883
|
|
|
|
(47,083
|
)
|
|
|
(109,699
|
)
|
|
|
(114,054
|
)
|
|
|
11,059
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
1.03
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.03
|
|
Net income (loss)
|
|
$
|
1.03
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
0.12
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
1.02
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.03
|
|
Net income (loss)
|
|
$
|
1.02
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,176
|
|
|
$
|
44,267
|
|
|
$
|
67,765
|
|
|
$
|
51,982
|
|
|
$
|
60,400
|
|
Marketable securities
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
355,397
|
|
|
|
382,824
|
|
|
|
387,664
|
|
|
|
641,278
|
|
|
|
695,529
|
|
Assets held for sale
|
|
|
|
|
|
|
23,665
|
|
|
|
150,370
|
|
|
|
896
|
|
|
|
1,800
|
|
Total assets
|
|
|
801,620
|
|
|
|
726,590
|
|
|
|
847,632
|
|
|
|
953,325
|
|
|
|
1,105,777
|
|
Total long-term debt and capital
leases, including current portion
|
|
|
380,015
|
|
|
|
481,063
|
|
|
|
571,625
|
|
|
|
589,930
|
|
|
|
592,172
|
|
Stockholders equity
|
|
|
259,829
|
|
|
|
148,917
|
|
|
|
192,803
|
|
|
|
300,626
|
|
|
|
412,143
|
|
|
|
|
(1)
|
|
The 2005 results reflect the
reversal of a $71.5 million valuation allowance related to
net operating loss carryforwards and other deferred tax assets.
See Note 7 in the notes to the consolidated financial
statements.
|
|
(2)
|
|
In June 2003, we recognized a
$53.8 million impairment charge in discontinued operations
related to our plan to sell the U.S. Gulf of Mexico
offshore assets. See Note 2 in the notes to the
consolidated financial statements.
|
|
(3)
|
|
In 2002, we adopted the Statement
of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
and recorded a goodwill impairment of $73.1 million as a
cumulative effect of a change in accounting principle.
|
22
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
RESULTS
OF OPERATIONS
Overview Financial results for
2005 reflect the significant improvement over 2004 that we
anticipated would result from strong market conditions, and from
significantly reduced debt and interest costs associated with
the achievement of our debt reduction goal. Demand has continued
to grow, both domestically and internationally. Uncertainty over
disruptions in supply of oil and gas has intensified due to
continued geopolitical issues and, coupled with the impact of
the tropical storms in the U.S., pushed the record high oil and
gas prices of 2004 even higher in 2005. These market conditions
resulted in increases in utilization and dayrates in most of our
drilling segments and increased utilization and pricing in our
rental tools operations during 2005. We anticipate that these
market conditions will continue to positively impact our
financial results for the foreseeable future.
Gross margin more than doubled in 2005, with a 79 percent
increase from domestic drilling, predominantly driven by higher
dayrates; a 45 percent increase from our rental tools
business due both to increased activity and higher rates; and a
36 percent increase in our international drilling segment,
due primarily to increased utilization and expansion of
management and labor service contracts. We had gains on asset
disposals of $25.6 million due primarily to our Latin
America assets sale and insurance recoveries on damaged rigs and
had $8.2 million lower asset impairments than in 2004. We
also reduced Other income and expense by
$14.5 million, which includes interest and debt
extinguishment expenses, and had a net $44.9 million
non-cash benefit primarily related to the release of the
valuation allowance on deferred tax assets. These improvements
resulted in net earnings of $98.9 million in 2005.
Our domestic utilization was 77 percent for 2005 overall,
with utilization for our deep drilling barges at
92 percent. Dayrates in this region increased
29 percent. We believe that domestic utilization will
remain at current levels and that there is still upside
potential for dayrates during 2006. Utilization was also strong
in both our international land and offshore drilling areas. In
Mexico and New Zealand, all of our land rigs operated
substantially all of 2005. In Papua New Guinea utilization was
92 percent, and our offshore international operations
achieved 96 percent utilization.
Our rental tools segment, Quail Tools, continued to expand its
U.S. market share and margins throughout 2005, and closed
out 2005 with record revenues for the month of December. Demand
has continued at high levels at each of our four facilities.
During 2005, we surpassed our $200 million debt reduction
goal established at the end of 2002. Our outstanding debt
balance of $589.9 million at December 31, 2002 was
reduced to $380.0 million outstanding as of
December 31, 2005. The debt reduction goal was achieved
primarily through the sale of assets, insurance proceeds from
involuntary conversion of rigs and cash generated from
operations over the last two years. During 2005, we reduced debt
by $101.0 million with proceeds from the sale of jackup
rig 25, the sale of seven Latin America land rigs and
existing cash. On December 30, 2005 we retired in full our
outstanding 10.125% Senior Notes, leaving us with two
series of outstanding Senior Notes. We have $225.0 million
face value of 9.625% Senior Notes due October 2013 and
$150.0 million of Senior Floating Rate Notes due September
2010. The combined effective weighted average interest rate on
all of our notes is currently 9.3%.
Outlook We expect continued
strong results in 2006 as we grow the business with cash
generated from enhanced operations and the $99.9 million in
net cash proceeds generated from the stock offering we completed
in mid-January 2006. As part of our plan for 2006 and beyond, we
are currently constructing four land drilling rigs for use in
international markets and one ultra-deep drilling barge for use
in the U.S. Gulf of Mexico, and are converting workover
barge rig 12 into a deep drilling barge. We also have expansions
plans for our rental tools business beginning in mid-2006,
including the addition of a new location. Overall, in 2006, we
expect to increase capital expenditures to approximately
$240.0 million.
We recently announced the formation of a 50 percent owned
joint venture in Saudi Arabia to supply four new land rigs for a
three-year initial term drilling contract with Saudi Aramco. The
first rig is scheduled for delivery in the third quarter of
2006, with the three remaining rigs scheduled for delivery in
the fourth quarter of 2006. Although the initial period of this
joint venture will not generate significant profits or cash
flows, it is part of the strategic growth in targeted markets
set forth in our five-year plan. We expect to account for our
interest in this joint venture utilizing the equity method.
23
RESULTS OF OPERATIONS (continued)
Outlook (continued)
In Mexico, two land rigs have completed their contracted number
of wells. One rig has been contracted for work in the U.S. and
the second rig is currently being tendered in the U.S. and
various international markets. The initial terms of our other
five rigs expire in the first and second quarters of 2006, and
we expect that these rigs will be under new contracts shortly
after the completion of wells under the existing contracts.
In our CIS operations, rig 107 was released from our TCO
contract in January 2006 and is being mobilized for work under a
new contract in Kazakhstan. This rig should spud towards the end
of the first quarter 2006 and work under this contract for at
least one year. Barge rig 257 in the Caspian Sea is drilling its
third well and has options for additional wells that should keep
it under contract for all of 2006. In Turkmenistan, rigs 230 and
236 continue to drill under contract with Calik Enerji, A.S.
(Calik). Rig 247, which suffered damage in a well
control incident in November 2005, is undergoing repair and
should return to operation in the fourth quarter of 2006.
Loss-of-hire
revenues began after 45 days and will continue into June
2006. Rig 225, which had been stacked in Indonesia, began
mobilizing in February 2006 to Bangladesh to drill two appraisal
wells and has options for additional work.
We expect additional growth to come from project management,
where we can leverage our engineering, safety and training
expertise without significant capital expenditures. During 2006,
we will achieve the benefit of a full year of operation for our
Orlan platform project in Sakhalin Island and Papua New Guinea
O&M contracts that either commenced or expanded services
during the third and fourth quarters of 2005. We also began an
O&M contract in late 2005 utilizing a third-party rig to
perform workover operations in Sakhalin Island for ENL. We plan
to aggressively pursue these types of management contracts
throughout 2006.
Oil and gas price levels significantly impact exploration and
production activity which in turn, impact both our contract
drilling and rental tools revenues. In U.S. markets, drilling
contracts are generally short-term, which has allowed us to
benefit from rising prices over the last two years. To mitigate
the risks from future changes in market conditions, we are
negotiating longer term contracts in U.S. markets when possible.
In international markets contracts are generally longer term,
insulating us somewhat from short-term price fluctuations. Over
extended periods, however, international market conditions
typically follow the demand for oil. International markets also
present the challenges of foreign regulation and civil unrest,
which we continually monitor and apply risk management
strategies to minimize. Our strategic plan focuses on leveraging
our significant international experience, safety record,
training, preventive maintenance programs and project management
expertise, along with our innovative rig designs to help
maintain higher utilization in periods of reduced drilling
activity by being the contractor of choice.
Our rigs are also subject to damage or destruction from
well-control, weather-related incidents, acts of violence and/or
civil unrest. Although we insure against these risks, recent
industry damage caused by hurricanes in our U.S. market and
well-control incidents in other areas, will significantly impact
the cost and availability of insurance. While we have been
impacted by higher insurance costs and deductibles during the
2005 policy year, we expect substantial increases in insurance
costs when our policy renewals occur in the third quarter of
2006. Any increase in insurance costs can, over time, be
factored into the dayrates we charge our customers. We are also
further refining our quality assurance, health, safety and
environmental programs to help prevent future well-control
incidents.
Our operating margins must also cover interest expense and
income taxes. We have reduced our interest and financial costs
with the $200 million reduction in debt and lowering of
interest rates over the last two years. We are currently
reviewing our worldwide entity structure to determine if we can
achieve a lower overall effective tax rate. While we will accrue
tax expense throughout 2006, much of this expense will be
non-cash deferred taxes as we use our net operating loss
carryforwards.
We also face delay, cost overrun and quality risks with regard
to rigs under construction as a part of our strategic growth
program. We manage these risks through contractual provisions
and project management strategies. All major components have
detailed specifications and construction standards that must be
met before we accept delivery. While demand and pricing may
decline before the rigs are ready for use, the rigs under
construction are premium rigs that we believe will be in demand
regardless of the point in the business cycle.
Obtaining qualified, trained crews to operate our rigs is
increasingly difficult in U.S. markets. With our training
programs and facilities, we are able to promote from within and
will continue to emphasize these safety programs and our safety
record to attract the necessary personnel.
24
RESULTS OF OPERATIONS (continued)
Outlook (continued)
As reported in our year end earnings release dated
February 15, 2006, we expect 2006 net income to be in the
$0.30 to $0.40 per diluted share range. Included in this
estimate is depreciation of approximately $0.78 per diluted
share, interest expense of approximately $0.36 per diluted share
and income taxes of $0.35 per diluted share, including non-cash
deferred taxes of $0.25 per diluted share.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
We recorded net income of $98.9 million for the year ended
December 31, 2005, as compared to a net loss of
$47.1 million for the year ended December 31, 2004.
The loss from continuing operations for 2004 was
$50.6 million, whereas substantially all of the net income
for the year ended December 31, 2005 was from continuing
operations. The income from discontinued operations was $71
thousand for 2005 compared to $3.5 million for 2004.
Revenues increased $155.1 million to $531.7 million in
2005 as compared to 2004. The increase is attributed to higher
utilization and dayrates in the U.S. barge operations,
international land operations and our rental tools operations,
Quail Tools.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in Thousands)
|
|
|
Drilling and rental revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
128,252
|
|
|
|
24%
|
|
|
$
|
88,512
|
|
|
|
23%
|
|
International drilling
|
|
|
308,572
|
|
|
|
58%
|
|
|
|
220,846
|
|
|
|
59%
|
|
Rental tools
|
|
|
94,838
|
|
|
|
18%
|
|
|
|
67,167
|
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
$
|
531,662
|
|
|
|
100%
|
|
|
$
|
376,525
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling gross margin (1)
|
|
$
|
61,425
|
|
|
|
48%
|
|
|
$
|
34,386
|
|
|
|
39%
|
|
International drilling gross
margin (1)
|
|
|
71,411
|
|
|
|
23%
|
|
|
|
52,395
|
|
|
|
24%
|
|
Rental tools gross margin (1)
|
|
|
56,627
|
|
|
|
60%
|
|
|
|
39,130
|
|
|
|
58%
|
|
Depreciation and amortization
|
|
|
(67,204
|
)
|
|
|
|
|
|
|
(69,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental
operating income (2)
|
|
|
122,259
|
|
|
|
|
|
|
|
56,670
|
|
|
|
|
|
General and administrative expense
|
|
|
(27,830
|
)
|
|
|
|
|
|
|
(23,413
|
)
|
|
|
|
|
Provision for reduction in
carrying value of certain assets
|
|
|
(4,884
|
)
|
|
|
|
|
|
|
(13,120
|
)
|
|
|
|
|
Gain on disposition of assets, net
|
|
|
25,578
|
|
|
|
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
115,123
|
|
|
|
|
|
|
$
|
23,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Drilling and rental gross margins
are computed as drilling and rental revenues less direct
drilling and rental operating expenses, excluding depreciation
and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin as
a percent of drilling and rental revenues. The gross margin
amounts and gross margin percentages should not be used as a
substitute for those amounts reported under accounting
principles generally accepted in the United States
(GAAP). However, we monitor our business segments
based on several criteria, including drilling and rental gross
margin. We believe this information is useful to our investors
because it more closely tracks cash generated by segment. Such
gross margin amounts are reconciled to our most comparable GAAP
measure as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
Drilling
|
|
|
Rental Tools
|
|
|
Year Ended December 31,
2005
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (2)
|
|
$
|
41,739
|
|
|
$
|
40,281
|
|
|
$
|
40,239
|
|
Depreciation and amortization
|
|
|
19,686
|
|
|
|
31,130
|
|
|
|
16,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental gross margin
|
|
$
|
61,425
|
|
|
$
|
71,411
|
|
|
$
|
56,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (2)
|
|
$
|
15,938
|
|
|
$
|
15,858
|
|
|
$
|
24,874
|
|
Depreciation and amortization
|
|
|
18,448
|
|
|
|
36,537
|
|
|
|
14,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental gross margin
|
|
$
|
34,386
|
|
|
$
|
52,395
|
|
|
$
|
39,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Drilling and rental operating
income drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation
and amortization expense.
|
25
RESULTS OF OPERATIONS (continued)
U.S. Drilling
Segment
U.S. drilling revenues increased $39.7 million in 2005
to $128.3 million due to higher utilization and dayrates.
As of December 31, 2005 the U.S. drilling segment
consisted of 19 barge rigs; nine deep drilling barge rigs, four
intermediate drilling barge rigs and six workover barge rigs.
Despite the destruction caused by Hurricanes Katrina and Rita,
our U.S. Gulf of Mexico rigs sustained no material damage
or downtime. Barge rigs 20 and 26 returned to service in late
November after undergoing minor repairs and scheduled
maintenance. Barge rig 57, which turned over during a move from
the path of Hurricane Dennis in July, sustained additional
damage during Hurricanes Katrina and Rita. Equipment on the rig
was impaired by $2.6 million.
Average 2005 utilization for the barge rigs increased to
77 percent from an average utilization during 2004 of
63 percent. Average 2005 dayrates for the deep
drilling barge rigs increased approximately $8,200 per day
as compared to 2004. Overall, rate increases on all barge rigs
accounted for $30.5 million of the revenue increase, and
increased utilization accounted for approximately
$9.2 million of the increase. As a result of higher
dayrates and utilization, gross margins in the
U.S. drilling segment increased $27.0 million to
$61.4 million.
International
Drilling Segment
International drilling revenues increased $87.7 million to
$308.6 million in 2005 as compared to 2004. International
land drilling revenues increased $58.8 million to
$246.8 million and international offshore drilling revenues
increased by $28.9 million to $61.8 million.
International drilling gross margins increased by
$19.0 million to $71.4 million due to increased
margins of $12.6 million for international offshore and
$6.4 million for international land operations.
International land drilling results improved primarily due to
our operations in Mexico, the Asia Pacific countries of New
Zealand, Papua New Guinea and Indonesia and on our Sakhalin
Island O&M contracts in the CIS region. We completed our
sale of certain Latin America assets previously operating in
Colombia, Bolivia and Peru in the third quarter of 2005. The
remaining seven Latin American land rigs were moved to Mexico in
the second and third quarters of 2004 and worked throughout 2005
under contract with Halliburton de Mexico
(Halliburton). Revenues for these rigs increased by
$30.4 million to $50.2 million due to the full year of
operation in 2005. The asset sales and move of rigs, combined
for a decrease in revenues for the referenced Latin America
countries of $6.4 million.
In our Asia Pacific region, revenues increased by
$16.2 million as a result of 100 percent utilization
for all three rigs in New Zealand compared to 78 percent in
2004 and higher dayrates in 2005, and utilization of
92 percent in 2005 as compared to 58 percent in 2004
for the two rigs in Papua New Guinea and higher dayrates in
2005, partially offset by a $2.1 million decline in
Bangladesh in 2005 as compared to 2004 due to the loss of our
rig 255 in a late June 2005 well control incident.
In our CIS region, revenues increased by $18.7 million due
primarily to O&M revenues under our Sakhalin Island Orlan
project of $24.6 million. Construction on this rig was
completed in the second quarter of 2005 and full crews under our
contract began in late September 2005. O&M revenues under
our five-year service contract on rig 262, Sakhalin Island
increased by $2.5 million to $30.2 million. Revenues
also increased $2.3 million in Turkmenistan due to the
addition of a third rig that began drilling in the third quarter
of 2005, offset partially by a decrease in revenues on rig 247
which suffered a well control incident in November 2005. Due to
the move of rig 236 to Turkmenistan in 2005, revenues in Russia
declined by $5.1 million in 2005 as the rig worked
approximately six months in 2004. Revenues also declined
$5.0 million on our TCO contract as the scope of work under
that contract was cut back with one TCO-owned rig released in
late 2004, one in the third quarter of 2005 and rates reduced on
rig 107, which was released in early January 2006.
International land gross margins increased $6.4 million in
2005 when compared to 2004. The increase is primarily the result
of a full year of operations in Mexico ($4.9 million) and
increased activity, as noted previously, related to our Orlan
project in the CIS region ($3.0 million) and in New Zealand
($2.4 million), Papua New Guinea ($1.4 million) and
Indonesia ($0.5 million) in the Asia Pacific region, offset
partially by a decline related to our TCO contract of
$5.9 million as previously discussed.
International offshore drilling revenues increased
$28.9 million to $61.8 million in 2005 as compared to
2004. The increase in revenues is attributable to a
$23.8 million increase in the Caspian Sea operation
reflecting activation
26
RESULTS OF OPERATIONS (continued)
International Drilling Segment (continued)
of barge rig 257 in late 2004, whereas it had been stacked
during most of 2004 and a $3.7 million increase for our
offshore rig in Mexico as a result of a full year of operation
in 2005. Our Nigerian operations had a $1.4 million
increase in revenues due to less downtime in 2005.
International offshore gross margins increased
$12.6 million in 2005 as compared to 2004. The increase is
due to the operation of our rig in the Caspian Sea
($6.5 million) as mentioned above, whereas the rig was
stacked in 2004. Costs to maintain the rig in a stacked
condition were approximately $1.0 million per quarter in
2004 and we also settled an assessment of duties, taxes and
penalties for this rig with the Customs Control in Mangistau,
Kazakhstan, in the third quarter of 2004 for $2.1 million.
In Nigeria, the gross margin increased $4.3 million as our
two rigs operated most of the year versus lower utilization in
2004 and costs to maintain the barges in stacked condition and
increased insurance costs caused by losses incurred. In
addition, Nigerian tax authorities assessed additional Value
Added Tax (VAT), resulting in a charge of
$2.3 million in the second quarter of 2004. Mexico offshore
gross margin increased by $1.8 million in 2005 due to a
full year of operations as compared to seven months in 2004.
Rental
Tools Segment
Rental tools revenues increased $27.7 million to
$94.8 million in 2005. The increase in revenues was
attributable to a 40 percent increase in rentals, a
114 percent increase in rental tools sales, a
50 percent increase in transportation revenues and a
43 percent increase in repair revenues. Increases were
achieved at all locations, including a $0.6 million
increase from our operations in New Iberia, Louisiana,
$5.6 million in Victoria, Texas, $9.4 million in
Odessa, Texas, $7.1 million in Evanston, Wyoming and
$5.0 million from international sources. Gross margins
increased $17.5 million due to the increased volume of
business and granting of fewer discounts off listed rental
prices.
Other
Financial Data
Depreciation and amortization expense decreased
$2.0 million to $67.2 million in 2005. The decrease is
primarily attributable to asset sales completed during the year.
General and administrative expense increased $4.4 million
to $27.8 million for the year ended December 31, 2005
as compared to 2004. The increase is due to the accelerated
vesting of certain restricted stock in 2005 including our
portion of payroll related taxes, amortization on the issuance
of additional restricted stock in the second quarter 2005,
higher compensation costs and higher staffing levels related to
increased operating levels.
During 2005, we recognized a provision for reduction in carrying
value of certain assets of $4.9 million as compared to
$13.1 million in 2004. Damage to barge rig 57 in a July
2005 towing incident in preparation for a hurricane totaled
approximately $2.6 million. We also wrote off the remaining
$2.3 million relating to premiums paid on a life insurance
policy for Robert L. Parker, chairman of the board and director.
During 2004, we impaired two domestic workover barge rigs that
were not marketable for $3.2 million, impaired two rigs in
the amount $0.7 million in the Asia Pacific region, and
recorded an impairment of $2.4 million to reduce the
carrying value of all assets to net realizable value in Latin
America in advance of the sale of the assets. During the second
quarter of 2004 as required by GAAP, we reclassified our Latin
America assets from discontinued operations to continuing
operations as the assets had not sold within a year, or had a
sale pending within a year. We recognized a $5.1 million
charge to adjust the value of these assets to their fair value.
The $5.1 million represents the depreciation that would
have been recognized had the assets been continuously classified
as held and used. In addition, during 2004 we reserved
$1.7 million for an asset representing premiums paid in
prior years on two split dollar life insurance policies for
Robert L. Parker. The value of the asset was reduced and
ultimately written off in relation to one of the policies as
noted above. See Note 13 in the notes to the consolidated
financial statements.
Gain on disposition of assets increased to $25.6 million in
2005 as compared to $3.7 million in 2004. The gain in 2005
was comprised of a $13.8 million gain on sale of Latin
America assets, $10.5 million gain on the well control
insurance proceeds related to rig 255 in Bangladesh and other
miscellaneous asset sales of $1.3 million. In 2004, the
$3.7 million gain was comprised of $0.9 million gain
on the disposal of barge rig 74 and $2.8 million on sale of
tubulars and scrap equipment.
27
RESULTS OF OPERATIONS (continued)
Other Financial Data (continued)
Interest expense decreased $8.3 million to
$42.1 million for the year ended December 31, 2005 as
compared to 2004. The decrease in interest expense is
attributable to the reduction of $101.0 million of our
outstanding debt balance in 2005, the full year benefit from
2004 debt reductions and lower interest rates.
In 2004, we entered into two
variable-to-fixed
interest rate swap agreements. The swap agreements do not
qualify for hedge accounting and accordingly, we are reporting
the
mark-to-market
change in the fair value of the interest rate derivatives
currently in earnings. For the year ended December 31,
2005, we recognized a non-cash increase in the fair value of the
derivative positions of $2.1 million, as compared to a
decrease in the fair value of the derivative position of
$0.8 million in 2004.
Loss on extinguishment of debt was $8.2 million in 2005
compared to $8.8 million in 2004, as we reduced outstanding
debt and exchanged higher interest rate debt for lower interest
rate debt in both years. In February 2005, we repurchased
$25.0 million of our 10.125% Senior Notes with the
proceeds received from the sale of jackup rig 25 and cash on
hand, recognizing an expense of $1.4 million for the
105.0625 percent redemption price on the repurchase of the
notes and capitalized debt issuance costs associated with the
notes. In April 2005, we issued an additional $50.0 million
in aggregate principal amount of our 9.625% Senior Notes
due 2013 at a premium. The offering price of 111 percent of
the principal amount resulted in gross proceeds of
$55.5 million. The $5.5 million premium is recognized
as long-term debt and is being amortized over the term of the
notes. The additional notes were issued under an indenture dated
October 10, 2003, under which $175.0 million in
aggregate principal amount of notes in the same series were
previously issued. On the same date that we issued the
$50.0 million additional 9.625% Senior Notes, we
issued a redemption notice for $65.0 million of our
10.125% Senior Notes at the redemption price of
105.0625 percent, resulting in a $3.3 million loss on
the extinguishment of debt in the second quarter of 2005. During
the third quarter of 2005 we redeemed $30.0 million of our
10.125% Senior Notes at a premium of $1.9 million
using proceeds from the sale of our Latin American assets. On
December 30, 2005, we retired the remaining
$35.6 million of our 10.125% Senior Notes with cash on
hand at a premium of $1.6 million.
We have a 50 percent interest in two joint ventures, which
are included in our consolidated financial statements, and
therefore we recognized minority interest income of
$1.9 million in 2005 and minority interest expense of
$1.1 million in 2004.
Income tax benefit from continuing operations is
$28.6 million and consists of U.S. federal current tax
expense of $1.8 million and U.S. federal deferred tax
benefit of $46.5 million, current foreign tax expense of
$14.5 million and foreign deferred tax expense of
$1.6 million for the year ended December 31, 2005. For
the year ended December 31, 2004, income tax expense from
continuing operations consisted of foreign tax expense of
$15.0 million. Foreign taxes decreased $0.5 million in
2005 due primarily to a reduction of taxes in Kazakhstan and
Papua New Guinea offset by an increase in taxes related to the
sale of the Latin American rigs and start up of the Orlan
project in Russia. Our effective income tax rates for financial
reporting purposes were approximately (41) percent and
42 percent for the years ended December 31, 2005 and
2004, respectively. The 2005 effective tax of (41) percent
is lower than 2004 due primarily to the reversal of the
valuation allowance related to net operating loss
(NOL) carryforwards and other deferred tax assets in
the U.S. The valuation allowance was originally recorded in
accordance with GAAP as an offset to our deferred tax assets,
which consisted primarily of NOL carryforwards. GAAP requires us
to recognize a valuation allowance unless it is more
likely than not that we could realize the benefit of the
NOL carryforwards and deferred tax assets in future periods.
Having returned to profitability in 2005, we now expect that
earnings performance should allow us to benefit from the NOL
carryforwards, and therefore, the previously recorded valuation
allowance is no longer required. The valuation allowance and net
deferred tax asset benefit was $71.5 million resulting from
the reversal of the previously established valuation allowance
of $56.0 million and net deferred tax assets and tax
benefit from tax return filings. The reduction in foreign taxes,
net of federal benefit, in 2005 from 2004 relates to a federal
tax deduction on actual foreign cash taxes paid versus accrued
foreign taxes. The increase in income tax on foreign corporate
income in 2005 is due to the increase in earnings on our foreign
corporations and the related recognition of U.S. taxes on the
earnings. U.S. taxes are provided on the earnings since we do
not defer recognition of the foreign corporations income
under APB No. 23, Accounting for Income
Taxes Special Areas.
28
RESULTS OF OPERATIONS (continued)
Analysis
of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in Thousands)
|
|
|
U.S. jackup and platform
drilling revenues
|
|
$
|
193
|
|
|
$
|
34,350
|
|
|
|
|
|
|
|
|
|
|
U.S. jackup and platform
drilling gross margin
|
|
$
|
100
|
|
|
$
|
7,720
|
|
Loss on disposition of assets, net
of gains and impairments
|
|
|
(29
|
)
|
|
|
(4,238
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
71
|
|
|
$
|
3,482
|
|
|
|
|
|
|
|
|
|
|
In August 2004, we finalized the sale of five jackup and four
platform rigs, realizing net proceeds of $39.3 million. No
gain or loss was recorded on the sale and the proceeds were used
to pay down debt. The last jackup rig was sold on
January 3, 2005. With the consummation of this transaction,
all of our jackup and platform rigs have been sold. No other
assets remain related to our discontinued operations and all
proceeds were used to pay down debt. Discontinued operations
results for 2005 include the results of operating the last
jackup rig in the first week of 2005, and 2004 results include
the results of the jackup and platform rigs sold in August 2004
through their sale date, and the last jackup rig sold in 2005
for the entire year of 2004.
Year
Ended December 31, 2004 Compared to Year Ended
December 31, 2003
We recorded a net loss of $47.1 million for the year ended
December 31, 2004 as compared to a net loss of
$109.7 million for the year ended December 31, 2003.
The loss from continuing operations was $50.6 million and
$52.4 million for the years ended December 31, 2004
and 2003, respectively. The income (loss) from discontinued
operations was $3.5 million and ($57.3) million for
2004 and 2003, respectively. An impairment of $53.8 million
is included in 2003 discontinued operations related primarily to
the sale of U.S. jackup and platform rigs that was
completed in 2004, except for jackup rig 25 which was sold in
January 2005.
29
RESULTS OF OPERATIONS (continued)
Revenues increased $37.9 million to $376.5 million in
2004 as compared to 2003. The increase is attributed to higher
utilization in the U.S. barge operations, international
land operations and our rental tools operations, Quail Tools.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Drilling and rental revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
88,512
|
|
|
|
23
|
%
|
|
$
|
67,449
|
|
|
|
20
|
%
|
International drilling
|
|
|
220,846
|
|
|
|
59
|
%
|
|
|
216,567
|
|
|
|
64
|
%
|
Rental tools
|
|
|
67,167
|
|
|
|
18
|
%
|
|
|
54,637
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
$
|
376,525
|
|
|
|
100
|
%
|
|
$
|
338,653
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling gross
margin (1)
|
|
$
|
34,386
|
|
|
|
39
|
%
|
|
$
|
19,709
|
|
|
|
29
|
%
|
International drilling gross
margin (1)
|
|
|
52,395
|
|
|
|
24
|
%
|
|
|
64,366
|
|
|
|
30
|
%
|
Rental tools gross margin (1)
|
|
|
39,130
|
|
|
|
58
|
%
|
|
|
31,586
|
|
|
|
58
|
%
|
Depreciation and amortization
|
|
|
(69,241
|
)
|
|
|
|
|
|
|
(73,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental
operating income (2)
|
|
|
56,670
|
|
|
|
|
|
|
|
41,982
|
|
|
|
|
|
Net construction contract
operating income
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
General and administrative expense
|
|
|
(23,413
|
)
|
|
|
|
|
|
|
(19,256
|
)
|
|
|
|
|
Provision for reduction in
carrying value of certain assets
|
|
|
(13,120
|
)
|
|
|
|
|
|
|
(6,028
|
)
|
|
|
|
|
Gain on disposition of assets, net
|
|
|
3,730
|
|
|
|
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
23,867
|
|
|
|
|
|
|
$
|
22,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Drilling and rental gross margins
are computed as drilling and rental revenues less direct
drilling and rental operating expenses, excluding depreciation
and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin as
a percent of drilling and rental revenues. The gross margin
amounts and gross margin percentages should not be used as a
substitute for those amounts reported under GAAP. However, we
monitor our business segments based on several criteria,
including drilling and rental gross margin. Management believes
that this information is useful to our investors because it more
closely tracks cash generated by segment. Such gross margin
amounts are reconciled to our most comparable GAAP measure as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
Drilling
|
|
|
Rental Tools
|
|
|
Year Ended December 31,
2004
|
|
(Dollars in Thousands)
|
Drilling and rental operating
income (2)
|
|
$
|
15,938
|
|
|
$
|
15,858
|
|
|
$
|
24,874
|
|
Depreciation and amortization
|
|
|
18,448
|
|
|
|
36,537
|
|
|
|
14,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental gross margin
|
|
$
|
34,386
|
|
|
$
|
52,395
|
|
|
$
|
39,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (loss) (2)
|
|
$
|
(186
|
)
|
|
$
|
24,557
|
|
|
$
|
17,611
|
|
Depreciation and amortization
|
|
|
19,895
|
|
|
|
39,809
|
|
|
|
13,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental gross margin
|
|
$
|
19,709
|
|
|
$
|
64,366
|
|
|
$
|
31,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Drilling and rental operating
income drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation
and amortization expense.
|
U.S. Drilling
Segment
U.S. drilling revenues increased $21.1 million in 2004
to $88.5 million, due to higher utilization and dayrates.
During the fourth quarter of 2004, we impaired two workover
barge rigs and removed them from the marketable rig fleet. Also
during the second quarter of 2004, we moved deep drilling barge
rig 53 to Mexico to begin work on a two-year contract for
Petroleos Mexicanos S.A. (Pemex). Average 2004
utilization for the barge rigs increased to
30
RESULTS OF OPERATIONS (continued)
U.S. Drilling Segment (continued)
63 percent from an average utilization during 2003 of
50 percent. The increase in utilization accounted for
approximately $10.8 million of the increase in revenues.
Average 2004 dayrates increased approximately
$2,200 per day as compared to 2003 accounting for the
remaining $10.2 million of the revenues increase. During
the third quarter of 2004, we upgraded barge rig 76 enabling it
to drill effectively in ultra-deep shelf drilling. The rig began
drilling under a multi-well program in late October at a
significantly higher dayrate of approximately $37,000 per
day, compared to the previous dayrate of approximately
$21,000 per day. As a result of higher dayrates and
utilization, gross margins in the U.S. drilling segment
increased $14.7 million to $34.4 million. Gross
margins during the fourth quarter of 2004 were negatively
impacted by $1.5 million for the move of barge rig 72 from
Nigeria to the U.S. Gulf of Mexico.
International
Drilling Segment
International drilling revenues increased $4.3 million to
$220.8 million in 2004 as compared to 2003. International
land drilling revenues increased $48.7 million to
$188.0 million offset by a reduction in international
offshore drilling revenues of $44.4 million to
$32.8 million. International drilling gross margins
decreased by $12.0 million to $52.4 million due almost
entirely to reduced activity in the international offshore barge
rigs.
International land drilling utilization increased in all regions
except the Latin America countries of Colombia, Bolivia and
Peru. During the second and third quarters of 2004, we moved
seven land rigs which had been located in Colombia, Bolivia and
Argentina to Mexico to begin a two-year drilling contract for
Halliburton contributing $19.8 million in revenues. In our
Asia Pacific region, revenues increased by $14.0 million as
a result of new drilling contracts in Bangladesh, New Zealand
and Papua New Guinea when compared to 2003. In our CIS region,
revenues increased by $25.6 million due to adding a second
rig in Turkmenistan in March of 2004 and from the full year
impact of our five-year O&M contract on Sakhalin Island. The
Sakhalin Island contract commenced operations in June 2003. Rig
236 which had been operating in northern Russia completed its
drilling activities in June 2004 and was stacked for the
remainder of the year. Utilization in Colombia, Bolivia and Peru
decreased significantly during most of 2004, resulting in
$10.3 million less revenues when compared to 2003. In Peru,
rig 228 was placed on standby at the request of the customer in
April 2004 and received a reduced standby rate for the remainder
of 2004. All of the rigs in Peru were sold in 2005. In Bolivia
no rigs worked during 2004. Because we did not anticipate any
change in this market for the foreseeable future, we closed the
operation and recognized a $2.4 million impairment charge
during the fourth quarter of 2004, reducing the net carrying
value of the Bolivia assets to net realizable value. Three land
rigs remained in Colombia as of the end of 2004, but were sold
in 2005.
International land gross margins increased $16.0 million in
2004 when compared to 2003. The increase was primarily the
result of increased activity as noted above in the CIS and Asia
Pacific regions. In addition, gross margins increased in the
last half of 2004 as our seven land rigs began operations in
Mexico. In 2004 when compared to 2003, international land gross
margins were negatively impacted by a $4.0 million decrease
in Latin America operations, excluding Mexico. The decrease was
primarily attributed to the standby situation in Peru and the
reduced activity in Colombia.
International offshore drilling revenues decreased
$44.4 million to $32.8 million in 2004 as compared to
2003. The decrease in revenues was attributable to a
$24.6 million decrease in the Caspian Sea operation and a
$24.8 million decrease in our Nigeria operations, partially
offset by increased revenues of $5.0 million from our barge
rig in Mexico. In November 2003, our arctic-class barge rig 257
completed its initial four-year contract and was demobilized and
stacked throughout most of 2004. During the fourth quarter of
2004, we signed a two-well contract with options for an
additional four wells. Barge rig 257 began recognizing revenues
under this new contract in late December 2004. In Nigeria,
revenues decreased significantly due to reduced utilization.
Barge rig 75 worked throughout 2003 but returned to port for
repairs in June 2004 and its initial five-year contract expired
mid-September 2004. A three-year contract extension was signed
in September 2004 at a dayrate approximately 15 percent
less than the initial five-year term. Barge rig 73 operated the
first five months of 2004 and was stacked until mid-December
2004. In mid-December, barge rig 73 began mobilizing under a new
two-year contract with a one-year option. Barge rig 74 remained
evacuated since sustaining substantial damage due to community
unrest in March 2003. In December 2004, we received insurance
proceeds in the amount of $18.5 million, a portion of which
was used in
31
RESULTS OF OPERATIONS (continued)
International Drilling Segment (continued)
February 2005 to reduce long-term debt. During the fourth
quarter of 2004, barge rig 72 began its move from Nigeria to the
U.S. Gulf of Mexico region.
International offshore gross margins decreased
$27.9 million in 2004 as compared to 2003. Costs to
maintain barge rig 257 in a stacked condition approximated
$1.0 million per quarter and we also settled an assessment
of duties, taxes and penalties for barge rig 257 with the
Customs Control in Mangistau, Kazakhstan, in the third quarter
of 2004 for $2.1 million, resulting in a negative gross
margin of $6.2 million. In Nigeria, lower utilization on
the barge rigs caused reduced revenues in 2004. Ongoing costs to
maintain the barges in stacked condition and increased insurance
cost caused by losses incurred, both negatively impacted gross
margins. In addition, Nigerian tax authorities assessed
additional VAT, resulting in a charge of $2.3 million in
the second quarter of 2004. All of these factors combined to
reduce the $11.7 million 2003 gross margin in Nigeria to
breakeven in 2004. Barge rig 53 commenced operations in Mexico
in May 2004 under a new two-year contract for Pemex. Prior to
receiving this contract, the barge rig had operated in the
U.S. Gulf of Mexico.
Rental
Tools Segment
Rental tools revenues increased $12.5 million to
$67.2 million in 2004. The increases in revenues were
attributable to a $2.5 million increase from the New
Iberia, Louisiana facility, $3.0 million from the Victoria,
Texas facility, $4.8 million from the Odessa, Texas
facility and $2.2 million from the Evanston, Wyoming
facility. Both the New Iberia, Louisiana and Victoria, Texas
operations experienced an increase in customer demand due to
increased deep water drilling in the Gulf of Mexico. All
locations experienced increased customer demand and saw an
expansion in customer base.
Other
Financial Data
Depreciation and amortization expense decreased
$4.4 million to $69.2 million in 2004. The decrease is
primarily attributable to limits on our capital expenditure
program that were enacted until our debt reduction goal was met.
General and administrative expense increased $4.2 million
to $23.4 million for the year ended December 31, 2004
as compared to 2003. During the first quarter of 2004 we
incurred an expense of $1.0 million related to the
accelerated vesting of certain restricted stock including our
portion of the FICA expense. The restricted shares were granted
in July 2003 and were scheduled to vest over seven years, but
included an accelerated vesting feature based on stock
performance goals. In accordance with the accelerated vesting
feature, 377,500 shares of the grant vested in March 2004
based on meeting the initial stock performance goal of
$3.50 per share for 30 consecutive days. The remaining
340,000 shares vested in March 2005 after the closing stock
price of $5.00 per share was met for 30 consecutive days
which resulted in an expense of $0.7 million. This expense
was recognized during the first quarter of 2005. In the second
quarter of 2004, we expensed $1.4 million related to
severance costs associated with our former chief operating
officer. In addition, during 2004, we incurred approximately
$2.7 million related to the documentation and testing for
compliance with section 404 of the Sarbanes-Oxley Act of
2002 (SOX).
During 2004, we recognized a provision for reduction in carrying
value of certain assets of $13.1 million. During the fourth
quarter of 2004, we determined that two workover barge rigs in
the U.S. Gulf of Mexico fleet were not economically
marketable. As a result, we recorded an impairment of
$3.2 million. In the Asia Pacific region, we reduced the
carrying amount of two rigs to net realizable value, which
resulted in recording an impairment charge of $0.7 million.
Also, during the fourth quarter of 2004, we made the decision to
dispose of all the assets in Bolivia, which included two land
rigs, inventory and spare parts. We incurred an impairment
charge of $2.4 million to reduce the cost basis of these
assets to net realizable value. We closed the Bolivia office in
the second quarter of 2005. During the second quarter of 2004,
we reclassified our Latin America assets from discontinued
operations to continuing operations and recognized a
$5.1 million charge to adjust the value of the Latin
America assets to their fair value. In accordance with GAAP, the
$5.1 million represents the depreciation that would have
been recognized had the assets been continuously classified as
held and used. In addition, during 2004 we reserved
$1.7 million for an asset representing premiums paid in
prior years on two split dollar life insurance policies for
Robert L. Parker. The value
32
RESULTS OF OPERATIONS (continued)
Other Financial Data (continued)
of the asset was reduced to the cash surrender value of the
insurance policies. See Note 13 in the notes to the
consolidated financial statements.
In 2003 three non-marketable rigs in the Asia Pacific region and
certain spare parts and equipment in New Iberia, Louisiana were
impaired by $2.6 million to estimated salvage value.
Subsequent to December 31, 2003, we signed an agreement to
sell the New Iberia, Louisiana land and buildings for a net
sales price of $6.4 million. This resulted in an impairment
of $3.4 million at December 31, 2003, as the net book
value of the property exceeded the net sales price. The
transaction closed in August 2004 and no additional gain or loss
was recognized upon disposition.
Interest expense decreased $3.4 million to
$50.4 million for the year ended December 31, 2004 as
compared to 2003. The decrease in interest expense is primarily
attributable to the net reduction of $90.2 million to our
outstanding debt balance in 2004. The majority of the debt
reduction occurred in August 2004 with proceeds from the sale of
our jackup and platform rigs.
In 2004, we entered into two
variable-to-fixed
interest rate swap agreements. The swap agreements did not
qualify for hedge accounting and accordingly, we are reporting
the
mark-to-market
change in the fair value of the interest rate derivatives
currently in earnings. For the year ended December 31,
2004, we recognized a non-cash charge for a decrease in the fair
value of the derivative positions of $0.8 million.
On September 2, 2004, we issued $150.0 million of
Senior Floating Rate Notes and concurrently repurchased
$80.0 million of our 10.125% Senior Notes at a premium
and paid off $70.0 million of our delay draw term loan.
Total charges of $8.8 million consisting of the
6.54 percent tender offer, including a two percent premium
on the repurchase of the 10.125% Senior Notes, the
write-off of the previously capitalized debt issuance costs
associated with the repurchase of the 10.125% Senior Notes
and the repayment of the delay draw term loan, and legal and
other fees were recorded as loss on extinguishment of debt in
the consolidated statement of operations. In 2003, in
conjunction with the refinancing of a portion of our debt, we
incurred $5.3 million expense related to the retirement of
our 9.75% Senior Notes. These costs have been recorded as
loss on extinguishment of debt and include costs of the call
premium on the 9.75% Senior Notes and write-off of remaining
capitalized debt issuance costs offset by the write-off of the
remaining swap gain that was being amortized over the remaining
life of the 9.75% Senior Notes.
We have a 50 percent interest in a joint venture in
Kazakhstan, AralParker, which owns and operates two drilling
rigs and other drilling equipment. AralParker is included in the
consolidated financial statements of Parker Drilling Company.
During 2004, we recognized an expense for minority interest of
$1.1 million and in 2003, income from minority interest of
$0.5 million.
Income tax expense from continuing operations consists of
foreign tax expense of $15.0 million for the year ended
December 31, 2004. For the year ended December 31,
2003, income tax expense from continuing operations consisted of
foreign tax expense of $17.0 million. Foreign taxes
decreased $2.0 million in 2004 due primarily to reduced
activity in Nigeria in addition to barge rig 257 in Kazakhstan
being stacked the majority of the year. Partially offsetting
these reductions were increased taxes in Papua New Guinea
related to 2004 and 2003 assessments and the startup of
operations in Mexico. Although we incurred a net loss in 2004,
no additional deferred tax benefit was recognized since the sum
of our deferred tax assets, principally the net operating loss
carryforwards, exceeded the deferred tax liabilities,
principally the excess of tax depreciation over book
depreciation. This additional deferred tax asset was fully
reserved through a valuation allowance in both 2004 and 2003.
33
RESULTS OF OPERATIONS (continued)
Analysis
of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
U.S. jackup and platform
drilling revenues
|
|
$
|
34,350
|
|
|
$
|
47,239
|
|
|
|
|
|
|
|
|
|
|
U.S. jackup and platform
drilling gross margin (1)
|
|
$
|
7,720
|
|
|
$
|
6,320
|
|
Depreciation and
amortization (2)
|
|
|
|
|
|
|
(9,817
|
)
|
Loss on disposition of assets, net
of gains and impairments
|
|
|
(4,238
|
)
|
|
|
(53,768
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations
|
|
$
|
3,482
|
|
|
$
|
(57,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Drilling gross margin is computed
as drilling revenues less direct drilling operating expenses,
excluding depreciation and amortization expense. The gross
margin amounts and gross margin percentages should not be used
as a substitute for those amounts reported under GAAP. However,
we monitor our business segments based on several criteria,
including drilling gross margin. Management believes that this
information is useful to our investors because it more closely
tracks cash generated by segment. Such gross margin amounts are
reconciled to our most comparable GAAP measure as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
U.S. jackup and platform drilling
operating income (loss)
|
|
$
|
7,720
|
|
|
$
|
(3,497
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
9,817
|
|
|
|
|
|
|
|
|
|
|
Drilling gross margin
|
|
$
|
7,720
|
|
|
$
|
6,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Depreciation and
amortization in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, we stopped recording
depreciation expense related to the discontinued operations
effective June 30, 2003.
|
On August 2, 2004, we finalized the sale of five jackup and
four platform rigs, realizing net proceeds of
$39.3 million. No gain or loss was recorded on the sale and
the proceeds were used to pay down debt. Jackup rig 25 was
excluded from this sale, although the purchaser retained the
exclusive right to purchase it. On January 3, 2005, we sold
jackup rig 25 to such purchaser. We received proceeds of
$21.5 million and recognized an additional impairment on
the disposition of $4.1 million in December 2004. With the
consummation of this transaction all the jackup and platform
rigs have been sold from the U.S. Gulf of Mexico asset
group. No other assets remain related to our discontinued
operations and all proceeds were used to pay down debt.
34
LIQUIDITY
AND CAPITAL RESOURCES
Operating
Cash Flows
As of December 31, 2005, we had cash and cash equivalents
of $60.2 million, an increase of $15.9 million from
December 31, 2004. The primary sources of cash for the
twelve-month period as reflected on the consolidated statement
of cash flows were $122.6 million provided by operating
activities and $74.9 million of proceeds from the
disposition of assets, including insurance proceeds. The primary
uses of cash for the year ended December 31, 2005 were
$69.5 million for capital expenditures and
$94.1 million for financing activities. Major capital
expenditures for the period included $28.0 million for
tubulars and other rental tools for Quail Tools. Our investing
activities also include an investment of $18.0 million in
auction rate securities which are classified as Marketable
securities on the consolidated balance sheet. Our
financing activities included a reduction in debt of
$101.0 million, which is further detailed in subsequent
paragraphs.
As of December 31, 2004, we had cash and cash equivalents
of $44.3 million, a decrease of $23.5 million from
December 31, 2003. The primary sources of cash for the
twelve-month period as reflected on the consolidated statement
of cash flows were $28.8 million provided by operating
activities, $41.6 million of insurance proceeds, and
$52.4 million of proceeds from the disposition of assets
and marketable securities. The primary uses of cash for the
twelve-month period ended December 31, 2004 were
$47.3 million for capital expenditures and
$99.0 million for financing activities. Major capital
expenditures for the period included $11.9 million to
refurbish rigs for work in Mexico, $7.5 million to
refurbish barge rig 76 for ultra-deep drilling in the shallow
waters of the U.S. Gulf of Mexico and $13.0 million
for tubulars and other rental tools for Quail Tools. Our
financing activities include a net reduction in debt of
$90.2 million and are further detailed in subsequent
paragraphs.
As of December 31, 2003, we had cash and cash equivalents
of $67.8 million, an increase of $15.8 million from
December 31, 2002. The primary sources of cash for the
twelve-month period as reflected on the consolidated statement
of cash flows were $62.5 million provided by operating
activities, $6.0 million of insurance proceeds for barge
rig 18 and $6.3 million of proceeds from the disposition of
equipment. The primary uses of cash for the twelve month period
ended December 31, 2003 were $35.0 million for capital
expenditures and $15.2 million reduction of debt. Major
capital expenditures during 2003 included $18.1 million for
Quail Tools (consisting mostly of purchases of drill pipe and
tubulars) and $2.1 million to refurbish rig 230 and rig 247
for work in Turkmenistan. The major components of our net debt
reduction were the purchases of $19.3 million face value of
our outstanding 5.5% Convertible Subordinated Notes on the
open market, $14.8 million in May 2003 and
$4.5 million in December 2003. In addition, we paid down
$5.5 million of a secured promissory note to Boeing Capital
Corporation. During the fourth quarter of 2003 we paid off all
of our outstanding 9.75% Senior Notes ($214.2 million face
value) with proceeds from our new 9.625% Senior Notes
($175.0 million face value) and a $50.0 million
initial draw of a $100.0 million term loan.
Financing
Activity
Our current $40.0 million credit facility is available for
general corporate purposes and to fund reimbursement obligations
under letters of credit the banks issue on our behalf pursuant
to this facility. Availability under the revolving credit
facility is subject to a borrowing base limitation based on
85 percent of eligible receivables plus a value for
eligible rental tools equipment. The credit facility calls for a
borrowing base calculation only when the credit facility has
outstanding loans, including letters of credit, totaling at
least $25.0 million. As of December 31, 2005, there
were $10.3 million in letters of credit outstanding and no
loans. Subsequent to December 31, 2005, an amendment was
signed to eliminate the $25.0 million limit for letters of
credit and to give us the ability to call outstanding Senior
Notes and Senior Floating Rate Notes without a limitation
concerning commitments, including letters of credit, under the
credit agreement. A copy of the amendment is filed as an exhibit
to this
Form 10-K.
On February 7, 2005, we redeemed $25.0 million face
value of our 10.125% Senior Notes pursuant to a redemption
notice dated January 6, 2005 at the redemption price of
105.0625 percent. Proceeds from the sale of jackup rig 25
and cash on hand were used to fund the redemption.
On April 21, 2005, we issued an additional
$50.0 million in aggregate principal amount of our
9.625% Senior Notes due 2013 at a premium. The offering
price of 111 percent of the principal amount resulted in
gross proceeds of $55.5 million. The $5.5 million
premium is reflected as long-term debt and amortized over the
term of the notes. The additional notes were issued under an
indenture, dated as of October 10, 2003, under which
$175.0 million in aggregate principal amount of notes of
the same series were previously issued.
35
LIQUIDITY AND CAPITAL RESOURCES (continued)
Financing Activity (continued)
On the same date that we issued the additional
$50.0 million of 9.625% Senior Notes (April 21, 2005),
we issued a redemption notice for $65.0 million of our
10.125% Senior Notes at the redemption price of
105.0625 percent. The redemption date was May 21,
2005, and was funded by the net proceeds from the issuance of
the additional 9.625% Senior Notes and cash on hand.
On June 16, 2005, we issued a redemption notice to retire
$30.0 million of our 10.125% Senior Notes at the
redemption price of 105.0625 percent. The redemption date
was July 16, 2005 and was funded with net proceeds from the
sale of our Latin America rigs and cash on hand.
On December 30, 2005, we redeemed in full the outstanding
$35.6 million face value of our 10.125% Senior Notes
pursuant to a redemption notice dated November 30, 2005 at
the redemption price of 103.375 percent. The redemption was
funded with cash on hand.
We had total long-term debt of $380.0 million as of
December 31, 2005. The long-term debt included:
|
|
|
|
|
$150.0 million aggregate principal amount of Senior
Floating Rate Notes bearing interest at a rate of LIBOR plus
4.75%, which are due September 1, 2010; and
|
|
|
|
$225.0 million aggregate principal amount of
9.625% Senior Notes, which are due October 1, 2013
plus the associated $5.0 million in unamortized debt
premium.
|
As of December 31, 2005, we had approximately
$89.9 million of liquidity. This liquidity was comprised of
$60.2 million of cash and cash equivalents on hand and
$29.7 million of availability under the revolving credit
facility.
Subsequent to December 31, 2005, we announced the offering
of 8,900,000 shares of common stock on January 18,
2006, pursuant to a Free Writing Prospectus dated
January 17, 2006 and a Prospectus Supplement dated
January 18, 2006. On January 23, 2006, we realized
$11.23 per share or a total of $99.9 million of net
proceeds before expenses, but after underwriter discount, from
the offering.
The following table summarizes our future contractual cash
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years 2-3
|
|
|
Years 4-5
|
|
|
5 Years
|
|
|
|
(Dollars in Thousands)
|
|
|
Contractual cash obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt principal (1)
|
|
$
|
375,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
225,000
|
|
Long-term
debt interest (1)
|
|
|
229,600
|
|
|
|
34,891
|
|
|
|
69,783
|
|
|
|
65,371
|
|
|
|
59,555
|
|
Operating leases (2)
|
|
|
13,250
|
|
|
|
5,166
|
|
|
|
5,055
|
|
|
|
2,078
|
|
|
|
951
|
|
Purchase commitments (3)
|
|
|
30,279
|
|
|
|
30,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
648,129
|
|
|
$
|
70,336
|
|
|
$
|
74,838
|
|
|
$
|
217,449
|
|
|
$
|
285,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility (4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Standby letters of credit (4)
|
|
|
10,258
|
|
|
|
10,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
commitments (5)
|
|
$
|
10,258
|
|
|
$
|
10,258
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Long-term debt includes the
principal and interest cash obligations of the
9.625% Senior Notes but the remaining unamortized premium
of $5.0 million is not included in the contractual cash
obligations schedule. A portion of the interest on the Senior
Floating Rate Notes has been fixed through
variable-to-fixed
interest rate swap agreements. The issuer (Bank of America,
N.A.) of each swap has the option to extend each swap for an
additional two years at the termination of the initial swap
period. For the purpose of this table, the highest interest rate
currently hedged is used in calculating the interest on future
floating rate periods.
|
|
(2)
|
|
Operating leases consist of lease
agreements in excess of one year for office space, equipment,
vehicles and personal property.
|
|
(3)
|
|
We have purchase commitments
outstanding as of December 31, 2005, related to rig upgrade
projects and new rig construction.
|
36
LIQUIDITY AND CAPITAL RESOURCES (continued)
Financing Activity (continued)
|
|
|
(4)
|
|
We have a $40.0 million
revolving credit facility. As of December 31, 2005 no
amounts have been drawn down, but $10.3 million of
availability has been used to support letters of credit that
have been issued, resulting in an estimated $29.7 million
availability. The revolving credit facility expires in December
2007.
|
|
(5)
|
|
We have entered into employment
agreements with the executive officers of the Company; see
Note 12 in the notes to the consolidated financial
statements.
|
We do not have any unconsolidated special-purpose entities,
off-balance-sheet financing arrangements or guarantees of
third-party financial obligations. We have no energy or
commodity contracts.
OTHER
MATTERS
Business
Risks
Internationally, we specialize in drilling geologically
challenging wells in locations that are difficult to access
and/or involve harsh environmental conditions. Our international
services are primarily utilized by major and national oil
companies and integrated service providers in the exploration
and development of reserves of oil. In the United States, we
primarily drill in the transition zones of the U.S. Gulf of
Mexico for major and independent oil and gas companies. Business
activity is primarily dependent on the exploration and
development activities of the companies that make up our
customer base. See Item 1A for a detailed statement of Risk
Factors related to our business.
Critical
Accounting Policies
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, we
evaluate our estimates, including those related to bad debts,
materials and supplies obsolescence, property and equipment,
goodwill, income taxes, workers compensation and health
insurance and contingent liabilities for which settlement is
deemed to be probable. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. While we believe that such estimates are reasonable,
actual results could differ from these estimates.
We believe the following are our most critical accounting
policies as they are complex and require significant judgments,
assumptions and/or estimates in the preparation of our
consolidated financial statements. Other significant accounting
policies are summarized in Note 1 in the notes to the
consolidated financial statements.
Impairment of Property, Plant and
Equipment. We periodically evaluate our
property, plant and equipment to ensure that the net carrying
value is not in excess of the net realizable value. We review
our property, plant and equipment for impairment when events or
changes in circumstances indicate that the carrying value of
such assets may be impaired. For example, evaluations are
performed when we experience sustained significant declines in
utilization and dayrates and we do not contemplate recovery in
the near future, or when we reclassify property and equipment to
assets held for sale or as discontinued operations as prescribed
by SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. We consider a number of
factors, including estimated undiscounted future cash flows,
appraisals less estimated selling costs and current market value
analysis in determining net realizable value. Assets are written
down to fair value if the fair value is below net carrying value.
We recorded impairments to our long-lived assets of
$4.9 million, $13.1 million and $6.0 million in
2005, 2004, and 2003, respectively. We also recorded
$9.4 million of impairments to our discontinued operations
assets in 2004.
Asset impairment evaluations are, by nature, highly subjective.
They involve expectations about future cash flows generated by
our assets and reflect managements assumptions and
judgments regarding future industry conditions and their effect
on future utilization levels, dayrates and costs. The use of
different estimates and assumptions could result in materially
different carrying values of our assets.
37
OTHER
MATTERS (continued)
Critical
Accounting Policies (continued)
Impairment of Goodwill. We periodically
assess whether the excess of cost over net assets acquired
(goodwill) is impaired based generally on the estimated future
cash flows of that operation. If the estimated fair value is in
excess of the carrying value of the operation, no further
analysis is performed. If the fair value of each operation to
which goodwill has been assigned is less than its carrying
value, we deduct the fair value of the tangible and intangible
assets and compare the residual amount to the carrying value of
the goodwill to determine if impairment should be recorded.
Changes in dayrate and utilization assumptions used in the fair
value calculations could result in fair value estimates that are
below carrying value, resulting in an impairment of goodwill. We
also test for impairment based on events or changes in
circumstances that may indicate a reduction in the fair value of
a reporting unit below its carrying value.
As required by SFAS No. 142, Goodwill and Other
Intangible Assets, we perform an annual analysis of
goodwill at each year end. Our annual impairment tests of
goodwill at years ending 2003, 2004 and 2005 indicated that the
fair value of operations to which goodwill relates exceeded the
carrying values as of December 31, 2003, 2004 and 2005;
accordingly, no impairments were recorded.
Insurance Reserves. Our operations are
subject to many hazards inherent to the drilling industry,
including blowouts, explosions, fires, loss of well control,
loss of hole, damaged or lost drilling equipment and damage or
loss from inclement weather or natural disasters. Any of these
hazards could result in personal injury or death, damage to or
destruction of equipment and facilities, suspension of
operations, environmental damage and damage to the property of
others. Generally, drilling contracts provide for the division
of responsibilities between a drilling company and its customer,
and we seek to obtain indemnification from our customers by
contract for certain of these risks. To the extent that we are
unable to transfer such risks to customers by contract or
indemnification agreements, we seek protection through
insurance. However, there is no assurance that such insurance or
indemnification agreements will adequately protect us against
liability from all of the consequences of the hazards described
above. Moreover, our insurance coverage generally provides that
we assume a portion of the risk in the form of an insurance
coverage deductible.
Based on the risks discussed above, we estimate our liability in
excess of insurance coverage and record reserves for these
amounts in our consolidated financial statements. Reserves
related to insurance are based on the facts and circumstances
specific to the insurance claims and our past experience with
similar claims. The actual outcome of insured claims could
differ significantly from the amounts estimated. We accrue
actuarially determined amounts in our consolidated balance sheet
to cover self-insurance retentions for workers
compensation, employers liability, general liability,
automobile liability claims and health benefits. These accruals
use historical data based upon actual claim settlements and
reported claims to project future losses. These estimates and
accruals have historically been reasonable in light of the
actual amount of claims paid.
As the determination of our liability for insurance claims could
be material and is subject to significant management judgment
and in certain instances is based on actuarially estimated and
calculated amounts, management believes that accounting
estimates related to insurance reserves are critical.
Accounting for Income Taxes. We are a
U.S. company and we operate through our various foreign
branches and subsidiaries in numerous countries throughout the
world. Consequently, our tax provision is based upon the tax
laws and rates in effect in the countries in which our
operations are conducted and income is earned. The income tax
rates imposed and methods of computing taxable income in these
jurisdictions vary. Therefore, as a part of the process of
preparing the consolidated financial statements, we are required
to estimate the income taxes in each of the jurisdictions in
which we operate. This process involves estimating the actual
current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as
depreciation, amortization and certain accrued liabilities for
tax and accounting purposes. Our effective tax rate for
financial statement purposes will continue to fluctuate from
year to year as our operations are conducted in different taxing
jurisdictions. Current income tax expense represents either
liabilities expected to be reflected on our income tax returns
for the current year, nonresident withholding taxes or changes
in prior year tax estimates which may result from tax audit
adjustments. Our deferred tax expense or benefit represents the
change in the balance of deferred tax assets or liabilities
reported on the consolidated balance sheet. Valuation allowances
are established to reduce deferred tax assets when it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. In order to determine the amount of
deferred tax assets or liabilities, as well as the valuation
allowances, we must make
38
OTHER
MATTERS (continued)
Critical
Accounting Policies (continued)
estimates and assumptions regarding future taxable income, where
rigs will be deployed and other matters. Changes in these
estimates and assumptions, as well as changes in tax laws, could
require us to adjust the deferred tax assets and liabilities or
valuation allowances, including as discussed below.
Our ability to realize the benefit of our deferred tax assets
requires that we achieve certain future earnings levels prior to
the expiration of our NOL carryforwards. As a result of our
expected earnings performance which should allow us to benefit
from the NOL carryforwards, we have concluded that no valuation
allowance is currently required. We will reevaluate our ability
to utilize our NOL carryforwards in future periods and, in
compliance with SFAS No. 109 Accounting for
Income Taxes, we will record any resulting adjustments
that may be required to deferred income tax expense.
We have provided for U.S. deferred taxes on the unremitted
earnings of our U.S. and foreign subsidiaries as the earnings
are not permanently reinvested.
Revenue Recognition. We recognize
revenues and expenses on dayrate contracts as drilling
progresses. For meterage contracts, which are rare, we recognize
the revenues and expenses upon completion of the well. Revenues
from rental activities are recognized ratably over the rental
term which is generally less than six months. Mobilization fees
received and related mobilization costs incurred, if
significant, are deferred and amortized over the term of the
related drilling contract.
Accounting for Derivative
Instruments. We follow
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by
SFAS No. 137, SFAS No. 138 and
SFAS No. 149. SFAS No. 133 established
accounting and disclosure requirements for most derivative
instruments and hedge transactions involving derivatives.
SFAS No. 133 also requires formal documentation
procedures for hedging relationships and effectiveness testing
when hedge accounting is to be applied.
In 2004, we entered into two
variable-to-fixed
interest rate swap agreements to reduce our cash flow exposure
to increases in interest rates on our Senior Floating Rate
Notes. The interest rate swap agreements provide us with
interest rate protection on the Senior Floating Rate Notes due
2010.
We do not use hedge accounting treatment for these interest rate
swap agreements as we determined that the hedges would not be
highly effective as defined by SFAS 133. The
ineffectiveness of the hedges is caused by embedded written call
options in the interest rate swap agreements that do not exist
in the notes. Accordingly, we recognize the volatility of the
swap agreements on a
mark-to-market
basis in our consolidated statement of operations. For the year
ended December 31, 2005, we recognized a non-cash increase
in the fair value of the interest rate derivatives of
$2.1 million. For the year ended December 31, 2004, we
recognized a non-cash decrease in the fair value of
$0.8 million. These non-cash expenses are reported in the
consolidated statement of operations as Changes in fair
value of derivative positions. The non-cash increase in
fair value in 2005 is reported in the consolidated balance sheet
as Other assets, and the non-cash decrease in fair
value in 2004 is reported in Other long-term
liabilities. For additional information see Note 6 in
the notes to the consolidated financial statements.
The fair market value adjustment of these swap agreements will
generally fluctuate based on the implied forward interest rate
curve for the three-month LIBOR. If the implied forward interest
rate curve decreases, the fair market value of the interest swap
agreements will decrease and we will record an additional
charge. If the implied forward interest rate curve increases,
the fair market value of the interest swap agreements will
increase, and we will record income. We analyze the position of
the swap agreements on a quarterly basis and record the
mark-to-market
impact based on the analysis.
Recent
Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation (FIN)
No. 47, Accounting for Conditional Asset Retirement
Obligations. FIN No. 47 requires
companies to record a liability for those asset retirement
obligations in which the timing and/or amount of settlement of
the obligation are uncertain. These conditional obligations were
not addressed by SFAS No. 143, Accounting for
Asset Retirement Obligations, which we adopted on
January 1, 2003. FIN No. 47, which was adopted
October 1, 2005, requires us to accrue a liability when a
range of scenarios indicates that the potential timing and/or
settlement amounts of our
39
OTHER
MATTERS (continued)
Recent
Accounting Pronouncements (continued)
conditional asset retirement obligations can be determined. This
pronouncement did not have any impact on our consolidated
financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a replacement of
APB Opinion No. 20 and FASB Statement No. 3,
which establishes, unless impracticable, retrospective
application as the required method for reporting a change in
accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle.
The reporting of a correction of an error by restating
previously issued financial statements is also addressed by this
statement. We will adopt this standard effective January 1,
2006 and we do not expect any impact on our consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. SFAS No. 123R revises
SFAS No. 123, Accounting for Stock-Based
Compensation, and focuses on accounting for share-based
payments for services provided by employee to employer. The
statement requires companies to expense the fair value of
employee stock options and other equity-based compensation at
the grant date. The statement does not require a certain type of
valuation model, and either a binomial or Black-Scholes model
may be used. During the first quarter of 2005, the SEC approved
a new rule for public companies to delay the adoption of this
standard. In April 2005, the SEC took further action to state
that the provisions of SFAS No. 123R are now effective
beginning with the first annual or interim reporting period of
the registrants first fiscal year beginning on or after
June 15, 2005 for all non-small business issuers. As a
result, we will not adopt this standard until the first quarter
of 2006. Our plans are to use the modified prospective
application method as detailed in SFAS No. 123R. We
expect the impact on our consolidated financial statements to be
consistent with the impact disclosed in Note 1 of the notes
to the consolidated financial statements. Our future cash flows
will not be impacted by the adoption of this standard. See
Stock-Based Compensation within Note 1 of the
notes to the consolidated financial statements for further
information.
In October 2005, the FASB issued FASB Staff Position
(FSP)
SFAS 123R-2,
Practical Accommodation to the Application of Grant Date
as defined in FASB Statement No. 123R. This FSP
provides guidance on the definition and practical application of
grant date as described in SFAS No. 123R.
The grant date is described as the date that the employee and
employer have met a mutual understanding of the key terms and
conditions of an award. The other elements of the definition of
grant date are: 1) the award must be authorized,
2) the employer must be obligated to transfer assets or
distribute equity instruments so long as the employee has
provided the necessary service and 3) the employee is
affected by changes in the Companys stock price. To
determine the grant date, we are allowed to use the date the
award is approved in accordance with its corporate governance
requirements as long as the three elements described above are
met. Furthermore, the recipient cannot negotiate the
awards terms and conditions with the employer and the key
terms and conditions of the award are communicated to all
recipients within a reasonably short time period from the
approval date. We will adopt this FSP in conjunction with our
adoption of SFAS No. 123R.
In November 2005, the FASB issued FSP SFAS
No. 123R-3,
Transition Election Related to Accounting for the Tax
Effects of Share-Based Payment Awards, in response to
issues financial statement preparers raised about the ability to
calculate estimated tax benefit amounts that would have
qualified if the entity had adopted SFAS No. 123 for
recognition purposes in 1995 as opposed to opting for the
disclosure of the pro forma effects. The position provides for a
transition method that provides a proscribed computation for the
estimated beginning balance of the related additional paid in
capital pool and a simplified method to determine the subsequent
impact on the pool relating to employee option awards that are
fully vested and outstanding upon adoption of SFAS
No. 123R. We are currently evaluating the impact of this
position on our calculation upon adoption of SFAS No. 123R
in 2006.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140, to clarify accounting for derivative
instruments that are hybrid financial instruments with embedded
derivatives, contain interest or principal only strips and for
freestanding derivatives; further define embedded derivatives
and clarify derivative-related restrictions on special purpose
entities. This standard is effective for fiscal periods
beginning after September 16, 2006 and should not have any
impact on our consolidated financial statements.
40
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest
Rate Risk
We entered into two
variable-to-fixed
interest rate swap agreements as a strategy to manage the
floating rate risk on the $150.0 million Senior Floating
Rate Notes. The first agreement, signed on August 18, 2004,
fixed the interest rate on $50.0 million at 8.83% for a
three-year period beginning September 1, 2005 and
terminating September 2, 2008 and fixed the interest rate
on an additional $50.0 million at 8.48% for the two-year
period beginning September 1, 2005 and terminating
September 4, 2007. In each case, an option to extend each
swap for an additional two years at the same rates was given to
the issuer, Bank of America, N.A. A second agreement, signed on
September 14, 2004, fixed the interest rate on
$150.0 million at 6.54% for the three-month period
beginning December 1, 2004 and terminating March 1,
2005. Options to extend $100.0 million at a fixed interest
rate of 7.08% for the six-month period beginning March 1,
2005 and to extend $50.0 million at a fixed interest rate
of 7.60% for the
18-month
period beginning March 1, 2005 and terminating
September 1, 2006 were given to the issuer, Bank of
America, N.A. In the first quarter of 2005, Bank of America N.A.
allowed these options to expire unexercised.
These swap agreements do not meet the hedge criteria in
SFAS No. 133 and are, therefore, not designated as
hedges. Accordingly, the change in the fair value of the
interest rate swaps is recognized currently in Change in
fair value of derivative positions on the consolidated
statement of operations. As of December 31, 2005, we had
the following derivative instruments outstanding related to our
interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
Fixed
|
|
|
Fair
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Amount
|
|
|
Floating Rate
|
|
Rate
|
|
|
Value
|
|
(Dollars in Thousands)
|
|
|
|
September 1, 2005
|
|
|
|
September 2, 2008
|
|
|
$
|
50,000
|
|
|
Three-month LIBOR
plus 475 basis points
|
|
|
8.83
|
%
|
|
$
|
553
|
|
|
September 1, 2005
|
|
|
|
September 4, 2007
|
|
|
$
|
50,000
|
|
|
Three-month LIBOR
plus 475 basis points
|
|
|
8.48
|
%
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
The estimated fair value of our $225.0 million principal
amount of 9.625% Senior Notes due 2013, based on quoted market
prices, was $251.2 million at December 31, 2005. Our
$150.0 million principal amount of Senior Floating Rate
Notes due 2010 estimated fair value was $154.3 million and
$155.4 million on December 31, 2005 and
December 31, 2004, respectively. The estimated fair value
of our $175.0 million principal amount of
9.625% Senior Notes due 2013, based on quoted market prices
was $196.4 million at December 31, 2004.
41
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Parker Drilling Company
We have completed integrated audits of Parker Drilling
Companys 2005 and 2004 consolidated financial statements
and of its internal control over financial reporting as of
December 31, 2005 and an audit of its 2003 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated
financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Parker Drilling
Company and its subsidiaries at December 31, 2005 and 2004,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2005 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 15(a)(2) 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 Companys 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 statements in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements 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.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of December 31, 2005 based on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material
respects, based on those criteria. Furthermore, in our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control Integrated Framework
issued by the COSO. The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on
the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable
42
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA (continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM (continued)
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
March 6, 2006
43
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Drilling and rental revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
128,252
|
|
|
$
|
88,512
|
|
|
$
|
67,449
|
|
International drilling
|
|
|
308,572
|
|
|
|
220,846
|
|
|
|
216,567
|
|
Rental tools
|
|
|
94,838
|
|
|
|
67,167
|
|
|
|
54,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
|
531,662
|
|
|
|
376,525
|
|
|
|
338,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
|
66,827
|
|
|
|
54,126
|
|
|
|
47,740
|
|
International drilling
|
|
|
237,161
|
|
|
|
168,451
|
|
|
|
152,201
|
|
Rental tools
|
|
|
38,211
|
|
|
|
28,037
|
|
|
|
23,051
|
|
Depreciation and amortization
|
|
|
67,204
|
|
|
|
69,241
|
|
|
|
73,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental
operating expenses
|
|
|
409,403
|
|
|
|
319,855
|
|
|
|
296,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income
|
|
|
122,259
|
|
|
|
56,670
|
|
|
|
41,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction contract revenue
|
|
|
|
|
|
|
|
|
|
|
7,030
|
|
Construction contract expense
|
|
|
|
|
|
|
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction contract operating
income
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration expense
|
|
|
(27,830
|
)
|
|
|
(23,413
|
)
|
|
|
(19,256
|
)
|
Provision for reduction in
carrying value of certain assets
|
|
|
(4,884
|
)
|
|
|
(13,120
|
)
|
|
|
(6,028
|
)
|
Gain on disposition of assets, net
|
|
|
25,578
|
|
|
|
3,730
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
115,123
|
|
|
|
23,867
|
|
|
|
22,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(42,113
|
)
|
|
|
(50,368
|
)
|
|
|
(53,790
|
)
|
Change in fair value of derivative
positions
|
|
|
2,076
|
|
|
|
(794
|
)
|
|
|
|
|
Interest income
|
|
|
2,241
|
|
|
|
816
|
|
|
|
1,013
|
|
Loss on extinguishment of debt
|
|
|
(8,241
|
)
|
|
|
(8,753
|
)
|
|
|
(5,274
|
)
|
Minority interest
|
|
|
1,905
|
|
|
|
(1,143
|
)
|
|
|
464
|
|
Other
|
|
|
(763
|
)
|
|
|
819
|
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense)
|
|
|
(44,895
|
)
|
|
|
(59,423
|
)
|
|
|
(58,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
70,228
|
|
|
|
(35,556
|
)
|
|
|
(35,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
|
16,328
|
|
|
|
15,009
|
|
|
|
16,985
|
|
Deferred tax benefit
|
|
|
(44,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
|
(28,584
|
)
|
|
|
15,009
|
|
|
|
16,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
98,812
|
|
|
|
(50,565
|
)
|
|
|
(52,434
|
)
|
Discontinued operations
|
|
|
71
|
|
|
|
3,482
|
|
|
|
(57,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
98,883
|
|
|
$
|
(47,083
|
)
|
|
$
|
(109,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
1.03
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.56
|
)
|
Discontinued operations
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
(0.61
|
)
|
Net income (loss)
|
|
$
|
1.03
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
1.02
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.56
|
)
|
Discontinued operations
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
(0.61
|
)
|
Net income (loss)
|
|
$
|
1.02
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
Number of common shares used in
computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
95,818,893
|
|
|
|
94,113,257
|
|
|
|
93,420,713
|
|
Diluted
|
|
|
97,208,345
|
|
|
|
94,113,257
|
|
|
|
93,420,713
|
|
See accompanying notes to the consolidated financial statements.
44
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
ASSETS
|
|
2005
|
|
|
2004
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,176
|
|
|
$
|
44,267
|
|
Marketable securities
|
|
|
18,000
|
|
|
|
|
|
Accounts and notes receivable, net
of allowance for
bad debts of $1,639 in 2005 and $3,591 in 2004
|
|
|
104,681
|
|
|
|
99,315
|
|
Rig materials and supplies
|
|
|
18,179
|
|
|
|
19,206
|
|
Deferred costs
|
|
|
4,223
|
|
|
|
13,546
|
|
Deferred income taxes
|
|
|
12,018
|
|
|
|
3,894
|
|
Other current assets
|
|
|
64,058
|
|
|
|
5,924
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
281,335
|
|
|
|
186,152
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at
cost:
|
|
|
|
|
|
|
|
|
Drilling equipment
|
|
|
750,368
|
|
|
|
839,977
|
|
Rental tools
|
|
|
119,028
|
|
|
|
100,101
|
|
Buildings, land and improvements
|
|
|
17,448
|
|
|
|
16,418
|
|
Other
|
|
|
31,528
|
|
|
|
31,756
|
|
Construction in progress
|
|
|
23,193
|
|
|
|
5,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,565
|
|
|
|
993,309
|
|
Less accumulated depreciation and
amortization
|
|
|
586,168
|
|
|
|
610,485
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
355,397
|
|
|
|
382,824
|
|
Assets held for sale
|
|
|
|
|
|
|
23,665
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
107,606
|
|
|
|
107,606
|
|
Rig materials and supplies
|
|
|
2,819
|
|
|
|
3,198
|
|
Debt issuance costs
|
|
|
8,088
|
|
|
|
10,896
|
|
Deferred income taxes
|
|
|
34,449
|
|
|
|
|
|
Other assets
|
|
|
11,926
|
|
|
|
12,249
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
164,888
|
|
|
|
133,949
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
801,620
|
|
|
$
|
726,590
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
45
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
2005
|
|
|
2004
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
24
|
|
Accounts payable
|
|
|
31,909
|
|
|
|
22,105
|
|
Accrued liabilities
|
|
|
109,068
|
|
|
|
50,520
|
|
Accrued income taxes
|
|
|
9,778
|
|
|
|
14,704
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
150,755
|
|
|
|
87,353
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
380,015
|
|
|
|
481,039
|
|
Other long-term liabilities
|
|
|
11,021
|
|
|
|
9,281
|
|
Commitments and contingencies
(Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par
value, 1,942,000 shares authorized, no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock,
$0.162/3
par value, authorized 140,000,000 shares, issued and
outstanding 97,836,254 shares (94,999,249 shares in
2004)
|
|
|
16,306
|
|
|
|
15,833
|
|
Capital in excess of par value
|
|
|
456,135
|
|
|
|
441,085
|
|
Unamortized restricted stock plan
compensation
|
|
|
(4,212
|
)
|
|
|
(718
|
)
|
Accumulated deficit
|
|
|
(208,400
|
)
|
|
|
(307,283
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
259,829
|
|
|
|
148,917
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
801,620
|
|
|
$
|
726,590
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
46
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
98,883
|
|
|
$
|
(47,083
|
)
|
|
$
|
(109,699
|
)
|
Adjustments to reconcile net
income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
67,204
|
|
|
|
69,241
|
|
|
|
83,496
|
|
Amortization of debt issuance and
premium
|
|
|
958
|
|
|
|
1,924
|
|
|
|
1,837
|
|
Loss on extinguishment of debt
|
|
|
935
|
|
|
|
2,657
|
|
|
|
1,161
|
|
Gain on disposition of assets
|
|
|
(25,549
|
)
|
|
|
(3,620
|
)
|
|
|
(4,229
|
)
|
Gain on disposition of marketable
securities
|
|
|
|
|
|
|
(762
|
)
|
|
|
|
|
Provision for reduction in
carrying value of certain assets
|
|
|
4,884
|
|
|
|
17,248
|
|
|
|
59,796
|
|
Deferred tax benefit
|
|
|
(44,912
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,913
|
|
|
|
6,132
|
|
|
|
3,563
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
(568
|
)
|
|
|
(10,565
|
)
|
|
|
(107
|
)
|
Rig materials and supplies
|
|
|
(3,179
|
)
|
|
|
361
|
|
|
|
(1,120
|
)
|
Other current assets
|
|
|
7,589
|
|
|
|
(30,735
|
)
|
|
|
6,373
|
|
Accounts payable and accrued
liabilities
|
|
|
18,218
|
|
|
|
12,749
|
|
|
|
9,173
|
|
Accrued income taxes
|
|
|
(5,100
|
)
|
|
|
895
|
|
|
|
9,462
|
|
Other assets
|
|
|
331
|
|
|
|
10,360
|
|
|
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
122,607
|
|
|
|
28,802
|
|
|
|
62,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(69,492
|
)
|
|
|
(47,318
|
)
|
|
|
(34,962
|
)
|
Proceeds from the sale of assets
|
|
|
61,046
|
|
|
|
51,053
|
|
|
|
6,337
|
|
Proceeds from insurance claims
|
|
|
13,850
|
|
|
|
41,566
|
|
|
|
6,000
|
|
Purchase of marketable securities
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of marketable
securities
|
|
|
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
$
|
(12,596
|
)
|
|
$
|
46,678
|
|
|
$
|
(22,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
47
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
$
|
55,500
|
|
|
$
|
200,000
|
|
|
$
|
225,000
|
|
Principal payments under debt
obligations
|
|
|
(155,632
|
)
|
|
|
(290,206
|
)
|
|
|
(240,308
|
)
|
Payment of debt issuance costs
|
|
|
(655
|
)
|
|
|
(10,243
|
)
|
|
|
(8,738
|
)
|
Proceeds from stock options
exercised
|
|
|
6,685
|
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(94,102
|
)
|
|
|
(98,978
|
)
|
|
|
(24,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
15,909
|
|
|
|
(23,498
|
)
|
|
|
15,783
|
|
Cash and cash equivalents at
beginning of year
|
|
|
44,267
|
|
|
|
67,765
|
|
|
|
51,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
60,176
|
|
|
$
|
44,267
|
|
|
$
|
67,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
41,308
|
|
|
$
|
49,181
|
|
|
$
|
52,894
|
|
Income taxes
|
|
$
|
13,415
|
|
|
$
|
15,062
|
|
|
$
|
15,741
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,817
|
|
Loss on disposition of assets
|
|
$
|
29
|
|
|
$
|
110
|
|
|
$
|
|
|
Provision for reduction in
carrying value of certain assets
|
|
$
|
|
|
|
$
|
4,128
|
|
|
$
|
53,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash investing and
financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on investments
available for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
217
|
|
Capital lease obligation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
290
|
|
See accompanying notes to the consolidated financial statements.
48
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Dollars and Shares in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Restricted
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Stock Plan
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Par Value
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Balances, December 31, 2002
|
|
|
92,793
|
|
|
$
|
15,465
|
|
|
$
|
434,998
|
|
|
$
|
|
|
|
$
|
664
|
|
|
$
|
(150,501
|
)
|
Activity in employees stock
plans
|
|
|
1,383
|
|
|
|
231
|
|
|
|
3,313
|
|
|
|
(2,031
|
)
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
plan compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income net unrealized gain on investments (net
of taxes of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
Net loss (total comprehensive loss
of $109,482)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003
|
|
|
94,176
|
|
|
|
15,696
|
|
|
|
438,311
|
|
|
|
(1,885
|
)
|
|
|
881
|
|
|
|
(260,200
|
)
|
Activity in employees stock
plans
|
|
|
823
|
|
|
|
137
|
|
|
|
2,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
plan compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss net unrealized loss on investments (net of
taxes of $0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(881
|
)
|
|
|
|
|
Net loss (total comprehensive loss
of $47,964)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004
|
|
|
94,999
|
|
|
|
15,833
|
|
|
|
441,085
|
|
|
|
(718
|
)
|
|
|
|
|
|
|
(307,283
|
)
|
Activity in employees stock
plans
|
|
|
2,837
|
|
|
|
473
|
|
|
|
13,495
|
|
|
|
(6,217
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit from stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
1,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
plan compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,723
|
|
|
|
|
|
|
|
|
|
Net income (total comprehensive net
income of $98,883)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
97,836
|
|
|
$
|
16,306
|
|
|
$
|
456,135
|
|
|
$
|
(4,212
|
)
|
|
$
|
|
|
|
$
|
(208,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
49
NOTES TO
THE 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, and subsidiaries in which the
Company exercises significant control or has a controlling
financial interest, including entities, if any, in which the
Company is allocated a majority of the entitys losses or
returns, regardless of ownership percentage. Parker Drilling
currently consolidates two companies in which subsidiaries of
Parker Drilling have a 50 percent stock ownership but exert
control over the entities operations (collectively, the
Company). A subsidiary of Parker Drilling also has a
50 percent interest in another company, which is accounted
for under the equity method as the Companys interest in
the entity does not meet the consolidation criteria described
above.
Operations The Company provides
land and offshore contract drilling services and rental tools on
a worldwide basis to major, independent and national oil and gas
companies and integrated service providers. At December 31,
2005, the Companys marketable rig fleet consists of 23
barge drilling and workover rigs, and 24 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 and logistics, as well as project
management activities.
Drilling Contracts and Rental
Revenues The Company recognizes
revenues and expenses on dayrate contracts as drilling
progresses. For meterage contracts which are rare, the Company
recognizes the revenues and expenses upon completion of the
well. Revenues from rental activities are recognized ratably
over the rental term which is generally less than six months.
Mobilization fees received and related mobilization costs
incurred, if significant, are deferred and amortized over the
term of the related drilling contract.
Construction Contract The Company
has historically only constructed drilling rigs for its own use.
At the request of one of its significant customers, the Company
entered into a contract to design, construct, mobilize and sell
(construction contract) a specialized drilling rig
to drill extended-reach wells to offshore targets from a
land-based location on Sakhalin Island, Russia, for an
international consortium of oil and gas companies. Subsequently,
the Company entered into a contract to operate the rig on behalf
of the consortium. Generally Accepted Accounting Principles
(GAAP) requires that revenues received and costs
incurred related to the construction contract be accounted for
and reported on a gross basis and income for the related fees
recognized on a
percentage-of-completion
basis. Because this construction contract is not a part of the
Companys historical or normal operations, the revenues and
costs related to this contract have been shown as a separate
component in the statement of operations. This contract was
completed during 2003.
Reimbursable Costs The Company
recognizes reimbursements received for
out-of-pocket
expenses incurred as revenues and accounts for
out-of-pocket
expenses as direct operating costs. Such amounts totaled
$41.3 million, $26.0 million and $24.3 million
during the years ended December 31, 2005, 2004 and 2003.
Cash and Cash Equivalents For
purposes of the consolidated balance sheet and the consolidated
statement of cash flows, the Company considers cash equivalents
to be highly liquid debt instruments that have a remaining
maturity of three months or less at the date of purchase.
Marketable Securities The Company
has marketable securities that consist of variable rate auction
rate securities and are classified as available for sale. The
investments are carried at par value. While the final maturities
of these auction rate securities are December 2037 and September
2043, the Companys investments mature and are reinvested
every seven and 28 days.
Accounts Receivable and Allowance for Doubtful
Accounts Trade accounts receivable are
recorded at the invoice amount and generally do not bear
interest. The allowance for doubtful accounts is the
Companys best estimate for losses resulting from the
inability of its customers to pay amounts owed. The Company
determines the allowance based on historical write-off
experience and information about specific customers with respect
to their inability to make payments. The Company reviews all
past due balances over 90 days individually for
collectibility.
50
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 Summary
of Significant Accounting Policies (continued)
Account balances are charged off against the allowance when the
Company feels it is probable the receivable will not be
recovered. The Company does not have any off-balance-sheet
credit exposure related to customers.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in Thousands)
|
|
|
Trade
|
|
$
|
105,982
|
|
|
$
|
102,765
|
|
Employee (1)
|
|
|
338
|
|
|
|
141
|
|
Allowance for doubtful
accounts (2)
|
|
|
(1,639
|
)
|
|
|
(3,591
|
)
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
104,681
|
|
|
$
|
99,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Employee receivables related to
cash advances for business expenses and travel.
|
|
(2)
|
|
Additional information on the
allowance for doubtful accounts for the years ended
December 31, 2005, 2004 and 2003 are reported on
Schedule II Valuation and Qualifying
Accounts.
|
Property, Plant and Equipment The
Company provides for depreciation of property, plant and
equipment 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 up to 15 years. The depreciable
lives for certain other equipment, including drill pipe and
rental tools, range from three to seven years. Depreciable lives
for buildings and improvements range from 10 to 30 years.
When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in operations.
Management periodically evaluates the Companys assets to
determine whether their net carrying values are in excess of
their net realizable values. 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 fair value if the fair value
is below the net carrying value.
Goodwill In accordance with
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets,
goodwill is assessed for impairment on at least an annual basis.
See Note 3 in the notes to the consolidated financial
statements for additional details regarding goodwill.
Rig Materials and Supplies Since
the Companys 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
operation. 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. Rig materials and
supplies are valued at the lower of cost or market value, net of
a reserve for obsolete parts of $3.4 million and
$6.5 million at December 31, 2005 and 2004,
respectively.
Deferred Costs The Company defers
costs related to rig mobilization and amortizes such costs over
the term of the related contract. The costs to be amortized
within 12 months are classified as current.
Other Long-Term
Liabilities Included in this account is
the accrual of workers compensation liability, deferred
tax liability and deferred mobilization revenue which is not
expected to be paid or recognized within the next year.
Income Taxes 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. Valuation
allowances are recognized against deferred tax assets unless it
is more likely than not that the Company can realize
the benefit of the net operating loss (NOL)
carryforwards and deferred tax assets in future periods.
51
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 Summary
of Significant Accounting Policies (continued)
Earnings (Loss) Per Share
(EPS) Basic earnings (loss)
per share is computed by dividing net income (loss), by the
weighted average number of common shares outstanding during the
period. The effects of dilutive securities, stock options,
unvested restricted stock and convertible debt are 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.
At December 31, 2005 and 2004, the Company had deposits in
domestic banks in excess of federally insured limits of
approximately $68.1 million and $43.7 million,
respectively. In addition, the Company had deposits in foreign
banks at December 31, 2005 and 2004 of $10.2 million
and $11.1 million, respectively, which are not federally
insured.
The Companys customer base consists of major, independent
and national-owned oil and gas companies and integrated service
providers. For the fiscal year 2005, ExxonMobil and its ventures
was the largest customer with approximately 14 percent of
total revenues and ChevronTexaco and a consortium in which
Chevron is a partner, Tengizchevroil (TCO) accounted
for approximately 11 percent of total revenues.
Derivative Financial
Instruments SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS Nos. 137, 138 and 149
require that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured by its
fair value. The Company has used derivative instruments to hedge
exposure to interest rate risk. For hedges which meet the
criteria of SFAS No. 133, the Company formally
designates and documents the instrument as a hedge of a specific
underlying exposure, as well as the risk management objective
and strategy for undertaking each hedge transaction. For those
derivative instruments that do not meet the criteria of a hedge,
the Company recognizes the volatility of the derivative
instruments on a
mark-to-market
basis in the consolidated statement of operations. See
Note 6 in the notes to the consolidated financial
statements.
Fair Value of Financial
Instruments The estimated fair value of
the Companys $225.0 million principal amount of
9.625% Senior Notes due 2013, based on quoted market
prices, was $251.2 million at December 31, 2005. The
Companys $150.0 million principal amount of Senior
Floating Rate Notes due 2010 estimated fair value was
$154.3 million and $155.4 million on December 31,
2005 and December 31, 2004, respectively. The estimated
fair value of the Companys $175.0 million principal
amount of 9.625% Senior Notes due 2013, based on quoted
market prices was $196.4 million at December 31, 2004.
The fair values of the Companys cash equivalents, auction
rate securities held as investments, trade receivables, and
trade payables approximated their carrying values due to the
short-term nature of these instruments.
Stock-Based Compensation The
Company has elected the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, and thus follows the provisions of
Accounting Principles Board (APB) No. 25
Accounting for Stock Issued to Employees and related
interpretations in accounting for its employee stock options.
Accordingly, no compensation cost has been recognized for the
Companys stock option plans when the option price is equal
to or greater than the fair market value of a share of the
Companys common stock on the date of grant. Pro forma net
income (loss) and earnings (loss) per share are reflected in the
following tables as if compensation cost had been determined
based on the fair value of the options at their applicable grant
52
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 Summary
of Significant Accounting Policies (continued)
date, according to the provisions of SFAS No. 123. See
Note 16 in the notes to the consolidated financial
statements for the Companys plan to adopt
SFAS No. 123R.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Net income (loss) as reported
|
|
$
|
98,883
|
|
|
$
|
(47,083
|
)
|
|
$
|
(109,699
|
)
|
Stock-based compensation expense,
net of tax, included in
net income (loss) as reported
|
|
|
1,704
|
|
|
|
1,097
|
|
|
|
146
|
|
Stock-based compensation expense,
net of tax, determined
under fair value method
|
|
|
(1,855
|
)
|
|
|
(1,738
|
)
|
|
|
(1,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) pro forma
|
|
$
|
98,732
|
|
|
$
|
(47,724
|
)
|
|
$
|
(110,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) as reported
|
|
$
|
1.03
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
Net income (loss) pro forma
|
|
$
|
1.03
|
|
|
$
|
(0.51
|
)
|
|
$
|
(1.19
|
)
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) as reported
|
|
$
|
1.02
|
|
|
$
|
(0.50
|
)
|
|
$
|
(1.17
|
)
|
Net income (loss) pro forma
|
|
$
|
1.02
|
|
|
$
|
(0.51
|
)
|
|
$
|
(1.19
|
)
|
The fair value of each option grant is estimated using the
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Expected price volatility
|
|
51.1%
|
|
60.0%
|
|
54.5%
|
Risk-free interest rate range
|
|
3.38%
|
|
1.95%-3.89%
|
|
2.78%-2.96%
|
Expected life of stock options
|
|
3-7 years
|
|
3-7 years
|
|
5-7 years
|
Options granted in 2005, 2004 and 2003 under the 1997 Stock Plan
had an estimated fair value of $50 thousand, $0.4 million
and $0.2 million, respectively.
Accounting Estimates The
preparation of financial statements in conformity with GAAP
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.
Reclassification Certain
reclassifications have been made to prior year balances to
conform to the current year presentation.
Note 2 Disposition
of Assets
Discontinued Operations Pursuant
to a board approved plan to sell the Companys Latin
America assets and U.S. Gulf of Mexico offshore assets in
2003, the Companys 2003
Form 10-K
included these assets and related spare parts and inventories as
discontinued operations. As a result of an impairment assessment
in 2003, the Company recorded an impairment charge of
$53.8 million related to the U.S. Gulf of Mexico offshore
assets to reflect them at the estimated fair value. One of the
rigs and related spare parts sold in 2003 for $1.8 million.
In September 2003, jackup rig 14 malfunctioned and became
partially submerged. The Company received a total loss
settlement of $27.0 million from its insurance
underwriters. The cost incurred to tow the rig to the port and
pay for the damage assessment approximated $4.0 million
resulting in net insurance proceeds of approximately
$23.0 million. The net book value of jackup rig 14 was
$17.7 million at March 31, 2004. In compliance with
GAAP, the Company was required to recognize the gain from the
insurance proceeds in excess of the net book value of the asset.
When considered separately from the other U.S. Gulf of
Mexico offshore disposal group, this resulted in a gain of
approximately $5.3 million from the damage to the rig.
After considering the impact of the gain, the
53
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 Disposition
of Assets (continued)
Company determined that the overall valuation of the
U.S. Gulf of Mexico offshore group was unchanged from that
determined on June 30, 2003. As a result, the Company
recognized an additional impairment of $5.3 million which,
along with the gain, was reported in discontinued operations
during the first quarter of 2004.
In early 2004, the board of directors concurred with the
Companys plan to actively pursue drilling contracts for
certain of the Latin America land rigs in Mexico and in early
May 2004, a subsidiary of the Company was awarded two contracts
in Mexico utilizing seven Latin America land rigs. Based on this
change in plan, the seven land rigs moved to Mexico were
reclassified from discontinued operations to continuing
operations effective May 2004. The remaining Latin America rigs
were reclassified into continuing operations, as required by
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires such if the
assets do not sell or elicit a firm commitment for sale within
one year they should be reclassified to continuing operations.
Assets returned to continuing operations must be recorded at the
lower of net book value less depreciation that would have been
recorded if the assets had remained in continuing operations, or
fair value. As a result, the Company recognized a
$5.1 million impairment in 2004.
The sale of all but one of the U.S. Gulf of Mexico offshore
rigs that remained in discontinued operations was completed in
August 2004. The Company received net proceeds of
$39.3 million for the five jackup and four platform rigs.
No gain or loss was recorded on the sale. Jackup rig 25 was sold
on January 3, 2005. The Company received proceeds of
$21.5 million and recognized an additional impairment on
the disposition of $4.1 million in December 2004. With the
completion of this transaction all the jackup and platform rigs
have been sold from the U.S. Gulf of Mexico asset group. No
other assets remain related to the Companys discontinued
operations.
The following table presents the results of operations related
to discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
U.S. jackup and platform
drilling revenues
|
|
$
|
193
|
|
|
$
|
34,350
|
|
|
$
|
47,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. jackup and platform
drilling gross margin
|
|
$
|
100
|
|
|
$
|
7,720
|
|
|
$
|
6,320
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(9,817
|
)
|
Loss on disposition of assets, net
of gains and impairments
|
|
|
(29
|
)
|
|
|
(4,238
|
)
|
|
|
(53,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations
|
|
$
|
71
|
|
|
$
|
3,482
|
|
|
$
|
(57,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition of Assets On
May 6, 2005 the Company entered into definitive agreements
with affiliates of Saxon Energy Services, Inc.
(Saxon) to sell its seven remaining land rigs and
related assets in Colombia and Peru for a total purchase price
of $34 million. The Company closed on the sale of four of
the rigs and related assets in the second quarter and the
remaining three rigs were sold in the third quarter. As a result
of the sale of all seven land rigs, a gain of $13.8 million
was recognized in 2005.
In August 2004, the Company sold the buildings and substantially
all of its land in New Iberia, Louisiana relating to its
drilling operations. The net sales price of approximately
$6.4 million did not require any addition to the impairment
of $3.4 million recorded in December 2003. Under the terms
of the sale, the Company leased back certain portions of the
land and office building under a two-year operating lease
agreement.
Involuntary Conversion of
Assets On June 24, 2005, a well
control incident occurred on rig 255 while operating under
contract in Bangladesh, resulting in the total loss of the
drilling unit. Accordingly, the Company wrote off the net book
value of the rig and recorded insurance proceeds of
$13.8 million. Insurance proceeds received in excess of the
net book value of assets destroyed resulted in a gain of
$10.5 million, which $8.2 million was recognized in
the second quarter of 2005 and $2.3 million recognized in
the fourth quarter of 2005. The Company received
$7.5 million of the insurance proceeds in the third quarter
of 2005 and the remaining proceeds were received in the fourth
quarter 2005.
54
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 Disposition
of Assets (continued)
Barge rig 74 was evacuated in March 2003 due to community unrest
and sustained substantial damage. In December 2004, the Company
received $18.5 million in insurance proceeds, reduced
goodwill related to the rig by $6.8 million and recognized
a gain of $0.9 million on the involuntary conversion of the
rig.
Provision for Reduction in Carrying Value of an
Asset In the third quarter of 2005, the
Company recognized $2.3 million in provision for reduction
in carrying value of an insurance asset representing the
premiums paid on a life insurance policy for Robert L. Parker,
chairman of the board and director of the Company, in
anticipation of a settlement of its obligation under this
arrangement. See Note 13 in the notes to the consolidated
financial statements. In addition, barge rig 57 was damaged in
July 2005 in a towing incident resulting in a $2.6 million
impairment. On November 8, 2005, a well control incident on
rig 247 occurred while operating under contract in Turkmenistan.
Rig equipment is currently being assessed for repair or
replacement. The Company recorded a $1.2 million estimated
impairment to the rig and a $1.2 million insurance
receivable in December 2005. The Company does not expect any
loss related to this incident as the rig is insured up to its
replacement value subject to deductibles.
During 2004, the Company recognized a provision for reduction in
carrying value of certain assets of $13.1 million comprised
of:
|
|
|
|
|
$3.2 million related to two U.S. Gulf of Mexico
workover barges that were determined not to be marketable;
|
|
|
|
$0.7 million to adjust two rigs in the Asia Pacific region
to net realizable value;
|
|
|
|
$2.4 million to adjust all assets in Bolivia to net
realizable value in anticipation of their sale;
|
|
|
|
$5.1 million reduction to adjust Latin America assets to
fair value after reclassification of the assets from
discontinued operations to continuing operations; and
|
|
|
|
$1.7 million reserve against an asset comprised of
insurance premiums paid on behalf of Robert L. Parker. See
Note 13 in the notes to the consolidated financial
statements.
|
During 2003, the Company recognized a provision for reduction in
carrying value of certain assets of $6.0 million. Three
non-marketable
rigs in the Asia Pacific region and certain spare parts and
equipment in New Iberia, Louisiana were impaired by
$2.6 million to estimated salvage value. In early 2004, the
Company signed an agreement to sell the New Iberia,
Louisiana land and buildings for a net sales price of
$6.4 million. The sale was consummated in August 2004. This
resulted in an impairment of $3.4 million at
December 31, 2003, as the net book value of the property
exceeded the net sales price.
Assets Held for Sale The assets
held for sale of $23.7 million at December 31, 2004
were mainly comprised of the estimated fair value of
$0.7 million related to the Bolivia assets, jackup rig 25
at $21.5 million, the Companys former headquarters in
Tulsa, valued at $0.8 million and certain other equipment
at $0.7 million. The sale of these assets was completed in
2005.
Note 3 Goodwill
The Companys goodwill balance at December 31, 2003 by
reporting unit was: U.S. drilling barge rigs
$56.8 million; international drilling Nigeria barge rigs
$21.5 million and rental tools $36.1 million. In 2004,
goodwill for the international drilling Nigeria barge rigs
reporting unit was reduced $6.8 million for the asset
disposal of barge rig 74. As of December 31, 2004, the
goodwill balance by reporting unit was: U.S. drilling
barge rigs $56.8 million; international drilling Nigeria
barge rigs $14.7 million and rental tools
$36.1 million. In 2005, barge rig 72 was moved to the
U.S. Gulf of Mexico market and the related
$7.4 million in goodwill was also moved. As of
December 31, 2005, the goodwill balance by reporting unit
was: U.S. drilling barge rigs $64.2 million;
international drilling Nigeria barge rigs $7.3 million and
rental tools $36.1 million.
55
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 Long-Term
Debt
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in Thousands)
|
|
|
Senior Floating Rate Notes payable
in September 2010 with interest at three-month LIBOR + 4.75%
payable quarterly in March, June, September and December
(interest rate of 9.16% at December 31, 2005 and 7.15% at
December 31, 2004)
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Senior Notes payable in October
2013 with interest at 9.625% payable semi-annually in April and
October net of unamortized premium of $5,015 at
December 31, 2005 and $0 at December 31, 2004
(effective interest rate of 9.20% at December 31, 2005 and
2004)
|
|
|
230,015
|
|
|
|
175,000
|
|
Senior Notes payable in November
2009 with interest at 10.125% payable semi-annually in May and
November, net of unamortized premium of $431 at
December 31, 2004 (effective interest rate of 10.03% at
December 31, 2004)
|
|
|
|
|
|
|
156,039
|
|
Capital lease
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
380,015
|
|
|
|
481,063
|
|
Less current portion
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
380,015
|
|
|
$
|
481,039
|
|
|
|
|
|
|
|
|
|
|
The aggregate maturities of long-term debt for the five years
ending December 31, 2010 are as follows: $0 for 2006-2009,
$150.0 million for 2010 and $225.0 million thereafter.
Activity in 2005 On
February 7, 2005, the Company redeemed $25.0 million
face value of its 10.125% Senior Notes pursuant to a
redemption notice dated January 6, 2005 at the redemption
price of 105.0625 percent. An expense of $1.4 million
was recognized as loss on extinguishment of debt.
On April 21, 2005, the Company issued an additional
$50.0 million in aggregate principal amount of its
9.625% Senior Notes due 2013 at a premium. The offering
price of 111 percent of the principal amount resulted in
gross proceeds of $55.5 million. The $5.5 million
premium is reflected as long-term debt and amortized over the
term of the notes. The additional notes were issued under an
indenture, dated as of October 10, 2003, under which
$175.0 million in aggregate principal amount of notes of
the same series were previously issued.
On the same date that the Company issued the additional
$50.0 million of 9.625% Senior Notes (April 21,
2005), it issued a redemption notice for $65.0 million of
its 10.125% Senior Notes at the redemption price of
105.0625 percent. The redemption date was May 21,
2005. An expense of $3.3 million was recognized as loss on
extinguishment of debt.
On June 16, 2005, the Company issued a redemption notice to
retire $30.0 million of its 10.125% Senior Notes at
the redemption price of 105.0625 percent. The redemption
date was July 16, 2005. An expense of $1.9 million was
recognized as loss on extinguishment of debt.
On December 30, 2005, the Company redeemed in full the
outstanding $35.6 million face value of its
10.125% Senior Notes pursuant to a redemption notice dated
November 30, 2005 at the redemption price of
103.375 percent. The redemption was funded with cash on
hand. An expense of $1.6 million was recognized as loss on
extinguishment of debt.
Activity in 2004 On July 30,
2004, the Company drew down the remaining $50.0 million on
the delay draw term loan portion of the credit agreement dated
October 10, 2003. These funds, along with existing cash,
were used to retire the existing $64.4 million of
5.5% Convertible Subordinated Notes on August 2, 2004.
On the same day, proceeds from the sale of five jackup rigs and
four platform rigs were used to pay down $25.0 million of
the delay draw term loan. On August 5, 2004, an additional
$5.0 million was paid on the delay draw term loan with
proceeds from the sale of the Companys New Iberia
facilities, leaving an outstanding balance of $70.0 million
on the delay draw term loan.
56
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 Long-Term
Debt (continued)
In September 2004, the Company refinanced a portion of its
existing debt by issuing $150.0 million of Senior Floating
Rate Notes due 2010. Proceeds were used to pay off the
$70.0 million outstanding balance of the delay draw term
loan and to retire $80.0 million of the 10.125% Senior
Notes due 2009 that had been tendered pursuant to a tender offer
dated August 6, 2004. Cash costs associated with the
transaction totaled $9.7 million and were paid from
existing cash. Cash costs included an early tender premium of
2.00 percent and a tender offer consideration of
104.54 percent on the $80.0 million tendered
10.125% Senior Notes, as well as underwriting, legal and
other fees associated with the issuance of the
$150.0 million Senior Floating Rate Notes. An expense of
$8.2 million in debt extinguishment cost was recognized as
a result of the refinancing.
In December 2004, the Company replaced its existing
$50.0 million credit facility with a new $40.0 million
credit facility that expires in December 2007. The new revolving
credit facility is secured by rental tools equipment, accounts
receivable and substantially all of the stock of the
subsidiaries, and contains customary affirmative and negative
covenants.
Activity in 2003 In October 2003,
the Company refinanced $325.0 million of its existing debt.
The total refinancing package was comprised of
$175.0 million of 9.625% Senior Notes due 2013 and a
new $150.0 million senior credit agreement. The senior
credit agreement consisted of a four-year $100.0 million
delayed draw term loan facility and a three-year
$50.0 million revolving credit facility. The proceeds of
the 9.625% Senior Notes, plus an initial draw of
$50.0 million under the term loan facility, were used to
retire $184.3 million of the 9.75% Senior Notes due
2006 that had been tendered pursuant to a tender offer dated
September 24, 2003. The balance was used to redeem the
remaining 9.75% Senior Notes on November 15, 2003 at a
call premium of 1.625 percent. As a result of the debt, the
Company recorded $8.7 million of debt issuance cost which
is being amortized over the term of the related debt. A charge
of $5.3 million for loss on extinguishment of debt was
incurred by the Company as a result of the debt refinancing.
Convertible Subordinated Notes In
July 1997, the Company issued $175.0 million of Convertible
Subordinated Notes due 2004. The notes bore interest at 5.5%
payable semi-annually in February and August. The notes were
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 amount of outstanding notes at
December 31, 2003 was $105.2 million. The Company
repurchased $9.5 million of the outstanding notes in
January 2004, $5.3 million in April 2004 and
$25.0 million in May 2004 before paying off the remaining
$64.4 million in August 2004. Debt extinguishment costs of
$0.4 million was recognized as a result of the debt
repayments.
For each of the Companys Senior Note offerings, exchange
offers were effected without registration, in reliance on the
registration exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, which applies to offers and
sales of securities that do not involve a public offering, and
Regulation D promulgated under that act. Subsequently, for
each of the offerings, the Company filed a registration
statement on
Form S-4
offering to exchange the new notes for notes of the Company
having substantially identical terms in all material respects as
the outstanding notes. New notes and exchange notes are governed
by the terms of the indentures executed by the Company, the
subsidiary guarantors and the trustee. Each of the
9.625% Senior Notes, the Senior Floating Rate Notes and the
credit agreement contains customary affirmative and negative
covenants, including restrictions on incurrence of debt, sales
of assets and dividends. In addition, the credit agreement
contains covenants which require minimum ratios for consolidated
leverage, consolidated interest coverage and consolidated senior
secured leverage.
Boeing Capital Note 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 was being repaid in
60 monthly payments of approximately $0.5 million. The
amount of principal outstanding at the end of 2003 was
$5.1 million. The Company paid the remaining portion of the
note in February 2004 at a 5.0 percent premium and
recognized $0.2 million in debt extinguishment costs.
Note 5 Guarantor/Non-Guarantor
Consolidating Condensed Financial Statements
Set forth on the following pages are the consolidating condensed
financial statements of (i) Parker Drilling, (ii) its
restricted subsidiaries that are guarantors of the Senior Notes
and Senior Floating Rate Notes (the Notes)
57
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 Guarantor/Non-Guarantor
Consolidating Condensed Financial Statements (continued)
and (iii) the restricted and unrestricted subsidiaries that
are not guarantors of the Notes. The Notes are guaranteed by
substantially all of the restricted subsidiaries of Parker
Drilling. There are currently no restrictions on the ability of
the restricted subsidiaries to transfer funds to Parker Drilling
in the form of cash dividends, loans or advances. Parker
Drilling is a holding company with no operations, other than
through its subsidiaries.
AralParker (a Kazakhstan closed joint stock company, owned
50 percent by Parker Drilling (Kazakstan), Ltd. and
50 percent by Aralnedra, CJSC), Casuarina Limited (a
wholly-owned captive insurance company), KDN Drilling Limited,
Mallard Drilling of South America, Inc., Mallard Drilling of
Venezuela, Inc., Parker Drilling Investment Company, Parker
Drilling (Nigeria), Limited, Parker Drilling Company (Bolivia)
S.A., Parker Drilling Company Kuwait Limited, Parker Drilling
Company Limited (Bahamas), Parker Drilling Company of New
Zealand Limited, Parker Drilling Company of Sakhalin, Parker
Drilling de Mexico S. de R.L. de C.V., Parker Drilling
International of New Zealand Limited, Parker Drilling Tengiz,
Ltd., Parker TNK Drilling, PD Servicios Integrales, S. de R.L.
de C.V., PKD Sales Corporation, Parker SMNG Drilling Limited
Liability Company (owned 50 percent by Parker Drilling
Company International Inc.) and Universal Rig Leasing B.V. are
all non-guarantor subsidiaries. The Company is providing
consolidating condensed financial information of the parent,
Parker Drilling, the guarantor subsidiaries, and the
non-guarantor subsidiaries as of December 31, 2005 and
December 31, 2004 and for the years ended December 31,
2005, 2004 and 2003. The consolidating condensed financial
statements present investments in both consolidated and
unconsolidated subsidiaries using the equity method of
accounting. In addition, the consolidating condensed statement
of cash flows includes a change to the 2004 presentation between
the parent and guarantor columns from that which was previously
reported to correct a mechanical error between these two
columns. Cash flows from operating activities of the parent for
the year ended December 31, 2004 have been increased by
$58,274 and cash flows from operating activities of the
guarantor have been reduced by the same amount. Also, cash flows
from financing activities of the parent for the year ended
December 31, 2004 have been reduced by $58,274 and cash
flows from financing activities of the guarantor have been
increased by the same amount.
58
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Drilling and rental revenues
|
|
$
|
|
|
|
$
|
403,024
|
|
|
$
|
156,802
|
|
|
$
|
(28,164
|
)
|
|
$
|
531,662
|
|
Drilling and rental operating
expenses
|
|
|
1
|
|
|
|
218,189
|
|
|
|
152,173
|
|
|
|
(28,164
|
)
|
|
|
342,199
|
|
Depreciation and amortization
|
|
|
|
|
|
|
63,226
|
|
|
|
3,978
|
|
|
|
|
|
|
|
67,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (loss)
|
|
|
(1
|
)
|
|
|
121,609
|
|
|
|
651
|
|
|
|
|
|
|
|
122,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expense (1)
|
|
|
(179
|
)
|
|
|
(27,632
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
(27,830
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
(2,300
|
)
|
|
|
(2,584
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,884
|
)
|
Gain on disposition of assets, net
|
|
|
38
|
|
|
|
24,590
|
|
|
|
950
|
|
|
|
|
|
|
|
25,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
(2,442
|
)
|
|
|
115,983
|
|
|
|
1,582
|
|
|
|
|
|
|
|
115,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(46,856
|
)
|
|
|
(48,880
|
)
|
|
|
(2,664
|
)
|
|
|
56,287
|
|
|
|
(42,113
|
)
|
Changes in fair value of derivative
positions
|
|
|
2,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,076
|
|
Interest income
|
|
|
46,565
|
|
|
|
8,641
|
|
|
|
3,322
|
|
|
|
(56,287
|
)
|
|
|
2,241
|
|
Loss on extinguishment of debt
|
|
|
(8,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,241
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
1,905
|
|
|
|
|
|
|
|
1,905
|
|
Other
|
|
|
(655
|
)
|
|
|
(147
|
)
|
|
|
39
|
|
|
|
|
|
|
|
(763
|
)
|
Equity in net earnings of
subsidiaries
|
|
|
109,271
|
|
|
|
|
|
|
|
|
|
|
|
(109,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense)
|
|
|
102,160
|
|
|
|
(40,386
|
)
|
|
|
2,602
|
|
|
|
(109,271
|
)
|
|
|
(44,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
99,718
|
|
|
|
75,597
|
|
|
|
4,184
|
|
|
|
(109,271
|
)
|
|
|
70,228
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
|
2,672
|
|
|
|
11,358
|
|
|
|
2,298
|
|
|
|
|
|
|
|
16,328
|
|
Deferred tax benefit
|
|
|
(1,837
|
)
|
|
|
(44,678
|
)
|
|
|
1,603
|
|
|
|
|
|
|
|
(44,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
835
|
|
|
|
(33,320
|
)
|
|
|
3,901
|
|
|
|
|
|
|
|
(28,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
98,883
|
|
|
|
108,917
|
|
|
|
283
|
|
|
|
(109,271
|
)
|
|
|
98,812
|
|
Discontinued operations
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
98,883
|
|
|
$
|
108,988
|
|
|
$
|
283
|
|
|
$
|
(109,271
|
)
|
|
$
|
98,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All field operations general and
administrative expenses are included in operating expenses.
|
59
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Drilling and rental revenues
|
|
$
|
|
|
|
$
|
280,120
|
|
|
$
|
104,695
|
|
|
$
|
(8,290
|
)
|
|
$
|
376,525
|
|
Drilling and rental operating
expenses
|
|
|
2
|
|
|
|
160,583
|
|
|
|
98,319
|
|
|
|
(8,290
|
)
|
|
|
250,614
|
|
Depreciation and amortization
|
|
|
|
|
|
|
64,253
|
|
|
|
4,988
|
|
|
|
|
|
|
|
69,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (loss)
|
|
|
(2
|
)
|
|
|
55,284
|
|
|
|
1,388
|
|
|
|
|
|
|
|
56,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expense (1)
|
|
|
53
|
|
|
|
(23,437
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(23,413
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
(1,782
|
)
|
|
|
(7,847
|
)
|
|
|
(3,491
|
)
|
|
|
|
|
|
|
(13,120
|
)
|
Gain on disposition of assets, net
|
|
|
|
|
|
|
50,529
|
|
|
|
10,121
|
|
|
|
(56,920
|
)
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
(1,731
|
)
|
|
|
74,529
|
|
|
|
7,989
|
|
|
|
(56,920
|
)
|
|
|
23,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(54,689
|
)
|
|
|
(48,590
|
)
|
|
|
(3,748
|
)
|
|
|
56,659
|
|
|
|
(50,368
|
)
|
Changes in fair value of derivative
positions
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
Interest income
|
|
|
48,323
|
|
|
|
6,705
|
|
|
|
2,447
|
|
|
|
(56,659
|
)
|
|
|
816
|
|
Loss on extinguishment of debt
|
|
|
(8,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,753
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
(1,143
|
)
|
|
|
|
|
|
|
(1,143
|
)
|
Other
|
|
|
763
|
|
|
|
32
|
|
|
|
12
|
|
|
|
12
|
|
|
|
819
|
|
Equity in net losses of subsidiaries
|
|
|
(29,137
|
)
|
|
|
|
|
|
|
|
|
|
|
29,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense)
|
|
|
(44,287
|
)
|
|
|
(41,853
|
)
|
|
|
(2,432
|
)
|
|
|
29,149
|
|
|
|
(59,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(46,018
|
)
|
|
|
32,676
|
|
|
|
5,557
|
|
|
|
(27,771
|
)
|
|
|
(35,556
|
)
|
Income tax expense
|
|
|
1,065
|
|
|
|
12,685
|
|
|
|
1,259
|
|
|
|
|
|
|
|
15,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
(47,083
|
)
|
|
|
19,991
|
|
|
|
4,298
|
|
|
|
(27,771
|
)
|
|
|
(50,565
|
)
|
Discontinued operations
|
|
|
|
|
|
|
3,482
|
|
|
|
|
|
|
|
|
|
|
|
3,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(47,083
|
)
|
|
$
|
23,473
|
|
|
$
|
4,298
|
|
|
$
|
(27,771
|
)
|
|
$
|
(47,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All field operations general and
administrative expenses are included in operating expenses.
|
60
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2003
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Drilling and rental revenues
|
|
$
|
61
|
|
|
$
|
283,118
|
|
|
$
|
53,056
|
|
|
$
|
2,418
|
|
|
$
|
338,653
|
|
Drilling and rental operating
expenses
|
|
|
1
|
|
|
|
176,684
|
|
|
|
43,889
|
|
|
|
2,418
|
|
|
|
222,992
|
|
Depreciation and amortization
|
|
|
|
|
|
|
67,757
|
|
|
|
5,922
|
|
|
|
|
|
|
|
73,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating income
|
|
|
60
|
|
|
|
38,677
|
|
|
|
3,245
|
|
|
|
|
|
|
|
41,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction contract revenue
|
|
|
|
|
|
|
7,030
|
|
|
|
|
|
|
|
|
|
|
|
7,030
|
|
Construction contract expense
|
|
|
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net construction contract operating
income
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expense (1)
|
|
|
(112
|
)
|
|
|
(19,144
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,256
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
|
|
|
|
(6,028
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,028
|
)
|
Gain on disposition of assets, net
|
|
|
196
|
|
|
|
15,037
|
|
|
|
(24
|
)
|
|
|
(10,980
|
)
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
144
|
|
|
|
30,542
|
|
|
|
3,221
|
|
|
|
(10,980
|
)
|
|
|
22,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(58,543
|
)
|
|
|
(51,438
|
)
|
|
|
(4,153
|
)
|
|
|
60,344
|
|
|
|
(53,790
|
)
|
Interest income
|
|
|
55,691
|
|
|
|
3,968
|
|
|
|
1,698
|
|
|
|
(60,344
|
)
|
|
|
1,013
|
|
Loss on extinguishment of debt
|
|
|
(5,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,274
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
464
|
|
|
|
|
|
|
|
464
|
|
Other
|
|
|
(10,979
|
)
|
|
|
(773
|
)
|
|
|
(17
|
)
|
|
|
10,980
|
|
|
|
(789
|
)
|
Equity in net losses of subsidiaries
|
|
|
(89,105
|
)
|
|
|
|
|
|
|
|
|
|
|
89,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expense)
|
|
|
(108,210
|
)
|
|
|
(48,243
|
)
|
|
|
(2,008
|
)
|
|
|
100,085
|
|
|
|
(58,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(108,066
|
)
|
|
|
(17,701
|
)
|
|
|
1,213
|
|
|
|
89,105
|
|
|
|
(35,449
|
)
|
Income tax expense
|
|
|
1,633
|
|
|
|
15,352
|
|
|
|
|
|
|
|
|
|
|
|
16,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
(109,699
|
)
|
|
|
(33,053
|
)
|
|
|
1,213
|
|
|
|
89,105
|
|
|
|
(52,434
|
)
|
Discontinued operations
|
|
|
|
|
|
|
(57,265
|
)
|
|
|
|
|
|
|
|
|
|
|
(57,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(109,699
|
)
|
|
$
|
(90,318
|
)
|
|
$
|
1,213
|
|
|
$
|
89,105
|
|
|
$
|
(109,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All field operations general and
administrative expenses are included in operating expenses.
|
61
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,978
|
|
|
$
|
11,145
|
|
|
$
|
17,053
|
|
|
$
|
|
|
|
$
|
60,176
|
|
Marketable securities
|
|
|
16,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
Accounts and notes receivable, net
|
|
|
41,965
|
|
|
|
112,888
|
|
|
|
41,637
|
|
|
|
(91,809
|
)
|
|
|
104,681
|
|
Rig materials and supplies
|
|
|
|
|
|
|
10,830
|
|
|
|
7,349
|
|
|
|
|
|
|
|
18,179
|
|
Deferred costs
|
|
|
|
|
|
|
2,791
|
|
|
|
1,432
|
|
|
|
|
|
|
|
4,223
|
|
Other current assets
|
|
|
12,024
|
|
|
|
63,312
|
|
|
|
740
|
|
|
|
|
|
|
|
76,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
101,967
|
|
|
|
202,966
|
|
|
|
68,211
|
|
|
|
(91,809
|
)
|
|
|
281,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
134
|
|
|
|
389,674
|
|
|
|
37,674
|
|
|
|
(72,085
|
)
|
|
|
355,397
|
|
Goodwill
|
|
|
|
|
|
|
107,606
|
|
|
|
|
|
|
|
|
|
|
|
107,606
|
|
Investment in subsidiaries and
intercompany advances
|
|
|
606,711
|
|
|
|
737,080
|
|
|
|
37,895
|
|
|
|
(1,381,686
|
)
|
|
|
|
|
Other noncurrent assets
|
|
|
46,080
|
|
|
|
10,997
|
|
|
|
244
|
|
|
|
(39
|
)
|
|
|
57,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
754,892
|
|
|
$
|
1,448,323
|
|
|
$
|
144,024
|
|
|
$
|
(1,545,619
|
)
|
|
$
|
801,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
38,802
|
|
|
$
|
163,414
|
|
|
$
|
50,446
|
|
|
$
|
(111,685
|
)
|
|
$
|
140,977
|
|
Accrued income taxes
|
|
|
609
|
|
|
|
9,885
|
|
|
|
(716
|
)
|
|
|
|
|
|
|
9,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
39,411
|
|
|
|
173,299
|
|
|
|
49,730
|
|
|
|
(111,685
|
)
|
|
|
150,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
380,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,015
|
|
Other long-term liabilities
|
|
|
1,054
|
|
|
|
8,242
|
|
|
|
1,725
|
|
|
|
|
|
|
|
11,021
|
|
Intercompany payables
|
|
|
74,583
|
|
|
|
567,434
|
|
|
|
17,195
|
|
|
|
(659,212
|
)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
16,306
|
|
|
|
39,899
|
|
|
|
21,251
|
|
|
|
(61,150
|
)
|
|
|
16,306
|
|
Capital in excess of par value
|
|
|
456,135
|
|
|
|
977,559
|
|
|
|
33,950
|
|
|
|
(1,011,509
|
)
|
|
|
456,135
|
|
Unamortized restricted stock plan
compensation
|
|
|
(4,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,212
|
)
|
Retained earnings (accumulated
deficit)
|
|
|
(208,400
|
)
|
|
|
(318,110
|
)
|
|
|
20,173
|
|
|
|
297,937
|
|
|
|
(208,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
259,829
|
|
|
|
699,348
|
|
|
|
75,374
|
|
|
|
(774,722
|
)
|
|
|
259,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
754,892
|
|
|
$
|
1,448,323
|
|
|
$
|
144,024
|
|
|
$
|
(1,545,619
|
)
|
|
$
|
801,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,677
|
|
|
$
|
7,938
|
|
|
$
|
19,652
|
|
|
$
|
|
|
|
$
|
44,267
|
|
Accounts and notes receivable, net
|
|
|
176,548
|
|
|
|
101,445
|
|
|
|
38,213
|
|
|
|
(216,891
|
)
|
|
|
99,315
|
|
Rig materials and supplies
|
|
|
|
|
|
|
13,593
|
|
|
|
5,613
|
|
|
|
|
|
|
|
19,206
|
|
Deferred costs
|
|
|
|
|
|
|
5,266
|
|
|
|
8,280
|
|
|
|
|
|
|
|
13,546
|
|
Other current assets
|
|
|
3,894
|
|
|
|
4,885
|
|
|
|
950
|
|
|
|
89
|
|
|
|
9,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
197,119
|
|
|
|
133,127
|
|
|
|
72,708
|
|
|
|
(216,802
|
)
|
|
|
186,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
134
|
|
|
|
415,027
|
|
|
|
38,177
|
|
|
|
(70,514
|
)
|
|
|
382,824
|
|
Assets held for sale
|
|
|
|
|
|
|
22,952
|
|
|
|
713
|
|
|
|
|
|
|
|
23,665
|
|
Goodwill
|
|
|
|
|
|
|
107,606
|
|
|
|
|
|
|
|
|
|
|
|
107,606
|
|
Investment in subsidiaries and
intercompany advances
|
|
|
489,143
|
|
|
|
771,475
|
|
|
|
35,422
|
|
|
|
(1,296,040
|
)
|
|
|
|
|
Other noncurrent assets
|
|
|
14,005
|
|
|
|
11,007
|
|
|
|
1,331
|
|
|
|
|
|
|
|
26,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
700,401
|
|
|
$
|
1,461,194
|
|
|
$
|
148,351
|
|
|
$
|
(1,583,356
|
)
|
|
$
|
726,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24
|
|
Accounts payable and accrued
liabilities
|
|
|
34,772
|
|
|
|
215,852
|
|
|
|
42,156
|
|
|
|
(220,155
|
)
|
|
|
72,625
|
|
Accrued income taxes
|
|
|
1,677
|
|
|
|
12,726
|
|
|
|
301
|
|
|
|
|
|
|
|
14,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
36,473
|
|
|
|
228,578
|
|
|
|
42,457
|
|
|
|
(220,155
|
)
|
|
|
87,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
481,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481,039
|
|
Other long-term liabilities
|
|
|
(40,611
|
)
|
|
|
48,578
|
|
|
|
1,275
|
|
|
|
39
|
|
|
|
9,281
|
|
Intercompany payables
|
|
|
74,583
|
|
|
|
593,674
|
|
|
|
29,695
|
|
|
|
(697,952
|
)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
15,833
|
|
|
|
39,899
|
|
|
|
21,251
|
|
|
|
(61,150
|
)
|
|
|
15,833
|
|
Capital in excess of par value
|
|
|
441,085
|
|
|
|
977,563
|
|
|
|
33,783
|
|
|
|
(1,011,346
|
)
|
|
|
441,085
|
|
Unamortized restricted stock plan
compensation
|
|
|
(718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(718
|
)
|
Retained earnings (accumulated
deficit)
|
|
|
(307,283
|
)
|
|
|
(427,098
|
)
|
|
|
19,890
|
|
|
|
407,208
|
|
|
|
(307,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
148,917
|
|
|
|
590,364
|
|
|
|
74,924
|
|
|
|
(665,288
|
)
|
|
|
148,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
700,401
|
|
|
$
|
1,461,194
|
|
|
$
|
148,351
|
|
|
$
|
(1,583,356
|
)
|
|
$
|
726,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
98,883
|
|
|
$
|
108,988
|
|
|
$
|
283
|
|
|
$
|
(109,271
|
)
|
|
$
|
98,883
|
|
Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
63,226
|
|
|
|
3,978
|
|
|
|
|
|
|
|
67,204
|
|
Amortization of debt issuance and
premium
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
958
|
|
Loss on extinguishment of debt
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935
|
|
Gain on disposition of assets
|
|
|
(38
|
)
|
|
|
(24,561
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
(25,549
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
2,300
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
4,884
|
|
Deferred tax expense (benefit)
|
|
|
(1,837
|
)
|
|
|
(44,678
|
)
|
|
|
1,603
|
|
|
|
|
|
|
|
(44,912
|
)
|
Other
|
|
|
1,713
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
2,913
|
|
Equity in net earnings of
subsidiaries
|
|
|
(109,271
|
)
|
|
|
|
|
|
|
|
|
|
|
109,271
|
|
|
|
|
|
Change in assets and liabilities
|
|
|
139,247
|
|
|
|
(131,278
|
)
|
|
|
9,322
|
|
|
|
|
|
|
|
17,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
132,890
|
|
|
|
(24,519
|
)
|
|
|
14,236
|
|
|
|
|
|
|
|
122,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(63,806
|
)
|
|
|
(5,686
|
)
|
|
|
|
|
|
|
(69,492
|
)
|
Proceeds from the sale of assets
|
|
|
38
|
|
|
|
57,184
|
|
|
|
3,824
|
|
|
|
|
|
|
|
61,046
|
|
Proceeds from insurance claims
|
|
|
|
|
|
|
13,850
|
|
|
|
|
|
|
|
|
|
|
|
13,850
|
|
Purchase of marketable securities
|
|
|
(16,000
|
)
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(15,962
|
)
|
|
|
5,228
|
|
|
|
(1,862
|
)
|
|
|
|
|
|
|
(12,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
55,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,500
|
|
Principal payments under debt
obligations
|
|
|
(155,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,632
|
)
|
Payment of debt issuance costs
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(655
|
)
|
Proceeds from stock options
exercised
|
|
|
6,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,685
|
|
Intercompany advances, net
|
|
|
(7,525
|
)
|
|
|
22,498
|
|
|
|
(14,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(101,627
|
)
|
|
|
22,498
|
|
|
|
(14,973
|
)
|
|
|
|
|
|
|
(94,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
15,301
|
|
|
|
3,207
|
|
|
|
(2,599
|
)
|
|
|
|
|
|
|
15,909
|
|
Cash and cash equivalents at
beginning of year
|
|
|
16,677
|
|
|
|
7,938
|
|
|
|
19,652
|
|
|
|
|
|
|
|
44,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
31,978
|
|
|
$
|
11,145
|
|
|
$
|
17,053
|
|
|
$
|
|
|
|
$
|
60,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(47,083
|
)
|
|
$
|
23,473
|
|
|
$
|
4,298
|
|
|
$
|
(27,771
|
)
|
|
$
|
(47,083
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
64,253
|
|
|
|
4,988
|
|
|
|
|
|
|
|
69,241
|
|
Amortization of debt issuance and
premium
|
|
|
1,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,924
|
|
Loss on extinguishment of debt
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,657
|
|
Gain on disposition of assets
|
|
|
|
|
|
|
(50,419
|
)
|
|
|
(10,121
|
)
|
|
|
56,920
|
|
|
|
(3,620
|
)
|
Gain on disposition of marketable
securities
|
|
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(762
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
1,782
|
|
|
|
11,975
|
|
|
|
3,491
|
|
|
|
|
|
|
|
17,248
|
|
Other
|
|
|
1,122
|
|
|
|
4,994
|
|
|
|
16
|
|
|
|
|
|
|
|
6,132
|
|
Equity in net losses of subsidiaries
|
|
|
29,137
|
|
|
|
|
|
|
|
|
|
|
|
(29,137
|
)
|
|
|
|
|
Change in assets and liabilities
|
|
|
(24,871
|
)
|
|
|
(7,941
|
)
|
|
|
15,889
|
|
|
|
(12
|
)
|
|
|
(16,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(36,094
|
)
|
|
|
46,335
|
|
|
|
18,561
|
|
|
|
|
|
|
|
28,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(45,319
|
)
|
|
|
(1,998
|
)
|
|
|
|
|
|
|
(47,318
|
)
|
Proceeds from the sale of assets
|
|
|
|
|
|
|
50,324
|
|
|
|
729
|
|
|
|
|
|
|
|
51,053
|
|
Proceeds from insurance claims
|
|
|
|
|
|
|
41,566
|
|
|
|
|
|
|
|
|
|
|
|
41,566
|
|
Proceeds from sale of marketable
securities
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
1,376
|
|
|
|
46,571
|
|
|
|
(1,269
|
)
|
|
|
|
|
|
|
46,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Principal payments under debt
obligations
|
|
|
(290,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290,206
|
)
|
Payment of debt issuance costs
|
|
|
(10,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,243
|
)
|
Proceeds from stock options
exercised
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,471
|
|
Intercompany advances, net
|
|
|
97,318
|
|
|
|
(88,578
|
)
|
|
|
(8,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(1,660
|
)
|
|
|
(88,578
|
)
|
|
|
(8,740
|
)
|
|
|
|
|
|
|
(98,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
(36,378
|
)
|
|
|
4,328
|
|
|
|
8,552
|
|
|
|
|
|
|
|
(23,498
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
53,055
|
|
|
|
3,610
|
|
|
|
11,100
|
|
|
|
|
|
|
|
67,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
16,677
|
|
|
$
|
7,938
|
|
|
$
|
19,652
|
|
|
$
|
|
|
|
$
|
44,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
PARKER
DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2003
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(109,699
|
)
|
|
$
|
(90,318
|
)
|
|
$
|
1,213
|
|
|
$
|
89,105
|
|
|
$
|
(109,699
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
77,574
|
|
|
|
5,922
|
|
|
|
|
|
|
|
83,496
|
|
Amortization of debt issuance and
premium
|
|
|
1,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837
|
|
Loss on extinguishment of debt
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,161
|
|
Gain on disposition of assets
|
|
|
(196
|
)
|
|
|
(15,037
|
)
|
|
|
24
|
|
|
|
10,980
|
|
|
|
(4,229
|
)
|
Provision for reduction in carrying
value of certain assets
|
|
|
|
|
|
|
59,796
|
|
|
|
|
|
|
|
|
|
|
|
59,796
|
|
Other
|
|
|
(842
|
)
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
3,563
|
|
Equity in net losses of subsidiaries
|
|
|
89,105
|
|
|
|
|
|
|
|
|
|
|
|
(89,105
|
)
|
|
|
|
|
Change in assets and liabilities
|
|
|
(53,159
|
)
|
|
|
68,287
|
|
|
|
2,195
|
|
|
|
9,206
|
|
|
|
26,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(71,793
|
)
|
|
|
104,707
|
|
|
|
9,354
|
|
|
|
20,186
|
|
|
|
62,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(34,895
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
(34,962
|
)
|
Proceeds from the sale of assets
|
|
|
142
|
|
|
|
6,165
|
|
|
|
30
|
|
|
|
|
|
|
|
6,337
|
|
Proceeds from insurance claims
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
142
|
|
|
|
(22,730
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
(22,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Principal payments under debt
obligations
|
|
|
(239,064
|
)
|
|
|
(1,244
|
)
|
|
|
|
|
|
|
|
|
|
|
(240,308
|
)
|
Payment of debt issuance costs
|
|
|
(8,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,738
|
)
|
Intercompany advances, net
|
|
|
104,254
|
|
|
|
(79,145
|
)
|
|
|
(4,923
|
)
|
|
|
(20,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
81,452
|
|
|
|
(80,389
|
)
|
|
|
(4,923
|
)
|
|
|
(20,186
|
)
|
|
|
(24,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
9,801
|
|
|
|
1,588
|
|
|
|
4,394
|
|
|
|
|
|
|
|
15,783
|
|
Cash and cash equivalents at
beginning of year
|
|
|
43,254
|
|
|
|
6,218
|
|
|
|
2,510
|
|
|
|
|
|
|
|
51,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
53,055
|
|
|
$
|
7,806
|
|
|
$
|
6,904
|
|
|
$
|
|
|
|
$
|
67,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 Derivative
Financial Instruments
The Company entered into two
variable-to-fixed
interest rate swap agreements as a strategy to manage the
floating rate risk on the $150.0 million Senior Floating
Rate Notes. The first agreement, signed on August 18, 2004,
fixed the interest rate on $50.0 million at 8.83% for a
three-year period beginning September 1, 2005 and
terminating September 2, 2008 and fixed the interest rate
on an additional $50.0 million at 8.48% for the two-year
period beginning September 1, 2005 and terminating
September 4, 2007. In each case, an option to extend each
swap for an additional two years at the same rate was given to
the issuer, Bank of America, N.A. The second agreement, signed
on September 14, 2004, fixed the interest rate on
$150.0 million at 6.54% for the three-month period
beginning December 1, 2004 and terminating March 1,
2005. Options to extend $100.0 million at a fixed interest
rate of 7.08% for a six-month period beginning March 1,
2005 and to extend $50.0 million at a fixed interest rate
of 7.60% for an
18-month
period beginning March 1, 2005 and terminating
September 1, 2006, were given to the issuer, Bank of
America, N.A. In the first quarter of 2005, Bank of America,
N.A. allowed these options to expire unexercised.
These swap agreements do not meet the hedge criteria in
SFAS No. 133 and are, therefore, not designated as
hedges. Accordingly, the change in the fair value of the
interest rate swaps is recognized currently in Change in
fair value of derivative positions on the consolidated
statement of operations. As of December 31, 2005, the
Company had the following derivative instruments outstanding
related to its interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
Fixed
|
|
|
Fair
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Amount
|
|
|
Floating Rate
|
|
Rate
|
|
|
Value
|
|
(Dollars in Thousands)
|
|
|
|
September 1, 2005
|
|
|
|
September 2, 2008
|
|
|
$
|
50,000
|
|
|
Three-month LIBOR
plus 475 basis points
|
|
|
8.83
|
%
|
|
$
|
553
|
|
|
September 1, 2005
|
|
|
|
September 4, 2007
|
|
|
$
|
50,000
|
|
|
Three-month LIBOR
plus 475 basis points
|
|
|
8.48
|
%
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Income
Taxes
Income (loss) before income taxes and discontinued operations is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
United States
|
|
$
|
23,021
|
|
|
$
|
(14,847
|
)
|
|
$
|
(33,707
|
)
|
Foreign
|
|
|
47,207
|
|
|
|
(20,709
|
)
|
|
|
(1,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,228
|
|
|
$
|
(35,556
|
)
|
|
$
|
(35,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 Income Taxes (continued)
Income tax expense (benefit) related to continuing operations
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,837
|
|
|
$
|
124
|
|
|
$
|
|
|
State
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
14,473
|
|
|
|
14,885
|
|
|
|
16,985
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(46,537
|
)
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(28,584
|
)
|
|
$
|
15,009
|
|
|
$
|
16,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
Pre-Tax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(Dollars in Thousands)
|
|
|
Computed expected tax expense
|
|
$
|
24,580
|
|
|
|
35
|
%
|
|
$
|
(12,445
|
)
|
|
|
(35
|
)%
|
|
$
|
(12,407
|
)
|
|
|
(35
|
)%
|
Foreign taxes, net of federal
benefit
|
|
|
7,496
|
|
|
|
11
|
%
|
|
|
12,672
|
|
|
|
36
|
%
|
|
|
11,040
|
|
|
|
31
|
%
|
Change in valuation allowance
|
|
|
(71,497
|
)
|
|
|
(102
|
)%
|
|
|
12,231
|
|
|
|
34
|
%
|
|
|
11,858
|
|
|
|
33
|
%
|
Foreign corporation income
|
|
|
9,055
|
|
|
|
13
|
%
|
|
|
1,116
|
|
|
|
3
|
%
|
|
|
1,151
|
|
|
|
4
|
%
|
Permanent differences
|
|
|
1,740
|
|
|
|
2
|
%
|
|
|
1,311
|
|
|
|
4
|
%
|
|
|
4,701
|
|
|
|
13
|
%
|
Other
|
|
|
42
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
642
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
$
|
(28,584
|
)
|
|
|
(41
|
)%
|
|
$
|
15,009
|
|
|
|
42
|
%
|
|
$
|
16,985
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 Income Taxes (continued)
The components of the Companys deferred tax assets and
(liabilities) as of December 31, 2005 and 2004 are shown
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in Thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves established against
realization of certain assets
|
|
$
|
5,951
|
|
|
$
|
8,112
|
|
Accruals not currently deductible
for tax purposes
|
|
|
6,067
|
|
|
|
5,510
|
|
|
|
|
|
|
|
|
|
|
Gross current deferred tax assets
|
|
|
12,018
|
|
|
|
13,622
|
|
Current deferred tax valuation
allowance
|
|
|
|
|
|
|
(9,728
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
12,018
|
|
|
|
3,894
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
34,783
|
|
|
|
64,275
|
|
Alternative minimum tax
carryforwards
|
|
|
2,363
|
|
|
|
526
|
|
Property, plant and equipment
|
|
|
10,199
|
|
|
|
|
|
Other long-term liabilities
|
|
|
2,149
|
|
|
|
|
|
Deferred stock compensation
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross long-term deferred tax assets
|
|
|
50,235
|
|
|
|
64,801
|
|
Long-term deferred tax valuation
allowance
|
|
|
|
|
|
|
(46,275
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax assets
|
|
|
50,235
|
|
|
|
18,526
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
62,253
|
|
|
|
22,420
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
(10,043
|
)
|
Goodwill
|
|
|
(12,234
|
)
|
|
|
(9,907
|
)
|
Other
|
|
|
(3,552
|
)
|
|
|
(2,470
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax
liabilities
|
|
|
(15,786
|
)
|
|
|
(22,420
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
46,467
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As part of the process of preparing the consolidated financial
statements, the Company is required to determine its income
taxes. This process involves estimating the annual effective tax
rate and the nature and measurements of temporary differences
resulting from differing treatment of items for tax and
accounting purposes. These differences, and the NOL
carryforwards, result in deferred tax assets and liabilities. In
each period, the Company assesses the likelihood that its
deferred tax assets will be recovered from existing deferred tax
liabilities or future taxable income in each jurisdiction. To
the extent the Company believes that it does not meet the test
that recovery is more likely than not, it
establishes a valuation allowance. To the extent that the
Company establishes a valuation allowance or changes this
allowance in a period, it adjusts the tax provision or tax
benefit in the consolidated statement of operations. The Company
uses its judgment to determine the provision or benefit for
income taxes, and any valuation allowance recorded against the
deferred tax assets.
The 2005 results reflect the reversal of the valuation allowance
related to NOL carryforwards and other deferred tax assets in
the U.S. The valuation allowance was originally recorded in
accordance with GAAP as an offset to the Companys deferred
tax assets, which consisted primarily of NOL carryforwards. GAAP
required the Company to recognize a valuation allowance unless
it was more likely than not that the Company could
realize the benefit of the NOL carryforwards and deferred tax
assets in future periods. Having returned to profitability in
2005, the
69
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 Income Taxes (continued)
Company now expects that earnings performance should allow the
Company to benefit from the NOL carryforwards, the valuation
allowance is no longer required. In 2006 the Company will begin
to report deferred income tax expense. In 2004, the total change
in valuation allowance of $37.1 million consisted of a
$12.2 million current increase in the valuation allowance.
The remainder was due mainly to a change in the deferred tax
liabilities resulting from asset sales planned in 2003 which
were not realized. During 2005 and prior to the reversal of the
valuation allowance as discussed below, the Company completed a
process of reconciling its United States federal income tax
balance sheet for the purpose of properly adjusting its deferred
tax assets and liabilities. As a result of this process, the
Company recognized an additional net deferred tax asset of
approximately $15.5 million. Additionally, the Company
increased its valuation allowance by $15.5 million
resulting in no impact to the net deferred tax asset.
The $29.5 million decrease in the NOL carryforward
component of deferred tax assets in 2005 is primarily due to
projected utilization of NOL carryforwards in the Companys
2005 federal income tax return to be filed in 2006. The
$56.0 million decrease in the valuation allowance component
in 2005 is primarily due to expected utilization of the
Companys remaining NOL in 2006 and beyond. At
December 31, 2005, the Company had $99.5 million of
gross NOL carryforwards. For tax purposes, the NOL carryforwards
expire over a
20-year
period ending December 31 as follows:
2018 $19.6 million;
2019 $7.6 million;
thereafter $72.3 million.
The Company has provided U.S. deferred taxes and
withholding taxes on the unremitted earnings of our U.S. and
foreign subsidiaries as the earnings are not currently
considered to be permanently reinvested. As of December 31,
2005, the amounts accrued for tax contingencies totaled
$22.9 million, with $6.6 million classified as
long-term and included in Other long-term
liabilities.
Note 8 Common
Stock and Stockholders Equity
Stock Plans The Companys
employee and non-employee director stock plans are summarized as
follows:
The 1991 Stock Grant Plan (1991 Grant Plan)
authorized 3,160,000 shares of common stock to be issued to
officers, key employees and non-employee directors of the
Company and its affiliates who are responsible for and
contribute to the management, growth and profitability of the
business of the Company. The 1991 Grant Plan was frozen as of
April 27, 2005, the date on which the 2005 Plan (as defined
below) was approved by shareholders. As of such date, there were
1,462,195 shares available for granting under the 1991
Grant Plan, which are now available for granting under the 2005
Plan.
The 1994 Non-Employee Director Stock Incentive Plan
(1994 Director Plan) provided for the issuance
of options to purchase up to 200,000 shares of Parker
Drillings 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 was 10 years, and an
option first becomes exercisable six months after the date of
grant. The 1994 Director Plan was frozen as of
April 27, 2005, the date on which the 2005 Plan (as defined
below) was approved by shareholders. As of such date there were
15,000 shares available for issuance under this plan which
are now available for granting under the 2005 Plan.
The 1994 Executive Stock Option Plan (1994 Executive
Option Plan) provided 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 could 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 could not exceed 15 years and the maximum term of an
incentive option was 10 years. The 1994 Executive Option
Plan was frozen as of April 27, 2005, the date on which the
2005 Plan (as defined below) was approved by shareholders. As of
such date there were 1,037,000 shares available for
granting, which are now available for granting under the 2005
Plan.
The Amended and Restated 1997 Stock Plan (1997 Plan)
authorized 8,800,000 shares to be available for granting to
officers and key employees who, in the opinion of the board of
directors, were in a position to contribute to the growth,
management and success of the Company. This plan was approved by
the board of directors as a broad-based plan under
the interim rules of the New York Stock Exchange and, as a
result, more than 50 percent of the awards under this plan
have been made to non-executive employees. The option price per
share could not be
70
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 Common Stock and
Stockholders Equity (continued)
less than the fair market value on the date the option was
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 was 10 years and the maximum
term of a non-qualified option was 15 years. The 1997 Plan
was frozen as of April 27, 2005, the date on which the 2005
Plan (as defined below) was approved by shareholders. As of such
date, the 1,435,939 shares available for granting are now
available for granting under the 2005 Plan.
The 2005 Long-Term Incentive Plan (2005 Plan) was
approved by the shareholders at the Annual Meeting of
Shareholders on April 27, 2005. The 2005 Plan authorizes
the compensation committee or the board of directors to issue
stock options, stock grants and various types of incentive
awards in cash or stock to key employees, consultants and
directors. As of the date of approval of the 2005 Plan on
April 27, 2005, the 1991 Grant Plan, the 1994 Director
Plan, the 1994 Executive Option Plan and the 1997 Plan (the
Frozen Plans) were frozen and the
3,950,134 shares that were available for granting
immediately prior to the freezing of the Frozen Plans are now
available for granting under the terms of the 2005 Plan. In
2005, the Company de-listed the shares of common stock that were
listed and unissued under the Frozen Plans and filed a separate
listing application with the New York Stock Exchange, listing
the 3,950,134 shares under the 2005 Plan. The
3,950,134 shares have also been registered under a
Form S-8
filed with the Securities and Exchange Commission
(SEC) on May 6, 2005.
The Company issued 755,000 restricted shares in 2003 to selected
key personnel, of which 37,500 shares reverted back to the
Company. In March 2004, 377,500 shares vested after the
closing stock price of $3.50 per share was met for
30 consecutive days resulting in $1.0 million of
expense. In March 2005, the remaining 340,000 shares vested
after the closing stock price of $5.00 per share was met
for 30 consecutive days resulting in $0.7 million of
expense. In 2005, the Company issued 1,027,500 restricted
shares to the board of directors and selected key personnel, of
which 22,500 shares reverted back to the Company. The
amortization expense in 2005 for the restricted shares issued in
2005 was $1.9 million.
Information regarding the Companys stock option plans is
summarized below:
|
|
|
|
|
|
|
1991 Stock
|
|
|
|
Grant Plan
|
|
|
|
Restricted
|
|
|
|
Shares
|
|
|
Outstanding at December 31,
2004
|
|
|
|
|
Granted
|
|
|
100,000
|
|
Exercised
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
100,000
|
|
|
|
|
|
|
71
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 Common Stock and
Stockholders Equity (continued)
|
|
|
|
|
|
|
|
|
|
|
1994 Non-Employee
|
|
|
|
Director Stock
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at December 31,
2002
|
|
|
200,000
|
|
|
$
|
8.431
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2003
|
|
|
200,000
|
|
|
|
8.431
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2004
|
|
|
200,000
|
|
|
|
8.431
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,000
|
)
|
|
|
5.313
|
|
Cancelled
|
|
|
(55,000
|
)
|
|
|
8.031
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
124,000
|
|
|
$
|
9.137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Executive Stock Option
Plan
|
|
|
|
Incentive Options
|
|
|
Non-Qualified Options
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding at December 31,
2002
|
|
|
605,564
|
|
|
$
|
7.303
|
|
|
|
1,566,936
|
|
|
$
|
7.585
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(27,000
|
)
|
|
|
7.741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2003
|
|
|
578,564
|
|
|
|
7.286
|
|
|
|
1,566,936
|
|
|
|
7.585
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(55,500
|
)
|
|
|
2.250
|
|
Cancelled
|
|
|
(195,268
|
)
|
|
|
6.687
|
|
|
|
(346,732
|
)
|
|
|
7.811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2004
|
|
|
383,296
|
|
|
|
7.587
|
|
|
|
1,164,704
|
|
|
|
7.767
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(61,267
|
)
|
|
|
8.875
|
|
|
|
(26,199
|
)
|
|
|
8.875
|
|
Cancelled
|
|
|
(180,490
|
)
|
|
|
6.139
|
|
|
|
(347,510
|
)
|
|
|
5.160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
141,539
|
|
|
$
|
8.875
|
|
|
|
790,995
|
|
|
$
|
8.875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 Common Stock and
Stockholders Equity (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1997 Stock Plan
|
|
|
|
Incentive Options
|
|
|
Non-Qualified Options
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
Restricted
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
Outstanding at December 31,
2002
|
|
|
2,489,760
|
|
|
$
|
8.422
|
|
|
|
4,747,550
|
|
|
$
|
4.924
|
|
|
|
30,000
|
|
Granted
|
|
|
62,402
|
|
|
|
8.322
|
|
|
|
262,598
|
|
|
|
3.736
|
|
|
|
755,000
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,000
|
)
|
Cancelled
|
|
|
(50,513
|
)
|
|
|
10.314
|
|
|
|
(52,488
|
)
|
|
|
4.020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2003
|
|
|
2,501,649
|
|
|
|
8.382
|
|
|
|
4,957,660
|
|
|
|
4.887
|
|
|
|
779,000
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
4.020
|
|
|
|
|
|
Exercised
|
|
|
(94,764
|
)
|
|
|
3.196
|
|
|
|
(398,956
|
)
|
|
|
2.641
|
|
|
|
(383,500
|
)
|
Cancelled
|
|
|
(571,946
|
)
|
|
|
9.907
|
|
|
|
(586,989
|
)
|
|
|
7.071
|
|
|
|
(37,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2004
|
|
|
1,834,939
|
|
|
|
8.174
|
|
|
|
4,171,715
|
|
|
|
4.752
|
|
|
|
358,000
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
3.850
|
|
|
|
|
|
Exercised
|
|
|
(339,689
|
)
|
|
|
3.942
|
|
|
|
(1,161,649
|
)
|
|
|
3.838
|
|
|
|
(358,000
|
)
|
Cancelled
|
|
|
(289,882
|
)
|
|
|
9.915
|
|
|
|
(403,618
|
)
|
|
|
5.394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
1,205,368
|
|
|
$
|
8.947
|
|
|
|
2,631,448
|
|
|
$
|
5.049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Long-Term Incentive
Plan
|
|
|
|
Non-Qualified Options
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Restricted
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Outstanding at December 31,
2004
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
100,000
|
|
|
|
8.875
|
|
|
|
1,027,500
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
(22,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
100,000
|
|
|
$
|
8.875
|
|
|
|
1,005,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 Common Stock and
Stockholders Equity (continued)
The following tables summarize the information regarding stock
options outstanding and exercisable as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Exercise
|
|
Plan
|
|
Exercise Prices
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
|
1994 Non-Employee Director
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
|
|
$3.281
|
|
|
4,000
|
|
|
|
3.0 years
|
|
|
$
|
3.281
|
|
Non-qualified
|
|
$8.875 $12.094
|
|
|
120,000
|
|
|
|
1.0 years
|
|
|
$
|
9.332
|
|
1994 Executive Stock Option Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive option
|
|
$8.875
|
|
|
141,539
|
|
|
|
1.1 years
|
|
|
$
|
8.875
|
|
Non-qualified
|
|
$8.875
|
|
|
790,995
|
|
|
|
1.2 years
|
|
|
$
|
8.875
|
|
1997 Stock Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive option
|
|
$3.188 $5.938
|
|
|
307,652
|
|
|
|
0.5 years
|
|
|
$
|
3.634
|
|
Incentive option
|
|
$8.875 $12.188
|
|
|
897,716
|
|
|
|
1.5 years
|
|
|
$
|
10.768
|
|
Non-qualified
|
|
$1.960 $6.070
|
|
|
1,925,698
|
|
|
|
2.7 years
|
|
|
$
|
3.643
|
|
Non-qualified
|
|
$8.875 $10.813
|
|
|
705,750
|
|
|
|
1.2 years
|
|
|
$
|
8.885
|
|
2005 Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
|
|
$8.875
|
|
|
100,000
|
|
|
|
1.4 years
|
|
|
$
|
8.875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable Options
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
Plan
|
|
Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
1994 Non-Employee Director
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
|
|
$3.281
|
|
|
4,000
|
|
|
$
|
3.281
|
|
|
|
|
|
Non-qualified
|
|
$8.875 $12.094
|
|
|
120,000
|
|
|
$
|
9.332
|
|
|
|
|
|
1994 Executive Stock Option Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive option
|
|
$8.875
|
|
|
141,539
|
|
|
$
|
8.875
|
|
|
|
|
|
Non-qualified
|
|
$8.875
|
|
|
790,995
|
|
|
$
|
8.875
|
|
|
|
|
|
1997 Stock Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive option
|
|
$3.188 $5.938
|
|
|
307,652
|
|
|
$
|
3.634
|
|
|
|
|
|
Incentive option
|
|
$8.875 $12.188
|
|
|
897,716
|
|
|
$
|
10.768
|
|
|
|
|
|
Non-qualified
|
|
$1.960 $6.070
|
|
|
1,839,281
|
|
|
$
|
3.645
|
|
|
|
|
|
Non-qualified
|
|
$8.875 $10.813
|
|
|
705,750
|
|
|
$
|
8.885
|
|
|
|
|
|
2005 Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
|
|
$8.875
|
|
|
100,000
|
|
|
$
|
8.875
|
|
|
|
|
|
The Company had 760,699 and 660,389 shares held in Treasury
stock at December 31, 2005 and 2004, respectively.
74
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 Common Stock and
Stockholders Equity (continued)
Stock Reserved for Issuance The
following is a summary of common stock reserved for issuance:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Stock plans
|
|
|
7,938,484
|
|
|
|
11,671,475
|
|
Stock bonus plan
|
|
|
307,187
|
|
|
|
512,198
|
|
|
|
|
|
|
|
|
|
|
Total shares reserved for issuance
|
|
|
8,245,671
|
|
|
|
12,183,673
|
|
|
|
|
|
|
|
|
|
|
Stockholder Rights Plan The
Company adopted a stockholder rights plan on June 25, 1998,
to assure that the Companys 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 Companys 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 plan was amended on
September 22, 1998, to eliminate the restriction on the
board of directors ability to redeem the shares for two
years in the event the majority of the board of directors does
not consist of the same directors that were in office as of
June 25, 1998 (Continuing Directors), or
directors that were recommended to succeed Continuing Directors
by a majority of the Continuing Directors.
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 Companys option, may be
redeemed by the Company in whole, but not in part, prior to
expiration for $0.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
Common Stock Offering Subsequent
to December 31, 2005, the Company announced an offering of
8,900,000 shares of common stock on January 18, 2006,
pursuant to a Free Writing Prospectus dated January 17,
2006 and a Prospectus Supplement dated January 18, 2006. On
January 23, 2006, the Company realized $11.23 per
share or a total of $99.9 million of net proceeds before
expenses, but after underwriter discount, from the offering.
75
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Note 9
|
Reconciliation
of Income and Number of Shares Used to Calculate Basic and
Diluted Earnings Per Share (EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2005
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
98,812,000
|
|
|
|
95,818,893
|
|
|
$
|
1.03
|
|
Discontinued operations
|
|
|
71,000
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
98,883,000
|
|
|
|
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
1,389,452
|
|
|
$
|
(0.01
|
)
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
98,812,000
|
|
|
|
97,208,345
|
|
|
$
|
1.02
|
|
Discontinued operations
|
|
|
71,000
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
98,883,000
|
|
|
|
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2004
|
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(50,565,000
|
)
|
|
|
94,113,257
|
|
|
$
|
(0.54
|
)
|
Discontinued operations
|
|
|
3,482,000
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(47,083,000
|
)
|
|
|
|
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(50,565,000
|
)
|
|
|
94,113,257
|
|
|
$
|
(0.54
|
)
|
Discontinued operations
|
|
|
3,482,000
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(47,083,000
|
)
|
|
|
|
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2003
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(52,434,000
|
)
|
|
|
93,420,713
|
|
|
$
|
(0.56
|
)
|
Discontinued operations
|
|
|
(57,265,000
|
)
|
|
|
|
|
|
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(109,699,000
|
)
|
|
|
|
|
|
$
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(52,434,000
|
)
|
|
|
93,420,713
|
|
|
$
|
(0.56
|
)
|
Discontinued operations
|
|
|
(57,265,000
|
)
|
|
|
|
|
|
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(109,699,000
|
)
|
|
|
|
|
|
$
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 Reconciliation of Income and
Number of Shares Used to Calculate Basic and Diluted
Earnings Per Share (EPS) (continued)
Options to purchase 2,796,000 shares of common stock with
exercise prices ranging from $8.875 to $12.188 per share
were outstanding during the year ended December 31, 2005,
but were not included in the computation of diluted EPS because
the options exercise prices were greater than the average
market price of the common shares. For the year ended
December 31, 2004, options to purchase
7,754,654 shares of common stock at prices ranging from
$1.960 to $12.188, which were outstanding during the period,
were not included in the computation of diluted EPS because the
assumed exercise of the options would have had an anti-dilutive
effect on EPS due to the net loss incurred for 2004. For the
fiscal year ended December 31, 2003, options to purchase
9,804,809 shares of common stock at prices ranging from
$1.960 to $12.188, which were outstanding during the period,
were 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 2003. At
December 31, 2003, the Company had outstanding $105,169,000
of 5.5% Convertible Subordinated Notes which were
convertible into 6,833,593 shares of common stock at
$15.39 per share. The notes were 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. All of the outstanding
5.5% Convertible Subordinated Notes were retired on
August 2, 2004.
Note 10 Employee
Benefit Plans
The Company sponsors a defined contribution 401(k) plan
(Plan) in which substantially all
U.S. employees are eligible to participate. Company
matching contributions to the Plan are based on the amount of
employee contributions and are made in Parker Drilling common
stock. The Company issued 205,011, 402,760, and
627,732 shares to the Plan in 2005, 2004 and 2003
respectively with the Company recognizing expense of
$1.4 million, $1.4 million, and $1.7 million for
each of the respective periods.
Parker Drilling Company Limited (PDCL), a
wholly-owned subsidiary of the Company, had a deferred
compensation plan (Compensation Plan) of certain
designated non-resident alien employees of PDCL and its
affiliates. The Compensation Plan was terminated in 2004. The
Compensation Plan was valued at $1.8 million when
terminated in 2004 and $1.7 million as of December 31,
2003, respectively. The Company recognized expense of
$0.3 million and $0.2 million in each of the years
ending December 31, 2004 and 2003. As of December 31,
2004 and 2005, the Company had no deferred compensation plan.
77
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 Business
Segments
The Company is organized into three primary business segments:
U.S. drilling operations, international drilling
operations, and rental tools. This is the basis management uses
for making operating decisions and assessing performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Operations by Industry
Segment
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Drilling and rental revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling (1)
|
|
$
|
128,252
|
|
|
$
|
88,512
|
|
|
$
|
67,449
|
|
International drilling (1)
|
|
|
308,572
|
|
|
|
220,846
|
|
|
|
216,567
|
|
Rental tools (1)
|
|
|
94,838
|
|
|
|
67,167
|
|
|
|
54,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
|
531,662
|
|
|
|
376,525
|
|
|
|
338,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (loss): (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
|
41,739
|
|
|
|
15,938
|
|
|
|
(186
|
)
|
International drilling
|
|
|
40,281
|
|
|
|
15,858
|
|
|
|
24,557
|
|
Rental tools
|
|
|
40,239
|
|
|
|
24,874
|
|
|
|
17,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental
operating income
|
|
|
122,259
|
|
|
|
56,670
|
|
|
|
41,982
|
|
Net construction contract
operating income
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
General and administrative expense
|
|
|
(27,830
|
)
|
|
|
(23,413
|
)
|
|
|
(19,256
|
)
|
Provision for reduction in
carrying value of certain assets
|
|
|
(4,884
|
)
|
|
|
(13,120
|
)
|
|
|
(6,028
|
)
|
Gain on disposition of assets, net
|
|
|
25,578
|
|
|
|
3,730
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
115,123
|
|
|
|
23,867
|
|
|
|
22,927
|
|
Interest expense
|
|
|
(42,113
|
)
|
|
|
(50,368
|
)
|
|
|
(53,790
|
)
|
Changes in fair value of
derivative positions
|
|
|
2,076
|
|
|
|
(794
|
)
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(8,241
|
)
|
|
|
(8,753
|
)
|
|
|
(5,274
|
)
|
Minority interest
|
|
|
1,905
|
|
|
|
(1,143
|
)
|
|
|
464
|
|
Other
|
|
|
1,478
|
|
|
|
1,635
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
$
|
70,228
|
|
|
$
|
(35,556
|
)
|
|
$
|
(35,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
120,647
|
|
|
$
|
133,855
|
|
|
$
|
227,479
|
|
International drilling
|
|
|
378,427
|
|
|
|
371,059
|
|
|
|
413,338
|
|
Rental tools
|
|
|
98,531
|
|
|
|
82,569
|
|
|
|
77,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
|
597,605
|
|
|
|
587,483
|
|
|
|
718,757
|
|
Corporate assets
|
|
|
204,015
|
|
|
|
139,107
|
|
|
|
128,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
801,620
|
|
|
$
|
726,590
|
|
|
$
|
847,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In 2005, ExxonMobil (inclusive of
its ventures) and ChevronTexaco (inclusive of TCO, a consortium
in which ChevronTexaco is a partner) accounted for approximately
14 percent and 11 percent of the Companys total
revenues, respectively. ExxonMobil (inclusive of its ventures)
accounted for approximately $54.8 million of the
Companys international drilling segment revenues and
approximately $18.2 million of the Companys rental
tools segment revenues. ChevronTexaco (inclusive of TCO, a
consortium in which ChevronTexaco is a partner) accounted for
approximately $50.6 million of the Companys
international drilling segment revenues and approximately
$9.2 million of the Companys rental tools segment
revenues. In 2004, TCO accounted for approximately 13 percent of
total revenues, all relating to the international drilling
segment. In 2003, Royal Dutch Shell, TCO and ChevronTexaco
accounted for approximately 15 percent, 14 percent and
11 percent of the Companys total revenues,
respectively. Royal Dutch Shell and TCO amounts all related to
the Companys international drilling segment. ChevronTexaco
accounted for approximately $24.4 million of the
Companys U.S. drilling segment revenues,
$10.3 million of the Companys international drilling
segment revenues and $7.1 million of the Companys
rental tools segment revenues.
|
|
(2)
|
|
Drilling and rental operating
income drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation
and amortization expense.
|
|
(3)
|
|
Includes assets related to
discontinued operations.
|
78
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 Business Segments
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Operations by Industry
Segment
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
16,724
|
|
|
$
|
13,549
|
|
|
$
|
7,400
|
|
International drilling
|
|
|
23,524
|
|
|
|
20,128
|
|
|
|
9,536
|
|
Rental tools
|
|
|
27,962
|
|
|
|
13,031
|
|
|
|
18,026
|
|
Corporate
|
|
|
1,282
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
69,492
|
|
|
$
|
47,318
|
|
|
$
|
34,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. drilling
|
|
$
|
19,354
|
|
|
$
|
18,090
|
|
|
$
|
19,460
|
|
International drilling
|
|
|
30,330
|
|
|
|
35,642
|
|
|
|
38,412
|
|
Rental tools
|
|
|
16,142
|
|
|
|
13,984
|
|
|
|
13,622
|
|
Corporate
|
|
|
1,378
|
|
|
|
1,525
|
|
|
|
2,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
67,204
|
|
|
$
|
69,241
|
|
|
$
|
73,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 Business Segments
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Operations by Geographic
Area
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in Thousands)
|
|
|
Drilling and rental revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
218,056
|
|
|
$
|
154,995
|
|
|
$
|
122,086
|
|
Latin America
|
|
|
67,954
|
|
|
|
39,614
|
|
|
|
24,869
|
|
Asia Pacific
|
|
|
58,623
|
|
|
|
42,468
|
|
|
|
28,492
|
|
Africa and Middle East
|
|
|
33,377
|
|
|
|
31,352
|
|
|
|
56,601
|
|
CIS
|
|
|
153,652
|
|
|
|
108,096
|
|
|
|
106,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental revenues
|
|
|
531,662
|
|
|
|
376,525
|
|
|
|
338,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and rental operating
income (loss): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
77,560
|
|
|
|
40,130
|
|
|
|
17,425
|
|
Latin America
|
|
|
4,018
|
|
|
|
(1,215
|
)
|
|
|
(1,345
|
)
|
Asia Pacific
|
|
|
14,353
|
|
|
|
9,379
|
|
|
|
3,309
|
|
Africa and Middle East
|
|
|
(834
|
)
|
|
|
(8,181
|
)
|
|
|
3,316
|
|
CIS
|
|
|
27,162
|
|
|
|
16,557
|
|
|
|
19,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drilling and rental
operating income
|
|
|
122,259
|
|
|
|
56,670
|
|
|
|
41,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net construction contract
operating income (United States)
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
General and administrative expense
|
|
|
(27,830
|
)
|
|
|
(23,413
|
)
|
|
|
(19,256
|
)
|
Provision for reduction in
carrying value of certain assets
|
|
|
(4,884
|
)
|
|
|
(13,120
|
)
|
|
|
(6,028
|
)
|
Gain on disposition of assets, net
|
|
|
25,578
|
|
|
|
3,730
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
115,123
|
|
|
|
23,867
|
|
|
|
22,927
|
|
Interest expense
|
|
|
(42,113
|
)
|
|
|
(50,368
|
)
|
|
|
(53,790
|
)
|
Changes in fair value of
derivative positions
|
|
|
2,076
|
|
|
|
(794
|
)
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(8,241
|
)
|
|
|
(8,753
|
)
|
|
|
(5,274
|
)
|
Minority interest
|
|
|
1,905
|
|
|
|
(1,143
|
)
|
|
|
464
|
|
Other
|
|
|
1,478
|
|
|
|
1,635
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
$
|
70,228
|
|
|
$
|
(35,556
|
)
|
|
$
|
(35,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
257,302
|
|
|
$
|
262,416
|
|
|
$
|
354,320
|
|
Latin America
|
|
|
36,853
|
|
|
|
55,425
|
|
|
|
52,320
|
|
Asia Pacific
|
|
|
18,732
|
|
|
|
20,785
|
|
|
|
25,027
|
|
Africa and Middle East
|
|
|
51,615
|
|
|
|
65,974
|
|
|
|
85,661
|
|
CIS
|
|
|
98,501
|
|
|
|
109,495
|
|
|
|
124,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
463,003
|
|
|
$
|
514,095
|
|
|
$
|
641,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Drilling and rental operating
income drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation
and amortization expense.
|
|
(2)
|
|
Includes assets related to
discontinued operations and is comprised of property, plant and
equipment, net and goodwill.
|
Note 12 Commitments
and Contingencies
At December 31, 2005, the Company had a $40.0 million
revolving credit facility available for general corporate
purposes and to support letters of credit. As of
December 31, 2005, $10.3 million of availability has
been
80
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12 Commitments and Contingencies
(continued)
reserved to support letters of credit that have been issued. At
December 31, 2005, no amounts had been drawn under the
revolving credit facility.
The Company has various lease agreements for office space,
equipment, vehicles and personal property. These obligations
extend through 2012 and are typically non-cancelable. Most
leases contain renewal options and certain of the leases contain
escalation clauses. Future minimum lease payments at
December 31, 2005, under operating leases with
non-cancelable terms are as follows (dollars in thousands):
|
|
|
|
|
2006
|
|
$
|
5,166
|
|
2007
|
|
|
2,725
|
|
2008
|
|
|
2,330
|
|
2009
|
|
|
1,558
|
|
2010
|
|
|
520
|
|
Thereafter
|
|
|
951
|
|
|
|
|
|
|
Total
|
|
$
|
13,250
|
|
|
|
|
|
|
Total rent expense for all operating leases amounted to
$10.2 million for 2005, $9.3 million for 2004, and
$10.3 million for 2003.
The Company is self-insured for certain losses relating to
workers compensation, employers liability, general
liability (for onshore liability), protection and indemnity (for
offshore liability) and property damage. The Companys
exposure (that is, the retention or deductible) per occurrence
is $250,000 for workers compensation, employers
liability, general liability, protection and indemnity and
maritime employers liability (Jones Act). In addition, the
Company assumes a $750,000 annual aggregate deductible for
protection and indemnity and maritime employers liability
claims. The annual aggregate deductible is eroded by every
dollar that exceeds the $250,000 per occurrence retention.
The Company continues to assume a straight $250,000 retention
for workers compensation, employers liability, and
general liability losses. The self-insurance for automobile
liability applies to historic claims only as the Company is
currently on a first dollar policy, with those reserves being
minimal. For all primary insurances mentioned above, the Company
has excess coverage for those claims that exceed the retention
and annual aggregate deductible. The Company maintains
actuarially-determined accruals in its consolidated balance
sheets to cover the self-insurance retentions.
The Company has self-insured retentions for certain other losses
relating to rig, equipment, property, business interruption and
political, war, and terrorism risks which vary according to the
type of rig and line of coverage. Political risk insurance is
procured for international operations. There is no assurance
that such coverage will adequately protect the Company against
liability from all potential consequences.
As of December 31, 2005, the Companys gross
self-insurance accruals for workers compensation,
employers liability, general liability, protection and
indemnity and maritime employers liability totaled
$9.4 million and the related insurance
recoveries/receivables were $3.8 million.
The Company has entered into employment agreements with terms of
one to three years with certain members of management with
automatic one or two year renewal periods at expiration dates.
The agreements provide for, among other things, compensation,
benefits and severance payments. They also provide for lump sum
compensation and benefits in the event of a change in control of
the Company.
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.
As previously reported, the Kazakhstan branch (PKD
Kazakhstan) of Parker Drilling Company International
Limited (PDCIL) prevailed on its Kazakhstan Supreme
Court appeal arising out of an audit assessment in 2001 of
approximately $29.0 million by the Ministry of State
Revenues of Kazakhstan (MSR) based on payments PDCIL
received from the operator to upgrade barge rig 257. Although
the MSR did not appeal this Supreme Court ruling
81
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12 Commitments and Contingencies
(continued)
within the time required for a supervisory appeal, in February
2005 the Ministry of Finance of Kazakhstan (MinFin)
filed an application for re-hearing based on new evidence and
the Supreme Court of Kazakhstan issued an order on
April 12, 2005, declining the application for re-hearing.
On October 14, 2005, PKD Kazakhstan received an Act of Tax
Audit from MinFin assessing PKD Kazakhstan, in the amount of
$111.4 million. Approximately $56.4 million was
assessed for import Value Added Tax, administrative fines and
interest on equipment imported to perform drilling contracts,
(the VAT Assessment). The VAT Assessment is based on
an interpretation by MinFin that resolutions of the Government
of the Republic of Kazakhstan and MinFin removing import Value
Added Tax exemptions should be applied retroactively. PKD
Kazakhstan is contesting this assessment. In addition, the
client of PKD Kazakhstan has agreed to reimburse the VAT
Assessment, when and if PKD Kazakhstan is required to pay. At
December 31, 2005, the $56.4 million VAT Assessment is
reflected in Accrued liabilities in the consolidated
balance sheet with the corresponding $56.4 million
reimbursement receivable from the customer reported in
Other current assets. Approximately
$55.0 million was assessed for corporate income tax,
individual income tax and social tax, administrative fines and
interest in connection with the reimbursements received from PKD
Kazakhstans customer for the upgrade of barge rig 257 and
other issues, (the Income Tax Assessment). The
Income Tax Assessment is based on the same claim of MinFin on
which PKD Kazakhstan has prevailed in the Supreme Court of
Kazakhstan on two previous occasions. PKD Kazakhstan believes
that this claim is barred by the statute of limitations and will
ultimately be dismissed.
The Company continues to pursue its petition with the
U.S. Treasury Department for Competent Authority review,
which is a tax treaty procedure to resolve disputes as to which
country may tax income covered under the treaty. The
U.S. Treasury Department has granted the Companys
petition and has plans to re-initiate proceedings with MinFin.
In September 2005, a subsidiary of the Company was served with a
lawsuit filed on behalf of numerous citizens of Bangladesh
claiming $250 million in damages due to various types of
property damage and personal injuries, arising as a result of
two blowouts, only one of which involved the Company, that
occurred in Bangladesh in January and July 2005. This case is in
the very early stages of discovery and, accordingly, the
ultimate outcome cannot presently be determined. In any event
the Company believes that the outcome of this lawsuit will not
materially impair the financial condition of the Company due to
insurance coverage and contractual indemnities.
In August 2004, the Company was notified that certain of its
subsidiaries have been named, along with other defendants, in
several complaints that have been filed in the Circuit Courts of
the State of Mississippi by several hundred persons that allege
that they were employed by some of the named defendants between
approximately 1965 and 1986. The complaints name as defendants
numerous other companies that are not affiliated with the
Company, including companies that allegedly manufactured
drilling related products containing asbestos that are the
subject of the complaints. The complaints allege that the
Companys subsidiaries and other drilling contractors used
those asbestos-containing products in offshore drilling
operations, land-based drilling operations and in drilling
structures, drilling rigs, vessels and other equipment and
assert claims based on, among other things, negligence and
strict liability and claims under the Jones Act. Because the
progress of these cases has been delayed by procedural
challenges raised by the defendants and by the impact of
Hurricane Katrina on Mississippi, the Company has not yet had an
opportunity to conduct sufficient discovery to determine the
number of plaintiffs, if any, that were employed by the Company
or otherwise have any connection with its drilling operations
during the relevant period. In addition, on March 18, 2005,
a case was filed by a single plaintiff in the Circuit Court of
Madison County, Illinois against approximately 125 defendants,
including Parker Drilling Company, alleging that the plaintiff
suffers from asbestos-related diseases, including mesothelioma,
as a result of exposure to asbestos and asbestos-containing
products. On January 13, 2006, one of the Companys
subsidiaries was served with a petition filed in the District
Court for the Parish of Jefferson in Louisiana against more than
200 defendants by 88 plaintiffs complaining of exposure to
asbestos, chemicals, noise, and metals during their work as
Jones Act seamen. There has not yet been an opportunity to
conduct sufficient discovery to determine the number of
plaintiffs, if any, that were employed by a subsidiary of the
Company or otherwise have any connection with any of its
subsidiary operations during the relevant period. The plaintiffs
in these cases seek, among other things, awards of unspecified
compensatory and punitive damages. The subsidiary intends to
defend itself vigorously and, based on the information available
to the Company at this time, the Company does not expect the
outcome of these lawsuits to have a material adverse effect
82
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12 Commitments and Contingencies
(continued)
on its financial condition, results of operations or cash flows;
however, there can be no assurance as to the ultimate outcome of
these lawsuits.
Note 13 Related
Party Transactions
On February 27, 1995, the Company entered into a Split
Dollar Life Insurance Agreement with Robert L. Parker, chairman
of the board and director of the Company, and the Robert L.
Parker and Catherine M. Parker Family Trust under Indenture
dated 23rd day of July 1993 (Trust) pursuant to
which the Company agreed to provide life insurance protection
for Mr. and Mrs. Robert L. Parker in the event of the
death of Mr. and Mrs. Parker (the
Agreement). The Agreement provided that the Trust
would acquire and own a life insurance policy with face amount
of $13.2 million and that the Company would pay the
premiums subject to reimbursement by the Trust out of the
proceeds of the policy, with interest to accrue on the premium
payments made by the Company from and after January 1,
2000, at the one-year Treasury bill rate. The repayment of the
premiums was secured by an Assignment of Life Insurance Policy
as Collateral on the same date as the Agreement. On
October 14, 1996, the Agreement was amended to provide that
the interest accrual would be deferred until February 28,
2003, in consideration for the Companys termination of a
separate life insurance policy on the life of Robert L. Parker.
On April 19, 2000, the Agreement was amended and restated
to replace the previous policy with two policies, one for
$8.0 million on the life of Robert L. Parker and one for
$7.7 million on the lives of both Mr. and
Mrs. Robert L. Parker. Mr. Robert L. Parker Jr., the
Companys president and chief executive officer and son of
Robert L. Parker, will receive one third of the net proceeds of
the policies.
As of December 31, 2005, the amount of premiums paid by the
Company on the policies and to be reimbursed by the Trust to the
Company was $4.7 million. Due to the adoption of the
Sarbanes-Oxley Act of 2002 (SOX), additional loans
to executive officers and directors may be prohibited, although
continuance of loans in existence as of July 30, 2002, are
allowed provided there is no material modification to such
loans. Because the advancement of additional annual premiums by
the Company may be considered a prohibited loan under the SOX,
the Company elected to not advance the annual premiums that were
due in December 2002, 2003, 2004 and 2005 pending further
clarification from the SEC as to how the Companys
obligation to advance these premiums under the Agreement can be
honored without violating the SOX. An analysis of the policies
by a financial consultant indicated there is no reasonable
certainty that the value of the policies will be adequate for
the Company to recoup the full amount of premiums. Therefore,
during 2005 and 2004, the Company reduced the value of its asset
by $2.3 million and $1.7 million, respectively.
Robert L. Parker, through the Robert L. Parker, Sr. Family
Limited Partnership (the Limited Partnership) owns a
2,987 acre ranch near Kerrville, Texas, the (Cypress
Springs Ranch) and a 4,982 acre ranch in Mazie,
Oklahoma (the Mazie Ranch). The Cypress Springs
Ranch has lodging, conference facilities, sporting and other
outdoor activities which the Company utilized in connection with
marketing and other business purposes during 2005 and 2004. The
Mazie Ranch has hunting, fishing and other outdoor facilities.
Effective as of January 1, 2004, the Company and the
Limited Partnership entered into a Lease Agreement pursuant to
which the Company pays the Limited Partnership a monthly fee in
exchange for unlimited access to the facilities of the Limited
Partnership at the Cypress Springs Ranch and the Mazie Ranch.
During 2005 and 2004, the Company paid the Limited Partnership a
total of $0.4 million in lease fees per year. The Limited
Partnership also entered into a Services Agreement with the
Company effective January 1, 2004, pursuant to which the
Company provides certain personnel to the Limited Partnership to
maintain the Cypress Springs Ranch and the Mazie Ranch. During
2005 and 2004, the Limited Partnership paid the Company a total
of $0.2 million for the provision of such personnel per
year.
Robert L. Parker Jr. owns a 1,400 acre ranch near
Kerrville, Texas (the Camp Verde Ranch). The Camp
Verde Ranch has lodging as well as hunting, fishing and other
outdoor facilities. Effective January 1, 2004, the Company
entered into a Lease Agreement pursuant to which the Company
pays Robert L. Parker Jr. a monthly fee in exchange for
unlimited access to the Camp Verde Ranch facilities. During 2005
and 2004, the Company paid Robert L. Parker Jr. a total of
$0.1 million in lease fees per year. Mr. Parker Jr.
also entered into a Services Agreement with the Company
effective as of January 1, 2004, pursuant to which the
Company provides certain personnel to Mr. Parker Jr. to
maintain the Camp Verde Ranch. During 2005 and 2004,
Mr. Parker Jr. paid the Company a total of $58 thousand and
$36 thousand for the provision of such personnel, respectively.
83
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 Related
Party Transactions (continued)
During 2005, one of the Companys directors held the
position of executive vice president and chief financial officer
of Apache Corporation (Apache). During 2005,
subsidiaries of the Company recognized $6.7 million in
gross revenues for performance of drilling services and
provision of rental tools for a subsidiary of Apache.
Note 14 Supplementary
Information
At December 31, 2005, accrued liabilities included
$6.5 million of accrued interest expense, $7.9 million
of workers compensation and health plan liabilities,
$25.6 million of accrued payroll and payroll taxes and
$56.4 million for the VAT Assessment discussed in
Note 12 in the notes to the consolidated financial
statements. At December 31, 2004, accrued liabilities
included $7.0 million of accrued interest expense,
$5.7 million of workers compensation and health plan
liabilities and $16.8 million of accrued payroll and
payroll taxes. Other long-term obligations included
$2.0 million and $2.3 million of workers
compensation liabilities as of December 31, 2005 and 2004,
respectively.
Note 15 Selected
Quarterly Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Year 2005
|
|
First
|
|
|
Second (2)
|
|
|
Third (2)
|
|
|
Fourth (2)
|
|
|
Total (2)
|
|
|
|
(Dollars in Thousands Except Per
Share Data)
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
$
|
120,243
|
|
|
$
|
133,954
|
|
|
$
|
127,905
|
|
|
$
|
149,560
|
|
|
$
|
531,662
|
|
Drilling and rental operating
income
|
|
$
|
24,991
|
|
|
$
|
29,322
|
|
|
$
|
32,665
|
|
|
$
|
35,281
|
|
|
$
|
122,259
|
|
Total operating income
|
|
$
|
18,567
|
|
|
$
|
38,820
|
|
|
$
|
29,865
|
|
|
$
|
27,871
|
|
|
$
|
115,123
|
|
Income from continuing operations
|
|
$
|
3,838
|
|
|
$
|
20,194
|
|
|
$
|
18,073
|
|
|
$
|
56,707
|
|
|
$
|
98,812
|
|
Discontinued operations
|
|
$
|
91
|
|
|
$
|
(14
|
)
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
$
|
71
|
|
Net income
|
|
$
|
3,929
|
|
|
$
|
20,180
|
|
|
$
|
18,067
|
|
|
$
|
56,707
|
|
|
$
|
98,883
|
|
Basic earnings per share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
0.59
|
|
|
$
|
1.03
|
|
Discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
0.59
|
|
|
$
|
1.03
|
|
Diluted earnings per
share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
|
$
|
0.58
|
|
|
$
|
1.02
|
|
Discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net income
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
|
$
|
0.58
|
|
|
$
|
1.02
|
|
|
|
|
(1)
|
|
As a result of shares issued during
the year, earnings per share for the years four quarters,
which are based on weighted average shares outstanding during
each quarter, may not equal the annual earnings per share, which
is based on the weighted average shares outstanding during the
year.
|
|
(2)
|
|
Total operating income and net
income includes a $4.9 million provision for reduction in
carrying value of certain assets in 2005; $2.3 million and
$2.6 million in the third and fourth quarters,
respectively. Also included is a gain on the disposition of
assets for the seven land rigs in Latin America and rig 255
in Bangladesh of $15.0 million, $6.0 million and
$3.3 million in the second, third and fourth quarters of
2005, respectively. Net income in the fourth quarter includes
the reversal of a $71.5 million valuation allowance related
to net operating loss carryforwards and other deferred assets.
See Note 7 in the notes to the consolidated financial
statements.
|
84
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 Selected Quarterly Financial
Data (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Year 2004
|
|
First
|
|
|
Second (2)
|
|
|
Third
|
|
|
Fourth (2)
|
|
|
Total (2)
|
|
|
|
|
|
|
(Dollars in Thousands Except Per
Share Data)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
90,899
|
|
|
$
|
87,881
|
|
|
$
|
87,945
|
|
|
$
|
109,800
|
|
|
$
|
376,525
|
|
|
|
|
|
Drilling and rental operating
income
|
|
$
|
15,455
|
|
|
$
|
13,616
|
|
|
$
|
6,358
|
|
|
$
|
21,241
|
|
|
$
|
56,670
|
|
|
|
|
|
Total operating income
|
|
$
|
10,136
|
|
|
$
|
412
|
|
|
$
|
1,767
|
|
|
$
|
11,552
|
|
|
$
|
23,867
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(7,594
|
)
|
|
$
|
(16,022
|
)
|
|
$
|
(24,802
|
)
|
|
$
|
(2,147
|
)
|
|
$
|
(50,565
|
)
|
|
|
|
|
Discontinued operations
|
|
$
|
2,730
|
|
|
$
|
2,497
|
|
|
$
|
1,359
|
|
|
$
|
(3,104
|
)
|
|
$
|
3,482
|
|
|
|
|
|
Net loss
|
|
$
|
(4,864
|
)
|
|
$
|
(13,525
|
)
|
|
$
|
(23,443
|
)
|
|
$
|
(5,251
|
)
|
|
$
|
(47,083
|
)
|
|
|
|
|
Basic earnings (loss) per
share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.54
|
)
|
|
|
|
|
Discontinued operations
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
|
|
|
Net loss
|
|
$
|
(0.05
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.50
|
)
|
|
|
|
|
Diluted earnings (loss) per
share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.54
|
)
|
|
|
|
|
Discontinued operations
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
|
|
|
Net loss
|
|
$
|
(0.05
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
(1)
|
|
As a result of shares issued during
the year, earnings per share for the years four quarters,
which are based on weighted average shares outstanding during
each quarter, may not equal the annual earnings per share, which
is based on the weighted average shares outstanding during the
year.
|
|
(2)
|
|
Total operating income and net loss
includes a $13.1 million provision for reduction in
carrying value of certain assets in 2004; $6.5 million and
$6.6 million in the second and fourth quarters,
respectively.
|
Note 16 Recent
Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation (FIN)
No. 47, Accounting for Conditional Asset Retirement
Obligations. FIN No. 47 requires companies to
record a liability for those asset retirement obligations in
which the timing and/or amount of settlement of the obligation
are uncertain. These conditional obligations were not addressed
by SFAS No. 143, Accounting for Asset Retirement
Obligations, which the Company adopted on January 1,
2003. FIN No. 47, which was adopted October 1,
2005, requires the Company to accrue a liability when a range of
scenarios indicates that the potential timing and/or settlement
amounts of the conditional asset retirement obligations can be
determined. This pronouncement did not have any impact on the
consolidated financial statements.
In May 2005, FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a replacement of
APB Opinion No. 20 and FASB Statement No. 3,
which establishes, unless impracticable, retrospective
application as the required method for reporting a change in
accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle.
The reporting of a correction of an error by restating
previously issued financial statements is also addressed by this
Statement. The Company will adopt this standard effective
January 1, 2006 and it does not expect any impact on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. SFAS 123R revises
SFAS 123, Accounting for Stock-Based
Compensation, and focuses on accounting for share-based
payments for services provided by employee to employer. The
statement requires companies to expense the fair value of
employee stock options and other equity-based compensation at
the grant date. The statement does not require a certain type of
valuation model, and either a binomial or Black-Scholes model
may be used. During the first quarter of 2005, the SEC approved
a new rule for public companies to delay the adoption of this
standard. In April 2005, the SEC took further action to amend
Regulation S-X
to state that the provisions of SFAS 123R are now effective
beginning with the first annual or interim reporting period of
the registrants first fiscal year beginning on or after
June 15, 2005 for all non-small business issuers. As a
result, the Company will not adopt this standard until the first
quarter of 2006.
85
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 16 Recent
Accounting Pronouncements (continued)
Its plans are to use the modified prospective application method
as detailed in SFAS 123R. The Company expects the impact on
its consolidated financial statements to be consistent with the
impact disclosed in Note 1 of the notes to the consolidated
financial statements. The Companys future cash flows will
not be impacted by the adoption of this standard. See
Stock-Based Compensation within Note 1 of the
notes to the consolidated financial statements for further
information.
In October 2005, the FASB issued FASB Staff Position
(FSP)
FAS 123R-2,
Practical Accommodation to the Application of Grant Date
as defined in FASB Statement No. 123R. This FSP
provides guidance on the definition and practical application of
grant date as described in SFAS No. 123R.
The grant date is described as the date that the employee and
employer have met a mutual understanding of the key terms and
conditions of an award. The other elements of the definition of
grant date are: 1) the award must be authorized,
2) the employer must be obligated to transfer assets or
distribute equity instruments so long as the employee has
provided the necessary service and 3) the employee is
affected by changes in the companys stock price. To
determine the grant date, the Company is allowed to use the date
the award is approved in accordance with its corporate
governance requirements as long as the three elements described
above are met. Furthermore, the recipient cannot negotiate the
awards terms and conditions with the employer and the key
terms and conditions of the award are communicated to all
recipients within a reasonably short time period from the
approval date. The Company will adopt this FSP in conjunction
with its adoption of SFAS 123R.
In November 2005, the FASB issued FSP
SFAS No. 123R-3,
Transition Election Related to Accounting for the Tax
Effects of
Share-Based
Payment Awards, in response to issues financial statement
preparers raised about the ability to calculate estimated tax
benefit amounts that would have qualified if the entity had
adopted SFAS No. 123 for recognition purposes in 1995
as opposed to opting for the disclosure of the pro forma
effects. The position provides for a transition method that
provides a proscribed computation for the estimated beginning
balance of the related additional paid in capital pool and a
simplified method to determine the subsequent impact on the pool
relating to employee option awards that are fully vested and
outstanding upon adoption of SFAS No. 123R. The
Company is currently evaluating the impact of this position on
its calculation upon adoption of SFAS No. 123R in 2006.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140, to clarify accounting for derivative
instruments that are hybrid financial instruments with embedded
derivatives, contain interest or principal only strips and for
freestanding derivatives; further define embedded derivatives
and clarify derivative-related restrictions on special purpose
entities. This standard is effective for fiscal periods
beginning after September 16, 2006 and should not have any
impact on the Companys consolidated financial statements.
86
|
|
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 SEC only if the Company had changed independent auditors
and, if it had, only under certain circumstances.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures The Companys
management, under the supervision and with the participation of
the chief executive officer and chief financial officer, carried
out an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of December 31, 2005. In
designing and evaluating the disclosure controls and procedures,
management recognized that disclosure controls and procedures,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance of achieving the desired
control objectives, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship
of possible disclosure controls and procedures. Based on the
evaluation, the chief executive officer and chief financial
officer have concluded that the disclosure controls and
procedures were effective to ensure that information required to
be disclosed by the Company in its periodic filings under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms and such information is accumulated and communicated to
management as appropriate to allow timely decisions regarding
required disclosure.
Managements Report on Internal Control over
Financial Reporting The Companys
management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
The Companys internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
The Companys internal control over financial reporting
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; |
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures of the Company
are being made only in accordance with authorization of
management and directors of the Company; and |
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
the design and testing of the operational effectiveness of the
Companys internal control over financial reporting.
Management reviewed the results of its assessment with the audit
committee of the board of directors.
Based on that assessment and those criteria, management has
concluded that the Companys internal control over
financial reporting was effective as of December 31, 2005.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report that is included
herein.
87
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES (continued)
|
Changes in Internal Control over Financial
Reporting There were no changes in the
Companys internal control over financial reporting during
the quarter ended December 31, 2005, that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
88
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
Information with respect to directors can be found under the
caption; Item 1 Election of
Directors and Board of Directors of the
Companys 2006 Proxy Statement for the Annual Meeting of
Shareholders to be held on April 28, 2006. Such information
is incorporated herein by reference.
Information with respect to executive officers is shown in
Item 4A of this report on
form 10-K.
Information with respect to the Companys audit committee
and audit committee financial expert can be found under the
caption; The Audit Committee of the Companys
2006 Proxy Statement and is incorporated herein by reference.
The information in the Companys 2006 Proxy Statement set
forth under the caption; Section 16(a) Beneficial
Reporting Compliance is incorporated herein by reference.
The Company has adopted the Parker Drilling Code of Corporate
Conduct (CCC) which includes a code of financial
ethics that is applicable to the chief executive officer, chief
financial officer, controller and other senior financial
personnel as required by the SEC. The CCC includes provisions
that will ensure compliance with code of ethics required by the
SEC and with the minimum requirements under the corporate
governance listing standards of the NYSE. The CCC is publicly
available on the Companys website at
http://www.parkerdrilling.com.
If any waivers of the CCC occur that apply to a director, the
chief executive officer, the chief financial officer, the
controller or senior financial personnel or if the Company
materially amends the CCC, the Company will disclose the nature
of the waiver or amendment on the website and in a report on
Form 8-K
within four days.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information under the captions Executive
Compensation and Director Compensation in the
Companys 2006 Proxy Statement is incorporated herein by
reference. Notwithstanding the foregoing, in accordance with the
instructions to Item 402 of Regulations S-K, the
information contained in the Companys 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 AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is hereby incorporated by
reference from the information appearing under the captions
Equity Ownership of Officers, Directors and Principal
Stockholders and Equity Compensation Plan
Information in the Companys 2006 Proxy Statement.
|
|
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
Related Party Transactions in the Companys
2006 Proxy Statement for the Annual Meeting of Shareholders to
be held April 28, 2006, to be filed with the SEC within
120 days of the end of the Companys year ended
December 31, 2005.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this item is hereby incorporated by
reference from the information appearing under the caption
Audit and Non-Audit Fees and Policy on Audit
Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Accountant in the Companys
2006 Proxy Statement for the Annual Meeting of the Shareholders
to be held April 28, 2006, to be filed with the SEC within
120 days of the end of the Companys year ended
December 31, 2005.
89
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(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 Registered
Public Accounting Firm
|
|
42
|
Consolidated Statement of
Operations for the years ended December 31, 2005, 2004 and
2003
|
|
44
|
Consolidated Balance Sheet as of
December 31, 2005 and 2004
|
|
45
|
Consolidated Statement of Cash
Flows for the years ended December 31, 2005, 2004 and 2003
|
|
47
|
Consolidated Statement of
Stockholders Equity for the years ended December 31,
2005, 2004 and 2003
|
|
49
|
Notes to the Consolidated
Financial Statements
|
|
50
|
(2) Financial Statement Schedule:
|
|
|
Schedule II Valuation
and qualifying accounts
|
|
93
|
(3) Exhibits:
|
|
|
|
|
|
|
EXHIBIT
|
|
|
|
|
NUMBER
|
|
|
|
DESCRIPTION
|
|
|
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
Companys Annual Report on
Form 10-K
for the fiscal year ended August 31, 1998).
|
|
3
|
(b)
|
|
|
|
By-Laws of the Company, as amended
on January 31, 2003 (incorporated by reference to the
Companys
Form 10-K/A
dated September 25, 2003).
|
|
4
|
(a)
|
|
|
|
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).
|
|
4
|
(b)
|
|
|
|
Amendment No. 1 to the Rights
Agreement dated September 22, 1998, between the Company and
Norwest Bank Minnesota, N.A., as rights agent (incorporated by
reference to Exhibit 3(a) of
Form 10-K
dated March 17, 2003).
|
|
4
|
(c)
|
|
|
|
Indenture dated as of May 2,
2002, between the Company and JPMorgan Chase Bank, as Trustee,
respecting the 10.125% Senior Notes due 2009 (incorporated
by reference to Exhibit 4.1 to the Companys
S-4
Registration Statement
No. 333-91708).
|
|
4
|
(d)
|
|
|
|
First Supplemental Indenture dated
as of May 2, 2002, between Parker Drilling Company and
Subsidiary Guarantors and JPMorgan Chase Bank as Trustee,
respecting the 10.125% Senior Notes due 2009 (incorporated
by reference to Exhibit 4.1 to the Companys
Form 10-Q dated May 7, 2003).
|
|
4
|
(e)
|
|
|
|
Second Supplemental Indenture
dated as of February 1, 2003, between Parker Drilling
Company and Subsidiary Guarantors and JPMorgan Chase Bank as
Trustee, respecting the 10.125% Senior Notes due 2009
(incorporated by reference to Exhibit 4(d) to the
Companys Form 10-K dated March 10, 2004).
|
|
4
|
(f)
|
|
|
|
Third Supplemental Indenture dated
as of October 7, 2003, between Parker Drilling Company and
Subsidiary Guarantors and JPMorgan Chase Bank as Trustee,
respecting the 10.125% Senior Notes due 2009 (incorporated
by reference to Exhibit 4.1 of the Companys 10-Q
dated November 13, 2003).
|
|
4
|
(g)
|
|
|
|
Fourth Supplemental Indenture
dated as of October 10, 2003, between Parker Drilling
Company and Subsidiary Guarantors and JPMorgan Chase Bank as
Trustee, respecting the 10.125% Senior Notes due 2009
(incorporated by reference to Exhibit 4.2 of the Companys
10-Q dated
November 13, 2003).
|
|
4
|
(h)
|
|
|
|
Indenture dated as of
October 10, 2003 between the Company, as issuer, certain
Subsidiary Guarantors (as defined therein) and JPMorgan Chase
Bank, as Trustee, respecting the 9.625% Senior Notes due
2013 (incorporated by reference to the Companys
S-4
Registration Statement
No. 333-110374
dated November 10, 2003).
|
|
4
|
(i)
|
|
|
|
Credit Agreement among Parker
Drilling Company, as Borrower, the Several Lenders Parties
thereto, Lehman Brothers, Inc., as Sole Advisor, Sole Lead
Arranger and Sole Bookrunner, Bank of America, N.A., as
Syndication Agent and Lehman Commercial Paper, Inc. as
Administrative Agent dated December 20, 2004 (incorporated
by reference to Exhibit 99.1 to
Form 8-K
dated December 27, 2004).
|
90
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES (continued)
|
|
|
|
|
|
|
EXHIBIT
|
|
|
|
|
NUMBER
|
|
|
|
DESCRIPTION
|
|
|
|
|
|
|
|
|
|
4
|
(j)
|
|
|
|
First Amendment to the Credit
Agreement dated December 20, 2004 among Parker Drilling
Company, as Borrower, the Several Lenders Parties thereto,
Lehman Brothers, Inc., as Sole Advisor, Sole Lead Arranger and
Sole Bookrunner, Bank of America, N.A., as Syndication Agent and
Lehman Commercial Paper, Inc., as Administrative Agent dated
March 1, 2006.
|
|
4
|
(k)
|
|
|
|
Indenture dated as of
September 2, 2004, between the Company and JP-Morgan Chase
Bank, as trustee, respecting the $150.0 million Senior
Floating Rate Notes due 2010 (incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K, dated
September 7, 2004).
|
|
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 Companys Quarterly Report on
Form 10-Q
for the three months ended March 31, 1999).*
|
|
10
|
(b)
|
|
|
|
1994 Parker Drilling Company
Limited 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
|
(c)
|
|
|
|
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
|
(d)
|
|
|
|
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).*
|
|
10
|
(e)
|
|
|
|
Parker Drilling Company and
Subsidiaries 1991 Stock Grant Plan (incorporated by reference to
Exhibit 10(c) to
Form 10-K
dated November 2, 1992).*
|
|
10
|
(f)
|
|
|
|
Third Amended and Restated Parker
Drilling 1997 Stock Plan effective July 24, 2002
(incorporated herein by reference to Exhibit 10(c) to
Annual Report on
Form 10-K
dated March 20, 2003).*
|
|
10
|
(g)
|
|
|
|
2005 Long Term Incentive Plan
(2005 LTIP) (incorporated by reference to the
Companys 2005 Proxy Statement dated March 22, 2005).*
|
|
10
|
(h)
|
|
|
|
Form of Indemnification Agreement
entered into between Parker Drilling Company and each director
and executive officer of Parker Drilling Company, dated on or
about October 15, 2002 (incorporated by reference to
Exhibit 10(g) to
Form 10-K
dated March 12, 2004).*
|
|
10
|
(i)
|
|
|
|
Form of Employment Agreement
entered into between Parker Drilling Company and certain
executive and other officers of Parker Drilling Company,
(incorporated by reference to Exhibit 10(h) to
Form 10-K
dated March 17, 2003).*
|
|
10
|
(j)
|
|
|
|
Form of Stock Option Award
Agreement to the Third Amended and Restated Parker Drilling 1997
Stock Plan (incorporated by reference to Exhibit 10(m) to
Form 10-K
dated March 14, 2005).*
|
|
10
|
(k)
|
|
|
|
Form of Stock Grant Award
Agreement to the Third Amended and Restated Parker Drilling 1997
Stock Plan (incorporated by reference to Exhibit 10(n) to
Form 10-K
dated March 14, 2005).*
|
|
10
|
(l)
|
|
|
|
Form of Restricted Stock Award
Agreement under the 2005 LTIP (incorporated by reference to
Exhibit 10.2 to
Form 8-K
dated April 27, 2005).*
|
|
10
|
(m)
|
|
|
|
Form of Performance Based
Restricted Stock Award Agreement under the 2005 LTIP
(incorporated by reference to Exhibit 10.3 to
Form 8-K
dated April 27, 2005).*
|
|
10
|
(n)
|
|
|
|
Consulting Agreement entered into
between the Company and James W. Whalen, effective
October 29, 2005 (incorporated by reference to
Exhibit 10.1 to
Form 8-K
dated November 1, 2005).*
|
|
10
|
(o)
|
|
|
|
Form of Lease Agreement between
Parker Drilling Management Services, Inc. entered into by the
Robert L. Parker Sr. Family Limited Partnership and Robert L.
Parker Jr. dated January 1, 2004 (incorporated by reference
to Exhibit 10(a) to the
Form 10-Q
dated August 6, 2004).*
|
|
10
|
(p)
|
|
|
|
Form of Personnel Services
Contract between Parker Drilling Management Services, Inc. and
the Robert L. Parker Sr. Family Limited Partnership and Robert
L. Parker Jr. dated January 1, 2004 (incorporated by
reference to Exhibit 10(b) to the
Form 10-Q
dated August 6, 2004).*
|
|
21
|
|
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
31
|
.1
|
|
|
|
Robert L. Parker Jr., President
and Chief Executive Officer, Rule 13a-14(a)/15d-14(a)
Certification.
|
|
31
|
.2
|
|
|
|
W. Kirk Brassfield, Senior Vice
President and Chief Financial Officer,
Rule 13a-14(a)/15d-14(a) Certification.
|
91
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES (continued)
|
|
|
|
|
|
|
EXHIBIT
|
|
|
|
|
NUMBER
|
|
|
|
DESCRIPTION
|
|
|
|
|
|
|
|
|
|
32
|
.1
|
|
|
|
Robert L. Parker Jr., President
and Chief Executive Officer, Section 1350 Certification.
|
|
32
|
.2
|
|
|
|
W. Kirk Brassfield, Senior Vice
President and Chief Financial Officer, Section 1350
Certification.
|
|
|
|
* |
|
Management Contract, Compensatory Plan or Agreement |
(b) Reports on
Form 8-K:
None.
92
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 at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
cost and
|
|
|
other
|
|
|
|
|
|
end of
|
|
Classifications
|
|
of year
|
|
|
expenses
|
|
|
accounts (1)
|
|
|
Deductions (2)
|
|
|
year
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
and notes
|
|
$
|
3,591
|
|
|
$
|
613
|
|
|
$
|
|
|
|
$
|
2,565
|
|
|
$
|
1,639
|
|
Reduction in carrying value of rig
materials and supplies
|
|
$
|
6,468
|
|
|
$
|
1,200
|
|
|
$
|
|
|
|
$
|
4,217
|
|
|
$
|
3,451
|
|
Deferred tax valuation allowance
|
|
$
|
56,003
|
|
|
$
|
|
|
|
$
|
15,494
|
|
|
$
|
71,497
|
|
|
$
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
and notes
|
|
$
|
4,732
|
|
|
$
|
620
|
|
|
$
|
|
|
|
$
|
1,761
|
|
|
$
|
3,591
|
|
Reduction in carrying value of rig
materials and supplies
|
|
$
|
4,681
|
|
|
$
|
2,400
|
|
|
$
|
|
|
|
$
|
613
|
|
|
$
|
6,468
|
|
Deferred tax valuation allowance
|
|
$
|
18,867
|
|
|
$
|
37,136
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
56,003
|
|
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
and notes
|
|
$
|
4,763
|
|
|
$
|
420
|
|
|
$
|
|
|
|
$
|
451
|
|
|
$
|
4,732
|
|
Reduction in carrying value of rig
materials and supplies
|
|
$
|
3,443
|
|
|
$
|
2,400
|
|
|
$
|
|
|
|
$
|
1,162
|
|
|
$
|
4,681
|
|
Deferred tax valuation allowance
|
|
$
|
7,009
|
|
|
$
|
11,858
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,867
|
|
|
|
|
(1)
|
|
During 2005 and prior to the
reversal of the valuation allowance, the Company completed a
process of reconciling its United States federal income tax
balance sheet for the purpose of properly adjusting its deferred
tax assets and liabilities. As a result of this process, the
Company recognized an additional net deferred tax asset of
approximately $15.5 million. Additionally, the Company
increased its valuation allowance by $15.5 million
resulting in no impact to the net deferred tax asset.
|
|
(2)
|
|
In 2005, this deduction relates to
the reversal of the valuation allowance related to net operating
loss carryforwards and other deferred tax assets resulting from
the Companys return to profitability and expected future
earnings performance.
|
93
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
hereunto duly authorized.
PARKER DRILLING COMPANY
By: /s/ Robert L. Parker Jr.
Robert L. Parker Jr.
President and Chief Executive Officer and Director
Date: March 8, 2006
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
Robert
L. Parker
|
|
Chairman of the Board and Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ James W. Whalen
James
W. Whalen
|
|
Vice Chairman of the Board and
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert L. Parker
Jr.
Robert
L. Parker Jr.
|
|
President and Chief Executive
Officer and Director
(Principal Executive Officer)
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ David C. Mannon
David
C. Mannon
|
|
Senior Vice President
and Chief Operating Officer
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ W. Kirk
Brassfield
W.
Kirk Brassfield
|
|
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lynn G. Cullom
Lynn
G. Cullom
|
|
Controller
(Principal Accounting Officer)
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ George J.
Donnelly
George
J. Donnelly
|
|
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ Dr. Robert M.
Gates
Dr. Robert
M. Gates
|
|
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ John W. Gibson
John
W. Gibson
|
|
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert W.
Goldman
Robert
W. Goldman
|
|
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert E.
McKee III
Robert
E. McKee III
|
|
Director
|
|
March 8, 2006
|
94
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Roger B. Plank
Roger
B. Plank
|
|
Director
|
|
March 8, 2006
|
|
|
|
|
|
|
|
By:
|
|
/s/ R. Rudolph
Reinfrank
R.
Rudolph Reinfrank
|
|
Director
|
|
March 8, 2006
|
95
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
EXHIBIT
|
|
|
|
|
NUMBER
|
|
|
|
DESCRIPTION
|
|
|
4
|
(j)
|
|
|
|
First Amendment to the Credit
Agreement dated December 20, 2004 among Parker Drilling
Company, as Borrower, the Several Lenders Parties thereto,
Lehman Brothers, Inc., as Sole Advisor, Sole Lead Arranger and
Sole Bookrunner, Bank of America, N.A., as Syndication Agent and
Lehman Commercial Paper, Inc., as Administrative Agent dated
March 1, 2006.
|
|
21
|
|
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
31
|
.1
|
|
|
|
Robert L. Parker Jr., President
and Chief Executive Officer, Rule 13a-14(a)/15d-14(a)
Certification.
|
|
31
|
.2
|
|
|
|
W. Kirk Brassfield, Senior Vice
President and Chief Financial Officer,
Rule 13a-14(a)/15d-14(a) Certification.
|
|
32
|
.1
|
|
|
|
Robert L. Parker Jr., President
and Chief Executive Officer, Section 1350 Certification.
|
|
32
|
.2
|
|
|
|
W. Kirk Brassfield, Senior Vice
President and Chief Financial Officer, Section 1350
Certification.
|