- - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-Q --------------------- (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------------- ------------------- COMMISSION FILE NUMBER 1-7573 ---------------------- PARKER DRILLING COMPANY (Exact name of registrant as specified in its charter) Delaware 73-0618660 - - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103 ----------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (918) 585-8221 ------------------------------------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of June 30, 1994, 55,098,270 common shares were outstanding. - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ PARKER DRILLING COMPANY INDEX
Part I. Financial Information Page No. Consolidated Condensed Balance Sheets (Unaudited) - May 31, 1994 and August 31, 1993 2 Consolidated Condensed Statements of Operations (Unaudited) - Three and Nine Months Ended May 31, 1994 and May 31, 1993 3 Consolidated Condensed Statements of Cash Flows (Unaudited) - Nine Months Ended May 31, 1994 and May 31, 1993 4 Notes to Unaudited Consolidated Condensed Financial Statements 5 Report of Review by Independent Accountants 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 Part II. Other Information Item 6, Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 10(a) Amendment dated as of May 2, 1994, to the Credit Agreement, dated as of September 24, 1992, between Morgan Guaranty Trust Company of New York, Internationale Nederlanden Bank N.V. and Parker Drilling Company. Exhibit 15, Letter Re Unaudited Interim Financial Information
PART 1. FINANCIAL INFORMATION PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
May 31, August 31, 1994 1993 ASSETS ---------- ---------- ------ Current assets: Cash and cash equivalents $ 8,403 $ 12,570 Other short-term investments 4,977 31,419 Accounts and notes receivable 35,893 23,353 Rig materials and supplies 10,372 10,970 Other current assets 8,897 2,793 -------- -------- Total current assets 68,542 81,105 Property, plant and equipment less accumulated depreciation, depletion and amortization of $485,486 at May 31, 1994, and $472,466 at August 31, 1993 155,043 139,326 Other noncurrent assets 15,740 15,911 -------- -------- Total assets $239,325 $236,342 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Current liabilities: Accounts payable $ 11,427 $ 5,915 Accrued liabilities 9,613 9,646 Accrued income taxes 4,088 5,291 -------- -------- Total current liabilities 25,128 20,852 Deferred income taxes 1,198 1,198 Other long-term liabilities 2,711 3,495 Minority interest 3,267 3,118 Common stock, $.16 2/3 par value 9,182 9,164 Capital in excess of par value 202,271 201,784 Retained earnings (Accumulated deficit) (1,434) 499 Other (2,998) (3,768) -------- -------- Total liabilities and stockholders' equity $239,325 $236,342 -------- -------- -------- -------- See accompanying notes to consolidated condensed financial statements. - 2 -
PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended May 31, May 31, ------------------- ------------------- 1994 1993 1994 1993 ------- -------- ------- ------- Revenue: Drilling contracts $35,631 $24,190 $114,721 $70,748 Other 1,048 843 2,733 3,518 ------- ------- -------- ------- Gross operating revenue 36,679 25,033 117,454 74,266 ------- ------- -------- ------- Operating expense: Drilling 26,584 15,195 81,123 44,760 Other 1,031 769 2,838 3,045 Depreciation, depletion and amortization 5,698 4,941 15,687 15,328 General and administrative 6,302 6,177 19,911 19,768 ------- ------- -------- ------- 39,615 27,082 119,559 82,901 ------- ------- -------- ------- Operating income (loss) (2,936) (2,049) (2,105) (8,635) ------- ------- -------- ------- Other income and (expense): Interest expense (2) (14) (9) (53) Interest income 251 487 806 1,292 Other income (expense) - net 70 (12) 502 (540) ------- ------- -------- ------- 319 461 1,299 699 ------- ------- -------- ------- Income (loss) before income taxes (2,617) (1,588) (806) (7,936) ------- ------- -------- ------- Income tax expense 174 525 1,127 1,675 ------- ------- -------- ------- Net income (loss) (2,791) (2,113) (1,933) (9,611) ------- ------- -------- ------- Dividends on preferred stock - - - 6 ------- ------- -------- ------- Income (loss) applicable to common stock $(2,791) $(2,113) $ (1,933) $(9,617) ------- ------- -------- ------- ------- ------- -------- ------- Earnings (loss) per share, primary and fully diluted $ (.05) $ (.04) $ (.04) $ (.18) ------- ------- -------- ------- Number of common shares ------- ------- -------- ------- used in computing earnings (loss) per share: Primary 54,325,100 53,772,534 54,209,089 53,007,108 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully diluted 54,325,100 53,772,534 54,209,089 53,007,108 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- See accompanying notes to consolidated condensed financial statements. - 3 - /TABLE PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Dollars in Thousands) (Unaudited)
Nine Months Ended May 31, -------------------- 1994 1993 ------- ------- Cash flows from operating activities: Net income (loss) $(1,933) $(9,611) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 15,687 15,328 Expenses not requiring cash 2,259 3,698 Change in operating assets and liabilities (14,989) 5,813 Other-net (705) (958) ------- ------- Net cash provided by operating activities 319 14,270 ------- ------- Cash flows from investing activities: Capital expenditures (31,841) (6,529) Proceeds from the sale of equipment 1,247 6,053 Decrease (increase) in short-term investments 26,442 (17,627) Proceeds from disposition of a subsidiary - 2,325 Other-net (30) (127) ------- ------- Net cash provided (used) by investing activities (4,182) (15,905) ------- ------- Cash flows from financing activities: Principal payments under debt obligations - (777) Proceeds from exercise of a stock warrant - 4,320 Other-net (304) (1,043) ------- ------- Net cash provided (used) by financing activities (304) 2,500 ------- ------- Net increase (decrease) in cash and cash equivalents (4,167) 865 Cash and cash equivalents at beginning of period 12,570 13,288 ------- ------- Cash and cash equivalents at end of period $ 8,403 $14,153 ------- ------- ------- ------- Supplemental disclosure: Interest paid $ 9 $ 47 Taxes paid $ 2,330 $ 1,953 See accompanying notes to consolidated condensed financial statements. - 4 - /TABLE PARKER DRILLING COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements reflect all adjustments (of a normally recurring nature) which are necessary for a fair presentation of (1) the financial position as of May 31, 1994 and August 31, 1993, (2) the results of operations for the three and nine months ended May 31, 1994 and May 31, 1993, and (3) cash flows for the nine months ended May 31, 1994 and May 31, 1993. Results for the three and nine months ended May 31, 1994, are not necessarily indicative of the results which will be realized for the year ending August 31, 1994. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements should be read in conjunction with the Company's Form 10-K for the year ended August 31, 1993. 2. Earnings per common share is based on the weighted average number of common shares and common share equivalents outstanding during the period. Common shares granted under the 1969 Key Employee Stock Grant Plan, 1980 Incentive Career Stock Plan and the 1991 Stock Grant Plan are issued and outstanding but are not considered in the computation of weighted average shares outstanding until the restrictions lapse. However, they are considered common stock equivalents. 3. A former employee ("Plaintiff") was injured while working for the Company on a rig owned and operated by another firm ("Defendant"). The Plaintiff was granted an award totaling $6.75 million from the Defendant. Although, the Company provided a defense for the Defendant pursuant to the indemnity provision in the contract between the parties, the Company is currently in litigation to determine the liability of the Company to indemnify the Defendant due to the findings by the jury as to the conduct of the Defendant's agents that caused the injury to the Plaintiff. Pending resolution of the liability issue, the Company and the Defendant entered into a non-binding funding arrangement whereby in March 1994 each party funded $3.375 million of the award without prejudice to their respective legal positions. Management believes that the Company is not legally obligated to fund the award. However, if the Company is liable, management believes it has adequate insurance to recover the majority of any loss. 4. During the third quarter fiscal 1994 the Company entered into an amendment to its Credit Agreement. The amendment extends $7.5 million of the $15 million revolving credit facility from September 1994, through March 1996. - 5 - Report of Independent Accountants To the Board of Directors and Shareholders Parker Drilling Company We have reviewed the consolidated condensed balance sheet of Parker Drilling Company and subsidiaries as of May 31, 1994, and the related consolidated condensed statements of operations for the three and nine month periods ended May 31, 1994 and 1993 and consolidated condensed statements of cash flows for the nine month periods ended May 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of August 31, 1993, and the related consolidated statements of operations, redeemable preferred stock and stockholders' equity and cash flows for the year then ended (not presented herein); and in our report, dated October 14, 1993, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 31, 1993, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND Tulsa, Oklahoma July 13, 1994 - 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - - --------------------- Third Quarter of Fiscal 1994 Compared with Third Quarter of Fiscal 1993 The Company experienced a net loss of $2.8 million for the third quarter of fiscal 1994, compared to a net loss of $2.1 million for the same period in fiscal 1993. The primary reason for the increase in net loss was an increase in depreciation expense of $.8 million. In addition, drilling margins of $9.0 million did not improve over the third quarter of fiscal 1993 even though drilling revenue increased $11.4 million. Drilling revenue in the third quarter of fiscal 1994 increased to $35.6 million from $24.2 million in the third quarter of fiscal 1993. International utilization in the third quarter of fiscal 1994 was 53 percent compared to 38 percent for the same period of fiscal 1993, and overall utilization increased to 31 percent from 24 percent. Drilling revenue from operations in Africa, the Middle East and Commonwealth of Independent States ("CIS") declined a combined $.2 million when comparing the third quarter of fiscal 1994 with the third quarter of fiscal 1993. The Company entered a new market in the fourth quarter of fiscal 1993 when it obtained a labor contract with a major customer in the country of Kazakhstan. This increase in revenue was offset by a decease in revenue from the country of Chad which had two rigs operating beginning in the third quarter of fiscal 1993 through the first quarter of fiscal 1994. These two rigs began operations again in Chad during the fourth quarter of fiscal 1994. International drilling revenue from operations in Asia and the Pacific during the third quarter of fiscal 1994 increased $5.2 million compared to the same quarter of fiscal 1993. The primary reasons for the increase were the start-up of operations in the Philippines, another new market for the Company, and the resumption of operations in Pakistan, both during the first quarter of fiscal 1994. Also contributing to the increase was higher utilization in Papua New Guinea in the third quarter of fiscal 1994 versus the third quarter of fiscal 1993. Western Hemisphere international drilling revenue increased $7.3 million from the third quarter of fiscal 1993. The primary reason for the increase was revenue from operations in the country of Argentina. The Company reentered the Argentina drilling market during the fourth quarter of fiscal 1993. In addition revenue from operations in Colombia increased in the third quarter of fiscal 1994 compared to the third quarter of fiscal 1993 due to an increase in utilization. Domestic drilling revenue declined $.9 million due primarily to the release at the end of the third quarter of fiscal 1994 of the Company's specialized arctic rig. Management forecasts this rig will begin operations again in the second quarter of fiscal 1995. - 7 - RESULTS OF OPERATIONS (continued) - - --------------------- Although drilling revenue increased $11.4 million versus last year's third quarter, the Company's drilling margin (drilling revenue less drilling expense) remained nearly the same. Drilling margins in Colombia declined due to increased operating expenses and costs associated with the startup of two rigs. In Argentina, the initial startup costs of entering a new market and putting ten newly acquired rigs to work (four in the third quarter) continued to negatively impact drilling margins. Additionally, during this transition period the Company encountered drilling problems which resulted in slower- than-expected drilling progress on some of the footage rate contracts. Management is taking steps to resolve the drilling problems and reduce operating expenses in these two countries. Depreciation expense in the third quarter of fiscal 1994 increased $.8 million over the same quarter of fiscal 1993. The increase in depreciation expense was the result of the increased level of capital expenditures during the current fiscal year. The Company was able to hold general and administrative expense at the same level as the third quarter of the prior year even as overall utilization increased. Income tax expense, consisting primarily of foreign income taxes, decreased $.4 million due primarily to the reversal of an accrual in a country where the Company received a favorable tax treatment of earnings from prior years' operations. First Nine Months of Fiscal 1994 Compared with First Nine Months of Fiscal 1993 The Company's net loss of $1.9 million for the first nine months of fiscal 1994 represented a $7.7 million improvement over the same period of fiscal 1993. The improvement was primarily attributable to increased drilling revenue and drilling margin for the first nine months of fiscal 1994. Drilling revenue of $114.7 million for the first nine months of fiscal 1994 was up $44.0 million from the first nine months of fiscal 1993 as overall utilization increased to 35 percent from 24 percent. International utilization for the first nine months of fiscal 1994 was 57 percent compared to 37 percent for the same period of fiscal 1993. International drilling revenue from operations in Africa, the Middle East and CIS increased $11.5 million over the first nine months of fiscal 1993. Revenue increased from the operation of two work-over rigs in the Russian Republic and a one-rig contract in Congo, both areas that had no operations during the first nine months of fiscal 1993. These three rigs were released during the second quarter of fiscal 1994. Also during the fourth quarter of fiscal 1993 the Company began operating in the country of Kazahkstan under a labor contract for a major customer. International drilling revenue from operations in Asia and the Pacific during the first nine months of fiscal 1994 increased $17.1 million compared to the same period of fiscal 1993. The increase was primarily the result of the operation of two geothermal rigs in the Philippines, the resumption of operations in Pakistan during the first quarter of fiscal 1994 and increased utilization in Papua New Guinea. - 8 - RESULTS OF OPERATIONS (continued) - - --------------------- Western Hemisphere international drilling revenue increased $13.4 million as operations in Argentina and increased utilization in Ecuador and Peru more than offset a decline in revenue in Colombia resulting from a decrease in utilization in that country. Domestic drilling revenue increased $2.2 million as utilization in the continental United States improved to 15 percent for the first nine months of fiscal 1994 versus 11 percent for the first nine months of 1993. Drilling margins did not improve in proportion to the increase in drilling revenue for reasons previously discussed in the third quarter comparison. Depreciation expense increased $.4 million as a result of increased capital spending during fiscal 1994. Other income (expense) increased $1.0 million due primarily to a $.9 million adjustment of a prior years workers' compensation liability recorded in the first quarter of fiscal 1993. Income tax expense declined $.5 million for the reason previously discussed in the comparison of third quarter operations. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of fiscal 1994, cash and other short-term investments declined $30.6 million. The decline was caused by the Company financing capital expenditures of $31.8 million primarily with existing cash and short-term investments. Capital expenditures for the first nine months of fiscal 1994 included expenditures for the acquisition and modification of twelve drilling rigs. Eleven of the rigs are in Argentina with ten having been under contract during the third quarter of fiscal 1994. Another rig is currently operating in Colombia for a major customer. Management currently forecasts total capital expenditures for fiscal 1994 to be approximately $37.0 million. In the event the Company obtains contracts in addition to those currently anticipated that would require the construction or purchase of new or specialized rigs or significant modifications to existing rigs, capital expenditures could be greater than this forecasted amount. Any significant increase in capital expenditures would be subject to restrictions imposed on the Company as specified below. - 9 - LIQUIDITY AND CAPITAL RESOURCES (continued) - - ------------------------------- The Company has a credit agreement ("Agreement") with two banks which provides for a $15.0 million revolving credit facility through September 1994. The Agreement was amended in the third quarter of fiscal 1994 to extend $7.5 million of the revolving credit facility through March 1996. All of the credit facility was available for drawdown as of May 31, 1994. It contains restrictions on annual capital expenditures and certain senior and subordinated indebtedness which can be incurred by Parker Drilling Company and certain subsidiaries designated in the Agreement. These designated subsidiaries comprise the operating subsidiaries through which the Company performs the majority of its drilling operations. The credit facility also limits payment of dividends on the Company's common stock to the lesser of 40 percent of consolidated net income for the preceding fiscal year, or $2.6 million. The remaining subsidiaries of the Company are not a party to the credit facility and are able to make capital expenditures and obtain independent financing from lenders that have no recourse to Parker Drilling Company and the designated subsidiaries, subject only to an overall limitation of indebtedness. The restrictions in the Agreement are not anticipated to restrict growth or investment opportunities in the foreseeable future. Management believes that the current level of cash and short-term investments, together with cash generated from operations, should be sufficient to meet the Company's immediate capital needs. However, in the event the Company obtains additional contracts requiring further significant capital expenditures, management believes the Company would likely meet both short-term and long-term capital needs through a combination of cash generated from operations, borrowings under the bank credit agreement and either equity or long-term debt financing. OTHER MATTERS - - ------------- The Company is currently involved in litigation as discussed in Note 3 of Notes to Unaudited Consolidated Condensed Financial Statements. - 10 - PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a)Exhibits: Exhibit 10(a) Amendment dated as of May 2, 1994, to the Credit Agreement, dated as of September 24, 1992, between Morgan Guaranty Trust Company of New York, Internationale Nederlanden Bank N.V. and Parker Drilling Company Exhibit 15 Letter re Unaudited Interim Financial Information (b)Reports on Form 8-K - There were no reports on Form 8-K filed during the nine months ended May 31, 1994. - 11 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Parker Drilling Company ----------------------- Registrant Date: July 12, 1994 By: /s/James J. Davis ----------------------------- James J. Davis Vice President, Finance and Chief Financial Officer By: /s/Randy Ellis ----------------------------- Randy Ellis Controller and Chief Accounting Officer - 12 -