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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-7573
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PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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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 November 30, 1997, 76,699,314 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
November 30, 1997 and August 31, 1997 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three Months Ended November 30, 1997 and November 30, 1996 3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Three Months Ended November 30, 1997 and November 30, 1996 4
Notes to Unaudited Consolidated Condensed
Financial Statements 6 - 7
Report of Independent Accountants 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 15, Letter Re Unaudited Interim
Financial Information
Exhibit 27, Financial Data Schedule
PART 1. FINANCIAL INFORMATION
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
November 30, August 31,
1997 1997
ASSETS ----------- ----------
------
Current assets:
Cash and cash equivalents $183,291 $209,951
Other short-term investments 230 2,838
Accounts and notes receivable 114,479 103,808
Rig materials and supplies 20,067 19,130
Other current assets 16,749 16,227
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Total current assets 334,816 351,954
Property, plant and equipment less accumulated
depreciation, depletion and amortization of
$387,733 at November 30, 1997, and $375,236
at August 31, 1997 460,132 439,651
Goodwill, net of accumulated amortization
of $5,018 at November 30, 1997 and $3,822
at August 31, 1997 138,272 139,467
Other noncurrent assets 55,822 53,064
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Total assets $989,042 $984,136
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 15,085 $ 16,084
Accounts payable and accrued liabilities 53,386 55,717
Accrued income taxes 7,124 4,904
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Total current liabilities 75,595 76,705
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Long-term debt 547,759 551,042
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Other long-term liabilities 5,823 7,666
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Common stock, $.16 2/3 par value 12,783 12,780
Capital in excess of par value 340,508 340,243
Retained earnings (accumulated deficit) 6,659 (4,023)
Other (85) (277)
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Total stockholders' equity 359,865 348,723
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Total liabilities and stockholders' equity $989,042 $984,136
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-------- --------
See accompanying notes to consolidated condensed financial statements.
/TABLE
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
November 30,
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1997 1996
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Revenues:
Land drilling $ 65,383 $ 37,585
Offshore drilling 36,017 5,286
Rental tools 8,089 1,713
Other 391 614
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Total revenues 109,880 45,198
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Operating expenses:
Land drilling 42,468 27,268
Offshore drilling 20,858 3,176
Rental tools 2,786 339
Other 494 923
Depreciation, depletion and
amortization 14,559 6,898
General and administrative 4,115 3,398
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Total operating expenses 85,280 42,002
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Operating income 24,600 3,196
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Other income and (expense):
Interest expense (12,025) (2,610)
Interest income 2,788 1,121
Other income (expense) - net 228 1,070
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Total other income and (expense) (9,009) (419)
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Income before income taxes 15,591 2,777
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Income tax expense 4,909 1,298
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Net income $ 10,682 $ 1,479
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Earnings per share,
primary and fully diluted $ .14 $ .02
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-------- --------
Number of common shares used
in computing fully diluted earnings per share: 78,639,978 66,315,399
---------- ----------
See accompanying notes to consolidated condensed financial statements.
/TABLE
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Three Months Ended
November 30,
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1997 1996
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Cash flows from operating activities:
Net income $ 10,682 $ 1,479
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 14,559 6,898
Expenses not requiring cash 764 185
Change in operating assets and liabilities (17,341) (8,142)
Other-net (191) (762)
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Net cash provided by (used in) operating
activities 8,473 (342)
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Cash flows from investing activities:
Capital expenditures (33,656) (9,011)
Acquisition of Mallard, net of cash acquired - (308,366)
Acquisition of Quail - (65,900)
Proceeds from the sale of equipment 272 5,849
Decrease (increase) in short-term
investments 2,608 610
Other-net - (676)
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Net cash provided (used) by investing
activities (30,776) (377,494)
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Cash flows from financing activities:
Proceeds from issuance of debt - 387,274
Principal payments under debt obligations (4,341) (324)
Other (16) 264
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Net cash provided (used) by financing
activities (4,357) 387,214
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Net change in cash and cash equivalents (26,660) 9,378
Cash and cash equivalents at
beginning of period 209,951 61,738
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Cash and cash equivalents at
end of period $183,291 $71,116
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Supplemental cash flow information:
Interest paid $ 16,716 $ 307
Taxes paid $ 2,689 $ 704
Supplemental noncash financing activity:
In November 1996, the Company issued $25,000,000 of preferred stock,
subsequently converted to common stock in December 1996, as a part of the
acquisition of Mallard. (See Note 4.)
See accompanying notes to consolidated condensed financial statements.
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 November 30, 1997 and August 31, 1997, (2) the
results of operations for the three months ended November 30, 1997 and
November 30, 1996, and (3) cash flows for the three months ended November
30, 1997 and November 30, 1996. Results for the three months ended
November 30, 1997, are not necessarily indicative of the results which
will be realized for the year ending August 31, 1998. 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, 1997.
2. Earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the period
including the effect of dilutive options when applicable. Common shares,
subject to vesting, granted under the 1969 Key Employee Stock Grant Plan,
1980 Incentive Career Stock Plan and the 1991 Stock Grant Plan are issued
and outstanding and are only considered in the computation of weighted
average shares outstanding when their effect on earnings per share is
dilutive.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," was issued. This statement replaces the currently
required presentation of primary earnings per share (EPS) with a
presentation of basic EPS that excludes dilutive securities from the
computation. It also requires a presentation of diluted EPS that is
computed similarly to the fully diluted EPS calculation currently
required. The statement will be effective for the Company's fiscal
quarter which will end February 28, 1998. Early application of this
statement is not permitted. The Company anticipates that the effect of
this pronouncement will be minimal.
3. On May 9, 1997, the Company executed a definitive stock purchase agreement
(the "HOC Agreement") to acquire all of the outstanding capital stock of
Hercules Offshore Corporation, a Texas corporation ("HOC"), and a
definitive stock purchase agreement (the "HRC Agreement") to acquire all
of the outstanding capital stock of Hercules Rig Corp., a Texas
corporation ("HRC") and an affiliate of HOC (HOC and HRC being
collectively referred to as "Hercules"), for $145 million and $50 million,
respectively. The purchase prices for the acquisitions are subject to
adjustment for certain debt assumed by the Company, for capital
expenditures incurred and for levels of working capital at closing.
Currently, Hercules owns three self-erecting platform rigs and seven
offshore jackup rigs.
The acquisition of Hercules was completed on December 30, 1997 with the
Company making total cash payments of $199.8 million, which includes
capital expenditures made subsequent to the purchase agreement date. The
final purchase price is subject to further adjustment based on the level
of working capital at closing. The acquisition will be accounted for by
the purchase method of accounting.
4. On November 12, 1996, the Company acquired Mallard Bay Drilling, Inc.
("Mallard") and Quail Tools, Inc. ("Quail"). Both were accounted for by
the purchase method of accounting.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
The Company acquired all of the outstanding stock of Mallard from Energy
Ventures, Inc. ("EVI") for $336.8 million, including acquisition costs,
for cash of $311.8 million and $25.0 million of preferred stock which was
converted into 3,056,600 shares of common stock during the second quarter
of fiscal 1997. Mallard owns and operates 34 drilling and workover barges
in the shallow waters of the Gulf of Mexico and Nigeria, four platform
rigs in the Gulf of Mexico and four land drilling rigs in Argentina.
The Company acquired all of the outstanding stock of Quail for $66.9
million, including acquisition costs. Quail is a provider of premium
rental tools used in well drilling, production and workover primarily to
companies working in the Gulf of Mexico and Gulf Coast land regions. The
excess of purchase price over the fair values of the net assets acquired
was $99.7 million for Mallard and $43.6 million for Quail and has been
recorded as goodwill, which is being amortized on a straight-line basis
over 30 years.
The Company financed the acquisitions of Mallard and Quail through the
issuance of $300 million of Senior Notes and a term loan of $100 million,
$86.5 million of which was outstanding at November 30, 1997. Additionally,
the Company issued $25 million of preferred stock which was converted to
3,056,600 shares of common stock during the second quarter of fiscal 1997.
5. In July 1997, the Company acquired substantially all of the assets of
Bolifor, a leading provider of contract drilling services in Bolivia, for
$25.0 million, of which $2.7 million will be paid in fiscal 1998. The
assets of Bolifor primarily consist of 11 land rigs located in Bolivia,
Paraguay and Argentina.
6. Information regarding the Company's operations by industry segment for the
three months ended November 30, 1997 is as follows (dollars in thousands):
Revenues:
Land drilling $ 65,383
Offshore drilling 36,017
Rental tools 8,089
Other 391
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Net revenues $ 109,880
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Operating income (loss):
Land drilling 12,532
Offshore drilling 9,055
Rental tools 3,584
Other (571)
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Total operating income(loss) 24,600
Interest expense (12,025)
Other income (expense)-net 3,016
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Income before income taxes $ 15,591
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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 November 30, 1997, and the related
consolidated condensed statements of operations for the three month periods
ended November 30, 1997 and 1996 and consolidated condensed statements of cash
flows for the three month periods ended November 30, 1997 and 1996. 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, 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report,
dated October 14, 1997, 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,
1997, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
By: /s/ Coopers & Lybrand L.L.P.
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COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
January 12, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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The Company's net income of $10.7 million in fiscal 1998's first quarter
reflects an improvement of $9.2 million when compared to the first quarter of
fiscal 1997. Strong demand in each of the Company's industry segments, land
drilling, offshore drilling and rental tools, contributed to the improvement
in earnings.
Revenues increased from $45.2 million to $109.9 million, an increase of $64.7
million, or 143%. Mallard and Quail, which were acquired on November 12,
1996, contributed $38.0 million of the increase primarily due to the inclusion
of the entire quarter in fiscal 1998 as compared to only 18 days in the prior
fiscal year. Operations in Bolivia and Argentina, utilizing rigs obtained in
the July 1997 acquisition of Bolifor, provided revenues of $7.7 million in the
current quarter. The remainder of the increase in revenues, $19.0 million,
was contributed by the Company's on-going land drilling operations.
Revenues increased in each of the geographic areas in which the Company
operates. Latin America land drilling operations recorded an increase of
$14.7 million due to the acquisition of Bolifor and increased utilization and
dayrates in Colombia and Peru. The Asia Pacific region reflected an increase
in land drilling revenues of $7.4 million due to increased utilization in the
countries of Pakistan and New Guinea and increased drilling services provided
by the Company in Indonesia. Land drilling revenues in Africa and the former
Soviet Union increased $3.2 million due to increased revenues from the
Company's alliance work with Tengizchevroil in Kazakhstan and revenue from Rig
230, which moved from Russia to Kazakhstan to commence drilling operations in
fiscal 1998. Revenues from land drilling operations in the United States
increased $2.5 million due primarily to increases in the dayrates received for
the Company's drilling services.
Utilization of the Company's domestic and international land rigs averaged
100% and 80% in the current quarter, respectively, an increase from 81% and
54%, respectively, in the first quarter of fiscal 1997. Utilization of
Mallard's active (denotes that the rig is currently under contract or
available for contract) domestic transition zone barge rigs (23) and offshore
platform rigs (2) averaged 95% in the current fiscal quarter while all three
of the Company's barge rigs located in Nigeria's transition zones earned
revenue the entire quarter.
Profit margins (revenue less direct operating expense) of $43.3 million for
the first quarter of fiscal 1998 compare to $13.5 million recorded in the
first quarter of fiscal 1997. The Company's offshore drilling and tool rental
segments provided $15.2 million and $5.3 million of the current quarter's
profit margins, respectively. The same two segments provided a combined
profit margin of $3.5 million during the short period of time they were owned
in the fiscal 1997 first quarter. Profit margins from land drilling
operations increased to $22.9 million from $10.3 million, due primarily to
increased utilization and revenue in Colombia, Peru, Kazakhstan, Pakistan, New
Guinea, Indonesia and North American operations, and the additional profit
margins provided by the acquisition of the Bolifor rigs in Bolivia and
Argentina. In addition, profit margin percentages increased due to operating
dayrate increases in several of the Company's markets.
RESULTS OF OPERATIONS (continued)
The increased profit margin was somewhat offset during the quarter by an
increase of $7.7 million in depreciation and amortization expense, largely
attributable to depreciation of assets and amortization of goodwill associated
with the Mallard and Quail acquisitions and depreciation expense attributable
to the Bolifor acquisition. Interest expense increased $9.4 million due to
the borrowings put in place in November 1996 to finance the Mallard and Quail
acquisitions ($300 million Senior Notes and $100 million term loan under the
Senior Credit Facility, of which $86.5 million is outstanding at November 30,
1997) and the $175 million Convertible Notes issued in July 1997 to finance
the recently completed Hercules acquisition. Interest income increased $1.7
million due primarily to increased cash balances from the issuance of the
Convertible Notes in July 1997. Income taxes increased $3.6 million due to
increased profits from the Company's international operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents totaling $183.3 million at November
30, 1997, a decrease of $26.7 million from the August 31, 1997 balance. Cash
provided by operations of $8.5 million, in addition to existing cash, was used
to finance $33.7 million of capital expenditures and $4.3 million in debt
repayment. Significant capital additions in the first quarter of fiscal 1998
included: (i) the purchase of the Gulf Explorer; (ii) the modification of
barge Rig 71, which after completion of operations in Nigeria is being
modified for service in another international location; and (iii) the
conversion of barge Rig 15 from a workover rig into a drilling rig.
As previously noted, the Company completed its acquisition of Hercules on
December 30, 1997, with the Company making total cash payments of $199.8
million. In anticipation of funding the Hercules acquisition, in July 1997
the Company issued $175 million of Convertible Subordinated Notes due 2004.
The Notes bear interest at 5.5% payable semi-annually in February and August.
The Notes are convertible at the option of the holder into shares of common
stock of Parker Drilling Company at any time prior to maturity at a conversion
price of $15.39 per share. The Convertible Subordinated Notes are redeemable
at the option of the Company at any time after July 2000 at certain stipulated
prices. In addition to the funds provided by the issuance of the Convertible
Subordinated Notes, the Company has drawn down $32 million under the revolving
credit portion of the Senior Credit Facility subsequent to the November 30,
1997 balance sheet date to partially fund the Hercules acquisition and provide
for working capital.
In November 1996, the Company acquired Mallard for $311.8 million in cash and
$25 million in convertible preferred stock (that converted into 3,056,600
shares of common stock in the second quarter of fiscal 1997) and Quail for
$66.9 million in cash. The Company financed the acquisitions of Mallard and
Quail through the sale of $300 million principal amount of Senior Notes and a
term loan of $100 million under the Senior Credit Facility, $86.5 million of
which was outstanding at November 30, 1997.
The Senior Notes, which were issued at a $2.4 million discount, have an
interest rate of 9 3/4% and will mature in 2006. The Senior Notes are
guaranteed by the Company's principal subsidiaries. The Senior Credit
Facility consists of the term loan and a $45 million revolving credit
facility. The term loan bears interest (7.9375% at November 30, 1997) at the
option of the Company, at prime to prime plus 0.50% or at 1.75% to 2.25% above
the one-, two- three- and six-month reserve-adjusted LIBOR rate, depending on
the Company's Debt-to-Capital
Liquidity and Capital Resources (continued)
Ratio (as defined), and matures on November 30, 2002. Installments of
principal are payable quarterly in an amount that provides for the retirement
of an additional $10.5 million in fiscal 1998, $12 million in each of fiscal
1999 through 2002, with a final payment of $28 million due at maturity. The
term loan has no prepayment penalty, is guaranteed by the Company's principal
subsidiaries and is secured by substantially all of the assets of the Company
and the assets and stock of such subsidiaries.
The revolving credit facility is available for working capital requirements,
general corporate purposes and to support letters of credit, of which $12.0
million had been issued at November 30, 1997. Availability under the
revolving credit facility is subject to certain borrowing base limitations
based on 80% of eligible accounts receivable. All advances to the Company
under the revolving credit facility bear interest, at the option of the
Company, at prime to prime plus 0.50% or at 1.75% to 2.25% above the one-,
two-, three-and six-month reserve-adjusted LIBOR rate, depending on the
percentage of the credit facility utilized. The revolving credit facility is
collateralized by a first lien on the Company's accounts receivable.
Subsequent to November 30, 1997, the Company has drawn down $32 million of the
revolving credit facility to partially fund the Hercules acquisition and
provide for working capital. The Company is in the process of increasing the
revolving credit facility from $45 million to $75 million. The revolving
credit facility matures on December 31, 1998.
Both the Senior Notes and the Senior Credit Facility contain customary
affirmative and negative covenants, including restrictions on incurrence of
debt and sales of assets. The Senior Credit Facility prohibits payment of
dividends and the indenture for the Senior Notes restricts the payment of
dividends.
Subsequent to the acquisition of Hercules, management anticipates that the
cash generated from operations, in addition to cash available under the
increased revolving credit facility, will be sufficient to fund the Company's
working capital needs and estimated capital expenditures of $180 million, in
fiscal 1998. In addition, the Company may consider seeking additional equity
or long-term financing should new opportunities requiring capital arise. The
Company withdrew its proposed offering of 10,000,000 shares of common stock in
November due to the belief of management that the Company's strength and
prospects were undervalued by the market at that time.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Page
Exhibit 15 Letter re Unaudited Interim Financial Information 15
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - Parker Drilling Company filed a Form 8-K
on November 3, 1997 which included financial statements of
Hercules Offshore Corporation and Hercules Rig Corp.
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
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Registrant
Date: January 12, 1998
By: /s/ James J. Davis
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James J. Davis
Senior Vice President-Finance and
Chief Financial Officer
By: /s/ Randy Ellis
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Randy Ellis
Controller and
Chief Accounting Officer
INDEX TO EXHIBITS
Exhibit
Number Description
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15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule
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