Washington, D.C. 20549
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 73-0618660 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
1
June 30, | December 31, | |||||||
2005 | 2004 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 70,984 | $ | 44,267 | ||||
Accounts and notes receivable, net |
122,077 | 99,315 | ||||||
Rig materials and supplies |
17,426 | 19,206 | ||||||
Deferred costs |
9,388 | 13,546 | ||||||
Other current assets |
12,215 | 9,818 | ||||||
Total current assets |
232,090 | 186,152 | ||||||
Property, plant and equipment less
accumulated depreciation and amortization of $554,769 at June 30, 2005 and $610,485 at December 31, 2004 |
357,465 | 382,824 | ||||||
Assets held for sale |
9,050 | 23,665 | ||||||
Goodwill |
107,606 | 107,606 | ||||||
Other noncurrent assets |
22,345 | 26,343 | ||||||
Total assets |
$ | 728,556 | $ | 726,590 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | | $ | 24 | ||||
Accounts payable and accrued liabilities |
82,190 | 72,625 | ||||||
Accrued income taxes |
14,650 | 14,704 | ||||||
Total current liabilities |
96,840 | 87,353 | ||||||
Long-term debt |
446,107 | 481,039 | ||||||
Other long-term liabilities |
8,160 | 9,281 | ||||||
Contingency (Note 8) |
| | ||||||
Stockholders equity: |
||||||||
Common stock |
16,163 | 15,833 | ||||||
Capital in excess of par
value |
449,968 | 441,085 | ||||||
Unamortized restricted stock plan compensation |
(5,508 | ) | (718 | ) | ||||
Accumulated deficit |
(283,174 | ) | (307,283 | ) | ||||
Total stockholders equity |
177,449 | 148,917 | ||||||
Total liabilities and stockholders equity |
$ | 728,556 | $ | 726,590 | ||||
2
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 31,110 | $ | 20,662 | $ | 58,227 | $ | 40,421 | ||||||||
International drilling |
78,301 | 50,515 | 150,473 | 106,552 | ||||||||||||
Rental tools |
24,543 | 16,704 | 45,497 | 31,807 | ||||||||||||
Total drilling and rental revenues |
133,954 | 87,881 | 254,197 | 178,780 | ||||||||||||
Drilling and rental operating expenses: |
||||||||||||||||
U.S. drilling |
18,838 | 12,506 | 33,226 | 25,197 | ||||||||||||
International drilling |
59,697 | 38,503 | 115,500 | 78,394 | ||||||||||||
Rental tools |
8,951 | 6,712 | 17,136 | 13,325 | ||||||||||||
Depreciation and amortization |
17,146 | 16,544 | 34,022 | 32,793 | ||||||||||||
Total drilling and rental operating expenses |
104,632 | 74,265 | 199,884 | 149,709 | ||||||||||||
Drilling and rental operating income |
29,322 | 13,616 | 54,313 | 29,071 | ||||||||||||
General and administration expense |
(6,400 | ) | (6,992 | ) | (13,376 | ) | (13,034 | ) | ||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | | (6,558 | ) | ||||||||||
Gain on disposition of assets, net |
15,898 | 346 | 16,450 | 1,069 | ||||||||||||
Total operating income |
38,820 | 412 | 57,387 | 10,548 | ||||||||||||
Other income and (expense): |
||||||||||||||||
Interest expense |
(10,759 | ) | (13,468 | ) | (21,815 | ) | (26,875 | ) | ||||||||
Changes in fair value of derivative positions |
(1,538 | ) | | 69 | | |||||||||||
Interest income |
550 | 183 | 788 | 432 | ||||||||||||
Loss on extinguishment of debt |
(3,298 | ) | (262 | ) | (4,727 | ) | (578 | ) | ||||||||
Minority interest |
521 | (225 | ) | 1,290 | (515 | ) | ||||||||||
Other |
(616 | ) | 755 | (622 | ) | 838 | ||||||||||
Total other income and (expense) |
(15,140 | ) | (13,017 | ) | (25,017 | ) | (26,698 | ) | ||||||||
Income (loss) before income taxes |
23,680 | (12,605 | ) | 32,370 | (16,150 | ) | ||||||||||
Income tax expense |
3,486 | 3,417 | 8,338 | 7,466 | ||||||||||||
Income (loss) from continuing operations |
20,194 | (16,022 | ) | 24,032 | (23,616 | ) | ||||||||||
Discontinued operations |
(14 | ) | 2,497 | 77 | 5,227 | |||||||||||
Net income (loss) |
$ | 20,180 | $ | (13,525 | ) | $ | 24,109 | $ | (18,389 | ) | ||||||
Basic earnings (loss) per share: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.21 | $ | (0.17 | ) | $ | 0.25 | $ | (0.25 | ) | ||||||
Discontinued operations |
$ | | $ | 0.03 | $ | | $ | 0.05 | ||||||||
Net income (loss) |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) | ||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.21 | $ | (0.17 | ) | $ | 0.25 | $ | (0.25 | ) | ||||||
Discontinued operations |
$ | | $ | 0.03 | $ | | $ | 0.05 | ||||||||
Net income (loss) |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) | ||||||
Number of common shares used in computing
earnings per share: |
||||||||||||||||
Basic |
95,691,205 | 94,029,536 | 95,321,850 | 93,812,055 | ||||||||||||
Diluted |
96,935,113 | 94,029,536 | 96,516,790 | 93,812,055 |
3
Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 24,109 | $ | (18,389 | ) | |||
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
34,022 | 32,793 | ||||||
Gain on disposition of assets |
(16,450 | ) | (1,069 | ) | ||||
Gain on disposition of marketable securities |
| (762 | ) | |||||
Provision for reduction in carring value of certain assets |
| 6,558 | ||||||
Expenses not requiring cash |
2,700 | 4,140 | ||||||
Discontinued operations |
25 | 51 | ||||||
Change in operating assets and liabilities |
4,976 | (17,483 | ) | |||||
Net cash provided by operating activities |
49,382 | 5,839 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(32,641 | ) | (15,659 | ) | ||||
Proceeds from the sale of assets |
41,543 | 1,407 | ||||||
Proceeds from insurance claims |
| 27,000 | ||||||
Proceeds from sale of marketable securities |
| 1,377 | ||||||
Net cash provided by investing activities |
8,902 | 14,125 | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of debt |
55,500 | | ||||||
Principal payments under debt obligations |
(90,025 | ) | (45,735 | ) | ||||
Proceeds from stock options exercised |
2,958 | 277 | ||||||
Net cash used in financing activities |
(31,567 | ) | (45,458 | ) | ||||
Net change in cash and cash equivalents |
26,717 | (25,494 | ) | |||||
Cash and cash equivalents at beginning of period |
44,267 | 67,765 | ||||||
Cash and cash equivalents at end of period |
$ | 70,984 | $ | 42,271 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 21,337 | $ | 25,551 | ||||
Income taxes paid |
$ | 7,454 | $ | 8,723 |
4
1. | General In the opinion of the management of Parker Drilling Company (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 June 30, 2005 and December 31, 2004, (2) the results of operations for the three and six months ended June 30, 2005 and 2004, and (3) cash flows for the six months ended June 30, 2005 and 2004. Results for the six months ended June 30, 2005 are not necessarily indicative of the results that will be realized for the year ending December 31, 2005. The financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2004. | |
Our independent registered public accounting firm has performed a review of these interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board (United States). Pursuant to Rule 436(c) under the Securities Act of 1933, the independent registered public accounting firms report of that review should not be considered a report within the meaning of Section 7 and 11 of that Act, and the independent registered public accounting firms liability under Section 11 does not extend to it. | ||
Stock-Based Compensation Our stock-based employee compensation plans are accounted for under the recognition and measurement principles of the Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost related to stock options granted is reflected in net income (loss), as all options granted under the plan had an exercise price equal to or greater than the fair market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and net income (loss) per share if we had applied the fair value recognition provisions of the Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. In December 2004, the Financial Accounting Standards Board (FASB) revised SFAS No. 123 to eliminate the alternative under the original statement to account for share-based employee compensation using APB Opinion No. 25 and set the effective date for interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission (SEC) approved a new rule for public companies that defers the effective date of SFAS No. 123R to annual periods beginning after June 15, 2005. We plan to adopt the provisions of the Statement on January 1, 2006 using the modified prospective method. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands, Except Per Share Amounts) | ||||||||||||||||
Net income (loss) as reported |
$ | 20,180 | $ | (13,525 | ) | $ | 24,109 | $ | (18,389 | ) | ||||||
Stock-based compensation expense included
in net income (loss) as reported |
437 | 290 | 1,313 | 1,313 | ||||||||||||
Stock-based compensation expense determined under fair value method |
(499 | ) | (414 | ) | (1,455 | ) | (1,694 | ) | ||||||||
Net income (loss) pro forma |
$ | 20,118 | $ | (13,649 | ) | $ | 23,967 | $ | (18,770 | ) | ||||||
Basic
earnings (loss) per share: |
||||||||||||||||
Net income (loss) as reported |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) | ||||||
Net income (loss) pro forma |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) | ||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Net income (loss) as reported |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) | ||||||
Net income (loss) pro forma |
$ | 0.21 | $ | (0.14 | ) | $ | 0.25 | $ | (0.20 | ) |
5
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions noted above for the three and six months ended June 30, 2005 and 2004. We assume no dividend yield and that the expected lives of the options range from three to seven years. | ||
2. | Earnings Per Share (EPS) |
Three Months Ended June 30, 2005 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 20,194,000 | 95,691,205 | $ | 0.21 | |||||||
Discontinued operations |
(14,000 | ) | | |||||||||
Net income |
$ | 20,180,000 | $ | 0.21 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| 1,243,908 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 20,194,000 | 96,935,113 | $ | 0.21 | |||||||
Discontinued operations |
(14,000 | ) | | |||||||||
Net income |
$ | 20,180,000 | $ | 0.21 | ||||||||
Six Months Ended June 30, 2005 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 24,032,000 | 95,321,850 | $ | 0.25 | |||||||
Discontinued operations |
77,000 | | ||||||||||
Net income |
$ | 24,109,000 | $ | 0.25 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| 1,194,940 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 24,032,000 | 96,516,790 | $ | 0.25 | |||||||
Discontinued operations |
77,000 | | ||||||||||
Net income |
$ | 24,109,000 | $ | 0.25 | ||||||||
6
2. | Earnings Per Share (EPS) (continued) |
Three Months Ended June 30, 2004 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Loss from continuing operations |
$ | (16,022,000 | ) | 94,029,536 | $ | (0.17 | ) | |||||
Discontinued operations |
2,497,000 | 0.03 | ||||||||||
Net loss |
$ | (13,525,000 | ) | $ | (0.14 | ) | ||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| | | |||||||||
Diluted EPS: |
||||||||||||
Loss from continuing operations |
$ | (16,022,000 | ) | 94,029,536 | $ | (0.17 | ) | |||||
Discontinued operations |
2,497,000 | 0.03 | ||||||||||
Net loss |
$ | (13,525,000 | ) | $ | (0.14 | ) | ||||||
Six Months Ended June 30, 2004 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Loss from continuing operations |
$ | (23,616,000 | ) | 93,812,055 | $ | (0.25 | ) | |||||
Discontinued operations |
5,227,000 | 0.05 | ||||||||||
Net loss |
$ | (18,389,000 | ) | $ | (0.20 | ) | ||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| | | |||||||||
Diluted EPS: |
||||||||||||
Loss from continuing operations |
$ | (23,616,000 | ) | 93,812,055 | $ | (0.25 | ) | |||||
Discontinued operations |
5,227,000 | 0.05 | ||||||||||
Net loss |
$ | (18,389,000 | ) | $ | (0.20 | ) | ||||||
7
3. | Business Segments The primary services we provide are as follows: U.S. drilling, international drilling and rental tools. Information regarding our operations by reportable segment for the three and six months ended June 30, 2005 and 2004 is as follows: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 31,110 | $ | 20,662 | $ | 58,227 | $ | 40,421 | ||||||||
International drilling |
78,301 | 50,515 | 150,473 | 106,552 | ||||||||||||
Rental tools |
24,543 | 16,704 | 45,497 | 31,807 | ||||||||||||
Total drilling and rental revenues |
$ | 133,954 | $ | 87,881 | $ | 254,197 | $ | 178,780 | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling |
$ | 7,269 | $ | 3,432 | $ | 15,362 | $ | 5,744 | ||||||||
International drilling |
10,556 | 3,652 | 18,438 | 11,796 | ||||||||||||
Rental tools |
11,497 | 6,532 | 20,513 | 11,531 | ||||||||||||
Total drilling and rental operating income |
29,322 | 13,616 | 54,313 | 29,071 | ||||||||||||
General and administrative expense |
(6,400 | ) | (6,992 | ) | (13,376 | ) | (13,034 | ) | ||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | | (6,558 | ) | ||||||||||
Gain on disposition of assets, net |
15,898 | 346 | 16,450 | 1,069 | ||||||||||||
Total operating income |
38,820 | 412 | 57,387 | 10,548 | ||||||||||||
Interest expense |
(10,759 | ) | (13,468 | ) | (21,815 | ) | (26,875 | ) | ||||||||
Changes in fair value of derivative positions |
(1,538 | ) | | 69 | | |||||||||||
Loss on extinguishment of debt |
(3,298 | ) | (262 | ) | (4,727 | ) | (578 | ) | ||||||||
Other |
455 | 713 | 1,456 | 755 | ||||||||||||
Income (loss) before income taxes |
$ | 23,680 | $ | (12,605 | ) | $ | 32,370 | $ | (16,150 | ) | ||||||
4. | Discontinued Operations Discontinued operations for the three and six months ended June 30, 2004 includes results of operations for U.S. Gulf of Mexico offshore assets consisting of seven jackup rigs and four platform rigs. Under a plan approved by our board of directors in June 2003, nine of the rigs were sold in the third quarter of 2004 and one was sold in January 2005. Jackup rig 14 was damaged in September 2003 when it malfunctioned and became partially submerged. We received a total loss settlement of $27.0 million, of which $24.3 million was received in March 2004. The remaining $2.7 million was received in April 2004. 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 Generally Accepted Accounting Principles (GAAP), we were required to recognize the gain on 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. After considering the impact of the gain, we determined that the overall valuation of the U.S. Gulf of Mexico offshore group was unchanged from the fair value assessment at June 30, 2003. As a result, we recognized an additional impairment of $5.3 million which, along with the gain, was reported in discontinued operations during the first quarter of 2004. The six months ended June 30, 2005, includes the operations of the last jackup rig prior to its sale on January 3, 2005. |
8
4. | Discontinued Operations (continued) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
U.S. jackup and platform drilling revenues |
$ | | $ | 11,859 | $ | 193 | $ | 24,258 | ||||||||
Income (loss) from discontinued operations |
$ | (14 | ) | $ | 2,497 | $ | 77 | $ | 5,227 | |||||||
5. | Income Tax Expense Income tax expense from operations consists of foreign tax expense of $3.5 million for the second quarter of 2005 as compared to foreign tax expense of $3.4 million for the second quarter of 2004. For the first six months of 2005 and 2004, foreign income tax expense from operations consists of $8.3 million and $7.5 million, respectively. The $0.1 million and $0.8 million increases in foreign income taxes during the current three and six-month periods were primarily due to taxes on the sale of our Latin America operations and increases in Mexico and Papua New Guinea taxes, offset by a reduction in tax for Kazakhstan and New Zealand upon confirmation of allowable expenses for filing the prior years tax return. | |
6. | Long-Term Debt |
June 30, 2005 | December 31, 2004 | |||||||
(Dollars in Thousands) | ||||||||
Senior Notes: |
||||||||
Interest rate 10.125%, due 2009 |
$ | 65,769 | $ | 156,039 | ||||
Interest rate floating (LIBOR + 4.75%), due 2010 |
150,000 | 150,000 | ||||||
Interest rate 9.625%, due 2013 |
230,338 | 175,000 | ||||||
Capital Lease |
| 24 | ||||||
Total debt |
446,107 | 481,063 | ||||||
Less current portion |
| 24 | ||||||
Total long-term debt |
$ | 446,107 | $ | 481,039 | ||||
On February 7, 2005, we retired $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. The $21.5 million in 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 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 April 21, 2005, we issued a redemption notice to retire $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 of the $50.0 million additional 9.625% Senior Notes and cash on hand. | ||
Our current $40.0 million credit facility is available for general corporate purposes and to fund reimbursement obligations of letters of credit that banks issue on our behalf pursuant to the terms of the credit facility. Availability under the revolving credit facility is subject to a borrowing base limitation of 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 or letters of credit totaling at least $25.0 million. As of June 30, 2005, there were $10.3 million letters of credit outstanding and no loans. |
9
6. | Long-Term Debt (continued) | |
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 was July 16, 2005 and was funded by the net proceeds from the sale of our Latin America rigs and cash on hand. | ||
7. | Derivative Instruments We use derivative instruments to manage risks associated with interest rate fluctuations in connection with our $150.0 million Senior Floating Rate Notes. Derivative instruments, which consist of variable-to-fixed interest rate swaps, do not meet the hedge criteria in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and are therefore not designated as hedges. Accordingly, the change in the fair value of the interest rate swaps is recognized currently in earnings. | |
As of June 30, 2005, we had the following derivative instruments outstanding related to our interest rate swaps, which are included in Other long-term liabilities: |
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||||||
Date | Date | Amount | Rate | Rate | Value | |||||||||||
September 1, 2005
|
September 2, 2008 | $ | 50,000 | Three-month LIBOR plus 475 basis points | 8.83 | % | $ | (622 | ) | |||||||
September 1, 2005
|
September 4, 2007 | $ | 50,000 | Three-month LIBOR plus 475 basis points | 8.48 | % | (104 | ) | ||||||||
$ | (726 | ) | ||||||||||||||
8. | Contingency As previously reported, the Kazakhstan branch (PKD Kazakhstan) of Parker Drilling Company International Limited (PDCIL) prevailed on its appeal arising out of an audit assessment 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. The MSR did not appeal this ruling within the time required for a supervisory appeal, but in February 2005 filed an application for re-hearing based on new evidence. PKD Kazakhstan has filed an objection to this application for rehearing. The Supreme Court of Kazakhstan issued an order on April 12, 2005, declining the Ministry of Finance of Kazakhstans (MinFin) application for re-hearing. | |
In a related matter, based on its interpretation of the initial ruling of the Kazakhstan Supreme Court, MinFin made a claim on March 10, 2003 for corporate income taxes based primarily on the disallowance of depreciation of the full value of barge rig 257 in the income tax returns of PKD Kazakhstan for the years 1999-2001. PKD Kazakhstan instituted legal proceedings to challenge the validity of these claims by MinFin, which ultimately resulted in the Supreme Court confirming the decision of the Astana City Court, which earlier had ruled that approximately $7.7 million of the claims of MinFin, all of which have been expensed in prior periods, are valid and payable upon receipt of the re-issuance of the corrected notice from the relevant taxing authority. MinFin has not issued a corrected notice; however, on or about August 2004, Atyrau Tax Committee (ATC), the tax reporting authority over PKD Kazakhstan reduced PKD Kazakhstans available credits by approximately $7.1 million and on or about March 2005, ATC reduced PKD Kazakhstans available credits by the remaining balance due of $0.6 million. While the Supreme Court disallowed depreciation for the years 1999-2001, the judgment does allow PKD Kazakhstan to depreciate the full value of barge rig 257 on its tax returns beginning in 2002, which will reduce taxable income and taxes to be paid during periods in which depreciation is allowed based on the full value. We continue to pursue our 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 our petition and has initiated proceedings with the MSR which are ongoing. We are continuing to pursue this petition to forestall future appeals by the MSR. |
10
9. | Recent Accounting Pronouncements 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. We will adopt this standard effective January 1, 2006 and we do not expect any impact on our consolidated financial statements. | |
10. | Disposition of Assets On May 6, 2005 we entered into definitive agreements with affiliates of Saxon Energy Services, Inc. (Saxon) to sell our seven remaining land rigs and related assets in Colombia and Peru for a total purchase price of $34 million. During the second quarter, we closed on the sale of four of the rigs and related assets and recognized an after-tax gain of $4.2 million on the sale of the rigs. The remaining three rigs were classified as Assets held for sale in June 2005 and we expect to close on the sale in the third quarter. | |
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. Net insurance proceeds to be received in excess of the book value of assets destroyed resulted in a gain of $8.2 million, which was recognized in the second quarter of 2005. | ||
11. | Subsequent Event On July 8, 2005, barge rig 57 was being towed to safe harbor to avoid a hurricane, when it overturned. All personnel onboard the barge rig were safely evacuated with no injuries and no claims have been reported. On July 28, 2005, the United States Coast Guard and other federal, state and local agencies approved our plan to recover the barge. Once recovery has occurred, the rig will be taken to the shipyard for repairs. The rig is expected to return to service toward the end of the fourth quarter 2005 or early first quarter 2006. Based on information currently available, we do not anticipate a material financial impact from the incident. | |
12. | Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements Set forth on the following pages are the unaudited consolidating condensed financial statements of (i) Parker Drilling, (ii) our restricted subsidiaries that are guarantors of the Senior Notes and (iii) our restricted and unrestricted subsidiaries that are not guarantors of the Senior Notes. All of our Senior 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, 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. We are providing unaudited consolidating condensed financial information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries as of June 30, 2005 and December 31, 2004 and for the three and six months ended June 30, 2005 and 2004. The condensed consolidating financial statements present investments in both consolidated and unconsolidated subsidiaries using the equity method of accounting and includes a change to the 2004 presentation between the parent and guarantor columns of the consolidating condensed statement of cash flows from that which was previously reported. |
11
June 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 46,611 | $ | 6,259 | $ | 18,114 | $ | | $ | 70,984 | ||||||||||
Accounts and notes receivable, net |
186,649 | 125,599 | 39,325 | (229,496 | ) | 122,077 | ||||||||||||||
Rig materials and supplies |
| 12,345 | 5,081 | | 17,426 | |||||||||||||||
Deferred costs |
| 4,256 | 5,132 | | 9,388 | |||||||||||||||
Other current assets |
3,855 | 5,504 | 2,756 | 100 | 12,215 | |||||||||||||||
Total current assets |
237,115 | 153,963 | 70,408 | (229,396 | ) | 232,090 | ||||||||||||||
Property, plant and equipment, net |
134 | 390,151 | 39,265 | (72,085 | ) | 357,465 | ||||||||||||||
Assets held for sale |
| 9,050 | | | 9,050 | |||||||||||||||
Goodwill |
| 107,606 | | | 107,606 | |||||||||||||||
Investment in subsidiaries and intercompany advances |
445,388 | 855,279 | 29,929 | (1,330,596 | ) | | ||||||||||||||
Other noncurrent assets |
12,765 | 8,741 | 878 | (39 | ) | 22,345 | ||||||||||||||
Total assets |
$ | 695,402 | $ | 1,524,790 | $ | 140,480 | $ | (1,632,116 | ) | $ | 728,556 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 37,158 | $ | 247,473 | $ | 42,047 | $ | (244,488 | ) | $ | 82,190 | |||||||||
Accrued income taxes |
1,358 | 13,014 | 278 | | 14,650 | |||||||||||||||
Total current liabilities |
38,516 | 260,487 | 42,325 | (244,488 | ) | 96,840 | ||||||||||||||
Long-term debt |
446,107 | | | | 446,107 | |||||||||||||||
Other long-term liabilities |
(41,253 | ) | 48,495 | 918 | | 8,160 | ||||||||||||||
Intercompany payables |
74,583 | 591,675 | 25,464 | (691,722 | ) | | ||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
16,163 | 39,899 | 21,251 | (61,150 | ) | 16,163 | ||||||||||||||
Capital in excess of par value |
449,968 | 977,561 | 33,783 | (1,011,344 | ) | 449,968 | ||||||||||||||
Unamortized restricted stock plan compensation |
(5,508 | ) | | | | (5,508 | ) | |||||||||||||
Retained earnings (accumulated deficit) |
(283,174 | ) | (393,327 | ) | 16,739 | 376,588 | (283,174 | ) | ||||||||||||
Total stockholders equity |
177,449 | 624,133 | 71,773 | (695,906 | ) | 177,449 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 695,402 | $ | 1,524,790 | $ | 140,480 | $ | (1,632,116 | ) | $ | 728,556 | |||||||||
12
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 | |||||||||
13
Three Months Ended June 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 100,298 | $ | 36,540 | $ | (2,884 | ) | $ | 133,954 | |||||||||
Drilling and rental operating expenses |
| 56,305 | 34,065 | (2,884 | ) | 87,486 | ||||||||||||||
Depreciation and amortization |
| 16,177 | 969 | | 17,146 | |||||||||||||||
Drilling and rental operating income |
| 27,816 | 1,506 | | 29,322 | |||||||||||||||
General and administration expense (1) |
(42 | ) | (6,358 | ) | | | (6,400 | ) | ||||||||||||
Gain on disposition of assets, net |
| 15,595 | 303 | | 15,898 | |||||||||||||||
Total operating income (loss) |
(42 | ) | 37,053 | 1,809 | | 38,820 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(11,950 | ) | (12,340 | ) | (697 | ) | 14,228 | (10,759 | ) | |||||||||||
Changes in fair value of derivative positions |
(1,538 | ) | | | | (1,538 | ) | |||||||||||||
Loss on extinguishment of debt |
(3,298 | ) | | | | (3,298 | ) | |||||||||||||
Other |
11,223 | 2,139 | 1,321 | (14,228 | ) | 455 | ||||||||||||||
Equity in net earnings of subsidiaries |
26,001 | | | (26,001 | ) | | ||||||||||||||
Total other income and (expense) |
20,438 | (10,201 | ) | 624 | (26,001 | ) | (15,140 | ) | ||||||||||||
Income (loss) before income taxes |
20,396 | 26,852 | 2,433 | (26,001 | ) | 23,680 | ||||||||||||||
Income tax expense |
216 | 2,653 | 617 | | 3,486 | |||||||||||||||
Income (loss) from continuing operations |
20,180 | 24,199 | 1,816 | (26,001 | ) | 20,194 | ||||||||||||||
Discontinued operations |
| (14 | ) | | | (14 | ) | |||||||||||||
Net income (loss) |
$ | 20,180 | $ | 24,185 | $ | 1,816 | $ | (26,001 | ) | $ | 20,180 | |||||||||
(1) | All field operations general and administration expenses are included in operating expenses. |
14
Three Months Ended June 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 72,822 | $ | 14,586 | $ | 473 | $ | 87,881 | ||||||||||
Drilling and rental operating expenses |
| 45,499 | 11,749 | 473 | 57,721 | |||||||||||||||
Depreciation and amortization |
| 15,435 | 1,109 | | 16,544 | |||||||||||||||
Drilling and rental operating income |
| 11,888 | 1,728 | | 13,616 | |||||||||||||||
General and administrative expense (1) |
(43 | ) | (6,949 | ) | | | (6,992 | ) | ||||||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | | | (6,558 | ) | |||||||||||||
Gain on disposition of assets, net |
| (46,912 | ) | | 47,258 | 346 | ||||||||||||||
Total operating income (loss) |
(43 | ) | (48,531 | ) | 1,728 | 47,258 | 412 | |||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(14,211 | ) | (12,126 | ) | (860 | ) | 13,729 | (13,468 | ) | |||||||||||
Loss on extinguishment of debt |
(262 | ) | | | | (262 | ) | |||||||||||||
Other |
12,990 | 14,895 | 253 | (27,425 | ) | 713 | ||||||||||||||
Equity in
net loss of subsidiaries |
(11,763 | ) | | | 11,763 | | ||||||||||||||
Total other income and (expense) |
(13,246 | ) | 2,769 | (607 | ) | (1,933 | ) | (13,017 | ) | |||||||||||
Income (loss) before income taxes |
(13,289 | ) | (45,762 | ) | 1,121 | 45,325 | (12,605 | ) | ||||||||||||
Income tax expense |
236 | 3,181 | | | 3,417 | |||||||||||||||
Income (loss) from continuing operations |
(13,525 | ) | (48,943 | ) | 1,121 | 45,325 | (16,022 | ) | ||||||||||||
Discontinued operations |
| 2,497 | | | 2,497 | |||||||||||||||
Net income (loss) |
$ | (13,525 | ) | $ | (46,446 | ) | $ | 1,121 | $ | 45,325 | $ | (13,525 | ) | |||||||
(1) | All field operations general and administrative expenses are included in operating expenses. |
15
Six Months Ended June 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 189,442 | $ | 71,483 | $ | (6,728 | ) | $ | 254,197 | |||||||||
Drilling and rental operating expenses |
| 104,213 | 68,388 | (6,739 | ) | 165,862 | ||||||||||||||
Depreciation and amortization |
| 32,088 | 1,934 | | 34,022 | |||||||||||||||
Drilling and rental operating income |
| 53,141 | 1,161 | 11 | 54,313 | |||||||||||||||
General and administration expense (1) |
(84 | ) | (13,292 | ) | | | (13,376 | ) | ||||||||||||
Gain on disposition of assets, net |
| 15,942 | 508 | | 16,450 | |||||||||||||||
Total operating income (loss) |
(84 | ) | 55,791 | 1,669 | 11 | 57,387 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(24,198 | ) | (24,627 | ) | (1,452 | ) | 28,462 | (21,815 | ) | |||||||||||
Changes in fair value of derivative positions |
69 | | | | 69 | |||||||||||||||
Loss on extinguishment of debt |
(4,727 | ) | | | | (4,727 | ) | |||||||||||||
Other |
22,862 | 4,256 | 2,811 | (28,473 | ) | 1,456 | ||||||||||||||
Equity in net earnings of subsidiaries |
30,609 | | | (30,609 | ) | | ||||||||||||||
Total other income and (expense) |
24,615 | (20,371 | ) | 1,359 | (30,620 | ) | (25,017 | ) | ||||||||||||
Income (loss) before income taxes |
24,531 | 35,420 | 3,028 | (30,609 | ) | 32,370 | ||||||||||||||
Income tax expense |
422 | 5,484 | 2,432 | | 8,338 | |||||||||||||||
Income (loss) from continuing operations |
24,109 | 29,936 | 596 | (30,609 | ) | 24,032 | ||||||||||||||
Discontinued operations |
| 77 | | | 77 | |||||||||||||||
Net income (loss) |
$ | 24,109 | $ | 30,013 | $ | 596 | $ | (30,609 | ) | $ | 24,109 | |||||||||
(1) | All field operations general and administration expenses are included in operating expenses. |
16
Six Months Ended June 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 148,593 | $ | 29,177 | $ | 1,010 | $ | 178,780 | ||||||||||
Drilling and rental operating expenses |
| 92,279 | 23,627 | 1,010 | 116,916 | |||||||||||||||
Depreciation and amortization |
| 30,458 | 2,335 | | 32,793 | |||||||||||||||
Drilling and rental operating income |
| 25,856 | 3,215 | | 29,071 | |||||||||||||||
General and administrative expense (1) |
136 | (13,170 | ) | | | (13,034 | ) | |||||||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | | | (6,558 | ) | |||||||||||||
Gain on disposition of assets, net |
| (46,189 | ) | | 47,258 | 1,069 | ||||||||||||||
Total
operating income (loss) |
136 | (40,061 | ) | 3,215 | 47,258 | 10,548 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(28,810 | ) | (23,662 | ) | (1,774 | ) | 27,371 | (26,875 | ) | |||||||||||
Loss on extinguishment of debt |
(578 | ) | | | | (578 | ) | |||||||||||||
Other |
25,311 | 2,476 | 347 | (27,379 | ) | 755 | ||||||||||||||
Equity in net loss of subsidiaries |
(13,968 | ) | | | 13,968 | | ||||||||||||||
Total other income and (expense) |
(18,045 | ) | (21,186 | ) | (1,427 | ) | 13,960 | (26,698 | ) | |||||||||||
Income (loss) before income taxes |
(17,909 | ) | (61,247 | ) | 1,788 | 61,218 | (16,150 | ) | ||||||||||||
Income tax expense |
480 | 6,986 | | | 7,466 | |||||||||||||||
Income (loss) from continuing operations |
(18,389 | ) | (68,233 | ) | 1,788 | 61,218 | (23,616 | ) | ||||||||||||
Discontinued operations |
| 5,227 | | | 5,227 | |||||||||||||||
Net income (loss) |
$ | (18,389 | ) | $ | (63,006 | ) | $ | 1,788 | $ | 61,218 | $ | (18,389 | ) | |||||||
(1) | All field operations general and administrative expenses are included in operating expenses. |
17
Six Month Ended June 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 24,109 | $ | 30,013 | $ | 596 | $ | (30,609 | ) | $ | 24,109 | |||||||||
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 32,088 | 1,934 | | 34,022 | |||||||||||||||
Gain on disposition of assets |
| (15,942 | ) | (508 | ) | | (16,450 | ) | ||||||||||||
Expenses not requiring cash |
2,100 | 600 | | | 2,700 | |||||||||||||||
Equity in net earnings of subsidiaries |
(30,609 | ) | | | 30,609 | | ||||||||||||||
Discontinued operations |
| 25 | | | 25 | |||||||||||||||
Change in operating assets and liabilities |
(8,463 | ) | 12,713 | 726 | | 4,976 | ||||||||||||||
Net cash provided by (used in) operating activities |
(12,863 | ) | 59,497 | 2,748 | | 49,382 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (29,416 | ) | (3,225 | ) | | (32,641 | ) | ||||||||||||
Proceeds from the sale of assets |
| 40,119 | 1,424 | | 41,543 | |||||||||||||||
Net cash provided by (used in) investing activities |
| 10,703 | (1,801 | ) | | 8,902 | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from issuance of debt |
55,500 | 55,500 | ||||||||||||||||||
Principal payments under debt obligations |
(90,025 | ) | | | | (90,025 | ) | |||||||||||||
Proceeds from stock options exercised |
2,958 | | | | 2,958 | |||||||||||||||
Intercompany advances, net |
74,364 | (71,879 | ) | (2,485 | ) | | | |||||||||||||
Net cash provided by (used in) financing activities |
42,797 | (71,879 | ) | (2,485 | ) | | (31,567 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
29,934 | (1,679 | ) | (1,538 | ) | | 26,717 | |||||||||||||
Cash and cash equivalents at beginning of year |
16,677 | 7,938 | 19,652 | | 44,267 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 46,611 | $ | 6,259 | $ | 18,114 | $ | | $ | 70,984 | ||||||||||
18
Six Months Ended June 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (18,389 | ) | $ | (63,006 | ) | $ | 1,788 | $ | 61,218 | $ | (18,389 | ) | |||||||
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 30,458 | 2,335 | | 32,793 | |||||||||||||||
Gain on disposition of assets |
| 46,189 | | (47,258 | ) | (1,069 | ) | |||||||||||||
Gain on sale of marketable securities |
(762 | ) | | | | (762 | ) | |||||||||||||
Provision for reduction in carrying
value of certain assets |
| 6,558 | | | 6,558 | |||||||||||||||
Expenses not requiring cash |
3,539 | 606 | (5 | ) | | 4,140 | ||||||||||||||
Equity in net loss of subsidiaries |
13,968 | | | (13,968 | ) | | ||||||||||||||
Discontinued operations |
| 51 | | | 51 | |||||||||||||||
Change in operating assets and liabilities |
697 | (18,801 | ) | 613 | 8 | (17,483 | ) | |||||||||||||
Net cash provided by (used in) operating activities |
(947 | ) | 2,055 | 4,731 | | 5,839 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (15,350 | ) | (309 | ) | | (15,659 | ) | ||||||||||||
Proceeds from the sale of assets |
| 1,407 | | | 1,407 | |||||||||||||||
Proceeds from insurance settlement |
| 27,000 | | | 27,000 | |||||||||||||||
Proceeds from sale of marketable securities |
1,377 | | | | 1,377 | |||||||||||||||
Net cash provided by (used in) investing activities |
1,377 | 13,057 | (309 | ) | | 14,125 | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Principal payments under debt obligations |
(45,831 | ) | 96 | | | (45,735 | ) | |||||||||||||
Proceeds from stock options exercised |
277 | | | | 277 | |||||||||||||||
Intercompany advances, net |
20,962 | (12,356 | ) | (8,606 | ) | | | |||||||||||||
Net cash used in financing activities |
(24,592 | ) | (12,260 | ) | (8,606 | ) | | (45,458 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents |
(24,162 | ) | 2,852 | (4,184 | ) | | (25,494 | ) | ||||||||||||
Cash and cash equivalents at beginning of year |
53,055 | 7,806 | 6,904 | | 67,765 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 28,893 | $ | 10,658 | $ | 2,720 | $ | | $ | 42,271 | ||||||||||
19
/s/PricewaterhouseCoopers LLP | ||
PricewaterhouseCoopers LLP |
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
* | prices and demand for oil and natural gas; | ||
* | levels of oil and natural gas exploration and production activities; | ||
* | demand for contract drilling and drilling-related services and demand for rental tools; | ||
* | our future operating results; | ||
* | our future rig utilization, rig dayrates and rental tools activity; | ||
* | our future capital expenditures and investments in the acquisition and refurbishment of rigs and equipment; | ||
* | our future liquidity; | ||
* | availability and sources of funds to reduce our debt and expectations of when debt will be reduced; | ||
* | future sales of our assets; | ||
* | the outcome of pending legal proceedings; | ||
* | our recovery of insurance proceeds with respect to damage to our rigs and equipment; | ||
* | compliance with covenants under our credit facilities; and | ||
* | expansion and growth of our operations. |
* | worldwide economic and business conditions that adversely affect market conditions and/or the cost of doing business; | ||
* | the U.S. economy and the demand for natural gas; | ||
* | fluctuations in the market prices of oil and gas; | ||
* | imposition of unanticipated trade restrictions; | ||
* | unanticipated operating hazards and uninsured risks; | ||
* | political instability, terrorism or war; | ||
* | governmental regulations, including changes in tax laws or ability to remit funds to the U.S., that adversely affect the cost of doing business; | ||
* | adverse environmental events; | ||
* | adverse weather conditions; | ||
* | changes in the concentration of customer and supplier relationships; | ||
* | unexpected cost increases for upgrade and refurbishment projects; | ||
* | delays in obtaining components for capital projects; | ||
* | shortages of skilled labor; | ||
* | unanticipated cancellation of contracts by operators without cause; | ||
* | breakdown of equipment and other operational problems; | ||
* | changes in competition; and | ||
* | other similar factors (some of which are discussed in documents referred to in this Form 10-Q). |
21
22
Three Months Ended June 30, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 31,110 | 23 | % | $ | 20,662 | 24 | % | ||||||||
International drilling |
78,301 | 59 | % | 50,515 | 57 | % | ||||||||||
Rental tools |
24,543 | 18 | % | 16,704 | 19 | % | ||||||||||
Total drilling and rental revenues |
$ | 133,954 | 100 | % | $ | 87,881 | 100 | % | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling gross margin (1) |
$ | 12,272 | 39 | % | $ | 8,156 | 39 | % | ||||||||
International drilling gross margin (1) |
18,604 | 24 | % | 12,012 | 24 | % | ||||||||||
Rental tools gross margin (1) |
15,592 | 64 | % | 9,992 | 60 | % | ||||||||||
Depreciation and amortization |
(17,146 | ) | (16,544 | ) | ||||||||||||
Total drilling and rental operating income (2) |
29,322 | 13,616 | ||||||||||||||
General and administration expense |
(6,400 | ) | (6,992 | ) | ||||||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | |||||||||||||
Gain on disposition of assets, net |
15,898 | 346 | ||||||||||||||
Total operating income |
$ | 38,820 | $ | 412 | ||||||||||||
(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 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Three
Months Ended June 30, 2005 |
||||||||||||
Drilling and rental operating income (2) |
$ | 7,269 | $ | 10,556 | $ | 11,497 | ||||||
Depreciation and amortization |
5,003 | 8,048 | 4,095 | |||||||||
Drilling and rental gross margin |
$ | 12,272 | $ | 18,604 | $ | 15,592 | ||||||
Three
Months Ended June 30, 2004 |
||||||||||||
Drilling and rental operating income (2) |
$ | 3,432 | $ | 3,652 | $ | 6,532 | ||||||
Depreciation and amortization |
4,724 | 8,360 | 3,460 | |||||||||
Drilling and rental gross margin |
$ | 8,156 | $ | 12,012 | $ | 9,992 | ||||||
(2) | Drilling and rental operating income drilling and rental revenues less direct drilling and rental operating expenses, including depreciation and amortization expense. |
23
| $12.6 million increase in Mexico where our land rigs operated the entire quarter in 2005, but had not yet begun operations in the comparable quarter in 2004; | ||
| $3.0 million increase in the CIS region, primarily due to increased revenues for reimbursement of costs of $4.6 million and increased rates of $0.2 million on our rig 262 O&M contract and $0.6 million increase on our Orlan O&M contract which was not in effect in the second quarter of 2004. These increases were partially offset by a decline in revenues of $1.6 million in Russia, where rig 236 operated in the second quarter of 2004, but was stacked mid-year 2004, and a decline under our Tengizchevroil (TCO) contract of $0.7 million where one less TCO-owned rig worked in 2005 than in 2004; | ||
| $3.9 million increase in New Zealand where three rigs operated the entire second quarter of 2005 and only one rig operated the entire second quarter of 2004; and | ||
| $2.8 million increase in Papua New Guinea where we had two rigs operating and two labor contracts in the second quarter of 2005 and one rig operating and two labor contracts in 2004. |
24
25
Three Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
(Dollars in Thousands) | ||||||||
U.S. jackup and platform drilling revenues |
$ | | $ | 11,859 | ||||
U.S. jackup and platform drilling gross margin |
$ | (3 | ) | $ | 2,548 | |||
Loss on disposition of assets, net of impairment |
(11 | ) | (51 | ) | ||||
Income (loss) from discontinued operations |
$ | (14 | ) | $ | 2,497 | |||
26
Six Months Ended June 30, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 58,227 | 23 | % | $ | 40,421 | 23 | % | ||||||||
International drilling |
150,473 | 59 | % | 106,552 | 59 | % | ||||||||||
Rental tools |
45,497 | 18 | % | 31,807 | 18 | % | ||||||||||
Total drilling and rental revenues |
$ | 254,197 | 100 | % | $ | 178,780 | 100 | % | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling gross margin (1) |
$ | 25,001 | 43 | % | $ | 15,224 | 38 | % | ||||||||
International drilling gross margin (1) |
34,973 | 23 | % | 28,158 | 26 | % | ||||||||||
Rental tools gross margin (1) |
28,361 | 62 | % | 18,482 | 58 | % | ||||||||||
Depreciation and amortization |
(34,022 | ) | (32,793 | ) | ||||||||||||
Total drilling and rental operating income (2) |
54,313 | 29,071 | ||||||||||||||
General and administration expense |
(13,376 | ) | (13,034 | ) | ||||||||||||
Provision for reduction in carrying
value of certain assets |
| (6,558 | ) | |||||||||||||
Gain on disposition of assets, net |
16,450 | 1,069 | ||||||||||||||
Total operating income |
$ | 57,387 | $ | 10,548 | ||||||||||||
(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 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Six Months Ended June 30, 2005 |
||||||||||||
Drilling and rental operating income (2) |
$ | 15,362 | $ | 18,438 | $ | 20,513 | ||||||
Depreciation and amortization |
9,639 | 16,535 | 7,848 | |||||||||
Drilling and rental gross margin |
$ | 25,001 | $ | 34,973 | $ | 28,361 | ||||||
Six Months Ended June 30, 2004 |
||||||||||||
Drilling and rental operating income (2) |
$ | 5,744 | $ | 11,796 | $ | 11,531 | ||||||
Depreciation and amortization |
9,480 | 16,362 | 6,951 | |||||||||
Drilling and rental gross margin |
$ | 15,224 | $ | 28,158 | $ | 18,482 | ||||||
(2) | Drilling and rental operating income drilling and rental revenues less direct drilling and rental operating expenses, including depreciation and amortization expense. |
27
28
29
Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
(Dollars in Thousands) | ||||||||
U.S. jackup and platform drilling revenues |
$ | 193 | $ | 24,258 | ||||
U.S. jackup and platform drilling gross margin |
$ | 102 | $ | 5,278 | ||||
Loss on disposition of assets, net of impairment |
(25 | ) | (51 | ) | ||||
Income from discontinued operations |
$ | 77 | $ | 5,227 | ||||
30
| $65.8 million aggregate principal amount of 10.125% Senior Notes, which are due November 15, 2009; | ||
| $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 | ||
| $230.3 million aggregate principal amount of 9.625% Senior Notes, which are due October 1, 2013. |
31
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) |
$ | 440,608 | $ | | $ | | $ | 65,608 | $ | 375,000 | ||||||||||
Long-term debt interest (1) |
275,275 | 40,898 | 82,676 | 79,140 | 72,561 | |||||||||||||||
Operating leases (2) |
13,278 | 4,630 | 4,891 | 2,806 | 951 | |||||||||||||||
Total contractual obligations |
$ | 729,161 | $ | 45,528 | $ | 87,567 | $ | 147,554 | $ | 448,512 | ||||||||||
Commercial commitments: |
||||||||||||||||||||
Revolving credit facility (3) |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Standby letters of credit (3) |
10,310 | 10,310 | | | | |||||||||||||||
Total commercial commitments |
$ | 10,310 | $ | 10,310 | $ | | $ | | $ | | ||||||||||
(1) | Long-term debt includes the principal and interest cash obligations of the 9.625% Senior Notes, the 10.125% Senior Notes, and the Senior Floating Rate Notes. The unamortized premiums of $0.2 million and $5.4 million at June 30, 2005 related to the 10.125% Senior Notes and 9.625% Senior Notes, respectively, are not included in the contractual cash obligations schedule. Some of the interest on the Senior Floating Rate Notes has been hedged 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 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 a $40.0 million revolving credit facility. As of June 30, 2005 there was no draw down on the credit facility, 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. |
32
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||||||
Date | Date | Amount | Rate | Rate | Value | |||||||||||
September 1, 2005
|
September 2, 2008 | $ | 50,000 | Three-month LIBOR plus 475 basis points |
8.83 | % | $ | (622 | ) | |||||||
September 1, 2005
|
September 4, 2007 | $ | 50,000 | Three-month LIBOR plus 475 basis points |
8.48 | % | (104 | ) | ||||||||
$ | (726 | ) | ||||||||||||||
33
Exhibit | ||
Number | Description | |
10.1
|
Irrevocable Commercial Offer for the Purchase and Sale of Assets from Parker Drilling Company International Limited (PDCIL), to Saxon Services de Panama, S.A., (Saxon Panama), dated May 6, 2005, and Purchase Order from Saxon Panama dated May 6, 2005 (incorporated herein by reference to Exhibit 10.1 to the Companys 8-K filed May 12, 2005) | |
10.2
|
Agreement for Purchase and Sale of Assets (Peru-Rig 250) by and between Parker Drilling Company of Oklahoma Incorporated, Sucureal del Peru (PDOK Peru) and Saxon Services del Peru S.A. (Saxon Peru) dated May 6, 2005 (incorporated herein by reference to Exhibit 10.2 to the Companys 8-K filed May 12, 2005) | |
10.3
|
Agreement for Purchase and Sale of Assets (Rigs 131 and 145) between Parker Drilling Company of Oklahoma Incorporated, Home Office (PDOK Home) and Saxon Panama dated May 6, 2005 (incorporated herein by reference to Exhibit 10.3 to the Companys 8-K filed May 12, 2005) | |
10.4
|
Agreement for Purchase and Sale of Assets (Peru-Rig 228) between Universal Rig Service Corp. and PDCIL, as vendors, and Saxon Peru dated May 6, 2005 (incorporated herein by reference to Exhibit 10.4 to the Companys 8-K filed May 12, 2005) | |
10.5
|
Guarantee of Parker Drilling Company (Peru 250 Agreement) | |
15
|
Letter re Unaudited Interim Financial Information | |
31.1
|
Section 302 Certification Chief Executive Officer | |
31.2
|
Section 302 Certification Chief Financial Officer | |
32.1
|
Section 906 Certification Chief Executive Officer | |
32.2
|
Section 906 Certification Chief Financial Officer |
34
Parker Drilling Company | ||||
Registrant | ||||
Date: August 8, 2005
|
||||
By: | /s/ Robert L. Parker Jr. | |||
Robert L. Parker Jr. | ||||
President and Chief Executive Officer | ||||
By: | /s/ W. Kirk Brassfield | |||
W. Kirk Brassfield | ||||
Vice President, Finance and Accounting |
35
Exhibit | ||
Number | Description | |
10.1
|
Irrevocable Commercial Offer for the Purchase and Sale of Assets from Parker Drilling Company International Limited (PDCIL), to Saxon Services de Panama, S.A., (Saxon Panama), dated May 6, 2005, and Purchase Order from Saxon Panama dated May 6, 2005 (incorporated herein by reference to Exhibit 10.1 to the Companys 8-K filed May 12, 2005) | |
10.2
|
Agreement for Purchase and Sale of Assets (Peru-Rig 250) by and between Parker Drilling Company of Oklahoma Incorporated, Sucureal del Peru (PDOK Peru) and Saxon Services del Peru S.A. (Saxon Peru) dated May 6, 2005 (incorporated herein by reference to Exhibit 10.2 to the Companys 8-K filed May 12, 2005) | |
10.3
|
Agreement for Purchase and Sale of Assets (Rigs 131 and 145) between Parker Drilling Company of Oklahoma Incorporated, Home Office (PDOK Home) and Saxon Panama dated May 6, 2005 (incorporated herein by reference to Exhibit 10.3 to the Companys 8-K filed May 12, 2005) | |
10.4
|
Agreement for Purchase and Sale of Assets (Peru-Rig 228) between Universal Rig Service Corp. and PDCIL, as vendors, and Saxon Peru dated May 6, 2005 (incorporated herein by reference to Exhibit 10.4 to the Companys 8-K filed May 12, 2005) | |
10.5
|
Guarantee of Parker Drilling Company (Peru 250 Agreement) | |
15
|
Letter re Unaudited Interim Financial Information | |
31.1
|
Section 302 Certification Chief Executive Officer | |
31.2
|
Section 302 Certification Chief Financial Officer | |
32.1
|
Section 906 Certification Chief Executive Officer | |
32.2
|
Section 906 Certification Chief Financial Officer |