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) |
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Officer Certifications |
||||||||
Letter re Unaudited Interim Financial Information | ||||||||
Certification of CEO Pursuant to Section 302 | ||||||||
Certification of CFO Pursuant to Section 302 | ||||||||
Certification of CEO Pursuant to Section 906 | ||||||||
Certification of CFO Pursuant to Section 906 |
1
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 91,700 | $ | 44,267 | ||||
Accounts and notes receivable, net |
110,408 | 99,315 | ||||||
Rig materials and supplies |
16,866 | 19,206 | ||||||
Deferred costs |
7,148 | 13,546 | ||||||
Other current assets |
67,746 | 9,818 | ||||||
Total current assets |
293,868 | 186,152 | ||||||
Property, plant and equipment less
accumulated depreciation and amortization of $568,957
at September 30, 2005 and $610,485 at December 31,
2004 |
352,029 | 382,824 | ||||||
Assets held for sale |
| 23,665 | ||||||
Goodwill |
107,606 | 107,606 | ||||||
Other noncurrent assets |
22,263 | 26,343 | ||||||
Total assets |
$ | 775,766 | $ | 726,590 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | | $ | 24 | ||||
Accounts payable and accrued liabilities |
139,141 | 72,625 | ||||||
Accrued income taxes |
14,454 | 14,704 | ||||||
Total current liabilities |
153,595 | 87,353 | ||||||
Long-term debt |
415,863 | 481,039 | ||||||
Other long-term liabilities |
8,194 | 9,281 | ||||||
Contingencies (Note 8) |
| | ||||||
Stockholders equity: |
||||||||
Common stock |
16,233 | 15,833 | ||||||
Capital in excess of par value |
451,742 | 441,085 | ||||||
Unamortized restricted stock plan compensation |
(4,754 | ) | (718 | ) | ||||
Accumulated deficit |
(265,107 | ) | (307,283 | ) | ||||
Total stockholders equity |
198,114 | 148,917 | ||||||
Total liabilities and stockholders equity |
$ | 775,766 | $ | 726,590 | ||||
2
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 33,863 | $ | 22,788 | $ | 92,090 | $ | 63,209 | ||||||||
International drilling |
70,114 | 49,686 | 220,587 | 156,238 | ||||||||||||
Rental tools |
23,928 | 15,471 | 69,425 | 47,278 | ||||||||||||
Total drilling and rental revenues |
127,905 | 87,945 | 382,102 | 266,725 | ||||||||||||
Drilling and rental operating expenses: |
||||||||||||||||
U.S. drilling |
15,178 | 13,399 | 48,404 | 38,596 | ||||||||||||
International drilling |
53,147 | 43,824 | 168,647 | 122,218 | ||||||||||||
Rental tools |
10,352 | 6,558 | 27,488 | 19,883 | ||||||||||||
Depreciation and amortization |
16,563 | 17,806 | 50,585 | 50,599 | ||||||||||||
Total drilling and rental operating expenses |
95,240 | 81,587 | 295,124 | 231,296 | ||||||||||||
Drilling and rental operating income |
32,665 | 6,358 | 86,978 | 35,429 | ||||||||||||
General and administration expense |
(6,443 | ) | (4,924 | ) | (19,819 | ) | (17,958 | ) | ||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | | (2,300 | ) | (6,558 | ) | |||||||||
Gain on disposition of assets, net |
5,943 | 333 | 22,393 | 1,402 | ||||||||||||
Total operating income |
29,865 | 1,767 | 87,252 | 12,315 | ||||||||||||
Other income and (expense): |
||||||||||||||||
Interest expense |
(9,825 | ) | (12,202 | ) | (31,640 | ) | (39,077 | ) | ||||||||
Changes in fair value of derivative positions |
1,457 | (1,380 | ) | 1,526 | (1,380 | ) | ||||||||||
Interest income |
526 | 206 | 1,314 | 638 | ||||||||||||
Loss on extinguishment of debt |
(1,901 | ) | (8,151 | ) | (6,628 | ) | (8,729 | ) | ||||||||
Minority interest |
148 | (434 | ) | 1,438 | (949 | ) | ||||||||||
Other |
(32 | ) | (66 | ) | (654 | ) | 772 | |||||||||
Total other income and (expense) |
(9,627 | ) | (22,027 | ) | (34,644 | ) | (48,725 | ) | ||||||||
Income (loss) before income taxes |
20,238 | (20,260 | ) | 52,608 | (36,410 | ) | ||||||||||
Income tax expense |
2,165 | 4,542 | 10,503 | 12,008 | ||||||||||||
Income (loss) from continuing operations |
18,073 | (24,802 | ) | 42,105 | (48,418 | ) | ||||||||||
Discontinued operations |
(6 | ) | 1,359 | 71 | 6,586 | |||||||||||
Net income (loss) |
$ | 18,067 | $ | (23,443 | ) | $ | 42,176 | $ | (41,832 | ) | ||||||
Basic earnings (loss) per share: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.19 | $ | (0.26 | ) | $ | 0.44 | $ | (0.52 | ) | ||||||
Discontinued operations |
$ | | $ | 0.01 | $ | | $ | 0.07 | ||||||||
Net income (loss) |
$ | 0.19 | $ | (0.25 | ) | $ | 0.44 | $ | (0.45 | ) | ||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 0.18 | $ | (0.26 | ) | $ | 0.43 | $ | (0.52 | ) | ||||||
Discontinued operations |
$ | | $ | 0.01 | $ | | $ | 0.07 | ||||||||
Net income (loss) |
$ | 0.18 | $ | (0.25 | ) | $ | 0.43 | $ | (0.45 | ) | ||||||
Number of common shares used in computing
earnings per share: |
||||||||||||||||
Basic |
96,053,414 | 94,196,255 | 95,568,331 | 93,944,927 | ||||||||||||
Diluted |
98,022,378 | 94,196,255 | 97,163,125 | 93,944,927 |
3
Nine Months Ended September 30, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 42,176 | $ | (41,832 | ) | |||
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
50,585 | 50,599 | ||||||
Gain on disposition of assets |
(22,393 | ) | (1,402 | ) | ||||
Gain on disposition of marketable securities |
| (762 | ) | |||||
Provision for reduction in carrying value of certain assets |
2,300 | 6,558 | ||||||
Expenses not requiring cash |
4,682 | 9,740 | ||||||
Discontinued operations |
29 | 108 | ||||||
Change in operating assets and liabilities |
6,797 | (4,721 | ) | |||||
Net cash provided by operating activities |
84,176 | 18,288 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(44,469 | ) | (34,773 | ) | ||||
Proceeds from the sale of assets |
60,213 | 48,602 | ||||||
Proceeds from insurance claims |
7,548 | 27,000 | ||||||
Proceeds from sale of marketable securities |
| 1,377 | ||||||
Net cash provided by investing activities |
23,292 | 42,206 | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of debt |
55,500 | 200,000 | ||||||
Principal payments under debt obligations |
(120,024 | ) | (290,169 | ) | ||||
Proceeds from stock options exercised |
4,489 | 667 | ||||||
Net cash used in financing activities |
(60,035 | ) | (89,502 | ) | ||||
Net change in cash and cash equivalents |
47,433 | (29,008 | ) | |||||
Cash and cash equivalents at beginning of period |
44,267 | 67,765 | ||||||
Cash and cash equivalents at end of period |
$ | 91,700 | $ | 38,757 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 24,949 | $ | 30,402 | ||||
Income taxes paid |
$ | 9,780 | $ | 11,438 |
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 statement of (1) the financial position as of September 30, 2005 and December 31, 2004, (2) the results of operations for the three and nine months ended September 30, 2005 and 2004, and (3) cash flows for the nine months ended September 30, 2005 and 2004. Results for the nine months ended September 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands, Except Per Share Amounts) | ||||||||||||||||
Net income (loss) as reported |
$ | 18,067 | $ | (23,443 | ) | $ | 42,176 | $ | (41,832 | ) | ||||||
Stock-based compensation expense included
in net income (loss) as reported |
743 | 46 | 2,056 | 1,359 | ||||||||||||
Stock-based compensation expense
determined under fair value method |
(801 | ) | (184 | ) | (2,256 | ) | (1,919 | ) | ||||||||
Net income (loss) pro forma |
$ | 18,009 | $ | (23,581 | ) | $ | 41,976 | $ | (42,392 | ) | ||||||
Basic earnings (loss) per share: |
||||||||||||||||
Net income (loss) as reported |
$ | 0.19 | $ | (0.25 | ) | $ | 0.44 | $ | (0.45 | ) | ||||||
Net income (loss) pro forma |
$ | 0.19 | $ | (0.25 | ) | $ | 0.44 | $ | (0.45 | ) | ||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Net income (loss) as reported |
$ | 0.18 | $ | (0.25 | ) | $ | 0.43 | $ | (0.45 | ) | ||||||
Net income (loss) pro forma |
$ | 0.18 | $ | (0.25 | ) | $ | 0.43 | $ | (0.45 | ) |
5
2. | Earnings Per Share (EPS) |
Three Months Ended September 30, 2005 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 18,073,000 | 96,053,414 | $ | 0.19 | |||||||
Discontinued operations |
(6,000 | ) | | |||||||||
Net income |
$ | 18,067,000 | $ | 0.19 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and restricted stock |
| 1,968,964 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 18,073,000 | 98,022,378 | $ | 0.18 | |||||||
Discontinued operations |
(6,000 | ) | | |||||||||
Net income |
$ | 18,067,000 | $ | 0.18 | ||||||||
Nine Months Ended September 30, 2005 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 42,105,000 | 95,568,331 | $ | 0.44 | |||||||
Discontinued operations |
71,000 | | ||||||||||
Net income |
$ | 42,176,000 | $ | 0.44 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and restricted stock |
| 1,594,795 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 42,105,000 | 97,163,125 | $ | 0.43 | |||||||
Discontinued operations |
71,000 | | ||||||||||
Net income |
$ | 42,176,000 | $ | 0.43 | ||||||||
6
Three Months Ended September 30, 2004 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Loss from continuing operations |
$ | (24,802,000 | ) | 94,196,255 | $ | (0.26 | ) | |||||
Discontinued operations |
1,359,000 | 0.01 | ||||||||||
Net loss |
$ | (23,443,000 | ) | $ | (0.25 | ) | ||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| | | |||||||||
Diluted EPS: |
||||||||||||
Loss from continuing operations |
$ | (24,802,000 | ) | 94,196,255 | $ | (0.26 | ) | |||||
Discontinued operations |
1,359,000 | 0.01 | ||||||||||
Net loss |
$ | (23,443,000 | ) | $ | (0.25 | ) | ||||||
Nine Months Ended September 30, 2004 | ||||||||||||
Income (Loss) | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Loss from continuing operations |
$ | (48,418,000 | ) | 93,944,927 | $ | (0.52 | ) | |||||
Discontinued operations |
6,586,000 | 0.07 | ||||||||||
Net loss |
$ | (41,832,000 | ) | $ | (0.45 | ) | ||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
| | | |||||||||
Diluted EPS: |
||||||||||||
Loss from continuing operations |
$ | (48,418,000 | ) | 93,944,927 | $ | (0.52 | ) | |||||
Discontinued operations |
6,586,000 | 0.07 | ||||||||||
Net loss |
$ | (41,832,000 | ) | $ | (0.45 | ) | ||||||
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 nine months ended September 30, 2005 and 2004 is as follows: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 33,863 | $ | 22,788 | $ | 92,090 | $ | 63,209 | ||||||||
International drilling |
70,114 | 49,686 | 220,587 | 156,238 | ||||||||||||
Rental tools |
23,928 | 15,471 | 69,425 | 47,278 | ||||||||||||
Total drilling and rental revenues |
$ | 127,905 | $ | 87,945 | $ | 382,102 | $ | 266,725 | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling |
$ | 13,681 | $ | 4,851 | $ | 29,042 | $ | 10,594 | ||||||||
International drilling |
9,682 | (3,833 | ) | 28,120 | 7,963 | |||||||||||
Rental tools |
9,302 | 5,340 | 29,816 | 16,872 | ||||||||||||
Total drilling and rental operating income |
32,665 | 6,358 | 86,978 | 35,429 | ||||||||||||
General and
administration on expense |
(6,443 | ) | (4,924 | ) | (19,819 | ) | (17,958 | ) | ||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | | (2,300 | ) | (6,558 | ) | |||||||||
Gain on disposition of assets, net |
5,943 | 333 | 22,393 | 1,402 | ||||||||||||
Total operating income |
29,865 | 1,767 | 87,252 | 12,315 | ||||||||||||
Interest expense |
(9,825 | ) | (12,202 | ) | (31,640 | ) | (39,077 | ) | ||||||||
Changes in fair value of derivative positions |
1,457 | (1,380 | ) | 1,526 | (1,380 | ) | ||||||||||
Loss on extinguishment of debt |
(1,901 | ) | (8,151 | ) | (6,628 | ) | (8,729 | ) | ||||||||
Other |
642 | (294 | ) | 2,098 | 461 | |||||||||||
Income (loss) before income taxes |
$ | 20,238 | $ | (20,260 | ) | $ | 52,608 | $ | (36,410 | ) | ||||||
4. | Discontinued Operations Discontinued operations for the three and nine months ended September 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. The nine months ended September 30, 2005, includes the operations of the last jackup rig prior to its sale on January 3, 2005. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
U.S. jackup and platform drilling revenues |
$ | | $ | 7,187 | $ | 193 | $ | 31,445 | ||||||||
Income (loss) from discontinued operations |
$ | (6 | ) | $ | 1,359 | $ | 71 | $ | 6,586 | |||||||
5. | Income Tax Expense Income tax expense is primarily comprised of foreign taxes, as deferred tax assets are expected to be realized against current year U.S. income tax expense. Foreign tax expense for the third quarter of 2005 was $2.2 million as compared to foreign tax expense of $4.5 million for the third quarter of 2004. For the first nine months of 2005 and 2004, income tax expense from operations consists of $10.5 million and $12.0 million foreign tax expense, respectively. The $2.3 million decrease in foreign income taxes during the current three-month period was primarily due to a reduction of taxes in Papua New Guinea plus a reduction in tax expense for Mexico upon confirmation of allowable expenses for filing the prior years tax return. The $1.5 million decrease in foreign income taxes during the current nine-month period was primarily due to the reduction in taxes for Papua New Guinea and Kazakhstan upon confirmation of allowable expenses for filing the prior years tax returns partially offset by the taxes on the sale of our Colombia and Peru assets of approximately $2.5 million. |
8
6. | Long-Term Debt |
September 30, 2005 | December 31, 2004 | |||||||
(Dollars in Thousands) | ||||||||
Senior Notes: |
||||||||
Interest rate 10.125%, due 2009 |
$ | 35,687 | $ | 156,039 | ||||
Interest rate floating (LIBOR + 4.75%), due 2010 |
150,000 | 150,000 | ||||||
Interest rate 9.625%, due 2013 |
230,176 | 175,000 | ||||||
Capital lease |
| 24 | ||||||
Total debt |
415,863 | 481,063 | ||||||
Less current portion |
| 24 | ||||||
Total long-term debt |
$ | 415,863 | $ | 481,039 | ||||
9
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 September 30, 2005, we had the following derivative instruments outstanding related to our interest rate swaps, which are included in Other noncurrent assets: |
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||||||
Date | Date | Amount | Rate | Rate | Value | |||||||||||
(Dollars in Thousands) | ||||||||||||||||
September 1, 2005 |
September 2, 2008 | $ | 50,000 | Three-month LIBOR | 8.83 | % | $ | 219 | ||||||||
plus 475 basis points | ||||||||||||||||
September 1, 2005 |
September 4, 2007 | $ | 50,000 | Three-month LIBOR | 8.48 | % | 512 | |||||||||
plus 475 basis points | ||||||||||||||||
$ | 731 | |||||||||||||||
8. | Contingencies As previously reported, the Kazakhstan branch (PKD Kazakhstan) of Parker Drilling Company International Limited (PDCIL) prevailed on its Kazakhstan Supreme Court appeal arising out of an audit assessment in 2001 of approximately $29.0 million by the Ministry of State Revenues of Kazakhstan (MSR) based on payments PDCIL received from the operator to upgrade barge rig 257. Although it did not appeal the Supreme Court ruling, in February 2005 the Ministry of Finance of Kazakhstan (MinFin) filed an application for re-hearing based on new evidence and the Supreme Court of Kazakhstan issued an order on April 12, 2005, declining the application for re-hearing. | |
On October 14, 2005, we received an Act of Tax Audit from MinFin against PKD Kazakhstan in the amount of $111.4 million, of which $56.4 million was assessed for import Value Added Tax (VAT), administrative fines and interest on equipment imported to perform drilling contracts (the VAT Assessment) and $54.3 million was assessed for income taxes, administrative fines and interest in connection with the reimbursements received from PDCILs customer for the upgrade of barge rig 257 (the Income Tax Assessment). The VAT Assessment is based on an interpretation by MinFin that resolutions of the Government and the MinFin of the Republic of Kazakhstan removing import VAT exemptions should be applied retroactively. In addition to contesting this assessment, the drilling contract between PKD Kazakhstan and its client provides that the client shall reimburse PKD Kazakhstan for all import and export charges incurred in connection with importation of equipment used to perform the contract. As of September 30, 2005, we included the $56.4 million assessment in Accounts payable and accrued liabilities and the corresponding $56.4 million reimbursement receivable from our client in Other current assets. The Income Tax Assessment is based on the same claim of MinFin on which PKD Kazakhstan has prevailed in the Supreme Court on two previous occasions. Although the ultimate outcome of the Income Tax Assessment dispute cannot be assured, PKD Kazakhstan believes that this claim is barred by the statute of limitations and will ultimately be dismissed. | ||
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 plans to re-initiate proceedings with MinFin. | ||
In September 2005, one of our subsidiaries was served with a lawsuit filed in the District Court of Harris County, State of Texas on behalf of numerous citizens of Bangladesh claiming $250 million in damages due to various types of property damage and personal injuries, arising as a result of two blowouts, only one of which involved us, that occurred in Bangladesh in January and June 2005. This case is in the very early stages of discovery and, accordingly, the ultimate outcome cannot presently be determined. In any event we believe that the outcome of this lawsuit will not materially impair our financial condition due to insurance coverage and other contractual indemnities. |
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. | |
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS 123R revises SFAS 123, Accounting for Stock-Based Compensation, and focuses on accounting for share-based payments for services provided by employee to employer. The statement requires companies to expense the fair value of employee stock options and other equity-based compensation at the grant date. The statement does not require a certain type of valuation model, and either a binomial or Black-Scholes model may be used. During the first quarter of 2005, the SEC approved a new rule for public companies to delay the adoption of this standard. In April 2005, the SEC took further action to amend Regulation S-X to state that the provisions of SFAS 123R are now effective beginning with the first annual or interim reporting period of the registrants first fiscal year beginning on or after June 15, 2005 for all non-small business issuers. As a result, we will not adopt this SFAS until the first quarter of 2006. Our plans are to use the modified prospective application method as detailed in SFAS 123R. We expect the dollar impact on our financial statements to be consistent with the impact disclosed in Note 1 of the notes to the unaudited consolidated condensed financial statements. Our future cash flows will not be impacted by the adoption of this standard. See Stock-Based Compensation within Note 1 of the notes to the unaudited consolidated condensed financial statements for further information. | ||
In October 2005, the FASB issued FASB Staff Position (FSP) FAS 123R-2, Practical Accommodation to the Application of Grant Date as defined in FASB Statement No. 123R. This FSP provides guidance on the definition and practical application of grant date as described in SFAS No. 123R. The grant date is described as the date that the employee and employer have met a mutual understanding of the key terms and conditions of an award. The other elements of the definition of grant date are: 1) the award must be authorized, 2) the employer must be obligated to transfer assets or distribute equity instruments so long as the employee has provided the necessary service and 3) the employee is affected by changes in the companys stock price. To determine the grant date, we are allowed to use the date the award is approved in accordance with its corporate governance requirements as long as the three elements described above are met. Furthermore, the recipient cannot negotiate the awards terms and conditions with the employer and the key terms and conditions of the award are communicated to all recipients within a reasonably short time period from the approval date. We plan to adopt this FSP in conjunction with our adoption of SFAS 123R. | ||
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. We closed on the sale of four of the rigs and related assets in the second quarter and the remaining three rigs were sold in the third quarter. As a result of the sale of all seven land rigs, a gain of $12.3 million has been recognized, $5.9 million in the third quarter of 2005 and $6.4 million in the second quarter of 2005. | |
On June 24, 2005, a well control incident occurred on rig 255 while operating under contract in Bangladesh, resulting in the total loss of the drilling unit. Accordingly, we wrote off the net book value of the rig and recorded an insurance receivable of $13.5 million. Insurance proceeds to be received in excess of the net book value of assets destroyed resulted in a gain of $8.2 million, which was recognized in the second quarter of 2005. We received $7.5 million of the insurance proceeds in the third quarter of 2005 and the remaining proceeds were received in October 2005. | ||
11. | Provision for Reduction in Carrying Value of an Asset We recognized $2.3 million in provision for reduction in carrying value of an insurance asset representing the premiums paid on a split dollar life insurance policy for Robert L. Parker in anticipation of a settlement of our obligation under this arrangement. |
11
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. 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 September 30, 2005 and December 31, 2004 and for the three and nine months ended September 30, 2005 and 2004. The consolidating condensed financial statements present investments in both consolidated and unconsolidated subsidiaries using the equity method of accounting. In addition, the consolidating condensed statement of cash flows includes a change to the 2004 presentation between the parent and guarantor columns from that which was previously reported to correct a mechanical error between these two columns. Cash flows from operating activities of the parent for the nine months ended September 30, 2004 have been increased by $52,284 and cash flows from operating activities of the guarantor have been reduced by the same amount. Also, cash flows from financing activities of the parent for the nine months ended September 30, 2004 have been reduced by $52,284 and cash flows from financing activities of the guarantor have been increased by the same amount. |
12
September 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 58,426 | $ | 8,845 | $ | 24,429 | $ | | $ | 91,700 | ||||||||||
Accounts and notes receivable, net |
200,442 | 124,496 | 42,806 | (257,336 | ) | 110,408 | ||||||||||||||
Rig materials and supplies |
| 10,502 | 6,364 | | 16,866 | |||||||||||||||
Deferred costs |
| 3,362 | 3,786 | | 7,148 | |||||||||||||||
Other current assets |
3,936 | 61,830 | 1,879 | 101 | 67,746 | |||||||||||||||
Total current assets |
262,804 | 209,035 | 79,264 | (257,235 | ) | 293,868 | ||||||||||||||
Property, plant and equipment, net |
134 | 385,536 | 38,444 | (72,085 | ) | 352,029 | ||||||||||||||
Goodwill |
| 107,606 | | | 107,606 | |||||||||||||||
Investment in subsidiaries and intercompany advances |
418,931 | 885,937 | 28,600 | (1,333,468 | ) | | ||||||||||||||
Other noncurrent assets |
10,337 | 10,957 | 1,009 | (40 | ) | 22,263 | ||||||||||||||
Total assets |
$ | 692,206 | $ | 1,599,071 | $ | 147,317 | $ | (1,662,828 | ) | $ | 775,766 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 44,115 | $ | 310,868 | $ | 51,133 | $ | (266,975 | ) | $ | 139,141 | |||||||||
Accrued income taxes |
1,510 | 13,969 | (1,025 | ) | | 14,454 | ||||||||||||||
Total current liabilities |
45,625 | 324,837 | 50,108 | (266,975 | ) | 153,595 | ||||||||||||||
Long-term debt |
415,863 | | | | 415,863 | |||||||||||||||
Other long-term liabilities |
(41,979 | ) | 49,254 | 919 | | 8,194 | ||||||||||||||
Intercompany payables |
74,583 | 584,421 | 19,500 | (678,504 | ) | | ||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
16,233 | 39,899 | 21,251 | (61,150 | ) | 16,233 | ||||||||||||||
Capital in excess of par value |
451,742 | 977,560 | 33,783 | (1,011,343 | ) | 451,742 | ||||||||||||||
Unamortized restricted stock plan compensation |
(4,754 | ) | | | | (4,754 | ) | |||||||||||||
Retained earnings (accumulated deficit) |
(265,107 | ) | (376,900 | ) | 21,756 | 355,144 | (265,107 | ) | ||||||||||||
Total stockholders equity |
198,114 | 640,559 | 76,790 | (717,349 | ) | 198,114 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 692,206 | $ | 1,599,071 | $ | 147,317 | $ | (1,662,828 | ) | $ | 775,766 | |||||||||
13
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 | |||||||||
14
Three Months Ended September 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 97,514 | $ | 40,575 | $ | (10,184 | ) | $ | 127,905 | |||||||||
Drilling and rental operating expenses |
| 48,801 | 40,049 | (10,173 | ) | 78,677 | ||||||||||||||
Depreciation and amortization |
| 15,620 | 943 | | 16,563 | |||||||||||||||
Drilling and rental operating income (loss) |
| 33,093 | (417 | ) | (11 | ) | 32,665 | |||||||||||||
General and administration expense (1) |
(44 | ) | (6,396 | ) | (3 | ) | | (6,443 | ) | |||||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | | | | (2,300 | ) | |||||||||||||
Gain on disposition of assets, net |
| 5,930 | 13 | | 5,943 | |||||||||||||||
Total operating income (loss) |
(2,344 | ) | 32,627 | (407 | ) | (11 | ) | 29,865 | ||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(11,015 | ) | (12,161 | ) | (637 | ) | 13,988 | (9,825 | ) | |||||||||||
Changes in fair value of derivative positions |
1,457 | | | | 1,457 | |||||||||||||||
Loss on extinguishment of debt |
(1,901 | ) | | | | (1,901 | ) | |||||||||||||
Other |
11,416 | 2,162 | 1,041 | (13,977 | ) | 642 | ||||||||||||||
Equity in net earnings of subsidiaries |
21,455 | | | (21,455 | ) | | ||||||||||||||
Total other income and (expense) |
21,412 | (9,999 | ) | 404 | (21,444 | ) | (9,627 | ) | ||||||||||||
Income (loss) before income taxes |
19,068 | 22,628 | (3 | ) | (21,455 | ) | 20,238 | |||||||||||||
Income tax expense (benefit) |
1,001 | 2,437 | (1,273 | ) | | 2,165 | ||||||||||||||
Income (loss) from continuing operations |
18,067 | 20,191 | 1,270 | (21,455 | ) | 18,073 | ||||||||||||||
Discontinued operations |
| (6 | ) | | | (6 | ) | |||||||||||||
Net income (loss) |
$ | 18,067 | $ | 20,185 | $ | 1,270 | $ | (21,455 | ) | $ | 18,067 | |||||||||
15
Three Months Ended September 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 63,281 | $ | 28,124 | $ | (3,460 | ) | $ | 87,945 | |||||||||
Drilling and rental operating expenses |
| 38,632 | 28,609 | (3,460 | ) | 63,781 | ||||||||||||||
Depreciation and amortization |
| 16,629 | 1,177 | | 17,806 | |||||||||||||||
Drilling and rental operating income (loss) |
| 8,020 | (1,662 | ) | | 6,358 | ||||||||||||||
General and administration expense (1) |
(42 | ) | (4,882 | ) | | | (4,924 | ) | ||||||||||||
Gain (loss) on disposition of assets, net |
| (18,999 | ) | 9,670 | 9,662 | 333 | ||||||||||||||
Total operating income (loss) |
(42 | ) | (15,861 | ) | 8,008 | 9,662 | 1,767 | |||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(13,395 | ) | (12,654 | ) | (867 | ) | 14,714 | (12,202 | ) | |||||||||||
Changes in fair value of derivative positions |
(1,380 | ) | | | | (1,380 | ) | |||||||||||||
Loss on extinguishment of debt |
(8,151 | ) | | | | (8,151 | ) | |||||||||||||
Other |
11,932 | 2,207 | 302 | (14,735 | ) | (294 | ) | |||||||||||||
Equity in net loss of subsidiaries |
(12,174 | ) | | | 12,174 | | ||||||||||||||
Total other income and (expense) |
(23,168 | ) | (10,447 | ) | (565 | ) | 12,153 | (22,027 | ) | |||||||||||
Income (loss) before income taxes |
(23,210 | ) | (26,308 | ) | 7,443 | 21,815 | (20,260 | ) | ||||||||||||
Income tax expense |
233 | 3,957 | 352 | | 4,542 | |||||||||||||||
Income (loss) from continuing operations |
(23,443 | ) | (30,265 | ) | 7,091 | 21,815 | (24,802 | ) | ||||||||||||
Discontinued operations |
| 1,359 | | | 1,359 | |||||||||||||||
Net income (loss) |
$ | (23,443 | ) | $ | (28,906 | ) | $ | 7,091 | $ | 21,815 | $ | (23,443 | ) | |||||||
16
Nine Months Ended September 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 286,956 | $ | 112,058 | $ | (16,912 | ) | $ | 382,102 | |||||||||
Drilling and rental operating expenses |
| 153,014 | 108,437 | (16,912 | ) | 244,539 | ||||||||||||||
Depreciation and amortization |
| 47,708 | 2,877 | | 50,585 | |||||||||||||||
Drilling and rental operating income |
| 86,234 | 744 | | 86,978 | |||||||||||||||
General and administration expense (1) |
(128 | ) | (19,688 | ) | (3 | ) | | (19,819 | ) | |||||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | | | | (2,300 | ) | |||||||||||||
Gain on disposition of assets, net |
| 21,872 | 521 | | 22,393 | |||||||||||||||
Total operating income (loss) |
(2,428 | ) | 88,418 | 1,262 | | 87,252 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(35,213 | ) | (36,788 | ) | (2,089 | ) | 42,450 | (31,640 | ) | |||||||||||
Changes in fair value of derivative positions |
1,526 | | | | 1,526 | |||||||||||||||
Loss on extinguishment of debt |
(6,628 | ) | | | | (6,628 | ) | |||||||||||||
Other |
34,278 | 6,418 | 3,852 | (42,450 | ) | 2,098 | ||||||||||||||
Equity in net earnings of subsidiaries |
52,064 | | | (52,064 | ) | | ||||||||||||||
Total other income and (expense) |
46,027 | (30,370 | ) | 1,763 | (52,064 | ) | (34,644 | ) | ||||||||||||
Income (loss) before income taxes |
43,599 | 58,048 | 3,025 | (52,064 | ) | 52,608 | ||||||||||||||
Income tax expense |
1,423 | 7,921 | 1,159 | | 10,503 | |||||||||||||||
Income (loss) from continuing operations |
42,176 | 50,127 | 1,866 | (52,064 | ) | 42,105 | ||||||||||||||
Discontinued operations |
| 71 | | | 71 | |||||||||||||||
Net income (loss) |
$ | 42,176 | $ | 50,198 | $ | 1,866 | $ | (52,064 | ) | $ | 42,176 | |||||||||
17
Nine Months Ended September 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 201,524 | $ | 69,671 | $ | (4,470 | ) | $ | 266,725 | |||||||||
Drilling and rental operating expenses |
| 119,244 | 65,923 | (4,470 | ) | 180,697 | ||||||||||||||
Depreciation and amortization |
| 46,659 | 3,940 | | 50,599 | |||||||||||||||
Drilling and rental operating income (loss) |
| 35,621 | (192 | ) | | 35,429 | ||||||||||||||
General and administration expense (1) |
94 | (18,052 | ) | | | (17,958 | ) | |||||||||||||
Provision for reduction in carrying
value of certain assets |
| (5,446 | ) | (1,112 | ) | | (6,558 | ) | ||||||||||||
Gain (loss) on disposition of assets, net |
| (65,256 | ) | 9,738 | 56,920 | 1,402 | ||||||||||||||
Total operating income (loss) |
94 | (53,133 | ) | 8,434 | 56,920 | 12,315 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(42,205 | ) | (36,020 | ) | (2,937 | ) | 42,085 | (39,077 | ) | |||||||||||
Changes in fair value of derivative positions |
(1,380 | ) | | | | (1,380 | ) | |||||||||||||
Loss on extinguishment of debt |
(8,729 | ) | | | | (8,729 | ) | |||||||||||||
Other |
37,243 | 4,623 | 709 | (42,114 | ) | 461 | ||||||||||||||
Equity in net loss of subsidiaries |
(26,142 | ) | | | 26,142 | | ||||||||||||||
Total other income and (expense) |
(41,213 | ) | (31,397 | ) | (2,228 | ) | 26,113 | (48,725 | ) | |||||||||||
Income (loss) before income taxes |
(41,119 | ) | (84,530 | ) | 6,206 | 83,033 | (36,410 | ) | ||||||||||||
Income tax expense |
713 | 10,895 | 400 | | 12,008 | |||||||||||||||
Income (loss) from continuing operations |
(41,832 | ) | (95,425 | ) | 5,806 | 83,033 | (48,418 | ) | ||||||||||||
Discontinued operations |
| 6,586 | | | 6,586 | |||||||||||||||
Net income (loss) |
$ | (41,832 | ) | $ | (88,839 | ) | $ | 5,806 | $ | 83,033 | $ | (41,832 | ) | |||||||
18
Nine Months Ended September 30, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 42,176 | $ | 50,198 | $ | 1,866 | $ | (52,064 | ) | $ | 42,176 | |||||||||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 47,708 | 2,877 | | 50,585 | |||||||||||||||
Gain on disposition of assets |
| (21,872 | ) | (521 | ) | | (22,393 | ) | ||||||||||||
Provision for reduction in carrying value of certain assets |
2,300 | 2,300 | ||||||||||||||||||
Expenses not requiring cash |
3,782 | 900 | | | 4,682 | |||||||||||||||
Equity in net earnings of subsidiaries |
(52,064 | ) | | | 52,064 | | ||||||||||||||
Discontinued operations |
| 29 | | | 29 | |||||||||||||||
Change in operating assets and liabilities |
(16,686 | ) | 17,645 | 5,838 | | 6,797 | ||||||||||||||
Net cash provided by (used in) operating activities |
(20,492 | ) | 94,608 | 10,060 | | 84,176 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (39,645 | ) | (4,824 | ) | | (44,469 | ) | ||||||||||||
Proceeds from the sale of assets |
| 57,299 | 2,914 | | 60,213 | |||||||||||||||
Proceeds from insurance claims |
7,548 | 7,548 | ||||||||||||||||||
Net cash provided by (used in) investing activities |
| 25,202 | (1,910 | ) | | 23,292 | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from issuance of debt |
55,500 | 55,500 | ||||||||||||||||||
Principal payments under debt obligations |
(120,024 | ) | | | | (120,024 | ) | |||||||||||||
Proceeds from stock options exercised |
4,489 | | | | 4,489 | |||||||||||||||
Intercompany advances, net |
122,276 | (118,903 | ) | (3,373 | ) | | | |||||||||||||
Net cash provided by (used in) financing activities |
62,241 | (118,903 | ) | (3,373 | ) | | (60,035 | ) | ||||||||||||
Net change in cash and cash equivalents |
41,749 | 907 | 4,777 | | 47,433 | |||||||||||||||
Cash and cash equivalents at beginning of period |
16,677 | 7,938 | 19,652 | | 44,267 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 58,426 | $ | 8,845 | $ | 24,429 | $ | | $ | 91,700 | ||||||||||
19
Nine Months Ended September 30, 2004 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | (41,832 | ) | $ | (88,839 | ) | $ | 5,806 | $ | 83,033 | $ | (41,832 | ) | |||||||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 46,659 | 3,940 | | 50,599 | |||||||||||||||
Gain on disposition of assets |
| 65,256 | (9,738 | ) | (56,920 | ) | (1,402 | ) | ||||||||||||
Gain on sale of marketable securities |
(762 | ) | | | | (762 | ) | |||||||||||||
Provision for reduction in carrying
value of certain assets |
| 5,446 | 1,112 | | 6,558 | |||||||||||||||
Expenses not requiring cash |
7,684 | 2,017 | 39 | | 9,740 | |||||||||||||||
Equity in net loss of subsidiaries |
26,142 | | | (26,142 | ) | | ||||||||||||||
Discontinued operations |
| 108 | | | 108 | |||||||||||||||
Change in operating assets and liabilities |
(11,106 | ) | 3,731 | 2,625 | 29 | (4,721 | ) | |||||||||||||
Net cash provided by (used in) operating activities |
(19,874 | ) | 34,378 | 3,784 | | 18,288 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (28,033 | ) | (6,740 | ) | | (34,773 | ) | ||||||||||||
Proceeds from the sale of assets |
| 48,530 | 72 | | 48,602 | |||||||||||||||
Proceeds from insurance claims |
| 27,000 | | | 27,000 | |||||||||||||||
Proceeds from sale of marketable securities |
1,377 | | | | 1,377 | |||||||||||||||
Net cash provided by (used in) investing activities |
1,377 | 47,497 | (6,668 | ) | | 42,206 | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from issuance of debt |
200,000 | | | | 200,000 | |||||||||||||||
Principal payments under debt obligations |
(290,169 | ) | | | | (290,169 | ) | |||||||||||||
Proceeds from stock options exercised |
667 | | | | 667 | |||||||||||||||
Intercompany advances, net |
80,104 | (79,775 | ) | (329 | ) | | | |||||||||||||
Net cash provided by (used in) financing activities |
(9,398 | ) | (79,775 | ) | (329 | ) | | (89,502 | ) | |||||||||||
Net change in cash and cash equivalents |
(27,895 | ) | 2,100 | (3,213 | ) | | (29,008 | ) | ||||||||||||
Cash and cash equivalents at beginning of period |
53,055 | 3,610 | 11,100 | | 67,765 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 25,160 | $ | 5,710 | $ | 7,887 | $ | | $ | 38,757 | ||||||||||
20
/s/ PricewaterhouseCoopers LLP | ||||
21
* | 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). |
22
23
Three Months Ended September 30, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 33,863 | 26 | % | $ | 22,788 | 26 | % | ||||||||
International drilling |
70,114 | 55 | % | 49,686 | 56 | % | ||||||||||
Rental tools |
23,928 | 19 | % | 15,471 | 18 | % | ||||||||||
Total drilling and rental revenues |
$ | 127,905 | 100 | % | $ | 87,945 | 100 | % | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling gross margin (1) |
$ | 18,685 | 55 | % | $ | 9,389 | 41 | % | ||||||||
International drilling gross margin (1) |
16,967 | 24 | % | 5,862 | 12 | % | ||||||||||
Rental tools gross margin (1) |
13,576 | 57 | % | 8,913 | 58 | % | ||||||||||
Depreciation and amortization |
(16,563 | ) | (17,806 | ) | ||||||||||||
Total drilling and rental operating income (2) |
32,665 | 6,358 | ||||||||||||||
General and administration expense |
(6,443 | ) | (4,924 | ) | ||||||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | | |||||||||||||
Gain on disposition of assets, net |
5,943 | 333 | ||||||||||||||
Total operating income |
$ | 29,865 | $ | 1,767 | ||||||||||||
(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 September 30, 2005 |
|||||||||||||
Drilling and rental operating income (2) |
$ | 13,681 | $ | 9,682 | $ | 9,302 | |||||||
Depreciation and amortization |
5,004 | 7,285 | 4,274 | ||||||||||
Drilling and rental gross margin |
$ | 18,685 | $ | 16,967 | $ | 13,576 | |||||||
Three Months Ended September 30, 2004 |
|||||||||||||
Drilling and rental operating income (2) |
$ | 4,851 | $ | (3,833 | ) | $ | 5,340 | ||||||
Depreciation and amortization |
4,538 | 9,695 | 3,573 | ||||||||||
Drilling and rental gross margin |
$ | 9,389 | $ | 5,862 | $ | 8,913 | |||||||
(2) | Drilling and rental operating income drilling and rental revenues less direct drilling and rental operating expenses, including depreciation and amortization expense. |
24
| $5.5 million increase in Mexico where our land rigs operated the entire quarter in 2005, as compared to staggered initial rig start-ups in the comparable quarter in 2004; | ||
| $2.5 million increase in Papua New Guinea where we had two rigs operating and two O&M contracts in the third quarter of 2005 and one rig operating and two labor contracts in 2004; | ||
| $1.1 million increase in the CIS region, primarily due to increased revenues of $2.5 million during installation of the Orlan platform and increased rates of $0.5 million on our rig 262 O&M contract, offset by a decline under our Tengizchevroil (TCO) contract of $1.9 million as one less TCO-owned rig worked in 2005 than in 2004; | ||
| $1.4 million increase in New Zealand where three rigs operated the entire third quarter of 2005 at higher dayrates versus two rigs operating only part of the period in the second quarter of 2004; and | ||
| Revenues decreased $1.1 million in Bangladesh as a result of the total loss of our rig due to a blowout in June 2005. |
25
26
Three Months Ended September 30, | ||||||||
2005 | 2004 | |||||||
(Dollars in Thousands) | ||||||||
U.S. jackup and platform drilling revenues |
$ | | $ | 7,187 | ||||
U.S. jackup and platform drilling gross margin |
$ | (2 | ) | $ | 1,416 | |||
Loss on disposition of assets |
(4 | ) | (57 | ) | ||||
Income (loss) from discontinued operations |
$ | (6 | ) | $ | 1,359 | |||
27
Nine Months Ended September 30, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Drilling and rental revenues: | (Dollars in Thousands) | |||||||||||||||
U.S. drilling |
$ | 92,090 | 24 | % | $ | 63,209 | 24 | % | ||||||||
International drilling |
220,587 | 58 | % | 156,238 | 58 | % | ||||||||||
Rental tools |
69,425 | 18 | % | 47,278 | 18 | % | ||||||||||
Total drilling and rental revenues |
$ | 382,102 | 100 | % | $ | 266,725 | 100 | % | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling gross margin (1) |
$ | 43,686 | 47 | % | $ | 24,613 | 39 | % | ||||||||
International drilling gross margin (1) |
51,940 | 24 | % | 34,020 | 22 | % | ||||||||||
Rental tools gross margin (1) |
41,937 | 60 | % | 27,395 | 58 | % | ||||||||||
Depreciation and amortization |
(50,585 | ) | (50,599 | ) | ||||||||||||
Total drilling and rental operating income (2) |
86,978 | 35,429 | ||||||||||||||
General and administration expense |
(19,819 | ) | (17,958 | ) | ||||||||||||
Provision for reduction in carrying
value of certain assets |
(2,300 | ) | (6,558 | ) | ||||||||||||
Gain on disposition of assets, net |
22,393 | 1,402 | ||||||||||||||
Total operating income |
$ | 87,252 | $ | 12,315 | ||||||||||||
(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) | |||||||||||||
Nine Months Ended September 30, 2005 |
|||||||||||||
Drilling and rental operating income (2) |
$ | 13,681 | $ | 9,682 | $ | 9,302 | |||||||
Depreciation and amortization |
5,004 | 7,285 | 4,274 | ||||||||||
Drilling and rental gross margin |
$ | 18,685 | $ | 16,967 | $ | 13,576 | |||||||
Nine Months Ended September 30, 2004 |
|||||||||||||
Drilling and rental operating income (2) |
$ | 10,594 | $ | 7,963 | $ | 16,872 | |||||||
Depreciation and amortization |
14,019 | 26,057 | 10,523 | ||||||||||
Drilling and rental gross margin |
$ | 24,613 | $ | 34,020 | $ | 27,395 | |||||||
(2) | Drilling and rental operating income drilling and rental revenues less direct drilling and rental operating expenses, including depreciation and amortization expense. |
28
29
Nine Months Ended September 30, | ||||||||
2005 | 2004 | |||||||
(Dollars in Thousands) | ||||||||
U.S. jackup and platform drilling revenues |
$ | 193 | $ | 31,445 | ||||
U.S. jackup and platform drilling gross margin |
$ | 100 | $ | 6,694 | ||||
Loss on disposition of assets, net of impairment |
(29 | ) | (108 | ) | ||||
Income from discontinued operations |
$ | 71 | $ | 6,586 | ||||
30
| $35.7 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 | ||
| $230.2 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) |
$ | 410,608 | $ | | $ | | $ | 185,608 | $ | 225,000 | ||||||||||
Long-term debt interest (1) |
252,094 | 38,043 | 76,663 | 72,419 | 64,969 | |||||||||||||||
Operating leases (2) |
13,278 | 4,630 | 4,891 | 2,806 | 951 | |||||||||||||||
Total contractual obligations |
$ | 675,980 | $ | 42,673 | $ | 81,554 | $ | 260,833 | $ | 290,920 | ||||||||||
Commercial commitments: |
||||||||||||||||||||
Revolving credit facility (3) |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Standby letters of credit (3) |
10,218 | 10,218 | | | | |||||||||||||||
Total commercial commitments |
$ | 10,218 | $ | 10,218 | $ | | $ | | $ | | ||||||||||
(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 $0.1 million and $5.2 million at September 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 September 30, 2005, there was no draw down on the credit facility, but $10.2 million of availability has been used to support letters of credit that have been issued, resulting in an estimated $29.8 million availability. The revolving credit facility expires in December 2007. |
32
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||||||
Date | Date | Amount | Rate | Rate | Value | |||||||||||
(Dollars in Thousands) | ||||||||||||||||
September 1, 2005 |
September 2, 2008 | $ | 50,000 | Three-month LIBOR plus 475 basis points | 8.83 | % | $ | 219 | ||||||||
September 1, 2005 |
September 4, 2007 | $ | 50,000 | Three-month LIBOR plus 475 basis points | 8.48 | % | 512 | |||||||||
$ | 731 | |||||||||||||||
33
34
Total Number | Maximum Number | |||||||||||||||
of Shares Purchased | of Shares That May | |||||||||||||||
as Part of Publicly | Yet be Purchased | |||||||||||||||
Total Number of | Average Price | Announced Plans | Under the Plans | |||||||||||||
Date | Shares Purchased | Paid Per Share | or Programs | or Programs | ||||||||||||
August 5, 2005 |
4,761 | $ | 7.90 | | |
35
(a) | Exhibits: |
Exhibit | ||
Number | Description | |
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 |
36
Parker Drilling Company | ||||
Registrant |
||||
Date: November 7, 2005 | By: | /s/ Robert L. Parker Jr. | ||
Robert L. Parker Jr. | ||||
President and Chief Executive Officer | ||||
By: | /s/ W. Kirk Brassfield | |||
W. Kirk Brassfield | ||||
Senior Vice President and Chief Financial Officer |
37
Exhibit | ||
Number | Description | |
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 |