Document

Large accelerated filer ¨

Accelerated filer þ

Non-accelerated filer ¨

Smaller reporting company þ

Emerging growth company ¨

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-7573

PARKER DRILLING COMPANY

(Exact name of registrant as specified in its charter)



Delaware		73-0618660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5 Greenway Plaza, Suite 100, Houston, Texas 77046

(Address of principal executive offices)

(281) 406-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	PKD	New York Stock Exchange

As of May 6, 2019 there were 15,044,739 common shares outstanding.

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TABLE OF CONTENTS



	Page
Part I. Financial Information
Item 1. Financial Statements	3
Consolidated Condensed Balance Sheets	3
Consolidated Condensed Statements of Operations	5
Consolidated Condensed Statements of Comprehensive Income (Loss)	6
Consolidated Condensed Statements of Cash Flows	7
Consolidated Condensed Statement of Stockholders’ Equity	8
Notes to the Unaudited Consolidated Condensed Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3. Quantitative and Qualitative Disclosures about Market Risk	49
Item 4. Controls and Procedures	49

Part II. Other Information
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	50
Item 5. Other Information	51
Item 6. Exhibits	52
Signatures	54

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)



	Successor		Predecessor
	March 31, 2019		December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	127,849	$	48,602
Restricted cash	21,436		10,389
Accounts and notes receivable, net of allowance for bad debts of $0 at March 31, 2019 and $7,767 at December 31, 2018	168,444		136,437
Rig materials and supplies	17,839		36,245
Other current assets	19,577		35,231
Total current assets	355,145		266,904
Property, plant and equipment, net of accumulated depreciation of $0 at March 31, 2019 and $951,798 at December 31, 2018	303,970		534,371
Intangible assets, net (Note 4)	18,000		4,821
Deferred income taxes	4,269		2,143
Other non-current assets	32,997		20,175
Total assets	$	714,381	$	828,414
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debtor in possession financing (Note 2)	$	—	$	10,000
Accounts payable and accrued liabilities	135,583		75,063
Accrued income taxes	5,013		3,385
Total current liabilities	140,596		88,448
Long-term debt (Note 6)	210,000		—
Other long-term liabilities	20,035		11,544
Long-term deferred tax liability	950		510
Commitments and contingencies (Note 9)
Total liabilities not subject to compromise	371,581		100,502
Liabilities subject to compromise (Note 2)	—		600,996
Total liabilities	371,581		701,498

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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)



	Successor		Predecessor
	March 31, 2019		December 31, 2018
	(Unaudited)
Stockholders' equity:
Predecessor preferred stock, $1.00 par value, 1,942,000 shares authorized, 500,000 shares issued and outstanding	—		500
Predecessor common stock, $0.16 ²/₃ par value, 18,666,667 shares authorized, 9,385,060 shares issued and outstanding (9,384,669 shares issued and outstanding in 2018)	—		1,398
Predecessor capital in excess of par value	—		766,347
Predecessor accumulated other comprehensive income (loss)	—		(6,879		)
Successor common stock, $0.01 par value, 500,000,000 shares authorized, 15,044,374 shares issued and outstanding	150		—
Successor capital in excess of par value	342,650		—
Accumulated deficit	—		(634,450		)
Total stockholders’ equity	342,800		126,916
Total liabilities and stockholders’ equity	$	714,381	$	828,414

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)



	Predecessor
	Three Months Ended March 31,
	2019			2018
Revenues	$	157,397		$	109,675
Expenses:
Operating expenses	120,871			91,534
Depreciation and amortization	25,102			28,549
	145,973			120,083
Total operating gross margin (loss)	11,424			(10,408		)
General and administrative expense	(8,147		)	(6,201		)
Gain (loss) on disposition of assets, net	384			343
Reorganization items	(92,977		)	—
Total operating income (loss)	(89,316		)	(16,266		)
Other income (expense):
Interest expense	(274		)	(11,240		)
Interest income	8			23
Other	(10		)	291
Total other income (expense)	(276		)	(10,926		)
Income (loss) before income taxes	(89,592		)	(27,192		)
Income tax expense (benefit)	656			1,604
Net income (loss)	(90,248		)	(28,796		)
Less: Predecessor preferred stock dividend	—			906
Net income (loss) available to common stockholders	$	(90,248	)	$	(29,702	)
Basic earnings (loss) per common share:	$	(9.63	)	$	(3.21	)
Diluted earnings (loss) per common share:	$	(9.63	)	$	(3.21	)
Number of common shares used in computing earnings per share:
Basic	9,368,322			9,251,066
Diluted	9,368,322			9,251,066

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)



	Predecessor
	Three Months Ended March 31,
	2019			2018
Net income (loss)	$	(90,248	)	$	(28,796	)
Other comprehensive income (loss), net of tax:
Currency translation difference on related borrowings	141			276
Currency translation difference on foreign currency net investments	(518		)	(576		)
Total other comprehensive income (loss), net of tax:	(377		)	(300		)
Comprehensive income (loss)	$	(90,625	)	$	(29,096	)

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)



	Predecessor
	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(90,248	)	$	(28,796	)
Adjustments to reconcile net income (loss):
Depreciation and amortization	25,102			28,549
(Gain) loss on disposition of assets, net	(384		)	(343		)
Reorganization items	62,470			—
Deferred tax expense (benefit)	(1,685		)	(543		)
Expenses not requiring cash	2,575			1,107
Change in assets and liabilities:
Accounts and notes receivable	(32,842		)	(4,179		)
Other assets	(6,542		)	10,011
Accounts payable and accrued liabilities	55,780			(17,962		)
Accrued income taxes	688			(48		)
Net cash provided by (used in) operating activities	14,914			(12,204		)
Cash flows from investing activities:
Capital expenditures	(9,231		)	(8,924		)
Proceeds from the sale of assets	101			70
Net cash provided by (used in) investing activities	(9,130		)	(8,854		)
Cash flows from financing activities:
Proceeds from rights offering	95,000			—
Payment of amounts borrowed under debtor in possession financing	(10,000		)	—
Payments of debt issuance costs	(490		)	(1,148		)
Predecessor preferred stock dividend	—			(906		)
Shares surrendered in lieu of tax	—			(122		)
Net cash provided by (used in) financing activities	84,510			(2,176		)

Net increase (decrease) in cash and cash equivalents and restricted cash	90,294			(23,234		)
Cash and cash equivalents and restricted cash at beginning of period	58,991			141,549
Cash and cash equivalents and restricted cash at end of period	$	149,285		$	118,315

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars and Shares in Thousands)

(Unaudited)



	Shares	Preferred Stock		Common Stock		Treasury Stock			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances, December 31, 2017 (Predecessor)	9,762	$	500	$	1,548	$	(170	)	$	766,508		$	(468,753	)	$	(3,512	)	$	296,121
Activity in employees’ stock plans	21	—		3		—			(126		)	—			—			(123		)
Amortization of stock-based awards	—	—		—		—			979			—			—			979
Predecessor preferred stock dividend	—	—		—		—			(906		)	—			—			(906		)
Comprehensive Income:
Net income (loss)	—	—		—		—			—			(28,796		)	—			(28,796		)
Other comprehensive income (loss)	—	—		—		—			—			—			(300		)	(300		)
Balances, March 31, 2018 (Predecessor)	9,783	$	500	$	1,551	$	(170	)	$	766,455		$	(497,549	)	$	(3,812	)	$	266,975

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars and Shares in Thousands)

(Unaudited)



	Shares		Preferred Stock			Common Stock			Treasury Stock			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances, December 31, 2018 (Predecessor)	9,885		$	500		$	1,568		$	(170	)	$	766,347		$	(634,450	)	$	(6,879	)	$	126,916
Activity in employees’ stock plans	—		—			—			—			—			—			—			—
Amortization of stock-based awards	—		—			—			—			1,446			—			—			1,446
Predecessor preferred stock dividend	—		—			—			—			—			—			—			—
Comprehensive Income:																					—
Net income (loss)	—		—			—			—			—			(90,248		)	—			(90,248		)
Other comprehensive income (loss)	—		—			—			—			—			—			(377		)	(377		)
Balances, March 31, 2019 (Predecessor)	9,885		500			1,568			(170		)	767,793			(724,698		)	(7,256		)	37,737
Cancellation of predecessor equity	(9,885	)	(500		)	(1,568		)	170			(767,793		)	724,698			7,256			(37,737		)
Balances, March 31, 2019 (Predecessor)	—		—			—			—			—			—			—			—
Issuances of common stock	15,044		—			150			—			328,800			—			—			328,950
Issuances of warrants	—		—			—			—			14,687			—			—			14,687
Equity issuance costs	—		—			—			—			(837		)	—			—			(837		)
Balances, March 31, 2019 (Successor)	15,044		$	—		$	150		$	—		$	342,650		$	—		$	—		$	342,800

See accompanying notes to the unaudited consolidated condensed financial statements.

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PARKER DRILLING COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Organization and Nature of Operations

Unless otherwise indicated, the terms “Company,” “Parker,” “we,” “us” and “our” refer to Parker Drilling Company, incorporated in Delaware, together with its wholly-owned subsidiaries, and “Parker Drilling” refers solely to the parent, Parker Drilling Company. Parker Drilling Company is an international provider of contract drilling and drilling-related services as well as rental tools and services. We have operated in over 60 countries since beginning operations in 1934, making us among the most geographically experienced drilling contractors and rental tools providers in the world.

Basis of Presentation

The consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are unaudited. In the opinion of the Company, these consolidated condensed financial statements include all adjustments which, unless otherwise disclosed, are of a normal recurring nature, necessary for their fair presentation for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The consolidated condensed financial statements presented herein should be read in connection with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Consolidation

The consolidated condensed financial statements include the accounts of the Company and subsidiaries in which we exercise control or have a controlling financial interest, including entities, if any, in which the Company is allocated a majority of the entity’s losses or returns, regardless of ownership percentage. If a subsidiary of Parker Drilling has a 50.0 percent or greater interest in an entity but Parker Drilling’s interest in the subsidiary or the entity does not meet the consolidation criteria described above, then that interest is accounted for under the equity method.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications did not materially affect our consolidated financial results.

Use of Estimates

The preparation of our consolidated condensed financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements, and our revenues and expenses during the periods reported. Estimates are typically used when accounting for certain significant items such as legal or contractual liability accruals, self-insured medical/dental plans, impairment, income taxes and valuation allowance, operating lease right-of-use assets, operating lease liabilities and other items requiring the use of estimates. Estimates are based on a number of variables, which may include third party valuations, historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ from management estimates.

Cash, Cash equivalents and Restricted Cash

For purposes of the consolidated condensed balance sheets and the consolidated condensed statements of cash flows, the Company considers cash equivalents to be highly liquid debt instruments that have a remaining maturity of three months or less at the date of purchase.



	Successor		Predecessor
Dollars in thousands	March 31, 2019		December 31, 2018
Cash and cash equivalents	$	127,849	$	48,602
Restricted cash	21,436		10,389
Cash, cash equivalents and restricted cash at end of period	$	149,285	$	58,991

The restricted cash balance as of March 31, 2019 includes $20.6 million for professional fees escrow account and $0.8 million for professional fees. The restricted cash balance as of December 31, 2018 includes $9.8 million into a cash collateral

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account to support the letters of credit outstanding and $0.6 million held as compensating balances in the ordinary course of business for purchases and utilities.

Impairment

We evaluate the carrying amounts of long-lived assets for potential impairment when events occur or circumstances change that indicate the carrying values of such assets may not be recoverable. We evaluate recoverability by determining the undiscounted estimated future net cash flows for the respective asset groups identified. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset group, we measure the impairment as the amount by which the assets’ carrying value exceeds the fair value of such assets. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. Assets are written down to fair value if the final estimate of current fair value is below the net carrying value. The assumptions used in the impairment evaluation are inherently uncertain and require management judgment.

Intangible Assets

Our intangible assets are related to customer relationships, developed technology and trade name, which are classified as definite lived intangibles, that are generally amortized over a weighted average period of approximately three to six years. We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall operations. Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss. See Note 4 - Intangible Assets for further discussion.

Income Taxes

Income taxes are accounted for under the asset and liability method and have been provided for based upon tax laws and rates in effect in the countries in which operations are conducted and income or losses are generated. There is little or no expected relationship between the provision for or benefit from income taxes and income or loss before income taxes as the countries in which we operate have taxation regimes that vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits, and other benefits. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled and the effect of changes in tax rates is recognized in income in the period in which the change is enacted. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In order to determine the amount of deferred tax assets or liabilities, as well as the valuation allowances, we must make estimates and assumptions regarding future taxable income, where rigs will be deployed, and other matters. Changes in these estimates and assumptions, including changes in tax laws and other changes affecting our ability to recognize the underlying deferred tax assets, could require us to adjust the valuation allowances.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50.0 percent likely of being realized and changes in recognition or measurement are reflected in the period in which the change in judgment occurs. See Note 8 - Income Taxes for further details.

Leases

As lessee, our leases are primarily operating leases. See Note 5 - Operating Leases for further details.

As lessor, our leases are primarily operating leases which are included in revenue in our consolidated condensed income statement. See Note 11 - Revenue for further details.

Legal and Investigative Matters

We accrue estimates of the probable and estimable costs for the resolution of certain legal and investigative matters. We do not accrue any amounts for other matters for which the liability is not probable and reasonably estimable. Generally, the estimate of probable costs related to these matters is developed in consultation with our legal advisors. The estimates take into consideration factors such as the complexity of the issues, litigation risks and settlement costs. If the actual settlement costs, final judgments, or fines, after appeals, differ from our estimates, our future financial results may be adversely affected.

Revenue Recognition

See Note 11 - Revenue for further discussion of our revenue recognition policy.

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Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables with a variety of national and international oil and natural gas companies. We generally do not require collateral on our trade receivables. We depend on a limited number of significant customers. Our largest customer, Exxon Neftegas Limited (“ENL”), constituted approximately 31.2 percent of our consolidated revenues for the three months ended March 31, 2019. Excluding revenues from reimbursable costs (“reimbursable revenues”) of $26.3 million, ENL constituted approximately 17.7 percent of our total consolidated revenues for the three months ended March 31, 2019.

As of March 31, 2019, and December 31, 2018, we had deposits in domestic banks in excess of federally insured limits of approximately $118.3 million and $27.5 million, respectively. In addition, we had uninsured deposits in foreign banks as of March 31, 2019, and December 31, 2018, of $35.3 million and $32.9 million, respectively.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The effects of dilutive securities, stock options, unvested restricted stock, assumed conversion of convertible stock and convertible debt are included in the diluted EPS calculation, when applicable. See Note 10 - Earnings (Loss) Per Common Share (“EPS”) for further details.

Bankruptcy

On December 12, 2018 (the “Petition Date”), Parker Drilling and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed a prearranged plan of reorganization (the “Plan”) and commenced voluntary petitions under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). The Plan was confirmed by the Bankruptcy Court on March 7, 2019, and the Debtors emerged from the bankruptcy proceedings on March 26, 2019. The consolidated financial statements included herein have been prepared as if we were a going concern and in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 - Reorganizations (“Topic 852”). See Note 2 - Chapter 11 Emergence and Note 3 - Fresh Start Accounting for further details.

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Note 2 - Chapter 11 Emergence

On December 12, 2018, prior to the commencement of the Chapter 11 Cases, the Debtors entered into a restructuring support agreement (as amended on January 28, 2019, the “RSA”) with certain significant holders of (1) 7.50% Senior Notes, due 2020 (the “7.50% Note Holders”) issued pursuant to the indenture (the “7.50% Notes Indenture”) dated July 30, 2013 (the “7.50% Notes”), by and among Parker Drilling, the subsidiary guarantors party thereto and Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), (2) 6.75% Senior Notes, due 2022 (the “6.75% Note Holders”) issued pursuant to the indenture (the “6.75% Notes Indenture”) dated January 22, 2014 (the “6.75% Notes” and together with the 7.50% Notes, the “Senior Notes”), by and among Parker Drilling, the subsidiary guarantors party thereto and the Trustee, (3) Parker Drilling’s existing common stock (the “Predecessor Common Stock”) and (4) Parker Drilling’s 7.25% Series A Mandatory Convertible Preferred Stock (the “Predecessor Preferred Stock” and such holders to support a restructuring (the “Restructuring”) on the terms set forth in the Plan.

On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas pursuant to a prearranged plan of reorganization. The Plan was confirmed by the Bankruptcy Court on March 7, 2019, and the Debtors emerged from the bankruptcy proceedings on March 26, 2019.

References to “Successor” relate to the consolidated condensed income statement or consolidated condensed balance sheet of the reorganized Company as of and subsequent to March 31, 2019. References to “Predecessor” relate to the consolidated condensed balance sheet of the Company prior to, and consolidated condensed income statement through and including, March 31, 2019.

On March 26, 2019:


(1)	the Company amended and restated its certificate of incorporation and bylaws;


(2)	the Company appointed new members to the Successor’s board of directors to replace directors of the Predecessor;


(3)	the Company issued:


•	2,827,323 shares of Successor Common Stock were issued pro rata to 7.50% Note Holders;


•	5,178,860 shares of Successor Common Stock were issued pro rata to 6.75% Note Holders;


•	90,558 shares of Successor Common Stock and 1,032,073 Successor warrants to purchase 1,032,073 shares of Successor Common Stock were issued pro rata to holders of the Predecessor Preferred Stock;


•	135,838 shares of Successor Common Stock and 1,548,109 Successor warrants to purchase 1,548,109 shares of Successor Common Stock were issued pro rata to holders of the Predecessor Common Stock;


•	504,577 shares of Successor Common Stock were issued to commitment parties under that certain Backstop Commitment Agreement, dated December 12, 2018 and amended and restated on January 28, 2019, (as amended and restated, the “Backstop Commitment Agreement”) in respect of the commitment premium due thereunder;


•	1,403,910 shares of Successor Common Stock were issued to the commitment parties under the Backstop Commitment Agreement in connection with their backstop obligation thereunder to purchase unsubscribed shares of Successor Common Stock; and


•	4,903,308 shares of Successor Common Stock were issued to participants in the rights offering extended by Parker to the applicable classes under the Plan (including to the commitment parties party to the Backstop Commitment Agreement).

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Reorganization Items

Any expenses, gains and losses that are realized or incurred subsequent to and as a direct result of the Chapter 11 Cases are recorded under reorganization items on our consolidated condensed statements of operations.

Reorganization items were $93.0 million for the three months ended March 31, 2019, which consisted of:



	Predecessor
Dollars in thousands	March 31, 2019
Gain on settlement of liabilities subject to compromise	$	(191,129	)
Fresh start valuation adjustments	242,567
Professional fees	30,107
Backstop premium on the rights offering paid in stock	11,033
Other	399
Reorganization items	$	92,977

Reorganization items paid during the three months ended March 31, 2019 and 2018 were $8.6 million and zero, respectively.

Debtor in Possession Financing

Amounts outstanding against the debtor in possession financing facility were zero and $10.0 million as of March 31, 2019 and December 31, 2018, respectively. The debtor in possession financing facility was terminated as of March 26, 2019.

Liabilities Subject To Compromise

Pre-petition unsecured and under-secured obligations that could have been impacted by the Chapter 11 Cases have been classified as liabilities subject to compromise on our Predecessor consolidated condensed balance sheet. These liabilities were reported at the amounts allowed as claims by the Bankruptcy Court.

Liabilities subject to compromise consisted of:



	Successor		Predecessor
Dollars in thousands	March 31, 2019		December 31, 2018
Predecessor 6.75% senior notes, due July 2022	$	—	$	360,000
Predecessor 7.50% senior notes, due August 2020	—		225,000
Accrued interest on predecessor senior notes	—		15,996
Liabilities subject to compromise	$	—	$	600,996

Contractual interest expense for the three months ended March 31, 2019 on our senior notes amounts to $10.3 million; however, no interested expense was accrued on the senior notes, as they were impaired during the quarter and extinguished upon emergence. See also Note 6 - Debt for further details.

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Note 3 - Fresh Start Accounting

Upon emergence from bankruptcy, we adopted fresh start accounting (“Fresh Start Accounting”) in accordance with Topic 852, which resulted in the Company becoming a new entity for financial reporting purposes. In accordance with Topic 852, the Company is required to adopt Fresh Start Accounting upon its emergence from bankruptcy because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new common shares of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims.

Upon adoption of Fresh Start Accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to the Company’s assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations. The amount of deferred income taxes recorded was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.

We evaluated the events between March 26, 2019 and March 31, 2019 and concluded that the use of an accounting convenience date of March 31, 2019 (“Fresh Start Reporting Date”) would not have a material impact on our consolidated condensed income statement or consolidated condensed balance sheet. As such, the application of fresh start accounting was reflected in our condensed consolidated balance sheet as of March 31, 2019 and fresh start accounting adjustments related thereto were included in our consolidated condensed income statement for the three months ended March 31, 2019.

As a result of the adoption of Fresh Start Accounting and the effects of the implementation of the Plan, the Company’s consolidated condensed financial statements of the Successor, are not comparable to its consolidated condensed financial statements of the Predecessor.

The Company’s consolidated condensed financial statements and related footnotes are presented with a “black line” division, which emphasizes the lack of comparability between amounts presented as of and after March 31, 2019 and amounts presented for all prior periods. The Company’s financial results for future periods following the application of Fresh Start Accounting will be different from historical trends and the differences may be material.

Reorganization Value

Under Topic 852, the Successor determined a value to be assigned to the equity of the emerging entity as of the date of adoption of Fresh Start Accounting. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $365.0 million and $485.0 million, with a midpoint of $425.0 million. The Company deemed it appropriate to use the midpoint between the low end and high end of the range to determine the final enterprise value of $425.0 million.

The following table reconciles the enterprise value to the estimated fair value of our Successor Common Stock as of the Fresh Start Reporting Date:



Dollars in thousands
Enterprise value	$	425,000
Cash and cash equivalents and other	127,800
Fair value of term loan	(210,000		)
Fair value of successor stockholders’ equity	$	342,800

The following table reconciles the enterprise value to the reorganization value of the Successor’s assets to be allocated to the Company’s individual assets as of the Fresh Start Reporting Date:



Dollars in thousands
Enterprise value	$	425,000
Cash and cash equivalents and other	127,800
Current liabilities	140,596
Non-current liabilities excluding long-term debt	20,985
Reorganization value of successor assets	$	714,381

With the assistance of financial advisors, we determined the enterprise and corresponding equity value of the Successor by calculating the present value of future cash flows based on our financial projections. The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of

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certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

Valuation Process

The fair values of the Company’s principal assets, including drilling equipment, rental tools, real property, and intangible assets were estimated with the assistance of third party valuation advisors. The income approach, market approach, and the cost approach were considered for estimating the value of each individual asset. Although the income approach was not applied to value the machinery and equipment and real property assets individually, the Company did consider the earnings of the reporting unit within which each of these assets reside. Economic obsolescence related to machinery and equipment and real property was also considered and was applied to stacked and underutilized assets based upon the status of the asset. Economic obsolescence was also considered in situations in which the earnings of the applicable reporting unit in which the assets are employed suggest economic obsolescence. When penalizing assets for economic obsolescence, an additional economic obsolescence penalty was levied, while considering scrap value to be the floor value for an asset. Because more than one approach was used to develop a valuation, the various approaches were reconciled to determine a final value conclusion. The reorganization value was allocated to the Company’s individual assets and liabilities based on their fair values as follows:

Rig Materials and Supplies

The fair value of the rig materials and supplies was determined using the direct and indirect cost approaches. The rig materials and supplies were analyzed on a line-by-line basis and each asset was adjusted for age, physical depreciation, and obsolescence.

Property, Plant and Equipment

Building, Land and Improvements

The fair value of the land assets was estimated using the sales comparison (market) approach, which involved gathering data on comparable sales and current listings of land in each subject market, then adjusting the unit price (per acre or per square foot) of each comparable for differences in market conditions, location, size, and other factors. A per unit value conclusion was then determined based on the adjusted prices of the comparable sales and listings. Fair value of buildings and improvements was estimated using the direct cost approach, in which the estimated replacement cost new of the improvements was adjusted for accrued physical depreciation and any functional or external obsolescence. As a supporting approach, the total fair value of all real property assets for each location was estimated using the sales comparison (or market approach). Held for sale assets were included at their respective pending or listed prices. The fair value of the leasehold improvements was determined using the cost approach, adjusted as needed for asset type, age, physical deterioration and obsolescence.

Rental Tools

The fair value of the rental tools was determined using a combination of the cost approach and sales comparison (market) approach depending upon the asset type. The fair value utilizing the cost approach was adjusted as needed for asset type, age, physical deterioration, and obsolescence. For assets where an active secondary market exists, we utilized the sales comparison (market) approach to estimate the fair value of the assets, which involved gathering market data and analyzing comparable sales of similar assets.

Drilling Equipment

The fair value of the drilling equipment was determined using a combination of the discounted cash flow method (income approach), the cost approach, and the sales comparison (market) approach. The income approach was utilized to estimate the fair value of drilling equipment that generated positive returns on projected cash flows over the remaining economic useful life of the drilling equipment and compared to the fair value utilizing the cost approach, adjusted as needed for asset type, age, physical deterioration and obsolescence. For assets where an active secondary market exists we utilized the sales comparison (market) approach to estimate the fair value of the assets, which involved gathering market data and analyzing comparable sales of similar assets.

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Intangible Assets

We applied the income approach methodology to estimate the value of the customer relationships, trade name, and developed technology. We determined the value of the customer relationships based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The value of the trade name was estimated through the relief from royalty method based on the present value of the cost savings realized by the owner of the asset as a result of not having to pay a stream of royalty payments to another party. The cost savings were based on hypothetical royalty payments of 0.2 percent of revenue reflecting a rate in which an arm’s length buyer would typically pay for the use of such intangible assets. Similar to the methodology used to value the trade name, we determined the value of the developed technology using a hypothetical royalty payment of 1.0 percent of revenue to reflect the attributable cost savings. The present value of the after-tax cash flows for all the Intangible Assets were estimated based on a discount rate of 20.0 percent.

Warrants

The fair value of the Successor warrants was estimated by applying a Black-Scholes-Merton (“BSM”) model. The BSM model is a pricing model used to estimate the theoretical price or fair value for a European-style call or put option/warrant based on current stock price, strike price, time to maturity, risk-free rate, volatility, and dividend yield.

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Consolidated Balance Sheet

The adjustments included in the following fresh start consolidated condensed balance sheet as of March 31, 2019 reflect the effects of the transactions contemplated by the Plan and executed by the Company on the Fresh Start Reporting Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of Fresh Start Accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.



	Predecessor			Reorganization Adjustments				Fresh Start Adjustments				Successor
ASSETS
Current assets:
Cash and cash equivalents	$	51,777		$	76,072		(1)	$	—			$	127,849
Restricted cash	11,070			10,366			(2)	—				21,436
Accounts and notes receivable, net	168,444			—				—				168,444
Rig materials and supplies	39,024			—				(21,185		)	(15)	17,839
Other current assets	31,944			(8,764		)	(3)	(3,603		)	(16)	19,577
Total current assets	302,259			77,674				(24,788		)		355,145
Property, plant and equipment, net	533,938			—				(229,968		)	(17)	303,970
Intangible assets, net	4,245			—				13,755			(18)	18,000
Deferred income taxes	2,518			—				1,751			(19)	4,269
Other non-current assets	38,045			1,253			(4)	(6,301		)	(20)	32,997
Total assets	$	881,005		$	78,927			$	(245,551	)		$	714,381
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debtor in possession financing	$	10,000		$	(10,000	)	(5)	$	—			$	—
Accounts payable and accrued liabilities	134,461			4,990			(6)	(3,868		)	(21)	135,583
Accrued income taxes	5,013			—				—				5,013
Total current liabilities	149,474			(5,010		)		(3,868		)		140,596
Long-term debt	—			210,000			(7)	—				210,000
Other long-term liabilities	20,901			—				(866		)	(22)	20,035
Long-term deferred tax liability	28,445			—				(27,495		)	(19)	950
Commitments and contingencies
Total liabilities not subject to compromise	198,820			204,990				(32,229		)		371,581
Liabilities subject to compromise	600,996			(600,996		)	(8)	—				—
Total liabilities	799,816			(396,006		)		(32,229		)		371,581
Stockholders’ equity:
Predecessor preferred stock	500			(500		)	(9)	—				—
Predecessor common stock	1,398			(1,398		)	(10)	—				—
Predecessor capital in excess of par value	767,793			(35,839		)	(11)	(731,954		)	(23)	—
Predecessor accumulated other comprehensive income (loss)	(7,256		)	—				7,256			(23)	—
Successor common stock	—			150			(12)	—				150
Successor capital in excess of par value	—			342,650			(13)	—				342,650
Accumulated deficit	(681,246		)	169,870			(14)	511,376			(23)	—
Total stockholders’ equity	81,189			474,933				(213,322		)		342,800
Total liabilities and stockholders’ equity	$	881,005		$	78,927			$	(245,551	)		$	714,381

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Reorganization Adjustments


(1)	Changes in cash and cash equivalents included the following:



Dollars in thousands
Proceeds from the rights offering	$	95,000
Transfers from restricted cash for the return of cash collateral (for letters of credit)	10,433
Proceeds from refund of backstop commitment fee	7,600
Transfers from restricted cash for deposit releases	250
Transfers to restricted cash for funding of professional fees	(21,049		)
Payment of debtor in possession financing principal and interest	(10,035		)
Payment of professional fees	(5,154		)
Payment of debt issuance costs for the successor credit facility	(490		)
Payment of fees on letters of credit	(58		)
Payment of term loan agent fees	(50		)
Payment of other reorganization expenses	(375		)
Net change in cash and cash equivalents	$	76,072


(2)	Changes in restricted cash reflects the net transfer of cash between restricted cash and cash and cash equivalents.


(3)	Changes in other current assets include the following:



Dollars in thousands
Refund of backstop commitment fee	$	(7,600	)
Elimination of predecessor directors and officers insurance policies	(702		)
Reclass of prepaid costs related to the successor credit facility	(488		)
Payment of other costs related to the successor credit facility	26
Net change in other current assets	$	(8,764	)


(4)	Changes in other non-current assets include the following:



Dollars in thousands
Capitalization of debt issuance costs on the successor credit facility	$	765
Reclass of prepaid costs related to the successor credit facility	488
Net change in other non-current assets	$	1,253


(5)	Reflects the payment of debtor in possession financing principal.


(6)	Changes in accounts payable and accrued liabilities include the following:



Dollars in thousands
Accrual of professional fees	$	7,100
Payment of professional fees	(2,017		)
Payment of debtor in possession financing interest	(35		)
Payment of letters of credit fees	(58		)
Net change in accounts payable and accrued liabilities	$	4,990


(7)	Changes in long-term debt include the issuance of the $210.0 million Term Loan.

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(8)	Liabilities subject to compromise to be settled in accordance with the Plan and the resulting gain was determined as follows:



Dollars in thousands
Liabilities subject to compromise	$	(600,996	)
Issuance of term loan	210,000
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders	175,058
Excess fair value ascribed to lenders participating in equity rights offering	24,809
Gain on settlement of liabilities subject to compromise	$	(191,129	)


(9)	Changes in Predecessor Preferred Stock reflects the cancellation of Predecessor Preferred Stock.


(10)	Changes in Predecessor Common Stock reflects the cancellation of Predecessor Common Stock.


(11)	Changes in Predecessor capital in excess of par include the following:



Dollars in thousands
Cancellation of predecessor preferred stock	$	500
Cancellation of predecessor common stock	1,398
Issuance of successor warrants to predecessor common stock and predecessor preferred stock holders	(14,687		)
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders	(4,950		)
Excess fair value ascribed to parties participating in rights offering, excluding lenders	(18,100		)
Net change in predecessor capital in excess of par value	$	(35,839	)


(12)	Changes in Successor Common Stock include the following:



Dollars in thousands
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders	$	80
Issuance of successor common stock pursuant to rights offering	68
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders	2
Net change in successor common stock	$	150


(13)	Change in Successor capital in excess of par value include the following:



Dollars in thousands
Issuance of successor common stock to the 7.50% note holders and 6.75% note holders	$	174,978
Issuance of successor common stock pursuant to rights offering	148,874
Issuance of successor warrants to predecessor common stock and predecessor preferred stock holders	14,687
Issuance of successor common stock to predecessor common stock and predecessor preferred stock holders	4,948
Equity issuance costs	(837		)
Net change in successor capital in excess of par value	$	342,650

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(14)	Changes in accumulated deficit include the following:



Dollars in thousands
Gain on settlement of liabilities subject to compromise	$	191,129
Backstop premium on rights offering	(11,032		)
Accrual of professional fees	(5,988		)
Payment of professional fees	(3,137		)
Elimination of predecessor directors and officers insurance policies	(702		)
Payment of other reorganization items	(400		)
Net change in accumulated deficit	$	169,870

Fresh Start Accounting Adjustments


(15)	Changes in rig materials and supplies reflect the fair value adjustment due to the adoption of fresh start accounting.


(16)	Changes in other current assets reflect the elimination of capitalized mobilization costs due to the adoption of fresh start accounting.


(17)	Changes in property, plant and equipment, net reflects the fair value adjustment due to the adoption of fresh start accounting.


(18)	Changes in intangible assets, net reflects the fair value adjustment due to the adoption of fresh start accounting.



Dollars in thousands	Successor Fair Value		Predecessor Historical Book Value
Customer relationships	$	16,300	$	—
Trade names	1,500		368
Developed technology	200		3,877
Intangible assets, net	$	18,000	$	4,245


(19)	Changes in deferred income taxes reflects the adjustment due to the adoption of fresh start accounting.


(20)	Changes in other non-current assets reflect the following:



Dollars in thousands
Fair value adjustment to rig material and supplies	$	(6,845	)
Fair value adjustment to investment in non-consolidated subsidiaries	2,290
Fair value adjustment to long-term notes receivable	(272		)
Elimination of capitalized mobilization costs	(857		)
Elimination of long-term other deferred charges	(617		)
Net change in other non-current assets	$	(6,301	)


(21)	Changes in accounts payable and accrued liabilities due to the adoption of fresh start accounting include the following:



Dollars in thousands
Elimination of deferred rent	$	(1,100	)
Elimination of deferred revenue	(2,768		)
Net change in accounts payable and accrued liabilities	$	(3,868	)


(22)	Changes in other long-term liabilities reflects the elimination of deferred revenue due to the adoption of fresh start accounting.


(23)	Changes reflect the cumulative impact of fresh start accounting adjustments discussed above and the elimination of Predecessor accumulated other comprehensive loss and Predecessor accumulated deficit.

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Note 4 - Intangible Assets

Intangible Assets consist of the following:



		Successor
		Balance at March 31, 2019
Dollars in thousands	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	3	$	16,300	$	—	$	16,300
Trade names	5	1,500		—		1,500
Developed technology	6	200		—		200
Total amortized intangible assets		$	18,000	$	—	$	18,000

Amortization expense was $0.6 million and $0.6 million for the three months ended March 31, 2019 and 2018, respectively.

Our remaining intangibles amortization expense for the next five years is presented below:



Dollars in thousands	Expected future intangible amortization expense
2019	$	4,325
2020	$	5,767
2021	$	5,767
2022	$	1,691
Beyond 2022	$	450

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Note 5 - Operating Leases

We adopted the Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”) effective January 1, 2019. As lessee, our leasing activities primarily consist of operating leases for administrative offices, warehouses, oilfield services equipment, office equipment, computers and other items. Our leases have remaining lease terms of 1 year to 6 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

We elected the following package of practical expedients permitted under the transition guidance:


•	an election to adopt the modified retrospective transition method applied at the beginning of the period of adoption, which does not require a restatement of the prior period. Accordingly, no cumulative-effect adjustment to retained earnings was made.


•	an election not to apply the recognition requirements in Topic 842 to short-term leases (initial lease term of 12 months or less) and recognize lease payments in the consolidated condensed statement of operations. Short-term leases have not been recorded on the balance sheet.


•	a practical expedient to not reassess whether a contract is or contains a lease and carry forward its historical lease classification.


•	a practical expedient to account for the lease and non-lease components separately.


•	a practical expedient to account for the lease and non-lease components as a single lease component for certain assets, by class of underlying asset.

We determine whether a contract is or contains a lease at its inception. Topic 842 requires lessees to recognize operating lease right-of-use assets and operating lease liabilities on the balance sheet. An operating lease right-of-use asset represents our right to use an underlying asset for the lease term and operating lease liability represents our obligation to make lease payments arising from the lease. An operating lease right-of-use asset and operating lease liability are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. The adoption of this standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $21.0 million as of January 1, 2019.

Supplemental lease information related to our operating leases as of March 31, 2019 is shown below:



	Successor
Dollars in thousands	March 31, 2019
Operating lease right-of-use assets⁽¹⁾	$	19,662

Operating lease liabilities - current ⁽²⁾	$	8,131
Operating lease liabilities - noncurrent⁽³⁾	10,971
Total operating lease liabilities	$	19,102

Cash paid for amounts included in the measurement of operating lease liabilities	$	2,498
Operating lease right-of-use assets obtained in exchange for lease obligations	$	60

Weighted average remaining lease term (in years)	3
Weighted average discount rate	7.0		%


(1)	This amount is included in other non-current assets in our consolidated condensed balance sheet.


(2)	This amount is included in accounts payable and accrued liabilities in our consolidated condensed balance sheet.


(3)	This amount is included in other long-term liabilities in our consolidated condensed balance sheet.

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Maturities of operating lease liabilities as of March 31, 2019 were as follows:



	Successor
Dollars in thousands	Operating Leases
2019	$	6,231
2020	6,879
2021	4,170
2022	1,957
2023	1,534
Beyond 2023	558
Total undiscounted lease liability	21,329
Imputed interest	(2,227		)
Total operating lease liabilities	$	19,102

Future minimum operating lease payments as of December 31, 2018 were as follows:



	Successor
Dollars in thousands	Operating Leases
2019	$	10,722
2020	7,887
2021	4,193
2022	1,968
2023	1,540
Beyond 2023	636
Total lease payments	$	26,946

Lease expense for lease payments is recognized on a straight-line basis over the lease term. Expenses for operating leases for the three months ended March 31, 2019 are shown below:



	Predecessor
Dollars in thousands	Three Months Ended March 31, 2019
Operating lease expense	$	2,709
Short-term lease expense	787
Variable lease expense	1,840
Total lease expense	$	5,336

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Note 6 - Debt

The following table illustrates the Company’s debt portfolio as of March 31, 2019 and December 31, 2018:



	Successor		Predecessor
Dollars in thousands	March 31, 2019		December 31, 2018
Successor credit facility	$	—