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, 2011

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

For the transition period from                    to                    

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) (Zip code)

(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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files. Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

As of May 2, 2011, there were 116,675,817 common shares outstanding.

 

 

TABLE OF CONTENTS

		Page
Part I. Financial Information			3
Item 1. Financial Statements			3
Consolidated Condensed Balance Sheets March 31, 2011 (Unaudited) and December 31, 2010			3
Consolidated Condensed Statements of Operations (Unaudited) Three Months Ended March 31, 2011 and 2010			4
Consolidated Condensed Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2011 and 2010			5
Notes to the Unaudited Consolidated Condensed Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			35
Part II. Other Information			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 6. Exhibits			36
Signatures			37
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PARKER DRILLING COMPANY AND SUBSIDIARIES

		March 31				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	41,595			$	51,431
Accounts and notes receivable, net of allowance for bad debts of $6,775 and $7,020 at March 31, 2011 and December 31, 2010			178,984				168,876
Rig materials and supplies			24,213				25,527
Deferred costs			1,822				2,229
Deferred income taxes			10,137				9,278
Other tax assets			46,349				46,429
Assets held for sale			5,287				5,287
Other current assets			23,686				59,067
Total current assets			332,073				368,124
Property, plant and equipment less accumulated depreciation and amortization of $898,734 at March 31, 2011 and $875,179 at December 31, 2010			843,669				816,147
Deferred income taxes			60,416				61,016
Other noncurrent assets			28,586				29,268
Total assets		$	1,264,744			$	1,274,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	12,000
Accounts payable and accrued liabilities			142,393				158,771
Accrued income taxes			5,683				4,492
Total current liabilities			160,076				175,263
Long-term debt			459,283				460,862
Other long-term liabilities			31,542				30,193
Long-term deferred tax liability			19,054				20,171
Contingencies (Note 7)			—				—
Stockholders’ equity:
Common stock			19,440				19,397
Capital in excess of par value			632,314				630,409
Accumulated deficit			(56,666	)			(61,493	)
Total controlling interest stockholders’ equity			595,088				588,313
Noncontrolling interest			(299	)			(247	)
Total equity			594,789				588,066
Total liabilities and stockholders’ equity		$	1,264,744			$	1,274,555

See accompanying notes to the unaudited consolidated condensed financial statements.

PARKER DRILLING COMPANY AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2011				2010
Revenues:
International Drilling		$	42,437			$	63,875
U.S. Drilling			15,920				15,087
Rental Tools			52,319				33,815
Project Management and Engineering Services			35,865				24,441
Construction Contracts			9,638				20,387
Total revenues			156,179				157,605
Operating expenses:
International Drilling			34,847				47,173
U.S. Drilling			14,021				12,974
Rental Tools			18,137				12,626
Project Management and Engineering Services			29,908				19,561
Construction Contracts			10,381				21,197
Depreciation and amortization			27,599				28,588
Total operating expenses			134,893				142,119
Total operating gross margin			21,286				15,486
General and administration expense			(6,888	)			(10,032	)
Gain on disposition of assets, net			1,004				672
Total operating income			15,402				6,126
Other income and (expense):
Interest expense			(5,861	)			(6,732	)
Interest income			47				74
Loss on extinguishment of debt			—				(3,220	)
Other			11				142
Total other expense			(5,803	)			(9,736	)
Income (loss) before income taxes			9,599				(3,610	)
Income tax expense (benefit):
Current			4,018				3,648
Deferred			821				(5,207	)
Total income tax expense (benefit)			4,839				(1,559	)
Net income (loss)		$	4,760			$	(2,051	)
Less: Net (loss) attributable to noncontrolling interest		$	(67	)		$	—
Net income (loss) attributable to controlling interest		$	4,827			$	(2,051	)
Basic earnings (loss) per share:
Net income (loss)		$	0.04			$	(0.02	)
Diluted earnings (loss) per share:
Net income (loss)		$	0.04			$	(0.02	)
Number of common shares used in computing earnings per share
Basic			115,119,277				113,512,426
Diluted			116,322,199				113,512,426

See accompanying notes to the unaudited consolidated condensed financial statements.

PARKER DRILLING COMPANY AND SUBSIDIARIES

		Three months ended March 31,
		2011				2010
Cash flows from operating activities:
Net income (loss)		$	4,760			$	(2,051	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			27,599				28,588
Loss on extinguishment of debt			—				3,220
Gain on disposition of assets			(1,004	)			(672	)
Deferred income tax expense			821				(5,207	)
Expenses not requiring cash			4,453				1,430
Change in accounts receivable			(9,747	)			19,400
Change in other assets			37,379				(5,612	)
Change in liabilities			(23,504	)			(37,639	)
Net cash provided by operating activities			40,757				1,457
Cash flows from investing activities:
Capital expenditures			(50,664	)			(57,946	)
Proceeds from the sale of assets			1,561				773
Proceeds from insurance settlements			250				—
Net cash used in investing activities			(48,853	)			(57,173	)
Cash flows from financing activities:
Proceeds from issuance of debt			—				300,000
Paydown on senior notes			—				(96,310	)
Paydown on term note			(3,000	)			(3,000	)
Paydown on revolver credit facility			—				(42,000	)
Payments of debt issuance costs			—				(7,795	)
Payments of debt extinguishment costs			—				(3,330	)
Proceeds from stock options exercised			135				26
Excess tax (cost) benefit from stock based compensation			1,125				1,350
Net cash provided by (used in) financing activities			(1,740	)			148,941
Net decrease in cash and cash equivalents			(9,836	)			93,225
Cash and cash equivalents, beginning of year			51,431				108,803
Cash and cash equivalents, end of period		$	41,595			$	202,028
Supplemental cash flow information:
Interest paid		$	1,933			$	6,391
Income taxes paid		$	402			$	8,050

See accompanying notes to the unaudited consolidated condensed financial statements.

PARKER DRILLING COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.

General

In the opinion of the management of Parker Drilling Company, the accompanying unaudited consolidated condensed financial statements reflect all adjustments of a normally recurring nature which are necessary for a fair presentation of (1) the financial position as of March 31, 2011 and December 31, 2010, (2) the results of operations for the three months ended March 31, 2011 and 2010, and (3) cash flows for the three months ended March 31, 2011 and 2010. Results for the three months ended March 31, 2011 are not necessarily indicative of the results that will be realized for the year ending December 31, 2011. The financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.

Nature of Operations — Parker Drilling Company (Parker Drilling), together with its subsidiaries (the Company), is a leading worldwide provider of contract drilling and drilling-related services with extensive experience and expertise in drilling geologically difficult wells and in managing the logistical and technological challenges of operating in remote, harsh and ecologically sensitive areas. At March 31, 2011, our marketable rig fleet consisted of 15 barge drilling rigs and workover rigs, and 25 land rigs, located in the United States, Americas, Commonwealth of Independent States/Africa-Middle East (CIS/AME) and Asia Pacific regions. In addition, as of March 31, 2011 we have sales contracts pending for three rigs classified as assets held for sale.

Consolidation — The consolidated financial statements include the accounts of Parker Drilling 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. A subsidiary of Parker Drilling has a 50 percent interest in one other company that is accounted for under the equity method as Parker Drilling’s interest in the entity does not meet the consolidation criteria described above.

Non-Controlling Interest — For interests in entities that we do not control, we apply the accounting standards related to noncontrolling interests. We report noncontrolling interest as equity on the consolidated balance sheet and report net income (loss) attributable to controlling interest and to noncontrolling interest separately on the statement of operations.

Reclassifications — Certain reclassifications have been made to prior period amounts to conform with the current period presentation. These reclassifications did not have a material effect on our consolidated statement of operations, consolidated balance sheet or statement of cash flows.

Use of Estimates — The preparation of financial statements in accordance with U.S. GAAP requires us 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 financial statements, and our revenue and expenses during the periods reported. Estimates are used when accounting for certain items such as legal accruals, mobilization and deferred mobilization, revenue and cost accounting following the percentage of completion method, self-insured medical/dental plans, etc. Estimates are based on 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.

Concentrations of Credit Risk — Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade receivables with a variety of national and international oil and gas companies. We generally do not require collateral on our trade receivables.

At March 31, 2011 and December 31, 2010, we had deposits in domestic banks in excess of federally insured limits of approximately $4.5 million and $25.9 million, respectively. In addition, we had deposits in foreign banks, which were not insured at March 31, 2011 and December 31, 2010 of $17.8 million and $31.1 million, respectively.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

1.

General (continued)

Our customer base consists of major, independent and national oil and gas companies and integrated service providers. We depend on a limited number of significant customers. Our two largest customers, ExxonMobil and BP, constituted 17.6 percent and 8.7 percent, respectively of our year-to-date revenues as of March 31, 2011.

In November 2010, BP informed us that it was suspending construction on the Liberty extended reach drilling rig project to review the rig’s engineering and design, including its safety systems. We commenced construction of this rig for BP in April 2008 pursuant to an Engineering, Procurement, Construction and Installation (EPCI) contract. In August 2009, BP also awarded us an O&M contract for the first phase of drilling on the Liberty field.

The Liberty rig construction contract expired on February 8, 2011. Prior to expiration of the construction contract, BP identified several areas of concern for which it asked us to provide explanations and documentation, and we have done so. Although we believe that the issues raised by BP have been adequately addressed, there can be no assurance of when or how these issues will be resolved with our client. At this point, construction on the rig is incomplete, and it cannot be completed until BP determines to resume construction.

The Liberty rig construction contract was a fixed fee and reimbursable contract accounted for on a percentage of completion basis. Costs on the project were reimbursed without markup, except for costs associated with changes in work scope, for which we were entitled to a markup. As of March 31, 2011 and 2010 we had recognized $334.2 million and $255.2 million in project-to-date revenues, respectively. As of March 31, 2011, we had recognized the entire $11.7 million fixed fee margin on the contract. BP has not announced a schedule for resuming construction on the rig or new target dates for drilling and production start-up.

The Company and BP have continued activities to preserve and maintain the rig under the “pre-operations” phase of our O&M contract in accordance with its terms. The O&M contract is scheduled to expire on May 31, 2011, and we have been notified by BP that they do not anticipate extending it at that time.

Fair Value of Financial Instruments — The estimated fair value of the Company’s $300.0 million principal amount of 9.125% Senior Notes due 2018, based on quoted market prices, was $324.0 million at March 31, 2011. The estimated fair value, based upon granted prices, of the Company’s $125.0 million principal amount of 2.125% Convertible Senior Notes due 2012 was $125.1 million on March 31, 2011. For cash, accounts receivable, and accounts payable, the Company believes carrying value approximates estimated fair value.

Property, Plant and Equipment — We provide for depreciation of property, plant and equipment on the straight line method over the estimated useful lives of the assets after provision for salvage value. Depreciable lives for different categories of property, plant and equipment are as follows:

		Land drilling equipment		3 to 20 years
		Barge drilling equipment		3 to 20 years
		Drill pipe, rental tools and other		4 to 7 years
		Buildings and improvements		15 to 30 years

Management periodically evaluates the Company’s assets to determine whether their net carrying values are in excess of their net realizable values. Management considers a number of factors such as estimated future cash

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

1.

General (continued)

flows, appraisals and current market value analysis in determining net realizable value. Assets are written down to fair value if the fair value is below the net carrying value.

Interest from external borrowings is capitalized on major projects until the assets are ready for their intended use. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets. Capitalized interest costs reduce net interest expense in the consolidated statement of operations. During the three-months ended March 31, 2011 and March 31, 2010, we capitalized interest costs related to the construction of rigs of $4.4 million and $2.5 million, respectively.

Assets held for sale — We classify an asset as held for sale when the facts and circumstances meet the required criteria for such classification, including the following: (a) we have committed to a plan to sell the asset, (b) the asset is available for immediate sale, (c) we have initiated actions to complete the sale, including locating a buyer, (d) the sale is expected to be completed within one year, (e) the asset is being actively marketed at a price that is reasonable relative to its fair value, and (f) the plan to sell is unlikely to be subject to significant changes or termination. At March 31, 2011, we had net assets held for sale of $5.3 million, included in current assets. For further information, see Note 3.

2.

Earnings Per Share (EPS)

		Three Months Ended March 31, 2011
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	4,827,000				115,119,277			$	0.04
Effect of dilutive securities:
Stock options and restricted stock							1,202,922			$	—
Diluted EPS:
Net income		$	4,827,000				116,322,199			$	0.04

		Three Months Ended March 31, 2010
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net loss		$	(2,051,000	)			113,512,426			$	(0.02	)
Effect of dilutive securities:
Stock options and restricted stock							—			$	—
Diluted EPS:
Net loss		$	(2,051,000	)			113,512,426			$	(0.02	)

All options outstanding during the three months ended March 31, 2011, were included in the computation of diluted EPS as the options’ exercise prices were less than the average market price of the common shares. For the three months ended March 31, 2010, all outstanding options and non-vested restricted shares or units have been excluded from the calculation of diluted EPS as the company incurred a loss for the quarter, and therefore, inclusion of outstanding options and non-vested restricted shares or units in the calculation of diluted EPS would be anti-dilutive.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

3.

Assets Held for Sale

Assets held for sale of $5.3 million as of March 31, 2011 was comprised of the net book value of three land rigs and related inventory for which sale is expected to be completed during 2011. The three rigs were part of our Asia Pacific rig fleet and have historically been included in the International Drilling segment. We expect the carrying amount of the assets, less costs to sell, will be fully recoverable through sale of the assets.

4.

Accounting for Uncertainty in Income Taxes

The company applies the accounting guidance related to accounting for uncertainty in income taxes. This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. During the first quarter of 2011, we recognized $0.7 million of expense related to an audit. For the three months ended March 31, 2010, we did not recognize additional expense related to uncertain tax positions. At March 31, 2011, we had a liability for unrecognized tax benefits of $16.2 million ($5.8 million of which, if recognized, would favorably impact our effective tax rate). In addition, the Company recognizes interest and penalties that could be applied to uncertain tax positions in income tax expense. As of March 31, 2011 and December 31, 2010 we had approximately $7.4 million and $7.0 million, respectively, of accrued interest and penalties that could be applied to uncertain tax positions.

5.

Income Tax Benefit/Expense

Income tax expense was $4.8 million for the first quarter of 2011, as compared to income tax benefit of $1.6 million for the first quarter of 2010. The increase in income tax expense in the first quarter of 2011, compared to the first quarter of 2010, was primarily the result of differences in the mix of our domestic and international pre-tax earnings and losses, as well as the mix of international tax jurisdictions in which we operate.

6.

Long Term Debt

The following table illustrates the Company’s debt portfolio:

		March 31,				December 31,
		2011				2010
		(Dollars in Thousands)
9.125% Senior Notes, due April 2018		$	300,000			$	300,000
2.125% Convertible Senior Notes, due July 2012			117,283				115,862
Term Note			29,000				32,000
Revolving Credit Facility			25,000				25,000
Total debt			471,283				472,862
Less current portion			12,000				12,000
Total long-term debt		$	459,283			$	460,862

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Long Term Debt (continued)

9.125% Senior Notes, due April 2018

On March 22, 2010, we issued $300.0 million aggregate principal amount of 9.125% Senior Notes due 2018 (9.125% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A. (Trustee). The 9.125% Notes were issued at par with interest payable on April 1 and October 1 of each year, beginning October 1, 2010. Net proceeds from the 9.125% Notes offering were primarily used to redeem the $225.0 million aggregate principal amount of our 9.625% Senior Notes due 2013 and to repay $42.0 million of borrowings under the revolving credit facility.

The 9.125% Notes are general unsecured obligations of the Company and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 9.125% Notes are jointly and severally guaranteed by substantially all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenue primarily outside the United States.

At any time prior to April 1, 2013, we may redeem up to 35 percent of the aggregate principal amount of 9.125% Notes at a redemption price of 109.125 percent of the principal amount, plus accrued and unpaid interest to the redemption date with the net cash proceeds of certain equity offerings by us. On and after April 1, 2014, we may redeem all or a part of the 9.125% Notes upon appropriate notice, at a redemption price of 104.563 percent of principal amount, and at redemption prices decreasing each year thereafter to par. If we experience certain changes in control, we must offer to repurchase the 9.125% Notes at 101.0 percent of the aggregate principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.

The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets; (ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital stock or subordinated indebtedness; (iii) make investments; (iv) incur or guarantee additional indebtedness; (v) create or incur liens; (vi) enter into sale and leaseback transactions; (vii) incur dividend or other payment restrictions affecting subsidiaries; (viii) merge or consolidate with other entities; (ix) enter into transactions with affiliates; and (x) engage in certain business activities. Additionally, the indenture contains certain restrictive covenants designating certain events as Events of Default. These covenants are subject to a number of important exceptions and qualifications.

On June 21, 2010 pursuant to the Registration Rights Agreement among the Company, the guarantors named therein, the initial purchasers of the 9.125% Notes and the Trustee, entered into as of March 22, 2010 in connection with the closing of the 9.125% Notes offering, we filed an exchange offer registration statement with respect to an offer to exchange the 9.125% Notes for substantially identical notes that are registered under the Securities Act. The registration statement was deemed effective by the United States Securities and Exchange Commission (SEC) on September 1, 2010.

9.625% Senior Notes, due October 2013

As of December 31, 2009, we had outstanding $225.0 million in aggregate principal amount of 9.625% senior notes due 2013 (9.625% Notes). On March 8, 2010, we commenced a cash tender offer and consent solicitation for all of our outstanding 9.625% Notes, which expired on April 2, 2010 (Tender Offer). On March 22, 2010, we voluntarily called for redemption all of our 9.625% Notes that were not tendered pursuant to the Tender Offer, at the redemption price of 103.208 percent of the principal amount of the 9.625% Notes, or $1,032.08 per $1,000 principal amount of the 9.625% Notes. On April 21, 2010, we redeemed in full the remaining $128.7 million principal amount of 9.625% Notes. This redemption resulted in the Company recording debt extinguishment costs of $7.2 million during 2010.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Long Term Debt (continued)

2.125% Convertible Senior Notes, due July 2012

On July 5, 2007, we issued $125.0 million aggregate principal amount of 2.125% Convertible Senior Notes (2.125% Notes) due July 2012.

The significant terms of the 2.125% Notes are as follows:

•

2.125% Notes Conversion Feature — The initial conversion price for holders to convert their 2.125% Notes into shares is at a common stock share price equivalent of $13.85 (77.2217 shares of common stock) per $1,000 note value. Conversion rate adjustments occur for any issuances of stock, warrants, rights or options (except for stock purchase plans or dividend re-investments) or any other transfer of benefit to substantially all stockholders, or as a result of a tender or exchange offer. We may, under advice of our Board of Directors, increase the conversion rate at our sole discretion for a period of at least 20 days.

•

2.125% Notes Settlement Feature — Upon tender of the 2.125% Notes for conversion, we can either settle entirely in shares of common stock or a combination of cash and shares of common stock, solely at our option. Our intent is to satisfy our conversion obligation for our 2.125% Notes in cash, rather than in common stock, for at least the aggregate principal amount of the 2.125% Notes. This reduces the resulting potential earnings dilution to only include any possible conversion premium, which would be the difference between the average price of our shares and the conversion price per share of common stock.

•

Contingent Conversion Feature — Holders may only convert the 2.125% Notes when either sales price or trading price conditions are met, on or after the 2.125% Notes’ due date or upon certain accounting changes or certain corporate transactions (fundamental changes) involving stock distributions. Make-whole provisions are only included in the accounting and fundamental change conversions such that holders do not lose value as a result of the changes.

•

Settlement Feature — Upon conversion, we will pay either cash or provide shares of our common stock if any, based on a daily conversion rate multiplied by a volume weighted average price of our common stock during a specified period following the conversion date. Conversions can be settled in cash or shares, solely at our discretion.

As of March 31, 2011 and December 31, 2010, none of the conditions allowing holders of the 2.125% Notes to convert had been met.

Concurrently with the issuance of the 2.125% Notes, we purchased a convertible note hedge (note hedge) and sold warrants in private transactions with counterparties that were different than the ultimate holders of the 2.125% Notes. The note hedge included purchasing free-standing call options and selling free-standing warrants, both exercisable in our common shares. The note hedge allows us to receive shares of our common stock from the counterparties to the transaction equal to the amount of common stock related to the excess conversion value that we would issue and/or pay to the holders of the 2.125% Notes upon conversion.

The terms of the call options mirror the 2.125% Notes’ major terms whereby the call option strike price is the same as the initial conversion price as are the number of shares callable, $13.85 per share and 9,027,713 shares, respectively. This feature prevents dilution of our outstanding shares. The warrants allow us to sell 9,027,713 common shares at a strike price of $18.29 per share. The conversion price of the 2.125% Notes remains at $13.85 per share, and the existence of the call options and warrants serve to guard against dilution at share prices less than $18.29 per share, since we would be able to satisfy our obligations and deliver shares upon conversion of the 2.125% Notes with shares that are obtained by exercising the call options.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Long Term Debt (continued)

We paid a premium of approximately $31.5 million for the call options, and received proceeds for a premium of approximately $20.3 million for the sale of the warrants. This reduced the net cost of the note hedge to $11.2 million. The expiration date of the note hedge is the earlier of the last day on which the Notes remain outstanding or the maturity date of the 2.125% Notes.

The 2.125% Notes are classified as a liability in our consolidated financial statements. Because we have the choice of settling the call options and the warrants in cash or shares of our common stock and these contracts meet all of the applicable criteria for equity classification, the cost of the call options and proceeds from the sale of the warrants are classified in stockholders’ equity in the Consolidated Balance Sheets. In addition, because both of these contracts are classified in stockholders’ equity and are solely indexed to our own common stock, they are not accounted for as derivatives.

Debt issuance costs related to the 2.125% Notes totaled approximately $3.6 million and is being amortized over the five year term of the 2.125% Notes using the effective interest method. Proceeds from the transaction of $110.2 million were used to redeem our outstanding senior floating rate notes, to pay the net cost of hedge and warrant transactions, and for general corporate purposes.

Credit Agreement:

On May 15, 2008, we entered into a credit agreement (Credit Agreement) consisting of a senior secured $80.0 million revolving credit facility (Revolver) and senior secured term loan facility (Term Loan) of up to $50 million. The Credit Agreement provides that subject to certain conditions, including the approval of the Administrative Agent and the lenders’ acceptance (or additional lenders being joined as new lenders), the amount of the Term Loan or Revolver could be increased by an additional $50.0 million, so long as after giving effect to such increase, the Aggregate Commitments shall not be in excess of $180.0 million. On April 1, 2011, the Company exercised the additional $50.0 million accordion feature and entered into an amendment to the Credit Agreement that increased the aggregate commitment under the Credit Agreement to $180 million, and borrowed an additional $50 million in a Term Loan. When the facility was increased, all other terms of the Credit Agreement remained the same, including covenants and Applicable Rates.

Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries, each of which has executed guaranty agreements. The Credit Agreement contains customary affirmative and negative covenants with which we were in compliance as of March 31, 2011 and December 31, 2010. The Credit Agreement terminates on May 14, 2013.

Revolver:

Our Revolver is available for general corporate purposes and to support letters of credit. Interest on Revolver loans accrues at a Base Rate plus an Applicable Rate or LIBOR, plus an Applicable Rate. The Applicable Rate varies from a rate per annum ranging from 2.75 percent to 3.25 percent for LIBOR rate loans and 1.75 percent to 2.25 percent for base rate loans, determined by reference to the consolidated leverage ratio (as defined in the Credit Agreement). Revolving loans are available subject to a borrowing base calculation based on a percentage of eligible accounts receivable, certain specified barge drilling rigs and rental equipment of the Company and its subsidiary guarantors. There were $25.0 million in revolving loans outstanding at March 31, 2011 and December 31, 2010. Letters of credit outstanding as of March 31, 2011 and December 31, 2010 totaled $11.3 million and $16.3 million, respectively.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Long Term Debt (continued)

Term Loan:

The Term Loan originated at $50.0 million and requires quarterly principal payments of $3.0 million. Interest on the Term Loan accrues at either a Base Rate plus 2.25 percent or LIBOR plus 3.25 percent. The outstanding balance on the Term Loan at March 31, 2011 and December 31, 2010 was $29.0 million and $32.0 million, respectively.

Subsequent Event:

On April 1, 2011, subsequent to the end of the first quarter, the company expanded its Term Loan Facility by $50.0 million. Funding was provided by certain current Lenders and Barclays Bank PLC, which joined as a lender under the Credit Agreement. We used the proceeds from the additional Term Loan to repay the $25.0 million outstanding on the Revolver at March 31, 2011, purchase additional rental tool inventory and for general corporate purposes. The additional Term Loan will amortize at $3.0 million per quarter beginning June 30, 2011. Upon the completion of the transaction, total borrowings under the Term Loan Facility are $79.0 million and there are no borrowings under the Revolver. Total amortization on the Term Loans will be $6.0 million per quarter.

7.

Contingencies

Asbestos-Related Claims

We are from time to time a party to various lawsuits that are incidental to our operations in which the claimants seek an unspecified amount of monetary damages for personal injury, including injuries purportedly resulting from exposure to asbestos on drilling rigs and associated facilities. At March 31, 2011, there were approximately 16 of these lawsuits in which we are one of many defendants. These lawsuits have been filed in the United States in the State of Mississippi.

The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously and, based on the information available to us at this time, we do not expect the outcome to have a material adverse effect on our financial condition, results of operations or cash flows. However, we are unable to predict the ultimate outcome of these lawsuits. No amounts were accrued at March 31, 2011.

Gulfco Site

In 2003, we received an information request under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) designating Parker Drilling Offshore Corporation, a subsidiary of Parker Drilling, as a potentially responsible party with respect to the Gulfco Marine Maintenance, Inc. Superfund Site in Freeport, Texas (EPA No. TX 055144539). The subsidiary responded to this request with documents. In January 2008 the subsidiary received an administrative order to participate in an investigation of the site and a study of the remediation needs and alternatives. The EPA alleges that the subsidiary is a successor to a party who owned the Gulfco site during the time when chemical releases took place there. Two other parties have been performing the investigation and study work since mid-2005 under an earlier version of the same order. To date, the EPA and the other two parties have spent approximately $3.5 million studying and conducting initial remediation of the site. It is anticipated that at least an additional $1.3 million will be required to complete the remediation. In December 2010, we entered into an agreement with the other two parties, pursuant to which we agreed to pay 20 percent of past and future costs to study and remediate the site. As of March 31, 2011, the Company had made certain participating payments and has accrued $0.3 million for our portion of the estimated future cost of remediation.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

7.

Contingencies (continued)

Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation

As previously disclosed, we received requests from the United States Department of Justice (DOJ) in July 2007 and the United States Securities and Exchange Commission (SEC) in January 2008 relating to our utilization of the services of a customs agent. The DOJ and the SEC are conducting parallel investigations into possible violations of U.S. law by us, including the FCPA. In particular, the DOJ and the SEC are investigating our use of customs agents in certain countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria. We are fully cooperating with the DOJ and SEC investigations and are conducting an internal investigation into potential customs and other issues in Kazakhstan and Nigeria. The internal investigation has identified issues relating to potential non-compliance with applicable laws and regulations, including the FCPA with respect to operations in Kazakhstan and Nigeria. At this point, we are unable to predict the duration, scope or result of the DOJ or the SEC investigation or whether either agency will commence any legal action.

Further, in connection with our internal investigation, we also have learned that an individual who may be considered a foreign official under the FCPA owns in trust a substantial stake in a foreign subcontractor with whom we were doing business through a joint venture relationship in Kazakhstan. The joint venture no longer does business with the foreign subcontractor.

The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations, which they may seek to impose against corporations and individuals in appropriate circumstances including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. These authorities have entered into agreements with, and obtained a range of sanctions against, several public corporations and individuals arising from allegations of improper payments and deficiencies in books and records and internal controls, whereby civil and criminal penalties were imposed. Recent civil and criminal settlements have included multi-million dollar fines, deferred prosecution agreements, guilty pleas, and other sanctions, including the requirement that the relevant corporation retain a monitor to oversee its compliance with the FCPA. In addition, corporations may have to end or modify existing business relationships. Any of these remedial measures, if applicable to us, could have a material adverse impact on our business, results of operations, financial condition and liquidity.

We have taken certain steps to enhance our anti-bribery compliance efforts, including retaining a full-time Chief Compliance Officer who reports to the Chief Executive Officer and Audit Committee; adopting revised FCPA policies, procedures, and controls; increasing training and testing requirements; strengthening contractual provisions for our service providers that interface with foreign government officials; improving due diligence and continuing oversight procedures for the review and selection of such service providers; and implementing a compliance awareness improvement initiative that includes issuance of periodic anti-bribery compliance alerts.

Demand Letter and Derivative Litigation

In April 2010, we received a demand letter from a law firm representing Ernest Maresca. The letter states that Mr. Maresca is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” The letter requests that our Board of Directors take action against the individuals in question. In response to this letter, the Board has formed a special committee to evaluate the issues raised by the letter and determine a course of action for the Company. On August 25, 2010, Mr. Maresca filed a derivative action in the United States District Court for the Southern District of Texas against our current directors, select officers, and the Company as a nominal defendant. The lawsuit, like the demand letter, alleged that the individual defendants breached their fiduciary duties to us related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” The lawsuit sought damages in an unspecified amount, along with various other forms of relief and an award of attorney fees, other costs, and expenses to the plaintiff. The lawsuit was voluntarily dismissed by the plaintiff in December 2010.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

7.

Contingencies (continued)

On June 3, 2010, Mohamed Kassamali, a purported stockholder of the Company, filed a derivative action in the state court of Harris County, Texas against our current directors and the Company as a nominal defendant. The lawsuit alleges that the individual defendants breached their fiduciary duties to the Company related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” On June 22, 2010, the Fuchs Family Trust, a purported stockholder of the Company, filed a substantially similar lawsuit in the state court of Harris County, Texas. On June 23, 2010, Kenneth Flacks, a purported stockholder of the Company, also filed a substantially similar lawsuit in the state court of Harris County, Texas. The lawsuits seek damages related to the alleged breaches of duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets. The damages sought include both compensatory and exemplary damages in an unspecified amount, along with various other forms of relief and an award of attorney fees, other costs, and expenses to the plaintiffs. All defendants have retained counsel, and on October 15, 2010, the three cases pending in the state court of Harris County, Texas were consolidated under the Kassamali case number and restyled as In re Parker Drilling Derivative Litigation. The case was briefly stayed. Plaintiffs have filed a consolidated amended petition on April 7, 2011 and defendants will have 45 days to answer or otherwise respond to the petition.

On August 31, 2010, Douglas Freuler, a purported stockholder of the Company, filed a derivative action in the United States District Court for the Southern District of Texas against our current directors, select officers, and the Company as a nominal defendant. The lawsuit is substantially similar to those filed in the state court of Harris County, Texas, and alleges breach of fiduciary duties to the Company related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation,” as well as abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. The damages sought include both compensatory and exemplary damages in an unspecified amount, along with various other forms of relief and an award of attorney fees, other costs, and expenses to the plaintiffs. The Company has filed a motion to dismiss the lawsuit, and briefings on the motion are ongoing.

Economic Sanctions Compliance

We are subject to laws and regulations restricting our international operations, including activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. economic sanctions. Pursuant to an internal review, we have identified certain shipments of equipment and supplies that were routed through Iran as well as other activities, including drilling activities, which may have violated applicable U.S. laws and regulations. We have reviewed these shipments, transactions and drilling activities to determine whether the timing, nature and extent of such activities or other conduct may have given rise to violations of these laws and regulations, and we voluntarily disclosed the results of our review to the U.S. government. At this point, we are unable to predict whether the government will initiate an investigation or any proceedings against us or the ultimate outcome that may result from our voluntary disclosure. If U.S. enforcement authorities determine that we were not in compliance with export restrictions, U.S. economic sanctions or other laws and regulations that apply to our international operations, we may be subject to civil or criminal penalties and other remedial measures, which could have an adverse impact on our business, results of operations, financial condition and liquidity.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

7.

Contingencies (continued)

Kazakhstan Ministry of Finance Tax Audit

On August 14, 2009, the Kazakhstan Branch (PKD Kazakhstan) of Parker Drilling’s subsidiary, Parker Drilling Company International Limited (PDCIL), received an Act of Tax Audit from the Ministry of Finance of Kazakhstan (MinFin) for the period January 1, 2005 through December 31, 2007. PKD Kazakhstan was assessed additional taxes in the amount of KZT 1.45 billion (approximately USD $9.7 million) and associated interest in the amount of KZT 700 million (approximately USD $4.7 million). The amounts assessed relate to corporate income taxes and interest in connection with the disallowance of the head office’s management and administrative expenses, loan interest and state duties, as well as Value Added Taxes (VAT) and interest in connection with VAT offset on debts classified as doubtful by MinFin and for property taxes and interest in connection with Barge Rig 257 as a result of MinFin applying a lower rate of depreciation.

On September 25, 2009, PKD Kazakhstan appealed the Act of Tax Audit with MinFin on the basis the Branch exercised its rights provided by the Convention between the Governments of the Republic of Kazakhstan and the United States of America on the Avoidance of Double Taxation and the Prevention of the Fiscal Evasion with respect to Taxes on Income and Capital as well as improper application of Kazakhstan Tax Code provisions.

On January 13, 2010, PKD Kazakhstan received a response from MinFin to the appeal filed September 25, 2009. MinFin agreed with PKD Kazakhstan to remove the assessment related to property taxes and interest in connection with Barge Rig 257 which reduced the overall assessment by KZT 741 million (approximately USD $5 million). The residual assessment of KZT 959 million (approximately USD $6.5 million) of taxes and KZT 450 million (approximately USD $3 million) of associated interest remains outstanding.

On March 1, 2010, PKD Kazakhstan filed a claim against the Tax Department, in the Special Inter-district Economic Court of Atyrau Oblast, seeking to invalidate the revised Tax Notification. On May 5, 2010, the court elected not to issue a ruling on the merits of the case on the basis of an alleged lack of standing. PKD Kazakhstan adjusted and re-filed its claim in June 2010.

On August 17, 2010, the Special Inter-district Economic Court of Atyrau Oblast rendered a decision rejecting PKD Kazakhstan’s re-filed claim. PKD Kazakhstan filed on September 17, 2010 an appeal to the Atyrau Oblast Court. That appeal was heard by a single judge on October 27, 2010, at the conclusion of which, the court announced its decision to let the lower court decision stand without amendment or cancellation.

On November 18, 2010, PKD Kazakhstan filed an appeal to a three-judge panel of the Atyrau Oblast Court. On December 9, 2010 the court announced its decision to uphold the lower court decision and allow the revised Tax Notification to stand.

PKD Kazakhstan continues to believe that it properly exercised its rights provided by the Convention and that MinFin improperly applied certain provisions of the Kazakhstan Tax Code. PKD Kazakhstan intends to submit a further discretionary appeal to the Supreme Court of the Republic of Kazakhstan. However, there can be no assurance that the Supreme Court will accept and hear the appeal. PKD Kazakhstan may also pursue relief under the Convention.

As a result of the decision on December 9, 2010, PKD Kazakhstan had an obligation to pay the residual assessment. The amount due related to the tax assessment and applicable interest was approximately $11.3 million, plus an administrative penalty of approximately $3.2 million arising from the same alleged underpayment of taxes. PKD Kazakhstan paid these amounts in-full prior to December 31, 2010 to avoid enforcement actions and additional interest while we pursue further challenges.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

8.

Recent Accounting Pronouncements

Revenue Recognition — On January 1, 2011, we adopted an update issued by the Financial Accounting Standards Board (FASB) to existing guidance on revenue recognition for arrangements with multiple deliverables. This update allows companies to allocate consideration for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable. It also requires additional disclosures on the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine estimated selling prices. The update is effective for fiscal years beginning after June 15, 2010. The adoption of this update did not have a material impact on our financial position, results of operations, cash flows, and disclosures.

9.

Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements

Set forth on the following pages are the consolidating condensed financial statements of Parker Drilling, its restricted subsidiaries that are guarantors of the 9.125% Notes, and 2.125% Notes (collectively the Notes) and the restricted and unrestricted subsidiaries that are not guarantors of the Notes. The 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. Separate financial statements for each guarantor company are not provided as the company complies with the exception to Rule 3-10(a)(1) of Regulation S-X, set forth in sub-paragraph (f) of such rule. All guarantor subsidiaries are owned 100 percent by the parent company, all guarantees are full and unconditional and all guarantees are joint and several.

AralParker (a Kazakhstan joint stock company, owned 100% by Parker Drilling (Kazakhstan), LLC), Casuarina Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard Argentine Holdings, Ltd., 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., 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, LLC), Parker Drilling Kazakhstan, B.V., Parker Drilling AME Limited, Parker Drilling Asia Pacific, LLC, PD International Holdings C.V., PD Dutch Holdings C.V., PD Selective Holdings C.V., PD Offshore Holdings C.V., Parker Drilling Netherlands B.V., Parker Drilling Dutch B.V., Parker Hungary Rig Holdings Limited Liability Company, Parker Drilling Spain Rig Services, S L, Parker 3Source, LLC, Parker 5272 LLC, Parker Central Europe Rig Holdings LLC, Parker Cyprus Leasing Limited, Parker Cypress Ventures Limited, Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling Offshore International, Inc., Parker Drilling Overseas B.V., Parker Drilling Russia B.V., Parker Drillsource, LLC, PD Labor Services, Ltd, PD Labor Sourcing, Ltd., PD Personnel Services, Ltd., SaiPar Drilling Company B.V. (owned 50 percent by Parker Drilling Dutch B.V.) and Parker Enex, LLC, Parker Drilling Company Eastern Hemisphere, Ltd., Parker Drilling Company of Bolivia, Inc., Canadian Rig Leasing, Inc., Parker Drilling Company International Limited, Parker Drilling Company Limited LLC, Parker Drilling Company of Singapore, LLC, Parker USA Drilling Company, Universal Rig Service LLC, Parker Offshore Resources, L.P., Choctaw International Rig Corp., DGH, Inc., Parker Drilling Company of Argentina, Inc., Parker Drilling Company International, LLC, Parker Drilling (Kazakstan), LLC, Parker Drilling Company of New Guinea, LLC, Indocorp of Oklahoma, Inc., Creek International Rig Corp., Parker Drilling Company of Mexico, LLC, Selective Drilling Corporation, Parker Drilltech, LLC, Parker Drillserv, LLC, Parker Drillex, LLC, Parker Rigsource, LLC, Parker Intex, LLC, Parker Drilling Eurasia, Inc., Parker Drilling Pacific Rim, Inc., Parker Singapore Rig Holding Pte. Ltd., Parker Drilling Domestic Holding Company, LLC, Parker Drilling International Holding Company, LLC, and Primorsky Drill Rig Services B.V. are all non-guarantor subsidiaries.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

9.

Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements (continued)

We are providing consolidating condensed financial information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010. The consolidating condensed financial statements present investments in both consolidated and unconsolidated subsidiaries using the equity method of accounting.

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

		March 31, 2011
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	23,205			$	(2,216	)		$	20,606			$	—			$	41,595
Accounts and notes receivable, net			(5,789	)			96,796				256,680				(168,703	)			178,984
Rig materials and supplies			—				(2,752	)			26,965				—				24,213
Deferred costs			—				—				1,822				—				1,822
Deferred income taxes			9,840				297				—				—				10,137
Other tax assets			100,071				(62,786	)			9,064				—				46,349
Assets held for sale			—				—				5,287				—				5,287
Other current assets			557				15,844				20,468				(13,183	)			23,686
Total current assets			127,884				45,183				340,892				(181,886	)			332,073
Property, plant and equipment, net			79				574,136				269,454				—				843,669
Investment in subsidiaries and intercompany advances			1,006,184				493,559				1,327,005				(2,826,748	)			—
Other noncurrent assets			69,148				15,477				7,434				(3,057	)			89,002
Total assets		$	1,203,295			$	1,128,355			$	1,944,785			$	(3,011,691	)		$	1,264,744
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	—			$	—			$	—			$	12,000
Accounts payable and accrued liabilities			62,560				327,701				184,474				(432,342	)			142,393
Accrued income taxes			609				195				4,879				—				5,683
Total current liabilities			75,169				327,896				189,353				(432,342	)			160,076
Long-term debt			459,283				—				—				—				459,283
Other long-term liabilities			7,811				7,864				13,177				2,690				31,542
Long-term deferred tax liability			3,361				21,958				(6,265	)			—				19,054
Intercompany payables			62,583				473,144				103,667				(639,394	)			—
Contingencies			—				—				—				—				—
Stockholders’ equity:
Common stock			19,440				18,050				43,003				(61,053	)			19,440
Capital in excess of par value			632,314				733,120				1,436,370				(2,169,490	)			632,314
Retained earnings (accumulated deficit)			(56,666	)			(453,677	)			165,779				287,898				(56,666	)
Total controlling interest stockholders’ equity			595,088				297,493				1,645,152				(1,942,645	)			595,088
Noncontrolling interest			—				—				(299	)			—				(299	)
Total Equity			595,088				297,493				1,644,853				(1,942,645	)			594,789
Total liabilities and stockholders’ equity		$	1,203,295			$	1,128,355			$	1,944,785			$	(3,011,691	)		$	1,264,744

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

		December 31, 2010
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	13,835			$	2,317			$	35,279			$	—			$	51,431
Accounts and notes receivable, net			1,179				99,734				215,650				(147,687	)			168,876
Rig materials and supplies			—				(1,655	)			27,182				—				25,527
Deferred costs			—				—				2,229				—				2,229
Deferred income taxes			8,981				297				—				—				9,278
Other tax assets			97,896				(62,678	)			11,211				—				46,429
Assets held for sale			—				—				5,287				—				5,287
Other current assets			557				41,564				30,129				(13,183	)			59,067
Total current assets			122,448				79,579				326,967				(160,870	)			368,124
Property, plant and equipment, net			79				538,005				278,063				0				816,147
Investment in subsidiaries and intercompany advances			996,018				499,987				1,310,792				(2,806,797	)			0
Other noncurrent assets			72,202				14,542				6,653				(3,113	)			90,284
Total assets		$	1,190,747			$	1,132,113			$	1,922,475			$	(2,970,780	)		$	1,274,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	—			$	—			$	—			$	12,000
Accounts payable and accrued liabilities			55,257				338,626				160,316				(395,428	)			158,771
Accrued income taxes			609				93				3,790				—				4,492
Total current liabilities			67,866				338,719				164,106				(395,428	)			175,263
Long-term debt			460,862				—				—				—				460,862
Other long-term liabilities			7,762				7,610				12,131				2,690				30,193
Long-term deferred tax liability			3,361				21,958				(5,148	)			—				20,171
Intercompany payables			62,583				473,144				103,667				(639,394	)			—
Contingencies			—				—				—				—				—
Stockholders’ equity:
Common stock			19,397				18,050				43,003				(61,053	)			19,397
Capital in excess of par value			630,409				733,120				1,436,338				(2,169,458	)			630,409
Retained earnings (accumulated deficit)			(61,493	)			(460,488	)			168,625				291,863				(61,493	)
Total controlling interest stockholders’ equity			588,313				290,682				1,647,966				(1,938,648	)			588,313
Noncontrolling interest			—				—				(247	)			—				(247	)
Total Equity			588,313				290,682				1,647,719				(1,938,648	)			588,066
Total liabilities and stockholders’ equity		$	1,190,747			$	1,132,113			$	1,922,475			$	(2,970,780	)		$	1,274,555

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

		Three months ended March 31, 2011
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Total revenues		$	—			$	87,405			$	108,091			$	(39,317	)		$	156,179
Operating expenses			—				50,320				96,291				(39,317	)			107,294
Depreciation and amortization			—				15,210				12,389				—				27,599
Total operating gross margin			—				21,875				(589	)			—				21,286
General and administration expense (1)			(45	)			(6,781	)			(62	)			—				(6,888	)
Gain on disposition of assets, net			—				810				194				—				1,004
Total operating income (loss)			(45	)			15,904				(457	)			—				15,402
Other income and (expense):
Interest expense			(6,852	)			(8,910	)			(1,728	)			11,629				(5,861	)
Interest income			8,970				190				2,516				(11,629	)			47
Other			—				—				11				—				11
Equity in net earnings of subsidiaries			3,965				—				—				(3,965	)			—
Total other income and (expense)			6,083				(8,720	)			799				(3,965	)			(5,803	)
Income (benefit) before income taxes			6,038				7,184				342				(3,965	)			9,599
Income tax expense (benefit):
Current			(65	)			222				3,861				—				4,018
Deferred			1,276				151				(606	)			—				821
Total income tax expense (benefit)			1,211				373				3,255				—				4,839
Net income (loss)			4,827				6,811				(2,913	)			(3,965	)			4,760
Net income attributable to noncontrolling interest			—				—				(67	)			—				(67	)
Net income (loss) attributable to controlling interest		$	4,827			$	6,811			$	(2,846	)		$	(3,965	)		$	4,827

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

		Three months ended March 31, 2010
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Total revenues		$	—			$	78,356			$	103,978			$	(24,729	)		$	157,605
Operating expenses			—				54,123				84,137				(24,729	)			113,531
Depreciation and amortization			—				15,851				12,737				—				28,588
Total operating gross margin			—				8,382				7,104				—				15,486
General and administration expense (1)			(45	)			(9,888	)			(99	)			—				(10,032	)
Provision for reduction in carrying value of
certain assets			—				—				—				—				—
Gain on disposition of assets, net			—				569				103				—				672
Total operating income (loss)			(45	)			(937	)			7,108				—				6,126
Other income and (expense):
Interest expense			(7,789	)			(8,910	)			(4,609	)			14,576				(6,732	)
Interest income			10,492				231				3,927				(14,576	)			74
Loss on extinguishment of debt			(3,220	)			—				—				—				(3,220	)
Other			—				(23	)			165				—				142
Equity in net earnings of subsidiaries			(6,394	)			—				—				6,394				—
Total other income and (expense)			(6,911	)			(8,702	)			(517	)			6,394				(9,736	)
Income (benefit) before income taxes			(6,956	)			(9,639	)			6,591				6,394				(3,610	)
Income tax expense (benefit):
Current			245				119				3,284				—				3,648
Deferred			(5,150	)			(10	)			(47	)			—				(5,207	)
Total income tax expense (benefit)			(4,905	)			109				3,237				—				(1,559	)
Net income (loss)		$	(2,051	)		$	(9,748	)		$	3,354			$	6,394			$	(2,051	)

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

		Three months ended March 31, 2011
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Cash flows from operating activities:
Net income (loss)		$	4,827			$	6,811			$	(2,913	)		$	(3,965	)		$	4,760
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			—				15,210				12,389				—				27,599
Gain on disposition of assets			—				(810	)			(194	)			—				(1,004	)
Deferred income tax expense			1,276				151				(606	)			—				821
Expenses not requiring cash			4,507				—				(54	)			—				4,453
Equity in net earnings of subsidiaries			(3,965	)			—				—				3,965				—
Change in accounts receivable			6,968				24,315				(41,030	)			—				(9,747	)
Change in other assets			326				39,374				(2,321	)			—				37,379
Change in liabilities			3,372				(66,599	)			39,723				—				(23,504	)
Net cash provided by operating activities			17,311				18,452				4,994				—				40,757
Cash flows from investing activities:
Capital expenditures			—				(47,233	)			(3,431	)			—				(50,664	)
Proceeds from the sale of assets			—				1,360				201				—				1,561
Proceeds from insurance settlements							250												250
Net cash used in investing activities			—				(45,623	)			(3,230	)			—				(48,853	)
Cash flows from financing activities:
Paydown on term note			(3,000	)			—				—				—				(3,000	)
Proceeds from stock options exercised			135				—				—				—				135
Excess tax benefit from stock-based compensation			1,125				—				—				—				1,125
Intercompany advances, net			(6,201	)			22,638				(16,437	)			—				—
Net cash provided by (used in) financing activities			(7,941	)			22,638				(16,437	)			—				(1,740	)
Net change in cash and cash equivalents			9,370				(4,533	)			(14,673	)			—				(9,836	)
Cash and cash equivalents at beginning of year			13,835				2,317				35,279				—				51,431
Cash and cash equivalents at end of period		$	23,205			$	(2,216	)		$	20,606			$	—			$	41,595