| Contingencies |
9. Contingencies
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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 June 30, 2011, there were approximately 15 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. |
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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 June 30, 2011. |
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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 and in January 2008 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 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 $5.3 million
studying and conducting initial remediation of the site. It is anticipated that at least an
additional $1.0 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. The EPA recently issued
notice letters to several other parties who may also participate in funding the site remediation
costs. As of June 30, 2011, the Company had made certain participating payments and had accrued
$0.2 million for our portion of the estimated future cost of remediation. |
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Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation |
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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 certain of our operations relating
to 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. |
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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. |
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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. |
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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. |
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Demand Letter and Derivative Litigation |
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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 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 the Company 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. |
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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 and then the
plaintiffs filed a consolidated amended petition on April 7, 2011. The parties are currently
briefing issues related to whether the case may proceed as pleaded. |
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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 was
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
included 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 filed a motion to dismiss the lawsuit, and the motion was granted
without prejudice on June 30, 2011. The plaintiff filed an amended complaint on July 20, 2011. |
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Economic Sanctions Compliance |
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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. |
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Kazakhstan Ministry of Finance Tax Audit |
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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. |
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On September 25, 2009, PKD Kazakhstan appealed the Act of Tax Audit with MinFin on the basis
that PKD Kazakhstan was exercising 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 Fiscal Evasion with respect to Taxes on Income and
Capital, as well as improper application of Kazakhstan Tax Code provisions. |
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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 $5.0 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. |
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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. |
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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. |
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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. 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. |
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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. |
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