UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One) ---------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-7573
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PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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Securities registered pursuant Name of each exchange on
to Section 12(b) of the Act: which registered:
Common Stock, par value $.16 2/3 per share New York Stock Exchange, Inc.
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(Title of class)
Securities registered pursuant to section 12(g) of the Act:
N/A
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 30, 1998, 76,783,045 common shares were outstanding, and
the aggregate market value of the common shares (based upon the closing price
of these shares on the New York Stock Exchange) held by nonaffiliates was
$369.1 million.
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 4a. Executive Officers 20
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 23
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 65
PART III
Item 10. Directors and Executive Officers of the Registrant 65
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners
and Management 77
Item 13. Certain Relationships and Related Transactions 79
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 81
Signatures 88
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934. These
statements may be made directly in this document, referring to the Company, or
may be "incorporated by reference", referring to other documents filed with
the Securities and Exchange Commission. All statements included in this
document, other than statements of historical facts, that address activities,
events or developments that the Company expects, projects, believes or
anticipates will or may occur in the future, including future operating
results, future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment, repayment of debt, expansion and growth
of operations, Year 2000 issues, and other such matters, are forward-looking
statements.
Forward-looking statements are based on certain assumptions and analyses
made by the management of the Company in light of their experience and
perception of historical trends, current conditions, expected future
developments and other factors they believe are relevant. Although management
of the Company believes that their assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties,
many of which are outside the control of the Company. These risks include
worldwide economic and business conditions, fluctuations in the prices of oil
and gas, government regulation and trade restrictions, political instability
in major oil-producing areas and other similar factors (some of which are
discussed in documents incorporated by reference). Because the forward-
looking statements are subject to risks and uncertainties, the actual results
of operations and actions taken by the Company may differ materially from
those expressed or implied by such forward-looking statements.
PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT
Parker Drilling Company was incorporated in the state of Oklahoma in 1954
after having been established in 1934 by its founder Gifford C. Parker. The
founder was the father of Robert L. Parker, the chairman and a principal
stockholder, and the grandfather of Robert L. Parker Jr., president and chief
executive officer. In March 1976, the state of incorporation of the Company
was changed to Delaware through the merger of the Oklahoma corporation into
its wholly owned subsidiary Parker Drilling Company, a Delaware corporation.
Unless otherwise indicated, the term "Company" refers to Parker Drilling
Company together with its subsidiaries and "Parker Drilling" refers solely to
the parent, Parker Drilling Company.
The Company is a leading worldwide provider of contract drilling and
drilling related services, operating in the transition zones of the Gulf of
Mexico and Nigeria, in the offshore waters of the Gulf of Mexico and on land
in international and domestic oil and gas producing regions. Historically,
the Company operated exclusively on land, specializing in deep, difficult
wells and drilling in remote areas. In the last two years the Company
diversified into the offshore drilling business through the acquisition of
Mallard Bay Drilling, Inc. ("Mallard"), the second-largest barge drilling and
workover company in the transition zones of the Gulf of Mexico, and Hercules
Offshore Corp. and Hercules Rig Corp. (collectively, "Hercules"), a leading
provider of contract drilling and workover services in the shallow waters of
the Gulf of Mexico. In addition, the Company acquired Quail Tools, Inc.,
("Quail"), a leading provider of specialized rental equipment for drilling and
workover operations, primarily in the Gulf of Mexico, and expanded its
international land fleet by acquiring the drilling assets of Bolifor, a
leading provider of land contract drilling services in Bolivia.
The Company's rig fleet presently consists of 34 barge drilling and
workover rigs, eight offshore jackup rigs, six offshore platform rigs and 75
land rigs. The Company's barge drilling and workover rig fleet is dedicated
to transition zone waters, which are generally defined as extending from the
coast to depths of up to 25 feet. The Company's offshore jackup and platform
rig fleets currently operate in the Gulf of Mexico market. The Company's land
rig fleet generally consists of premium and specialized deep drilling rigs,
with 62 of its 75 land rigs capable of drilling to depths of 15,000 feet or
greater. In addition, 21 of the Company's land rigs are helicopter-
transportable, thus establishing the Company as the dominant operator in the
heli-rig market throughout the world. The diversity of the Company's rig
fleet, both in terms of geographic location and asset class, enables the
Company to provide a broad range of services to oil and gas operators around
the world and to take advantage of market upturns, while reducing its exposure
to downturns in any particular sector or region.
The oilfield services industry has experienced a significant decline in
activity during the last six months. This decline follows two years of high
activity during which oil and gas companies had increased their exploration
and production budgets in response to increasing demand and stronger oil and
gas prices. The first half of fiscal 1998 reflects this increased demand
through rig dayrates and utilization that were at 15-year highs with many
markets at or near full utilization. During the second half of fiscal 1998
oil prices have declined to their lowest level in 25 years (adjusted for
inflation).
The sharp drop in oil prices is the result of a surplus of crude oil in
worldwide markets, which has been brought about by reduced demand,
particularly in Southeast Asia, an increase in crude oil production by OPEC
producing countries in mid to late 1997, and a relatively warm winter in the
United States and Europe. The decline in crude oil prices has adversely
impacted the revenues and profits of oil operators, who have responded by
reducing exploration and development expenditures. This decline in spending
has adversely affected the level of oil field activity, and in turn, the
revenues of most companies in the oil field service industry. The impact has
been felt most by the Company in the fourth quarter of fiscal 1998 and is
expected to continue into 1999. The Company is not able to predict when and
to what extent the level of oil field activity will recover.
TRANSITION ZONE OPERATIONS
The Company provides contract drilling services in the transition zones
of the Gulf of Mexico and Nigeria, where barge rigs are the primary source of
drilling and workover services. Barge rigs are mobile drilling and workover
vessels that are submersible and are built to work in eight to 25 feet of
water. These rigs are towed by tug boats to the drill site with the derrick
laid down. The derrick is a framework for hoisting and lowering equipment
over a drill hole and is also known as a mast structure. The lower hull is
submerged by flooding until it rests on the sea floor. The derrick is then
raised and drilling or workover operations are conducted with the barge in
this position.
Domestic Barge Drilling and Workover
The Company's principal domestic market for its barge drilling rigs is
the transition zones of the Gulf of Mexico, primarily in Louisiana and, to a
lesser extent, Alabama and Texas, where conventional jackup rigs are unable to
operate. This area historically has been the world's largest market for
shallow water barge drilling. The Company has a significant presence in this
market, with 14 drilling barges. Barge rigs are also employed inland in
lakes, bays, rivers and marshes.
The barge market in the transition zones of the Gulf of Mexico has
undergone significant attrition and consolidation in recent years, with the
number of drilling rigs declining from over 120 in the early 1980s to
approximately 54 today, and the number of competitors decreasing over the same
period from more than 30 to only two significant contractors. During fiscal
year 1997 and the first half of fiscal year 1998 drilling and workover
activity increased significantly in the Gulf of Mexico transition zones,
spurred by (i) the increased use of 3-D seismic technology that has resulted
in the identification of previously undiscovered drilling prospects, (ii) the
settlement of a royalty dispute between the State of Louisiana and Texaco,
whereby Texaco agreed to invest approximately $150 million to drill in
Louisiana over a five-year period, and (iii) higher natural gas prices.
However, due to the decline in oilfield service activity discussed previously,
conditions in this market have softened considerably over the fourth quarter
of fiscal year 1998. As a result, the Company has experienced a significant
reduction in utilization and dayrates in its barge workover operations. Barge
drilling activity has been less severely affected.
The Company provides domestic barge workover services in the transition
zones of the Gulf of Mexico. The Company's domestic barge workover and
shallow drilling business is based in the same geographical area as its barge
drilling business. The same factors that have affected the structure of the
barge drilling sector also have affected this sector, including considerable
consolidation of competitors and reduction of available rigs since the early
1980s.
International Barge Drilling
The Company has focused its international barge drilling efforts in the
transition zones of West Africa, where it is one of the leading providers of
barge drilling services in Nigeria, with three of the nine rigs in the market.
International markets have historically been more attractive due to the
availability of long-term contracts and the opportunity to earn dayrates
higher than domestic rates.
The Company has operated in Nigeria since 1991 and currently operates
three barge rigs under long-term contracts. The Company has recently entered
into a five-year contract with one of its present customers in Nigeria, which
will require the construction of a new drilling barge at an estimated cost of
$30 million. It is presently estimated that this contract will commence in
June 1999.
During 1998, the Company signed a definitive agreement for a three-year
drilling contract, with two option years, in the Caspian Sea. One of the
Company's drilling rigs is undergoing approximately $100.0 million in
modifications and is scheduled to commence drilling in May 1999.
This barge drilling rig will be contracted at a dayrate of approximately
$58,250. In addition, a substantial portion of the cost of modifying the rig
will be reimbursed by the operator.
OFFSHORE OPERATIONS
Jackup Drilling
Pursuant to the Hercules acquisition, the Company acquired seven shallow
water jackup rigs. The Hercules jackup rigs are mobile, self-elevating
drilling platforms equipped with legs that can be lowered to the ocean floor
until a foundation is established to support the hull, which contains the
drilling equipment, jacking system, crew quarters, loading and unloading
facilities, storage areas for bulk and liquid materials, helicopter landing
deck and other related equipment. Five of the rigs are cantilever design, a
feature that permits the drilling platform to be extended out from the hull,
allowing drilling and workover operations to be performed over existing
platforms or structures. Jackup rigs with the cantilever feature historically
have achieved higher dayrates and utilization levels. The other two rigs are
slot-type design configured for the drilling operations to take place through
a keyway in the hull. These two rigs have the added capability of operating
in shallow water to a depth as low as eight feet. Four of the seven jackup
rigs are mat-supported rigs and three are independent leg rigs. The Hercules
rigs are capable of drilling to maximum depths of 25,000 feet and in water
depths of up to 215 feet.
The Hercules acquisition further expands and complements the Company's
business in the Gulf of Mexico shallow water market and will augment the
Company's existing platform rig business. Currently, the shallow water jackup
business in the Gulf is depressed, resulting in significantly lower
utilization and dayrates, when compared to the previous year.
Platform Drilling
The Company's fleet of platform rigs consists of six modular self-
erecting rigs. These platform rigs consist of drilling equipment and
machinery arranged in modular packages that are transported to and self-
erected on fixed offshore platforms owned by oil companies. The Company
believes that the modular self-erecting design of the platform rigs provides a
competitive advantage due to lower mobilization costs and smaller "footprint."
LAND OPERATIONS
General
The Company's land drilling operations specialize in the drilling of deep
and difficult wells and drilling in remote and harsh environments. Since
beginning operations in 1934, the Company has operated in 49 foreign countries
and throughout the United States, making it one of the most geographically
diverse land drilling contractors in the world.
International Operations
The Company's international land drilling operations have focused
primarily in South America and the Asia Pacific region, where it specializes
in drilling that requires equipment specially designed to be transported by
helicopter or all-terrain vehicles into remote access areas such as jungle,
mountainside or desert locations. Management believes that the Company's 21
heli-rigs, with technologically advanced pumps and power generation systems
that are capable of drilling difficult wells in excess of 15,000 feet, have
established the Company as the dominant operator in the heli-rig market, with
what the Company estimates to be a 75% worldwide market share. The Company
traditionally has been a pioneer in frontier areas and is currently working
for or has recently worked for operators in China, Russia, Kazakhstan, Poland
and Vietnam.
In recent years, many major and independent oil companies have directed a
greater portion of their exploration budgets to foreign markets. This has
been particularly true in South America and the Asia Pacific region, where the
demand for land rigs had been increasing significantly. The Company has
benefitted from this trend due to its long-standing presence in these markets
and has been able to deploy rigs under longer term contracts at higher
dayrates and operating margins than in its domestic operations. The economic
malaise which has adversely affected Southeast Asia during the past year has
significantly reduced utilization, particularly in the geothermal market.
While management is optimistic that long-term drilling services in
international markets will continue to grow as demand for oil and gas
increases and countries dependent on oil and gas revenues seek to increase
their production, management believes this growth will be delayed by the
general economic conditions in certain areas. The Company intends to
capitalize on its global presence and substantial international experience to
pursue growth opportunities in both current and developing markets.
International markets differ from the domestic market in terms of
competition, nature of customers, equipment and experience requirements. The
majority of international drilling markets have the following characteristics:
(i) a small number of competitors; (ii) customers who are major, large
independent or foreign national oil companies; (iii) drilling programs in
remote locations requiring drilling equipment with a large inventory of spare
parts and other ancillary equipment; and (iv) drilling of difficult wells
requiring considerable experience.
South America. The Company has 34 rigs located in the South American
drilling markets of Colombia, Argentina, Paraguay, Ecuador, Peru and Bolivia.
Most of the Company's rigs have been upgraded to meet the demands of deep,
difficult drilling in these areas. Most of these rigs are currently under
contract to major or national oil companies at attractive dayrates. The
Company anticipates it will continue to relocate rigs to the South American
market to meet increased demand for drilling.
Asia Pacific Region. The Company has 13 of its fleet of 21 helicopter
transportable rigs located in the Asia Pacific region due to the remoteness of
the mountainside and jungle drilling performed in this region. The Company
entered the Indonesian geothermal market in 1995, which market is currently
being adversely affected by political and economic instability in Indonesia.
The Company experienced weakening demand for its services in certain Asia
Pacific markets in fiscal 1998, notably in Indonesia and Papua New Guinea.
Six rigs in the Indonesian geothermal market ceased operations during the
second quarter of fiscal 1998. One of these rigs has been relocated to Peru
and the others are being remarketed in Indonesia and other countries.
Africa and the Former Soviet Union. Eight of the Company's rigs are
currently located in the markets of Africa and the former Soviet Union. After
becoming the first western drilling contractor to enter the Russian drilling
market in 1991, expansion of the Company's business in this country has been
hampered by bureaucratic inefficiencies, constantly changing tax and other
laws and political issues that have diminished the investment of capital by
major and large independent oil companies in Russia. As a result, the Company
has relocated all four of its drilling rigs from Russia to Kazakhstan. As
anticipated, the recently announced agreement regarding the pipeline to be
built to accommodate incremental production from the Tengiz field in
Kazakhstan has already increased exploration efforts in this region. In
addition to operating the Company's own rigs, the Company was awarded a five-
year alliance contract in 1997 in Kazakhstan by the operator of the Tengiz
field to operate and maintain its rigs, including the provision of expatriate
and local drilling crews and management of its warehouse, drilling base and
mobile equipment fleet.
Domestic Operations
Industry conditions in the United States have softened considerably over
the last two quarters of fiscal 1998. As a result of low crude prices and
reduced demand, utilization and dayrates have declined materially for its
lower 48 land operations. This recent downturn in the domestic land
operations follows two years of significant improvement that had produced
increased rig utilization and dayrates and shortages for certain types of
rigs. This market improvement was the result of a combination of a general
consolidation trend in the drilling industry, and until recently, higher crude
oil and natural gas prices and improvements in exploration technology, in
particular the use of 3-D seismic data and horizontal drilling.
Of the Company's 15 rigs located in the United States, 14 are SCR
electric, four are equipped with top drive units and all are capable of
drilling in excess of 15,000 feet. Traditionally, the Company has
differentiated itself from its domestic competitors by specializing in the
drilling of deep and difficult wells.
Specialty Services
Helicopter Transportable Rigs. The Company specializes in drilling in
remote areas and harsh environments, primarily in international locations. A
significant factor contributing to the Company's success in obtaining drilling
contracts in remote areas is the use of rigs that are transportable by air,
land and water. These rigs have been specially designed and constructed by
the Company for quick assembly and disassembly under the proprietary
designations "Heli-Hoist"(Registered Trademark) rig, Transportable By Anything
(Registered Trademark) ("TBA") (Registered Trademark) rig and All-Terrain
("AT2000E") (Registered Trademark) rig. Management believes that the
Company's 21 helicopter rigs comprise approximately 75% of the operational
helicopter transportable rigs worldwide. The Heli-Hoist (Registered
Trademark), TBA (Registered Trademark) and AT2000E (Registered Trademark) rigs
allow the Company to perform drilling operations in remote and otherwise
inaccessible locations such as jungle areas, mountainous areas and offshore
platforms.
Deep Drilling. During the U.S. drilling boom of the late 1970s and early
1980s the Company developed its specialty of deep and difficult drilling,
primarily in the Anadarko Basin of Western Oklahoma and the Overthrust Region
in the Rocky Mountains. The Company's largest drilling rig is rated in excess
of 35,000 feet.
During the last several years, drilling activity has shifted from
domestic deep gas drilling to international deep oil and gas drilling. While
international deep drilling is generally in the range of 15,000 feet to 20,000
feet as opposed to the domestic deep drilling which often exceeds 20,000 feet,
the Company has benefitted in the international arena from the development of
this expertise, particularly in the deep drilling markets of the Cusiana and
Cupiagua fields of Colombia.
Arctic Drilling. The Company has been one of the pioneers in arctic
drilling conditions and has developed technology to meet the demand for
increased drilling in an ecologically sensitive manner. For drilling
operations on the North Slope of Alaska, the Company developed a self-
contained mobile drilling unit capable of being moved in one unit by giant
"crawlers" similar to the system used to move rocket thrusters for the space
program. The environmentally sensitive rig also has a complete closed-loop
mud system and cuttings processing system that eliminate the need for mud
pits.
Geothermal Drilling. The Company also has developed expertise in the
area of geothermal drilling. Geothermal operations involve drilling into a
pocket of geothermal energy, tapping the source of this energy in the form of
steam, hot water or hot rocks and converting this heat into usable forms of
energy.
RENTAL TOOLS
Quail, based in New Iberia, Louisiana, is a provider of premium
rental tools used for land and offshore oil and gas drilling and workover
activities. Approximately 60% of Quail's equipment is utilized in offshore
and coastal water operations. Since its inception in 1978, Quail's principal
customers have been major and independent oil and gas exploration and
production companies.
Quail rents specialized equipment utilized in well drilling, production
and workover applications. Quail offers a full line of drill pipe, drill
collars, tubing, high-and low-pressure blowout preventers, choke manifolds,
casing scrapers and junk and cement mills. During fiscal 1997, Quail entered
into a contract with a major oil company to be its preferred provider of
rental tools to the land and offshore Texas markets. In November 1997, the
Company opened a new rental tool facility in Victoria, Texas, in order to
service the increasing demand for tools in that region. Approximately 50% of
Quail's revenues are realized from rentals for production and workover
activities.
Over the last three years the rental tool industry experienced increasing
demand due to the trend toward outsourcing by oil companies of noncore
equipment and services and, until recently, the significant increase in
drilling activity in the Gulf of Mexico. Major and independent oil companies
have liquidated certain ancillary drilling equipment in an effort to improve
drilling efficiencies and returns on drilling programs. During the latter
part of fiscal 1998, these positive trends have been offset, in part, by the
reduced drilling activity in the Gulf Coast market due to low crude oil prices
and reduced demand.
Quail derives equipment rental revenue primarily from the daily rental
charges for its tools, pipe, and related equipment and to a lesser extent by
charging customers for ancillary parts and repairs, transportation of the
rental items to the customer's location, inspection of rental items as
specified by the customer, items it sub-rents from other rental tool
companies, the disposal of waste removed from the rental items after their
use, and the cost of rental items lost or damaged beyond repair. The
operating costs associated with Quail's rentals consist primarily of expenses
associated with depreciation, transportation, inspection, maintenance and
repair, and related direct overhead.
COMPETITION
The contract drilling industry is a competitive and cyclical business
characterized by high capital and maintenance costs.
Although demand in the offshore drilling markets serviced by the Company
had shown significant improvement over the past several years, the recent
market downturn has caused the market to become very competitive, resulting in
lower dayrates and reduced utilization. In the Gulf of Mexico barge drilling
and workover markets, the Company competes with R & B Falcon. In the jackup
market, the Company competes against most domestic offshore contractors,
including R & B Falcon. Management believes that the Company is the second
largest contractor in these markets.
The land drilling market is generally more competitive than the offshore
market due to the larger number of rigs and companies. Drilling contracts are
generally awarded on a competitive bid basis and, while an operator may
consider factors such as quality of service and type and location of equipment
as well as the ability to provide ancillary services, price and availability
of equipment are significant factors in determining which contractor is
awarded a job. In international markets, experience in operating in certain
environments and customer alliances have also been factors in the selection of
the Company in certain cases, as well as the Company's patented drilling
equipment for remote drilling projects. The Company believes that the market
for land drilling contracts will continue to be competitive for the
foreseeable future. Certain of the Company's competitors have greater
financial resources than the Company, which may enable them to better
withstand industry downturns, to compete more effectively on the basis of
price, to build new rigs or to acquire existing rigs.
Management believes that Quail is one of the four leading rental tool
companies in the offshore Gulf of Mexico. A number of Quail's competitors in
the Gulf of Mexico and in the Gulf Coast land markets are substantially larger
than, and have greater financial resources than, Quail.
CUSTOMERS
The Company believes it has developed an international reputation for
providing efficient, quality drilling services. A key for advancing the
Company's business strategy is maintaining and developing relationships and
strategic alliances with its customers. An increasing number of the Company's
customers have been seeking to establish exploration or development drilling
programs based on partnering relationships or alliances with a limited number
of preferred drilling contractors. Such relationships or alliances can result
in longer term work and higher efficiencies that increase profitability for
drilling contractors at a lower overall well cost for oil companies. The
Company is currently a preferred contractor for operators in certain domestic
and international locations, which management believes is a result of the
Company's quality, service and experience.
The Company's drilling customer base consists of major, independent and
foreign national oil and gas companies. Chevron, the Company's largest
customer, accounted for approximately 15% and 13% of total revenues in fiscal
year 1998 and 1997, respectively.
CONTRACTS
The Company generally obtains drilling contracts through competitive
bidding. Under most contracts the Company is paid a daily fee, or dayrate.
The dayrate received is based on several factors, including: type of
equipment, services and personnel furnished; investment required to perform
the contract; location of the well; term of the contract; and competitive
market forces. Meterage rate contracts are occasionally accepted in which the
Company is paid a rate per meter drilled upon reaching a specified depth.
The Company generally receives a lump sum fee to move its equipment to
the drilling site, which in most cases approximates the cost incurred by the
Company. Domestic contracts are generally for one well, while international
contracts are more likely to be for multi-well programs. The Company
continues to obtain contracts under which the Company provides drilling
engineering and integrated project management services. The Company provides
drilling project services ranging from well design and engineering expertise
to site preparation and road construction in an effort to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services.
RESEARCH AND DEVELOPMENT
In response to the customers' need for reducing the overall drilling
costs, the Company is developing a versatile All Terrain Modular (ATM) Rig
System. The new series of modular compact components will provide an
expandable, upgradeable, concept to fit almost any drilling, transporting, and
environmental requirement. The ATM Rig System also will provide some of the
latest drilling equipment technology as well as maximum power capabilities for
fast, safe, and efficient drilling. Several proprietary designs will make the
modular rig system unique in capacity and transportability.
Nine employees are involved in the Company's research and development
activities. The costs associated with the Company's research and development
efforts are not significant.
EMPLOYEES
At August 31, 1998, the Company employed 4,512 persons, up five percent
from the 4,313 employed at August 31, 1997. The following table sets forth
the composition of the Company's employees:
August 31,
----------------
1998 1997
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International Land Drilling Operations 2,078 2,286
Domestic Land Drilling Operations 386 413
Offshore Drilling Operations 1,762 1,355
Rental Tool Operations 91 68
Corporate and Other Domestic 195 191
RISKS AND ENVIRONMENTAL CONSIDERATIONS
The U.S. Gulf Coast market, and particularly the shallow water areas
where the Company's contract drilling service operations are concentrated, are
ecologically sensitive. As a result, environmental issues have led to higher
drilling costs, a more difficult and lengthy well permitting process and, in
general, have adversely affected decisions of the oil companies to drill in
these areas. U.S. laws and regulations applicable to the Company's operations
include those controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment, or
otherwise relating to the protection of the environment. The Company, as an
operator of drilling rigs in navigable U.S. waters and certain offshore areas,
may be responsible for damages and costs incurred in connection with oil
spills, subject to certain limitations in liability. An oil spill in a
wetland or inland waterway could produce substantial damage to the
environment, including wildlife and ground water. Laws and regulations
protecting the environment have become more stringent in recent years, and
may, in certain circumstances, impose strict liability, rendering a person
liable for environmental damage without regard to negligence or fault on the
part of such person. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of
the Company which were in compliance with all applicable laws at the time such
acts were performed. The application of these requirements or the adoption of
the new requirements could have a material adverse effect on the Company.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters
of the United States, may be liable for the costs of removal and damages
arising out of a pollution incident to the extent set forth in the Federal
Water Pollution Control Act, as amended by the Oil Pollution Act of 1990
("OPA") and the Outer Continental Shelf Lands Act. In addition, the Company
may also be subject to applicable state law and other civil claims arising out
of any such incident. Certain of the Company's facilities are also subject to
regulations of the Environmental Protection Agency ("EPA") that require the
preparation and implementation of spill prevention, control and countermeasure
plans relating to possible discharge of oil into navigable waters. Other
regulations of the EPA may require certain precautions in storing, handling
and transporting hazardous wastes. State statutory provisions relating to oil
and natural gas generally include requirements as to well spacing, waste
prevention, production limitations, pollution prevention and cleanup,
obtaining drilling and dredging permits and similar matters. The Company
believes that it is in substantial compliance with such laws, rules and
regulations.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills. A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility is located. The OPA
assigns liability to each responsible party of oil removal costs and a variety
of public and private damages. While liability
limits apply in some circumstances, a responsible party for an Outer
Continental Shelf facility must pay all spill removal costs incurred by a
federal, state or local government. The OPA establishes liability limits
(subject to indexing) for offshore drilling rigs. If functioning as an
offshore facility, the offshore drilling rigs are considered "tank vessels"
for spills of oil on or above the water surface, with liability limits of
$1,200 per gross ton or $10 million. To the extent damages and removal costs
exceed this amount, the offshore drilling rigs will be treated as an offshore
facility and the offshore lessee will be responsible up to higher liability
limits for all removal costs plus $75 million. A party cannot take advantage
of liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of a federal safety, construction or
operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, liability limits likewise do not apply. Few defenses
exist to the liability imposed by the OPA. The OPA also imposes ongoing
requirements on a responsible party, including proof of financial
responsibility (to cover at least some costs in a potential spill) and
preparation of an oil spill contingency plan. Amendments to the OPA adopted
earlier in 1997 reduced the amount of financial responsibility required for
"offshore facilities" from $150 million to $35 million, but such amendments
did not reduce the amount of financial responsibility required for "tank
vessels." Since the Company's offshore drilling rigs are typically classified
as tank vessels, the recent amendments to the OPA are not expected to have a
significant effect on the Company's operations. A failure to comply with
ongoing requirements or inadequate cooperation in a spill may even subject a
responsible party to civil or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issues pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as
potential court injunctions curtailing operations and the cancellation of
leases. Such enforcement liabilities can result from either governmental or
citizen prosecution.
All of the Company's operating domestic barge drilling rigs have zero
discharge capabilities as required by law. In addition, in recognition of
environmental concerns regarding dredging of inland waters and permitting
requirements, the Company conducts negligible dredging operations and
approximately two-thirds of the Company's offshore drilling contracts involve
directional drilling, which minimizes the need for dredging. However, the
existence of such laws and regulations has had and will continue to have a
restrictive effect on the Company and its customers.
The drilling industry is dependent on the demand for services from the
oil and gas exploration and development industry and, accordingly, is affected
by changes in laws relating to the energy business. The Company's business is
affected generally by political developments and by federal, state, local and
foreign laws and regulations that may relate directly to the oil and gas
industry. The adoption of laws and regulations, both domestic and foreign,
that curtail exploration and development drilling for oil and gas for
economic, environmental and other policy reasons may adversely affect the
Company's operations by limiting available drilling opportunities.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company historically has operated in only one segment, land-based
contract drilling services. The acquisitions of Mallard, Quail and Hercules
significantly diversified the Company's businesses, adding offshore drilling
and rental tool segments. Information about the Company's business segments
and operations by geographic areas for the three years ended August 31, 1998,
is set forth in Note 8 of Notes to Consolidated Financial Statements.
Item 2. PROPERTIES
The Company owns and occupies a ten-story building in downtown Tulsa,
Oklahoma, as its home office. Additionally, the Company owns and leases
office space and operating facilities in various locations, but only to the
extent necessary for administrative and operational functions.
Land Rigs. During fiscal 1998, the Company added one SCR electric rig to its
domestic rig fleet. The following table shows, as of August 31, 1998, the
locations and drilling depth ratings of the Company's 64 actively marketed
land rigs:
Actively Marketed Land Rigs
Drilling Depth Rating in Feet
---------------------------------------------
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ -----
INTERNATIONAL:
South America 3 9 9 3 4 28
Asia Pacific 3 3 9 2 - 17
Africa - 1 - - - 1
Former Soviet Union - - 3 - - 3
-- -- -- -- -- --
Total International 6 13 21 5 4 49
-- -- -- -- -- --
DOMESTIC:
Gulf Coast - - - - 4 4
Rocky Mountains - - 4 - 2 6
Mid-Continent - - 4 - - 4
Alaska - - - - 1 1
-- -- -- -- -- ---
Total Domestic - - 8 - 7 15
-- -- -- -- -- ---
TOTAL 6 13 29 5 11 64
-- -- -- -- -- ---
-- -- -- -- -- ---
In addition, the Company has 11 land rigs classified as cold stacked
which would need to be refurbished at a significant cost before being placed
back into service, with locations and drilling depth ratings as follows:
Cold Stacked Land Rigs
Drilling Depth Rating in Feet
---------------------------------------------
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ -----
INTERNATIONAL:
South America 3 1 2 - - 6
Asia Pacific 1 - - - - 1
Africa 1 1 - - - 2
Former Soviet Union 2 - - - - 2
-- -- -- -- -- --
Total International 7 2 2 - - 11
-- -- -- -- -- --
Barge Rigs. A schedule of the Company's deep and intermediate drilling
barges located in the Gulf of Mexico, as of August 31, 1998, is set forth
below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Deep Drilling:
Rig No. 50 ............... 2,000 1993 25,000 Active
Rig No. 51 ............... 2,000 1993 25,000 Active
Rig No. 53 ............... 1,600 1995 20,000 Active
Rig No. 54 ............... 2,000 1995 30,000 Active
Rig No. 55 ............... 2,000 1993 30,000 Active
Rig No. 56 ............... 2,000 1992 30,000 Active
Rig No. 57 ............... 1,500 1997 20,000 Active
Rig No. 58 ............... 3,000 1982 30,000 Stacked
Rig No. 59 ............... 3,000 1972 30,000 Stacked
Intermediate Drilling:
Rig No. 8 ............... 1,700 1995 15,000 Active
Rig No. 12 ............... 1,200 1990 14,000 Active
Rig No. 15 <2> ........... 1,000 1998 15,000 Active
Rig No. 17 ............... 1,200 1993 13,000 Active
Rig No. 21 ............... 1,200 1995 14,000 Active
- --------------------
<1> "Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
<2> Refurbished into an intermediate drilling barge from a previously
stacked workover barge.
A schedule of the Company's workover rigs, as of August 31, 1998, which
includes some rigs with shallow drilling capabilities, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Heavy Workover and Shallow
Drilling:
Rig No. 5 ............ 800 1991 - Stacked
Rig No. 10 ............ 800 1978 - Stacked
Rig No. 16 ............ 800 1994 11,500 Active
Rig No. 18 ............ 800 1993 11,500 Active
Rig No. 20 ............ 800 1995 11,500 Active
Rig No. 23 ............ 1,000 1993 13,000 Active
Rig No. 24 ............ 1,000 1992 13,000 Active
Rig No. 25 ............ 1,000 1993 13,000 Active
Rig No. 27 ............ 800 1987 - Stacked
Rig No. 28 ............. 800 1987 - Stacked
Workover and Other:
Rig No. 6 ............ 700 1995 - Active
Rig No. 7 ............ 700 1995 - Stacked
Rig No. 9 ............ 650 1996 - Active
Rig No. 26 ............ 650 1996 - Active
- --------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
A schedule of the Company's international drilling barges, as of
August 31, 1998, is set forth below:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Deep Drilling:<2>
Rig No. 71/257 <3>...... 3,000 1994 30,000 Shipyard
Rig No. 72 ............. 3,000 1991 30,000 Active
Rig No. 73 ............. 3,000 1991 30,000 Active
Rig No. 74 ............. 3,000 1997 30,000 Active
Rig No. 76 ............. 3,000 1997 30,000 Active
Rig No. 80 ............. 2,000 1986 20,000 Stacked
- --------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold stacked
and would need to be refurbished at a significant cost before being
placed back into service.
Does not include Rig 75 which is currently being constructed for a
contract to commence in June 1999, in Nigeria.
Rig No. 71 is being refurbished for service under a long-term contract
in the Caspian Sea.
Platform Rigs. The following table sets forth certain information, as of
August 31, 1998, with respect to the Company's platform rigs:
Maximum
Year Built Drilling
or Last Depth
Horsepower Refurbished (Feet) Status<1>
---------- ----------- -------- ---------
Rig No. 2 ............ 1,000 1982 12,000 Active
Rig No. 3 ............ 1,000 1997 12,000 Active
Rig No. 10 <2>......... 650 1989 - Active
Rig No. 41E ........... 1,000 1997 12,500 Active
Rig No. 42E ........... 1,000 1996 12,500 Active
Rig No. 47 ............ 750 1993 11,000 Stacked
- ------------------
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold
stacked and would need to be refurbished at a significant cost before
being placed back into service.
Workover rig.
Jackup rigs. The following table sets forth certain information as of
August 31, 1998, with respect to the Company's jackup rigs:
Maximum Maximum
Water Drilling
Depth Depth
Design<1> (Feet) (Feet) Status<2>
--------- -------- -------- ---------
Rig No. 11<3>.. Bethlehem JU-200 (MC) 200 - Active
Rig No. 14<4>.. Baker Marine Big Foot (IS) 85 20,000 Shipyard
Rig No. 15 .... Baker Marine Big Foot III (IS) 100 20,000 Active
Rig No. 20 .... Bethlehem JU-100 (MC) 110 30,000 Active
Rig No. 21 .... Baker Marine BMC-125 (MC) 100 20,000 Active
Rig No. 22 .... Le Tourneau Class 51 (MC) 173 18,000 Active
Rig No. 25 .... Le Tourneau Class 150-44 (IC) 215 20,000 Active
Rig No. 43<3>.. Sun Contractors (IC) 55 - Stacked
- -----------------
IC--independent leg, cantilevered; IS--independent leg, slot; MC--mat-
supported, cantilevered.
"Active" denotes that the rig is currently under contract or available
for contract. "Stacked" denotes that the rig is currently cold
stacked and would need to be refurbished at a significant cost before
placed back into service.
Workover rig.
Rig No. 14, after being refurbished, was placed in service in
September 1998.
The following table presents the Company's utilization rates, rigs
available for service and cold stacked rigs for fiscal years ended August 31,
1998 and 1997. With respect to the rigs purchased in the Mallard, Bolifor and
Hercules acquisitions, the periods commence November 12, 1996, July 1, 1997
and December 30, 1997, respectively.
Subsequent to August 31, 1998, utilization rates for the Company's rigs
have declined due to the market conditions discussed above.
1998 1997
---- ----
Transition Zone Rig Data
Domestic barge deep drilling:
Rigs available for service <1> 7.9 6.2
Utilization rate of rigs available for service <2> 95% 98%
Cold stacked rigs <1> 2.0 2.4
Domestic barge intermediate drilling:
Rigs available for service <1> 4.6 3.3
Utilization rate of rigs available for service <2> 83% 95%
Domestic barge workover and shallow drilling:
Rigs available for service <1> 8.6 7.0
Utilization rate of rigs available for service <2> 62% 83%
Cold stacked rigs <1> <3> 5.4 5.0
International barge drilling:
Rigs available for service <1> 3.0 2.8
Utilization rate of rigs available for service <2> 98% 92%
Cold stacked rigs <1> 1.0 0.4
Offshore Rig Data
Jackup Rigs:
Rigs available for service <1> <4> 4.0 -
Utilization rate of rigs available for service <2> 91% -
Cold stacked rigs <1> 1.0 -
Platform Rigs:
Rigs available for service <1> 4.0 1.1
Utilization rate of rigs available for service <2> 78% 98%
Cold stacked rigs <1> 1.0 1.3
1998 1997
---- ----
Land Rig Data
International Land Rigs:
Rigs available for service <1> 49.0 43.1
Utilization rate of rigs available for service <2> 81% 73%
Cold stacked rigs <1> 11.0 7.5
Domestic Land Rigs:
Rigs available for service <1> 14.6 15.4
Utilization rate of rigs available for service <2> 86% 87%
The number of rigs is determined by calculating the number of days
each rig was in the fleet, e.g., a rig under contract or available
for contract for an entire year is 1.0 "rigs available for
service" and a rig cold stacked for one quarter is 0.25 "cold
stacked rigs." "Rigs available for service" includes rigs
currently under contract or available for contract. "Cold stacked
rigs" includes all rigs that are stacked and would require
significant refurbishment before being placed into service.
Rig utilization rates are based on a weighted average basis
assuming 365 days availability for all rigs available for service.
Rigs acquired or disposed of have been treated as added to or
removed from the rig fleet as of the date of acquisition or
disposal. Rigs that are in operation or fully or partially
staffed and on a revenue-producing standby status are considered
to be utilized. Rigs under contract that generate revenues during
moves between locations or during mobilization/demobilization are
also considered to be utilized.
Includes one rig out of service five months due to damages to rig
in fiscal 1998.
At 9/30/98, seven jackup rigs were available for service and one
was cold stacked. One rig was under construction at 8/31/98.
Item 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings that have resulted
from the ordinary conduct of its business. In the opinion of the Company's
management, none of these proceedings is expected to have a material adverse
effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Parker Drilling Company security
holders during the fourth quarter of fiscal year 1998.
Item 4A. EXECUTIVE OFFICERS
Officers are elected each year by the board of directors following the
annual meeting for a term of one year and until the election and qualification
of their successors. The current executive officers of the Company and their
ages, positions with the Company and business experience are presented below:
(1) Robert L. Parker, 75, chairman, joined the Company in 1944 and was
elected a vice president in 1950. He was elected president in
1954 and chief executive officer in October 1977. Since December
1991, he has retained the position of chairman.
(2) Robert L. Parker Jr., 50, president and chief executive officer,
joined the Company in 1973 as a contract representative and was
named manager of U.S. operations later in 1973. He was elected a
vice president in 1973, executive vice president in 1976 and was
named president and chief operating officer in October 1977. In
December 1991, he was elected chief executive officer.
(3) James W. Linn, 52, executive vice president and chief operating
officer, joined the Company in 1973. He has general charge of the
Company's business affairs and its officers. Mr. Linn first
served in the Company's international division and in 1976 was
named northern U.S. district manager prior to being elected vice
president of U.S. and Canada operations in 1979. He was named a
senior vice president in September 1981 and was elected to his
current position in December 1991.
(4) James J. Davis, 52, senior vice president-finance and chief
financial officer, joined the Company in November 1991, in the
stated positions. From 1986 through 1991, Mr. Davis was vice
president and treasurer of MAPCO Inc., a diversified energy
company with interests in natural gas liquids, marketing and
transportation, oil refining and retail motor fuel marketing. He
serves as a member of the board of directors of Dollar Thrifty
Funding Corp.
(5) W. Kirk Brassfield, 43, corporate controller and chief accounting
officer, joined the Company in March 1998 in his stated position.
From 1991 through March 1998, Mr. Brassfield served in various
positions, including subsidiary controller and director of
financial planning of MAPCO Inc., a diversified energy company.
From 1979 through 1991, Mr. Brassfield served at the public
accounting firm, KPMG Peat Marwick.
OTHER PARKER DRILLING COMPANY OFFICERS
(6) I. E. Hendrix Jr., 54, vice president and treasurer, joined the
Company in 1976 as manager of the Company's treasury department
and was elected treasurer in 1978. Mr. Hendrix was elected vice
president of the Company in April 1983. He serves as a member of
the board of directors of American Performance Mutual Fund.
(7) Kenneth R. Hoit, 61, vice president, financial planning, joined
the Company in 1973. He served as financial analyst and manager
of budgets and analysis prior to being elected a vice president in
April 1983.
(8) Leslie D. Rosencutter, 43, was elected vice president,
administration, in December 1989, and has responsibility for the
public relations and human resources departments. In March 1996,
she was elected Corporate Secretary. She previously had been
named assistant vice president, administration in 1987. She
joined the Company in 1974 as secretary to the controller and
later was secretary to the Robert L. Parker Trust. She has served
as executive secretary and administrative assistant to the
chairman prior to being elected an officer.
(9) T. Bruce Blackman, 47, was elected vice president, Asia Pacific
region in January 1996, and has responsibility for the
international operations of the Company in this area. He joined
the Company in 1977 and has held management positions in Africa
and Singapore and international accounting manager in Tulsa. In
1983, he became division manager for Indonesia operations. In
1989, he was promoted to contract manager, Asia Pacific region.
(10) John R. Gass, 47, was elected vice president, Frontier Areas in
January 1996, and has responsibility for the international
operations of the Company in Russia, North Africa, China and other
areas. He joined the Company in 1977 and has served in various
management positions in the Company's international divisions. In
1985, he became the division manager of Africa and the Middle
East. In 1987, he directed the Company's mining operations in
South Africa. In 1989, he was promoted to international contract
manager.
(11) Donald D. Goodson, 44, was elected vice president, Latin America
region in January 1996, and has responsibility for international
operations in this area. He joined the Company in 1976 and held
various accounting and finance positions prior to being named
contract manager for U.S. operations in 1981. In June 1989, Mr.
Goodson was named Indonesia division manager. In July 1993, he
was promoted to contract manager for the Middle East, Africa and
Colombia.
(12) Thomas L. Wingerter, 45, vice president, North America region,
joined the Company in 1979. In 1983 he was named contracts
manager for the Rocky Mountain division. He was promoted to Rocky
Mountain division manager in 1984, a position he held until
September 1991 when he was elected a vice president.
OTHER PARKER DRILLING COMPANY OFFICERS (continued)
(13) T. Shelby Frink, 60, serves as vice president, Frontier
Areas/international business development. He joined the Company
in 1956 and has served in various operating and management
positions. He became Western Hemisphere operations manager in
1975, Eastern Hemisphere operations manager in 1978, was elected
vice president, drilling operations in 1981, became vice
president, Eastern Hemisphere in 1986 and assumed his present
position in 1993.
(14) Phillip M. Burch, 47, was elected assistant treasurer in April
1983. He joined the Company in 1981 as a treasury analyst and
currently is responsible for domestic and international cash
management and corporate investments. In July 1992, he assumed
additional responsibilities for risk management.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Parker Drilling Company common stock is listed for trading on the New
York Stock Exchange under the symbol PKD. At the close of business on August
31, 1998, there were 3,533 holders of record of Parker Drilling common stock.
Prices on Parker Drilling's common stock for the fiscal years ending August
31, 1998 and 1997, were as follows:
Fiscal Year 1998 Fiscal Year 1997
------------------ ------------------
Quarter High Low High Low
------- -------- -------- -------- -------
First $17.9375 $12.1875 $10.2500 $6.1250
Second 14.8750 8.8750 11.0000 7.8750
Third 12.0000 8.0625 10.0000 7.5000
Fourth 8.6250 4.0000 13.6875 9.3750
No dividends have been paid on common stock since February 1987.
Restrictions contained in Parker Drilling's existing credit agreement prohibit
the payment of dividends and the indenture for the Senior Notes restricts the
payment of dividends. The Company has no present intention to pay dividends
on its common stock in the foreseeable future because of the restrictions
noted and because of its business plan to reinvest earnings in the Company's
operations.
Item 6. SELECTED FINANCIAL DATA
Parker Drilling Company and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended Aug. 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------
Revenues $ 481,223 $ 311,644 $ 156,652 $ 157,371 $ 152,424
Net income (loss) $ 28,092 $ 16,315 $ 4,053 $ 3,916 $ (28,806)
Earnings (loss) per
share, diluted $ .36 $ .23 $ .07 $ .07 $ (.53)
Total assets $1,200,544 $ 984,136 $ 275,959 $ 216,959 $ 209,348
Long-term debt $ 630,090 $ 551,042 $ 2,794 $ 1,748 $ -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK AND OVERVIEW
The fiscal 1998 results of operations were a significant
improvement over fiscal 1997. This was due primarily to the continued
strength of the barge drilling operations in the transition zones and
most international land drilling markets. The addition of Hercules'
shallow water and platform drilling business in the Gulf of Mexico,
which acquisition closed in December 1997, also contributed to these
positive results.
Despite the improvement of fiscal 1998 over fiscal 1997, during the
last six months of fiscal 1998 the oilfield services industry
experienced a significant decline in activity. This decline follows two
years of high activity during which oil and gas companies had increased
their exploration and production budgets in response to increasing
demand and stronger oil and gas prices. The first half of fiscal 1998
reflects this increased demand through rig dayrates and utilization that
were at 15-year highs with many segments at or near full utilization.
During the second half of fiscal 1998 oil prices have declined to their
lowest level in 25 years (adjusted for inflation).
The sharp drop in oil prices is the result of a surplus of crude
oil in worldwide markets, which has been brought about by reduced
demand, particularly in Southeast Asia, an increase in crude oil
production by OPEC producing countries in mid to late 1997, and a
relatively warm winter in the United States and Europe. The decline in
crude oil prices has negatively impacted the revenues and profits of oil
operators, who have responded by reducing exploration and
development expenditures. This decline in spending has adversely
affected the level of oil field activity, and in turn, the revenues of
most companies in the oil field service industry. The impact of these
market conditions has been felt most by the Company in the fourth
quarter of fiscal 1998.
The decline in service activity has continued subsequent to the end
of fiscal 1998. Utilization and dayrates have continued to decrease and
the Company will incur a loss for the quarterly reporting period ending
November 30, 1998. Management is not able to predict whether or not a
further decline in activity will occur or when and to what extent the
level of oilfield services will recover. Management believes that cash
provided by operations and funds available under the Company's revolving
credit facility will be adequate to meet working capital needs in 1999.
RESULTS OF OPERATIONS
Introduction
The Company's operations and future results have been altered
significantly by the acquisitions of Mallard and Quail in November 1996,
Bolifor in July 1997 and Hercules in December 1997. In addition to increasing
the size and scope of the Company's operations, the Mallard, Quail and
Hercules acquisitions increased the percentage of the Company's revenue
generated domestically. The Company generated approximately 48% of its
revenue from domestic sources in fiscal 1998.
The financings related to the Mallard and Quail Acquisitions in November
1996, combined with the Company's issuance of the Convertible Notes in July
1997 and $150 million of Senior Notes in March 1998, have substantially
increased the Company's debt levels. At August 31, 1998, the Company had
$651.6 million in total indebtedness, compared to $3.4 million of total
indebtedness at August 31, 1996. The substantial levels of debt will result
in a higher level of interest expense and an increased percentage of the
Company's cash flows being used for debt service and may limit the Company's
ability to obtain additional financing for future acquisitions and capital
expenditures. See "--Liquidity and Capital Resources."
For the foregoing reasons, the acquisitions of Mallard, Quail and
Hercules will affect the comparability of the Company's historical results of
operations.
Year Ended August 31, 1998 Compared to Year Ended August 31, 1997
The Company's net income of $28.1 million in fiscal 1998 reflects an
increase of $11.8 million over the $16.3 million recorded in fiscal 1997.
Fiscal 1998 includes the entire year's results of operations of Mallard, Quail
and Bolifor, the Company's fiscal 1997 acquisitions. Fiscal 1997 includes
Mallard and Quail from their acquisition date of November 12, 1996 and Bolifor
from its acquisition date of July 1, 1997. Additionally, fiscal 1998 includes
the Hercules operating results from December 30, 1997, its date of
acquisition. Fiscal 1998's improvement over 1997 reflects the strong drilling
markets which existed primarily in the first half of the fiscal year. The
Company's 1998 results include a net loss of $1.1 million in the fourth
quarter, a reflection of weakening demand in several of the Company's markets.
The Company's revenues increased $169.6 million, to $481.2 million, as
each of the Company's market segments recorded an increase in revenues. The
Company's acquisitions have substantially increased revenues and affected the
comparability of the figures presented in each year. The table below
indicates sources of revenue by each of the Company's acquisitions:
Twelve Months ended August 31,
1998 1997
Land ---- ----
----
Land (excluding acquisitions) $227,619 $171,649
Bolifor 31,335 2,642
Mallard 7,288 9,090
-------- --------
Total Land Drilling Revenues $266,242 $183,381
-------- --------
Offshore
--------
Mallard $132,296 $100,217
Hercules 48,027 -
-------- --------
Total Offshore Drilling Revenues $180,323 $100,217
-------- --------
Rental Tools
------------
Quail $ 32,723 $ 25,457
-------- --------
Land drilling revenues marked an improvement of $82.9 million due to
increased revenues in each geographic area in which the Company operates.
Latin America operations contributed an increase of $47.5 million, to
$121.0 million. The rigs acquired in the Bolifor acquisition contributed
$28.7 million of the increase while operations in Colombia and Peru also
reflected significant increases. Higher utilization and dayrates on certain
of the rigs in these countries
RESULTS OF OPERATIONS 1998 AS COMPARED TO 1997 (continued)
contributed to the increase. Land drilling operations in Africa provided an
increase in revenues of $7.6 million due to the Company's operations in Niger
in fiscal 1998. In the states comprising the former Soviet Union, the
Company's revenues of $19.8 million reflected an increase of $12.9 million,
due primarily to increased rig utilization in Kazakhstan. Additionally, the
Company is presently relocating one rig from Pakistan to Kazakhstan for a
contract in that country. In the Company's Asia Pacific land drilling
operations, revenues increased $8.6 million, where increased operating days in
Papua New Guinea offset the fiscal 1997 completion of contracts in Vietnam and
in the Philippines. In the United States, the Company's land drilling revenue
increased $6.3 million due primarily to higher average dayrates than in 1997.
Although revenue increased in each of the markets noted in fiscal 1998 when
compared to fiscal 1997, the Company has recently experienced declining
utilization and dayrates in several markets as contracts have been completed.
In particular, the Company's Asia Pacific operations, including Papua New
Guinea and Indonesia, have seen a significant reduction in rig utilization
and customer demand in the latter part of fiscal 1998.
The Company's offshore drilling segment's revenues increased $80.1
million to $180.3 million, $48.0 million from revenue generated by rigs
purchased in the Hercules acquisition and the balance due primarily to a full
twelve months of the Mallard operations included in the fiscal 1998 year
compared to approximately 9 1/2 months in fiscal 1997. Mallard's barge
drilling operations in Nigeria experienced an increase in revenue of $6.9
million to $33.9 million, due in part to the full year of operations and near
100% utilization of the Company's three barge rigs presently in that country.
The Company is currently mobilizing a rig which had previously operated in
Nigeria in fiscal 1997 to the Caspian Sea where it will begin operations in
1999. Mallard's domestic drilling operations contributed to the increase in
offshore revenues due to higher average dayrates and an increase in
utilization days as the Mallard operations were included for the entire year
in fiscal 1998. Weakness in Mallard's workover and remedial markets resulted
in a reduction in revenue from these operations and offset some of the
increase in revenues discussed above.
The Company's rental tool segment's revenues increased $7.3 million due
to the entire year's operations being included in fiscal 1998 and due to
increased revenues contributed by the Company's new Victoria, Texas rental
facility. These increases were offset by some weakening in rental tool demand
in the Company's core offshore Louisiana market.
Profit margins (revenues less direct operating expenses) of $169.5
million reflect an increase of $61.1 million from the $108.4 million recorded
in fiscal 1997. The land and offshore drilling segments recorded profit
margin percentages (as a percent of revenue) of 30% and 40% in fiscal 1998,
respectively, percentages which are comparable to those recorded in fiscal
1997. The Company's rental tool business had a decrease in profit margin
percentage from 66% to 58%, due in part to lower margins earned by the Company
on the disposition on tools, higher discounts given on tool rentals and start-
up costs at its new Victoria facility. The reduction in demand in certain
markets which began in the second half of fiscal 1998 has materially reduced
profit margins as a percent of revenue in the Company's fourth quarter when
compared with the entire fiscal 1998.
RESULTS OF OPERATIONS 1998 AS COMPARED TO 1997 (continued)
Depreciation and amortization increased $22.3 million, reflecting a full
year of depreciation expense recorded on the assets purchased in the Mallard,
Quail and Bolifor acquisitions compared to the partial year in fiscal 1997,
depreciation expense related to the assets purchased in the Hercules
acquisition in December 1997, and amortization of goodwill associated with the
purchase price in excess of the fair market value of the assets purchased in
the Mallard, Quail and Hercules acquisitions. These increases were somewhat
offset by a change in the estimated useful life of the Company's land drilling
fleet used for financial depreciation purposes from 10 to 15 years, resulting
in a reduction of $2.6 million in fiscal 1998 depreciation expense (see Note 1
of Notes to Consolidated Financial Statements). General and administrative
expense increased $2.9 million, due in part to increased costs required to
support the Company's expanded operations.
Interest expense increased $16.5 million to $49.4 million, as debt
incurred in November 1996 and July 1997 to finance the Company's fiscal 1997
acquisitions remained outstanding all of fiscal 1998. This debt included the
$300 million Senior Notes issued in November 1996 and the $175 million
Convertible Notes issued in July 1997. Additionally, in March 1998, the
Company issued $150 million of 9 3/4 % Senior Notes, a portion of which was
used to repay the $83 million balance on the term loan of November 1996.
These increases in interest expense were offset by $3.5 million of interest
charges capitalized to construction projects in fiscal 1998, compared to $.2
million in the prior year. Non-operating other income of $4.5 million
reflects an increase of $1.2 million which was attributable to the fiscal 1998
disposition of the Company's interest in OnSite Technology L.L.C. at a gain of
$4.6 million. Fiscal 1997's non-operating other income and expense included a
$1.6 million write down from a blowout which damaged barge Rig 52 and a $1.1
million gain from the sale of a subsidiary, Parker Kinetic Designs, Inc.
Income taxes of $16.4 million with an effective tax rate of 37% increased
from the $7.2 million and 31% effective rate the Company experienced in fiscal
1997. Increased revenues and taxable income from the Company's foreign
operations were primarily responsible for the increased tax expense recorded
in fiscal 1998.
RESULTS OF OPERATIONS
Year Ended August 31, 1997 Compared to Year Ended August 31, 1996
The Company's fiscal 1997 results of operations were significantly
impacted by the acquisitions of Mallard Bay Drilling, Inc. for $336.8 million
and Quail Tools, Inc. for $66.9 million in November 1996. The acquisitions
added two new business segments to the Company's traditional land drilling
business: offshore and transition zone drilling and workover services
utilizing barge and platform rigs and the rental of specialized equipment used
in drilling, production and workover applications.
The Company recorded net income of $16.3 million in fiscal 1997 as
compared to $4.1 million in fiscal 1996. Increased land rig utilization and
improved margins plus profit generated by the offshore and tool rental
segments were partially offset by increased interest and depreciation and
amortization expenses. The Company's results of operations included Mallard's
and Quail's operations for the period from the acquisition date, November 12,
1996, through fiscal year end, August 31, 1997.
Total revenues of $311.6 million in fiscal 1997 increased $155.0 million,
nearly doubling total revenues in fiscal 1996. Offshore drilling and tool
rental, the two new business segments acquired in fiscal 1997, accounted for
$100.2 million and $25.5 million, respectively, of the increase. Offshore
drilling revenues were derived primarily from barge drilling activity in the
transition zones of the U.S. Gulf Coast and Nigeria. The Company furnishes
rental tools in both the Gulf of Mexico offshore and Gulf Coast land markets.
Total land drilling revenues increased $38.2 million due to increased
utilization and dayrates in several of the Company's primary land markets.
Drilling revenues in the United States increased $13.6 million due to
increased dayrates and a 42% increase in operating days.
In Latin America, land drilling revenues increased $15.0 million due to
increased revenues in Peru, Colombia and Bolivia. Four rigs were active in
Peru for most of fiscal 1997 as compared to an average of one rig active in
fiscal 1996. At fiscal 1997 year end, the Company had eight rigs under
contract in Colombia, where revenue increased from additional activity and
increased dayrates. In July 1997, the Company acquired substantially all of
the assets of Bolifor, a leading provider of land contract drilling services
in Bolivia. Assets acquired included 11 land rigs located in Bolivia,
Paraguay and Argentina.
RESULTS OF OPERATIONS 1997 AS COMPARED TO 1996 (continued)
Land drilling revenues in the Asia Pacific region increased $9.4 million
due to increased drilling services provided in Indonesia and increased rig
utilization in Pakistan, where the Company had three rigs under contract at
fiscal 1997 year end. Drilling activity in the former Soviet Union and Middle
East countries remained nearly the same as in fiscal 1996. However, at fiscal
year end, the Company was mobilizing one land rig to Niger for a one-rig
contract and moving a land rig from Russia to Kazakhstan to begin a drilling
program from a gravel island in the Caspian Sea. Additionally, the Company
was modifying one of its barge rigs that previously operated in Nigeria, for
service in the Caspian Sea.
Land drilling revenues generated a profit margin (revenue less direct
operating expense) of $54.5 million in fiscal 1997, an increase of $14.0
million. Increased profit margins resulted from increased rig utilization and
higher dayrates as previously discussed. The offshore drilling and tool
rental segments acquired in fiscal 1997 generated profit margins of $39.1
million and $16.9 million, respectively.
The increased 1997 profit margins of $75.0 million were somewhat offset
by $23.2 million higher depreciation and amortization expense and a $32.7
million increase in interest expense. Higher depreciation and amortization
expense was attributable to a combined $19.0 million depreciation for Mallard
and Quail and $3.8 million of goodwill amortization in fiscal 1997. Increased
interest expense resulted from $400.0 million of debt incurred in November
1996 to finance the Mallard and Quail acquisitions and the issuance of $175.0
million of Convertible Notes in July 1997.
A $3.7 million increase in interest income was due to higher cash and
cash equivalent levels maintained during the year. Other income decreased
$2.3 million due primarily to reduced gains on sales of assets in fiscal 1997.
Included in other income was a $1.6 million write down resulting from a
blowout which damaged barge Rig No. 52 and a $1.1 million gain from the sale
of a subsidiary, Parker Kinetic Designs, Inc.
General and administrative expense decreased $1.3 million principally due
to non-recurring severance costs in fiscal 1996 associated with a reduction in
corporate personnel. The increase in income tax expense was attributable to
improved international operations and the addition in fiscal 1997 of offshore
drilling in Nigeria and offset by a $1.3 million reversal in fiscal 1997 of an
income tax accrual in a country where the Company terminated operations.
Liquidity and Capital Resources
The Company had cash, cash equivalents and other short-term investments
of $55.3 million at August 31, 1998, a decrease of $157.5 million from the
August 31, 1997 balance. The acquisition of Hercules in December 1997 for
$195.6 million was the primary reason for the decrease. In fiscal 1998,
operating activities provided cash of $143.5 million, of which $102.3 million
was from net income plus non-cash charges, primarily depreciation and
amortization of goodwill. The balance of the cash provided by operating
activities as reflected on the Consolidated Statements of Cash Flows, $41.2
million, is primarily related to changes in account balances of operating
assets and liabilities. Other significant sources of cash included the March
1998 issuance of $150.0 million of 9 3/4% Senior Notes at a premium, with net
proceeds to the Company of $152.2 million and borrowings under the Company's
revolving credit facility, which had an outstanding balance of $20.0 million
at fiscal year end. The disposition of the Company's investment in OnSite
Technology L.L.C. and the sale of property, plant and equipment provided
proceeds of $8.0 million and $5.5 million, respectively. Debt repayments
during the year included $90.0 million which fully repaid the Company's term
loan and $32.0 million borrowed under the Company's revolving credit facility.
Fiscal 1998 capital expenditures of $196.1 million were the Company's
highest since 1981, including new opportunities to invest significantly in
barge and land-based operations. Major barge rig projects included: (i) the
modification of barge Rig 71 (re-numbered 257), which after completion of
operations in Nigeria was transported to the U.S. Gulf Coast where it
underwent modification for service in the spring of 1999 in the Caspian Sea;
(ii) the purchase of the Gulf Explorer barge rig; (iii) the conversion of
barge Rig 15 from a workover rig into a drilling rig for work in the U.S. Gulf
of Mexico; and (iv) the construction of new barge Rig 75 for a contract in
Nigeria to begin in the summer of 1999. Significant projects related to the
Company's land-based operations included: (i) the significant modification,
including the conversion to an SCR electric rig and installation of a top
drive, of a helicopter transportable rig for service in Bolivia; (ii) the
modification of Rig 236 for service in Kazakhstan near the Aral Sea; and (iii)
the construction of SCR electric Rig 254 for domestic service. During the
year a new facility was constructed for Partech (Registered Trademark), the
Company's manufacturing subsidiary, in New Iberia, Louisiana, where it has
relocated from Odessa, Texas.
To finance the acquisitions of Mallard, Quail, Bolifor and Hercules and
the capital expenditures noted above, the Company has issued various debt
instruments. The Company financed the November 1996 acquisitions of Mallard
and Quail through the issuance of $300.0 million principal amount of 9 3/4%
Senior Notes, Series B due November 2006 and a $100.0 million term loan under
the Senior Credit Facility.
In anticipation of funding the Hercules acquisition, in July 1997 the
Company issued $175.0 million of Convertible Subordinated Notes due 2004. The
Notes bear interest at 5.5% payable semi-annually in February and August. The
Notes are convertible at the option of the holder into shares of common stock
of Parker Drilling Company at any time prior to maturity at a conversion price
of $15.39 per share. The Convertible Subordinated Notes are redeemable at the
option of the Company at any time after July 2000 at certain stipulated
prices.
Liquidity and Capital Resources (continued)
- -------------------------------
In March 1998, the Company issued $150 million of 9 3/4% Senior Notes due
November 2006, Series C at a premium yielding an effective interest rate of
8.97%. Net proceeds after expenses were $152.2 million, of which $83.0
million was used to repay the outstanding principal balance of the term loan
under the Company's Senior Credit Facility, which facility was previously used
to finance a portion of the Mallard and Quail acquisitions of November 1996.
The balance of the net proceeds will be used for general corporate purposes,
including capital expenditures. All of the Series B and C notes were
exchanged for new Series D notes, in May 1998. The form and terms were
identical in all material respects.
The $75 million revolving credit facility under the Company's Senior
Credit Facility is available for working capital requirements, general
corporate purposes and to support letters of credit. At August 31, 1998, $20
million was outstanding under the revolving credit facility and $13.6 million
in letters of credit had been issued. Availability under the revolving credit
facility is subject to certain borrowing base limitations based on 80% of
eligible accounts receivable plus 50% of supplies in inventory. All advances
to the Company under the revolving credit facility bear interest, at the
option of the Company, at prime to prime plus 0.50% or at 1.75% to 2.25% above
the one-, two-, three- and six-month reserve-adjusted LIBOR rate, depending on
the percentage of the credit facility utilized. The revolving credit facility
is collateralized by a lien on the Company's accounts receivable and
inventory. The revolving credit facility matures on December 31, 2000.
Both the Senior Notes and the Senior Credit Facility contain customary
affirmative and negative covenants, including restrictions on incurrence of
debt and sales of assets. The Senior Credit Facility prohibits, among other
things, payment of dividends and the indenture for the Senior Notes restricts
the payment of dividends.
Management anticipates that working capital needs and funds required for
capital spending in 1999 will be met from existing cash and other short-term
investments, cash provided by operations, prepayments received to offset
construction expenditures (as discussed below) and from funds available under
the Company's revolving credit facility. The Company anticipates cash
requirements for capital spending will be substantially less in calendar year
1999 (anticipated $100 million) than in fiscal year 1998 ($196.1 million),
although several of the Company's fiscal 1998 construction projects will span
both years, in particular the construction of barge Rig 71/257 for service in
the Caspian Sea and barge Rig 75 for service in Nigeria. Although the
construction of barge Rig 71/257 requires significant capital spending in 1998
and 1999, the Company will receive prepayments from the operator to offset a
substantial portion of the expenditures required to construct the rig. As
noted, management anticipates that capital spending in calendar year 1999 will
be less than in 1998 due in part to the magnitude of such expenditures in
fiscal 1998 and also due to the depressed drilling markets discussed
previously. Should drilling markets improve to such an extent that new
opportunities for investment in the Company's rig fleet arise in excess of the
Company's available cash, the Company may consider additional long-term debt
or equity financing.
Other Matters
Business Risks
- --------------
Internationally, the Company specializes in drilling in remote locations
and under difficult geological or operating conditions. The Company's
international services are primarily utilized by international and national
oil companies in the exploration and development of reserves of oil.
Domestically, the Company specializes in drilling deep wells in search of
natural gas. Business activity is dependent on the exploration and
development activities of the major, independent and national oil and gas
companies that make up the Company's customer base. Generally, temporary
fluctuations in oil and gas prices do not materially affect these companies'
exploration and development activities, and consequently do not materially
affect the operations of the Company. However, sustained increases or
decreases in oil and natural gas prices could have an impact on customers'
long-term exploration and development activities which in turn could
materially affect the Company's operations. Generally, a sustained change in
the price of oil would have a greater impact on the Company's international
operations while a sustained change in the price of natural gas would have a
greater effect on domestic operations.
Historically, due to the importance of oil revenue to most of the
countries in which the Company operates, the Company's operations generally
have not been negatively impacted by adverse economic and political
conditions. However, there can be no assurances that such conditions could
not have a material adverse effect in the future.
Year 2000
The Company plans to achieve and maintain Year 2000 compliance with a
project consisting of seven phases. The phases include Awareness, Inventory,
Assessment, Detailed Analysis, Compliance Testing, Remediation and Monitoring
Compliance. Prior to establishing the Year 2000 project, the Company made a
decision to replace most of its outdated systems with state-of-the-art
integrated systems and standardized desktop systems. The Company spent much of
1997 replacing critical financial, human resources and payroll systems with
new purchased software that is Year 2000 certified by the Information
Technology Association of America. The Year 2000 problem was not the main
reason for upgrading the information technology platform, however it will be
beneficial in achieving Year 2000 compliance.
The Company has completed the initial awareness phase, inventory and
assessment and partial testing of its core information technology systems. The
inventory and assessment of non-information technology systems including
telecommunication systems, business machines, security systems, premise
equipment, rig equipment and other embedded chip technology is partially
completed. The Company is surveying its critical supply chain and business
partners to establish their state of readiness. It is expected that all
critical systems testing and necessary remediation will be completed by the
end of the second quarter of calendar 1999. The remainder of calendar 1999
will be devoted to monitoring compliance, developing and testing contingency
plans.
At this time no system replacement dates were accelerated because of the
Year 2000 problem. The cost to date for the project have been in internal
salaries and purchasing some testing software. The software costs to date are
not deemed material. Approximately $400,000 has been budgeted for the Year
2000 project in fiscal year 1999.
The Company is confident that its critical business and operations
systems will be ready for the Year 2000. The greatest risks for Year 2000
problems include local accounting systems used in some countries, the
telecommunications/utility infrastructures in many foreign countries and the
vendor supply chain. Additional risks will be faced if key business partners,
suppliers, banks, utilities, communications, transportation or government
services are not compliant for the Year 2000. In the event the Company and/or
its suppliers and vendors are unable to remediate the Year 2000 problem prior
to January 1, 2000, operations of the Company could be significantly impacted.
In order to mitigate this risk, the Company is developing a contingency plan
to continue operations should it become necessary to do so. Such procedures
are expected to include alternative suppliers, communications, and
transportation plans. The contingency plan will be completed by the third
quarter of calendar 1999.
Change in Fiscal Year
- ---------------------
On July 10, 1998, the Company decided to change its fiscal year end
from August 31 to December 31, effective December 31, 1998. The Company
will file a Quarterly Report on Form 10-Q with the Securities and
Exchange Commission covering the transition period of September 1, 1998
to December 31, 1998.
Indonesian Operations
- ---------------------
The current political and currency instability in Indonesia has
created uncertainty regarding the Company's Indonesian operations. The
Company provides management, technical and training support to an
Indonesian-owned drilling contractor, whose services include the drilling
of geothermal wells, related to power plant projects. Due to the
uncertain economic conditions, certain of these power plant projects have
been postponed or delayed. As a result, payments from a significant
customer for services provided by the Indonesian contractor have been
delayed. The Company and the Indonesian contractor will vigorously
pursue all alternatives to expedite payment. The Company believes that
resolution of this matter will not have a material adverse effect on the
Company's results of operations or financial position.
Superior Energy Services, Inc. Acquisition
- ------------------------------------------
On October 28, 1998, Parker Drilling Company ("Parker") and Superior
Energy Services, Inc. ("Superior") entered into an Agreement and Plan of
Merger whereby Superior would become a wholly owned subsidiary of Parker.
Superior, headquartered in Harvey, Louisiana, provides oil tool rentals,
well plug and abandonment services, and other specialized products and
services to oil companies operating in the Gulf of Mexico and Gulf Coast
land regions. The Agreement and Plan of Merger, as amended, will be
structured as a tax-free exchange of .975 of a share of Parker common
stock for each share of Superior common stock. As a result of the
transaction, Parker will issue approximately 28 million new shares and
will then have approximately 105 million shares outstanding after the
closing of the transaction.
The merger is subject to both Superior and Parker stockholder
approval, Hart-Scott-Rodino clearance, the approval to increase the
number of shares of authorized common stock by the Parker stockholders
and certain other conditions. The necessary filings for Hart-Scott-
Rodino clearance and the filing with the Securities and Exchange
Commission of Parker's Registration Statement covering the Parker shares
to be issued in the merger will be made as soon as practicable. Parker
anticipates submitting the merger to its stockholders for approval at its
annual meeting early next year. Subject to the Superior and Parker
stockholder approvals and the satisfaction of the other conditions, it is
anticipated that the transaction will be consummated in the first
calendar quarter of next year.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Parker Drilling Company
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) of the Form 10-K, present fairly, in all
material respects, the financial position of Parker Drilling Company and its
subsidiaries at August 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended August
31, 1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) of the Form 10-K, present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
October 22, 1998
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Earnings Per Share
and Weighted Average Shares Outstanding)
For the Years Ended August 31, 1998 1997 1996
- ----------------------------------------------------------------------------
Revenues:
Land drilling $266,242 $183,381 $145,160
Offshore drilling 180,323 100,217 -
Rental tools 32,723 25,457 -
Other 1,935 2,589 11,492
-------- -------- --------
Total revenues 481,223 311,644 156,652
-------- -------- --------
Operating expenses:
Land drilling 186,509 128,843 104,614
Offshore drilling 109,093 61,136 -
Rental tools 13,749 8,549 -
Other 2,365 4,722 11,824
Depreciation and amortization 68,574 46,256 23,061
General and administrative 17,273 14,414 15,756
-------- -------- --------
Total operating expenses 397,563 263,920 155,255
-------- -------- --------
Operating income 83,660 47,724 1,397
-------- -------- --------
Other income and (expense):
Interest expense (49,389) (32,851) (135)
Interest income 5,732 5,367 1,642
Other 4,524 3,316 5,663
-------- -------- --------
Total other income and (expense) (39,133) (24,168) 7,170
-------- -------- --------
Income before income taxes 44,527 23,556 8,567
-------- -------- --------
Income tax expense 16,435 7,241 4,514
-------- -------- --------
Net income $ 28,092 $ 16,315 $ 4,053
-------- -------- --------
-------- -------- --------
Earnings per share,
Basic $ .37 $ .23 $ .07
Diluted $ .36 $ .23 $ .07
Number of common shares used in
computing earnings per share:
Basic 76,658,100 70,909,539 56,634,340
Diluted 77,789,390 71,760,543 57,261,491
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
August 31, 1998 1997
- -----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 45,254 $ 209,951
Other short-term investments 9,999 2,838
Accounts and notes receivable, net of
allowance for bad debts of $3,073 in 1998
and $3,153 in 1997 113,050 103,808
Rig materials and supplies 22,596 19,130
Other current assets 13,993 16,227
---------- ----------
Total current assets 204,892 351,954
---------- ----------
Property, plant and equipment, at cost:
Drilling equipment 954,918 723,878
Rental equipment 35,702 28,264
Buildings, land and improvements 23,189 12,519
Other 27,207 21,586
Construction in progress 119,149 28,640
---------- ----------
1,160,165 814,887
Less accumulated depreciation
and amortization 432,325 375,236
---------- ----------
Net property, plant and equipment 727,840 439,651
---------- ----------
Deferred charges and other assets:
Goodwill, net of accumulated
amortization of $10,216 in 1998
and $3,822 in 1997 216,973 139,467
Rig materials and supplies 6,784 5,486
Assets held for disposition 8,118 9,191
Debt issuance costs 15,814 14,956
Other 20,123 23,431
---------- ----------
Total deferred charges and other assets 267,812 192,531
---------- ----------
Total assets $1,200,544 $ 984,136
---------- ----------
---------- ----------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
August 31, 1998 1997
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 21,469 $ 16,084
Accounts payable 48,943 26,178
Accrued liabilities 41,766 29,539
Accrued income taxes 6,032 4,904
---------- ----------
Total current liabilities 118,210 76,705
---------- ----------
Long-term debt (Note 3) 630,090 551,042
---------- ----------
Deferred income tax 47,400 -
Other long-term obligations 26,882 7,666
---------- ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $1 par value, 1,942,000
shares authorized, no shares outstanding - -
Common stock, $.16 2/3 par value,
authorized 120,000,000 shares, issued
and outstanding 76,764,916 shares
(76,679,669 shares in 1997) 12,794 12,780
Capital in excess of par value 341,099 340,243
Retained earnings (accumulated deficit) 24,069 (4,023)
Other - (277)
---------- ----------
Total stockholders' equity 377,962 348,723
---------- ----------
Total liabilities and stockholders' equity $1,200,544 $ 984,136
---------- ----------
---------- ----------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended August 31, 1998 1997 1996
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,092 $ 16,315 $ 4,053
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 68,574 46,256 23,061
Gain on disposition of
property, plant and equipment (2,289) (1,292) (5,416)
Gain on disposition of OnSite
investment (4,562) - -
Deferred tax expense 2,100 - -
Other 3,992 4,201 307
Change in assets and liabilities:
Accounts and notes receivable 8,886 (46,488) 8,057
Rig materials and supplies (5,544) (3,468) (532)
Other current assets 3,065 (2,661) 1,493
Accounts payable and accrued
liabilities 40,383 2,236 (1,504)
Accrued income taxes 1,128 (1,732) 1,108
Other assets (306) (4,895) (656)
-------- -------- --------
Net cash provided by operating
activities 143,519 8,472 29,971
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 5,472 14,235 8,288
Capital expenditures (196,078) (87,426) (30,836)
Acquisition of Mallard - (311,837) -
Acquisition of Quail - (66,888) -
Acquisition of Bolifor (2,189) (22,311) -
Acquisition of Hercules (195,599) - -
Proceeds from sale of OnSite investment 7,998 - -
Purchase of short-term investments (18,708) (8,221) (25,855)
Proceeds from sale of short-term
investments 11,547 21,630 10,980
Other-net (766) (5,458) (1,720)
-------- -------- --------
Net cash used in
investing activities (388,323) (466,276) (39,143)
-------- -------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(Dollars in Thousands)
For the Years Ended August 31, 1998 1997
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $204,692 $557,040 $ -
Proceeds from common stock offering - 61,341 49,032
Principal payments under debt
obligations (124,287) (12,284) (367)
Repurchase of common stock (302) (432) (382)
Proceeds from exercise of stock warrant - - 1,552
Other 4 352 323
-------- -------- --------
Net cash provided by financing
activities 80,107 606,017 50,158
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (164,697) 148,213 40,986
Cash and cash equivalents at beginning
of year 209,951 61,738 20,752
-------- -------- --------
Cash and cash equivalents at
end of year $ 45,254 $209,951 $ 61,738
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 46,892 $ 21,116 $ 145
Income taxes $ 13,207 $ 8,973 $ 3,406
Supplemental noncash financing activity:
In fiscal 1996 the Company acquired computer and office equipment under
capital lease arrangements totaling $1.7 million.
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Dollars in Thousands)
Other-
Capital Retained Unearned
in excess earnings restricted
Preferred Common of par (accumulated stock plan
stock stock value deficit) compensation
---------- -------- ---------- ------------ ------------
Balances, August 31, 1995 $ - $ 9,287 $205,310 $(24,391) $(3,286)
Activity in employees'
stock plans - 36 1,008 - 1,829
Acquisition of stock from
certain employees - (10) (372) - -
Issuance of 400,000 common
shares upon exercise of
warrants at $3.88 per share - 67 1,485 - -
Issuance of 9,050,000 common
shares in public offering - 1,508 47,524 - -
Net income - - - 4,053 -
------- ------- -------- -------- -------
Balances, August 31, 1996 - 10,888 254,955 (20,338) (1,457)
Acquisition of Mallard Bay
Drilling, Inc. 25,000 - - - -
Conversion of preferred
stock into common stock (25,000) 509 24,491 - -
Activity in employees'
stock plans - 32 1,239 - 1,180
Acquisition of stock from
certain employees - (7) (425) - -
Issuance of 8,146,600 common
shares in public offering - 1,358 59,983 - -
Net income - - - 16,315 -
------- ------- -------- -------- -------
Balances, August 31, 1997 - 12,780 340,243 (4,023) (277)
Activity in employees' stock
plans - 20 1,152 - 277
Acquisition of stock from
certain employees - (6) (296) - -
Net income - - - 28,092 -
------- ------- -------- -------- -------
Balances, August 31, 1998 $ - $12,794 $341,099 $ 24,069 $ -
------- ------- -------- -------- -------
------- ------- -------- -------- -------
The accompanying notes are an integral part of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the
accounts of Parker Drilling Company ("Parker Drilling") and all of its
majority-owned subsidiaries (collectively, the "Company").
Operations - The Company provides land and offshore contract drilling
services and rental tools on a worldwide basis to major, independent and
foreign national oil companies. Parker's rig fleet consists of 34 barge
drilling and workover rigs, eight offshore jackup rigs, six offshore platform
rigs and 75 land rigs. The Company specializes in the drilling of deep and
difficult wells, drilling in remote and harsh environments, drilling in
transition zones and offshore waters and in providing specialized rental
tools. The Company also provides a range of services that are ancillary to
its principal drilling services, including engineering, logistics and
construction, as well as various types of project management.
Drilling Contracts - The Company recognizes revenue and expenses on
dayrate contracts as the drilling progresses (percentage-of-completion method)
because the Company does not bear the risk of completion of the well. For
meterage contracts, the Company recognizes the revenue and expenses upon
completion of the well (completed-contract method).
Cash and Cash Equivalents - For purposes of the balance sheet and the
statement of cash flows, the Company considers cash equivalents to be all
highly liquid debt instruments that had a remaining maturity of three months
or less at the date of purchase.
Other Short-term Investments - Other short-term investments include
primarily certificates of deposit, U.S. government securities and commercial
paper having remaining maturities of greater than three months at the date of
purchase and are stated at the lower of cost or market.
Property, Plant and Equipment - The Company provides for depreciation of
property, plant and equipment primarily on the straight-line method over the
estimated useful lives of the assets after provision for salvage value. In
the third quarter of fiscal 1998, the Company reviewed the estimated useful
life of its land drilling fleet used for financial depreciation purposes. As
a result, the estimated life was extended from 10 to 15 years with a five
percent salvage value for most of the major rig components, resulting in a
reduction in fiscal 1998 depreciation expense of approximately $2.6 million.
The Company's historical experience and a comparison with other firms in the
industry indicates that its land drilling equipment has a useful life of at
least 15 years. The depreciable lives for offshore drilling equipment, 15 to
20 years, remained unchanged. The depreciable lives for certain other
equipment, ranging from three to seven years, including drill pipe, also were
not extended. The Company estimates the change in depreciable lives will
result in a reduction in fiscal 1999 depreciation expense of $5.2 million.
When properties are retired or otherwise disposed of, the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
related cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in operations. Management periodically evaluates
the Company's assets to determine if they are not in excess of their net
realizable value. Management considers a number of factors such as estimated
future cash flows, appraisals and current market value analysis in determining
net realizable value. Assets are written down to reflect any decrease in net
realizable value below their net carrying value (see Note 9). In addition,
interest totaling approximately $3.5 million, $.2 million and $0 were
capitalized in 1998, 1997 and 1996, respectively.
Goodwill - Goodwill is being amortized on a straight-line basis over 30
years commencing on the dates of the respective acquisitions. The Company
assesses whether the excess of cost over net assets acquired is impaired based
on the ability of the operation to which it relates to generate cash flows in
amounts adequate to cover the future amortization of such assets. If an
impairment is determined, the amount of such impairment is calculated based on
the estimated fair value of the related assets.
Rig Materials and Supplies - Since the Company's foreign drilling
generally occurs in remote locations, making timely outside delivery of spare
parts uncertain, a complement of parts and supplies is maintained for each rig
either at the drilling site or in warehouses close to the operations. During
periods of high rig utilization, these parts are generally consumed and
replenished within a one-year period. During a period of lower rig
utilization in a particular location, the parts, like the related idle rigs,
are generally not transferred to other foreign locations until new contracts
are obtained because of the significant transportation costs which would
result from such transfers. The Company classifies those parts which are not
expected to be utilized in the following year as long-term assets. These
assets are carried at the lower of cost or market.
Other Long-term Obligations - Included in this account is the accrual of
workers' compensation and deferred revenue related to prepayments received for
certain daywork drilling revenues. These prepayments are recognized over the
related contract term.
Income Taxes - The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings (Loss) Per Share (EPS) - Statement of Financial Accounting
Standard No. 128, "Earnings per Share," was implemented by the Company this
fiscal year. The statement requires a presentation of both basic and diluted
EPS. Basic earnings (loss) per share is computed by dividing net income
(loss), as adjusted for dividends on preferred stock, by the weighted average
number of common shares outstanding during the period. The effect of dilutive
securities is included in the diluted EPS calculation when applicable. The
EPS figures and the weighted average number of shares for all periods
presented have been prepared in conformity with this new accounting standard.
Note 1 - Summary of Significant Accounting Policies (continued)
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 natural
gas companies. The Company generally does not require collateral on its trade
receivables. Such credit risk is considered by management to be limited,
except as noted in the following, due to the large number of customers
comprising the Company's customer base.
The current political and currency instability in Indonesia has created
uncertainty regarding the Company's Indonesian operations. The Company
provides management, technical and training support to an Indonesian-owned
drilling contractor, whose services include the drilling of geothermal wells,
related to power plant projects. Due to the uncertain economic conditions,
certain of these power plant projects have been postponed or delayed. As a
result, payments from a significant customer for services provided by the
contractor have been delayed. The Company and the contractor will vigorously
pursue all alternatives to expedite payment. The Company believes that
resolution of this matter will not have a material adverse effect on the
Company's results of operations or financial position.
The Company places substantially all its interest-bearing investments with
major financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. At August 31, 1998, the Company
had deposits in domestic banks in excess of federally insured limits of
approximately $3.8 million. In addition, the Company had deposits in foreign
banks of $5.4 million which are not federally insured.
Fair Market Value of Financial Instruments - The carrying amount of the
Company's cash and short-term investments and short-term and long-term debt
had fair values that approximated their carrying amounts.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 2 - Acquisitions
On December 30, 1997, the Company acquired all of the outstanding capital
stock of Hercules Offshore Corporation, a Texas corporation ("HOC"), and all
of the outstanding capital stock of Hercules Rig Corp., a Texas corporation
("HRC") and an affiliate of HOC (HOC and HRC being collectively referred to as
"Hercules"), for $195.6 million, including acquisition costs. The purchase
prices for the acquisitions were adjusted for certain debt assumed by the
Company, for capital expenditures incurred subsequent to the purchase
agreement date and for levels of working capital at closing. Hercules owns
three self-erecting platform rigs and seven offshore jackup rigs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The acquisition has been accounted for by the purchase method of
accounting, and the reported financial results include the Hercules operations
from the date of acquisition. The excess of purchase price over the fair
values of the net assets acquired was $83.9 million and has been recorded as
goodwill, which is being amortized on a straight-line basis over 30 years.
The acquisition of Hercules was primarily funded with proceeds from the
July 1997 issuance of the Company's $175 million 5 1/2% Convertible
Subordinated Notes.
On November 12, 1996, the Company acquired Mallard Bay Drilling, Inc.
("Mallard") and Quail Tools, Inc. ("Quail"). Both were accounted for by the
purchase method of accounting.
The Company acquired all of the outstanding stock of Mallard from Energy
Ventures, Inc. ("EVI") for $336.8 million, including acquisition costs, for
cash of $311.8 million and $25.0 million of preferred stock which was
converted into 3,056,600 shares of common stock during the second quarter of
fiscal 1997. Mallard owns and operates 34 drilling and workover barges in the
shallow waters of the Gulf of Mexico, Nigeria, and Venezuela and four land
drilling rigs in Argentina.
The Company acquired all of the outstanding stock of Quail for $66.9
million, including acquisition costs. Quail is a provider of premium rental
tools used in well drilling, production and workover operations to companies
working in the Gulf of Mexico and Gulf Coast land regions. The excess of
purchase price over the fair values of the net assets acquired was $99.7
million for Mallard and $43.6 million for Quail and has been recorded as
goodwill, which is being amortized on a straight-line basis over 30 years.
The following unaudited pro forma information presents a summary of the
annual consolidated results of operations of the Company and the acquired
entities as if the acquisitions had occurred September 1, 1996.
For the Years ended August 31, 1998 1997
-------------------------------------------------------------
(Thousands Except Per Share Amounts)
Revenues $506,627 $403,993
Net income $ 30,876 $ 7,129
Earnings per common share $ .40 $ .10
(diluted)
In July 1997, the Company acquired substantially all of the assets of
Bolifor, a leading provider of contract drilling services in Bolivia, for
$25.0 million, of which $2.2 million was paid in fiscal 1998. The assets of
Bolifor primarily consist of 11 land rigs located in Bolivia, Paraguay and
Argentina. The results of the acquisition were not material to the results of
operations and, accordingly, not included in the table above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Superior Energy Services, Inc. Acquisition (unaudited)
On October 28, 1998, Parker Drilling Company ("Parker") and Superior
Energy Services, Inc. ("Superior") entered into an Agreement and Plan of
Merger whereby Superior would become a wholly owned subsidiary of Parker.
Superior, headquartered in Harvey, Louisiana, provides oil tool rentals, well
plug and abandonment services, and other specialized products and services to
oil companies operating in the Gulf of Mexico and Gulf Coast land regions.
The Agreement and Plan of Merger, as amended, will be structured as a tax-free
exchange of .975 of a share of Parker common stock for each share of Superior
common stock. As a result of the transaction, Parker will issue approximately
28 million new shares and will then have approximately 105 million shares
outstanding after the closing of the transaction.
The merger is subject to both Superior and Parker stockholder approval,
Hart-Scott-Rodino clearance, the approval to increase the number of shares of
authorized common stock by the Parker stockholders and certain other
conditions. The necessary filings for Hart-Scott-Rodino clearance and the
filing with the Securities and Exchange Commission of Parker's Registration
Statement covering the Parker shares to be issued in the merger will be made
as soon as practicable. Parker anticipates submitting the merger to its
stockholders for approval at its annual meeting early next year. Subject to
the Superior and Parker stockholder approvals and the satisfaction of the
other conditions, it is anticipated that the transaction will be consummated
in the first calendar quarter of next year.
Note 3 - Long-term Debt
August 31, 1998 1997
-------------------------------------------------------------------------
(Dollars in Thousands)
Senior Notes payable in November 2006 with
interest of 9.75% payable semi-annually in
May and November, net of unamortized discount
of $1,930 in 1998 and $2,166 in 1997 (effective
interest rate of 9.88%) $298,070 $297,834
Senior Notes payable in November 2006 with
interest of 9.75% payable semi-annually in
May and November, net of unamortized premium
of $5,421 (effective interest rate of 8.97%) 155,421 -
Senior Credit Facility payable in quarterly
payments until November 2002 with interest
at prime plus 0.50% or LIBOR plus 1.75% to
2.25% - 90,000
Convertible Notes payable in July 2004 with
interest of 5.5% payable semi-annually in
February and August 175,000 175,000
Revolving Credit Facility with interest at
prime plus 0.50% or LIBOR plus 1.75% to 2.25%
(7.4375% as of August 31, 1998) 20,000 -
Other 3,068 4,292
-------- --------
Total debt 651,559 567,126
Less current portion 21,469 16,084
-------- --------
Total long-term debt $630,090 $551,042
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate maturities of long-term debt for the five years ending
August 31, 2003, are as follows (000's): 1999 - $ 21,469; 2000 - $ 696; 2001
- - $ 613; 2002 - $ 285 and 2003 - $5.
The Senior Notes, which mature in 2006, were initially issued in November
1996 and in March 1998 in amounts of $300 million (Series B) and $150 million
(Series C), respectively. The $300 million issuance was sold at a $2.4
million discount while the $150 million issuance was sold at a premium of $5.7
million. In May 1998, a registration statement was filed by the Company which
offered to exchange the Series B and C notes for new Series D Senior Notes.
The form and terms of the Series D notes are identical in all material
respects to the form and terms of the Series B and C notes, except for certain
transfer restrictions and registration rights relating to the Series C Notes.
All of the Series B and C notes were exchanged for new Series D notes per this
offering. The notes have an interest rate of 9 3/4% and are guaranteed by
substantially all subsidiaries of Parker Drilling, all of which are wholly
owned. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
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. The non-guarantors are
inconsequential, individually and in the aggregate, to the consolidated
financial statements and separate financial statements of the guarantors are
not presented because management has determined that they would not be
material to investors.
In anticipation of funding the Hercules acquisition, in July 1997 the
Company issued $175 million of Convertible Subordinated Notes due 2004. The
Notes bear interest at 5.5% payable semi-annually in February and August. The
Notes are convertible at the option of the holder into shares of common stock
of Parker Drilling at $15.39 per share at any time prior to maturity. The
Notes will be redeemable at the option of the Company at any time after July
2000 at certain stipulated prices.
The $75 million revolving credit facility under the Company's Senior
Credit Facility is available for working capital requirements, general
corporate purposes and to support letters of credit. At August 31, 1998, $20
million was outstanding under the revolving credit facility and $13.6 million
in letters of credit had been issued. Availability under the revolving credit
facility is subject to certain borrowing base limitations based on 80% of
eligible accounts receivable plus 50% of supplies in inventory. All advances
to the Company under the revolving credit facility bear interest, at the
option of the Company, at prime to prime plus 0.50% or at l.75% to 2.25% above
the one-, two-, three- and six-month reserve-adjusted LIBOR rate, depending on
the percentage of the credit facility utilized. The revolving credit facility
is collateralized by a first lien on the Company's accounts receivable and
inventory. The revolving credit facility matures on December 31, 2000.
The Senior Credit Facility also included a $100 million term loan that
was used to partially fund the Mallard and Quail acquisitions. The $90
million which was outstanding at August 31, 1997 was fully repaid during
fiscal 1998, $83 million of which was from proceeds received in March 1998
from the issuance of the Senior Notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each of the 9 3/4% Senior Notes, 5 1/2% Convertible Notes and the Senior
Credit Facility contains customary affirmative and negative covenants,
including restrictions on incurrence of debt and sales of assets. The Senior
Credit Facility prohibits payment of dividends and the indenture for the 9
3/4% Senior Notes restricts the payment of dividends.
Note 4 - Income Taxes
Income (loss) before income taxes (in thousands) is summarized as
follows:
Years Ended August 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
United States $ 7,682 $ 4,231 $ (4,623)
Foreign 36,845 19,325 13,190
-------- -------- --------
$ 44,527 $ 23,556 $ 8,567
-------- -------- --------
-------- -------- --------
Income tax expense (in thousands) is summarized as follows:
Years Ended August 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
Current:
United States:
Federal $ - $ 70 $ -
State 50 215 -
Foreign 14,285 6,956 4,514
Deferred:
United States:
Federal 2,042 - -
State 58 - -
Foreign - - -
-------- -------- --------
$ 16,435 $ 7,241 $ 4,514
-------- -------- --------
-------- -------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Income Taxes (continued)
Total income tax expense (benefit) (in thousands) differs from the amount
computed by multiplying income (loss) before income taxes by the U.S. federal
income tax statutory rate. The reasons for this difference are as follows:
Years Ended August 31,
------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
--------------- --------------- ---------------
Computed expected tax
expense $15,584 35% $ 8,245 35% $ 2,913 34%
Foreign tax at rates
different than U.S. 1,389 3% 192 1% 29 -
Utilization of loss
carryforwards (1,973) (4%) (1,814) (8%) - -
Limitation on
recognition of tax
benefit - - - - 1,572 19%
Other 1,435 3% 618 3% - -
------- ---- ------- ---- ------- ----
Actual tax expense $16,435 37% $ 7,241 31% $ 4,514 53%
------- ---- ------- ---- ------- ----
------- ---- ------- ---- ------- ----
The components of the Company's tax assets and (liabilities) as of August
31, 1998 and 1997, are shown below (in thousands):
Domestic: 1998 1997
-------- ---------
Deferred tax assets:
Net operating loss carryforwards $ 49,208 $ 55,586
Reserves established against realization
of certain assets 1,163 1,229
Accruals not deducted for tax purposes 5,408 3,297
Property, plant and equipment 569 1,597
-------- --------
56,348 61,709
Deferred tax liabilities:
Property, plant and equipment (65,279) (17,623)
-------- --------
Net deferred tax asset (liability) (8,931) 44,086
Valuation allowance (38,469) (44,086)
-------- --------
Deferred income tax liability $(47,400) $ -
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Income Taxes (continued)
At August 31, 1998, the Company had $136,690,000 net operating loss
carryforwards for tax purposes which expire over an eleven year period as
follows: 2000, $5,131,000; 2001, $58,830,000; 2002, $32,947,000; thereafter,
$39,782,000. The Company has recorded a valuation allowance of $38,469,000
with respect to its deferred tax asset. However, the amount of the asset
considered realizable could be different in the near term if estimates of
future taxable income change.
Note 5 - Common Stock and Stockholders' Equity
Stock Plans
The Company's employee, non-employee director and consultant stock plans
are summarized as follows:
The 1994 Non-Employee Director Stock Option Plan ("Director Plan")
provides for the issuance of options to purchase up to 200,000 shares of the
Company's common stock. The option price per share is equal to the fair
market value of a Parker Drilling share on the date of grant. The term of
each option is ten years, and an option first becomes exercisable six months
after the date of grant. Under the Director Plan, on the first trade day of
each calendar year, each person who is then a non-employee director of the
Company will be automatically granted an option to purchase 5,000 shares of
common stock.
The 1994 Executive Stock Option Plan provides for the granting of a
maximum of 2,400,000 shares to key employees and consultants of the Company
and its subsidiaries through the granting of stock options, stock appreciation
rights and restricted and deferred stock awards. The option price per share
may not be less than 50% of the fair market value of a share on the date the
option is granted, and the maximum term of a non-qualified option may not
exceed fifteen years and the maximum term of an incentive option is ten years.
The 1997 Stock Plan is a "broad-based" stock plan that provides for the
granting of a maximum of 4,000,000 shares to all employees and consultants of
the Company who in the opinion of the board of directors are in a position to
contribute to the growth, management and success of the Company through the
granting of stock options and restricted stock awards. The option price per
share may not be less than 100% of the fair market value on the date the
option is granted for incentive options and not less than par value of a share
of common stock for non-qualified options. The maximum term of an incentive
option is ten years and the maximum term of a non-qualified option is fifteen
years.
At August 31, 1998, 10,000 and 804,500 shares are available for granting
under the 1994 Non-Employee Director Stock Option Plan, and the 1997 Stock
Plan, respectively. All shares have been granted under the 1994 Executive
Stock Option Plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information regarding the Company's stock option plans is summarized
below:
1994 1997
Director Stock
Plan Plan
------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------- -----------------------
Shares under option:
Outstanding at Sept. 1, 1995 15,000 $ 4.563 - $ -
Granted 15,000 6.125 - -
Exercised - - - -
Cancelled - - - -
------- --------- --------- ---------
Outstanding at Aug. 31, 1996 30,000 5.344 - -
Granted 140,000 8.938 1,800,000 8.875
Exercised - - - -
Cancelled - - - -
------- --------- --------- ---------
Outstanding at Aug. 31, 1997 170,000 8.303 1,800,000 8.875
Granted 20,000 12.094 1,410,500 11.798
Exercised - - - -
Cancelled - - (15,000) 12.188
------- --------- --------- ---------
Outstanding at Aug. 31, 1998 190,000 $ 8.702 3,195,500 $ 10.149
------- --------- --------- ---------
1994 Option Plan
----------------------------------------------
Incentive Non-Qualified
Options Options
----------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------------- ---------------------
Shares under option:
Outstanding at Sept. 1, 1995 733,000 $ 4.500 140,000 $ 2.250
Granted - - - -
Exercised (57,000) 4.500 (29,652) 2.250
Cancelled - - - -
--------- --------- ---------- ---------
Outstanding at Aug. 31, 1996 676,000 4.500 110,348 2.250
Granted 1,520,000 8.875 - -
Exercised (62,000) 4.500 (30,348) 2.250
Cancelled - - - -
--------- --------- ---------- ---------
Outstanding at Aug. 31, 1997 2,134,000 7.616 80,000 2.250
Granted - - - -
Exercised - - (2,000) 2.250
Cancelled - - - -
--------- --------- ---------- ---------
Outstanding at Aug. 31, 1998 2,134,000 $ 7.616 78,000 $ 2.250
--------- --------- ---------- ---------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Outstanding Options
--------------------------
Weighted Weighted
Average Average
Number of Remaining Exercise
Plan Exercise Prices Shares Contractual Life Price
- ------------------ ----------------- ---------- ---------------- ---------
1994 Director Plan $ 4.563 - $ 6.125 30,000 6.8 years $ 5.344
$ 8.875 - $12.094 160,000 8.7 years $ 9.332
1994 Option Plan $ 4.500 614,000 6.3 years $ 4.500
Incentive Option $ 8.875 1,520,000 8.7 years $ 8.875
1994 Option Plan
Nonqualified $ 2.250 78,000 11.3 years $ 2.250
1997 Stock Plan $ 8.875 - $12.188 3,195,500 9.0 years $10.149
Exercisable Options
--------------------------
Weighted
Number of Average
Plan Exercise Prices Shares Exercise Price
- ------------------ ----------------- ---------- --------------
1994 Director Plan $ 4.563 - $ 6.125 30,000 $ 5.344
$ 8.875 - $12.094 88,000 $ 9.706
1994 Option Plan $ 4.500 614,000 $ 4.500
Incentive Option $ 8.875 1,010,000 $ 8.875
1994 Option Plan
Nonqualified $ 2.250 78,000 $ 2.250
1997 Stock Plan $ 8.875 - $12.188 599,100 $ 10.235
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Common Stock and Stockholders' Equity
The Company has three additional stock plans which provide for the
issuance of stock for no cash consideration to officers and key non-officer
employees. Under two of the plans, each employee receiving a grant of shares
may dispose of 15 percent of his/her grant on each annual anniversary date
from the date of grant for the first four years and the remaining 40 percent
on the fifth year anniversary. These plans have a total of 11,375 shares
reserved and available for granting. Shares granted under the third plan are
fully vested no earlier than 24 months from the effective date of the grant
and not later than 36 months. The plan has a total of 1,562,195 shares
reserved and available for granting. No shares were granted under these plans
in fiscal 1998 and 1997 while 18,000 shares were granted in fiscal 1996.
The fair market value of the common stock at date of grant which exceeds
the option price of shares granted under any of the plans is recorded as
deferred compensation and amortized to expense over the period during which
the restrictions lapse. Deferred compensation is shown as a deduction from
stockholders' equity. All such costs have been fully amortized as of August
31, 1998.
During fiscal 1998, 1997 and 1996, the Company purchased 36,562, 42,875
and 59,347 shares, respectively, from certain of its employees who had
received stock grants under the Company's stock plans. Total shares purchased
from employees and treated as treasury stock are 402,607, 445,482 and 482,044
for the three years ended August 31, 1998. The Company acquired the shares at
then current market prices (weighted average price was $8.28 per share in
fiscal 1998, $10.08 per share in fiscal 1997 and $6.44 per share in fiscal
1996). The proceeds were used to pay the employees' tax withholding
obligations arising from the vesting of shares under the Plans.
The Company has elected the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
Company's stock option plans when the option price is equal to or greater than
the fair market value of a share of the Company's common stock on the date of
grant. Pro forma net income and earnings per share are reflected below as if
compensation cost had been determined based on the fair value of the options
at their applicable grant date, according to the provisions of SFAS No. 123.
1998 1997
---- ----
Net Income (In thousands):
As reported $28,092 $16,315
Pro forma $21,922 $14,054
Earnings per share, diluted:
As reported $.36 $.23
Pro forma $.28 $.20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Common Stock and Stockholders' Equity (continued)
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following assumptions.
Expected dividend yield 0.0%
Expected stock volatility 39.1% in fiscal year 1996 and 1997
44.0% in fiscal year 1998
Risk-free interest rate 5.4 - 6.7%
Expected life of options 5 - 7 years
The fair value of options granted during fiscal years 1998, 1997 and 1996
under the Director Plan was $115,000, $605,000 and $39,000, respectively.
Options granted in fiscal 1997 had fair values of $6,321,000 and $8,100,200
under the 1994 Executive Stock Option Plan and the 1997 Stock Plan,
respectively. Options granted in fiscal 1998 under the 1997 Stock Plan had
fair values of $8,585,100.
Stock Reserved For Issuance
The following is a summary of common stock reserved for issuance at
fiscal year end:
1998 1997
---------- ----------
Stock Plans 7,985,570 7,987,570
Stock Bonus Plan 1,421,182 1,540,991
Convertible Notes 11,371,020 11,371,020
---------- ----------
Total shares reserved for issuance 20,777,772 20,899,581
---------- ----------
---------- ----------
Stockholder Rights Plan
The Company adopted a stockholder rights plan on June 25, 1998 to assure
that the Company's stockholders receive fair and equal treatment in the event
of any proposed takeover of the Company and to guard against partial tender
offers and other abusive takeover tactics to gain control of the Company
without paying all stockholders a fair price. The rights plan was not adopted
in response to any specific takeover proposal. Under the rights plan, the
Company's Board of Directors declared a dividend of one right to purchase one
one-thousandth of a share of a new series of junior participating preferred
stock for each outstanding share of common stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The rights may only be exercised ten days following a public announcement
that a third party has acquired 15% or more of the outstanding common shares
of the Company or ten days following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a third party of 15% or more
of the common shares. The 15% excludes one institutional stockholder that
currently owns in excess of 15% of the outstanding common shares of the
Company solely as an investment, unless such shareholder acquires in excess of
20% or otherwise gives notice of its intent to hold said shares to effect a
change of control. When exercisable, each right will entitle the holder to
purchase one one-thousandth share of the new series of junior participating
preferred stock at an exercise price of $30, subject to adjustment. If a
person or group acquires 15% or more of the outstanding common shares of the
Company, each right, in the absence of timely redemption of the rights by the
Company, will entitle the holder, other than the acquiring party, to purchase
for $30, common shares of the Company having a market value of twice that
amount.
The rights, which do not have voting privileges, expire June 30, 2008,
and at the Company's option, may be redeemed by the Company in whole, but not
in part, prior to expiration for $.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Reconciliation of Income and Number of Shares Used to Calculate Basic
and Diluted
Earnings Per Share (EPS)
For the Twelve Months Ended August 31, 1998
-------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $28,092,000 76,658,100 $ .37
Effect of Dilutive Securities:
Stock options and grants 1,131,290
Diluted EPS:
Income available to common
stockholders + assumed
conversions $28,092,000 77,789,390 $ .36
----------- ----------- -----
----------- ----------- -----
For the Twelve Months Ended August 31, 1997
-------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $16,315,000 70,909,539 $ .23
Effect of Dilutive Securities:
Stock options and grants 851,004
Diluted EPS:
Income available to common
stockholders + assumed
conversions $16,315,000 71,760,543 $ .23
----------- ----------- -----
----------- ----------- -----
For the Twelve Months Ended August 31, 1996
-------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $ 4,053,000 56,634,340 $ .07
Effect of Dilutive Securities:
Stock options and grants 627,151
Diluted EPS:
Income available to common
stockholders + assumed
conversions $ 4,053,000 57,261,491 $ .07
----------- ----------- -----
----------- ----------- -----
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has outstanding $175,000,000 of Convertible Subordinated Notes
which are convertible into 11,371,020 shares of common stock at $15.39 per
share. The notes have been outstanding since their issuance in July 1997 but
were not included in the computation of diluted EPS because the assumed
conversion of the notes would have had an anti-dilutive effect on EPS. In
addition, options to purchase 995,500, 400,000 and 20,000 shares of
common stock at $12.1875, $10.8125 and $12.0938, respectively, which were
outstanding during part of the period were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares during the period.
Note 7 - Employee Benefit Plans
The Parker Drilling Company Stock Bonus Plan ("Plan") was adopted
effective September 1980 for employees of Parker Drilling and its subsidiaries
who are U.S. citizens and who have completed one year of service with the
Company. It was amended in 1983 to qualify as a 401(k) plan under the
Internal Revenue Code which permits a specified percentage of an employee's
salary to be voluntarily contributed on a before-tax basis and to provide for
a Company matching feature. Participants may contribute from one percent to
15 percent of eligible earnings and direct contributions to one or more of
seven investment funds. The Company presently makes dollar-for-dollar
matching contributions up to three percent of a participant's compensation.
The Company's matching contribution is made in Parker Drilling common stock.
The Plan was amended and restated on April 1, 1996 for the purpose of adding
loans and daily record keeping. The Plan was further amended effective
September 1, 1996 to provide for immediate vesting of participants in the full
amount of the Company's past and future contributions. Each Plan year,
additional Company contributions can be made, at the discretion of the Board
of Directors, in amounts not exceeding the permissible deductions under the
Internal Revenue Code. The Company issued 119,809 shares to the Plan in 1998,
100,777 shares to the Plan in 1997 and 104,700 shares in 1996, with the
Company recognizing expense of $1,167,000, $930,000 and $639,000 in each of
the three years, respectively.
Note 8 - Business Segments
The Company has elected early application of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company has organized its segments according to
services provided. This is the basis management uses for making operating
decisions and assessing performance. The primary services the Company
provides are as follows: land drilling, offshore drilling and rental tools.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Business Segments (continued)
Information regarding the Company's operations by industry segment and
geographic area is as follows:
1998 1997 1996
----------- --------- ---------
(Dollars in Thousands)
Operations by Industry Segment
- ------------------------------
Revenues:
Land drilling $ 266,242 $183,381 $145,160
Offshore drilling 180,323 100,217 -
Rental tools 32,723 25,457 -
Other 1,935 2,589 11,492
---------- -------- --------
Total revenues $ 481,223 $311,644 $156,652
---------- -------- --------
---------- -------- --------
Operating income (loss):
Land drilling $ 35,998 $ 17,325 $ 2,069
Offshore drilling 36,669 20,514 -
Rental tools 11,551 12,229 -
Other (558) (2,344) (672)
---------- -------- --------
Total operating income (loss) 83,660 47,724 1,397
Interest expense (49,389) (32,851) (135)
Other income (expense) - net 10,256 8,683 7,305
---------- -------- --------
Income before income taxes $ 44,527 $ 23,556 $ 8,567
---------- -------- --------
---------- -------- --------
Identifiable assets:
Land drilling $ 288,795 $245,216 $175,258
Offshore drilling 568,166 300,852 -
Rental tools 44,040 36,600 -
Other 15,984 17,664 5,093
---------- -------- --------
Total identifiable assets 916,985 600,332 180,351
Corporate assets 283,559 383,804 95,608
---------- -------- --------
Total assets $1,200,544 $984,136 $275,959
---------- -------- --------
---------- -------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Business Segments (continued)
1998 1997 1996
----------- --------- ---------
(Dollars in Thousands)
Operations by Industry Segment
- ------------------------------
Capital expenditures:
Land drilling $ 49,581 $ 37,907 $ 29,946
Offshore drilling 131,070 35,577 -
Rental tools 14,133 11,538 -
Other 1,294 2,404 890
---------- -------- --------
Total capital expenditures $ 196,078 $ 87,426 $ 30,836
---------- -------- --------
---------- -------- --------
Depreciation and amortization:
Land drilling $ 26,945 $ 22,217 $ 20,208
Offshore drilling 33,059 17,672 -
Rental tools 6,943 4,311 -
Other 1,627 2,056 2,853
---------- -------- --------
Total depreciation
and amortization $ 68,574 $ 46,256 $ 23,061
---------- -------- --------
---------- -------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Business Segments (continued)
1998 1997 1996
----------- -------- --------
(Dollars in Thousands)
Operations by Geographic Area
- -----------------------------
Revenues:
United States $ 231,744 $145,294 $ 41,743
South America 121,048 73,545 59,041
Asia Pacific 65,867 57,688 47,857
Africa 42,778 28,201 463
Former Soviet Union 19,786 6,916 7,548
---------- -------- --------
Total revenues $ 481,223 $311,644 $156,652
---------- -------- --------
---------- -------- --------
Operating income (loss):
United States $ 39,715 $ 22,622 $ (8,988)
South America 9,701 1,838 4,802
Asia Pacific 18,005 15,728 7,943
Africa 12,381 6,582 (27)
Former Soviet Union 3,858 954 (2,333)
---------- -------- --------
Total operating income $ 83,660 $ 47,724 $ 1,397
---------- -------- --------
---------- -------- --------
Identifiable assets:
United States $ 790,510 $680,020 $135,923
South America 145,256 119,617 82,292
Asia Pacific 83,854 82,930 46,683
Africa 82,041 89,682 2,530
Former Soviet Union 98,883 11,887 8,531
---------- -------- --------
Total identifiable assets $1,200,544 $984,136 $275,959
---------- -------- --------
---------- -------- --------
One customer, Chevron, accounted for approximately 15 and 13 percent of
total revenues in 1998 and 1997. Chevron and British Petroleum, respectively,
accounted for approximately 19 percent and 18 percent of total revenue in
1996. Operating income (loss) is total revenue less operating expenses
including depreciation and amortization and an allocation of general corporate
expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Assets Held for Disposition
In fiscal 1996 the Company reclassified to assets held for disposition
six rigs and related equipment located in southern Argentina which had a net
book value of $5.6 million at August 31, 1998. Although the Company believes
it will recover the carrying value of the assets, it is reasonably possible
that a lesser amount will be recovered.
Note 10 - Commitments and Contingencies
At August 31, 1998, the Company had a $75 million revolving credit
facility available for general corporate purposes and to support letters of
credit. At August 31, 1998, $20 million was outstanding under the revolving
credit facility and $13.6 million in letters of credit had been issued.
Certain officers of the Company entered into Severance Compensation and
Consulting Agreements with the Company in 1988 and 1992. In October 1996, the
officers executed revised Severance Compensation and Consulting Agreements
(the "Agreements"). The Agreements provide for an initial six year term and
the payment of certain benefits upon a change of control (as defined in the
Agreements). A change of control includes certain mergers or reorganizations,
changes in the board of directors, sale or liquidation of the Company or
acquisition of more than 15% of the outstanding common stock of the Company by
a third party. After a change of control occurs, if an officer is terminated
within four years without good cause or resigns within two years for good
reason (as each are defined in the Agreements) the officer shall receive a
payment of three times his annual cash compensation, plus additional
compensation for a one year consulting agreement at the officer's annual cash
compensation, plus extended life, health and other miscellaneous benefits for
four years.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters
of the United States, may be liable for the costs of removal and damages
arising out of a pollution incident to the extent set forth in the Federal
Water Pollution Control Act, as amended by the Oil Pollution Act of 1990
("OPA") and the Outer Continental Shelf Lands Act. In addition, the Company
may also be subject to applicable state law and other civil claims arising out
of any such incident. Certain of the Company's facilities are also subject to
regulations of the Environmental Protection Agency ("EPA") that require the
preparation and implementation of spill prevention, control and countermeasure
plans relating to possible discharge of oil into navigable waters. Other
regulations of the EPA may require certain precautions in storing, handling
and transporting hazardous wastes. State statutory provisions relating to oil
and natural gas generally include requirements as to well spacing, waste
prevention, production limitations, pollution prevention and cleanup,
obtaining drilling and dredging permits and similar matters. The Company
believes that it is in substantial compliance with such laws, rules and
regulations.
The Company is a party to various lawsuits and claims arising out of the
ordinary course of business. Management, after review and consultation with
legal counsel, considers that any liability resulting from these matters would
not materially affect the results of operations, or the financial position or
the net cash flows of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Related Party Transactions
During fiscal 1998, the Company surrendered for its cash surrender value
of $2.0 million, an insurance policy it owned on the life of Mr. R. L. Parker,
chairman and a principal stockholder. The Company was the beneficiary of this
policy which was issued pursuant to a Stock Purchase Agreement ("Agreement")
approved by vote of the stockholders at the 1975 Annual Meeting on December
10, 1975. This Agreement was entered into between the Company and the Robert
L. Parker Trust and provided that upon the death of Robert L. Parker, the
Company would be required, at the option of the Trust, to purchase from the
Trust at a discounted price the amount of Parker Drilling common stock which
could be purchased with the proceeds of the policy of $7,000,000. On August
3, 1994, the Company and the Trust modified this Agreement so that the Company
would have the option but not the obligation to purchase the stock at a
discounted price with the proceeds or to retain the entire proceeds upon the
death of Robert L. Parker, thereby enabling the Company to surrender the
policy for its cash surrender value.
As a part of the agreement to terminate the option held by the Trust and
to grant the Company a limited option to purchase stock at a discounted price,
the Company has also agreed to pay a premium of $655,019 annually for a split
dollar last-to-die life insurance policy on Robert L. Parker and Mrs. Robert
L. Parker. Upon the deaths of Mr. Parker and Mrs. Parker, the Company will be
reimbursed by the Robert L. Parker Sr. and Catherine M. Parker Family Trust
from the proceeds of the policy for the full amount of premiums paid plus
interest at the one-year treasury bill rate on the premiums paid after fiscal
year 1999. Robert L. Parker and the Company agreed in October 1996 that the
Company would cash surrender a $500,000 Executive Life policy on his life and,
in exchange, the interest on the above-described policy would not begin
accruing until March 2003. Additionally, Robert L. Parker Jr., Chief
Executive Officer of the Company and son of Robert L. Parker, will receive as
a beneficiary of the Trust one-third of the net proceeds of this policy. The
face value of the policy is $13,200,000.
Note 12 - Supplementary Information
At August 31, 1998, accrued liabilities included $13.8 million of accrued
interest expense, $3.3 million of workers' compensation liabilities and $10.4
million of accrued payroll and payroll taxes. At August 31, 1997, accrued
liabilities included $10.2 million of accrued interest expense, $1.7 million
of workers' compensation liabilities and $5.6 million of accrued payroll and
payroll taxes. Other long-term obligations included $6.2 million and $5.6
million of workers' compensation liabilities as of August 31, 1998 and 1997,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 - Selected Quarterly Financial Data (Unaudited)
Quarter
----------------------------------------------------
First Second Third Fourth Total
--------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
FISCAL 1998
- -----------
Revenues $109,880 $125,217 $122,852 $123,274 $481,223
Gross profit <1> $ 28,715 $ 28,508 $ 27,634 $ 16,076 $100,933
Operating income $ 24,600 $ 24,078 $ 22,920 $ 12,062 $ 83,660
Net income (loss) $ 10,682 $ 12,226 $ 6,250 $ (1,066) $ 28,092
Earnings per share:
Basic $ .14 $ .16 $ .08 $ (.01) $ .37
Diluted $ .14 $ .16 $ .08 $ (.01) $ .36 <2>
Quarter
-------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
FISCAL 1997
- -----------
Revenues $45,198 $79,042 $91,953 $95,451 $311,644
Gross profit <1> $ 6,594 $13,037 $21,699 $20,808 $ 62,138
Operating income $ 3,196 $ 9,634 $18,338 $16,556 $ 47,724
Net income $ 1,479 $ 1,336 $ 5,897 $ 7,603 $ 16,315
Earnings per share:
Basic $ .02 $ .02 $ .08 $ .10 $ .23 <2>
Diluted $ .02 $ .02 $ .08 $ .10 $ .23 <2>
<1> Gross profit is calculated by excluding General and administrative
expense from Operating income, as reported in the Consolidated Statement
of Operations.
<2> As a result of shares issued during the year, earnings per share for the
year's four quarters, which are based on average shares outstanding
during each quarter, do not equal the annual earnings per share, which
is based on the average shares outstanding during the year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
This item is not applicable to the Company in that disclosure is required
under Regulation S-X by the Securities and Exchange Commission only if the
Company had changed independent auditors and, if it had, only under certain
circumstances.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as it relates to executive officers
is shown in Item 4A "Executive Officers." The Company's directors consist of
the following individuals:
ROBERT L. PARKER
Age 75
Director Since 1969
Mr. Parker, chairman of the board, served as president of the Company from
1954 until October 1977 when he was elected chief executive officer. Since
December 1969 he has retained the position of chairman. He also serves on the
board of directors of Clayton Williams Energy, Inc., a company engaged in
exploration and production of oil and natural gas; BOK Financial Corporation,
a bank holding company organized under the laws of the State of Oklahoma; and
Norwest Bank Texas, Kerrville, N.A., a diversified financial services
organization. He is the father of Robert L. Parker Jr.
ROBERT L. PARKER JR.
Age 50
Director Since 1973
Mr. Parker Jr., president and chief executive officer, joined the Company in
1973 and was elected president and chief operating officer in 1977 and chief
executive officer in December 1991. He previously was elected a vice
president in 1973 and executive vice president in 1976. He currently serves
on the board of directors of Alaska Air Group, Inc., the holding company for
Alaska Airlines and Horizon Air Industries. He is the son of Robert L Parker.
DAVID L. FIST
Age 67
Director Since 1986
Mr. Fist is a member of the law firm of Rosenstein, Fist & Ringold, Tulsa,
Oklahoma, having been associated with the firm since 1955. He serves as a
director of Peoples State Bank and Alliance Business Investment Company, a
federally licensed small business investment company.
JAMES W. LINN
Age 52
Director Since 1991
Mr. Linn is executive vice president and chief operating officer of the
Company and has general charge of the Company's business affairs and its
officers. He joined the Company in 1973 in the Company's international
department. He then served in the Company's domestic operations, being named
Northern U.S. district manager in 1976. He was named a senior vice president
in September 1981 and was elected to his present position in December 1991.
He is also a director of Sarkeys Energy Center, University of Oklahoma.
R. RUDOLPH REINFRANK
Age 43
Director Since 1993
Since January 1, 1997, Mr. Reinfrank has been Managing General Partner of
Radar Reinfrank & Co., LLC Beverly Hills, California. From May 1993 through
December 1996, Mr. Reinfrank was a managing director of the Davis Companies.
From January 1, 1988 through June 30, 1993, Mr. Reinfrank was executive vice
president of Shamrock Holdings, Inc.
EARNEST F. GLOYNA
Age 77
Director Since 1978
Dr. Gloyna is presently a chaired professor in Environmental Engineering at
The University of Texas at Austin. He served as dean, College of Engineering,
from April 1970 to August 1987. He is also a consultant in environmental
engineering through Earnest F. Gloyna Enterprises, and is president of Gloyna
Properties, Inc. Dr. Gloyna serves as a member of the board of trustees of
Southwest Research Institute, a nonprofit research institute, and on the
Science and Technology Advisory Board of International Isotopes, Inc.
BERNARD DUROC-DANNER
Age 45
Director Since 1996
Mr. Duroc-Danner is chairman, president and chief executive officer of
Weatherford International, Inc., having held said position since May 1998.
For the previous five years, he held the positions of president, chief
executive officer and director of Energy Ventures, Inc. ("EVI"), which
acquired Weatherford Enterra, Inc. in 1998 and subsequently changed its name
to Weatherford International, Inc. Weatherford is an international
manufacturer and supplier of oilfield equipment.
JAMES E. BARNES
Age 64
Director Since 1998
Mr. Barnes previously served as chairman, president and chief executive
officer of MAPCO Inc., a diverse Fortune 500 energy company, which merged
earlier this year with The Williams Companies. Mr. Barnes also serves on the
boards of Kansas City Southern Industries, Inc., BOK Financial Corp., and SBC
Communications Inc.
Item 11. EXECUTIVE COMPENSATION
MEETINGS, COMMITTEES AND COMPENSATION OF THE BOARD
The full board of directors met seven times during fiscal year 1998 and one
time during the period September 1, 1998 through November 30, 1998. The
committees of the board consist of an audit committee and a compensation
committee. The board does not have a nominating committee. All directors
attended each meeting of the board and committees on which they served, except
for Mr. Duroc-Danner who was unable to attend the October 1998 board meeting.
The audit committee was comprised of Dr. Gloyna and Mr. Fist. The audit
committee met one time in fiscal 1998 and one time in October 1998 for the
purpose of reviewing and discussing with the independent auditors the scope
and results of their audit, meeting with the internal audit manager to
discuss future audit policy, reviewing the internal and external audit
policies, and inquiring into financial, legal and other relevant matters.
The compensation committee was comprised of Messrs. Fist and Reinfrank. The
compensation committee convened two times in fiscal 1998 and one time in
November 1998 for the purpose of reviewing executive and overall employee
compensation and management recommendations for employee participation in the
Company's equity compensation plans and discussing future compensation
policies.
The Company compensated all directors at a rate of $2,000 for board meetings
during fiscal year 1998 and awarded each of the directors $500 as a holiday
bonus. In addition, committee members received $1,000 for each meeting.
Directors who are not full-time employees of the Company receive an annual
retainer of $7,000 per year. Compensation for employee directors is included
in the salary column of the Summary Compensation Table herein. On January 2,
1998, each non-employee director was issued an option to purchase 5,000 shares
of common stock at a purchase price equal to the fair market value per share
of the common stock on such date.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the board of directors is comprised of two
outside directors, Mr. David Fist and Mr. R. Rudolph Reinfrank. The Committee
formally convened three times during the period September 1, 1997 through
November 30, 1998 in addition to contacts by telephone and correspondence to
discuss and share information necessary to establish, review and recommend the
compensation policies and programs for officers and key employees.
COMPENSATION GUIDELINES
The committee has established guidelines to attract, motivate and retain a
talented executive team with the necessary skills and expertise to lead an
international drilling service company, whose performance is essential to meet
the business goals of efficient management and to maximize the value of the
stockholders' investments. The guidelines are:
(1) Provide competitive cash compensation commensurate with individual
contributions, level of responsibility and results in adapting to current
market conditions and improving stockholder value;
(2) Reward executive officers and key employees for exceptional performance
with regard to the business performance of the Company; and
(3) Utilize incentive stock options to motivate executive officers and other
key employees toward effective management of the Company's operations that
produces long-term profitability.
One of the principal factors used by the committee in making recommendations
on compensation is an analysis of how the Company compensates its executive
officers and key employees in comparison with its peers. Due to the
acquisitions over the last two years, the companies which are most similar to
the Company's drilling operations in terms of equipment, areas, types of
operations and customer base now consist of: Nabors Industries, Rowan
Companies, Noble Drilling Corp., Helmerich & Payne, Pool Energy Services,
Pride International and R&B Falcon. The committee compared the peer companies
on the basis of "fixed annual pay", variable pay such as bonuses and stock
options and total direct compensation of the top five executive officers
individually and as a group. The committee also compared the Company's
financial performance and cumulative stockholder returns to those of the peer
companies, as well as to the indices on the Company's performance graph.
Although base salary compensation is not directly tied to specific formulas
and some subjectivity is involved, the Company takes into consideration
performance based on the level of responsibility. Each executive officer's and
key employee's performance is reviewed by his or her immediate supervisor
based on initiative, business judgment, technical expertise and management
skills. More specifically, the ability to execute the Company's plans and
react to unanticipated change in events is considered. In addition, the
committee considered the recent downturn in business and projected level of
activity and cash needs for the coming year. Based on the foregoing, the
committee agreed with management's recommendation to freeze salaries of the
executive officers and key employees for the coming fiscal year.
The second aspect of compensation considered by the committee is short term
incentive compensation in the form of bonuses. This year the Company adopted
an incentive bonus plan that rewards the performance of management and certain
operations personnel based on actual financial and operating performance as
compared to budget. The bonus calculation is weighted based on several
performance measures, including cash flow, net income, return on capital
employed and reductions in working capital. Because certain factors which
affect the performance of the Company, such as the price of oil, level of
exploration and development activity and worldwide economic conditions, are
beyond the control of management and operations' personnel, there is also a
subjective element involved in the process of determining bonuses recommended
by management. Due to the decline in exploration and drilling activity during
the second half of the fiscal year, the incentive compensation performance
measures generally under performed budget. Consequently, management
recommended and the committee agreed that incentive bonuses be paid, but at a
level generally lower than the historical base levels.
With regard to equity incentives, the Committee concurred with management
regarding the following options granted during fiscal 1998: (1) 50,000 stock
options to the new controller, W. Kirk Brassfield, as part of his compensation
package; (2) 200,000 and 150,000 stock options to Messrs. Seward and Hord, the
president and vice president, respectively, of Hercules Offshore Corporation,
in connection with the retention of said management when Hercules was acquired
by the Company on December 30, 1997; and (3) the issuance of 1,010,500 stock
options to 83 middle management and other key employees consistent with the
incentive compensation policy of the Company.
In evaluating the need for additional equity incentives to the executive
officers and the key employees, the Committee considered the current incentive
equity compensation of said personnel. After completing this evaluation
process, the Committee decided to defer any recommendations at the present
time.
Chief Executive Officer
Robert L. Parker Jr. serves as the chief executive officer of the Company.
The committee reviewed Mr. Parker's base salary, bonuses and participation in
stock option plans for fiscal years 1996, 1997 and 1998 and compared those
remuneration figures with the total annual cash compensation figures for the
chief executive officers of the peer companies. In addition, the committee
reviewed the financial performance and cumulative total return to stockholders
of the peer companies and compared those results to the financial performance
and cumulative total return to stockholders of the Company. Based on this
analysis, the committee concluded that Mr. Parker's overall compensation
package was comparable to the chief executive officers of the peer companies
whose performance and business was most similar to that of the Company.
Additionally, the Committee discussed Mr. Parker's personal performance over
the past 12 months including the assimilation of Hercules Offshore Corporation
into the Company, business developments and strategic planning, as well as his
continued excellent reputation and contacts in the drilling industry. Based
on its evaluation of these factors, the committee determined that Mr. Parker's
existing incentive equity participation was adequate.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code imposes, for 1995 and future
years, a limitation on the deductibility of certain executive officer
compensation in excess of $1,000,000, subject to certain performance-related
exceptions. The compensation committee has not yet adopted a formal policy
with respect to qualifying compensation paid to its executive officers for an
exemption from the limitation on deductibility imposed by Section 162(m) of
the Internal Revenue Code. The committee anticipates that all compensation
paid to its executive officers during 1998 will qualify for deductibility
because no executive's compensation is expected to exceed the dollar
limitations of such provision.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. David L. Fist, a director of the Company and chairman of the compensation
committee, is a lawyer with Rosenstein, Fist & Ringold, Tulsa, Oklahoma, a
professional legal services corporation, which provides legal services for the
Company. The fees paid by the Company to this firm constituted less than five
percent of the firm's gross revenues during the latest fiscal year.
The following table sets forth information concerning compensation for
services rendered in all capacities to the Company by the chief executive
officer and the three next most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers") for each of the three
fiscal years ended August 31, 1998, 1997 and 1996.
Summary Compensation Table
Annual Compensation
Other Annual
Name and Salary Bonus Compensation
Principal Position Year ($)<1> ($) ($)<2>
- --------------------------- ----- --------- --------- ------------
Robert L. Parker, Jr. 1998 $ 498,910 $ 150,000 $ -
President and Chief
Executive Officer 1997 $ 511,500 $ 100,000 -
1996 $ 476,583 $ 80,000 -
Robert L. Parker 1998 $ 465,705 $ 50,000 $ 67,336
Chairman
1997 $ 461,500 - $ 96,975
1996 $ 447,417 - $ 81,660
James W. Linn 1998 $ 313,538 $ 85,000 -
Executive Vice President
and Chief Operating Officer 1997 $ 315,167 $ 75,000 -
1996 $ 269,417 $ 50,000 -
James J. Davis 1998 $ 206,192 $ 75,000 -
Senior Vice President -
Finance and Chief Financial 1997 $ 200,667 $ 65,000 -
Officer
1996 $ 189,833 $ 40,000 -
Summary Compensation Table
Long-Term
Compensation Awards
Restricted Securities
Stock Underlying All Other
Name and Award Options/ Compensation
Principal Position Year (s)($) SARs(#) ($)
- --------------------------- ---- ---------- ---------- --------------
Robert L. Parker, Jr. 1998 - - $ 10,552<3><7>
President and Chief
Executive Officer 1997 - 600,000 $ 10,396
1996 - - $ 12,283
Robert L. Parker 1998 - - $ 344,750<4><7>
Chairman
1997 - 400,000 $ 361,710
1996 - - $ 382,249
James W. Linn 1998 - - $ 8,765<5><7>
Executive Vice President
and Chief Operating Officer 1997 - 300,000 $ 8,607
1996 - - $ 9,974
James J. Davis 1998 - - $ 8,324<6><7>
Senior Vice President -
Finance and Chief Financial 1997 - 300,000 $ 8,167
Officer
1996 - - $ 9,544
[FN]
For each of the employee directors, includes director's fees of
$14,500, $24,500 and $12,500 for fiscal years 1998, 1997 and 1996,
respectively.
No compensation was received by the Named Executive Officers which
requires disclosure in this column except for Mr. Parker whose Other
Annual Compensation in 1998 includes $24,270 for tax preparation and
$43,066 for salaries to employees who work jointly for the Company and
the Robert L. Parker Trust.
Mr. Parker Jr.'s All Other Compensation for 1998 is comprised of
Company matching contributions to its 401(k) plan of $4,800, $355
representing the full dollar value of the term portion of a Company paid
premium for a split dollar life insurance policy and $4,792 representing
the present value of the benefit of the non-term portion of that
premium.
Mr. Parker's All Other Compensation for 1998 is comprised of
Company matching contributions to its 401(k) plan of $4,800, $45,324
representing the full dollar value of the term portion of a Company-paid
premium for a split dollar life insurance policy and $294,626
representing the present value of the non-term portion of that premium.
See caption "Certain Relationships and Related Transactions" on page 80.
Mr. Linn's All Other Compensation for 1998 is comprised of Company
matching contributions to its 401(k) plan of $4,800, $266 representing
the full dollar value of the term portion of a Company paid premium for
a split dollar life insurance policy and $3,284 representing the present
value of the benefit of the non-term portion of that premium.
Mr. Davis' All Other Compensation for 1998 is comprised of Company
matching contributions to its 401(k) plan of $4,800, $215 representing
the full dollar value of the term portion of a Company paid premium for
a split dollar life insurance policy and $2,858 representing the present
value of the benefit of the non-term portion of that premium.
The present value of the benefit of the non-term portion of the
split dollar life insurance policies was determined by calculating the
present value of interest at risk on future premiums to be paid by the
Company, assuming an interest crediting rate of 8%. The present value
of the benefit of the non-term portion of a separate split dollar life
insurance policy for Robert L. Parker was determined by multiplying the
following factors: the non-term portion of the premium, an assumed
interest crediting rate of 8 percent, 10 years (which is the number of
years at which point the cash surrender value exceeds the total of
premiums paid by the Company) and 8 percent (net present value).
OPTION/SAR GRANTS IN 1998
There were no grants of stock options or SAR's to the named
executive officers during fiscal 1998.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END
1998 OPTION/SAR VALUES
The following table provides information on the Named Executive
Officers' unexercised options at August 31, 1998. None of the Named
Executive Officers exercised any options during 1998 and no stock
appreciation rights have been granted since the inception of the 1994
Executive Stock Option Plan, nor are any allowable under the 1997 Stock
Plan.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SAR's at August 31, 1998(#) at August 31, 1998 ($)<1>
Name Exercisable Unexercisable Exercisable Unexercisable
Robert L. Parker Jr. 406,000 360,000<2> 0 0
Robert L. Parker 160,000 240,000<3> 0 0
James W. Linn 244,000 180,000<4> 0 0
James J. Davis 187,000 180,000<4> 0 0
The value per option is calculated by subtracting the exercise
price of each option ($4.50 for previous awards under the 1994 Plan and
$8.875 for all awards in 1997 under the 1994 and the 1997 Plans) from
the price of the Company's Common Stock on the New York Stock Exchange.
Because the closing price of the Company's Common Stock on the NYSE on
August 31, 1998 ($4.00) was lower than the exercise price of each
option, none of the options were "In-the-Money".
120,000 vest annually in 1999, 2000 and 2001.
80,000 vest annually in 1999, 2000 and 2001.
60,000 vest annually in 1999, 2000 and 2001.
STOCK PERFORMANCE GRAPH
The following performance graph compares cumulative total
stockholder returns on the Company's Common Stock compared to the
Standard and Poor's Mid-Cap 400 Index and a Peer Group Index consisting
of Nabors Industries, Rowan Companies, Noble Drilling Corp., Helmerich &
Payne, Pool Energy Services and Pride International, calculated at the
end of each fiscal year, August 31, 1994 through August 31, 1998. The
composition of companies that comprise the Peer Group Index was
increased based on the diversification of the Company during the last
year to enable comparisons with peer companies whose operations and
business most closely resemble that of the Company. The graph assumes
$100 was invested on August 31, 1993 in the Company's Common Stock and
in each of the referenced indices and assumes reinvestment of dividends.
[GRAPH]
Measurement Period
(Fiscal Year Covered) Parker Drilling S&P Midcap 400 Peer Group
1993 100 100 100
1994 76 105 73
1995 78 126 88
1996 97 141 134
1997 182 194 276
1998 55 103 76
SEVERANCE COMPENSATION AND CONSULTING AGREEMENTS
Each officer named in the Summary Compensation Table and eleven
additional officers of the Company have entered into Severance
Compensation and Consulting Agreements (the "Agreements") with the
Company. Each such agreement has a six-year term but is automatically
extended on a year to year basis thereafter unless terminated or unless
a change in control (as defined in the Agreements) occurs, in which case
the Agreements will remain in effect until no more benefits are payable
thereunder.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
After a change in control, if an officer is terminated other than
for cause or resigns for good reason, the Agreements provide for a lump
sum payment of three times the annual cash compensation, a one year
consulting agreement at the officer's annual cash compensation and
extended life and health benefits for four years.
Subsequent to the execution of the Agreements, there has been no
event of change in control that would trigger the payment of any
benefits under the Agreements in the event of the termination of
employment of the signatories thereto.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning beneficial
ownership of the Company's Common Stock as of September 30, 1998, by
(a) all persons known by the Company to be beneficial owners of more
than five percent (5%) of such stock, (b) each director and nominee for
director of the Company, (c) each of the executive officers of the
Company named in the Executive Compensation table, and (d) all directors
and executive officers as a group. Unless otherwise noted, the persons
named below have sole voting and investment power with respect to such
shares.
Common stock
Beneficially Owned<1>
Name of Beneficial Owner Number of Percent of
Shares Class
The Equitable Companies Incorporated....... 11,959,816 <2> 15.5%
Robert L. Parker........................... 4,297,569 <3> 5.6%
Robert L. Parker, Jr....................... 995,213 <4> 1.3%
James W. Linn.............................. 647,834 <5> *
James J. Davis............................. 477,739 <6> *
Earnest F. Gloyna.......................... 59,900 <7> *
R. Rudolph Reinfrank....................... 54,000 <8> *
David L. Fist.............................. 50,600 <9> *
Bernard Duroc-Danner....................... 40,000<10> *
James E. Barnes............................ 30,000<11> *
W. Kirk Brassfield......................... 50,000<12> *
All directors and all executive officers as
a Group (10 persons)....................... 6,702,855<13> 8.7%
* Less than one percent
Unless otherwise indicated, all shares are directly held with sole
voting and investment power. Additionally, there are no voting or
investment powers over shares which are represented by presently
exercisable stock options.
<2> Based on information obtained from The Equitable Companies
Incorporated as of September 30, 1998, 11,959,816 shares were
beneficially owned by subsidiaries of The Equitable Companies
Incorporated. The Equitable Life Assurance Society of the United
States, Alliance Capital Management L.P. and Donaldson Lufkin &
Jenrette Securities Corporation beneficially owned 3,756,100,
7,554,500 and 2,000 shares, respectively, each having sole voting
and dispositive power.
<3> Includes 67,200 shares owned by Mr. Parker's spouse, as to which
shares Mr. Parker disclaims any beneficial ownership and has no
voting control, 3,796,045 shares held by the Robert L. Parker
Trust, over which Mr. Parker has sole voting control and shared
dispositive power, options to purchase 240,000 shares under the
1994 Executive Stock Option Plan and options to purchase 160,000
shares under the 1997 Stock Plan.
<4> Includes 5,760 shares held as trustee for Mr. Parker Jr.'s nieces,
as to which he disclaims any beneficial ownership, options to
purchase 526,000 shares under the 1994 Executive Stock Option Plan
and options to purchase 240,000 shares under the 1997 Stock Plan.
<5> Includes options to purchase 304,000 shares under the 1994
Executive Stock Option Plan and options to purchase 120,000 shares
under the 1997 Stock Plan.
<6> Includes 77,200 shares held by Mr. Davis' spouse in a trust over
which she is trustee only, options to purchase 247,000 shares
under the 1994 Executive Stock Option Plan and options to purchase
120,000 shares under the 1997 Stock Plan.
<7> Includes 2,000 shares held in trust by Dr. Gloyna's spouse, as to
which Dr. Gloyna disclaims beneficial ownership and options to
purchase 45,000 shares.
<8> Includes options to purchase 50,000 shares.
<9> Includes options to purchase 50,000 shares.
<10> Includes options to purchase 40,000 shares.
<11> All shares are held by the James E. Barnes Revocable Trust.
<12> Includes options to purchase 50,000 shares.
<13> This number of shares includes the total number of shares
which may be acquired pursuant to the exercise of options by
the directors and executive officers.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was the beneficiary of a life insurance policy on
Robert L. Parker, chairman of the Company, which was issued pursuant to
a Stock Purchase Agreement approved by vote of the stockholders at the
1975 Annual Meeting on December 10, 1975. This agreement was entered
into between the Company and the Robert L. Parker Trust and originally
provided that upon the death of Robert L. Parker, the Company would be
required, at the option of the trust, to purchase from the trust at a
discounted price the amount of Company Common Stock which could be
purchased with the proceeds of the policy of $7,000,000. The Company
and the trust modified the Stock Purchase Agreement as of August 3,
1994, so that the Company would have the option, but not the obligation,
to purchase the stock, at a discounted price, with the proceeds. In
fiscal 1998 the Company surrendered this policy for a cash value of
$2,009,000.
As a part of the agreement to terminate the option held by the
trust and to grant the Company a limited option to purchase stock at a
discounted price, the Company agreed to pay a premium of $655,019
annually for a split dollar last-to-die life insurance policy on Robert
L. Parker and Mrs. Robert L. Parker. Upon the deaths of Mr. Parker and
Mrs. Parker, the Company will be reimbursed by the Robert L. Parker Sr. and
Catherine M. Parker Family Trust from the proceeds of the policy for the
full amount of the premiums paid by the Company, with interest to be
paid after fiscal year 1999 at a one-year treasury bill rate. Robert L.
Parker and the Company agreed on or about October 15, 1996, that the
Company would cash surrender a $500,000 Executive Life policy on his
life, and, in exchange, the interest on the above-described policy would
not begin accruing until March 2003. Robert L. Parker Jr., chief
executive officer of the Company and son of Robert L. Parker, will
receive as a beneficiary of the trust, one-third of the net proceeds of
this policy. The face value of the policy is $13,200,000.
As part of building business relationships and fostering closer
ties to clients, companies traditionally host customers in a variety of
activities. Over the years, the Company has found the most successful
business development opportunities are providing customers with
industry-related conferences and seminars, coupled with sporting and
other outdoor activities.
Robert L. Parker, through the Robert L. Parker, Sr. Family Limited
Partnership (the "Limited Partnership") owns a 2,987 acre ranch near
Kerrville, Texas, ("Cypress Springs Ranch") which the Limited
Partnership makes available to the Company for customer retreats and
forums and meetings for world-wide company management. The Cypress
Springs Ranch provides lodging, conference facilities, sporting and
other outdoor activities in conjunction with marketing and business
purposes. The location of the ranch and its facilities help to attract a
select group of oil and gas industry executives, including the chairmen
and principal officers of major oil companies, and prominent national
leaders who are provided the unique opportunity to meet annually and to
actively participate in an exchange of ideas and discussion of current
industry and world issues. Additionally, domestic and international
drilling managers and other operations personnel representing
major, independent and national oil company customers meet annually with
company operations personnel for in-depth discussions on all phases of
the industry and are afforded the opportunity to know one another on a
personal basis. Robert L. Parker has a 50 percent general partnership
interest and a 46.5 percent limited partnership interest in the Limited
Partnership. The Limited Partnership also owns a 4,982 acre cattle ranch
near Mazie, Oklahoma ("Mazie Ranch"), 40 miles from the corporate
headquarters in Tulsa, Oklahoma. The Mazie Ranch is also used by the
Company for outdoor activities by customers and is available to
employees for outdoor activities and other family recreation.
There is an understanding between the Company and the Limited
Partnership that the Cypress Springs Ranch and the Mazie Ranch shall be
available for company use without limitation. In consideration for the
availability and use of these facilities, the Company pays only the
portion of the ranch operating expenses based on its actual use of said
facilities. The total amount of these operating expenses paid by the
Company in fiscal year 1998 was approximately $148,393.
Additionally, the Company uses a 1,380 acre ranch ("Camp Verde
Ranch") owned by Robert L. Parker Jr., which is near the Cypress Springs
Ranch. The Camp Verde Ranch is used to provide additional facilities and
lodging for business functions at Cypress Springs Ranch, for which the
Company pays only that portion of the ranch operating expenses based on
the actual use of these facilities. The total amount of these operating
expenses paid by the Company in fiscal 1998 was approximately $46,767.
During fiscal year 1998, the Company and its subsidiaries
purchased approximately $12,579,000 worth of drill pipe from Grant
Prideco, Inc., a wholly-owned subsidiary of Weatherford International,
Inc. Mr. Bernard Duroc-Danner, the Chairman of Weatherford
International, Inc., is a director of Parker.
Mr. Robert L. Parker Jr., James W. Linn and James J. Davis
incurred tax liabilities of $163,092, $122,319 and $65,528,
respectively, on January 5, 1998, in connection with the vesting of
restricted stock granted to them by the Company pursuant to its 1991
Stock Grant Plan in 1995. As is customary, the Company paid the
estimated taxes on said stock grants pursuant to an agreement that said
executive officers would repay said amounts to the Company. At the
present time Mr. Parker Jr. and Mr. Davis are indebted to the Company in
the amount of $163,092 and $65,528, respectively.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Parker Drilling Company and subsidiaries
which are included in Part II, Item 8:
Page
----
Report of Independent Accountants 36
Consolidated Statement of Operations for each
of the three years in the period ended August 31, 1998 37
Consolidated Balance Sheet as of August 31, 1998 and 1997 38
Consolidated Statement of Cash Flows for each of the
three years in the period ended August 31, 1998 40
Consolidated Statement of Stockholders' Equity for
each of the three years in the period ended August 31, 1998 42
Notes to Consolidated Financial Statements 43
PART IV
(continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(2) Financial Statement Schedule: Page
----
Schedule II - Valuation and qualifying accounts 68
(3) Exhibits:
Exhibit Number Description
-------------- -----------
2(a) - Stock Purchase Agreement dated May 9, 1997 by and among
the Company, Parker Drilling Offshore Company and Trenergy
(Malaysia) BHD. (incorporated by reference to Exhibit 10(n)
to the Company's Quarterly Report on Form 10-Q for the
three months ended May 31, 1997).
2(b) - Stock Purchase Agreement dated May 9, 1997 by and among the
Company, Parker Drilling Offshore Company and Rashid & Lee
Nominees SDN BHD. (incorporated by reference to Exhibit 10(o)
to the Company's Quarterly Report on Form 10-Q for the three
months ended May 31, 1997).
2(c) - Definitive agreement between Parker Drilling Company and
Energy Ventures, Inc., for the purchase of Mallard Bay
Drilling, Inc. (incorporated herein by reference to the
Company's current report on Form 8-K filed September 19, 1996).
2(d) - Definitive agreement to acquire Quail Tools, Inc.
(incorporated herein by reference to the Company's current
report on Form 8-K filed October 17, 1996).
3(a) - Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 4.1 to
Amendment No. 1 to the Company's S-3 Registration Statement
No. 333-22987).
3(b) - Certificate of Retirement of the Company (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 to the Company's
S-3 Registration Statement No. 333-22987).
3(c) - Corrected Restated Certificate of Incorporation of the
Company, as amended on September 21, 1998.
3(d) - By-Laws of the Company, as amended July 10, 1998.
PART IV (continued)
(3) Exhibits: (continued)
Exhibit Number Description
- -------------- -----------
4(a) - Indenture dated as of March 11, 1998 among the Company,
as issuer, certain Subsidiary Guarantors (as defined therein)
and Chase Bank of Texas, National Association, as Trustee
(incorporated by reference to Exhibit 4.5 to the Company's
S-4 Registration Statement No. 333-49089 dated April 1, 1998).
4(b) - Indenture dated as of July 25, 1997, between the Company
and Chase Bank of Texas, National Association, f/k/a Texas
Commerce Bank National Association, as Trustee, respecting
5 1/2% Convertible Subordinated Notes due 2004 (incorporated
by reference to Exhibit 4.7 to the Company's S-3 Registration
Statement No. 333-30711).
10(a) - Parker Drilling Company and Subsidiaries 1991 Stock
Grant Plan; incorporated herein by reference to Exhibit 10(c)
to Annual Report on Form 10-K for the year ended
August 31, 1992, as amended by Form 8 dated February 18, 1993.*
10(b) - 1980 Incentive Career Stock Plan; incorporated herein
by reference to Exhibit 10(c) to Annual Report on Form
10-K for the year ended August 31, 1989, as amended by
Form 8 dated December 27, 1989.*
10(c) - 1969 Key Employees Stock Grant Plan; incorporated
herein by reference to Exhibit 10(e) to Annual Report
on Form 10-K for the year ended August 31, 1992, as
amended by Form 8 dated February 18, 1993.*
PART IV (continued)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(continued)
(3) Exhibits: (continued)
Exhibit Number Description
- -------------- -----------
10(d) - Amended and Restated Parker Drilling Company Stock Bonus Plan,
effective as of April 1, 1996; incorporated herein by
reference to Exhibit 10(e) to Annual Report on Form 10-K for
the year ended August 31, 1996.
10(e) - 1975 Stock Purchase Agreement; incorporated herein
by reference to Exhibit 10(g) to Annual Report on Form
10-K for the year ended August 31, 1986, as amended by
Form 8 dated December 29, 1986.
10(f) - Form of Severance Compensation and Consulting Agreement
entered into between Parker Drilling Company and certain
officers of Parker Drilling Company, dated on or about
October 15, 1996; incorporated herein by reference to
Exhibit 10(g) to Annual Report on Form 10-K for the period
ended August 31, 1996.*
10(g) - 1994 Parker Drilling Company Deferred Compensation
Plan; incorporated herein by reference to Exhibit 10(h)
to Annual Report on Form 10-K for the year ended August
31, 1995.*
10(h) - 1994 Non-Employee Director Stock Option Plan; incorporated
herein by reference to Exhibit 10(i) to Annual Report on
Form 10-K for the year ended August 31, 1995.*
10(i) - 1994 Executive Stock Option Plan; incorporated herein
by reference to Exhibit 10(j) to Annual Report on Form
10-K for the year ended August 31, 1995.*
10(j) - First Amendment effective as of September 1, 1996, to the
Amended and Restated Parker Drilling Company Stock Bonus
Plan, effective as of April 1, 1996; incorporated herein
by reference to Exhibit 10(k) to Annual Report on Form 10-K
for the year ended August 31, 1996.
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Accountants.
27 - Financial Data Schedule (Edgar version only).
99 - Additional Exhibit - Annual Report on Form 11-K To be
with respect to Parker Drilling Company Stock filed by
Bonus Plan. amendment
*Management Contract, Compensatory Plan or Agreement
(b) Reports on Form 8-K:
The Company filed a Form 8-K on July 24, 1998, disclosing
that the Company decided to change its fiscal year-end from
August 31 to December 31, effective December 31, 1998. The
Company filed a Form 8-K on July 24, 1998, disclosing that
the Board of Directors of the Company authorized issuance of
one Preferred Share Purchase Right for each outstanding share
of common stock.
PARKER DRILLING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
- -------------------------------- --------- --------- ---------- ----------
Balance Charged
at to cost Balance
beginning and at end of
Classifications of period expenses Deductions period
- -------------------------------- --------- --------- ---------- ----------
Year ended August 31, 1998:
Allowance for doubtful accounts
and notes $ 3,153 $ 160 $ 240 $ 3,073
Reduction in carrying value of
rig materials and supplies $ 2,846 $ 780 $ 1,314 $ 2,312
Deferred tax valuation allowance $44,086 $ - $ 5,617 $38,469
Year ended August 31, 1997:
Allowance for doubtful accounts
and notes $ 739 $ 737 $ (1,677) $ 3,153
Reduction in carrying value of
rig materials and supplies $ 1,797 $ 1,384 $ 335 $ 2,846
Deferred tax valuation allowance $61,844 $ - $ 17,758 $44,086
Year ended August 31, 1996:
Allowance for doubtful accounts
and notes $ 796 $ 70 $ 127 $ 739
Reduction in carrying value of
rig materials and supplies $ 2,080 $ 240 $ 523 $ 1,797
Deferred tax valuation allowance $67,494 $ - $ 5,650 $61,844
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARKER DRILLING COMPANY
By /s/ Robert L. Parker Jr. Date: November 30, 1998
------------------------------
Robert L. Parker Jr.
President and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Robert L. Parker Chairman of the Board and Director Date: November 30, 1998
By ------------------------
Robert L. Parker
/s/ Robert L. Parker Jr. President and Chief Executive
------------------------- Officer and Director
By Robert L. Parker Jr. (Principal Executive Officer) Date: November 30, 1998
/s/ James W. Linn Executive Vice President and Chief
------------------------- Operating Officer and Director Date: November 30, 1998
By James W. Linn
Senior Vice President - Finance
/s/ James J. Davis and Chief Financial Officer
By ------------------------- (Principal Financial Officer) Date: November 30, 1998
James J. Davis
/s/ W. Kirk Brassfield Corporate Controller
By ------------------------- (Principal Accounting Officer) Date: November 30, 1998
W. Kirk Brassfield
/s/ Earnest F. Gloyna
By ------------------------- Director Date: November 30, 1998
Earnest F. Gloyna
/s/ David L. Fist
By ------------------------ Director Date: November 30, 1998
David L. Fist
/s/ R. Rudolph Reinfrank
By ------------------------- Director Date: November 30, 1998
R. Rudolph Reinfrank
/s/ Bernard Duroc-Danner
By ------------------------ Director Date: November 30, 1998
Bernard Duroc-Danner
/s/ James E. Barnes
By ------------------------- Director Date: November 30, 1998
James E. Barnes
/TABLE