- ---------------------------------------------------------------- - ---------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q ----------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2000 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- Commission file number 1-7573 PARKER DRILLING COMPANY ----------------------- (Exact name of registrant as specified in its charter) Delaware 73-0618660 ------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103 --------------------------------------------------------- ----- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (918) 585-8221 ----------------------------------------------------------------- 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 --- --- As of October 31, 2000 92,140,706 common shares were outstanding. - ----------------------------------------------------------------- - -----------------------------------------------------------------
PARKER DRILLING COMPANY INDEX Page No. Part I. Financial Information Consolidated Condensed Balance Sheets (Unaudited) September 30, 2000 and December 31, 1999 2 Consolidated Condensed Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2000 and 3 1999 Consolidated Condensed Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and 1999 4 Notes to Unaudited Consolidated Condensed Financial Statements 5 - 9 Report of Independent Accountants 10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-19 Part Other Information II. Item 6, Exhibits and Reports on Form 8-K 20 Signatures 21 Exhibit 15, Letter Re Unaudited Interim Financial Information 23 Exhibit 27, Financial Data Schedule [Edgar Version Only]
PART 1. FINANCIAL INFORMATION PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars In Thousands) (Unaudited)
ASSETS September December 30, 31, ------ 2000 1999 ------------ ---------- Current assets: Cash and cash equivalents $117,987 $ 45,501 Other short-term investments 864 777 Accounts and notes receivable 107,982 75,411 Rig materials and supplies 15,955 13,766 Other current assets 6,953 15,988 ---------- ---------- Total current assets 249,741 151,443 Property, plant and equipment less accumulated depreciation and amortization of $473,847 at September 30, 2000 and $423,514 at December 31, 1999 658,555 661,402 Goodwill, net of accumulated amortization of $25,915 at September 30, 2000 and $20,304 At December 31, 1999 198,479 204,090 Other noncurrent assets 51,316 65,808 ---------- ---------- Total assets $1,158,091 $1,082,743 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 5,124 $ 5,054 Accounts payable and accrued 85,349 58,732 liabilities Accrued income taxes 6,686 8,323 ----------- ---------- Total current liabilities 97,159 72,109 ---------- ---------- Long-term debt 644,565 648,577 Deferred income tax 17,415 28,273 Other long-term liabilities 6,341 4,363 Stockholders' equity: Common stock, $.16 2/3 par value 15,269 12,895 Capital in excess of par value 430,218 343,374 Comprehensive income-net unrealized gain on investments available for sale (net of taxes of $550 at September 30, 2000 and $908 at December 31, 1999). 977 1,613 Retained earnings (accumulated (53,853) (28,461) deficit) ---------- ---------- Total stockholders' equity 392,611 329,421 ---------- ---------- Total liabilities and stockholders' equity $1,158,091 $1,082,743 ========== ==========
See accompanying notes to consolidated condensed financial statements. PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended --------------------- --------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2000 1999 2000 1999 --------- --------- --------- -------- Revenues: Domestic drilling $ 39,893 $ 27,206 $102,198 $ 84,494 International drilling 49,959 45,868 131,207 143,620 Rental tools 11,996 6,978 29,352 20,533 Other 1 28 5 273 --------- --------- -------- -------- Total revenues 101,849 80,080 262,762 248,920 --------- --------- -------- -------- Operating expenses: Domestic drilling 25,436 26,047 72,173 77,478 International drilling 35,971 31,719 98,508 98,417 Rental tools 3,986 2,801 11,116 8,176 Other - 836 2 944 Depreciation and amortization 21,011 20,944 63,040 61,246 General and administrative 5,492 4,106 14,939 12,301 Restructuring charges - - - 3,000 Provision for reduction in carrying value of certain - 5,357 - 10,607 assets --------- --------- -------- -------- Total operating expenses 91,896 91,810 259,778 272,169 --------- --------- -------- -------- Operating income (loss) 9,953 (11,730) 2,984 (23,249) --------- --------- -------- -------- Other income and (expense): Interest expense (14,554) (15,048) (43,589) (41,695) Interest income 597 373 2,235 1,042 Gain on disposition of assets 7,953 34,330 9,901 37,279 Other income - net 749 (590) 2,625 1,681 --------- --------- -------- -------- Total other income and (expense) (5,255) 19,065 (28,828) (1,693) --------- --------- -------- -------- Income (loss) before income 4,698 7,335 (25,844) (24,942) taxes --------- --------- -------- -------- Income tax expense (benefit): Current tax expense-foreign 5,032 3,402 10,048 8,521 Deferred tax (benefit) 700 2,608 (10,500) (8,919) --------- --------- -------- -------- 5,732 6,010 (452) (398) --------- --------- -------- -------- Net income (loss) $ (1,034) $ 1,325 $(25,392) $(24,544) ========= ========= ========= ======== Earnings (loss) per share, Basic $ (.01) $ .02 $ (.32) $ (.32) Diluted $ (.01) $ .02 $ (.32) $ (.32) -------- --------- -------- --------- Number of common shares used in computing earnings per share: Basic 80,258,339 77,227,118 78,438,141 77,102,742 ---------- ---------- ---------- ---------- Diluted 80,258,339 77,782,921 78,438,141 77,102,742 ---------- --------- ---------- ----------
See accompanying notes to consolidated condensed financial statements. PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, ------------------ 2000 1999 -------- -------- Cash flows from operating activities: Net income (loss) $(25,392) $(24,544) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 63,040 61,246 Gain on disposition of assets (9,901) (37,279) Expenses not requiring cash 3,225 2,746 Deferred income taxes (10,500) (8,919) Provision for reduction in carrying value of certain assets - 10,607 Change in operating assets and 346 17,909 liabilities -------- -------- Net cash provided by operating activities 20,818 21,766 -------- --------- Cash flows from investing activities: Capital expenditures (net of reimbursements of $13.8 million in 2000 and $49.0 million in (59,654) (46,000) 1999) Proceeds from the sale of equipment 10,141 51,862 Purchase of short-term investments - (300) Proceeds from sale of investments 16,872 - Other-net - 463 -------- -------- Net cash provided by (used in) investing (32,641) 6,025 activities -------- -------- Cash flows from financing activities: Proceeds from issuance of debt - 10,252 Proceeds from common stock offering 87,313 - Principal payments under debt obligations (3,388) (41,763) Other 384 (62) Net cash provided by (used in) financing activities 84,309 (31,573) Net change in cash and cash equivalents 72,486 (3,782) Cash and cash equivalents at beginning of 45,501 24,314 period Cash and cash equivalents at end of period $117,987 $ 20,532 Supplemental cash flow information: Interest paid $ 33,410 $ 34,362 Taxes paid $ 11,686 $ 8,501 Supplemental noncash investing activity: Net unrealized loss on investments available for sale for the nine-month period ended September 30, 2000 (net of taxes of $358) $ 636 $ -
See accompanying notes to consolidated condensed financial statements. PARKER DRILLING COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. General - In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements reflect all adjustments (of a normally recurring nature) which are necessary for a fair presentation of (1) the financial position as of September 30, 2000 and December 31, 1999, (2) the results of operations for the three and nine months ended September 30, 2000 and 1999, and (3) cash flows for the nine months ended September 30, 2000 and 1999. Results for the nine months ended September 30, 2000 are not necessarily indicative of the results which will be realized for the year ending December 31, 2000. The financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1999. Our independent accountants have performed a review of these interim financial statements in accordance with standards established by the American Institute of Certified Public Accountants. Pursuant to Rule 436(c) under the Securities Act of 1933 their report of that review should not be considered as part of any registration statements prepared or certified by them within the meaning of Section 7 and 11 of that Act. NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) 2. Earnings per share - RECONCILIATION OF INCOME AND NUMBER OF SHARES USED TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Three Months Ended September 30, 2000 ------------------ Income Shares Per-Share (loss) (Numerator) (Denominator) Amount ----------- ----------- ---------- Basic EPS: Income (loss) available to common stockholders $(1,034,000) 80,258,339 $ (.01) Effect of Dilutive Securities: Stock options and grants - Diluted EPS: Income (loss) available to common stockholders + assumed conversions $(1,034,000) 80,258,339 $ (.01) =========== =========== ======== For the Nine Months Ended September 30, 2000 ------------------ Income (loss) Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------ --------- Basic EPS: Income (loss) available to common stockholders $(25,392,000) 78,438,141 $ (.32) Effect of Dilutive Securities: Stock options and grants - Diluted EPS: Income (loss) available to common stockholders + assumed conversions $(25,392,000) 78,438,141 $ (.32) ============= ========== ========
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) RECONCILIATION OF INCOME AND NUMBER OF SHARES USED TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Three Months Ended September 30, 1999 ------------------------------------ Income Shares Per-Share (loss) (Numerator) (Denominator) Amount ----------- ----------- --------- Basic EPS: Income (loss) available to common stockholders $1,325,000 77,227,118 $ .02 Effect of Dilutive Securities: Stock options and grants 555,803 Income (loss) available to common stockholders + assumed conversions $1,325,000 77,782,921 $ .02 =========== ========== ======== For the Nine Months Ended September 30, 1999 ---------------------------------- Income (loss) Shares Per- Share (Numerator) (Denominator) Amount ----------- ------------ -------- Basic EPS: Income (loss) available to common stockholders $(24,544,000) 77,102,742 $ (.32) Effect of Dilutive Securities: Stock options and grants - Income (loss) available to common stockholders + assumed Conversions $(24,544,000) 77,102,742 $ (.32) ============ =========== ======
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 (see note 6). 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. For the three and nine months ended September 30, 2000, options to purchase 7,269,250 shares of common stock at prices ranging from $2.25 to $12.1875 were outstanding but not included in the computation of diluted EPS because the assumed exercise of the options would have had an anti-dilutive effect on EPS due to the net loss incurred during the respective periods. For the three months ended September 30, 1999, options to purchase 5,319,500 shares of common stock at prices ranging from $4.500 to $12.1875 were outstanding but not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of common shares for the quarter. In addition, for the nine months ended September 30, 1999, options to purchase 7,231,000 shares of common stock at prices ranging from $2.25 to $12.1875 were outstanding but not included in the computation of diluted EPS because the assumed exercise of the options would have had an anti- dilutive effect on EPS due to the net loss in the period. NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) 3. Business Segments - During the nine months ended September 30, 1999 the Company restructured its worldwide drilling operations into two primary business units, "Domestic Operations" and "International Operations." The primary services the Company provides are as follows: domestic drilling, international drilling and rental tools. Information regarding the Company's operations by industry segment for the three and nine months ended September 30, 2000 and 1999 is as follows (dollars in thousands):
Three Months Ended Nine Months Ended ---------------- ----------------- September September September September 30, 30, 30, 30, 2000 1999 2000 1999 -------- ------- ------- ------- Revenues: Domestic drilling $ 39,893 $ 27,206 $102,198 $ 84,494 International 49,959 45,868 131,207 143,620 drilling Rental tools 11,996 6,978 29,352 20,533 Other 1 28 5 273 -------- -------- -------- -------- Net revenues 101,849 80,080 262,762 248,920 -------- -------- -------- -------- Operating income (loss): Domestic drilling 3,821 (9,915) (1,649) (24,641) International 6,105 7,418 8,475 23,929 drilling Rental tools 5,518 1,901 11,094 5,742 Other 1 (1,671) 3 (2,371) -------- -------- -------- -------- Total operating income (loss) by segment 15,445 (2,267) 17,923 2,659 (1) -------- -------- -------- -------- Provision for reduction in carrying value of certain assets - (5,357) - (10,607) Restructuring charges - - - (3,000) General and Administrative (5,492) (4,106) (14,939) (12,301) -------- -------- -------- -------- Total operating income (loss) 9,953 (11,730) 2,984 (23,249) Interest expense (14,554) (15,048) (43,589) (41,695) Other income (expense)- 9,299 34,113 14,761 40,002 net -------- -------- -------- -------- Income (loss) before income taxes $ 4,698 $ 7,335 $(25,844) $(24,942) ======== ========= ======== ======== Total operating income (loss) by segment is c alculated by excluding General and administrative expense, Restructuring charges and Provision for reduction in carrying value of certain assets from Operating income (loss), as reported in the Consolidated Condensed Statements of Operations.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) 4. On September 8, 2000 the Company sold one million shares of common stock of Unit Corporation. The Company received net proceeds of $15.0 million resulting in a pre-tax gain of approximately $7.4 million. The one million shares were received by the Company in partial consideration for its sale of the thirteen lower-48 land rigs to Unit Corporation in September 1999. 5. During September 2000, the Company sold 13.8 million shares of common stock pursuant to an effective shelf registration. The Company raised net proceeds of $87.3 million. The net proceeds will be used to acquire, upgrade and refurbish certain offshore and land drilling rigs and for general corporate purposes, including the repayment of debt (see note 6). 6. Subsequent Event - During October 2000, the Company repurchased on the open market $50.5 million par value of its 5.5% Convertible Notes due 2004 at an average price of 86.11% of par. Net cash outlay for the repurchase of the Convertible Notes was $43.4 million. Report of Independent Accountants To the Board of Directors and Shareholders Parker Drilling Company We have reviewed the consolidated condensed balance sheet of Parker Drilling Company and subsidiaries as of September 30, 2000 and the related consolidated condensed statements of operations for the three and nine month periods ended September 30, 2000 and 1999 and the consolidated condensed statement of cash flows for the nine month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report, dated February 3, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. By: /s/ PricewaterhouseCoopers LLP ------------------------------- PricewaterhouseCoopers LLP Tulsa, Oklahoma October 25, 2000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q 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 by the Company 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, the outlook for rig utilization and dayrates, general industry conditions including bidding activity, future operating results of the Company's rigs and rental tool operations, future capital expenditures and investments in the acquisition and refurbishment of rigs and equipment, asset sales, repayment of debt, financing activities, expansion and growth opportunities, 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 market prices of oil and gas, industry conditions, international trade restrictions and political instability, operating hazards and uninsured risks, governmental regulations and environmental matters, substantial leverage of the Company, seasonality and adverse weather conditions, concentration of customer and supplier relationships, competition in the industry, integration of operations, acquisition strategy, and other similar factors (some of which are discussed in documents referred to in this Form 10-Q.) 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. OUTLOOK AND OVERVIEW - -------------------- The $25.4 million net loss for the nine months ended September 30, 2000 reflects the continued weakness in the Company's international drilling markets. The Company's international drilling markets have been slow to react to the increase in crude oil prices over the past year. In addition, due to several occurrences of community unrest in Nigeria, the Company's four barge rigs were on reduced standby rates for extended periods during the first six months of the current year. As a result, the Company's international rig utilization has remained low, negatively impacting net income during the nine months ended September 30, 2000. Offsetting this, the Company experienced a significant increase in activity during the second and third quarters in its domestic operations, with rig utilization increasing from 60% to approximately 75% and dayrates for the seven jackup rigs increasing an average of 37% from the first quarter of 2000 to the third quarter. The company's rental tool segment, Quail Tools, experienced record revenues and operating profit during the third quarter as Quail Tools took advantage of the increased activity in the Gulf of Mexico. RESULTS OF OPERATIONS (continued) - --------------------- Due mainly to the tightness in supply of natural gas from domestic production, the Company anticipates that domestic drilling activity will remain robust through the remainder of 2000 and into 2001. This will benefit the Company's domestic offshore drilling operations and Quail Tools. Since June 2000 all four barge rigs in Nigeria worked more consistently at full dayrates. In addition, the Company is experiencing increased activity for land rigs in Kazakhstan and Latin America, and to a modest extent in the Asia Pacific region. In spite of the strong improvements in domestic markets and the encouraging signs of a turnaround in international land and offshore markets, management anticipates that the Company will incur a small loss for the remainder of the current year. Management believes that cash on hand, cash provided by operations and funds available under the Company's $50.0 million revolving credit facility will be adequate to meet working capital needs, including maintenance and project capital expenditures. During September 2000 the Company sold 13.8 million shares of common stock pursuant to an effective shelf registration. The Company raised net proceeds of $87.3 which will be used to acquire, upgrade and refurbish certain offshore and land drilling rigs and equipment and for general corporate purposes, including the repayment of debt. In October 2000, the Company repurchased on the open market $50.5 million par value of its 5.5% Convertible Notes due 2004 at an average price of 86.11% of par. Three Months Ended September 30, 2000 Compared with Three Months Ended September 30, 1999 - ----------------------------------------------------------- The Company recorded a net loss of $1.0 million for the three months ended September 30, 2000 compared to a net income of $1.3 million for the three months ended September 30, 1999. The current quarter was positively impacted by a pre-tax gain of $7.4 million on the sale of 1.0 million shares of Unit Corporation common stock received as partial consideration for its sale of thirteen lower-48 land rigs in September 1999. The 1999 third quarter was positively impacted by a pre-tax gain of approximately $35.8 million from the sale of thirteen lower-48 land rigs. This 1999 gain was partially offset by a $5.4 million provision for reduction in the carrying value of certain assets, including the impairment of certain assets and various provisions for doubtful accounts. The Company's revenues increased $21.8 million to $101.9 million in the current quarter as compared to the third quarter of 1999. Domestic drilling revenues increased $12.7 million to $39.9 million. Domestic offshore drilling revenues increased $18.1 million due primarily to increased utilization in the barge and jackup drilling rigs and a significant increase in dayrates for the jackup drilling rigs. Utilization for the 22 barge rigs increased from approximately 52% during the third quarter of 1999 to approximately 80% during the current quarter. Utilization for the seven jackup drilling rigs increased from approximately 44% during the third quarter of 1999 to approximately 85% for the current quarter. In addition average dayrates for the jackup drilling rigs increased 53% to approximately $24.3 thousand per day when compared to the third quarter of 1999. International drilling revenues increased $4.1 million to $50.0 million in the current quarter as compared to the third quarter of 1999. International land drilling revenues increased $.3 million while international offshore drilling revenues increased $3.8 million. International land drilling was positively impacted by a $5.1 million increase in the Frontier areas, which includes Kazakhstan, Russia, Africa and the Middle East, offset by decreases of $2.5 million in Latin America and $2.3 million in Asia Pacific. The $5.1 million increase in the Frontier areas is primarily attributed to increased rig activity in Kazakhstan and a one-well drilling contract in Madagascar during the current RESULTS OF OPERATIONS (continued) - --------------------- quarter. The decrease in Latin America was due primarily to the completion of a contract in Ecuador during the second quarter of 2000. Decreased revenues in Asia Pacific are primarily due to the completion of a one-well drilling contract in Vietnam during the third quarter of 1999 and reduced utilization in Papua New Guinea. The increase of $3.8 million in international offshore drilling revenues was due primarily to revenues generated by barge Rig 257 in the Caspian Sea and barge Rig 75 in Nigeria. Barge Rig 257, which commenced drilling in the third quarter of 1999, contributed $6.1 million of revenues during the current quarter as compared to $3.6 million during the third quarter of 1999. During the first and second quarters of 2000, several episodes of community unrest in Nigeria disrupted normal operations of the four barge rigs in Nigeria, leaving three of the four barge rigs on reduced standby rates throughout most of this period. During the third quarter of 2000 conditions improved allowing all four barge rigs to resume normal operations at full dayrates other than for brief periods of time. As a result, revenues increased $4.1 million during the current quarter as compared to 1999. Increased revenue in the Caspian Sea and Nigeria were partially offset by the completion of barge Rig 76 contract in Venezuela during the third quarter of 1999. Barge Rig 76 generated revenues of $2.8 million during the prior year quarter and has been relocated to the Gulf of Mexico market. Rental tool revenues increased $5.0 million due to the increased level of drilling activity in the Gulf of Mexico and the opening in May 2000 of a new rental tool facility in Odessa, Texas to service the West Texas drilling market. The increase in revenues consists of $2.4 million from the New Iberia, Louisiana operations, $1.8 million from the Victoria, Texas operations and $.8 million from the new Odessa, Texas operations. Profit margins (revenues less direct operating expenses, excluding depreciation) of $36.5 million in the current quarter reflect an increase of $17.8 million from the $18.7 million recorded during the three months ended September 30, 1999. The domestic and international drilling segments recorded profit margin percentages (profit margin as a percent of revenues) of 36.2% and 28.0% in the current quarter, respectively, as compared to 4.3% and 30.8% in the third quarter of 1999. Domestic profit margins increased $13.3 million. Domestic drilling profit margins were positively impacted during the current quarter, by increased utilization in the Gulf of Mexico, particularly from the barge rigs and the jackup rigs. In addition, average dayrates for the jackup rigs increased approximately 53% during the current quarter when compared to the third quarter of 1999. Offsetting the increased domestic offshore profit margins was the sale of all thirteen lower-48 domestic land rigs during the third quarter of 1999, which contributed $.7 million of profit margin during the third quarter of 1999. The remaining domestic land rig, located in Alaska, has been stacked since March 1999. International drilling profit margins declined $.2 million to $14.0 million in the current quarter as compared to the third quarter of 1999. International land drilling profit margins declined $.1 million to $8.0 million during the current quarter as revenues and costs were comparable between the two periods. The offshore segment of international drilling profit margins declined $.1 million to $5.9 million in the current quarter. Profit margin percentages decreased from 40% during the third quarter of 1999 to 31% during the current quarter. The decline in profit margin is primarily RESULTS OF OPERATIONS (continued) - --------------------- attributable to the aforementioned community unrest in Nigeria that resulted in reduced dayrates through the beginning of the third quarter of 2000. Specifically, Rig 74 had 19 days of no revenues which adversely impacted the profit margin. Currently all four barge rigs are maintaining normal operations at full drilling dayrates. Rental tool profit margins increased $3.8 million to $8.0 million during the current quarter as compared to the third quarter of 1999. Profit margins increased due to an increase in revenues during the current quarter and a significant increase in profit margin percentage which was 67% during the current quarter as compared to 60% for the third quarter of 1999. Depreciation and amortization expense was $21.0 million in the current quarter and the comparable quarter of 1999. Interest expense decreased $.5 million due to the reduction of the $40.0 million outstanding balance of the $75.0 million revolving credit facility which was repaid in full with the proceeds from the sale of the lower-48 land rigs on September 30, 1999. Gain on disposition of assets decreased $26.4 million during the current quarter when compared to the third quarter of 1999. On September 30, 1999 the Company sold its thirteen lower- 48 land rigs to Unit Corporation for $40.0 million cash plus one million shares of Unit Corporation common stock. The Company recognized a pre-tax gain of $35.8 million during the third quarter of 1999. During the third quarter of 2000 the Company sold its one million shares of Unit Corporation common stock and recognized a pre-tax gain of $7.4 million. Income tax expense consists of foreign tax expense and deferred tax expense. Higher third quarter foreign revenues have resulted in an increase in foreign tax expense when comparing the two periods. The deferred tax expense is due to the pre-tax income generated during the current quarter. RESULTS OF OPERATIONS (continued) - --------------------- Nine Months Ended September 30, 2000 Compared with Nine Months Ended September 30, 1999 - --------------------------------------------------------- The Company recorded a net loss of $25.4 million for the nine months ended September 30, 2000 compared to a net loss of $24.5 million recorded for the nine months ended September 30, 1999. The Company's revenues increased $13.8 million to $262.8 million in the current nine-month period as compared to the nine months ended September 30, 1999. Domestic drilling revenues increased $17.7 million to $102.2 million. Domestic offshore drilling revenues increased $34.0 million due primarily to increased utilization for the drilling barge rigs and increased utilization and dayrates for the jackup rigs. Domestic land drilling revenues decreased $16.3 million due to the sale of the Company's thirteen lower-48 land rigs on September 30, 1999. The Company's one remaining domestic land rig, located in Alaska, was stacked throughout the current period and was operating during part of the comparable period in 1999. International drilling revenues declined $12.4 million to $131.2 million in the current period as compared to the nine months ended September 30, 1999. International land drilling revenues decreased $22.7 million while international offshore drilling revenues increased $10.3 million. Primarily responsible for the international land drilling revenues decrease was the Latin America region, which decreased $16.9 million. This decrease is attributed to reduced rig utilization in Colombia, Bolivia and Peru. In addition, land drilling revenues decreased $11.6 million in the Asia Pacific region due to completion of a one-well drilling contract in Vietnam, that ended during the third quarter of 1999, and reduced utilization in Papua New Guinea. Revenues in the Frontier area, which includes Russia, Kazakhstan, Africa and the Middle East, increased $5.8 million during the current period as compared to the nine months ended September 30, 1999. This increase is primarily attributed to short-term drilling contracts during the current year in Madagascar, Nigeria (land contract) and a labor contract in Kuwait. As of September 30, 2000, these contracts have been completed. The increase of $10.3 million in international offshore drilling revenues was due primarily to barge Rig 257 in the Caspian Sea and barge Rig 75 in Nigeria. Barge Rig 257, which commenced drilling in September of 1999, contributed $18.6 million of revenues during the nine months ended September 30, 2000, an increase of $15.0 million, despite being on a reduced dayrate for approximately five weeks during the period due to winter conditions. With the addition of barge Rig 75 during the third quarter of 1999, the Company has four barge rigs in the Nigerian offshore market. Due to several episodes of community unrest, three of the four barge rigs were on standby status during most of the first six months of the current year, while one rig, barge Rig 74, operated for approximately three and a half months. Despite the reduced revenues earned while on standby, Nigerian offshore revenues increased $6.1 million to $32.0 million during the current period. The increase is due to revenues earned by the new barge Rig 75 and the start-up of drilling operations on Rig 74 which was on standby status in the comparable period of 1999. Since July 2000 drilling operations on the Nigerian barge rigs have resumed at full dayrates. Offsetting the increased revenues in the Caspian Sea and Nigeria was a $10.8 million decrease in international offshore revenues due to the completion of a barge contract in Venezuela during the third quarter of 1999. RESULTS OF OPERATIONS (continued) - --------------------- Rental tool revenues increased $8.8 million due to the increased level of drilling activity in the Gulf of Mexico. Contributing to this increase was the New Iberia, Louisiana operation in the amount of $4.7 million, $3.1 million from the Victoria, Texas operation and $1.0 million from the new Odessa, Texas operation which commenced operations in May 2000. Profit margins (revenues less direct operating expenses, excluding depreciation) of $81.0 million in the current period reflect an increase of $17.1 million from the $63.9 million recorded during the nine months ended September 30, 1999. The domestic and international drilling segments recorded profit margin percentages (profit margin as a percent of revenues) of 29.4% and 25.0%, respectively, in the current period, as compared to 8.3% and 31.5% in the comparable period of 1999. Domestically, profit margins increased $23.0 million. Domestic drilling profit margins were positively impacted during the current period by increasing utilization in the Gulf of Mexico from the barge rigs and from the jackup rigs. In addition, average dayrates for the jackup rigs increased approximately 33% during the current period when compared to the nine months ended September 30, 1999. Offsetting the increased domestic offshore profit margins was the sale of all thirteen lower-48 domestic land rigs during the third quarter of 1999. During the nine months ended September 30, 1999 these lower-48 land rigs contributed profit margins of $1.7 million. In addition, the remaining domestic land rig, located in Alaska, has been stacked since March 1999. International drilling profit margins declined $12.5 million to $32.7 million during the nine months ended September 30, 2000 as compared to the comparable period of 1999. International land drilling profit margins declined $9.3 million to $19.8 million during the current period primarily due to lower utilization in the Company's land drilling operations as previously discussed. The international offshore drilling profit margins declined $3.2 million to $12.9 million in the current period as compared to the nine months ended September 30, 1999. This decrease is primarily attributed to the four barge rigs in Nigeria on standby status during most of the current period due to several episodes of community unrest. Drilling operations at full dayrates resumed during July 2000. Rental tool profit margins increased $5.9 million to $18.2 million during the current period as compared to the nine months ended September 30, 1999. Profit margins increased primarily due to the $8.8 million increase in revenue during the current period. Profit margin percentage increased during the current period to 62.1% from 60.2% for the comparable period of 1999. Depreciation and amortization expense increased $1.8 million to $63.0 million in the current period. Depreciation expense recorded in connection with 1998/1999 capital additions, principally barge Rig 257 and barge Rig 75, was the primary reason for the increase. Interest expense increased $1.9 million due to $3.0 million in interest being capitalized to construction projects during the nine months ended September 30, 1999. Gain on disposition of assets decreased $27.4 million to $9.9 million for the current nine-month period. On September 30, 1999 the Company sold its lower-48 land rigs to Unit Corporation for $40.0 million cash plus one million shares of Unit Corporation common stock. The Company recognized a pre-tax gain of $35.8 million during the third quarter of 1999. During September of 2000, the Company sold its one million shares of Unit Corporation common stock and recognized a pre-tax gain of $7.4 million. RESULTS OF OPERATIONS (continued) - --------------------- Income tax expense consists of foreign tax expense and deferred tax benefit. The deferred tax benefit is due to the net loss incurred during the nine months ended September 30, 2000. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of September 30, 2000, the Company had cash, cash equivalents and other short-term investments of $118.9 million, an increase of $72.6 million from December 31, 1999. The primary sources of cash for the nine-month period as reflected on the Consolidated Statement of Cash Flows were $87.3 million proceeds from the sale of 13.8 million shares of the Company's common stock in September 2000, $10.1 million from the disposition of equipment, $16.9 proceeds from the sale of investments including the $15.0 million proceeds received from the disposition of 1.0 million shares of Unit Corporation common stock, reimbursements approximating $13.8 million from the operator to offset a portion of the expenditures to modify Rig 257 for service in the Caspian Sea and $20.8 million provided by operating activities. The primary uses of cash for the nine-month period ended September 30, 2000 were $59.7 million for capital expenditures (net of reimbursements) and $3.4 million for repayment of debt. Major projects included the completion of modifications on Rig 249 and commencement of construction on Rig 258. Rig 249 and Rig 258 are currently under contract to perform drilling services in Kazakhstan, Rig 249 began drilling in October 2000 and Rig 258 is anticipated to begin drilling in early 2001. During October 2000, the Company repurchased on the open market $50.5 million par value of its 5.5% Convertible Notes due 2004 at an average price of 86.11% of par. Net cash paid for the repurchase was $43.4 million. To finance the Company's 1996 and 1997 acquisitions and the significant capital expenditures made in 1998 and 1999, the Company has issued various debt instruments. The Company has total long-term debt, including the current portion, of $649.7 million as of September 30, 2000. The Company entered into a $50.0 million revolving credit facility with a group of banks led by Bank of America on October 22, 1999. This facility is available for working capital requirements, general corporate purposes and to support letters of credit. The revolver is collateralized by accounts receivable, inventory and certain barge rigs located in the Gulf of Mexico. The facility contains customary affirmative and negative covenants. Availability under the revolving credit facility is subject to certain borrowing base limitations based on 80% of eligible receivables plus 50% of supplies in inventory. Currently, the borrowing base is $50.0 million of which none has been drawn down but $11.7 million of availability has been used to support letters of credit that have been issued. The revolver terminates on October 22, 2003. On October 7, 1999 a subsidiary of the Company entered into a loan agreement with Boeing Capital Corporation for refinancing the construction costs of Rig 75. The loan of $24.8 million plus interest is to be repaid in 60 monthly payments of $0.5 million. The loan is collateralized by Rig 75 and is guaranteed by the Parent. LIQUIDITY AND CAPITAL RESOURCES (continued) - ------------------------------- The Company anticipates that working capital needs and funds required for capital spending in 2000 will be met from existing cash, other short-term investments, cash provided by operations, and, if necessary, funds available under the Company's revolving credit facility. The Company anticipates cash requirements for the year 2000 capital spending will be approximately $95.0 million, net of reimbursements. Should new opportunities requiring additional capital arise, the Company may utilize the revolving credit facility. In addition, the Company may seek project financing or equity participation from outside alliance partners or customers. The Company cannot predict whether such financing or equity participation would be available on terms acceptable to the Company. OTHER MATTERS - ------------- Indonesian Operations - --------------------- During 1995-1998, the Company provided management, certain equipment, technical assistance and training support to an Indonesian-owned drilling contractor that was performing geothermal drilling services for two operators in connection with the construction of geothermal power plants in Indonesia. Because these operators did not pay the drilling contractor for a considerable portion of the services provided, the drilling contractor was unable to pay the Company. The Indonesian drilling contractor initiated two arbitration proceedings in late 1998 to collect these delinquent payments. The arbitration panels awarded the contractor a total of approximately $ 9.2 million, including interest, which continues to accrue. The Indonesian drilling contractor has advised the Company it will vigorously pursue collection of the awards. 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. Year 2000 - --------- The Company began preparing for Year 2000 in 1997 by replacing critical financial, human resources and payroll systems with Year 2000 compliant off-the-shelf software. The Year 2000 problem was not the main reason for upgrading the information technology platform; however, it was beneficial in achieving Year 2000 compliance. The Company also prepared contingency plans to cover failures in its supply chain, communications, civil disturbances and information technology systems. The Company estimates that $225,000 was spent during 1998 and 1999 in its Year 2000 compliance efforts. While the majority of those costs were internal salaries, the Company's process for tracking internal costs did not capture all of the costs incurred for each individual task on the project. During the Year 2000 date transition, the Company did not experience any material failure with its Information Technology or non-Information Technology systems or key customers or suppliers. The Company will continue to monitor mission critical applications, processes and vendors throughout the Year 2000 for any latent issues that may arise. PART II. OTHER INFORMATION
Page Item Exhibits and Reports on Form 8-K 6. (a) Exhibits: Exhibit 15 Letter re Unaudited Interim Financial 18 Information Exhibit 27 Financial Data Schedule [Edgar Version Only]
SIGNATURES Pursuant to the requirements 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 ----------------------- Registrant Date: November 14, 2000 By: /s/ James J. Davis ----------------------------- James J. Davis Senior Vice President-Finance and Chief Financial Officer By: /s/ W. Kirk Brassfield ----------------------------- W. Kirk Brassfield Controller and Chief Accounting Officer
INDEX TO EXHIBITS Exhibit Number Description ----------- 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule [Edgar Version Only]