- ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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 FEBRUARY 28, 1994 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 March 31, 1994, 55,048,436 common shares were outstanding. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ PARKER DRILLING COMPANY INDEX
Part I. Financial Information Page No. Consolidated Condensed Balance Sheets (Unaudited) - February 28, 1994 and August 31, 1993 2 Consolidated Condensed Statements of Operations (Unaudited) - Three and Six Months Ended February 28, 1994 and February 28, 1993 3 Consolidated Condensed Statements of Cash Flows (Unaudited) - Six Months Ended February 28, 1994 and February 28, 1993 4 Notes to Unaudited Consolidated Condensed Financial Statements 5 Report of Review by Independent Accountants 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 Part II. Other Information Item 6, Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 10(a) Amendment dated as of December 12, 1993, to the Credit Agreement, dated as of September 24, 1992, between Morgan Guaranty Trust Company of New York, Internationale Nederlanden Bank N.V. and Parker Drilling Company. Exhibit 15, Letter Re Unaudited Interim Financial Information
PART 1. FINANCIAL INFORMATION PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
February 28, August 31, 1994 1993 ASSETS ---------- ---------- ------ Current assets: Cash and cash equivalents $ 14,136 $ 12,570 Other short-term investments 7,178 31,419 Accounts and notes receivable 35,319 23,353 Rig materials and supplies 10,578 10,970 Other current assets 4,692 2,793 -------- -------- Total current assets 71,903 81,105 Property, plant and equipment less accumulated depreciation, depletion and amortization of $480,550 at February 28, 1994, and $472,466 at August 31, 1993 152,637 139,326 Other noncurrent assets 15,956 15,911 -------- -------- Total assets $240,496 $236,342 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Current liabilities: Accounts payable and accrued liabilities $ 19,125 $ 15,561 Accrued income taxes 4,928 5,291 -------- -------- Total current liabilities 24,053 20,852 Deferred income taxes 1,198 1,198 Other long-term liabilities 2,852 3,495 Minority interest 3,166 3,118 Common stock, $.16 2/3 par value 9,173 9,164 Capital in excess of par value 201,996 201,784 Retained earnings 1,357 499 Other (3,299) (3,768) -------- -------- Total liabilities and stockholders' equity $240,496 $236,342 -------- -------- -------- -------- See accompanying notes to consolidated condensed financial statements. - 2 -
PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Six Months Ended February 28, February 28, ------------------- ------------------- 1994 1993 1994 1993 ------- -------- ------- ------- Revenue: Drilling contracts $39,694 $23,817 $79,090 $46,558 Other 1,038 1,489 1,685 2,675 ------- ------- ------- ------- Gross operating revenue 40,732 25,306 80,775 49,233 ------- ------- ------- ------- Operating expense: Drilling 28,307 15,815 54,539 29,565 Other 1,050 1,295 1,807 2,276 Depreciation, depletion and amortization 5,067 5,157 9,989 10,387 General and administrative 7,471 7,472 13,609 13,591 ------- ------- ------- ------- 41,895 29,739 79,944 55,819 ------- ------- ------- ------- Operating income (loss) (1,163) (4,433) 831 (6,586) ------- ------- ------- ------- Other income and (expense): Interest expense (4) (18) (7) (39) Interest income 198 408 555 805 Other income (expense) - net 392 (378) 432 (528) ------- ------- ------- ------- 586 12 980 238 ------- ------- ------- ------- Income (loss) before income taxes (577) (4,421) 1,811 (6,348) ------- ------- ------- ------- Income tax expense 173 550 953 1,150 ------- ------- ------- ------- Net income (loss) (750) (4,971) 858 (7,498) ------- ------- ------- ------- Dividends on preferred stock - 3 - 6 ------- ------- ------- ------- Income (loss) applicable to common stock $ (750) $(4,974) $ 858 $(7,504) ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) per share, primary and fully diluted $ (.01) $ (.09) $ .02 $ (.14) ------- ------- ------- ------- Number of common shares ------- ------- ------- ------- used in computing earnings (loss) per share: Primary 54,223,674 52,690,022 54,539,402 52,618,052 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully diluted 54,223,674 52,690,022 54,539,402 52,618,052 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- See accompanying notes to consolidated condensed financial statements. - 3 -
PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Dollars in Thousands) (Unaudited)
Six Months Ended February 28, -------------------- 1994 1993 ------- ------- Cash flows from operating activities: Net income (loss) $ 858 $(7,498) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 9,989 10,387 Expenses not requiring cash 1,513 2,341 Change in operating assets and liabilities (11,536) 7,431 Other-net (495) (859) ------- ------- Net cash provided by operating activities 329 11,802 ------- ------- Cash flows from investing activities: Capital expenditures (23,592) (2,620) Proceeds from the sale of equipment 892 5,245 Decrease (increase) in short-term and long-term investments 24,241 (14,368) Other-net - (107) ------- ------- Net cash provided (used) by investing activities 1,541 (11,850) ------- ------- Cash flows from financing activities: Principal payments under debt obligations - (406) Other-net (304) (421) ------- ------- Net cash provided (used) by financing activities (304) (827) ------- ------- Net increase (decrease) in cash and cash equivalents 1,566 (875) Cash and cash equivalents at beginning of period 12,570 13,288 ------- ------- Cash and cash equivalents at end of period $14,136 $12,413 ------- ------- ------- ------- Supplemental disclosure: Interest paid $ 7 $ 24 Taxes paid $ 1,316 $ 1,442 See accompanying notes to consolidated condensed financial statements. - 4 -
PARKER DRILLING COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. 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 February 28, 1994 and August 31, 1993, (2) the results of operations for the three and six months ended February 28, 1994 and February 28, 1993, and (3) cash flows for the six months ended February 28, 1994 and February 28, 1993. Results for the three and six months ended February 28, 1994, are not necessarily indicative of the results which will be realized for the year ending August 31, 1994. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements should be read in conjunction with the Company's Form 10-K for the year ended August 31, 1993. 2. Earnings per common share is based on the weighted average number of common shares and common share equivalents outstanding during the period. Common shares granted under the 1969 Key Employee Stock Grant Plan, 1980 Incentive Career Stock Plan and the 1991 Stock Grant Plan are issued and outstanding but are not considered in the computation of weighted average shares outstanding until the restrictions lapse. However, they are considered common stock equivalents. 3. A former employee ("Plaintiff") was injured while working for the Company on a rig owned and operated by another firm ("Defendant"). The Plaintiff was granted an award totaling $6.75 million from the Defendant. Although, the Company provided a defense for the Defendant pursuant to the indemnity provision in the contract between the parties, the Company is currently in litigation to determine the liability of the Company to indemnify the Defendant due to the findings by the jury as to the conduct of the Defendant's agents that caused the injury to the Plaintiff. Pending resolution of the liability issue, the Company and the Defendant entered into a non-binding funding arrangement whereby in March 1994 each party funded $3.375 million of the award without prejudice to their respective legal positions. Management believes that the Company is not legally obligated to fund the award. However, if the Company is liable, management believes it has adequate insurance to recover the majority of any loss. - 5 - Independent Accountants' Report 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 February 28, 1994, and the related consolidated condensed statements of operations for the three and six month periods ended February 28, 1994 and 1993 and consolidated condensed statements of cash flows for the six month periods ended February 28, 1994 and 1993. 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 August 31, 1993, and the related consolidated statements of operations, redeemable preferred stock and stockholders' equity and cash flows for the year then ended (not presented herein); and in our report, dated October 14, 1993, 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 August 31, 1993, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND Tulsa, Oklahoma April 11, 1994 - 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Second Quarter of Fiscal 1994 Compared with Second Quarter of Fiscal 1993 The Company experienced a net loss of $.7 million for the second quarter of fiscal 1994, compared to a net loss of $5.0 million for the same period in fiscal 1993. The primary reason for the decline in net loss was a $3.4 million increase in drilling margin over the second quarter of fiscal 1993. Drilling revenue in the second quarter of fiscal 1994 was $39.7 million, an increase of $15.9 million over the second quarter of fiscal 1993. International utilization in the second quarter of fiscal 1994 was 58 percent compared to 36 percent in the second quarter of fiscal 1993, and overall utilization increased to 37 percent from 25 percent. Drilling revenue from operations in Africa, the Middle East and Commonwealth of Independent States ("CIS") increased a combined $4.6 million in the second quarter of fiscal 1994 when compared to the second quarter of fiscal 1993. The increase was in part due to two workover rigs that began operating in the Russian Republic in the fourth quarter of fiscal 1993. These rigs were released during the second quarter of fiscal 1994. The Company had no operations in the Russian Republic in the second quarter of fiscal 1993. In addition, the Company entered a new market in the fourth quarter of fiscal 1993 when it obtained a labor contract with a major customer in the country of Kazakhstan. International drilling revenue from operations in Asia and the Pacific during the second quarter of fiscal 1994 increased $6.9 million compared to the same quarter of fiscal 1993. The primary reasons for the increase were the start-up of operations in the Philippines, another new market for the Company, and the resumption of operations in Pakistan, both during the first quarter of fiscal 1994. Also contributing to the increase was higher utilization in Papua New Guinea in the second quarter of fiscal 1994 versus the second quarter of fiscal 1993. - 7 - RESULTS OF OPERATIONS (continued) - --------------------- Western Hemisphere international drilling revenue increased $2.8 million from the second quarter of fiscal 1993. A decline in revenue from operations in Colombia, the result of a decrease in utilization, was more than offset by revenue from operations in Argentina. The Company reentered the Argentina drilling market during the fourth quarter of fiscal 1993. Domestic drilling revenue increased $1.5 million as domestic utilization increased to 18 percent in the second quarter of fiscal 1994 from 16 percent in the second quarter of fiscal 1993. The Company has been notified by its customer that the Company's specialized arctic rig will be released from its contract during the third quarter of fiscal 1994. Management forecasts this arctic rig will begin operations again for this customer in the second quarter of fiscal 1995. Management anticipates increased utilization in international operations will offset the decline of drilling revenue and drilling margin resulting from the release of this rig. Drilling margins did not increase in proportion to the increase in drilling revenue due to start-up costs associated with putting additional rigs to work in Argentina. In addition, areas of newly established international operations were not initially as profitable as operations in areas where the Company has been active for an extended period. Depreciation expense in the second quarter of fiscal 1994 was consistent with the second quarter of fiscal 1993. Management anticipates, however, that depreciation expense for the third and fourth quarter of fiscal 1994 will exceed the depreciation expense for the corresponding quarters of fiscal 1993 due to the increased level of capital expenditures during the current year. General and administrative expense for the second quarter of fiscal 1994 remained consistent with the second quarter of fiscal 1993, even with the increase in overall utilization. Other income and expense increased $.6 million due primarily to an increase in gains on dispositions of fixed assets over the second quarter of fiscal 1993. Income tax expense, consisting primarily of foreign income taxes, decreased $.4 million due primarily to the reversal of an accrual in a country where the company received a favorable tax treatment of earnings from prior years' operations. First Six Months of Fiscal 1994 Compared with First Six Months of Fiscal 1993 The Company's net income of $.9 million for the first six months of fiscal 1994 represented an $8.4 million improvement over the same period of fiscal 1993. The improvement was primarily attributable to increased drilling revenue and drilling margin for the first six months of fiscal 1994. Drilling revenue of $79.1 million for the first six months of fiscal 1994 was up $32.5 million from the first six months of fiscal 1993 as overall utilization increased to 37 percent from 24 percent. International utilization for the first six months of fiscal 1994 was 60 percent compared to 36 percent for the same period of fiscal 1993. - 8 - RESULTS OF OPERATIONS (continued) - --------------------- International drilling revenue from operations in Africa, the Middle East and CIS increased $11.6 million over the first six months of fiscal 1993. The reasons for the increase in revenue included the operation of two workover rigs in the Russian Republic and a one-rig contract in the Congo, both areas that had no operations during the first six months of fiscal 1993. The two workover rigs in the Russian Republic were released during the second quarter of fiscal 1994 and the rig that was operating in the Congo has also been released and is currently being marketed in Argentina. Also contributing to the increase in revenue was a labor contract for a major customer entered into in the fourth quarter of fiscal 1993 in the country of Kazakhstan. International drilling revenue from operations in Asia and the Pacific increased $11.8 million. The increase was primarily the result of the operation of two geothermal rigs in the Philippines, the resumption of operations in Pakistan during the first quarter of fiscal 1994 and increased utilization in Papua New Guinea. Western Hemisphere international drilling revenue increased $6.1 million as operations in Argentina and increased utilization in Peru and Ecuador more than offset a decline in revenue from operations in Colombia resulting from decreased utilization in that country. Domestic drilling revenue increased $3.0 million as domestic utilization improved to 18 percent for the first six months of fiscal 1994 from 14 percent for the first six months of fiscal 1993. Depreciation expense decreased $.4 million for the first six months of fiscal 1994. However, as previously discussed in the second quarter comparison, management anticipates depreciation expense for the last six months of fiscal 1994 to be greater than the last six months of fiscal 1993. Other income (loss) increased $.7 million due primarily to a $.9 million adjustment of a prior years worker's compensation liability recorded in the first quarter of fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the first six months of fiscal 1994, cash and other short-term investments declined $22.7 million. The decline was caused by the Company financing capital expenditures of $23.6 million primarily with existing cash and short-term investments. Capital expenditures for the first six months of fiscal 1994 included expenditures for the acquisition and modification of seven drilling rigs. Five rigs are currently under contract in Argentina for YPF, the Argentina state owned oil company. Three of the rigs are currently operating with the remaining two rigs anticipated to begin operations in the third quarter of fiscal 1994. A sixth rig is scheduled to begin operations in Argentina in the third quarter of fiscal 1994. The seventh rig is currently under contract in - 9 - LIQUIDITY AND CAPITAL RESOURCES (continued) - ------------------------------- Colombia and is also scheduled to begin operations in the third quarter of fiscal 1994. Management currently forecasts capital expenditures for fiscal 1994 to be approximately $44.0 million. The increase in forecasted capital expenditures over the $33.0 million, as reported in the Company's Form 10-K for fiscal year 1993, reflects additional opportunities anticipated in international markets. In the event the Company obtains contracts in addition to those currently anticipated that would require the construction or purchase of new or specialized rigs or significant modifications to existing rigs, capital expenditures could increase further. Any significant increase in capital expenditures would be subject to restrictions imposed on the Company as specified below. The Company has a credit agreement with two banks which provides for a $15.0 million revolving credit facility, all of which was available for drawdown as of February 28, 1994. The credit agreement, which expires in September 1994, contains restrictions on annual capital expenditures and certain senior and subordinated indebtedness which can be incurred by Parker Drilling Company and certain subsidiaries designated in the credit agreement. These designated subsidiaries comprise the operating subsidiaries through which the Company performs the majority of its drilling operations. The credit facility also limits payment of dividends on the Company's common stock to the lesser of 40 percent of consolidated net income for the preceding fiscal year, or $2.6 million. The remaining subsidiaries of the Company are not a party to the credit facility and are able to make capital expenditures and obtain independent financing from lenders that have no recourse to Parker Drilling Company and the designated subsidiaries, subject only to an overall limitation of indebtedness. The restrictions in the credit agreement are not anticipated to restrict growth or investment opportunities in the foreseeable future. Management believes that the current level of cash and short-term investments, together with cash generated from operations, should be sufficient to meet the Company's immediate capital needs. However, in the event the Company obtains additional contracts requiring further significant capital expenditures, management believes the Company would likely meet both short-term and long-term capital needs through a combination of cash generated from operations, borrowings under the bank credit agreement and either equity or long-term debt financing. OTHER MATTERS - ------------- The Company is currently involved in litigation as discussed in Note 3 of Notes to Unaudited Consolidated Condensed Financial Statements. - 10 - PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a)Exhibits: Exhibit 10(a) Amendment dated as of December 12, 1993, to the Credit Agreement, dated as of September 24, 1992, between Morgan Guaranty Trust Company of New York, Internationale Nederlanden Bank N.V. and Parker Drilling Company. Exhibit 15 Letter re Unaudited Interim Financial Information (b)Reports on Form 8-K - There were no reports on Form 8-K filed during the six months ended February 28, 1994. - 11 - 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: April 11, 1994 By: /s/James J. Davis ----------------------------- James J. Davis Vice President and Chief Financial Officer By: /s/Randy Ellis ----------------------------- Randy Ellis Controller and Chief Accounting Officer - 12 -