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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(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, 1998
OR
/ / 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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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, 1998, 76,722,674 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
February 28, 1998 and August 31, 1997 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Six Months Ended February 28, 1998 and
February 28, 1997 3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Three and Six Months Ended February 28, 1998 and
February 28, 1997 4 - 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6 - 9
Report of Independent Accountants 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit 15, Letter Re Unaudited Interim
Financial Information
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)
February 28, August 31,
1998 1997
ASSETS ----------- ----------
------
Current assets:
Cash and cash equivalents $ 4,061 $ 209,951
Other short-term investments - 2,838
Accounts and notes receivable 131,814 103,808
Rig materials and supplies 21,204 19,130
Other current assets 12,794 16,227
---------- ----------
Total current assets 169,873 351,954
Property, plant and equipment less accumulated
depreciation, depletion and amortization of
$401,779 at February 28, 1998, and $375,236
at August 31, 1997 647,669 439,651
Goodwill, net of accumulated amortization
of $6,560 at February 28, 1998 and $3,822
at August 31, 1997 209,249 139,467
Other noncurrent assets 46,829 53,064
---------- ----------
Total assets $1,073,620 $ 984,136
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 15,010 $ 16,084
Accounts payable and accrued liabilities 83,854 55,717
Accrued income taxes 9,199 4,904
---------- ----------
Total current liabilities 108,063 76,705
---------- ----------
Long-term debt 544,786 551,042
---------- ----------
Other long-term liabilities 48,431 7,666
---------- ----------
Common stock, $.16 2/3 par value 12,786 12,780
Capital in excess of par value 340,687 340,243
Retained earnings (accumulated deficit) 18,885 (4,023)
Other (18) (277)
---------- ----------
Total stockholders' equity 372,340 348,723
---------- ----------
Total liabilities and stockholders' equity $1,073,620 $ 984,136
---------- ----------
---------- ----------
See accompanying notes to consolidated condensed financial statements.
/TABLE
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Land drilling $70,990 $45,189 $136,373 $ 82,774
Offshore drilling 45,194 26,214 81,211 31,500
Rental tools 8,641 7,087 16,730 8,800
Other 392 552 783 1,166
------- ------- -------- --------
Total revenues 125,217 79,042 235,097 124,240
------- ------- -------- --------
Operating expenses:
Land drilling 47,759 33,637 90,227 60,905
Offshore drilling 27,466 16,474 48,324 19,650
Rental tools 3,824 1,686 6,610 2,025
Other 546 1,494 1,040 2,417
Depreciation, depletion and
amortization 17,114 12,714 31,673 19,612
General and administrative 4,430 3,403 8,545 6,801
------- ------- -------- --------
Total operating expenses 101,139 69,408 186,419 111,410
------- ------- -------- --------
Operating income 24,078 9,634 48,678 12,830
------- ------- -------- --------
Other income and (expense):
Interest expense (12,753) (9,497) (24,778) (12,107)
Interest income 1,185 896 3,973 2,017
Other income (expense) - net 6,166 1,017 6,394 2,087
------- ------- -------- --------
Total other income and (expense) (5,402) (7,584) (14,411) (8,003)
------- ------- -------- --------
Income before income taxes 18,676 2,050 34,267 4,827
------- ------- -------- --------
Income tax expense 6,450 714 11,359 2,012
------- ------- -------- --------
Net income $12,226 $ 1,336 $ 22,908 $ 2,815
------- ------- -------- --------
Earnings per share,
Basic $ .16 $ .02 $ .30 $ .04
------- ------- -------- --------
Diluted $ .16 $ .02 $ .29 $ .04
------- ------- -------- --------
Number of common shares used
in computing earnings per share:
Basic 76,636,335 68,107,501 76,574,870 66,753,770
---------- ---------- ---------- ----------
Diluted 78,034,737 68,813,466 78,380,903 67,504,241
---------- ---------- ---------- ----------
See accompanying notes to consolidated condensed financial statements.
/TABLE
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,
--------------------
1998 1997
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Cash flows from operating activities:
Net income $ 22,908 $ 2,815
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 31,673 19,612
Expenses not requiring cash 2,529 628
Change in operating assets and liabilities 15,244 (23,078)
Other-net (6,246) (1,807)
------- -------
Net cash provided by (used in) operating
activities 66,108 (1,830)
------- -------
Cash flows from investing activities:
Capital expenditures (81,420) (31,776)
Acquisition of Mallard, net of cash acquired - (309,922)
Acquisition of Quail - (66,888)
Acquisition of Hercules, net of cash acquired (195,552) -
Proceeds from sale of On-site investment 7,998 -
Proceeds from the sale of equipment 2,794 9,316
Decrease (increase) in short-term
investments 2,838 13,096
Other-net (828) (5,126)
------- -------
Net cash provided (used) by investing
activities (264,170) (391,300)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of debt 32,828 387,274
Principal payments under debt obligations (40,511) (1,523)
Other (145) 238
------- -------
Net cash provided (used) by financing
activities (7,828) 385,989
------- -------
Net change in cash and cash equivalents (205,890) (7,141)
Cash and cash equivalents at
beginning of period 209,951 61,738
------- -------
Cash and cash equivalents at
end of period $ 4,061 $54,597
------- -------
------- -------
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Supplemental cash flow information:
Interest paid $ 24,111 $ 3,086
Taxes paid $ 5,988 $ 2,047
Business acquisition in December, 1997: Hercules
--------
Working capital, net of cash acquired $ 694
Property, plant and equipment 156,327
Purchase price in excess of net assets
acquired 72,520
Other assets 36
Noncurrent liabilities (58)
Deferred tax liability (33,967)
--------
$195,552
--------
Supplemental noncash financing activity:
In November 1996, the Company issued $25,000,000 of preferred stock,
subsequently converted to common stock in December 1996, as a part of the
acquisition of Mallard. (See Note 4.)
See accompanying notes to consolidated condensed financial statements.
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, 1998 and August 31, 1997, (2) the
results of operations for the three and six months ended February 28, 1998
and February 28, 1997, and (3) cash flows for the six months ended
February 28, 1998 and February 28, 1997. Results for the six months ended
February 28, 1998, are not necessarily indicative of the results which
will be realized for the year ending August 31, 1998. 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, 1997.
2. In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," was issued. This statement replaced the previously
required presentation of primary earnings per share (EPS) with a
presentation of basic EPS that excludes dilutive securities from the
computation. It also requires a presentation of diluted EPS that is
computed similarly to the fully diluted EPS calculation previously
required. The requirements of this statement have been followed for all
earnings per share figures included in this Form 10-Q.
RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)
For the Three Months Ended Feb. 28, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $12,226,000 76,636,335 $.16
Effect of Dilutive Securities:
Stock options and grants 1,398,402
Diluted EPS:
Income available to common
stockholders + assumed
conversions $12,226,000 78,034,737 $.16
----------- ----------- ----
----------- ----------- ----
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 Six Months Ended Feb. 28, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to
common stockholders $22,908,000 76,574,870 $.30
Effect of Dilutive Securities:
Stock options and grants 1,806,033
Diluted EPS:
Income available to common
stockholders + assumed
conversions $22,908,000 78,380,903 $.29
----------- ----------- ----
----------- ----------- ----
Options to convert $175,000,000 of Convertible Subordinated Notes into
11,371,020 shares of common stock at $15.39 per share were outstanding during
the six months ended February 28, 1998 but were not included in the
computation of diluted EPS because the assumed conversion of the options would
have had an anti-dilutive effect on EPS. In addition, options to purchase
1,000,500 shares of common stock at $12.1875 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.
3. On May 9, 1997, the Company executed a definitive stock purchase agreement
(the "HOC Agreement") to acquire all of the outstanding capital stock of
Hercules Offshore Corporation, a Texas corporation ("HOC"), and a
definitive stock purchase agreement (the "HRC Agreement") to acquire 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 $145 million and $50 million,
respectively. The purchase prices for the acquisitions were subject to
adjustment for certain debt assumed by the Company, for capital
expenditures incurred and for levels of working capital at closing.
Hercules owns three self-erecting platform rigs and seven offshore jackup
rigs.
The acquisition of Hercules was completed on December 30, 1997 for $195.6
million, which includes capital expenditures made subsequent to the
purchase agreement date and additional adjustments based on the level of
working capital at closing. The acquisition has been accounted for by the
purchase method of accounting. The excess of purchase price over the fair
values of the net assets acquired was $72.5 million and has been recorded
as goodwill, which is being amortized on a straight-line basis over 30
years.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
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.
4. 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 and Nigeria, four platform
rigs in the Gulf of Mexico 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 primarily 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 Company financed the acquisitions of Mallard and Quail through the
issuance of $300 million of Senior Notes and a term loan of $100 million.
The balance of the term loan outstanding at February 28, 1998, $83
million, was paid in full with proceeds from the issuance of an additional
$150 million of 9 3/4% Senior Notes, as discussed in Note 7.
Additionally, the Company issued $25 million of preferred stock which was
converted to 3,056,600 shares of common stock during the second quarter of
fiscal 1997.
The following unaudited pro forma information presents a summary of the
second quarter consolidated results of operations of the Company and the
acquired entities as if the acquisitions had occurred September 1, 1996.
(Thousands except per share amounts)
Three Months Ended Six Months Ended
------------------- -------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
-------- -------- -------- --------
Revenues $131,631 $ 93,467 $260,501 $181,318
Net income $ 12,741 $ 345 $ 25,692 $ (848)
Diluted earnings
per share $ .16 $ .01 $ .33 $ (.01)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
5. 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 $2.7 million will be paid in fiscal 1998. The
assets of Bolifor primarily consist of 11 land rigs located in Bolivia,
Paraguay and Argentina.
6. Information regarding the Company's operations by industry segment for the
three and six months ended February 28, 1998 is as follows (dollars in
thousands):
Three Six
Months Months
--------- ---------
Revenues:
Land drilling $ 70,990 $ 136,373
Offshore drilling 45,194 81,211
Rental tools 8,641 16,730
Other 392 783
--------- ---------
Net revenues $ 125,217 $ 235,097
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Operating income (loss):
Land drilling 12,088 24,620
Offshore drilling 9,478 18,533
Rental tools 3,014 6,598
Other (502) (1,073)
--------- ---------
Total operating income(loss) 24,078 48,678
Interest expense (12,753) (24,778)
Other income (expense)-net 7,351 10,367
--------- ---------
Income before income taxes $ 18,676 $ 34,267
--------- ---------
--------- ---------
7. In March 1998, the Company issued $150 million of 9 3/4% Senior Notes,
Series C maturing November 2006. The notes were issued at a premium
yielding an effective rate of 8.97%. A portion of the proceeds was used
to repay the $83.0 million outstanding under the Company's term loan. The
notes contain customary affirmative and negative covenants, including
restrictions on incurrence of debt, sales of assets and the payment of
dividends.
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 February 28, 1998, and the related
consolidated condensed statements of operations for the three and six month
periods ended February 28, 1998 and 1997 and consolidated condensed statements
of cash flows for the six month periods ended February 28, 1998 and 1997.
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, 1997, 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 October 14, 1997, 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,
1997, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
By: /s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
April 14, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter of Fiscal 1998 Compared with Second Quarter of Fiscal 1997
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The Company recorded net income of $12.2 million in the second quarter of
fiscal 1998, an improvement of $10.9 million when compared to the $1.3 million
of the prior fiscal year second quarter. Increased profit margins (revenue
less direct operating expense) and a $4.6 million gain recorded on the sale of
the Company's investment in OnSite Technology L.L.C. were primarily
responsible for the improvement in the current quarter.
Revenue of $125.2 million reflects an increase of 58%, or $46.2 million over
the second quarter of fiscal 1997. Each of the Company's operating segments-
land drilling, offshore drilling and rental tools, recorded an increase of
revenue. A total of $20.9 million was attributable to the Hercules and Bolifor
rigs, none of which was included in the second quarter figures presented for
fiscal 1997.
The land drilling segment's revenue of $71.0 million reflects an increase of
$25.8 million when compared to the prior year. Latin American land drilling
revenue increased $11.4 million, of which $8.2 million was attributable to the
rigs purchased in the Bolifor acquisition. Increased operating days in
several of the other Latin American countries in which the Company operates
were primarily responsible for the balance of the increase. Land drilling
revenue in the Asia Pacific region increased $6.7 million, largely a
reflection of an increase in operating days in Papua New Guinea. Revenues
also increased in Indonesia although six rigs which had been performing
geothermal drilling services ceased operations during the current quarter due
to the current adverse economic conditions. One rig is currently being
relocated to Peru and the other rigs are being remarketed within Indonesia and
in other regions of the world. Land drilling revenue in Africa and the former
Soviet Union increased $6.1 million. Revenue provided by previously inactive
rigs which were relocated from Chad to Niger and from the Russian Republic to
Kazakhstan provided a significant portion of the increase.
Rigs purchased in the Hercules acquisition provided $12.7 million of the $19.0
million increase in offshore drilling revenue. The balance of the increase,
$6.3 million, was attributable to the rigs purchased in the Mallard
acquisition of November 1996, in part due to higher average dayrates earned by
these rigs.
Profit margins increased $19.9 million in the second quarter of fiscal 1998
when compared to the 1997 second quarter. Land drilling profit margins
increased in each of the Company's geographic operating areas due primarily to
the increased revenues discussed previously. The newly acquired Hercules rigs
provided $5.0 million of the offshore drilling margin increase of $8.0
million.
RESULTS OF OPERATIONS
Second Quarter of Fiscal 1998 Compared with Second Quarter of Fiscal 1997
(continued)
The $4.4 million increase in depreciation and amortization expense was
primarily a result of depreciation expense recorded in connection with the
Hercules and Bolifor acquisitions, amortization expense associated with the
excess of purchase price over fair market value of the Hercules assets and
depreciation expense on capital expenditures made in the prior and current
fiscal year.
Interest expense increased $3.3 million in the current quarter due primarily
to the $175 million Convertible Notes issued in July 1997 to partially finance
the Hercules acquisition. The $5.1 million increase in other income (expense)
- - net was due in large part to the $4.6 million gain recorded on the Company's
current quarter disposition of its interest in OnSite Technology L.L.C.
The Company's income tax expense reflected an increase of $5.7 million due
primarily to higher taxes on increased foreign earnings. With the improvement
in the drilling industry and the previously discussed acquisitions, the
Company anticipates that it will utilize its net operating loss carryforwards
to offset U.S. federal income taxes. The Company therefore has reversed a
portion of the valuation allowance on its deferred tax asset in the current
quarter, as it is more likely than not that the deferred tax asset will be
realized. The result of the above will be a charge to deferred tax expense as
net operating loss carryforwards are utilized. The Company expects an
effective tax rate of 40% for the remaining six months of fiscal 1998,
resulting in a blended rate of 36% for the fiscal year 1998.
First Six Months of Fiscal 1998 Compared with First Six Months of Fiscal 1997
- -----------------------------------------------------------------------------
The Company recorded net income of $22.9 million in the first six months of
fiscal 1998, an increase of $20.1 million when compared to the same period of
fiscal 1997. The operations of Mallard and Quail reflected increased profit
margins due in part to the inclusion of the entire six month's operations in
the current fiscal year compared with approximately 3 1/2 months in the prior
fiscal year. In addition, the current year includes two months of Hercules
operating results. Increased profit margin percentage (as a percent of
revenue) in the land drilling and offshore drilling segments also contributed
to the improvement between the periods.
Revenue increased $110.9 million between the periods with the following
amounts attributable to the Company's acquisitions: Mallard, $36.9 million;
Quail, $7.9 million; Hercules, $12.7 million and Bolifor, $15.9 million. The
remainder of the increase, $37.5 million, is primarily the result of increased
land drilling revenue due in part to an increase in revenue days and increased
daily rates earned by certain of the Company's rigs.
First Six Months of Fiscal 1998 Compared with First Six Months of Fiscal 1997
- -----------------------------------------------------------------------------
(continued)
Depreciation and amortization expense increased $12.1 million as the fiscal
1998 period included six months of expense related to the Mallard and Quail
acquisitions compared with approximately 3 1/2 months in fiscal 1997. In
addition, the current year period includes depreciation and amortization
expense related to the assets purchased in the Hercules acquisition which was
completed in the current fiscal quarter and depreciation expense recorded on
the assets purchased in the Bolifor acquisition which was completed in the
fourth quarter of fiscal 1997. The increase in interest expense, $12.7
million, is a result of the borrowings of November 1996 ($300 million Senior
Notes and $100 million term loan under the Senior Credit Facility) to finance
the Mallard and Quail acquisitions. This debt was outstanding the entire six
months in fiscal 1998 as compared to the partial period in fiscal 1997. In
addition, the issuance of $175 million in Convertible Notes in July 1997
resulted in additional interest expense in the current fiscal year. Other
income (expense) - net increased $4.3 million as a $4.6 million gain was
recorded on the Company's current quarter disposition of its interest in
OnSite Technology L.L.C. Income tax expense of $11.4 million reflects an
increase of $9.3 million due primarily to increased foreign profits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents totaling $4.1 million at February
28, 1998, a decrease of $205.9 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. For the first six months of fiscal 1998, operating
activities have provided cash of $66.1 million. Significant uses of cash
include capital expenditures of $81.4 million and $7.7 million in net debt
repayment. Significant capital additions include: (i) the purchase of the
Gulf Explorer barge rig; (ii) the modification of barge Rig 71 for service in
the Caspian Sea; and (iii) the conversion of barge Rig 15 from a workover rig
into a drilling rig.
In anticipation of funding the Hercules acquisition, the Company issued in
July 1997 $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 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.
In March 1998, subsequent to the February 28, 1998 balance sheet date, the
Company issued $150 million of 9 3/4% Senior Notes due 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
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
outstanding principal balance of the term loan portion of the Company's Senior
Credit Facility. The balance of the net proceeds will be used for general
corporate purposes, including capital expenditures.
In November 1996, the Company acquired Mallard for $311.8 million in cash and
$25 million in convertible preferred stock (that converted into 3,056,600
shares of common stock in the second quarter of fiscal 1997) and Quail for
$66.9 million in cash. The Company financed the acquisitions of Mallard and
Quail through the sale of $300 million principal amount of 9 3/4% Senior
Notes, Series B and the $100 million term loan under the Senior Credit
Facility, the remaining balance of which was repaid in March 1998.
The Company filed a registration statement on Form S-4 in April, 1998 which
offers to exchange the Senior Notes, both Series B and C, for a new Series D
Senior Note. 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. The Series D notes will have an interest rate of 9 3/4% and
will mature in November 2006. The Senior Notes are guaranteed by the
Company's principal subsidiaries.
The 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, of which $12.1 million had been issued at February
28, 1998. Borrowing capacity under the revolving credit facility was
increased from $45 million to $75 million in the quarter. 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 most of the Company's
assets. In the current quarter, the Company drew down $32 million of the
revolving credit facility to partially fund the Hercules acquisition and
provide for working capital. This amount was repaid in full in the quarter.
The revolving credit facility matures on December 31, 1999.
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 the cash generated from operations, in addition to
proceeds from the Senior Notes issued in March 1998 (after repayment of the
outstanding balance of the Company's term loan) and cash available under the
increased revolving credit facility, will be sufficient to fund the Company's
working capital needs and estimated capital expenditures of $180 million, in
fiscal 1998. In addition, the Company may consider seeking additional equity
or long-term debt financing should new opportunities requiring capital arise.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Page
Exhibit 15 Letter re Unaudited Interim Financial Information 17
Exhibit 27 Financial Data Schedule [Edgar Version Only]
(b) Reports on Form 8-K - Parker Drilling Company filed a
Form 8-K on January 8, 1998 which included unaudited
pro forma financial statements after consummation of the
Hercules Offshore Corporation and the Hercules Rig
Corporation acquisitions.
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 14, 1998
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]