- ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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 March 31, 1999 --------------------- 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 April 30, 1999, 77,085,531 common shares were outstanding. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ PARKER DRILLING COMPANY INDEX
Part I. Financial Information Page No. Consolidated Condensed Balance Sheets (Unaudited) - March 31, 1999 and December 31, 1998 2 Consolidated Condensed Statements of Operations (Unaudited) - Three Months Ended March 31, 1999 and 1998 3 Consolidated Condensed Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1999 and 1998 4 Notes to Unaudited Consolidated Condensed Financial Statements 5 - 8 Report of Independent Accountants 9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15 Part II. Other Information Item 6, Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit 10(a) Parker Drilling Company Stock Bonus Plan 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)
March 31, December 31 1999 1998 -------------- ------------ ASSETS ------ Current assets: Cash and cash equivalents $ 24,798 $ 24,314 Accounts and notes receivable 97,967 105,810 Rig materials and supplies 14,728 18,755 Other current assets 10,704 13,224 ---------- ---------- Total current assets 148,197 162,103 Property, plant and equipment less accumulated depreciation and amortization of $458,941 at March 31, 1999 and $445,464 at December 31, 1998 725,162 729,873 Goodwill, net of accumulated amortization of $14,920 at March 31, 1999 and $13,025 at December 31, 1998 212,337 214,232 Other noncurrent assets 56,739 53,118 ---------- ---------- Total assets $1,142,435 $1,159,326 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 31,151 $ 31,404 Accounts payable and accrued liabilities 75,287 72,437 Accrued income taxes 6,771 7,576 ---------- ---------- Total current liabilities 113,209 111,417 ---------- ---------- Long-term debt 629,318 630,479 Deferred income tax 35,553 41,253 Other long-term liabilities 12,719 12,227 Stockholders' equity: Common stock, $.16 2/3 par value 12,842 12,815 Capital in excess of par value 342,154 341,699 Retained earnings (accumulated deficit) (3,360) 9,436 ---------- ---------- Total stockholders' equity 351,636 363,950 ---------- ---------- Total liabilities and stockholders' equity $1,142,435 $1,159,326 ---------- ---------- ---------- ---------- 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 -------------------- March 31, March 31, 1999 1998 -------- --------- Revenues: Domestic drilling $ 28,417 $ 55,642 International drilling 50,941 62,934 Rental tools 7,267 8,671 Other 221 467 -------- -------- Total revenues 86,846 127,714 -------- -------- Operating expenses: Domestic drilling 27,845 36,083 International drilling 35,018 39,748 Rental tools 2,557 3,718 Other 97 508 Depreciation and amortization 19,976 18,409 General and administrative 4,404 4,667 Restructuring charges (Note 6) 2,200 - Provision for reduction in carrying value of certain assets (Note 5) 1,500 - -------- -------- Total operating expenses 93,597 103,133 -------- -------- Operating income (loss) (6,751) 24,581 -------- -------- Other income and (expense): Interest expense (13,264) (12,908) Interest income 387 562 Other income - net 4,124 (379) -------- -------- Total other income and (expense) (8,753) (12,725) -------- -------- Income (loss) before income taxes (15,504) 11,856 -------- -------- Income tax expense (benefit): Current tax expense-foreign 2,992 5,859 Deferred tax benefit (5,700) - -------- -------- (2,708) 5,859 -------- -------- Net income (loss) $(12,796) $ 5,997 -------- -------- -------- -------- Earnings (loss) per share, Basic $ (.17) $ .08 -------- -------- Diluted $ (.17) $ .08 -------- -------- Number of common shares used in computing earnings per share: Basic 76,959,672 76,701,670 ---------- ---------- Diluted 76,959,672 77,880,396 ---------- ---------- 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)
Three Months Ended March 31, -------------------- 1999 1998 -------- ------- Cash flows from operating activities: Net income (loss) $ (12,796) $ 5,997 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 19,976 18,409 Expenses not requiring cash 1,064 1,486 Deferred income taxes (5,700) - Provision for reduction in carrying value of certain assets 1,500 - Change in operating assets and liabilities 11,163 31,121 Other-net (2,440) (571) --------- ---------- Net cash provided by operating activities 12,767 56,442 --------- --------- Cash flows from investing activities: Capital expenditures (15,263) (56,279) Acquisition of Hercules - (1,100) Proceeds from the sale of equipment 4,355 1,710 Other-net - (801) --------- --------- Net cash used in investing activities (10,908) (56,470) --------- --------- Cash flows from financing activities: Proceeds from issuance of debt - 153,739 Principal payments under debt obligations (1,309) (119,193) Other (66) (157) --------- --------- Net cash provided by (used in) financing activities (1,375) 34,389 --------- --------- Net change in cash and cash equivalents 484 34,361 Cash and cash equivalents at beginning of period 24,314 32,444 --------- --------- Cash and cash equivalents at end of period $ 24,798 $ 66,805 --------- --------- --------- --------- Supplemental cash flow information: Interest paid $ 5,711 $ 6,950 Taxes paid $ 3,797 $ 3,570 See accompanying notes to consolidated condensed financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The Company has changed its fiscal year end from August 31 to December 31, effective for the fiscal year beginning January 1, 1999. The consolidated condensed financial statements included in this Form 10-Q represent the period from January 1, 1999 through March 31, 1999, the first quarterly period under the Company's new fiscal year. 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 March 31, 1999 and December 31, 1998, (2) the results of operations for the three months ended March 31, 1999 and March 31, 1998, and (3) cash flows for the three months ended March 31, 1999 and March 31, 1998. Results for the three months ended March 31, 1999 are not necessarily indicative of the results which will be realized for the year ending December 31, 1999. The financial statements should be read in conjunction with the Company's Form 10-K for the year ended August 31, 1998. 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 March 31, 1999 ----------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Income available to common stockholders $(12,796,000) 76,959,672 $(.17) Effect of Dilutive Securities: Stock options and grants - Diluted EPS: Income available to common stockholders + assumed conversions $(12,796,000) 76,959,672 $(.17) ------------ ----------- ----- ------------ ----------- -----
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 March 31, 1998 ----------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS: Income available to common stockholders $ 5,997,000 76,701,670 $ .08 Effect of Dilutive Securities: Stock options and grants 1,178,726 Diluted EPS: Income available to common stockholders + assumed conversions $ 5,997,000 77,880,396 $ .08 ------------ ------------ ----- ------------ ------------ -----
The Company has outstanding $175,000,000 of Convertible Subordinated Notes which are convertible into 11,371,020 shares of common stock at $15.39 per share. The notes were outstanding during the three months ended March 31, 1999 but were not included in the computation of diluted EPS because the assumed conversion of the notes would have had an anti-dilutive effect on EPS. In addition, at March 31, 1999, options to purchase 5,605,000 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 current period. NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) 3. During the three months ended March 31, 1999 the Company has restructured its worldwide drilling operations into two primary business units, "Domestic Operations" and "International Operations." The Company makes operating decisions and assesses performance based on these geographic segments and based on services provided: land drilling, offshore drilling and rental tools. Information regarding the Company's operations by industry segment for the three months ended March 31, 1999 and 1998 is as follows (dollars in thousands):
March 31, March 31, 1999 1998 ---------- ----------- Revenues: Domestic drilling Land $ 7,060 $ 12,753 Offshore 21,357 42,889 International drilling Land 38,436 54,450 Offshore 12,505 8,484 Rental tools 7,267 8,671 Other 221 467 --------- --------- Net revenues $ 86,846 $ 127,714 --------- --------- Operating income (loss): Domestic drilling Land 290 2,912 Offshore (10,027) 7,962 International drilling Land 5,343 13,077 Offshore 3,486 2,820 Rental tools 2,564 3,254 Other (303) (777) --------- --------- Total operating income by segment <1> 1,353 29,248 --------- --------- Provision for reduction in carrying value of certain assets (1,500) - Restructuring charges (2,200) - General and administrative (4,404) (4,667) --------- --------- Total operating income (loss) (6,751) 24,581 Interest expense (13,264) (12,908) Other income (expense)-net 4,511 183 --------- --------- Income (loss) before income taxes $ (15,504) $ 11,856 --------- --------- --------- --------- <1> Total operating income (loss) by segment is calculated 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.
4. In the third quarter of fiscal year 1998, ended May 31, 1998, the Company reviewed the estimated useful life of its land drilling fleet used for financial depreciation purposes. As a result, the estimated life was extended from 10 to 15 years with a 5% salvage value for most of the major rig components, resulting in a reduction in depreciation expense of approximately $1.3 million for the three months ended March 31, 1999. The Company's historical experience and a comparison with other firms in the industry indicates that its land drilling equipment has a useful life of at least 15 years. The depreciable lives for certain equipment, including drill pipe, were not extended. 5. In December 1998, the Company determined that its operations in Argentina do not meet its strategic objectives and that such assets would be actively marketed for disposition. The assets in Argentina consist of 13 drilling rigs and inventories related to these rigs. The Company had previously recognized six of the thirteen rigs as held for sale. The current decision includes all Argentina assets. Due to depressed industry conditions an impairment loss of $4,055,000 was recognized in December 1998. The net realizable value of the Argentina assets is included in other non-current assets. In March 1999, the Company increased its allowance for doubtful accounts by $1,500,000. Several of the Company's customers have encountered financial difficulties, including the filing of bankruptcy, which has resulted in their reduced ability to pay the Company for previously provided services. 6. During the three months ended March 31, 1999 the Company has restructured its worldwide drilling operations into two primary business units, "Domestic Operations" and "International Operations". In connection with this restructuring, certain duplicative administrative and operating functions have been eliminated, resulting in $2.2 million in severance costs. It is anticipated that substantially all incurred but unpaid amounts ($2.0 million at March 31, 1999) will be paid in the current calendar year. 7. The Company has received and anticipates receiving additional prepayments from the operator to offset a substantial portion of the expenditures required to modify barge Rig 257 for a contract in the Caspian Sea. These prepayments, $41.8 million as of March 31, 1999, are being accounted for similar to mobilization fees and, accordingly, have been reflected as a reduction of capital expenditures in the Statements of Cash Flows and as a reduction of property, plant and equipment in the Consolidated Condensed Balance Sheets. Prepayments received as of December 31, 1998, $20.3 million, were previously included in other long-term liabilities and have been reclassified on the Consolidated Condensed Balance Sheets to reflect the above described accounting treatment. Report of Independent Accountants To the Board of Directors and Shareholders Parker Drilling Company We have reviewed the consolidated condensed balance sheets of Parker Drilling Company and subsidiaries as of March 31, 1999 and December 31, 1998, and the related consolidated condensed statement of operations for the three month period ended March 31, 1999 and consolidated condensed statement of cash flows for the three month period ended March 31, 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. By: /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP Tulsa, Oklahoma May 14, 1999 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 in other documents filed by the Company with the Securities and Exchange Commission, and referred to in this Form 10-Q. All statements included in this document, other than statements of historical facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including future operating results, future capital expenditures and investments in the acquisition and refurbishment of rigs and equipment, repayment of debt, expansion and growth of operations, anticipated cost savings, 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, oil and gas market prices, industry conditions, international trade restrictions and political instability, operating hazards and uninsured risks, governmental regulations and environmental matters, substantial leverage, seasonality and adverse weather conditions, concentration of customer and supplier relationships, upgrade and refurbishment projects, competition, 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 loss recognized for the three months ended March 31, 1999 reflects the continued weakness in most of the Company's drilling markets which has resulted in a significant decrease in rig utilization and in dayrates since the third quarter of fiscal year 1998. Lower crude oil prices have negatively impacted the revenue and profits of oil operators, who have responded by reducing exploration and development expenditures. This decline in spending has adversely affected the level of oilfield activity, and in turn, the revenue of most companies in the oilfield service industry. Although crude oil and natural gas prices have increased recently, management is unable to predict when and to what extent spending by operators and rig dayrates and utilization will be affected. If the depressed level of oilfield activity persists, the Company anticipates that it will continue to incur losses. Management believes that cash provided by operations and funds available under the Company's revolving credit facility will be adequate to meet working capital needs. Management's projections regarding the sufficiency of cash is contingent upon the continuation of current rig utilization and dayrates, the commencement of operations under two significant barge rig contracts in mid-1999, current projected levels of capital expenditures and the timely receipt of prepayments to offset construction and related costs for the modification of a barge rig. RESULTS OF OPERATIONS (continued) - --------------------- In order to conserve cash, management has taken steps to reduce certain discretionary capital expenditures, has reorganized its worldwide drilling operations to reduce operating and overhead costs, and is considering the sale of certain assets, the latter of which will be accelerated as needed in the event assumptions to meet cash requirements are not realized. In addition, the Company is pursuing project financing on the newly built Rig 75 destined for Nigeria, which financing would provide an additional $25 million in available funds. Management is unable to predict whether the financing can be completed on terms acceptable to the Company. Three Months Ended March 31, 1999 Compared with Three Months Ended March 31, 1998 - ---------------------------------------------------------------------------- The Company changed its fiscal year end from August 31 to December 31, effective for the year beginning January 1, 1999. The consolidated condensed financial statements included in this Form 10-Q represent the period from January 1, 1999 through March 31, 1999, the first quarterly period under the Company's new fiscal year, and the comparable period in the prior year. The Company recorded a net loss of $12.8 million for the three months ended March 31, 1999 compared to net income of $6.0 million recorded for the three month period ended March 31, 1998. The depressed drilling market conditions which began to affect the Company's utilization and dayrates in the second half of fiscal 1998 continued to negatively impact the Company's results in the current period. Each of the Company's primary operating segments--domestic drilling, international drilling and rental tools-- experienced a reduction of profit margin (revenue less direct operating expense) when comparing the two periods. In addition, in the current quarter, the Company recorded a $1.5 million provision for doubtful accounts receivable (classified as 'Provision for reduction in carrying value of certain assets' in the Statement of Operations) and recorded restructuring charges attributable to its worldwide reorganization of $2.2 million. The reorganized worldwide drilling operations will have two primary business units, "Domestic Operations" and "International Operations". In connection with this restructuring, certain duplicative administrative and operating functions have been eliminated. The Company anticipates the reorganization and other consolidation efforts will result in annual cost savings of approximately $8.5 million. Revenue decreased $40.9 million from $127.7 million in the three months ended March 31, 1998 to $86.8 million in the current year's first quarter. Domestic drilling revenue decreased from $55.6 million to $28.4 million, a decrease of 48.9%. Domestic land drilling revenue decreased $5.7 million due primarily to lower utilization in the lower 48 states. The Company's sole rig in Alaska, Rig 245, was released from its contract during the current quarter, also contributing to the reduced revenue from land operations in the United States. Domestic offshore drilling revenue decreased $21.5 million, reflecting continued weakness in barge, jackup and platform markets. International drilling revenue declined $12.0 million from $62.9 million in the calendar 1998 first quarter to $50.9 million in the current quarter. International land drilling revenues decreased $16.0 million while offshore drilling revenues increased $4.0 million. Primarily responsible for the land drilling revenue decrease was reduced revenue in the Asia Pacific region, RESULTS OF OPERATIONS (continued) - --------------------- including the countries of Pakistan, Papua New Guinea, New Zealand and Indonesia. Land drilling revenues from operations in Latin America and the independent states of the former Soviet Union were comparable when comparing the two periods as markets in Colombia, Bolivia and Kazakhstan have not been negatively impacted to the same degree as the Asia Pacific countries mentioned previously. The increase of $4.0 million in international offshore drilling revenue was due to the commencement of operations of barge Rig 76 in Venezuela in September 1998. Revenue of $8.5 million contributed by three barge rigs located in Nigeria was equal to the amount earned in 1998. In Nigeria, an increase in dayrates on one of the barge rigs was offset by reduced revenue from one barge rig placed on a standby rate in the current quarter. Rental tool revenue declined $1.4 million or approximately 16%, due primarily to reduced drilling activity in the Gulf of Mexico. The Company's overall profit margin, excluding the $1.5 million provision for reduction in carrying value of certain assets and $2.2 million in reorganization charges, was $21.3 million or 24.6% of revenue in the current quarter as compared to $47.7 million or 37.3% of revenue in the three months ended March 31, 1998. The reduced profit margin and profit margin percentages are due to revenue decreasing to a greater degree than direct operating costs. Although dayrates have decreased in a number of the Company's markets, direct operating costs have not decreased by a corresponding percentage. Domestically, profit margins have been negatively impacted particularly in the Company's offshore operations, in both shallow water jackup and barge operations. Jackup dayrates have declined materially due to the lower number of rigs operating in the Gulf of Mexico and also due to increased competition for available contracts from rigs capable of operating in deeper waters, as fewer deep water contract opportunities have been available. The Company's transition zone barge drilling and workover rigs operating in the Gulf of Mexico also experienced lower utilization and earned lower average dayrates in the current period when compared to the same period of the prior year. Domestic land drilling profit margins declined primarily due to lower utilization and due to the release of Rig 245 from its contract in Alaska during the current quarter. International drilling profit margins declined $7.3 million due primarily to the lower utilization in the Company's land drilling operations discussed previously. The Company's international offshore barge drilling operations had an increase in profit margin of $.9 million, due to the commencement of operations of Rig 76 in Venezuela in September 1998. Depreciation and amortization expense increased $1.6 million to $20.0 million in the current quarter. Depreciation expense recorded on 1998 capital additions was the primary reason for the increase, which was offset by a reduction of approximately $1.3 million due to the extension of the depreciable lives of the Company's land drilling fleet from 10 to 15 years in the third quarter of fiscal 1998. Interest expense increased $.4 million due to higher debt levels outstanding in the current quarter when compared to the prior year period, offset by a $1.5 million increase in interest capitalized to construction projects. The increase in Other income - net, $4.5 million, was primarily due to gains recorded on the disposition of property, plant and equipment and from a $2.1 million payment received from Superior Energy Services, Inc. ("Superior") as part of the agreement to terminate the Agreement and Plan of Merger with Superior. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Income tax expense consists of foreign tax expense and deferred tax benefit. Lower international drilling revenues and operating income has resulted in a decrease in foreign tax expense when comparing the two periods. The deferred tax benefit is due to the net loss incurred during the three months ended March 31, 1999. The Company had cash, cash equivalents and other short-term investments of $24.8 million at March 31, 1999, an increase of $.5 million from the December 31, 1998 balance. The primary sources of cash during the three month period were $12.8 million provided by operating activities, as reflected on the Consolidated Statements of Cash Flows, and prepayments from the operator to offset a portion of the expenditures to modify Rig 257 for service in the Caspian Sea. A decrease in accounts receivable due to collections was the primary source of cash provided by operating activities. Capital expenditures of $15.3 million were the Company's primary use of cash during the quarter ended March 31, 1999. Major capital projects on-going during the period included the modification of barge Rig 257, which is being modified for a contract in the Caspian Sea and the construction of new barge Rig 75 for a contract in Nigeria. Payments received from the operator to offset a portion of the expenditures to modify Rig 257 are reflected as a reduction in capital expenditures in the Consolidated Statements of Cash Flows. It is anticipated that drilling operations under both contracts will begin in mid-1999. Other major expenditures included the modification of two barge rigs for a contract with Texaco in the transition zones of the Gulf Coast and the completion of construction of a new support facility in New Iberia, Louisiana. To finance the Company's 1996 and 1997 acquisitions and the significant capital expenditures made in fiscal year 1998 and during the four months ended December 31, 1998, the Company has issued various debt instruments. The Company has total long-term debt, including the current portion, of $660.5 million at March 31, 1999. The Company has a $75.0 million revolving credit facility which is available for working capital requirements, general corporate purposes and to support letters of credit. 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. At March 31, 1999, $30.0 million was outstanding under the revolving credit facility and $9.2 million in letters of credit had been issued. Due to a decline in the amount of eligible accounts receivable, the borrowing base as of March 31, 1999 was reduced to $68.5 million, leaving $29.3 million available for borrowing. Subsequent to March 31, 1999, $10.0 million was drawn on the revolving credit facility, reducing the amount available for borrowing to $19.3 million. It is possible that the borrowing base could fall further, depending upon future business activity and resulting accounts receivable balances. The revolving credit facility terminates on December 31, 2000. Both the Company's long-term debt indenture and the revolving credit facility contain customary affirmative and negative covenants, including restrictions on incurrence of debt and sales of assets. The revolving credit facility prohibits, among other things, payment of dividends and the indenture for the Senior Notes restricts the payment of dividends. Effective October 1, 1999 the covenant related to the Company's debt to total capital ratio will be reduced from 70% to 65%. Although the Company is currently in compliance, based on management's current financial projections, the Company will not be in compliance with the covenant at October 1, 1999. The Company anticipates receiving a waiver from this covenant. If a waiver is not received, the Company will pursue other financing alternatives. LIQUIDITY AND CAPITAL RESOURCES (continued) - ------------------------------- The Company anticipates cash requirements for capital spending will be substantially less in calendar year 1999 ($40.0 million projected, net of anticipated receipts to offset capital expenditures) than in fiscal year 1998 ($180.0 million, net of receipts to offset capital expenditures). The Company's two most significant on-going construction projects, the modification of barge Rig 257 for service in the Caspian Sea and the construction of barge Rig 75 for service in Nigeria, are scheduled for completion in mid-1999. If the depressed level of oilfield activity persists, the Company anticipates that it will continue to incur losses. Management believes that cash provided by operations and funds available under the Company's revolving credit facility will be adequate to meet working capital needs. Management's projections regarding the sufficiency of cash is contingent upon the continuation of current rig utilization and dayrates, the commencement of operations under two significant barge rig contracts in mid-1999, current projected levels of capital expenditures and the timely receipt of prepayments to offset construction and related costs for the modification of a barge rig. In order to conserve cash, management has taken steps to reduce certain discretionary capital expenditures, has reorganized its worldwide drilling operations to reduce operating and overhead costs and is considering the sale of certain assets, the latter of which will be accelerated as needed in the event assumptions to meet cash requirements are not realized. In addition, the Company is pursuing project financing on the newly built Rig 75 destined for Nigeria, which financing would provide an additional $25 million in available funds. Management is unable to predict whether the financing can be completed on terms acceptable to the Company. Although crude oil and natural gas prices have increased recently, management is unable to predict when and to what extent spending by operators and rig dayrates and utilization will be affected. OTHER MATTERS - ------------- Indonesian Operations - --------------------- The current economic conditions in Indonesia have created uncertainty regarding the Company's Indonesian operations. The Company provides management, technical and training support to an Indonesian-owned drilling contractor, whose services include the drilling of geothermal wells related to power plant projects. Due to the uncertain economic conditions in Indonesia, certain of these power plant projects, and the drilling of wells in support thereof, have been postponed or delayed. As a result, payments from a significant customer for services provided by the Indonesian contractor have been delayed. The Indonesian contractor has initiated an arbitration against its customer for payment of outstanding receivables. 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 plans to achieve and maintain Year 2000 compliance with a project consisting of seven phases. The phases include awareness, inventory, assessment, detailed analysis, compliance testing, remediation and monitoring compliance. Prior to establishing the Year 2000 project, the Company made a decision to replace most of its outdated systems with commercial off the shelf systems and standardized desktop systems. The Company spent much of 1997 replacing critical financial, human resources and payroll systems with new purchased software that is Year 2000 certified by the Information Technology Association of America. The Year 2000 problem was not the main reason for upgrading the information technology platform, however it will be beneficial in achieving Year 2000 compliance. The Company has completed the initial awareness phase, inventory, assessment and testing of its core information technology systems. The inventory, assessment and testing of non-information technology systems including telecommunication systems, business machines, security systems, premise equipment, rig equipment and other embedded chip technology is partially completed. The inventory and assessment of drilling rig components containing imbedded chips indicates that most do not have date related logic. Testing is being conducted on components with date sensitive chips to determine if a date related problem could occur. The Company is surveying its critical supply chain and business partners to establish their state of readiness. It is expected that all critical systems testing and necessary remediation will be completed by June 30, 1999. The remainder of 1999 will be devoted to monitoring compliance and contingency planning. At this time no system replacement dates were accelerated because of the Year 2000 problem. The cost to date for the project has been in internal salaries and purchasing some testing software. The software costs to date are not deemed material. Approximately $400,000 has been budgeted for the Year 2000 project in calendar year 1999. The Company believes that its most likely worst-case scenario would be a disruption of the supply chain. It is impossible for the Company to predict the likelihood of such an occurrence or the extent of the impact on our operations. As part of the contingency planning process to help mitigate these risks the Company is looking at alternative suppliers. Contingency plans will be customized as required for international locations to cover personnel safety, rigs, division offices, crew rotations and rig supplies. PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Page Exhibit 10(a) Amended and Restated Parker Drilling Company Stock Bonus Plan, effective as of January 1, 1999. Exhibit 15 Letter re Unaudited Interim Financial Information 18 Exhibit 27 Financial Data Schedule [Edgar Version Only] (b) Reports on Form 8-K - Parker Drilling Company ("Parker") filed a report on Form 8-K on January 11, 1999 in which the Company announced that it had jointly agreed with Superior Energy Services, Inc. ("Superior"), to terminate the previously announced Agreement and Plan of Merger under which "Superior" would become a wholly owned subsidiary of Parker. Under the termination agreement, Superior agreed to make a cash payment to Parker in settlement of certain obligations under the merger agreement.
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: May 14, 1999 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 - ------- ----------- 10(a) Amended and Restated Parker Drilling Company Stock Bonus Plan, effective as of January 1, 1999. 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule [Edgar Version Only]