þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | |
EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | |
EXCHANGE ACT OF 1934 |
Delaware | 73-0618660 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1
March 31, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 186,630 | $ | 60,176 | ||||
Marketable securities |
| 18,000 | ||||||
Accounts and notes receivable, net |
118,122 | 104,681 | ||||||
Rig materials and supplies |
17,264 | 18,179 | ||||||
Deferred costs |
3,548 | 4,223 | ||||||
Deferred income taxes |
14,840 | 12,018 | ||||||
Other current assets |
49,358 | 64,058 | ||||||
Total current assets |
389,762 | 281,335 | ||||||
Property, plant and equipment less
accumulated depreciation and amortization of $599,327
at March 31, 2006 and $586,168 at December 31, 2005 |
373,515 | 355,397 | ||||||
Goodwill |
107,606 | 107,606 | ||||||
Other noncurrent assets |
46,038 | 57,282 | ||||||
Total assets |
$ | 916,921 | $ | 801,620 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 134,074 | $ | 140,977 | ||||
Accrued income taxes |
11,107 | 9,778 | ||||||
Total current liabilities |
145,181 | 150,755 | ||||||
Long-term debt |
379,853 | 380,015 | ||||||
Other long-term liabilities |
11,009 | 11,021 | ||||||
Contingencies (Note 9) |
| | ||||||
Stockholders equity: |
||||||||
Common stock |
18,002 | 16,306 | ||||||
Capital in excess of par value |
559,818 | 456,135 | ||||||
Unamortized restricted stock plan compensation |
| (4,212 | ) | |||||
Accumulated deficit |
(196,942 | ) | (208,400 | ) | ||||
Total stockholders equity |
380,878 | 259,829 | ||||||
Total liabilities and stockholders equity |
$ | 916,921 | $ | 801,620 | ||||
2
Three Months Ended March 31, | ||||||||
2006 | 2005 | |||||||
Drilling and rental revenues: |
||||||||
U.S. drilling |
$ | 40,253 | $ | 27,117 | ||||
International drilling |
79,830 | 72,172 | ||||||
Rental tools |
27,251 | 20,954 | ||||||
Total drilling and rental revenues |
147,334 | 120,243 | ||||||
Drilling and rental operating expenses: |
||||||||
U.S. drilling |
17,470 | 14,388 | ||||||
International drilling |
61,372 | 55,803 | ||||||
Rental tools |
10,470 | 8,185 | ||||||
Depreciation and amortization |
16,957 | 16,876 | ||||||
Total drilling and rental operating expenses |
106,269 | 95,252 | ||||||
Drilling and rental operating income |
41,065 | 24,991 | ||||||
General and administration expense |
(7,694 | ) | (6,976 | ) | ||||
Gain on disposition of assets, net |
448 | 552 | ||||||
Total operating income |
33,819 | 18,567 | ||||||
Other income and (expense): |
||||||||
Interest expense |
(9,101 | ) | (11,056 | ) | ||||
Changes in fair value of derivative positions |
813 | 1,607 | ||||||
Interest income |
1,406 | 238 | ||||||
Loss on extinguishment of debt |
(2 | ) | (1,429 | ) | ||||
Minority interest |
(964 | ) | 769 | |||||
Other |
(17 | ) | (6 | ) | ||||
Total other income and (expense) |
(7,865 | ) | (9,877 | ) | ||||
Income before income taxes |
25,954 | 8,690 | ||||||
Income tax expense: |
||||||||
Current |
5,563 | 4,852 | ||||||
Deferred |
8,933 | | ||||||
Total income tax expense |
14,496 | 4,852 | ||||||
Income from continuing operations |
11,458 | 3,838 | ||||||
Discontinued operations |
| 91 | ||||||
Net income |
$ | 11,458 | $ | 3,929 | ||||
Basic earnings per share: |
||||||||
Income from continuing operations |
$ | 0.11 | $ | 0.04 | ||||
Discontinued operations |
$ | | $ | | ||||
Net income |
$ | 0.11 | $ | 0.04 | ||||
Diluted earnings per share: |
||||||||
Income from continuing operations |
$ | 0.11 | $ | 0.04 | ||||
Discontinued operations |
$ | | $ | | ||||
Net income |
$ | 0.11 | $ | 0.04 | ||||
Number of common shares used in computing
earnings per share: |
||||||||
Basic |
104,469,893 | 94,948,637 | ||||||
Diluted |
106,003,562 | 96,145,661 |
3
Three Months Ended March 31, | ||||||||
2006 | 2005 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 11,458 | $ | 3,929 | ||||
Adjustments to reconcile net income to
net cash provided by operating activities: |
||||||||
Depreciation and amortization |
16,957 | 16,876 | ||||||
Gain on disposition of assets |
(448 | ) | (538 | ) | ||||
Deferred income tax expense |
8,933 | | ||||||
Expenses not requiring cash |
3,156 | 1,523 | ||||||
Change in operating assets and liabilities |
(4,375 | ) | 12,893 | |||||
Net cash provided by operating activities |
35,681 | 34,683 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(35,940 | ) | (12,606 | ) | ||||
Proceeds from the sale of assets |
958 | 22,991 | ||||||
Purchase of marketable securities |
(43,550 | ) | | |||||
Proceeds from sale of marketable securities |
61,550 | | ||||||
Net cash provided by (used in) investing activities |
(16,982 | ) | 10,385 | |||||
Cash flows from financing activities: |
||||||||
Principal payments under debt obligations |
| (25,024 | ) | |||||
Proceeds from common stock offering |
99,947 | | ||||||
Proceeds from stock options exercised |
6,067 | 1,954 | ||||||
Excess tax benefit from stock options exercised |
1,741 | | ||||||
Net cash provided by (used in) financing activities |
107,755 | (23,070 | ) | |||||
Net increase in cash and cash equivalents |
126,454 | 21,998 | ||||||
Cash and cash equivalents at beginning of year |
60,176 | 44,267 | ||||||
Cash and cash equivalents at end of period |
$ | 186,630 | $ | 66,265 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 3,314 | $ | 3,258 | ||||
Income taxes paid |
$ | 2,487 | $ | 2,899 | ||||
Discontinued operations: |
||||||||
Loss on disposition of assets |
$ | | $ | 14 |
4
1. | General In the opinion of the management of Parker Drilling 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, 2006 and December 31, 2005, (2) the results of operations for the three months ended March 31, 2006 and 2005, and (3) cash flows for the three months ended March 31, 2006 and 2005. Results for the three months ended March 31, 2006 are not necessarily indicative of the results that will be realized for the year ending December 31, 2006. The financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2005. | |
Our independent registered public accounting firm has performed a review of these interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board (United States). Pursuant to Rule 436(c) under the Securities Act of 1933, their independent registered public accounting firms report of that review should not be considered a report within the meaning of Section 7 and 11 of that Act, and the independent registered public accounting firms liability under Section 11 does not extend to it. | ||
Stock-Based Compensation On January 1, 2006 we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment which requires that we include an estimate of the fair value of stock based compensation costs related to stock options in net income. We elected the modified prospective transition method as permitted by SFAS No. 123R. Under this transition method, stock-based compensation expense includes (1) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original pro forma provisions of SFAS No. 123, Accounting for Stock-Based Compensation and (2) compensation expense for all stock-based compensation awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. As a result of adopting this standard, we were required to estimate forfeitures, and, if material, record a one-time cumulative effect of a change in accounting principal adjustment. As a result of our estimates, the adoption of this standard did not have a significant effect on our consolidated condensed financial statements and, as such, no adjustment was recorded. Also, in accordance with the modified prospective transition method, our consolidated condensed financial statements for prior periods have not been restated, and do not include, the impact of SFAS No. 123R. | ||
Under SFAS No. 123R, we continue to use the Black-Scholes option-pricing model to estimate the fair value of our stock options. Expected volatility is determined by using historical volatilities based on historical stock prices for a period that matches the expected term. The expected term of options represents the period of time that options granted are expected to be outstanding and typically falls between the options vesting and contractual expiration dates. The expected term assumption is developed by using historical exercise data adjusted as appropriate for future expectations. The risk-free rate is based on the yield at the date of grant of a zero-coupon U.S. Treasury bond whose maturity period equals the options expected term. The fair value of each option is estimated on the date of grant. The following is a summary of valuation assumptions for grants during the three months ended March 31, 2006 and 2005: |
Grants during the Three | ||||||||
Months Ended March 31, | ||||||||
Valuation Assumptions (1) | 2006 (SFAS 123R) | 2005 (SFAS 123) | ||||||
Expected volatility |
16.9 | % | 51.1 | % | ||||
Expected term |
0.25 years | 3-7 years | ||||||
Risk-free interest rate |
4.23 | % | 3.38 | % | ||||
Expected dividend yield |
0.0 | % | 0.0 | % |
(1) | The stock option granted during the first quarter of 2006 was a discounted option that was made to provide the recipient with the same value as a grant which he had been advised that he would receive in 1999 but was not awarded at that time due to an oversight. The option was vested at the grant date and had an April 14, 2006 expiration date. Accordingly, the volatility and expected term assumptions in 2006 are not comparable with those calculated for 2005. |
5
Stock-Based Compensation (continued) | ||
Total stock-based compensation expense recognized under SFAS No. 123R for the three months ended March 31, 2006, was $1.2 million of which $1.1 million was related to restricted stock plan expense, which we had previously been recognizing. Stock-based compensation expense is included in our consolidated condensed income statement in General and administration expense. Unvested stock options at December 31, 2005 and March 31, 2006 were 86,417 and 37,284, respectively. Total unrecognized compensation cost related to stock options granted under our plans was approximately $32,000 at December 31, 2005 and approximately $21,000 at March 31, 2006, which will be amortized over a weighted-average vesting period of one and one half years. Unvested restricted stock awards at December 31, 2005 and March 31, 2006 were 1,105,000 shares and 1,192,710 shares, respectively. Total unrecognized compensation cost related to unamortized restricted stock awards was $4.2 million as of December 31, 2005 and $4.1 million as of March 31, 2006. There were 90,210 restricted shares granted (net of forfeitures) to certain officers and key employees during the three months ended March 31, 2006. The remaining unrecognized compensation cost related to unamortized restricted stock awards will be amortized over a weighted-average vesting period of approximately one year. | ||
In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated condensed statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123R. We have elected to adopt the transition method described in FSP 123(R)-3. The tax benefit realized for the tax deductions from option exercises totaled $1.7 million for the three months ended March 31, 2006 which has been reported as a financing cash inflow in the consolidated condensed statement of cash flows. Cash received from option exercises for the three months ended March 31, 2006 was $6.1 million and $1.9 million in the first quarter of 2005. | ||
For periods prior to 2006, we accounted for stock based compensation plans using the recognition and measurement principles of the Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock Issued to Employees, and related interpretations. Under these principles no stock based employee compensation costs related to stock options granted was reflected in net income, as all options granted under the various plans had exercise prices equal to or greater than the fair market value of the underlying common stock on the date of the grants. In accordance with the provisions of SFAS No. 123R, our deferred compensation (contra-equity accounts) related to restricted stock awards granted prior to the adoption of SFAS No. 123R were eliminated against the appropriate equity accounts (additional paid-in capital) upon adoption. The following table illustrates the effect on net income and net income per share as if we had applied the fair value based provisions of SFAS No. 123R for the three months ended March 31, 2005: |
6
Three Months Ended | ||||
March 31, 2005 | ||||
(Dollars in Thousands, Except Per Share Amounts) | ||||
Net income as reported |
$ | 3,929 | ||
Stock-based compensation expense included
in net income as reported |
876 | |||
Stock-based compensation expense
determined under fair value method |
(956 | ) | ||
Net income pro forma |
$ | 3,849 | ||
Basic earnings per share: |
||||
Net income as reported |
$ | 0.04 | ||
Net income pro forma |
$ | 0.04 | ||
Diluted earnings per share: |
||||
Net income as reported |
$ | 0.04 | ||
Net income pro forma |
$ | 0.04 |
Disclosures for the three months ended March 31, 2006 are not presented as the amounts are recognized in the consolidated condensed financial statements. | ||
2. | Common Stock Offering- In January 2006, we issued 8,900,000 shares of common stock, pursuant to a Free Writing Prospectus dated January 17, 2006 and a Prospectus Supplement dated January 18, 2006. On January 23, 2006, we realized $11.23 per share or a total of $99.9 million of net proceeds before expenses, but after underwriter discount, from the offering. |
7
3. | Earnings Per Share (EPS) |
Three Months Ended March 31, 2006 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 11,458,000 | 104,469,893 | $ | 0.11 | |||||||
Discontinued operations |
| | ||||||||||
Net income |
$ | 11,458,000 | $ | 0.11 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and restricted stock |
| 1,533,669 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 11,458,000 | 106,003,562 | $ | 0.11 | |||||||
Discontinued operations |
| | ||||||||||
Net income |
$ | 11,458,000 | $ | 0.11 | ||||||||
Three Months Ended March 31, 2005 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS: |
||||||||||||
Income from continuing operations |
$ | 3,838,000 | 94,948,637 | $ | 0.04 | |||||||
Discontinued operations |
91,000 | | ||||||||||
Net income |
$ | 3,929,000 | $ | 0.04 | ||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and restricted stock |
| 1,197,024 | | |||||||||
Diluted EPS: |
||||||||||||
Income from continuing operations |
$ | 3,838,000 | 96,145,661 | $ | 0.04 | |||||||
Discontinued operations |
91,000 | | ||||||||||
Net income |
$ | 3,929,000 | $ | 0.04 | ||||||||
Options to purchase 524,000 shares of common stock with exercise prices ranging from $10.81 to $12.19 per share, were outstanding during the three months ended March 31, 2006, but were not included in the computation of diluted EPS because the options exercise prices were greater than the average market price of the common shares. Options to purchase 4,285,300 shares of common stock with exercise prices ranging from $5.35 to $12.19 per share, were outstanding during the three months ended March 31, 2005, but were not included in the computation of diluted EPS because the options exercise prices were greater than the average market price of the common shares. |
8
4. | Business Segments The primary services we provide are as follows: U.S. drilling, international drilling and rental tools. Information regarding our operations by industry segment for the three months ended March 31, 2006 and 2005 is as follows: |
Three Months Ended March 31, | ||||||||
2006 | 2005 | |||||||
(Dollars in Thousands) | ||||||||
Drilling and rental revenues: |
||||||||
U.S. drilling |
$ | 40,253 | $ | 27,117 | ||||
International drilling |
79,830 | 72,172 | ||||||
Rental tools |
27,251 | 20,954 | ||||||
Total drilling and rental revenues |
$ | 147,334 | $ | 120,243 | ||||
Drilling and rental operating income: |
||||||||
U.S. drilling |
$ | 17,726 | $ | 8,093 | ||||
International drilling |
11,153 | 7,882 | ||||||
Rental tools |
12,186 | 9,016 | ||||||
Total drilling and rental operating income |
41,065 | 24,991 | ||||||
General and administration expense |
(7,694 | ) | (6,976 | ) | ||||
Gain on disposition of assets, net |
448 | 552 | ||||||
Total operating income |
33,819 | 18,567 | ||||||
Interest expense |
(9,101 | ) | (11,056 | ) | ||||
Changes in fair value of derivative positions |
813 | 1,607 | ||||||
Loss on extinguishment of debt |
(2 | ) | (1,429 | ) | ||||
Other |
425 | 1,001 | ||||||
Income before income taxes |
$ | 25,954 | $ | 8,690 | ||||
5. | Discontinued Operations Under a plan approved by our board of directors in June 2003, we disposed of all of our jackup and platform rigs. Nine of the rigs were sold in the third quarter of 2004 and one was sold in January 2005. Another jackup rig was destroyed in an incident in September 2003. The three months ended March 31, 2005, include the operations of the last jackup rig prior to its sale in January 2005. | |
Analysis of Discontinued Operations |
Three Months Ended |
|||||
March 31, 2005 | |||||
(Dollars in Thousands) |
|||||
U.S. jackup and platform drilling revenues |
$ | 193 | |||
U.S. jackup and platform drilling gross margin (1) |
$ | 105 | |||
Loss on disposition of assets |
(14 | ) | |||
Income from discontinued operations |
$ | 91 | |||
(1) | Drilling gross margin is computed as drilling revenues less direct drilling operating expenses, excluding depreciation and amortization expense. The gross margin amounts and gross margin percentages should not be used as a substitute for those amounts reported under GAAP. However, we monitor our business segments based on several criteria, including drilling gross margin. Management believes that this information is useful to our investors because it more closely tracks cash generated by segment. |
9
6. | Income Tax Expense Income tax expense was $14.5 million for the first quarter of 2006, as compared to income tax expense of $4.9 million for the first quarter of 2005. The $9.6 million increase in taxes was due primarily to the recording of deferred taxes. During the fourth quarter of 2005, we recognized a deferred tax benefit in earnings primarily relating to the elimination of our valuation allowance reserving our Net Operating Loss (NOL) carryforward. As a result of this accounting treatment, we will recognize deferred tax expense as the NOL carryforward is utilized. Current foreign tax expense for the first quarter of 2006 was $5.0 million, as compared to current foreign tax expense of $4.9 million for the first quarter of 2005. |
7. | Long-Term Debt |
March 31, 2006 | December 31, 2005 | |||||||
(Dollars in Thousands) | ||||||||
Senior Notes: |
||||||||
Interest rate floating (LIBOR + 4.75%), due 2010 |
$ | 150,000 | $ | 150,000 | ||||
Interest rate 9.625%, due 2013 |
229,853 | 230,015 | ||||||
Total debt |
379,853 | 380,015 | ||||||
Less current portion |
| | ||||||
Total long-term debt |
$ | 379,853 | $ | 380,015 | ||||
Our current $40.0 million credit facility is available for general corporate purposes and to fund reimbursement obligations under letters of credit the banks issue on our behalf pursuant to this facility. Availability under the revolving credit facility is subject to a borrowing base limitation based on 85 percent of eligible receivables plus a value for eligible rental tools equipment. The credit facility calls for a borrowing base calculation only when the credit facility has outstanding loans, including letters of credit, totaling at least $25.0 million. As of March 31, 2006, there were $24.1 million in letters of credit outstanding and no loans. On March 1, 2006, an amendment was signed to eliminate the $25.0 million limit for letters of credit and to give us the ability to call outstanding Senior Notes and Senior Floating Rate Notes without limitation concerning commitments, including letters of credit, under the credit facility. |
10
8. | Derivative Instruments We use derivative instruments to manage risks associated with interest rate fluctuations in connection with our $150.0 million Senior Floating Rate Notes. Derivative instruments, which consist of variable-to-fixed interest rate swaps, do not meet the hedge criteria in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and are therefore not designated as hedges. Accordingly, the change in the fair value of the interest rate swaps is recognized currently in earnings. | |
As of March 31, 2006, we had the following derivative instruments outstanding related to our interest rate swaps, which are included in Other noncurrent assets: |
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||
Date | Date | Amount | Rate | Rate | Value | |||||||
(Dollars in Thousands) | ||||||||||||
September 1, 2005 |
September 2, 2008 | $50,000 | Three-month LIBOR | 8.83% | $ | 1,102 | ||||||
plus 475 basis points | ||||||||||||
September 1, 2005 |
September 4, 2007 | $50,000 | Three-month LIBOR | 8.48% | 992 | |||||||
plus 475 basis points | ||||||||||||
$ | 2,094 | |||||||||||
9. | Contingencies On October 14, 2005, the Kazakhstan Branch (PKD Kazakhstan) of Parker Drilling Company International Limited (PDCIL) received an Act of Tax Audit from the Ministry of Finance of Kazakhstan (MinFin) assessing PKD Kazakhstan an amount of $111.4 million. Approximately $56.4 million was assessed for import Value Added Tax (VAT), administrative fines and interest on equipment imported to perform drilling contracts (the VAT Assessment). The VAT Assessment is based on an interpretation by MinFin that resolutions of the Government of the Kazakhstan and MinFin removing import VAT exemptions should be applied retroactively. The client of PKD Kazakhstan has agreed to reimburse the VAT Assessment, when and if PKD Kazakhstan is required to pay. At December 31, 2005, the $56.4 million VAT Assessment was reflected in Accrued liabilities in the consolidated condensed balance sheet with a corresponding $56.4 million reimbursement receivable from the client reported in Other current assets. In addition to the VAT Assessment, MinFin also assessed approximately $55.0 million for corporate income tax, individual income tax and social tax, administrative fines and interest in connection with the reimbursements received from the client for the upgrade of barge Rig 257 and other issues (the Income Tax Assessment). The Income Tax Assessment is substantially based on the same reimbursement issue on which PKD Kazakhstan has previously prevailed in the Supreme Court on two previous occasions. Both of these assessments were appealed to the Astana City Court and on April 6, 2006, the Astana City Court issued an opinion in favor of PKD Kazakhstan on the Income Tax Assessment and in favor of MinFin on the VAT Assessment, but reduced the amount of the VAT Assessment. PKD Kazakhstan is appealing the ruling on the VAT Assessment and MinFin is appealing the ruling on the Income Tax Assessment, as well as the reduction of the VAT Assessment. Based on the ruling of the Astana City Court and pending the appeal, we have reduced the amount of the VAT Assessment that is reflected in Accrued liabilities to $38.2 million in the consolidated condensed balance sheet and adjusted the corresponding receivable from our client to $38.2 million that is reported in Other current assets. | |
The Company continues to pursue its petition with the U.S. Treasury Department for Competent Authority review, which is a tax treaty procedure to resolve disputes as to which country may tax income covered under the treaty. The U.S. Treaty Department has granted the Companys petition; however, the proceedings have not progressed significantly during the last year. | ||
In September 2005, a subsidiary of the Company was served with a lawsuit filed on behalf of numerous citizens of Bangladesh claiming $250 million in damages due to various types of property damage and personal injuries arising as a result of two blowouts, only one of which involved the Company that occurred in Bangladesh in January and July 2005. The case is in the very early stages of discovery and, accordingly the ultimate outcome cannot presently be determined. In any event, the Company believes that the outcome of this lawsuit will not have a material adverse impact on the financial condition of the Company due to insurance coverage and contractual indemnities. | ||
In August 2004, we were notified that certain of our subsidiaries have been named, along with other defendants, in several complaints that have been filed in the Circuit Courts of the State of Mississippi by several hundred persons that allege that they were employed by some of the named defendants between approximately 1965 and 1986. The complaints name as defendants numerous other companies that are not affiliated with us, including companies that allegedly manufactured drilling related products containing asbestos that are the subject of the complaints. |
11
The complaints allege that our subsidiaries and other drilling contractors used those asbestos-containing products in offshore drilling operations, land-based drilling operations and in drilling structures, drilling rigs, vessels and other equipment and assert claims based on, among other things, negligence and strict liability and claims under the Jones Act. Based on the report of the special master, these complaints have been severed and venue of the claims transferred to the county in which the plaintiff resides or the county in which the cause of action allegedly accrued. This is a time-consuming process because the court clerks of the three original counties must copy the court files or each plaintiffs claim and then send the file to the transferee county. In addition, plaintiffs are in the process of filing amended complaints to specifically identify the companies against which they are asserting claims. The amended complaints are narrowing the scope of the litigation, eliminating some defendants altogether from the cases, and dramatically reducing the number of plaintiffs asserting claims against other companies. The Company is in the process of reviewing the amended complaints to determine whether there are any plaintiffs that have an employment relationship with subsidiaries of the Company and the appropriate subsidiaries have answered certain of these amended complaints denying any liability. Once the process of venue transfers has been completed, it is anticipated that written and deposition discovery will commence as to individual plaintiffs. In addition, on March 18, 2005, a case was filed by a single plaintiff in the Circuit Court of Madison County, Illinois against approximately 125 defendants, including Parker Drilling Company, alleging that the plaintiff suffers from asbestos-related diseases, including mesothelioma, as a result of exposure to asbestos and asbestos-containing products. This Illinois case was dismissed on March 29, 2006 without any payment. On January 13, 2006, one of our subsidiaries was served with a petition filed in the District Court for the Parish of Jefferson in Louisiana against more than 200 defendants by 88 plaintiffs complaining of exposure to asbestos, chemicals, noise, and metals during their work as Jones Act seamen. We have not yet had an opportunity to conduct sufficient discovery to determine the number of plaintiffs, if any, that were employed by us or otherwise have any connection with our operations during the relevant period. The plaintiffs in these cases seek, among other things, awards of unspecified compensatory and punitive damages. The subsidiaries named in these lawsuits intend to defend themselves vigorously and, based on the information available to the Company at this time, the Company does not expect the outcome of these lawsuits to have a material adverse effect on our financial condition, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these lawsuits. | ||
10. | Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements Set forth on the following pages are the unaudited consolidating condensed financial statements of (i) Parker Drilling, (ii) our restricted subsidiaries that are guarantors of the Senior Notes and (iii) our restricted and unrestricted subsidiaries that are not guarantors of the Senior Notes. All of our Senior Notes are guaranteed by substantially all of the restricted subsidiaries of Parker Drilling. There are currently no restrictions on the ability of the restricted subsidiaries to transfer funds to Parker Drilling in the form of cash dividends, loans or advances. Parker Drilling is a holding company with no operations, other than through its subsidiaries. | |
AralParker (a Kazakhstan closed joint stock company, owned 50 percent by Parker Drilling (Kazakstan) Ltd. and 50 percent by Aralnedra, CJSC), Casuarina Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard Drilling of South America, Inc., Mallard Drilling of Venezuela, Inc., Parker Drilling Investment Company, Parker Drilling (Nigeria), Limited, Parker Drilling Company (Bolivia) S.A., Parker Drilling Company Kuwait Limited, Parker Drilling Company Limited (Bahamas), Parker Drilling Company of New Zealand Limited, Parker Drilling Company of Sakhalin, Parker Drilling de Mexico S. de R.L. de C.V., Parker Drilling International of New Zealand Limited, Parker Drilling Tengiz, Ltd., Parker-TNK-Drilling, PD Servicios Integrales, S. de R.L. de C.V., PKD Sales Corporation, Parker SMNG Drilling Limited Liability Company (owned 50 percent by Parker Drilling Company International, Inc.), Parker Drilling Asia Pacific, LLC., and Universal Rig Leasing B.V. are all non-guarantor subsidiaries. We are providing unaudited consolidating condensed financial information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005. The condensed consolidating financial statements present investments in both consolidated and unconsolidated subsidiaries using the equity method of accounting. In addition, the consolidating condensed statement of cash flows includes a change to the 2005 presentation between the parent and guarantor columns from that which was previously reported to correct a mathematical error between those two columns. Cash flows from operating activities of the parent for the three months ended March 31, 2005 have been decreased by $9.2 million and cash flows from operating activities of the guarantor have been increased by the same amount. Also, cash flows from financing activities of the parent for the three months ended March 31, 2005 have been increased by $9.2 million and cash flows from financing activities of the guarantor have been decreased by the same amount. |
12
March 31, 2006 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 153,105 | $ | 10,940 | $ | 22,585 | $ | | $ | 186,630 | ||||||||||
Accounts and notes receivable, net |
43,682 | 136,223 | 47,064 | (108,847 | ) | 118,122 | ||||||||||||||
Rig materials and supplies |
| 9,365 | 7,899 | | 17,264 | |||||||||||||||
Deferred costs |
| 3,076 | 472 | | 3,548 | |||||||||||||||
Other current assets |
14,846 | 48,446 | 906 | | 64,198 | |||||||||||||||
Total current assets |
211,633 | 208,050 | 78,926 | (108,847 | ) | 389,762 | ||||||||||||||
Property, plant and equipment, net |
134 | 408,673 | 36,793 | (72,085 | ) | 373,515 | ||||||||||||||
Goodwill |
| 107,606 | | | 107,606 | |||||||||||||||
Investment in subsidiaries and intercompany advances |
635,095 | 743,511 | 27,958 | (1,406,564 | ) | | ||||||||||||||
Other noncurrent assets |
34,135 | 12,636 | (694 | ) | (39 | ) | 46,038 | |||||||||||||
Total assets |
$ | 880,997 | $ | 1,480,476 | $ | 142,983 | $ | (1,587,535 | ) | $ | 916,921 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 45,393 | $ | 167,719 | $ | 57,965 | $ | (137,003 | ) | $ | 134,074 | |||||||||
Accrued income taxes |
(510 | ) | 11,314 | 303 | | 11,107 | ||||||||||||||
Total current liabilities |
44,883 | 179,033 | 58,268 | (137,003 | ) | 145,181 | ||||||||||||||
Long-term debt |
379,853 | | | | 379,853 | |||||||||||||||
Other long-term liabilities |
801 | 8,599 | 1,609 | | 11,009 | |||||||||||||||
Intercompany payables |
74,582 | 572,622 | 9,664 | (656,868 | ) | | ||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
18,002 | 39,899 | 21,251 | (61,150 | ) | 18,002 | ||||||||||||||
Capital in excess of par value |
559,818 | 977,559 | 33,950 | (1,011,509 | ) | 559,818 | ||||||||||||||
Retained earnings (accumulated deficit) |
(196,942 | ) | (297,236 | ) | 18,241 | 278,995 | (196,942 | ) | ||||||||||||
Total stockholders equity |
380,878 | 720,222 | 73,442 | (793,664 | ) | 380,878 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 880,997 | $ | 1,480,476 | $ | 142,983 | $ | (1,587,535 | ) | $ | 916,921 | |||||||||
13
December 31, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 31,978 | $ | 11,145 | $ | 17,053 | $ | | $ | 60,176 | ||||||||||
Marketable securities |
16,000 | 2,000 | | | 18,000 | |||||||||||||||
Accounts and notes receivable, net |
41,965 | 112,888 | 41,637 | (91,809 | ) | 104,681 | ||||||||||||||
Rig materials and supplies |
| 10,830 | 7,349 | | 18,179 | |||||||||||||||
Deferred costs |
| 2,791 | 1,432 | | 4,223 | |||||||||||||||
Other current assets |
12,024 | 63,312 | 740 | | 76,076 | |||||||||||||||
Total current assets |
101,967 | 202,966 | 68,211 | (91,809 | ) | 281,335 | ||||||||||||||
Property, plant and equipment, net |
134 | 389,674 | 37,674 | (72,085 | ) | 355,397 | ||||||||||||||
Goodwill |
| 107,606 | | | 107,606 | |||||||||||||||
Investment in subsidiaries and intercompany advances | 606,711 | 737,080 | 37,895 | (1,381,686 | ) | | ||||||||||||||
Other noncurrent assets |
46,080 | 10,997 | 244 | (39 | ) | 57,282 | ||||||||||||||
Total assets |
$ | 754,892 | $ | 1,448,323 | $ | 144,024 | $ | (1,545,619 | ) | $ | 801,620 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 38,802 | $ | 163,414 | $ | 50,446 | $ | (111,685 | ) | $ | 140,977 | |||||||||
Accrued income taxes |
609 | 9,885 | (716 | ) | | 9,778 | ||||||||||||||
Total current liabilities |
39,411 | 173,299 | 49,730 | (111,685 | ) | 150,755 | ||||||||||||||
Long-term debt |
380,015 | | | | 380,015 | |||||||||||||||
Other long-term liabilities |
1,054 | 8,242 | 1,725 | | 11,021 | |||||||||||||||
Intercompany payables |
74,583 | 567,434 | 17,195 | (659,212 | ) | | ||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
16,306 | 39,899 | 21,251 | (61,150 | ) | 16,306 | ||||||||||||||
Capital in excess of par value |
456,135 | 977,559 | 33,950 | (1,011,509 | ) | 456,135 | ||||||||||||||
Unamortized restricted stock plan compensation |
(4,212 | ) | | | | (4,212 | ) | |||||||||||||
Retained earnings (accumulated deficit) |
(208,400 | ) | (318,110 | ) | 20,173 | 297,937 | (208,400 | ) | ||||||||||||
Total stockholders equity |
259,829 | 699,348 | 75,374 | (774,722 | ) | 259,829 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 754,892 | $ | 1,448,323 | $ | 144,024 | $ | (1,545,619 | ) | $ | 801,620 | |||||||||
14
Three Months Ended March 31, 2006 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 117,746 | $ | 42,680 | $ | (13,092 | ) | $ | 147,334 | |||||||||
Drilling and rental operating expenses |
| 61,189 | 41,215 | (13,092 | ) | 89,312 | ||||||||||||||
Depreciation and amortization |
| 15,937 | 1,020 | | 16,957 | |||||||||||||||
Drilling and rental operating income |
| 40,620 | 445 | | 41,065 | |||||||||||||||
General and administration expense (1) |
(55 | ) | (7,630 | ) | (9 | ) | | (7,694 | ) | |||||||||||
Gain on disposition of assets, net |
| 401 | 47 | | 448 | |||||||||||||||
Total operating income (loss) |
(55 | ) | 33,391 | 483 | | 33,819 | ||||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(10,287 | ) | (11,796 | ) | (510 | ) | 13,492 | (9,101 | ) | |||||||||||
Changes in fair value of derivative positions |
813 | | | | 813 | |||||||||||||||
Interest income |
12,074 | 2,017 | 807 | (13,492 | ) | 1,406 | ||||||||||||||
Loss on extinguishment of debt |
(2 | ) | | | | (2 | ) | |||||||||||||
Minority interest |
| | (964 | ) | | (964 | ) | |||||||||||||
Other |
| (17 | ) | | | (17 | ) | |||||||||||||
Equity in net earnings of subsidiaries |
18,943 | | | (18,943 | ) | | ||||||||||||||
Total other income and (expense) |
21,541 | (9,796 | ) | (667 | ) | (18,943 | ) | (7,865 | ) | |||||||||||
Income (loss) before income taxes |
21,486 | 23,595 | (184 | ) | (18,943 | ) | 25,954 | |||||||||||||
Income tax expense (benefit): |
||||||||||||||||||||
Current |
744 | 3,011 | 1,808 | | 5,563 | |||||||||||||||
Deferred |
9,284 | (290 | ) | (61 | ) | | 8,933 | |||||||||||||
Income tax expense |
10,028 | 2,721 | 1,747 | | 14,496 | |||||||||||||||
Income (loss) from continuing operations |
11,458 | 20,874 | (1,931 | ) | (18,943 | ) | 11,458 | |||||||||||||
Discontinued operations |
| | | | | |||||||||||||||
Net income (loss) |
$ | 11,458 | $ | 20,874 | $ | (1,931 | ) | $ | (18,943 | ) | $ | 11,458 | ||||||||
(1) | All field operations general and administration expenses are included in operating expenses. |
15
Three Months Ended March 31, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Drilling and rental revenues |
$ | | $ | 89,144 | $ | 34,943 | $ | (3,844 | ) | $ | 120,243 | |||||||||
Drilling and rental operating expenses |
| 47,908 | 34,323 | (3,855 | ) | 78,376 | ||||||||||||||
Depreciation and amortization |
| 15,911 | 965 | | 16,876 | |||||||||||||||
Drilling and rental operating income (loss) |
| 25,325 | (345 | ) | 11 | 24,991 | ||||||||||||||
General and
administration expense (1) |
(42 | ) | (6,934 | ) | | | (6,976 | ) | ||||||||||||
Gain on disposition of assets, net |
| 347 | 205 | | 552 | |||||||||||||||
Total operating income (loss) |
(42 | ) | 18,738 | (140 | ) | 11 | 18,567 | |||||||||||||
Other income and (expense): |
||||||||||||||||||||
Interest expense |
(12,248 | ) | (12,287 | ) | (755 | ) | 14,234 | (11,056 | ) | |||||||||||
Changes in fair value of derivative positions |
1,607 | | | | 1,607 | |||||||||||||||
Interest income |
11,639 | 2,123 | 710 | (14,234 | ) | 238 | ||||||||||||||
Loss on extinguishment of debt |
(1,429 | ) | | | | (1,429 | ) | |||||||||||||
Minority interest |
| | 769 | | 769 | |||||||||||||||
Other |
| (6 | ) | 11 | (11 | ) | (6 | ) | ||||||||||||
Equity in net earnings of subsidiaries |
4,608 | | | (4,608 | ) | | ||||||||||||||
Total other income and (expense) |
4,177 | (10,170 | ) | 735 | (4,619 | ) | (9,877 | ) | ||||||||||||
Income (loss) before income taxes |
4,135 | 8,568 | 595 | (4,608 | ) | 8,690 | ||||||||||||||
Income tax expense |
206 | 2,831 | 1,815 | | 4,852 | |||||||||||||||
Income (loss) from continuing operations |
3,929 | 5,737 | (1,220 | ) | (4,608 | ) | 3,838 | |||||||||||||
Discontinued operations |
| 91 | | | 91 | |||||||||||||||
Net income (loss) |
$ | 3,929 | $ | 5,828 | $ | (1,220 | ) | $ | (4,608 | ) | $ | 3,929 | ||||||||
(1) | All field operations general and administration expenses are included in operating expenses. |
16
Three Months Ended March 31, 2006 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 11,458 | $ | 20,874 | $ | (1,931 | ) | $ | (18,943 | ) | $ | 11,458 | ||||||||
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 15,937 | 1,020 | | 16,957 | |||||||||||||||
Gain on disposition of assets |
| (401 | ) | (47 | ) | | (448 | ) | ||||||||||||
Deferred tax expense (benefit) |
9,284 | (290 | ) | (61 | ) | | 8,933 | |||||||||||||
Expenses not requiring cash |
2,856 | 300 | | | 3,156 | |||||||||||||||
Equity in net earnings of subsidiaries |
(18,943 | ) | | | 18,943 | | ||||||||||||||
Change in operating assets and liabilities |
2,159 | (10,771 | ) | 4,237 | | (4,375 | ) | |||||||||||||
Net cash provided by operating activities |
6,814 | 25,649 | 3,218 | | 35,681 | |||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (35,079 | ) | (861 | ) | | (35,940 | ) | ||||||||||||
Proceeds from the sale of assets |
| 189 | 769 | | 958 | |||||||||||||||
Purchase of marketable securities |
(43,550 | ) | | | | (43,550 | ) | |||||||||||||
Proceeds from sale of marketable securities |
59,550 | 2,000 | | | 61,550 | |||||||||||||||
Net cash provided by (used in) investing activities |
16,000 | (32,890 | ) | (92 | ) | | (16,982 | ) | ||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from common stock offering |
99,947 | | | | 99,947 | |||||||||||||||
Proceeds from stock options exercised |
6,067 | 6,067 | ||||||||||||||||||
Excess tax benefit from stock options exercised |
1,741 | 1,741 | ||||||||||||||||||
Intercompany advances, net |
(9,442 | ) | 7,036 | 2,406 | | | ||||||||||||||
Net cash provided by financing activities |
98,313 | 7,036 | 2,406 | | 107,755 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents |
121,127 | (205 | ) | 5,532 | | 126,454 | ||||||||||||||
Cash and cash equivalents at beginning of year |
31,978 | 11,145 | 17,053 | | 60,176 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 153,105 | $ | 10,940 | $ | 22,585 | $ | | $ | 186,630 | ||||||||||
17
Three Months Ended March 31, 2005 | ||||||||||||||||||||
Parent | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 3,929 | $ | 5,828 | $ | (1,220 | ) | $ | (4,608 | ) | $ | 3,929 | ||||||||
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 15,911 | 965 | | 16,876 | |||||||||||||||
Gain on disposition of assets |
| (333 | ) | (205 | ) | | (538 | ) | ||||||||||||
Expenses not requiring cash |
1,135 | 388 | | 1,523 | ||||||||||||||||
Equity in net earnings of subsidiaries |
(4,608 | ) | | | 4,608 | | ||||||||||||||
Change in operating assets and liabilities |
5,248 | 6,450 | 1,195 | | 12,893 | |||||||||||||||
Net cash provided by operating activities |
5,704 | 28,244 | 735 | | 34,683 | |||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (11,850 | ) | (756 | ) | | (12,606 | ) | ||||||||||||
Proceeds from the sale of assets |
| 22,409 | 582 | | 22,991 | |||||||||||||||
Net cash provided by (used in) investing activities |
| 10,559 | (174 | ) | | 10,385 | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Principal payments under debt obligations |
(25,024 | ) | | | | (25,024 | ) | |||||||||||||
Proceeds from stock options exercised |
1,954 | | | | 1,954 | |||||||||||||||
Intercompany advances, net |
40,493 | (39,436 | ) | (1,057 | ) | | | |||||||||||||
Net cash provided by (used in) financing activities |
17,423 | (39,436 | ) | (1,057 | ) | | (23,070 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
23,127 | (633 | ) | (496 | ) | | 21,998 | |||||||||||||
Cash and cash equivalents at beginning of year |
16,677 | 7,938 | 19,652 | | 44,267 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 39,804 | $ | 7,305 | $ | 19,156 | $ | | $ | 66,265 | ||||||||||
18
/s/ PricewaterhouseCoopers LLP | ||
PricewaterhouseCoopers LLP |
19
| stability of prices and demand for oil and natural gas; | ||
| levels of oil and natural gas exploration and production activities; | ||
| demand for contract drilling and drilling related services and demand for rental tools; | ||
| our future operating results and profitability; | ||
| our future rig utilization, dayrates and rental tools activity; | ||
| entering into new, or extending existing, drilling contracts and our expectations concerning when our rigs will commence operations under such contracts; | ||
| growth of the Company through acquisitions of companies or assets; | ||
| entering into joint venture agreements with local companies; | ||
| our future capital expenditures and investments in the acquisition and refurbishment of rigs and equipment; | ||
| our future liquidity; | ||
| availability and sources of funds to reduce our debt and expectations of when debt will be reduced; | ||
| the outcome of pending and future legal proceedings, tax assessments and other claims; | ||
| our recovery of insurance proceeds with respect to any damages to our assets; | ||
| the availability of insurance coverage for pending or future claims; | ||
| the enforceability of contractual indemnification in relation to pending or future claims; | ||
| compliance with covenants under our senior credit facility and indentures for our senior notes; and | ||
| expansion and growth of our operations. |
| worldwide economic and business conditions that adversely affect market conditions and/or the cost of doing business; | ||
| the U.S. economy and the demand for natural gas; | ||
| fluctuations in the market prices of oil and gas; | ||
| imposition of unanticipated trade restrictions; | ||
| unanticipated operating hazards and uninsured risks; | ||
| political instability, terrorism or war; | ||
| governmental regulations, including changes in tax laws or ability to remit funds to the U.S., that adversely affect the cost of doing business; | ||
| adverse environmental events; | ||
| adverse weather conditions; | ||
| changes in the concentration of customer and supplier relationships; | ||
| unexpected cost increases for upgrade and refurbishment projects; | ||
| delays in obtaining components for capital projects; | ||
| shortages of skilled labor; | ||
| unanticipated cancellation of contracts by operators without cause; | ||
| breakdown of equipment and other operational problems; | ||
| changes in competition; | ||
| risk factors discussed in our 2005 Form 10-K and listed from time to time in our filings with the Securities and Exchange Commission; and | ||
| other similar factors (some of which are discussed in documents referred to in this Form 10-Q). |
20
21
Three Months Ended March 31, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Drilling and rental revenues: |
||||||||||||||||
U.S. drilling |
$ | 40,253 | 27 | % | $ | 27,117 | 23 | % | ||||||||
International drilling |
79,830 | 54 | % | 72,172 | 60 | % | ||||||||||
Rental tools |
27,251 | 19 | % | 20,954 | 17 | % | ||||||||||
Total drilling and rental revenues |
$ | 147,334 | 100 | % | $ | 120,243 | 100 | % | ||||||||
Drilling and rental operating income: |
||||||||||||||||
U.S. drilling gross margin (1) |
$ | 22,783 | 57 | % | $ | 12,729 | 47 | % | ||||||||
International drilling gross margin (1) |
18,458 | 23 | % | 16,369 | 23 | % | ||||||||||
Rental tools
gross margin (1) |
16,781 | 62 | % | 12,769 | 61 | % | ||||||||||
Depreciation and amortization |
(16,957 | ) | (16,876 | ) | ||||||||||||
Total
drilling and rental operating income (2) |
41,065 | 24,991 | ||||||||||||||
General and administration expense |
(7,694 | ) | (6,976 | ) | ||||||||||||
Gain on disposition of assets, net |
448 | 552 | ||||||||||||||
Total operating income |
$ | 33,819 | $ | 18,567 | ||||||||||||
(1) | Drilling and rental gross margins are computed as drilling and rental revenues less direct drilling and rental operating expenses, excluding depreciation and amortization expense; drilling and rental gross margin percentages are computed as drilling and rental gross margin as a percent of drilling and rental revenues. The gross margin amounts and gross margin percentages should not be used as a substitute for those amounts reported under GAAP. However, we monitor our business segments based on several criteria, including drilling and rental gross margin. Management believes that this information is useful to our investors because it more closely tracks cash generated by segment. Such gross margin amounts are reconciled to our most comparable GAAP measure as follows: |
International | ||||||||||||
U.S. Drilling | Drilling | Rental Tools | ||||||||||
(Dollars in Thousands) | ||||||||||||
Three Months Ended March 31, 2006 |
||||||||||||
Drilling and
rental operating income (2) |
$ | 17,726 | $ | 11,153 | $ | 12,186 | ||||||
Depreciation and amortization |
5,057 | 7,305 | 4,595 | |||||||||
Drilling and rental gross margin |
$ | 22,783 | $ | 18,458 | $ | 16,781 | ||||||
Three Months Ended March 31, 2005 |
||||||||||||
Drilling and
rental operating income (2) |
$ | 8,093 | $ | 7,882 | $ | 9,016 | ||||||
Depreciation and amortization |
4,636 | 8,487 | 3,753 | |||||||||
Drilling and rental gross margin |
$ | 12,729 | $ | 16,369 | $ | 12,769 | ||||||
(2) | Drilling and rental operating income drilling and rental revenues less direct drilling and rental operating expenses, including depreciation and amortization expense. |
22
23
Three Months Ended |
|||||
March 31, 2005 | |||||
(Dollars in Thousands) |
|||||
U.S. jackup and platform drilling revenues |
$ | 193 | |||
U.S. jackup and platform drilling gross margin (1) |
$ | 105 | |||
Loss on disposition of assets |
(14 | ) | |||
Income from discontinued operations |
$ | 91 | |||
(1) | Drilling gross margin is computed as drilling revenues less direct drilling operating expenses, excluding depreciation and amortization expense. The gross margin amounts and gross margin percentages should not be used as a substitute for those amounts reported under GAAP. However, we monitor our business segments based on several criteria, including drilling gross margin. Management believes that this information is useful to our investors because it more closely tracks cash generated by segment. |
24
25
| $150.0 million aggregate principal amount of Senior Floating Rate Notes bearing interest at a rate of LIBOR plus 4.75%, which are due September 1, 2010; and | ||
| $225.0 million aggregate principal amount of 9.625% Senior Notes, which are due October 1, 2013 plus the associated $4.9 million in unamortized debt premium. |
Less than | More than | |||||||||||||||||||
Total | 1 Year | Years 2 - 3 | Years 4 - 5 | 5 Years | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Contractual cash obligations: |
||||||||||||||||||||
Long-term
debt principal (1) |
$ | 375,000 | $ | | $ | | $ | 150,000 | $ | 225,000 | ||||||||||
Long-term
debt interest (1) |
221,783 | 35,096 | 70,193 | 62,353 | 54,141 | |||||||||||||||
Operating
leases (2) |
12,825 | 5,669 | 4,942 | 1,695 | 519 | |||||||||||||||
Purchase
commitments (3) |
38,174 | 38,174 | | | | |||||||||||||||
Total
contractual obligations |
$ | 647,782 | $ | 78,939 | $ | 75,135 | $ | 214,048 | $ | 279,660 | ||||||||||
Commercial commitments: |
||||||||||||||||||||
Revolving
credit facility (4) |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Standby
letters of credit (4) |
24,121 | 24,121 | | | | |||||||||||||||
Total
commercial commitments |
$ | 24,121 | $ | 24,121 | $ | | $ | | $ | | ||||||||||
(1) | Long-term debt includes the principal and interest cash obligations of the 9.625% Senior Notes but the remaining unamortized premium of $4.9 million is not included in the contractual cash obligations schedule. A portion of the interest on the Senior Floating Rate Notes has been fixed through variable-to-fixed interest rate swap agreements. The issuer (Bank of America, N.A.) of each swap has the option to extend each swap for an additional two years at the termination of the initial swap period. For the purpose of this table, the highest interest rate currently hedged is used in calculating the interest on future floating rate periods. | |
(2) | Operating leases consist of lease agreements in excess of one year for office space, equipment, vehicles and personal property. | |
(3) | We have purchase commitments outstanding as of March 31, 2006, related to rig upgrade projects and new rig construction. | |
(4) | We have a $40.0 million revolving credit facility. As of March 31, 2006, no amounts have been drawn down, but $24.1 million of availability has been used to support letters of credit that have been issued, resulting in an estimated $15.9 million availability. The revolving credit facility expires in December 2007. |
26
Effective | Termination | Notional | Floating | Fixed | Fair | |||||||||||||||
Date | Date | Amount | Rate | Rate | Value | |||||||||||||||
(Dollars in Thousands) |
||||||||||||||||||||
September 1, 2005 |
September 2, 2008 | $ | 50,000 | Three-month LIBOR | 8.83 | % | $ | 1,102 | ||||||||||||
plus 475 basis points | ||||||||||||||||||||
September 1, 2005 |
September 4, 2007 | $ | 50,000 | Three-month LIBOR | 8.48 | % | 992 | |||||||||||||
plus 475 basis points | ||||||||||||||||||||
$ | 2,094 | |||||||||||||||||||
27
1. | Election of Directors: The Stockholders elected three Class I directors to the board of directors of Parker Drilling Company to serve for a three-year term, until 2009: |
R. Rudolph Reinfrank |
||||
Votes cast in favor: |
94,452,832 | |||
Votes withheld: |
2,683,880 | |||
John W. Gibson, Jr. |
||||
Votes cast in favor: |
95,008,625 | |||
Votes withheld: |
2,128,087 | |||
James W. Whalen |
||||
Votes cast in favor: |
92,958,284 | |||
Votes withheld: |
4,178,428 | |||
Robert W. Goldman |
||||
Votes cast in favor: |
95,147,039 | |||
Votes withheld: |
1,989,673 |
2. | Election of independent accountants: PricewaterhouseCoopers LLP was approved as the independent accountants for 2006 with: |
Votes cast in favor: |
96,033,989 | |||
Votes against: |
840,705 | |||
Votes withheld: |
262,018 |
28
(a) | Exhibits: | |
The following exhibits are filed as a part of this report: |
Exhibit | ||
Number | Description | |
4
|
First Amendment to the Credit Agreement dated December 20, 2004 among Parker Drilling Company, as Borrower, the Several Lenders Parties thereto, Lehman Brothers, Inc., as Sole Advisor, Sole Lead Arranger and Sole Bookrunner, Bank of America, N.A., as Syndication Agent and Lehman Commercial Paper, Inc., as Administrative Agent dated March 1, 2006 (incorporated by reference to Exhibit 4(i) to the Companys Form 10-K dated March 8, 2006). | |
10.1
|
Consulting Agreement between Robert L. Parker and the Company dated April 12, 2006 (incorporated by reference to Exhibit 10.1 to the Companys Form 8-K dated April 12, 2006). | |
10.2
|
Termination of Split Dollar Life Insurance Agreement among Robert L. Parker, The Robert L. Parker, Sr. and Catherine M. Parker Family Trust Under Indenture Dated the 23rd Day of July, 1993, and the Company dated April 12, 2006 (incorporated by reference to Exhibit 10.2 to the Companys Form 8-K dated April 12, 2006). | |
15
|
Letter re Unaudited Interim Financial Information | |
31.1
|
Section 302 Certification Chief Executive Officer | |
31.2
|
Section 302 Certification Chief Financial Officer | |
32.1
|
Section 906 Certification Chief Executive Officer | |
32.2
|
Section 906 Certification Chief Financial Officer |
29
Date: May 5, 2006 | PARKER DRILLING COMPANY Registrant |
|||
By: | /s/ Robert L. Parker Jr. | |||
Robert L. Parker Jr. | ||||
Chairman, President and Chief Executive Officer |
||||
By: | /s/ W. Kirk Brassfield | |||
W. Kirk Brassfield | ||||
Senior Vice President and Chief Financial Officer |
30
Exhibit | ||
Number | Description | |
15
|
Letter re Unaudited Interim Financial Information | |
31.1
|
Section 302 Certification Chief Executive Officer | |
31.2
|
Section 302 Certification Chief Financial Officer | |
32.1
|
Section 906 Certification Chief Executive Officer | |
32.2
|
Section 906 Certification Chief Financial Officer |