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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One) ---------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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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
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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Securities registered pursuant
to Section 12(b) of the Act:
N/A Name of each exchange on which registered:
- - --------------------------- ------------------------------------------
(Title of class) New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.16 2/3 per share
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(Title of class)
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
As of September 30, 1996, 65,338,975 common shares were outstanding, and
the aggregate market value of the common shares (based upon the closing price
of these shares on the New York Stock Exchange) held by nonaffiliates was
$381.3 million.
Documents Incorporated by Reference
Part III, Items 10 through 13 Portions of the Company's definitive Proxy
Statement in connection with its Annual
Meeting to be held December 18, 1996
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business 1
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners
and Management 44
Item 13. Certain Relationships and Related Transactions 44
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 44
Signatures 48
PART I
Item 1. BUSINESS
Parker Drilling Company is a contract drilling company that was
incorporated in the state of Oklahoma in 1954 after having been established in
1934 by its founder Gifford C. Parker. The founder was the father of Robert
L. Parker, the chairman and a principal stockholder, and the grandfather of
Robert L. Parker Jr., president and chief executive officer. In March 1976,
the state of incorporation of the Company was changed to Delaware through the
merger of the Oklahoma corporation into its wholly owned subsidiary Parker
Drilling Company, a Delaware corporation. Unless otherwise indicated, the
term "Company" refers to Parker Drilling Company together with its
subsidiaries and "Parker Drilling" refers solely to the parent, Parker
Drilling Company.
The Company is a leading provider of land contract drilling services on a
worldwide basis to major, independent and foreign national oil companies.
Since its inception in 1934, the Company has provided drilling services
throughout the United States and 46 foreign countries, giving it the broadest
geographical representation of any land drilling contractor. Currently, the
Company has 46 international rigs in 13 countries and 17 rigs in the United
States. The Company specializes in the drilling of deep and difficult wells
and drilling in remote and harsh environments. The Company also has the
capability to provide a range of services that are ancillary to its principal
drilling services, including engineering, logistics and construction, as well
as various types of project management.
On September 14, 1996 the Company signed a definitive agreement to
acquire Mallard Bay Drilling, Inc. Mallard owns 47 rigs, the majority of
which are barge and platform rigs that operate primarily in the shallow
coastal and offshore waters of the Gulf Coast of the U.S. It also has
significant international operations utilizing barge rigs in Nigeria, platform
rigs in Peru and land rigs in Argentina.
On October 7, 1996 the Company signed an agreement to acquire Quail
Tools, Inc. Quail is a leading provider of specialized rental tools for
drilling, workover, completion and recompletion operations in the offshore
Gulf of Mexico and Gulf Coast land areas.
The Company anticipates closing both transactions in November 1996 (see
Item 1. Business - Pending Acquisitions).
International Land Drilling Operations
The Company's international land drilling operations are focused
primarily in South America and the Asia Pacific region, where the Company
specializes in drilling that requires equipment specially designed to be
transported by helicopter, water or other all-terrain vehicles into remote
access areas such as jungle, mountainside or desert locations. Management
believes that the Company's 23 heli-rigs, with technologically advanced pumps
and power generation systems that are capable of drilling difficult wells in
excess of 15,000 feet, have established the Company as the dominant operator
in the heli-rig market, with a 75% worldwide market share. The Company
traditionally has been a pioneer in "frontier areas" and is currently working
for operators in the countries of China, Russia, Kazakstan and Vietnam.
In recent years, many major and independent oil companies have directed a
greater portion of their exploration budgets to foreign markets. This is
particularly true in South America and the Asia Pacific region, where the
demand for land rigs has increased significantly. The Company has benefitted
from this trend due to its long-standing presence in these markets and has
been able to deploy rigs under longer term contracts at higher dayrates and
operating margins that domestic operations. Management believes that the
demand for drilling services in international markets will continue to grow as
demand for oil and gas increases and countries dependent on oil and gas
revenues seek to increase their production. The Company intends to capitalize
on its global presence and substantial international experience to pursue
growth opportunities in both current and developing markets.
International markets differ from the domestic market in terms of
competition, nature of customers, equipment and experience requirements. The
majority of international drilling markets have the following characteristics:
(i) a small number of competitors; (ii) customers who are major, large
independent or foreign national oil companies; (iii) drilling programs in
remote locations requiring drilling equipment with a large inventory of spare
parts and often other ancillary equipment; and (iv) drilling of difficult
wells requiring considerable experience.
South America. The Company currently has 20 rigs located in the South
American drilling markets of Colombia, Argentina and Peru. The Company's rigs
have been upgraded to meet the demands of deep, difficult drilling in these
areas. Most of these rigs are currently under contract to major or national
oil companies with attractive dayrates. The Company anticipates it will
continue to relocate rigs to the South American market to meet increased
demand for drilling in such countries as Colombia, Argentina, Peru and
Venezuela.
Asia Pacific Region. The Company operates 15 of its fleet of 23
helicopter transportable rigs in the Asia Pacific region due to the remoteness
of the mountainside and jungle drilling performed in this region. This region
also contains all of the Company's present geothermal operations. The Company
entered the Philippine geothermal market in 1993 and Indonesia in 1995. In
1996, the Company became the first land drilling contractor to enter the
Vietnam market subsequent to the liberalization of Vietnam's trading policy
and the lifting of restrictions on doing business with Vietnam. Also in 1996,
the Company formed an alliance with the national drilling company in China,
pursuant to which the Company will provide project management assistance and
rig supervisory personnel to western oil companies in conjunction with the
Company's Chinese partner. The Company has the longest presence of any
foreign drilling contractor in China, beginning with its first contract in
1980.
Africa and the Former Soviet Union. Seven of the Company's rigs are
currently located in the markets of Africa and the former Soviet Union. After
becoming the first western drilling contractor to enter the markets of the
former Soviet Union in 1991, expansion of the Company's business in this
region has been hampered by bureaucratic inefficiencies, constantly changing
tax and other laws and political issues that have retarded the investment of
capital by major and large independent oil companies in the former Soviet
Union. The Company anticipates that the recently announced agreement
regarding the pipeline to be built to accommodate incremental production from
the Tengiz field in Kazakstan will increase exploration efforts in this
region; however, drilling may be delayed pending resolution of technical,
logistical and other issues.
Domestic Land Drilling Operations
In the United States, the Company operates onshore rigs in the Gulf
Coast, Rocky Mountain and Mid-Continent regions and the arctic region of
Alaska. Within the lower 48 states, the Company traditionally has specialized
in the drilling of deep gas wells, often in excess of 20,000 feet. The U.S.
land drilling market is highly fragmented, with numerous competitors and an
oversupply of rigs. During the past few years, this market has undergone
significant consolidation; however, rig supply continues to exceed rig demand,
which has resulted in depressed dayrates. The oversupply of rigs is
especially prevalent in the market for mechanical rigs.
During the fourth quarter of fiscal 1996, the Company sold 22 mechanical
rigs from its domestic fleet. Of the Company's remaining 17 domestic rigs, 15
are SCR electric, two are equipped with top drive units and 16 are capable of
drilling in excess of 15,000 feet. Traditionally, the Company has
differentiated itself from its domestic competitors by specializing in the
drilling of deep and difficult wells.
Specialty Land Drilling Services
Helicopter Transportable Rigs. The Company specializes in difficult
wells and drilling in remote areas and harsh environments, primarily in
international locations. A significant factor contributing to the Company's
success in obtaining drilling contracts in remote areas is the use of rigs
that are transportable by air, land and water. These rigs have been specially
designed and constructed by the Company for quick assembly and disassembly
under the proprietary designations "Heli-Hoist" (Registered Trademark) rig,
Transportable By Anything (Registered Trademark) ("TBA") (Registered
Trademark) rig and All-Terrain ("AT2000E") (Registered Trademark) rig.
Management believes that the Company's 23 helicopter transportable rigs
comprise approximately 75% of the operational helicopter transportable rigs
worldwide. The Heli-Hoist (Registered Trademark), TBA (Registered Trademark)
and AT2000E (Registered Trademark) rigs allow the Company to perform drilling
operations in remote and otherwise inaccessible locations such as jungle
areas, mountainous areas and offshore platforms.
Deep Drilling. During the U.S. drilling boom of the late 1970s and early
1980s, the Company developed its specialty of deep difficult drilling,
primarily in the Anadarko Basin of Western Oklahoma and the Overthrust Region
in the Rocky Mountains. The majority of the expansion of the Company's
domestic fleet was built around this deep gas drilling, during which time the
Company established several drilling depth records approaching 30,000 feet.
The Company's largest drilling rig is rated in excess of 30,000 feet.
During the last several years, drilling activity has shifted from
domestic deep gas drilling to international deep oil and gas drilling. While
international deep drilling is generally in the range of 15,000 feet to 20,000
feet as opposed to the domestic deep drilling which often exceeded 20,000
feet, the Company has benefitted in the international arena from the
development of this expertise, particularly in the deep drilling markets of
the Cusiana and Cupiagua fields of Colombia and in northern Argentina.
Arctic Drilling. The Company has been one of the pioneers in arctic
drilling conditions and continues to offer new technology to meet the demand
for increased drilling in an ecologically sensitive manner. The Company's
most recent development has been the introduction of a self-contained mobile
drilling unit capable of being moved in one unit by giant "crawlers" similar
to the system used to move rocket thrusters for the space program. The
environmentally sensitive rig also has a complete closed-loop mud system and
cuttings processing system that eliminate the need for mud pits.
Geothermal Drilling. The Company also has developed expertise in the
area of geothermal drilling. Geothermal operations involve drilling into a
pocket of geothermal energy, tapping the source of this energy in the form of
steam, hot water or hot rocks and converting this heat into usable forms of
energy. The market for geothermal drilling is expanding into several areas of
the world, including the Philippines, New Zealand and Indonesia, as various
countries elect to access this alternative form of energy.
OTHER OPERATIONS
Parker Technology, Inc. ("Partech") (Registered Trademark), a wholly
owned subsidiary of the Company, is a drilling equipment and manufacturing
concern which gives the Company the ability to design, construct and modify
rigs to meet its own unique needs and, to a lesser extent, to construct rigs
and components for other customers. Partech (Registered Trademark)
successfully designed and built the first drilling rig in its AT2000E
(Registered Trademark) series of heli-rigs in 1989. This all-electric rig
series features a proprietary design that provides for additional power and
drilling capacity in remote locations. In fiscal years 1996, 1995 and 1994,
its operations accounted for less than 10 percent of the Company's total
revenue.
Item 1. BUSINESS (continued)
PENDING ACQUISITIONS
The Mallard Acquisition
On September 14, 1996, the Company executed a definitive agreement with
Energy Ventures, Inc. ("EVI") to acquire all of the stock of EVI's wholly
owned subsidiary, Mallard Bay Drilling, Inc. ("Mallard") and certain related
operations. The consideration for the Mallard Acquisition is $338 million,
consisting of $313 million in cash, subject to adjustment for changes in
Mallard's net assets prior to closing, and $25 million in shares of the
Company's convertible preferred stock. The number of shares of convertible
preferred stock to be issued will be determined based upon the closing price
of the Company's common stock for the ten trading days ending two trading days
before the closing of the Mallard Acquisition. The shares of convertible
preferred stock will automatically be converted into shares of common stock of
the Company upon approval by the stockholders of the Company of an amendment
to its Restated Certificate of Incorporation to increase the number of
authorized shares of common stock from 70,000,000 to 120,000,000 at the annual
shareholders' meeting of the Company in December 1996. The Company will grant
EVI certain registration rights for the shares of common stock issuable upon
conversion of the preferred shares. If the approval of the Company's
stockholders of the amendment is not obtained by January 31, 1997, the Company
is obligated to redeem the convertible preferred stock for $25 million, plus
an 8% dividend that accrues from the date of issuance.
The agreement relating to the Mallard Acquisition contains certain
customary representations and warranties from EVI relating to the business and
operations of Mallard, including representations and warranties as to
Mallard's financial statements, statements in EVI's commission filings
relating to Mallard's business and financial results, the absence of material
changes in Mallard's business, compliance with laws, title to property,
litigation, employee benefit matters, taxes and environmental matters. The
representations and warranties relating to environmental matters survive for
one year after closing and the representations and warranties relating to
employee benefits and taxes survive until after the expiration of the
applicable statute of limitations. The other representations and warranties
in the Mallard agreement do not survive the closing of the Mallard
Acquisition.
Mallard owns 47 rigs, the majority of which are barge and platform rigs
that operate primarily in the shallow coastal and offshore waters of the Gulf
Coast of the U.S. It also has significant international operations utilizing
barge rigs in Nigeria, platform rigs in Peru and land rigs in Argentina.
Mallard's barge drilling and workover operations are concentrated in the
shallow coastal waters of the Gulf of Mexico and Nigeria, where conventional
jackup rigs typically are unable to operate. Mallard is the second-largest
drilling contractor in the Gulf of Mexico barge market, with 15 drilling and
15 workover barges, most of which have been upgraded or refurbished since
1990. Mallard's international barge fleet is concentrated in the shallow
coastal waters of Nigeria, where it is the leading barge drilling contractor
with three deep drilling barges currently under contract and a fourth being
upgraded to commence operations in January 1997.
Mallard has six platform rigs, three of which are located in the Gulf of
Mexico, two of which are located in Peru and one of which is located in
Thailand. In addition, one shallow water workover jackup rig is located in
the Gulf of Mexico. One platform rig in the Gulf of Mexico has been
refurbished to incorporate a modular self-erecting system that significantly
improves the efficiency of rigging up and rigging down on platforms.
The closing of the Mallard Acquisition is subject to the Company's
financing of the cash portion of the purchase price and certain other
customary closing conditions. The closing of the Mallard Acquisition is a
condition to, and will occur concurrently with, the sale of the Senior Notes
and the closing of the Senior Credit Facility (see "LIQUIDITY AND CAPITAL
RESOURCES"). In the event EVI terminates the agreement relating to the
Mallard Acquisition because the Company has failed to obtain the necessary
financing of the cash portion of the purchase price before January 31, 1997,
the Company must pay $6.25 million to EVI.
The Quail Acquisition
On October 7, 1996, the Company entered into an agreement to acquire
all of the stock of Quail for $65 million in cash. The purchase price is
subject to adjustment for changes in Quail's net assets prior to closing.
The agreement relating to the Quail Acquisition contains certain customary
representations and warranties from the stockholders of Quail, including
representations and warranties as to Quail's financial statements, the
absence of material changes in Quail's business, title to and condition of
Quail's property, the absence of undisclosed liabilities or litigation,
compliance with laws, employee benefits, taxes and environmental matters.
The representations and warranties in the Quail agreement survive for one
year after closing, except for certain representations and agreements
relating to taxes and employee benefit matters which survive for four years
after closing. The closing of the Quail Acquisition is subject to the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act and certain other customary closing conditions. Either
party can terminate the agreement if the transaction is not closed on or
before November 30, 1996. The closing of the Quail Acquisition is a
condition to, and will occur concurrently with, the sale of the Senior
Notes and the closing of the Senior Credit Facility.
Quail rents specialized equipment utilized in difficult well drilling,
production and workover applications. Quail offers a full line of drill pipe,
drill collars, tubing, high- and low-pressure blowout preventers and
manifolds, casing scrapers and cement and junk mills. Approximately 85% of
Quail's equipment is utilized in offshore and coastal water operations.
CUSTOMERS
The Company believes it has developed an international reputation for
providing efficient, quality drilling services. A key for advancing the
Company's business strategy is maintaining and developing relationships and
strategic alliances with its customers. An increasing number of the Company's
customers have been seeking to establish exploration or development drilling
programs based on partnering relationships or alliances with a limited number
of preferred drilling contractors. Such relationships or alliances can result
in longer term work and higher efficiencies that increase profitability for
drilling contractors at a lower overall well cost for oil companies. The
Company is currently a preferred contractor for operators in certain domestic
and international locations, which management believes is a result of the
Company's quality service and experience.
Item 1. BUSINESS (continued)
The Company's drilling customer base consists of major, independent and
foreign national oil and gas companies. The Company's 20 largest customers
accounted for approximately 89% of total revenue during fiscal 1996. During
1996, two customers accounted for approximately 19% and 18% of total revenue.
During 1995, two customers accounted for approximately 22% and 13% of total
revenue. In fiscal 1994, three customers accounted for approximately 14%, 12%
and 11% of total revenue.
CONTRACTS
The Company generally obtains drilling contracts through competitive
bidding. Under most contracts the Company is paid a daily fee, or dayrate.
The dayrate received is based on several factors, including: type of
equipment, services and personnel furnished; investment required to perform
the contract; location of the well; term of the contract; and competitive
market forces. Meterage rate contracts are occasionally accepted in which the
Company is paid a rate per meter drilled upon reaching a specified depth.
The Company generally receives a lump sum fee to move its equipment to
the drilling site, which in most cases approximates the cost incurred by the
Company. Domestic contracts are generally for one well, while international
contracts are more likely to be for multi-well programs. The Company
continues to obtain contracts under which the Company provides drilling
engineering and integrated project management services. The Company provides
drilling project services ranging from well design and engineering expertise
to site preparation and road construction in an effort to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services.
While oil and gas exploration efforts have remained stable or increased
in many areas outside the United States, domestic drilling programs have
remained relatively depressed. Dayrates on domestic contracts currently cover
cash operating costs and local overhead but provide minimal cash profit
margins. The Company has redeployed six of its domestic rigs to the active
Gulf Coast Market where dayrates and profit margins are more attractive.
International dayrates and profit margins continue to be more favorable than
those for domestic operations. Because of the difficult remote drilling sites
encountered internationally, specialized equipment is often required,
sometimes resulting in additional modification or construction costs which are
generally offset by favorable dayrates for the Company. Substantially all the
international contracts provide for payment in U.S. dollars, with a minimum
local currency portion to cover local expenditures.
COMPETITION
The land drilling market is highly competitive, reflecting the continuing
oversupply of drilling rigs, although this oversupply is more pronounced in
shallow domestic than deep domestic and international markets. Drilling
contracts are generally awarded on a competitive bid basis and, while an
operator may consider factors such as quality of service and type and location
of equipment as well as the ability to provide ancillary services, price is
generally the primary factor in determining which contractor is awarded a job.
In international markets, experience in operating in certain environments and
customer alliances have also been factors in the selection of the Company in
certain cases, as well as the Company's patented drilling equipment for remote
drilling projects. The Company believes that the market for land drilling
contracts will continue to be highly competitive for the foreseeable future
because of the worldwide oversupply of drilling rigs. Certain of the
Company's competitors have greater financial resources than the Company, which
may enable them to better withstand industry downturns, to compete more
effectively on the basis of price, to build new rigs or to acquire existing
rigs.
RESEARCH AND DEVELOPMENT
In response to the customers' need for reducing the overall drilling
costs, the Company is developing a versatile All Terrain Modular (ATM) Rig
System. The new series of modular compact components will provide an
expandable, upgradeable, concept to fit almost any drilling, transporting, and
environmental requirement. The ATM Rig System also will provide some of the
latest drilling equipment technology as well as maximum power capabilities for
fast, safe, and efficient drilling. Several proprietary designs will make the
modular rig system unique in capacity and transportability.
Twenty-three employees are involved in the Company's research and
development activities. The costs associated with the Company's research and
development efforts are not significant.
EMPLOYEES
At August 31, 1996, the Company employed 1,993 persons, down 16% from the
2,360 employed at August 31, 1995. The following table sets forth the
composition of the Company's employees:
August 31,
----------------
1996 1995
----- -----
International Drilling Operations 1,458 1,840
Domestic Drilling Operations 331 309
Corporate and Other Domestic 204 211
RISKS AND ENVIRONMENTAL CONSIDERATIONS
Certain political and economic risks are inherent in international
operations. These risks include expropriation of equipment, currency rate
fluctuations, foreign currency conversion restrictions and local tax
regulations. The Company minimizes the potential impact of these risks by
operating in several geographical areas and by generally entering contracts
which are denominated in U.S. dollars. Additionally, the Company seeks to
obtain contractual indemnification from operators against certain of these
risks. The Company carries political risk insurance covering its equipment in
most foreign locations.
The United States and various other countries have enacted legislation or
adopted regulations controlling the discharge of materials into the
environment. Such legislation provides for the imposition of penalties and
liabilities and indemnification for clean-up costs, regardless of fault, for
hazardous waste and chemical discharges. In certain circumstances, the
Department of the Interior is authorized to suspend operations that threaten
to harm life, property or the environment. Under most of the Company's
contracts, the Company is indemnified from environmental damages except in
certain cases of pollution that originates above the surface from equipment
operation and maintenance. The Company purchases limited pollution insurance
to cover costs associated with clean-up of sudden and accidental spills. In
those contracts where the Company accepts liability for pollution caused by
its negligence or is not covered by insurance, the amount of the Company's
financial exposure is generally restricted in the contract.
The Company believes that it substantially complies with all
environmental legislation and regulations. Compliance with such provisions
and regulations has not had a material effect upon the Company's operations;
however, the effect of any future environmental enactments cannot be
predicted.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company historically has operated in only one segment, land-based
contract drilling services. The Mallard and Quail Acquisitions will
significantly diversify the Company's businesses, and will thereby give rise
to multi-segment reporting requirements in the future. Information about the
Company's land-based contract drilling operations by geographic areas for the
three years ended August 31, 1996, is set forth in Note 6 of Notes to
Consolidated Financial Statements.
Item 2. PROPERTIES
The Company owns and occupies a ten-story building in downtown Tulsa,
Oklahoma, as its home office. Additionally, the Company owns and leases
office space and operating facilities in various locations, but only to the
extent necessary for administrative and operational functions.
During fiscal 1996, the Company acquired one international rig, retired
six rigs in southern Argentina and sold 22 domestic mechanical rigs. The
following table shows, as of August 31, 1996, the locations and drilling depth
ratings of the Company's remaining 63 rigs:
Drilling Depth Rating in Feet
---------------------------------------------
10,000
or Over
less 15,000 20,000 25,000 25,000 TOTAL
------ ------ ------ ------ ------ -----
INTERNATIONAL:
South America 1 2 9 3 5 20
Asia Pacific 4 4 9 2 - 19
Africa and the Former
Soviet Union 3 2 2 - - 7
-- -- -- -- -- --
Total International 8 8 20 5 5 46
-- -- -- -- -- --
DOMESTIC:
Gulf Coast - - 2 - 4 6
Rocky Mountains 1 - 3 - 2 6
Mid-Continent - - 4 - - 4
Alaska - - - - 1 1
-- -- -- -- -- ---
Total Domestic 1 - 9 - 7 17
-- -- -- -- -- ---
TOTAL 9 8 29 5 12 63
-- -- -- -- -- ---
-- -- -- -- -- ---
The following table sets forth the utilization rates during each of the
previous three years. The six southern Argentina rigs and the 22 domestic
mechanical rigs have been treated as removed from the rig fleet as of the
first day of fiscal 1996. For comparison purposes the domestic and overall
utilization numbers for 1995 and 1994 have been restated to remove the 22
domestic rigs. Additionally, fiscal 1994 utilization numbers have been
restated to remove 16 domestic rigs that were retired at the end of that year.
Average Utilization
for the Years Ended
August 31,
-------------------
1996 1995 1994
----- ---- ----
International Utilization 55% 54% 56%
Domestic Utilization 56% 46% 45%
Overall Utilization 55% 52% 53%
Item 3. LEGAL PROCEEDINGS
A judgment in the amount of $4,860,000 was entered against a subsidiary
of the Company by a judge of the First Civil Specialized Court in Maynas, Peru
on May 10, 1996. The judgment was based on a $22,000,000 claim by former
union employees of the Company's subsidiary alleging that such subsidiary
impaired their employment opportunities with that subsidiary and other
employers. The Company disputed the basis for the claim and the judgment and
appealed the decision. On or about September 5, 1996, this judgment was
declared void by the Superior Court in Iquitos due to procedural
irregularities, including the failure to comply with certain due process
requirements. Due to these irregularities the case has been remanded to the
First Civil Specialized Court and the Plaintiff will be required to submit all
its evidence for re-consideration by the Court in accordance with the mandated
procedural and due process requirements. While the Company does not believe
that the judgment will have a material adverse effect on its financial
condition, results of operations or its operations in South America, there can
be no assurance that a judgment will not be entered against the Company's
subsidiary in a substantial amount.
The Company is a party in certain other legal proceedings that have
resulted from the ordinary conduct of its business. In the opinion of the
Company's management, none of these proceedings is expected to have a material
adverse effect upon the Company's business, results of operations or financial
condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to Parker Drilling Company security
holders during the fourth quarter of fiscal year 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Parker Drilling Company common stock is listed for trading on the New
York Stock Exchange under the symbol PKD. At the close of business on August
31, 1996, there were 3,748 holders of record of Parker Drilling common stock.
Prices on Parker Drilling's common stock for the fiscal years ending August
31, 1996 and 1995, were as follows:
Fiscal Year 1996 Fiscal Year 1995
---------------- ----------------
Quarter High Low High Low
------- ------ ------ ------ ------
First $6.375 $4.875 $6.250 $5.000
Second 6.500 5.000 5.125 4.375
Third 8.125 5.375 5.625 4.375
Fourth 7.375 5.250 5.625 4.625
No dividends have been paid on common stock since February 1987.
Restrictions contained in Parker Drilling's existing credit agreement limit
the payment of cash dividends to the lesser of 40 percent of consolidated net
income for the preceding fiscal year, or $3 million. The Company has no
present intention to pay dividends on its common stock in the foreseeable
future because of its business plan to reinvest earnings in the Company's
operations.
Item 6. SELECTED FINANCIAL DATA
Parker Drilling Company and Subsidiaries
(In Thousands Except Per Share Data)
Years Ended August 31, 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------
Revenues $156,652 $157,371 $152,424 $100,801 $123,332
Net income (loss) $ 4,053 $ 3,916 $(28,806) $(10,687) $(11,166)
Earnings (loss) per
share, primary and
fully diluted $ .07 $ .07 $ (.53) $ (.20) $ (.21)
Total assets $275,959 $216,959 $209,348 $236,342 $245,869
Long-term debt $ 2,794 $ 1,748 $ - $ - $ 142
Redeemable
preferred stock $ - $ - $ - $ - $ 157
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OUTLOOK AND OVERVIEW
The Company's operations and future results will be altered significantly
by the pending acquisitions of Mallard and Quail. (See Item 1 Business -
Pending Acquisitions.) As a result of the Mallard Acquisition, the Company
will become one of the primary barge drilling contractors in the Gulf of
Mexico and in Nigeria, markets in which the Company currently does not
operate. As a result of the Quail Acquisition, the Company will expand its
operations into the complementary rental tool business currently servicing the
land and offshore markets of the U.S. Gulf Coast.
In addition to the substantial revenue growth realized by the increase in
size and scope of the Company's operations as a result of these Acquisitions,
based on the historical operations of Mallard and Quail, the operating margins
of the Company will also increase. Further, the Company's relative percentage
of domestic revenue will increase in comparison to its international
operations by the incorporation of the new business segments.
The Acquisitions will also increase the Company's participation in the
workover service market, which historically has been characterized by less
volatility than the drilling services market. Additionally, because a
significant amount of the Company's business as a result of these Acquisitions
will be based in the transition zones of the U. S. Gulf Coast, the Company may
experience some seasonal variation in its future results. Mallard's business
historically has been subject to seasonality with the first two quarters of
the calendar year (generally corresponding to the Company's second and third
quarters) being less active than the second half of the calendar year. The
Company's and Quail's operations generally have not reflected seasonal
variation.
The Acquisitions will be accounted for under the purchase method of
accounting. As a result, the assets and liabilities of Mallard and Quail will
be recorded at their estimated fair values as of the date the Acquisitions are
consummated. The purchase price in excess of the fair value of Mallard's and
Quail's assets will be recorded as goodwill and amortized over a 30-year
period. Accordingly, the Company's depreciation and amortization will
increase significantly in future periods.
The financings related to the Acquisitions will substantially increase
the Company's debt levels. At August 31, 1996, pro forma for the sale of the
Notes, borrowings under the Senior Credit Facility and the Acquisitions, the
Company would have $382.2 million in total indebtedness, compared with total
actual indebtedness of $3.4 million at such date. The substantial increase in
debt levels will result in a higher level of interest expense and an increased
percentage of the Company's cash flows being used for debt service and may
limit the Company's ability to obtain additional financing for future
acquisitions or capital expenditures. (See Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources.)
For the foregoing reasons, the acquisitions of Mallard and Quail will
affect the comparability of the Company's historical results of operations
with results in future periods.
RESULTS OF OPERATIONS 1996 VS. 1995
The Company recorded net income of $4.1 million in fiscal 1996 as
compared to net income of $3.9 million in fiscal 1995. An improvement in
drilling margins in fiscal 1996 was offset by reduced other income and by
increased general and administrative expense due primarily to severance costs.
Drilling revenue decreased $7.9 million in fiscal 1996 due to the
termination in late fiscal 1995 of the Company's low-margin southern Argentina
operations, which had generated $13.0 million of revenue in fiscal 1995. The
Company's overall rig utilization rate increased from 52% in fiscal 1995 to
55% in fiscal 1996. Excluded from the utilization percentages for both years
are 22 domestic mechanical rigs sold in the fourth quarter of fiscal 1996.
South America drilling revenue decreased from $76.1 million in fiscal
1995 to $58.5 million in fiscal 1996, primarily due to the loss of revenue
generated in the terminated southern Argentina operations in fiscal 1995. In
Colombia, three rigs were refurbished in fiscal 1996 and resumed work under
new contracts. The Company had seven rigs under contract in Colombia and two
rigs under contract both in northern Argentina and in Peru as of September 30,
1996. Management anticipates additional drilling activity and increased
revenue in South America in fiscal 1997. The privatization of Petroperu,
Peru's national oil company, and additional acreage leased by outside
operators are anticipated to result in additional drilling activity in that
country. Drilling activity is expected to remain strong in Colombia in fiscal
1997. Additionally, the Company is exploring the possibility of entering
other drilling markets in South America.
Operations in the Asia Pacific areas generated revenue of $47.9 million
in fiscal 1996, an increase of $2.9 million from fiscal 1995. The primary
area of increased revenue was Papua New Guinea where the Company experienced a
91% rig utilization rate on its five rigs in fiscal 1996. Additionally,
during the second quarter of fiscal 1996 the Company began operating one rig
under a contract in Vietnam, a new market for the Company. Revenue decreased
in New Zealand, the Philippines and Pakistan because five rigs completed
contracts in fiscal 1996. Management anticipates that revenue from the Asia
Pacific countries will increase modestly in fiscal 1997, primarily due to
increased geothermal drilling on the islands of Java and Sumatra in Indonesia.
Two of the Company's rigs were recently redeployed to Indonesia under
geothermal drilling contracts, which will require additional management
services and technical assistance to be provided by the Company to two
Indonesian-owned drilling companies.
Fiscal 1996 revenue of $8.0 million from operations in Africa, Russia and
Kazakstan was nearly the same as fiscal 1995. Management believes these areas
have promise for significant expansion of operations; however, much of the
future expansion is contingent on the resolution of technical, logistical and
political issues in the former Soviet Union.
RESULTS OF OPERATIONS 1996 VS. 1995 (continued)
The Company's domestic operations generated $30.8 million of drilling
revenue in fiscal 1996 as compared to $23.7 million in fiscal 1995. The
increase in revenue was attributable to Alaska Rig 245 operating the entire
year in fiscal 1996 versus nine months in fiscal 1995 and a 10% increase in
utilization days for the rigs in the lower 48 states. The increase in
domestic drilling activity occurred primarily in the Tuscaloosa Trend in
Louisiana, where the Company deployed three rigs in fiscal 1996 and is
currently deploying another rig under a new contract. Six rigs were under
contract in Louisiana as of September 30, 1996.
During the fourth quarter of fiscal 1996, the Company sold 22 mechanical
rigs from its domestic rig fleet, leaving 15 SCR electric rigs and two
mechanical rigs. At the end of fiscal year 1996, the Company had 13 of its 17
domestic rigs under contract. Management anticipates that revenue from its
domestic land operations will increase in fiscal 1997.
Although worldwide contract drilling revenue decreased $7.9 million in
fiscal 1996 versus fiscal 1995, the total drilling margin (drilling revenue
less drilling expense) increased $4.3 million over the same period. This
increase was attributable to increased utilization of rigs in Papua New
Guinea, improved contract margins in Colombia and the termination of the low-
margin southern Argentina operations.
Other revenue increased $7.2 million in fiscal 1996 due to the sale of a
rig by the Company's manufacturing subsidiary, Parker Technology, Inc.
("Partech") (Registered Trademark). General and administrative expense
increased $2.4 million in fiscal 1996 principally due to non-recurring
severance costs associated with a reduction in corporate personnel.
Other income (expense) decreased $2.0 million due to the reversal in
fiscal 1995 of a prior year's foreign currency accrual of $1.5 million and
reduced gains on sales of assets in fiscal 1996. The increase in income tax
expense was attributable to increased international profits in fiscal 1996.
RESULTS OF OPERATIONS 1995 VS. 1994
The fiscal 1995 net income of $3.9 million was an improvement of $32.7
million over the net loss of $28.8 million recorded in fiscal 1994. Excluding
a $19.7 million provision for reduction in carrying value of certain assets
from fiscal 1994's net loss, fiscal 1995's net income was an improvement of
$13.0 million over fiscal 1994. The primary reasons for the improvement in
fiscal 1995 were an increase in drilling margins of $7.2 million and an
increase in other income of $6.7 million.
Drilling revenue increased $5.6 million to $153.1 million in fiscal 1995
from $147.5 million in fiscal 1994, even though international and domestic
operating days were nearly the same over each period. An increase in the
utilization of larger rigs in northern Argentina and Colombia more than offset
decreased utilization of smaller rigs in southern Argentina.
South America drilling revenue increased $23.4 million in fiscal 1995
when compared with fiscal 1994. In Colombia, revenue increased $13.9 million
due primarily to revenue earned by one rig relocated from Indonesia during the
year and from a full year of operations by one rig that was added to the rig
fleet in fiscal 1994. In addition, several rigs which were either on a
standby or stacked status in fiscal 1994 operated all of fiscal 1995. In
Argentina, drilling revenue increased $12.6 million as two additional deep
rigs, one relocated from the Congo in fiscal 1994 and one relocated from Yemen
in fiscal 1995, operated much of the year. Additionally, one rig added to the
rig fleet in fiscal 1994 operated all of fiscal 1995 and one rig leased by the
Company commenced operations in the fourth quarter of fiscal 1995. During
fiscal 1995 and 1994, a number of shallow depth capacity rigs (10,000 feet or
less) operated in southern Argentina, many of them operating on a meterage
basis. Two of these rigs were relocated to mid-Argentina as the Company
focused its marketing efforts on regions of the country where operations are
generally conducted on a daywork basis. At fiscal year-end, the remaining
rigs in southern Argentina were on a stacked status. Drilling revenue
declined $4.8 million in Ecuador where two rigs located in that country did
not operate in fiscal 1995 and were retired from the rig fleet at the end of
the fiscal year.
Operations in the Asia Pacific region resulted in an increase in
drilling revenue of $1.5 million in fiscal 1995. Increased utilization in New
Zealand and revenue earned from a labor contract in China more than offset a
decline in revenue in Papua New Guinea and Indonesia due to lower utilization
in those countries.
RESULTS OF OPERATIONS 1995 VS. 1994 (continued)
International drilling revenue from operations in Africa, Russia and
Kazakstan declined $17.4 million in fiscal 1995. Utilization declined due to
the completion of contracts in Chad, the Congo, Russia and Yemen. The rigs
that operated in the Congo and Yemen in fiscal 1994 have both been redeployed
to Argentina. In Kazakstan, a reduction in revenue from a labor contract in
that country was partially offset by operations from one rig that has been
relocated from Russia.
Domestic drilling revenue declined $2.3 million due to fewer operating
days in the Rocky Mountain states and Alaska.
Drilling margins (drilling revenue less drilling expense) increased $7.2
million in fiscal 1995 to $39.9 million compared to $32.7 million in fiscal
1994. Margins improved in the Company's South American operations, including
those in the countries of Colombia and Argentina. Margins had been negatively
impacted in fiscal 1994 in Colombia due to increased operating expenses and
costs associated with the start-up of two rigs. In fiscal 1995, these two
rigs operated for the full year with improved margins when compared with the
previous fiscal year. In Argentina, margins also improved as two additional
deep capacity rigs began operating in the northern region of the country and
two rigs operated during the year in the country's middle region. In the
Company's other operating regions, both internationally and domestically,
drilling margins as a percentage of drilling revenue in fiscal 1995 remained
relatively consistent with fiscal 1994.
Other income (expense) increased $6.7 million to $8.6 million in fiscal
1995 from $1.9 million in fiscal 1994. Gains of $6.4 million were recognized
in fiscal 1995 from the disposition of property, plant and equipment as the
Company continued its efforts to sell assets that are no longer a part of its
current marketing strategy. In addition, the reversal of a prior year foreign
currency accrual of $1.5 million was recorded in fiscal 1995. Fiscal 1994
other income included $2.1 million from gains associated with the disposition
of property, plant and equipment, a $1.5 million gain from the reversal of a
prior year foreign payroll tax accrual and a $2.6 million charge for the
settlement of certain litigation. The $1.3 million increase in income tax
expense was primarily attributable to the reversal in 1994 of an accrued
foreign tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $56.0 million as of August
31, 1995 to $102.9 million as of August 31, 1996. Cash and short-term
investments increased $55.9 million in fiscal 1996 totaling $78.0 million as
of August 31, 1996.
On July 11, 1996 the Company sold 9,050,000 shares of Common Stock
raising $49.0 million of net proceeds. Other sources of cash in fiscal 1996
included $30.0 million generated from operating activities and $8.3 million of
proceeds from the sale of property, plant and equipment.
During the year ended August 31, 1996, the Company made capital
expenditures of $30.8 million, which were primarily for the upgrading of land
rigs in connection with international contracts. The Company estimates that
it will make approximately the same amount of capital expenditures on its land
rig fleet in fiscal 1997, of which approximately $8.0 million is expected to
be for maintenance capital expenditures.
The Company executed a $15.0 million credit and letter of credit facility
on April 9, 1996, with an expiration date of April 19, 1999 (the "Existing
Credit Facility"). At August 31, 1996, the Company had outstanding letters of
credit totaling approximately $10.0 million under the Agreement. The Existing
Credit Facility contains restrictions on capital expenditures, other
indebtedness, payment of dividends and otherwise requires the Company to
maintain certain financial ratios. The Company has obtained a waiver of
certain covenants under the Existing Credit Facility to accommodate the
consummation of the Acquisitions at which time the Existing Credit Facility
will either be incorporated into or allowed as permitted indebtedness under
the Senior Credit Facility described below.
In order to consummate the Acquisitions (see "PENDING ACQUISITIONS" under
Item 1 BUSINESS), the Company expects to enter into a Senior Credit Facility,
including a $100 million term loan and a $45 million revolving credit
facility. (See "Description of Senior Credit Facility" in this section). The
Company will also issue $275 million of principal amount of Senior Notes (See
"Description of Senior Notes" in this section). The proceeds from the Senior
Credit Facility and the issuance of the Notes, together with approximately $18
million of the Company's available cash and $25 million in shares of the
Company's convertible preferred stock (see discussion below), will provide the
sources of financing required to consummate the transactions and pay related
fees and expenses. The Company also will assume $3.9 million of existing
indebtedness of Mallard.
The shares of convertible preferred stock to be issued in the Mallard
Acquisition will automatically be converted into common stock of the Company
upon approval by the shareholders of the Company of an amendment to its
Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 70,000,000 to 120,000,000 at the annual meeting in
December 1996. If the approval of the shareholders to the amendment is not
obtained by January 31, 1997, the Company is obligated to redeem the
convertible preferred shares for $25 million, plus a dividend of 8% which
accrues from issuance.
During the twelve-month period ended June 30, 1996, Mallard made capital
expenditures of $25.6 million. If the Mallard Acquisition is consummated, the
Company estimates that it will make approximately $29.3 million of capital
expenditures on the Mallard fleet during fiscal 1997.
During the twelve months ended August 31, 1996, Quail made capital
expenditures of $4.4 million, which were used primarily for the purchase of
additional rental equipment. If the Quail Acquisition is consummated, the
Company estimates that it will make approximately $15.0 million of capital
expenditures on its rental tool business during fiscal 1997, of which
approximately $12.5 million will be for the expansion of its rental tool
operations in Victoria, Texas.
At August 31, 1996, the Company had $141,598,000 net operating loss
carryforwards for tax purposes which expire over a fifteen year period as
follows: 2000, $24,701,000; 2001, $48,560,000; 2002, $28,541,000; and
thereafter, $39,796,000. In addition, the Company had $8,200,000 investment
tax credit carryforwards for tax purposes which expire in the year 1997.
Management believes that the current level of cash and short-term
investments, together with cash generated from operations and borrowings under
the revolving portion of the Senior Credit Facility, should be sufficient to
finance the Company's working capital needs and expected capital expenditures
during fiscal 1997. Should new opportunities requiring additional capital
arise, the Company may utilize the revolving portion of Senior Credit Facility
or may consider seeking additional equity or long-term debt financing. There
can be no assurance that such financing would be available to the Company on
terms it considers acceptable.
Description of Senior Credit Facility
The Company has received a commitment from a syndicate of financial
institutions (the "Lenders") to establish a Senior Credit Facility, which will
consist of a $100 million term loan and a $45 million revolving credit
facility. The term loan bears interest, at the option of the Company, at
prime to prime plus 0.50% or at 1.75% to 2.25% above the one-, two-, three-
and six-month LIBOR rate, depending on the Company's debt-to-capital ratio (as
defined) and matures on November 30, 2002. The term note will have no
prepayment penalty, will be guaranteed by the principal subsidiaries of the
Company and will be secured by substantially all of the assets of the Company
and the assets and stock of the Subsidiary Guarantors. The term loan contains
customary representations and warranties and will restrict the Company's
ability to, among other things, incur indebtedness, merge or sell assets, pay
dividends or other distributions, make investments and capital expenditures,
and engage in transactions with affiliates. The Company will also be required
to maintain certain financial ratios.
The revolving portion of the Senior Credit Facility will be available,
subject to the satisfaction of customary borrowing conditions, for working
capital requirements and general corporate purposes. The revolver will be
non-amortizing, will terminate on December 31, 1998, will be secured by a
first lien on the Company's accounts receivable, and borrowings under the
revolver will not be permitted to exceed a borrowing base equal to 80% of the
Company's eligible accounts receivable.
Description of Senior Notes
In order to finance the acquisitions of Mallard and Quail, the Company
proposes to offer $275 million in senior notes due 2006 (the "Notes"). The
offering of the Notes is being made in compliance with Rule 144A and
Regulation D under the Securities Act of 1933. Accordingly, the sale of the
Notes will not be registered under the Securities Act and such notes may not
be offered or sold by any purchaser thereof absent registration under the
Securities Act or an applicable exemption from such registration requirements.
The offering of the Notes is conditioned upon, and is expected to close
concurrently with, the acquisitions of Mallard and Quail.
The Notes will bear interest from issuance, payable semi-annually,
commencing six months from closing and will mature in 2006. The notes will be
redeemable at the option of the Company, in whole or in part, at any time on
or after 2001, at the redemption prices set forth in the Indenture between the
Company and the Trustee, together with accrued and unpaid interest to the date
of redemption. In addition, upon a change of control, as defined in the
Indenture, the Company may be obligated to repurchase all or a portion of the
Notes.
The Notes will be senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior indebtedness of the Company and
senior to all future subordinated indebtedness of the Company. The Notes will
be unconditionally guaranteed on a senior unsecured basis by the Company's
principal operating subsidiaries (the "Subsidiary Guarantors") and the
Subsidiary Guarantees will rank pari passu in right of payment with all senior
indebtedness of the Subsidiary Guarantors and senior to all future
subordinated indebtedness of the Subsidiary Guarantors.
The Indenture will also contain other customary provisions relating to
re-purchase obligations in the event of a change of control and certain
covenants restricting indebtedness, dividends, sale of capital stock of
subsidiaries, transactions with affiliates, asset sales and restrictions on
mergers, consolidations, etc. The holders of the Notes will also have certain
registration rights obligating the Company to file a registration statement
with respect to the Notes.
OTHER MATTERS
Internationally, the Company specializes in drilling in remote locations
and under difficult geological or operating conditions. The Company's
international services are primarily utilized by international and national
oil companies in the exploration and development of reserves of oil.
Domestically, the Company specializes in drilling deep wells in search of
natural gas. Business activity is dependent on the exploration and
development activities of the major, independent and national oil and gas
companies that make up the Company's customer base. Generally, temporary
fluctuations in oil and gas prices do not materially affect these companies'
exploration and development activities, and consequently do not materially
affect the operations of the Company. However, sustained increases or
decreases in oil and natural gas prices could have an impact on customers'
long-term exploration and development activities which in turn could
materially affect the Company's operations. Generally, a sustained change in
the price of oil would have a greater impact on the Company's international
operations while a sustained change in the price of natural gas would have a
greater effect on domestic operations. Weak prices for natural gas have
resulted in depressed markets for domestic drilling services over the past
decade.
Historically, due to the importance of oil revenue to most of the
countries in which the Company operates, the Company's operations generally
have not been negatively impacted by adverse economic and political
conditions. However, there can be no assurances that such conditions could
not have a material adverse effect in the future.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of," was issued. The statement establishes accounting standards
for the impairment of long-lived assets, such as the Company's drilling,
transportation and other equipment, and will be effective for the Company
beginning with the year ending August 31, 1997. The Company does not believe
the new standard will have a material effect on the Company's financial
position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. The statement requires
the computation of compensation for grants of stock, stock options and other
equity instruments issued to employees based on fair value and will be
effective for the Company beginning with the year ended August 31, 1997. The
compensation calculated is to be either recorded as an expense in the
financial statements or, alternatively, disclosed. The Company anticipates it
will elect the disclosure method of complying with the new standard. Under
the provisions of the new statement, it is anticipated that pro forma net
income to be disclosed will be lower than net income reported in the financial
statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Parker Drilling Company
We have audited the consolidated financial statements and financial
statement schedule of Parker Drilling Company and subsidiaries as listed in
Item 14(a)(1) and (2) of the Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Parker Drilling Company and subsidiaries as of August 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended August 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
October 14, 1996
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Earnings (Loss) Per Share
and Weighted Average Shares Outstanding)
For the Years Ended August 31, 1996 1995 1994
- - ----------------------------------------------------------------------------
Revenues:
Drilling contracts $145,160 $153,075 $147,480
Other 11,492 4,296 4,944
-------- -------- --------
Total revenues 156,652 157,371 152,424
-------- -------- --------
Operating expenses:
Drilling 100,942 113,132 114,732
Other 11,824 4,928 6,563
Depreciation, depletion
and amortization 23,061 23,745 23,246
General and administrative 19,428 17,063 17,018
Provision for reduction in carrying
value of certain assets - - 19,718
-------- -------- --------
Total operating expenses 155,255 158,868 181,277
-------- -------- --------
Operating income (loss) 1,397 (1,497) (28,853)
-------- -------- --------
Other income and (expense):
Interest expense (135) (88) (11)
Interest income 1,642 1,272 1,161
Minority interest - (227) (135)
Other 5,663 7,640 919
-------- -------- --------
Total other income and (expense) 7,170 8,597 1,934
-------- -------- --------
Income (loss) before income taxes 8,567 7,100 (26,919)
-------- -------- --------
Income tax expense 4,514 3,184 1,887
-------- -------- --------
Net income (loss) $ 4,053 $ 3,916 $(28,806)
-------- -------- --------
-------- -------- --------
Earnings (loss) per share,
primary and fully diluted $ .07 $ .07 $ (.53)
-------- -------- --------
-------- -------- --------
Weighted average shares
outstanding (fully diluted) 57,466,183 55,332,541 54,247,664
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
August 31, 1996 1995
- - -----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 61,738 $ 20,752
Other short-term investments 16,247 1,372
Accounts and notes receivable, net of
allowance for bad debts of $739 in 1996
and $726 in 1995 33,675 39,578
Rig materials and supplies 10,735 11,532
Other current assets 3,653 5,146
-------- --------
Total current assets 126,048 78,380
-------- --------
Property, plant and equipment, at cost:
Drilling equipment 423,023 506,130
Buildings, land and improvements 14,871 13,259
Other 19,153 20,470
Construction in progress 18,844 14,759
-------- --------
475,891 554,618
Less accumulated depreciation, depletion
and amortization 351,714 432,360
-------- --------
Net property, plant and equipment 124,177 122,258
-------- --------
Rig materials and supplies 7,984 6,895
-------- --------
Deferred charges and other assets:
Assets held for disposition 8,065 2,486
Notes receivable, net of allowance of
$70 in 1995 1,817 1,817
Other 7,868 5,123
-------- --------
Total deferred charges and other assets 17,750 9,426
-------- --------
Total assets $275,959 $216,959
-------- --------
-------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
August 31, 1996 1995
- - -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 584 $ 289
Accounts payable 9,415 9,539
Accrued liabilities 6,911 7,401
Accrued income taxes 6,217 5,109
-------- --------
Total current liabilities 23,127 22,338
-------- --------
Long-term debt (Note 2) 2,794 1,748
-------- --------
Other long-term liabilities 5,990 5,953
-------- --------
Commitments and contingencies (Note 8)
Preferred stock, $1 par value, 1,942,000
shares authorized, no shares outstanding - -
-------- --------
Stockholders' equity:
Common stock, $.16 2/3 par value,
authorized 70,000,000 shares, issued
and outstanding 65,327,088 shares
(55,722,183 shares in 1995) 10,888 9,287
Capital in excess of par value 254,955 205,310
Retained earnings (accumulated deficit) (20,338) (24,391)
Other (1,457) (3,286)
-------- --------
Total stockholders' equity 244,048 186,920
-------- --------
Total liabilities and stockholders' equity $275,959 $216,959
-------- --------
-------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended August 31, 1996 1995 1994
- - ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,053 $ 3,916 $(28,806)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 23,061 23,745 23,246
Loss (gain) on disposition of
property, plant and equipment (5,416) (6,395) (2,083)
Provision for reduction in carrying
value of certain assets - - 19,718
Deferred tax expense (benefit) - (294) (904)
Other 307 (282) 1,194
Change in assets and liabilities:
Accounts and notes receivable 8,057 (4,105) (10,889)
Rig materials and supplies (532) (627) (313)
Other current assets 1,493 (1,364) (1,356)
Accounts payable and accrued
liabilities (1,504) 3,319 1,109
Accrued income taxes 1,108 56 (238)
Minority interest - 227 135
Other assets (656) (260) 137
-------- -------- --------
Net cash provided by operating
activities 29,971 17,936 950
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 8,288 11,711 4,740
Capital expenditures (30,836) (21,540) (34,764)
Investments in affiliates (1,720) (501) (140)
Decrease (increase) in other short-term
and long-term investments (14,875) 2,439 27,608
Other - 121 -
-------- -------- --------
Net cash provided by (used in)
investing activities (39,143) (7,770) (2,556)
-------- -------- --------
The accompanying notes are an integral part
of the consolidated financial statements.
/TABLE
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(Dollars in Thousands)
For the Years Ended August 31, 1996 1995 1994
- - ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt $ - $ 187 $ -
Proceeds from common stock offering 49,032 - -
Principal payments under debt
obligations (367) - -
Repurchase of common stock (382) (277) (304)
Proceeds from exercise of stock warrant 1,552 - -
Other 323 16 -
-------- -------- --------
Net cash provided (used) by financing
activities 50,158 (74) (304)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 40,986 10,092 (1,910)
Cash and cash equivalents at beginning
of year 20,752 10,660 12,570
-------- -------- --------
Cash and cash equivalents at
end of year $ 61,738 $ 20,752 $ 10,660
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 145 $ 2 $ 11
Income taxes $ 3,406 $ 3,422 $ 3,029
Supplemental noncash financing activity:
In November 1994, the Company acquired a limited partner's ownership
interest in two consolidated partnerships in exchange for a promissory note
in the amount of $1,850,000.
In May 1995, the Company received rig materials and supplies valued at
$556,000 in lieu of payment on a note due the Company.
In fiscal 1996 the Company acquired computer and office equipment under
capital lease arrangements totaling $1,708,000.
The accompanying notes are an integral part
of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
Consolidated Statement of Redeemable Preferred
Stock and Stockholders' Equity
(Dollars in Thousands)
Other
Capital Retained Unearned
in excess earnings restricted
Common of par (accumulated stock plan
stock value deficit) compensation
-------- ---------- ------------ ------------
Balances, August 31, 1993 $ 9,164 $201,784 $ 499 $(3,768)
Activity in employees' stock plans 28 916 1,070
Acquisition of stock from certain
employees (7) (297)
Net income (loss) (28,806)
------- -------- -------- -------
Balances, August 31, 1994 9,185 202,403 (28,307) (2,698)
Activity in employees' stock plans 111 3,175 (588)
Acquisition of stock from certain
employees (9) (268)
Net income 3,916
------- -------- -------- -------
Balances, August 31, 1995 9,287 205,310 (24,391) (3,286)
Activity in employees' stock plans 36 1,008 1,829
Acquisition of stock from certain
employees (10) (372)
Issuance of 400,000 common shares upon
exercise of warrants at $3.88 per share 67 1,485
Issuance of 9,050,000 common shares in
public offering 1,508 47,524
Net income 4,053
------- -------- -------- -------
Balances, August 31, 1996 $10,888 $254,955 $(20,338) $(1,457)
------- -------- -------- -------
------- -------- -------- -------
The accompanying notes are an integral part of the consolidated financial statements.
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the
accounts of Parker Drilling Company ("Parker Drilling") and all of its
majority-owned subsidiaries (collectively, the "Company").
Operations - The Company provides land contract drilling services on a
worldwide basis to major, independent and foreign national oil companies.
Currently, the Company has 46 international rigs in 13 countries and 17 rigs
in the United States. The Company specializes in the drilling of deep and
difficult wells and drilling in remote and harsh environments. The Company
also provides a range of services that are ancillary to its principal drilling
services, including engineering, logistics and construction, as well as
various types of project management.
Drilling Contracts - The Company recognizes revenue and expenses on
dayrate contracts as the drilling progresses (percentage-of-completion method)
because the Company does not bear the risk of completion of the well. For
meterage contracts, the Company recognizes the revenue and expenses upon
completion of the well (completed-contract method).
Cash and Cash Equivalents - For purposes of the balance sheet and the
statement of cash flows, the Company considers cash equivalents to be all
highly liquid debt instruments that had a remaining maturity of three months
or less at the date of purchase.
Other Short-term Investments - Other short-term investments include
primarily certificates of deposit, U.S. government securities and commercial
paper having remaining maturities of greater than three months at the date of
purchase and are stated at the lower of cost or market.
Property, Plant and Equipment - The Company provides for depreciation of
property, plant and equipment primarily on the straight-line method over the
estimated useful lives of the assets after provision for salvage value. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in operations. Management periodically evaluates the Company's
assets to determine if they are not in excess of their net realizable value.
Management considers a number of factors such as estimated future cash flows,
appraisals and current market value analysis in determining net realizable
value. Assets are written down to reflect any decrease in net realizable
value below their net carrying value (see Note 7).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Rig Materials and Supplies - Since the Company's foreign drilling
generally occurs in remote locations, making timely outside delivery of spare
parts unlikely, a complement of parts and supplies is maintained for each rig
either at the drilling site or in warehouses close to the operations. During
periods of high rig utilization, these parts are generally consumed and
replenished within a one-year period. During a period of lower rig
utilization in a particular location, the parts, like the related idle rigs,
are generally not transferred to other foreign locations until new contracts
are obtained because of the significant transportation costs which would
result from such transfers. The Company classifies those parts which are not
expected to be utilized in the following year as long-term assets.
Income Taxes - The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109: Accounting for Income Taxes. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings (Loss) Per Share - Earnings (loss) per share is computed by
dividing net income (loss), as adjusted for dividends on preferred stock, by
the weighted average number of common shares outstanding during the period
including the effect of dilutive options when applicable. Common shares
issued under the 1969 Key Employees Stock Grant Plan, 1980 Incentive Career
Stock Plan and the 1991 Stock Grant Plan are issued and outstanding and are
only considered in the computation of weighted average shares outstanding when
their effect on earnings per share is dilutive.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
trade receivables with a variety of national and international oil and natural
gas companies. The Company generally does not require collateral on its trade
receivables. Such credit risk is considered by management to be limited due
to the large number of customers comprising the Company's customer base. The
Company places substantially all its interest-bearing investments with major
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution. At August 31, 1996, the Company had deposits
in domestic banks in excess of federally insured limits of approximately $.4
million. In addition, the Company had deposits in foreign banks of $4.9
million which are not federally insured.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Market Value of Financial Instruments - The carrying amount of the
Company's cash and short-term investments and short-term and long-term debt
had fair values that approximated their carrying amounts.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements - In March 1995, Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of," was issued. The statement
establishes accounting standards for the impairment of long-lived assets, such
as the Company's drilling, transportation and other equipment, and will be
effective for the Company beginning with the year ending August 31, 1997. The
Company does not believe the new standard will have a material effect on the
Company's financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. The statement requires
the computation of compensation for grants of stock, stock options and other
equity instruments issued to employees based on fair value and will be
effective for the Company beginning with the year ending August 31, 1997. The
compensation calculated is to be either recorded as an expense in the
financial statements or, alternatively, disclosed. The Company anticipates it
will elect the disclosure method of complying with the new standard. Under
the provisions of the new statement, it is anticipated that pro forma net
income to be disclosed will be lower than net income reported in the financial
statements.
Reclassification - Certain amounts in 1995 and 1994 have been
reclassified to conform to current year presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Long-term Debt
August 31, 1996 1995
-------------------------------------------------------------------------
(Dollars in Thousands)
Parker Drilling
Note payable annually until November 2001
with interest at 5.75% $1,586 $1,850
Capital leases payable monthly through
August 2001 1,634 -
Parker Drilling International of New Zealand, Ltd.
Note payable monthly through February 2003 158 187
------ ------
Total debt 3,378 2,037
Less current portion 584 289
------ ------
Total long-term debt $2,794 $1,748
------ ------
------ ------
The aggregate maturities of long-term debt for the five years ending
August 31, 2001, are as follows: 1997 - $584,000; 1998 - $606,000; 1999 -
$632,000; 2000 - $660,000; and 2001 - $597,000.
The Company has entered into a $15.0 million credit and letter of credit
facility which expires on April 19, 1999 (the "Agreement"). At August 31,
1996, the Company had letters of credit totaling $10.0 million under the
Agreement. The Agreement contains restrictions on annual capital expenditures
in excess of $30 million plus proceeds from the sale of assets and certain
senior and subordinated indebtedness which can be incurred by the Company and
certain operating subsidiaries designated in the Agreement through which the
Company performs the majority of its drilling operations. The Agreement also
limits payment of dividends on Common Stock and requires the Company to
maintain certain financial ratios. The remaining subsidiaries of the Company
are not a party to the Agreement and are able to make capital expenditures
with independent financing from lenders that have no recourse to the Company
and the designated subsidiaries, subject only to an overall limitation of
indebtedness. The Company has obtained waivers under certain covenants,
effective through February 1997, with respect to the acquisitions (see Note
12-Subsequent Events) and the related incurrence of indebtedness.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Income Taxes
Income (loss) before income taxes (in thousands) is summarized as
follows:
Years Ended August 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
United States $ (4,623) $ 1,180 $(33,929)
Foreign 13,190 5,920 7,010
-------- -------- --------
$ 8,567 $ 7,100 $(26,919)
-------- -------- --------
-------- -------- --------
Income tax expense (benefit) (in thousands) is summarized as follows:
Years Ended August 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
Current:
United States:
Federal $ - $ - $ -
State - - (246)
Foreign 4,514 3,478 3,037
Deferred:
United States:
Federal - - (326)
State - - -
Foreign - (294) (578)
------ ------- ------
$4,514 $ 3,184 $1,887
------ ------- ------
------ ------- ------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Income Taxes (continued)
Total income tax expense (benefit) (in thousands) differs from the amount
computed by multiplying income (loss) before income taxes by the U.S. federal
income tax statutory rate. The reasons for this difference are as follows:
Years Ended August 31,
------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
% of % of % of
pretax pretax pretax
income income income
Amount (loss) Amount (loss) Amount (loss)
--------------- --------------- ---------------
Computed expected tax
expense (benefit) $ 2,913 34% $ 2,414 34% $(9,153) (34%)
Foreign tax at rates
different than U.S. 29 - 1,171 16% 76 -
Utilization of loss
carryforwards (290) (3%) (401) (5%) - -
Limitation on
recognition of tax
benefit 1,862 22% - - 11,536 43%
Other - - - - (572) (2%)
------- ---- ------- ---- ------- ----
Actual tax expense
(benefit) $ 4,514 53% $ 3,184 45% $ 1,887 7%
------- ---- ------- ---- ------- ----
------- ---- ------- ---- ------- ----
The components of the Company's tax assets and (liabilities) as of August
31, 1996 and 1995, are shown below (in thousands):
Domestic: 1996 1995
-------- --------
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 63,454 $ 67,259
Reserves established against realization
of certain assets 815 1,089
Accruals not deducted for tax purposes 4,088 4,169
Depreciation of property, plant and equipment 3,265 3,385
-------- --------
71,622 75,902
Deferred tax liabilities:
Depreciation of property, plant and equipment (9,778) (8,408)
-------- --------
Net deferred tax asset 61,844 67,494
Valuation allowance (61,844) (67,494)
-------- --------
$ - $ -
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Income Taxes (continued)
At August 31, 1996, the Company had $141,598,000 net operating loss
carryforwards for tax purposes which expire over a fifteen year period as
follows: 2000, $24,701,000; 2001, $48,560,000; 2002, $28,541,000; thereafter,
$39,796,000. In addition, the Company had $8,200,000 investment tax credit
carryforwards for tax purposes which expire in 1997. The Company has recorded
a full valuation allowance with respect to its net deferred tax asset.
However, the amount of the deferred tax asset considered realizable could be
different in the near term if estimates of future taxable income change.
Note 4 - Common Stock and Stock Options
The Company's 1969 Key Employees Stock Grant Plan (formerly the 1969 Key
Employees Stock Option Plan) was amended in December 1990 to provide for the
issuance of 223,000 shares of common stock for no cash consideration to key
non-officer employees. Each employee receiving a grant of shares may dispose
of 15 percent of his/her grant on each annual anniversary date from the date
of grant for the first four years. On the fifth year anniversary, the
employee may dispose of the remaining 40 percent of his/her grant. No shares
were granted in fiscal 1996 and 1995. In fiscal 1995, 1,375 shares were
canceled leaving 1,375 shares reserved for issuance and available for granting
as of August 31, 1996.
The Company's 1980 Incentive Career Stock Plan ("1980 Plan") provides for
the issuance of 2,100,000 shares of common stock for no cash consideration to
key employees. Each employee receiving a grant of shares may dispose of 15
percent of his/her grant on each annual anniversary date from the date of
grant for the first four years. On the fifth year anniversary, the employee
may dispose of the remaining 40 percent of his/her grant. No shares were
granted in fiscal 1996 and 1995. In fiscal 1995 and fiscal 1996 3,500 shares
and 2,750 shares were canceled, respectively, leaving 9,000 shares reserved
for issuance and available for granting at August 31, 1996.
The Company's 1991 Stock Grant Plan ("1991 Plan") provides for the
issuance to officers and key employees of up to 3,160,000 shares of common
stock for no cash consideration. Shares granted under the 1991 Plan are fully
vested no earlier than 24 months from the effective date of the grant and not
later than 36 months. The specific vesting schedule for each grant is
determined at the time of grant. In fiscal 1995, 545,000 shares were granted
and no shares were canceled. In fiscal 1996, 18,000 shares were granted and
no shares canceled leaving 1,562,195 shares reserved for issuance and
available for granting at August 31, 1996.
The fair market value of the common stock at date of grant for the Plans
is recorded as deferred compensation and amortized to expense over the period
during which the restrictions lapse. Deferred compensation is shown as a
deduction from stockholders' equity.
During fiscal 1996, 1995 and 1994, the Company purchased 59,347, 51,279
and 41,638 Parker Drilling shares, respectively, from certain of its
employees who had received stock grants under the 1991 and 1980 Plans. The
Company acquired the shares at the market price (weighted average price
was $6.44 per share in fiscal 1996, $5.40 per share in fiscal 1995 and
$7.31 per share in fiscal 1994). The proceeds were used to pay the employees'
tax withholding obligations arising from the vesting of shares under the
Plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Common Stock and Stock Options (continued)
The 1994 Non-Employee Director Stock Option Plan ("Director Plan")
provides for the issuance of options to purchase up to 200,000 shares of the
Company's common stock. The option price per share is equal to the fair
market value of a Parker Drilling share on the date of grant. The term of
each option is ten years, and an option first becomes exercisable six months
after the date of grant. Under the Director Plan, on the first trade day of
each calendar year, each person who is then a non-employee director of the
Company will be automatically granted an option to purchase 5,000 shares of
common stock.
The 1994 Executive Stock Option Plan provides for the granting of a
maximum of 2,400,000 shares to key employees and consultants of the Company
and its subsidiaries through the granting of stock options, stock appreciation
rights and restricted and deferred stock awards. The option price per share
may not be less than 50% of the fair market value of a share on the date the
option is granted, and the maximum term of a non-qualified option may not
exceed fifteen years and the maximum term of an incentive option is ten years.
Information regarding the Company's stock option plans is summarized
below:
1994 Option Plan
----------------------
1994 Non-
Director Incentive qualified
Plan Options Options
-------- --------- ---------
Shares under option:
Outstanding at September 1, 1994 - - -
Granted 15,000 733,000 147,000
Exercised - - (7,000)
Canceled - - -
------- ------- -------
Outstanding at August 31, 1995 15,000 733,000 140,000
Granted 15,000 - -
Exercised - (57,000) (29,652)
Canceled - - -
------- ------- -------
Outstanding at August 31, 1996 30,000 676,000 110,348
Average option price per share
at August 31, 1996 $5.31 $4.50 $2.25
Options exercisable
at August 31, 1996 30,000 676,000 110,348
Price of options exercised
during fiscal 1996 - $4.50 $2.25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Common Stock and Stock Options (continued)
The following is a summary of common stock reserved for issuance at
fiscal year end:
1996 1995
--------- ---------
Key employee stock plans 4,078,918 4,180,820
Stock Bonus Plan 81,579 186,279
Warrants - 400,000
--------- ---------
Total shares reserved for issuance 4,160,497 4,767,099
--------- ---------
--------- ---------
Note 5 - Employee Benefit Plans
The Parker Drilling Company Stock Bonus Plan ("Plan") was adopted
effective September 1980 for employees of Parker Drilling and its subsidiaries
who are U.S. citizens and who have completed one year of service with the
Company. It was amended in 1983 to qualify as a 401(k) plan under the
Internal Revenue Code which permits a specified percentage of an employee's
salary to be voluntarily contributed on a before-tax basis and to provide for
a Company matching feature. Participants may contribute from one percent to
15 percent of eligible earnings and direct contributions to one or more of
seven investment funds. The Company presently makes dollar-for-dollar
matching contributions up to three percent of a participant's compensation.
The Company's matching contribution is made in Parker Drilling common stock.
The Plan was amended and restated on April 1, 1996 for the purpose of adding
loans and daily record keeping. The Plan was further amended effective
September 1, 1996 to provide for immediate vesting of participants in the full
amount of the Company's past and future contributions. Each Plan year,
additional Company contributions can be made, at the discretion of the Board
of Directors, in amounts not exceeding the permissible deductions under the
Internal Revenue Code. The Company issued 104,700 shares to the Plan in 1996,
113,399 shares in 1995 and 123,619 shares in 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Business Segments
Information regarding the Company's operations by geographic area is as
follows:
1996 1995 1994
--------- --------- ---------
Operations by Geographic Area (Dollars in Thousands)
Revenue:
United States $ 41,743 $ 28,487 $ 30,975
South America 59,041 76,115 52,722
Asia Pacific 47,857 44,911 43,445
Africa and the Former
Soviet Union 8,011 7,858 25,282
-------- -------- --------
Total revenue $156,652 $157,371 $152,424
-------- -------- --------
-------- -------- --------
Operating income (loss):
United States $ (8,988) $ (7,609) $(30,518)
South America 4,802 (921) (5,937)
Asia Pacific 7,943 8,701 6,771
Africa and the Former
Soviet Union (2,360) (1,668) 831
-------- -------- --------
Total operating income (loss) $ 1,397 $ (1,497) $(28,853)
-------- -------- --------
-------- -------- --------
Identifiable assets:
United States $135,923 $ 71,233 $ 64,337
South America 82,292 83,345 73,688
Asia Pacific 46,683 49,223 43,456
Africa and the Former
Soviet Union 11,061 13,158 27,867
-------- -------- --------
Total identifiable assets $275,959 $216,959 $209,348
-------- -------- --------
-------- -------- --------
Two customers accounted for approximately 19 percent and 18 percent,
respectively, of total revenue in 1996. Two customers accounted for
approximately 22 percent and 13 percent, respectively, of total revenue in
1995. Three customers accounted for approximately 14 percent, 12 percent and
11 percent, respectively, of total revenue in 1994. Operating income (loss)
is total revenue less operating expenses including depreciation, depletion and
amortization and an allocation of general corporate expenses based on rig
operating days.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Assets Held for Disposition and Provision for Reduction in Carrying
Value of Certain Assets
In fiscal 1996 the Company reclassified to assets held for disposition
six rigs and related equipment located in southern Argentina with a net book
value of $6,179,000. Although the Company believes it will recover the
carrying value of the assets, it is reasonably possible that a lesser amount
will be recovered.
During the fourth quarter of fiscal 1994, management analyzed its
domestic operations and made the strategic decision to reorganize certain of
these operations and sell certain of these assets. In Alaska, the Company
decided to reduce operating and administrative costs and to look for
opportunities to joint venture or combine operations with other drilling
companies. As a result, the Company reduced the carrying value of certain
assets in Alaska, including rigs, spare parts and property that were to be
sold. The Company's Partech (Registered Trademark) manufacturing operations
were downsized by the sale of land, buildings, equipment and excess
inventories, and accordingly, the Company wrote down to net realizable value
certain drilling equipment, property and inventories that were sold. In the
lower 48 divisions, the Company disposed of a number of mechanical rigs and
certain rig equipment which also were written down to net realizable value.
Write-offs relating to the lower 48 and Alaska rigs resulted in the removal of
16 rigs from the Company's fleet. Aggregating the items described above, the
Company recorded a $19,718,000 provision during the fourth quarter of fiscal
1994.
Note 8 - Commitments and Contingencies
At August 31, 1996, the Company had letters of credit facilities of
$25,062,000 of which $10,015,000 had been issued.
Certain officers of the Company entered into Severance Compensation and
Consulting Agreements with the Company in 1988 and 1992. In October 1996, the
officers executed revised Severance Compensation and Consulting Agreements
(the "Agreements"). The Agreements provide for an initial six year term and
the payment of certain benefits upon a change of control (as defined in the
Agreements). A change of control includes certain mergers or reorganizations,
changes in the board of directors, sale or liquidation of the Company or
acquisition of more than 20% of the outstanding common stock of the Company by
a third party. After a change of control occurs, if an officer is terminated
within four years without good cause or resigns within two years for good
reason (as each are defined in the Agreements) the officer shall receive a
payment of three times his annual cash compensation, plus additional
compensation for a one year consulting agreement at the officer's annual cash
compensation, plus extended life, health and other miscellaneous benefits for
four years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Commitments and Contingencies (continued)
A judgment in the amount of $4,860,000 was entered against a subsidiary
of the Company by a judge of the First Civil Specialized Court in Maynas, Peru
on May 10, 1996. The judgment was based on a $22,000,000 claim by former
employees of the Company's subsidiary alleging that such subsidiary impaired
their employment opportunities with that subsidiary and other employers. The
subsidiary of the Company disputed the claim and appealed the decision based
on a lack of evidence and procedural and due process irregularities. On or
about September 5, 1996, this judgment was declared void by Superior Court in
Iquitos, Peru due to procedural irregularities, including the failure to
comply with certain due process requirements. The Superior Court has remanded
the case to the First Civil Specialized Court and the plaintiffs, in order to
pursue their claim, would be required to satisfy all mandated procedural and
due process requirements. While the Company does not believe that the
judgment will have a material adverse effect on its financial condition,
results of operations or its operations in South America, there can be no
assurance that a judgment will not be entered against the Company's subsidiary
in a substantial amount.
In addition, the Company is a party to various other lawsuits and claims
arising out of the ordinary course of business. Management, after review and
consultation with legal counsel, considers that any liability resulting from
these matters would not materially affect the results of operations or the
financial position of the Company.
Note 9 - Related Party Transactions
At August 31, 1996, the Company owned an insurance policy on the life of
Mr. R. L. Parker, chairman and a principal stockholder. The Company is the
beneficiary of this policy which was issued pursuant to a Stock Purchase
Agreement ("Agreement") approved by vote of the stockholders at the 1975
Annual Meeting on December 10, 1975. This Agreement was entered into between
the Company and the Robert L. Parker Trust and provides that upon the death of
Robert L. Parker, the Company would be required, at the option of the Trust,
to purchase from the Trust at a discounted price the amount of Parker Drilling
common stock which could be purchased with the proceeds of the policy of
$7,000,000. On August 3, 1994, the Company and the Trust modified this
Agreement so that the Company will have the option but not the obligation to
purchase the stock at a discounted price with the proceeds or to retain the
entire proceeds upon the death of Robert L. Parker. If action under the
agreement had been required at August 31, 1996, and the Company elected to
purchase Parker Drilling common stock from the Trust, Parker Drilling's
outstanding common stock would have been reduced by approximately two percent.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Related Party Transactions (continued)
As a part of the agreement to terminate the option held by the Trust and
to grant the Company a limited option to purchase stock at a discounted price,
the Company has also agreed to pay a premium of $655,019 annually for a split
dollar last-to-die life insurance policy on Robert L. Parker and Mrs.
Robert L. Parker. Upon the deaths of Mr. Parker and Mrs. Parker, the Company
will be reimbursed by the Robert L. Parker Sr. and Catherine M. Parker Family
Trust from the proceeds of the policy for the full amount of premiums paid
plus interest at the one-year treasury bill rate on the premiums paid after
fiscal year 1999. Robert L. Parker and the Company agreed in October 1996
that the Company would cash surrender a $500,000 Executive Life policy on his
life and, in exchange, the interest on the above-described policy would not
begin accruing until March 2003. Additionally, Robert L. Parker Jr., Chief
Executive Officer of the Company and son of Robert L. Parker, will receive as
a beneficiary of the Trust one-third of the net proceeds of this policy. The
face value of the policy is $13,200,000.
Note 10 - Supplementary Information
At August 31, 1996, accrued liabilities included $1,321,000 of workers'
compensation liabilities and $2,392,000 of accrued payroll and payroll taxes.
At August 31, 1995, accrued liabilities included $1,178,000 of workers'
compensation liabilities and $2,981,000 of accrued payroll and payroll taxes.
Other long-term liabilities included $1,434,000 and $1,679,000 of workers'
compensation liabilities as of August 31, 1996 and 1995, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Selected Quarterly Financial Data (Unaudited)
Quarter
-------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
FISCAL 1996
- - -----------
Revenue $42,710 $37,929 $34,998 $41,015 $156,652
Gross profit $ 7,067 $ 5,209 $ 4,999 $ 3,550 $ 20,825
Operating income (loss) $ 2,272 $ 220 $ (411) $ (684) $ 1,397
Net income $ 1,887 $ 351 $ 310 $ 1,505 $ 4,053
Primary and fully
diluted earnings
per share $ .03 $ .01 $ .01 $ .02 $ .07
Quarter
-------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- -------- ---------
(Dollars in Thousands Except Per Share Amounts)
FISCAL 1995
- - -----------
Revenue $33,283 $38,738 $43,259 $ 42,091 $157,371
Gross profit $ 863 $ 4,328 $ 5,301 $ 5,074 $ 15,566
Operating income (loss) $(3,457) $ (135) $ 1,016 $ 1,079 $ (1,497)
Net income (loss) $(1,093) $ 69 $ 2,050 $ 2,890 $ 3,916
Primary and fully
diluted earnings
(loss) per share $ (.02) $ .00 $ .04 $ .05 $ .07
Gross profit is calculated by excluding General and administrative
expense and Provision for reduction in carrying value of certain
assets from Operating income (loss), as reported in the Consolidated
Statement of Operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12 - Subsequent Events
On September 14, 1996 the Company signed a definitive agreement to
acquire Mallard Bay Drilling, a worldwide offshore drilling company, for a
total consideration of $338 million, subject to adjustment for changes in
Mallard's net assets prior to closing. The Company intends to fund the
transaction principally through debt. Additionally, the Company will issue
$25.0 million of preferred stock, which will automatically be converted to
common stock if additional shares are authorized for issuance. The Company is
in the process of obtaining the financing for the acquisition and anticipates
closing the transaction in November 1996.
Mallard Bay owns 47 rigs, the majority of which are barge and platform
rigs that operate primarily in the shallow coastal and offshore waters of the
Gulf of Mexico. It also has international operations utilizing barge rigs in
Nigeria, platform rigs in Peru and land rigs in Argentina.
On October 7, 1996 the Company signed an agreement to acquire Quail
Tools, Inc., a privately owned, family-run tool rental business, for $65
million, subject to adjustment for changes in Quail's net assets prior to
closing. The Company intends to fund the transaction principally through
debt. Quail provides premium rental tools used in difficult well drilling,
and completion and production operations, primarily to companies operating in
the Gulf of Mexico. The Company is in the process of obtaining the financing
for the acquisition and anticipates closing the transaction in November 1996.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
This item is not applicable to the Company in that disclosure is required
under Regulation S-X by the Securities and Exchange Commission only if the
Company had changed independent auditors and, if it had, only under certain
circumstances.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference
from the information appearing under the captions "Proposal One - Election of
Directors" and "Executive Officers" in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held December 18, 1996,
to be filed with the Securities and Exchange Commission ("Commission") within
120 days of the end of the Company's fiscal year on August 31, 1996.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from the information appearing under the captions "Meetings, Committees and
Compensation of the Board", "Executive Compensation", "Severance Compensation
and Consulting Agreements", "Compensation Committee Report on Executive
Compensation" and "Performance Graph" in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held December 18, 1996,
to be filed with the Commission within 120 days of the end of the Company's
fiscal year on August 31, 1996.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Item 11. EXECUTIVE COMPENSATION (continued)
Notwithstanding the foregoing, in accordance with the instructions to Item 402
of Regulation S-K, the information contained in the Company's proxy statement
under the sub-headings "Compensation Committee Report on Executive
Compensation" and "Performance Graph" shall not be deemed to be filed as part
of or incorporated by reference into this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is hereby incorporated by reference
from the information appearing under the captions "Voting" and "Common Stock
Ownership of Directors and Executive Officers" in the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held December 18,
1996, to be filed with the Commission within 120 days of the end of the
Company's fiscal year on August 31, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
to such information appearing under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held December 18, 1996, to be filed with
the Commission within 120 days of the end of the Company's fiscal year on
August 31, 1996.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Parker Drilling Company and subsidiaries
which are included in Part II, Item 8:
Page
----
Report of Independent Accountants 22
Consolidated Statement of Operations for each
of the three years in the period ended August 31, 1996 23
Consolidated Balance Sheet as of August 31, 1996 and 1995 24
Consolidated Statement of Cash Flows for each of the
three years in the period ended August 31, 1996 26
Consolidated Statement of Redeemable Preferred
Stock and Stockholders' Equity for each of the three
years in the period ended August 31, 1996 28
Notes to Consolidated Financial Statements 29
PART IV
(continued)
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(continued)
(2) Financial Statement Schedule: Page
----
Schedule II - Valuation and qualifying accounts 47
(3) Exhibits:
Exhibit Number Description
-------------- -----------
3(a) - Restated Certificate of Incorporation of Parker
Drilling Company; incorporated herein by reference to
Exhibit 3(a) to Annual Report on Form 10-K for the year
ended August 31, 1989, as amended by Form 8 dated
December 27, 1989.
3(b) - By-laws of Parker Drilling Company; incorporated herein
by reference to Exhibit 3(b) to Annual Report on Form
10-K for the year ended August 31, 1992, as amended by
Form 8 dated February 18, 1993.
10(a) - Credit Agreement, dated as of April 9, 1996, between
Parker Drilling Company and Bank of Oklahoma, N.A.;
incorporated herein by reference to Exhibit 10(a) to
Quarterly Report on Form 10-Q for the quarterly
period ended May 31, 1996.
10(b) - Parker Drilling Company and Subsidiaries 1991 Stock
Grant Plan; incorporated herein by reference to Exhibit
10(c) to Annual Report on Form 10-K for the year ended
August 31, 1992, as amended by Form 8 dated February
18, 1993.
10(c) - 1980 Incentive Career Stock Plan; incorporated herein
by reference to Exhibit 10(c) to Annual Report on Form
10-K for the year ended August 31, 1989, as amended by
Form 8 dated December 27, 1989.
10(d) - 1969 Key Employees Stock Grant Plan; incorporated
herein by reference to Exhibit 10(e) to Annual Report
on Form 10-K for the year ended August 31, 1992, as
amended by Form 8 dated February 18, 1993.
PART IV
(continued)
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(continued)
(3) Exhibits: (continued)
Exhibit Number Description
-------------- -----------
10(e) - Amended and Restated Parker Drilling Company Stock Bonus
Plan, effective as of April 1, 1996.
10(f) - 1975 Stock Purchase Agreement; incorporated herein
by reference to Exhibit 10(g) to Annual Report on Form
10-K for the year ended August 31, 1986, as amended by
Form 8 dated December 29, 1986.
10(g) - Form of Severance Compensation and Consulting
Agreement entered into between Parker Drilling Company and
certain officers of Parker Drilling Company, dated on or
about October 15, 1996.
10(h) - 1994 Parker Drilling Company Deferred Compensation
Plan; incorporated herein by reference to Exhibit 10(h)
to Annual Report on Form 10-K for the year ended August
31, 1995.
10(i) - 1994 Non-Employee Director Stock Option Plan; incorporated
herein by reference to Exhibit 10(i) to Annual Report on
Form 10-K for the year ended August 31, 1995.
10(j) - 1994 Executive Stock Option Plan; incorporated herein
by reference to Exhibit 10(j) to Annual Report on Form
10-K for the year ended August 31, 1995.
10(k) - First Amendment effective as of September 1, 1996, to the
Amended and Restated Parker Drilling Company Stock Bonus
Plan, effective as of April 1, 1996.
10(l) - Definitive agreement between Parker Drilling Company and
Energy Ventures, Inc., for the purchase of Mallard Bay
Drilling, Inc., incorporated herein by reference to Form
8-K filed September 19, 1996.
10(m) - Definitive agreement to acquire Quail Tools, Inc.,
incorporated herein by reference to Form 8-K filed
October 17, 1996.
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Accountants.
27 - Financial Data Schedule.
99 - Additional Exhibit - Annual Report on Form 11-K To be
with respect to Parker Drilling Company Stock filed by
Bonus Plan. amendment
Management Contract, Compensatory Plan or Agreement
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended August 31,
1996.
PARKER DRILLING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Column A Column B Column C Column D Column E
- - -------------------------------- --------- --------- --------- ---------
Balance Charged
at to cost Balance
beginning and at end of
Classifications of period expenses Deductions period
- - -------------------------------- --------- --------- ---------- ----------
Year ended August 31, 1996:
Allowance for doubtful accounts
and notes $ 796 $ 70 $ 127 $ 739
Reduction in carrying value of
rig materials and supplies $ 2,080 $ 240 $ 523 $ 1,797
Deferred tax valuation allowance $67,494 $ - $ 5,650 $61,844
Year ended August 31, 1995:
Allowance for doubtful accounts
and notes $ 1,050 $ - $ 254 $ 796
Reduction in carrying value of
rig materials and supplies $ 2,230 $ 870 $ 1,020 $ 2,080
Deferred tax valuation allowance $68,805 $(1,311) $ - $67,494
Year ended August 31, 1994:
Allowance for doubtful accounts
and notes $ 1,217 $ - $ 167 $ 1,050
Reduction in carrying value of
rig materials and supplies $ 1,798 $ 1,017 $ 585 $ 2,230
Deferred tax valuation allowance $58,251 $10,554 $ - $68,805
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Robert L. Parker Jr. Date: October 17, 1996
------------------------------
Robert L. Parker Jr.
President and Chief
Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Parker Chairman of the Board and
By ------------------------ Director Date: October 17, 1996
Robert L. Parker
/s/ Robert L. Parker Jr. President and Chief Executive
------------------------- Officer and Director
By Robert L. Parker Jr. (Principal Executive Officer) Date: October 17, 1996
Vice President of Finance and
/s/ James J. Davis Chief Financial Officer
By ------------------------- (Principal Financial Officer) Date: October 17, 1996
James J. Davis
/s/ Randy L. Ellis Corporate Controller
By ------------------------- (Principal Accounting Officer) Date: October 17, 1996
Randy L. Ellis
Executive Vice President and
/s/ James W. Linn Chief Operating Officer and
By ------------------------- Director Date: October 17, 1996
James W. Linn
/s/ Earnest F. Gloyna
By ------------------------- Director Date: October 17, 1996
Earnest F. Gloyna
/s/ David L. Fist
By ------------------------ Director Date: October 17, 1996
David L. Fist
/s/ R. Rudolph Reinfrank
By ------------------------- Director Date: October 17, 1996
R. Rudolph Reinfrank