PARKER DRILLING CO /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________

COMMISSION FILE NUMBER 1-7573

PARKER DRILLING COMPANY
-----------------------
(Exact name of registrant as specified in its charter)

Delaware 73-0618660
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1401 Enclave Parkway, Suite 600, Houston, Texas 77077
-----------------------------------------------------
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code (281) 406-2000
-----------------------------------------------------------------

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 requirement for the past 90 days. Yes [X] No [ ]

As of July 31, 2002, 92,443,962 common shares were outstanding.

PARKER DRILLING COMPANY

INDEX

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

See accompanying notes to unaudited consolidated condensed financial
statements.

2

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)

See accompanying notes to unaudited consolidated condensed financial
statements.

3

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

See accompanying notes to unaudited consolidated condensed financial
statements.

4

PARKER DRILLING COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. General - In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements reflect all adjustments (of a
normally recurring nature) which are necessary for a fair presentation of
(1) the financial position as of June 30, 2002 and December 31, 2001, (2)
the results of operations for the three and six months ended June 30, 2002
and 2001, and (3) cash flows for the six months ended June 30, 2002 and
2001. Results for the six months ended June 30, 2002 are not necessarily
indicative of the results, which will be realized for the year ending
December 31, 2002. The financial statements should be read in conjunction
with the Company's Form 10-K for the year ended December 31, 2001.

Our independent accountants have performed a review of these interim
financial statements in accordance with standards established by the
American Institute of Certified Public Accountants. Pursuant to Rule 436(c)
under the Securities Act of 1933, their report of that review should not be
considered a report within the meaning of Section 7 and 11 of that Act, and
the independent accountants liability under Section 11 does not extend to
it.

2. Earnings Per Share -

RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)

5

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

RECONCILIATION OF INCOME AND NUMBER OF SHARES USED
TO CALCULATE BASIC AND DILUTED EARNINGS PER SHARE (EPS)

6

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

2. Earnings Per Share (continued) -

The Company has outstanding $124,509,000 of 5.5% Convertible Subordinated
Notes which are convertible into 8,090,254 shares of common stock at $15.39
per share. The notes have been outstanding since their issuance in July
1997 but were not included in the computation of diluted EPS because the
assumed conversion of the notes would have had an anti-dilutive effect on
EPS. For the three and six months ended June 30, 2002, options to purchase
8,463,810 shares of common stock at prices ranging from $2.25 to $12.1875,
were outstanding but not included in the computation of diluted EPS because
the assumed exercise of the options would have had an anti-dilutive effect
on EPS due to the net loss incurred during the periods. For the three and
six months ended June 30, 2001 options to purchase 4,634,000 shares of
common stock at prices ranging from $8.8750 to $12.1875 were outstanding
but not included in the computation of diluted EPS because the assumed
exercise of the options would have had an anti-dilutive effect on EPS
during the periods.

3. Business Segments - The primary services the Company provides are as
follows: U.S. drilling, international drilling and rental tools.
Information regarding the Company's operations by industry segment for the
three and six months ended June 30, 2002 and 2001 is as follows (dollars in
thousands):

(1) Operating income by segment is calculated by excluding net construction
contract operating income, general and administrative expense and
reorganization expense from operating income, as reported in the
consolidated condensed statements of operations.

7

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

4. Construction Contract - The Company has historically only constructed
drilling rigs for its own use. At the request of one of its significant
customers, the Company entered into a contract to design, construct and
mobilize ("construction contract") a specialized drilling rig to drill
extended reach wells to offshore targets from a land-based location on
Sakhalin Island, Russia for an international consortium of oil and gas
companies. The Company also entered into a contract to subsequently operate
the rig on behalf of the consortium. Generally Accepted Accounting
Principles ("GAAP") requires that revenues received and costs incurred
related to the construction contract should be accounted for and reported
on a gross basis and income for the related fees should be recognized on a
percentage of completion basis. Because this contract is not a part of the
Company's historical or normal operations, the revenues and costs related
to this contract have been shown as a separate component in the statement
of operations. Construction costs and funds received from the customer are
accumulated and reported as part of other current assets. At June 30, 2002,
a net receivable of $27.1 million (construction costs less progress
payments) is included in other current assets.

5. Goodwill - Effective January 1, 2002, the Company adopted Statement of
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." In accordance with this accounting principle, goodwill is no
longer amortized but will be assessed for impairment on at least an annual
basis.

As an initial step in the implementation process, the Company identified
four reporting units that would be tested for impairment. The four units
qualify as reporting units in that they are one level below an operating
segment, or an individual operating segment and discrete financial
information exists for each unit. The four reporting units identified by
segment are as follows:

U.S. drilling segment: Barge rigs
Jackup and Platform rigs(1)

International drilling segment: Nigeria barge rigs

Rental tools segment: Rental tools business

(1) The jackup and platform rigs were aggregated due to the
similarities in the markets served.

As required under the transitional accounting provisions of SFAS No. 142,
the Company completed both steps required to identify and measure goodwill
impairment at each reporting unit. The first step involved identifying all
reporting units with carrying values (including goodwill) in excess of fair
value, which was estimated by an independent business evaluation consultant
using the present value of estimated future cash flows. The reporting units
for which carrying value exceeded fair value were then measured for
impairment by comparing the implied fair value of the reporting unit
goodwill, determined in the same manner as in a business combination, with
the carrying amount of goodwill. The jackup and platform rigs reporting
unit was the only unit where impairment was identified. As a result,
goodwill related to the jackup and platform rigs was impaired by $73.1
million and was recognized as a cumulative effect of a change in accounting
principle retroactive to the first quarter. The Company will perform its
annual impairment review during the fourth quarter of each year, commencing
in the fourth quarter of 2002.

8

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

The following is a summary of net income and earnings per share as adjusted
to remove the amortization of goodwill (dollars in thousands, except per
share amounts):

(1) Certain goodwill amounts are non-deductible for tax purposes;
therefore, the income tax impact reflects only the deductible goodwill
amortization.

The following is a restatement of net loss and earnings per share as
adjusted to reflect the cumulative effect of a change in accounting
principle for the three months ended March 31, 2002 (dollars in thousands
except per share amounts):

9

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

The changes in the carrying amount of goodwill by segment for the period
ended June 30, 2002, are as follows (dollars in thousands):

6. Derivative Financial Instruments - The Company is exposed to interest rate
risk from its fixed-rate debt. The Company has hedged against a portion of
the risk of changes in fair value associated with its $214.2 million 9.75%
Senior Notes by entering into three fixed-to-variable interest rate swap
agreements with a total notional amount of $150.0 million. The Company
assumes no ineffectiveness as each interest rate swap meets the short-cut
method requirements under SFAS No. 133 for fair value hedges of debt
instruments. As a result, changes in the fair value of the interest rate
swaps are offset by changes in the fair value of the debt and no net gain
or loss is recognized in earnings. At June 30, 2002, the Company recorded
derivative assets of $2.1 million with an offsetting amount recorded as an
increase in the carrying value of the related debt instrument. Also, during
the six month period ended June 30, 2002, the interest rate swap reduced
interest expense by $2.3 million.

On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term
(ending November 2006) of the debt instrument.

7. Exchange Offer - On May 2, 2002, the Company announced it had successfully
completed the exchange of $235.6 million in principal amount of new 10.125%
Senior Notes due 2009 ("New Notes") for a like amount of its 9.75% Senior
Notes due 2006 ("Outstanding Notes"), pursuant to an exchange offer
described in the Offering Circular dated April 1, 2002 (the "Exchange
Offer"). The consummation of the Exchange Offer was effected without
registration, in reliance on the registration exemption provided by Section
4(2) of the Securities Act of 1933, as amended, which applies to offers and
sales of securities that do not involve a public offering, and Regulation D
promulgated under that act. The Exchange Offer was made to a limited number
of existing holders of the Outstanding Notes that were institutional
accredited investors. The Company relied on representations from such
institutional accredited investors that the New Notes were acquired for
investment and not with a view to the distribution thereof. On July 1,
2002, the Company filed a registration statement on Form S-4 offering to
exchange the New Notes for notes of the Company having substantially
identical terms in all material respects as the New Notes (the "Exchange
Notes"). The New Notes and Exchange Notes will be governed by the terms of
the indenture executed by the Company, the Subsidiary Guarantors and the
trustee dated May 2, 2002, the terms of which are substantially the same
as the terms of the 1998 Indenture, as amended by the Fourth Supplemental
Indenture, as described below.

In connection with the Exchange Offer, the Company solicited consents to
certain amendments to the definitions and covenants in the indenture under
which the Outstanding Notes were issued, which all participants in the
Exchange Offer were deemed to have accepted. As a result of the
participation in the Exchange Offer of more than 50% of the holders of the
Outstanding Notes, the amendments to the 1998 Indenture were agreed, and
which amendments have been effected by the execution of the Fourth
Supplemental Indenture by the Company, the Subsidiary Guarantors and the
trustee filed herewith (as amended, the "1998 Indenture"). As a result of
the Exchange Offer, the Company incurred fees of approximately $3.6
million, which were expensed in the second quarter of 2002.

10

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

8. Contingency - On July 6, 2001, the Ministry of State Revenues of Kazakhstan
("MSR") issued an Act of Audit to the Kazakhstan branch ("PKD Kazakhstan")
of Parker Drilling Company International Limited ("PDCIL"), wholly owned
subsidiary of the Company, assessing additional taxes of approximately
$29.0 million for the years 1998-2000. The assessment consisted primarily
of adjustments in corporate income tax based on a determination by the
Kazakhstan tax authorities that payments by Offshore Kazakhstan
International Operating Company, ("OKIOC"), to PDCIL of $99.0 million, in
reimbursement of costs for modifications to Rig 257, performed by PDCIL
prior to the importation of the drilling rig into Kazakhstan, are income
to PKD Kazakhstan, and therefore, taxable to PKD Kazakhstan. PKD Kazakhstan
filed an Act of Non-Agreement that such reimbursements should not be
taxable and requested that the Act of Audit be revised accordingly. In
November 2001, the MSR rejected PKD Kazakhstan's Act of Non-Agreement,
prompting PKD Kazakhstan to seek judicial review of the assessment. On
December 28, 2001, the Astana City Court issued a judgment in favor of PKD
Kazakhstan, finding that the reimbursements to PDCIL were not income to PKD
Kazakhstan and not otherwise subject to tax based on the U.S.-Kazakhstan
Tax Treaty. The MSR appealed the decision of the Astana City Court to the
Supreme Court, which confirmed the decision of the Astana City Court that
the reimbursements were not income to PKD Kazakhstan in March 2002.
Although the court agreed with the MSR's position on certain minor issues,
no additional taxes will be payable as a result of this assessment. The MSR
has until March 2003 to appeal this decision to a special panel of the
Supreme Court of Kazakhstan.

9. Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires the capitalization and accrual of
the fair value of a liability for an asset retirement obligation in the
period in which it is incurred, if a reasonable estimate of fair value can
be made. SFAS No. 143 will be effective January 2003. The Company does not
believe the adoption of SFAS No. 143 will have a material impact on its
financial position or results of operations.

In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121 and
amends Accounting Principles Board ("APB") No. 30 for the accounting and
reporting for discontinued operations as it relates to long-lived assets.
SFAS No. 144 became effective January 2002. The Company has adopted the
provisions of SFAS No. 144 and there was no resulting impact on its
financial position or results of operations.

In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements SFAS
No. 4, SFAS No. 44, and SFAS No. 64, Amendment of FASB Statement SFAS No.
13, and Technical Corrections." SFAS No. 145 is effective for the fiscal
years beginning after May 15, 2002. The Company has not yet adopted SFAS
No. 145 nor has it determined the effect of the adoption on the financial
position or results of operations.

In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002. The Company has not
yet adopted SFAS No. 146 nor determined the effect of the adoption of SFAS
No. 146 on the Company's financial position or results of operations.

11

Report of Independent Accountants

To the Board of Directors and Shareholders
Parker Drilling Company

We have reviewed the consolidated condensed balance sheet of Parker
Drilling Company and subsidiaries as of June 30, 2002 and the related
consolidated condensed statements of operations for the three and six month
periods ended June 30, 2002 and 2001 and the consolidated condensed statement of
cash flows for the six month periods ended June 30, 2002 and 2001. These
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States of America.

We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2001, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report, dated January 29, 2002, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 2001, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.

/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP

Tulsa, Oklahoma
July 30, 2002

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-Q contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. These
statements may be made in this document, or may be "incorporated by reference,"
which means the statements are contained in other documents filed by the Company
with the Securities and Exchange Commission. All statements included in this
document, other than statements of historical facts, that address activities,
events or developments that the Company expects, projects, believes or
anticipates will or may occur in the future are "forward-looking statements,"
including without limitation:

*future operating results,

*future rig utilization, dayrates and rental tools activity,

*future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment,

*repayment of debt,

*maintenance of the Company's revolver borrowing base, and

*expansion and growth of operations.

Forward-looking statements are based on certain assumptions and
analyses made by the management of the Company in light of their experience and
perception of historical trends, current conditions, expected future
developments and other factors it believes are relevant. Although management of
the Company believes that its assumptions are reasonable based on current
information available, they are subject to certain risks and uncertainties, many
of which are outside the control of the Company. These risks and uncertainties
include:

*worldwide economic and business conditions that adversely affect
market conditions and/or the cost of doing business,

*the strength in the U.S. economy and the demand for natural gas,

*fluctuations in the market prices of oil and gas,

*imposition of unanticipated trade restrictions and political
instability,

*operating hazards and uninsured risks,

*new or changes in governmental regulations that adversely affect the
cost of doing business,

*adverse environmental events,

*adverse weather conditions,

*changes in concentration of customer and supplier relationships,

*unexpected cost increases for upgrade and refurbishment projects,

*changes in competition, and

*other similar factors (some of which are discussed in documents
referred to in this Form 10-Q).

Because the forward-looking statements are subject to risks and
uncertainties, the actual results of operations and actions taken by the Company
may differ materially from those expressed or implied by such forward-looking
statements. These risks and uncertainties are referenced in connection with
forward-looking statements that are included from time to time in this document.
Each forward-looking statement speaks only as of the date of this Form 10-Q, and
the Company undertakes no obligation to publicly update or revise any
forward-looking statement.

13

INTRODUCTION AND OUTLOOK

The $11.5 million loss incurred for the three months ended June 30,
2002 reflects primarily the continued weakness in the Gulf of Mexico market
which began during the third quarter of 2001 when operators curtailed drilling
activity in response to declining demand and prices for natural gas. During the
second quarter of 2002, utilization and to a lesser extent dayrates in the
shallow-water segment of the Gulf of Mexico have improved, but not at the pace
we had anticipated when preparing our 2002 budget. Utilization for our jackup
rigs and barge rigs during the second quarter of 2002 averaged 78% and 50%,
respectively, as compared to 53% and 43% for the first quarter of 2002. Dayrate
increases were minimal over the first quarter of 2002.

The international segment utilization decreased significantly in the
second quarter of 2002 in both land and offshore drilling activity.
International land utilization was negatively impacted due to changes in
business strategies by two of our customers. We have been drilling wells in the
Cusiana and Cupiagua fields of Colombia for nearly 10 years. As of the end of
July 2002, four of our Colombian rigs were released by this customer. We are
actively marketing these rigs in Colombia and other markets around the world. In
the Karachaganak field in Kazakhstan, the operator has released one of our rigs
and one rig owned by our joint venture partner, Saipem.

The Company's domestic contracts are usually well to well contracts.
Although it is common for international contracts to have multi-year terms, in
most cases this will not preclude the customer from terminating the contract
without cause prior to the scheduled termination date. When a customer exercises
its contractual right to terminate a contract without cause before the end of
the stated term, the contract may require the payment of an early termination
fee based on the Company's investment in the project. It is also customary for a
customer to have the obligation to pay a demobilization fee to return the rig to
its point of origin.

International offshore utilization decreased in Nigeria because two
barge rigs under contract were idle for a combined total of 93 days during the
quarter in order to perform regularly scheduled American Bureau of Shipping
("ABS") inspections and repairs. The inspection on barge Rig 72 is complete and
the rig has resumed operations. Barge Rig 73 was moved to the shipyard in
mid-May and is anticipated to return to full dayrate in mid-September.

We anticipate that utilization and revenues in our Gulf of Mexico rigs
and rental tool segments will increase during the remainder of 2002, albeit at a
slower pace than we had earlier projected. The unanticipated change in strategy
of two international land customers and idle Nigerian rigs noted above will
offset any increased utilization and revenues that were anticipated from the
positive trend in international land operations that began in late 2001. Based
on the current business outlook, we have updated our guidance regarding the
anticipated range for revenues and losses for the year 2002. We now anticipate
that revenues for the year will approximate $400 million. Based on these revised
estimates of 2002 revenues, we are now anticipating a loss in the range of $40
million to $50 million or $0.43 to $0.53 per share before the change in
accounting principle and approximately $113 million to $123 million or $1.22 to
$1.32 per share after the cumulative effect of the change in accounting
principle for 2002, (see Note 5 of the Notes to Unaudited Consolidated Condensed
Financial Statements). Although changed market conditions have necessitated the
need for revised guidance on revenues and losses for 2002, management remains
committed to the strategies of targeting projects in international markets where
significant growth is anticipated, and reducing debt.

14

RESULTS OF OPERATIONS (continued)

Our drilling operations in Kazakhstan are a significant part of our
current international operations and our strategic growth for the future. Since
1993, our operations in Kazakhstan have grown from providing labor to our
principal customer to owning and managing 11 drilling rigs for several
operators. In the last few years, the government of Kazakhstan has requested
that vendors incorporate local content into their operations to stimulate the
development of a local oil and gas service industry and the Kazakhstan economy.
In order to take advantage of the significant growth potential and remain a
preferred vendor of the principal operators in Kazakhstan, it was advantageous
for us to partner with a local company. In June 2002, PDCIL entered into an
agreement to sell two of its rigs in Kazakhstan to AralParker, a Kazakhstan
joint venture company owned 50% by us and 50% by a Kazakhstan company, Aralnedra
CJSC. The purchase price of the rigs is $42.7 million, which represents the fair
market value according to an appraisal by an independent third party appraiser.
The purchase of the rigs is being financed by Parker Drilling Company over a
five-year period and is secured by a lien on the rigs and an assignment of the
five-year drilling contract and its proceeds. The loan bears interest at a
market rate and is scheduled to close on or about August 15, 2002. In addition,
PDCIL will lease a third rig to AralParker, and will operate the joint venture
company pursuant to a management and technical services contract. In light of
the Company's significant influence over the business affairs of AralParker, its
financial statements will be consolidated with the Company's financial
statements in accordance with GAAP. Although Aralnedra will effectively own 50%
of the two rigs, PDCIL will continue to receive approximately 90% of the cash
flow generated by the current five-year drilling contract through the proceeds
of repayment of the loan and the management and technical services contract.

Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001

The Company recorded a net loss of $11.5 million for the three months
ended June 30, 2002 compared to net income of $2.7 million for the three months
ended June 30, 2001. The net loss in the second quarter of 2002 is reflective of
low utilization and dayrates in the U.S. Gulf of Mexico drilling operations,
reduced rental tool revenues and declining utilization in the international land
operations.

The Company's drilling and rental revenues decreased $35.1 million to
$97.8 million in the current quarter as compared to the second quarter of 2001.
U.S. drilling revenues decreased $27.7 million due to declining dayrates and
utilization in the Company's Gulf of Mexico drilling operations. Total barge rig
revenues decreased $14.0 million in the current quarter, as a result of a 37%
decrease in utilization as compared to the second quarter of 2001. Jackup rig
revenues decreased $11.0 million in the current quarter as compared to the
second quarter of 2001 due to a 51% decrease in dayrates and an 8% decrease in
utilization. Platform rig utilization and dayrates decreased 46% and 16%,
respectively, resulting in a $2.7 million decrease in revenues.

15

RESULTS OF OPERATIONS (continued)

International drilling revenues decreased $2.5 million to $56.7 million
in the current quarter as compared to the second quarter of 2001. International
land drilling revenues increased $0.9 million while international offshore
drilling revenues decreased $3.4 million. Primarily responsible for the
improvement in international land drilling revenues was increased rig activity
in the CIS region that includes Kazakhstan and Russia resulting in additional
revenues of $1.1 million. On average three additional rigs were working in the
CIS region during the current quarter. As noted previously one rig in the
Karachaganak field was released at the end of the second quarter of 2002. Land
drilling revenues increased $1.2 million in the Asia Pacific region primarily
due to increased utilization in Papua New Guinea. Revenues declined $1.4 million
in Latin America due primarily to a sharp decline in activity in both Bolivia
and Colombia.

The decrease of $3.4 million in international offshore drilling
revenues was due primarily to Nigeria operations. Two of the four barge rigs in
Nigeria were down a combined total of 93 days in the current quarter for ABS
inspection and repairs as previously discussed.

Rental tool revenues decreased $4.9 million as Quail Tools reported
revenues in the current quarter of $13.2 million. Quail Tools continued to be
negatively impacted by the reduced activity in the U.S. drilling markets.
Revenues decreased $1.7 million from the New Iberia, Louisiana operations and
$3.4 million from the Victoria, Texas operations. The Evanston, Wyoming
operations were opened during the current quarter and contributed revenues of
$0.2 million.

The Company's drilling and rental revenues decreased $53.7 million to
$194.0 million in the current six-month period as compared to the six months
ended June 30, 2001. U.S. drilling revenues decreased $55.6 million due to
declining dayrates and utilization in the Company's Gulf of Mexico drilling
operations. Total barge rig revenues decreased $26.6 million in the current
six-month period, as a result of a 38% decrease in utilization as compared to
the six months ended June 30, 2001. Jackup rig revenues decreased $23.7 million
in the current six-month period as compared to the six months ended June, 2001
due to a 49% decrease in dayrates and a 24% decrease in utilization. Platform
rig utilization and dayrates decreased 43% and 26%, respectively, resulting in a
$5.3 million decrease in revenues.

International drilling revenues increased $8.4 million to $119.1
million in the current six-month period as compared to the six months ended June
30, 2001. International land drilling revenues increased $9.4 million while
international offshore drilling revenues decreased $1.0 million. Primarily
responsible for the improvement in international land drilling revenues was
increased rig activity in the CIS region, where an increase of three rigs
resulted in additional revenues of $7.5 million. Land drilling revenues
increased $5.3 million in the Asia Pacific region due to increased utilization
in Papua New Guinea. Revenues declined $3.7 million in Latin America due to
decreased activity in Colombia.

The decrease of $1.0 million in international offshore drilling
revenues was due primarily to Nigeria with two barge rigs down for ABS
inspections and repairs as previously noted.

Rental tool revenues decreased $6.5 million as Quail Tools reported
revenues in the current six-month period of $25.4 million. Quail Tools was
negatively impacted by the reduced drilling activity in the Gulf of Mexico
markets. Revenues decreased $2.1 million from the New Iberia, Louisiana
operations, $4.5 million from the Victoria, Texas operations, $0.1 million from
the Odessa, Texas operations, offset slightly by revenues of $0.2 million from
new operations in Evanston, Wyoming.

18

RESULTS OF OPERATIONS (continued)

(Drilling and rental profit margin - drilling and rental revenues less direct
drilling and rental operating expenses; drilling and rental profit margin
percentages - drilling and rental profit margin as a percent of drilling and
rental revenues)

Drilling and rental profit margin of $63.1 million in the current
six-month period reflected a decrease of $39.9 million from the six months ended
June 30, 2001. The U.S. Gulf of Mexico drilling operations accounted for $40.9
million of the decrease in profit margin. Lower average dayrates and utilization
on the U.S. rig fleet combined with increased barge rig labor and insurance
rates contributed to the decline in profit margin for the current six-month
period compared to the six months ended June 30, 2001.

International drilling profit margin increased $8.1 million in the
current six-month period as compared to the six months ended June 30, 2001.
International land drilling profit margin increased $9.3 million to $29.7
million during the current six-month period due primarily to increased
utilization in the Company's land drilling operations as previously discussed.
The international offshore drilling profit margin decreased $1.2 million to
$11.5 million in the current six-month period. The decrease is primarily
attributed to higher operating expenses, which resulted from increased property
taxes for Rig 257 in the Caspian Sea operations.

Rental tool profit margin decreased $7.1 million to $14.1 million
during the current six-month period as compared to the first six months ended
June 30, 2001. Profit margin percentage decreased to 55% during the current
six-month period as compared to 66% for the six months ended June 30, 2001 due
to increasing costs in conjunction with the decrease in revenues. The increase
in operating expenses is primarily attributed to higher salary expense and
increased inspection and cleaning costs of rental tools, as previously
discussed.

Interest expense decreased $2.2 million due primarily to lower interest
rates associated with the three $50.0 million swap agreements (see Note 6 of the
Notes to Unaudited Consolidated Condensed Financial Statements) signed in
December 2001 and January 2002.

During the first quarter of 2002, the Company announced a new contract
to build and operate a rig to drill extended reach wells to offshore targets
from a land-based location on Sakhalin Island, Russia for an international
consortium. The revenue and expense for the project are recognized as
construction contract revenue and expense, with the engineering fee calculated
on a percentage of completion basis, $1.2 million was recognized during the six
months ended June 30, 2002.

19

RESULTS OF OPERATIONS (continued)

General and Administrative expense increased $2.6 million to $12.5
million in the current six-month period as compared to the six months ended June
30, 2001. This increase is primarily attributed to increased rent expense for
the new corporate office in Houston and the new office in Tulsa, legal and
professional fees and unscheduled maintenance on the former corporate
headquarters in Tulsa, currently held for sale.

Other expense of $4.2 million for the six months ended June 30, 2002
includes $3.6 million related to the Exchange Offer (see Note 7 of the Notes to
Unaudited Consolidated Condensed Financial Statements) and $0.6 million costs
incurred for the attempted acquisition of Australian Oil and Gas.

Reorganization expense of $5.2 million for the six months ended June
30, 2001 includes non-recurring expense for the move of the corporate office to
Houston and the reorganization of certain management positions.

Income tax expense consists of foreign tax expense of $8.9 million and
a deferred tax benefit of $9.7 million. Foreign taxes increased $1.8 million due
primarily to $3.1 million in additional taxes paid during the first quarter in
Colombia, primarily related to the 2001 tax return and increased taxes in the
Asia Pacific region. The increases were offset by a reduction in the 2001 taxes
accrued in Kazakhstan resulting from the favorable court ruling received in
March 2002. The deferred tax benefit was recognized due to the loss generated
during the current six-month period.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, the Company had cash, cash equivalents and other
short-term investments of $23.4 million, a decrease of $37.0 million from
December 31, 2001. The net cash used in operating activities as reflected on the
Consolidated Condensed Statement of Cash Flows was $9.6 million. This included
$27.1 million of net receivables relating to construction of Rig 262 for the
Sakhalin Island project. As of July 31, 2002 the net receivable is $17.9
million. Working capital required for this project is anticipated to be $15
million to $22 million until final payment is received from our customer, which
is expected during the fourth quarter of 2002.

Cash flows from investing activities included $28.1 million for capital
expenditures and proceeds from the sale of assets of $3.3 million. Cash flows
from financing activities included $2.6 million repayment of debt.

The Company has total long-term debt, including the current portion, of
$591.4 million at June 30, 2002. The Company has a $50.0 million revolving
credit facility with a group of banks led by Bank of America. This facility is
available for working capital requirements, general corporate purposes and to
support letters of credit. The revolver is collateralized by accounts
receivable, inventory and certain barge rigs located in the Gulf of Mexico. The
facility contains customary affirmative and negative covenants. Availability
under the revolving credit facility is subject to certain borrowing base
limitations based on 80 percent of eligible receivables plus 50 percent of
supplies in inventory, less the amount utilized in support of letters of credit.
Currently, the borrowing base of $44.7 million, is reduced by $17.4 million in
outstanding letters of credit, resulting in available revolving credit of $27.3
million. As of July 31, 2002 no amounts have been drawn down against the
revolving credit facility. The revolver terminates on October 22, 2003.

20

LIQUIDITY AND CAPITAL RESOURCES (continued)

The Company anticipates that working capital funds required for capital
spending in 2002 will be met from existing cash, other short-term investments
and cash provided by operations. It is management's present intention to limit
capital spending, net of reimbursements from customers, to approximately
$50 million in 2002. Should new opportunities requiring additional capital
arise, or should revenues not meet management's guidance projections, the
Company may utilize the revolving credit facility. In addition, the Company may
seek project financing or equity participation from outside alliance partners or
customers to fund certain capital projects. The Company cannot predict whether
such financing or equity participation would be available on terms acceptable to
the Company.

The Company is exposed to interest rate risk from its fixed-rate debt.
The Company had hedged against the risk of changes in the fair value associated
with its 9.75% Senior Notes by entering into three fixed-to-variable interest
rate swap agreements with a total notional amount of $150.0 million. The Company
assumes no ineffectiveness as each interest rate swap meets the short-cut method
requirements under SFAS No. 133 for fair value hedges of debt instruments. As a
result, changes in the fair value of the interest rate swaps are offset by
changes in the fair value of the debt and no net gain or loss is recognized in
earnings. At June 30, 2002, the Company recorded derivative assets of $2.1
million with an offsetting amount recorded as an increase in the carrying value
of the related debt instrument. For the six-month period ended June 30, 2002,
the interest rate swap reduced interest expense by $2.3 million.

On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term (ending
November 2006) of the debt instrument.

See Notes 6 and 7 of the Notes to Unaudited Consolidated Condensed
Financial Statements for information regarding the Company's Exchange Offer
which was completed May 2, 2002.

OTHER MATTERS

Recent Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143. SFAS No. 143, "Accounting for
Asset Retirement Obligations," which requires the capitalization and accrual of
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred if a reasonable estimate of fair value can be made. SFAS
No. 143 will be effective January 2003. The Company does not believe the
adoption of SFAS No. 143 will have a material impact on its financial position
or results of operations.

In August 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121 and amends APB No. 30 for the accounting and reporting for discontinued
operations as it relates to long-lived assets. SFAS No. 144 became effective
January 2002. The Company has adopted the provisions of SFAS No. 144 and there
was no resulting impact on its financial position or results of operations.

In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements
SFAS No. 4, SFAS No. 44, and SFAS No. 64, Amendment of FASB Statement SFAS No.
13, and Technical Corrections". SFAS No. 145 is effective for the fiscal years
beginning after May 15, 2002. The Company has not yet adopted SFAS No. 145 nor
has it determined the effect of the adoption on the financial position or
results of operations.

In July 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002. The Company has not
yet adopted SFAS No. 146 nor determined the effect of the adoption of SFAS No.
146 on the Company's financial position or results of operations.

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company has hedged against a portion of the risk of changes in fair
value associated with its $214.2 million 9.75% Senior Notes by entering into
three fixed-to-variable interest rate swap agreements with a total notional
amount of $150.0 million. The terms of the swap agreements are as follows:

The Company assumes no ineffectiveness as each interest rate swap meets
the short-cut method requirements under SFAS No. 133 for fair value hedges of
debt instruments. As a result, changes in the fair value of the interest rate
swaps are offset by changes in the fair value of the debt and no net gain or
loss is recognized in earnings. At June 30, 2002, the Company recorded
derivative assets of $2.1 million with an offsetting amount recorded as an
increase in the carrying value of the related debt instrument. Also, during the
six month period ended June 30, 2002, the interest rate swap reduced interest
expense by $2.3 million.

On July 24, 2002, the Company terminated all the interest rate swap
agreements and received $3.5 million. A gain totaling $2.6 million will be
recognized as a reduction to interest expense over the remaining term (ending
November 2006) of the debt instrument.

22

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 2, 2002 the Company announced it had successfully completed the
exchange of $235.6 million in principal amount of new 10.125% Senior Notes due
2009 ("New Notes") for a like amount of its 9.75% Senior Notes due 2006
("Outstanding Notes"), pursuant to an exchange offer described in the Offering
Circular dated April 1, 2002 (the "Exchange Offer"). The Exchange Offer was
effected without registration, in reliance on the registration exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, which
applies to offers and sales of securities that do not involve a public offering,
and Regulation D promulgated under that act. The Exchange Offer was made to a
limited number of existing holders of the Outstanding Notes that were
institutional accredited investors. The Company relied on representations from
such institutional accredited investors that the New Notes were acquired for
investment and not with a view to the distribution thereof. On July 1, 2002, the
Company filed a registration statement on Form S-4 offering to exchange the New
Notes for notes of the Company having substantially identical terms in all
material respects as the New Notes (the "Exchange Notes"). The New Notes and
Exchange Notes will be governed by the terms of the indenture executed by the
Company, the Subsidiary Guarantors and the trustee dated May 2, 2002, the terms
of which are substantially the same as the terms of the 1998 Indenture, as
amended by the Fourth Supplemental Indenture, as described below.

In connection with the Exchange Offer, the Company solicited consents
to certain amendments to the definitions and covenants in the indenture under
which the Outstanding Notes were issued, which all participants in the Exchange
Offer were deemed to have accepted. As a result of the participation in the
Exchange Offer of more than 50% of the holders of the Outstanding Notes, the
amendments to the 1998 Indenture were agreed, and which amendments have been
effected by the execution of the Fourth Supplemental Indenture by the Company,
the Subsidiary Guarantors and the trustee filed herewith (as amended, the "1998
Indenture").

ITEM 3. DEFAULTS UPON SENIOR SECURITIES OR DIVIDEND ARREARAGES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

23

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The following exhibits are filed as part of this report:

Exhibit
Number Description

15 Letter re Unaudited Interim Financial Information

99.1 Sarbanes-Oxley Act of 2002 Certification - Chief
Executive Officer

99.2 Sarbanes-Oxley Act of 2002 Certification - Chief
Financial Officer

(b) Reports on Form 8-K:

The Company filed a Form 8-K on June 28, 2002 to include the "as
adjusted" income (loss) before extraordinary item, net income (loss)
and net income (loss) per share financial information within its
Consolidated Financial Statements for the years ended December 31,
2001, 2000 and 1999, as if the adoption of SFAS No. 142 had occurred
at the beginning of 1999.

24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Parker Drilling Company

Registrant

Date: August 13, 2002

By: /s/ James J. Davis
------------------------------------
James J. Davis
Senior Vice President-Finance and
Chief Financial Officer

By: /s/ W. Kirk Brassfield
------------------------------------
W. Kirk Brassfield
Vice President and Controller

25

INDEX TO EXHIBITS