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

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(MARK ONE)

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

For The Quarterly Period Ended MARCH 31, 2005

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
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(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
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(Address of principal executive offices) (Zip code)

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

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of April 29, 2005, 95,736,265 common shares were outstanding.

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PARKER DRILLING COMPANY

INDEX

Page No.
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Part I. Financial Information

Item 1. Financial Statements 2

Consolidated Condensed Balance Sheets (Unaudited)
March 31, 2005 and December 31, 2004 2

Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 2005 and 2004 3

Consolidated Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2005 and 2004 4

Notes to the Unaudited Consolidated Condensed Financial Statements 5 - 16

Report of Independent Registered Public Accounting Firm 17

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18

Item 3. Quantitative and Qualitative Disclosures about Market Risk 26

Item 4. Controls and Procedures 26

Part II. Other Information 27

Item 1. Legal Proceedings 27

Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 27

Item 3. Defaults Upon Senior Securities 27

Item 4. Submission of Matters to a Vote of Security Holders 27

Item 5. Other Information 28

Item 6. Exhibits 28

Signatures 29

Officer Certifications

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

March 31, December 31,
2005 2004
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents $ 66,265 $ 44,267
Accounts and notes receivable, net 104,545 99,315
Rig materials and supplies 20,210 19,206
Deferred costs 11,297 13,546
Other current assets 12,572 9,818
------------ ------------
Total current assets 214,889 186,152
------------ ------------
Property, plant and equipment less
accumulated depreciation and amortization of
$618,232 at March 31, 2005 and $610,485 at
December 31, 2004 377,457 382,824

Assets held for sale 2,322 23,665

Goodwill 107,606 107,606

Other noncurrent assets 24,207 26,343
------------ ------------

Total assets $ 726,481 $ 726,590
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ - $ 24
Accounts payable and accrued liabilities 93,155 72,625
Accrued income taxes 15,891 14,704
------------ ------------
Total current liabilities 109,046 87,353
------------ ------------
Long-term debt 455,951 481,039
Other long-term liabilities 6,013 9,281
Contingency (Note 8) - -

Stockholders' equity:
Common stock 15,942 15,833
Capital in excess of par value 443,233 441,085
Unamortized restricted stock plan compensation (350) (718)
Accumulated deficit (303,354) (307,283)
------------ ------------
Total stockholders' equity 155,471 148,917
------------ ------------
Total liabilities and stockholders' equity $ 726,481 $ 726,590
============ ============

See accompanying notes to the unaudited consolidated condensed financial statements.

2

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
(Unaudited)

Three Months Ended March 31,
--------------------------------
2005 2004
------------ ------------

Drilling and rental revenues:
U.S. drilling $ 27,117 $ 19,759
International drilling 72,172 56,037
Rental tools 20,954 15,103
------------ ------------
Total drilling and rental revenues 120,243 90,899
------------ ------------

Drilling and rental operating expenses:
U.S. drilling 14,388 12,691
International drilling 55,803 39,891
Rental tools 8,185 6,613
Depreciation and amortization 16,876 16,249
------------ ------------
Total drilling and rental operating expenses 95,252 75,444
------------ ------------
Drilling and rental operating income 24,991 15,455
------------ ------------
General and administration expense (6,976) (6,042)
Gain on disposition of assets, net 552 723
------------ ------------
Total operating income 18,567 10,136
------------ ------------
Other income and (expense):
Interest expense (11,056) (13,407)
Changes in fair value of derivative positions 1,607 -
Interest income 238 249
Loss on extinguishment of debt (1,429) (316)
Minority interest 769 (290)
Other (6) 83
------------ ------------
Total other income and (expense) (9,877) (13,681)
------------ ------------
Income (loss) before income taxes 8,690 (3,545)

Income tax expense 4,852 4,049
------------ ------------
Income (loss) from continuing operations 3,838 (7,594)

Discontinued operations 91 2,730
------------ ------------
Net income (loss) $ 3,929 $ (4,864)
============ ============
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.04 $ (0.08)
Discontinued operations $ - $ 0.03
Net income (loss) $ 0.04 $ (0.05)

Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.04 $ (0.08)
Discontinued operations $ - $ 0.03
Net income (loss) $ 0.04 $ (0.05)

Number of common shares used in computing
earnings per share:
Basic 94,948,637 93,594,900
Diluted 96,145,661 93,594,900

See accompanying notes to the unaudited consolidated condensed financial statements.

3

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

Three Months Ended March 31,
--------------------------------
2005 2004
------------ ------------

Cash flows from operating activities:
Net income (loss) $ 3,929 $ (4,864)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 16,876 16,249
Gain on disposition of assets (552) (723)
Expenses not requiring cash 1,523 2,197
Discontinued operations 14 (879)
Change in operating assets and liabilities 12,893 8,687
------------ ------------
Net cash provided by operating activities 34,683 20,667
------------ ------------

Cash flows from investing activities:
Capital expenditures (12,606) (5,323)
Proceeds from the sale of assets 22,991 1,310
Proceeds from insurance settlement - 24,300
------------ ------------
Net cash provided by investing activities 10,385 20,287
------------ ------------

Cash flows from financing activities:
Principal payments under debt obligations (25,024) (15,423)
Proceeds from stock options exercised 1,954 250
------------ ------------
Net cash used in financing activities (23,070) (15,173)
------------ ------------

Net increase in cash and cash equivalents 21,998 25,781

Cash and cash equivalents at beginning of year 44,267 67,765
------------ ------------

Cash and cash equivalents at end of period $ 66,265 $ 93,546
============ ============

Supplemental cash flow information:
Interest paid $ 3,258 $ 4,402
Income taxes paid $ 2,899 $ 1,607

Supplemental noncash investing activity:
Net unrealized loss on investments available for sale $ - $ (156)

See accompanying notes to the unaudited consolidated condensed financial statements.

4

PARKER DRILLING COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. General - In the opinion of the management of Parker Drilling Company (the
"Company"), the accompanying unaudited consolidated condensed financial
statements reflect all adjustments (of a normally recurring nature) which
are necessary for a fair presentation of (1) the financial position as of
March 31, 2005 and December 31, 2004, (2) the results of operations for the
three months ended March 31, 2005 and 2004, and (3) cash flows for the
three months ended March 31, 2005 and 2004. Results for the three months
ended March 31, 2005 are not necessarily indicative of the results that
will be realized for the year ending December 31, 2005. The financial
statements should be read in conjunction with our Form 10-K for the year
ended December 31, 2004.

Our independent registered public accounting firm has performed a review of
these interim financial statements in accordance with standards established
by the Public Company Accounting Oversight Board (United States). Pursuant
to Rule 436(c) under the Securities Act of 1933, their independent
registered public accounting firm's report of that review should not be
considered a report within the meaning of Section 7 and 11 of that Act, and
the independent registered public accounting firm's liability under Section
11 does not extend to it.

Stock-Based Compensation - Our stock-based employee compensation plans are
accounted for under the recognition and measurement principles of the
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. No stock-based employee
compensation cost related to stock options granted is reflected in net
income (loss), as all options granted under the plan had an exercise
price equal to or greater than the fair market value of the underlying
common stock on the date of grant. The following table illustrates the
effect on net income (loss) and net income (loss) per share if we had
applied the fair value recognition provisions of the Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation. In December 2004, the
Financial Accounting Standards Board ("FASB") revised SFAS No. 123 to
eliminate the alternative under the original statement to account for
share-based employee compensation using APB Opinion No. 25 and set the
effective date for interim periods beginning after June 15, 2005. In April
2005, the Securities and Exchange Commission ("SEC") approved a new rule
for public companies that defers the effective date of SFAS No. 123R to
annual periods beginning after June 15, 2005. We plan to adopt the
provisions of the Statement on January 1, 2006 using the modified
prospective method.

Expected volatility 51.1% March 31, 2005
Expected volatility 59.1% March 31, 2004
Risk free rate 3.38% in 2005
Risk free rate 2.74% in 2004

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the weighted-average
assumptions noted above for the three months ended March 31, 2005 and 2004.
We assume no dividend yield and that the expected lives of the options
range from three to seven years.

5

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

2. Earnings Per Share ("EPS")

Options to purchase 4,285,300 shares of common stock with exercise prices
ranging from $5.35 to $12.19 per share, were outstanding during the three
months ended March 31, 2005, but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market price of the common shares. For the three months ended March
31, 2004, options to purchase 9,866,091 shares of common stock at prices
ranging from $1.96 to $12.19 per share 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 period. As of March 31, 2004, we had outstanding $94,669,000 of
5.5% Convertible Subordinated Notes which were convertible into 6,151,332
shares of common stock at $15.39 per share. The notes were 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. The 5.5% Convertible Subordinated Notes
were paid off on August 2, 2004.

6

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

3. Business Segments - The primary services we provide are as follows: U.S.
drilling, international drilling and rental tools. Information regarding
our operations by industry segment for the three months ended March 31,
2005 and 2004 is as follows:

4. Discontinued Operations - Discontinued operations in the first quarter of
2004 include results of operations for U.S. Gulf of Mexico offshore assets
consisting of seven jackup rigs and four platform rigs. Under a plan
approved by our board of directors in June 2003, nine of the rigs were sold
in the third quarter of 2004 and one was sold in January 2005. Jackup rig
14 was damaged in September 2003 when it malfunctioned and became partially
submerged. We received a total loss settlement of $27.0 million, of which
$24.3 million was received in March 2004. The remaining $2.7 million was
received in April 2004. The cost incurred to tow the rig to the port and
pay for the damage assessment approximated $4.0 million resulting in net
insurance proceeds of approximately $23.0 million. The net book value of
jackup rig 14 was $17.7 million at March 31, 2004. In compliance with
Generally Accepted Accounting Principles ("GAAP"), we were required to
recognize the gain on insurance proceeds in excess of the net book value of
the asset. When considered separately from the other U.S. Gulf of Mexico
offshore disposal group, this resulted in a gain of approximately $5.3
million from the damage to the rig. After considering the impact of the
gain, we determined that the overall valuation of the U.S. Gulf of Mexico
offshore group was unchanged from the fair value assessment at June 30,
2003. As a result, we recognized an additional impairment of $5.3 million
which, along with the gain, was reported in discontinued operations during
the first quarter of 2004.

The three months ended March 31, 2005, include the operations of the last
jackup rig prior to its sale on January 3, 2005.

7

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

Analysis of Discontinued Operations

5. Income Tax Expense - Income tax expense from operations consists of $4.9
million foreign tax expense for the first quarter of 2005, as compared to
foreign tax expense of $4.0 million for the first quarter of 2004. The $0.9
million increase was primarily due to operations in Mexico which began in
July 2004, offset by decreased taxes in Nigeria and Kazakhstan. For the
first quarter of 2005, we reported net income and for the first quarter of
2004, we reported a net loss. However, no additional deferred tax benefit
was recognized since the sum of our deferred tax assets, principally the
net operating loss carryforwards, exceeds the deferred tax liabilities,
principally the excess of tax depreciation over book depreciation.

6. Long-Term Debt

On February 7, 2005, we retired an additional $25.0 million face value of
our 10.125% Senior Notes pursuant to a redemption notice dated January 6,
2005 at the redemption price of 105.0625 percent. Proceeds from the sale of
jackup rig 25 and cash on hand were used to fund the redemption.

Our current $40.0 million credit facility is available for general
corporate purposes and to fund reimbursement obligations of letters of
credit the banks issue on our behalf pursuant to the terms of the credit
facility. Availability under the revolving credit facility is subject to a
borrowing base limitation of 85 percent of eligible receivables plus a
value for eligible rental tools equipment. The credit facility calls for a
borrowing base calculation only when the credit facility has outstanding
loans or letters of credit totaling at least $25.0 million. As of March 31,
2005, there were $10.3 million letters of credit outstanding and no loans.

On April 21, 2005, we issued an additional $50.0 million in aggregate
principal amount of our 9.625% Senior Notes due 2013 at a premium. The
offering price of 111 percent of the principal amount resulted in gross
proceeds of $55.5 million. The additional notes were issued under an
indenture, dated as of October 10, 2003, under which $175.0 million in
aggregate principal amount of notes of the same series were previously
issued.

On April 21, 2005, we issued a redemption notice to retire $65.0 million of
our 10.125% Senior Notes at the redemption price of 105.0625 percent. The
redemption will close on May 21, 2005 and will be funded by the net
proceeds of the $50.0 million additional 9.625% Senior Notes and cash on
hand.

8

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

7. Derivative Instruments - We use derivative instruments to manage risks
associated with interest rate fluctuations in connection with our $150.0
million Senior Floating Rate Notes. Derivative instruments, which consist
of variable-to-fixed interest rate swaps, do not meet the hedge criteria in
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and are therefore not designated as hedges. Accordingly, the
change in the fair value of the interest rate swaps is recognized currently
in earnings.

As of March 31, 2005, we had the following derivative instruments
outstanding related to our interest rate swaps, which are included in
"Other noncurrent assets":

8. Contingency - As previously reported, the Kazakhstan branch ("PKD
Kazakhstan") of Parker Drilling Company International Limited ("PDCIL")
prevailed on its appeal arising out of an audit assessment of approximately
$29.0 million by the Ministry of State Revenues of Kazakhstan ("MSR") based
on payments PDCIL received from the operator to upgrade barge rig 257. The
MSR did not appeal this ruling within the time required for a supervisory
appeal, but in February 2005 filed an application for re-hearing based on
new evidence. PKD Kazakhstan has filed an objection to this application for
rehearing. The Supreme Court of Kazakhstan issued an order on April 12,
2005, declining the Ministry of Finance of Kazakhstan's ("MinFin")
application for re-hearing.

In a related matter, based on its interpretation of the initial ruling of
the Kazakhstan Supreme Court, MinFin made a claim on March 10, 2003 for
corporate income taxes based primarily on the disallowance of depreciation
of the full value of barge rig 257 in the income tax returns of PKD
Kazakhstan for the years 1999-2001. PKD Kazakhstan instituted legal
proceedings to challenge the validity of these claims by MinFin, which
ultimately resulted in the Supreme Court confirming the decision of the
Astana City Court, which earlier had ruled that approximately $7.7 million
of the claims of MinFin all of which have been expensed in prior periods
are valid and payable upon receipt of the re-issuance of the corrected
notice from the relevant taxing authority. MinFin has not issued a
corrected notice; however, PKD Kazakhstan's available credits were reduced
by approximately $7.1 million leaving a remaining balance due of $0.6
million. While the Supreme Court disallowed depreciation for the years
1999-2001, the judgment does allow PKD Kazakhstan to depreciate the full
value of barge rig 257 on its tax returns beginning in 2002, which will
reduce taxable income and taxes to be paid in the future. We continue to
pursue our petition with the U.S. Treasury Department for Competent
Authority review, which is a tax treaty procedure to resolve disputes as to
which country may tax income covered under the treaty. The U.S. Treasury
Department has granted our petition and has initiated proceedings with the
MSR which are ongoing.

9

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

9. Subsequent Event - On May 6, 2005 we entered into definitive agreements
with affiliates of Saxon Energy Services, Inc. ("Saxon") to sell our seven
remaining land rigs and related assets in Colombia and Peru. The total
purchase price is $34 million. One of the agreements closed simultaneously
with the execution of the definitive agreement, resulting in receipt of
approximately $4 million. We anticipate closing the remaining transactions
within the next 30 days, subject to obtaining contractual related consents
and various third party approvals. Proceeds from the sale will be used to
retire debt.

10. Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed
Financial Statements - Set forth on the following pages are the unaudited
consolidating condensed financial statements of (i) Parker Drilling, (ii)
our restricted subsidiaries that are guarantors of the Senior Notes and
(iii) our restricted and unrestricted subsidiaries that are not guarantors
of the Senior Notes. All of our Senior Notes are guaranteed by
substantially all of the restricted subsidiaries of Parker Drilling. There
are currently no restrictions on the ability of the restricted subsidiaries
to transfer funds to Parker Drilling in the form of cash dividends, loans
or advances. Parker Drilling is a holding company with no operations, other
than through its subsidiaries.

AralParker (a Kazakhstan closed joint stock company, owned 50 percent by
Parker Drilling (Kazakstan) Ltd. and 50 percent by Aralnedra, CJSC),
Casuarina Limited (a wholly-owned captive insurance company), KDN Drilling
Limited, Mallard Drilling of South America, Inc., Mallard Drilling of
Venezuela, Inc., Parker Drilling Investment Company, Parker Drilling
(Nigeria), Limited, Parker Drilling Company (Bolivia) S.A., Parker Drilling
Company Kuwait Limited, Parker Drilling Company Limited (Bahamas), Parker
Drilling Company of New Zealand Limited, Parker Drilling Company of
Sakhalin, Parker Drilling de Mexico S. de R.L. de C.V., Parker Drilling
International of New Zealand Limited, Parker Drilling Tengiz, Ltd., Parker
TNK, PD Servicios Integrales, S. de R.L. de C.V., PKD Sales Corporation,
Parker SMNG Drilling Limited Liability Company (owned 50 percent by Parker
Drilling Company International, Inc.) and Universal Rig Leasing B.V. are
all non-guarantor subsidiaries. We are providing unaudited consolidating
condensed financial information of the parent, Parker Drilling, the
guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31,
2005 and December 31, 2004 and for the three months ended March 31, 2005
and 2004. The condensed consolidating financial statements present
investments in both consolidated and unconsolidated subsidiaries using the
equity method of accounting.

10

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)

March 31, 2005
----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents $ 39,804 $ 7,305 $ 19,156 $ - $ 66,265
Accounts and notes receivable, net 178,073 105,487 39,309 (218,324) 104,545
Rig materials and supplies - 15,440 4,770 - 20,210
Deferred costs - 5,010 6,287 - 11,297
Other current assets 3,725 8,315 432 100 12,572
----------- ----------- ----------- ----------- -----------
Total current assets 221,602 141,557 69,954 (218,224) 214,889
----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net 134 410,178 37,659 (70,514) 377,457

Assets held for sale - 1,609 713 - 2,322

Goodwill - 107,606 - - 107,606

Investment in subsidiaries and intercompany advances 453,258 820,016 34,382 (1,307,656) -

Other noncurrent assets 14,004 9,461 781 (39) 24,207
----------- ----------- ----------- ----------- -----------
Total assets $ 688,998 $ 1,490,427 $ 143,489 $(1,596,433) $ 726,481
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 43,366 $ 235,785 $ 44,677 $ (230,673) $ 93,155
Accrued income taxes 1,306 13,362 1,223 - 15,891
----------- ----------- ----------- ----------- -----------
Total current liabilities 44,672 249,147 45,900 (230,673) 109,046
----------- ----------- ----------- ----------- -----------
Long-term debt 455,951 - - - 455,951
Other long-term liabilities (41,679) 47,658 34 - 6,013
Intercompany payables 74,583 593,674 27,598 (695,855) -

Stockholders' equity:
Common stock 15,942 39,899 21,251 (61,150) 15,942
Capital in excess of par value 443,233 977,562 33,783 (1,011,345) 443,233
Unamortized restricted stock plan compensation (350) - - - (350)
Retained earnings (accumulated deficit) (303,354) (417,513) 14,923 402,590 (303,354)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 155,471 599,948 69,957 (669,905) 155,471
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 688,998 $ 1,490,427 $ 143,489 $(1,596,433) $ 726,481
=========== =========== =========== =========== ===========

11

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)

December 31, 2004
----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents $ 16,677 $ 7,938 $ 19,652 $ - $ 44,267
Accounts and notes receivable, net 176,548 101,445 38,213 (216,891) 99,315
Rig materials and supplies - 13,593 5,613 - 19,206
Deferred costs - 5,266 8,280 - 13,546
Other current assets 3,894 4,885 950 89 9,818
----------- ----------- ----------- ----------- -----------
Total current assets 197,119 133,127 72,708 (216,802) 186,152
----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net 134 415,027 38,177 (70,514) 382,824

Assets held for sale - 22,952 713 - 23,665

Goodwill - 107,606 - - 107,606

Investment in subsidiaries and intercompany advances 489,143 771,475 35,422 (1,296,040) -

Other noncurrent assets 14,005 11,007 1,331 - 26,343
----------- ----------- ----------- ----------- -----------
Total assets $ 700,401 $ 1,461,194 $ 148,351 $(1,583,356) $ 726,590
=========== =========== =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 24 $ - $ - $ - $ 24
Accounts payable and accrued liabilities 34,772 215,852 42,156 (220,155) 72,625
Accrued income taxes 1,677 12,726 301 - 14,704
----------- ----------- ----------- ----------- -----------
Total current liabilities 36,473 228,578 42,457 (220,155) 87,353
----------- ----------- ----------- ----------- -----------
Long-term debt 481,039 - - - 481,039
Other long-term liabilities (40,611) 48,578 1,275 39 9,281
Intercompany payables 74,583 593,674 29,695 (697,952) -

Stockholders' equity:
Common stock 15,833 39,899 21,251 (61,150) 15,833
Capital in excess of par value 441,085 977,563 33,783 (1,011,346) 441,085
Unamortized restricted stock plan compensation (718) - - - (718)
Retained earnings (accumulated deficit) (307,283) (427,098) 19,890 407,208 (307,283)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 148,917 590,364 74,924 (665,288) 148,917
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 700,401 $ 1,461,194 $ 148,351 $(1,583,356) $ 726,590
=========== =========== =========== =========== ===========

12

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)

Three Months Ended March 31, 2005
-----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

Drilling and rental revenues $ - $ 89,144 $ 34,943 $ (3,844) $ 120,243

Drilling and rental operating expenses - 47,908 34,323 (3,855) 78,376
Depreciation and amortization - 15,911 965 - 16,876
----------- ----------- ----------- ----------- -----------
Drilling and rental operating income (loss) - 25,325 (345) 11 24,991
----------- ----------- ----------- ----------- -----------

General and administration expense(1) (42) (6,934) - - (6,976)
Gain on disposition of assets, net - 347 205 - 552
----------- ----------- ----------- ----------- -----------
Total operating income (loss) (42) 18,738 (140) 11 18,567
----------- ----------- ----------- ----------- -----------

Other income and (expense):
Interest expense (12,248) (12,287) (755) 14,234 (11,056)
Changes in fair value of derivative positions 1,607 - - - 1,607
Interest income 11,639 2,123 710 (14,234) 238
Loss on extinguishment of debt (1,429) - - - (1,429)
Minority interest - - 769 - 769
Other - (6) 11 (11) (6)
Equity in net earnings of subsidiaries 4,608 - - (4,608) -
----------- ----------- ----------- ----------- -----------
Total other income and (expense) 4,177 (10,170) 735 (4,619) (9,877)
----------- ----------- ----------- ----------- -----------

Income (loss) before income taxes 4,135 8,568 595 (4,608) 8,690

Income tax expense 206 2,831 1,815 - 4,852
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations 3,929 5,737 (1,220) (4,608) 3,838

Discontinued operations - 91 - - 91
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,929 $ 5,828 $ (1,220) $ (4,608) $ 3,929
=========== =========== =========== =========== ===========

(1) All field operations general and administration expenses are included in
operating expenses.

13

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)

Three Months Ended March 31, 2004
-----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

Drilling and rental revenues $ - $ 76,845 $ 14,591 $ (537) $ 90,899

Drilling and rental operating expenses - 47,808 11,878 (491) 59,195
Depreciation and amortization - 15,023 1,226 - 16,249
----------- ----------- ----------- ----------- -----------
Drilling and rental operating income - 14,014 1,487 (46) 15,455
----------- ----------- ----------- ----------- -----------

General and administration expense(1) 179 (6,221) - - (6,042)
Gain on disposition of assets, net - 723 - - 723
----------- ----------- ----------- ----------- -----------
Total operating income 179 8,516 1,487 (46) 10,136
----------- ----------- ----------- ----------- -----------

Other income and (expense):
Interest expense (14,599) (11,536) (914) 13,642 (13,407)
Interest income 12,321 1,140 430 (13,642) 249
Loss on extinguishment of debt (316) - - - (316)
Minority interest - - (290) - (290)
Other - 83 (46) 46 83
Equity in net losses of subsidiaries (2,205) - - 2,205 -
----------- ----------- ----------- ----------- -----------
Total other income and (expense) (4,799) (10,313) (820) 2,251 (13,681)
----------- ----------- ----------- ----------- -----------

Income (loss) before income taxes (4,620) (1,797) 667 2,205 (3,545)

Income tax expense 244 3,805 - - 4,049
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations (4,864) (5,602) 667 2,205 (7,594)

Discontinued operations - 2,730 - - 2,730
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (4,864) $ (2,872) $ 667 $ 2,205 $ (4,864)
=========== =========== =========== =========== ===========

(1) All field operations general and administration expenses are included in
operating expenses.

14

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)

Three Months Ended March 31, 2005
-----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

Cash flows from operating activities:
Net income (loss) $ 3,929 $ 5,828 $ (1,220) $ (4,608) $ 3,929
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization - 15,911 965 - 16,876
Gain on disposition of assets - (347) (205) - (552)
Expenses not requiring cash 1,135 388 - - 1,523
Equity in net earnings of subsidiaries 4,608 - - (4,608) -
Discontinued operations - 14 - - 14
Change in operating assets and liabilities 5,248 (2,766) 1,195 9,216 12,893
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities 14,920 19,028 735 - 34,683
----------- ----------- ----------- ----------- -----------

Cash flows from investing activities:
Capital expenditures - (11,850) (756) - (12,606)
Proceeds from the sale of assets - 22,409 582 - 22,991
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities - 10,559 (174) - 10,385
----------- ----------- ----------- ----------- -----------

Cash flows from financing activities:
Principal payments under debt obligations (25,024) - - - (25,024)
Proceeds from stock options exercised 1,954 - - - 1,954
Intercompany advances, net 31,277 (30,220) (1,057) - -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 8,207 (30,220) (1,057) - (23,070)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 23,127 (633) (496) - 21,998

Cash and cash equivalents at beginning of year 16,677 7,938 19,652 - 44,267
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 39,804 $ 7,305 $ 19,156 $ - $ 66,265
=========== =========== =========== =========== ===========

15

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)

Three Months Ended March 31, 2004
-----------------------------------------------------------------------
Parent Guarantor Non-Guarantor Eliminations Consolidated
----------- ----------- ------------- ------------ ------------

Cash flows from operating activities:
Net income (loss) $ (4,864) $ (2,872) $ 667 $ 2,205 $ (4,864)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization - 15,023 1,226 - 16,249
Gain on disposition of assets - (723) - - (723)
Expenses not requiring cash 1,522 680 (5) - 2,197
Equity in net losses of subsidiaries (2,205) - - 2,205 -
Discontinued operations - (879) - - (879)
Change in operating assets and liabilities (767) 7,159 6,705 (4,410) 8,687
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (6,314) 18,388 8,593 - 20,667
----------- ----------- ----------- ----------- -----------

Cash flows from investing activities:
Capital expenditures - (5,321) (2) - (5,323)
Proceeds from the sale of assets - 1,310 - - 1,310
Proceeds from insurance settlement - 24,300 - - 24,300
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities - 20,289 (2) - 20,287
----------- ----------- ----------- ----------- -----------

Cash flows from financing activities:
Principal payments under debt obligations (15,556) 133 - - (15,423)
Proceeds from stock options exercised 250 - - - 250
Intercompany advances, net 44,938 (33,252) (11,686) - -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 29,632 (33,119) (11,686) - (15,173)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 23,318 5,558 (3,095) - 25,781

Cash and cash equivalents at beginning of year 53,055 7,806 6,904 - 67,765
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 76,373 $ 13,364 $ 3,809 $ - $ 93,546
=========== =========== =========== =========== ===========

16

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
Parker Drilling Company

We have reviewed the accompanying consolidated condensed balance sheet of
Parker Drilling Company and subsidiaries as of March 31, 2005 and the related
consolidated condensed statements of operations for the three month periods
ended March 31, 2005 and 2004 and the consolidated condensed statements of cash
flows for the three month periods ended March 31, 2005 and 2004. These interim
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
standards of the Public Company Accounting Oversight Board, 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 accompanying consolidated condensed interim financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.

We previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2004, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended, management's
assessment of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2004 and the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004; and in our
report (which contains an explanatory paragraph for a change in accounting for
goodwill), dated March 15, 2005, we expressed unqualified opinions thereon. The
consolidated financial statements and management's assessment of the
effectiveness of internal control over financial reporting referred to above are
not presented herein. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 2004, 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

Houston, Texas
May 6, 2005

17

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

In this Quarterly Report on Form 10-Q, the terms "Parker Drilling," "we,"
"us" and "our" refer to Parker Drilling Company, its subsidiaries and the
consolidated joint ventures, unless the context requires otherwise.

This Form 10-Q contains 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, as amended. All statements
contained in this Form 10-Q, other than statements of historical facts, are
"forward-looking statements" for purposes of these provisions, including any
statements regarding:

o prices and demand for oil and natural gas;
o levels of oil and natural gas exploration and production activities;
o demand for contract drilling and drilling-related services and demand
for rental tools;
o our future operating results;
o our future rig utilization, rig dayrates and rental tools activity;
o our future capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment;
o our future liquidity;
o availability and sources of funds to reduce our debt and expectations
of when debt will be reduced;
o future sales of our assets;
o the outcome of pending and future legal proceedings;
o our recovery of insurance proceeds in respect to our damaged rig in
Nigeria;
o compliance with covenants under our credit facilities; and
o expansion and growth of our operations.

In some cases, you can identify these statements by words that indicate
future events such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "outlook," "may," "should," "will" and "would" or similar words.
Forward-looking statements are based on certain assumptions and analyses made by
our management in light of their experience and perception of historical trends,
current conditions, expected future developments and other factors they believe
are relevant. Although our management believes that their assumptions are
reasonable based on information currently available, those assumptions are
subject to significant risks and uncertainties, many of which are outside of our
control. The following factors, as well as any other cautionary language in this
Form 10-Q and other documents referenced herein, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements:

o worldwide economic and business conditions that adversely affect
market conditions and/or the cost of doing business;
o the U.S. economy and the demand for natural gas;
o fluctuations in the market prices of oil and gas;
o imposition of unanticipated trade restrictions;
o unanticipated operating hazards and uninsured risks;
o political instability, terrorism or war;
o governmental regulations, including changes in tax laws or ability to
remit funds to the U.S., that adversely affect the cost of doing
business;
o adverse environmental events;
o adverse weather conditions;
o changes in the concentration of customer and supplier relationships;
o unexpected cost increases for upgrade and refurbishment projects;
o delays in obtaining components for capital projects;
o shortages of skilled labor;
o unanticipated cancellation of contracts by operators without cause;
o breakdown of equipment and other operational problems;
o changes in competition; and
o other similar factors (some of which are discussed in documents
referred to in this Form 10-Q).

Each forward-looking statement speaks only as of the date of this Form
10-Q, and we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. You should be aware that the occurrence of the events
described above and elsewhere in this Form 10-Q could have a material adverse
effect on our business, results of operations and financial condition.

18

OUTLOOK AND OVERVIEW

As anticipated in our annual report, we returned to profitability in the
first quarter of 2005. Favorable market conditions continued to positively
impact utilization and dayrates for most segments of our drilling operations and
rental tools business during the first quarter. Robust demand and uncertainty
over possible disruptions in supply have kept oil and gas prices strong and
absent any material change in these market forces, we believe that these
conditions will continue through 2005.

Our outlook for all regions is positive. Our eight-rig operation in Mexico,
which achieved 100 percent operating status late in the third quarter of 2004,
continued to operate at 100 percent during the first quarter. These rigs are
under contracts with Petroleos Mexicanos S.A. ("Pemex") and Halliburton de
Mexico ("Halliburton") through the first quarter of 2006 and the contracts
include options for extensions beyond the initial period. We entered into
definitive agreements to sell our remaining seven rigs in Colombia and Peru on
May 6, 2005. We expect to recognize a gain on the disposition of these assets,
and, by using the proceeds to retire debt, on-going earnings and cash flow will
not be impaired. In Kazakhstan, utilization of our five land rigs remains at 80
percent and barge rig 257, which operates in the north Caspian Sea, began
drilling at the end of December under a two-well contract which the operator has
the right to extend for up to four additional wells. Rig 236 is in route from
its last operating location in Usinsk, Russia to Turkmenistan, which will bring
the total to three rigs we will have working under contract with Calik Enerji,
A.S. ("Calik"). In Indonesia, two rigs that had been stacked are now under
contract with the potential for a third rig to return to work. In addition, we
anticipate that in June, we will begin earning revenue pursuant to a five-year
contract to provide operations and maintenance for a second rig in Sakhalin
Island, Russia. Barge rigs 73 and 75 in Nigeria continue to operate under
multiple year contracts.

In the U.S., barge rig 72, which began its move from Nigeria to the U.S.
Gulf of Mexico region in late 2004, arrived in February and began a multi-well
contract in late April. Heightened demand for drilling in this area has
continued to cause dayrates to increase.

As of March 31, 2005, we had approximately $96.0 million of liquidity. This
liquidity was comprised of $66.3 million of cash on hand and $29.7 million of
availability under our revolving credit facility.

As of March 31, 2005, we have reduced our debt by $134.0 million since the
beginning of 2003, $25.0 million of which has occurred during 2005, and our
outstanding debt balance is currently $456.0 million, compared to the balance as
of December 31, 2004, of $481.0 million and a balance of $590.0 million when we
established our goal of reducing debt by $200 million. The debt reduction has
resulted in a $2.4 reduction in interest expense in the first quarter of 2005
as compared to the first quarter of 2004.

In our first quarter earnings release conference call, we reaffirmed our
previously announced guidance of net income per share of $0.05 to $0.14 for
2005, though based on the results in the first quarter we would expect to be
more toward the mid to high end of the range. This guidance includes
approximately $0.04 per share expense related to the call premium on the $65.0
million debt redemption discussed in Note 6 in the notes to the unaudited
consolidated condensed financial statements.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2005 Compared with Three Months Ended March 31,
2004

We recorded net income of $3.9 million for the three months ended March 31,
2005, including income of $0.1 million attributable to discontinued operations,
as compared to a net loss of $4.9 million for the three months ended March 31,
2004, including income of $2.7 million attributable to discontinued operations.
Our income from continuing operations for the current quarter was $3.8 million
compared to a loss of $7.6 million from continuing operations for the three
months ended March 31, 2004.

As of March 31, 2005 we have achieved 67 percent of our goal of $200
million of debt reduction. We anticipate that additional asset sales should
enable us to achieve 100 percent of the goal by the end of 2005. As discussed
above, we have already achieved our goal of returning to profitability.

19

RESULTS OF OPERATIONS (continued)

The analysis below begins with a breakdown of the continuing operations
followed by a discussion of discontinued operations.

(1) Drilling and rental gross margins are computed as drilling and rental
revenues less direct drilling and rental operating expenses, excluding
depreciation and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin as a percent
of drilling and rental revenues. The gross margin amounts and gross margin
percentages should not be used as a substitute for those amounts reported
under GAAP. However, we monitor our business segments based on several
criteria, including drilling and rental gross margin. Management believes
that this information is useful to our investors because it more closely
tracks cash generated by segment. Such gross margin amounts are reconciled
to our most comparable GAAP measure as follows:

(2) Drilling and rental operating income - drilling and rental revenues less
direct drilling and rental operating expenses, including depreciation and
amortization expense.

U.S. Drilling Segment

The U.S. drilling segment, consisting of 19 barge rigs, experienced
increases in both rig utilization and dayrates during the first quarter of 2005.
As a result, revenues increased $7.4 million to $27.1 million as compared to the
first quarter of 2004. The increased revenues were primarily due to the
operation of barge rigs 26 and 20 which were reactivated in the fourth quarter
of 2004 and high utilization for all rigs during the quarter until late in the
quarter when barge rig 12 came off contract. Barge rig utilization increased
from 62 percent during the first quarter of 2004 to 77 percent in the current
quarter and dayrates increased approximately 24 percent. In February, barge rig
72 was relocated to the U.S. Gulf of Mexico region from Nigeria and renovations
began. After the move of this rig, we have nine deep drilling barges, four
intermediate drilling barges and six workover rigs in the U.S. Gulf of Mexico
market. Rig 72 began a multi-well contract in late April 2005.

20

RESULTS OF OPERATIONS (continued)

U.S. Drilling Segment (continued)

As a result of approximately 24 percent higher dayrates and increased
utilization as compared to the first quarter of 2004, gross margins in the U.S.
drilling segment increased $5.7 million to $12.7 million. Gross margins
increased primarily due to higher dayrates. Gross margin percentage increased
from 36 percent during the first quarter of 2004 to 47 percent during the first
quarter of 2005.

International Drilling Segment

International drilling revenues increased $16.1 million to $72.2 million
during the current quarter as compared to the first quarter of 2004.
International land drilling revenues increased $12.0 million on utilization of
67 percent compared to 46 percent in the first quarter of 2004. International
offshore revenues increased by $4.1 million. The international land drilling
revenues increase is primarily attributable to drilling operations in Mexico,
where seven land rigs began operating in the third quarter of 2004. There were
also increased revenues in Papua New Guinea, New Zealand and Turkmenistan, which
were offset by decreased revenues in Russia, Peru, and Tengizchevroil ("TCO").
The increase in Papua New Guinea is the result of both rigs operating the entire
quarter and two additional rigs under labor contract during 2005 as opposed to
one rig operating during the quarter and one rig under labor contract in March
2004; in New Zealand, is the result of all three rigs working the entire quarter
of 2005, compared to two rigs working in the first quarter of 2004; and in
Turkmenistan, where both rigs worked the entire first quarter of 2005, compared
to last year when the second rig operated only during March. The decline of
revenues in Russia is due to rig 236 operating in the first quarter of 2004,
before being released in June 2004; in Peru, where rig 228 was on standby rate
in the first quarter of 2005 as opposed to full dayrate during the comparable
period in 2004, and revenue declines from operations under our TCO contract, due
to one of the TCO-owned rigs being stacked in 2005 and lower dayrates on other
rigs.

Operating expenses for the international land operations increased at a
slightly higher rate than the increase in revenues. The majority of the increase
in operating expense was due to the drilling operations in Mexico, however,
there were also increased labor costs in Papua New Guinea, New Zealand and at
our TCO operation. While our operations in Mexico contributed $3.2 million to
our gross margin, margin percentages in this region are lower than in our other
international land regions. These lower average gross margins associated with
the Mexican operations and the declining margins in Papua New Guinea, New
Zealand and TCO related to the increased expenses have caused the gross margin
percentages for international land operations to decrease by eight percent to 25
percent in the quarter ended March 31, 2005 as compared to the first quarter of
2004.

International offshore revenues increased $4.1 million to $15.6 million
during the first quarter of 2005 as compared to the first quarter of 2004. Our
Caspian Sea operation revenues increased by $7.0 million as we operated rig 257
at full dayrate for the first quarter of 2005, compared to 2004 when the rig was
stacked. Barge rig 53 in Mexico, which was not operational until the second
quarter of 2004, contributed another $2.2 million in revenues. These increases
were partially offset by lower revenues in Nigeria, where we operated only two
rigs at reduced dayrates in the first quarter of 2005 as compared to three rigs
generating revenues in the first quarter of 2004. Rig 74 was on a force majeure
rate of 45 percent in Nigeria for most of the first quarter of 2004, but was
removed from our marketable rig count in December 2004. In addition, barge rigs
73 and 75 operated at lower dayrates in 2005 as compared to 2004. International
offshore gross margins improved by $0.7 million due to Caspian Sea operations
and Mexico offshore rig increases which were partially offset by rig count and
dayrate declines in Nigeria.

21

RESULTS OF OPERATIONS (continued)

Rental Tools Segment

Rental tools revenues increased $5.8 million to $20.9 million during the
first quarter of 2005 as compared to the first quarter of 2004. Revenues
increased at our Wyoming and Texas locations. We also had revenues from
international sources in the first quarter of 2005, as we continued to expand
our rental tools business in international locales.

The revenues increased primarily due to higher demand and higher rental
rates. The increased revenues in our Texas locations have been driven by
increased activity with new customers, generally small independents. Rental
tools gross margins increased $4.3 million to $12.8 million for the current
quarter as compared to the first quarter of 2004. Gross margin percentage
increased from 56 percent to 61 percent due primarily to the 39 percent increase
in revenues combined with only a 24 percent increase in operating costs.

Other Financial Data

General and administration expense increased approximately $0.9 million to
$7.0 million during the first quarter of 2005. The increase is attributable to
higher professional and consulting fees.

In 2004, we entered into two variable-to-fixed interest rate swap
agreements, which are still outstanding. The swap agreements do not qualify for
hedge accounting and accordingly, we are reporting the mark-to-market change in
the fair value of the interest rate derivatives currently in earnings. For the
three months ended March 31, 2005, we recognized a $1.6 million increase in the
fair value of the derivative positions. For additional information see Note 7 in
the notes to the unaudited consolidated condensed financial statements.

In February 2005, we repurchased $25.0 million of our 10.125% Senior Notes
with proceeds we had received in January 2005 from the sale of jackup rig 25.
Total charges expensed during the quarter were $1.4 million consisting of the
105.0625 percent premium on the repurchase of the 10.125% Senior Notes and the
write-off of the previously capitalized debt issuance costs associated with the
10.125% Senior Notes. The $1.4 million charge was recorded as a loss on
extinguishment of debt in the statement of operations.

Income tax expense from operations consists of $4.9 million foreign tax
expense for the first quarter of 2005 as compared to foreign tax expense of $4.0
million for the first quarter of 2004. The $0.9 million increase in taxes during
the current three-month period was primarily due to operations in Mexico in 2005
that did not begin until the second quarter of 2004, offset by decreased taxes
in Nigeria and Kazakhstan. For the first quarter of 2005 we reported net income
and for the first quarter of 2004, we reported a net loss. However, no
additional deferred tax benefit was recognized since the sum of our deferred tax
assets, principally the net operating loss carryforwards, exceeds the deferred
tax liabilities, principally the excess of tax depreciation over book
depreciation.

22

RESULTS OF OPERATIONS (continued)

Analysis of Discontinued Operations

(1) Drilling gross margin is computed as drilling revenues less direct drilling
operating expenses, excluding depreciation and amortization expense. The
gross margin amounts and gross margin percentages should not be used as a
substitute for those amounts reported under GAAP. However, we monitor our
business segments based on several criteria, including drilling gross
margin. Management believes that this information is useful to our
investors because it more closely tracks cash generated by segment. Such
gross margin amounts are reconciled to our most comparable GAAP measure as
follows:

U. S. jackup and platform drilling revenues decreased $12.2 million to $0.2
million during the current quarter as compared to the first quarter of 2004.
Revenues decreased as a result of the sale of all but one jackup rig in early
August 2004. Jackup rig 25 worked the first few days of 2005 until its sale on
January 3, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Operating Cash Flows

As of March 31, 2005, we had cash and cash equivalents of $66.3 million, an
increase of $22.0 million from December 31, 2004. The primary sources of cash
for the three-month period as reflected on the consolidated condensed statements
of cash flows were $34.7 million provided by operating activities and $23.0
million of proceeds from the disposition of assets. The primary uses of cash for
the three-month period ended March 31, 2005 were $12.6 million for capital
expenditures and $23.1 million for financing activities. Major capital
expenditures for the period included $5.2 million for tubulars and other rental
tools. Our financing activities include a net reduction in debt of $25.0
million, net of premium and are further detailed in a subsequent paragraph.

As of March 31, 2004, we had cash and cash equivalents of $93.5 million, an
increase of $25.8 million from December 31, 2003. The primary sources of cash
for the three-month period as reflected on the consolidated condensed statements
of cash flows were $20.7 million provided by operating activities, $24.3 million
of insurance proceeds, and $1.3 million proceeds from the disposition of
equipment. The remaining $2.7 million of insurance proceeds on jackup rig 14
were collected in early April 2004. The primary uses of cash for the three-month
period ended March 31, 2004 were $5.3 million for capital expenditures and $15.4
million for reduction of debt. Major capital expenditures for the period
included $1.5 million to refurbish barge rig 53 for an upcoming contract in
Mexico. The major components of our debt reduction were the purchases of $10.5
million face value of our outstanding 5.5% Convertible Subordinated Notes on the
open market, $9.5 million in January 2004 at a price of 100.625 percent and $1.0
million in March 2004 at a price of 100.25 percent. In addition, we paid off
$5.1 million of a secured promissory note to Boeing Capital Corporation at a
premium.

23

LIQUIDITY AND CAPITAL RESOURCES (continued)

Financing Activity

Our current $40.0 million credit facility is available for general
corporate purposes and to fund reimbursement obligations under letters of credit
the banks issue on our behalf pursuant to this facility. Availability under the
revolving credit facility is subject to a borrowing base limitation based on 85
percent of eligible receivables plus a value for eligible rental tools
equipment. The credit facility calls for a borrowing base calculation only when
the credit facility has outstanding loans or letters of credit totaling at least
$25.0 million. As of March 31, 2005, there were $10.3 million letters of credit
outstanding and no loans.

On February 7, 2005, we purchased an additional $25.0 million face value of
our 10.125% Senior Notes pursuant to a redemption notice dated January 6, 2005
at the redemption price of 105.0625 percent. Proceeds from the sale of jackup
rig 25 and cash on hand were used to fund the redemption.

On April 21, 2005, we issued an additional $50.0 million in aggregate
principal amount of our 9.625% Senior Notes due 2013 at a premium. The offering
price of 111 percent of the principal amount resulted in gross proceeds of $55.5
million. The $5.5 million premium will be reflected as long-term debt and
amortized over the term of the notes. The additional notes were issued under an
indenture, dated as of October 10, 2003, under which $175.0 million in aggregate
principal amount of notes of the same series were previously issued.

On the same date that we issued the $50.0 million additional 9.625% Senior
Notes (April 21, 2005), we issued a redemption notice for $65.0 million of our
10.125% Senior Notes at the redemption price of 105.0625 percent. The redemption
will close on May 21, 2005, and will be funded by the net proceeds of the $50.0
million additional 9.625% Senior Notes and cash on hand.

We had total long-term debt of $456.0 million as of March 31, 2005. The
long-term debt included:

o $131.0 million aggregate principal amount of 10.125% Senior Notes,
which are due November 15, 2009;

o $150.0 million aggregate principal amount of Senior Floating Rate
Notes bearing interest at a rate of LIBOR plus 4.75%, which are due
September 1, 2010; and

o $175.0 million aggregate principal amount of 9.625% Senior Notes,
which are due October 1, 2013.

24

LIQUIDITY AND CAPITAL RESOURCES (continued)

Financing Activity (continued)

As of March 31, 2005, we had approximately $96.0 million of liquidity. This
liquidity was comprised of $66.3 million of cash and cash equivalents on hand
and $29.7 million of availability under the revolving credit facility.

The following table summarizes our future contractual cash obligations.

(1) Long-term debt includes the principal and interest cash obligations of the
9.625% Senior Notes, the 10.125% Senior Notes and the Senior Floating Rate
Notes. The unamortized premiums of $0.3 million at March 31, 2005 related
to the 10.125% Senior Notes are not included in the contractual cash
obligations schedule. Some of the interest on the Senior Floating Rate
Notes has been hedged through variable-to-fixed interest rate swap
agreements. The issuer (Bank of America, N.A.) of each swap has the option
to extend each swap for an additional two years at the termination of the
initial swap period. For this table, the highest interest rate currently
hedged is used in calculating the interest on future floating rate periods.

(2) Operating leases consist of lease agreements in excess of one year for
office space, equipment, vehicles and personal property.

(3) We have a $40.0 million revolving credit facility. As of March 31, 2005
there was no draw down on the credit facility, but $10.3 million of
availability has been used to support letters of credit that have been
issued, resulting in an estimated $29.7 million availability. The revolving
credit facility expires in December 2007.

We do not have any unconsolidated special-purpose entities,
off-balance-sheet financing arrangements or guarantees of third-party financial
obligations. We have no energy or commodity contracts.

25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use derivative instruments to manage risks associated with interest rate
fluctuations in connection with our $150.0 million Senior Floating Rate Notes.
Derivative instruments, which consist of two variable-to-fixed interest rate
swaps, do not meet the hedge criteria in SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and are therefore not designated
as hedges. Accordingly, the change in the fair value of the interest rate swaps
is recognized currently in earnings.

As of March 31, 2005, we had the following derivative instruments
outstanding related to our interest rate swaps, which are included in "Other
noncurrent assets":

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures - We maintain disclosure
controls and procedures that are designed to ensure that information required to
be disclosed in our Securities Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure based on
the definition of "disclosure controls and procedures" in Rule 13a-15(e). In
designing and evaluating the disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible disclosure
controls and procedures. We perform evaluations under the supervision and with
the participation of our management, including our chief executive officer and
our chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of March 31, 2005. Based on the
foregoing, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective at the reasonable
assurance level at March 31, 2005.

Changes in Internal Control Over Financial Reporting - There have been no
changes in our internal control over financial reporting during the quarter
ended March 31, 2005 covered by this report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.

26

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

On March 11, 2005, we purchased 78,049 shares of our stock at a price
per share of $5.77 from executives resulting from the vesting of a portion of a
restricted stock grant issued in July 2003. Upon vesting of the restricted
shares a tax withholding obligation to us from the executives was satisfied by
delivering back some of the shares on which the restrictions had lapsed.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

At the Annual Meeting of Stockholders held on April 27, 2005, there were
represented in person or by proxy, 85,152,957 shares out of 95,464,865 entitled
to vote as of March 10, 2005, the record date, constituting a quorum.

The three matters voted upon at the Annual Meeting were:

1. Election of Directors: The Stockholders elected three Class III
directors to the board of directors of Parker Drilling Company to
serve for a three-year term, until 2008:

Robert L. Parker
Votes cast in favor: 75,108,467
Votes withheld: 10,044,490

Robert L. Parker Jr.
Votes cast in favor: 75,237,765
Votes withheld: 9,915,192

Roger B. Plank
Votes cast in favor: 75,447,257
Votes withheld: 9,705,700

2. Approval of the Parker Drilling Company 2005 Long-Term Incentive Plan:

Votes cast in favor: 40,235,908
Votes against: 17,619,298
Votes withheld: 289,290

3. Election of independent accountants: PricewaterhouseCoopers LLP was
approved as the independent accountants for 2005 with:

Votes cast in favor: 83,615,298
Votes against: 1,104,023
Votes withheld: 433,636

27

PART II. OTHER INFORMATION (continued)

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits:
The following exhibits are filed as a part of this report:

28

SIGNATURES

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

Parker Drilling Company
-----------------------

Registrant

Date: May 6, 2005

By: /s/ James W. Whalen
--------------------------------------
James W. Whalen
Senior Vice President and
Chief Financial Officer

By: /s/ W. Kirk Brassfield
--------------------------------------
W. Kirk Brassfield
Vice President, Finance and Accounting

29

INDEX TO EXHIBITS

Exhibit
Number Description
- -------------- ------------------------------------------------------------------------------------------

10.1 Parker Drilling Company 2005 Long-Term Incentive Plan (incorporated herein by reference to
Annex E of the Company's 2005 Proxy Statement filed March 25, 2005)

10.2 Form of Restricted Stock Award Agreement (incorporated herein by reference to Exhibit 10.2
to the Company's 8-K filed May 3, 2005)

10.3 Form of Performance-Based Restricted Stock Award Agreement (incorporated herein by reference
to Exhibit 10.3 to the Company's 8-K filed May 3, 2005)

15 Letter re Unaudited Interim Financial Information

31.1 Section 302 Certification - Chief Executive Officer

31.2 Section 302 Certification - Chief Financial Officer

32.1 Section 906 Certification - Chief Executive Officer

32.2 Section 906 Certification - Chief Financial Officer