##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended JUNE 30, 2007
 OR
 o
    
    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)
 (281) 406-2000  (Registrants telephone number, including area code)
 þ o
 þ o
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TABLE OF CONTENTS
 PagePart I.Financial Information
    
    3Item 1. Financial Statements
    
    3Consolidated Condensed Balance Sheets (Unaudited)
June 30, 2007 and December 31, 2006
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2007 and 2006
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2007 and 2006
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    6-21Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    22-33Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    33Item 4. Controls and Procedures
    
    34Part II.Other Information
    
    34Item 1. Legal Proceedings
    
    34Item 1A. Risk Factors
    
    34Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    34Item 3. Defaults Upon Senior Securities
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    34Item 5. Other Information
    
    35Item 6. Exhibits
    
    35Signatures
    
    36Officer CertificationsCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Dollars in Thousands)
(Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    63,148
    
    
    $
    92,203Marketable securities
    
    
    39,200
    
    
    
    62,920Accounts and notes receivable, net
    
    
    137,642
    
    
    
    112,359Rig materials and supplies
    
    
    21,075
    
    
    
    15,000Deferred costs
    
    
    9,343
    
    
    
    6,662Deferred income taxes
    
    
    14,774
    
    
    
    17,307Other current assets
    
    
    31,100
    
    
    
    11,123Total current assets
    
    
    316,282
    
    
    
    317,574Property, plant and equipment less
accumulated depreciation and amortization of $609,929
at June 30, 2007 and $570,650 at December 31, 2006
    
    
    525,872
    
    
    
    435,473Goodwill
    
    
    100,315
    
    
    
    100,315Other noncurrent assets
    
    
    56,668
    
    
    
    47,939Total assets
    
    $
    999,137
    
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    89,359
    
    
    $
    95,226Accrued income taxes
    
    
    12,345
    
    
    
    6,677Total current liabilities
    
    
    101,704
    
    
    
    101,903Long-term debt
    
    
    329,044
    
    
    
    329,368Other long-term liabilities
    
    
    73,964
    
    
    
    10,931Long-term deferred tax liability
    
    
    23,008
    
    
    
    Contingencies (Note 9)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,615
    
    
    
    18,220Capital in excess of par value
    
    
    587,821
    
    
    
    568,253Accumulated deficit
    
    
    (135,019
    )
    
    
    (127,374
    )Total stockholders equity
    
    
    471,417
    
    
    
    459,099Total liabilities and stockholders equity
    
    $
    999,137
    
    
    $
    901,301
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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 June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Drilling and rental revenues:U.S. drilling
    
    $
    57,651
    
    
    $
    42,697
    
    
    $
    119,275
    
    
    $
    82,950International drilling
    
    
    61,196
    
    
    
    72,972
    
    
    
    120,870
    
    
    
    152,802Rental tools
    
    
    31,430
    
    
    
    30,319
    
    
    
    61,405
    
    
    
    57,570Total drilling and rental revenues
    
    
    150,277
    
    
    
    145,988
    
    
    
    301,550
    
    
    
    293,322Drilling and rental operating expenses:U.S. drilling
    
    
    24,616
    
    
    
    19,814
    
    
    
    51,377
    
    
    
    37,284International drilling
    
    
    50,617
    
    
    
    57,854
    
    
    
    96,400
    
    
    
    119,226Rental tools
    
    
    12,521
    
    
    
    10,969
    
    
    
    23,684
    
    
    
    21,439Depreciation and amortization
    
    
    19,642
    
    
    
    17,715
    
    
    
    37,701
    
    
    
    34,672Total drilling and rental operating expenses
    
    
    107,396
    
    
    
    106,352
    
    
    
    209,162
    
    
    
    212,621Drilling and rental operating income
    
    
    42,881
    
    
    
    39,636
    
    
    
    92,388
    
    
    
    80,701General and administration expense
    
    
    (6,246
    )
    
    
    (7,575
    )
    
    
    (12,134
    )
    
    
    (15,269
    )Gain on disposition of assets, net
    
    
    269
    
    
    
    2,125
    
    
    
    16,673
    
    
    
    2,573Total operating income
    
    
    36,904
    
    
    
    34,186
    
    
    
    96,927
    
    
    
    68,005Other income and (expense):Interest expense
    
    
    (5,985
    )
    
    
    (8,199
    )
    
    
    (12,315
    )
    
    
    (17,300
    )Changes in fair value of derivative positions
    
    
    (28
    )
    
    
    382
    
    
    
    (409
    )
    
    
    1,195Interest income
    
    
    1,712
    
    
    
    2,039
    
    
    
    3,496
    
    
    
    3,445Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Minority interest
    
    
    
    
    
    
    44
    
    
    
    (1,000
    )
    
    
    (920
    )Other
    
    
    70
    
    
    
    3
    
    
    
    77
    
    
    
    (14
    )Total other income and (expense)
    
    
    (4,231
    )
    
    
    (5,731
    )
    
    
    (10,151
    )
    
    
    (13,596
    )Income before income taxes
    
    
    32,673
    
    
    
    28,455
    
    
    
    86,776
    
    
    
    54,409Income tax expense:Current
    
    
    6,613
    
    
    
    (5,563
    )
    
    
    28,625
    
    
    
    Deferred
    
    
    9,200
    
    
    
    20,257
    
    
    
    11,297
    
    
    
    29,190Total income tax expense
    
    
    15,813
    
    
    
    14,694
    
    
    
    39,922
    
    
    
    29,190Net income
    
    $
    16,860
    
    
    $
    13,761
    
    
    $
    46,854
    
    
    $
    25,219Basic earnings per share:Net income
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.43
    
    
    $
    0.24Diluted earnings per share:Net income
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.43
    
    
    $
    0.24Number of common shares used in computing
earnings per share:Basic
    
    
    109,740,528
    
    
    
    107,082,784
    
    
    
    108,760,980
    
    
    
    105,783,424Diluted
    
    
    110,842,121
    
    
    
    108,363,036
    
    
    
    109,968,329
    
    
    
    107,283,318
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
(Unaudited)
 Six Months Ended June 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    46,854
    
    
    $
    25,219Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    37,701
    
    
    
    34,672Gain on disposition of assets
    
    
    (16,673
    )
    
    
    (2,573
    )Deferred income tax expense
    
    
    11,297
    
    
    
    19,664Expenses not requiring cash
    
    
    6,600
    
    
    
    5,828Change in operating assets and liabilities
    
    
    (48,594
    )
    
    
    (3,767
    )Net cash provided by operating activities
    
    
    37,185
    
    
    
    79,043Cash flows from investing activities:Capital expenditures
    
    
    (129,637
    )
    
    
    (80,242
    )Proceeds from the sale of assets
    
    
    21,974
    
    
    
    2,123Proceeds from insurance settlements
    
    
    
    
    
    
    2,501Purchase of marketable securities
    
    
    (48,675
    )
    
    
    (136,120
    )Proceeds from sale of marketable securities
    
    
    72,395
    
    
    
    126,550Net cash used in investing activities
    
    
    (83,943
    )
    
    
    (85,188
    )Cash flows from financing activities:Principal payments under debt obligations
    
    
    
    
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    99,947Proceeds from stock options exercised
    
    
    15,791
    
    
    
    6,641Excess tax benefit from stock based compensation
    
    
    1,912
    
    
    
    2,063Net cash provided by financing activities
    
    
    17,703
    
    
    
    108,651Net increase (decrease) in cash and cash equivalents
    
    
    (29,055
    )
    
    
    102,506Cash and cash equivalents at beginning of year
    
    
    92,203
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    63,148
    
    
    $
    162,682Supplemental cash flow information:Interest paid
    
    $
    13,040
    
    
    $
    17,577Income taxes paid
    
    $
    25,534
    
    
    $
    6,753
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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 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, 2007 and December 31, 2006, (2) the results of operations for the three and six
months ended June 30, 2007 and 2006, and (3) cash flows for the six months ended June 30, 2007
and 2006. Results for the six months ended June 30, 2007 are not necessarily indicative of
the results that will be realized for the year ending December 31, 2007. The financial
statements should be read in conjunction with our Form 10-K for the year ended December 31,
2006.Stock-Based Compensation Total stock-based compensation expense recognized under SFAS No. 123R
for the three and six month periods ended June 30, 2007 was $2.3 million and $4.1 million
respectively, all of which was related to restricted stock plan expense. Total stock-based
compensation expense recognized under SFAS No. 123R for the three and six month periods ended
June 30, 2006 was $1.9 million and $3.1 million respectively, of which $1.9 million and $3.0
million, respectively, was related to restricted stock plan expense. Stock-based compensation
expense is included in our consolidated condensed income statement in General and
administration expense. There were 8,334 unvested stock options at December 31, 2006 and none
as of June 30, 2007. Total unrecognized compensation cost related to stock options granted
under our plans was approximately $1,200 at December 31, 2006 and zero at June 30, 2007. The
Company had 1,307,800 outstanding and exercisable stock options as of June 30, 2007, the
aggregate intrinsic value of which was $3.5 million, with a weighted average exercise price of
$6.10. Unvested restricted stock awards at December 31, 2006 and June 30, 2007 were 1,556,485
shares and 1,430,822 shares, respectively. Total unrecognized compensation cost related to
unamortized restricted stock awards was $4.8 million as of December 31, 2006 and $8.0 million as
of June 30, 2007. There were 10,500 and 804,345 restricted shares granted (net of forfeitures,
if any) to certain officers and key employees during the three and six month periods ended June
30, 2007, respectively. The remaining unrecognized compensation cost related to unamortized
restricted stock awards will be amortized over a weighted-average vesting period of
approximately one year.During the six months ended June 30, 2006 the valuation assumptions used in our Black-Scholes
option pricing model to estimate the fair value of stock options granted were 16.9 percent for
expected volatility, 0.25 years expected term, 4.23 percent risk free interest rate and there
was no expected dividend yield. There were no stock options granted in 2007.The excess tax benefit realized for the tax deductions from options exercised and restricted
stock vesting totaled $1.9 million for the six months ended June 30, 2007, which has been
reported as a financing cash inflow in the consolidated condensed statement of cash flows.2.
    
    Common Stock Offering In January 2006, we issued 8,900,000 shares of common stock pursuant
to a Free Writing Prospectus dated January 17, 2006 and a Prospectus Supplement dated January
18, 2006. On January 23, 2006, we realized $11.23 per share or a total of $99.9 million of
net proceeds before expenses, but after underwriter discount, from the offering.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Earnings Per Share (EPS)
 Three Months Ended June 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    16,860,000
    
    
    
    109,740,528
    
    
    $
    0.15Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,101,593
    
    
    
    Diluted EPS:Net income
    
    $
    16,860,000
    
    
    
    110,842,121
    
    
    $
    0.15
 Six Months Ended June 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    46,854,000
    
    
    
    108,760,980
    
    
    $
    0.43Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,207,350
    
    
    
    Diluted EPS:Net income
    
    $
    46,854,000
    
    
    
    109,968,329
    
    
    $
    0.43
 Three Months Ended June 30, 2006Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    13,761,000
    
    
    
    107,082,784
    
    
    $
    0.13Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,280,252
    
    
    
    Diluted EPS:Net income
    
    $
    13,761,000
    
    
    
    108,363,036
    
    
    $
    0.13
 Six Months Ended June 30, 2006Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    25,219,000
    
    
    
    105,783,424
    
    
    $
    0.24Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,499,894
    
    
    
    Diluted EPS:Net income
    
    $
    25,219,000
    
    
    
    107,283,318
    
    
    $
    0.24
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Earnings Per Share (EPS) (continued)Options to purchase 321,000 shares of common stock with exercise prices ranging from $12.09 to
$12.19 per share were outstanding during the three months ended June 30, 2007, and options to
purchase 371,000 shares of common stock with exercise prices ranging from $10.81 to $12.19 per
share were outstanding during the six months ended June 30, 2007, but were not included in the
computation of diluted EPS because the options exercise prices were greater than the average
market price of the common shares. Options to purchase 2,277,000 shares of common stock with
exercise prices ranging from $8.88 to $12.19 per share were outstanding during the three months
ended June 30, 2006, and options to purchase 517,000 shares of common stock with exercise prices
ranging from $9.31 to $12.19 per share were outstanding during the six months ended June 30, 2006
but were not included in the computation of diluted EPS because the options exercise prices
were greater than the average market price of the common shares.4.
    
    Business Segments The primary services we provide are as follows: U.S. drilling,
international drilling and rental tools. Information regarding our operations by industry segment for the three and six months ended
June 30, 2007 and 2006 is as follows:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in Thousands)
    
    
    (Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    57,651
    
    
    $
    42,697
    
    
    $
    119,275
    
    
    $
    82,950International drilling
    
    
    61,196
    
    
    
    72,972
    
    
    
    120,870
    
    
    
    152,802Rental tools
    
    
    31,430
    
    
    
    30,319
    
    
    
    61,405
    
    
    
    57,570Total drilling and rental revenues
    
    $
    150,277
    
    
    $
    145,988
    
    
    $
    301,550
    
    
    $
    293,322Drilling and rental operating income:U.S. drilling
    
    $
    25,281
    
    
    $
    17,341
    
    
    $
    52,755
    
    
    $
    35,067International drilling
    
    
    4,347
    
    
    
    7,827
    
    
    
    12,607
    
    
    
    18,980Rental tools
    
    
    13,253
    
    
    
    14,468
    
    
    
    27,026
    
    
    
    26,654Total drilling and rental operating income
    
    
    42,881
    
    
    
    39,636
    
    
    
    92,388
    
    
    
    80,701General and administration expense
    
    
    (6,246
    )
    
    
    (7,575
    )
    
    
    (12,134
    )
    
    
    (15,269
    )Gain on disposition of assets, net
    
    
    269
    
    
    
    2,125
    
    
    
    16,673
    
    
    
    2,573Total operating income
    
    
    36,904
    
    
    
    34,186
    
    
    
    96,927
    
    
    
    68,005Interest expense
    
    
    (5,985
    )
    
    
    (8,199
    )
    
    
    (12,315
    )
    
    
    (17,300
    )Changes in fair value of derivative positions
    
    
    (28
    )
    
    
    382
    
    
    
    (409
    )
    
    
    1,195Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Other
    
    
    1,782
    
    
    
    2,086
    
    
    
    2,573
    
    
    
    2,511Income before income taxes
    
    $
    32,673
    
    
    $
    28,455
    
    
    $
    86,776
    
    
    $
    54,409
 5.
    
    Dispositionof Assets During the first quarter of 2007 we sold workover barge Rigs 9 and
26 for proceeds of approximately $20.5 million resulting in a recognized gain of $15.1
million. These two rigs were classified as assets held for sale as of December 31, 2006.
During the second quarter of 2006, we sold the remaining salvageable assets in connection with
the loss of Rig 255 in Bangladesh that occurred in June 2005. The asset sales resulted in a
gain of $1.4 million during the period. In addition, we realized a gain of $0.7 million in
connection with the disposition of certain other equipment during the second quarter of 2006.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 6.
    
    Accounting for Uncertainty in Income Taxes In June 2006, the FASB issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109
(FIN 48). This accounting statement prescribes financial statement recognition threshold
and measurement criteria for tax positions taken or expected to be taken in tax returns.The Company adopted FIN 48 effective January 1, 2007. As a result, the Company has increased
its liability by $54.5 million for unrecognized tax amounts related to various federal, state
and international tax matters. Included in this amount is $35.1 million of tax positions, that,
if recognized, would have impacted the Companys effective tax rate. The recognition of this
liability is required under FIN 48 because of the uncertainty regarding the ultimate outcome of
certain tax positions. Although the Companys position regarding the ultimate outcome of these
matters is unchanged, the Company is now required to record a liability at a lower threshold
across the Companys worldwide operations. The Company has accounted for the entire $54.5
million as a reduction to the January 1, 2007 balance of retained earnings.Of the $54.5 million referred to above, $49 million is related to Kazakhstan.
As of June 30, 2007, we have a total liability of $91.5 million accrued for Kazakhstan
before the recognition of U.S. tax benefits, which net liability has been classified as
non-current in our balance sheet.
For a complete
overview of this issue, see Kazakhstan Tax Claims in Note 9.The Company has classified foreign currency exchange rate fluctuations, interest and penalties
as a component of tax expense. On January 1, 2007, we recorded approximately $41.3 million for
interest and penalties related to uncertain tax positions. During the six months ended June 30,
2007, the Company recognized an additional liability of approximately $5.9 million, comprising
of foreign currency exchange rate fluctuations, interest and a release of a previously
recognized liability. The Company does not expect that the unrecognized tax amounts will change
significantly within the next twelve months.The Company conducts business globally and, as a result, the Company or one or more of its
subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business our returns are subject to examination
by taxing authorities throughout the world.Income Tax Expense Income tax expense was $15.8 million for the second quarter of 2007, as
compared to income tax expense of $14.7 million for the second quarter of 2006. Income tax for
2007 includes $4.0 million of interest and foreign currency exchange rate fluctuations related
to our FIN 48 calculation.7.
    
    Long-Term Debt
 June 30, 2007
    
    
    December 31, 2006(Dollars in Thousands)Senior Notes:Interest rate floating (LIBOR + 4.75%), due 2010
    
    $
    100,000
    
    
    $
    100,000Interest rate 9.625%, due 2013
    
    
    229,044
    
    
    
    229,368Total debt
    
    
    329,044
    
    
    
    329,368Less current portion
    
    
    
    
    
    
    Total long-term debt
    
    $
    329,044
    
    
    $
    329,368
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 8.
    
    Derivative Instruments We use derivative instruments to manage risks associated with
interest rate fluctuations in connection with our $100.0 million Senior Floating Rate Notes.
These 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 June 30, 2007, we had the following derivative instruments outstanding related to our
interest rate swaps, which are included in Other current assets and Other noncurrent assets
as determined by their termination dates:
 Effective
    
    Termination
    
    Notional
    
    
    Floating
    
    Fixed
    
    
    FairDate
    
    Date
    
    Amount
    
    
    Rate
    
    Rate
    
    
    Value(Dollars in Thousands)September 1, 2005
    
    September 2, 2008
    
    $
    50,000
    
    
    Three-month LIBOR
    
    
    8.83
    %
    
    $
    699plus 475 basis pointsSeptember 1, 2005
    
    September 4, 2007
    
    $
    50,000
    
    
    Three-month LIBOR
    
    
    8.48
    %
    
    
    213plus 475 basis  points$
    912
 Subsequent to June 30, 2007, we terminated one swap scheduled to expire in September 2008 and
received $0.7 million on July 17, 2007.9.
    
    ContingenciesKazakhstan Tax ClaimsOn October 12, 2005, the Kazakhstan Branch (PKD Kazakhstan) of Parker Drilling Company
International Limited (PDCIL) received an Act of Tax Audit from the Ministry of Finance of
Kazakhstan (MinFin) assessing PKD Kazakhstan an amount of KZT (Kazakhstan Tenge) 14.9 billion
(approximately $119.7 million). Approximately KZT 7.5 billion or $60.6 million was assessed for
import Value Added Tax (VAT), administrative fines and interest on equipment imported to
perform the drilling contracts (the VAT Assessment) and approximately KZT 7.4 billion or $59.1
million for corporate income tax, individual income tax and social tax, administrative fines and
interest in connection with the reimbursements received from the client for the upgrade of Barge
Rig 257 and other issues (the Income Tax Assessment).The VAT and Income Tax Assessment were both appealed to the Astana City Court and on April 6,
2006, the Astana City Court issued an opinion in favor of PKD Kazakhstan on the Income Tax
Assessment and in favor of MinFin on the VAT Assessment, but reduced the amount of the VAT
Assessment. MinFin and PKD Kazakhstan both appealed the decision of the Astana City Court to
the Civil Panel of the Supreme Court of Kazakhstan (SCK). On May 24, 2006, the Civil Panel of
the SCK issued a decision upholding the ruling of the Astana City Court on the VAT Assessment.
Consistent with its contractual obligations, on November 20, 2006, the client advanced the
actual amount of the VAT Assessment and this amount has been remitted to MinFin. The client has
also contractually agreed to reimburse PKD Kazakhstan for any incremental income taxes that PKD
Kazakhstan incurs from the reimbursement of this VAT AssessmentContrary to two previous rulings on this precise issue, the May 24, 2006, ruling of the Civil
Panel of the SCK affirmed the Income Tax Assessment. PKD Kazakhstan immediately made application
for a stay of execution of the ruling, based on the fact that the SCK has decided this issue in
favor of PKD Kazakhstan on two previous occasions and because the decision is inconsistent with
the US-Kazakhstan tax treaty, and also requested that the five-member supervisory panel of the
SCK grant a supervisory review of the decision. On May 30, 2006, the SCK granted a stay of
execution of the decision pending a determination of the five-member panel of the SCK whether
or not to grant supervisory review of the decision.
 10




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Contingencies (continued)Kazakhstan Tax Claims(continued)The SCK repeatedly postponed a decision on the issue of supervisory review, which postponement
was apparently granted to allow the Competent Authorities from the
U.S. and the Republic of Kazakhstan (RoK) to
address this matter. Competent Authority review is a tax treaty procedure to resolve disputes,
including which country may tax income covered under the treaty. In response to the petition
initiated by PKD Kazakhstan and pursuant to the Mutual Agreement Procedures of the
U.S.-Kazakhstan Tax Treaty (the Tax Treaty), the Competent Authority of the U.S. IRS Treaty
Division and MinFin held meetings but were unable to achieve mutual agreement as to which
country may tax the income in issue under the Tax Treaty.On April 12, 2007, the SCK determined that the May 24, 2006, ruling of the SCK should be
reviewed by a five member supervisory panel of the SCK indicating it had doubts as to the
lawfulness and validity of the May 24, 2006 ruling, including whether or not the ruling takes
into account double taxation under the Tax Treaty.On July 30, 2007, the SCK affirmed the May 24, 2006 ruling upholding the income tax assessment
of MinFin. On August 2, 2007, PKD Kazakhstan filed an appeal to the twelve member plenum of
the SCK pursuant to an RoK law that provides relief can be granted if
enforcement of the ruling would result in
economic harm to the RoK. On August 7, 2007, MinFin issued a notice of assessment of corporate
income taxes of approximately US$40 million and interest of
approximately US$30 million. A liability associated with this
claim has been fully accrued as described in Note 6. PKD Kazakhstan immediately filed a Complaint Against the Notice requesting that the double taxation
issue be resolved pursuant to the Competent Authority procedure, that interest be
waived since Parker has paid tax on this income and that enforcement be suspended pending
resolution of the double taxation issue. Parkers counsel has
advised that the Complaint has been received by MinFin and that
under RoK law any enforcement action is stayed pending resolution of
the Complaint. The Company anticipates that resumption of the Competent Authority
proceedings in the immediate future will address the double taxation issue, although the Company has no
assurance as to the ultimate resolution of the double taxation issue.Bangladesh ClaimIn September 2005, a subsidiary of the Company was served with a lawsuit filed in the 152nd
District Court of Harris County State of Texas on behalf of numerous citizens of Bangladesh
claiming $250 million in damages due to various types of property damage and personal injuries
(none involving loss of life) arising as a result of two blowouts that occurred in Bangladesh in
January and June 2005, although only the June 2005 blowout involved the Company. This case was
dismissed against the subsidiary of the Company based on forum non conveniens, a legal defense
raised by the subsidiary claiming that Houston, Texas, is not the appropriate location for this
suit to be filed. The plaintiffs have appealed this dismissal; however the Company believes the
plaintiffs prospects of being successful on appeal are remote.Asbestos-Related ClaimsIn August 2004, the Company was notified that certain of its subsidiaries have been named, along
with other defendants, in several complaints that have been filed in the Circuit Courts of the
State of Mississippi by several hundred persons that allege that they were employed by some of
the named defendants between approximately 1965 and 1986. The complaints name as defendants
numerous other companies that are not affiliated with the Company, including companies that
allegedly manufactured drilling related products containing asbestos that are the subject of the
complaints.
 11




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##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Contingencies (continued)Asbestos-Related Claims(continued)The complaints allege that the Companys subsidiaries and other drilling contractors used
asbestos-containing products in offshore drilling operations, land-based drilling operations and
in drilling structures, drilling rigs, vessels and other equipment and assert claims based on,
among other things, negligence and strict liability and claims under the Jones Act and that the
Plaintiffs are entitled to monetary damages. Based on the report of the special master, these
complaints have been severed and venue of the claims transferred to the county in which the
plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to
the filing of amended complaints, Parker has joined with other co-defendants in filing motions
to compel discovery to determine what plaintiffs have an employment relationship with which
defendant, including whether or not any plaintiffs have an employment relationship with
subsidiaries of the Company. Out of 528 amended single-plaintiff complaints filed to date,
eleven plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously
and, based on the information available to the Company at this time, the Company does not expect
the outcome to have a material adverse effect on its financial condition, results of operations
or cash flows; however, there can be no assurance as to the ultimate outcome of these lawsuits.Gulfco SiteIn 2003 the Company received an information request under CERCLA designating a subsidiary of the
Company as a potentially responsible party with respect to the Gulfco Marine Maintenance, Inc.
Superfund Site in Freeport, Texas (EPA No. TX 055144539). We responded to this request in 2003
and have been in contact with EPA regarding the response. In July 2005, EPA issued a Unilateral
Administrative Order for remedial investigation to five potentially responsible parties. The
EPA order did not name us. According to EPA, three of the potentially responsible parties who
received the order are currently performing a remedial investigation of the site to define the
nature and extent of the contamination there. Based on the currently available information, we
do not believe we have responsibility for the Gulfco Marine Site. Among other reasons, our
subsidiary, Parker Drilling Offshore Company neither owned nor operated the site during the
relevant time period, and is not otherwise connected to the site. If a claim were to be brought
against us in the future by the United States or the parties performing the work, we would
defend that action vigorously. The amount of any such future claim cannot be estimated with
accuracy until after the remedial investigation is completed, but it is not expected to be
material to our business or financial condition.Freight Forwarding and Customs Agent RequestThe U.S. Department of Justice has recently requested us to provide information regarding our
utilization of the services of a freight forwarding and customs agent during the past five years
to verify if the services provided by this freight forwarding and customs agent were in
compliance with the Foreign Corrupt Practices Act. It is our understanding that a similar
request was sent to several other service contractors. We are fully cooperating with the
request for information.10.
    
    Recent Accounting Pronouncements In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Liabilities-Including an Amendment of FASB Statement No.
115(SFAS No. 159). SFAS No. 159 allows certain financial assets and liabilities to be
recognized, at the Companys election, at fair market value, with any gains or losses for the
period recorded in the statement of income. This gives a company the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The statement is effective for
fiscal years beginning after November 15, 2007. The Company has not determined the impact on
its Consolidated Financial Statements, if any, of the adoption of SFAS No. 159.
 12




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##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    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.
 The non-guarantor subsidiaries are AralParker (a Kazakhstan closed joint stock company, owned 80
percent by Parker Drilling (Kazakstan), LLC and 20 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., 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, LLC), Parker
Drilling Asia Pacific, LLC, Parker Drilling Kazakhstan B.V., Parker Drilling Netherlands B.V.,
Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling Overseas
B.V., Parker Drilling Russia B.V., Parker Drilling Dutch B.V., Parker Drilling AME Limited,
Parker Drillsource, LLC, Parker 3source, LLC, Parker Enex, LLC, Parker Hungary Rig Holdings
Limited Liability Company, Parker 5272, LLC, Parker Drilling Spain Rig Services S.L., Parker
Cyprus Leasing Limited, Parker Cyprus Ventures Limited, PD International Holdings C.V., PD Dutch
Holdings C.V., PD Offshore Holdings C.V., PD Selective Holdings, C.V., PD Labor Services, Ltd.,
and PD Labor Sourcing, Ltd. We are providing unaudited consolidating condensed financial
information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor
subsidiaries as of June 30, 2007 and December 31, 2006 and for the three and six months ended
June 30, 2007 and 2006. The condensed consolidating financial statements present investments in
both consolidated and unconsolidated subsidiaries using the equity method of accounting.
 13




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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
 (Dollars in Thousands)
 June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,149
    
    
    $
    12,858
    
    
    $
    17,141
    
    
    $
    
    
    
    $
    63,148Marketable securities
    
    
    37,200
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    39,200Accounts and notes receivable, net
    
    
    75,241
    
    
    
    169,118
    
    
    
    42,291
    
    
    
    (149,008
    )
    
    
    137,642Rig materials and supplies
    
    
    
    
    
    
    11,806
    
    
    
    9,269
    
    
    
    
    
    
    
    21,075Deferred costs
    
    
    
    
    
    
    5,140
    
    
    
    4,203
    
    
    
    
    
    
    
    9,343Other current assets
    
    
    35,358
    
    
    
    9,426
    
    
    
    1,036
    
    
    
    54
    
    
    
    45,874Total current assets
    
    
    180,948
    
    
    
    210,348
    
    
    
    73,940
    
    
    
    (148,954
    )
    
    
    316,282Property, plant and equipment, net
    
    
    134
    
    
    
    438,670
    
    
    
    86,946
    
    
    
    122
    
    
    
    525,872Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    708,900
    
    
    
    891,582
    
    
    
    21,828
    
    
    
    (1,622,310
    )
    
    
    Other noncurrent assets
    
    
    15,946
    
    
    
    26,053
    
    
    
    14,669
    
    
    
    
    
    
    
    56,668Total assets
    
    $
    905,928
    
    
    $
    1,666,968
    
    
    $
    197,383
    
    
    $
    (1,771,142
    )
    
    $
    999,137LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    
    46,324
    
    
    
    195,734
    
    
    
    45,266
    
    
    
    (197,965
    )
    
    $
    89,359Accrued income taxes
    
    
    1,636
    
    
    
    9,125
    
    
    
    1,584
    
    
    
    
    
    
    
    12,345Total current liabilities
    
    
    47,960
    
    
    
    204,859
    
    
    
    46,850
    
    
    
    (197,965
    )
    
    
    101,704Long-term debt
    
    
    329,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,044Other long-term liabilities
    
    
    (34,702
    )
    
    
    103,797
    
    
    
    4,869
    
    
    
    
    
    
    
    73,964Long-term deferred tax liability
    
    
    17,626
    
    
    
    (620
    )
    
    
    6,002
    
    
    
    
    
    
    
    23,008Intercompany payables
    
    
    74,583
    
    
    
    580,356
    
    
    
    32,359
    
    
    
    (687,298
    )
    
    
    Stockholders equity:Common stock
    
    
    18,615
    
    
    
    39,899
    
    
    
    21,153
    
    
    
    (61,052
    )
    
    
    18,615Capital in excess of par value
    
    
    587,821
    
    
    
    1,041,930
    
    
    
    86,553
    
    
    
    (1,128,483
    )
    
    
    587,821Retained earnings (accumulated deficit)
    
    
    (135,019
    )
    
    
    (303,253
    )
    
    
    (403
    )
    
    
    303,656
    
    
    
    (135,019
    )Total stockholders equity
    
    
    471,417
    
    
    
    778,576
    
    
    
    107,303
    
    
    
    (885,879
    )
    
    
    471,417Total liabilities and stockholders equity
    
    $
    905,928
    
    
    $
    1,666,968
    
    
    $
    197,383
    
    
    $
    (1,771,142
    )
    
    $
    999,137
 14




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
 (Dollars in Thousands)
 December 31, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    60,029
    
    
    $
    14,367
    
    
    $
    17,807
    
    
    $
    
    
    
    $
    92,203Marketable securities
    
    
    60,920
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    62,920Accounts and notes receivable, net
    
    
    53,844
    
    
    
    143,905
    
    
    
    33,625
    
    
    
    (119,015
    )
    
    
    112,359Rig materials and supplies
    
    
    
    
    
    
    7,173
    
    
    
    7,827
    
    
    
    
    
    
    
    15,000Deferred costs
    
    
    
    
    
    
    6,321
    
    
    
    341
    
    
    
    
    
    
    
    6,662Other current assets
    
    
    18,105
    
    
    
    8,969
    
    
    
    1,319
    
    
    
    37
    
    
    
    28,430Total current assets
    
    
    192,898
    
    
    
    182,735
    
    
    
    60,919
    
    
    
    (118,978
    )
    
    
    317,574Property, plant and equipment, net
    
    
    134
    
    
    
    354,356
    
    
    
    80,861
    
    
    
    122
    
    
    
    435,473Assets held for sale
    
    
    
    
    
    
    4,828
    
    
    
    
    
    
    
    
    
    
    
    4,828Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    694,050
    
    
    
    846,800
    
    
    
    (8,053
    )
    
    
    (1,532,797
    )
    
    
    Other noncurrent assets
    
    
    18,043
    
    
    
    19,774
    
    
    
    5,294
    
    
    
    
    
    
    
    43,111Total assets
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    44,667
    
    
    $
    175,092
    
    
    $
    44,611
    
    
    $
    (169,144
    )
    
    $
    95,226Accrued income taxes
    
    
    (10,514
    )
    
    
    17,039
    
    
    
    152
    
    
    
    
    
    
    
    6,677Total current liabilities
    
    
    34,153
    
    
    
    192,131
    
    
    
    44,763
    
    
    
    (169,144
    )
    
    
    101,903Long-term debt
    
    
    329,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,368Other long-term liabilities
    
    
    1,596
    
    
    
    9,030
    
    
    
    265
    
    
    
    40
    
    
    
    10,931Intercompany payables
    
    
    80,909
    
    
    
    544,250
    
    
    
    37,219
    
    
    
    (662,378
    )
    
    
    Stockholders equity:Common stock
    
    
    18,220
    
    
    
    39,899
    
    
    
    21,251
    
    
    
    (61,150
    )
    
    
    18,220Capital in excess of par value
    
    
    568,253
    
    
    
    1,013,736
    
    
    
    34,526
    
    
    
    (1,048,262
    )
    
    
    568,253Retained earnings (accumulated deficit)
    
    
    (127,374
    )
    
    
    (290,238
    )
    
    
    997
    
    
    
    289,241
    
    
    
    (127,374
    )Total stockholders equity
    
    
    459,099
    
    
    
    763,397
    
    
    
    56,774
    
    
    
    (820,171
    )
    
    
    459,099Total liabilities and stockholders equity
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301
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PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
 (Dollars in Thousands)
 Three months ended June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    136,568
    
    
    $
    22,036
    
    
    $
    (8,327
    )
    
    $
    150,277Drilling and rental operating expenses
    
    
    1
    
    
    
    75,897
    
    
    
    20,188
    
    
    
    (8,332
    )
    
    
    87,754Depreciation and amortization
    
    
    
    
    
    
    18,484
    
    
    
    1,158
    
    
    
    
    
    
    
    19,642Drilling and rental operating income
    
    
    (1
    )
    
    
    42,187
    
    
    
    690
    
    
    
    5
    
    
    
    42,881General and administration expense (1)
    
    
    (42
    )
    
    
    (6,177
    )
    
    
    (27
    )
    
    
    
    
    
    
    (6,246
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    253
    
    
    
    16
    
    
    
    
    
    
    
    269Total operating income (loss)
    
    
    (43
    )
    
    
    36,263
    
    
    
    679
    
    
    
    5
    
    
    
    36,904Other income and (expense):Interest expense
    
    
    (7,175
    )
    
    
    (11,795
    )
    
    
    (165
    )
    
    
    13,150
    
    
    
    (5,985
    )Changes in fair value of derivative positions
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )Interest income
    
    
    11,989
    
    
    
    2,059
    
    
    
    814
    
    
    
    (13,150
    )
    
    
    1,712Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    5
    
    
    
    70
    
    
    
    
    
    
    
    (5
    )
    
    
    70Equity in net earnings of subsidiaries
    
    
    18,722
    
    
    
    
    
    
    
    
    
    
    
    (18,722
    )
    
    
    Total other income and (expense)
    
    
    23,513
    
    
    
    (9,666
    )
    
    
    649
    
    
    
    (18,727
    )
    
    
    (4,231
    )Income (loss) before income taxes
    
    
    23,470
    
    
    
    26,597
    
    
    
    1,328
    
    
    
    (18,722
    )
    
    
    32,673Income tax expense :Current
    
    
    3,821
    
    
    
    1,409
    
    
    
    1,383
    
    
    
    
    
    
    
    6,613Deferred
    
    
    2,789
    
    
    
    6,125
    
    
    
    286
    
    
    
    
    
    
    
    9,200Income tax expense
    
    
    6,610
    
    
    
    7,534
    
    
    
    1,669
    
    
    
    
    
    
    
    15,813Net income (loss)
    
    $
    16,860
    
    
    $
    19,063
    
    
    $
    (341
    )
    
    $
    (18,722
    )
    
    $
    16,860
 
 (1)
    
    All field operations general and administration expenses are included in operating
expenses. 16




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
 (Dollars in Thousands)
 Three Months Ended June 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    130,444
    
    
    $
    28,621
    
    
    $
    (13,077
    )
    
    $
    145,988Drilling and rental operating expenses
    
    
    
    
    
    
    69,377
    
    
    
    32,337
    
    
    
    (13,077
    )
    
    
    88,637Depreciation and amortization
    
    
    
    
    
    
    16,725
    
    
    
    990
    
    
    
    
    
    
    
    17,715Drilling and rental operating income (loss)
    
    
    
    
    
    
    44,342
    
    
    
    (4,706
    )
    
    
    
    
    
    
    39,636General and administration expense (1)
    
    
    (27
    )
    
    
    (7,547
    )
    
    
    (1
    )
    
    
    
    
    
    
    (7,575
    )Gain (loss) on disposition of assets, net
    
    
    (6
    )
    
    
    2,115
    
    
    
    16
    
    
    
    
    
    
    
    2,125Total operating income (loss)
    
    
    (33
    )
    
    
    38,910
    
    
    
    (4,691
    )
    
    
    
    
    
    
    34,186Other income and (expense):Interest expense
    
    
    (9,378
    )
    
    
    (11,803
    )
    
    
    (445
    )
    
    
    13,427
    
    
    
    (8,199
    )Changes in fair value of derivative positions
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382Interest income
    
    
    12,594
    
    
    
    2,012
    
    
    
    860
    
    
    
    (13,427
    )
    
    
    2,039Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44Other
    
    
    11
    
    
    
    (89
    )
    
    
    81
    
    
    
    
    
    
    
    3Equity in net earnings of subsidiaries
    
    
    21,161
    
    
    
    
    
    
    
    
    
    
    
    (21,161
    )
    
    
    Total other income and (expense)
    
    
    24,770
    
    
    
    (9,880
    )
    
    
    540
    
    
    
    (21,161
    )
    
    
    (5,731
    )Income (loss) before income taxes
    
    
    24,737
    
    
    
    29,030
    
    
    
    (4,151
    )
    
    
    (21,161
    )
    
    
    28,455Income tax expense (benefit)Current
    
    
    279
    
    
    
    3,590
    
    
    
    94
    
    
    
    
    
    
    
    3,963Deferred
    
    
    10,697
    
    
    
    (172
    )
    
    
    206
    
    
    
    
    
    
    
    10,731Income tax expense
    
    
    10,976
    
    
    
    3,418
    
    
    
    300
    
    
    
    
    
    
    
    14,694Net income (loss)
    
    $
    13,761
    
    
    $
    25,612
    
    
    $
    (4,451
    )
    
    $
    (21,161
    )
    
    $
    13,761
 
 (1)
    
    All field operations general and administration expenses are included in operating
expenses. 17




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
 (Dollars in Thousands)
 Six months ended June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    274,706
    
    
    $
    41,878          $
    
    
    
    (15,034
    )
    
    $
    301,550Drilling and rental operating expenses
    
    
    1
    
    
    
    149,471
    
    
    
    37,028
    
    
    
    (15,039
    )
    
    
    171,461Depreciation and amortization
    
    
    
    
    
    
    35,505
    
    
    
    2,196
    
    
    
    
    
    
    
    37,701Drilling and rental operating income
    
    
    (1
    )
    
    
    89,730
    
    
    
    2,654
    
    
    
    5
    
    
    
    92,388General and administration expense (1)
    
    
    (83
    )
    
    
    (11,963
    )
    
    
    (88
    )
    
    
    
    
    
    
    (12,134
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    16,677
    
    
    
    (4
    )
    
    
    
    
    
    
    16,673Total operating income (loss)
    
    
    (84
    )
    
    
    94,444
    
    
    
    2,562
    
    
    
    5
    
    
    
    96,927Other income and (expense):Interest expense
    
    
    (14,696
    )
    
    
    (23,591
    )
    
    
    (401
    )
    
    
    26,373
    
    
    
    (12,315
    )Changes in fair value of derivative positions
    
    
    (409
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (409
    )Interest income
    
    
    24,111
    
    
    
    4,157
    
    
    
    1,601
    
    
    
    (26,373
    )
    
    
    3,496Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )Other
    
    
    5
    
    
    
    64
    
    
    
    13
    
    
    
    (5
    )
    
    
    77Equity in net earnings of subsidiaries
    
    
    58,281
    
    
    
    
    
    
    
    
    
    
    
    (58,281
    )
    
    
    Total other income and (expense)
    
    
    67,292
    
    
    
    (19,370
    )
    
    
    213
    
    
    
    (58,286
    )
    
    
    (10,151
    )Income (loss) before income taxes
    
    
    67,208
    
    
    
    75,074
    
    
    
    2,775
    
    
    
    (58,281
    )
    
    
    86,776Income tax expense :Current
    
    
    17,153
    
    
    
    9,468
    
    
    
    2,004
    
    
    
    
    
    
    
    28,625Deferred
    
    
    3,201
    
    
    
    7,541
    
    
    
    555
    
    
    
    
    
    
    
    11,297Income tax expense
    
    
    20,354
    
    
    
    17,009
    
    
    
    2,559
    
    
    
    
    
    
    
    39,922Net income (loss)
    
    $
    46,854
    
    
    $
    58,065
    
    
    $
    216
    
    
    $
    (58,281
    )
    
    $
    46,854
 
 (1)
    
    All field operations general and administration expenses are included in operating
expenses. 18




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
 (Dollars in Thousands)
 Six Months Ended June 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    248,190
    
    
    $
    71,301
    
    
    $
    (26,169
    )
    
    $
    293,322Drilling and rental operating expenses
    
    
    
    
    
    
    130,566
    
    
    
    73,552
    
    
    
    (26,169
    )
    
    
    177,949Depreciation and amortization
    
    
    
    
    
    
    32,662
    
    
    
    2,010
    
    
    
    
    
    
    
    34,672Drilling and rental operating income
    
    
    
    
    
    
    84,962
    
    
    
    (4,261
    )
    
    
    
    
    
    
    80,701General and administration expense (1)
    
    
    (82
    )
    
    
    (15,177
    )
    
    
    (10
    )
    
    
    
    
    
    
    (15,269
    )Gain (loss) on disposition of assets, net
    
    
    (6
    )
    
    
    2,516
    
    
    
    63
    
    
    
    
    
    
    
    2,573Total operating income (loss)
    
    
    (88
    )
    
    
    72,301
    
    
    
    (4,208
    )
    
    
    
    
    
    
    68,005Other income and (expense):Interest expense
    
    
    (19,665
    )
    
    
    (23,599
    )
    
    
    (955
    )
    
    
    26,919
    
    
    
    (17,300
    )Changes in fair value of derivative positions
    
    
    1,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,195Interest income
    
    
    24,668
    
    
    
    4,029
    
    
    
    1,667
    
    
    
    (26,919
    )
    
    
    3,445Loss on extinguishment of debt
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (920
    )
    
    
    
    
    
    
    (920
    )Other
    
    
    11
    
    
    
    (106
    )
    
    
    81
    
    
    
    
    
    
    
    (14
    )Equity in net earnings of subsidiaries
    
    
    40,104
    
    
    
    
    
    
    
    
    
    
    
    (40,104
    )
    
    
    Total other income and (expense)
    
    
    46,311
    
    
    
    (19,676
    )
    
    
    (127
    )
    
    
    (40,104
    )
    
    
    (13,596
    )Income (loss) before income taxes
    
    
    46,223
    
    
    
    52,625
    
    
    
    (4,335
    )
    
    
    (40,104
    )
    
    
    54,409Income tax expense (benefit):Current
    
    
    1,023
    
    
    
    6,601
    
    
    
    1,902
    
    
    
    
    
    
    
    9,526Deferred
    
    
    19,981
    
    
    
    (462
    )
    
    
    145
    
    
    
    
    
    
    
    19,664Income tax expense
    
    
    21,004
    
    
    
    6,139
    
    
    
    2,047
    
    
    
    
    
    
    
    29,190Net income (loss)
    
    $
    25,219
    
    
    $
    46,486
    
    
    $
    (6,382
    )
    
    $
    (40,104
    )
    
    $
    25,219
 
 (1)
    
    All field operations general and administration expenses are included in operating
expenses. 19




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
 (Dollars in Thousands)
 Six months ended June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    46,854
    
    
    $
    58,065
    
    
    $
    216
    
    
    $
    (58,281
    )
    
    $
    46,854Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    35,505
    
    
    
    2,196
    
    
    
    
    
    
    
    37,701Amortization of debt issuance and premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss/(gain) on disposition of assets
    
    
    
    
    
    
    (16,677
    )
    
    
    4
    
    
    
    
    
    
    
    (16,673
    )Deferred tax expense
    
    
    3,201
    
    
    
    7,541
    
    
    
    555
    
    
    
    
    
    
    
    11,297Other
    
    
    6,000
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    6,600Equity in net earnings of subsidiaries
    
    
    (58,281
    )
    
    
    
    
    
    
    
    
    
    
    58,281
    
    
    
    Change in operating assets and liabilities
    
    
    (30,477
    )
    
    
    (57,507
    )
    
    
    39,390
    
    
    
    
    
    
    
    (48,594
    )Net cash provided by (used in) operating activities
    
    
    (32,703
    )
    
    
    27,527
    
    
    
    42,361
    
    
    
    
    
    
    
    37,185Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (109,071
    )
    
    
    (20,566
    )
    
    
    
    
    
    
    (129,637
    )Proceeds from the sale of assets
    
    
    
    
    
    
    9,694
    
    
    
    12,280
    
    
    
    
    
    
    
    21,974Proceeds from insurance settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of marketable securities
    
    
    (48,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,675
    )Sale of marketable securities
    
    
    72,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,395Net cash (used in) investing activities
    
    
    23,720
    
    
    
    (99,377
    )
    
    
    (8,286
    )
    
    
    
    
    
    
    (83,943
    )Cash flows from financing activities:Principal payments under debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    15,791
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,791Excess tax
benefit from stock based compensation
    
    
    1,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,912Intercompany advances, net
    
    
    (35,600
    )
    
    
    70,341
    
    
    
    (34,741
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (17,897
    )
    
    
    70,341
    
    
    
    (34,741
    )
    
    
    
    
    
    
    17,703Net increase in cash and cash equivalents
    
    
    (26,880
    )
    
    
    (1,509
    )
    
    
    (666
    )
    
    
    
    
    
    
    (29,055
    )Cash and cash equivalents at beginning of year
    
    
    60,029
    
    
    
    14,367
    
    
    
    17,807
    
    
    
    
    
    
    
    92,203Cash and cash equivalents at end of period
    
    $
    33,149
    
    
    $
    12,858
    
    
    $
    17,141
    
    
    $
    
    
    
    $
    63,148
 20




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
 (Dollars in Thousands)
 Six Months Ended June 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    25,219
    
    
    $
    46,486
    
    
    $
    (6,382
    )
    
    $
    (40,104
    )
    
    $
    25,219Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    32,662
    
    
    
    2,010
    
    
    
    
    
    
    
    34,672Gain on disposition of assets
    
    
    6
    
    
    
    (2,516
    )
    
    
    (63
    )
    
    
    
    
    
    
    (2,573
    )Deferred tax expense (benefit)
    
    
    19,981
    
    
    
    (462
    )
    
    
    145
    
    
    
    
    
    
    
    19,664Expenses not requiring cash
    
    
    5,228
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    5,828Equity in net earnings of subsidiaries
    
    
    (40,104
    )
    
    
    
    
    
    
    
    
    
    
    40,104
    
    
    
    Change in operating assets and liabilities
    
    
    (10,618
    )
    
    
    (6,210
    )
    
    
    13,061
    
    
    
    
    
    
    
    (3,767
    )Net cash provide by (used in) operating activities
    
    
    (288
    )
    
    
    70,560
    
    
    
    8,771
    
    
    
    
    
    
    
    79,043Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (78,096
    )
    
    
    (2,146
    )
    
    
    
    
    
    
    (80,242
    )Proceeds from the sale of assets
    
    
    (6
    )
    
    
    1,395
    
    
    
    734
    
    
    
    
    
    
    
    2,123Proceeds from insurance settlements
    
    
    
    
    
    
    2,501
    
    
    
    
    
    
    
    
    
    
    
    2,501Purchase of marketable securities
    
    
    (136,120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,120
    )Proceeds from sale of marketable securities
    
    
    126,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,550Net cash used in investing activities
    
    
    (9,576
    )
    
    
    (74,200
    )
    
    
    (1,412
    )
    
    
    
    
    
    
    (85,188
    )Cash flows from financing activities:Proceeds from common stock offering
    
    
    99,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,947Proceeds from stock options exercised
    
    
    6,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,641Excess tax benefit from stock-based compensation
    
    
    2,063
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,063Intercompany advances, net
    
    
    (3,421
    )
    
    
    3,050
    
    
    
    371
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    105,230
    
    
    
    3,050
    
    
    
    371
    
    
    
    
    
    
    
    108,651Net increase (decrease) in cash and cash equivalents
    
    
    95,366
    
    
    
    (590
    )
    
    
    7,730
    
    
    
    
    
    
    
    102,506Cash and cash equivalents at beginning of year
    
    
    31,978
    
    
    
    11,145
    
    
    
    17,053
    
    
    
    
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    127,344
    
    
    $
    10,555
    
    
    $
    24,783
    
    
    $
    
    
    
    $
    162,682
 21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    stability of prices and demand for oil and natural gas;
    
    levels of oil and natural gas exploration and production activities;
    
    demand for contract drilling and drilling related services and demand for rental tools;
    
    our future operating results and profitability;
    
    our future rig utilization, dayrates and rental tools activity;
    
    entering into new, or extending existing, drilling contracts and our expectations
concerning when our rigs will commence operations under such contracts;
    
    growth through acquisitions of companies or assets;
    
    construction or upgrades of rigs and expectations regarding when these rigs will commence operations;
    
    capital expenditures for acquisition of rigs, construction of new rigs or major upgrades to existing rigs;
    
    entering into joint venture agreements with local companies;
    
    our future liquidity;
    
    availability and sources of funds to reduce our debt and expectations of when debt will be reduced;
    
    the outcome of pending or future legal proceedings, tax assessments and other claims;
    
    the availability of insurance coverage for pending or future claims;
    
    the enforceability of contractual indemnification in relation to pending or future claims;
    
    compliance with covenants under our senior credit facility and indentures for our senior notes; and
    
    organic growth of our operations.
  22




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##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
 
    
    worldwide economic and business conditions that adversely affect market conditions
and/or the cost of doing business;
    
    the U.S. economy and the demand for natural gas;
    
    fluctuations in the market prices of oil and gas;
    
    imposition of unanticipated trade restrictions;
    
    unanticipated operating hazards and uninsured risks;
    
    political instability, terrorism or war;
    
    governmental regulations, including changes in accounting rules or tax laws or ability
to remit funds to the U.S., that adversely affect the cost of doing business;
    
    adverse environmental events;
    
    adverse weather conditions;
    
    changes in the concentration of customer and supplier relationships;
    
    unexpected cost increases for new construction and upgrade and refurbishment projects;
    
    delays in obtaining components for capital projects and in ongoing operational maintenance;
    
    shortages of skilled labor;
    
    unanticipated cancellation of contracts by operators without cause;
    
    breakdown of equipment;
    
    other operational problems including delays in start-up of operations
    
    changes in competition;
    
    the effect of litigation and contingencies; and
    
    other similar factors (some of which are discussed in documents referred to in this Form 10-Q).
  23




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OUTLOOK AND OVERVIEW
  Overview




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##### Table of Contents



OUTLOOK AND OVERVIEW (continued)
 Overview (continued)
   Outlook
      24




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##### Table of Contents



OUTLOOK AND OVERVIEW (continued)
 Outlook (continued)
 Recent Events
  RESULTS OF OPERATIONS
 Three Months Ended June 30, 2007 Compared with Three Months Ended June 30, 2006
   Three Months Ended June 30,2007
    
    
    2006(Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    57,651
    
    
    
    38
    %
    
    $
    42,697
    
    
    
    29
    %International drilling
    
    
    61,196
    
    
    
    41
    %
    
    
    72,972
    
    
    
    50
    %Rental tools
    
    
    31,430
    
    
    
    21
    %
    
    
    30,319
    
    
    
    21
    %Total drilling and rental revenues
    
    $
    150,277
    
    
    
    100
    %
    
    $
    145,988
    
    
    
    100
    %Drilling and rental operating income:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    33,035
    
    
    
    57
    %
    
    $
    22,883
    
    
    
    54
    %International drilling gross margin excluding depreciation and amortization
(1)
    
    
    10,579
    
    
    
    17
    %
    
    
    15,118
    
    
    
    21
    %Rental tools gross margin excluding depreciation and amortization (1)
    
    
    18,909
    
    
    
    60
    %
    
    
    19,350
    
    
    
    64
    %Depreciation and amortization
    
    
    (19,642
    )
    
    
    
    
    
    
    (17,715
    )Total drilling and rental operating income (2)
    
    
    42,881
    
    
    
    
    
    
    
    39,636General and administration expense
    
    
    (6,246
    )
    
    
    
    
    
    
    (7,575
    )Gain on disposition of assets, net
    
    
    269
    
    
    
    
    
    
    
    2,125Total operating income
    
    $
    36,904
    
    
    
    
    
    
    $
    34,186
 
 (1)
    
    Drilling and rental gross margins, excluding depreciation and amortization, 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, excluding depreciation and amortization, as a
percent of drilling and rental revenues. The gross margin amounts, excluding depreciation and
amortization, and gross margin percentages should not be used as a substitute for those
amounts reported under accounting principles generally accepted in the United States (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 accurately reflects cash generated by segment. Such gross margin amounts are
reconciled to our most comparable GAAP measure as follows: 25




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 InternationalU.S. Drilling
    
    
    Drilling
    
    
    Rental Tools(Dollars in Thousands)Three Months Ended June 30, 2007Drilling and rental operating income (2)
    
    $
    25,281
    
    
    $
    4,347
    
    
    $
    13,253Depreciation and amortization
    
    
    7,754
    
    
    
    6,232
    
    
    
    5,656Drilling and rental gross margin excluding depreciation and amortization
    
    $
    33,035
    
    
    $
    10,579
    
    
    $
    18,909Three Months Ended June 30, 2006Drilling and rental operating income (2)
    
    $
    17,341
    
    
    $
    7,827
    
    
    $
    14,468Depreciation and amortization
    
    
    5,542
    
    
    
    7,291
    
    
    
    4,882Drilling and rental gross margin excluding depreciation and amortization
    
    $
    22,883
    
    
    $
    15,118
    
    
    $
    19,350
 
 (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
   International Drilling Segment
   26




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 International Drilling Segment (continued)
   Rental Tools Segment
   Other Financial Data
  27




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Other Financial Data (continued)
   Six Months Ended June 30, 2007 Compared with Six Months Ended June 30, 2006
   Six Months Ended June 30,2007
    
    
    2006(Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    119,275
    
    
    
    40
    %
    
    $
    82,950
    
    
    
    28
    %International drilling
    
    
    120,870
    
    
    
    40
    %
    
    
    152,802
    
    
    
    52
    %Rental tools
    
    
    61,405
    
    
    
    20
    %
    
    
    57,570
    
    
    
    20
    %Total drilling and rental revenues
    
    $
    301,550
    
    
    
    100
    %
    
    $
    293,322
    
    
    
    100
    %Drilling and rental operating income:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    67,898
    
    
    
    57
    %
    
    $
    45,666
    
    
    
    55
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    24,470
    
    
    
    20
    %
    
    
    33,576
    
    
    
    22
    %Rental tools gross margin excluding depreciation and amortization (1)
    
    
    37,721
    
    
    
    61
    %
    
    
    36,131
    
    
    
    63
    %Depreciation and amortization
    
    
    (37,701
    )
    
    
    
    
    
    
    (34,672
    )Total drilling and rental operating income (2)
    
    
    92,388
    
    
    
    
    
    
    
    80,701General and administration expense
    
    
    (12,134
    )
    
    
    
    
    
    
    (15,269
    )Gain on disposition of assets, net
    
    
    16,673
    
    
    
    
    
    
    
    2,573Total operating income
    
    $
    96,927
    
    
    
    
    
    
    $
    68,005
 
 (1)
    
    Drilling and rental gross margins, excluding depreciation and amortization, 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, excluding depreciation and amortization, as a
percent of drilling and rental revenues. The gross margin amounts, excluding depreciation and
amortization, and gross margin percentages should not be used as a substitute for those
amounts reported under accounting principles generally accepted in the United States (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 accurately reflects cash generated by segment. Such gross margin amounts are
reconciled to our most comparable GAAP measure as follows: 28




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 InternationalU.S. Drilling
    
    
    Drilling
    
    
    Rental Tools(Dollars in Thousands)Six Months Ended June 30, 2007Drilling and rental operating income (2)
    
    $
    52,755
    
    
    $
    12,607
    
    
    $
    27,026Depreciation and amortization
    
    
    15,143
    
    
    
    11,863
    
    
    
    10,695Drilling and rental gross margin excluding depreciation and amortization
    
    $
    67,898
    
    
    $
    24,470
    
    
    $
    37,721Six Months Ended June 30, 2006Drilling and rental operating income (2)
    
    $
    35,067
    
    
    $
    18,980
    
    
    $
    26,654Depreciation and amortization
    
    
    10,599
    
    
    
    14,596
    
    
    
    9,477Drilling and rental gross margin excluding depreciation and amortization
    
    $
    45,666
    
    
    $
    33,576
    
    
    $
    36,131
 
 (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
   International Drilling Segment
   29




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RESULTS OF OPERATIONS (continued)
 International Drilling Segment (continued)
   Rental Tools Segment
   Other Financial Data
   30




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Other Financial Data (continued)
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   Financing Activity
   31




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
  
    
    $100.0 million aggregate principal amount of Senior Floating Rate Notes bearing interest
at a rate of LIBOR plus 4.75%, which are due September 1, 2010; and
    
    $225.0 million aggregate principal amount of 9.625% Senior Notes, which are due October
1, 2013 plus an associated $4.0 million in unamortized debt premium.
   Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    Years 2 - 3
    
    
    Years 4 - 5
    
    
    5 Years(Dollars in Thousands)Contractual cash obligations:Long-term debt  principal (1)
    
    $
    325,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    225,000Long-term debt  interest (1)
    
    
    163,284
    
    
    
    30,457
    
    
    
    60,973
    
    
    
    44,784
    
    
    
    27,070Operating leases (2)
    
    
    9,640
    
    
    
    4,627
    
    
    
    3,805
    
    
    
    1,208
    
    
    
    Purchase commitments (3)
    
    
    31,735
    
    
    
    31,735
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    529,659
    
    
    $
    66,819
    
    
    $
    64,778
    
    
    $
    145,992
    
    
    $
    252,070Commercial commitments:Revolving credit facility (4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit (4)
    
    
    17,570
    
    
    
    17,570
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments (5)
    
    $
    17,570
    
    
    $
    17,570
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the 9.625% Senior
Notes. The remaining unamortized premium of $4.0 million is not included in the contractual
cash obligations schedule. A portion of the interest on the Senior Floating Rate Notes has
been fixed through variable-to-fixed interest rate swap agreements. The issuer (Bank of
America, N.A.) of each swap has the option to extend each swap for an additional two years at
the termination of the initial swap period. For the purpose of this table, the highest
interest rate currently hedged is used in calculating the interest on future floating rate
periods.(2)
    
    Operating leases consist of lease agreements in excess of one year for office space,
equipment, vehicles and personal property.(3)
    
    We have purchase commitments outstanding as of June 30, 2007, related to rig upgrade projects
and new rig construction.(4)
    
    We have a $40.0 million revolving credit facility. As of June 30, 2007, no amounts have been
drawn down, but $17.6 million of availability has been used to support letters of credit that
have been issued, resulting in an estimated $22.4 million of availability. The revolving
credit facility expires in December 2007. th th
 32




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
 Accounting
for Uncertainty in Income Taxes 
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Effective
    
    Termination
    
    
    Notional
    
    
    Floating
    
    
    Fixed
    
    
    FairDate
    
    Date
    
    
    Amount
    
    
    Rate
    
    
    Rate
    
    
    Value(Dollars in Thousands)September 1, 2005
    
    September 2, 2008
    
    $
    50,000
    
    
    Three-month LIBOR plus 475 basis points
    
    
    8.83
    %
    
    $
    699September 1, 2005
    
    September 4, 2007
    
    $
    50,000
    
    
    Three-month LIBOR plus 475 basis points
    
    
    8.48
    %
    
    
    213$
    912
  33




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation
of Disclosure Controls and Procedures 
 Changes
in Internal Control Over Financial Reporting 
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number
    
    Maximum Numberof Shares Purchased
    
    of Shares That Mayas Part of Publicly
    
    Yet be PurchasedTotal Number of
    
    Average Price
    
    Announced Plans
    
    Under the PlansDate
    
    Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    or ProgramsMarch 31, 2007
    
    
    3,306
    
    
    $
    9.79
    
    
    
    
    April 6, 2007
    
    
    181,530
    
    
    $
    9.85
    
    
    
    
    May 6, 2007
    
    
    59,328
    
    
    $
    11.35
    
    
    
    
    
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  34




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    
    Description4.1
    
    
    Indenture, dated as of July 5, 2007, among Parker Drilling Company, the guarantors from
time to time party thereto, and The Bank of New York Trust Company, N.A., with respect to the
2.125% Convertible Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on July 5, 2007).4.2
    
    
    Form of 2.125% Convertible Senior Note due 2013 (included in Exhibit 4.1).10.1
    
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007, by and between
Parker Drilling Company and Bank of America, N.A (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on July 5, 2007).10.2
    
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007, by and between
Parker Drilling Company and Deutsche Bank AG, London Branch (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K filed on July 5, 2007).10.3
    
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007, by and between
Parker Drilling Company and Lehman Brothers OTC Derivatives Inc. (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K filed on July 5, 2007).10.4
    
    
    Confirmation of Issuer Warrant Transaction dated as of June 28, 2007, by and between Parker
Drilling Company and Bank of America, N.A. (incorporated by reference to Exhibit 10.4 to the
Companys Current Report on Form 8-K filed on July 5, 2007).10.5
    
    
    Confirmation of Issuer Warrant Transaction, dated as of June 28, 2007, by and between Parker
Drilling Company and Deutsche Bank AG, London Branch (incorporated by reference to Exhibit
10.5 to the Companys Current Report on Form 8‐K filed on July 5, 2007).10.6
    
    
    Confirmation of Issuer Warrant Transaction dated as of June 28, 2007, by and between Parker
Drilling Company and Lehman Brothers OTC Derivatives Inc. (incorporated by reference to
Exhibit 10.6 to the Companys Current Report on Form 8-K filed on July 5, 2007).10.7
    
    
    Amendment to Confirmation of Issuer Warrant Transaction dated as of June 29, 2007, by and
between Parker Drilling Company and Bank of America, N.A. (incorporated by reference to
Exhibit 10.7 to the Companys Current Report on Form 8-K filed on July 5, 2007).10.8
    
    
    Amendment to Confirmation of Issuer Warrant Transaction, dated as of June 29, 2007, by and
between Parker Drilling Company and Deutsche Bank AG, London Branch (incorporated by reference
to Exhibit 10.8 to the Companys Current Report on Form 8-K filed on July 5, 2007).10.9
    
    
    Amendment to Confirmation of Issuer Warrant Transaction, dated as of June 29, 2007, by and
between Parker Drilling Company and Lehman Brothers OTC Derivatives Inc.
(incorporated by reference to Exhibit
10.9 to the Companys Current Report on Form 8-K filed on
July 5, 2007).31.1
    
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer




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##### Table of Contents



SIGNATURES
  Date: August 9, 2007
    PARKER DRILLING COMPANY
RegistrantBy:
    /s/ Robert L. Parker Jr.Robert L. Parker Jr.Chairman and Chief Executive OfficerBy:
    /s/ W. Kirk BrassfieldW. Kirk BrassfieldSenior Vice President and Chief Financial Officer 36




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    
    Description31.1
    
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer