##### 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, 2008
 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(State or other jurisdiction of 
incorporation or organization)
    
    73-0618660(I.R.S. Employer Identification No.)
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS
 PagePart I.Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets (Unaudited)
June 30, 2008 and December 31, 2007
    
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2008 and 2007
    
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36Part II.Other Information
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    39Officer CertificationsSection 302 Certification - Chairman and Chief Executive OfficerSection 302 Certification - Senior Vice President and Chief Financial OfficerSection 906 Certification - Chairman and Chief Executive OfficerSection 906 Certification - Senior Vice President and Chief Financial Officer
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    65,649
    
    
    $
    60,124Accounts and notes receivable, net
    
    
    178,937
    
    
    
    166,706Rig materials and supplies
    
    
    27,758
    
    
    
    24,264Deferred costs
    
    
    9,872
    
    
    
    7,795Deferred income taxes
    
    
    9,424
    
    
    
    9,423Other tax assets
    
    
    24,320
    
    
    
    32,532Other current assets
    
    
    28,812
    
    
    
    22,339Total current assets
    
    
    344,772
    
    
    
    323,183Property, plant and equipment less
accumulated depreciation and amortization of $656,772
at June 30, 2008 and $628,079 at December 31, 2007
    
    
    627,324
    
    
    
    585,888Goodwill
    
    
    100,315
    
    
    
    100,315Investment in and advances to unconsolidated joint venture
    
    
    
    
    
    
    (4,353
    )Deferred income taxes
    
    
    17,802
    
    
    
    40,121Other noncurrent assets
    
    
    33,008
    
    
    
    31,833Total assets
    
    $
    1,123,221
    
    
    $
    1,076,987LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    20,000Accounts payable and accrued liabilities
    
    
    104,874
    
    
    
    87,352Accrued income taxes
    
    
    14,797
    
    
    
    16,828Total current liabilities
    
    
    119,671
    
    
    
    124,180Long-term debt
    
    
    388,397
    
    
    
    353,721Other long-term liabilities
    
    
    19,417
    
    
    
    56,318Long-term deferred tax liability
    
    
    8,432
    
    
    
    8,044Contingencies (Note 11)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,879
    
    
    
    18,653Capital in excess of par value
    
    
    599,736
    
    
    
    593,866Accumulated deficit
    
    
    (31,311
    )
    
    
    (77,795
    )Total stockholders equity
    
    
    587,304
    
    
    
    534,724Total liabilities and stockholders equity
    
    $
    1,123,221
    
    
    $
    1,076,987
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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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:U.S. drilling
    
    $
    49,368
    
    
    $
    56,479
    
    
    $
    95,256
    
    
    $
    117,457International drilling
    
    
    77,919
    
    
    
    43,063
    
    
    
    146,659
    
    
    
    84,977Project management and engineering services
    
    
    28,951
    
    
    
    19,305
    
    
    
    48,130
    
    
    
    37,711Construction contract
    
    
    20,080
    
    
    
    
    
    
    
    20,080
    
    
    
    Rental tools
    
    
    40,412
    
    
    
    31,430
    
    
    
    79,883
    
    
    
    61,405Total revenues
    
    
    216,730
    
    
    
    150,277
    
    
    
    390,008
    
    
    
    301,550Operating expenses:U.S. drilling
    
    
    22,130
    
    
    
    24,144
    
    
    
    43,652
    
    
    
    50,893International drilling
    
    
    56,612
    
    
    
    34,836
    
    
    
    109,233
    
    
    
    64,565Project management and engineering services
    
    
    24,707
    
    
    
    16,253
    
    
    
    40,368
    
    
    
    32,319Construction contract
    
    
    19,050
    
    
    
    
    
    
    
    19,050
    
    
    
    Rental tools
    
    
    16,030
    
    
    
    12,521
    
    
    
    31,848
    
    
    
    23,684Depreciation and amortization
    
    
    28,166
    
    
    
    19,642
    
    
    
    54,332
    
    
    
    37,701Total operating expenses
    
    
    166,695
    
    
    
    107,396
    
    
    
    298,483
    
    
    
    209,162Total operating gross margin
    
    
    50,035
    
    
    
    42,881
    
    
    
    91,525
    
    
    
    92,388General and administration expense
    
    
    (8,481
    )
    
    
    (6,246
    )
    
    
    (15,149
    )
    
    
    (12,134
    )Gain on disposition of assets, net
    
    
    636
    
    
    
    269
    
    
    
    1,215
    
    
    
    16,673Total operating income
    
    
    42,190
    
    
    
    36,904
    
    
    
    77,591
    
    
    
    96,927Other income and (expense):Interest expense
    
    
    (5,876
    )
    
    
    (5,985
    )
    
    
    (11,566
    )
    
    
    (12,315
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (409
    )Interest income
    
    
    370
    
    
    
    1,712
    
    
    
    738
    
    
    
    3,496Equity in loss of unconsolidated joint venture and
related charges, net of tax
    
    
    
    
    
    
    
    
    
    
    (1,105
    )
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Other
    
    
    144
    
    
    
    70
    
    
    
    204
    
    
    
    77Total other income and (expense)
    
    
    (5,362
    )
    
    
    (4,231
    )
    
    
    (11,729
    )
    
    
    (10,151
    )Income before income taxes
    
    
    36,828
    
    
    
    32,673
    
    
    
    65,862
    
    
    
    86,776Income tax (benefit) expense:Current
    
    
    9,488
    
    
    
    6,613
    
    
    
    (1,155
    )
    
    
    28,625Deferred
    
    
    4,744
    
    
    
    9,200
    
    
    
    20,533
    
    
    
    11,297Total income tax (benefit) expense
    
    
    14,232
    
    
    
    15,813
    
    
    
    19,378
    
    
    
    39,922Net income
    
    $
    22,596
    
    
    $
    16,860
    
    
    $
    46,484
    
    
    $
    46,854Basic earnings per share:Net income
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.42
    
    
    $
    0.43Diluted earnings per share:Net income
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.41
    
    
    $
    0.43Number of
common shares used in computing earnings per share:Basic
    
    
    111,422,969
    
    
    
    109,740,528
    
    
    
    110,984,640
    
    
    
    108,760,980Diluted
    
    
    112,495,655
    
    
    
    110,842,121
    
    
    
    112,023,524
    
    
    
    109,968,329
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    46,484
    
    
    $
    46,854Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    54,332
    
    
    
    37,701Gain on disposition of assets
    
    
    (1,215
    )
    
    
    (16,673
    )Equity loss in unconsolidated joint venture and related charges, net of tax
    
    
    1,105
    
    
    
    Deferred income tax expense
    
    
    20,533
    
    
    
    11,297Expenses not requiring cash
    
    
    3,613
    
    
    
    6,600Change in accounts receivable
    
    
    (10,377
    )
    
    
    (24,219
    )Change in other assets
    
    
    (4,393
    )
    
    
    (52,691
    )Change in liabilities
    
    
    (30,705
    )
    
    
    28,316Net cash provided by operating activities
    
    
    79,377
    
    
    
    37,185Cash flows from investing activities:Capital expenditures
    
    
    (89,531
    )
    
    
    (129,637
    )Proceeds from the sale of assets
    
    
    2,487
    
    
    
    21,974Proceeds from insurance settlements
    
    
    951
    
    
    
    Investment in unconsolidated joint venture
    
    
    (5,000
    )
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (48,675
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    72,395Net cash used in investing activities
    
    
    (91,093
    )
    
    
    (83,943
    )Cash flows from financing activities:Proceeds from draw on term note facility
    
    
    35,000
    
    
    
    Paydown on revolver credit facility
    
    
    (35,000
    )Proceeds from draw on revolver credit facility
    
    
    15,000Proceeds from stock options exercised
    
    
    1,861
    
    
    
    15,791Excess tax benefit from stock based compensation
    
    
    380
    
    
    
    1,912Net cash provided by financing activities
    
    
    17,241
    
    
    
    17,703Net increase (decrease) in cash and cash equivalents
    
    
    5,525
    
    
    
    (29,055
    )Cash and cash equivalents at beginning of year
    
    
    60,124
    
    
    
    92,203Cash and cash equivalents at end of period
    
    $
    65,649
    
    
    $
    63,148Supplemental cash flow information:Interest paid
    
    $
    13,917
    
    
    $
    13,040Income taxes paid
    
    $
    24,489
    
    
    $
    25,534
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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, 2008 and December 31, 2007, (2) the results of operations for the three and six
months ended June 30, 2008 and 2007, and (3) cash flows for the six months ended June 30, 2008
and 2007. Results for the six months ended June 30, 2008 are not necessarily indicative of
the results that will be realized for the year ending December 31, 2008. The financial
statements should be read in conjunction with our Form 10-K for the year ended December 31,
2007.Stock-Based Compensation Total stock-based compensation expense recognized under SFAS No.
123R for the three and six month periods ended June 30, 2008 and for the three and six months
periods ended June 30, 2007 was $1.9 million and $3.9 million and $2.3 million and $4.1 million,
respectively, all of which was related to restricted stock plan expense. Stock-based
compensation expense is included in our consolidated condensed income statement in both General
and administration expense and operating expense. There were no unvested stock options at
June 30, 2008. The Company had 299,300 outstanding and exercisable stock options as of June 30,
2008, the aggregate intrinsic value of which was $0.9 million, with a weighted average exercise
price of $2.89. Unvested restricted stock awards at December 31, 2007 and June 30, 2008 were
1,502,592 shares and 1,508,983 shares, respectively. Total unrecognized compensation cost
related to unamortized restricted stock awards was $5.1 million as of December 31, 2007 and $7.0
million as of June 30, 2008. There were 488,840 and 865,574 restricted shares granted to certain officers and key employees during the three and six month periods ended
June 30, 2008. The remaining unrecognized compensation cost related to unamortized restricted
stock awards will be amortized over a weighted-average vesting period of approximately one year.The excess tax benefit realized for the tax deductions from options exercised and restricted
stock vesting totaled $0.4 million for the six months ended June 30, 2008, which has been
reported as a financing cash inflow in the consolidated condensed statement of cash flows.Construction Contract Historically the Company has primarily constructed drilling rigs for
its own use. In some instances, however, the Company enters into contracts to design,
construct, deliver and commission a rig for a major customer. In 2008, we were awarded a cost
reimbursable, fixed fee contract to construct, deliver and commission a rig for extended reach
drilling work in Alaska. In 2006, the Company entered into a separate contract for the front
end engineering design of the rig. Total cost of the construction phase is currently expected to be
approximately $195 million. The Company recognizes revenues received and costs incurred related to its
construction contract on a gross basis and income for the related fees on a percentage of
completion basis. Construction costs in excess of funds received from the customer are
accumulated and reported as part of other current assets. At June 30, 2008, a net receivable
(construction costs less progress payments) of $4.6 million is included in other current assets.Cash and Cash Equivalents For purposes of the balance sheet and the statement of cash flows,
the Company considers cash equivalents to be all highly liquid debt instruments that have a
remaining maturity of three months or less at the date of purchase.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 2.
    
    Earnings Per Share (EPS)
 Three Months Ended June 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    22,596,000
    
    
    
    111,422,969
    
    
    $
    0.20Effect of dilutive securities:Stock options and restricted
stock
    
    
    
    
    
    
    1,072,686
    
    
    $
    Diluted EPS:Net income
    
    $
    22,596,000
    
    
    
    112,495,655
    
    
    $
    0.20
 Six Months Ended June 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    46,484,000
    
    
    
    110,984,640
    
    
    $
    0.42Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,038,884
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    46,484,000
    
    
    
    112,023,524
    
    
    $
    0.41
 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
    
    
    
    109,968,330
    
    
    $
    0.43
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 2.
    
    Earnings Per Share (EPS) (continued)All stock options outstanding during the three and six months ended June 30, 2008, were included
in the computation of diluted EPS as the options exercise prices were less than the average
market price of the common shares. 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.3.
    
    Business Segments The five primary services we provide are as follows: U.S. drilling,
International drilling, Project management and engineering services, Construction contracts
and Rental tools. In the first quarter of 2008, the Company created a new segment called
Project management and engineering services by combining our labor, operations and maintenance
and engineering services contracts which had been previously reported in our U.S. drilling or
International drilling segments. The new segment was created in anticipation of the
significant expansion of these projects and services and senior managements resultant
separate performance assessment and resource allocation for this segment. The new segment
operations, unlike our U.S. and international drilling and rental tools operations, generally
require little or no capital expenditures, and therefore have different performance assessment
and resource needs. The Company anticipates the growth of this segment of our business and
reviews and assesses its performance separately. Financial information for reportable
segments for 2007 has been restated below to reflect this change. In the second quarter of
2008, the Company created a new segment called Construction contracts to reflect the Companys
Engineering, Procurement, Construction and Installation contract (EPCI). The new
Construction contract segment income (fees) are accounted for on a percentage of completion
basis. Also, revenues received and costs incurred related to the contract are recorded on a
gross basis.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Business Segments (continued)Information regarding our operations by industry segment for the three and six months ended June
30, 2008 and 2007 is as follows:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)
    
    
    (Dollars in Thousands)Revenues:U.S. drilling
    
    $
    49,368
    
    
    $
    56,479
    
    
    $
    95,256
    
    
    $
    117,457International drilling
    
    
    77,919
    
    
    
    43,063
    
    
    
    146,659
    
    
    
    84,977Project management and engineering services
    
    
    28,951
    
    
    
    19,305
    
    
    
    48,130
    
    
    
    37,711Construction contract
    
    
    20,080
    
    
    
    
    
    
    
    20,080
    
    
    
    Rental tools
    
    
    40,412
    
    
    
    31,430
    
    
    
    79,883
    
    
    
    61,405Total revenues
    
    $
    216,730
    
    
    $
    150,277
    
    
    $
    390,008
    
    
    $
    301,550Operating gross margin:U.S. drilling
    
    $
    18,636
    
    
    $
    24,581
    
    
    $
    34,309
    
    
    $
    51,421International drilling
    
    
    9,029
    
    
    
    1,995
    
    
    
    14,788
    
    
    
    8,549Project management and engineering services
    
    
    4,244
    
    
    
    3,052
    
    
    
    7,762
    
    
    
    5,392Construction contract
    
    
    1,030
    
    
    
    
    
    
    
    1,030
    
    
    
    Rental tools
    
    
    17,096
    
    
    
    13,253
    
    
    
    33,636
    
    
    
    27,026Total operating gross margin
    
    
    50,035
    
    
    
    42,881
    
    
    
    91,525
    
    
    
    92,388General and administration expense
    
    
    (8,481
    )
    
    
    (6,246
    )
    
    
    (15,149
    )
    
    
    (12,134
    )Gain on disposition of assets, net
    
    
    636
    
    
    
    269
    
    
    
    1,215
    
    
    
    16,673Total operating income
    
    
    42,190
    
    
    
    36,904
    
    
    
    77,591
    
    
    
    96,927Interest expense
    
    
    (5,876
    )
    
    
    (5,985
    )
    
    
    (11,566
    )
    
    
    (12,315
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (409
    )Other
    
    
    514
    
    
    
    1,782
    
    
    
    (163
    )
    
    
    2,573Income before income taxes
    
    $
    36,828
    
    
    $
    32,673
    
    
    $
    65,862
    
    
    $
    86,776
 4.
    
    Disposition of Assets Asset dispositions in the first six months of 2008 included the sale
of Rig 206 in Indonesia, for which we recorded no gain or loss, and miscellaneous equipment in
the first and second quarter of 2008 that resulted in a recognized gain of $0.6 in both
quarters. In the first six months of 2007 asset dispositions consisted primarily of the sale
of workover barge Rigs 9 and 26 for proceeds of approximately $20.5 million, resulting in a
recognized gain of $15.1 million.5.
    
    Accounting for Uncertainty in Income Taxes FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of tax positions
taken in a tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. During March
2008, the Company resolved the pending tax case with the Kazakhstan Ministry of Finance by
paying the reduced interest assessment related to tax payments made in 2007 (see Note 8 -
Kazakhstan Tax Case), and we have accordingly reduced the previously recorded accruals based
on the final resolution of this matter. As of June 30, 2008, the Company had a remaining
liability for unrecognized tax benefits of $13.0 million primarily related to foreign
operations.6.
    
    Income Tax Expense Income tax expense was $14.2 million for the second quarter of 2008
and includes the reversal of a $3.1 million reserve for 2007 foreign tax credits as
compared to income tax expense of $15.8 million for the second quarter of 2007.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 7.
    
    Saudi Arabia Joint Venture On April 9, 2008, a subsidiary of Parker executed an agreement
(Sale Agreement) to sell its 50 percent share interest in Al-Rushaid Parker Drilling Co.
Ltd. (ARPD) to an affiliate of the Al Rushaid subsidiary that owns the remaining 50 percent
interest. The terms of the Sale Agreement provided for a $2.0 million payment to Parkers
subsidiary as consideration for the 50 percent share interest of the Parker subsidiary and
partial repayment of investments and advances of the Parker subsidiary to ARPD, including a
$5.0 million advance in January 2008. During the first quarter of 2008, the Parker subsidiary
made the decision to terminate any future funding to ARPD, and accordingly, the Company did
not record equity in losses of ARPD in the first quarter of 2008. We recognized a $1.1
million loss, net of income taxes, in the first quarter of 2008 primarily as a result of
nonrecoverable costs incurred by the Parker affiliate to support ARPD operations during the
current quarter. The Parker subsidiary received the $2.0 million on April 15, 2008.The Sale Agreement obligates the resulting Saudi shareholders to indemnify the Parker subsidiary
and its affiliates from claims arising out of or related to the operations of ARPD, including
the drilling contracts between ARPD and Saudi Aramco, ARPDs bank loans and vendors providing
goods or services to ARPD. Each party has agreed to waive any claims that it may have against
the other party arising out of the business of ARPD on or before the closing date, and subject
to the formal transfer of the shares the Parker subsidiary has agreed to disclaim any remaining
rights with respect to the unpaid portion of shareholder loans and payables owed by ARPD to the
Parker subsidiary. The formal transfer of shares was recently approved by the Saudi Arabian authorities.The agreement also provides that there are no restrictions on Parker or any of its affiliates
with regard to competing with ARPD in the future, including in Saudi Arabia.8.
    
    Kazakhstan Tax Case On October 12, 2005, the Kazakhstan Branch (PKD Kazakhstan) of Parker
Drillings subsidiary, 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 $125.8 million).
Approximately KZT7.5 billion or $63.3 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 KZT7.4 billion or $62.5 million for corporate income tax,
individual income tax and social tax, administrative fines and interest in connection with the
reimbursements received by PDCIL from a client for the upgrade of Barge Rig 257 and other
issues related to PKD Kazakhstans operations in the Republic of Kazakhstan (the Income Tax
Assessment).On May 24, 2006, the Supreme Court of the Republic of Kazakhstan (SCK) issued a decision
upholding 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 administrative fines related to the VAT Assessment are being appealed
by the client who is contractually responsible to reimburse PKD Kazakhstan for any
administrative fines ultimately assessed. 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 Assessment.After multiple appeals to the SCK and two meetings of the U.S. Competent Authorities under the
Mutual Agreement Procedure of the U.S.- Kazakhstan Tax Treaty, the SCK ultimately upheld the
Income Tax Assessment and on December 12, 2007, PKD Kazakhstan paid the principal tax portion of
the Income Tax Assessment, net of estimated taxes previously paid. After a further appeal
against the interest portion of the notice of assessment, on February 25, 2008, the Atyrau
Economic Court issued a ruling that interest on the income tax assessed should accrue from the
October 12, 2005 assessment date as opposed to the original assessment in 2001, which resulted
in a revised interest assessment by the Atyrau Tax Committee of approximately US$13 million,
which was paid by PKD Kazakhstan on March 14, 2008, in final resolution of this matter. Income
tax for the first six months of 2008 includes a benefit of $13.4 million of FIN 48 interest and
foreign currency exchange rate fluctuations related to this final resolution.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Long-Term Debt
 June 30, 2008
    
    
    December 31, 2007(Dollars in Thousands)Senior Notes:Interest rate 2.125% convertible due
2012
    
    $
    125,000
    
    
    $
    125,000Interest
rate 9.625%, due 2013
    
    
    228,397
    
    
    
    228,721Revolver
    
    
    
    
    
    
    20,000Term loan
    
    
    35,000
    
    
    
    Total debt
    
    
    388,397
    
    
    
    373,721Less current portion
    
    
    
    
    
    
    20,000Total long-term debt
    
    $
    388,397
    
    
    $
    353,721
 On July 5, 2007, we issued $125.0 million aggregate principal amount of 2.125 percent
Convertible Senior Notes due July 15, 2012. Interest is payable semiannually on July 15th and
January 15th. The initial conversion price is approximately $13.85 per share and is subject to
adjustment for the occurrence of certain events stated within the indenture. Proceeds from the
transaction were used to call our outstanding Senior Floating Rate notes, to pay the net cost of
hedge and warrant transactions, and for general corporate purposes. Effectively, the hedge and
warrant transactions increase the conversion price to approximately $18.29 per share.On September 20, 2007, we replaced our existing $40.0 million Credit Agreement with a new $60.0
million credit facility pursuant to an Amended and Restated Credit Agreement (the 2007 Credit
Facility), which expires in September 2012. The 2007 Credit Facility was secured by rental
tools equipment, accounts receivable and the stock of substantially all of our domestic
subsidiaries, other than domestic subsidiaries owned by a foreign subsidiary, and contained
customary affirmative and negative covenants such as minimum ratios for consolidated leverage,
consolidated interest coverage and consolidated senior secured leverage.On May 15, 2008 we entered into a new Credit Agreement (2008 Credit Facility) with a five year
senior secured $80.0 million revolving credit facility (Revolving Credit Facility) and a senior
secured term loan facility (Term Loan Facility) of up to $50.0 million. The obligations of
the Company under the 2008 Credit Facility are guaranteed by substantially all of the Companys
domestic subsidiaries, except for domestic subsidiaries owned by foreign subsidiaries and
certain immaterial subsidiaries, each of which has executed a guaranty. The 2008 Credit
Facility contains customary affirmative and negative covenants such as minimum ratios for
consolidated leverage, consolidated interest coverage and consolidated senior secured leverage.
On July 9, 2008, the Company drew down the remaining $15.0 million available on the Term Loan
Facility, bringing the total amount outstanding to $50.0 million. The Term Loan will begin
amortizing on September 30, 2009 at equal installments of $3.0 million per quarter.10.
    
    Derivative Instruments We used derivative instruments to manage risks associated with
interest rate fluctuations in connection with our $100.0 million Senior Floating Rate Notes,
which were fully redeemed on September 27, 2007. These derivative instruments, which
consisted of variable-to-fixed interest rate swaps, did not meet the hedge criteria in SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and were therefore
not designated as hedges. Accordingly, the change in the fair value of the interest rate
swaps was recognized in earnings.On July 17, 2007, we terminated one swap scheduled to expire in September 2008 and received $0.7
million. On September 4, 2007, our one remaining swap expired.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    ContingenciesBangladesh 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. The court
dismissed the case on the basis 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. No amounts were accrued at
June 30, 2008.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.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 Drilling 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 Parker Drilling. Out of 668 amended single-plaintiff complaints filed to date,
sixteen (16) plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.
Discovery is proceeding in groups of 60 and none of the plaintiff complaints naming Parker are
included in the first 60 (Group I). The initial discovery of Group I resulted in certain
dismissals with prejudice, two dismissals without prejudice and two withdraws from Group I,
leaving only 40 plaintiffs remaining in Group I. Selection of Discovery Group II was completed
on April 21, 2008. Out of the 60 plaintiffs selected Parker Drilling was named in one suit.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, the Company is unable to predict the ultimate outcome of these lawsuits.
No amounts were accrued at June 30, 2008.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    Contingencies (continued)Gulfco SiteSeveral years ago the Company received an information request under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) designating Parker Drilling
Offshore Corporation, a subsidiary of Parker Drilling as a potentially responsible party with
respect to the Gulfco Marine Maintenance, Inc. Superfund Site in Freeport, Texas (EPA No. TX
055144539). The subsidiary responded to this request in 2003 with documents. In January, 2008
the subsidiary received an administrative order to participate in an investigation of the site
and a study of the remediation needs and alternatives. The EPA alleges that the subsidiary is
successor to a party who owned the Gulfco site during the time when chemical releases took place
there. Two other parties have been performing that work since mid-2005 under an earlier version
of the same order. The subsidiary believes that it has a sufficient cause to decline
participation under the order and has notified the EPA of that decision. Non-compliance with an
EPA order absent sufficient cause for doing so can result in substantial penalties under CERCLA.
The subsidiary is continuing to evaluate its relationship to the site and intends to confer
with the EPA in an effort to resolve the matter. The Company has not yet estimated the amount
or impact on our operations, financial position or cash flows of any costs related to the site.
The EPA and the other two parties have spent over $2.5 million studying and conducting initial
remediation of the site, and it is anticipated that an additional $1.3 million will be required
to complete the remediation. The Company does not believe it has any obligation with respect to
the remediation of the property, and accordingly no accrual was made as of June 30, 2008.Customs Agent InvestigationAs previously disclosed, the Company received requests from the United States Department of
Justice (DOJ) in July 2007 and the United States Securities and Exchange Commission (SEC) in
January 2008 relating to the Companys utilization of the services of a customs agent. In
response to those requests, the Company is conducting an internal investigation. The DOJ and
the SEC are conducting parallel investigations into possible violations of U.S. law by the
Company, including the Foreign Corrupt Practices Act (the FCPA). In particular, the DOJ and
the SEC are investigating the Companys use of customs agents in certain countries in which the
Company currently operates or formerly operated, including Kazakhstan and Nigeria. The Company
is fully cooperating with the DOJ and SEC investigations. At this point, we are unable to
predict the duration, scope or result of the DOJ or the SEC investigation or whether either
agency will commence any legal action. If we are not in compliance with the FCPA and other laws
governing the conduct of business with foreign government entities (including local laws), we
may be subject to criminal and civil penalties and other remedial measures, which could have an
adverse impact on our business, results of operations, financial condition and liquidity.Economic Sanctions and Export Restrictions ComplianceOur international operations are subject to economic sanctions laws and regulations restricting certain
activities involving countries, entities and persons on which the U.S. has imposed economic sanctions. Pursuant
to a recent internal review, we have preliminarily identified certain shipments of equipment and supplies that were routed
through Iran. In addition, we have engaged in drilling wells in the Korpedje Field in Turkmenistan, from where natural gas
may be exported by pipeline to Iran. We are currently reviewing these shipments and drilling activities to determine
whether the timing, nature and extent of such shipments or drilling activities may have given rise to violations of
these laws and regulations. Although we are unable to predict the scope or result of this internal review or its
ultimate outcome, we have initiated a voluntary disclosure of these potential compliance issues to the appropriate U.S.
government agency. If we are not in compliance with export restrictions and U.S. economic sanctions, we may be subject to
civil or criminal penalties and other remedial measures, which could have an adverse impact on our business, results of
operations, financial condition and liquidity.
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12.
    
    Recent Accounting Pronouncements In May 2008, the FASB issued FSP Accounting Principles
Board (APB) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement). This FSP clarifies that convertible
debt instruments that may be settled in cash upon conversion, including partial cash
settlement, are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP
specifies that issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entitys nonconvertible debt borrowing
rate when interest cost is recognized in subsequent periods. This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years. We will adopt the provisions of FSP AAPB 14-1 on January
1, 2009 and will be required to retroactively apply its provisions, which means we will
restate our consolidated financial statements for prior periods. We have not yet determined
the impact of this FSP on our consolidated financial statements.
 14




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 13.
    
    Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements
Set forth on the following pages are the consolidating condensed financial statements of (i)
Parker Drilling, (ii) its restricted subsidiaries that are guarantors of the Senior Notes,
 and Convertible Senior Notes (the Notes) and (iii) the restricted
and unrestricted subsidiaries that are not guarantors of the Notes. The Notes are guaranteed
by substantially all of the domestic 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. Separate financial
statements for each guarantor company are not provided as the company complies with the
exception to Rule 3-10(a)(1) of Regulation S-X, set forth in sub-paragraph (f) of such rule.
All guarantor subsidiaries are directly or indirectly owned 100% by the parent company, all
guarantees are full and unconditional and all guarantees are joint and several.AralParker (a Kazakhstan joint stock company, owned 100 percent by Parker Drilling (Kazakstan)),
LLC, Casuarina Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard
Argentine Holdings, Ltd., 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 Kazakhstan B.V., Parker Drilling AME
Limited, Parker Drilling Asia Pacific, LLC, PD International Holdings C.V.,PD Dutch Holdings
C.V., PD Selective Holdings C.V., PD Offshore Holdings C.V., Parker Drilling Netherlands B.V.,
Parker Drilling Dutch B.V., Parker Hungary Rig Holdings Limited Liability Company, Parker
Drilling Spain Rig Services, S L, Parker 3Source, LLC, Parker 5272, LLC, Parker Central Europe
Rig Holdings Limited Liability Company, Parker Cyprus Leasing Limited, Parker Cyprus Ventures
Limited, Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling
Offshore International, Inc., Parker Drilling Overseas B.V., Parker Drilling Russia B.V., Parker
Drillsource, LLC, PD Labor Services, Ltd., PD Labor Sourcing, Ltd., and Parker Enex, LLC are all
non-guarantor subsidiaries. The Company is providing consolidating condensed financial
information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor
subsidiaries as of June 30, 2008 and December 31, 2007 and
for the three and six months ended June 30, 2008
and 2007. The consolidating condensed financial statements present investments in both
consolidated and unconsolidated subsidiaries using the equity method of accounting.
 15




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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,602
    
    
    $
    6,999
    
    
    $
    38,048
    
    
    $
    
    
    
    $
    65,649Accounts and notes receivable, net
    
    
    70,835
    
    
    
    189,223
    
    
    
    125,632
    
    
    
    (206,753
    )
    
    
    178,937Rig materials and supplies
    
    
    
    
    
    
    11,902
    
    
    
    15,856
    
    
    
    
    
    
    
    27,758Deferred costs
    
    
    
    
    
    
    2,443
    
    
    
    7,429
    
    
    
    
    
    
    
    9,872Deferred income taxes
    
    
    9,424
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,424Other tax assets
    
    
    67,688
    
    
    
    (39,530
    )
    
    
    (3,838
    )
    
    
    
    
    
    
    24,320Other current assets
    
    
    330
    
    
    
    26,028
    
    
    
    2,454
    
    
    
    
    
    
    
    28,812Total current assets
    
    
    168,879
    
    
    
    197,065
    
    
    
    185,581
    
    
    
    (206,753
    )
    
    
    344,772Property, plant and equipment, net
    
    
    79
    
    
    
    458,106
    
    
    
    169,017
    
    
    
    122
    
    
    
    627,324Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    908,238
    
    
    
    963,817
    
    
    
    (71,355
    )
    
    
    (1,800,700
    )
    
    
    Investment in and advances to unconsolidated joint venture
    
    
    
    
    
    
    4,620
    
    
    
    (4,620
    )
    
    
    
    
    
    
    Other noncurrent assets
    
    
    23,562
    
    
    
    20,131
    
    
    
    7,117
    
    
    
    
    
    
    
    50,810Total assets
    
    $
    1,100,758
    
    
    $
    1,744,054
    
    
    $
    285,740
    
    
    $
    (2,007,331
    )
    
    $
    1,123,221LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and accrued liabilities
    
    
    50,830
    
    
    
    267,979
    
    
    
    89,307
    
    
    
    (303,242
    )
    
    
    104,874Accrued income taxes
    
    
    (356
    )
    
    
    5,260
    
    
    
    9,893
    
    
    
    
    
    
    
    14,797Total current liabilities
    
    
    50,474
    
    
    
    273,239
    
    
    
    99,200
    
    
    
    (303,242
    )
    
    
    119,671Long-term debt
    
    
    388,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388,397Other long-term liabilities
    
    
    
    
    
    
    12,228
    
    
    
    7,189
    
    
    
    
    
    
    
    19,417Long-term deferred tax liability
    
    
    
    
    
    
    1,237
    
    
    
    7,195
    
    
    
    
    
    
    
    8,432Intercompany payables
    
    
    74,583
    
    
    
    576,746
    
    
    
    36,830
    
    
    
    (688,159
    )
    
    
    Contingencies (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,879
    
    
    
    39,900
    
    
    
    21,152
    
    
    
    (61,052
    )
    
    
    18,879Capital in excess of par value
    
    
    599,736
    
    
    
    1,045,728
    
    
    
    122,264
    
    
    
    (1,167,992
    )
    
    
    599,736Retained earnings (accumulated deficit)
    
    
    (31,311
    )
    
    
    (205,024
    )
    
    
    (8,090
    )
    
    
    213,114
    
    
    
    (31,311
    )Total stockholders equity
    
    
    587,304
    
    
    
    880,604
    
    
    
    135,326
    
    
    
    (1,015,930
    )
    
    
    587,304Total liabilities and stockholders equity
    
    $
    1,100,758
    
    
    $
    1,744,054
    
    
    $
    285,740
    
    
    $
    (2,007,331
    )
    
    $
    1,123,221
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
 December 31, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,326
    
    
    $
    8,314
    
    
    $
    20,484
    
    
    $
    
    
    
    $
    60,124Accounts and notes receivable, net
    
    
    79,688
    
    
    
    187,663
    
    
    
    80,139
    
    
    
    (180,784
    )
    
    
    166,706Rig materials and supplies
    
    
    
    
    
    
    10,667
    
    
    
    13,597
    
    
    
    
    
    
    
    24,264Deferred costs
    
    
    
    
    
    
    1,553
    
    
    
    6,242
    
    
    
    
    
    
    
    7,795Deferred income taxes
    
    
    9,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,423Other tax assets
    
    
    59,673
    
    
    
    (23,395
    )
    
    
    (3,746
    )
    
    
    
    
    
    
    32,532Other current assets
    
    
    174
    
    
    
    10,578
    
    
    
    11,587
    
    
    
    
    
    
    
    22,339Total current assets
    
    
    180,284
    
    
    
    195,380
    
    
    
    128,303
    
    
    
    (180,784
    )
    
    
    323,183Property, plant and equipment, net
    
    
    79
    
    
    
    423,652
    
    
    
    162,035
    
    
    
    122
    
    
    
    585,888Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    813,248
    
    
    
    963,269
    
    
    
    (58,320
    )
    
    
    (1,718,197
    )
    
    
    Investment in and advances to unconsolidated joint venture
    
    
    
    
    
    
    267
    
    
    
    (4,620
    )
    
    
    
    
    
    
    (4,353
    )Other noncurrent assets
    
    
    40,113
    
    
    
    20,805
    
    
    
    11,036
    
    
    
    
    
    
    
    71,954Total assets
    
    $
    1,033,724
    
    
    $
    1,703,688
    
    
    $
    238,434
    
    
    $
    (1,898,859
    )
    
    $
    1,076,987LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    20,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,000Accounts payable and accrued liabilities
    
    
    48,820
    
    
    
    221,363
    
    
    
    64,577
    
    
    
    (247,408
    )
    
    
    87,352Accrued income taxes
    
    
    1,765
    
    
    
    10,790
    
    
    
    4,273
    
    
    
    
    
    
    
    16,828Total current liabilities
    
    
    70,585
    
    
    
    232,153
    
    
    
    68,850
    
    
    
    (247,408
    )
    
    
    124,180Long-term debt
    
    
    353,721
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,721Other long-term liabilities
    
    
    110
    
    
    
    48,174
    
    
    
    8,034
    
    
    
    
    
    
    
    56,318Long-term deferred tax liability
    
    
    1
    
    
    
    1,237
    
    
    
    6,806
    
    
    
    
    
    
    
    8,044Intercompany payables
    
    
    74,583
    
    
    
    576,746
    
    
    
    38,074
    
    
    
    (689,403
    )
    
    
    Contingencies (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,653
    
    
    
    39,900
    
    
    
    21,152
    
    
    
    (61,052
    )
    
    
    18,653Capital in excess of par value
    
    
    593,866
    
    
    
    1,045,732
    
    
    
    115,765
    
    
    
    (1,161,497
    )
    
    
    593,866Retained earnings (accumulated deficit)
    
    
    (77,795
    )
    
    
    (240,254
    )
    
    
    (20,247
    )
    
    
    260,501
    
    
    
    (77,795
    )Total stockholders equity
    
    
    534,724
    
    
    
    845,378
    
    
    
    116,670
    
    
    
    (962,048
    )
    
    
    534,724Total liabilities and stockholders equity
    
    $
    1,033,724
    
    
    $
    1,703,688
    
    
    $
    238,434
    
    
    $
    (1,898,859
    )
    
    $
    1,076,987
 17




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    163,721
    
    
    $
    78,298
    
    
    $
    (25,289
    )
    
    $
    216,730Operating expenses
    
    
    (4
    )
    
    
    102,686
    
    
    
    61,136
    
    
    
    (25,289
    )
    
    
    138,529Depreciation and amortization
    
    
    
    
    
    
    21,025
    
    
    
    7,141
    
    
    
    
    
    
    
    28,166Total operating gross margin
    
    
    4
    
    
    
    40,010
    
    
    
    10,021
    
    
    
    
    
    
    
    50,035General and administration expense (1)
    
    
    (41
    )
    
    
    (8,412
    )
    
    
    (28
    )
    
    
    
    
    
    
    (8,481
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    350
    
    
    
    286
    
    
    
    
    
    
    
    636Total operating income (loss)
    
    
    (37
    )
    
    
    31,948
    
    
    
    10,279
    
    
    
    
    
    
    
    42,190Other income and (expense):Interest expense
    
    
    (7,063
    )
    
    
    (11,792
    )
    
    
    (66
    )
    
    
    13,045
    
    
    
    (5,876
    )Interest income
    
    
    10,572
    
    
    
    1,885
    
    
    
    958
    
    
    
    (13,045
    )
    
    
    370Other
    
    
    2
    
    
    
    (4
    )
    
    
    146
    
    
    
    
    
    
    
    144Equity in net earnings of subsidiaries
    
    
    15,164
    
    
    
    
    
    
    
    
    
    
    
    (15,164
    )
    
    
    Total other income and (expense)
    
    
    18,675
    
    
    
    (9,911
    )
    
    
    1,038
    
    
    
    (15,164
    )
    
    
    (5,362
    )Income (loss) before income taxes
    
    
    18,638
    
    
    
    22,037
    
    
    
    11,317
    
    
    
    (15,164
    )
    
    
    36,828Income tax
(benefit) expense:Current
    
    
    (4,697
    )
    
    
    10,182
    
    
    
    4,003
    
    
    
    
    
    
    
    9,488Deferred
    
    
    739
    
    
    
    3,826
    
    
    
    179
    
    
    
    
    
    
    
    4,744Income tax
(benefit) expense
    
    
    (3,958
    )
    
    
    14,008
    
    
    
    4,182
    
    
    
    
    
    
    
    14,232Net income (loss)
    
    $
    22,596
    
    
    $
    8,029
    
    
    $
    7,135
    
    
    $
    (15,164
    )
    
    $
    22,596
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 18




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    136,568
    
    
    $
    22,036
    
    
    $
    (8,327
    )
    
    $
    150,277Operating expenses
    
    
    1
    
    
    
    75,897
    
    
    
    20,188
    
    
    
    (8,332
    )
    
    
    87,754Depreciation and amortization
    
    
    
    
    
    
    18,484
    
    
    
    1,158
    
    
    
    
    
    
    
    19,642Total operating gross margin
    
    
    (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
    )
    
    
    1,712Other
    
    
    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. 19




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Six months ended June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    292,403
    
    
    $
    144,203
    
    
    $
    (46,598
    )
    
    $
    390,008Operating expenses
    
    
    (3
    )
    
    
    177,049
    
    
    
    113,703
    
    
    
    (46,598
    )
    
    
    244,151Depreciation and amortization
    
    
    
    
    
    
    41,538
    
    
    
    12,794
    
    
    
    
    
    
    
    54,332Total operating gross margin
    
    
    3
    
    
    
    73,816
    
    
    
    17,706
    
    
    
    
    
    
    
    91,525General and administration expense (1)
    
    
    (121
    )
    
    
    (14,996
    )
    
    
    (32
    )
    
    
    
    
    
    
    (15,149
    )Gain on disposition of assets, net
    
    
    
    
    
    
    932
    
    
    
    283
    
    
    
    
    
    
    
    1,215Total operating income (loss)
    
    
    (118
    )
    
    
    59,752
    
    
    
    17,957
    
    
    
    
    
    
    
    77,591Other income and (expense):Interest expense
    
    
    (13,937
    )
    
    
    (23,578
    )
    
    
    (146
    )
    
    
    26,095
    
    
    
    (11,566
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    21,261
    
    
    
    3,810
    
    
    
    1,762
    
    
    
    (26,095
    )
    
    
    738Equity in loss of unconsolidated joint
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    venture, net of taxes
    
    
    
    
    
    
    (1,105
    )
    
    
    
    
    
    
    
    
    
    
    (1,105
    )Other
    
    
    2
    
    
    
    6
    
    
    
    196
    
    
    
    
    
    
    
    204Equity in net earnings of subsidiaries
    
    
    47,387
    
    
    
    
    
    
    
    
    
    
    
    (47,387
    )
    
    
    Total other income and (expense)
    
    
    54,713
    
    
    
    (20,867
    )
    
    
    1,812
    
    
    
    (47,387
    )
    
    
    (11,729
    )Income (loss) before income taxes
    
    
    54,595
    
    
    
    38,885
    
    
    
    19,769
    
    
    
    (47,387
    )
    
    
    65,862Income tax
(benefit) expense:Current
    
    
    (7,265
    )
    
    
    (1,009
    )
    
    
    7,119
    
    
    
    
    
    
    
    (1,155
    )Deferred
    
    
    15,376
    
    
    
    4,664
    
    
    
    493
    
    
    
    
    
    
    
    20,533Income tax
(benefit) expense
    
    
    8,111
    
    
    
    3,655
    
    
    
    7,612
    
    
    
    
    
    
    
    19,378Net income (loss)
    
    $
    46,484
    
    
    $
    35,230
    
    
    $
    12,157
    
    
    $
    (47,387
    )
    
    $
    46,484
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 20




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Six months ended June 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    274,706
    
    
    $
    41,878
    
    
    $
    (15,034
    )
    
    $
    301,550Operating expenses
    
    
    1
    
    
    
    149,471
    
    
    
    37,028
    
    
    
    (15,039
    )
    
    
    171,461Depreciation and amortization
    
    
    
    
    
    
    35,505
    
    
    
    2,196
    
    
    
    
    
    
    
    37,701Total operating gross margin
    
    
    (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
    )
    
    
    3,496Minority 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. 21




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six months ending June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    46,484
    
    
    $
    35,230
    
    
    $
    12,157
    
    
    $
    (47,387
    )
    
    $
    46,484Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    41,538
    
    
    
    12,794
    
    
    
    
    
    
    
    54,332Gain on disposition of assets
    
    
    
    
    
    
    (932
    )
    
    
    (283
    )
    
    
    
    
    
    
    (1,215
    )Deferred income tax expense
    
    
    15,376
    
    
    
    4,664
    
    
    
    493
    
    
    
    
    
    
    
    20,533Equity in loss of unconsolidated joint venture
    
    
    
    
    
    
    1,105
    
    
    
    
    
    
    
    
    
    
    
    1,105Expenses not requiring cash
    
    
    3,613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,613Equity in net earnings of subsidiaries
    
    
    (47,387
    )
    
    
    
    
    
    
    
    
    
    
    47,387
    
    
    
    Change in accounts receivable
    
    
    8,853
    
    
    
    27,542
    
    
    
    (46,772
    )
    
    
    
    
    
    
    (10,377
    )Change in other assets
    
    
    (6,762
    )
    
    
    (7,329
    )
    
    
    9,698
    
    
    
    
    
    
    
    (4,393
    )Change in liabilities
    
    
    (538
    )
    
    
    (57,855
    )
    
    
    27,688
    
    
    
    
    
    
    
    (30,705
    )Net cash provided by (used in) operating activities
    
    
    19,639
    
    
    
    43,963
    
    
    
    15,775
    
    
    
    
    
    
    
    79,377Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (72,080
    )
    
    
    (17,451
    )
    
    
    
    
    
    
    (89,531
    )Proceeds from the sale of assets
    
    
    
    
    
    
    2,487
    
    
    
    (0
    )
    
    
    
    
    
    
    2,487Proceeds from insurance claims
    
    
    
    
    
    
    
    
    
    
    951
    
    
    
    
    
    
    
    951Investment in unconslidated joint venture
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    

    
    
    
    (5,000
    )Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (74,593
    )
    
    
    (16,500
    )
    
    
    
    
    
    
    (91,093
    )Cash flows from financing activities:Proceeds
from draw on term note facility
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000Pay down on
revolver credit facility
    
    
    (35,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,000
    )Proceeds from draw on revolver credit facility
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Proceeds from stock options exercised
    
    
    1,861
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,861Excess tax benefit from stock based compensation
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380Intercompany advances, net
    
    
    (47,604
    )
    
    
    29,315
    
    
    
    18,289
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (30,363
    )
    
    
    29,315
    
    
    
    18,289
    
    
    
    
    
    
    
    17,241Net increase (decrease) in cash and cash equivalents
    
    
    (10,724
    )
    
    
    (1,315
    )
    
    
    17,564
    
    
    
    
    
    
    
    5,525Cash and cash equivalents at beginning of period
    
    
    31,326
    
    
    
    8,314
    
    
    
    20,484
    
    
    
    
    
    
    
    60,124Cash and
cash equivalents at end of period
    
    $
    20,602
    
    
    $
    6,999
    
    
    $
    38,048
    
    
    $
    
    
    
    $
    65,649
 22




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##### Table of Contents



DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 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
    
    
    
    
    
    
    
    37,701Loss/(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
accounts receivable
    
    
    (21,397
    )
    
    
    5,844
    
    
    
    (8,666
    )
    
    
    
    
    
    
    (24,219
    )Change in
other assets
    
    
    (19,394
    )
    
    
    (70,833
    )
    
    
    37,536
    
    
    
    
    
    
    
    (52,691
    )Change in
liabilities
    
    
    10,314
    
    
    
    7,482
    
    
    
    10,520
    
    
    
    
    
    
    
    28,316Net 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
    
    
    
    
    
    
    
    21,974Purchase of marketable securities
    
    
    (48,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,675
    )Sale of marketable securities
    
    
    72,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,395Net cash provided by (used in) investing activities
    
    
    23,720
    
    
    
    (99,377
    )
    
    
    (8,286
    )
    
    
    
    
    
    
    (83,943
    )Cash flows from financing activities: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 decrease 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
 23




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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;
    
    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.
  
    
    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;
    
    the outcome of our investigation and the parallel investigations by the Securities and
Exchange Commission and the Department of Justice into possible violations of U.S. law,
including the Foreign Corrupt Practices Act;
    
    adverse environmental events;
    
    adverse weather conditions;
 24




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##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
 
    
    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;
    
    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, including the risk factors described in our 2007 Annual Report to Shareholders
and our other reports and filings with the Securities and Exchange Commission).
  OVERVIEW AND OUTLOOK
  Overview
   25




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##### Table of Contents



OVERVIEW
AND OUTLOOK (continued)
 Outlook
        RESULTS OF OPERATIONS
 Three Months Ended June 30, 2008 Compared with Three Months Ended June 30, 2007
   26




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
  Three Months Ended June 30,2008
    
    
    2007(Dollars in Thousands)Revenues:U.S. drilling
    
    $
    49,368
    
    
    
    23
    %
    
    $
    56,479
    
    
    
    38
    %International drilling
    
    
    77,919
    
    
    
    36
    %
    
    
    43,063
    
    
    
    29
    %Project management and engineering services
    
    
    28,951
    
    
    
    13
    %
    
    
    19,305
    
    
    
    13
    %Construction contract
    
    
    20,080
    
    
    
    9
    %
    
    
    
    
    
    
    Rental tools
    
    
    40,412
    
    
    
    18
    %
    
    
    31,430
    
    
    
    20
    %Total revenues
    
    $
    216,730
    
    
    
    100
    %
    
    $
    150,277
    
    
    
    100
    %Operating gross margin:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    27,238
    
    
    
    55
    %
    
    $
    32,335
    
    
    
    57
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    21,307
    
    
    
    27
    %
    
    
    8,227
    
    
    
    19
    %Project management and engineering services gross margin
    
    
    4,244
    
    
    
    15
    %
    
    
    3,052
    
    
    
    16
    %Construction contract gross margin
    
    
    1,030
    
    
    
    5
    %
    
    
    
    
    
    
    Rental tools gross margin excluding depreciation and amortization (1)
    
    
    24,382
    
    
    
    60
    %
    
    
    18,909
    
    
    
    60
    %Depreciation and amortization
    
    
    (28,166
    )
    
    
    
    
    
    
    (19,642
    )Total operating gross margin
    
    
    50,035
    
    
    
    
    
    
    
    42,881General and administration expense
    
    
    (8,481
    )
    
    
    
    
    
    
    (6,246
    )Gain on disposition of assets, net
    
    
    636
    
    
    
    
    
    
    
    269Total operating income
    
    $
    42,190
    
    
    
    
    
    
    $
    36,904
 
 (1)
    
    Gross margins, excluding depreciation and amortization, are computed as revenues less direct
operating expenses, excluding depreciation and amortization expense; gross margin percentages are
computed as gross margin, excluding depreciation and amortization, as a percent of 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 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: ProjectManagement andInternational
    
    
    Engineering
    
    
    ConstructionU.S. Drilling
    
    
    Drilling
    
    
    Services
    
    
    Contract
    
    
    Rental Tools(Dollars in Thousands)Three Months Ended June 30, 2008Operating gross margin (2)
    
    $
    18,636
    
    
    $
    9,029
    
    
    $
    4,244
    
    
    $
    1,030
    
    
    $
    17,096Depreciation and amortization
    
    
    8,602
    
    
    
    12,278
    
    
    
    
    
    
    
    
    
    
    
    7,286Operating gross margin excluding depreciation and amortization
    
    $
    27,238
    
    
    $
    21,307
    
    
    $
    4,244
    
    
    $
    1,030
    
    
    $
    24,382Three Months Ended June 30, 2007Operating gross margin (2)
    
    $
    24,581
    
    
    $
    1,995
    
    
    $
    3,052
    
    
    $
    
    
    
    $
    13,253Depreciation and amortization
    
    
    7,754
    
    
    
    6,232
    
    
    
    
    
    
    
    
    
    
    
    5,656Operating gross margin excluding depreciation and amortization
    
    $
    32,335
    
    
    $
    8,227
    
    
    $
    3,052
    
    
    $
    
    
    
    $
    18,909
 
 (2)
    
    Gross margin (operating)  revenues less direct operating expenses, including depreciation and amortization expense. 27




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RESULTS OF OPERATIONS (continued)
 U.S. Drilling Segment
   International Drilling Segment
      Project Management and Engineering Services Segment
  28




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Construction Contract Segment
  Rental Tools Segment
   Other Financial Data
    Six Months Ended June 30, 2008 Compared with Six Months Ended June 30, 2007
  29




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
   Six Months Ended June 30,2008
    
    
    2007(Dollars in Thousands)Revenues:U.S. drilling
    
    $
    95,256
    
    
    
    24
    %
    
    $
    117,457
    
    
    
    39
    %International drilling
    
    
    146,659
    
    
    
    38
    %
    
    
    84,977
    
    
    
    28
    %Project management and engineering services
    
    
    48,130
    
    
    
    12
    %
    
    
    37,711
    
    
    
    13
    %Construction contract
    
    
    20,080
    
    
    
    5
    %
    
    
    
    
    
    
    Rental tools
    
    
    79,883
    
    
    
    21
    %
    
    
    61,405
    
    
    
    20
    %Total revenues
    
    $
    390,008
    
    
    
    100
    %
    
    $
    301,550
    
    
    
    100
    %Operating gross margin:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    51,604
    
    
    
    54
    %
    
    $
    66,564
    
    
    
    57
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    37,426
    
    
    
    26
    %
    
    
    20,412
    
    
    
    24
    %Project management and engineering services gross margin
    
    
    7,762
    
    
    
    16
    %
    
    
    5,392
    
    
    
    14
    %Construction contract gross margin
    
    
    1,030
    
    
    
    5
    %
    
    
    
    
    
    
    Rental tools gross margin excluding depreciation and amortization (1)
    
    
    48,035
    
    
    
    60
    %
    
    
    37,721
    
    
    
    61
    %Depreciation and amortization
    
    
    (54,332
    )
    
    
    
    
    
    
    (37,701
    )Total operating gross margin:
    
    
    91,525
    
    
    
    
    
    
    
    92,388General and administration expense
    
    
    (15,149
    )
    
    
    
    
    
    
    (12,134
    )Gain on disposition of assets, net
    
    
    1,215
    
    
    
    
    
    
    
    16,673Total operating income
    
    $
    77,591
    
    
    
    
    
    
    $
    96,927
 
 (1)
    
    Gross margins, excluding depreciation and amortization, are computed as revenues less
direct operating expenses, excluding depreciation and amortization expense; gross margin
percentages are computed as gross margin, excluding depreciation and amortization, as a
percent of 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 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: ProjectManagement andInternational
    
    
    Engineering
    
    
    ConstructionU.S. Drilling
    
    
    Drilling
    
    
    Services
    
    
    Contract
    
    
    Rental Tools(Dollars in Thousands)Six Months Ended June 30, 2008Operating gross margin (2)
    
    $
    34,309
    
    
    $
    14,788
    
    
    $
    7,762
    
    
    $
    1,030
    
    
    $
    33,636Depreciation and amortization
    
    
    17,295
    
    
    
    22,638
    
    
    
    
    
    
    
    
    
    
    
    14,399Operating gross margin excluding depreciation and amortization
    
    $
    51,604
    
    
    $
    37,426
    
    
    $
    7,762
    
    
    $
    1,030
    
    
    $
    48,035Six Months Ended June 30, 2007Operating gross margin (2)
    
    $
    51,421
    
    
    $
    8,549
    
    
    $
    5,392
    
    
    $
    
    
    
    $
    27,026Depreciation and amortization
    
    
    15,143
    
    
    
    11,863
    
    
    
    
    
    
    
    
    
    
    
    10,695Operating gross margin excluding depreciation and amortization
    
    $
    66,564
    
    
    $
    20,412
    
    
    $
    5,392
    
    
    $
    
    
    
    $
    37,721
 
 (2)
    
    Gross margin  drilling and rental revenues less direct drilling and rental operating
expenses, including depreciation and amortization expense. 30




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 U.S. Drilling Segment
   International Drilling Segment
      31




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Project Management and Engineering Services Segment
  Construction Contract Segment
  Rental Tools Segment
   Other Financial Data
   32




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Other Financial Data (continued)
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   Financing Activity
   33




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
     
    
    $125.0 million aggregate principal amount of Convertible Senior Notes bearing interest
at a rate of 2.125 percent, which are due July 15, 2012;
    
    $225.0 million aggregate principal amount of 9.625 percent Senior Notes, which are due
October 1, 2013 plus an associated $3.4 million in unamortized debt premium; and,
    
    $35.0 million drawn against our Term Loan Facility.
   34




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
  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)
    
    $
    385,000
    
    
    $
    
    
    
    $
    24,000
    
    
    $
    136,000
    
    
    $
    225,000Long-term debt  interest (1)
    
    
    130,993
    
    
    
    26,850
    
    
    
    52,178
    
    
    
    46,551
    
    
    
    5,414Operating leases (2)
    
    
    12,001
    
    
    
    6,073
    
    
    
    3,695
    
    
    
    2,217
    
    
    
    16Purchase commitments (3)
    
    
    53,378
    
    
    
    53,378
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    581,372
    
    
    $
    86,301
    
    
    $
    79,873
    
    
    $
    184,768
    
    
    $
    230,430Commercial commitments:Long-term debt Revolving credit facility (4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit (4)
    
    
    13,029
    
    
    
    13,029
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    13,029
    
    
    $
    13,029
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the 9.625 percent
Senior Notes and the 2.125 percent Convertible Senior Notes as well as $35.0 million of term
loans drawn on our new Credit Facility. The remaining unamortized premium of $3.4 million is
not included in the contractual cash obligations schedule.(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, 2008, related to rig upgrade projects
and new rig construction.(4)
    
    We have an $80.0 million revolving credit facility. As of June 30, 2008, there has been no
draw down and $13.0 million of availability has been used to support letters of credit that
have been issued, resulting in an estimated $67.0 million of availability. The revolving
credit facility expires September 20, 2012. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  35




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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
 We are subject to the Foreign Corrupt Practices Act (FCPA) and other laws concerning our
international operations, and currently are conducting an investigation into possible violations.
The Securities and Exchange Commission and the Department of Justice are conducting parallel
investigations into possible FCPA violations. If we are found to have violated the FCPA, we may be
subject to criminal and civil penalties and other remedial measures, which could materially harm
our business, results of operations, financial condition and liquidity.
  We are subject to laws and regulations concerning our international operations, including export
restrictions and U.S. economic sanctions. We are conducting an internal review concerning our
compliance with export restrictions and U.S. economic sanctions. If we are not in compliance with
applicable legal requirements, we may be subject to civil or criminal penalties and other remedial
measures, which could materially harm our business, results of operations, financial condition and
liquidity.
  36




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
 Total Number of
    
    Average PriceDate
    
    Shares Purchased
    
    Paid Per ShareApril 3, 2008
    
    62,670
    
    $6.89April 6, 2008
    
    43,204
    
    $7.15May 6, 2008
    
    45,721
    
    $8.23May 13, 2008
    
    50
    
    $8.08June 7, 2008
    
    661
    
    $9.28
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description10.1
    
    Share Purchase Agreement dated April 9, 2008, by and among Parker Drilling
Company Limited LLC (Seller), Abdullah Rasheed Al-Rushaid Company for
Drilling Oil and Gas Limited (Buyer), Abdullah Rasheed Al-Rushaid & Son Co.
Ltd. (Al-Rushaid Investment Co.) (AR Investment Company), Al Rushaid Parker
Drilling Co. Ltd. (ARPD), and Sh. Abdullah Rasheed Al-Rushaid (incorporated
by reference to Exhibit 10.1 to the Companys Form 8-K dated April 15, 2008)10.2
    
    Credit Agreement, dated as of May 15, 2008, among Parker Drilling Company, as
Borrower, the several lenders from time to time parties thereto, Bank of
America, N.A., as Administrative Agent and L/C Issuer, and Banc of America
Securities LLC and Lehman Brothers Inc., as Joint Lead Arrangers and Book
Managers (incorporated by reference to Exhibit 10.1 to the Companys Form 8-K
dated May 21, 2008).
 37




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##### Table of Contents



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
 38




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##### Table of Contents



SIGNATURES
  PARKER DRILLING COMPANYDate: August 8, 2008By:
    /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 39




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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
 40