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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 MARCH 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-7573
 PARKER DRILLING COMPANY
 (Exact name of registrant as specified in its charter)
 Delaware
    
    73-0618660(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1401 Enclave Parkway, Suite 600, Houston, Texas
    
    77077(Address of principal executive offices)
    
    (Zip code)
 (281) 406-2000  (Registrants telephone number, including area code)
 þ o
 þ o
 þ o o
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TABLE OF CONTENTS
 PagePart I.Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets (Unaudited)
March 31, 2007 and December 31, 2006
    
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2007 and 2006
    
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II.Other Information
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    28Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30Officer CertificationsSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Dollars in Thousands)
 (Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    74,124
    
    
    $
    92,203Marketable securities
    
    
    83,493
    
    
    
    62,920Accounts and notes receivable, net
    
    
    123,229
    
    
    
    112,359Rig materials and supplies
    
    
    15,957
    
    
    
    15,000Deferred costs
    
    
    5,468
    
    
    
    6,662Deferred income taxes
    
    
    17,307
    
    
    
    17,307Other current assets
    
    
    25,348
    
    
    
    11,123Total current assets
    
    
    344,926
    
    
    
    317,574Property, plant and equipment less
accumulated depreciation and amortization of $583,849
at March 31, 2007 and $570,650 at December 31, 2006
    
    
    471,077
    
    
    
    435,473Goodwill
    
    
    100,315
    
    
    
    100,315Other noncurrent assets
    
    
    38,445
    
    
    
    47,939Total assets
    
    $
    954,763
    
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    89,877
    
    
    $
    95,226Accrued income taxes
    
    
    22,569
    
    
    
    6,677Total current liabilities
    
    
    112,446
    
    
    
    101,903Long-term debt
    
    
    329,206
    
    
    
    329,368Other long-term liabilities
    
    
    65,368
    
    
    
    10,931Long-term deferred tax liability
    
    
    10,633
    
    
    
    Contingencies (Note 9)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,369
    
    
    
    18,220Capital in excess of par value
    
    
    570,620
    
    
    
    568,253Accumulated deficit
    
    
    (151,879
    )
    
    
    (127,374
    )Total stockholders equity
    
    
    437,110
    
    
    
    459,099Total liabilities and stockholders equity
    
    $
    954,763
    
    
    $
    901,301
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Drilling and rental revenues:U.S. drilling
    
    $
    61,624
    
    
    $
    40,253International drilling
    
    
    59,674
    
    
    
    79,830Rental tools
    
    
    29,975
    
    
    
    27,251Total drilling and rental revenues
    
    
    151,273
    
    
    
    147,334Drilling and rental operating expenses:U.S. drilling
    
    
    26,761
    
    
    
    18,259International drilling
    
    
    45,783
    
    
    
    62,575Rental tools
    
    
    11,163
    
    
    
    10,470Depreciation and amortization
    
    
    18,059
    
    
    
    16,957Total drilling and rental operating expenses
    
    
    101,766
    
    
    
    108,261Drilling and rental operating income
    
    
    49,507
    
    
    
    39,073General and administration expense
    
    
    (5,888
    )
    
    
    (5,702
    )Gain on disposition of assets, net
    
    
    16,404
    
    
    
    448Total operating income
    
    
    60,023
    
    
    
    33,819Other income and (expense):Interest expense
    
    
    (6,330
    )
    
    
    (9,101
    )Changes in fair value of derivative positions
    
    
    (381
    )
    
    
    813Interest income
    
    
    1,784
    
    
    
    1,406Loss on extinguishment of debt
    
    
    
    
    
    
    (2
    )Minority interest
    
    
    (1,000
    )
    
    
    (964
    )Other
    
    
    7
    
    
    
    (17
    )Total other income and (expense)
    
    
    (5,920
    )
    
    
    (7,865
    )Income before income taxes
    
    
    54,103
    
    
    
    25,954Income tax expense:Current
    
    
    22,012
    
    
    
    5,563Deferred
    
    
    2,097
    
    
    
    8,933Total income tax expense
    
    
    24,109
    
    
    
    14,496Net income
    
    $
    29,994
    
    
    $
    11,458Basic earnings per share:Net income
    
    $
    0.28
    
    
    $
    0.11Diluted earnings per share:Net income
    
    $
    0.27
    
    
    $
    0.11Number of common shares used in computing
earnings per share:Basic
    
    
    107,743,870
    
    
    
    104,469,893Diluted
    
    
    109,464,663
    
    
    
    106,003,562
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    29,994
    
    
    $
    11,458Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    18,059
    
    
    
    16,957Gain on disposition of assets
    
    
    (16,404
    )
    
    
    (448
    )Deferred income tax expense
    
    
    2,097
    
    
    
    8,933Expenses not requiring cash
    
    
    2,796
    
    
    
    3,156Change in operating assets and liabilities
    
    
    (2,822
    )
    
    
    (4,375
    )Net cash provided by operating activities
    
    
    33,720
    
    
    
    35,681Cash flows from investing activities:Capital expenditures
    
    
    (52,991
    )
    
    
    (35,940
    )Proceeds from the sale of assets
    
    
    21,625
    
    
    
    958Purchase of marketable securities
    
    
    (48,675
    )
    
    
    (43,550
    )Proceeds from sale of marketable securities
    
    
    28,102
    
    
    
    61,550Net cash used in investing activities
    
    
    (51,939
    )
    
    
    (16,982
    )Cash flows from financing activities:Principal payments under debt obligations
    
    
    
    
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    99,947Proceeds from stock options exercised
    
    
    
    
    
    
    6,067Excess tax benefit from stock based compensation
    
    
    140
    
    
    
    1,741Net cash provided by financing activities
    
    
    140
    
    
    
    107,755Net increase (decrease) in cash and cash equivalents
    
    
    (18,079
    )
    
    
    126,454Cash and cash equivalents at beginning of year
    
    
    92,203
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    74,124
    
    
    $
    186,630Supplemental cash flow information:Interest paid
    
    $
    2,164
    
    
    $
    3,314Income taxes paid
    
    $
    3,052
    
    
    $
    2,487
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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 March 31, 2007 and December 31, 2006, (2) the results of operations for the three months
ended March 31, 2007 and 2006, and (3) cash flows for the three months ended March 31, 2007
and 2006. Results for the three months ended March 31, 2007 are not necessarily indicative of
the results that will be realized for the year ending December 31, 2007. The financial
statements should be read in conjunction with our Form 10-K for the year ended December 31,
2006.Stock-Based CompensationTotal stock-based compensation expense recognized under SFAS No. 123R
for the three months ended March 31, 2007 and 2006, was $1.8 million and $1.2 million
respectively, of which $1.8 million and $1.1 million, respectively, was related to restricted
stock plan expense. Stock-based compensation expense is included in our consolidated condensed
income statement in General and administration expense. Unvested stock options at December
31, 2006 and March 31, 2007 were 8,334 and zero, respectively. Total unrecognized compensation
cost related to stock options granted under our plans was approximately $1,200 at December 31,
2006 and zero at March 31, 2007. The Company had 3,238,800 outstanding and exercisable stock
options as of March 31, 2007, the aggregate intrinsic value of which was $4.2 million, with a
weighted average exercise price of $7.57. Unvested restricted stock awards at December 31, 2006
and March 31, 2007 were 1,556,485 shares and 2,167,498 shares, respectively. Total unrecognized
compensation cost related to unamortized restricted stock awards was $4.8 million as of December
31, 2006 and $10.1 million as of March 31, 2007. There were 793,845 restricted shares granted
(net of forfeitures) to certain officers and key employees during the three months ended March
31, 2007. The remaining unrecognized compensation cost related to unamortized restricted stock
awards will be amortized over a weighted-average vesting period of approximately one year.During the three months ended March 31, 2006 the valuation assumptions used in our Black-Scholes
option pricing model to estimate the fair value of stock options granted were 16.9 percent for
expected volatility, .25 years expected term, 4.23 percent risk free interest rate and there was
no expected dividend yield. There were no stock options granted in the first quarter of 2007.The tax benefit realized for the tax deductions from restricted stock
vesting totaled $140,000 for the three months ended March 31, 2007, which has been reported as a
financing cash inflow in the consolidated condensed statement of cash flows. No options were
exercised for the three months ended March 31, 2007.2.
    
    Common Stock Offering In January 2006, we issued 8,900,000 shares of common stock pursuant
to a Free Writing Prospectus dated January 17, 2006 and a Prospectus Supplement dated January
18, 2006. On January 23, 2006, we realized $11.23 per share or a total of $99.9 million of
net proceeds before expenses, but after underwriter discount, from the offering.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Earnings Per Share (EPS)
 Three Months Ended March 31, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    29,994,000
    
    
    
    107,743,870
    
    
    $
    0.28Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,720,792
    
    
    
    Diluted EPS:Net income
    
    $
    29,994,000
    
    
    
    109,464,663
    
    
    $
    0.27
 Three Months Ended March 31, 2006Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    11,458,000
    
    
    
    104,469,893
    
    
    $
    0.11Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,533,669
    
    
    
    Diluted EPS:Net income
    
    $
    11,458,000
    
    
    
    106,003,562
    
    
    $
    0.11
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 4.
    
    Business Segments The primary services we provide are as follows: U.S. drilling,
international drilling and rental tools. Information regarding our operations by industry
segment for the three months ended March 31, 2007 and 2006 is as follows:
 Three Months Ended March 31,2007
    
    
    2006(Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    61,624
    
    
    $
    40,253International drilling
    
    
    59,674
    
    
    
    79,830Rental tools
    
    
    29,975
    
    
    
    27,251Total drilling and rental revenues
    
    $
    151,273
    
    
    $
    147,334Drilling and rental operating income:U.S. drilling
    
    $
    27,474
    
    
    $
    16,937International drilling
    
    
    8,260
    
    
    
    9,950Rental tools
    
    
    13,773
    
    
    
    12,186Total drilling and rental operating income
    
    
    49,507
    
    
    
    39,073General and administration expense
    
    
    (5,888
    )
    
    
    (5,702
    )Gain on disposition of assets, net
    
    
    16,404
    
    
    
    448Total operating income
    
    
    60,023
    
    
    
    33,819Interest expense
    
    
    (6,330
    )
    
    
    (9,101
    )Changes in fair value of derivative positions
    
    
    (381
    )
    
    
    813Loss on extinguishment of debt
    
    
    
    
    
    
    (2
    )Other
    
    
    791
    
    
    
    425Income before income taxes
    
    $
    54,103
    
    
    $
    25,954
 5.
    
    Disposition of Assets During the first quarter of 2007 we sold workover barge Rigs 9 and 26
for proceeds of approximately $20.5 million resulting in a recognized gain of $15.1 million.
These two rigs were classified as assets held for sale as of December 31, 2006.6.
    
    Accounting for Uncertainty in Income Taxes In June 2006, the FASB issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109
(FIN 48). This accounting statement prescribes financial statement recognition threshold
and measurement criteria for tax positions taken or expected to be taken in tax returns.The Company adopted FIN 48 effective January 1, 2007. As a result, the Company has increased its
liability by $54.5 million for unrecognized tax amounts related to various federal, state and
international tax matters. Included in this amount is $35.1 million of tax positions, that, if
recognized, would have impacted the Companys effective tax rate. The recognition of this
liability is required under FIN 48 because of the uncertainty regarding the ultimate outcome of
certain tax positions. Although the Companys position regarding the ultimate outcome of these
matters is unchanged, the Company is now required to record a liability at a lower threshold
across the Companys worldwide operations. The Company has accounted for the entire $54.5
million as a reduction to the January 1, 2007 balance of retained earnings.Of the $54.5 million referred to above, $49 million is related to Kazakhstan. For a complete
overview of this issue, see Kazakhstan Tax Claims in Note 10.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 Accounting for Uncertainty in Income Taxes (continued)The Company has classified currency fluctuations, interest and penalties as a component of tax
expense. On January 1, 2007, we recorded approximately $41.3 million for interest and penalties
related to uncertain tax positions. During the three months ended March 31, 2007, the Company
recognized an additional liability of approximately $1.9 million, comprising of currency
fluctuations, interest and a release of a previously recognized liability. The Company does not
expect that the unrecognized tax amounts will change significantly within the next twelve
months.The Company conducts business globally and, as a result, the Company or one or more of its
subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business our returns are subject to examination
by taxing authorities throughout the world.7.
    
    Income Tax Expense Income tax expense was $24.1 million for the first quarter of 2007, as
compared to income tax expense of $14.5 million for the first quarter of 2006. The $9.6
million increase in taxes was due primarily to the impact of the gain recognized upon the sale
of the two workover barge rigs, the inclusion of FIN 48 (described in Note 6) and the increase
in operating income primarily from U.S. operations.8.
    
    Long-Term Debt
 March 31, 2007
    
    
    December 31, 2006(Dollars in Thousands)Senior Notes:Interest rate floating (LIBOR + 4.75%), due 2010
    
    $
    100,000
    
    
    $
    100,000Interest rate 9.625%, due 2013
    
    
    229,206
    
    
    
    229,368Total debt
    
    
    329,206
    
    
    
    329,368Less current portion
    
    
    
    
    
    
    Total long-term debt
    
    $
    329,206
    
    
    $
    329,368
 Our current $40.0 million credit facility is available for general corporate purposes and to
fund reimbursement obligations under letters of credit the banks issue on our behalf pursuant to
this facility. Availability under the revolving credit facility is subject to a borrowing base
limitation based on 85 percent of eligible receivables plus a value for eligible rental tools
equipment. The credit facility calls for a borrowing base calculation only when the credit
facility has outstanding loans, including letters of credit, totaling at least $25.0 million.
As of March 31, 2007, there were $21.1 million in letters of credit outstanding and no loans.
On March 1, 2006, an amendment was signed to eliminate the $25.0 million sub-limit for letters
of credit and to give us the ability to prepay outstanding Senior Notes and Senior Floating Rate
Notes without limitation concerning commitments under the credit facility.9.
    
    Derivative Instruments We use derivative instruments to manage risks associated with
interest rate fluctuations in connection with our $100.0 million Senior Floating Rate Notes.
These derivative instruments, which consist of variable-to-fixed interest rate swaps, do not
meet the hedge criteria in SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and are therefore not designated as hedges. Accordingly, the change in the fair
value of the interest rate swaps is recognized currently in earnings.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 Derivative Instruments (continued)As of March 31, 2007, we had the following derivative instruments outstanding related to our
interest rate swaps, which are included in Other current assets and Other noncurrent assets
as determined by their termination dates:
 Effective
    
    Termination
    Notional
    Floating
    
    Fixed
    
    FairDate
    
    Date
    
    Amount
    
    Rate
    
    Rate
    
    Value(Dollars in Thousands)September 1, 2005
    
    September 2, 2008
    
    $
    50,000
    
    
    Three-month LIBOR
plus 475 basis points
    
    
    8.83
    %
    
    $
    543September 1, 2005
    
    September 4, 2007
    
    $
    50,000
    
    
    Three-month LIBOR plus 475 basis points
    
    
    8.48
    %
    
    
    398$
    941
 10.
    
    ContingenciesKazakhstan Tax ClaimsOn October 12, 2005, the Kazakhstan Branch (PKD Kazakhstan) of Parker Drilling Company
International Limited (PDCIL) received an Act of Tax Audit from the Ministry of Finance of
Kazakhstan (MinFin) assessing PKD Kazakhstan an amount of KZT (Kazakhstan Tenge) 14.9 billion
(approximately $115.1 million). Approximately KZT 7.5 billion or $58.3 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 KZT 7.4 billion or $56.8
million for corporate income tax, individual income tax and social tax, administrative fines and
interest in connection with the reimbursements received from the client for the upgrade of barge
Rig 257 and other issues (the Income Tax Assessment).The VAT and Income Tax Assessment were both appealed to the Astana City Court and on April 6,
2006, the Astana City Court issued an opinion in favor of PKD Kazakhstan on the Income Tax
Assessment and in favor of MinFin on the VAT Assessment, but reduced the amount of the VAT
Assessment. MinFin and PKD Kazakhstan both appealed the decision of the Astana City Court to
the Civil Panel of the Supreme Court of Kazakhstan. On May 24, 2006, the Civil Panel of the
Supreme Court issued a decision upholding the ruling of the Astana City Court on the VAT
Assessment. Consistent with its contractual obligations, on November 20, 2006, the client
advanced the actual amount of the VAT Assessment and this amount has been remitted to MinFin.
The client has also contractually agreed to reimburse PKD Kazakhstan for any incremental income
taxes that PKD Kazakhstan incurs from the reimbursement of this VAT AssessmentContrary to two previous rulings on this precise issue, the May 24, 2006, ruling of the Civil
Panel of the Supreme Court affirmed the Income Tax Assessment. PKD Kazakhstan immediately made
application for a stay of execution of the ruling, based on the fact that the Supreme Court has
decided this issue in favor of PKD Kazakhstan on two previous occasions and because the decision
is inconsistent with the US-Kazakhstan tax treaty, and also requested that the five-member
supervisory panel of the Supreme Court grant a supervisory review of the decision. On May 30,
2006, the Supreme Court granted a stay of execution of the decision pending a determination of
the five-member panel of the Supreme Court whether or not to grant supervisory review of the
decision.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 Contingencies (continued)The Supreme Court repeatedly postponed a decision on the issue of supervisory review, which
postponement was apparently granted to allow the Competent Authority from the U.S. and
Kazakhstan to address this matter. Competent Authority review is a tax treaty procedure to
resolve disputes as to which country may tax income covered under the treaty. In response to
the petition initiated by PKD Kazakhstan and pursuant to the Mutual Agreement Procedures of the
U.S.-Kazakhstan Tax Treaty, the Competent Authority of the U.S. IRS Treaty Division and MinFin
held meetings in Astana, Kazakhstan, on March 21 and 22, 2007, to address the treaty issues.
The respective Competent Authorities were unable to achieve mutual agreement as to which country
may tax the income in issue under the tax treaty.On April 12, 2007, the Supreme Court determined that the May 24, 2006, ruling of the Supreme
Court should be reviewed by a five member supervisory panel of the Supreme Court because there
was doubt as to the lawfulness and validity of the May 24, 2006 ruling. In its ruling sending
the case to the supervisory panel, the Supreme Court cited examples of how the May 24, 2006,
ruling had wrongfully applied certain provisions of the Kazakhstan Tax Code, had relied upon
irrelevant evidence and had not taken into account the double taxation provisions of the
US-Kazakhstan Tax Treaty. Based on previous rulings of the Supreme Court in favor of PKD
Kazakhstan, the recent ruling subjecting the latest Supreme Court decision to supervisory review
and the provisions of the tax treaty, the Company has a substantial basis to believe the May 24,
2006, decision will not be upheld.The accounting treatment of this pending tax matter under the new FIN 48 interpretation is
addressed in Note 6.Bangladesh ClaimIn September 2005, a subsidiary of the Company was served with a lawsuit filed in the 152nd
District Court of Harris County State of Texas on behalf of numerous citizens of Bangladesh
claiming $250 million in damages due to various types of property damage and personal injuries
(none involving loss of life) arising as a result of two blowouts that occurred in Bangladesh in
January and June 2005, although only the June 2005 blowout involved the Company. This case was
dismissed against the subsidiary of the Company based on forum non conveniens, a legal defense
raised by the subsidiary claiming that Houston, Texas, is not the appropriate location for this
suit to be filed. The plaintiffs have appealed this dismissal; however the Company believes the
plaintiffs prospects of being successful on appeal is remote.Asbestos-Related ClaimsIn August 2004, the Company was notified that certain of its subsidiaries have been named, along
with other defendants, in several complaints that have been filed in the Circuit Courts of the
State of Mississippi by several hundred persons that allege that they were employed by some of
the named defendants between approximately 1965 and 1986. The complaints name as defendants
numerous other companies that are not affiliated with the Company, including companies that
allegedly manufactured drilling related products containing asbestos that are the subject of the
complaints.The complaints allege that the Companys subsidiaries and other drilling contractors used
asbestos-containing products in offshore drilling operations, land-based drilling operations and
in drilling structures, drilling rigs, vessels and other equipment and assert claims based on,
among other things, negligence and strict liability and claims under the Jones Act and that the
Plaintiffs are entitled to monetary damages. Based on the report of the special master, these
complaints have been severed and venue of the claims transferred to the county in which the
plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to
the filing of amended complaints, Parker has joined with other co-defendants in filing motions
to compel discovery to determine what plaintiffs have an employment relationship with which
defendant, including whether or not any plaintiffs have an employment relationship with
subsidiaries of the Company. Out of 528 amended single-plaintiff complaints filed to date,
eleven plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.
 11




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##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 Contingencies (continued)The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously
and, based on the information available to the Company at this time, the Company does not expect
the outcome to have a material adverse effect on its financial condition, results of operations
or cash flows; however, there can be no assurance as to the ultimate outcome of these lawsuits.11.
    
    Recent Accounting PronouncementsIn September 2006, the FASB issued SFAS No. 157, Fair Value Measures (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value and enhances disclosures
about fair value measures required under other accounting pronouncements, but does not change
existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is
effective for fiscal years beginning after November 15, 2007 (i.e., the beginning of the
Companys fiscal year 2008). The Company is currently evaluating the impact of SFAS 157 on its
Consolidated Financial Statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Liabilities-Including an Amendment of FASB Statement No. 115(SFAS No. 159). SFAS No. 159
allows certain financial assets and liabilities to be recognized, at the Companys election, at
fair market value, with any gains or losses for the period recorded in the statement of income.
This gives a company the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. The statement is effective for fiscal years beginning after November 15,
2007. The Company has not determined the impact on its Consolidated Financial Statements, if
any, of the adoption of SFAS No. 159.12.
    
    Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements Set
forth on the following pages are the unaudited consolidating condensed financial statements of
(i) Parker Drilling, (ii) our restricted subsidiaries that are guarantors of the Senior Notes
and (iii) our restricted and unrestricted subsidiaries that are not guarantors of the Senior
Notes. All of our Senior Notes are guaranteed by substantially all of the restricted
subsidiaries of Parker Drilling. There are currently no restrictions on the ability of the
restricted subsidiaries to transfer funds to Parker Drilling in the form of cash dividends,
loans or advances. Parker Drilling is a holding company with no operations, other than
through its subsidiaries.The non-guarantor subsidiaries are AralParker (a Kazakhstan closed joint stock company, owned 80
percent by Parker Drilling (Kazakstan), Ltd. and 20 percent by Aralnedra, CJSC), Casuarina
Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard Drilling of
South America, Inc., Mallard Drilling of Venezuela, Inc., Parker Drilling Investment Company,
Parker Drilling (Nigeria) Limited, Parker Drilling Company (Bolivia) S.A., Parker Drilling
Company Kuwait Limited, Parker Drilling Company Limited (Bahamas), Parker Drilling Company of
New Zealand Limited, Parker Drilling Company of Sakhalin, Parker Drilling de Mexico, S. de R.L.
de C.V., Parker Drilling International of New Zealand Limited, Parker Drilling Tengiz, Ltd., PD
Servicios Integrales, S. de R.L. de C.V., PKD Sales Corporation, Parker SMNG Drilling Limited
Liability Company (owned 50 percent by Parker Drilling Company International, LLC), Parker
Drilling Asia Pacific, LLC, Parker Drilling Kazakhstan B.V., Parker Drilling Netherlands B.V.,
Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling Overseas
B.V., Parker Drilling Russia B.V., Parker Drilling Dutch B.V., Parker Drilling AME Limited,
Parker Drillsource, LLC, Parker 3source, LLC, Parker Enex, LLC, Parker Hungary Rig Holdings
Limited Liability Company, Parker 5272, LLC, Parker Drilling Spain Rig Services S.L., Parker
Cyprus Leasing Limited, Parker Cyprus Ventures Limited, PD International Holdings C.V., PD Dutch
Holdings C.V., PD Offshore Holdings C.V. and PD Selective Holdings, C.V. We are providing
unaudited consolidating condensed financial information of the parent, Parker Drilling, the
guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31, 2007 and December 31,
2006 and for the three months ended March 31, 2007 and 2006. The condensed consolidating
financial statements present investments in both consolidated and unconsolidated subsidiaries
using the equity method of accounting.
 12




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
 March 31, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    41,390
    
    
    $
    18,657
    
    
    $
    14,077
    
    
    $
    
    
    
    $
    74,124Marketable securities
    
    
    81,500
    
    
    
    1,993
    
    
    
    
    
    
    
    
    
    
    
    83,493Accounts and notes receivable, net
    
    
    62,209
    
    
    
    159,619
    
    
    
    37,349
    
    
    
    (135,948
    )
    
    
    123,229Rig materials and supplies
    
    
    
    
    
    
    8,062
    
    
    
    7,895
    
    
    
    
    
    
    
    15,957Deferred costs
    
    
    
    
    
    
    4,401
    
    
    
    1,067
    
    
    
    
    
    
    
    5,468Other current assets
    
    
    17,862
    
    
    
    23,199
    
    
    
    1,540
    
    
    
    54
    
    
    
    42,655Total current assets
    
    
    202,961
    
    
    
    215,931
    
    
    
    61,928
    
    
    
    (135,894
    )
    
    
    344,926Property, plant and equipment, net
    
    
    134
    
    
    
    375,358
    
    
    
    95,463
    
    
    
    122
    
    
    
    471,077Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    657,164
    
    
    
    899,593
    
    
    
    6,311
    
    
    
    (1,563,068
    )
    
    
    Other noncurrent assets
    
    
    5,838
    
    
    
    21,820
    
    
    
    10,787
    
    
    
    
    
    
    
    38,445Total assets
    
    $
    866,097
    
    
    $
    1,613,017
    
    
    $
    174,489
    
    
    $
    (1,698,840
    )
    
    $
    954,763LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    52,749
    
    
    $
    178,311
    
    
    $
    43,919
    
    
    $
    (185,102
    )
    
    $
    89,877Accrued income taxes
    
    
    620
    
    
    
    21,445
    
    
    
    504
    
    
    
    
    
    
    
    22,569Total current liabilities
    
    
    53,369
    
    
    
    199,756
    
    
    
    44,423
    
    
    
    (185,102
    )
    
    
    112,446Long-term debt
    
    
    329,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,206Other long-term liabilities
    
    
    (28,171
    )
    
    
    85,008
    
    
    
    8,531
    
    
    
    
    
    
    
    65,368Long-term deferred tax liability
    
    
    
    
    
    
    10,633
    
    
    
    
    
    
    
    
    
    
    
    10,633Intercompany payables
    
    
    74,583
    
    
    
    577,255
    
    
    
    31,520
    
    
    
    (683,358
    )
    
    
    Stockholders equity:Common stock
    
    
    18,369
    
    
    
    39,899
    
    
    
    21,153
    
    
    
    (61,052
    )
    
    
    18,369Capital in excess of par value
    
    
    570,620
    
    
    
    1,022,780
    
    
    
    68,926
    
    
    
    (1,091,706
    )
    
    
    570,620Retained earnings (accumulated deficit)
    
    
    (151,879
    )
    
    
    (322,314
    )
    
    
    (64
    )
    
    
    322,378
    
    
    
    (151,879
    )Total stockholders equity
    
    
    437,110
    
    
    
    740,365
    
    
    
    90,015
    
    
    
    (830,380
    )
    
    
    437,110Total liabilities and stockholders equity
    
    $
    866,097
    
    
    $
    1,613,017
    
    
    $
    174,489
    
    
    $
    (1,698,840
    )
    
    $
    954,763
 13




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
 December 31, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    60,029
    
    
    $
    14,367
    
    
    $
    17,807
    
    
    $
    
    
    
    $
    92,203Marketable securities
    
    
    60,920
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    62,920Accounts and notes receivable, net
    
    
    53,844
    
    
    
    143,905
    
    
    
    33,625
    
    
    
    (119,015
    )
    
    
    112,359Rig materials and supplies
    
    
    
    
    
    
    7,173
    
    
    
    7,827
    
    
    
    
    
    
    
    15,000Deferred costs
    
    
    
    
    
    
    6,321
    
    
    
    341
    
    
    
    
    
    
    
    6,662Other current assets
    
    
    18,105
    
    
    
    8,969
    
    
    
    1,319
    
    
    
    37
    
    
    
    28,430Total current assets
    
    
    192,898
    
    
    
    182,735
    
    
    
    60,919
    
    
    
    (118,978
    )
    
    
    317,574Property, plant and equipment, net
    
    
    134
    
    
    
    354,356
    
    
    
    80,861
    
    
    
    122
    
    
    
    435,473Assets held for sale
    
    
    
    
    
    
    4,828
    
    
    
    
    
    
    
    
    
    
    
    4,828Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    694,050
    
    
    
    846,800
    
    
    
    (8,053
    )
    
    
    (1,532,797
    )
    
    
    Other noncurrent assets
    
    
    18,043
    
    
    
    19,774
    
    
    
    5,294
    
    
    
    
    
    
    
    43,111Total assets
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    44,667
    
    
    $
    175,092
    
    
    $
    44,611
    
    
    $
    (169,144
    )
    
    $
    95,226Accrued income taxes
    
    
    (10,514
    )
    
    
    17,039
    
    
    
    152
    
    
    
    
    
    
    
    6,677Total current liabilities
    
    
    34,153
    
    
    
    192,131
    
    
    
    44,763
    
    
    
    (169,144
    )
    
    
    101,903Long-term debt
    
    
    329,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,368Other long-term liabilities
    
    
    1,596
    
    
    
    9,030
    
    
    
    265
    
    
    
    40
    
    
    
    10,931Intercompany payables
    
    
    80,909
    
    
    
    544,250
    
    
    
    37,219
    
    
    
    (662,378
    )
    
    
    Stockholders equity:Common stock
    
    
    18,220
    
    
    
    39,899
    
    
    
    21,251
    
    
    
    (61,150
    )
    
    
    18,220Capital in excess of par value
    
    
    568,253
    
    
    
    1,013,736
    
    
    
    34,526
    
    
    
    (1,048,262
    )
    
    
    568,253Retained earnings (accumulated deficit)
    
    
    (127,374
    )
    
    
    (290,238
    )
    
    
    997
    
    
    
    289,241
    
    
    
    (127,374
    )Total stockholders equity
    
    
    459,099
    
    
    
    763,397
    
    
    
    56,774
    
    
    
    (820,171
    )
    
    
    459,099Total liabilities and stockholders equity
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301
 14




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##### Table of Contents





PARKER DRILLING COMPANY AND SUBSIDIARIESCONSOLIDATING CONDENSED STATEMENT OF OPERATIONS(Dollars in Thousands) Three months ended March 31, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    138,138
    
    
    $
    19,842
    
    
    $
    (6,707
    )
    
    $
    151,273Drilling and rental operating expenses
    
    
    
    
    
    
    73,574
    
    
    
    16,840
    
    
    
    (6,707
    )
    
    
    83,707Depreciation and amortization
    
    
    
    
    
    
    17,021
    
    
    
    1,038
    
    
    
    
    
    
    
    18,059Drilling and rental operating income
    
    
    
    
    
    
    47,543
    
    
    
    1,964
    
    
    
    
    
    
    
    49,507General and administration expense (1)
    
    
    (41
    )
    
    
    (5,786
    )
    
    
    (61
    )
    
    
    
    
    
    
    (5,888
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    16,424
    
    
    
    (20
    )
    
    
    
    
    
    
    16,404Total operating income (loss)
    
    
    (41
    )
    
    
    58,181
    
    
    
    1,883
    
    
    
    
    
    
    
    60,023Other income and (expense):Interest expense
    
    
    (7,521
    )
    
    
    (11,796
    )
    
    
    (236
    )
    
    
    13,223
    
    
    
    (6,330
    )Changes in fair value of derivative
positions
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (381
    )Interest income
    
    
    12,122
    
    
    
    2,098
    
    
    
    787
    
    
    
    (13,223
    )
    
    
    1,784Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )Other
    
    
    
    
    
    
    (6
    )
    
    
    13
    
    
    
    
    
    
    
    7Equity in net earnings of subsidiaries
    
    
    39,559
    
    
    
    
    
    
    
    
    
    
    
    (39,559
    )
    
    
    Total other income and (expense)
    
    
    43,779
    
    
    
    (9,704
    )
    
    
    (436
    )
    
    
    (39,559
    )
    
    
    (5,920
    )Income (loss) before income taxes
    
    
    43,738
    
    
    
    48,477
    
    
    
    1,447
    
    
    
    (39,559
    )
    
    
    54,103Income tax expense (benefit):Current
    
    
    13,332
    
    
    
    8,059
    
    
    
    621
    
    
    
    
    
    
    
    22,012Deferred
    
    
    412
    
    
    
    1,416
    
    
    
    269
    
    
    
    
    
    
    
    2,097Income tax expense
    
    
    13,744
    
    
    
    9,475
    
    
    
    890
    
    
    
    
    
    
    
    24,109Net income (loss)
    
    $
    29,994
    
    
    $
    39,002
    
    
    $
    557
    
    
    $
    (39,559
    )
    
    $
    29,994
 (1)
    
    All field operations general and administration expenses are included in operating expenses.
 15




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
 Three Months Ended March 31, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    117,746
    
    
    $
    42,680
    
    
    $
    (13,092
    )
    
    $
    147,334Drilling and rental operating expenses
    
    
    
    
    
    
    63,181
    
    
    
    41,215
    
    
    
    (13,092
    )
    
    
    91,304Depreciation and amortization
    
    
    
    
    
    
    15,937
    
    
    
    1,020
    
    
    
    
    
    
    
    16,957Drilling and rental operating income
    
    
    
    
    
    
    38,628
    
    
    
    445
    
    
    
    
    
    
    
    39,073General and administration expense(1)
    
    
    (55
    )
    
    
    (5,638
    )
    
    
    (9
    )
    
    
    
    
    
    
    5,702Gain on disposition of assets, net
    
    
    
    
    
    
    401
    
    
    
    47
    
    
    
    
    
    
    
    448Total operating income (loss)
    
    
    (55
    )
    
    
    33,391
    
    
    
    483
    
    
    
    
    
    
    
    33,819Other income and (expense):Interest expense
    
    
    (10,287
    )
    
    
    (11,796
    )
    
    
    (510
    )
    
    
    13,492
    
    
    
    (9,101
    )Changes in fair value of derivative positions
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813Interest income
    
    
    12,074
    
    
    
    2,017
    
    
    
    807
    
    
    
    (13,492
    )
    
    
    1,406Loss on extinguishment of debt
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (964
    )
    
    
    
    
    
    
    (964
    )Other
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    (17
    )Equity in net earnings of subsidiaries
    
    
    18,943
    
    
    
    
    
    
    
    
    
    
    
    (18,943
    )
    
    
    Total other income and (expense)
    
    
    21,541
    
    
    
    (9,796
    )
    
    
    (667
    )
    
    
    (18,943
    )
    
    
    (7,865
    )Income (loss) before income taxes
    
    
    21,486
    
    
    
    23,595
    
    
    
    (184
    )
    
    
    (18,943
    )
    
    
    25,954Income tax expense (benefit):Current
    
    
    744
    
    
    
    3,011
    
    
    
    1,808
    
    
    
    
    
    
    
    5,563Deferred
    
    
    9,284
    
    
    
    (290
    )
    
    
    (61
    )
    
    
    
    
    
    
    8,933Income tax expense
    
    
    10,028
    
    
    
    2,721
    
    
    
    1,747
    
    
    
    
    
    
    
    14,496Income (loss) from continuing operations
    
    
    11,458
    
    
    
    20,874
    
    
    
    (1,931
    )
    
    
    (18,943
    )
    
    
    11,458Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    11,458
    
    
    $
    20,874
    
    
    $
    (1,931
    )
    
    $
    (18,943
    )
    
    $
    11,458
 
 (1)
    
    All field operations general and administration expenses are included in operating
expenses. 16




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Three months ended March 31, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    29,994
    
    
    $
    39,002
    
    
    $
    557
    
    
    $
    (39,559
    )
    
    $
    29,994Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    17,021
    
    
    
    1,038
    
    
    
    
    
    
    
    18,059Amortization of debt issuance and premium
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposition of assets
    
    
    
    
    
    
    (16,424
    )
    
    
    20
    
    
    
    
    
    
    
    (16,404
    )Deferred income tax expense (benefit)
    
    
    412
    
    
    
    1,416
    
    
    
    269
    
    
    
    
    
    
    
    2,097Other
    
    
    2,438
    
    
    
    456
    
    
    
    (98
    )
    
    
    
    
    
    
    2,796Equity in net earnings of subsidiaries
    
    
    (39,559
    )
    
    
    
    
    
    
    
    
    
    
    39,559
    
    
    
    Change in assets and liabilities:
    
    
    11,095
    
    
    
    (42,625
    )
    
    
    28,708
    
    
    
    
    
    
    
    (2,822
    )Net cash (used in) provided by operating activities
    
    
    4,380
    
    
    
    (1,154
    )
    
    
    30,494
    
    
    
    
    
    
    
    33,720Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (38,174
    )
    
    
    (14,817
    )
    
    
    
    
    
    
    (52,991
    )Investment in joint venture
Proceeds from the sale of assets
    
    
    
    
    
    
    20,969
    
    
    
    656
    
    
    
    
    
    
    
    21,625Proceeds from insurance settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of marketable securities
    
    
    (48,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,675
    )Sale of marketable securities
    
    
    28,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,102Net cash used in investing activities
    
    
    (20,573
    )
    
    
    (17,205
    )
    
    
    (14,161
    )
    
    
    
    
    
    
    (51,939
    )Cash flows from financing activities:Principal payments under debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess tax benefit from stock options exercised
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140Intercompany advances, net
    
    
    (2,586
    )
    
    
    22,649
    
    
    
    (20,063
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (2,446
    )
    
    
    22,649
    
    
    
    (20,063
    )
    
    
    
    
    
    
    140Net change in cash and cash equivalents
    
    
    (18,639
    )
    
    
    4,290
    
    
    
    (3,730
    )
    
    
    
    
    
    
    (18,079
    )Cash and cash equivalents at beginning of period
    
    
    60,029
    
    
    
    14,367
    
    
    
    17,807
    
    
    
    
    
    
    
    92,203Cash and cash equivalents at end of period
    
    $
    41,390
    
    
    $
    18,657
    
    
    $
    14,077
    
    
    $
    
    
    
    $
    74,124
 17




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 Three Months Ended March 31, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    11,458
    
    
    $
    20,874
    
    
    $
    (1,931
    )
    
    $
    (18,943
    )
    
    $
    11,458Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    15,937
    
    
    
    1,020
    
    
    
    
    
    
    
    16,957Gain on disposition of assets
    
    
    
    
    
    
    (401
    )
    
    
    (47
    )
    
    
    
    
    
    
    (448
    )Deferred tax expense (benefit)
    
    
    9,284
    
    
    
    (290
    )
    
    
    (61
    )
    
    
    
    
    
    
    8,933Expenses not requiring cash
    
    
    2,856
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    3,156Equity in net earnings of subsidiaries
    
    
    (18,943
    )
    
    
    
    
    
    
    
    
    
    
    18,943
    
    
    
    Change in operating assets and liabilities
    
    
    2,159
    
    
    
    (10,771
    )
    
    
    4,237
    
    
    
    
    
    
    
    (4,375
    )Net cash provided by operating activities
    
    
    6,814
    
    
    
    25,649
    
    
    
    3,218
    
    
    
    
    
    
    
    35,681Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (35,079
    )
    
    
    (861
    )
    
    
    
    
    
    
    (35,940
    )Proceeds from the sale of assets
    
    
    
    
    
    
    189
    
    
    
    769
    
    
    
    
    
    
    
    958Purchase of marketable securities
    
    
    (43,550
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,550
    )Proceeds from sale of marketable securities
    
    
    59,550
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    61,550Net cash provided by (used in) investing activities
    
    
    16,000
    
    
    
    (32,890
    )
    
    
    (92
    )
    
    
    
    
    
    
    (16,982
    )Cash flows from financing activities:Proceeds from common stock offering
    
    
    99,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,947Proceeds from stock options exercised
    
    
    6,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067Excess tax benefit from stock options exercised
    
    
    1,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,741Intercompany advances, net
    
    
    (9,442
    )
    
    
    7,036
    
    
    
    2,406
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    98,313
    
    
    
    7,036
    
    
    
    2,406
    
    
    
    
    
    
    
    107,755Net increase (decrease) in cash and cash equivalents
    
    
    121,127
    
    
    
    (205
    )
    
    
    5,532
    
    
    
    
    
    
    
    126,454Cash and cash equivalents at beginning of year
    
    
    31,978
    
    
    
    11,145
    
    
    
    17,053
    
    
    
    
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    153,105
    
    
    $
    10,940
    
    
    $
    22,585
    
    
    $
    
    
    
    $
    186,630
 18




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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;
    
    capital expenditures for acquisition of rigs, construction of new rigs or major upgrades to existing rigs;
    
    entering into joint venture agreements with local companies;
    
    our future liquidity;
    
    availability and sources of funds to reduce our debt and expectations of when debt will be reduced;
    
    the outcome of pending or future legal proceedings, tax assessments and other claims;
    
    the availability of insurance coverage for pending 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;
    
    adverse environmental events;
    
    adverse weather conditions;
    
    changes in the concentration of customer and supplier relationships;
    
    unexpected cost increases for new construction and upgrade and refurbishment projects;
    
    delays in obtaining components for capital projects;
    
    shortages of skilled labor;
    
    unanticipated cancellation of contracts by operators without cause;
    
    breakdown of equipment and other operational problems;
    
    changes in competition; and
    
    other similar factors (some of which are discussed in documents referred to in this Form 10-Q).
 19




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##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
  OUTLOOK AND OVERVIEW
  Overview
    Outlook
    20




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##### Table of Contents



OUTLOOK AND OVERVIEW (continued)
 Outlook (continued)
     21




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RESULTS OF OPERATIONS
 Three Months Ended March 31, 2007 Compared with Three Months Ended March 31, 2006
   Three Months Ended March 31,2007
    
    
    2006(Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    61,624
    
    
    
    41
    %
    
    $
    40,253
    
    
    
    27
    %International drilling
    
    
    59,674
    
    
    
    39
    %
    
    
    79,830
    
    
    
    54
    %Rental tools
    
    
    29,975
    
    
    
    20
    %
    
    
    27,251
    
    
    
    19
    %Total drilling and rental revenues
    
    $
    151,273
    
    
    
    100
    %
    
    $
    147,334
    
    
    
    100
    %Drilling and rental operating income:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    34,863
    
    
    
    57
    %
    
    $
    21,994
    
    
    
    55
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    13,891
    
    
    
    23
    %
    
    
    17,255
    
    
    
    22
    %Rental tools gross margin excluding depreciation and amortization (1)
    
    
    18,812
    
    
    
    63
    %
    
    
    16,781
    
    
    
    62
    %Depreciation and amortization
    
    
    (18,059
    )
    
    
    
    
    
    
    (16,957
    )Total drilling and rental operating income (2)
    
    
    49,507
    
    
    
    
    
    
    
    39,073General and administration expense
    
    
    (5,888
    )
    
    
    
    
    
    
    (5,702
    )Gain on disposition of assets, net
    
    
    16,404
    
    
    
    
    
    
    
    448Total operating income
    
    $
    60,023
    
    
    
    
    
    
    $
    33,819
 
 (1)
    
    Drilling and rental gross margins, excluding depreciation and amortization, are computed as
drilling and rental revenues less direct drilling and rental operating expenses, excluding
depreciation and amortization expense; drilling and rental gross margin percentages are
computed as drilling and rental gross margin excluding depreciation and amortization as a
percent of drilling and rental revenues. The gross margin amounts excluding depreciation and
amortization and gross margin percentages should not be used as a substitute for those amounts
reported under accounting principles generally accepted in the United States (GAAP).
However, we monitor our business segments based on several criteria, including drilling and
rental gross margin. Management believes that this information is useful to our investors
because it more accurately reflects cash generated by segment. Such gross margin amounts are
reconciled to our most comparable GAAP measure as follows: InternationalU.S. Drilling
    
    
    Drilling
    
    
    Rental Tools(Dollars in Thousands)Three Months Ended March 31, 2007Drilling and rental operating income (2)
    
    $
    27,474
    
    
    $
    8,260
    
    
    $
    13,773Depreciation and amortization
    
    
    7,389
    
    
    
    5,631
    
    
    
    5,039Drilling and rental gross margin excluding depreciation and amortization
    
    $
    34,863
    
    
    $
    13,891
    
    
    $
    18,812Three Months Ended March 31, 2006Drilling and rental operating income (2)
    
    $
    16,937
    
    
    $
    9,950
    
    
    $
    12,186Depreciation and amortization
    
    
    5,057
    
    
    
    7,305
    
    
    
    4,595Drilling and rental gross margin excluding depreciation and amortization
    
    $
    21,994
    
    
    $
    17,255
    
    
    $
    16,781
 
 (2)
    
    Drilling and rental operating income  drilling and rental revenues less direct drilling
and rental operating expenses, including depreciation and amortization expense. 22




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 U.S. Drilling Segment
   International Drilling Segment
      23




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Rental Tools Segment
   Other Financial Data
    LIQUIDITY AND CAPITAL RESOURCES
 Operating Cash Flows
  24




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Operating Cash Flows (continued)
  Financing Activity
    
    
    $100.0 million aggregate principal amount of Senior Floating Rate Notes bearing interest
at a rate of LIBOR plus 4.75%, which are due September 1, 2010; and
    
    $225.0 million aggregate principal amount of 9.625% Senior Notes, which are due October
1, 2013 plus an associated $4.2 million in unamortized debt premium.
  25




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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)
    
    $
    325,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    225,000Long-term debt  interest (1)
    
    
    170,862
    
    
    
    30,413
    
    
    
    60,973
    
    
    
    46,992
    
    
    
    32,484Operating leases (2)
    
    
    11,416
    
    
    
    5,572
    
    
    
    4,487
    
    
    
    1,357
    
    
    
    Purchase commitments (3)
    
    
    45,689
    
    
    
    45,689
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    552,967
    
    
    $
    81,674
    
    
    $
    65,460
    
    
    $
    148,349
    
    
    $
    257,484Commercial commitments:Revolving credit facility (4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit (4)
    
    
    21,120
    
    
    
    21,120
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    21,120
    
    
    $
    21,120
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the 9.625% Senior
Notes. The remaining unamortized premium of $4.2 million is not included in the contractual
cash obligations schedule. A portion of the interest on the Senior Floating Rate Notes has
been fixed through variable-to-fixed interest rate swap agreements. The issuer (Bank of
America, N.A.) of each swap has the option to extend each swap for an additional two years at
the termination of the initial swap period. For the purpose of this table, the highest
interest rate currently hedged is used in calculating the interest on future floating rate
periods.(2)
    
    Operating leases consist of lease agreements in excess of one year for office space,
equipment, vehicles and personal property.(3)
    
    We have purchase commitments outstanding as of March 31, 2007, related to rig upgrade
projects and new rig construction.(4)
    
    We have a $40.0 million revolving credit facility. As of March 31, 2007, no amounts have
been drawn down, but $21.1 million of availability has been used to support letters of credit
that have been issued, resulting in an estimated $18.9 million of availability. The revolving
credit facility expires in December 2007. OTHER MATTERS
 Critical Accounting Policies
 Accounting for Uncertainty in Income Taxes
 26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Effective
    
    Termination
    
    Notional
    
    Floating
    
    Fixed
    
    FairDate
    
    Date
    
    Amount
    
    Rate
    
    Rate
    
    Value(Dollars in Thousands)September 1, 2005
    
    September 2, 2008
    
    $
    50,000
    
    
    Three-month LIBOR plus 475 basis points
    
    
    8.83
    %
    
    $
    543September 1, 2005
    
    September 4, 2007
    
    $
    50,000
    
    
    Three-month LIBOR plus 475 basis points
    
    
    8.48
    %
    
    
    398$
    941
 
 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
  27




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##### Table of Contents



PART II. OTHER INFORMATION (continued)
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number
    
    Maximum Numberof Shares Purchased
    
    of Shares That Mayas Part of Publicly
    
    Yet be PurchasedTotal Number of
    
    Average Price
    
    Announced Plans
    
    Under the PlansDate
    
    Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    or ProgramsMarch 31, 2007
    
    
    3,306
    
    
    $
    9.79
    
    
    
    
    
    
    
    
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   1.
    
    Election of Directors: The Stockholders elected two Class II directors to the board of
directors of Parker Drilling Company to serve for a three-year term, until 2010:
 Robert E. McKee IIIVotes cast in favor:
    
    
    101,948,515Votes withheld:
    
    
    1,284,623George J. DonnellyVotes cast in favor:
    
    
    101,967,306Votes withheld:
    
    
    1,265,832
 2.
    
    Proposal to amend the Companys Restated Certificate of Incorporation to increase the
number of shares of authorized common stock from 140,000,000 to 280,000,000:
 Votes cast in favor:
    
    
    88,046,974Votes against:
    
    
    13,635,051Abstentions:
    
    
    1,551,113
 3.
    
    Proposal to ratify the appointment of KPMG LLP as independent registered public
accountants for 2007:
 Votes cast in favor:
    
    
    102,077,106Votes against:
    
    
    875,428Abstentions:
    
    
    280,604
 28




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##### Table of Contents



PART II. OTHER INFORMATION (continued)
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description4.1
    
    Second Amendment to the Credit Agreement dated December 20, 2004 among
Parker Drilling, as Borrower, the Several Lenders Parties thereto, Lehman
Brothers, Inc., as Sole Advisor, Sole Lead Arranger and Sole Bookrunner,
Bank of America, N.A., as Syndication Agent dated February 9, 2007
(incorporated by reference to Exhibit 10(c) to annual report on Form 10-K
for the year ended December 31, 2006).31.1
    
    Section 302 Certification  Chairman, President and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  Chairman, President and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 29




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##### Table of Contents



SIGNATURES
  Date: May 9, 2007
    PARKER DRILLING COMPANYRegistrantBy:
    /s/ Robert L. Parker Jr.Robert L. Parker Jr.Chairman, President and Chief Executive OfficerBy:
    /s/ W. Kirk BrassfieldW. Kirk BrassfieldSenior Vice President and Chief Financial
Officer 30




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##### Table of Contents



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