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 SEPTEMBER 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
    
    73-0618660(State or other jurisdiction of 
incorporation or organization)
    
    (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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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TABLE OF CONTENTS
 PagePart I.
    
    Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets (Unaudited)
September 30, 2008 and December 31, 2007
    
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2008 and 2007
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 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
    
    
    38Officer Certifications
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    75,277
    
    
    $
    60,124Accounts and notes receivable, net
    
    
    217,104
    
    
    
    166,706Rig materials and supplies
    
    
    29,914
    
    
    
    24,264Deferred costs
    
    
    8,528
    
    
    
    7,795Deferred income taxes
    
    
    9,424
    
    
    
    9,423Other tax assets
    
    
    18,084
    
    
    
    32,532Other current assets
    
    
    22,787
    
    
    
    22,339Total current assets
    
    
    381,118
    
    
    
    323,183Property, plant and equipment less
accumulated depreciation and amortization of $682,933
at September 30, 2008 and $628,079 at December 31, 2007
    
    
    653,119
    
    
    
    585,888Goodwill
    
    
    100,315
    
    
    
    100,315Investment in and advances to unconsolidated joint venture
    
    
    
    
    
    
    (4,353
    )Deferred income taxes
    
    
    11,838
    
    
    
    40,121Other noncurrent assets
    
    
    31,753
    
    
    
    31,833Total assets
    
    $
    1,178,143
    
    
    $
    1,076,987LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,000
    
    
    $
    20,000Accounts payable and accrued liabilities
    
    
    116,467
    
    
    
    87,352Accrued income taxes
    
    
    11,295
    
    
    
    16,828Total current liabilities
    
    
    130,762
    
    
    
    124,180Long-term debt
    
    
    410,235
    
    
    
    353,721Other long-term liabilities
    
    
    20,820
    
    
    
    56,318Long-term deferred tax liability
    
    
    8,506
    
    
    
    8,044Contingencies (Note 11)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,883
    
    
    
    18,653Capital in excess of par value
    
    
    601,697
    
    
    
    593,866Accumulated deficit
    
    
    (12,760
    )
    
    
    (77,795
    )Total stockholders equity
    
    
    607,820
    
    
    
    534,724Total liabilities and stockholders equity
    
    $
    1,178,143
    
    
    $
    1,076,987
  3




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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 September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:U.S. drilling
    
    $
    44,743
    
    
    $
    56,918
    
    
    $
    139,999
    
    
    $
    174,375International drilling
    
    
    92,226
    
    
    
    58,857
    
    
    
    238,885
    
    
    
    143,834Project management and engineering services
    
    
    24,089
    
    
    
    20,922
    
    
    
    72,219
    
    
    
    58,633Construction contract
    
    
    20,421
    
    
    
    
    
    
    
    40,501
    
    
    
    Rental tools
    
    
    45,975
    
    
    
    35,500
    
    
    
    125,858
    
    
    
    96,905Total revenues
    
    
    227,454
    
    
    
    172,197
    
    
    
    617,462
    
    
    
    473,747Operating expenses:U.S. drilling
    
    
    21,850
    
    
    
    23,208
    
    
    
    65,502
    
    
    
    74,101International drilling
    
    
    63,682
    
    
    
    37,288
    
    
    
    172,915
    
    
    
    101,853Project management and engineering services
    
    
    21,451
    
    
    
    16,685
    
    
    
    61,819
    
    
    
    49,004Construction contract
    
    
    19,323
    
    
    
    
    
    
    
    38,373
    
    
    
    Rental tools
    
    
    18,166
    
    
    
    14,579
    
    
    
    50,014
    
    
    
    38,263Depreciation and amortization
    
    
    30,663
    
    
    
    23,043
    
    
    
    84,995
    
    
    
    60,744Total operating expenses
    
    
    175,135
    
    
    
    114,803
    
    
    
    473,618
    
    
    
    323,965Total operating gross margin
    
    
    52,319
    
    
    
    57,394
    
    
    
    143,844
    
    
    
    149,782General and administration expense
    
    
    (9,271
    )
    
    
    (6,246
    )
    
    
    (24,420
    )
    
    
    (18,380
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    (1,091
    )
    
    
    
    
    
    
    (1,091
    )Gain on disposition of assets, net
    
    
    799
    
    
    
    543
    
    
    
    2,014
    
    
    
    17,216Total operating income
    
    
    43,847
    
    
    
    50,600
    
    
    
    121,438
    
    
    
    147,527Other income and (expense):Interest expense
    
    
    (5,820
    )
    
    
    (7,576
    )
    
    
    (17,386
    )
    
    
    (19,891
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    (262
    )
    
    
    
    
    
    
    (671
    )Interest income
    
    
    383
    
    
    
    2,080
    
    
    
    1,121
    
    
    
    5,576Loss on extinguishment of debt
    
    
    
    
    
    
    (2,396
    )
    
    
    
    
    
    
    (2,396
    )Equity in loss of unconsolidated joint venture and
related charges, net of tax
    
    
    
    
    
    
    (1,123
    )
    
    
    (1,105
    )
    
    
    (1,123
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Other
    
    
    299
    
    
    
    510
    
    
    
    503
    
    
    
    587Total other income and (expense)
    
    
    (5,138
    )
    
    
    (8,767
    )
    
    
    (16,867
    )
    
    
    (18,918
    )Income before income taxes
    
    
    38,709
    
    
    
    41,833
    
    
    
    104,571
    
    
    
    128,609Income tax expense:Current
    
    
    14,179
    
    
    
    14,598
    
    
    
    13,024
    
    
    
    43,223Deferred
    
    
    5,979
    
    
    
    4,582
    
    
    
    26,512
    
    
    
    15,879Total income tax expense
    
    
    20,158
    
    
    
    19,180
    
    
    
    39,536
    
    
    
    59,102Net income
    
    $
    18,551
    
    
    $
    22,653
    
    
    $
    65,035
    
    
    $
    69,507Basic earnings per share:Net income
    
    $
    0.17
    
    
    $
    0.21
    
    
    $
    0.58
    
    
    $
    0.64Diluted earnings per share:Net income
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.58
    
    
    $
    0.63Number of common shares used in computing earnings per
shareBasic
    
    
    111,756,322
    
    
    
    110,270,207
    
    
    
    111,243,745
    
    
    
    109,269,867Diluted
    
    
    112,647,450
    
    
    
    111,278,430
    
    
    
    112,324,566
    
    
    
    110,522,914
  4




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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    65,035
    
    
    $
    69,507Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    84,995
    
    
    
    60,744Gain on disposition of assets
    
    
    (2,014
    )
    
    
    (17,216
    )Equity loss in unconsolidated joint venture and related charges, net of tax
    
    
    1,105
    
    
    
    1,123Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    1,091Deferred income tax expense
    
    
    26,512
    
    
    
    15,879Expenses not requiring cash
    
    
    8,258
    
    
    
    11,008Change in accounts receivable
    
    
    (46,903
    )
    
    
    (48,524
    )Change in other assets
    
    
    7,627
    
    
    
    (28,579
    )Change in liabilities
    
    
    (11,887
    )
    
    
    (12,979
    )Net cash provided by operating activities
    
    
    132,728
    
    
    
    52,054Cash flows from investing activities:Capital expenditures
    
    
    (157,313
    )
    
    
    (191,381
    )Proceeds from the sale of assets
    
    
    3,284
    
    
    
    23,243Proceeds from insurance settlements
    
    
    951
    
    
    
    Investment in unconsolidated joint venture
    
    
    (5,000
    )
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (101,075
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    163,995Net cash used in investing activities
    
    
    (158,078
    )
    
    
    (105,218
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    
    
    
    
    125,000Proceeds payments under debt obligations
    
    
    
    
    
    
    (100,000
    )Purchase of call options
    
    
    
    
    
    
    (31,475
    )Proceeds from sale of common stock warrants
    
    
    
    
    
    
    20,250Proceeds from draw on term note facility
    
    
    50,000
    
    
    
    Paydown on revolver credit facility
    
    
    (35,000
    )
    
    
    Proceeds from draw on revolver credit facility
    
    
    25,000
    
    
    
    Payments of debt issuance costs
    
    
    (1,846
    )
    
    
    (3,563
    )Proceeds from stock options exercised
    
    
    1,970
    
    
    
    15,791Excess tax benefit from stock based compensation
    
    
    379
    
    
    
    1,912Net cash provided by financing activities
    
    
    40,503
    
    
    
    27,915Net increase (decrease) in cash and cash equivalents
    
    
    15,153
    
    
    
    (25,249
    )Cash and cash equivalents at beginning of year
    
    
    60,124
    
    
    
    92,203Cash and cash equivalents at end of period
    
    $
    75,277
    
    
    $
    66,954Supplemental cash flow information:Interest paid
    
    $
    16,364
    
    
    $
    16,370Income taxes paid
    
    $
    32,158
    
    
    $
    44,270
  5




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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 September 30, 2008 and December 31, 2007, (2) the results of operations for the three and
nine months ended September 30, 2008 and 2007, and (3) cash flows for the nine months ended
September 30, 2008 and 2007. Results for the nine months ended September 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 nine month periods ended September 30, 2008 and for the three and nine month
periods ended September 30, 2007 was $2.7 million and $6.5 million and $2.2 million and $6.3
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
September 30, 2008. The Company had 290,300 outstanding and exercisable stock options as of
September 30, 2008, the aggregate intrinsic value of which was $1.5 million, with a weighted
average exercise price of $2.88. Unvested restricted stock awards at December 31, 2007 and
September 30, 2008 were 1,502,592 shares and 1,473,849 shares, respectively. Total unrecognized
compensation cost related to unamortized restricted stock awards was $5.1 million as of December
31, 2007 and $5.3 million as of September 30, 2008. There were 24,700 and 890,274 restricted
shares granted to certain officers and key employees during the three and nine month periods
ended September 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 nine months ended September 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 $212 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 using the cost-to-cost method. Construction costs in excess of
funds received from the customer are accumulated and reported as part of other current assets.
At September 30, 2008, a net receivable (construction costs less progress payments) of $1.6
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.
 6




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 2.
    
    Earnings Per Share (EPS)
 Three Months Ended September 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    18,551,000
    
    
    
    111,756,322
    
    
    $
    0.17Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    891,128
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    18,551,000
    
    
    
    112,647,450
    
    
    $
    0.16
 Nine Months Ended September 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    65,035,000
    
    
    
    111,243,745
    
    
    $
    0.58Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,080,821
    
    
    $
    Diluted EPS:Net income
    
    $
    65,035,000
    
    
    
    112,324,566
    
    
    $
    0.58
 Three Months Ended September 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    22,653,000
    
    
    
    110,270,207
    
    
    $
    0.21Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,008,223
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    22,653,000
    
    
    
    111,278,430
    
    
    $
    0.20
 Nine Months Ended September 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    69,507,000
    
    
    
    109,269,867
    
    
    $
    0.64Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,253,047
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    69,507,000
    
    
    
    110,522,914
    
    
    $
    0.63
 7




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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 nine months ended September 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 325,000 shares of common stock
with exercise prices ranging from $10.81 to $12.19 per share were outstanding during the three
and nine months ended September 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 and would have been anti-dilutive.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 further 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 Construction
contract segment income (fees) is accounted for on a percentage of completion basis using the
cost-to-cost method. Revenues received and costs incurred related to the contract are
recorded on a gross basis.
 8




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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 nine months ended
September 30, 2008 and 2007 is as follows:
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)
    
    
    (Dollars in Thousands)Revenues:U.S. drilling
    
    $
    44,743
    
    
    $
    56,918
    
    
    $
    139,999
    
    
    $
    174,375International drilling
    
    
    92,226
    
    
    
    58,857
    
    
    
    238,885
    
    
    
    143,834Project management and engineering services
    
    
    24,089
    
    
    
    20,922
    
    
    
    72,219
    
    
    
    58,633Construction contract
    
    
    20,421
    
    
    
    
    
    
    
    40,501
    
    
    
    Rental tools
    
    
    45,975
    
    
    
    35,500
    
    
    
    125,858
    
    
    
    96,905Total revenues
    
    $
    227,454
    
    
    $
    172,197
    
    
    $
    617,462
    
    
    $
    473,747Operating gross margin:U.S. drilling
    
    $
    14,166
    
    
    $
    24,918
    
    
    $
    48,475
    
    
    $
    76,365International drilling
    
    
    14,241
    
    
    
    13,869
    
    
    
    29,029
    
    
    
    22,391Project management and engineering services
    
    
    2,638
    
    
    
    4,237
    
    
    
    10,400
    
    
    
    9,629Construction contract
    
    
    1,098
    
    
    
    
    
    
    
    2,128
    
    
    
    Rental tools
    
    
    20,176
    
    
    
    14,370
    
    
    
    53,812
    
    
    
    41,397Total operating gross margin
    
    
    52,319
    
    
    
    57,394
    
    
    
    143,844
    
    
    
    149,782General and administration expense
    
    
    (9,271
    )
    
    
    (6,246
    )
    
    
    (24,420
    )
    
    
    (18,380
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    (1,091
    )
    
    
    
    
    
    
    (1,091
    )Gain on disposition of assets, net
    
    
    799
    
    
    
    543
    
    
    
    2,014
    
    
    
    17,216Total operating income
    
    
    43,847
    
    
    
    50,600
    
    
    
    121,438
    
    
    
    147,527Interest expense
    
    
    (5,820
    )
    
    
    (7,576
    )
    
    
    (17,386
    )
    
    
    (19,891
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    (262
    )
    
    
    
    
    
    
    (671
    )Loss on extinguishment of debt
    
    
    
    
    
    
    (2,396
    )
    
    
    
    
    
    
    (2,396
    )Other
    
    
    682
    
    
    
    1,467
    
    
    
    519
    
    
    
    4,040Income before income taxes
    
    $
    38,709
    
    
    $
    41,833
    
    
    $
    104,571
    
    
    $
    128,609
 4.
    
    Disposition of Assets Asset dispositions in the first nine months of 2008 included the sale
of Rig 206 in Indonesia, for which we recorded no gain or loss, and miscellaneous equipment
that resulted in a recognized gain of $2.0 million. In the first nine 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 accordingly reduced the previously recorded accruals based on the
final resolution of this matter. In addition, for the third quarter of 2008, the Company
recognized $2.4 million of expense related to certain intercompany transactions between our US
companies and foreign affiliates. As of September 30, 2008, the Company had a remaining
liability for unrecognized tax benefits of $14.7 million primarily related to foreign
operations.
 9




---



##### 



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 6.
    
    Income Tax Expense Income tax expense was $20.2 million for the third quarter of 2008 and
includes a charge of $2.4 million related to FIN 48 as compared to income tax expense of
$19.2 million for the third quarter of 2007.7.
    
    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, as per the terms of the Sale Agreement, 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 in full settlement of the Companys investment in and advances
to ARPD.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 approved by the Saudi Arabian authorities
in July 2008.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.
 10




---



##### 



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 8.
    
    Kazakhstan Tax Case (continued)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 nine 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.9.
    
    Long-Term Debt
 September 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 2012
    
    
    228,235
    
    
    
    228,721Revolver
    
    
    10,000
    
    
    
    20,000Term loan
    
    
    50,000
    
    
    
    Total debt
    
    
    413,235
    
    
    
    373,721Less current portion
    
    
    3,000
    
    
    
    20,000Total long-term debt
    
    $
    410,235
    
    
    $
    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. Simultaneously, we entered into a call spread convertible
note hedge consisting of a call option purchased by the Company for
$31.5 million and sold warrants for $20.2 million, the net
cost of which is included in our consolidated condensed balance sheet
in Capital in excess of par value. 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.
The call strike price at $13.85 mirrors the note conversion price and
the warrant strike price is $18.29, which effectively, 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.
 11




---



##### 



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Long-Term Debt (continued)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. On
September 12, 2008, we drew down $10.0 million on the Revolving Credit Facility. Subsequent to
quarter end we drew down an additional $48.0 million resulting in total draws under the
Revolving Credit Facility of $58.0 million as of October 17, 2008. The amount drawn represents
94 percent of the capacity of the Revolving Credit Facility. The Company expects to use the
additional drawn amounts over the next twelve months to fund construction of two new rigs to
perform an anticipated five year contract in Alaska based on the executed letter of intent.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.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
September 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.
 12




---



##### 



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    Contingencies (continued)Asbestos-Related Claims(continued)The complaints allege that the Companys subsidiaries and other drilling contractors used
asbestos-containing products in offshore drilling operations, land-based drilling operations and
in drilling structures, drilling rigs, vessels and other equipment and assert claims based on,
among other things, negligence and strict liability and claims under the Jones Act and that the
plaintiffs are entitled to monetary damages. Based on the report of the special master, these
complaints have been severed and venue of the claims transferred to the county in which the
plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to
the filing of amended complaints, Parker 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 September 30, 2008.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 has conferred with
the EPA and the other parties 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 $2.7 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. Other costs (not yet quantified) such as
interest and administrative overhead could be added to any claim against the Company. 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 September 30, 2008.
 13




---



##### 



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    Contingencies (continued)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 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.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




---



##### 



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 September 30, 2008 and December 31, 2007 and for the three and nine months
ended September 30, 2008 and 2007. The consolidating condensed financial statements present
investments in both consolidated and unconsolidated subsidiaries using the equity method of
accounting.
 15




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 September 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,654
    
    
    $
    7,947
    
    
    $
    40,676
    
    
    $
    
    
    
    $
    75,277Accounts and notes receivable, net
    
    
    59,270
    
    
    
    215,897
    
    
    
    146,897
    
    
    
    (204,960
    )
    
    
    217,104Rig materials and supplies
    
    
    
    
    
    
    11,936
    
    
    
    17,978
    
    
    
    
    
    
    
    29,914Deferred costs
    
    
    
    
    
    
    2,114
    
    
    
    6,414
    
    
    
    
    
    
    
    8,528Deferred income taxes
    
    
    9,424
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,424Other tax assets
    
    
    58,816
    
    
    
    (38,951
    )
    
    
    (1,781
    )
    
    
    
    
    
    
    18,084Other current assets
    
    
    548
    
    
    
    18,700
    
    
    
    3,539
    
    
    
    
    
    
    
    22,787Total current assets
    
    
    154,712
    
    
    
    217,643
    
    
    
    213,723
    
    
    
    (204,960
    )
    
    
    381,118Property, plant and equipment, net
    
    
    79
    
    
    
    482,303
    
    
    
    170,615
    
    
    
    122
    
    
    
    653,119Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and intercompany advances
    
    
    960,202
    
    
    
    963,543
    
    
    
    (84,940
    )
    
    
    (1,838,805
    )
    
    
    Investment in and advances to unconsolidated joint venture
    
    
    
    
    
    
    4,620
    
    
    
    (4,620
    )
    
    
    
    
    
    
    Other noncurrent assets
    
    
    19,647
    
    
    
    15,031
    
    
    
    8,913
    
    
    
    
    
    
    
    43,591Total assets
    
    $
    1,134,640
    
    
    $
    1,783,455
    
    
    $
    303,691
    
    
    $
    (2,043,643
    )
    
    $
    1,178,143LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,000Accounts payable and accrued liabilities
    
    
    50,381
    
    
    
    288,119
    
    
    
    101,470
    
    
    
    (323,503
    )
    
    
    116,467Accrued income taxes
    
    
    263
    
    
    
    4,610
    
    
    
    6,422
    
    
    
    
    
    
    
    11,295Total current liabilities
    
    
    53,644
    
    
    
    292,729
    
    
    
    107,892
    
    
    
    (323,503
    )
    
    
    130,762Long-term debt
    
    
    410,235
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410,235Other long-term liabilities
    
    
    358
    
    
    
    12,594
    
    
    
    7,868
    
    
    
    
    
    
    
    20,820Long-term deferred tax liability
    
    
    
    
    
    
    1,237
    
    
    
    7,269
    
    
    
    
    
    
    
    8,506Intercompany payables
    
    
    62,583
    
    
    
    576,746
    
    
    
    36,830
    
    
    
    (676,159
    )
    
    
    Contingencies (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,883
    
    
    
    39,899
    
    
    
    21,153
    
    
    
    (61,052
    )
    
    
    18,883Capital in excess of par value
    
    
    601,697
    
    
    
    1,045,727
    
    
    
    122,268
    
    
    
    (1,167,995
    )
    
    
    601,697Retained earnings (accumulated deficit)
    
    
    (12,760
    )
    
    
    (185,477
    )
    
    
    411
    
    
    
    185,066
    
    
    
    (12,760
    )Total stockholders equity
    
    
    607,820
    
    
    
    900,149
    
    
    
    143,832
    
    
    
    (1,043,981
    )
    
    
    607,820Total liabilities and stockholders equity
    
    $
    1,134,640
    
    
    $
    1,783,455
    
    
    $
    303,691
    
    
    $
    (2,043,643
    )
    
    $
    1,178,143
 16




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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 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




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended September 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    171,597
    
    
    $
    81,945
    
    
    $
    (26,088
    )
    
    $
    227,454Operating expenses
    
    
    5
    
    
    
    104,648
    
    
    
    65,907
    
    
    
    (26,088
    )
    
    
    144,472Depreciation and amortization
    
    
    
    
    
    
    21,745
    
    
    
    8,918
    
    
    
    
    
    
    
    30,663Total operating gross margin
    
    
    (5
    )
    
    
    45,204
    
    
    
    7,120
    
    
    
    
    
    
    
    52,319General and administration expense (1)
    
    
    (42
    )
    
    
    (9,221
    )
    
    
    (8
    )
    
    
    
    
    
    
    (9,271
    )Gain on disposition of assets, net
    
    
    
    
    
    
    461
    
    
    
    338
    
    
    
    
    
    
    
    799Total operating income (loss)
    
    
    (47
    )
    
    
    36,444
    
    
    
    7,450
    
    
    
    
    
    
    
    43,847Other income and (expense):Interest expense
    
    
    (6,981
    )
    
    
    (11,814
    )
    
    
    (62
    )
    
    
    13,037
    
    
    
    (5,820
    )Interest income
    
    
    10,655
    
    
    
    1,890
    
    
    
    875
    
    
    
    (13,037
    )
    
    
    383Equity in loss of unconsolidated joint
venture, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    2
    
    
    
    296
    
    
    
    1
    
    
    
    
    
    
    
    299Equity in net earnings of subsidiaries
    
    
    28,048
    
    
    
    
    
    
    
    
    
    
    
    (28,048
    )
    
    
    Total other income and (expense)
    
    
    31,724
    
    
    
    (9,628
    )
    
    
    814
    
    
    
    (28,048
    )
    
    
    (5,138
    )Income (loss) before income taxes
    
    
    31,677
    
    
    
    26,816
    
    
    
    8,264
    
    
    
    (28,048
    )
    
    
    38,709Income tax (benefit) expense:Current
    
    
    12,013
    
    
    
    2,372
    
    
    
    (206
    )
    
    
    
    
    
    
    14,179Deferred
    
    
    1,113
    
    
    
    4,897
    
    
    
    (31
    )
    
    
    
    
    
    
    5,979Total income tax (benefit) expense
    
    
    13,126
    
    
    
    7,269
    
    
    
    (237
    )
    
    
    
    
    
    
    20,158Net income (loss)
    
    $
    18,551
    
    
    $
    19,547
    
    
    $
    8,501
    
    
    $
    (28,048
    )
    
    $
    18,551
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 18




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended September 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    150,950
    
    
    $
    41,899
    
    
    $
    (20,652
    )
    
    $
    172,197Drilling and rental operating expenses
    
    
    
    
    
    
    77,437
    
    
    
    34,971
    
    
    
    (20,648
    )
    
    
    91,760Depreciation and amortization
    
    
    
    
    
    
    20,026
    
    
    
    3,017
    
    
    
    
    
    
    
    23,043Drilling and rental operating income
    
    
    
    
    
    
    53,487
    
    
    
    3,911
    
    
    
    (4
    )
    
    
    57,394General and administration expense (1)
    
    
    (42
    )
    
    
    (6,253
    )
    
    
    49
    
    
    
    
    
    
    
    (6,246
    )Provision for reduction in carrying
value of certain assets
    
    
    
    
    
    
    (1,091
    )
    
    
    
    
    
    
    
    
    
    
    (1,091
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    556
    
    
    
    (13
    )
    
    
    
    
    
    
    543Total operating income (loss)
    
    
    (42
    )
    
    
    46,699
    
    
    
    3,947
    
    
    
    (4
    )
    
    
    50,600Other income and (expense):Interest expense
    
    
    (8,766
    )
    
    
    (11,795
    )
    
    
    (88
    )
    
    
    13,073
    
    
    
    (7,576
    )Changes in fair value of derivative positions
    
    
    (262
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (262
    )Interest income
    
    
    12,169
    
    
    
    2,166
    
    
    
    819
    
    
    
    (13,074
    )
    
    
    2,080Loss on extinguishment of debt
    
    
    (2,396
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,396
    )Equity in loss of unconsolidated joint
venture, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,123
    )
    
    
    
    
    
    
    (1,123
    )Other
    
    
    3
    
    
    
    510
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    510Equity in net earnings of subsidiaries
    
    
    35,643
    
    
    
    
    
    
    
    
    
    
    
    (35,643
    )
    
    
    Total other income and (expense)
    
    
    36,391
    
    
    
    (9,119
    )
    
    
    (394
    )
    
    
    (35,645
    )
    
    
    (8,767
    )Income (loss) before income taxes
    
    
    36,349
    
    
    
    37,580
    
    
    
    3,553
    
    
    
    (35,649
    )
    
    
    41,833Income tax expense:Current
    
    
    11,251
    
    
    
    2,586
    
    
    
    761
    
    
    
    
    
    
    
    14,598Deferred
    
    
    2,445
    
    
    
    1,198
    
    
    
    939
    
    
    
    
    
    
    
    4,582Income tax expense
    
    
    13,696
    
    
    
    3,784
    
    
    
    1,700
    
    
    
    
    
    
    
    19,180Net income (loss)
    
    $
    22,653
    
    
    $
    33,796
    
    
    $
    1,853
    
    
    $
    (35,649
    )
    
    $
    22,653
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 19




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Nine months ended September 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    464,000
    
    
    $
    226,148
    
    
    $
    (72,686
    )
    
    $
    617,462Operating expenses
    
    
    2
    
    
    
    281,697
    
    
    
    179,610
    
    
    
    (72,686
    )
    
    
    388,623Depreciation and amortization
    
    
    
    
    
    
    63,283
    
    
    
    21,712
    
    
    
    
    
    
    
    84,995Total operating gross margin
    
    
    (2
    )
    
    
    119,020
    
    
    
    24,826
    
    
    
    
    
    
    
    143,844General and administration expense (1)
    
    
    (163
    )
    
    
    (24,217
    )
    
    
    (40
    )
    
    
    
    
    
    
    (24,420
    )Gain on disposition of assets, net
    
    
    
    
    
    
    1,393
    
    
    
    621
    
    
    
    
    
    
    
    2,014Total operating income (loss)
    
    
    (165
    )
    
    
    96,196
    
    
    
    25,407
    
    
    
    
    
    
    
    121,438Other income and (expense):Interest expense
    
    
    (20,918
    )
    
    
    (35,392
    )
    
    
    (208
    )
    
    
    39,132
    
    
    
    (17,386
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    31,916
    
    
    
    5,700
    
    
    
    2,637
    
    
    
    (39,132
    )
    
    
    1,121Equity in loss of unconsolidated joint
venture, net of taxes
    
    
    
    
    
    
    (1,105
    )
    
    
    
    
    
    
    
    
    
    
    (1,105
    )Other
    
    
    4
    
    
    
    302
    
    
    
    197
    
    
    
    
    
    
    
    503Equity in net earnings of subsidiaries
    
    
    75,435
    
    
    
    
    
    
    
    
    
    
    
    (75,435
    )
    
    
    Total other income and (expense)
    
    
    86,437
    
    
    
    (30,495
    )
    
    
    2,626
    
    
    
    (75,435
    )
    
    
    (16,867
    )Income (loss) before income taxes
    
    
    86,272
    
    
    
    65,701
    
    
    
    28,033
    
    
    
    (75,435
    )
    
    
    104,571Income tax expense:Current
    
    
    4,748
    
    
    
    1,363
    
    
    
    6,913
    
    
    
    
    
    
    
    13,024Deferred
    
    
    16,489
    
    
    
    9,561
    
    
    
    462
    
    
    
    
    
    
    
    26,512Total income tax expense
    
    
    21,237
    
    
    
    10,924
    
    
    
    7,375
    
    
    
    
    
    
    
    39,536Net income (loss)
    
    $
    65,035
    
    
    $
    54,777
    
    
    $
    20,658
    
    
    $
    (75,435
    )
    
    $
    65,035
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 20




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Nine months ended September 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    425,656
    
    
    $
    83,777
    
    
    $
    (35,686
    )
    
    $
    473,747Drilling and rental operating expenses
    
    
    1
    
    
    
    226,908
    
    
    
    71,999
    
    
    
    (35,687
    )
    
    
    263,221Depreciation and amortization
    
    
    
    
    
    
    55,531
    
    
    
    5,213
    
    
    
    
    
    
    
    60,744Drilling and rental operating income
    
    
    (1
    )
    
    
    143,217
    
    
    
    6,565
    
    
    
    1
    
    
    
    149,782General and administration expense (1)
    
    
    (125
    )
    
    
    (18,216
    )
    
    
    (39
    )
    
    
    
    
    
    
    (18,380
    )Provision for reduction in carrying
value of certain assets
    
    
    
    
    
    
    (1,091
    )
    
    
    
    
    
    
    
    
    
    
    (1,091
    )Gain (loss) on disposition of assets, net
    
    
    
    
    
    
    17,233
    
    
    
    (17
    )
    
    
    
    
    
    
    17,216Total operating income (loss)
    
    
    (126
    )
    
    
    141,143
    
    
    
    6,509
    
    
    
    1
    
    
    
    147,527Other income and (expense):Interest expense
    
    
    (23,462
    )
    
    
    (35,386
    )
    
    
    (489
    )
    
    
    39,446
    
    
    
    (19,891
    )Changes in fair value of derivative positions
    
    
    (671
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (671
    )Interest income
    
    
    36,280
    
    
    
    6,323
    
    
    
    2,420
    
    
    
    (39,447
    )
    
    
    5,576Loss on extinguishment of debt
    
    
    (2,396
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,396
    )Equity in loss of unconsolidated joint
venture, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,123
    )
    
    
    
    
    
    
    (1,123
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )Other
    
    
    8
    
    
    
    574
    
    
    
    11
    
    
    
    (6
    )
    
    
    587Equity in net earnings of subsidiaries
    
    
    93,924
    
    
    
    
    
    
    
    
    
    
    
    (93,924
    )
    
    
    Total other income and (expense)
    
    
    103,683
    
    
    
    (28,489
    )
    
    
    (181
    )
    
    
    (93,931
    )
    
    
    (18,918
    )Income (loss) before income taxes
    
    
    103,557
    
    
    
    112,654
    
    
    
    6,328
    
    
    
    (93,930
    )
    
    
    128,609Income tax expense:Current
    
    
    28,404
    
    
    
    12,054
    
    
    
    2,765
    
    
    
    
    
    
    
    43,223Deferred
    
    
    5,646
    
    
    
    8,739
    
    
    
    1,494
    
    
    
    
    
    
    
    15,879Income tax expense
    
    
    34,050
    
    
    
    20,793
    
    
    
    4,259
    
    
    
    
    
    
    
    59,102Net income (loss)
    
    $
    69,507
    
    
    $
    91,861
    
    
    $
    2,069
    
    
    $
    (93,930
    )
    
    $
    69,507
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 21




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine months ending September 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    65,035
    
    
    $
    54,777
    
    
    $
    20,658
    
    
    $
    (75,435
    )
    
    $
    65,035Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    
    
    
    
    63,283
    
    
    
    21,712
    
    
    
    
    
    
    
    84,995Gain on disposition of assets
    
    
    
    
    
    
    (1,393
    )
    
    
    (621
    )
    
    
    
    
    
    
    (2,014
    )Equity in loss of unconsolidated joint venture
    
    
    
    
    
    
    1,105
    
    
    
    
    
    
    
    
    
    
    
    1,105Deferred income tax expense
    
    
    16,489
    
    
    
    9,561
    
    
    
    462
    
    
    
    
    
    
    
    26,512Expenses not requiring cash
    
    
    5,341
    
    
    
    2,917
    
    
    
    
    
    
    
    
    
    
    
    8,258Equity in net earnings of subsidiaries
    
    
    (75,435
    )
    
    
    
    
    
    
    
    
    
    
    75,435
    
    
    
    Change in accounts receivable
    
    
    20,418
    
    
    
    752
    
    
    
    (68,073
    )
    
    
    
    
    
    
    (46,903
    )Change in other assets
    
    
    8,039
    
    
    
    (4,065
    )
    
    
    3,653
    
    
    
    
    
    
    
    7,627Change in liabilities
    
    
    (1,542
    )
    
    
    (48,426
    )
    
    
    38,081
    
    
    
    
    
    
    
    (11,887
    )Net cash provided by operating activities
    
    
    38,345
    
    
    
    78,511
    
    
    
    15,872
    
    
    
    
    
    
    
    132,728Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (128,803
    )
    
    
    (28,510
    )
    
    
    
    
    
    
    (157,313
    )Proceeds from the sale of assets
    
    
    
    
    
    
    3,284
    
    
    
    0
    
    
    
    
    
    
    
    3,284Proceeds from insurance claims
    
    
    
    
    
    
    
    
    
    
    951
    
    
    
    
    
    
    
    951Investment in unconslidated joint venture
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Net cash used in investing activities
    
    
    
    
    
    
    (130,519
    )
    
    
    (27,559
    )
    
    
    
    
    
    
    (158,078
    )Cash flows from financing activities:Proceeds from draw on term note facility
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Paydown on revolver credit facility
    
    
    (35,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,000
    )Proceeds from draw on revolver credit facility
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Payment of debt issuance costs
    
    
    (1,846
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,846
    )Proceeds from stock options exercised
    
    
    1,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,970Excess tax benefit from stock based compensation
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379Intercompany advances, net
    
    
    (83,520
    )
    
    
    51,641
    
    
    
    31,879
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (43,017
    )
    
    
    51,641
    
    
    
    31,879
    
    
    
    
    
    
    
    40,503Net increase (decrease) in cash and cash equivalents
    
    
    (4,672
    )
    
    
    (367
    )
    
    
    20,192
    
    
    
    
    
    
    
    15,153Cash and cash equivalents at beginning of year
    
    
    31,326
    
    
    
    8,314
    
    
    
    20,484
    
    
    
    
    
    
    
    60,124Cash and cash equivalents at end of period
    
    $
    26,654
    
    
    $
    7,947
    
    
    $
    40,676
    
    
    $
    
    
    
    $
    75,277
 22




---



##### 



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine months ended September 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    69,507
    
    
    $
    91,861
    
    
    $
    2,069
    
    
    $
    (93,930
    )
    
    $
    69,507Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    55,531
    
    
    
    5,213
    
    
    
    
    
    
    
    60,744Loss/(gain) on disposition of assets
    
    
    
    
    
    
    (17,233
    )
    
    
    17
    
    
    
    
    
    
    
    (17,216
    )Deferred income tax expense
    
    
    5,646
    
    
    
    8,739
    
    
    
    1,494
    
    
    
    
    
    
    
    15,879Equity in loss of unconsolidated joint venture, net of tax
    
    
    
    
    
    
    
    
    
    
    1,123
    
    
    
    
    
    
    
    1,123Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    1,091
    
    
    
    
    
    
    
    
    
    
    
    1,091Expenses not requiring cash
    
    
    10,408
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    11,008Equity in net earnings of subsidiaries
    
    
    (93,924
    )
    
    
    
    
    
    
    
    
    
    
    93,924
    
    
    
    Change in accounts receivable
    
    
    (28,713
    )
    
    
    14,437
    
    
    
    (34,248
    )
    
    
    
    
    
    
    (48,524
    )Change in other assets
    
    
    (9,459
    )
    
    
    (49,080
    )
    
    
    29,960
    
    
    
    
    
    
    
    (28,579
    )Change in liabilities
    
    
    (625
    )
    
    
    (28,070
    )
    
    
    15,710
    
    
    
    6
    
    
    
    (12,979
    )Net cash provided by (used in) operating activities
    
    
    (47,160
    )
    
    
    77,876
    
    
    
    21,338
    
    
    
    
    
    
    
    52,054Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (161,846
    )
    
    
    (29,535
    )
    
    
    
    
    
    
    (191,381
    )Proceeds from the sale of assets
    
    
    54
    
    
    
    22,162
    
    
    
    1,027
    
    
    
    
    
    
    
    23,243Purchase of marketable securities
    
    
    (101,075
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,075
    )Proceeds from sale of marketable securities
    
    
    161,995
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    163,995Net cash (used in) investing activities
    
    
    60,974
    
    
    
    (137,684
    )
    
    
    (28,508
    )
    
    
    
    
    
    
    (105,218
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Principal payments under debt obligations
    
    
    (100,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Purchase of call options
    
    
    (31,475
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,475
    )Proceeds from sale of common stock warrants
    
    
    20,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,250Payment of debt issuance costs
    
    
    (3,563
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,563
    )Proceeds from stock options exercised
    
    
    15,791
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,791Excess tax benefit from stock based compensation
    
    
    1,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,912Intercompany advances, net
    
    
    (63,748
    )
    
    
    58,527
    
    
    
    5,221
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (35,833
    )
    
    
    58,527
    
    
    
    5,221
    
    
    
    
    
    
    
    27,915Net decrease in cash and cash equivalents
    
    
    (22,019
    )
    
    
    (1,281
    )
    
    
    (1,949
    )
    
    
    
    
    
    
    (25,249
    )Cash and cash equivalents at beginning of year
    
    
    60,029
    
    
    
    14,367
    
    
    
    17,807
    
    
    
    
    
    
    
    92,203Cash and cash equivalents at end of period
    
    $
    38,010
    
    
    $
    13,086
    
    
    $
    15,858
    
    
    $
    
    
    
    $
    66,954
 23




---



##### 



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;
    
    inability of the Company to access the credit markets;
    
    the U.S. economy and the demand for natural gas;
    
    worldwide demand for oil;
    
    fluctuations in the market prices of oil and natural 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;
 24




---



##### 



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
 
    
    adverse environmental events;
    
    adverse weather conditions;
    
    changes in the concentration of customer and supplier relationships;
    
    ability of our customers and suppliers to obtain financing for their operations;
    
    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 on Form 10-K and our
other reports and filings with the Securities and Exchange Commission).
  OVERVIEW AND OUTLOOK
   Overview
   25




---



##### 



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




---



##### 



RESULTS OF OPERATIONS (continued)
   Three Months Ended September 30,2008
    
    
    2007(Dollars in Thousands)Revenues:U.S. drilling
    
    $
    44,743
    
    
    
    20
    %
    
    $
    56,918
    
    
    
    33
    %International drilling
    
    
    92,226
    
    
    
    40
    %
    
    
    58,857
    
    
    
    34
    %Project management and engineering services
    
    
    24,089
    
    
    
    11
    %
    
    
    20,922
    
    
    
    12
    %Construction contract
    
    
    20,421
    
    
    
    9
    %
    
    
    
    
    
    
    0
    %Rental tools
    
    
    45,975
    
    
    
    20
    %
    
    
    35,500
    
    
    
    21
    %Total revenues
    
    $
    227,454
    
    
    
    100
    %
    
    $
    172,197
    
    
    
    100
    %Operating gross margin:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    22,893
    
    
    
    51
    %
    
    $
    33,710
    
    
    
    59
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    28,544
    
    
    
    31
    %
    
    
    21,569
    
    
    
    37
    %Project management and engineering services gross margin
    
    
    2,638
    
    
    
    11
    %
    
    
    4,237
    
    
    
    20
    %Construction contract gross margin
    
    
    1,098
    
    
    
    5
    %
    
    
    
    
    
    
    Rental tools gross margin excluding depreciation and amortization (1)
    
    
    27,809
    
    
    
    60
    %
    
    
    20,921
    
    
    
    59
    %Depreciation and amortization
    
    
    (30,663
    )
    
    
    
    
    
    
    (23,043
    )Total operating gross margin:
    
    
    52,319
    
    
    
    
    
    
    
    57,394General and administration expense
    
    
    (9,271
    )
    
    
    
    
    
    
    (6,246
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    
    
    
    
    (1,091
    )Gain on disposition of assets, net
    
    
    799
    
    
    
    
    
    
    
    543Total operating income
    
    $
    43,847
    
    
    
    
    
    
    $
    50,600
 
 (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 September 30, 2008Operating gross margin (2)
    
    $
    14,166
    
    
    $
    14,241
    
    
    $
    2,638
    
    
    $
    1,098
    
    
    $
    20,176Depreciation and amortization
    
    
    8,727
    
    
    
    14,303
    
    
    
    
    
    
    
    
    
    
    
    7,633Operating gross margin excluding depreciation and amortization
    
    $
    22,893
    
    
    $
    28,544
    
    
    $
    2,638
    
    
    $
    1,098
    
    
    $
    27,809Three Months Ended September 30, 2007Operating gross margin (2)
    
    $
    24,918
    
    
    $
    13,869
    
    
    $
    4,237
    
    
    $
    
    
    
    $
    14,370Depreciation and amortization
    
    
    8,792
    
    
    
    7,700
    
    
    
    
    
    
    
    
    
    
    
    6,551Operating gross margin excluding depreciation and amortization
    
    $
    33,710
    
    
    $
    21,569
    
    
    $
    4,237
    
    
    $
    
    
    
    $
    20,921
 (2)
    
    Gross margin (operating)  revenues less direct operating expenses, including depreciation
and amortization expense. 27




---



##### 



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




---



##### 



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




---



##### 



RESULTS OF OPERATIONS (continued)
   Nine Months Ended September 30,2008
    
    
    2007(Dollars in Thousands)Revenues:U.S. drilling
    
    $
    139,999
    
    
    
    22
    %
    
    $
    174,375
    
    
    
    37
    %International drilling
    
    
    238,885
    
    
    
    39
    %
    
    
    143,834
    
    
    
    31
    %Project management and engineering services
    
    
    72,219
    
    
    
    12
    %
    
    
    58,633
    
    
    
    12
    %Construction contract
    
    
    40,501
    
    
    
    7
    %
    
    
    
    
    
    
    Rental tools
    
    
    125,858
    
    
    
    20
    %
    
    
    96,905
    
    
    
    20
    %Total revenues
    
    $
    617,462
    
    
    
    100
    %
    
    $
    473,747
    
    
    
    100
    %Operating gross margin:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    74,497
    
    
    
    53
    %
    
    $
    100,274
    
    
    
    58
    %International drilling gross margin excluding depreciation and amortization (1)
    
    
    65,970
    
    
    
    28
    %
    
    
    41,981
    
    
    
    29
    %Project management and engineering services gross margin
    
    
    10,400
    
    
    
    14
    %
    
    
    9,629
    
    
    
    16
    %Construction contract gross margin
    
    
    2,128
    
    
    
    5
    %
    
    
    
    
    
    
    Rental tools gross margin excluding depreciation and amortization (1)
    
    
    75,844
    
    
    
    60
    %
    
    
    58,642
    
    
    
    61
    %Depreciation and amortization
    
    
    (84,995
    )
    
    
    
    
    
    
    (60,744
    )Total operating gross margin:
    
    
    143,844
    
    
    
    
    
    
    
    149,782General and administration expense
    
    
    (24,420
    )
    
    
    
    
    
    
    (18,380
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    
    
    
    
    (1,091
    )Gain on disposition of assets, net
    
    
    2,014
    
    
    
    
    
    
    
    17,216Total operating income
    
    $
    121,438
    
    
    
    
    
    
    $
    147,527
 
 (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)Nine Months Ended September 30, 2008Operating gross margin (2)
    
    $
    48,475
    
    
    $
    29,029
    
    
    $
    10,400
    
    
    $
    2,128
    
    
    $
    53,812Depreciation and amortization
    
    
    26,022
    
    
    
    36,941
    
    
    
    
    
    
    
    
    
    
    
    22,032Operating gross margin excluding
depreciation and amortization
    
    $
    74,497
    
    
    $
    65,970
    
    
    $
    10,400
    
    
    $
    2,128
    
    
    $
    75,844Nine Months Ended September 30, 2007Operating gross margin (2)
    
    $
    76,365
    
    
    $
    22,391
    
    
    $
    9,629
    
    
    $
    
    
    
    $
    41,397Depreciation and amortization
    
    
    23,909
    
    
    
    19,590
    
    
    
    
    
    
    
    
    
    
    
    17,245Operating gross margin excluding
depreciation and amortization
    
    $
    100,274
    
    
    $
    41,981
    
    
    $
    9,629
    
    
    $
    
    
    
    $
    58,642
 (2)
    
    Gross margin  drilling and rental revenues less direct drilling and rental operating
expenses, including depreciation and amortization expense. 30




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



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 $3.2 million in unamortized debt premium; and,
    
    $60.0 million drawn against our 2008 Credit Facility, including $10.0 million on our
Revolving Credit Facility and $50.0 million on our Term Loan Facility, $3.0 million of
which is classified as short term.
   34




---



##### 



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)
    
    $
    410,000
    
    
    $
    3,000
    
    
    $
    34,000
    
    
    $
    148,000
    
    
    $
    225,000Long-term debt  interest (1)
    
    
    130,398
    
    
    
    28,613
    
    
    
    54,593
    
    
    
    47,192
    
    
    
    Operating leases (2)
    
    
    12,001
    
    
    
    6,073
    
    
    
    3,695
    
    
    
    2,217
    
    
    
    16Purchase commitments (3)
    
    
    32,179
    
    
    
    32,179
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    584,578
    
    
    $
    69,865
    
    
    $
    92,288
    
    
    $
    197,409
    
    
    $
    225,016Commercial commitments:Long-term debt -Revolving credit facility (4)
    
    $
    10,000
    
    
    $
    
    
    
    $
    10,000
    
    
    $
    
    
    
    $
    Standby letters of credit (4)
    
    
    13,119
    
    
    
    13,119
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    23,119
    
    
    $
    13,119
    
    
    $
    10,000
    
    
    $
    
    
    
    $
    
 
 (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 $50.0 million of term
loans drawn on our new Credit Facility. The remaining unamortized premium of $3.2 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 September 30, 2008, related to rig upgrade
projects and new rig construction.(4)
    
    We have a $130 million credit agreement of which $80.0 million is a revolving credit
facility. As of September 30, 2008, we had drawn down $10.0 million under the revolving
credit facility and $13.1 million of availability has been used to support letters of credit
that have been issued, resulting in an estimated $56.9 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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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
  Due to the ongoing credit crisis and the volatility of oil and natural gas prices, we are
unable to anticipate whether or not our customers will curtail drilling programs or vendors will
fulfill their commitments. The global economic conditions may result in a decrease in demand for
our drilling rigs and rental tools business, which conditions could have a material adverse affect
on our drilling and rental tool businesses.
  36




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##### 



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity SecuritiesTotal Number of
    
    Average PriceDate
    
    Shares Purchased
    
    Paid Per ShareAugust 7, 2008
    
    
    661
    
    
    $
    8.18September 17, 2008
    
    
    163
    
    
    $
    8.23
 
 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
    
    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
 37




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##### 



SIGNATURES
  PARKER DRILLING COMPANYDate:  November 10, 2008
    By:
    /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 38




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##### 



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
 39