##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number 1-7573
 PARKER DRILLING COMPANY
  Delaware
    
    73-0618660(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 5 Greenway Plaza, Suite 100, Houston, Texas 77046  (Address of principal executive offices) (Zip code)
 (281) 406-2000  (Registrants telephone number, including area code)
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



TABLE OF CONTENTS
 PagePart I.Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets
September 30, 2010 (Unaudited) and December 31, 2009
    
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2010 and 2009
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2010 and 2009
    
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41Part II.Other Information
    
    
    41Item 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 6. Exhibits
    
    
    43SignaturesOfficer CertificationsEX-4.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Dollars in Thousands)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,334
    
    
    $
    108,803Accounts and notes receivable, net of allowance for bad debts of
$4,288 and $4,095 at September 30, 2010 and December 31, 2009
    
    
    187,394
    
    
    
    188,687Rig materials and supplies
    
    
    24,277
    
    
    
    31,633Deferred costs
    
    
    2,378
    
    
    
    4,531Deferred income taxes
    
    
    10,051
    
    
    
    9,650Other tax assets
    
    
    46,627
    
    
    
    37,818Other current assets
    
    
    61,120
    
    
    
    62,407Total current assets
    
    
    379,181
    
    
    
    443,529Property, plant and equipment less
accumulated depreciation and amortization of $878,402
at September 30, 2010 and $813,965 at December 31, 2009
    
    
    809,749
    
    
    
    716,798Deferred income taxes
    
    
    57,698
    
    
    
    55,749Other noncurrent assets
    
    
    34,118
    
    
    
    27,010Total assets
    
    $
    1,280,746
    
    
    $
    1,243,086LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,000
    
    
    $
    12,000Accounts payable and accrued liabilities
    
    
    165,602
    
    
    
    167,910Accrued income taxes
    
    
    5,390
    
    
    
    9,126Total current liabilities
    
    
    182,992
    
    
    
    189,036Long-term debt
    
    
    457,466
    
    
    
    411,831Other long-term liabilities
    
    
    28,629
    
    
    
    30,246Long-term deferred tax liability
    
    
    11,953
    
    
    
    16,074Contingencies (Note 6)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    19,373
    
    
    
    19,374Capital in excess of par value
    
    
    628,417
    
    
    
    623,557Accumulated deficit
    
    
    (48,084
    )
    
    
    (47,032
    )Total stockholders equity
    
    
    599,706
    
    
    
    595,899Total liabilities and stockholders equity
    
    $
    1,280,746
    
    
    $
    1,243,086
  3




---



##### Table of Contents



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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:International Drilling
    
    $
    53,614
    
    
    $
    63,966
    
    
    $
    170,421
    
    
    $
    220,626U.S. Drilling
    
    
    14,929
    
    
    
    12,350
    
    
    
    45,352
    
    
    
    35,095Rental Tools
    
    
    48,114
    
    
    
    23,899
    
    
    
    123,288
    
    
    
    89,948Project Management and Engineering Services
    
    
    27,599
    
    
    
    25,869
    
    
    
    78,403
    
    
    
    81,814Construction Contracts
    
    
    27,773
    
    
    
    55,325
    
    
    
    68,695
    
    
    
    149,642Total revenues
    
    
    172,029
    
    
    
    181,409
    
    
    
    486,159
    
    
    
    577,125Operating expenses:International Drilling
    
    
    51,312
    
    
    
    41,964
    
    
    
    137,908
    
    
    
    140,628U.S. Drilling
    
    
    13,287
    
    
    
    10,057
    
    
    
    39,801
    
    
    
    34,821Rental Tools
    
    
    16,583
    
    
    
    12,232
    
    
    
    43,477
    
    
    
    41,438Project Management and Engineering Services
    
    
    20,378
    
    
    
    19,420
    
    
    
    61,640
    
    
    
    63,597Construction Contracts
    
    
    28,122
    
    
    
    52,203
    
    
    
    69,362
    
    
    
    142,117Depreciation and amortization
    
    
    28,904
    
    
    
    29,307
    
    
    
    86,504
    
    
    
    85,382Total operating expenses
    
    
    158,586
    
    
    
    165,183
    
    
    
    438,692
    
    
    
    507,983Total operating gross margin
    
    
    13,443
    
    
    
    16,226
    
    
    
    47,467
    
    
    
    69,142General and administration expense
    
    
    (7,064
    )
    
    
    (9,812
    )
    
    
    (24,033
    )
    
    
    (33,998
    )Provision for reduction in carrying value of certain
assets
    
    
    
    
    
    
    (2,757
    )
    
    
    
    
    
    
    (2,757
    )Gain on disposition of assets, net
    
    
    1,176
    
    
    
    1,225
    
    
    
    3,560
    
    
    
    2,007Total operating income
    
    
    7,555
    
    
    
    4,882
    
    
    
    26,994
    
    
    
    34,394Other income and (expense):Interest expense
    
    
    (6,391
    )
    
    
    (7,093
    )
    
    
    (20,509
    )
    
    
    (22,663
    )Interest income
    
    
    46
    
    
    
    435
    
    
    
    198
    
    
    
    895Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (7,209
    )
    
    
    Other
    
    
    68
    
    
    
    (285
    )
    
    
    325
    
    
    
    (365
    )Total other income and (expense)
    
    
    (6,277
    )
    
    
    (6,943
    )
    
    
    (27,195
    )
    
    
    (22,133
    )Income (loss) before income taxes
    
    
    1,278
    
    
    
    (2,061
    )
    
    
    (201
    )
    
    
    12,261Income tax expense (benefit):Current
    
    
    (3,104
    )
    
    
    1,325
    
    
    
    5,536
    
    
    
    14,224Deferred
    
    
    3,890
    
    
    
    (10,480
    )
    
    
    (4,685
    )
    
    
    (15,554
    )Total income tax expense (benefit)
    
    
    786
    
    
    
    (9,155
    )
    
    
    851
    
    
    
    (1,330
    )Net income (loss)
    
    $
    492
    
    
    $
    7,094
    
    
    $
    (1,052
    )
    
    $
    13,591Basic earnings (loss) per share:Net income (loss)
    
    $
    0.00
    
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.12Diluted earnings (loss) per share:Net income (loss)
    
    $
    0.00
    
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.12Number of common shares used in
computing earnings per shareBasic
    
    
    114,507,431
    
    
    
    113,263,123
    
    
    
    114,111,198
    
    
    
    112,905,172Diluted
    
    
    116,235,867
    
    
    
    115,237,348
    
    
    
    116,155,958
    
    
    
    114,604,108
  4




---



##### Table of Contents



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

(Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    (1,052
    )
    
    $
    13,591Adjustments
to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    86,504
    
    
    
    85,382Loss on extinguishment of debt
    
    
    7,209
    
    
    
    Gain on disposition of assets
    
    
    (3,560
    )
    
    
    (2,007
    )Deferred income tax expense
    
    
    (4,685
    )
    
    
    (15,554
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    2,757Expenses not requiring cash
    
    
    10,740
    
    
    
    8,346Change in accounts receivable
    
    
    3,429
    
    
    
    (6,351
    )Change in other assets
    
    
    (3,675
    )
    
    
    (11,326
    )Change in liabilities
    
    
    (9,179
    )
    
    
    (8,511
    )Net cash provided by operating activities
    
    
    85,731
    
    
    
    66,327Cash flows from investing activities:Capital expenditures
    
    
    (181,556
    )
    
    
    (126,909
    )Proceeds from the sale of assets
    
    
    4,585
    
    
    
    3,364Net cash used in investing activities
    
    
    (176,971
    )
    
    
    (123,545
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    300,000
    
    
    
    Proceeds from draw on revolver credit facility
    
    
    20,000
    
    
    
    4,000Paydown on senior notes
    
    
    (225,000
    )
    
    
    Paydown on term note
    
    
    (9,000
    )
    
    
    Paydown on revolver credit facility
    
    
    (42,000
    )
    
    
    (23,000
    )Payments of debt issuance costs
    
    
    (8,001
    )
    
    
    Payments of debt extinguishment costs
    
    
    (7,466
    )
    
    
    Proceeds from stock options exercised
    
    
    26
    
    
    
    199Excess tax (cost) benefit from stock based compensation
    
    
    1,212
    
    
    
    (1,848
    )Net cash provided by (used in) financing activities
    
    
    29,771
    
    
    
    (20,649
    )Net decrease in cash and cash equivalents
    
    
    (61,469
    )
    
    
    (77,867
    )Cash and cash equivalents, beginning of year
    
    
    108,803
    
    
    
    172,298Cash and cash equivalents, end of period
    
    $
    47,334
    
    
    $
    94,431Supplemental cash flow information:Interest paid
    
    $
    15,518
    
    
    $
    17,135Income taxes paid
    
    $
    15,352
    
    
    $
    16,534
  5




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 1.
    
    GeneralIn 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, 2010 and December 31, 2009, (2) the results of operations for the three and nine months
ended September 30, 2010 and 2009, and (3) cash flows for the nine months ended September 30,
2010 and 2009. Results for the nine months ended September 30, 2010 are not necessarily
indicative of the results that will be realized for the year ending December 31, 2010. The
financial statements should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 2009.Nature of Operations Parker Drilling Company (Parker Drilling) and its majority-owned
subsidiaries (together with Parker Drilling, the Company) provide contract drilling and
drilling-related services based on extensive experience and expertise in drilling geologically
difficult wells and in managing the logistical and technological challenges of operating in
remote, harsh and ecologically sensitive areas. At September 30, 2010, our marketable rig fleet
was comprised of 43 rigs which operate in North and South America, North Africa, Central Asia
and Asia Pacific regions. Our rental tools business provides premium rental tools for land,
offshore oil and gas drilling and workover activities both in the U.S. and abroad. Our rental
inventory includes a full line of drill pipe, drill collars, tubing, high- and low-pressure
surface blowout preventers, choke manifolds, junk and cement mills and casing scrapers. Our
rental tool headquarters are in New Iberia, Louisiana with additional facilities located in
Texas, North Dakota, Pennsylvania and Wyoming.Consolidation and presentation The consolidated financial statements include the accounts of
the Company and subsidiaries in which we exercise significant control or have a controlling
financial interest, including entities in which we are allocated a majority of the entitys
losses or returns, regardless of ownership percentage. Certain reclassifications have been made
to prior period amounts to conform with the current period presentation.Use of Estimates The preparation of financial statements in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) requires us to make estimates and
assumptions that affect our reported amounts of assets and liabilities, our disclosure of
contingent assets and liabilities at the date of the financial statements, and our revenue and
expenses during the periods reported. Estimates are used when accounting for certain items such
as legal accruals, mobilization and deferred mobilization, revenue and cost accounting following
the percentage-of-completion method, self-insured medical/dental plans, etc. Estimates are
based on historical experience, where applicable, and assumptions that we believe are reasonable
under the circumstances. Due to the inherent uncertainty involved with estimates, actual
results may differ.The Company has corrected an accounting error relating to value added taxes (VAT) in its Western
Kazakhstan branch (PDKBV). In Kazakhstan, companies are permitted to elect the use of either
the proportional or separate method for filing periodic VAT returns. PDKBV utilized the
proportional method which can limit future recoverability of VAT derived from vendor purchases
and rig importation against VAT derived from customer invoicing activities. On the erroneous
belief that certain VAT amounts would be recoverable in future periods, PDKBV recorded VAT
assets in connection with several transactions occurring during the period 2007 through 2008.
However, due to a customer having VAT exempt status, the recoverability of a portion of the VAT
assets created was limited, and certain amounts should have been expensed during the periods in
which the original transactions occurred. The cumulative effect of the error and related
foreign currency translation impact overstated net income and retained earnings by $6.4 million
over the period 2007 through 2009. The impact of the error was determined not to be material to
the Companys results of operations and financial position for any previously reported periods.
Consequently, in the accompanying financial statements, the cumulative effect of this correction
has been recorded in operating expenses during the quarter ended September 30, 2010.
 6




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 1.
    
    General (continued)Concentrations of Credit Risk Financial instruments, which potentially subject us to
concentrations of credit risk, consist primarily of trade receivables with a variety of national
and international oil and gas companies. We generally do not require collateral on our trade
receivables.At September 30, 2010 and December 31, 2009, we had deposits in domestic banks in excess of
federally insured limits of approximately $30.2 million and $68.1 million, respectively. In
addition, we had deposits in foreign accounts at September 30, 2010 and December 31, 2009 of
$23.1 million and $46.7 million, respectively, which are not federally insured.Our customer base consists of major, independent and national oil and gas companies and
integrated service providers. We depend on a limited number of significant customers. Our two
largest customers, BP and ExxonMobil, constituted 17.1% and 11.6%, respectively of our
year-to-date revenues as of September 30, 2010. In regards to BP, $68.7 million or 14.1% of the
Companys revenues on a year-to-date basis were derived from the percentage-of-completion
accounting revenues associated with the BP Liberty rig construction that continue to decrease as
we near completion of the rig and ready the rig for customer acceptance testing.Fair Value of Financial Instruments The estimated fair value of our $125.0 million principal
amount 2.125% Convertible Senior Notes due 2012 was $116.9 million at September 30, 2010. The
estimated fair value of our $300 million principal amount of 9.125% Senior Notes due 2018 was
$304.5 million at September 30, 2010. The estimated fair value of our publicly held long-term
debt is based on quoted market prices. For cash, accounts receivable, rig supplies and
materials and accounts payable, we believe carrying value approximates estimated fair value due
to the short-term nature and utilization of these assets.Property, Plant and Equipment We provide for depreciation of property, plant and equipment on
the straight-line method over the estimated useful lives of the assets after provision for
salvage value. Depreciable lives for different categories of property, plant and equipment are
as follows:
 Land drilling equipment
    
    3 to 20 yearsBarge drilling equipment
    
    3 to 20 yearsDrill pipe, rental tools and other
    
    4 to 7 yearsBuildings and improvements
    
    10 to 20 years
 When assets are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is included in results of operations. Our
contracts with customers typically include a provision whereby Company owned or rented equipment
lost or damaged during drilling operations is recoverable by the Company, resulting in gain or
loss upon such incurrence. Maintenance and repairs are charged to operating expense as
incurred.Interest from external borrowings is capitalized on major projects until the assets are ready
for their intended use. Capitalized interest is added to the cost of the underlying asset and
is amortized over the useful lives of the assets in the same manner as the underlying assets.
Interest cost capitalized during the three months ended September 30, 2010 and 2009 related to
rig construction totaled $3.7 million and $1.6 million, respectively.Convertible Senior Notes, including call options and warrantsThe FASB accounting guidance for
convertible debt instruments requires that the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion (including partial cash settlement)
be separated to account for the fair value of the debt and equity components as of the date of
issuance to reflect the issuers non-convertible debt borrowing rate. Accordingly, a portion of
the note balance of our 2.125% Convertible Senior Notes due 2012 is classified as additional
paid in capital, reflecting the estimated fair value of the conversion feature at the date of
issuance. In addition a discount on the convertible notes is being amortized through interest
expense over the life of the convertible notes.
 7




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 1.
    
    General (continued)Stock-Based Compensation Total stock-based compensation expense recognized for the three and
nine month periods ended September 30, 2010 was $1.8 million and $3.9 million, respectively, and
for the three and nine month periods ended September 30, 2009 was $0.8 million and $3.7 million,
respectively, all of which was related to non-vested stock. Stock-based compensation expense is
included in our consolidated condensed statements of operations in both General and
administration expense and Operating expenses. There were no non-vested stock options at
September 30, 2010. We had 98,500 outstanding and exercisable stock options as of September 30,
2010, the aggregate intrinsic value of which was negligible, with a weighted average exercise
price of $3.98 per share. Non-vested restricted stock awards and restricted stock units at
September 30, 2010 and December 31, 2009 were 3,332,819 shares and 2,745,762 shares,
respectively. Total unrecognized compensation cost related to unamortized non-vested stock
awards was $7.9 million as of September 30, 2010 and $2.9 million as of December 31, 2009. The
remaining unrecognized compensation cost related to non-vested stock awards will be amortized
over a weighted-average vesting period of approximately 23 months.For the nine months ended September 30, 2010, the restricted stock vestings resulted in a tax
benefit that was more than the deferred tax asset previously recognized. As a result, an excess
tax benefit of $1.2 million was recorded to Capital in excess of par value.During the nine months ended September 30, 2010, we granted to certain of our officers and key
employees a total of 35,236 and 46,015 performance share units under the 2005 Long Term
Incentive Plan and the 2010 Long Term Incentive Plan, respectively. Each performance share unit
has a nominal value of $100.00 and represents a contingent right to receive common stock or cash dependent upon our total
shareholder return and return on capital employed relative to a peer group of companies over a
three-year performance period. The awards are payable in cash or the Companys common stock at
the discretion of the compensation committee. A maximum of 200% of the number of performance shares granted may be earned if performance at the maximum level is achieved. Compensation
expense related to the performance shares for the three and nine months ended September 30, 2010
was $0.8 million and $2.3 million, respectively.
 8




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 2.
    
    Earnings Per Share (EPS)
 Three Months Ended September 30, 2010Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    492,000
    
    
    
    114,507,431
    
    
    $
    0.00Effect of dilutive securities:Stock options and non-vested stock
    
    
    
    
    
    
    1,728,436
    
    
    $
    Diluted EPS:Net income
    
    $
    492,000
    
    
    
    116,235,867
    
    
    $
    0.00
 Nine Months Ended September 30, 2010Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net loss
    
    $
    (1,052,000
    )
    
    
    114,111,198
    
    
    $
    (0.01
    )Effect of dilutive securities:Stock options and non-vested stock
    
    
    
    
    
    
    2,044,760
    
    
    $
    Diluted EPS:Net loss
    
    $
    (1,052,000
    )
    
    
    116,155,958
    
    
    $
    (0.01
    )
 Three Months Ended September 30, 2009Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    7,094,000
    
    
    
    113,263,123
    
    
    $
    0.06Effect of dilutive securities:Stock options and non-vested stock
    
    
    
    
    
    
    1,974,225
    
    
    $
    Diluted EPS:Net income
    
    $
    7,094,000
    
    
    
    115,237,348
    
    
    $
    0.06
 Nine Months Ended September 30, 2009Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    13,591,000
    
    
    
    112,905,172
    
    
    $
    0.12Effect of dilutive securities:Stock options and non-vested stock
    
    
    
    
    
    
    1,698,936
    
    
    $
    Diluted EPS:Net income
    
    $
    13,591,000
    
    
    
    114,604,108
    
    
    $
    0.12
 Options to purchase 58,500 shares of common stock with an exercise price of $4.20 per share
were outstanding during the three months ended September 30, 2010, but were not included in the
computation of diluted EPS because the options exercise price was greater than the average
market price of the common shares and would have been anti-dilutive. All stock options
outstanding during the nine months ended September 30, 2010, were included in the computation of
diluted EPS as the options exercise prices were less than the average market price of the
common shares. All options outstanding during the three months ended September 30, 2009, 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 90,300 shares of common stock
with exercise prices ranging from $3.78 to $4.20 per share were outstanding during the nine
months ended September 30, 2009, 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.
 9




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 3.
    
    Accounting for Uncertainty in Income TaxesUnder guidance for accounting for uncertainty in income taxes, we prescribe 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. For the nine
months ended September 2009, we recognized $1.1 million of expense related to certain
transactions between our U.S. subsidiaries and foreign affiliates. For the third quarter of
2010, we recognized additional benefit of $1.6 million resulting
from the lapse of an applicable
statute of limitations for one of our subsidiaries. In addition, we
decreased by $0.6 million an unrecognized
tax benefit relating to a settlement with the tax authorities of a foreign tax audit. As of
September 30, 2010, we had a remaining liability for unrecognized tax benefits of $12.8 million
primarily related to foreign operations.
 4.
    
    Income Tax Benefit/ExpenseIncome tax expense was $0.8 million for the third quarter of 2010, as compared to income tax
benefit of $9.2 million for the third quarter of 2009. The tax benefit in the third quarter
2009 included an incremental tax benefit of $6.1 million for crediting foreign taxes previously
deducted. The increase in income tax expense in the third quarter of 2010, compared to the
third quarter of 2009, was primarily due to higher income in our rental tools business
offsetting losses in the U.S.
 5.
    
    Long-Term Debt
 September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in Thousands)9.125% Senior Notes, due April 2018
    
    $
    300,000
    
    
    $
    9.625% Senior Notes, due October 2013
    
    
    
    
    
    
    227,4272.125% Convertible Senior Notes, due July 2012
    
    
    114,466
    
    
    
    110,404Term Note
    
    
    35,000
    
    
    
    44,000Revolving Credit Facility
    
    
    20,000
    
    
    
    42,000Total debt
    
    
    469,466
    
    
    
    423,831Less current portion
    
    
    12,000
    
    
    
    12,000Total long-term debt
    
    $
    457,466
    
    
    $
    411,831
 9.125% Senior Notes, due April 2018On March 22, 2010, we issued $300,000,000 aggregate principal amount of 9.125% Senior Notes due
2018 (9.125% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon
Trust Company, N.A. (Trustee). The 9.125% Notes were issued at par with interest payable on
April 1 and October 1 of each year, beginning October 1, 2010. Net proceeds from the 9.125%
Notes offering were used to redeem the $225.0 million aggregate principal amount of our 9.625%
Senior Notes due 2013, to repay $42.0 million of borrowings under the revolving credit facility
and for general corporate purposes. We made our first interest payment of $14.4 million on
October 1, 2010, which was accrued as of September 30, 2010.The 9.125% Notes are general unsecured obligations of the Company. The 9.125% Notes rank equal
in right of payment with all of our existing and future senior unsecured indebtedness. The
9.125% Notes are jointly and severally guaranteed by substantially all of our direct and
indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating
revenue primarily outside the United States.
 10




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 5.
    
    Long-Term Debt (continued)
 At any time prior to April 1, 2013, we may redeem up to 35% of the aggregate principal amount of
9.125% Notes at a redemption price of 109.125% of the principal amount, plus accrued and unpaid
interest to the redemption date with the net cash proceeds of certain equity offerings by us.
On and after April 1, 2014, we may redeem all or a part of the 9.125% Notes upon not less than
30 nor more than 60 days notice, at redemption prices (expressed as percentages of principal
amount) equal to 104.563% for the twelve-month period beginning on April 1, 2014, 102.281% for
the twelve-month period beginning on April 1, 2015 and 100% beginning on April 1, 2016, plus
accrued and unpaid interest.If we experience certain changes in control, the Company must offer to repurchase the 9.125%
Notes at 101% of the aggregate principal amount, plus accrued and unpaid interest and additional
interest, if any, to the date of repurchase.The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets;
(ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital
stock or subordinated indebtedness; (iii) make investments; (iv) incur or guarantee additional
indebtedness; (v) create or incur liens; (vi) enter into sale and leaseback transactions; (vii)
incur dividend or other payment restrictions affecting subsidiaries; (viii) merge or consolidate
with other entities; (ix) enter into transactions with affiliates; and (x) engage in certain
business activities. These covenants are subject to a number of important exceptions and
qualifications.The Indenture contains certain restrictive covenants designating that each of the following is
an Event of Default: (i) default for 30 days in the payment when due of interest on, or
additional interest with respect to, the 9.125% Notes; (ii) default in payment when due of the
principal of, or premium, if any, on the 9.125% Notes; (iii) failure by the Company or any of
its restricted subsidiaries to comply within specified time periods with any of the other
agreements in the Indenture; (iv) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any of its restricted subsidiaries (or the payment of which is
guaranteed by the Company or any of its restricted subsidiaries) whether such indebtedness or
guarantee now exists, or is created after the date 9.125% Notes are first issued, if that
default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such
indebtedness prior to the expiration of the grace period provided in such indebtedness on the
date of such default (Payment Default); or (b) results in the acceleration of such indebtedness
prior to its stated maturity, and, in each case, the principal amount of any such indebtedness,
together with the principal amount of any other such indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or
more; (v) failure by the Company or any of its subsidiaries to pay final judgments aggregating
in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of
60 days; (vi) except as permitted by the Indenture, any subsidiary guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any reason (other than
in accordance with the terms of that guarantee and the indenture) to be in full force and effect
or any guarantor, or any person acting on behalf of any guarantor, shall deny or disaffirm its
obligations under its subsidiary guarantee; and (vii) certain events of bankruptcy or insolvency
described in the indenture with respect to the Company or any of its significant subsidiaries or
any group of restricted subsidiaries that, taken as a whole, would constitute a significant
subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company, all outstanding 9.125% Notes will become due and payable
immediately without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of the then
outstanding 9.125% Notes may declare all the 9.125% Notes to be due and payable immediately.On June 21, 2010 pursuant to the Registration Rights Agreement among the Company, the guarantors
named therein, the initial purchasers of the 9.125% Notes and the Trustee, entered into as of
March 22, 2010 in connection with the closing of the 9.125% Notes offering, we filed an exchange
offer registration statement with respect to an offer to exchange the 9.125% Notes for
substantially identical notes that are registered under the Securities Act. The registration
statement was deemed effective by the United States Securities and Exchange Commission (SEC) on
September 1, 2010.
 11




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 5.
    
    Long-Term Debt (continued)
 9.625% Senior Notes, due October 2013As of December 31, 2009, the Company had outstanding $225.0 million in aggregate principal
amount of 9.625% senior notes due 2013 (9.625% Notes). On March 8, 2010, we commenced a cash
tender offer and consent solicitation for all of our outstanding 9.625% Notes, which expired on
April 2, 2010 (Tender Offer). On March 22, 2010, we voluntarily called for redemption all of
our 9.625% Notes that were not tendered pursuant to the Tender Offer, at the redemption price of
103.208% of the principal amount of the 9.625% Notes, or $1,032.08 per $1,000 principal amount
of the 9.625% Notes. On April 21, 2010, we redeemed in full the remaining $128.7 million
principal amount of 9.625% Notes. This redemption resulted in the Company recording one-time
debt extinguishment costs of $7.2 million during the first six months of 2010.2.125% Convertible Senior Notes, due July 2012On July 5, 2007, we issued $125 million aggregate principal amount of 2.125% Convertible Senior
Notes (2.125% Notes) due July 2012. The 2.125% Notes were issued at par and interest is payable
semi-annually on January 15th and July 15th. The significant terms of the 2.125% Notes are as
follows:
 
    
    2.125% Notes Conversion Feature  The initial conversion price for 2.125% Note holders
to convert their notes into shares is at a common stock share price equivalent of $13.85
(77.2217 shares of common stock) per $1,000 note value. Conversion rate adjustments occur
for any issuances of stock, warrants, rights or options (except for stock purchase plans or
dividend re-investments) or any other transfer of benefit to substantially all
stockholders, or as a result of a tender or exchange offer. We may, under advice of our
Board of Directors, increase the conversion rate at our sole discretion for a period of at
least 20 days.
    
    2.125% Notes Settlement Feature  Upon tender of the 2.125% Notes for conversion, we
can either settle entirely in shares of common stock or a combination of cash and shares of
common stock, solely at our option. Our intent is to satisfy our conversion obligation for
our 2.125% Notes in cash, rather than in common stock, for at least the aggregate principal
amount of the 2.125% Notes. This would reduce the resulting potential earnings dilution to
only include any possible conversion premium, which would be the difference between the
average price of our shares and the conversion price per share of common stock.
    
    Contingent Conversion Feature  2.125% Note holders may only convert 2.125% Notes when
either sales price or trading price conditions are met, on or after the 2.125% Notes due
date or upon certain accounting changes or certain corporate transactions (fundamental
changes) involving stock distributions. Make-whole provisions are only included in the
accounting and fundamental change conversions such that holders do not lose value as a
result of the changes.
    
    Settlement Feature  Upon conversion, we will pay either cash or provide shares of our
common stock if any, based on a daily conversion rate multiplied by a volume weighted
average price of our common stock during a specified period following the conversion date.
Conversions can be settled in cash or shares, solely at our discretion.
 As of September 30, 2010, none of the conditions allowing holders of the 2.125% Notes to convert
had been met.Concurrently with the issuance of the 2.125% Notes, we purchased a convertible note hedge (note
hedge) and sold warrants in private transactions with counterparties that were different than
the ultimate holders of the 2.125% Notes. The note hedge included purchasing free-standing call
options and selling free-standing warrants, both exercisable in our common shares. The note
hedge allows us to receive shares of our common stock from the counterparties to the transaction
equal to the amount of common stock related to the excess conversion value that we would issue
and/or pay to the holders of the 2.125% Notes upon conversion.
 12




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 5.
    
    Long-Term Debt (continued)
 The terms of the call options mirror the 2.125% Notes major terms whereby the call option
strike price is the same as the initial conversion price as are the number of shares callable,
$13.85 per share and 9,027,713 shares, respectively. This feature prevents dilution of our
outstanding shares. The warrants allow us to sell 9,027,713 common shares at a strike price of
$18.29 per share. The conversion price of the 2.125% Notes remains at $13.85 per share, and the
existence of the call options and warrants serve to guard against dilution at share prices less
than $18.29 per share, since we would be able to satisfy our obligations and deliver shares upon
conversion of the 2.125% Notes with shares that are obtained by exercising the call options.We paid a premium of approximately $31.48 million for the call options, and received proceeds
for a premium of approximately $20.25 million for the sale of the warrants. This reduced the
net cost of the note hedge to $11.23 million. The expiration date of the note hedge is the
earlier of the last day on which the 2.125% Notes remain outstanding and the maturity date of
the 2.125% Notes.The 2.125% Notes are classified as a liability in our consolidated financial statements.
Because we have the choice of settling the call options and the warrants in cash or shares of
our common stock and these contracts meet all of the applicable criteria for equity
classification, the cost of the call options and proceeds from the sale of the warrants are
classified in stockholders equity in the Consolidated Balance Sheets. In addition, because
both of these contracts are classified in stockholders equity and are solely indexed to our own
common stock, they are not accounted for as derivatives.Debt issuance costs related to the 2.125% Notes totaled approximately $3.6 million and are being
amortized over the five year term of the 2.125% Notes using the effective interest method.
Proceeds from the transaction of $110.2 million were used to redeem our outstanding senior
floating rate notes, to pay the net cost of hedge and warrant transactions, and for general
corporate purposes.2008 Credit Agreement:On May 15, 2008, the Company entered into a credit agreement (Credit Agreement) consisting of a
senior secured $80 million revolving credit facility (Revolver) and senior secured term loan
facility (Term Loan) of up to $50 million. The Credit Agreement provides that subject to
certain conditions, including the approval of the Administrative
Agent and the lenders
acceptance (or additional lenders being joined as new lenders), the amount of the Term Loan
Facility or Revolving Credit Facility can be increased by an additional $50 million, so long as
after giving effect to such increase, the Aggregate Commitments shall not be in excess of $180
million. If the facility is increased, all other terms of the Credit Agreement remain the same,
including covenants and Applicable Rates. The Credit Agreement terminates on May 14, 2013.Revolver:Our Revolver is available for general corporate purposes and to support letters of credit.
Interest on Revolver loans accrues at a Base Rate plus an Applicable Rate or LIBOR, plus an
Applicable Rate. The Applicable Rate varies from a rate per annum ranging from 2.75% to 3.25%
for LIBOR rate loans and 1.75% to 2.25% for base rate loans, determined by reference to the
consolidated leverage ratio (as defined in the Credit Agreement). Revolving loans are available
subject to a borrowing base calculation based on a percentage of eligible accounts receivable,
certain specified barge drilling rigs and rental equipment of the Company and its subsidiary
guarantors. There were $20.0 million and $42.0 million in revolving loans outstanding at
September 30, 2010 and December 31, 2009, respectively. Letters of credit outstanding as of
September 30, 2010 and December 31, 2009 totaled $16.2 million and $12.7 million, respectively.Term Loan:The Term Loan originated at $50.0 million and requires quarterly principal payments
of $3.0 million. Interest on the Term Loan accrues at a Base Rate plus 2.25% or LIBOR plus
3.25%. The outstanding balances on the Term Loan at September 30, 2010 and December 31, 2009
were $35.0 million and $44.0 million, respectively.
 13




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 5.
    
    Long-Term Debt (continued)
 Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic
subsidiaries, each of which has executed guaranty agreements. The Credit Agreement contains
customary affirmative and negative covenants such as minimum ratios for consolidated leverage,
consolidated interest coverage and consolidated senior secured leverage.On January 15, 2010, the Credit Agreement was amended in anticipation of the issuance of 9.125%
Notes described above, in order to, among other things, release certain subsidiaries from their
obligations under the Credit Agreement, effective upon the repurchase or redemption of all the
outstanding 9.625% Notes. These released subsidiaries are the Companys immaterial subsidiaries
and subsidiaries generating revenue primarily outside the United States. Upon the effectiveness
of the amendment to the Credit Agreement, the guarantors under the Credit Agreement were the
same as the guarantors of the 9.125% Notes.
 6.
    
    Contingencies
 Asbestos-Related ClaimsIn August 2004, Parker Drilling 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 us, including companies that allegedly
manufactured drilling related products containing asbestos that are the subject of the
complaints.The complaints allege that our 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, we have joined with other co-defendants in filing motions to
compel discovery to determine what plaintiffs have an employment relationship with which
defendant, including whether or not any plaintiffs have an employment relationship with
subsidiaries of the Company. Out of 668 amended single-plaintiff complaints filed to date,
sixteen (16) plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.
One of the sixteen plaintiffs cases was transferred to the federal multi-district litigation
and was administratively dismissed. Of the remaining cases, discovery is proceeding in
groups of 60 and none of the fifteen plaintiff complaints naming Parker Drilling are included in
the first 60 (Group I). Selection of Discovery Group II was completed on April 21, 2008, and we
were named in one suit in which the plaintiff claims that during 1973 he earned $587.40 while
working for a former subsidiary of a company Parker Drilling acquired in 1996. No trial date
has been set for this plaintiff.The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously
and, based on the information available to us at this time, we do not expect the outcome to have
a material adverse effect on our financial condition, results of operations or cash flows.
However, we are unable to predict the ultimate outcome of these lawsuits. No amounts were
accrued at September 30, 2010.
 14




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 6.
    
    Contingencies (continued)
 Gulfco Site
 In 2003, we 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 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 U.S. Environmental Protection Agency (EPA) alleges that
the subsidiary is a successor to a party who owned the Gulfco site during the time when chemical
releases took place there. Two other parties have been performing the investigation and study
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. To date, the EPA and the other two parties have spent
approximately $3.5 million studying and conducting remediation of the site. It is anticipated
that an additional $1.3 million may be required to complete the remediation. Other costs (not
yet quantified), such as interest and administrative overhead, could be added to any action
against us. We currently anticipate that the total claim will not exceed $5.0 million and will
be shared by all responsible parties. We have conducted an evaluation of the subsidiarys
relationship to the site and continue to be engaged in discussions with the relevant parties in
an effort to resolve the matter and to reduce potential risks and costs associated with possible
litigation in the future.Customs Agent and Foreign Corrupt Practices Act (FCPA) InvestigationAs previously disclosed, we received requests from the United States Department of Justice (DOJ)
in July 2007 and the SEC in January 2008 relating to our utilization of the services of a
customs agent. The DOJ and the SEC are conducting parallel investigations into possible
violations of U.S. law by us, including the FCPA. In particular, the DOJ and the SEC are
investigating our use of customs agents in certain countries in which we currently operate or
formerly operated, including Kazakhstan and Nigeria. We are fully cooperating with the DOJ and
SEC investigations and are conducting an internal investigation into potential customs and other
issues in Kazakhstan and Nigeria. The internal investigation has identified issues relating to
potential non-compliance with applicable laws and regulations, including the FCPA with respect
to operations in Kazakhstan and Nigeria. 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.Further, in connection with our internal investigation, we also learned that an individual who
may be considered a foreign official under the FCPA owns in trust a substantial stake in a
foreign subcontractor with whom we were doing business through a joint venture relationship in
Kazakhstan. The joint venture no longer does business with the foreign subcontractor.The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other
laws and regulations, which they may seek to impose against corporations and individuals in
appropriate circumstances including, but not limited to, injunctive relief, disgorgement, fines,
penalties and modifications to business practices and compliance programs. These authorities
have entered into agreements with, and obtained a range of sanctions against, several public
corporations and individuals arising from allegations of improper payments and deficiencies in
books and records and internal controls, whereby civil and criminal penalties were imposed.
Recent civil and criminal settlements have included multi-million dollar fines, deferred
prosecution agreements, guilty pleas, and other sanctions, including the requirement that the
relevant corporation retain a monitor to oversee its compliance with the FCPA. In addition,
corporations may have to end or modify existing business relationships. Any of these remedial
measures, if applicable to us, could have a material adverse impact on our business, results of
operations, financial condition and liquidity.
 15




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 6.
    
    Contingencies (continued)
 We have taken certain steps to enhance our anti-bribery compliance efforts, including retaining
a full-time Chief Compliance Officer who reports to the Chief Executive Officer and Audit
Committee; adopting revised FCPA policies, procedures, and
controls; increasing training and testing requirements; strengthening contractual provisions for our service
providers that interface with foreign government officials; improving due diligence and continuing
oversight procedures for the review and selection of such service providers; and implementing a compliance
awareness improvement initiative that includes issuance of periodic anti-bribery compliance
alerts.Demand Letter and Derivative LitigationIn April 2010, we received a demand letter from a law firm representing Ernest Maresca. The
letter states that Mr. Maresca is one of our stockholders and that he believes that certain of
our current and former officers and directors violated their fiduciary duties related to the
issues described above under Customs Agent and Foreign Corrupt Practices Act (FCPA)
Investigation. The letter requests that our Board of Directors take action against the
individuals in question. In response to this letter, the Board has formed a special committee
to evaluate the issues raised by the letter and determine a course of action for the Company.
On August 25, 2010, Mr. Maresca filed a derivative action in the United States District Court
for the Southern District of Texas against our current directors, select officers, and the
Company as a nominal defendant. The lawsuit, like the demand letter, alleges that the
individual defendants breached their fiduciary duties to the Company related to the issues
described above under Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.
The lawsuit seeks damages in an unspecified amount, along with various other forms of relief and
an award of attorney fees, other costs, and expenses to the plaintiff. The parties are
currently negotiating a schedule for proceedings in the matter, and no substantive proceedings
have occurred to date.On June 3, 2010, Mohamed Kassamali, a purported shareholder of the Company, filed a derivative
action in the state court of Harris County, Texas against our current directors and the Company
as a nominal defendant. The lawsuit alleges that the individual defendants breached their
fiduciary duties to the Company related to the issues described above under Customs Agent and
Foreign Corrupt Practices Act (FCPA) Investigation. On June 22, 2010, the Fuchs Family Trust,
a purported shareholder of the Company, filed a substantially similar lawsuit in the state court
of Harris County, Texas. On June 23, 2010, Kenneth Flacks, a purported shareholder of the
Company, also filed a substantially similar lawsuit in the state court of Harris County, Texas.
The lawsuits seek damages related to the alleged breaches of duty, unjust enrichment, abuse of
control, gross mismanagement and waste of corporate assets. The damages sought include both
compensatory and exemplary damages in an unspecified amount, along with various other forms of
relief and an award of attorney fees, other costs, and expenses to the plaintiffs. All
defendants have retained counsel, and on October 15, 2010, the three cases pending in the state
court of Harris County, Texas were consolidated under the Kassamali case name. In addition, the
Court granted a deferral of all action in the consolidated cases pending a hearing currently
scheduled for January 2011.On August 31, 2010, Douglas Freuler, a purported shareholder of the Company, filed a derivative
action in the United States District Court for the Southern District of Texas against our
current directors, select officers, and the Company as a nominal defendant. The lawsuit is
substantially similar to those filed in the state court of Harris County, Texas, and alleges
breach of fiduciary duties to the Company related to the issues described above under Customs
Agent and Foreign Corrupt Practices Act (FCPA) Investigation, as well as abuse of control,
gross mismanagement, waste of corporate assets, and unjust enrichment. The damages sought
include both compensatory and exemplary damages in an unspecified amount, along with various
other forms of relief and an award of attorney fees, other costs, and expenses to the
plaintiffs. The parties are currently negotiating a schedule for proceedings in the matter, and
no substantive proceedings have occurred to date.
 16




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 6.
    
    Contingencies (continued)
 Economic Sanctions ComplianceWe are subject to laws and regulations restricting our international operations, including
activities involving restricted countries, organizations, entities and persons that have been
identified as unlawful actors or that are subject to U.S. economic sanctions. Pursuant to an
internal review, we have identified certain shipments of equipment and supplies that were routed
through Iran as well as other activities, including drilling activities, which may have violated
applicable U.S. laws and regulations. We have reviewed these shipments, transactions and
drilling activities to determine whether the timing, nature and extent of such activities or
other conduct may have given rise to violations of these laws and regulations, and we have
voluntarily disclosed the results of our review to the U.S. government. At this point, we are
unable to predict whether the government will initiate an investigation or any proceedings
against us or the ultimate outcome that may result from our voluntary disclosure. If U.S.
enforcement authorities determine that we were not in compliance with export restrictions, U.S.
economic sanctions or other laws and regulations that apply to our international operations, 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.Kazakhstan Ministry of Finance Tax AuditOn August 14, 2009, 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) for the period January 1, 2005 through December 31,
2007. PKD Kazakhstan was assessed additional taxes in the amount of KZT 1.45 billion
(approximately $9.7 million) and associated interest in the amount of KZT 700 million
(approximately $4.7 million). The amounts assessed relate to corporate income taxes and
interest in connection with the disallowance of the head offices management and administrative
expenses, loan interest and state duties, as well as Value Added Taxes (VAT) and interest in
connection with VAT offset on debts classified as doubtful by MinFin and for property taxes and
interest in connection with Barge Rig 257 as a result of MinFin applying a lower rate of
depreciation.On September 25, 2009, PKD Kazakhstan appealed the Act of Tax Audit with MinFin on the basis PKD
Kazakhstan was exercising its rights provided by the Convention between the Governments of the
Republic of Kazakhstan and the United States of America on the Avoidance of Double Taxation and
the Prevention of the Fiscal Evasion with respect to Taxes on Income and Capital as well as
improper application of Kazakhstan Tax Code provisions.On January 13, 2010, PKD Kazakhstan received a response from MinFin to the appeal filed
September 25, 2009. MinFin agreed with PKD Kazakhstan to remove the assessment related to
property taxes and interest in connection with Barge Rig 257 which reduced the overall
assessment by KZT 741 million (approximately $5 million). MinFin simultaneously caused the Tax
Department of the Atyrau Oblast (Tax Department) to issue a revised Tax Notification to PKD
Kazakhstan for the residual assessment of KZT 959 million (approximately $6.5 million) of taxes
and KZT 450 million (approximately $3 million) of associated interest, which residual assessment
remains outstanding.On March 1, 2010, PKD Kazakhstan filed a claim against the Tax Department, in the Special
Inter-district Economic Court of Atyrau Oblast, seeking to invalidate the revised Tax
Notification. On May 5, 2010, the court elected not to issue a ruling on the merits of the case
on the basis of an alleged lack of standing. PKD Kazakhstan adjusted and re-filed its claim in
June 2010.On August 17, 2010, the Special Inter-district Economic Court of Atyrau Oblast rendered a
decision rejecting PKD Kazakhstans re-filed claim. PKD Kazakhstan filed on September 17, 2010
an appeal to the Atyrau Oblast Court. That appeal was heard by a single judge on October 27, 2010, at the
conclusion of which, the court announced its decision to let the lower court decision stand
without amendment or cancellation.
 17




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 6.
    
    Contingencies (continued)
 PKD Kazakhstan continues to believe that it properly exercised its rights provided by the
Convention and that MinFin improperly applied certain provisions of the Kazakhstan Tax Code.
PKD Kazakhstan intends to pursue its claim through higher levels of court appeals which will next include a cassation appeal to a three-judge panel within the same Atyrau Oblast Court. We expect to file that
appeal in November 2010. With interest and penalties, the amount in dispute is approximately
$14.0 million. Based on the information available to us at this time, we are unable to predict
the ultimate outcome of this case.No amounts were accrued at September 30, 2010.
 7.
    
    Recent Accounting Pronouncements
 In July 2010, the FASB issued new disclosure guidance related to finance receivables and the
related allowances for credit losses. This guidance introduces a greater level of
disaggregation based on the underlying characteristics of the finance receivables. The
disclosure requirements include, based on the related disaggregation criteria, a rollforward of
the allowance for credit losses and the related balance of the finance receivables, significant
purchases and sales of finance receivables, and various qualitative disclosures including credit
quality, aging, nonaccrual status and impairments. The new guidance is effective for us in the
third quarter of fiscal 2011.In January 2010, the Financial Accounting Standard Board (FASB) issued Accounting Standards
Update Improving Disclosures about Fair Value Measurements.This update requires an entity
to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reason for the transfers and (ii) present separate
information for Level 3 activity pertaining to gross purchases, sales, issuances, and
settlements. This amendment is effective for interim and annual reporting periods beginning
after December 15, 2009. Because the standard does not change how fair values are measured, the
standard did not have an impact on our consolidated condensed financial statements.On September 23, 2009, the Financial Accounting Standards Board (FASB) ratified ASU No.
2009-13 (formerly referred to as Emerging Issues Task Force Issue No. 08-1), Revenue
Arrangements with Multiple Deliverables. ASU No. 2009-13 requires the allocation of
consideration among separately identified deliverables contained within an arrangement, based on
their related selling prices. ASU No. 2009-13 will be effective for annual reporting periods
beginning January 1, 2011; however, it will be effective only for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption
is permitted. The Company is currently evaluating the impact of ASU No. 2009-13 on its
financial position, results of operations, cash flows, and disclosures.
 8.
    
    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 subsidiaries that are guarantors of the 9.125% Notes and (iii) the
subsidiaries that are not guarantors of the 9.125% Notes. The 9.125% Notes are guaranteed by
substantially all of Companys direct and indirect domestic subsidiaries other than immaterial
subsidiaries and subsidiaries generating revenue primarily outside the United States. 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.
 18




---



##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)
 8.
    
    Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements (continued)
 AralParker (a Kazakhstan joint stock company, owned 100% 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% 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., PD Personnel Services, Ltd.,
SaiPar Drilling Company B.V. (owned 50% by Parker Drilling Dutch B.V.), Parker Enex, LLC, Parker
Drilling Company Eastern Hemisphere, Ltd., Parker Drilling Company of Bolivia, Inc., Canadian
Rig Leasing, Inc., Parker Drilling Company International Limited, Parker Drilling Company
Limited LLC, Parker Drilling Company of Singapore, LLC, Parker USA Drilling Company, Universal
Rig Service LLC, Parker Offshore Resources, L.P., Choctaw International Rig Corp., DGH, Inc.,
Parker Drilling Company of Argentina, Inc., Parker Drilling Company International, LLC, Parker
Drilling (Kazakstan), LLC, Parker Drilling Company of New Guinea, LLC, Indocorp of Oklahoma,
Inc., Creek International Rig Corp., Parker Drilling Company of Mexico, LLC, Selective Drilling
Corporation, Parker Drilltech, LLC, Parker Drillserv, LLC, Parker Drillex, LLC, Parker Rigsource
LLC, Parker Intex, LLC, Parker Drilling Eurasia, Inc., Parker Drilling Pacific Rim, Inc., Parker
Singapore Rig Holding Pte. Ltd., Parker Drilling Domestic Holding Company, LLC, and Parker Drilling International Holding Company, LLC are all non-guarantor subsidiaries. We are providing
consolidating condensed financial information of the parent, Parker Drilling, the guarantor
subsidiaries, and the non-guarantor subsidiaries as of September 30, 2010 and December 31, 2009
and for the three months and nine months ended September 30, 2010 and 2009. The consolidating
condensed financial statements present investments in both consolidated and unconsolidated
subsidiaries using the equity method of accounting.
 19




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 September 30, 2010Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,170
    
    
    $
    3,120
    
    
    $
    24,044
    
    
    $
    
    
    
    $
    47,334Accounts and notes receivable, net
    
    
    24,879
    
    
    
    106,035
    
    
    
    232,535
    
    
    
    (176,055
    )
    
    
    187,394Rig materials and supplies
    
    
    
    
    
    
    (1,646
    )
    
    
    25,923
    
    
    
    
    
    
    
    24,277Deferred costs
    
    
    
    
    
    
    
    
    
    
    2,378
    
    
    
    
    
    
    
    2,378Deferred income taxes
    
    
    10,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,051Other tax assets
    
    
    97,676
    
    
    
    (62,895
    )
    
    
    11,846
    
    
    
    
    
    
    
    46,627Other current assets
    
    
    557
    
    
    
    40,260
    
    
    
    31,037
    
    
    
    (10,734
    )
    
    
    61,120Total current assets
    
    
    153,333
    
    
    
    84,874
    
    
    
    327,763
    
    
    
    (186,789
    )
    
    
    379,181Property, plant and equipment, net
    
    
    79
    
    
    
    523,008
    
    
    
    286,662
    
    
    
    0
    
    
    
    809,749Investment in subsidiaries and intercompany advances
    
    
    979,978
    
    
    
    494,946
    
    
    
    496,519
    
    
    
    (1,971,443
    )
    
    
    0Other noncurrent assets
    
    
    75,153
    
    
    
    (3,880
    )
    
    
    28,627
    
    
    
    (8,084
    )
    
    
    91,816Total assets
    
    $
    1,208,543
    
    
    $
    1,098,948
    
    
    $
    1,139,571
    
    
    $
    (2,166,316
    )
    
    $
    1,280,746LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,000Accounts payable and accrued liabilities
    
    
    61,820
    
    
    
    325,572
    
    
    
    177,225
    
    
    
    (399,015
    )
    
    
    165,602Accrued income taxes
    
    
    536
    
    
    
    316
    
    
    
    4,538
    
    
    
    
    
    
    
    5,390Total current liabilities
    
    
    74,356
    
    
    
    325,888
    
    
    
    181,763
    
    
    
    (399,015
    )
    
    
    182,992Long-term debt
    
    
    457,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457,466Other long-term liabilities
    
    
    10,993
    
    
    
    4,595
    
    
    
    13,260
    
    
    
    (219
    )
    
    
    28,629Long-term deferred tax liability
    
    
    3,439
    
    
    
    89
    
    
    
    8,425
    
    
    
    
    
    
    
    11,953Intercompany payables
    
    
    62,583
    
    
    
    473,144
    
    
    
    158,465
    
    
    
    (694,192
    )
    
    
    Contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    19,373
    
    
    
    18,049
    
    
    
    43,003
    
    
    
    (61,052
    )
    
    
    19,373Capital in excess of par value
    
    
    628,417
    
    
    
    722,847
    
    
    
    530,625
    
    
    
    (1,253,472
    )
    
    
    628,417Retained earnings (accumulated deficit)
    
    
    (48,084
    )
    
    
    (445,664
    )
    
    
    204,030
    
    
    
    241,634
    
    
    
    (48,084
    )Total stockholders equity
    
    
    599,706
    
    
    
    295,232
    
    
    
    777,658
    
    
    
    (1,072,890
    )
    
    
    599,706Total
liabilities
and
stockholders equity
    
    $
    1,208,543
    
    
    $
    1,098,948
    
    
    $
    1,139,571
    
    
    $
    (2,166,316
    )
    
    $
    1,280,746
 20




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
 December 31, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    58,189
    
    
    $
    1,768
    
    
    $
    48,846
    
    
    $
    
    
    
    $
    108,803Accounts and notes receivable, net
    
    
    17,357
    
    
    
    101,316
    
    
    
    234,987
    
    
    
    (164,973
    )
    
    
    188,687Rig materials and supplies
    
    
    
    
    
    
    (1,150
    )
    
    
    32,783
    
    
    
    
    
    
    
    31,633Deferred costs
    
    
    
    
    
    
    
    
    
    
    4,531
    
    
    
    
    
    
    
    4,531Deferred income taxes
    
    
    9,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,650Other tax assets
    
    
    96,450
    
    
    
    (63,183
    )
    
    
    4,551
    
    
    
    
    
    
    
    37,818Other current assets
    
    
    557
    
    
    
    45,513
    
    
    
    27,084
    
    
    
    (10,747
    )
    
    
    62,407Total current assets
    
    
    182,203
    
    
    
    84,264
    
    
    
    352,782
    
    
    
    (175,720
    )
    
    
    443,529Property, plant and equipment, net
    
    
    79
    
    
    
    434,870
    
    
    
    281,725
    
    
    
    124
    
    
    
    716,798Investment in subsidiaries and intercompany advances
    
    
    903,616
    
    
    
    582,049
    
    
    
    466,799
    
    
    
    (1,952,464
    )
    
    
    Other noncurrent assets
    
    
    56,658
    
    
    
    5,094
    
    
    
    29,107
    
    
    
    (8,100
    )
    
    
    82,759Total assets
    
    $
    1,142,556
    
    
    $
    1,106,277
    
    
    $
    1,130,413
    
    
    $
    (2,136,160
    )
    
    $
    1,243,086LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,000Accounts payable and accrued liabilities
    
    
    50,583
    
    
    
    319,187
    
    
    
    163,856
    
    
    
    (365,716
    )
    
    
    167,910Accrued income taxes
    
    
    1,069
    
    
    
    624
    
    
    
    7,433
    
    
    
    
    
    
    
    9,126Total current liabilities
    
    
    63,652
    
    
    
    319,811
    
    
    
    171,289
    
    
    
    (365,716
    )
    
    
    189,036Long-term debt
    
    
    411,831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411,831Other long-term liabilities
    
    
    9,689
    
    
    
    2,797
    
    
    
    17,976
    
    
    
    (216
    )
    
    
    30,246Long-term deferred tax liability
    
    
    (1,098
    )
    
    
    9,404
    
    
    
    7,768
    
    
    
    
    
    
    
    16,074Intercompany payables
    
    
    62,583
    
    
    
    473,144
    
    
    
    155,495
    
    
    
    (691,222
    )
    
    
    Contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    19,374
    
    
    
    18,049
    
    
    
    43,003
    
    
    
    (61,052
    )
    
    
    19,374Capital in excess of par value
    
    
    623,557
    
    
    
    722,851
    
    
    
    530,626
    
    
    
    (1,253,477
    )
    
    
    623,557Retained earnings (accumulated deficit)
    
    
    (47,032
    )
    
    
    (439,779
    )
    
    
    204,256
    
    
    
    235,523
    
    
    
    (47,032
    )Total stockholders equity
    
    
    595,899
    
    
    
    301,121
    
    
    
    777,885
    
    
    
    (1,079,006
    )
    
    
    595,899Total liabilities and stockholders equity
    
    $
    1,142,556
    
    
    $
    1,106,277
    
    
    $
    1,130,413
    
    
    $
    (2,136,160
    )
    
    $
    1,243,086
 21




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended September 30, 2010Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    99,731
    
    
    $
    114,981
    
    
    $
    (42,683
    )
    
    $
    172,029Operating expenses
    
    
    
    
    
    
    64,561
    
    
    
    107,804
    
    
    
    (42,683
    )
    
    
    129,682Depreciation and amortization
    
    
    
    
    
    
    16,049
    
    
    
    12,855
    
    
    
    
    
    
    
    28,904Total operating gross margin
    
    
    
    
    
    
    19,121
    
    
    
    (5,678
    )
    
    
    
    
    
    
    13,443General and administration expense (1)
    
    
    (37
    )
    
    
    (6,957
    )
    
    
    (70
    )
    
    
    
    
    
    
    (7,064
    )Gain on disposition of assets, net
    
    
    
    
    
    
    56
    
    
    
    1,120
    
    
    
    
    
    
    
    1,176Total operating income (loss)
    
    
    (37
    )
    
    
    12,220
    
    
    
    (4,628
    )
    
    
    
    
    
    
    7,555Other income and (expense):Interest expense
    
    
    (7,403
    )
    
    
    (8,911
    )
    
    
    (4,358
    )
    
    
    14,281
    
    
    
    (6,391
    )Interest income
    
    
    10,492
    
    
    
    149
    
    
    
    3,685
    
    
    
    (14,280
    )
    
    
    46Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (11
    )
    
    
    79
    
    
    
    
    
    
    
    68Equity in net earnings of subsidiaries
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    Total other income and (expense)
    
    
    2,940
    
    
    
    (8,773
    )
    
    
    (594
    )
    
    
    150
    
    
    
    (6,277
    )Income (benefit) before income taxes
    
    
    2,903
    
    
    
    3,447
    
    
    
    (5,222
    )
    
    
    150
    
    
    
    1,278Income tax expense (benefit):Current
    
    
    224
    
    
    
    165
    
    
    
    (3,493
    )
    
    
    
    
    
    
    (3,104
    )Deferred
    
    
    2,187
    
    
    
    1
    
    
    
    1,702
    
    
    
    
    
    
    
    3,890Total income tax expense (benefit)
    
    
    2,411
    
    
    
    166
    
    
    
    (1,791
    )
    
    
    
    
    
    
    786Net income (loss)
    
    $
    492
    
    
    $
    3,281
    
    
    $
    (3,431
    )
    
    $
    150
    
    
    $
    492
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 22




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
 Three months ended September 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    99,108
    
    
    $
    87,378
    
    
    $
    (5,077
    )
    
    $
    181,409Operating expenses
    
    
    
    
    
    
    80,207
    
    
    
    60,746
    
    
    
    (5,077
    )
    
    
    135,876Depreciation and amortization
    
    
    
    
    
    
    16,841
    
    
    
    12,466
    
    
    
    
    
    
    
    29,307Total operating gross margin
    
    
    
    
    
    
    2,060
    
    
    
    14,166
    
    
    
    
    
    
    
    16,226General and administration expense (1)
    
    
    (48
    )
    
    
    (9,671
    )
    
    
    (93
    )
    
    
    
    
    
    
    (9,812
    )Provision for reduction in carrying value of
certain assets
    
    
    
    
    
    
    (2,757
    )
    
    
    
    
    
    
    
    
    
    
    (2,757
    )Gain on disposition of assets, net
    
    
    
    
    
    
    104
    
    
    
    1,121
    
    
    
    
    
    
    
    1,225Total operating income (loss)
    
    
    (48
    )
    
    
    (10,264
    )
    
    
    15,194
    
    
    
    
    
    
    
    4,882Other income and (expense):Interest expense
    
    
    (8,043
    )
    
    
    (8,925
    )
    
    
    (3,468
    )
    
    
    13,343
    
    
    
    (7,093
    )Interest income
    
    
    10,493
    
    
    
    547
    
    
    
    2,738
    
    
    
    (13,343
    )
    
    
    435Other
    
    
    
    
    
    
    (284
    )
    
    
    (1
    )
    
    
    
    
    
    
    (285
    )Equity in net earnings of subsidiaries
    
    
    (9,299
    )
    
    
    
    
    
    
    
    
    
    
    9,299
    
    
    
    Total other income and (expense)
    
    
    (6,849
    )
    
    
    (8,662
    )
    
    
    (731
    )
    
    
    9,299
    
    
    
    (6,943
    )Income (benefit) before income taxes
    
    
    (6,896
    )
    
    
    (18,926
    )
    
    
    14,463
    
    
    
    9,299
    
    
    
    (2,061
    )Income tax expense (benefit):Current
    
    
    (3,061
    )
    
    
    (128
    )
    
    
    4,514
    
    
    
    
    
    
    
    1,325Deferred
    
    
    (10,930
    )
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    (10,480
    )Total income tax expense (benefit)
    
    
    (13,991
    )
    
    
    (128
    )
    
    
    4,964
    
    
    
    
    
    
    
    (9,155
    )Net income (loss)
    
    $
    7,094
    
    
    $
    (18,798
    )
    
    $
    9,499
    
    
    $
    9,299
    
    
    $
    7,094
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 23




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Nine months ended September 30, 2010Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    266,116
    
    
    $
    311,865
    
    
    $
    (91,822
    )
    
    $
    486,159Operating expenses
    
    
    
    
    
    
    176,188
    
    
    
    267,822
    
    
    
    (91,822
    )
    
    
    352,188Depreciation and amortization
    
    
    
    
    
    
    47,812
    
    
    
    38,692
    
    
    
    
    
    
    
    86,504Total operating gross margin
    
    
    
    
    
    
    42,116
    
    
    
    5,351
    
    
    
    
    
    
    
    47,467General and administration expense (1)
    
    
    (168
    )
    
    
    (23,623
    )
    
    
    (242
    )
    
    
    
    
    
    
    (24,033
    )Gain on disposition of assets, net
    
    
    
    
    
    
    1,634
    
    
    
    1,926
    
    
    
    
    
    
    
    3,560Total operating income (loss)
    
    
    (168
    )
    
    
    20,127
    
    
    
    7,035
    
    
    
    
    
    
    
    26,994Other income and (expense):Interest expense
    
    
    (23,667
    )
    
    
    (26,730
    )
    
    
    (12,609
    )
    
    
    42,497
    
    
    
    (20,509
    )Interest income
    
    
    31,507
    
    
    
    547
    
    
    
    20,641
    
    
    
    (52,497
    )
    
    
    198Loss on extinguishment of debt
    
    
    (7,209
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,209
    )Other
    
    
    1
    
    
    
    57
    
    
    
    267
    
    
    
    
    
    
    
    325Equity in net earnings of subsidiaries
    
    
    (6,111
    )
    
    
    
    
    
    
    
    
    
    
    6,111
    
    
    
    Total other income and (expense)
    
    
    (5,479
    )
    
    
    (26,126
    )
    
    
    8,299
    
    
    
    (3,889
    )
    
    
    (27,195
    )Income (benefit) before income taxes
    
    
    (5,647
    )
    
    
    (5,999
    )
    
    
    15,334
    
    
    
    (3,889
    )
    
    
    (201
    )Income tax expense (benefit):Current
    
    
    662
    
    
    
    (91
    )
    
    
    4,965
    
    
    
    
    
    
    
    5,536Deferred
    
    
    (5,257
    )
    
    
    (23
    )
    
    
    595
    
    
    
    
    
    
    
    (4,685
    )Total income tax expense (benefit)
    
    
    (4,595
    )
    
    
    (114
    )
    
    
    5,560
    
    
    
    
    
    
    
    851Net income (loss)
    
    $
    (1,052
    )
    
    $
    (5,885
    )
    
    $
    9,774
    
    
    $
    (3,889
    )
    
    $
    (1,052
    )
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 24




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
 Nine months ended September 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    293,674
    
    
    $
    336,899
    
    
    $
    (53,448
    )
    
    $
    577,125Operating expenses
    
    
    
    
    
    
    233,650
    
    
    
    242,399
    
    
    
    (53,448
    )
    
    
    422,601Depreciation and amortization
    
    
    
    
    
    
    49,277
    
    
    
    36,105
    
    
    
    
    
    
    
    85,382Total operating gross margin
    
    
    
    
    
    
    10,747
    
    
    
    58,395
    
    
    
    
    
    
    
    69,142General and administration expense (1)
    
    
    (131
    )
    
    
    (33,622
    )
    
    
    (245
    )
    
    
    
    
    
    
    (33,998
    )Provision for reduction in carrying value of
certain assets
    
    
    
    
    
    
    (2,757
    )
    
    
    
    
    
    
    
    
    
    
    (2,757
    )Gain on disposition of assets, net
    
    
    
    
    
    
    346
    
    
    
    1,661
    
    
    
    
    
    
    
    2,007Total operating income (loss)
    
    
    (131
    )
    
    
    (25,286
    )
    
    
    59,811
    
    
    
    
    
    
    
    34,394Other income and (expense):Interest expense
    
    
    (25,442
    )
    
    
    (26,900
    )
    
    
    (9,051
    )
    
    
    38,730
    
    
    
    (22,663
    )Interest income
    
    
    31,717
    
    
    
    926
    
    
    
    13,343
    
    
    
    (45,091
    )
    
    
    895Other
    
    
    (3
    )
    
    
    (374
    )
    
    
    12
    
    
    
    
    
    
    
    (365
    )Equity in net earnings of subsidiaries
    
    
    (10,929
    )
    
    
    
    
    
    
    
    
    
    
    10,929
    
    
    
    Total other income and (expense)
    
    
    (4,657
    )
    
    
    (26,348
    )
    
    
    4,304
    
    
    
    4,568
    
    
    
    (22,133
    )Income (benefit) before income taxes
    
    
    (4,788
    )
    
    
    (51,634
    )
    
    
    64,115
    
    
    
    4,568
    
    
    
    12,261Income tax expense (benefit):Current
    
    
    (2,189
    )
    
    
    329
    
    
    
    16,083
    
    
    
    
    
    
    
    14,224Deferred
    
    
    (16,190
    )
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    (15,554
    )Total income tax expense (benefit)
    
    
    (18,379
    )
    
    
    329
    
    
    
    16,719
    
    
    
    
    
    
    
    (1,330
    )Net income (loss)
    
    $
    13,591
    
    
    $
    (51,963
    )
    
    $
    47,396
    
    
    $
    4,568
    
    
    $
    13,591
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 25




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine Months Ended September 30, 2010Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (1,052
    )
    
    $
    (5,885
    )
    
    $
    9,774
    
    
    $
    (3,889
    )
    
    $
    (1,052
    )Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    47,812
    
    
    
    38,692
    
    
    
    
    
    
    
    86,504Loss on extinguishment of debt
    
    
    7,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,209Gain on disposition of assets
    
    
    
    
    
    
    (1,634
    )
    
    
    (1,926
    )
    
    
    
    
    
    
    (3,560
    )Deferred income tax expense
    
    
    (5,257
    )
    
    
    (23
    )
    
    
    595
    
    
    
    
    
    
    
    (4,685
    )Expenses not requiring cash
    
    
    10,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,740Equity in net earnings of subsidiaries
    
    
    6,111
    
    
    
    
    
    
    
    
    
    
    
    (6,111
    )
    
    
    Change in accounts receivable
    
    
    (7,522
    )
    
    
    8,499
    
    
    
    2,452
    
    
    
    
    
    
    
    3,429Change in other assets
    
    
    (3,384
    )
    
    
    1,464
    
    
    
    (1,755
    )
    
    
    
    
    
    
    (3,675
    )Change in liabilities
    
    
    7,838
    
    
    
    (17,316
    )
    
    
    299
    
    
    
    
    
    
    
    (9,179
    )Net cash provided by (used in) operating activities
    
    
    14,683
    
    
    
    32,917
    
    
    
    48,131
    
    
    
    (10,000
    )
    
    
    85,731Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (145,422
    )
    
    
    (36,134
    )
    
    
    
    
    
    
    (181,556
    )Proceeds from the sale of assets
    
    
    
    
    
    
    2,276
    
    
    
    2,309
    
    
    
    
    
    
    
    4,585Intercompany dividend payment
    
    
    
    
    
    
    
    
    
    
    (10,000
    )
    
    
    10,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (143,146
    )
    
    
    (43,825
    )
    
    
    10,000
    
    
    
    (176,971
    )Cash flows from financing activities:Proceeds from debt issuance
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000Proceeds from draw on revolver credit facility
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Paydown on Senior notes
    
    
    (225,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225,000
    )Paydown on term note
    
    
    (9,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,000
    )Paydown on revolver credit facility
    
    
    (42,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,000
    )Payment of debt issuance costs
    
    
    (8,001
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,001
    )Payment of debt extinguishment costs
    
    
    (7,466
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,466
    )Proceeds from stock options exercised
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Excess tax benefit from stock-based
compensatio
    
    
    1,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,212Intercompany advances, net
    
    
    (82,473
    )
    
    
    111,581
    
    
    
    (29,108
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (52,702
    )
    
    
    111,581
    
    
    
    (29,108
    )
    
    
    
    
    
    
    29,771Net change in cash and cash equivalents
    
    
    (38,019
    )
    
    
    1,352
    
    
    
    (24,802
    )
    
    
    
    
    
    
    (61,469
    )Cash and cash equivalents at beginning of period
    
    
    58,189
    
    
    
    1,768
    
    
    
    48,846
    
    
    
    
    
    
    
    108,803Cash and cash equivalents at end of period
    
    $
    20,170
    
    
    $
    3,120
    
    
    $
    24,044
    
    
    $
    
    
    
    $
    47,334
  26




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 Nine Months Ended September 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    13,591
    
    
    $
    (51,963
    )
    
    $
    47,395
    
    
    $
    4,568
    
    
    $
    13,591Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    49,277
    
    
    
    36,105
    
    
    
    
    
    
    
    85,382Gain on disposition of assets
    
    
    
    
    
    
    (346
    )
    
    
    (1,661
    )
    
    
    
    
    
    
    (2,007
    )Provision for reduction in carrying value of
certain assets
    
    
    
    
    
    
    2,757
    
    
    
    
    
    
    
    
    
    
    
    2,757Deferred income tax expense (benefit)
    
    
    (16,190
    )
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    (15,554
    )Expenses not requiring cash
    
    
    8,347
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    8,346Equity in net earnings of subsidiaries
    
    
    10,929
    
    
    
    
    
    
    
    
    
    
    
    (10,929
    )
    
    
    Change in accounts receivable
    
    
    31,144
    
    
    
    (24,051
    )
    
    
    (13,444
    )
    
    
    
    
    
    
    (6,351
    )Change in other assets
    
    
    3,070
    
    
    
    5,178
    
    
    
    (19,574
    )
    
    
    
    
    
    
    (11,326
    )Change in liabilities
    
    
    4,513
    
    
    
    14,436
    
    
    
    (27,460
    )
    
    
    
    
    
    
    (8,511
    )Net cash provided by (used in) operating activities
    
    
    55,404
    
    
    
    (4,713
    )
    
    
    21,997
    
    
    
    (6,361
    )
    
    
    66,327Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (103,876
    )
    
    
    (23,033
    )
    
    
    
    
    
    
    (126,909
    )Proceeds from the sale of assets
    
    
    
    
    
    
    679
    
    
    
    2,685
    
    
    
    
    
    
    
    3,364Intercompany dividend payments
    
    
    
    
    
    
    
    
    
    
    (6,361
    )
    
    
    6,361
    
    
    
    Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (103,197
    )
    
    
    (26,709
    )
    
    
    6,361
    
    
    
    (123,545
    )Cash flows from financing activities:Proceeds from draw on revolver credit facility
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Paydown on revolver credit facility
    
    
    (23,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,000
    )Paydown on term note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Excess tax cost from stock-based compensation
    
    
    (1,848
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,848
    )Intercompany advances, net
    
    
    (122,194
    )
    
    
    102,840
    
    
    
    19,354
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (142,843
    )
    
    
    102,840
    
    
    
    19,354
    
    
    
    
    
    
    
    (20,649
    )Net change in cash and cash equivalents
    
    
    (87,439
    )
    
    
    (5,070
    )
    
    
    14,642
    
    
    
    
    
    
    
    (77,867
    )Cash and cash equivalents at beginning of period
    
    
    111,324
    
    
    
    6,858
    
    
    
    54,116
    
    
    
    
    
    
    
    172,298Cash and cash equivalents at end of period
    
    $
    23,885
    
    
    $
    1,788
    
    
    $
    68,758
    
    
    $
    
    
    
    $
    94,431
  27




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    stability of prices and demand for oil and natural gas;
 
    
    levels of oil and natural gas exploration and production activities;
 
    
    demand for contract drilling and drilling related services and demand for rental tools;
 
    
    our future operating results and profitability;
 
    
    our future rig utilization, dayrates and rental tools activity;
 
    
    entering into new, or extending existing, drilling contracts and our expectations
concerning when our rigs will commence and end 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;
 
    
    scheduled delivery of drilling rigs for operation in Alaska under the terms of our
agreement with BP Exploration (Alaska) Inc.;
 
    
    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, investigations, 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 secured 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;
 
    
    our inability to access the credit markets;
 
    
    the U.S. economy and the demand for oil and natural gas;
 
    
    worldwide demand for oil and natural gas;
 
    
    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;
 28




---



##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
 
    
    governmental regulations, including additional regulation of onshore or offshore
drilling, changes in accounting rules or tax laws that may impact our ability to remit
funds to the U.S. government, that adversely affect the cost of doing business;
 
    
    changes in the tax laws that would allow double taxation on foreign sourced income;
 
    
    the outcome of our investigation and the parallel investigations by the SEC and the DOJ
into possible violations of U.S. law, including the Foreign Corrupt Practices Act;
 
    
    contemplated U.S. legislation on carbon emissions;
 
    
    potential new employer taxes on U.S. health care plans;
 
    
    adverse environmental events;
 
    
    adverse weather conditions;
 
    
    global health concerns;
 
    
    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 and equipment certifications;
 
    
    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 (including those set forth in Part II, Item 1A Risk Factors, and
in documents referred to, in this Form 10-Q, including the risk factors described in our
2009 Annual Report on Form 10-K and our other reports and filings with the Securities and
Exchange Commission).
  OVERVIEW AND OUTLOOK
 Overview
   29




---



##### Table of Contents



OVERVIEW AND OUTLOOK (continued)
 Overview (continued)
       Outlook
  30




---



##### Table of Contents



OVERVIEW AND OUTLOOK (continued)
 Outlook (continued)
    RESULTS OF OPERATIONS
 Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009
  31




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended September 30,2010
    
    
    2009(Dollars in Thousands)Revenues:International Drilling
    
    $
    53,614
    
    
    
    31
    %
    
    $
    63,966
    
    
    
    35
    %U.S. Drilling
    
    
    14,929
    
    
    
    9
    %
    
    
    12,350
    
    
    
    7
    %Rental Tools
    
    
    48,114
    
    
    
    28
    %
    
    
    23,899
    
    
    
    13
    %Project Management and Engineering Services
    
    
    27,599
    
    
    
    16
    %
    
    
    25,869
    
    
    
    14
    %Construction Contract
    
    
    27,773
    
    
    
    16
    %
    
    
    55,325
    
    
    
    31
    %Total revenues
    
    $
    172,029
    
    
    
    100
    %
    
    $
    181,409
    
    
    
    100
    %Operating gross margins, excluding depreciation and amortization (1):International Drilling
    
    $
    2,302
    
    
    
    4
    %
    
    $
    22,002
    
    
    
    34
    %U.S. Drilling
    
    
    1,642
    
    
    
    11
    %
    
    
    2,293
    
    
    
    19
    %Rental Tools
    
    
    31,531
    
    
    
    66
    %
    
    
    11,667
    
    
    
    49
    %Project Management and Engineering Services
    
    
    7,221
    
    
    
    26
    %
    
    
    6,449
    
    
    
    25
    %Construction Contract
    
    
    (349
    )
    
    
    -1
    %
    
    
    3,122
    
    
    
    6
    %Depreciation and amortization
    
    
    (28,904
    )
    
    
    
    
    
    
    (29,307
    )Total operating gross margin (2)
    
    
    13,443
    
    
    
    
    
    
    
    16,226General and administration expense
    
    
    (7,064
    )
    
    
    
    
    
    
    (9,812
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    
    
    
    
    (2,757
    )Gain on disposition of assets, net
    
    
    1,176
    
    
    
    
    
    
    
    1,225Total operating income
    
    $
    7,555
    
    
    
    
    
    
    $
    4,882
 
 (1)
    
    Gross margins, excluding depreciation and amortization, are computed as
revenues less direct operating expenses, depreciation and amortization expense, where
applicable; segment operating gross margin percentages are computed as operating gross margin
as a percent of revenues. The operating gross margin amounts and operating gross margin
percentages should not be used as a substitute for those amounts reported under accounting
principles generally accepted in the United States (U.S. GAAP). However, we monitor our
business segments based on several criteria, including operating gross margin. Management
believes that this information is useful to our investors because it more accurately reflects
cash generated by segment. Such operating gross margin amounts are reconciled to our most
comparable U.S. GAAP measure as follows: ProjectManagementandInternational
    
    
    
    
    
    
    
    
    
    
    Engineering
    
    
    ConstructionThree Months Ended:
    
    Drilling
    
    
    U.S. Drilling
    
    
    Rental Tools
    
    
    Services
    
    
    Contract(Dollars in Thousands)September 30, 2010Operating gross margin (2)
    
    $
    (11,328
    )
    
    $
    (3,838
    )
    
    $
    21,737
    
    
    $
    7,221
    
    
    $
    (349
    )Depreciation and amortization
    
    
    13,630
    
    
    
    5,480
    
    
    
    9,794
    
    
    
    
    
    
    
    Drilling and rental gross margin
excluding
depreciation and amortization
    
    $
    2,302
    
    
    $
    1,642
    
    
    $
    31,531
    
    
    $
    7,221
    
    
    $
    (349
    )September 30, 2009Operating gross margin (2)
    
    $
    8,734
    
    
    $
    (4,842
    )
    
    $
    2,763
    
    
    $
    6,449
    
    
    $
    3,122Depreciation and amortization
    
    
    13,268
    
    
    
    7,135
    
    
    
    8,904
    
    
    
    
    
    
    
    Drilling and rental gross margin
excluding
depreciation and amortization
    
    $
    22,002
    
    
    $
    2,293
    
    
    $
    11,667
    
    
    $
    6,449
    
    
    $
    3,122
 
 (2)
    
    Operating gross margin is calculated as revenues less direct operating
expenses, including depreciation and amortization expense. 32




---



##### Table of Contents



RESULTS OF OPERATIONS (continued)
 International Drilling Segment
    U.S. Drilling Segment
   Rental Tools Segment
   Project Management and Engineering Services Segment
  33




---



##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Project Management and Engineering Services Segment (continued)
  Construction Contracts Segment
  Other Financial Data
     Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009
  34




---



##### Table of Contents



RESULTS OF OPERATIONS (continued)
  Nine Months Ended September 30,2010
    
    
    2009(Dollars in Thousands)Revenues:International Drilling
    
    $
    170,421
    
    
    
    35
    %
    
    $
    220,626
    
    
    
    38
    %U.S. Drilling
    
    
    45,352
    
    
    
    9
    %
    
    
    35,095
    
    
    
    6
    %Rental Tools
    
    
    123,288
    
    
    
    26
    %
    
    
    89,948
    
    
    
    16
    %Project Management and Engineering Services
    
    
    78,403
    
    
    
    16
    %
    
    
    81,814
    
    
    
    14
    %Construction Contract
    
    
    68,695
    
    
    
    14
    %
    
    
    149,642
    
    
    
    26
    %Total revenues
    
    $
    486,159
    
    
    
    100
    %
    
    $
    577,125
    
    
    
    100
    %Operating gross margins, excluding depreciation and amortization (1):International Drilling
    
    $
    32,513
    
    
    
    19
    %
    
    $
    79,998
    
    
    
    36
    %U.S. Drilling
    
    
    5,551
    
    
    
    12
    %
    
    
    274
    
    
    
    1
    %Rental Tools
    
    
    79,811
    
    
    
    65
    %
    
    
    48,510
    
    
    
    54
    %Project Management and Engineering Services
    
    
    16,763
    
    
    
    21
    %
    
    
    18,217
    
    
    
    22
    %Construction Contract
    
    
    (667
    )
    
    
    -1
    %
    
    
    7,525
    
    
    
    5
    %Depreciation and amortization
    
    
    (86,504
    )
    
    
    
    
    
    
    (85,382
    )Total operating gross margin (2)
    
    
    47,467
    
    
    
    
    
    
    
    69,142General and administration expense
    
    
    (24,033
    )
    
    
    
    
    
    
    (33,998
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    
    
    
    
    (2,757
    )Gain on disposition of assets, net
    
    
    3,560
    
    
    
    
    
    
    
    2,007Total operating income
    
    $
    26,994
    
    
    
    
    
    
    $
    34,394
 
 (1)
    
    Operating gross margins, excluding depreciation and amortization, are
computed as revenues less direct operating expenses, excluding depreciation and amortization
expense; operating gross margin percentages are computed as operating gross margin, excluding
depreciation and amortization, as a percent of revenues. The operating gross margin amounts,
excluding depreciation and amortization, and operating 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 operating gross margin. Management believes that this information is
useful to our investors because it more accurately reflects cash generated by segment. Such
operating gross margin amounts are reconciled to our most comparable U.S. GAAP measure as
follows: ProjectManagementandInternational
    
    
    
    
    
    
    
    
    
    
    Engineering
    
    
    ConstructionNine Months Ended:
    
    Drilling
    
    
    U.S. Drilling
    
    
    Rental Tools
    
    
    Services
    
    
    Contract(Dollars in Thousands)September 30, 2010Operating gross margin (2)
    
    $
    (8,319
    )
    
    $
    (12,170
    )
    
    $
    51,860
    
    
    $
    16,763
    
    
    $
    (667
    )Depreciation and amortization
    
    
    40,832
    
    
    
    17,721
    
    
    
    27,951
    
    
    
    
    
    
    
    Drilling and rental gross margin
excluding
depreciation and amortization
    
    $
    32,513
    
    
    $
    5,551
    
    
    $
    79,811
    
    
    $
    16,763
    
    
    $
    (667
    )September 30, 2009Operating gross margin (2)
    
    $
    41,809
    
    
    $
    (21,081
    )
    
    $
    22,672
    
    
    $
    18,217
    
    
    $
    7,525Depreciation and amortization
    
    
    38,189
    
    
    
    21,355
    
    
    
    25,838
    
    
    
    
    
    
    
    Drilling and rental gross margin
excluding
depreciation and amortization
    
    $
    79,998
    
    
    $
    274
    
    
    $
    48,510
    
    
    $
    18,217
    
    
    $
    7,525
 
 (2)
    
    Operating gross margin is calculated as revenues less direct operating
expenses, including depreciation and amortization expense 35




---



##### Table of Contents



RESULTS OF OPERATIONS(continued) International Drilling Segment
    U.S. Drilling Segment
   Rental Tools Segment
   Project Management and Engineering Services Segment
  36




---



##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Construction Contracts Segment
   Other Financial Data
     LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
  37




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Cash Flows (continued)
  Financing Activity
     38




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
   
    
    $300.0 million aggregate principal amount of 9.125% Notes, which are due April 1, 2018;
 
    
    $55.0 million drawn against our 2008 Credit Facility, including $35.0 million on our
Term Loan Facility, $12.0 million of which is classified as short term, and $20.0 million
under our Revolving Credit Facility, and
 
    
    $125.0 million aggregate principal amount of Convertible Senior Notes at a coupon rate
of 2.125%, which are due July 15, 2012 less $10.5 million in unamortized debt discount.
   39




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Contractual Obligations
  Less than
    
    
    Years
    
    
    Years
    
    
    More thanTotal
    
    
    1 Year
    
    
    2 - 3
    
    
    4 - 5
    
    
    5 Years(Dollars in Thousands)Contractual cash obligations:Long-term debt  principal (1)
    
    $
    480,000
    
    
    $
    12,000
    
    
    $
    168,000
    
    
    $
    
    
    
    $
    300,000Long-term debt  interest (1)
    
    
    213,742
    
    
    
    31,778
    
    
    
    58,776
    
    
    
    54,750
    
    
    
    68,438Operating leases (2)
    
    
    31,760
    
    
    
    6,417
    
    
    
    8,147
    
    
    
    6,163
    
    
    
    11,033Purchase commitments (3)
    
    
    29,409
    
    
    
    29,409
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    754,911
    
    
    $
    79,604
    
    
    $
    234,923
    
    
    $
    60,913
    
    
    $
    379,471Commercial commitments:Long-term debt  standby
letters of credit (4)
    
    
    16,238
    
    
    
    16,238
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    16,238
    
    
    $
    16,238
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the
9.125% Notes, the 2.125% Notes, the revolving credit facility, and the Term Loan. The
remaining unamortized discount of $10.5 million on the 2.125% Notes 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)
    
    Purchase commitments outstanding as of September 30, 2010, are primarily
related to rig upgrade projects and new rig construction.(4)
    
    We have an $80.0 million revolving credit facility. As of September 30,
2010, we had drawn down $20.0 million under the revolver and $16.2 million of availability has
been used to support letters of credit that have been issued, resulting in $43.8 million of
availability. The revolving credit facility expires May 14, 2013. Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  40




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting 
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Our operations could be adversely impacted by the recent drilling rig accident in the U.S. Gulf of
Mexico and its consequences.
  41




---



##### Table of Contents



ITEM 1A.  RISK FACTORS (continued)
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That MayTotal Number
    
    
    
    
    
    
    Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Average Price
    
    
    Announced Plan or
    
    
    Under the Plan orPeriod
    
    Purchased (1)
    
    
    Paid Per Share
    
    
    Program
    
    
    ProgramJuly 1-31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    N/AAugust 1-31, 2010
    
    
    1,088
    
    
    $
    3.84
    
    
    
    
    
    
    
    N/ASeptember 1-30, 2010
    
    
    4,553
    
    
    $
    4.22
    
    
    
    
    
    
    
    N/ATotal
    
    
    5,641
    
    
    $
    4.03
    
    
    
    
    
    
    
    N/A
 
 (1)
    
    Represents shares subject to restricted share awards withheld to satisfy
tax obligations arising upon the vesting of restricted shares. 
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    DESCRIPTION3.1
    
    
    
    Restated Certificate of Incorporation of the Company, as amended on May 16,
2007 (incorporated by reference to Exhibit 3.1 to the Companys quarterly
Report on Form 10-Q filed on November 9, 2007)3.2
    
    
    
    Bylaws of the Company, as amended on January 31, 2003 (incorporated by
reference to Exhibit 3(d) to the Companys Annual Report on Form 10-K filed
on March 20, 2003)4.1
    
    
    
    Second Supplemental Indenture dated as of October 26, 2010, supplementing the
Indenture dated July 5, 2007 for the 2.125% Convertible Senior Notes due
2012.31.1
    
    
    
    section 302 Certification  President and Chief Executive Officer31.2
    
    
    
    section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    
    
    section 906 Certification  President and Chief Executive Officer32.2
    
    
    
    section 906 Certification  Senior Vice President and Chief Financial Officer
 42




---



##### Table of Contents



SIGNATURES
  PARKER DRILLING COMPANYDate:  November 8, 2010
    By:
    /s/ David C. MannonDavid C. MannonPresident and Chief Executive OfficerBy:
    /s/ W. Kirk BrassfieldW. Kirk BrassfieldSenior Vice President and Chief Financial Officer 43




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Restated Certificate of Incorporation of the Company, as amended on May 16,
2007 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly
Report on Form 10-Q filed on November 9, 2007)3.2
    
    Bylaws of the Company, as amended on January 31, 2003 (incorporated by
reference to Exhibit 3(d) to the Companys Annual Report on Form 10-K filed
on March 20, 2003)4.1
    
    Second Supplemental Indenture dated as of October 26, 2010, supplementing the
indenture dated July 5, 2007 for the 2.125% Convertible Senior Notes due
2012.31.1
    
    Section 302 Certification  President and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  President and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 44