##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For The Quarterly Period Ended SEPTEMBER 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-7573
 PARKER DRILLING COMPANY
 (Exact name of registrant as specified in its charter)
 Delaware
    
    73-0618660(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
  
 (Address of principal executive offices) (Zip code)
  
 (Registrants telephone number, including area code)
 þ o
 þ o
  þ o o
 o þ




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TABLE OF CONTENTS
 PagePart I.Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets (Unaudited)
September 30, 2007 and December 31, 2006
    
    
    3Consolidated Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2007 and 2006
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2007 and 2006
    
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    
    6-21Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33Part II.Other InformationItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36Officer CertificationsRestated Certificate of Incorporation, as amendedCertification of Chairman & CEO Pursuant to Section 302Certification of VP & CFO Pursuant to Section 302Certification of Chairman & CEO Pursuant to Section 906Certification of VP & CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS
 PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Dollars in Thousands)
 (Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    66,954
    
    
    $
    92,203Marketable securities
    
    
    
    
    
    
    62,920Accounts and notes receivable, net
    
    
    161,500
    
    
    
    112,359Rig materials and supplies
    
    
    21,509
    
    
    
    15,000Deferred costs
    
    
    9,872
    
    
    
    6,662Deferred income taxes
    
    
    17,307
    
    
    
    17,307Other current assets
    
    
    44,663
    
    
    
    11,123Total current assets
    
    
    321,805
    
    
    
    317,574Property, plant and equipment less
accumulated depreciation and amortization of $606,183
at September 30, 2007 and $570,650 at December 31, 2006
    
    
    562,952
    
    
    
    435,473Goodwill
    
    
    100,315
    
    
    
    100,315Assets held for sale
    
    
    
    
    
    
    4,828Investment in and advances to unconsolidated joint venture
    
    
    14,091
    
    
    
    10,267Other noncurrent assets
    
    
    81,777
    
    
    
    32,844Total assets
    
    $
    1,080,940
    
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    88,386
    
    
    $
    95,226Accrued income taxes
    
    
    15,896
    
    
    
    6,677Total current liabilities
    
    
    104,282
    
    
    
    101,903Long-term debt
    
    
    353,882
    
    
    
    329,368Other long-term liabilities
    
    
    110,009
    
    
    
    10,931Long-term deferred tax liability
    
    
    15,181
    
    
    
    Contingencies
(Note 11)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,639
    
    
    
    18,220Capital in excess of par value
    
    
    591,313
    
    
    
    568,253Accumulated deficit
    
    
    (112,366
    )
    
    
    (127,374
    )Total stockholders equity
    
    
    497,586
    
    
    
    459,099Total liabilities and stockholders equity
    
    $
    1,080,940
    
    
    $
    901,301
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
 (Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Drilling and rental revenues:U.S. drilling
    
    $
    59,700
    
    
    $
    52,347
    
    
    $
    178,975
    
    
    $
    135,297International drilling
    
    
    76,997
    
    
    
    61,605
    
    
    
    197,867
    
    
    
    214,407Rental tools
    
    
    35,500
    
    
    
    32,831
    
    
    
    96,905
    
    
    
    90,401Total drilling and rental revenues
    
    
    172,197
    
    
    
    146,783
    
    
    
    473,747
    
    
    
    440,105Drilling and rental operating expenses:U.S. drilling
    
    
    25,563
    
    
    
    20,944
    
    
    
    76,940
    
    
    
    58,228International drilling
    
    
    51,618
    
    
    
    52,280
    
    
    
    148,018
    
    
    
    171,506Rental tools
    
    
    14,579
    
    
    
    12,349
    
    
    
    38,263
    
    
    
    33,788Depreciation and amortization
    
    
    23,043
    
    
    
    16,993
    
    
    
    60,744
    
    
    
    51,665Total drilling and rental operating expenses
    
    
    114,803
    
    
    
    102,566
    
    
    
    323,965
    
    
    
    315,187Drilling and rental operating income
    
    
    57,394
    
    
    
    44,217
    
    
    
    149,782
    
    
    
    124,918General and administration expense
    
    
    (6,246
    )
    
    
    (7,992
    )
    
    
    (18,380
    )
    
    
    (23,261
    )Provision for reduction in carrying value of certain assets
    
    
    (1,091
    )
    
    
    
    
    
    
    (1,091
    )
    
    
    Gain on disposition of assets, net
    
    
    543
    
    
    
    4,328
    
    
    
    17,216
    
    
    
    6,901Total operating income
    
    
    50,600
    
    
    
    40,553
    
    
    
    147,527
    
    
    
    108,558Other income and (expense):Interest expense
    
    
    (7,576
    )
    
    
    (7,923
    )
    
    
    (19,891
    )
    
    
    (25,223
    )Changes in fair value of derivative positions
    
    
    (262
    )
    
    
    (1,029
    )
    
    
    (671
    )
    
    
    166Interest income
    
    
    2,080
    
    
    
    2,521
    
    
    
    5,576
    
    
    
    5,966Loss on extinguishment of debt
    
    
    (2,396
    )
    
    
    (1,910
    )
    
    
    (2,396
    )
    
    
    (1,912
    )Equity in loss of unconsolidated joint venture, net of taxes
    
    
    (1,123
    )
    
    
    
    
    
    
    (1,123
    )
    
    
    Minority interest
    
    
    
    
    
    
    (304
    )
    
    
    (1,000
    )
    
    
    (1,224
    )Other
    
    
    510
    
    
    
    (96
    )
    
    
    587
    
    
    
    (110
    )Total other income and (expense)
    
    
    (8,767
    )
    
    
    (8,741
    )
    
    
    (18,918
    )
    
    
    (22,337
    )Income before income taxes
    
    
    41,833
    
    
    
    31,812
    
    
    
    128,609
    
    
    
    86,221Income tax expense:Current
    
    
    14,598
    
    
    
    1,166
    
    
    
    43,223
    
    
    
    10,692Deferred
    
    
    4,582
    
    
    
    12,007
    
    
    
    15,879
    
    
    
    31,671Total income tax expense
    
    
    19,180
    
    
    
    13,173
    
    
    
    59,102
    
    
    
    42,363Net income
    
    $
    22,653
    
    
    $
    18,639
    
    
    $
    69,507
    
    
    $
    43,858Basic earnings per share:Net income
    
    $
    0.21
    
    
    $
    0.17
    
    
    $
    0.64
    
    
    $
    0.41Diluted earnings per share:Net income
    
    $
    0.20
    
    
    $
    0.17
    
    
    $
    0.63
    
    
    $
    0.41Number of common shares used in computing
earnings per share:Basic
    
    
    110,270,207
    
    
    
    107,233,881
    
    
    
    109,269,867
    
    
    
    106,272,123Diluted
    
    
    111,278,430
    
    
    
    108,211,580
    
    
    
    110,522,914
    
    
    
    107,766,841
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    69,507
    
    
    $
    43,858Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    60,744
    
    
    
    51,665Gain on disposition of assets
    
    
    (17,216
    )
    
    
    (6,901
    )Deferred income tax expense
    
    
    15,879
    
    
    
    31,671Equity in
loss of unconsolidated joint venture, net of tax
    
    
    1,123
    
    
    
    Provision for reduction in carrying value of certain assets
    
    
    1,091
    
    
    
    Expenses not requiring cash
    
    
    11,008
    
    
    
    10,394Change in accounts receivable
    
    
    (48,524
    )
    
    
    (23,354
    )Change in other assets
    
    
    (28,579
    )
    
    
    (4,013
    )Change in liabilities
    
    
    (12,979
    )
    
    
    7,442Net cash provided by operating activities
    
    
    52,054
    
    
    
    110,762Cash flows from investing activities:Capital expenditures
    
    
    (191,381
    )
    
    
    (129,023
    )Proceeds from the sale of assets
    
    
    23,243
    
    
    
    49,292Proceeds from insurance settlements
    
    
    
    
    
    
    4,431Purchase of marketable securities
    
    
    (101,075
    )
    
    
    (196,120
    )Proceeds from sale of marketable securities
    
    
    163,995
    
    
    
    126,740Net cash used in investing activities
    
    
    (105,218
    )
    
    
    (144,680
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    125,000
    
    
    
    Principal payments under debt obligations
    
    
    (100,000
    )
    
    
    (50,000
    )Purchase of call options
    
    
    (31,475
    )
    
    
    Proceeds from sale of common stock warrants
    
    
    20,250
    
    
    
    Proceeds from common stock offering
    
    
    
    
    
    
    99,947Payment of debt issuance costs
    
    
    (3,563
    )
    
    
    Proceeds from stock options exercised
    
    
    15,791
    
    
    
    6,675Excess tax benefit from stock based compensation
    
    
    1,912
    
    
    
    2,089Net cash provided by financing activities
    
    
    27,915
    
    
    
    58,711Net increase (decrease) in cash and cash equivalents
    
    
    (25,249
    )
    
    
    24,793Cash and cash equivalents at beginning of year
    
    
    92,203
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    66,954
    
    
    $
    84,969Supplemental cash flow information:Interest paid
    
    $
    16,370
    
    
    $
    21,162Income taxes paid
    
    $
    44,270
    
    
    $
    13,207
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 1.
    
    General In the opinion of the management of Parker Drilling Company, the accompanying
unaudited consolidated condensed financial statements reflect all adjustments (of a normally
recurring nature) which are necessary for a fair presentation of (1) the financial position as
of September 30, 2007 and December 31, 2006, (2) the results of operations for the three and
nine months ended September 30, 2007 and 2006, and (3) cash flows for the nine months ended
September 30, 2007 and 2006. Results for the nine months ended September 30, 2007 are not
necessarily indicative of the results that will be realized for the year ending December 31,
2007. The financial statements should be read in conjunction with our Form 10-K for the year
ended December 31, 2006.Stock-Based Compensation Total stock-based compensation expense recognized under SFAS No. 123R
for the three and nine month periods ended September 30, 2007 was $2.2 million and $6.3 million
respectively, all of which was related to restricted stock plan expense. Total stock-based
compensation expense recognized under SFAS No. 123R for the three and nine month periods ended
September 30, 2006 was $1.8 million and $4.9 million respectively, of which $1.8 million and
$4.7 million, respectively, was related to restricted stock plan expense. Stock-based
compensation expense is included in our consolidated condensed income statement in General and
administration expense. There were 8,334 unvested stock options at December 31, 2006 and none
as of September 30, 2007. Total unrecognized compensation cost related to stock options granted
under our plans was approximately $1,200 at December 31, 2006 and zero at September 30, 2007.
The Company had 1,262,300 outstanding and exercisable stock options as of September 30, 2007,
the aggregate intrinsic value of which was $5.4 million, with a weighted average exercise price
of $5.88. Unvested restricted stock awards at December 31, 2006 and September 30, 2007 were
1,556,485 shares and 1,501,224 shares, respectively. Total unrecognized compensation cost
related to unamortized restricted stock awards was $4.8 million as of December 31, 2006 and $7.0
million as of September 30, 2007. There were 54,738 and 859,083 restricted shares granted (net
of forfeitures, if any) to certain officers and key employees during the three and nine month
periods ended September 30, 2007, respectively. The remaining unrecognized compensation cost
related to unamortized restricted stock awards will be amortized over a weighted-average vesting
period of approximately one year.During the nine months ended September 30, 2006 the valuation assumptions used in our
Black-Scholes option pricing model to estimate the fair value of stock options granted were 16.9
percent for expected volatility, 0.25 years expected term, 4.23 percent risk free interest rate
and there was no expected dividend yield. There were no stock options granted in 2007.The excess tax benefit realized for the tax deductions from options exercised and restricted
stock vesting totaled $1.9 million for the nine months ended September 30, 2007, which has been
reported as a financing cash inflow in the consolidated condensed statement of cash flows.2.
    
    Common Stock Offering In January 2006, we issued 8,900,000 shares of common stock pursuant
to a Free Writing Prospectus dated January 17, 2006 and a Prospectus Supplement dated January
18, 2006. On January 23, 2006, we realized $11.23 per share or a total of $99.9 million of
net proceeds before expenses, but after underwriter discount, from the offering.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Earnings Per Share (EPS)
 Three Months Ended September 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    22,653,000
    
    
    
    110,270,207
    
    
    $
    0.21Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,008,223
    
    
    
    Diluted EPS:Net income
    
    $
    22,653,000
    
    
    
    111,278,430
    
    
    $
    0.20
 Nine Months Ended September 30, 2007Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    69,507,000
    
    
    
    109,269,867
    
    
    $
    0.64Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,253,047
    
    
    
    Diluted EPS:Net income
    
    $
    69,507,000
    
    
    
    110,522,914
    
    
    $
    0.63
 Three Months Ended September 30, 2006Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    18,639,000
    
    
    
    107,233,881
    
    
    $
    0.17Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    977,699
    
    
    
    Diluted EPS:Net income
    
    $
    18,639,000
    
    
    
    108,211,580
    
    
    $
    0.17
 Nine Months Ended September 30, 2006Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    43,858,000
    
    
    
    106,272,123
    
    
    $
    0.41Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,494,718
    
    
    
    Diluted EPS:Net income
    
    $
    43,858,000
    
    
    
    107,766,841
    
    
    $
    0.41
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Earnings Per Share (EPS) (continued)Options to purchase 325,500 shares of common stock with exercise prices ranging from $10.81 to
$12.19 per share were outstanding during the three and nine months ended September 30, 2007, but
were not included in the computation of diluted EPS because the options exercise prices were
greater than the average market price of the common shares. Options to purchase 2,187,000
shares of common stock with exercise prices ranging from $8.87 to $12.19 per share were
outstanding during the three and nine months ended September 30, 2006, but were not included in
the computation of diluted EPS because the options exercise prices were greater than the
average market price of the common shares.4.
    
    Business Segments The primary services we provide are as follows: U.S. drilling,
international drilling and rental tools. Information regarding our operations by industry
segment for the three and nine months ended September 30, 2007 and 2006 is as follows:
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in Thousands)
    
    
    (Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    59,700
    
    
    $
    52,347
    
    
    $
    178,975
    
    
    $
    135,297International drilling
    
    
    76,997
    
    
    
    61,605
    
    
    
    197,867
    
    
    
    214,407Rental tools
    
    
    35,500
    
    
    
    32,831
    
    
    
    96,905
    
    
    
    90,401Total drilling and rental revenues
    
    $
    172,197
    
    
    $
    146,783
    
    
    $
    473,747
    
    
    $
    440,105Drilling and rental operating income:U.S. drilling
    
    $
    25,345
    
    
    $
    24,755
    
    
    $
    78,126
    
    
    $
    59,822International drilling
    
    
    17,679
    
    
    
    3,674
    
    
    
    30,259
    
    
    
    22,654Rental tools
    
    
    14,370
    
    
    
    15,788
    
    
    
    41,397
    
    
    
    42,442Total drilling and rental operating income
    
    
    57,394
    
    
    
    44,217
    
    
    
    149,782
    
    
    
    124,918General and administration expense
    
    
    (6,246
    )
    
    
    (7,992
    )
    
    
    (18,380
    )
    
    
    (23,261
    )Provision for reduction in carrying value of certain assets
    
    
    (1,091
    )
    
    
    
    
    
    
    (1,091
    )
    
    
    Gain on disposition of assets, net
    
    
    543
    
    
    
    4,328
    
    
    
    17,216
    
    
    
    6,901Total operating income
    
    
    50,600
    
    
    
    40,553
    
    
    
    147,527
    
    
    
    108,558Interest expense
    
    
    (7,576
    )
    
    
    (7,923
    )
    
    
    (19,891
    )
    
    
    (25,223
    )Changes in fair value of derivative positions
    
    
    (262
    )
    
    
    (1,029
    )
    
    
    (671
    )
    
    
    166Loss on extinguishment of debt
    
    
    (2,396
    )
    
    
    (1,910
    )
    
    
    (2,396
    )
    
    
    (1,912
    )Other
    
    
    1,467
    
    
    
    2,121
    
    
    
    4,040
    
    
    
    4,632Income before income taxes
    
    $
    41,833
    
    
    $
    31,812
    
    
    $
    128,609
    
    
    $
    86,221
 5.
    
    Disposition of AssetsAsset dispositions in
2007 consist primarily of the sale of workover barge Rigs 9 and 26
for proceeds of approximately $20.5 million resulting in a recognized gain of $15.1 million.
These two rigs were classified as assets held for sale as of
December 31, 2006. In 2006, asset dispositions resulted in a
gain of
$6.9 million that included the sale of Nigerian Barge rigs 73 and 75
($1.8 million), gains on insurance proceeds relating to assets
damaged ($1.9 million) and other miscellaneous asset sales
($3.2 million).6.
    
    Accounting for Uncertainty in Income Taxes In June 2006, the FASB issued Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109
(FIN 48). This accounting statement prescribes financial statement recognition threshold
and measurement criteria for tax positions taken or expected to be taken in tax returns.In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement 109 (FIN 48). This accounting statement
prescribes financial statement recognition threshold and measurement criteria for tax positions
taken or expected to be taken in tax returns.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 6.
    
    Accounting for Uncertainty in Income Taxes (continued)The Company adopted FIN 48 effective January 1, 2007. As a result, the Company has increased
its liability by $54.5 million for unrecognized tax amounts related to various federal, state
and international tax matters. Included in this amount is $35.1 million of tax positions that,
if recognized, would have impacted the Companys effective tax rate. The recognition of this
liability is required under FIN 48 because of the uncertainty regarding the ultimate outcome of
certain tax positions. The Company has accounted for the entire $54.5 million as a reduction to
the January 1, 2007 balance of retained earnings.Of the $54.5 million increase referred to above, $49 million is attributable to tax positions in
Kazakhstan. As of September 30, 2007, we have a total liability
of $90.6 million accrued for tax positions in Kazakhstan before
the recognition of U.S. tax benefits. This liability has been classified as non-current in our
balance sheet. For a complete overview of this issue, see Kazakhstan
Tax Claims in Note 11.The Company has classified foreign currency exchange rate fluctuations, interest and penalties
as a component of tax expense. On January 1, 2007, we recorded approximately $41.3 million for
interest and penalties. During the nine months ended
September 30, 2007, the Company recognized an additional liability of approximately $5.5
million, comprising of foreign currency exchange rate fluctuations, interest and a release of previously
recognized liabilities. The Company does not expect that the unrecognized tax amounts
will change significantly within the next twelve months.The Company conducts business globally and, as a result, the Company or one or more of its
subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business our returns are subject to examination
by taxing authorities throughout the world.7.
    
    Income Tax Expense Income tax expense was $19.2 million for the third quarter of 2007, as
compared to income tax expense of $13.2 million for the third quarter of 2006. Income tax for
the third quarter of 2007 includes a benefit of $0.5 million of interest and foreign currency
exchange rate fluctuations related to our FIN 48 calculation.8.
    
    Saudi Arabia Joint Venture A subsidiary of Parker Drilling Company is a 50 percent
shareholder of Al-Rushaid Parker Drilling, a Saudi Arabia limited liability company (ARPD),
which has a six rig drilling contract with Saudi Aramco (SA Contract). ARPD has obtained
bank financing for $160 million of the cost of the six rigs, which
loan is secured by assignment of proceeds of the SA contract and personal guarantee of the Chairman of Abdullah Rasheed Al-Rushaid Company
for Drilling Oil and Gas Limited, our Saudi partner (AR). Our subsidiary and AR have each
advanced $15 million in shareholder loans to fund
construction costs for the rigs as of October 31, 2007. Due to construction delays and cost
overruns, including remedial work to correct problems with construction, integration of
components and rig specifications, ARPD expects to incur
approximately $40 to $50 million
in additional construction costs over the next six to nine months, although the total cost of
the six rigs has not been determined at this time. The
Companys subsidiary anticipates
contributing up to 50 percent of the additional construction costs for the six rigs. The
first rig began drilling operations on April 21, 2007 the second rig
commenced drilling on July 17, 2007
and the third rig began drilling on October 8, 2007. It is anticipated that Rig 4 will
commence operations during the fourth quarter 2007 and the remaining two rigs will begin drilling
in the first quarter of 2008.During the quarter ended September 30, 2007, the Company recorded two adjustments primarily
related to prior 2007 quarters. One adjustment eliminates $2.8 million ($1.8 million after-tax)
of previously recognized costs advanced by Parker Drilling on behalf
of ARPD which
was billed to ARPD during the fourth quarter of 2007. The other offsetting
adjustment records the Companys share of equity losses, net of
taxes, from ARPD
through September 30, 2007 ($1.1 million). We do not believe these adjustments to be material.
 9




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 8.
    
    Saudi Arabia Joint Venture (continued)ARPD
may be liable for liquidated damages as a result of delays in the commencement of drilling
operations under the SA Contract. See Contingencies (Note
11). Continuing losses are anticipated for operations related to the
SA Contract through 2008 and will continue until operating expenses
can be reduced. However, there is
no assurance that costs can be sufficiently reduced to avoid further
losses, in which case future profitability will be contingent upon an
increase in dayrates through negotiation of a contract extension with
Saudi Aramco.9.
    
    Long-Term Debt
 September 30, 2007
    
    
    December 31, 2006(Dollars in Thousands)Senior Notes:Interest rate 2.125% convertible due 2012
    
    $
    125,000
    
    
    $
    Interest rate floating (LIBOR + 4.75%), due 2010
    
    
    
    
    
    
    100,000Interest rate 9.625%, due 2013
    
    
    228,882
    
    
    
    229,368Total debt
    
    
    353,882
    
    
    
    329,368Less current portion
    
    
    
    
    
    
    Total long-term debt
    
    $
    353,882
    
    
    $
    329,368
 On July 5, 2007, we issued $125.0 million aggregate principal amount of 2.125 percent
Convertible Notes due July 15, 2012 pursuant to a prospectus dated June 28, 2007. Interest is
payable semiannually on July 15th and January 15th. The initial conversion price is
approximately $13.85 per share and is subject to adjustment for the occurrence of certain events
stated within the indenture. Proceeds from the transaction were used to call our outstanding
Floating Rate notes, to pay the net cost of hedge and warrant transactions, and for general
corporate purposes. Effectively, the hedge and warrant transactions increase the conversion
price to approximately $18.29 per share.On September 20, 2007, we replaced our existing $40.0 million credit facility with a new $60.0
million credit facility pursuant to an Amended and Restated Credit Agreement, which expires in
September 2012 (the 2007 Credit Facility). The 2007 Credit Facility is secured by rental
tools equipment, accounts receivable and the stock of substantially all of our domestic
subsidiaries, other than domestic subsidiaries owned by a foreign
subsidiary, and contains
customary affirmative and negative covenants such as minimum ratios for consolidated leverage,
consolidated interest coverage and consolidated senior secured leverage.The 2007 Credit Facility is available for general corporate purposes and to fund reimbursement
obligations under letters of credit the banks issue on our behalf pursuant to the 2007 Credit
Facility. Revolving loans are available under the 2007 Credit Facility subject to a borrowing
base limitation based on 85 percent of eligible receivables plus a value for eligible rental
tools equipment. The 2007 Credit Facility calls for a borrowing base calculation only when the
2007 Credit Facility has outstanding loans, including letters of credit, totaling at least $40.0
million. As of September 30, 2007, there were $13.5 million in letters of credit outstanding
and no loans.10.
    
    Derivative Instruments We have used derivative instruments to manage risks associated with
interest rate fluctuations in connection with our $100.0 million Senior Floating Rate Notes
which were fully redeemed on September 27, 2007. These derivative instruments, which
consisted of variable-to-fixed interest rate swaps, did not meet the hedge criteria in SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and were therefore
not designated as hedges. Accordingly, the change in the fair value of the interest rate
swaps is recognized currently in earnings.On July 17, 2007, we terminated one swap scheduled to expire in September 2008 and received $0.7
million. On September 4, 2007, our one remaining swap expired.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    ContingenciesKazakhstan Tax ClaimsOn October 12, 2005, the Kazakhstan Branch (PKD Kazakhstan) of our subsidiary, Parker Drilling
Company International Limited (PDCIL) received an Act of Tax Audit from the Ministry of
Finance of Kazakhstan (MinFin) assessing PKD Kazakhstan an amount of KZT (Kazakhstan Tenge)
14.9 billion (approximately $126.1 million). Approximately
KZT 7.5 billion or $63.5 million was
assessed for import Value Added Tax (VAT), administrative fines and interest on equipment
imported to perform the drilling contracts (the VAT Assessment) and approximately KZT 7.4
billion or $62.6 million for corporate income tax, individual income tax and social tax,
administrative fines and interest in connection with the reimbursements received by PDCIL from a
client for the upgrade of Barge Rig 257 and other issues related to PKD Kazakhstans operations
in the Republic of Kazakhstan (the Income Tax Assessment).On May 24, 2006, the Supreme Court of the Republic of Kazakhstan (SCK) issued a decision
upholding the VAT Assessment. Consistent with its contractual obligations, on November 20,
2006, the client advanced the actual amount of the VAT Assessment and this amount has been
remitted to MinFin. The client has also contractually agreed to reimburse PKD Kazakhstan for
any incremental income taxes that PKD Kazakhstan incurs from the reimbursement of this VAT
AssessmentContrary to two previous rulings on this precise issue, the May 24, 2006, ruling of the SCK
affirmed the Income Tax Assessment. The SCK stayed enforcement and supervisory review to allow
the Competent Authorities from the U.S. and the Republic of Kazakhstan to address this matter
under the Mutual Agreement Procedure (MAP) of the U.S.-Kazakhstan Tax Treaty (the Tax
Treaty), but when the Competent Authorities met on March 20-22, 2007, they were unable to
achieve mutual agreement as to which country may tax the income in issue under the Tax Treaty.On July 30, 2007, the supervisory panel of the SCK affirmed the May 24, 2006 ruling upholding
the income tax assessment of MinFin and on August 7, 2007, MinFin issued a notice of assessment
of corporate income taxes of approximately $40 million and
interest of approximately $33
million. A liability associated with this claim has been fully accrued as described in Note 6.
PKD Kazakhstan immediately filed a Complaint Against the Notice (Complaint) and MinFin
acknowledged receipt of this Complaint and that no enforcement action would occur pending
resolution of the Complaint pursuant to the MAP of the Tax Treaty. The Competent Authorities
re-convened on October 8-11, 2007, to address the double taxation issue, but no decision has
been announced and PKD Kazakhstan has no assurance as to the ultimate resolution of the double
taxation issue.Bangladesh ClaimIn September 2005, a subsidiary of the Company was served with a lawsuit filed in the 152nd
District Court of Harris County State of Texas on behalf of numerous citizens of Bangladesh
claiming $250 million in damages due to various types of property damage and personal injuries
(none involving loss of life) arising as a result of two blowouts that occurred in Bangladesh in
January and June 2005, although only the June 2005 blowout involved the Company. This case was
dismissed against the subsidiary of the Company based on forum non conveniens, a legal defense
raised by the subsidiary claiming that Houston, Texas, is not the appropriate location for this
suit to be filed. The plaintiffs have appealed this dismissal; however the Company believes the
plaintiffs prospects of being successful on appeal are remote.Asbestos-Related ClaimsIn August 2004, the Company was notified that certain of its subsidiaries have been named, along
with other defendants, in several complaints that have been filed in the Circuit Courts of the
State of Mississippi by several hundred persons that allege that they were employed by some of
the named defendants between approximately 1965 and 1986. The complaints name as defendants
numerous other companies that are not affiliated with the Company, including companies that
allegedly manufactured drilling related products containing asbestos that are the subject of the
complaints.
 11




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    Contingencies (continued)Asbestos-Related Claims(continued)The complaints allege that the Companys subsidiaries and other drilling contractors used
asbestos-containing products in offshore drilling operations, land-based drilling operations and
in drilling structures, drilling rigs, vessels and other equipment and assert claims based on,
among other things, negligence and strict liability and claims under the Jones Act and that the
Plaintiffs are entitled to monetary damages. Based on the report of the special master, these
complaints have been severed and venue of the claims transferred to the county in which the
plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to
the filing of amended complaints, Parker has joined with other co-defendants in filing motions
to compel discovery to determine what plaintiffs have an employment relationship with which
defendant, including whether or not any plaintiffs have an employment relationship with
subsidiaries of the Company. Out of 528 amended single-plaintiff complaints filed to date,
twelve plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.
Discovery is proceeding in groups of 60 based on selection of six by
plaintiffs counsel, six by defense counsel and 48 by random selection of the special
master.The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously
and, based on the information available to the Company at this time, the Company does not expect
the outcome to have a material adverse effect on its financial condition, results of operations
or cash flows; however, there can be no assurance as to the ultimate outcome of these lawsuits.Gulfco SiteIn 2003 the Company received an information request under CERCLA designating a subsidiary of the
Company as a potentially responsible party with respect to the Gulfco Marine Maintenance, Inc.
Superfund Site in Freeport, Texas (EPA No. TX 055144539). We responded to this request in 2003
and have been in contact with EPA regarding the response. In July 2005, EPA issued a Unilateral
Administrative Order for remedial investigation to five potentially responsible parties. The
EPA order did not name us. According to EPA, three of the potentially responsible parties who
received the order are currently performing a remedial investigation of the site to define the
nature and extent of the contamination there. Based on the currently available information, we
do not believe we have responsibility for the Gulfco Marine Site. Among other reasons, our
subsidiary, Parker Drilling Offshore Company neither owned nor operated the site during the
relevant time period, and is not otherwise connected to the site. If a claim were to be brought
against us in the future by the United States or the parties performing the work, we would
defend that action vigorously. The amount of any such future claim cannot be estimated with
accuracy until after the remedial investigation is completed, but it is not expected to be
material to our business or financial condition.Freight Forwarding and Customs Agent RequestDuring the third quarter of 2007, the U.S. Department of Justice requested us to provide
information regarding our utilization of the services of a freight forwarding and customs agent
during the past five years to verify if the services provided by this freight forwarding and
customs agent were in compliance with the Foreign Corrupt Practices Act. It is our
understanding that a similar request was sent to several other service contractors. We are
fully cooperating with the request for information.Saudi Arabia Joint VentureA subsidiary of Parker Drilling Company is a 50 percent shareholder of Al-Rushaid Parker
Drilling, a Saudi Arabia limited liability company (ARPD), which has a six rig drilling contract with
Saudi Aramco (SA Contract). As previously discussed in
Note 8,
the construction, delivery and commissioning for each of these rigs is delayed. Under the terms of the
SA Contract, Saudi Aramco has the ability to reduce future day rates
by 50 percent for each day of delay per rig, which over the
duration of the SA Contract term would aggregate to approximately
$23.0 million, creating a contingent liability of
approximately $11.5 million (50 percent of the ARPD exposure) for Parkers subsidiary.
 12




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 11.
    
    Contingencies (continued)Saudi Arabia Joint Venture(continued)We believe these delays are substantially caused by
circumstances beyond the reasonable control of ARPD. At the request
of ARPD, Saudi Aramco has deferred imposing any liquidated
damages for at least six months and ARPD anticipates continued discussions with Saudi Aramco
to obtain a waiver of all or substantially all of the liquidated
damages based on the delays being beyond the reasonable control of ARPD.12.
    
    Recent Accounting Pronouncements In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Liabilities-Including an Amendment of FASB Statement No.
115(SFAS No. 159). SFAS No. 159 allows certain financial assets and liabilities to be
recognized, at the Companys election, at fair market value, with any gains or losses for the
period recorded in the statement of income. This gives a company the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The statement is effective for
fiscal years beginning after November 15, 2007. The Company has not determined the impact on
its Consolidated Financial Statements, if any, of the adoption of SFAS No. 159.13.
    
    Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial StatementsSet
forth on the following pages are the unaudited consolidating condensed financial statements of
(i) Parker Drilling, (ii) our restricted subsidiaries that are guarantors of the Senior Notes
and (iii) our restricted and unrestricted subsidiaries that are not guarantors of the Senior
Notes. All of our Senior Notes are guaranteed by substantially all of the restricted
subsidiaries of Parker Drilling. There are currently no restrictions on the ability of the
restricted subsidiaries to transfer funds to Parker Drilling in the form of cash dividends,
loans or advances. Parker Drilling is a holding company with no operations, other than
through its subsidiaries.The non-guarantor subsidiaries are AralParker (a Kazakhstan closed joint stock company, owned 80
percent by Parker Drilling (Kazakstan), LLC and 20 percent by Aralnedra, CJSC), Casuarina
Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard Drilling of
South America, Inc., Mallard Drilling of Venezuela, Inc., Parker Drilling Investment Company,
Parker Drilling (Nigeria) Limited, Parker Drilling Company (Bolivia) S.A., Parker Drilling
Company Kuwait Limited, Parker Drilling Company Limited (Bahamas), Parker Drilling Company of
New Zealand Limited, Parker Drilling Company of Sakhalin, Parker Drilling de Mexico, S. de R.L.
de C.V., Parker Drilling International of New Zealand Limited, Parker Drilling Tengiz, Ltd., PD
Servicios Integrales, S. de R.L. de C.V., PKD Sales Corporation, Parker SMNG Drilling Limited
Liability Company (owned 50 percent by Parker Drilling Company International, LLC), Parker
Drilling Asia Pacific, LLC, Parker Drilling Kazakhstan B.V., Parker Drilling Netherlands B.V.,
Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling Overseas
B.V., Parker Drilling Russia B.V., Parker Drilling Dutch B.V., Parker Drilling AME Limited,
Parker Drillsource, LLC, Parker 3source, LLC, Parker Enex, LLC, Parker Hungary Rig Holdings
Limited Liability Company, Parker 5272, LLC, Parker Drilling Spain Rig Services S.L., Parker
Cyprus Leasing Limited, Parker Cyprus Ventures Limited, PD International Holdings C.V., PD Dutch
Holdings C.V., PD Offshore Holdings C.V., PD Selective Holdings, C.V., PD Labor Services, Ltd.,
and PD Labor Sourcing, Ltd. We are providing unaudited consolidating condensed financial
information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor
subsidiaries as of September 30, 2007 and December 31, 2006 and for the three and nine months
ended September 30, 2007 and 2006. The condensed consolidating financial statements present
investments in both consolidated and unconsolidated subsidiaries using the equity method of
accounting.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 September 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,010
    
    
    $
    13,086
    
    
    $
    15,858
    
    
    $
    
    
    
    $
    66,954Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts and notes receivable, net
    
    
    82,557
    
    
    
    178,930
    
    
    
    67,873
    
    
    
    (167,860
    )
    
    
    161,500Rig materials and supplies
    
    
    
    
    
    
    11,008
    
    
    
    10,501
    
    
    
    
    
    
    
    21,509Deferred costs
    
    
    
    
    
    
    4,161
    
    
    
    5,711
    
    
    
    
    
    
    
    9,872Deferred income taxes
    
    
    17,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,307Other current assets
    
    
    28,328
    
    
    
    8,215
    
    
    
    8,066
    
    
    
    54
    
    
    
    44,663Total current assets
    
    
    166,202
    
    
    
    215,400
    
    
    
    108,009
    
    
    
    (167,806
    )
    
    
    321,805Property, plant and equipment, net
    
    
    79
    
    
    
    458,613
    
    
    
    104,138
    
    
    
    122
    
    
    
    562,952Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and
intercompany advances
    
    
    772,691
    
    
    
    908,213
    
    
    
    (17,729
    )
    
    
    (1,663,175
    )
    
    
    Investment in and advances to
unconsolidated joint venture
    
    
    
    
    
    
    
    
    
    
    14,091
    
    
    
    
    
    
    
    14,091Other noncurrent assets
    
    
    53,354
    
    
    
    24,186
    
    
    
    4,237
    
    
    
    
    
    
    
    81,777Total assets
    
    $
    992,326
    
    
    $
    1,706,727
    
    
    $
    212,746
    
    
    $
    (1,830,859
    )
    
    $
    1,080,940LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    52,540
    
    
    $
    201,052
    
    
    $
    55,627
    
    
    $
    (220,833
    )
    
    $
    88,386Accrued income taxes
    
    
    2,136
    
    
    
    11,203
    
    
    
    2,557
    
    
    
    
    
    
    
    15,896Total current liabilities
    
    
    54,676
    
    
    
    212,255
    
    
    
    58,184
    
    
    
    (220,833
    )
    
    
    104,282Long-term debt
    
    
    353,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,882Other long-term liabilities
    
    
    99
    
    
    
    104,210
    
    
    
    5,700
    
    
    
    
    
    
    
    110,009Long-term deferred tax liability
    
    
    11,500
    
    
    
    (3,261
    )
    
    
    6,942
    
    
    
    
    
    
    
    15,181Intercompany payables
    
    
    74,583
    
    
    
    580,356
    
    
    
    32,764
    
    
    
    (687,703
    )
    
    
    Contingencies (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,639
    
    
    
    39,900
    
    
    
    21,153
    
    
    
    (61,053
    )
    
    
    18,639Capital in excess of par value
    
    
    591,313
    
    
    
    1,042,724
    
    
    
    86,555
    
    
    
    (1,129,279
    )
    
    
    591,313Retained earnings (accumulated deficit)
    
    
    (112,366
    )
    
    
    (269,457
    )
    
    
    1,448
    
    
    
    268,009
    
    
    
    (112,366
    )Total stockholders equity
    
    
    497,586
    
    
    
    813,167
    
    
    
    109,156
    
    
    
    (922,323
    )
    
    
    497,586Total liabilities
and stockholders equity
    
    $
    992,326
    
    
    $
    1,706,727
    
    
    $
    212,746
    
    
    $
    (1,830,859
    )
    
    $
    1,080,940
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
 December 31, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    60,029
    
    
    $
    14,367
    
    
    $
    17,807
    
    
    $
    
    
    
    $
    92,203Marketable securities
    
    
    60,920
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    62,920Accounts and notes receivable, net
    
    
    53,844
    
    
    
    143,905
    
    
    
    33,625
    
    
    
    (119,015
    )
    
    
    112,359Rig materials and supplies
    
    
    
    
    
    
    7,173
    
    
    
    7,827
    
    
    
    
    
    
    
    15,000Deferred costs
    
    
    
    
    
    
    6,321
    
    
    
    341
    
    
    
    
    
    
    
    6,662Deferred income taxes
    
    
    17,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,307Other current assets
    
    
    798
    
    
    
    8,969
    
    
    
    1,319
    
    
    
    37
    
    
    
    11,123Total current assets
    
    
    192,898
    
    
    
    182,735
    
    
    
    60,919
    
    
    
    (118,978
    )
    
    
    317,574Property, plant and equipment, net
    
    
    134
    
    
    
    354,356
    
    
    
    80,861
    
    
    
    122
    
    
    
    435,473Assets held for sale
    
    
    
    
    
    
    4,828
    
    
    
    
    
    
    
    
    
    
    
    4,828Goodwill
    
    
    
    
    
    
    100,315
    
    
    
    
    
    
    
    
    
    
    
    100,315Investment in subsidiaries and
intercompany advances
    
    
    694,050
    
    
    
    846,800
    
    
    
    (8,053
    )
    
    
    (1,532,797
    )
    
    
    Investment in unconsolidated joint venture
    
    
    
    
    
    
    
    
    
    
    10,267
    
    
    
    
    
    
    
    10,267Other noncurrent assets
    
    
    18,043
    
    
    
    19,774
    
    
    
    (4,973
    )
    
    
    
    
    
    
    32,844Total assets
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    44,667
    
    
    $
    175,092
    
    
    $
    44,611
    
    
    $
    (169,144
    )
    
    $
    95,226Accrued income taxes
    
    
    (10,514
    )
    
    
    17,039
    
    
    
    152
    
    
    
    
    
    
    
    6,677Total current liabilities
    
    
    34,153
    
    
    
    192,131
    
    
    
    44,763
    
    
    
    (169,144
    )
    
    
    101,903Long-term debt
    
    
    329,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,368Other long-term liabilities
    
    
    1,596
    
    
    
    9,030
    
    
    
    265
    
    
    
    40
    
    
    
    10,931Intercompany payables
    
    
    80,909
    
    
    
    544,250
    
    
    
    37,219
    
    
    
    (662,378
    )
    
    
    Contingencies (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,220
    
    
    
    39,899
    
    
    
    21,251
    
    
    
    (61,150
    )
    
    
    18,220Capital in excess of par value
    
    
    568,253
    
    
    
    1,013,736
    
    
    
    34,526
    
    
    
    (1,048,262
    )
    
    
    568,253Retained earnings (accumulated deficit)
    
    
    (127,374
    )
    
    
    (290,238
    )
    
    
    997
    
    
    
    289,241
    
    
    
    (127,374
    )Total stockholders equity
    
    
    459,099
    
    
    
    763,397
    
    
    
    56,774
    
    
    
    (820,171
    )
    
    
    459,099Total liabilities and
stockholders equity
    
    $
    905,125
    
    
    $
    1,508,808
    
    
    $
    139,021
    
    
    $
    (1,651,653
    )
    
    $
    901,301
 15




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended September 30, 2007Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    150,950
    
    
    $
    41,899
    
    
    $
    (20,652
    )
    
    $
    172,197Drilling and rental operating expenses
    
    
    
    
    
    
    77,437
    
    
    
    34,971
    
    
    
    (20,648
    )
    
    
    91,760Depreciation and amortization
    
    
    
    
    
    
    20,026
    
    
    
    3,017
    
    
    
    
    
    
    
    23,043Drilling and rental operating income
    
    
    
    
    
    
    53,487
    
    
    
    3,911
    
    
    
    (4
    )
    
    
    57,394General and administration expense (1)
    
    
    (42
    )
    
    
    (6,253
    )
    
    
    49
    
    
    
    
    
    
    
    (6,246
    )Provision for reduction in carrying
value of certain assets
    
    
    
    
    
    
    (1,091
    )
    
    
    
    
    
    
    
    
    
    
    (1,091
    )Gain (loss) on disposition of assets,
net
    
    
    
    
    
    
    556
    
    
    
    (13
    )
    
    
    
    
    
    
    543Total operating income (loss)
    
    
    (42
    )
    
    
    46,699
    
    
    
    3,947
    
    
    
    (4
    )
    
    
    50,600Other income and (expense):Interest expense
    
    
    (8,766
    )
    
    
    (11,795
    )
    
    
    (88
    )
    
    
    13,073
    
    
    
    (7,576
    )Changes in fair value of derivative
positions
    
    
    (262
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (262
    )Interest income
    
    
    12,169
    
    
    
    2,166
    
    
    
    819
    
    
    
    (13,074
    )
    
    
    2,080Loss on extinguishment of debt
    
    
    (2,396
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,396
    )Equity in loss of unconsolidated joint
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    venture, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,123
    )
    
    
    
    
    
    
    (1,123
    )Other
    
    
    3
    
    
    
    510
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    510Equity in net
earnings of subsidiaries
    
    
    35,643
    
    
    
    
    
    
    
    
    
    
    
    (35,643
    )
    
    
    Total other income and (expense)
    
    
    36,391
    
    
    
    (9,119
    )
    
    
    (394
    )
    
    
    (35,645
    )
    
    
    (8,767
    )Income (loss) before income taxes
    
    
    36,349
    
    
    
    37,580
    
    
    
    3,553
    
    
    
    (35,649
    )
    
    
    41,833Income tax expense :Current
    
    
    11,251
    
    
    
    2,586
    
    
    
    761
    
    
    
    
    
    
    
    14,598Deferred
    
    
    2,445
    
    
    
    1,198
    
    
    
    939
    
    
    
    
    
    
    
    4,582Income tax expense
    
    
    13,696
    
    
    
    3,784
    
    
    
    1,700
    
    
    
    
    
    
    
    19,180Net income (loss)
    
    $
    22,653
    
    
    $
    33,796
    
    
    $
    1,853
    
    
    $
    (35,649
    )
    
    $
    22,653
 
 (1)
    
    All field operations general and administration expenses are included in
operating expenses. 16




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three Months Ended September 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    129,174
    
    
    $
    27,156
    
    
    $
    (9,547
    )
    
    $
    146,783Drilling and rental operating expenses
    
    
    
    
    
    
    68,440
    
    
    
    26,680
    
    
    
    (9,547
    )
    
    
    85,573Depreciation and amortization
    
    
    
    
    
    
    15,994
    
    
    
    999
    
    
    
    
    
    
    
    16,993Drilling and rental operating income
(loss)
    
    
    
    
    
    
    44,740
    
    
    
    (523
    )
    
    
    
    
    
    
    44,217General and administration expense (1)
    
    
    (42
    )
    
    
    (7,946
    )
    
    
    (4
    )
    
    
    
    
    
    
    (7,992
    )Gain on disposition of assets, net
    
    
    
    
    
    
    4,319
    
    
    
    9
    
    
    
    
    
    
    
    4,328Total operating income (loss)
    
    
    (42
    )
    
    
    41,113
    
    
    
    (518
    )
    
    
    
    
    
    
    40,553Other income and (expense):Interest expense
    
    
    (9,105
    )
    
    
    (11,790
    )
    
    
    (387
    )
    
    
    13,359
    
    
    
    (7,923
    )Changes in fair value of derivative
positions
    
    
    (1,029
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,029
    )Interest income
    
    
    12,988
    
    
    
    2,014
    
    
    
    878
    
    
    
    (13,359
    )
    
    
    2,521Loss on extinguishment of debt
    
    
    (1,910
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,910
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (304
    )
    
    
    
    
    
    
    (304
    )Other
    
    
    (2
    )
    
    
    (52
    )
    
    
    (42
    )
    
    
    
    
    
    
    (96
    )Equity in net
earnings of subsidiaries
    
    
    32,563
    
    
    
    
    
    
    
    
    
    
    
    (32,563
    )
    
    
    Total other income and (expense)
    
    
    33,505
    
    
    
    (9,828
    )
    
    
    145
    
    
    
    (32,563
    )
    
    
    (8,741
    )Income (loss) before income taxes
    
    
    33,463
    
    
    
    31,285
    
    
    
    (373
    )
    
    
    (32,563
    )
    
    
    31,812Income tax expense (benefit)Current
    
    
    1,714
    
    
    
    (1,949
    )
    
    
    1,401
    
    
    
    
    
    
    
    1,166Deferred
    
    
    13,110
    
    
    
    (1,264
    )
    
    
    161
    
    
    
    
    
    
    
    12,007Income tax expense (benefit)
    
    
    14,824
    
    
    
    (3,213
    )
    
    
    1,562
    
    
    
    
    
    
    
    13,173Net income (loss)
    
    $
    18,639
    
    
    $
    34,498
    
    
    $
    (1,935
    )
    
    $
    (32,563
    )
    
    $
    18,639
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 17




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##### Table of Contents



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




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Nine Months Ended September 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedDrilling and rental revenues
    
    $
    
    
    
    $
    377,364
    
    
    $
    98,457
    
    
    $
    (35,716
    )
    
    $
    440,105Drilling and rental operating expenses
    
    
    
    
    
    
    199,006
    
    
    
    100,232
    
    
    
    (35,716
    )
    
    
    263,522Depreciation and amortization
    
    
    
    
    
    
    48,656
    
    
    
    3,009
    
    
    
    
    
    
    
    51,665Drilling and rental operating income
    
    
    
    
    
    
    129,702
    
    
    
    (4,784
    )
    
    
    
    
    
    
    124,918General and administration expense (1)
    
    
    (124
    )
    
    
    (23,123
    )
    
    
    (14
    )
    
    
    
    
    
    
    (23,261
    )Gain (loss) on disposition of assets,
net
    
    
    (6
    )
    
    
    6,835
    
    
    
    72
    
    
    
    
    
    
    
    6,901Total operating income (loss)
    
    
    (130
    )
    
    
    113,414
    
    
    
    (4,726
    )
    
    
    
    
    
    
    108,558Other income and (expense):Interest expense
    
    
    (28,770
    )
    
    
    (35,389
    )
    
    
    (1,342
    )
    
    
    40,278
    
    
    
    (25,223
    )Changes in fair value of derivative
positions
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Interest income
    
    
    37,656
    
    
    
    6,043
    
    
    
    2,545
    
    
    
    (40,278
    )
    
    
    5,966Loss on extinguishment of debt
    
    
    (1,912
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,912
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (1,224
    )
    
    
    
    
    
    
    (1,224
    )Other
    
    
    9
    
    
    
    (158
    )
    
    
    39
    
    
    
    
    
    
    
    (110
    )Equity in net earnings of subsidiaries
    
    
    72,667
    
    
    
    
    
    
    
    
    
    
    
    (72,667
    )
    
    
    Total other income and (expense)
    
    
    79,816
    
    
    
    (29,504
    )
    
    
    18
    
    
    
    (72,667
    )
    
    
    (22,337
    )Income (loss) before income taxes
    
    
    79,686
    
    
    
    83,910
    
    
    
    (4,708
    )
    
    
    (72,667
    )
    
    
    86,221Income tax expense (benefit):Current
    
    
    2,737
    
    
    
    4,652
    
    
    
    3,303
    
    
    
    
    
    
    
    10,692Deferred
    
    
    33,091
    
    
    
    (1,726
    )
    
    
    306
    
    
    
    
    
    
    
    31,671Income tax expense
    
    
    35,828
    
    
    
    2,926
    
    
    
    3,609
    
    
    
    
    
    
    
    42,363Net income (loss)
    
    $
    43,858
    
    
    $
    80,984
    
    
    $
    (8,317
    )
    
    $
    (72,667
    )
    
    $
    43,858
 
 (1)
    
    All field operations general and administration expenses are included in
operating expenses. 19




---



##### Table of Contents



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




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine Months Ended September 30, 2006Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    43,858
    
    
    $
    80,984
    
    
    $
    (8,317
    )
    
    $
    (72,667
    )
    
    $
    43,858Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    48,656
    
    
    
    3,009
    
    
    
    
    
    
    
    51,665Loss (gain) on disposition of assets
    
    
    6
    
    
    
    (6,835
    )
    
    
    (72
    )
    
    
    
    
    
    
    (6,901
    )Deferred income tax expense (benefit)
    
    
    33,091
    
    
    
    (1,726
    )
    
    
    306
    
    
    
    
    
    
    
    31,671Expenses not requiring cash
    
    
    6,637
    
    
    
    3,757
    
    
    
    
    
    
    
    
    
    
    
    10,394Equity in net earnings of subsidiaries
    
    
    (72,667
    )
    
    
    
    
    
    
    
    
    
    
    72,667
    
    
    
    Change in accounts receivable
    
    
    (8,746
    )
    
    
    (15,582
    )
    
    
    974
    
    
    
    
    
    
    
    (23,354
    )Change in other assets
    
    
    603
    
    
    
    (5,900
    )
    
    
    1,284
    
    
    
    
    
    
    
    (4,013
    )Change in liabilities
    
    
    7,378
    
    
    
    (473
    )
    
    
    537
    
    
    
    
    
    
    
    7,442Net cash provide by (used in) operating activities
    
    
    10,160
    
    
    
    102,881
    
    
    
    (2,279
    )
    
    
    
    
    
    
    110,762Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (126,285
    )
    
    
    (2,738
    )
    
    
    
    
    
    
    (129,023
    )Proceeds from the sale of assets
    
    
    (6
    )
    
    
    47,638
    
    
    
    1,660
    
    
    
    
    
    
    
    49,292Proceeds from insurance settlements
    
    
    
    
    
    
    4,431
    
    
    
    
    
    
    
    
    
    
    
    4,431Purchase of marketable securities
    
    
    (194,120
    )
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    (196,120
    )Proceeds from sale of marketable securities
    
    
    124,740
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    126,740Net cash used in investing activities
    
    
    (69,386
    )
    
    
    (74,216
    )
    
    
    (1,078
    )
    
    
    
    
    
    
    (144,680
    )Cash flows from financing activities:Principal payments under debt obligations
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Proceeds from common stock offering
    
    
    99,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,947Proceeds from stock options exercised
    
    
    6,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,675Excess tax benefit from stock based compensation
    
    
    2,089
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,089Intercompany advances, net
    
    
    25,815
    
    
    
    (27,883
    )
    
    
    2,068
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    84,526
    
    
    
    (27,883
    )
    
    
    2,068
    
    
    
    
    
    
    
    58,711Net increase (decrease) in cash and cash
equivalents
    
    
    25,300
    
    
    
    782
    
    
    
    (1,289
    )
    
    
    
    
    
    
    24,793Cash and cash equivalents at beginning of year
    
    
    31,978
    
    
    
    11,145
    
    
    
    17,053
    
    
    
    
    
    
    
    60,176Cash and cash equivalents at end of period
    
    $
    57,278
    
    
    $
    11,927
    
    
    $
    15,764
    
    
    $
    
    
    
    $
    84,969
 21




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    stability of prices and demand for oil and natural gas;
    
    levels of oil and natural gas exploration and production activities;
    
    demand for contract drilling and drilling related services and demand for rental tools;
    
    our future operating results and profitability;
    
    our future rig utilization, dayrates and rental tools activity;
    
    entering into new, or extending existing, drilling contracts and our expectations
concerning when our rigs will commence operations under such contracts;
    
    growth through acquisitions of companies or assets;
    
    construction or upgrades of rigs and expectations regarding when these rigs will commence operations;
    
    capital expenditures for acquisition of rigs, construction of new rigs or major upgrades to existing rigs;
    
    entering into joint venture agreements with local companies;
    
    our future liquidity;
    
    availability and sources of funds to reduce our debt and expectations of when debt will be reduced;
    
    the outcome of pending or future legal proceedings, tax assessments and other claims;
    
    the availability of insurance coverage for pending or future claims;
    
    the enforceability of contractual indemnification in relation to pending or future claims;
    
    compliance with covenants under our senior credit facility and indentures for our senior notes; and
    
    organic growth of our operations.
  
    
    worldwide economic and business conditions that adversely affect market conditions
and/or the cost of doing business;
    
    the U.S. economy and the demand for natural gas;
    
    fluctuations in the market prices of oil and gas;
    
    imposition of unanticipated trade restrictions;
    
    unanticipated operating hazards and uninsured risks;
    
    political instability, terrorism or war;
    
    governmental regulations, including changes in accounting rules or tax laws or ability
to remit funds to the U.S., that adversely affect the cost of doing business;
    
    adverse environmental events;
    
    adverse weather conditions;
    
    changes in the concentration of customer and supplier relationships;
    
    unexpected cost increases for new construction and upgrade and refurbishment projects;
    
    delays in obtaining components for capital projects and in ongoing operational maintenance;
    
    shortages of skilled labor;
    
    unanticipated cancellation of contracts or imposition of
penalties by operators;
    
    breakdown of equipment;
    
    other operational problems including delays in start-up of operations
    
    changes in competition;
    
    the effect of litigation and contingencies; and
    
    other similar factors (some of which are discussed in documents referred to in this Form 10-Q).
 22




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##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
  OUTLOOK AND OVERVIEW
  Overview
      Outlook
  23




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##### Table of Contents



OUTLOOK AND OVERVIEW (continued)
 Outlook (continued)
     Recent Events
 New
High-Efficiency Rig 
      Kazakhstan
Tax Case 
  24




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended September 30, 2007 Compared with Three Months Ended September 30, 2006
   Three Months Ended September 30,2007
    
    
    2006(Dollars in Thousands)Drilling atnd rental revenues:U.S. drilling
    
    $
    59,700
    
    
    
    35
    %
    
    $
    52,347
    
    
    
    36
    %International drilling
    
    
    76,997
    
    
    
    45
    %
    
    
    61,605
    
    
    
    42
    %Rental tools
    
    
    35,500
    
    
    
    20
    %
    
    
    32,831
    
    
    
    22
    %Total drilling and rental revenues
    
    $
    172,197
    
    
    
    100
    %
    
    $
    146,783
    
    
    
    100
    %Drilling and rental operating income:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    34,137
    
    
    
    57
    %
    
    $
    31,403
    
    
    
    60
    %International drilling gross margin excluding depreciation and
amortization (1)
    
    
    25,379
    
    
    
    33
    %
    
    
    9,325
    
    
    
    15
    %Rental tools gross margin excluding depreciation and amortization (1)
    
    
    20,921
    
    
    
    59
    %
    
    
    20,482
    
    
    
    62
    %Depreciation and amortization
    
    
    (23,043
    )
    
    
    
    
    
    
    (16,993
    )Total drilling and rental operating income (2)
    
    
    57,394
    
    
    
    
    
    
    
    44,217General and administration expense
    
    
    (6,246
    )
    
    
    
    
    
    
    (7,992
    )Provision for reduction in carrying value of certain assets
    
    
    (1,091
    )
    
    
    
    
    
    
    Gain on disposition of assets, net
    
    
    543
    
    
    
    
    
    
    
    4,328Total operating income
    
    $
    50,600
    
    
    
    
    
    
    $
    40,553
 
 (1)
    
    Drilling and rental gross margins, excluding depreciation and amortization, are
computed as drilling and rental revenues less direct drilling and rental operating
expenses, excluding depreciation and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin, excluding depreciation and
amortization, as a percent of drilling and rental revenues. The gross margin amounts,
excluding depreciation and amortization, and gross margin percentages should not be used as
a substitute for those amounts reported under accounting principles generally accepted in
the United States (GAAP). However, we monitor our business segments based on several
criteria, including drilling and rental gross margin. Management believes that this
information is useful to our investors because it more accurately reflects cash generated
by segment. Such gross margin amounts are reconciled to our most comparable GAAP measure
as follows: InternationalThree Months Ended September 30, 2007
    
    U.S. Drilling
    
    
    Drilling
    
    
    Rental Tools(Dollars in Thousands)Drilling and rental operating income (2)
    
    $
    25,345
    
    
    $
    17,679
    
    
    $
    14,370Depreciation and amortization
    
    
    8,792
    
    
    
    7,700
    
    
    
    6,551Drilling and rental gross margin
excluding depreciation and amortization
    
    $
    34,137
    
    
    $
    25,379
    
    
    $
    20,921Three Months Ended September 30, 2006Drilling and rental operating income (2)
    
    $
    24,755
    
    
    $
    3,674
    
    
    $
    15,788Depreciation and amortization
    
    
    6,648
    
    
    
    5,651
    
    
    
    4,694Drilling and rental gross margin
excluding depreciation and amortization
    
    $
    31,403
    
    
    $
    9,325
    
    
    $
    20,482
 
 (2)
    
    Drilling and rental operating income  drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation and amortization expense. 25




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 U.S. Drilling Segment
  
    
    Barge Rig 50 undergoing refurbishment during the third quarter of 2006,
    
    Newly constructed Barge Rig 77 commencing operations in December 2006,
    
    Repositioning two international land rigs in the U.S. market during the last half of
2006, one of which contributed $1.5 million to U.S. drilling
segment revenues,
    
    Ongoing BP Liberty engineering and procurement project contributed $2.8 million, and
    
    Average dayrates for the deep drilling barge rigs increased approximately $2,100 per day
in 2007 as compared to 2006.
  International Drilling Segment
   
    
    a $5.1 million increase in the Karachaganak area of Kazakhstan as a result of the
addition of Rigs 249 and 258 to existing operations of 107 and 216,
    
    a $1.7 million increase in revenues from our O&M contracts on Sakhalin Island,
    
    a $1.8 million increase from commencement of operations of Rig 236 in Kazakhstan in late
2006, and
    
    a $6.2 million decrease due to the completion of the TCO contract in Kazakhstan (Tengiz
area) in 2006.
    26




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Rental Tools Segment
   Other Financial Data
    Nine Months Ended September 30, 2007 Compared with Nine Months Ended September 30, 2006
  27




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
  Nine Months Ended September 30,2007
    
    
    2006(Dollars in Thousands)Drilling and rental revenues:U.S. drilling
    
    $
    178,975
    
    
    
    38
    %
    
    $
    135,297
    
    
    
    31
    %International drilling
    
    
    197,867
    
    
    
    42
    %
    
    
    214,407
    
    
    
    49
    %Rental tools
    
    
    96,905
    
    
    
    20
    %
    
    
    90,401
    
    
    
    20
    %Total drilling and rental revenues
    
    $
    473,747
    
    
    
    100
    %
    
    $
    440,105
    
    
    
    100
    %Drilling and rental operating income:U.S. drilling gross margin excluding depreciation and amortization (1)
    
    $
    102,035
    
    
    
    57
    %
    
    $
    77,069
    
    
    
    57
    %International drilling gross margin excluding depreciation and
amortization (1)
    
    
    49,849
    
    
    
    25
    %
    
    
    42,901
    
    
    
    20
    %Rental tools gross margin excluding depreciation and amortization (1)
    
    
    58,642
    
    
    
    61
    %
    
    
    56,613
    
    
    
    63
    %Depreciation and amortization
    
    
    (60,744
    )
    
    
    
    
    
    
    (51,665
    )Total drilling and rental operating income (2)
    
    
    149,782
    
    
    
    
    
    
    
    124,918General and administration expense
    
    
    (18,380
    )
    
    
    
    
    
    
    (23,261
    )Provision for reduction in carrying value of certain assets
    
    
    (1,091
    )
    
    
    
    
    
    
    Gain on disposition of assets, net
    
    
    17,216
    
    
    
    
    
    
    
    6,901Total operating income
    
    $
    147,527
    
    
    
    
    
    
    $
    108,558
 
 (1)
    
    Drilling and rental gross margins, excluding depreciation and amortization, are
computed as drilling and rental revenues less direct drilling and rental operating
expenses, excluding depreciation and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin, excluding depreciation and
amortization, as a percent of drilling and rental revenues. The gross margin amounts,
excluding depreciation and amortization, and gross margin percentages should not be used as
a substitute for those amounts reported under accounting principles generally accepted in
the United States (GAAP). However, we monitor our business segments based on several
criteria, including drilling and rental gross margin. Management believes that this
information is useful to our investors because it more accurately reflects cash generated
by segment. Such gross margin amounts are reconciled to our most comparable GAAP measure
as follows: InternationalNine Months Ended September 30, 2007
    
    U.S. Drilling
    
    
    Drilling
    
    
    Rental Tools(Dollars in Thousands)Drilling and rental operating income (2)
    
    $
    78,126
    
    
    $
    30,259
    
    
    $
    41,397Depreciation and amortization
    
    
    23,909
    
    
    
    19,590
    
    
    
    17,245Drilling and rental gross margin
excluding depreciation and amortization
    
    $
    102,035
    
    
    $
    49,849
    
    
    $
    58,642Nine Months Ended September 30, 2006Drilling and rental operating income (2)
    
    $
    59,822
    
    
    $
    22,654
    
    
    $
    42,442Depreciation and amortization
    
    
    17,247
    
    
    
    20,247
    
    
    
    14,171Drilling and rental gross margin
excluding depreciation and amortization
    
    $
    77,069
    
    
    $
    42,901
    
    
    $
    56,613
 
 (2)
    
    Drilling and rental operating income  drilling and rental revenues less direct
drilling and rental operating expenses, including depreciation and amortization expense. U.S. Drilling Segment
  28




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 U.S. Drilling Segment (continued)
  International Drilling Segment
     Rental Tools Segment
  29




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Rental Tools Segment (continued)
  Other Financial Data
    LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   30




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity
        
    
    $125.0 million aggregate principal amount of Convertible Senior Notes bearing interest
at a rate of 2.125 percent, which are due July 15, 2012; and
    
    $225.0 million aggregate principal amount of 9.625 percent Senior Notes, which are due
October 1, 2013 plus an associated $3.9 million in unamortized debt premium.
  31




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    Years 2 - 3
    
    
    Years 4 - 5
    
    
    5 Years(Dollars in Thousands)Contractual cash obligations:Long-term debt  principal (1)
    
    $
    350,000
    
    
    $
    
    
    
    $
    
    
    
    $
    125,000
    
    
    $
    225,000Long-term debt  interest (1)
    
    
    142,666
    
    
    
    24,313
    
    
    
    48,625
    
    
    
    48,072
    
    
    
    21,656Operating leases (2)
    
    
    9,074
    
    
    
    4,625
    
    
    
    3,446
    
    
    
    1,003
    
    
    
    Purchase commitments (3)
    
    
    24,232
    
    
    
    24,232
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    525,972
    
    
    $
    53,170
    
    
    $
    52,071
    
    
    $
    174,075
    
    
    $
    246,656Commercial commitments:Revolving credit facility (4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby letters of credit (4)
    
    
    13,529
    
    
    
    13,529
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    13,529
    
    
    $
    13,529
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the 9.625 percent
Senior Notes. The remaining unamortized premium of $3.9 million is not included in the
contractual cash obligations schedule.(2)
    
    Operating leases consist of lease agreements in excess of one year for office space,
equipment, vehicles and personal property.(3)
    
    We have purchase commitments outstanding as of September 30, 2007, related to rig upgrade
projects and new rig construction. In addition, we expect to
contribute an additional $20-$25
million to our Saudi Arabia joint venture in the next six to nine months, as our share of
additional rig costs.(4)
    
    We have a $60.0 million revolving credit facility. As of September 30, 2007, no amounts have
been drawn down, but $13.5 million of availability has been used to support letters of credit
that have been issued, resulting in an estimated $46.5 million of availability. The revolving
credit facility expires September 20, 2012. OTHER MATTERS
 Critical Accounting Policies
 Accounting for Uncertainty in Income Taxes 
 32




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures 
 Changes in Internal Control Over Financial Reporting 
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Total Number
    
    Maximum Numberof Shares Purchased
    
    of Shares That Mayas Part of Publicly
    
    Yet be PurchasedTotal Number of
    
    Average Price
    
    Announced Plans
    
    Under the PlansDate
    
    Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    or ProgramsMarch 31, 2007
    
    
    3,306
    
    
    $
    9.79
    
    
    
    
    
    
    
    April 6, 2007
    
    
    181,530
    
    
    $
    9.85
    
    
    
    
    
    
    
    May 6, 2007
    
    
    59,328
    
    
    $
    11.35
    
    
    
    
    
    
    
    
 33




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  34




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description3.1
    
    Restated Certificate of
Incorporation (as amended) of Parker Drilling Company.4.1
    
    Indenture, dated as of July 5, 2007, among Parker Drilling Company, the
guarantors from time to time party thereto, and The Bank of New York Trust
Company, N.A., with respect to the 2.125 percent Convertible Senior Notes due
2013 (incorporated by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on July 5, 2007).4.2
    
    Form of 2.125 percent Convertible Senior Note due 2013 (included in Exhibit 4.1).10.1
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007,
by and between Parker Drilling Company and Bank of America, N.A. (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
July 5, 2007).10.2
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007,
by and between Parker Drilling Company and Deutsche Bank AG, London Branch
(incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.3
    
    Confirmation of Convertible Bond Hedge Transaction, dated as of June 28, 2007,
by and between Parker Drilling Company and Lehman Brothers OTC Derivatives Inc.
(incorporated by reference to Exhibit 10.3 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.4
    
    Confirmation of Issuer Warrant Transaction dated as of June 28, 2007, by and
between Parker Drilling Company and Bank of America, N.A. (incorporated by
reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on
July 5, 2007).10.5
    
    Confirmation of Issuer Warrant Transaction, dated as of June 28, 2007, by and
between Parker Drilling Company and Deutsche Bank AG, London Branch
(incorporated by reference to Exhibit 10.5 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.6
    
    Confirmation of Issuer Warrant Transaction dated as of June 28, 2007, by and
between Parker Drilling Company and Lehman Brothers OTC Derivatives Inc.
(incorporated by reference to Exhibit 10.6 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.7
    
    Amendment to Confirmation of Issuer Warrant Transaction dated as of June 29,
2007, by and between Parker Drilling Company and Bank of America, N.A.
(incorporated by reference to Exhibit 10.7 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.8
    
    Amendment to Confirmation of Issuer Warrant Transaction, dated as of June 29,
2007, by and between Parker Drilling Company and Deutsche Bank AG, London Branch
(incorporated by reference to Exhibit 10.8 to the Companys Current Report on
Form 8-K filed on July 5, 2007).10.9
    
    Amendment to Confirmation of Issuer Warrant Transaction, dated as of June 29,
2007, by and between Parker Drilling Company and Lehman Brothers OTC Derivatives
Inc. (incorporated by reference to Exhibit 10.9 to the Companys Current Report
on Form 8-K filed on July 5, 2007).10.10
    
    Amended and Restated Credit Agreement, dated September 20, 2007, by and between
the Company, the several lenders thereto, Lehman Brothers, Inc., as syndication
agent, Bank of America, N.A., as Sole Advisor, Sole Lead Arranger and Sole
Bookrunner, and Lehman Commercial Paper, Inc., as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on September 25, 2007)31.1
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 35




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##### Table of Contents



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




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Restated Certificate of
Incorporation (as amended) of Parker Drilling Company.31.1
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 37