##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended JUNE 30, 2009
 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.)
 5 Greenway Plaza, Suite 100, Houston, Texas 77046  (Address of principal executive offices) (Zip code)
 (281) 406-2000  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting Company o o þ




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TABLE OF CONTENTS
 PagePart I
    
    Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets (Unaudited) June 30, 2009 and December 31, 2008
    
    
    3Consolidated Condensed Statements of Operations (Unaudited) Three and Six Months Ended June
30, 2009 and 2008
    
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2009
and 2008
    
    
    5Notes to the Unaudited Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38Officer CertificationsEX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATED

CONDENSED BALANCE SHEETS
(Dollars in Thousands)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    94,583
    
    
    $
    172,298Accounts and notes receivable, net
    
    
    189,228
    
    
    
    186,164Rig materials and supplies
    
    
    28,551
    
    
    
    30,241Deferred costs
    
    
    6,472
    
    
    
    7,804Deferred income taxes
    
    
    9,735
    
    
    
    9,735Other tax assets
    
    
    32,957
    
    
    
    40,924Other current assets
    
    
    38,577
    
    
    
    26,125Total current assets
    
    
    400,103
    
    
    
    473,291Property, plant and equipment less
accumulated depreciation of $763,155
at June 30, 2009 and $712,688 at December 31, 2008
    
    
    710,843
    
    
    
    675,548Deferred income taxes
    
    
    27,991
    
    
    
    22,956Other noncurrent assets
    
    
    33,765
    
    
    
    33,925Total assets
    
    $
    1,172,702
    
    
    $
    1,205,720LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,000
    
    
    $
    6,000Accounts payable and accrued liabilities
    
    
    116,106
    
    
    
    140,398Accrued income taxes
    
    
    10,614
    
    
    
    12,130Total current liabilities
    
    
    138,720
    
    
    
    158,528Long-term debt
    
    
    415,558
    
    
    
    435,394Other long-term liabilities
    
    
    18,853
    
    
    
    21,396Long-term deferred tax liability
    
    
    8,192
    
    
    
    8,230Contingencies (Note 10)
    
    
    
    
    
    
    Stockholders equity:Noncontolling interest
    
    
    
    
    
    
    Common stock
    
    
    19,347
    
    
    
    18,910Capital in excess of par value
    
    
    621,834
    
    
    
    619,561Accumulated deficit
    
    
    (49,802
    )
    
    
    (56,299
    )Total stockholders equity
    
    
    591,379
    
    
    
    582,172Total liabilities and stockholders equity
    
    $
    1,172,702
    
    
    $
    1,205,720
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:International Drilling
    
    $
    79,279
    
    
    $
    77,919
    
    
    $
    156,660
    
    
    $
    146,659U.S. Drilling
    
    
    12,889
    
    
    
    49,368
    
    
    
    22,745
    
    
    
    95,256Project Management and Engineering Services
    
    
    23,891
    
    
    
    28,951
    
    
    
    55,945
    
    
    
    48,130Construction Contract
    
    
    77,572
    
    
    
    20,080
    
    
    
    94,317
    
    
    
    20,080Rental Tools
    
    
    28,160
    
    
    
    40,412
    
    
    
    66,049
    
    
    
    79,883Total revenues
    
    
    221,791
    
    
    
    216,730
    
    
    
    395,716
    
    
    
    390,008Operating expenses:International Drilling
    
    
    48,887
    
    
    
    56,612
    
    
    
    98,664
    
    
    
    109,233U.S. Drilling
    
    
    11,628
    
    
    
    22,130
    
    
    
    24,764
    
    
    
    43,652Project Management and Engineering Services
    
    
    18,283
    
    
    
    24,707
    
    
    
    44,177
    
    
    
    40,368Construction Contract
    
    
    74,000
    
    
    
    19,050
    
    
    
    89,914
    
    
    
    19,050Rental Tools
    
    
    12,752
    
    
    
    16,030
    
    
    
    29,206
    
    
    
    31,848Depreciation and amortization
    
    
    28,951
    
    
    
    28,166
    
    
    
    56,075
    
    
    
    54,332Total operating expenses
    
    
    194,501
    
    
    
    166,695
    
    
    
    342,800
    
    
    
    298,483Total operating gross margin
    
    
    27,290
    
    
    
    50,035
    
    
    
    52,916
    
    
    
    91,525General and administration expense
    
    
    (11,126
    )
    
    
    (8,481
    )
    
    
    (24,186
    )
    
    
    (15,149
    )Provision for reduction in carrying value of certain assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposition of assets, net
    
    
    704
    
    
    
    636
    
    
    
    782
    
    
    
    1,215Total operating income
    
    
    16,868
    
    
    
    42,190
    
    
    
    29,512
    
    
    
    77,591Other income and (expense):Interest expense
    
    
    (7,504
    )
    
    
    (7,045
    )
    
    
    (15,570
    )
    
    
    (13,882
    )Interest income
    
    
    174
    
    
    
    370
    
    
    
    460
    
    
    
    738Equity in loss of unconsolidated joint venture and
related charges, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,105
    )Other
    
    
    (68
    )
    
    
    144
    
    
    
    (80
    )
    
    
    204Total other income and (expense)
    
    
    (7,398
    )
    
    
    (6,531
    )
    
    
    (15,190
    )
    
    
    (14,045
    )Income before income taxes
    
    
    9,470
    
    
    
    35,659
    
    
    
    14,322
    
    
    
    63,546Income tax (benefit) expense:Current
    
    
    6,161
    
    
    
    9,488
    
    
    
    12,899
    
    
    
    (1,155
    )Deferred
    
    
    (1,082
    )
    
    
    4,274
    
    
    
    (5,074
    )
    
    
    19,602Total income tax expense
    
    
    5,079
    
    
    
    13,762
    
    
    
    7,825
    
    
    
    18,447Net income
    
    
    4,391
    
    
    
    21,897
    
    
    
    6,497
    
    
    
    45,099Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income attributable to Parker Drilling
    
    $
    4,391
    
    
    $
    21,897
    
    
    $
    6,497
    
    
    $
    45,099Basic earnings per share:Net income
    
    $
    0.04
    
    
    $
    0.20
    
    
    $
    0.06
    
    
    $
    0.41Diluted earnings per share:Net income
    
    $
    0.04
    
    
    $
    0.19
    
    
    $
    0.06
    
    
    $
    0.40Number of common shares used in computing earnings per
shareBasic
    
    
    113,180,858
    
    
    
    111,422,969
    
    
    
    112,723,230
    
    
    
    110,984,640Diluted
    
    
    114,757,123
    
    
    
    112,495,655
    
    
    
    114,107,675
    
    
    
    112,023,524
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six Months Ended June 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    6,497
    
    
    $
    45,099Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    56,075
    
    
    
    54,332Gain on disposition of assets
    
    
    (782
    )
    
    
    (1,215
    )Equity loss in unconsolidated joint venture and related charges, net of tax
    
    
    
    
    
    
    1,105Deferred income tax expense
    
    
    (5,074
    )
    
    
    19,602Expenses not requiring cash
    
    
    5,947
    
    
    
    5,929Change in accounts receivable
    
    
    (809
    )
    
    
    (10,377
    )Change in other assets
    
    
    (2,247
    )
    
    
    (4,393
    )Change in liabilities
    
    
    (26,582
    )
    
    
    (30,705
    )Net cash
provided by operating activities
    
    
    33,025
    
    
    
    79,377Cash flows from investing activities:Capital expenditures
    
    
    (93,978
    )
    
    
    (89,531
    )Proceeds from the sale of assets
    
    
    950
    
    
    
    2,487Proceeds from insurance settlements
    
    
    
    
    
    
    951Investment in unconsolidated joint venture
    
    
    
    
    
    
    (5,000
    )Net cash used in investing activities
    
    
    (93,028
    )
    
    
    (91,093
    )Cash flows from financing activities:Proceeds from draw on term note facility
    
    
    
    
    
    
    35,000Proceeds from draw on revolver credit facility
    
    
    4,000
    
    
    
    15,000Paydown on revolver credit facility
    
    
    (20,000
    )
    
    
    (35,000
    )Proceeds from stock options exercised
    
    
    101
    
    
    
    1,861Excess tax cost from stock based compensation
    
    
    (1,813
    )
    
    
    380Net cash
provided (used) by financing activities
    
    
    (17,712
    )
    
    
    17,241Net decrease in cash and cash equivalents
    
    
    (77,715
    )
    
    
    5,525Cash and cash equivalents at beginning of year
    
    
    172,298
    
    
    
    60,124Cash and cash equivalents at end of period
    
    $
    94,583
    
    
    $
    65,649Supplemental cash flow information:Interest paid
    
    $
    15,038
    
    
    $
    13,917Income taxes paid
    
    $
    13,295
    
    
    $
    24,489
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PARKER DRILLING COMPANY AND SUBSIDIARIES
 
 NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 1.
    
    General In the opinion of the management of Parker Drilling Company, the accompanying
unaudited consolidated condensed financial statements reflect all adjustments (of a normally
recurring nature) which are necessary for a fair presentation of (1) the financial position as
of June 30, 2009 and December 31, 2008, (2) the results of operations for the three and six
months ended June 30, 2009 and 2008, and (3) cash flows for the six months ended June 30, 2009
and 2008. Results for the six months ended June 30, 2009 are not necessarily indicative of
the results that will be realized for the year ending December 31, 2009. The financial
statements should be read in conjunction with our Annual Report on Form 10-K for the year
ended December 31, 2008.Stock-Based Compensation Total stock-based compensation expense recognized under SFAS No.
123R for the three and six month periods ended June 30, 2009 and for the three and six month
periods ended June 30, 2008 was $1.0 million and $2.8 million and $1.9 million and $3.9 million,
respectively, all of which was related to restricted stock plan expense. Stock-based
compensation expense is included in our consolidated condensed income statement in both General
and administration expense and operating expense. There were no unvested stock options at
June 30, 2009. The Company had 245,300 outstanding and exercisable stock options as of June 30,
2009, the aggregate intrinsic value of which was negligible, with a weighted average exercise
price of $2.99. Unvested restricted stock awards at December 31, 2008 and June 30, 2009 were
1,458,716 shares and 2,616,828 shares, respectively. Total unrecognized compensation cost
related to unamortized restricted stock awards was $3.8 million as of December 31, 2008 and $3.6
million as of June 30, 2009. The remaining unrecognized compensation cost related to
unamortized restricted stock awards will be amortized over a weighted-average vesting period of
approximately one year.For the six months ended June 30, 2009, the restricted stock vestings resulted in a tax benefit
that was less than the deferred tax asset previously recognized. As a result, a shortfall of
$1.8 million for the six months was offset against additional paid in capital in accordance with
SFAS 123R.Convertible Senior Notes, including call options and warrants In May 2008, the Financial
Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Accounting Principles
Board (APB) 14-1, Accounting for Convertible Debt Instruments that May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement), (FSP APB 14-1). The FSP requires that
the liability and equity components of convertible debt instruments that may be settled in cash
upon conversion (including partial cash settlement), commonly referred to as Instrument C under
EITF issue No. 90-19, Convertible Bonds With Issuer Options to Settle for Cash upon
Conversion, be separated to account for the fair value of the debt and equity components as of
the date of issuance to reflect the issuers non-convertible debt borrowing rate. The FSP is
effective for financial periods beginning after December 15, 2008 and is applied retrospectively
to all periods presented (retroactive restatement) pursuant to the guidance in SFAS 154,
Accounting Changes and Error Corrections.The adoption of the FSP on January 1, 2009 impacted the treatment of the Companys 2.125 percent
convertible senior notes due 2012, by reclassifying a portion of the convertible note balances
to additional paid in capital for the estimated fair value of the conversion feature at the date
of issuance and creating a discount on the convertible notes that will be amortized through
interest expense over the life of the convertible notes. The Companys non-convertible debt
borrowing rate at the date of issuance (July 2007) was 7.25 percent and, accordingly, adoption
of the FSP resulted in a significant increase in interest expense, and reduced net income and
basic earnings per share in the Companys consolidated condensed financial statements. Upon
adoption, the Company restated its Accumulated deficit balance by approximately $6.8 million
to reflect the additional interest expense from issuance on July 5, 2007 through December 31,
2008 and reduced Convertible senior notes by $19.7 million, reflecting the issuance of the
notes at a discount and including amortization of the discount from the transaction date through
the adoption date. The Companys Paid in capital balance increased by $26.5 million,
reflecting the equity portion of the initial transaction. A deferred tax asset provision of
$10.6 million was also established upon initial adoption of the FSP with a corresponding
reduction in Paid in capital. This provision was then reduced by $2.7 million with the offset
to Accumulated deficit to reflect the benefit associated with the additional interest recorded
from July 2007 to December 31, 2008. See the tables below for changes to the relevant 2008
financials.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 1.
    
    General (continued)Balance Sheet
 Restated(In thousands)
    
    December 31, 2008
    
    
    Adjustments
    
    
    December 31, 2008ASSETSDeferred income taxes
    
    
    30,867
    
    
    
    (7,911
    )
    
    
    22,956Total assets
    
    $
    1,213,631
    
    
    
    
    
    
    $
    1,205,720LIABILITIES AND STOCKHOLDERS EQUITYLong-term debt
    
    
    455,073
    
    
    
    (19,679
    )
    
    
    435,394Capital in excess of par
    
    
    603,731
    
    
    
    15,830
    
    
    
    619,561Accumulated deficit
    
    
    (52,237
    )
    
    
    (4,062
    )
    
    
    (56,299
    )Total liabilities and stockholders equity
    
    $
    1,213,631
    
    
    
    
    
    
    $
    1,205,720
 Statement of Operations
 RestatedThree months ended
    
    
    
    
    
    
    Three months ended(In thousands)
    
    June 30, 2008
    
    
    Adjustments
    
    
    June 30, 2008Other income and (expense):Interest expense
    
    
    (5,876
    )
    
    
    (1,169
    )
    
    
    (7,045
    )Income tax (benefit) expense:Deferred
    
    
    4,744
    
    
    
    (470
    )
    
    
    4,274Net income
    
    $
    22,596
    
    
    
    
    
    
    $
    21,897
 RestatedSix months ended
    
    
    
    
    
    
    Six months endedJune 30, 2008
    
    
    Adjustments
    
    
    June 30, 2008Other income and (expense):Interest expense
    
    
    (11,566
    )
    
    
    (2,316
    )
    
    
    (13,882
    )Income tax (benefit) expense:Deferred
    
    
    20,533
    
    
    
    (931
    )
    
    
    19,602Net income
    
    $
    46,484
    
    
    
    
    
    
    $
    45,099
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 1.
    
    General (continued)The maturity date of the notes (July 15, 2012) is the expected life of the liability due to the
current market value of the Companys stock which is significantly lower than the note
conversion price of $13.85 per share. The 7.25 percent cost of non-convertible debt was
calculated for use in our decision model at the time that the convertible notes were issued in
July 2007. Using 7.25 percent, the fair value of the notes was calculated to be $98.5 million
and the discount on the notes $26.5 million. Interest expense for the second quarter and first
six months of 2009 was increased by $1.3 million and $2.5 million, respectively to reflect the
fair value increment calculated as the amortization of the debt discount, using the effective
interest rate method. In addition, $0.7 million of interest expense was recognized during the
current quarter for the contractual interest coupon on these convertible notes.Property, Plant and Equipment- In the first quarter 2009, we implemented a change in accounting
estimate to more accurately reflect the useful life of some of the long-lived assets in our U.S.
Drilling and International Drilling segments. This resulted in an approximate $8.0 million
reduction in depreciation expense in the first six months of 2009. We extended the useful lives
of these long-lived assets based on our review of their service lives, technological
improvements in the asset, and recent changes to our refurbishment and maintenance practices
which helped to extend the lives.Non-Controlling Interest In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidating Financial Statements (SFAS No.
160). SFAS No. 160 provides enhanced guidance related to the disclosure of information
regarding noncontrolling interests in a subsidiary and their effect on the company. This
Statement, together with the International Accounting Standards Boards (IASB) International
Accounting Standards 27, Consolidated and Separate Financial Statements, (IAS No. 27)
concludes a joint effort by the FASB and IASB to improve the accounting for and reporting of
noncontrolling interests in consolidated financial statements and promotes international
convergence of accounting standards. For the Company, SFAS No. 160 is effective January 1,
2009. The Company did not apply the disclosure provisions of SFAS No. 160 as the information
regarding noncontrolling interests in a subsidiary is immaterial to the consolidated condensed
financial statements.Construction Contract Historically the Company has primarily constructed drilling rigs for
its own use. In some instances, however, the Company enters into contracts to design,
construct, deliver and commission a rig for a major customer. In 2008, we were awarded a cost
reimbursable, fixed fee contract to construct, deliver and commission a rig for extended-reach
drilling work in Alaska. Total cost of the construction phase is currently expected to be
approximately $215.0 million. The Company recognizes revenues received and costs incurred
related to its construction contract on a gross basis and income for the related fees on a
percentage of completion basis using the cost-to-cost method. Construction costs in excess of
funds received from the customer are accumulated and reported as part of other current assets.
At June 30, 2009, a net asset (progress payments less
construction costs) of $12.2 million is
included in other current assets.Cash and Cash Equivalents For purposes of the balance sheet and the statement of cash flows,
the Company considers cash equivalents to be all highly liquid investment instruments that have
a remaining maturity of three months or less at the date of purchase.Subsequent Events In preparing these financial statements, we have evaluated subsequent
events through August 7, 2009, which is the date the financial statements are being issued.
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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 2.
    
    Earnings Per Share (EPS)
 Three Months Ended June 30, 2009Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    4,391,000
    
    
    
    113,180,858
    
    
    $
    0.04Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,576,265
    
    
    $
    Diluted EPS:Net income
    
    $
    4,391,000
    
    
    
    114,757,123
    
    
    $
    0.04
 Six Months Ended June 30, 2009Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    6,497,000
    
    
    
    112,723,230
    
    
    $
    0.06Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,384,445
    
    
    $
    Diluted EPS:Net income
    
    $
    6,497,000
    
    
    
    114,107,675
    
    
    $
    0.06
 Three Months Ended June 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    21,897,000
    
    
    
    111,422,969
    
    
    $
    0.20Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,072,686
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    21,897,000
    
    
    
    112,495,655
    
    
    $
    0.19
 Six Months Ended June 30, 2008Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS:Net income
    
    $
    45,099,000
    
    
    
    110,984,640
    
    
    $
    0.41Effect of dilutive securities:Stock options and restricted stock
    
    
    
    
    
    
    1,038,884
    
    
    $
    (0.01
    )Diluted EPS:Net income
    
    $
    45,099,000
    
    
    
    112,023,524
    
    
    $
    0.40
 9




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 2.
    
    Earnings Per Share (EPS) (continued)All stock options outstanding during the three and six months ended June 30, 2008, were included
in the computation of diluted EPS as the options exercise prices were less than the average
market price of the common shares. Options to purchase 90,300 shares of common stock with
exercise prices ranging from $3.78 to $4.20 per share were outstanding during the three months
ended June 30, 2009, and options to purchase 105,300 shares of common stock with exercise prices
ranging from $3.34 to $4.20 were outstanding during the six months ended June 30, 2009, but were
not included in the computation of diluted EPS because the options exercise prices were greater
than the average market price of the common shares and would have been anti-dilutive.3.
    
    Business Segments The five primary services we provide are as follows: International
Drilling, U.S. Drilling, Project Management and Engineering Services, Construction Contract
and Rental Tools. In the first quarter of 2008, the Company created the Project Management
and Engineering Services segment by combining our labor, operations and maintenance and
engineering services contracts which had been previously reported in our U.S. Drilling or
International Drilling segments. The segment was created in anticipation of the significant
expansion of these projects and services and senior managements resultant separate
performance assessment and resource allocation for this segment. This segments operations,
unlike our U.S. and International Drilling and Rental Tools operations, generally require
little or no capital expenditures, and therefore have different performance assessment and
resource needs. The Company anticipates further growth of this segment of our business and
reviews and assesses its performance separately. In the second quarter of 2008, the Company
created the Construction Contract segment to reflect the Companys Engineering, Procurement,
Construction and Installation contract (EPCI). The Construction Contract segment income
(fees) is accounted for on a percentage of completion basis using the cost-to-cost method.
Revenues received and costs incurred related to the contract are recorded on a gross basis.
 10




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 3.
    
    Business Segments (continued)Information regarding our operations by industry segment for the three and six months ended June
30, 2009 and 2008 is as follows:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in Thousands)Revenues:International Drilling
    
    $
    79,279
    
    
    $
    77,919
    
    
    $
    156,660
    
    
    $
    146,659U.S. Drilling
    
    
    12,889
    
    
    
    49,368
    
    
    
    22,745
    
    
    
    95,256Project Management and Engineering Services
    
    
    23,891
    
    
    
    28,951
    
    
    
    55,945
    
    
    
    48,130Construction Contract
    
    
    77,572
    
    
    
    20,080
    
    
    
    94,317
    
    
    
    20,080Rental Tools
    
    
    28,160
    
    
    
    40,412
    
    
    
    66,049
    
    
    
    79,883Total revenues
    
    $
    221,791
    
    
    $
    216,730
    
    
    $
    395,716
    
    
    $
    390,008Operating gross margin:International Drilling
    
    $
    17,163
    
    
    $
    9,029
    
    
    $
    33,075
    
    
    $
    14,788U.S. Drilling
    
    
    (5,781
    )
    
    
    18,636
    
    
    
    (16,239
    )
    
    
    34,309Project Management and Engineering Services
    
    
    5,608
    
    
    
    4,244
    
    
    
    11,768
    
    
    
    7,762Construction Contract
    
    
    3,572
    
    
    
    1,030
    
    
    
    4,403
    
    
    
    1,030Rental Tools
    
    
    6,728
    
    
    
    17,096
    
    
    
    19,909
    
    
    
    33,636Total operating gross margin
    
    
    27,290
    
    
    
    50,035
    
    
    
    52,916
    
    
    
    91,525General and administration expense
    
    
    (11,126
    )
    
    
    (8,481
    )
    
    
    (24,186
    )
    
    
    (15,149
    )Gain on disposition of assets, net
    
    
    704
    
    
    
    636
    
    
    
    782
    
    
    
    1,215Total operating income
    
    
    16,868
    
    
    
    42,190
    
    
    
    29,512
    
    
    
    77,591Interest expense
    
    
    (7,504
    )
    
    
    (7,045
    )
    
    
    (15,570
    )
    
    
    (13,882
    )Other
    
    
    106
    
    
    
    514
    
    
    
    380
    
    
    
    (163
    )Income before income taxes
    
    $
    9,470
    
    
    $
    35,659
    
    
    $
    14,322
    
    
    $
    63,546
 4.
    
    Disposition of Assets Asset dispositions in the first six months of 2008 included the sale
of Rig 206 in Indonesia, which we sold at our net book value, and miscellaneous equipment that
resulted in a recognized gain of $1.2 million. In the first six months of 2009 asset
dispositions consisted primarily of the sale of miscellaneous equipment, resulting in a
recognized gain of $0.8 million.
 5.
    
    Accounting for Uncertainty in Income Taxes FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of tax positions
taken in a tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. During March
2008, the Company resolved the pending tax case with the Kazakhstan Ministry of Finance by
paying the reduced interest assessment related to tax payments made in 2007 (see Note 8 -
Kazakhstan Tax Case), and we accordingly reduced the previously recorded accruals based on the
final resolution of this matter. During 2009, the Company recognized $0.7 million of expense
related to certain intercompany transactions between our U.S. companies and foreign
affiliates. As of June 30, 2009, the Company had a remaining liability for unrecognized tax
benefits of $12.3 million primarily related to foreign operations.
 6.
    
    Income Tax Expense Income tax expense was $5.1 million for the second quarter of 2009.
 11




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 7.
    
    Saudi Arabia Joint Venture On April 9, 2008, a subsidiary of Parker executed an agreement
(Sale Agreement) to sell its 50 percent share interest in Al-Rushaid Parker Drilling Co.
Ltd. (ARPD) to an affiliate of the Al Rushaid subsidiary that owned the remaining 50 percent
interest. The terms of the Sale Agreement provided for a $2.0 million payment to Parkers
subsidiary as consideration for the 50 percent share interest of the Parker subsidiary and
partial repayment of investments and advances of the Parker subsidiary to ARPD, including a
$5.0 million advance in January 2008. During the first quarter of 2008, the Parker subsidiary
made the decision to terminate any future funding to ARPD, and accordingly, the Company did
not record equity in losses of ARPD in the first quarter of 2008. We recognized a $1.1
million loss, net of income taxes, in the first quarter of 2008 primarily as a result of
nonrecoverable costs, as per the terms of the Sale Agreement, incurred by the Parker affiliate
to support ARPD operations during the current quarter. The Parker subsidiary received the
$2.0 million on April 15, 2008 in full settlement of the Companys investment in and advances
to ARPD.The agreement also provides that the Parker subsidiary and its affiliates has been indemnified by ARPD
for any and all claims arising out of or related to the operations of
ARPD, and there are no restrictions on Parker or any of its affiliates
with regard to competing with ARPD in the future, including in Saudi Arabia.
 8.
    
    Kazakhstan Tax Case On October 12, 2005, the Kazakhstan Branch (PKD Kazakhstan) of Parker
Drillings subsidiary, Parker Drilling Company International Limited (PDCIL), received an
Act of Tax Audit from the Ministry of Finance of Kazakhstan (MinFin) assessing PKD
Kazakhstan an amount of KZT (Kazakhstan Tenge) 14.9 billion (approximately $125.8 million).
Approximately KZT7.5 billion or $63.3 million was assessed for import Value Added Tax (VAT),
administrative fines and interest on equipment imported to perform the drilling contracts (the
VAT Assessment) and approximately KZT7.4 billion or $62.5 million for corporate income tax,
individual income tax and social tax, administrative fines and interest in connection with the
reimbursements received by PDCIL from a client for the upgrade of Barge Rig 257 and other
issues related to PKD Kazakhstans operations in the Republic of Kazakhstan (the Income Tax
Assessment).On May 24, 2006, the Supreme Court of the Republic of Kazakhstan (SCK) issued a decision
upholding the VAT Assessment. Consistent with its contractual obligations, on November 20,
2006, the client advanced the actual amount of the VAT Assessment and this amount has been
remitted to MinFin. The administrative fines related to the VAT Assessment are being appealed
by the client who is contractually responsible to reimburse PKD Kazakhstan for any
administrative fines ultimately assessed. The client has also contractually agreed to reimburse
PKD Kazakhstan for any incremental income taxes that PKD Kazakhstan incurs from the
reimbursement of this VAT Assessment. As of June 30, 2009 the appeal of the administrative fines was
still being pursued by the client.After multiple appeals to the SCK and two meetings of the U.S. Competent Authorities under the
Mutual Agreement Procedure of the U.S.- Kazakhstan Tax Treaty, the SCK ultimately upheld the
Income Tax Assessment and on December 12, 2007, PKD Kazakhstan paid the principal tax portion of
the Income Tax Assessment, net of estimated taxes previously paid. After a further appeal
against the interest portion of the notice of assessment, on February 25, 2008, the Atyrau
Economic Court issued a ruling that interest on the income tax assessed should accrue from the
October 12, 2005 assessment date as opposed to the original assessment in 2001, which resulted
in a revised interest assessment by the Atyrau Tax Committee of approximately US$13 million,
which was paid by PKD Kazakhstan on March 14, 2008, in final resolution of this matter.
 12




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Long-Term Debt
 June 30,
    
    
    December 312009
    
    
    2008(Dollars in Thousands)Convertible Senior Notes payable in July 2012 with interest
at 2.125% payable semi-annually in January and July, net of
unamortized discount of $17,192 at June 30, 2009 and
$19,679 at December 31, 2008.
    
    $
    107,808
    
    
    $
    105,321Senior Notes payable in October 2013 with interest
at 9.625% payable semi-annually in April and October
net of unamortized premium of $2,750 at June 30, 2009
and $3,073 at December 31, 2008.
    
    
    227,750
    
    
    
    228,073Term Note with amortization beginning September 30, 2009
at equal installments of $3.0 million per quarter.
    
    
    50,000
    
    
    
    50,000Revolving Credit Facility with interest at prime, plus an applicable
margin or LIBOR, plus an applicable margin.
    
    
    42,000
    
    
    
    58,000Total debt
    
    
    427,558
    
    
    
    441,394Less current portion
    
    
    12,000
    
    
    
    6,000Total long-term debt
    
    $
    415,558
    
    
    $
    435,394
   13




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 9.
    
    Long-Term Debt (continued)The 2008 Credit Facility is available for general corporate purposes and to fund reimbursement
obligations under letters of credit the banks issue on our behalf pursuant to this facility.
Revolving loans are available under the 2008 Credit Facility subject to a borrowing base
calculation based on a percentage of eligible accounts receivable, certain specified barge
drilling rigs and eligible rental equipment of the Company and its subsidiary guarantors. As of
June 30, 2009, there were $17.7 million in letters of credit outstanding, $50.0 million
outstanding on the Term Loan Facility and $42.0 million outstanding on the Revolving Credit
Facility. As of June 30, 2009, the amount drawn represents 75 percent of the capacity of the
Revolving Credit Facility. The Term Loan will begin amortizing on September 30, 2009 at equal
installments of $3.0 million per quarter. On January 30, 2009, Lehman Commercial Paper, Inc.
assigned its obligations under the 2008 Credit Facility to Trustmark National Bank. Upon
assignment, Trustmark National Bank fully funded Lehman Commercial Paper, Inc.s commitment,
including an additional $4.0 million that Lehman Commercial Paper, Inc. did not fund in October
2008, therefore increasing our borrowings under the Revolving Credit Facility to $62.0 million
at that time. The Company expects to use the drawn amounts over the next twelve months to fund
construction of two new rigs for work in Alaska. As of June 30, 2009, the Company is in
compliance with all covenants.The estimated fair value of our $225.0 million principal amount of 9.625% Senior Notes due 2013,
based on quoted market prices, was $211.5 million at June 30, 2009. The estimated fair value of
our $125.0 million principal amount of Convertible Senior Notes due 2012 was $96.0 million on
June 30, 2009.10.
    
    ContingenciesBangladesh ClaimIn September 2005, a subsidiary of the Company was served with a lawsuit filed in the 152nd
District Court of Harris County State of Texas on behalf of numerous citizens of Bangladesh
claiming $250 million in damages due to various types of property damage and personal injuries
(none involving loss of life) arising as a result of two blowouts that occurred in Bangladesh in
January and June 2005, although only the June 2005 blowout involved the Company. The court
dismissed the case on the basis that Houston, Texas, is not the appropriate location for this
suit to be filed. The plaintiffs appealed this dismissal. The Court of Appeals affirmed the
dismissal which is now final because the plaintiffs failed to lodge an appeal with the Supreme
Court within the required time period, which period ended April 27, 2009.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.
 14




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 10.
    
    Contingencies (continued)Asbestos-Related Claims(continued)The complaints allege that the Companys subsidiaries and other drilling contractors used
asbestos-containing products in offshore drilling operations, land-based drilling operations and
in drilling structures, drilling rigs, vessels and other equipment and assert claims based on,
among other things, negligence and strict liability and claims under the Jones Act and that the
plaintiffs are entitled to monetary damages. Based on the report of the special master, these
complaints have been severed and venue of the claims transferred to the county in which the
plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to
the filing of amended complaints, Parker Drilling has joined with other co-defendants in filing
motions to compel discovery to determine what plaintiffs have an employment relationship with
which defendant, including whether or not any plaintiffs have an employment relationship with
subsidiaries of Parker Drilling. Out of 668 amended single-plaintiff complaints filed to date,
sixteen (16) plaintiffs have identified Parker Drilling or one of its affiliates as a defendant.
Discovery is proceeding in groups of 60 and none of the plaintiff complaints naming Parker are
included in the first 60 (Group I). The initial discovery of Group I resulted in certain
dismissals with prejudice, two dismissals without prejudice and two withdraws from Group I,
leaving only 40 plaintiffs remaining in Group I. Selection of Discovery Group II was completed
on April 21, 2008. Out of the 60 plaintiffs selected, Parker Drilling was named in one suit in
which the plaintiff claims that during 1973 he earned $587.40 while working for a former
subsidiary of a company Parker Drilling acquired in 1996.The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously
and, based on the information available to the Company at this time, the Company does not expect
the outcome to have a material adverse effect on its financial condition, results of operations
or cash flows; however, the Company is unable to predict the ultimate outcome of these lawsuits.
No amounts were accrued at June 30, 2009.Gulfco SiteSeveral years ago the Company received an information request under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) designating Parker Drilling
Offshore Corporation, a subsidiary of Parker Drilling as a potentially responsible party with
respect to the Gulfco Marine Maintenance, Inc. Superfund Site in Freeport, Texas (EPA No. TX
055144539). The subsidiary responded to this request in 2003 with documents. In January 2008,
the subsidiary received an administrative order to participate in an investigation of the site
and a study of the remediation needs and alternatives. The EPA alleges that the subsidiary is
successor to a party who owned the Gulfco site during the time when chemical releases took place
there. Two other parties have been performing that work since mid-2005 under an earlier version
of the same order. The subsidiary believes that it has a sufficient cause to decline
participation under the order and has notified the EPA of that decision. Non-compliance with an
EPA order absent sufficient cause for doing so can result in substantial penalties under CERCLA.
The subsidiary is continuing to evaluate its relationship to the site and has conferred with
the EPA and the other parties in an effort to resolve the matter. The Company has not yet
estimated the amount or impact on our operations, financial position or cash flows of any costs
related to the site. To date, the EPA and the other two parties have spent over $2.7 million
studying and conducting initial remediation of the site. It is anticipated that an additional
$1.3 million will be required to complete the remediation. Other costs (not yet quantified)
such as interest and administrative overhead could be added to any action against the Company.
Although we can provide no assurance as to the total amount necessary to finally resolve this
matter, we currently anticipate that the total claim will not exceed $5 million and will be
shared by all responsible parties. The Company does not believe it has any obligation with
respect to the remediation of the property, and accordingly no accrual was made as of June 30,
2009.
 15




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NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 10.
    
    Contingencies (continued)Foreign Corrupt Practices Act (FCPA) InvestigationAs previously disclosed, the Company received requests from the United States Department of
Justice (DOJ) in July 2007 and the United States Securities and Exchange Commission (SEC) in
January 2008 relating to the Companys utilization of the services of a customs agent. The DOJ
and the SEC are conducting parallel investigations into possible violations of U.S. law by the
Company, including the Foreign Corrupt Practices Act (the FCPA). In particular, the DOJ and
the SEC are investigating the Companys use of customs agents in certain countries in which the
Company currently operates or formerly operated, including Kazakhstan and Nigeria. The Company
is fully cooperating with the DOJ and SEC investigations and conducting an internal
investigation into potential customs and other issues in Kazakhstan and Nigeria. At this point,
we are unable to predict the duration, scope or result of the DOJ or the SEC investigation or
whether either agency will commence any legal action. If we are not in compliance with the FCPA
and other laws governing the conduct of business with foreign government entities (including
other United States laws and regulations as well as local laws), we may be subject to criminal
and civil penalties and other remedial measures, which could have an adverse impact on our
business, results of operations, financial condition and liquidity.Economic Sanctions ComplianceOur international operations are subject to laws and regulations restricting our international
operations including activities involving restricted countries, organizations, entities and
persons that have been identified as unlawful actors or that are subject to U.S. economic
sanctions. Pursuant to an internal review, we have identified certain shipments of equipment
and supplies that were routed through Iran as well as other activities that may have violated
applicable U.S. laws and regulations. In addition, we have engaged in drilling wells in the
Korpedje Field in Turkmenistan, from where natural gas may be exported by pipeline to Iran. We
recently completed a review of these shipments, transactions and drilling activities to determine
whether the timing, nature and extent of such activities or other conduct may have given rise to
violations of these laws and regulations, and we have provided the
results of our review to the appropriate U.S. government agency. We
are unable to predict whether the government will initiate an
investigation or any proceedings against the Company or the ultimate
outcome of any such investigation or proceeding. If
U.S. enforcement authorities determine that we are not in
compliance with export restrictions, U.S. economic sanctions or other laws and regulations that
apply to our international operations, we may be subject to civil or criminal penalties and
other remedial measures, which could have an adverse impact on our business, results of
operations, financial condition and liquidity.11.
    
    Recent Accounting Pronouncements In May 2009, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 165, Subsequent Events, which establishes general standards
of accounting for and disclosures of events that occur after the balance sheet date but before
the financial statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events. SFAS No. 165 is
effective for interim and annual reporting periods ending after June 15, 2009. We adopted the
new disclosure requirements in our June 30, 2009 condensed consolidated financial statements.In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This FSP which amends SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, to require publicly-traded companies, as defined in APB Opinion
No. 28, Interim Financial Reporting, to provide disclosures on the fair value of financial
instruments in interim financial statements. FSP SFAS 107-1 and APB 28-1 is effective for
interim periods ending after June 15, 2009. We have adopted the new disclosure requirements in
our June 30, 2009 financial statements (see Note 9).
 16




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##### Table of Contents



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
 12.
    
    Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements
Set forth on the following pages are the consolidating condensed financial statements of (i)
Parker Drilling, (ii) its restricted subsidiaries that are guarantors of the Senior Notes, and
Convertible Senior Notes (the Notes) and (iii) the restricted and unrestricted subsidiaries
that are not guarantors of the Notes. The Notes are guaranteed by substantially all of the
domestic restricted subsidiaries of Parker Drilling. There are currently no restrictions on
the ability of the restricted subsidiaries to transfer funds to Parker Drilling in the form of
cash dividends, loans or advances. Parker Drilling is a holding company with no operations,
other than through its subsidiaries. Separate financial statements for each guarantor company
are not provided as the company complies with the exception to Rule 3-10(a)(1) of Regulation
S-X, set forth in sub-paragraph (f) of such rule. All guarantor subsidiaries are directly or
indirectly owned 100% by the parent company, all guarantees are full and unconditional and all
guarantees are joint and several.AralParker (a Kazakhstan joint stock company, owned 100 percent by Parker Drilling (Kazakstan),
LLC, Casuarina Limited (a wholly-owned captive insurance company), KDN Drilling Limited, Mallard
Argentine Holdings, Ltd., Mallard Drilling of South America, Inc., Mallard Drilling of
Venezuela, Inc., Parker Drilling Investment Company, Parker Drilling (Nigeria) Limited, Parker
Drilling Company (Bolivia) S.A., Parker Drilling Company Kuwait Limited, Parker Drilling Company
Limited (Bahamas), Parker Drilling Company of New Zealand Limited, Parker Drilling Company of
Sakhalin, Parker Drilling de Mexico S. de R.L. de C.V., Parker Drilling International of New
Zealand Limited, Parker Drilling Tengiz, Ltd., PD Servicios Integrales, S. de R.L. de C.V., PKD
Sales Corporation, Parker SMNG Drilling Limited Liability Company (owned 50 percent by Parker
Drilling Company International, LLC), Parker Drilling Kazakhstan B.V., Parker Drilling AME
Limited, Parker Drilling Asia Pacific, LLC, PD International Holdings C.V.,PD Dutch Holdings
C.V., PD Selective Holdings C.V., PD Offshore Holdings C.V., Parker Drilling Netherlands B.V.,
Parker Drilling Dutch B.V., Parker Hungary Rig Holdings Limited Liability Company, Parker
Drilling Spain Rig Services, S L, Parker 3Source, LLC, Parker 5272, LLC, Parker Central Europe
Rig Holdings Limited Liability Company, Parker Cyprus Leasing Limited, Parker Cyprus Ventures
Limited, Parker Drilling International B.V., Parker Drilling Offshore B.V., Parker Drilling
Offshore International, Inc., Parker Drilling Overseas B.V., Parker Drilling Russia B.V., Parker
Drillsource, LLC, PD Labor Services, Ltd., PD Labor Sourcing, Ltd., PD Personnel Services, Ltd, SaiPar Drilling Company B.V., and Parker Enex, LLC are all
non-guarantor subsidiaries. The Company is providing consolidating condensed financial
information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor
subsidiaries as of June 30, 2009 and December 31, 2008 and for the three and six months ended
June 30, 2009 and 2008. The consolidating condensed financial statements present investments in
both consolidated and unconsolidated subsidiaries using the equity method of accounting.
 17




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 June 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,994
    
    
    $
    4,951
    
    
    $
    62,638
    
    
    $
    
    
    
    $
    94,583Accounts and notes receivable, net
    
    
    19,159
    
    
    
    210,533
    
    
    
    121,355
    
    
    
    (161,819
    )
    
    
    189,228Rig materials and supplies
    
    
    
    
    
    
    8,769
    
    
    
    19,782
    
    
    
    
    
    
    
    28,551Deferred costs
    
    
    
    
    
    
    1,685
    
    
    
    4,787
    
    
    
    
    
    
    
    6,472Deferred income taxes
    
    
    9,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,735Other tax assets
    
    
    82,929
    
    
    
    (48,067
    )
    
    
    (1,905
    )
    
    
    
    
    
    
    32,957Other current assets
    
    
    557
    
    
    
    23,341
    
    
    
    20,934
    
    
    
    (6,255
    )
    
    
    38,577Total current assets
    
    
    139,374
    
    
    
    201,212
    
    
    
    227,591
    
    
    
    (168,074
    )
    
    
    400,103Property, plant and equipment, net
    
    
    79
    
    
    
    507,111
    
    
    
    203,530
    
    
    
    123
    
    
    
    710,843Investment in subsidiaries and intercompany advances
    
    
    978,657
    
    
    
    873,028
    
    
    
    35,366
    
    
    
    (1,887,051
    )
    
    
    Investment in and advances to unconsolidated joint
venture
    
    
    
    
    
    
    4,620
    
    
    
    (4,620
    )
    
    
    
    
    
    
    Other noncurrent assets
    
    
    31,722
    
    
    
    23,420
    
    
    
    17,658
    
    
    
    (11,044
    )
    
    
    61,756Total assets
    
    $
    1,149,832
    
    
    $
    1,609,391
    
    
    $
    479,525
    
    
    $
    (2,066,046
    )
    
    $
    1,172,702LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    12,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,000Accounts payable and accrued liabilities
    
    
    55,244
    
    
    
    308,488
    
    
    
    80,155
    
    
    
    (327,781
    )
    
    
    116,106Accrued income taxes
    
    
    1,058
    
    
    
    3,310
    
    
    
    6,246
    
    
    
    
    
    
    
    10,614Total current liabilities
    
    
    68,302
    
    
    
    311,798
    
    
    
    86,401
    
    
    
    (327,781
    )
    
    
    138,720Long-term debt
    
    
    415,558
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415,558Other long-term liabilities
    
    
    10
    
    
    
    13,046
    
    
    
    16,841
    
    
    
    (11,044
    )
    
    
    18,853Long-term deferred tax liability
    
    
    
    
    
    
    1,237
    
    
    
    6,955
    
    
    
    
    
    
    
    8,192Intercompany payables
    
    
    74,583
    
    
    
    583,025
    
    
    
    80,571
    
    
    
    (738,179
    )
    
    
    Contingencies (Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    19,347
    
    
    
    39,899
    
    
    
    21,153
    
    
    
    (61,052
    )
    
    
    19,347Capital in excess of par value
    
    
    621,834
    
    
    
    997,081
    
    
    
    208,520
    
    
    
    (1,205,601
    )
    
    
    621,834Retained earnings (accumulated deficit)
    
    
    (49,802
    )
    
    
    (336,695
    )
    
    
    59,084
    
    
    
    277,611
    
    
    
    (49,802
    )Total stockholders equity
    
    
    591,379
    
    
    
    700,285
    
    
    
    288,757
    
    
    
    (989,042
    )
    
    
    591,379Total liabilities and stockholders equity
    
    $
    1,149,832
    
    
    $
    1,609,391
    
    
    $
    479,525
    
    
    $
    (2,066,046
    )
    
    $
    1,172,702
 18




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
 December 31, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    111,324
    
    
    $
    9,741
    
    
    $
    51,233
    
    
    $
    
    
    
    $
    172,298Accounts and notes receivable, net
    
    
    51,792
    
    
    
    217,435
    
    
    
    131,591
    
    
    
    (214,654
    )
    
    
    186,164Rig materials and supplies
    
    
    
    
    
    
    11,518
    
    
    
    18,723
    
    
    
    
    
    
    
    30,241Deferred costs
    
    
    
    
    
    
    2,000
    
    
    
    5,804
    
    
    
    
    
    
    
    7,804Deferred income taxes
    
    
    9,735
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,735Other tax assets
    
    
    83,788
    
    
    
    (41,008
    )
    
    
    (1,856
    )
    
    
    
    
    
    
    40,924Other current assets
    
    
    549
    
    
    
    13,755
    
    
    
    11,875
    
    
    
    (54
    )
    
    
    26,125Total current assets
    
    
    257,188
    
    
    
    213,441
    
    
    
    217,370
    
    
    
    (214,708
    )
    
    
    473,291Property, plant and equipment, net
    
    
    79
    
    
    
    465,659
    
    
    
    209,686
    
    
    
    124
    
    
    
    675,548Investment in subsidiaries and intercompany advances
    
    
    867,684
    
    
    
    1,066,216
    
    
    
    (88,992
    )
    
    
    (1,844,908
    )
    
    
    Investment in and advances to unconsolidated joint
venture
    
    
    
    
    
    
    4,620
    
    
    
    (4,620
    )
    
    
    
    
    
    
    Other noncurrent assets
    
    
    27,607
    
    
    
    21,215
    
    
    
    8,059
    
    
    
    
    
    
    
    56,881Total assets
    
    $
    1,152,558
    
    
    $
    1,771,151
    
    
    $
    341,503
    
    
    $
    (2,059,492
    )
    
    $
    1,205,720LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    6,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,000Accounts payable and accrued liabilities
    
    
    53,859
    
    
    
    337,464
    
    
    
    100,305
    
    
    
    (351,230
    )
    
    
    140,398Accrued income taxes
    
    
    540
    
    
    
    4,861
    
    
    
    6,729
    
    
    
    
    
    
    
    12,130Total current liabilities
    
    
    60,399
    
    
    
    342,325
    
    
    
    107,034
    
    
    
    (351,230
    )
    
    
    158,528Long-term debt
    
    
    435,394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435,394Other long-term liabilities
    
    
    10
    
    
    
    14,351
    
    
    
    7,035
    
    
    
    
    
    
    
    21,396Long-term deferred tax liability
    
    
    
    
    
    
    1,237
    
    
    
    6,993
    
    
    
    
    
    
    
    8,230Intercompany payables
    
    
    74,583
    
    
    
    583,027
    
    
    
    71,299
    
    
    
    (728,909
    )
    
    
    Contingencies (Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    18,910
    
    
    
    39,899
    
    
    
    21,153
    
    
    
    (61,052
    )
    
    
    18,910Capital in excess of par value
    
    
    619,561
    
    
    
    1,045,727
    
    
    
    141,112
    
    
    
    (1,186,839
    )
    
    
    619,561Retained earnings (accumulated deficit)
    
    
    (56,299
    )
    
    
    (255,415
    )
    
    
    (13,123
    )
    
    
    268,538
    
    
    
    (56,299
    )Total stockholders equity
    
    
    582,172
    
    
    
    830,211
    
    
    
    149,142
    
    
    
    (979,353
    )
    
    
    582,172Total liabilities and stockholders equity
    
    $
    1,152,558
    
    
    $
    1,771,151
    
    
    $
    341,503
    
    
    $
    (2,059,492
    )
    
    $
    1,205,720
 19




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended June 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    170,794
    
    
    $
    70,742
    
    
    $
    (19,745
    )
    
    $
    221,791Operating expenses
    
    
    
    
    
    
    133,568
    
    
    
    51,727
    
    
    
    (19,745
    )
    
    
    165,550Depreciation and amortization
    
    
    
    
    
    
    20,956
    
    
    
    7,995
    
    
    
    
    
    
    
    28,951Total operating gross margin
    
    
    
    
    
    
    16,270
    
    
    
    11,020
    
    
    
    
    
    
    
    27,290General and administration expense (1)
    
    
    (42
    )
    
    
    (11,074
    )
    
    
    (10
    )
    
    
    
    
    
    
    (11,126
    )Gain on disposition of assets, net
    
    
    
    
    
    
    595
    
    
    
    109
    
    
    
    
    
    
    
    704Total operating income (loss)
    
    
    (42
    )
    
    
    5,791
    
    
    
    11,119
    
    
    
    
    
    
    
    16,868Other income and (expense):Interest expense
    
    
    (8,517
    )
    
    
    (11,620
    )
    
    
    (60
    )
    
    
    12,693
    
    
    
    (7,504
    )Interest income
    
    
    10,519
    
    
    
    2,017
    
    
    
    6,692
    
    
    
    (19,054
    )
    
    
    174Other
    
    
    
    
    
    
    (69
    )
    
    
    1
    
    
    
    
    
    
    
    (68
    )Equity in net earnings of subsidiaries
    
    
    (802
    )
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    Total other income and (expense)
    
    
    1,200
    
    
    
    (9,672
    )
    
    
    6,633
    
    
    
    (5,559
    )
    
    
    (7,398
    )Income (loss) before income taxes
    
    
    1,158
    
    
    
    (3,881
    )
    
    
    17,752
    
    
    
    (5,559
    )
    
    
    9,470Income tax expense (benefit):Current
    
    
    (5,185
    )
    
    
    8,257
    
    
    
    3,089
    
    
    
    
    
    
    
    6,161Deferred
    
    
    1,952
    
    
    
    (2,943
    )
    
    
    (91
    )
    
    
    
    
    
    
    (1,082
    )Total income tax expense (benefit)
    
    
    (3,233
    )
    
    
    5,314
    
    
    
    2,998
    
    
    
    
    
    
    
    5,079Net income (loss)
    
    $
    4,391
    
    
    $
    (9,195
    )
    
    $
    14,754
    
    
    $
    (5,559
    )
    
    $
    4,391
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 20




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Three months ended June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    163,721
    
    
    $
    78,298
    
    
    $
    (25,289
    )
    
    $
    216,730Operating expenses
    
    
    (4
    )
    
    
    102,686
    
    
    
    61,136
    
    
    
    (25,289
    )
    
    
    138,529Depreciation and amortization
    
    
    
    
    
    
    21,025
    
    
    
    7,141
    
    
    
    
    
    
    
    28,166Total operating gross margin
    
    
    4
    
    
    
    40,010
    
    
    
    10,021
    
    
    
    
    
    
    
    50,035General and administration expense (1)
    
    
    (41
    )
    
    
    (8,412
    )
    
    
    (28
    )
    
    
    
    
    
    
    (8,481
    )Gain on disposition of assets, net
    
    
    
    
    
    
    350
    
    
    
    286
    
    
    
    
    
    
    
    636Total operating income (loss)
    
    
    (37
    )
    
    
    31,948
    
    
    
    10,279
    
    
    
    
    
    
    
    42,190Other income and (expense):Interest expense
    
    
    (8,232
    )
    
    
    (11,792
    )
    
    
    (66
    )
    
    
    13,045
    
    
    
    (7,045
    )Interest income
    
    
    10,572
    
    
    
    1,885
    
    
    
    958
    
    
    
    (13,045
    )
    
    
    370Other
    
    
    2
    
    
    
    (4
    )
    
    
    146
    
    
    
    
    
    
    
    144Equity in net earnings of subsidiaries
    
    
    15,164
    
    
    
    
    
    
    
    
    
    
    
    (15,164
    )
    
    
    Total other income and (expense)
    
    
    17,506
    
    
    
    (9,911
    )
    
    
    1,038
    
    
    
    (15,164
    )
    
    
    (6,531
    )Income (loss) before income taxes
    
    
    17,469
    
    
    
    22,037
    
    
    
    11,317
    
    
    
    (15,164
    )
    
    
    35,659Income tax (benefit) expense:Current
    
    
    (4,697
    )
    
    
    10,182
    
    
    
    4,003
    
    
    
    
    
    
    
    9,488Deferred
    
    
    269
    
    
    
    3,826
    
    
    
    179
    
    
    
    
    
    
    
    4,274Total income tax (benefit) expense
    
    
    (4,428
    )
    
    
    14,008
    
    
    
    4,182
    
    
    
    
    
    
    
    13,762Net income (loss)
    
    $
    21,897
    
    
    $
    8,029
    
    
    $
    7,135
    
    
    $
    (15,164
    )
    
    $
    21,897
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 21




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Six months ended June 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    293,116
    
    
    $
    150,971
    
    
    $
    (48,371
    )
    
    $
    395,716Operating expenses
    
    
    
    
    
    
    220,451
    
    
    
    114,645
    
    
    
    (48,371
    )
    
    
    286,725Depreciation and amortization
    
    
    
    
    
    
    41,010
    
    
    
    15,065
    
    
    
    
    
    
    
    56,075Total operating gross margin
    
    
    
    
    
    
    31,655
    
    
    
    21,261
    
    
    
    
    
    
    
    52,916General and administration expense (1)
    
    
    (83
    )
    
    
    (24,069
    )
    
    
    (34
    )
    
    
    
    
    
    
    (24,186
    )Gain on disposition of assets, net
    
    
    
    
    
    
    608
    
    
    
    174
    
    
    
    
    
    
    
    782Total operating income (loss)
    
    
    (83
    )
    
    
    8,194
    
    
    
    21,401
    
    
    
    
    
    
    
    29,512Other income and (expense):Interest expense
    
    
    (17,399
    )
    
    
    (23,395
    )
    
    
    (163
    )
    
    
    25,387
    
    
    
    (15,570
    )Interest income
    
    
    21,224
    
    
    
    3,674
    
    
    
    7,310
    
    
    
    (31,748
    )
    
    
    460Other
    
    
    (3
    )
    
    
    (90
    )
    
    
    13
    
    
    
    
    
    
    
    (80
    )Equity in net earnings of subsidiaries
    
    
    (9,073
    )
    
    
    
    
    
    
    
    
    
    
    9,073
    
    
    
    Total other income and (expense)
    
    
    (5,251
    )
    
    
    (19,811
    )
    
    
    7,160
    
    
    
    2,712
    
    
    
    (15,190
    )Income (loss) before income taxes
    
    
    (5,334
    )
    
    
    (11,617
    )
    
    
    28,561
    
    
    
    2,712
    
    
    
    14,322Income tax expense (benefit):Current
    
    
    (5,689
    )
    
    
    11,418
    
    
    
    7,170
    
    
    
    
    
    
    
    12,899Deferred
    
    
    (6,142
    )
    
    
    1,108
    
    
    
    (40
    )
    
    
    
    
    
    
    (5,074
    )Total income tax expense (benefit)
    
    
    (11,831
    )
    
    
    12,526
    
    
    
    7,130
    
    
    
    
    
    
    
    7,825Net income (loss)
    
    $
    6,497
    
    
    $
    (24,143
    )
    
    $
    21,431
    
    
    $
    2,712
    
    
    $
    6,497
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 22




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
 Six months ended June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedTotal revenues
    
    $
    
    
    
    $
    292,403
    
    
    $
    144,203
    
    
    $
    (46,598
    )
    
    $
    390,008Operating expenses
    
    
    (3
    )
    
    
    177,049
    
    
    
    113,703
    
    
    
    (46,598
    )
    
    
    244,151Depreciation and amortization
    
    
    
    
    
    
    41,538
    
    
    
    12,794
    
    
    
    
    
    
    
    54,332Total operating gross margin
    
    
    3
    
    
    
    73,816
    
    
    
    17,706
    
    
    
    
    
    
    
    91,525General and administration expense (1)
    
    
    (121
    )
    
    
    (14,996
    )
    
    
    (32
    )
    
    
    
    
    
    
    (15,149
    )Gain on disposition of assets, net
    
    
    
    
    
    
    932
    
    
    
    283
    
    
    
    
    
    
    
    1,215Total operating income (loss)
    
    
    (118
    )
    
    
    59,752
    
    
    
    17,957
    
    
    
    
    
    
    
    77,591Other income and (expense):Interest expense
    
    
    (16,253
    )
    
    
    (23,578
    )
    
    
    (146
    )
    
    
    26,095
    
    
    
    (13,882
    )Changes in fair value of derivative positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    21,261
    
    
    
    3,810
    
    
    
    1,762
    
    
    
    (26,095
    )
    
    
    738Equity in loss of unconsolidated joint
venture, net of taxes
    
    
    
    
    
    
    (1,105
    )
    
    
    
    
    
    
    
    
    
    
    (1,105
    )Other
    
    
    2
    
    
    
    6
    
    
    
    196
    
    
    
    
    
    
    
    204Equity in net earnings of subsidiaries
    
    
    47,387
    
    
    
    
    
    
    
    
    
    
    
    (47,387
    )
    
    
    Total other income and (expense)
    
    
    52,397
    
    
    
    (20,867
    )
    
    
    1,812
    
    
    
    (47,387
    )
    
    
    (14,045
    )Income (loss) before income taxes
    
    
    52,279
    
    
    
    38,885
    
    
    
    19,769
    
    
    
    (47,387
    )
    
    
    63,546Income tax (benefit) expense:Current
    
    
    (7,265
    )
    
    
    (1,009
    )
    
    
    7,119
    
    
    
    
    
    
    
    (1,155
    )Deferred
    
    
    14,445
    
    
    
    4,664
    
    
    
    493
    
    
    
    
    
    
    
    19,602Total income tax expense
    
    
    7,180
    
    
    
    3,655
    
    
    
    7,612
    
    
    
    
    
    
    
    18,447Net income (loss)
    
    $
    45,099
    
    
    $
    35,230
    
    
    $
    12,157
    
    
    $
    (47,387
    )
    
    $
    45,099
 
 (1)
    
    All field operations general and administration expenses are included in operating expenses. 23




---



##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six months ending June 30, 2009Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    6,497
    
    
    $
    (24,143
    )
    
    $
    21,431
    
    
    $
    2,712
    
    
    $
    6,497Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    41,010
    
    
    
    15,065
    
    
    
    
    
    
    
    56,075Gain on disposition of assets
    
    
    
    
    
    
    (608
    )
    
    
    (174
    )
    
    
    
    
    
    
    (782
    )Deferred tax expense (benefit)
    
    
    (6,142
    )
    
    
    1,108
    
    
    
    (40
    )
    
    
    
    
    
    
    (5,074
    )Expenses not requiring cash
    
    
    5,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,947Equity in net earnings of subsidiaries
    
    
    9,073
    
    
    
    
    
    
    
    
    
    
    
    (9,073
    )
    
    
    Change in accounts receivable
    
    
    32,634
    
    
    
    (43,679
    )
    
    
    10,236
    
    
    
    
    
    
    
    (809
    )Change in other assets
    
    
    3,703
    
    
    
    12,566
    
    
    
    (18,516
    )
    
    
    
    
    
    
    (2,247
    )Change in liabilities
    
    
    1,717
    
    
    
    (17,698
    )
    
    
    (10,601
    )
    
    
    
    
    
    
    (26,582
    )Net cash provided by (used in) operating activities
    
    
    53,429
    
    
    
    (31,444
    )
    
    
    17,401
    
    
    
    (6,361
    )
    
    
    33,025Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (84,460
    )
    
    
    (9,518
    )
    
    
    
    
    
    
    (93,978
    )Proceeds from the sale of assets
    
    
    
    
    
    
    636
    
    
    
    314
    
    
    
    
    
    
    
    950Intercompany dividend payments
    
    
    
    
    
    
    
    
    
    
    (6,361
    )
    
    
    6,361
    
    
    
    Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (83,824
    )
    
    
    (15,565
    )
    
    
    6,361
    
    
    
    (93,028
    )Cash flows from financing activities:Proceeds from draw on revolver credit facility
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Paydown on revolver credit facility
    
    
    (20,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )Proceeds from stock options exercised
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101Excess tax cost from stock-based compensation
    
    
    (1,813
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,813
    )Intercompany advances, net
    
    
    (120,047
    )
    
    
    110,479
    
    
    
    9,568
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (137,759
    )
    
    
    110,479
    
    
    
    9,568
    
    
    
    
    
    
    
    (17,712
    )Net increase (decrease) in cash and cash equivalents
    
    
    (84,330
    )
    
    
    (4,789
    )
    
    
    11,404
    
    
    
    
    
    
    
    (77,715
    )Cash and cash equivalents at beginning of year
    
    
    111,324
    
    
    
    9,741
    
    
    
    51,233
    
    
    
    
    
    
    
    172,298Cash and cash equivalents at end of period
    
    $
    26,994
    
    
    $
    4,951
    
    
    $
    62,638
    
    
    $
    
    
    
    $
    94,583
 24




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##### Table of Contents



PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six months ending June 30, 2008Parent
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    45,099
    
    
    $
    35,230
    
    
    $
    12,157
    
    
    $
    (47,387
    )
    
    $
    45,099Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    41,538
    
    
    
    12,794
    
    
    
    
    
    
    
    54,332Gain on disposition of assets
    
    
    
    
    
    
    (932
    )
    
    
    (283
    )
    
    
    
    
    
    
    (1,215
    )Equity in loss of unconsolidated joint venture
    
    
    
    
    
    
    1,105
    
    
    
    
    
    
    
    
    
    
    
    1,105Deferred income tax expense
    
    
    14,445
    
    
    
    4,664
    
    
    
    493
    
    
    
    
    
    
    
    19,602Expenses not requiring cash
    
    
    5,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,929Equity in net earnings of subsidiaries
    
    
    (47,387
    )
    
    
    
    
    
    
    
    
    
    
    47,387
    
    
    
    Change in accounts receivable
    
    
    8,853
    
    
    
    27,542
    
    
    
    (46,772
    )
    
    
    
    
    
    
    (10,377
    )Change in other assets
    
    
    (6,762
    )
    
    
    (7,329
    )
    
    
    9,698
    
    
    
    
    
    
    
    (4,393
    )Change in liabilities
    
    
    (538
    )
    
    
    (57,855
    )
    
    
    27,688
    
    
    
    
    
    
    
    (30,705
    )Net cash provided by operating activities
    
    
    19,639
    
    
    
    43,963
    
    
    
    15,775
    
    
    
    
    
    
    
    79,377Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (72,080
    )
    
    
    (17,451
    )
    
    
    
    
    
    
    (89,531
    )Proceeds from the sale of assets
    
    
    
    
    
    
    2,487
    
    
    
    (0
    )
    
    
    
    
    
    
    2,487Proceeds from insurance claims
    
    
    
    
    
    
    
    
    
    
    951
    
    
    
    
    
    
    
    951Investment in unconslidated joint venture
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Net cash used in investing activities
    
    
    
    
    
    
    (74,593
    )
    
    
    (16,500
    )
    
    
    
    
    
    
    (91,093
    )Cash flows from financing activities:Proceeds from draw on term note facility
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000Paydown on revolver credit facility
    
    
    (35,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,000
    )Proceeds from draw on revolver credit facility
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Proceeds from stock options exercised
    
    
    1,861
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,861Excess tax benefit from stock based compensation
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380Intercompany advances, net
    
    
    (47,604
    )
    
    
    29,315
    
    
    
    18,289
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (30,363
    )
    
    
    29,315
    
    
    
    18,289
    
    
    
    
    
    
    
    17,241Net increase (decrease) in cash and cash equivalents
    
    
    (10,724
    )
    
    
    (1,315
    )
    
    
    17,564
    
    
    
    
    
    
    
    5,525Cash and cash equivalents at beginning of year
    
    
    31,326
    
    
    
    8,314
    
    
    
    20,484
    
    
    
    
    
    
    
    60,124Cash and cash equivalents at end of period
    
    $
    20,602
    
    
    $
    6,999
    
    
    $
    38,048
    
    
    $
    
    
    
    $
    65,649
 25




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    stability of prices and demand for oil and natural gas;
    
    levels of oil and natural gas exploration and production activities;
    
    demand for contract drilling and drilling related services and demand for rental tools;
    
    our future operating results and profitability;
    
    our future rig utilization, dayrates and rental tools activity;
    
    entering into new, or extending existing, drilling contracts and our expectations
concerning when our rigs will commence operations under such contracts;
    
    growth through acquisitions of companies or assets;
    
    construction or upgrades of rigs and expectations regarding when these rigs will
commence operations;
    
    capital expenditures for acquisition of rigs, construction of new rigs or major
upgrades to existing rigs;
    
    entering into joint venture agreements;
    
    our future liquidity;
    
    availability and sources of funds to reduce our debt and expectations of when debt will
be reduced;
    
    the outcome of pending or future legal proceedings, tax assessments and other claims;
    
    the availability of insurance coverage for pending or future claims;
    
    the enforceability of contractual indemnification in relation to pending or future
claims;
    
    compliance with covenants under our senior credit facility and indentures for our
senior notes; and
    
    organic growth of our operations.
  
    
    worldwide economic and business conditions that adversely affect market conditions
and/or the cost of doing business;
    
    inability of the Company to access the credit markets;
    
    the U.S. economy and the demand for natural gas;
    
    worldwide demand for oil;
    
    fluctuations in the market prices of oil and natural gas;
    
    imposition of unanticipated trade restrictions;
    
    unanticipated operating hazards and uninsured risks;
    
    political instability, terrorism or war;
    
    governmental regulations, including changes in accounting rules or tax laws or ability
to remit funds to the U.S., that adversely affect the cost of doing business;
    
    changes in the tax laws that would allow double taxation on foreign sourced income;
    
    the outcome of our investigation and the parallel investigations by the Securities and
Exchange Commission and the Department of Justice into possible violations of U.S. law,
including the Foreign Corrupt Practices Act;
    
    adverse environmental events;
 26




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##### Table of Contents



DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS (continued)
 
    
    adverse weather conditions;
    
    global health concerns;
    
    changes in the concentration of customer and supplier relationships;
    
    ability of our customers and suppliers to obtain financing for their operations;
    
    unexpected cost increases for new construction and upgrade and refurbishment projects;
    
    delays in obtaining components for capital projects and ongoing operational
maintenance;
    
    shortages of skilled labor;
    
    unanticipated cancellation of contracts by operators;
    
    breakdown of equipment;
    
    other operational problems including delays in start-up of operations;
    
    changes in competition;
    
    the effect of litigation and contingencies; and
    
    other similar factors (some of which are discussed in documents referred to in this
Form 10-Q, including the risk factors described in our 2008 Annual Report on Form 10-K and
our other reports and filings with the Securities and Exchange Commission).
  OVERVIEW AND OUTLOOK
 Summary
   Overview
  27




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##### Table of Contents



OVERVIEW AND OUTLOOK (continued)
 Overview (continued)
  Outlook
      28




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008
    Three Months Ended June 30,2009
    
    
    2008(Dollars in Thousands)Revenues:International Drilling
    
    $
    79,279
    
    
    
    36
    %
    
    $
    77,919
    
    
    
    36
    %U.S. Drilling
    
    
    12,889
    
    
    
    6
    %
    
    
    49,368
    
    
    
    23
    %Project Management and Engineering Services
    
    
    23,891
    
    
    
    11
    %
    
    
    28,951
    
    
    
    13
    %Construction Contract
    
    
    77,572
    
    
    
    35
    %
    
    
    20,080
    
    
    
    9
    %Rental Tools
    
    
    28,160
    
    
    
    12
    %
    
    
    40,412
    
    
    
    19
    %Total revenues
    
    $
    221,791
    
    
    
    100
    %
    
    $
    216,730
    
    
    
    100
    %Operating gross margin:International Drilling gross margin excluding depreciation and
amortization (1)
    
    $
    30,392
    
    
    
    38
    %
    
    $
    21,307
    
    
    
    27
    %U.S. Drilling gross margin excluding depreciation and amortization (1)
    
    
    1,261
    
    
    
    10
    %
    
    
    27,238
    
    
    
    55
    %Project Management and Engineering Services gross margin
excluding depreciation and amortization (1)
    
    
    5,608
    
    
    
    23
    %
    
    
    4,244
    
    
    
    15
    %Construction Contract excluding depreciation and amortization (1)
    
    
    3,572
    
    
    
    5
    %
    
    
    1,030
    
    
    
    5
    %Rental Tools gross margin excluding depreciation and amortization (1)
    
    
    15,408
    
    
    
    55
    %
    
    
    24,382
    
    
    
    60
    %Depreciation and amortization
    
    
    (28,951
    )
    
    
    
    
    
    
    (28,166
    )Total operating gross margin (2)
    
    
    27,290
    
    
    
    
    
    
    
    50,035General and administration expense
    
    
    (11,126
    )
    
    
    
    
    
    
    (8,481
    )Gain on disposition of assets, net
    
    
    704
    
    
    
    
    
    
    
    636Total operating income
    
    $
    16,868
    
    
    
    
    
    
    $
    42,190
 
 (1)
    
    Gross margins, excluding depreciation and amortization, are computed as revenues
less direct operating expenses, excluding depreciation and amortization expense; gross margin
percentages are computed as gross margin, excluding depreciation and amortization, as a
percent of revenues. The gross margin amounts, excluding depreciation and amortization, and
gross margin percentages should not be used as a substitute for those amounts reported under
accounting principles generally accepted in the United States (GAAP). However, we monitor
our business segments based on several criteria, including gross margin. Management believes
that this information is useful to our investors because it more accurately reflects cash
generated by segment. Such gross margin amounts are reconciled to our most comparable GAAP
measure as follows: ProjectManagementandInternational
    
    
    
    
    
    
    Engineering
    
    
    ConstructionDrilling
    
    
    U.S. Drilling
    
    
    Services
    
    
    Contract
    
    
    Rental Tools(Dollars in Thousands)Three Months Ended June 30, 2009Operating gross margin (2)
    
    $
    17,163
    
    
    $
    (5,781
    )
    
    $
    5,608
    
    
    $
    3,572
    
    
    $
    6,728Depreciation and amortization
    
    
    13,229
    
    
    
    7,042
    
    
    
    
    
    
    
    
    
    
    
    8,680Drilling and rental gross
margin excluding depreciation
and amortization
    
    $
    30,392
    
    
    $
    1,261
    
    
    $
    5,608
    
    
    $
    3,572
    
    
    $
    15,408Three Months Ended June 30, 2008Operating gross margin (2)
    
    $
    9,029
    
    
    $
    18,636
    
    
    $
    4,244
    
    
    $
    1,030
    
    
    $
    17,096Depreciation and amortization
    
    
    12,278
    
    
    
    8,602
    
    
    
    
    
    
    
    
    
    
    
    7,286Drilling and rental gross
margin excluding depreciation
and amortization
    
    $
    21,307
    
    
    $
    27,238
    
    
    $
    4,244
    
    
    $
    1,030
    
    
    $
    24,382
 
 (2)
    
    Gross margin (operating)  revenues less direct operating expenses, including
depreciation and amortization expense. 29




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 International Drilling Segment
    U.S. Drilling Segment
   Project Management and Engineering Services Segment
  Construction Contract Segment
  Rental Tools Segment
  30




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Other Financial Data
    Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008
   31




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
  Six Months Ended June 30,2009
    
    
    2008(Dollars in Thousands)Revenues:International Drilling
    
    $
    156,660
    
    
    
    40
    %
    
    $
    146,659
    
    
    
    38
    %U.S. Drilling
    
    
    22,745
    
    
    
    6
    %
    
    
    95,256
    
    
    
    25
    %Project Management and Engineering Services
    
    
    55,945
    
    
    
    14
    %
    
    
    48,130
    
    
    
    12
    %Construction Contract
    
    
    94,317
    
    
    
    24
    %
    
    
    20,080
    
    
    
    5
    %Rental Tools
    
    
    66,049
    
    
    
    16
    %
    
    
    79,883
    
    
    
    20
    %Total revenues
    
    $
    395,716
    
    
    
    100
    %
    
    $
    390,008
    
    
    
    100
    %Operating gross margin:International Drilling gross margin excluding depreciation and
amortization (1)
    
    $
    57,996
    
    
    
    37
    %
    
    $
    37,426
    
    
    
    26
    %U.S. Drilling gross margin excluding depreciation and amortization (1)
    
    
    (2,019
    )
    
    
    -9
    %
    
    
    51,604
    
    
    
    54
    %Project Management and Engineering Services gross margin
excluding depreciation and amortization (1)
    
    
    11,768
    
    
    
    21
    %
    
    
    7,762
    
    
    
    16
    %Construction Contract excluding depreciation and amortization (1)
    
    
    4,403
    
    
    
    5
    %
    
    
    1,030
    
    
    
    5
    %Rental Tools gross margin excluding depreciation and amortization (1)
    
    
    36,843
    
    
    
    56
    %
    
    
    48,035
    
    
    
    60
    %Depreciation and amortization
    
    
    (56,075
    )
    
    
    
    
    
    
    (54,332
    )Total operating gross margin (2)
    
    
    52,916
    
    
    
    
    
    
    
    91,525General and administration expense
    
    
    (24,186
    )
    
    
    
    
    
    
    (15,149
    )Gain on disposition of assets, net
    
    
    782
    
    
    
    
    
    
    
    1,215Total operating income
    
    $
    29,512
    
    
    
    
    
    
    $
    77,591
 
 (1)
    
    Gross margins, excluding depreciation and amortization, are computed as revenues
less direct operating expenses, excluding depreciation and amortization expense; gross margin
percentages are computed as gross margin, excluding depreciation and amortization, as a
percent of revenues. The gross margin amounts, excluding depreciation and amortization, and
gross margin percentages should not be used as a substitute for those amounts reported under
accounting principles generally accepted in the United States (GAAP). However, we monitor
our business segments based on several criteria, including gross margin. Management believes
that this information is useful to our investors because it more accurately reflects cash
generated by segment. Such gross margin amounts are reconciled to our most comparable GAAP
measure as follows: ProjectManagementandInternational
    
    
    
    
    
    
    Engineering
    
    
    ConstructionDrilling
    
    
    U.S. Drilling
    
    
    Services
    
    
    Contract
    
    
    Rental Tools(Dollars in Thousands)Six Months Ended June 30, 2009Operating gross margin (2)
    
    $
    33,075
    
    
    $
    (16,239
    )
    
    $
    11,768
    
    
    $
    4,403
    
    
    $
    19,909Depreciation and amortization
    
    
    24,921
    
    
    
    14,220
    
    
    
    
    
    
    
    
    
    
    
    16,934Drilling and rental gross
margin excluding depreciation
and amortization
    
    $
    57,996
    
    
    $
    (2,019
    )
    
    $
    11,768
    
    
    $
    4,403
    
    
    $
    36,843Six Months Ended June 30, 2008Operating gross margin (2)
    
    $
    14,788
    
    
    $
    34,309
    
    
    $
    7,762
    
    
    $
    1,030
    
    
    $
    33,636Depreciation and amortization
    
    
    22,638
    
    
    
    17,295
    
    
    
    
    
    
    
    
    
    
    
    14,399Drilling and rental gross
margin excluding depreciation
and amortization
    
    $
    37,426
    
    
    $
    51,604
    
    
    $
    7,762
    
    
    $
    1,030
    
    
    $
    48,035
 
 (2)
    
    Gross margin (operating)  revenues less direct operating expenses, including
depreciation and amortization expense. 32




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##### Table of Contents



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




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##### Table of Contents



RESULTS OF OPERATIONS (continued)
 Other Financial Data (continued)
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   Financing Activity
   34




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (continued)
 Financing Activity (continued)
    
    
    $125.0 million aggregate principal amount of Convertible Senior Notes at a coupon rate
of 2.125 percent, which are due July 15, 2012 net of $17.2 million in unamortized debt
discount;
    
    $225.0 million aggregate principal amount of 9.625 percent Senior Notes, which are due
October 1, 2013 plus an associated $2.8 million in unamortized debt premium; and
    
    $92.0 million drawn against our 2008 Credit Facility, including $42.0 million on our
Revolving Credit Facility and $50.0 million on our Term Loan Facility, $12.0 million of
which is classified as short term.
  35




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (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)
    
    $
    400,000
    
    
    $
    12,000
    
    
    $
    21,000
    
    
    $
    367,000
    
    
    $
    Long-term debt  interest (1)
    
    
    109,008
    
    
    
    27,215
    
    
    
    53,150
    
    
    
    28,643
    
    
    
    Operating leases (2)
    
    
    26,833
    
    
    
    5,042
    
    
    
    5,419
    
    
    
    3,955
    
    
    
    12,417Purchase commitments (3)
    
    
    61,552
    
    
    
    61,552
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    597,393
    
    
    $
    105,809
    
    
    $
    79,569
    
    
    $
    399,598
    
    
    $
    12,417Commercial commitments:Long-term debt Revolving credit facility (4)
    
    $
    42,000
    
    
    $
    
    
    
    $
    
    
    
    $
    42,000
    
    
    $
    Standby letters of credit (4)
    
    
    17,734
    
    
    
    17,734
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    59,734
    
    
    $
    17,734
    
    
    $
    
    
    
    $
    42,000
    
    
    $
    
 
 (1)
    
    Long-term debt includes the principal and interest cash obligations of the 9.625
percent Senior Notes and the 2.125 percent Convertible Senior Notes as well as $50.0 million
of term loans drawn on our Credit Facility. The remaining unamortized
premium of $2.8 million
on the 9.625 percent Senior Notes and unamortized discount of $17.2 million on the 2.125%
Convertible Senior Notes are not included in the contractual cash obligations schedule.(2)
    
    Operating leases consist of lease agreements in excess of one year for office space,
equipment, vehicles and personal property.(3)
    
    We have purchase commitments outstanding as of June 30, 2009, related to rig upgrade
projects and new rig construction.(4)
    
    We have a $130.0 million credit agreement of which $80.0 million is a revolving
credit facility. As of June 30, 2009, we had drawn down $42.0 million under the revolving
credit facility and $17.7 million of availability has been used to support letters of credit
that have been issued. The revolving credit facility expires May 14, 2013. 
 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 
 36




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
 Total Number of
    
    Average PriceDate
    
    Shares Purchased
    
    Paid Per ShareApril 1, 2009
    
    23,917
    
    $1.88April 6, 2009
    
    41,720
    
    $2.01May 27, 2009
    
    36,361
    
    $4.27
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description31.1
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 37




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##### Table of Contents



SIGNATURES
  PARKER DRILLING COMPANYDate: August 7, 2009
    By:
    /s/ Robert L. Parker Jr.Robert L. Parker Jr.Chairman and Chief Executive OfficerBy:
    /s/ W. Kirk BrassfieldW. Kirk BrassfieldSenior Vice President and Chief Financial Officer 38




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Section 302 Certification  Chairman and Chief Executive Officer31.2
    
    Section 302 Certification  Senior Vice President and Chief Financial Officer32.1
    
    Section 906 Certification  Chairman and Chief Executive Officer32.2
    
    Section 906 Certification  Senior Vice President and Chief Financial Officer
 39