PARKER DRILLING CO /DE/ - Quarter Report: 2009 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended JUNE 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

PARKER DRILLING COMPANY

Delaware		73-0618660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5 Greenway Plaza, Suite 100, Houston, Texas 77046
(Address of principal executive offices) (Zip code)

(281) 406-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 31, 2009, 116,031,412 common shares were outstanding.

 

 

TABLE OF CONTENTS

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

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)
ASSETS
Current assets:
Cash and cash equivalents		$	94,583			$	172,298
Accounts and notes receivable, net			189,228				186,164
Rig materials and supplies			28,551				30,241
Deferred costs			6,472				7,804
Deferred income taxes			9,735				9,735
Other tax assets			32,957				40,924
Other current assets			38,577				26,125
Total current assets			400,103				473,291
Property, plant and equipment less accumulated depreciation of $763,155 at June 30, 2009 and $712,688 at December 31, 2008			710,843				675,548
Deferred income taxes			27,991				22,956
Other noncurrent assets			33,765				33,925
Total assets		$	1,172,702			$	1,205,720
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	6,000
Accounts payable and accrued liabilities			116,106				140,398
Accrued income taxes			10,614				12,130
Total current liabilities			138,720				158,528
Long-term debt			415,558				435,394
Other long-term liabilities			18,853				21,396
Long-term deferred tax liability			8,192				8,230
Contingencies (Note 10)			—				—
Stockholders’ equity:
Noncontolling interest			—				—
Common stock			19,347				18,910
Capital in excess of par value			621,834				619,561
Accumulated deficit			(49,802	)			(56,299	)
Total stockholders’ equity			591,379				582,172
Total liabilities and stockholders’ equity		$	1,172,702			$	1,205,720

See accompanying notes to the unaudited consolidated condensed financial statements.

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				2008
Revenues:
International Drilling		$	79,279			$	77,919			$	156,660			$	146,659
U.S. Drilling			12,889				49,368				22,745				95,256
Project Management and Engineering Services			23,891				28,951				55,945				48,130
Construction Contract			77,572				20,080				94,317				20,080
Rental Tools			28,160				40,412				66,049				79,883
Total revenues			221,791				216,730				395,716				390,008
Operating expenses:
International Drilling			48,887				56,612				98,664				109,233
U.S. Drilling			11,628				22,130				24,764				43,652
Project Management and Engineering Services			18,283				24,707				44,177				40,368
Construction Contract			74,000				19,050				89,914				19,050
Rental Tools			12,752				16,030				29,206				31,848
Depreciation and amortization			28,951				28,166				56,075				54,332
Total operating expenses			194,501				166,695				342,800				298,483
Total operating gross margin			27,290				50,035				52,916				91,525
General 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				1,215
Total operating income			16,868				42,190				29,512				77,591
Other income and (expense):
Interest expense			(7,504	)			(7,045	)			(15,570	)			(13,882	)
Interest income			174				370				460				738
Equity in loss of unconsolidated joint venture and related charges, net of tax			—				—				—				(1,105	)
Other			(68	)			144				(80	)			204
Total other income and (expense)			(7,398	)			(6,531	)			(15,190	)			(14,045	)
Income before income taxes			9,470				35,659				14,322				63,546
Income tax (benefit) expense:
Current			6,161				9,488				12,899				(1,155	)
Deferred			(1,082	)			4,274				(5,074	)			19,602
Total income tax expense			5,079				13,762				7,825				18,447
Net income			4,391				21,897				6,497				45,099
Net income attributable to noncontrolling interest			—				—				—				—
Net income attributable to Parker Drilling		$	4,391			$	21,897			$	6,497			$	45,099
Basic earnings per share:
Net income		$	0.04			$	0.20			$	0.06			$	0.41
Diluted earnings per share:
Net income		$	0.04			$	0.19			$	0.06			$	0.40
Number of common shares used in computing earnings per share
Basic			113,180,858				111,422,969				112,723,230				110,984,640
Diluted			114,757,123				112,495,655				114,107,675				112,023,524

See accompanying notes to the unaudited consolidated condensed financial statements.

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

		Six Months Ended June 30,
		2009				2008
Cash flows from operating activities:
Net income		$	6,497			$	45,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			56,075				54,332
Gain on disposition of assets			(782	)			(1,215	)
Equity loss in unconsolidated joint venture and related charges, net of tax			—				1,105
Deferred income tax expense			(5,074	)			19,602
Expenses not requiring cash			5,947				5,929
Change 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				79,377
Cash flows from investing activities:
Capital expenditures			(93,978	)			(89,531	)
Proceeds from the sale of assets			950				2,487
Proceeds from insurance settlements			—				951
Investment 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			—				35,000
Proceeds from draw on revolver credit facility			4,000				15,000
Paydown on revolver credit facility			(20,000	)			(35,000	)
Proceeds from stock options exercised			101				1,861
Excess tax cost from stock based compensation			(1,813	)			380
Net cash provided (used) by financing activities			(17,712	)			17,241
Net decrease in cash and cash equivalents			(77,715	)			5,525
Cash and cash equivalents at beginning of year			172,298				60,124
Cash and cash equivalents at end of period		$	94,583			$	65,649
Supplemental cash flow information:
Interest paid		$	15,038			$	13,917
Income taxes paid		$	13,295			$	24,489

See accompanying notes to the unaudited consolidated condensed financial statements.

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.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

1.		General (continued)
		Balance Sheet

										Restated
(In thousands)		December 31, 2008				Adjustments				December 31, 2008
ASSETS
Deferred income taxes			30,867				(7,911	)			22,956
Total assets		$	1,213,631							$	1,205,720
LIABILITIES AND STOCKHOLDERS’ EQUITY
Long-term debt			455,073				(19,679	)			435,394
Capital in excess of par			603,731				15,830				619,561
Accumulated deficit			(52,237	)			(4,062	)			(56,299	)
Total liabilities and stockholders’ equity		$	1,213,631							$	1,205,720

Statement of Operations

										Restated
		Three months ended								Three months ended
(In thousands)		June 30, 2008				Adjustments				June 30, 2008
Other income and (expense):
Interest expense			(5,876	)			(1,169	)			(7,045	)
Income tax (benefit) expense:
Deferred			4,744				(470	)			4,274
Net income		$	22,596							$	21,897

										Restated
		Six months ended								Six months ended
		June 30, 2008				Adjustments				June 30, 2008
Other income and (expense):
Interest expense			(11,566	)			(2,316	)			(13,882	)
Income tax (benefit) expense:
Deferred			20,533				(931	)			19,602
Net income		$	46,484							$	45,099

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.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

2.

Earnings Per Share (“EPS”)

		Three Months Ended June 30, 2009
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	4,391,000				113,180,858			$	0.04
Effect 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, 2009
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	6,497,000				112,723,230			$	0.06
Effect 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, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	21,897,000				111,422,969			$	0.20
Effect 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, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	45,099,000				110,984,640			$	0.41
Effect 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

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.

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			$	146,659
U.S. Drilling			12,889				49,368				22,745				95,256
Project Management and Engineering Services			23,891				28,951				55,945				48,130
Construction Contract			77,572				20,080				94,317				20,080
Rental Tools			28,160				40,412				66,049				79,883
Total revenues		$	221,791			$	216,730			$	395,716			$	390,008
Operating gross margin:
International Drilling		$	17,163			$	9,029			$	33,075			$	14,788
U.S. Drilling			(5,781	)			18,636				(16,239	)			34,309
Project Management and Engineering Services			5,608				4,244				11,768				7,762
Construction Contract			3,572				1,030				4,403				1,030
Rental Tools			6,728				17,096				19,909				33,636
Total operating gross margin			27,290				50,035				52,916				91,525
General and administration expense			(11,126	)			(8,481	)			(24,186	)			(15,149	)
Gain on disposition of assets, net			704				636				782				1,215
Total operating income			16,868				42,190				29,512				77,591
Interest 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.

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.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

9.

Long-Term Debt

		June 30,				December 31
		2009				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			$	105,321
Senior 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				228,073
Term Note with amortization beginning September 30, 2009 at equal installments of $3.0 million per quarter.			50,000				50,000
Revolving Credit Facility with interest at prime, plus an applicable margin or LIBOR, plus an applicable margin.			42,000				58,000
Total debt			427,558				441,394
Less current portion			12,000				6,000
Total long-term debt		$	415,558			$	435,394

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” (see Note 1).

On May 15, 2008 we entered into a new Credit Agreement (“2008 Credit Facility”) with a five year senior secured $80.0 million revolving credit facility (“Revolving Credit Facility) and a senior secured term loan facility (“Term Loan Facility”) of up to $50.0 million. The obligations of the Company under the 2008 Credit Facility are guaranteed by substantially all of the Company’s domestic subsidiaries, except for domestic subsidiaries owned by foreign subsidiaries and certain immaterial subsidiaries, each of which has executed a guaranty. The 2008 Credit Facility contains customary affirmative and negative covenants such as minimum ratios for consolidated leverage, consolidated interest coverage and consolidated senior secured leverage.

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.		Contingencies
		Bangladesh Claim
		In 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 Claims
		In 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.

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 Site
		Several 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.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

10.		Contingencies (continued)
		Foreign Corrupt Practices Act (“FCPA”) Investigation
		As 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 Compliance
		Our 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).

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.

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

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

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

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

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

		Three months ended June 30, 2009
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Total revenues		$	—			$	170,794			$	70,742			$	(19,745	)		$	221,791
Operating expenses			—				133,568				51,727				(19,745	)			165,550
Depreciation and amortization			—				20,956				7,995				—				28,951
Total operating gross margin			—				16,270				11,020				—				27,290
General and administration expense (1)			(42	)			(11,074	)			(10	)			—				(11,126	)
Gain on disposition of assets, net			—				595				109				—				704
Total operating income (loss)			(42	)			5,791				11,119				—				16,868
Other income and (expense):
Interest expense			(8,517	)			(11,620	)			(60	)			12,693				(7,504	)
Interest income			10,519				2,017				6,692				(19,054	)			174
Other			—				(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	)			9,470
Income tax expense (benefit):
Current			(5,185	)			8,257				3,089				—				6,161
Deferred			1,952				(2,943	)			(91	)			—				(1,082	)
Total income tax expense (benefit)			(3,233	)			5,314				2,998				—				5,079
Net income (loss)		$	4,391			$	(9,195	)		$	14,754			$	(5,559	)		$	4,391

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

		Three months ended June 30, 2008
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Total revenues		$	—			$	163,721			$	78,298			$	(25,289	)		$	216,730
Operating expenses			(4	)			102,686				61,136				(25,289	)			138,529
Depreciation and amortization			—				21,025				7,141				—				28,166
Total operating gross margin			4				40,010				10,021				—				50,035
General and administration expense (1)			(41	)			(8,412	)			(28	)			—				(8,481	)
Gain on disposition of assets, net			—				350				286				—				636
Total operating income (loss)			(37	)			31,948				10,279				—				42,190
Other income and (expense):
Interest expense			(8,232	)			(11,792	)			(66	)			13,045				(7,045	)
Interest income			10,572				1,885				958				(13,045	)			370
Other			2				(4	)			146				—				144
Equity 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	)			35,659
Income tax (benefit) expense:
Current			(4,697	)			10,182				4,003				—				9,488
Deferred			269				3,826				179				—				4,274
Total income tax (benefit) expense			(4,428	)			14,008				4,182				—				13,762
Net income (loss)		$	21,897			$	8,029			$	7,135			$	(15,164	)		$	21,897