Parker Drilling Company (PKD)

 

 

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

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

Commission File Number 1-7573

PARKER DRILLING COMPANY

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		73-0618660 (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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 30, 2010, 116,835,688 common shares were outstanding.

 

 

TABLE OF CONTENTS

						Page
Part I.				Financial Information			3
				Item 1. Financial Statements			3
				Consolidated Condensed Balance Sheets June 30, 2010 (Unaudited) and December 31, 2009			3
				Consolidated Condensed Statements of Operations (Unaudited) Three and Six Months Ended June 30, 2010 and 2009			4
				Consolidated Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2010 and 2009			5
				Notes to the Unaudited Consolidated Condensed Financial Statements			6
				Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
				Item 3. Quantitative and Qualitative Disclosures about Market Risk			39
				Item 4. Controls and Procedures			39
Part II.				Other Information			40
				Item 1. Legal Proceedings			40
				Item 1A. Risk Factors			40
				Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
				Item 6. Exhibits			41
				Signatures
				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

		June 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	49,770			$	108,803
Accounts and notes receivable, net			165,120				188,687
Rig materials and supplies			29,314				31,633
Deferred costs			2,965				4,531
Deferred income taxes			8,799				9,650
Other tax assets			44,695				37,818
Other current assets			66,711				62,407
Total current assets			367,374				443,529
Property, plant and equipment less accumulated depreciation and amortization of $854,800 at June 30, 2010 and $813,965 at December 31, 2009			792,354				716,798
Deferred income taxes			56,096				55,749
Other noncurrent assets			30,600				27,010
Total assets		$	1,246,424			$	1,243,086
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	12,000
Accounts payable and accrued liabilities			156,857				167,910
Accrued income taxes			4,045				9,126
Total current liabilities			172,902				189,036
Long-term debt			439,075				411,831
Other long-term liabilities			30,880				30,246
Long-term deferred tax liability			6,640				16,074
Contingencies (Note 6)			—				—
Stockholders’ equity:
Common stock			19,487				19,374
Capital in excess of par value			626,016				623,557
Accumulated deficit			(48,576	)			(47,032	)
Total stockholders’ equity			596,927				595,899
Total liabilities and stockholders’ equity		$	1,246,424			$	1,243,086

See accompanying notes to the unaudited consolidated condensed financial statements.

PARKER DRILLING COMPANY AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues:
International Drilling		$	52,932			$	79,279			$	116,807			$	156,660
U.S. Drilling			15,336				12,889				30,423				22,745
Rental Tools			41,359				28,160				75,174				66,049
Project Management and Engineering Services			26,363				23,891				50,804				55,945
Construction Contracts			20,535				77,572				40,922				94,317
Total revenues			156,525				221,791				314,130				395,716
Operating expenses:
International Drilling			39,423				48,887				86,596				98,664
U.S. Drilling			13,540				11,628				26,514				24,764
Rental Tools			14,268				12,752				26,894				29,206
Project Management and Engineering Services			21,701				18,283				41,262				44,177
Construction Contracts			20,043				74,000				41,240				89,914
Depreciation and amortization			29,012				28,951				57,600				56,075
Total operating expenses			137,987				194,501				280,106				342,800
Total operating gross margin			18,538				27,290				34,024				52,916
General and administration expense			(6,937	)			(11,126	)			(16,969	)			(24,186	)
Gain on disposition of assets, net			1,712				704				2,384				782
Total operating income			13,313				16,868				19,439				29,512
Other income and (expense):
Interest expense			(7,386	)			(7,504	)			(14,118	)			(15,570	)
Interest income			78				174				152				460
Loss on extinguishment of debt			(3,989	)			—				(7,209	)			—
Other			115				(68	)			257				(80	)
Total other income and (expense)			(11,182	)			(7,398	)			(20,918	)			(15,190	)
Income (loss) before income taxes			2,131				9,470				(1,479	)			14,322
Income tax expense (benefit):
Current			4,992				6,161				8,640				12,899
Deferred			(3,368	)			(1,082	)			(8,575	)			(5,074	)
Total income tax expense (benefit)			1,624				5,079				65				7,825
Net income (loss)		$	507			$	4,391			$	(1,544	)		$	6,497
Basic earnings (loss) per share:
Net income (loss)		$	0.00			$	0.04			$	(0.01	)		$	0.06
Diluted earnings (loss) per share:
Net income (loss)		$	0.00			$	0.04			$	(0.01	)		$	0.06
Number of common shares used in computing earnings per share
Basic			114,298,319				113,180,858				113,909,798				112,723,230
Diluted			115,428,649				114,757,123				115,350,103				114,107,675

See accompanying notes to the unaudited consolidated condensed financial statements.

PARKER DRILLING COMPANY AND SUBSIDIARIES

		Six Months Ended June 30,
		2010				2009
Cash flows from operating activities:
Net income (loss)		$	(1,544	)		$	6,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			57,600				56,075
Loss on extinguishment of debt			7,209				—
Gain on disposition of assets			(2,384	)			(782	)
Deferred income tax expense			(8,575	)			(5,074	)
Expenses not requiring cash			6,392				5,947
Change in accounts receivable			24,908				(809	)
Change in other assets			(11,407	)			(2,247	)
Change in liabilities			(18,006	)			(26,582	)
Net cash provided by operating activities			54,193				33,025
Cash flows from investing activities:
Capital expenditures			(128,973	)			(93,978	)
Proceeds from the sale of assets			2,798				950
Net cash used in investing activities			(126,175	)			(93,028	)
Cash flows from financing activities:
Proceeds from issuance of debt			300,000				—
Proceeds from draw on revolver credit facility			—				4,000
Paydown on senior notes			(225,000	)			—
Paydown on revolver credit facility			(48,000	)			(20,000	)
Payments of debt issuance costs			(7,896	)			—
Payments of debt extinguishment costs			(7,466	)			—
Proceeds from stock options exercised			26				101
Excess tax (cost) benefit from stock based compensation			1,285				(1,813	)
Net cash provided by (used in) financing activities			12,949				(17,712	)
Net decrease in cash and cash equivalents			(59,033	)			(77,715	)
Cash and cash equivalents, beginning of year			108,803				172,298
Cash and cash equivalents, end of period		$	49,770			$	94,583
Supplemental cash flow information:
Interest paid		$	13,673			$	15,038
Income taxes paid		$	12,198			$	13,295

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, 2010 and December 31, 2009, (2) the results of operations for the three and six months ended June 30, 2010 and 2009, and (3) cash flows for the six months ended June 30, 2010 and 2009. Results for the six months ended June 30, 2010 are not necessarily indicative of the results that will be realized for the year ending December 31, 2010. The financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009.
		Nature of Operations — Parker Drilling Company (Parker Drilling) and its majority-owned subsidiaries (together with Parker Drilling, the “Company”) is a worldwide provider of contract drilling and drilling-related services with extensive experience and expertise in drilling geologically difficult wells and in managing the logistical and technological challenges of operating in remote, harsh and ecologically sensitive areas. At June 30, 2010, our marketable rig fleet was comprised of 43 rigs which operate in North and South America, North Africa, Central Asia and Asia Pacific regions. Our rental tools business provides premium rental tools for land, offshore oil and gas drilling and workover activities both in the U.S. and abroad. We offer a full line of drill pipe, drill collars, tubing, high- and low-pressure blowout preventers, choke manifolds, junk and cement mills and casing scrapers. Our rental tool headquarters are in New Iberia, Louisiana with additional facilities located in Texas, North Dakota, Pennsylvania and Wyoming.
		Consolidation and presentation —The consolidated financial statements include the accounts of the Company and subsidiaries in which we exercise significant control or have a controlling financial interest, including entities, in which we are allocated a majority of the entity’s losses or returns, regardless of ownership percentage. Certain reclassifications have been made to prior period amounts to conform with the current period presentation.
		Use of Estimates — The preparation of financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP) requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the date of the financial statements, and our revenue and expenses during the periods reported. Estimates are used when accounting for certain items such as legal accruals, mobilization and deferred mobilization, revenue and cost accounting following the percentage of completion method, self-insured medical/dental plans, etc. Estimates are based on historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
		Concentrations of Credit Risk — Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of trade receivables with a variety of national and international oil and gas companies. We generally do not require collateral on our trade receivables.
		At June 30, 2010 and December 31, 2009, we had deposits in domestic banks in excess of federally insured limits of approximately $20.5 million and $68.1 million, respectively. In addition, we had deposits in foreign accounts at June 30, 2010 and December 31, 2009 of $33.4 million and $46.7 million, respectively, which are not federally insured.
		Our customer base consists of major, independent and national oil and gas companies and integrated service providers. We depend on a limited number of significant customers. Our two largest customers, BP and ExxonMobil, constituted 16.0% and 15.3%, respectively of our year-to-date revenues as of June 30, 2010. In regards to BP, $40.9 million or 13.1% of the Company’s revenues on a year-to-date basis were derived from the percentage of completion accounting revenues associated with the BP Liberty rig construction that continues to decrease as we near completion of the rig and ready the rig for customer acceptance testing.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

1.

General (continued)

		Fair Value of Financial Instruments —The estimated fair value of our $125.0 million principal amount 2.125% Convertible Senior Notes due 2012 was $110.2 million at June 30, 2010. The estimated fair value of our $300 million principal amount of 9.125% Senior Notes due 2018 was $285.0 million at June 30, 2010. For cash, accounts receivable, rig supplies and materials and accounts payable, we believe carrying value approximates estimated fair value due to the short-term nature and utilization of these assets.
		Property, Plant and Equipment — We provide for depreciation of property, plant and equipment on the straight-line method over the estimated useful lives of the assets after provision for salvage value. Depreciable lives for different categories of property, plant and equipment are as follows:

Land drilling equipment		3 to 20 years
Barge drilling equipment		3 to 20 years
Drill pipe, rental tools and other		4 to 7 years
Buildings and improvements		10 to 20 years

		When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations. Maintenance and repairs are charged to operating expense as incurred.
		Interest from external borrowings is capitalized on major projects until the assets are ready for their intended use. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets. Interest cost capitalized during the three months ended June 30, 2010 and 2009 related to the construction of rigs totaled $3.3 million and $1.3 million, respectively.
		Convertible Senior Notes, including call options and warrants —The FASB accounting guidance requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separated to account for the fair value of the debt and equity components as of the date of issuance to reflect the issuer’s non-convertible debt borrowing rate. Accordingly, a portion of the note balance of our 2.125% Convertible Senior Notes due 2012 is classified as additional paid in capital for the estimated fair value of the conversion feature at the date of issuance. In addition a discount on the convertible notes is being amortized through interest expense over the life of the convertible notes.
		Stock-Based Compensation — Total stock-based compensation expense recognized for the three and six month periods ended June 30, 2010 was $1.1 million and $2.1 million, respectively, and for the three and six month periods ended June 30, 2009 was $1.0 million and $2.8 million, respectively, all of which was related to non-vested stock. Stock-based compensation expense is included in our consolidated condensed statements of operations in both “General and administration expense” and “Operating expenses.” There were no non-vested stock options at June 30, 2010. We had 123,500 outstanding and exercisable stock options as of June 30, 2010, the aggregate intrinsic value of which was negligible, with a weighted average exercise price of $3.58 per share. Non-vested restricted stock awards at June 30, 2010 and December 31, 2009 were 2,216,379 shares and 2,745,762 shares, respectively. Total unrecognized compensation cost related to unamortized non-vested stock awards was $5.1 million as of June 30, 2010 and $2.9 million as of December 31, 2009. The remaining unrecognized compensation cost related to non-vested stock awards will be amortized over a weighted-average vesting period of approximately 18 months.
		For the six months ended June 30, 2010, the restricted stock vestings resulted in a tax benefit that was more than the deferred tax asset previously recognized. As a result, an excess tax benefit of $1.3 million was recorded to “Capital in excess of par value.”

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

2.

Earnings Per Share (EPS)

		Three Months Ended June 30, 2010
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net income		$	507,000				114,298,319			$	0.00
Effect of dilutive securities:
Stock options and non-vested stock							1,130,330			$	—
Diluted EPS:
Net income		$	507,000				115,428,649			$	0.00
		Six Months Ended June 30, 2010
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS:
Net loss		$	(1,544,000	)			113,909,798			$	(0.01	)
Effect of dilutive securities:
Stock options and non-vested stock							1,440,306			$	—
Diluted EPS:
Net loss		$	(1,544,000	)			115,350,103			$	(0.01	)
		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 non-vested 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 non-vested stock							1,384,445			$	—
Diluted EPS:
Net income		$	6,497,000				114,107,675			$	0.06

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

2.

Earnings Per Share (EPS) (continued)

All stock options outstanding during the three and six months ended June 30, 2010, were included in the computation of diluted EPS as the options’ exercise prices were less than the average market price of the common shares. 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 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.

Accounting for Uncertainty in Income Taxes

Under guidance for accounting for uncertainty in income taxes, we prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. For the six months ended June 2009, we recognized $0.7 million of expense related to certain intercompany transactions between our U.S. subsidiaries and foreign affiliates. For the second quarter of 2010, we recognized additional expense of $0.6 million related to a permanent establishment issue of one of our subsidiaries and additional benefit of $0.2 million related to the expiration of statute of limitations in a foreign jurisdiction. As of June 30, 2010, we had a remaining liability for unrecognized tax benefits of $14.9 million primarily related to foreign operations.

4.

Income Tax Benefit/Expense

Income tax expense was $1.6 million for the second quarter of 2010, as compared to income tax expense of $5.1 million for the second quarter of 2009. The decrease in income tax expense in the second quarter of 2010, compared to the second quarter of 2009, was primarily due to a reduction in income subject to income taxes in 2010.

5.

Long-Term Debt

		June 30,				December 31,
		2010				2009
		(Dollars in Thousands)
9.125% Senior Notes, due April 2018		$	300,000			$	—
9.625% Senior Notes, due October 2013			—				227,427
2.125% Convertible Senior Notes, due July 2012			113,075				110,404
Term Note			38,000				44,000
Revolving Credit Facility			—				42,000
Total debt			451,075				423,831
Less current portion			12,000				12,000
Total long-term debt		$	439,075			$	411,831

		9.125% Senior Notes, due April 2018
		On March 22, 2010, we issued $300,000,000 aggregate principal amount of 9.125% Senior Notes due 2018 (9.125% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A. (Trustee). The 9.125% Notes were issued at par with interest payable on April 1 and October 1 of each year, beginning October 1, 2010. Net proceeds from the 9.125% Notes offering were used to redeem the $225.0 million aggregate principal amount of our 9.625% Senior Notes due 2013, to repay $42.0 million of borrowings under the revolving credit facility and for general corporate purposes.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

5.

Long-Term Debt (continued)

		The 9.125% Notes are general unsecured obligations of the Company. The 9.125% Notes rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 9.125% Notes are jointly and severally guaranteed by substantially all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenue primarily outside the United States.
		At any time prior to April 1, 2013, we may redeem up to 35% of the aggregate principal amount of 9.125% Notes at a redemption price of 109.125% of the principal amount, plus accrued and unpaid interest to the redemption date with the net cash proceeds of certain equity offerings by us. On and after April 1, 2014, we may redeem all or a part of the 9.125% Notes upon not less than 30 nor more than 60 days’ notice, at redemption prices (expressed as percentages of principal amount) equal to 104.563% for the twelve-month period beginning on April 1, 2014, 102.281% for the twelve-month period beginning on April 1, 2015 and 100% beginning on April 1, 2016, plus accrued and unpaid interest.
		If we experience specified changes of control, the Company must offer to repurchase the 9.125% Notes at 101% of the aggregate principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.
		The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets; (ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital stock or subordinated indebtedness; (iii) make investments; (iv) incur or guarantee additional indebtedness; (v) create or incur liens; (vi) enter into sale and leaseback transactions; (vii) incur dividend or other payment restrictions affecting subsidiaries; (viii) merge or consolidate with other entities; (ix) enter into transactions with affiliates; and (x) engage in certain business activities. These covenants are subject to a number of important exceptions and qualifications.
		The Indenture provides that each of the following is an Event of Default: (i) default for 30 days in the payment when due of interest on, or additional interest with respect to, the 9.125% Notes; (ii) default in payment when due of the principal of, or premium, if any, on the 9.125% Notes; (iii) failure by the Company or any of its restricted subsidiaries to comply within specified time periods with any of the other agreements in the Indenture; (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any of its restricted subsidiaries (or the payment of which is guaranteed by the Company or any of its restricted subsidiaries) whether such indebtedness or guarantee now exists, or is created after the date 9.125% Notes are first issued, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such indebtedness prior to the expiration of the grace period provided in such indebtedness on the date of such default (Payment Default); or (b) results in the acceleration of such indebtedness prior to its stated maturity, and, in each case, the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more; (v) failure by the Company or any of its subsidiaries to pay final judgments aggregating in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vi) except as permitted by the Indenture, any subsidiary guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason (other than in accordance with the terms of that guarantee and the indenture) to be in full force and effect or any guarantor, or any person acting on behalf of any guarantor, shall deny or disaffirm its obligations under its subsidiary guarantee; and (vii) certain events of bankruptcy or insolvency described in the indenture with respect to the Company or any of its significant subsidiaries or any group of restricted subsidiaries that, taken as a whole, would constitute a significant subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding 9.125% Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding 9.125% Notes may declare all the 9.125% Notes to be due and payable immediately.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

5.

Long-Term Debt (continued)

		On June 21, 2010 pursuant to the Registration Rights Agreement among the Company, the guarantors named therein, the initial purchasers of the 9.125% Notes and the Trustee, entered into as of March 22, 2010 in connection with the closing of the 9.125% Notes offering, we filed an exchange offer registration statement with respect to an offer to exchange the 9.125% Notes for substantially identical notes that are registered under the Securities Act. Additionally, we have agreed to use our commercially reasonable best efforts to cause that registration statement to become effective within 180 days from March 22, 2010.
		9.625% Senior Notes, due October 2013
		As of December 31, 2009, we had outstanding $225.0 million in aggregate principal amount of 9.625% senior notes due 2013 (9.625% Notes). On March 8, 2010, we commenced a cash tender offer and consent solicitation for all of our outstanding 9.625% Notes, which expired on April 2, 2010 (Tender Offer). The total consideration paid for each validly tendered 9.625% Note was equal to 103.458% of the aggregate principal amount of the 9.625% Notes, or $1,034.58 per $1,000 principal amount of 9.625% Notes, plus accrued and unpaid interest to the date of payment. The total consideration included a consent payment of $30 per $1,000 principal amount of 9.625% Notes, payable only to holders who tendered their 9.625% Notes and validly delivered their consents prior to 5:00 p.m., New York City time, on March 19, 2010 (Consent Date). Holders who validly tendered their 9.625% Notes after the Consent Date received the total consideration less the consent payment of $30, or $1,004.58 per $1,000 principal amount of the 9.625% Notes, plus accrued and unpaid interest to the date of payment. Holders tendered $96.3 million in aggregate principal amount of the 9.625% Notes as of the Consent Date. On March 22, 2010, we paid $104.0 million, representing payment of the total consideration including the Consent Payment and accrued interest. On the same date, March 22, 2010, we voluntarily called for redemption all of our 9.625% Notes that were not tendered pursuant to the Tender Offer, at the redemption price of 103.208% of the principal amount of the 9.625% Notes, or $1,032.08 per $1,000 principal amount of the 9.625% Notes. On April 21, 2010, we redeemed in full the remaining $128.7 million principal amount of 9.625% Notes.
		2.125% Convertible Senior Notes, due July 2012
		On July 5, 2007, we issued $125 million aggregate principal amount of 2.125% Convertible Senior Notes (2.125% Notes) due 2012. The 2.125% Notes were issued at par and interest is payable semi-annually on January 15th and July 15th. The significant terms of the 2.125% Notes are as follows:

	•		2.125% Notes Conversion Feature — The initial conversion price for 2.125% Note holders to convert their notes into shares is at a common stock share price equivalent of $13.85 (77.2217 shares of common stock) per $1,000 note value. Conversion rate adjustments occur for any issuances of stock, warrants, rights or options (except for stock purchase plans or dividend re-investments) or any other transfer of benefit to substantially all stockholders, or as a result of a tender or exchange offer. We may, under advice of our Board of Directors, increase the conversion rate at our sole discretion for a period of at least 20 days.
	•		2.125% Notes Settlement Feature — Upon tender of the 2.125% Notes for conversion, we can either settle entirely in shares of common stock or a combination of cash and shares of common stock, solely at our option. Our intent is to satisfy our conversion obligation for our 2.125% Notes in cash, rather than in common stock, for at least the aggregate principal amount of the 2.125% Notes. This would reduce the resulting potential earnings dilution to only include any possible conversion premium, which would be the difference between the average price of our shares and the conversion price per share of common stock.
	•		Contingent Conversion Feature — 2.125% Note holders may only convert 2.125% Notes when either sales price or trading price conditions are met, on or after the 2.125% Notes’ due date or upon certain accounting changes or certain corporate transactions (fundamental changes) involving stock distributions. Make-whole provisions are only included in the accounting and fundamental change conversions such that holders do not lose value as a result of the changes.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

5.

Long-Term Debt (continued)

•

Settlement Feature — Upon conversion, we will pay either cash or provide shares of our common stock if any, based on a daily conversion rate multiplied by a volume weighted average price of our common stock during a specified period following the conversion date. Conversions can be settled in cash or shares, solely at our discretion.

		As of June 30, 2010, none of the conditions allowing holders of the 2.125% Notes to convert had been met.
		Concurrently with the issuance of the 2.125% Notes, we purchased a convertible note hedge (note hedge) and sold warrants in private transactions with counterparties that were different than the ultimate holders of the 2.125% Notes. The note hedge included purchasing free-standing call options and selling free-standing warrants, both exercisable in our common shares. The note hedge allows us to receive shares of our common stock from the counterparties to the transaction equal to the amount of common stock related to the excess conversion value that we would issue and/or pay to the holders of the 2.125% Notes upon conversion.
		The terms of the call options mirror the 2.125% Notes’ major terms whereby the call option strike price is the same as the initial conversion price as are the number of shares callable, $13.85 per share and 9,027,713 shares, respectively. This feature prevents dilution of our outstanding shares. The warrants allow us to sell 9,027,713 common shares at a strike price of $18.29 per share. The conversion price of the 2.125% Notes remains at $13.85 per share, and the existence of the call options and warrants serve to guard against dilution at share prices less than $18.29 per share, since we would be able to satisfy our obligations and deliver shares upon conversion of the 2.125% Notes with shares that are obtained by exercising the call options.
		We paid a premium of approximately $31.48 million for the call options, and received proceeds for a premium of approximately $20.25 million for the sale of the warrants. This reduced the net cost of the note hedge to $11.23 million. The expiration date of the note hedge is the earlier of the last day on which the 2.125% Notes remain outstanding and the maturity date of the 2.125% Notes.
		The 2.125% Notes are classified as a liability in our consolidated financial statements. Because we have the choice of settling the call options and the warrants in cash or shares of our common stock and these contracts meet all of the applicable criteria for equity classification, the cost of the call options and proceeds from the sale of the warrants are classified in stockholders’ equity in the Consolidated Balance Sheets. In addition, because both of these contracts are classified in stockholders’ equity and are solely indexed to our own common stock, they are not accounted for as derivatives.
		Debt issuance costs related to the 2.125% Convertible Notes totaled approximately $3.6 million and are being amortized over the five year term of the 2.125% Notes using the effective interest method. Proceeds from the transaction of $110.2 million were used to redeem our outstanding senior floating rate notes, to pay the net cost of hedge and warrant transactions, and for general corporate purposes.

		2008 Credit Agreement:
		On May 15, 2008, the Company entered into a credit agreement (Credit Agreement) consisting of a senior secured $80 million revolving credit facility (Revolver) and senior secured term loan facility (Term Loan) of up to $50 million. The Credit Agreement terminates on May 14, 2013.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

5.

Long-Term Debt (continued)

		Revolver:
		Our Revolver is available for general corporate purposes and to support letters of credit. Interest on Revolver loans accrues at a base rate plus an Applicable Rate or LIBOR, plus an Applicable Rate. The Applicable Rate varies from a rate per annum ranging from 2.75% to 3.25% for LIBOR rate loans and 1.75% to 2.25% for base rate loans, determined by reference to the consolidated leverage ratio (as defined in the Credit Agreement). Revolving loans are available subject to a borrowing base calculation based on a percentage of eligible accounts receivable, certain specified barge drilling rigs and rental equipment of the Company and its subsidiary guarantors. There were no revolving loans outstanding at June 30, 2010. There were $42.0 million in revolving loans outstanding at December 31, 2009. Letters of credit outstanding as of June 30, 2010 and December 31, 2009 totaled $16.6 million and $12.7 million, respectively.
		Term Loan: The Term Loan originated at $50.0 million and requires quarterly principal payments of $3.0 million. The outstanding balances on the Term Loan at June 30, 2010 and December 31, 2009 were $38.0 million and $44.0 million, respectively.
		Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries, each of which has executed guaranty agreements. The Credit Agreement contains customary affirmative and negative covenants such as minimum ratios for consolidated leverage, consolidated interest coverage and consolidated senior secured leverage.
		On January 15, 2010, the Credit Agreement was amended in anticipation of the issuance of 9.125% Notes described above, in order to, among other things, release certain subsidiaries from their obligations under the Credit Agreement, effective upon the repurchase or redemption of all the outstanding 9.625% Notes. These released subsidiaries are the Company’s immaterial subsidiaries and subsidiaries generating revenue primarily outside the United States. Upon the effectiveness of the amendment to the Credit Agreement, the guarantors under the Credit Agreement were the same as the guarantors of the 9.125% Notes.

6.

Contingencies

		Asbestos-Related Claims
		In August 2004, Parker Drilling was notified that certain of its subsidiaries have been named, along with other defendants, in several complaints that have been filed in the Circuit Courts of the State of Mississippi by several hundred persons that allege that they were employed by some of the named defendants between approximately 1965 and 1986. The complaints name as defendants numerous other companies that are not affiliated with us, including companies that allegedly manufactured drilling related products containing asbestos that are the subject of the complaints.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Contingencies (continued)

		Asbestos-Related Claims (continued)
		The complaints allege that our subsidiaries and other drilling contractors used asbestos-containing products in offshore drilling operations, land-based drilling operations and in drilling structures, drilling rigs, vessels and other equipment and assert claims based on, among other things, negligence and strict liability and claims under the Jones Act and that the plaintiffs are entitled to monetary damages. Based on the report of the special master, these complaints have been severed and venue of the claims transferred to the county in which the plaintiff resides or the county in which the cause of action allegedly accrued. Subsequent to the filing of amended complaints, we have joined with other co-defendants in filing motions to compel discovery to determine what plaintiffs have an employment relationship with which defendant, including whether or not any plaintiffs have an employment relationship with subsidiaries of the Company. Out of 668 amended single-plaintiff complaints filed to date, sixteen (16) plaintiffs have identified Parker Drilling or one of its affiliates as a defendant. One of the sixteen plaintiffs’ cases was transferred to the federal multi-district litigation and was administratively dismissed. Of the remaining 652 cases, discovery is proceeding in groups of 60 and none of the fifteen plaintiff complaints naming Parker Drilling are included in the first 60 (Group I). Selection of Discovery Group II was completed on April 21, 2008, and we were named in one suit in which the plaintiff claims that during 1973 he earned $587.40 while working for a former subsidiary of a company Parker Drilling acquired in 1996. No trial date has been set for this plaintiff.
		The subsidiaries named in these asbestos-related lawsuits intend to defend themselves vigorously and, based on the information available to us at this time, we do not expect the outcome to have a material adverse effect on its financial condition, results of operations or cash flows. However, we are unable to predict the ultimate outcome of these lawsuits. No amounts were accrued at June 30, 2010.
		Gulfco Site
		In 2003, we received an information request under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) designating Parker Drilling Offshore Corporation, a subsidiary of Parker Drilling, as a potentially responsible party with respect to the Gulfco Marine Maintenance, Inc. Superfund Site in Freeport, Texas (EPA No. TX 055144539). The subsidiary responded to this request with documents. In January 2008 the subsidiary received an administrative order to participate in an investigation of the site and a study of the remediation needs and alternatives. The U.S. Environmental Protection Agency (EPA) alleges that the subsidiary is a successor to a party who owned the Gulfco site during the time when chemical releases took place there. Two other parties have been performing the investigation and study work since mid-2005 under an earlier version of the same order. The subsidiary believes that it has a sufficient cause to decline participation under the order and has notified the EPA of that decision. Non-compliance with an EPA order absent sufficient cause for doing so can result in substantial penalties under CERCLA. To date, the EPA and the other two parties have spent approximately $3.5 million studying and conducting remediation of the site. It is anticipated that an additional $1.3 million may be required to complete the remediation. Other costs (not yet quantified), such as interest and administrative overhead, could be added to any action against us. We currently anticipate that the total claim will not exceed $5 million and will be shared by all responsible parties. We have conducted an evaluation of the subsidiary’s relationship to the site and continue to be engaged in discussions with the relevant parties in an effort to resolve the matter and to reduce potential risks and costs associated with possible litigation in the future.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Contingencies (continued)

		Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation
		As previously disclosed, we 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 our utilization of the services of a customs agent. The DOJ and the SEC are conducting parallel investigations into possible violations of U.S. law by us, including the FCPA. In particular, the DOJ and the SEC are investigating our use of customs agents in certain countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria. We are fully cooperating with the DOJ and SEC investigations and are conducting an internal investigation into potential customs and other issues in Kazakhstan and Nigeria. The internal investigation has identified issues relating to potential non-compliance with applicable laws and regulations, including the FCPA with respect to operations in Kazakhstan and Nigeria. At this point, we are unable to predict the duration, scope or result of the DOJ or the SEC investigation or whether either agency will commence any legal action.
		Further, in connection with our internal investigation, we also learned that an individual who may be considered a foreign official under the FCPA owns in trust a substantial stake in a foreign subcontractor with whom we do business through a joint venture relationship in Kazakhstan. The joint venture’s business with the foreign subcontractor will terminate at the conclusion of workover operations that commenced on a well in July 2010. We expect workover operations on that well to conclude during the third quarter of 2010. At this point, we do not expect the termination of the joint venture’s business with the foreign subcontractor to have a material adverse impact on our business, results of operations, financial condition and liquidity.
		The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations, which they may seek to impose against corporations and individuals in appropriate circumstances including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. These authorities have entered into agreements with, and obtained a range of sanctions against, several public corporations and individuals arising from allegations of improper payments and deficiencies in books and records and internal controls, whereby civil and criminal penalties were imposed. Recent civil and criminal settlements have included multi-million dollar fines, deferred prosecution agreements, guilty pleas, and other sanctions, including the requirement that the relevant corporation retain a monitor to oversee its compliance with the FCPA. In addition, corporations may have to end or modify existing business relationships. Any of these remedial measures, if applicable to us, could have a material adverse impact on our business, results of operations, financial condition and liquidity.
		We have taken certain steps to enhance our anti-bribery compliance efforts, including retaining a full-time Chief Compliance Officer who reports to the Chief Executive Officer and Audit Committee, and implementing efforts for the adoption of revised FCPA policies, procedures, and controls; increased training and testing requirements; contractual provisions for our service providers that interface with foreign government officials; due diligence and continuing oversight procedures for the review and selection of such service providers; and a compliance awareness improvement initiative that includes issuance of periodic anti-bribery compliance alerts.
		Demand Letter and Derivative Litigation
		In April 2010, we received a demand letter from a law firm representing Ernest Maresca. The letter states that Mr. Maresca is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” The letter requests that our Board of Directors take action against the individuals in question. In response to this letter, the Board has formed a special committee to evaluate the issues raised by the letter and determine a course of action for the Company.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Contingencies (continued)

		Demand Letter and Derivative Litigation (continued)
		On June 3, 2010, Mohamed Kassamali, a purported shareholder of the Company, filed a derivative action in the state court of Harris County, Texas against our current directors and the Company as a nominal defendant. The lawsuit alleges that the individual defendants breached their fiduciary duties to the Company related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” On June 22, 2010, the Fuchs Family Trust, a purported shareholder of the Company, filed a substantially similar lawsuit in the state court of Harris County, Texas. On June 23, 2010, Kenneth Flacks, a purported shareholder of the Company, also filed a substantially similar lawsuit in the state court of Harris County, Texas. The lawsuits seek damages related to the alleged breaches of duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets. The damages sought include both compensatory and exemplary damages in an unspecified amount, along with various other forms of relief and an award of attorney fees, other costs, and expenses to the plaintiffs. All defendants have retained counsel, and we anticipate the cases will be consolidated into a single action before any substantive proceedings occur.
		Economic Sanctions Compliance
		We are subject to laws and regulations restricting our international operations, including activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. economic sanctions. Pursuant to an internal review, we have identified certain shipments of equipment and supplies that were routed through Iran as well as other activities, including drilling activities, which may have violated applicable U.S. laws and regulations. We have reviewed these shipments, transactions and drilling activities to determine whether the timing, nature and extent of such activities or other conduct may have given rise to violations of these laws and regulations, and we have voluntarily disclosed the results of our review to the U.S. government. At this point, we are unable to predict whether the government will initiate an investigation or any proceedings against us or the ultimate outcome that may result from our voluntary disclosure. If U.S. enforcement authorities determine that we were not in compliance with export restrictions, U.S. economic sanctions or other laws and regulations that apply to our international operations, we may be subject to civil or criminal penalties and other remedial measures, which could have an adverse impact on our business, results of operations, financial condition and liquidity.
		Kazakhstan Ministry of Finance Tax Audit
		On August 14, 2009, the Kazakhstan Branch (PKD Kazakhstan) of Parker Drilling’s subsidiary, Parker Drilling Company International Limited (PDCIL), received an Act of Tax Audit from the Ministry of Finance of Kazakhstan (MinFin) for the period January 01, 2005 through December 31, 2007. PKD Kazakhstan was assessed additional taxes in the amount of KZT 1.45 billion (approximately $9.7 million) and associated interest in the amount of KZT 700 million (approximately $4.7 million). The amounts assessed relate to corporate income taxes and interest in connection with the disallowance of the head office’s management and administrative expenses, loan interest and state duties, as well as Value Added Taxes (VAT) and interest in connection with VAT offset on debts classified as doubtful by MinFin and for property taxes and interest in connection with Barge Rig 257 as a result of MinFin applying a lower rate of depreciation.
		On September 25, 2009, PKD Kazakhstan appealed the Act of Tax Audit with MinFin on the basis the Branch exercised its rights provided by the Convention between the Governments of the Republic of Kazakhstan and the United States of America on the Avoidance of Double Taxation and the Prevention of the Fiscal Evasion with respect to Taxes on Income and Capital as well as improper application of Kazakhstan Tax Code provisions.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

6.

Contingencies (continued)

		Kazakhstan Ministry of Finance Tax Audit (continued)
		On January 13, 2010, PKD Kazakhstan received a response from MinFin to the appeal filed September 25, 2009. MinFin agreed with PKD Kazakhstan to remove the assessment related to property taxes and interest in connection with Barge Rig 257 which reduced the overall assessment by KZT 741 million (approximately $5 million). MinFin simultaneously caused the Tax Department of the Atyrau Oblast (Tax Department) to issue a revised Tax Notification to PKD Kazakhstan for the residual assessment of KZT 959 million (approximately $6.5 million) of taxes and KZT 450 million (approximately $3 million) of associated interest, which residual assessment remains outstanding.
		On March 1, 2010, PKD Kazakhstan filed a claim against the Tax Department, in the Special Inter-district Economic Court of Atyrau Oblast, seeking to invalidate the revised Tax Notification. On May 5, 2010, the court elected not to issue a ruling on the merits of the case on the basis of an alleged lack of standing. PKD Kazakhstan adjusted and re-filed its claim in June 2010. Substantive arguments are continuing, and we anticipate a court decision in the third quarter of 2010. PKD Kazakhstan also intends to pursue the claim through higher levels of court appeals as necessary. Based on the information available to us at this time, we are unable to predict the ultimate outcome of this case. However, we do not expect the ultimate outcome to materially or adversely affect our financial condition, results of operations or cash flows. No amounts were accrued at June 30, 2010.

7.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements.” This update requires an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reason for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements. This amendment is effective for interim and annual reporting periods beginning after December 15, 2009. Because the standard does not change how fair values are measured, the standard did not have an impact on our consolidated condensed financial statements.

8.

Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements

Set forth on the following pages are the consolidating condensed financial statements of (i) Parker Drilling, (ii) its subsidiaries that are guarantors of the 9.125% Notes and (iii) the subsidiaries that are not guarantors of the 9.125% Notes. The 9.125% Notes are guaranteed by substantially all of Company’s direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenue primarily outside the United States. Parker Drilling is a holding company with no operations, other than through its subsidiaries. Separate financial statements for each guarantor company are not provided as the Company complies with the exception to Rule 3-10(a)(1) of Regulation S-X, set forth in sub-paragraph (f) of such rule. All guarantor subsidiaries are directly or indirectly owned 100% by the parent company, all guarantees are full and unconditional and all guarantees are joint and several.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENT (continued)

8.

Parent, Guarantor, Non-Guarantor Unaudited Consolidating Condensed Financial Statements (continued)

AralParker (a Kazakhstan joint stock company, owned 100 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. (owned 50% by Parker Drilling Dutch B.V.), Parker Enex, LLC, Parker Drilling Company Eastern Hemisphere, Ltd., Parker Drilling Company of Bolivia, Inc., Canadian Rig Leasing, Inc., Parker Drilling Company International Limited, Parker Drilling Company Limited LLC, Parker Drilling Company of Singapore, LLC, Parker USA Drilling Company, Universal Rig Service LLC, Parker Offshore Resources, L.P., Choctaw International Rig Corp., DGH, Inc., Parker Drilling Company of Argentina, Inc., Parker Drilling Company International, LLC, Parker Drilling (Kazakstan), LLC, Parker Drilling Company of New Guinea, LLC, Indocorp of Oklahoma, Inc., Creek International Rig Corp., Parker Drilling Company of Mexico, LLC, Selective Drilling Corporation, Parker Drilltech, LLC, Parker Drillserv, LLC, Parker Drillex, LLC, Parker Rigsource LLC, Parker Intex, LLC, Parker Drilling Eurasia, Inc., Parker Drilling Pacific Rim, Inc., Parker Singapore Rig Holding Pte. Ltd. are all non-guarantor subsidiaries. We are providing consolidating condensed financial information of the parent, Parker Drilling, the guarantor subsidiaries, and the non-guarantor subsidiaries as of June 30, 2010 and December 31, 2009 and for the three months and six months ended June 30, 2010 and 2009. 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, 2010
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	12,406			$	2,811			$	34,553			$	—			$	49,770
Accounts and notes receivable, net			23,976				96,395				212,649				(167,900	)			165,120
Rig materials and supplies			—				370				28,944				—				29,314
Deferred costs			—				—				2,965				—				2,965
Deferred income taxes			8,799				—				—				—				8,799
Other tax assets			98,048				(63,184	)			9,831				—				44,695
Other current assets			557				40,028				36,860				(10,734	)			66,711
Total current assets			143,786				76,420				325,802				(178,634	)			367,374
Property, plant and equipment, net			79				508,370				283,782				123				792,354
Investment in subsidiaries and intercompany advances			960,753				511,693				488,117				(1,960,563	)			—
Other noncurrent assets			68,708				(5,435	)			31,535				(8,112	)			86,696
Total assets		$	1,173,326			$	1,091,048			$	1,129,236			$	(2,147,186	)		$	1,246,424
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	—			$	—			$	—			$	12,000
Accounts payable and accrued liabilities			54,620				321,069				164,618				(383,450	)			156,857
Accrued income taxes			570				15				3,460				—				4,045
Total current liabilities			67,190				321,084				168,078				(383,450	)			172,902
Long-term debt			439,075				—				—				—				439,075
Other long-term liabilities			7,551				4,867				18,679				(217	)			30,880
Long-term deferred tax liability			—				—				6,640				—				6,640
Intercompany payables			62,583				473,144				154,750				(690,477	)			—
Contingencies			—				—				—				—				—
Stockholders’ equity:
Common stock			19,487				18,049				43,003				(61,052	)			19,487
Capital in excess of par value			626,016				722,849				530,625				(1,253,474	)			626,016
Retained earnings (accumulated deficit)			(48,576	)			(448,945	)			207,461				241,484				(48,576	)
Total stockholders’ equity			596,925				291,953				781,089				(1,073,040	)			596,927
Total liabilities and stockholders’ equity		$	1,173,326			$	1,091,048			$	1,129,236			$	(2,147,186	)		$	1,246,424

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

		December 31, 2009
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	58,189			$	1,768			$	48,846			$	—			$	108,803
Accounts and notes receivable, net			17,357				101,316				234,987				(164,973	)			188,687
Rig materials and supplies			—				(1,150	)			32,783				—				31,633
Deferred costs			—				—				4,531				—				4,531
Deferred income taxes			9,650				—				—				—				9,650
Other tax assets			96,450				(63,183	)			4,551				—				37,818
Other current assets			557				45,513				27,084				(10,747	)			62,407
Total current assets			182,203				84,264				352,782				(175,720	)			443,529
Property, plant and equipment, net			79				434,870				281,725				124				716,798
Investment in subsidiaries and intercompany advances			903,616				582,049				466,799				(1,952,464	)			—
Other noncurrent assets			56,658				5,094				29,107				(8,100	)			82,759
Total assets		$	1,142,556			$	1,106,277			$	1,130,413			$	(2,136,160	)		$	1,243,086
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	12,000			$	—			$	—			$	—			$	12,000
Accounts payable and accrued liabilities			50,583				319,187				163,856				(365,716	)			167,910
Accrued income taxes			1,069				624				7,433				—				9,126
Total current liabilities			63,652				319,811				171,289				(365,716	)			189,036
Long-term debt			411,831				—				—				—				411,831
Other long-term liabilities			9,689				2,797				17,976				(216	)			30,246
Long-term deferred tax liability			(1,098	)			9,404				7,768				—				16,074
Intercompany payables			62,583				473,144				155,495				(691,222	)			—
Contingencies			—				—				—				—				—
Stockholders’ equity:
Common stock			19,374				18,049				43,003				(61,052	)			19,374
Capital in excess of par value			623,557				722,851				530,626				(1,253,477	)			623,557
Retained earnings (accumulated deficit)			(47,032	)			(439,779	)			204,256				235,523				(47,032	)
Total stockholders’ equity			595,896				301,121				777,885				(1,079,003	)			595,899
Total liabilities and stockholders’ equity		$	1,142,556			$	1,106,277			$	1,130,413			$	(2,136,160	)		$	1,243,086

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

		Three months ended June 30, 2010
		Parent				Guarantor				Non-Guarantor				Eliminations				Consolidated
Total revenues		$	—			$	88,029			$	92,906			$	(24,410	)		$	156,525
Operating expenses			—				57,504				75,881				(24,410	)			108,975
Depreciation and amortization			—				15,912				13,100				—				29,012
Total operating gross margin			—				14,613				3,925				—				18,538
General and administration expense (1)			(86	)			(6,778	)			(73	)			—				(6,937	)
Provision for reduction in carrying value of certain assets			—				—				—				—				—
Gain on disposition of assets, net			—				1,009				703				—				1,712
Total operating income (loss)			(86	)			8,844				4,555				—				13,313
Other income and (expense):
Interest expense			(8,475	)			(8,909	)			(3,642	)			13,640				(7,386	)
Interest income			10,523				167				13,029				(23,641	)			78
Loss on extinguishment of debt			(3,989	)			—				—				—				(3,989	)
Other			1				91				23				—				115
Equity in net earnings of subsidiaries			432				—				—				(432	)			—
Total other income and (expense)			(1,508	)			(8,651	)			9,410				(10,433	)			(11,182	)
Income (benefit) before income taxes			(1,594	)			193				13,965				(10,433	)			2,131
Income tax expense (benefit):
Current			193				(375	)			5,174				—				4,992
Deferred			(2,294	)			(14	)			(1,060	)			—				(3,368	)
Total income tax expense (benefit)			(2,101	)			(389	)			4,114				—				1,624
Net income (loss)		$	507			$	582			$	9,851			$	(10,433	)		$	507