News Column

PARKER DRILLING CO /DE/ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 9, 2014

DISCLOSURE NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). All statements contained in this Form 10-Q, other than statements of historical facts, are forward-looking statements for purposes of these provisions, including any statements regarding:



stability of prices and demand for oil and natural gas;

levels of oil and natural gas exploration and production activities;

demand for contract drilling and drilling-related services and demand for

rental tools;

our future operating results and profitability;

our future rig utilization, dayrates and rental tools activity;

entering into new, or extending existing, drilling or rental contracts and

our expectations concerning when operations will commence under such

contracts;

entry into new markets or potential exit from existing markets;

growth through acquisitions of companies or assets, including the ITS Acquisition;



organic growth of our operations;

construction or upgrades of rigs and expectations regarding when these rigs

will commence operations;

capital expenditures for acquisition of rental tools, rigs, construction of

new rigs or major upgrades to existing rigs;

entering into joint venture agreements;

our future liquidity;

the sale or potential sale of assets or references to assets held for sale

availability and sources of funds to refinance our debt and expectations of

when debt will be reduced; the outcome of pending or future legal proceedings, investigations, tax assessments and other claims;



the availability of insurance coverage for pending or future claims;

the enforceability of contractual indemnification in relation to pending or

future claims; and

compliance with covenants under our debt agreements.

In some cases, you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "outlook," "may," "should," "will" and "would" or similar words. Forward-looking statements are based on certain assumptions and analyses we make in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are relevant. Although we believe our assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of our control. The following factors, as well as those factors set forth in Item 1A, "Risk Factors", in our Annual Report on Form 10-K for the year ended December 31, 2013 and our other public filings with the Securities and Exchange Commission, and any other cautionary language included in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements:



worldwide economic and business conditions that adversely affect market

conditions and/or the cost of doing business including potential country

failures and downgrades;

our inability to access the credit or bond markets;

U.S. credit market volatility resulting from the U.S. national debt and potential further downgrades of the U.S. credit rating;



the U.S. economy and the demand for natural gas;

low U.S. natural gas prices that could adversely affect our U.S. drilling,

barge rig and U.S. rental tools businesses;

worldwide demand for oil;

fluctuations in the market prices of oil and natural gas, including the inability or unwillingness of our customers to fund drilling programs in low price cycles;



imposition of unanticipated trade restrictions;

27 --------------------------------------------------------------------------------



unanticipated operating hazards and uninsured risks;

political instability, terrorism or war;

governmental regulations, including changes in accounting rules or tax laws

that adversely affect the cost of doing business or our ability to remit

funds to the U.S.;

changes in the tax laws that would allow double taxation on foreign sourced

income;

the outcome of investigations into possible violations of laws;

adverse environmental events;

adverse weather conditions;

global health concerns;

changes in the concentration of customer and supplier relationships;

ability of our customers and suppliers to obtain financing for their

operations;

ability of our customers to fund drilling plans;

unexpected cost increases for new construction and upgrade and refurbishment projects; delays in obtaining components for capital projects and in ongoing operational maintenance and equipment certifications;



shortages of skilled labor;

unanticipated cancellation of contracts by customers or operators;

breakdown of equipment;

other operational problems including delays in start-up or commissioning of

rigs; changes in competition;



any failure to realize expected benefits from acquisitions;

the effect of litigation and contingencies; and

other similar factors, some of which are discussed in our Annual Report on

Form 10-K, elsewhere in this Form 10-Q and in our other reports and filings

with the SEC.

Each forward-looking statement speaks only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form 10-Q could have a material adverse effect on our business, results of operations, financial condition and cash flows. 28

-------------------------------------------------------------------------------- OVERVIEW AND OUTLOOK



Overview

First quarter results, compared with those of the 2013 first quarter, reflect gains from business growth, operating improvements and the impact of the ITS acquisition, an international rental tool business, that positions us to participate and grow in several key international rental tools markets. Our U.S. rental tools business raised its utilization in the U.S. land drilling market while remaining competitive with market conditions. Our U.S. Gulf of Mexico barge drilling business continued to make gains in dayrate. As a result of harsh winter conditions that impacted overall drilling activity in GOM inland waters in the 2014 first quarter, our overall fleet utilization declined. Our international drilling operation significantly raised its rig fleet utilization, as we successfully deployed several previously idle rigs, including relocating two rigs from Kazakhstan to the Kurdistan region of Iraq to participate in the growing opportunities in that market. In addition, in the 2014 first quarter we benefited from a full quarter of operation of the second of our two arctic-class drill rigs and a three-platform O&M contract, both of which commenced in February, 2013. Outlook Based on recent experience and current and projected market and operating conditions, we expect revenue and earnings to grow in 2014, due to improving conditions in our U.S. and international markets and from leveraging the projected market growth and strengthening our operating performance. While conditions in the U.S. land drilling market for rental tools remain competitive, our recent increases in equipment utilization position us to benefit from market growth expected by many industry forecasts for later this year. In addition, we expect to further expand our rental tools participation in the growing GOM offshore drilling market. The performance of our international rental tools operation is expected to improve as contracted jobs and new work get started and we benefit from the deployment of new capital equipment. We expect market conditions in the U.S. Gulf of Mexico inland waters to support continued high utilization of our barge drilling fleet. The addition of Rig 55B to our fleet during the 2014 second quarter should augment the U.S. Barge Drilling segment's contribution to revenues and earnings. Our U.S. Drilling segment is expected to continue to deliver solid operating results and cash flow from its rig operations and O&M contract. We expect market conditions in the international drilling markets we serve to provide sufficient tender activity and contract renewal opportunities to maintain our international rig fleet utilization near current levels without significant breaks in activity. As we continue to strengthen our ability to consistently provide our customers with innovative, reliable and efficient responses to their operational needs, we expect there will be additional opportunities to enhance returns and produce further growth. 29

-------------------------------------------------------------------------------- RESULTS OF OPERATIONS Three Months Ended March 31, 2014 Compared with Three Months Ended March 31, 2013 Revenues of $229.2 million for the three months ended March 31, 2014 increased $62.1 million, or 37.1%, compared with $167.1 million for the three months ended March 31, 2013. Operating gross margin increased $8.0 million or 38.3%, to $28.9 million, for the three months ended March 31, 2014 compared with $20.9 million for the three months ended March 31, 2013. We incurred a net loss attributable to controlling interest of $12.5 million for the three months ended March 31, 2014, compared with net income of $0.6 million for the three months ended March 31, 2013. The following is an analysis of our operating results for the comparable quarters: Three Months Ended March 31, 2014 2013 (Dollars in Thousands) Revenues: Rental Tools $ 80,506 35 % $ 57,082 34 % U.S. Barge Drilling 30,490 13 % 29,865 18 % U.S. Drilling 19,417 9 % 11,635 7 % International Drilling 85,469 37 % 64,650 39 % Technical Services 13,343 6 % 3,903 2 % Total revenues 229,225 100 % 167,135 100 % Operating gross margin excluding depreciation and amortization: Rental Tools gross margin 28,751 36 % 32,207 56 % U.S Barge Drilling gross margin 11,836 39 % 12,424 42 % U.S. Drilling gross margin 5,563 29 % 326 3 % International Drilling gross margin 16,399 19 % 5,096 8 % Technical Services gross margin 651 5 % 336 9 % Total operating gross margin excluding depreciation and amortization 63,200 28 % 50,389 30 % Depreciation and amortization (34,337 ) (29,512 ) Total operating gross margin 28,863 20,877 General and administrative expense (8,964 ) (12,845 ) Gain (loss) on disposition of assets, net (129 ) 1,148 Total operating income $ 19,770$ 9,180 Operating gross margin excluding depreciation and amortization is computed as revenues less direct operating expenses, and excludes depreciation and amortization expense, where applicable; operating gross margin percentages are computed as operating gross margin as a percent of revenues. The operating gross margin amounts and operating gross margin percentages should not be used as a substitute for those amounts reported under U.S. GAAP. However, we monitor our business segments based on several criteria, including operating gross margin. Management believes that this information is useful to our investors because it more accurately reflects the cash flow from operations generated by each segment. Such operating gross margin amounts are reconciled to our most comparable U.S. GAAP measure as follows: 30 --------------------------------------------------------------------------------

U.S. Rental Barge U.S. International Technical Tools Drilling Drilling Drilling Services

Three Months Ended March 31, 2014 (Dollars in Thousands) Segment operating gross margin (1) $ 13,345$ 7,824$ 1,641$ 5,477$ 576 Depreciation and amortization 15,406 4,012 3,922 10,922 75 Operating gross margin excluding depreciation and amortization $ 28,751$ 11,836 $



5,563 $ 16,399$ 651

Three Months Ended March 31, 2013 Segment operating gross margin (1) $ 21,507$ 8,758$ (4,052 )$ (5,645 )$ 309 Depreciation and amortization 10,700 3,666 4,378 10,741 27 Operating gross margin excluding depreciation and amortization $ 32,207$ 12,424$ 326$ 5,096$ 336 (1) Segment operating gross margin is calculated as revenues less direct



operating expenses, including depreciation and amortization expense.

Rental Tools Rental Tools segment revenues increased $23.4 million, or 41.0%, to $80.5 million for the first quarter of 2014 compared with $57.1 million for the first quarter of 2013. The increase was due primarily to the contribution by ITS of $27.8 million of revenues for the first quarter of 2014. The addition of revenues from ITS was partially offset by the impact of continuing competitive conditions in the U.S. land drilling market resulting in an increase in pricing discounts. Rental Tools segment operating gross margin excluding depreciation and amortization decreased $3.5 million, or 10.7%, to $28.8 million in the 2014 first quarter compared with the $32.2 million for the first quarter of 2013. Operating gross margin excluding depreciation and amortization for ITS was $1.4 million. Operating gross margin excluding depreciation and amortization for our U.S. rental tools business was $27.5 million for the 2014 first quarter compared with $32.2 million for the 2013 first quarter. The decline in margins for U.S. operations was primarily due to the increase in competitive conditions described above which led to lower product pricing for rental tools and related activities. U.S. Barge Drilling U.S. Barge Drilling segment revenues increased $0.6 million, or 2.1%, to $30.5 million for the first quarter of 2014 compared with $29.9 million for the first quarter of 2013. The increase in revenues was due to an increase in average dayrates for the U.S. barge rig fleet. The increase was partially offset by a decline in utilization during the first quarter of 2014 when compared with the first quarter of 2013 primarily due to winter conditions and customer delays during the start of the year which have reduced first quarter 2014 drilling opportunities in the GOM's inland waters. The U.S. Barge Drilling segment's operating gross margin excluding depreciation and amortization decreased $0.6 million, or 4.7%, to $11.8 million for the first quarter of 2014 compared with $12.4 million for the first quarter of 2013. The decrease was mainly due to increased costs related to self-insurance reserves for workers' compensation during the first quarter of 2014. U.S. Drilling Our U.S. Drilling segment revenues increased $7.8 million, or 66.9% to $19.4 million for the first quarter of 2014 compared with $11.6 million for the first quarter of 2013. The increase in revenues is due to the commencement of operations by our two arctic-class drilling rigs in Alaska, one in the fourth quarter of 2012 and the other in February 2013. During the 2014 first quarter, both arctic-class rigs were fully operational and generating revenue for the entire quarter. Additionally, in February 2013 we began an O&M contract supporting three platform operations located offshore California which generated revenues for the full 2014 first quarter. U.S. Drilling segment operating gross margin excluding depreciation and amortization increased $5.2 million to $5.6 million for the 2014 first quarter compared with $0.3 million for the 2013 first quarter, due to the contributions from the arctic-class drilling rigs and the California O&M contract described above. International Drilling International Drilling segment revenues increased $20.8 million, or 32.2%, to $85.5 million for the first quarter of 2014, compared with $64.7 million for the first quarter of 2013. The higher revenues are primarily due to an increase in drilling revenues from the operation of Parker-owned rigs, slightly offset by a decline in revenues from O&M contracts. 31 -------------------------------------------------------------------------------- Revenues related to Parker-owned rigs increased $22.0 million, or 70.0%, to $53.4 million for the first quarter of 2014 compared with $31.4 million for the first quarter of 2013. This was primarily due to an increase in our rig fleet utilization. O&M revenues decreased $1.2 million, or 3.6%, to $32.1 million for the first quarter of 2014 compared with $33.3 million for the first quarter of 2013, primarily due to lower reimbursable revenues partially offset by increased activity and inflation adjusted rates from our Sakhalin Island operations during the 2014 first quarter. Approximately $9.3 million and $12.4 million of O&M revenues were attributable to reimbursable costs for the three month periods ended March 31, 2014 and 2013, respectively, which added to revenues, but had minimal impact on operating margins. International Drilling operating gross margin excluding depreciation and amortization increased $11.3 million, to $16.4 million during the first quarter of 2014 compared with $5.1 million for the first quarter of 2013. The increase in operating gross margin was largely due to increased revenues generated from Parker-owned rigs operating in Sakhalin Island, Kazakhstan and Mexico driven by increased utilization. Technical Services Technical Services segment revenues increased $9.4 million to $13.3 million for the first quarter of 2014 compared with $3.9 million for the first quarter of 2013. The increase is primarily due to a new customer FEED contract entered into during the 2013 fourth quarter and increased activity under the vendor services phase of the Berkut platform project. Operating gross margin excluding depreciation and amortization increased $0.3 million to $0.7 million for the first quarter of 2014 compared with $0.3 million for the first quarter of 2013. The increase is primarily the result of the projects described above. Other Financial Data General and administration expense decreased $3.9 million to $9.0 million for the first quarter of 2014 compared with $12.8 million for the first quarter of 2013. The decrease is due primarily to a decline in costs of approximately $3.0 million related to the ITS Acquisition and a reduction in expenses related to our new enterprise resource planning system. Net losses recognized on asset dispositions was $0.1 million during the 2014 first quarter compared with net gains on asset dispositions of $1.1 million during the 2013 first quarter. Activity in both periods was primarily the result of asset sales during each period. We periodically sell equipment deemed to be excess, obsolete, or not currently required for operations. Interest expense increased $2.0 million to $12.0 million for the 2014 first quarter compared with $10.0 million for the 2013 first quarter. The increase was primarily due to an increase in debt-related expense associated with the 7.50% Notes issued to support the ITS Acquisition. Additionally, we experienced a $0.3 million decrease in interest capitalized on major projects resulting from the completion of the two arctic-class drilling rigs. Interest income during the 2014 and 2013 first quarters was nominal. We incurred a loss on extinguishment of debt of $29.7 million during the three months ended March 31, 2014 related to the tender and consent solicitation with respect to the 9.125% Notes in January 2014. The loss included $25.8 million of tender and consent premiums paid, $7.6 million for write-off of unamortized debt issuance costs, offset by the write-off of $3.7 million of unamortized premiums on the 9.125% Notes. Other income and expense was $0.9 million of income and $0.2 million of expense for the three months ended March 31, 2014 and 2013, respectively. Other income for the 2014 first quarter is primarily related to earnings from our investment in an unconsolidated subsidiary that was acquired as part of the ITS Acquisition. During the first quarter of 2014 we had an income tax benefit of $8.6 million compared to $1.5 million for the first quarter of 2013. The increase in current period income tax benefit is primarily due to the reduction in pre-tax earnings in the first quarter of 2014 when compared with pre-tax earnings reported for the 2013 first quarter primarily driven by the debt extinguishment costs recorded during the 2014 first quarter. LIQUIDITY AND CAPITAL RESOURCES We periodically evaluate our liability requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operational cash needs. To meet our short and long term liquidity requirements, including payment of operating expenses and repaying debt, we rely primarily on cash from operations. However, we have recently sought, and may in the future seek, to raise additional capital. We expect that for the foreseeable future, cash generated from operations will be sufficient to provide us the ability to fund our operations, provide the working capital necessary to support our strategy, and fund planned capital expenditures. 32 -------------------------------------------------------------------------------- Cash Flows As of March 31, 2014, we had cash and cash equivalents of $93.1 million, a decrease of $55.6 million from December 31, 2013. Cash flows from operating activities for the first quarter of 2014 were $31.6 million, compared with $27.2 million for the first quarter of 2013. We have reinvested a substantial portion of our operating cash flows to enhance our fleet of drilling rigs and add rental tools equipment. We do not pay dividends to our shareholders. Changes in working capital were a use of cash of $14.7 million and $7.3 million for the three months ended March 31, 2014 and 2013, respectively and primarily related to increased operations activity. Changes in cash from operating activities were also impacted by non-cash charges such as depreciation expense, loss on debt extinguishment, deferred tax benefit, and stock compensation expense. Depreciation expense increased due to our two arctic-class drilling rigs in Alaska commencing work in late 2012 and early 2013 in addition to the ITS Acquisition. It is our current intention to continue to utilize our operating cash flows to finance further investments in rental tools inventories, rig purchases or upgrades as well as other strategic investments aligned to our strategies. Cash flows used in investing activities were $35.8 million for the 2014 first quarter compared with $28.5 million for the 2013 comparable period. Our primary use of cash was $37.4 million for capital expenditures. Capital expenditures in 2014 were primarily for tubular and other products for our rental tools business and rig-related enhancements and maintenance. Sources of cash include $1.6 million of proceeds from the sale of assets. Cash flows used in financing activities were $51.4 million for the 2014 first quarter, primarily related to the repayment of $416.2 million of our 9.125% Notes, payment of $25.8 million of related tender and consent premiums, and payment of debt issuance costs of $7.3 million. Cash provided by financing activities included proceeds of $360.0 million from issuance of our 6.75% Notes and reborrowing of $40.0 million of Term Loans under our Secured Credit Agreement. As of March 31, 2013, we had cash and cash equivalents of $83.7 million, a decrease of $4.2 million from December 31, 2012. The primary uses of cash for the three months ended March 31, 2013 were $30.0 million for capital expenditures, including $2.7 million on the construction of one of the arctic-class drilling rigs for work in Alaska, $4.5 million for our new enterprise resource planning system and $12.2 million for tubular and other rental tools for our Rental Tools segment. The primary source of cash for the first quarter of 2013 was $27.2 million from operating activities. Financing Activities 6.75% Senior Notes, due July 2022 On January 22, 2014, we issued $360.0 million aggregate principal amount of 6.75% Senior Notes due 2022 (6.75% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Net proceeds from the 6.75% Notes offering plus a $40.0 million draw under the Secured Credit Agreement (as defined below) and cash on hand were utilized to redeem $416.2 million aggregate principal amount of our outstanding 9.125% Notes due 2018 pursuant to a tender and consent solicitation offer commenced on January 7, 2014. See further discussion of the tender and consent solicitation offer below entitled "9.125% Senior Notes, due April 2018". The 6.75% Notes are general unsecured obligations of the Company and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 6.75% Notes are jointly and severally guaranteed by all of our subsidiaries that guarantee indebtedness under our Secured Credit Agreement, our 7.50% Notes (as defined below) and our 9.125% Notes (as defined below, and collectively with the 7.50% Notes and the 6.75% Notes, the Senior Notes). Interest on the 6.75% Notes is payable on January 15 and July 15 of each year, beginning July 15, 2014. Debt issuance costs related to the 6.75% Notes of approximately $7.3 million ($7.1 million net of amortization as of March 31, 2014) are being amortized over the term of the notes using the effective interest rate method. At any time prior to January 15, 2017, we may redeem up to 35 percent of the aggregate principal amount of the 6.75% Notes at a redemption price of 106.75 percent 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 January 15, 2018, we may redeem all or a part of the 6.75% Notes upon appropriate notice, at a redemption price of 103.375 percent of the principal amount, and at redemption prices decreasing each year thereafter to par beginning January 15, 2020. If we experience certain changes in control, we must offer to repurchase the 6.75% Notes at 101.0 percent 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. Additionally, the 33 --------------------------------------------------------------------------------



Indenture contains certain restrictive covenants designating certain events as Events of Default. These covenants are subject to a number of important exceptions and qualifications.

7.50% Senior Notes, due August 2020 On July 30, 2013, we issued $225.0 million aggregate principal amount of 7.50% Senior Notes due 2020 (7.50% Notes) pursuant to an Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Net proceeds from the 7.50% Notes offering were primarily used to repay the $125.0 million aggregate principal amount of the Goldman Term Loan, to repay $45.0 million of Term Loan borrowings under our Secured Credit Agreement and for general corporate purposes. The 7.50% Notes are general unsecured obligations of the Company and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 7.50% Notes are jointly and severally guaranteed by all of our subsidiaries that guarantee indebtedness under our Secured Credit Agreement and our other series of Senior Notes. Interest on the 7.50% Notes is payable on February 1 and August 1 of each year, beginning February 1, 2014. Debt issuance costs related to the 7.50% Notes of approximately $5.5 million ($5.1 million, net of amortization as of March 31, 2014) are being amortized over the term of the notes using the effective interest rate method. At any time prior to August 1, 2016, we may redeem up to 35 percent of the aggregate principal amount of the 7.50% Notes at a redemption price of 107.50 percent 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 August 1, 2016, we may redeem all or a part of the 7.50% Notes upon appropriate notice, at a redemption price of 103.750 percent of the principal amount, and at redemption prices decreasing each year thereafter to par beginning August 1, 2018. If we experience certain changes in control, we must offer to repurchase the 7.50% Notes at 101.0 percent 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. Additionally, the Indenture contains certain restrictive covenants designating certain events as Events of Default. These covenants are subject to a number of important exceptions and qualifications. 9.125% Senior Notes, due April 2018 On March 22, 2010, we issued $300.0 million 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., as trustee. Net proceeds from the 9.125% Notes offering were primarily used to redeem the $225.0 million aggregate principal amount of our 9.625% Senior Notes due 2013 and to repay $42.0 million of borrowings under our senior secured revolving credit facility. On April 25, 2012, we issued an additional $125.0 million aggregate principal amount of 9.125% Notes under the same indenture at a price of 104.0% of par, resulting in gross proceeds of $130.0 million. Net proceeds from the offering were utilized to refinance $125.0 million aggregate principal amount of the 2.125% Convertible Senior Notes due July 2012 (2.125% Notes). On January 7, 2014, we commenced a tender and consent solicitation with respect to the 9.125% Notes. The tender offer price was $1,061.98, inclusive of a $30.00 consent payment, for each $1,000 principal amount of 9.125% Notes, plus accrued and unpaid interest. On January 22, 2014, we paid $453.7 million for the tendered 9.125% Notes, comprised of $416.2 million of aggregate principal amount of the 9.125% Notes, $25.8 million of tender and consent premiums and $11.7 million of accrued interest. In connection with the tender and consent solicitation, approximately $3.7 million of unamortized debt issuance premium and approximately $7.6 million of debt issuance costs were written off in the three months ended March 31, 2014. On April 1, 2014, we redeemed the $8.8 million outstanding 9.125% Notes for a purchase price of $9.6 million, inclusive of a $0.4 million call premium and $0.4 million interest. Amended and Restated Credit Agreement On December 14, 2012, we entered into an Amended and Restated Credit Agreement (Secured Credit Agreement) consisting of a senior secured $80.0 million revolving facility (Revolver) and a senior secured term loan facility (Term Loan) of $50.0 million. The Secured Credit Agreement provides that, subject to certain conditions, including the approval 34 -------------------------------------------------------------------------------- of the Administrative Agent and the lenders' acceptance (or additional lenders being joined as new lenders), the amount of the Term Loan or Revolver can be increased by an additional $50.0 million, so long as after giving effect to such increase, the aggregate commitments are not in excess of $180.0 million. Our obligations under the Secured Credit Agreement are guaranteed by substantially all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries and subsidiaries generating revenues primarily outside the United States, each of which have executed guaranty agreements, and are secured by first priority liens on our accounts receivable, specified barge rigs and rental equipment. The Secured Credit Agreement contains customary affirmative and negative covenants with which we were in compliance as of March 31, 2014 and December 31, 2013. The Secured Credit Agreement matures on December 14, 2017. 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. Under the Secured Credit Agreement, the Applicable Rate varies from a rate per annum ranging from 2.50 percent to 3.00 percent for LIBOR rate loans and 1.50 percent to 2.00 percent for base rate loans, determined by reference to the consolidated leverage ratio (as defined in the Secured 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 March 31, 2014 and December 31, 2013. Letters of credit outstanding against the Revolver as of March 31, 2014 and December 31, 2013 totaled $6.0 million and $4.6 million, respectively. Term Loan The Term Loan originated at $50.0 million on December 14, 2012 and requires quarterly principal payments of $2.5 million, which began March 31, 2013. Interest on the Term Loan accrues at a Base Rate plus 2.00 percent or LIBOR plus 3.00 percent. The outstanding balance on the Term Loan at December 31, 2013 was zero, and as of March 31, 2014 the remaining balance on the Term Loan was $37.5 million. We are no longer able to re-borrow amounts under the Term Loan. Long-Term Debt Summary Our principal amount of long-term debt, including current portion, was $631.4 million as of March 31, 2014 which consisted of: $360.0 million aggregate principal amount of 6.75% Notes;



$225.0 million principal amount of 7.50% Notes;

$8.8 million aggregate principal amount of 9.125% Notes, plus an associated $0.1 million in unamortized debt premium, all of which is classified as current; and $37.5 million under our term loan, $10.0 million of which is classified as current. As of March 31, 2014, we had approximately $167.1 million of liquidity, which consisted of $93.1 million of cash and cash equivalents on hand and $74.0 million of availability under our Revolver and zero under our Term Loan. Contractual Obligations The following table summarizes our future contractual cash obligations as of March 31, 2014: 35

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Less than Years Years More than Total 1 Year 1 - 3 3 - 5 5 Years (Dollars in Thousands) Contractual cash obligations: Long-term debt - principal (1) $ 631,301$ 18,801$ 20,000$ 7,500$ 585,000 Long-term debt - interest (1) 319,034 42,656 83,549 82,466 110,363 Operating leases (2) 56,422 15,438 17,312 13,197 10,475 Purchase commitments (3) 78,392 78,392 - - - Total contractual obligations $ 1,085,149$ 155,287$ 120,861$ 103,163$ 705,838 Commercial commitments: Standby letters of credit (4) 6,020 6,020 - - -



Total commercial commitments $ 6,020$ 6,020 $ - $

- $ -



(1) Long-term debt includes the principal and interest cash obligations of

the Senior Notes. The remaining unamortized premium of $0.1 million on

the 9.125% Notes is not included in the contractual cash obligations

schedule. (2) Operating leases consist of agreements in excess of one year for office space, equipment, vehicles and personal property.



(3) Purchase commitments outstanding as of March 31, 2014 are primarily

related to rental tools and rig upgrade projects. (4) We have an $80.0 million revolving credit facility. As of March 31, 2014, we had no borrowings under the Revolver and $6.0 million of availability has been used to support letters of credit that have been issued, resulting in $74.0 million of availability. 36



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Off-Balance Sheet Arrangements We do not have any unconsolidated special-purpose entities, off-balance sheet financing arrangements or guarantees of third-party financial obligations. We have no energy or commodity contracts.


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Source: Edgar Glimpses