UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
WASHINGTON,
D.C. 20549
|
FORM
10-Q
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the quarterly period ended June 30, 2009
|
Commission
File No. 1-8726
|
RPC,
INC.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
58-1550825
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
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2801
Buford Highway, Suite 520, Atlanta, Georgia 30329
|
(Address
of principal executive offices) (zip code)
|
Registrant’s
telephone number, including area code — (404)
321-2140
|
Large
accelerated filer o
|
Accelerated
filer x
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller
reporting company o
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Page
No.
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|||
Part
I. Financial Information
|
|||
Item
1.
|
Financial
Statements (Unaudited)
|
||
Consolidated
Balance Sheets –
As
of June 30, 2009 and December 31, 2008
|
3
|
||
Consolidated
Statements of Operations –
For
the three and six months ended June 30, 2009 and 2008
|
4
|
||
Consolidated
Statement of Stockholders’ Equity –
For
the six months ended June 30, 2009
|
5
|
||
Consolidated
Statements of Cash Flows –
For
the six months ended June 30, 2009 and 2008
|
6
|
||
Notes
to Consolidated Financial Statements
|
7 –
20
|
||
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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21
– 33
|
|
Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
|
33
|
|
Item
4.
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Controls
and Procedures
|
34
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Part
II. Other Information
|
|||
Item
1.
|
Legal
Proceedings
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35
|
|
Item
1A.
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Risk
Factors
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35
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
35
|
|
Item
3.
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Defaults
upon Senior Securities
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36
|
|
Item
4.
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Submission
of Matters to a Vote of Security Holders
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36
|
|
Item
5.
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Other
Information
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36
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|
Item
6.
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Exhibits
|
37
|
|
Signatures
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38
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RPC,
INC. AND SUBSIDIARIES
|
PART
I. FINANCIAL INFORMATION
|
ITEM
1. FINANCIAL STATEMENTS
|
CONSOLIDATED
BALANCE SHEETS
|
AS
OF JUNE 30, 2009 AND DECEMBER 31, 2008
|
(In
thousands)
|
(Unaudited)
|
June
30,
2009
|
December
31,
2008
|
|||||||
(Note
1)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 2,812 | $ | 3,037 | ||||
Accounts
receivable, net
|
121,276 | 210,375 | ||||||
Inventories
|
54,044 | 49,779 | ||||||
Deferred
income taxes
|
5,634 | 6,187 | ||||||
Income
taxes receivable
|
18,377 | 15,604 | ||||||
Prepaid
expenses and other current assets
|
3,594 | 7,841 | ||||||
Total
current assets
|
205,737 | 292,823 | ||||||
Property,
plant and equipment, net
|
444,856 | 470,115 | ||||||
Goodwill
|
24,093 | 24,093 | ||||||
Other
assets
|
7,966 | 6,430 | ||||||
Total
assets
|
$ | 682,652 | $ | 793,461 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Accounts
payable
|
$ | 36,061 | $ | 61,217 | ||||
Accrued
payroll and related expenses
|
9,662 | 20,398 | ||||||
Accrued
insurance expenses
|
4,746 | 4,640 | ||||||
Accrued
state, local and other taxes
|
2,999 | 2,395 | ||||||
Income
taxes payable
|
927 | 3,359 | ||||||
Other
accrued expenses
|
255 | 320 | ||||||
Total
current liabilities
|
54,650 | 92,329 | ||||||
Long-term
accrued insurance expenses
|
9,008 | 8,398 | ||||||
Notes
payable to banks
|
123,550 | 174,450 | ||||||
Long-term
pension liabilities
|
12,872 | 11,177 | ||||||
Other
long-term liabilities
|
1,668 | 3,628 | ||||||
Deferred
income taxes
|
50,542 | 54,395 | ||||||
Total
liabilities
|
252,290 | 344,377 | ||||||
Common
stock
|
9,840 | 9,770 | ||||||
Capital
in excess of par value
|
5,290 | 3,990 | ||||||
Retained
earnings
|
424,588 | 445,356 | ||||||
Accumulated
other comprehensive loss
|
(9,356 | ) | (10,032 | ) | ||||
Total
stockholders’ equity
|
430,362 | 449,084 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 682,652 | $ | 793,461 |
RPC,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
|
(In
thousands except per share data)
|
(Unaudited)
|
Three
months ended June 30,
|
Six
months ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
$
|
127,018
|
$
|
214,689
|
$
|
303,289
|
$
|
411,916
|
||||||||
Cost
of revenues
|
91,080
|
120,175
|
201,050
|
237,845
|
||||||||||||
Selling,
general and administrative expenses
|
23,372
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29,010
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50,978
|
57,327
|
||||||||||||
Depreciation
and amortization
|
32,376
|
29,177
|
64,396
|
56,503
|
||||||||||||
Gain
on disposition of assets, net
|
(312
|
)
|
(1,473
|
)
|
(2,034
|
)
|
(3,000
|
)
|
||||||||
Operating
(loss) profit
|
(19,498
|
)
|
37,800
|
(11,101
|
)
|
63,241
|
||||||||||
Interest
expense
|
(527
|
)
|
(1,250
|
)
|
(1,121
|
)
|
(2,721
|
)
|
||||||||
Interest
income
|
52
|
24
|
85
|
46
|
||||||||||||
Other
income, net
|
608
|
105
|
751
|
98
|
||||||||||||
(Loss)
income before income taxes
|
(19,365
|
)
|
36,679
|
(11,386
|
)
|
60,664
|
||||||||||
Income
tax (benefit) provision
|
(7,741
|
)
|
14,221
|
(4,228
|
)
|
23,449
|
||||||||||
Net
(loss) income
|
$
|
(11,624
|
)
|
$
|
22,458
|
$
|
(7,158
|
)
|
$
|
37,215
|
||||||
(Loss)
Earnings per share
|
||||||||||||||||
Basic
|
$
|
(0.12
|
)
|
$
|
0.23
|
$
|
(0.07
|
)
|
$
|
0.39
|
||||||
Diluted
|
$
|
(0.12
|
)
|
$
|
0.23
|
$
|
(0.07
|
)
|
$
|
0.38
|
||||||
Dividends
per share
|
$
|
0.07
|
$
|
0.06
|
$
|
0.14
|
$
|
0.12
|
||||||||
Average
shares outstanding
|
||||||||||||||||
Basic
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96,317
|
96,778
|
96,247
|
96,603
|
||||||||||||
Diluted
|
96,317
|
98,120
|
96,247
|
98,124
|
RPC,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
|
FOR
THE SIX MONTHS ENDED JUNE 30, 2009
|
(In
thousands)
|
(Unaudited)
|
Capital
in
Excess
of
Par
Value
|
Accumulated
Other
Comprehensive
Loss
|
|||||||||||||||||||||
Comprehensive
Income
(Loss)
|
Retained
Earnings
|
|||||||||||||||||||||
Common
Stock
|
||||||||||||||||||||||
Shares
|
Amount
|
Total
|
||||||||||||||||||||
Balance,
December 31, 2008
|
97,705
|
$
|
9,770
|
$
|
3,990
|
$
|
445,356
|
$
|
(10,032
|
)
|
$
|
449,084
|
||||||||||
Stock
issued for stock incentive plans, net
|
930
|
93
|
(198
|
)
|
—
|
—
|
(105
|
)
|
||||||||||||||
Stock
purchased and retired
|
(233
|
)
|
(23
|
)
|
(1,914
|
)
|
—
|
—
|
(1,937
|
)
|
||||||||||||
Net
loss
|
$
|
(7,158
|
)
|
—
|
—
|
—
|
(7,158
|
)
|
—
|
(7,158
|
)
|
|||||||||||
Pension
adjustment, net of taxes
|
554
|
—
|
—
|
—
|
—
|
554
|
554
|
|||||||||||||||
Change
in cash flow hedge, net of taxes
|
129
|
—
|
—
|
—
|
—
|
129
|
129
|
|||||||||||||||
Foreign
currency translation, net of taxes
|
(3
|
)
|
—
|
—
|
—
|
—
|
(3
|
)
|
(3
|
)
|
||||||||||||
Unrealized
loss on securities, net of taxes
|
(4
|
)
|
—
|
—
|
—
|
—
|
(4
|
)
|
(4
|
)
|
||||||||||||
Comprehensive
loss
|
$
|
(6,482
|
)
|
|||||||||||||||||||
Dividends
declared
|
—
|
—
|
—
|
(13,610
|
)
|
—
|
(13,610
|
)
|
||||||||||||||
Stock-based
compensation
|
—
|
—
|
2,088
|
—
|
—
|
2,088
|
||||||||||||||||
Excess
tax benefits for share-based payments
|
—
|
—
|
1,324
|
—
|
—
|
1,324
|
||||||||||||||||
Balance,
June 30, 2009
|
98,402
|
$
|
9,840
|
$
|
5,290
|
$
|
424,588
|
$
|
(9,356
|
)
|
$
|
430,362
|
RPC,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE SIX MONTHS ENDED JUNE 30, 2009 and 2008
|
(In
thousands)
|
(Unaudited)
|
|
Six
months ended June 30,
|
|||||||
|
|
2009
|
2008
|
|||||
OPERATING
ACTIVITIES
|
||||||||
Net
(loss) income
|
$ | (7,158 | ) | $ | 37,215 | |||
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
||||||||
Depreciation,
amortization and other non-cash charges
|
64,378 | 56,515 | ||||||
Stock-based
compensation expense
|
2,088 | 1,809 | ||||||
Gain
on disposition of assets, net
|
(2,034 | ) | (3,000 | ) | ||||
Deferred
income tax (benefit) provision
|
(4,376 | ) | 793 | |||||
Excess
tax benefits for share-based payments
|
(1,324 | ) | (767 | ) | ||||
Changes
in current assets and liabilities:
|
||||||||
Accounts
receivable
|
89,241 | (17,221 | ) | |||||
Income
taxes receivable
|
(1,449 | ) | 12,815 | |||||
Inventories
|
(4,204 | ) | (6,131 | ) | ||||
Prepaid
expenses and other current assets
|
4,239 | 2,100 | ||||||
Accounts
payable
|
(23,221 | ) | 6,702 | |||||
Income
taxes payable
|
(2,432 | ) | (1,340 | ) | ||||
Accrued
payroll and related expenses
|
(10,736 | ) | (1,818 | ) | ||||
Accrued
insurance expenses
|
106 | 408 | ||||||
Accrued
state, local and other taxes
|
604 | 1,295 | ||||||
Other
accrued expenses
|
(88 | ) | (81 | ) | ||||
Changes
in working capital
|
52,060 | (3,271 | ) | |||||
Changes
in other assets and liabilities:
|
||||||||
Accrued
pension
|
2,566 | 799 | ||||||
Accrued
insurance expenses
|
610 | 530 | ||||||
Other
non-current assets
|
(1,525 | ) | (798 | ) | ||||
Other
non-current liabilities
|
(1,755 | ) | (662 | ) | ||||
Net
cash provided by operating activities
|
103,530 | 89,163 | ||||||
INVESTING
ACTIVITIES
|
||||||||
Capital
expenditures
|
(43,214 | ) | (101,263 | ) | ||||
Proceeds
from sale of assets
|
4,170 | 5,035 | ||||||
Net
cash used for investing activities
|
(39,044 | ) | (96,228 | ) | ||||
FINANCING
ACTIVITIES
|
||||||||
Payment
of dividends
|
(13,610 | ) | (11,642 | ) | ||||
Borrowings
from notes payable to banks
|
146,850 | 186,950 | ||||||
Repayments
of notes payable to banks
|
(197,750 | ) | (160,800 | ) | ||||
Debt
issue costs for notes payable to banks
|
— | (94 | ) | |||||
Excess
tax benefits for share-based payments
|
1,324 | 767 | ||||||
Cash
paid for common stock purchased and retired
|
(1,628 | ) | (5,671 | ) | ||||
Proceeds
received upon exercise of stock options
|
103 | 245 | ||||||
Net
cash (used for) provided by financing activities
|
(64,711 | ) | 9,755 | |||||
Net
(decrease) increase in cash and cash equivalents
|
(225 | ) | 2,690 | |||||
Cash
and cash equivalents at beginning of period
|
3,037 | 6,338 | ||||||
Cash
and cash equivalents at end of period
|
$ | 2,812 | $ | 9,028 |
1.
|
GENERAL
|
The
accompanying unaudited consolidated financial statements include the
accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the
“Company”) and have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (all of which consisted of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2009.
|
|
The
balance sheet at December 31, 2008 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
|
|
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s annual report on Form 10-K for
the year ended December 31, 2008.
|
|
A
group that includes the Company’s Chairman of the Board, R. Randall
Rollins and his brother Gary W. Rollins, who is also a director of the
Company, and certain companies under their control, controls in excess of
fifty percent of the Company’s voting power.
|
|
The
Company has considered subsequent events through August 5, 2009, the date
of issuance, in preparing the consolidated financial statements and notes
thereto.
|
|
2.
|
REVENUES
|
RPC’s
revenues are generated principally from providing services and the related
equipment. Revenues are recognized when the services are rendered and
collectibility is reasonably assured. Revenues from services and equipment
are based on fixed or determinable priced purchase orders or contracts
with the customer and do not include the right of return. Rates for
services and equipment are priced on a per day, per unit of measure, per
man hour or similar basis. Sales tax charged to customers is presented on
a net basis within the consolidated statement of operations and excluded
from revenues.
|
3.
|
EARNINGS
PER SHARE
|
Statement
of Financial Accounting Standard (“SFAS”) No. 128, “Earnings Per Share,”
requires a basic earnings per share and diluted earnings per share
presentation. The two calculations differ as a result of the dilutive
effect of stock options and time lapse restricted shares and performance
restricted shares included in diluted earnings per share, but excluded
from basic earnings per share. Basic and diluted earnings per share are
computed by dividing net (loss) income by the weighted average number of
shares outstanding during the respective periods. A reconciliation of
weighted average shares outstanding is as
follows:
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
|||||||||||||||
(In
thousands except per share data)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
(loss) income available for stockholders (numerator for basic and diluted
(loss) earnings per share):
|
$ | (11,624 | ) | $ | 22,458 | $ | (7,158 | ) | $ | 37,215 | ||||||
Shares
(denominator):
|
||||||||||||||||
Weighted
average shares outstanding (denominator for basic (loss) earnings per
share)
|
96,317 | 96,778 | 96,247 | 96,603 | ||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Employee
stock options and restricted stock
|
— | 1,342 | — | 1,521 | ||||||||||||
Adjusted
weighted average shares (denominator for diluted (loss) earnings per
share)
|
96,317 | 98,120 | 96,247 | 98,124 | ||||||||||||
(Loss)
earnings per share:
|
||||||||||||||||
Basic
|
$ | (0.12 | ) | $ | 0.23 | $ | (0.07 | ) | $ | 0.39 | ||||||
Diluted
|
$ | (0.12 | ) | $ | 0.23 | $ | (0.07 | ) | $ | 0.38 |
The
effect of the Company’s stock options and restricted shares as shown below
have been excluded from the computation of diluted (loss) earnings per
share for the following periods, as their effect would have been
anti-dilutive:
|
(in
thousands)
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Stock
options
|
883
|
—
|
883
|
—
|
||||||||||||
Restricted
stock
|
2,055
|
—
|
2,055
|
—
|
In
June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” to clarify that all
outstanding unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents, whether paid
or unpaid, are participating securities. An entity must include
participating securities in its calculation of basic and diluted earnings
per share (EPS) pursuant to the two-class method, as described in SFAS
128, Earnings per Share. The Company has periodically issued share-based
payment awards that contain non-forfeitable rights to dividends. The
Company evaluated the impact of FSP EITF 03-6-1 and determined that the
impact was not material and determined the basic and diluted earnings per
share amounts as reported are equivalent to the basic and diluted earnings
per share amounts calculated under FSP EITF
03-6-1.
|
4.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Recently
Adopted Accounting Pronouncements:
|
|
Financial
Accounting Standards Board Statements
|
|
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS 165
establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements
are issued or are available to be issued. SFAS 165 provides guidance
regarding the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements;
the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements; and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The Company
adopted SFAS 165 in the second quarter of 2009 and the adoption did not
have a material effect on the Company’s consolidated financial
statements.
|
|
Financial
Accounting Standards Board Staff Positions and
Interpretations
|
|
In
April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.” FSP SFAS 157-4 affirms that the objective of fair value when the
market for an asset is not active is the price that would be received to
sell the asset in an orderly transaction, and includes additional factors
for determining whether there has been a significant decrease in market
activity for an asset when the market for that asset is not active. FSP
SFAS 157-4 requires an entity to base its conclusion about whether a
transaction was not orderly on the weight of the evidence. The Company
adopted FSP 157-4 in the second quarter of 2009 and the adoption of this
FSP did not have a material impact on the Company’s consolidated financial
statements.
|
In
April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments.” FSP SFAS 115-2 and
SFAS 124-2 (i) changes existing guidance for determining whether an
impairment is other than temporary to debt securities and (ii) replaces
the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have the intent to
sell the security; and (b) it is more likely than not it will not have to
sell the security before recovery of its cost basis. Under FSP SFAS 115-2
and SFAS 124-2, declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses to the extent
the impairment is related to credit losses. The amount of the impairment
related to other factors is recognized in other comprehensive income. The
Company adopted this FSP in the second quarter of 2009 and the adoption of
this FSP did not have a material impact on the Company’s consolidated
financial statements.
|
|
In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments.” FSP SFAS 107-1 and
APB 28-1 amends SFAS 107, “Disclosures about Fair Value of Financial
Instruments,” to require an entity to provide disclosures about fair value
of financial instruments in interim financial information and amends
Accounting Principles Board (APB) Opinion No. 28, “Interim Financial
Reporting,” to require those disclosures in summarized financial
information at interim reporting periods. Under FSP SFAS 107-1 and APB
28-1, a publicly traded company shall include disclosures about the fair
value of its financial instruments whenever it issues summarized financial
information for interim reporting periods. In addition, entities must
disclose, in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods, the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position, as
required by SFAS 107. The Company adopted this FSP in the second quarter
of 2009. See Note 13 for related disclosures.
|
|
Recently
Issued Accounting Pronouncements Not Yet Adopted:
|
|
Financial
Accounting Standards Board Statements
|
|
In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162.” SFAS 168 establishes the
Codification as the single source of authoritative U.S. generally accepted
accounting principles in addition to the rules and interpretive releases
of the SEC under authority of federal securities laws. SFAS 168 and the
Codification are effective for financial statements issued for interim and
annual periods ending after September 15, 2009. When effective, the
Codification will supersede all existing non-SEC accounting and reporting
standards. As required, the Company plans to adopt SFAS 168 in the third
quarter of 2009 and does not expect the adoption to have a material impact
on its consolidated financial
statements.
|
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets,” SFAS 166 is a revision to SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” and requires more information about transfers of financial
assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets.
It eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets, and requires
additional disclosures. SFAS 166 is effective January 1, 2010, for a
calendar year-end entity, with early application not being permitted.
Adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.
|
|
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R).” SFAS 167 changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entity’s purpose
and design and the reporting entity’s ability to direct the activities of
the other entity that most significantly impact the other entity’s
economic performance. SFAS 167 is effective January 1, 2010, for a
calendar year-end entity, with early application not being permitted.
Adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.
|
|
Financial
Accounting Standards Board Staff Positions and
Interpretations
|
|
In
December 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets.” The
FASB issued the FSP, which amends FASB Statement 132R, “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” in order to
provide adequate transparency about the types of assets and associated
risks in employers’ postretirement plans. Disclosures are designed to
provide an understanding of how investment decisions are made: the major
categories of plan assets; the inputs and valuation techniques used to
measure the fair value of plan assets; the effect of fair value
measurements using significant unobservable inputs on changes in plan
assets for the period; and significant concentrations of risk within plan
assets. The disclosures about plan assets required by this FSP are
required to be provided for fiscal years ending after December 15, 2009,
with no restatement required for earlier periods that are presented for
comparative purposes, upon initial application. Earlier application of the
provisions of this FSP is permitted. The Company is currently in the
process of determining the additional disclosures required upon the
adoption of this FSP.
|
5.
|
COMPREHENSIVE
(LOSS) INCOME
|
The
components of comprehensive (loss) income are as
follows:
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
|||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
(loss) income as reported
|
$ | (11,624 | ) | $ | 22,458 | $ | (7,158 | ) | $ | 37,215 | ||||||
Pension
adjustment, net of taxes
|
245 | 44 | 554 | 44 | ||||||||||||
Change
in cash flow hedge, net of taxes
|
243 | — | 129 | — | ||||||||||||
Foreign
currency translation, net of taxes
|
161 | 10 | (3 | ) | 54 | |||||||||||
Unrealized
(loss) gain on securities, net of taxes
|
66 | 440 | (4 | ) | 459 | |||||||||||
Comprehensive
(loss) income
|
$ | (10,909 | ) | $ | 22,952 | $ | (6,482 | ) | $ | 37,772 |
6.
|
STOCK-BASED
COMPENSATION
|
The
Company reserved 5,062,500 shares of common stock under its 2004 Stock
Incentive Plan which expires ten years from the date of approval. This
plan provides for the issuance of various forms of stock incentives,
including, among others, incentive and non-qualified stock options and
restricted stock. As of June 30, 2009, there were approximately 2,186,000
shares available for
grants.
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
||||||||||||||||
(in
thousands)
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Pre-tax
expense
|
$ | 1,073 | $ | 920 | $ | 2,088 | $ | 1,809 | |||||||||
After
tax expense
|
681 | 584 | 1,326 | 1,160 |
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
|||||||
Outstanding
at January 1, 2009
|
1,108,022
|
$
|
3.12
|
2.68
years
|
||||||
Granted
|
—
|
—
|
N/A
|
|||||||
Exercised
|
(215,862
|
)
|
2.75
|
N/A
|
||||||
Forfeited
|
(8,715
|
)
|
3.76
|
N/A
|
||||||
Expired
|
—
|
—
|
N/A
|
|||||||
Outstanding
and exercisable at June 30, 2009
|
883,445
|
$
|
3.39
|
2.74
years
|
$
|
4,382,000
|
The
total intrinsic value of stock options exercised was approximately
$1,376,000 during the six months ended June 30, 2009 and approximately
$5,596,000 during the six months ended June 30, 2008. The tax benefits
related to options exercised totaled $329,000 during the six months ended
June 30, 2009 were credited to capital in excess of par value and are
classified as financing cash flows in accordance with SFAS 123(R),
“Shared-Based
Payments.”
|
Restricted
Stock
|
|
The
following is a summary of the changes in non-vested restricted shares for
the six months ended June 30,
2009:
|
Shares
|
Weighted
Average
Grant-Date
Fair
Value
|
|||||||||
Non-vested
shares at January 1, 2009
|
1,762,478 | $ | 11.34 | |||||||
Granted
|
722,000 | 8.55 | ||||||||
Vested
|
(421,138 | ) | 9.19 | |||||||
Forfeited
|
(8,051 | ) | 12.96 | |||||||
Non-vested
shares at June 30, 2009
|
2,055,289 | $ | 10.79 |
The
total fair value of shares vested during the six months ended June 30,
2009 was approximately $3,682,000 and during the six months ended June 30,
2008 was approximately $3,675,000. The tax benefits for compensation tax
deductions in excess of compensation expense for the six months ended June
30, 2009 totaled approximately $995,000 and were credited to capital in
excess of par value and are classified as financing cash flows in
accordance with SFAS 123(R).
|
|
Other
Information
|
|
As
of June 30, 2009, total unrecognized compensation cost related to
non-vested restricted shares was approximately $21,160,000 which is
expected to be recognized over a weighted-average period of 4.1 years. As
of June 30, 2009, all of the compensation cost related to stock options
has been recognized.
|
|
7.
|
BUSINESS
SEGMENT INFORMATION
|
RPC’s
service lines have been aggregated into two reportable oil and gas
services segments, Technical Services and Support Services, because of the
similarities between the financial performance and approach to managing
the service lines within each of the segments, as well as the economic and
business conditions impacting their business activity levels. Corporate
includes selected administrative costs incurred by the Company that are
not allocated to business units. Gains or losses on disposition of assets
are reviewed by the Company’s chief decision maker on a consolidated
basis, and accordingly the Company does not report gains or losses at the
segment level.
|
Technical
Services include RPC’s oil and gas service lines that utilize people and
equipment to perform value-added completion, production and maintenance
services directly to a customer’s well. These services include pressure
pumping services, snubbing, coiled tubing, nitrogen pumping, well control
consulting and firefighting, down-hole tools, wireline, and fluid pumping
services. These Technical Services are primarily used in the completion,
production and maintenance of oil and gas wells. The principal markets for
this segment include the United States, including the Gulf of Mexico, the
mid-continent, southwest and Rocky Mountain regions, and international
locations including primarily Africa, Canada, China, Latin America and the
Middle East. Customers include major multi-national and independent oil
and gas producers, and selected nationally-owned oil
companies.
|
|
Support
Services include RPC’s oil and gas service lines that primarily provide
equipment for customer use or services to assist customer operations. The
equipment and services include drill pipe and related tools, pipe
handling, inspection and storage services and oilfield training services.
The demand for these services tends to be influenced primarily by customer
drilling-related activity levels. The principal markets for this segment
include the United States, including the Gulf of Mexico and the
mid-continent regions, and international locations, including primarily
Canada, Latin America, and the Middle East. Customers include domestic
operations of major multi-national and independent oil and gas producers,
and selected nationally-owned oil companies.
|
|
Inter-segment
revenues are generally recorded in segment operating results at prices
that management believes approximate prices for arm’s length transactions
and are not material to operating results.
|
|
Certain information with respect to RPC’s business segments is set forth in the following tables: |
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||||
(in
thousands)
|
|||||||||||||||||
Revenues:
|
|||||||||||||||||
Technical
Services
|
$ | 109,987 | $ | 185,284 | $ | 261,066 | $ | 354,515 | |||||||||
Support
Services
|
17,031 | 29,405 | 42,223 | 57,401 | |||||||||||||
Total
revenues
|
$ | 127,018 | $ | 214,689 | $ | 303,289 | $ | 411,916 | |||||||||
Operating
(loss) profit:
|
|||||||||||||||||
Technical
Services
|
$ | (15,212 | ) | $ | 31,958 | $ | (9,064 | ) | $ | 52,644 | |||||||
Support
Services
|
(1,616 | ) | 6,764 | 2,090 | 12,622 | ||||||||||||
Corporate
|
(2,982 | ) | (2,395 | ) | (6,161 | ) | (5,025 | ) | |||||||||
Gain
on disposition of assets, net
|
312 | 1,473 | 2,034 | 3,000 | |||||||||||||
Total
operating (loss) profit
|
$ | (19,498 | ) | $ | 37,800 | $ | (11,101 | ) | $ | 63,241 | |||||||
Interest
expense
|
(527 | ) | (1,250 | ) | (1,121 | ) | (2,721 | ) | |||||||||
Interest
income
|
52 | 24 | 85 | 46 | |||||||||||||
Other
income, net
|
608 | 105 | 751 | 98 | |||||||||||||
(Loss)
Income before income taxes
|
$ | (19,365 | ) | $ | 36,679 | $ | (11,386 | ) | $ | 60,664 |
Six
months ended June 30, 2009
|
Technical
Services
|
Support
Services
|
Corporate
|
Total
|
||||||||||||
(in
thousands)
|
||||||||||||||||
Identifiable
assets at June 30, 2009
|
$ | 466,753 | $ | 167,624 | $ | 48,275 | $ | 682,652 | ||||||||
Capital
expenditures
|
31,392 | 11,469 | 353 | 43,214 | ||||||||||||
Depreciation
and amortization
|
50,450 | 13,575 | 371 | 64,396 |
8.
|
INVENTORIES
|
Inventories
of $54,044,000 at June 30, 2009 and $49,779,000 at December 31, 2008
consist of raw materials, parts and supplies.
|
|
9.
|
EMPLOYEE
BENEFIT PLAN
|
The
following represents the net periodic benefit cost (credit) and related
components of the Company’s multiple employer Retirement Income
Plan:
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
|||||||||||||||
(in
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Service
cost
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Interest
cost
|
484 | 461 | 969 | 921 | ||||||||||||
Expected
return on plan assets
|
(380 | ) | (636 | ) | (760 | ) | (1,272 | ) | ||||||||
Amortization
of net losses
|
385 | 71 | 769 | 142 | ||||||||||||
Net
periodic benefit cost (credit)
|
$ | 489 | $ | (104 | ) | $ | 978 | $ | (209 | ) |
The
Company has not made any contributions to the plan during the six months
ended June 30, 2009 and does not currently expect to make any
contributions to this plan during the remainder of
2009.
|
10.
|
NOTES
PAYABLE TO BANKS
|
The
Company currently has a revolving credit agreement (the “Revolving Credit
Agreement”) with SunTrust Capital Markets, Inc, as Joint Lead Arranger and
Sole Book Manager, Banc of America Securities LLC as Joint Lead Arranger,
and a syndicate of other lenders. The Revolving Credit Agreement includes
a full and unconditional guarantee by RPC’s 100% owned domestic
subsidiaries whose assets equal substantially all of the consolidated
assets of RPC and its subsidiaries. The subsidiaries of the Company that
are not guarantors are considered minor.
|
|
The
Revolving Credit Agreement has a general term of five years and provides
for an unsecured line of credit of up to $296.5 million, which includes a
$50 million letter of credit subfacility, and a $20 million swingline
subfacility. The maturity date of all revolving loans under the Credit
Agreement is September 8, 2011. The Company has incurred loan origination
fees and other debt related costs associated with the line of credit and
Commitment Increase Amendment in the aggregate of approximately $514,000.
These costs are being amortized over the remaining term of the five year
loan, and the net amount is classified as non-current other assets on the
consolidated balance sheets.
|
|
Revolving
loans under the Revolving Credit Agreement bear interest at one of the
following two rates, at RPC’s election:
|
|
● the
Base Rate, which is the greater of SunTrust Bank’s “prime rate” for the
day of the borrowing and a fluctuating rate per annum equal to the Federal
Funds Rate plus .50%; or
|
|
● with
respect to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR
as increased to account for the maximum reserve percentages established by
the U.S. Federal Reserve) plus a margin ranging from .40% to .80%, based
upon RPC’s then-current consolidated debt-to-EBITDA ratio. In addition,
RPC will pay an annual fee ranging from .10% to .20% of the total credit
facility based upon RPC’s then-current consolidated debt-to-EBITDA
ratio.
|
|
The
Revolving Credit Agreement contains customary terms and conditions,
including certain financial covenants and restrictions on indebtedness,
dividend payments, business combinations and other related items. Further,
the Revolving Credit Agreement contains financial covenants limiting the
ratio of RPC’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and
limiting the ratio of RPC’s consolidated EBIT to interest expense to no
less than 2 to 1.
|
As
of June 30, 2009, RPC has outstanding borrowings of $123.6 million under
the Revolving Credit Agreement. Interest incurred on the line of credit
was $598,000 and $1,255,000 during the three and six months ended June 30,
2009, and $1,473,000 and $3,221,000 during the three and six months ended
June 30, 2008. The weighted average interest rate was 1.9% and 1.8% for
the three and six months ended June 30, 2009, and 3.4% and 3.9% for the
three and six months ended June 30, 2008. For the six months ended June
30, 2009, and June 30, 2008, the Company capitalized interest of
approximately $123,000 and $533,000 related to facilities and equipment
under construction. Additionally there were letters of credit outstanding
relating to self-insurance programs and contract bids for $15.0 million as
of June 30, 2009.
|
|
Effective
December 2008 the Company entered into an interest rate swap agreement
that effectively converted $50 million of the Company’s variable-rate debt
to a fixed rate basis, thereby hedging against the impact of potential
interest rate changes on future interest expense. The agreement terminates
on September 8, 2011. Under this agreement the Company pays a fixed
interest rate of 2.07%. In return, the issuing lender refunds the Company
the variable-rate interest paid to the syndicate of lenders under the
Company’s revolving credit agreement on the same notional amount,
excluding the margin that varies from 0.40% to 0.80%, depending upon RPC’s
then-current consolidated debt-to-EBITDA ratio.
|
|
11.
|
INCOME
TAXES
|
The
Company determines its periodic income tax benefit or expense based upon
the current period income and the annual estimated tax rate for the
Company adjusted for any change to prior period estimates. The estimated
tax rate is revised, if necessary, as of the end of each successive
interim period during the fiscal year to the Company’s current annual
estimated tax rate.
|
|
12.
|
SUPPLEMENTAL
CASH FLOWS INFORMATION
|
The
Company had accounts payable for purchases of property, plant and
equipment of approximately $7,441,000 as of June 30, 2009, and
approximately $14,482,000 as of June 30, 2008.
|
|
13.
|
FAIR
VALUE DISCLOSURES
|
The
Company adopted SFAS 157, “Fair Value Measurements,” and FSP 157-2,
“Effective Date of FASB Statement No. 157,” in the first quarter of 2008
for financial assets and liabilities. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosure
requirements about items measured at fair value. SFAS 157 does not require
any new fair value measurements. It applies to accounting pronouncements
that already require or permit fair value
measures.
|
1.
|
Level
1 – Quoted market prices in active markets for identical assets or
liabilities.
|
|
2.
|
Level
2 – Inputs other than level 1 that are either directly or indirectly
observable.
|
|
3.
|
Level
3 – Unobservable inputs developed using the Company’s estimates and
assumptions, which reflect those that market participants would
use.
|
|
Fair
value measurements at June 30, 2009 with:
|
||||||||||||
(in
thousands)
|
Quoted
prices in
active
markets for
identical
assets
|
Significant
other
observable
inputs
|
Significant
unobservable
inputs
|
|||||||||
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||
Assets:
|
||||||||||||
Trading
securities
|
$ | 5,632 | $ | — | $ | — | ||||||
Available
for sale securities
|
504 | — | — | |||||||||
Liabilities:
|
||||||||||||
Interest
rate swap
|
$ | — | $ | (626 | ) | $ | — |
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Consolidated
revenues [in thousands]
|
$ | 127,018 | $ | 214,689 | $ | 303,289 | $ | 411,916 | ||||||||
Revenues
by business segment [in thousands]:
|
||||||||||||||||
Technical
|
$ | 109,987 | $ | 185,284 | $ | 261,066 | $ | 354,515 | ||||||||
Support
|
17,031 | 29,405 | 42,223 | 57,401 | ||||||||||||
Consolidated
operating (loss) profit [in thousands]
|
$ | (19,498 | ) | $ | 37,800 | $ | (11,101 | ) | $ | 63,241 | ||||||
Operating
(loss) profit by business segment [in thousands]:
|
||||||||||||||||
Technical
|
$ | (15,212 | ) | $ | 31,958 | $ | (9,064 | ) | $ | 52,644 | ||||||
Support
|
(1,616 | ) | 6,764 | 2,090 | 12,622 | |||||||||||
Corporate
|
$ | (2,983 | ) | $ | (2,395 | ) | $ | (6,161 | ) | $ | (5,025 | ) | ||||
Gain
on disposition of assets, net
|
$ | 312 | $ | 1,473 | $ | 2,034 | $ | 3,000 | ||||||||
Percentage
cost of revenues to revenues
|
71.7 | % | 56.0 | % | 66.3 | % | 57.7 | % | ||||||||
Percentage
selling, general & administrative expenses to revenues
|
18.4 | % | 13.5 | % | 16.8 | % | 13.9 | % | ||||||||
Percentage
depreciation and amortization expense to revenues
|
25.5 | % | 13.6 | % | 21.2 | % | 13.7 | % | ||||||||
Average
U.S. domestic rig count
|
934 | 1,864 | 1,139 | 1,817 | ||||||||||||
Average
natural gas price (per thousand cubic feet (mcf))
|
$ | 3.69 | $ | 11.33 | $ | 4.10 | $ | 9.98 | ||||||||
Average
oil price (per barrel)
|
$ | 60.06 | $ | 125.24 | $ | 51.85 | $ | 111.64 |