t66043_10q.htm


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)
 
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
 
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 x    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 month (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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
     
 
Large accelerated filer o
Accelerated filer x
 
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
 
As of July 29, 2009, RPC, Inc. had 98,407,052 shares of common stock outstanding.

 
1

 
RPC, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
     
Page
No.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
21 – 33
       
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
33
       
Item 4.
Controls and Procedures
 
34
       
Part II. Other Information
   
Item 1.
Legal Proceedings
 
35
       
 Item 1A.
Risk Factors
 
35
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
35
       
Item 3.
Defaults upon Senior Securities
 
36
       
Item 4.
Submission of Matters to a Vote of Security Holders
 
36
       
Item 5.
Other Information
 
36
       
Item 6.
Exhibits
 
37
       
Signatures
 
38

 
2

 
 
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  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
3

 
 
 
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
     
29,010
     
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
   
96,317
     
96,778
     
96,247
     
96,603
 
Diluted
   
96,317
     
98,120
     
96,247
     
98,124
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
4

 

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
 
 
The accompanying notes are an integral part of this consolidated financial statement.
 
5

 


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  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
6

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

 
7

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

 
8

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
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.

 
9

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO 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.

 
10

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO 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.

 
11

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
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.

 
12

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Stock-based employee compensation expense was as follows for the periods indicated:
                           
   
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  
 
          Stock Options
 
                    Transactions involving RPC’s stock options for the six months ended June 30, 2009 were as follows:
                     
   
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.”

 
13

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
 
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.

 
14

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
 
          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  

 
15

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                         
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.

 
16

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
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.

 
17

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
 
          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.

 
18

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    SFAS 157 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:
 
 
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.
     
    The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheet as of June 30, 2009:
 
   
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 )   $  
 
          At June 30, 2009 and December 31, 2008, there was $123,550,000 and $174,450,000 outstanding under the Company’s Revolving Credit Agreement. The borrowings under the Company’s Revolving Credit Agreement bear interest at the variable rate described in Note 10 and therefore approximate fair value at June 30, 2009 and December 31, 2008. The Company is subject to interest rate risk on the variable component of the interest rate. The Company’s risk management objective is to lock in the interest cash outflows on a portion of the Company’s debt. As a result, as described in Note 10, the Company entered into an interest rate swap agreement on $50 million of debt to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense. The interest rate swap had a negative fair value, which is recorded in other long-term liabilities, of $626,000 at June 30, 2009 and $830,000 at December 31, 2008. The fair value of the interest rate swap was based on quotes from the issuer of the swap and represents the estimated amounts that the Company would expect to pay to terminate the swap.
 
19

 
RPC, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
          The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, marketable securities, accounts payable, an interest rate swap, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The marketable securities classified as available-for-sale and the securities held in the SERP classified as trading are carried at fair value, through quoted market prices, in the accompanying consolidated balance sheets.
 
          In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, including interim periods within that fiscal year. The Company did not elect the fair value option for any of its existing financial instruments as of June 30, 2009 and the Company has not determined whether or not it will elect this option for financial instruments it may acquire in the future.
 
20

 
RPC, INC. AND SUBSIDIARIES
   
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
          The following discussion should be read in conjunction with the Consolidated Financial Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 32.
 
          RPC, Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and selected international locations. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment, and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities.
 
          The discussion of our key business and financial strategies set forth under the Overview section in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008 is incorporated herein by reference. Since year-end, the Company’s operational strategies have not changed.
 
          During the second quarter of 2009, revenues decreased 40.8 percent to $127.0 million compared to the same period in the prior year. The decline in revenues resulted primarily from lower pricing for our services, coupled with lower utilization of our equipment and personnel. International revenues for the second quarter of 2009 declined slightly due to declines in Oman, Saudi Arabia, the United Arab Emirates, Canada and Bolivia, partially offset by increases in Australia, New Zealand, Mexico, South Africa, Cameroon and Egypt. We continue to focus on developing international growth opportunities; however, it is difficult to predict when contracts and projects will be initiated and their ultimate duration.
 
          Expense reduction measures taken in 2009 only slightly offset the dramatically lower revenues in the second quarter of 2009. Although these measures did contribute to the overall decreases in cost of revenues and selling, general and administrative expenses, they were not sufficient to overcome the effects of lower pricing for our services.
 
          Cost of revenues as a percentage of revenues increased approximately 15.7 percentage points in the second quarter of 2009 compared to the same period of 2008. This increase was due primarily to the effects on revenues of lower pricing due to competition, and higher materials requirements for more service-intensive work, partially offset by the expense reduction measures taken.
 
21

 
RPC, INC. AND SUBSIDIARIES
 
          Selling, general and administrative expenses as a percentage of revenues increased by approximately 4.9 percentage points in the second quarter of 2009 compared to the same period in the prior year due to negative leverage of these costs resulting from lower revenues. The Company realized an operating loss in the current quarter due to lower revenues and increased depreciation, partially offset by lower costs of revenues and selling, general and administrative expenses.
 
          The Company realized a pretax loss of $19.4 million for the three months ended June 30, 2009 compared to pretax income of $36.7 million in the prior year. The pretax loss for the three months ended June 30, 2009 resulted in the Company recording an income tax benefit for the quarter, compared to income tax provision of $14.2 million, or an effective tax rate of 38.8 percent, in the prior year. Diluted loss per share was $0.12 for the three months ended June 30, 2009 compared to diluted earnings per share of $0.23 in the same period in the prior year. Cash flows from operating activities were $103.5 million for the six months ended June 30, 2009 compared to $89.2 million for the same period in the prior year due to decreased working capital requirements realized consistent with lower revenues and business activity levels. The notes payable to banks were $123.6 million as of June 30, 2009 and $182.6 million as of June 30, 2008.
 
          Capital expenditures were $43.2 million during the first six months of 2009. We currently expect capital expenditures to be approximately $70 million during 2009. This estimated amount is lower than in any of the previous three fiscal years, due to low pricing and utilization on our existing fleet of equipment at the present time, and our strategy to maintain a conservative balance sheet. We expect that our capital expenditures in 2009 will be primarily directed toward routine and emergency maintenance and for equipment related to specific projects in which we have a contract with a customer, rather than growth in our fleet of equipment.
 
Outlook
 
          Drilling activity in the U.S. domestic oilfield, as measured by the rotary drilling rig count, experienced a cyclical peak in the third quarter of 2008, and since that time has declined at the fastest annualized rate in history. Following a peak of 2,031 in the third quarter of 2008, the U.S. domestic rotary drilling rig count fell 56.5 percent to 876 near the end of the second quarter of 2009. The overall domestic rig count during the six months ended June 30, 2009 was approximately 37.3 percent lower than in the comparable period in 2008. As of the beginning of the third quarter of 2009, the rotary drilling rig count appears to have stabilized, although there are no indications that it will significantly increase in the near term. The average price of oil decreased by approximately 53.6 percent and the average price of natural gas decreased by approximately 58.9 percent during the six months ended June 30, 2009 compared to the prior year. Our response to the industry’s rapid decline is to maintain sufficient liquidity and a conservative capital structure. As discussed in the Overview section above, we have reduced our capital expenditures and reduced costs during 2009, one result of which is that the balance on our revolving credit facility has been reduced by $50.9 million since December 31, 2008. We expect revenues will be lower in 2009 than in 2008. Although we have reduced headcount and taken additional steps to reduce employment costs, as well as reduced costs in other areas, we believe that we will generate operating and net losses for the 12 months ended December 31, 2009.
 
22

 
RPC, INC. AND SUBSIDIARIES
 
          In most of the Company’s service lines and all of our geographic markets, we are experiencing the negative impacts of increased competition, including lower pricing for our services and lower utilization of our equipment and personnel.
 
          Further discussion of the Company’s outlook is set forth under the Outlook section in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008 and is incorporated herein by reference. There have been no significant changes in the Company’s outlook since the filing of the 10-K for 2008 except as discussed above.
 
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  

 
23

 
RPC, INC. AND SUBSIDIARIES
 
THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008
 
          Revenues. Revenues for the three months ended June 30, 2009 decreased 40.8 percent compared to the three months ended June 30, 2008. Domestic revenues decreased 42.5 percent to $118.4 million compared to the same period in the prior year. The decreases in revenues are due primarily to dramatically lower pricing for our services coupled with modestly lower utilization of our equipment and personnel. International revenues remained unchanged at $8.7 million for the three months ended June 30, 2009 and June 30, 2008. Our international revenues are impacted by the timing of project initiation and their ultimate duration and can be volatile in nature.
 
          The average price of natural gas decreased approximately 67.4 percent and the average price of oil decreased 52.0 percent during the second quarter of 2009 as compared to the prior year. The average domestic rig count during the quarter was approximately 49.9 percent lower than the same period in 2008. This decrease in drilling activity had a negative impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells.
 
          The Technical Services segment revenues for the quarter decreased 40.6 percent compared to the same period in the prior year. Revenues in this segment decreased due primarily to competitive pricing pressures and lower equipment utilization. The Support Services segment revenues for the quarter fell by 42.1 percent compared to the same period in the prior year. This decline was due primarily to lower pricing and decreased activity in the rental tool service line, the largest within this segment. Operating profit decreased in both segments primarily due to lower revenues and higher costs and expenses as a percentage of revenues.
 
          Cost of revenues. Cost of revenues decreased 24.2 percent to $91.0 million for the three months ended June 30, 2009 compared to $120.2 million for three months ended June 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures taken during 2009, including employment cost reductions and greater efficiencies in the purchase of materials and supplies. Cost of revenues, as a percentage of revenues, increased in the second quarter of 2009 compared to the second quarter of 2008 due primarily to lower pricing for our services, higher materials requirements for more service-intensive work and negative leverage from direct personnel costs.
 
          Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2009 decreased 19.4 percent to $23.4 million compared to $29.0 million for the three months ended June 30, 2008. This decrease was primarily due to lower employment costs and other expenses resulting from expense reduction efforts instituted in 2009. However, these costs as a percent of revenues increased during the three months ended June 30, 2009 compared to the same period in the prior year due to lower revenues and the fixed nature of several of these expenses.
 
24

 
RPC, INC. AND SUBSIDIARIES
 
          Depreciation and amortization. Depreciation and amortization totaled $32.4 million for the three months ended June 30, 2009, an 11.0 percent increase, compared to $29.2 million for the quarter ended June 30, 2008. This increase in depreciation and amortization resulted from capital expenditures made during the last year within both Technical Services and Support Services to increase capacity, expand facilities and to maintain our existing fleet of equipment.
 
          Gain on disposition of assets, net. Gain on disposition of assets, net was $312 thousand for the three months ended June 30, 2009 compared to $1.5 million for the three months ended June 30, 2008. The gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.
 
          Other income, net. Other income, net was $608 thousand for the three months ended June 30, 2009 and $105 thousand for the same period in the prior year. Other income, net primarily includes gains and losses from investments in the non-qualified benefit plan being marked to market, settlements of various legal and insurance claims, and royalty receipts.
 
          Interest expense and interest income. Interest expense was $527 thousand for the three months ended June 30, 2009 compared to $1.3 million for the quarter ended June 30, 2008. The decrease in 2009 is due to lower interest rates and a lower average balance on our revolving line of credit, net of interest capitalized on equipment and facilities under construction. Interest income was $52 thousand for the three months ended June 30, 2009 and $24 thousand for the three months ended June 30, 2008.
 
          Income tax (benefit) provision. Income tax benefit was $7.7 million during the three months ended June 30, 2009, compared to a $14.2 million income tax provision for the same period in 2008. This change was due to the decrease in income before taxes. The effective tax rate was 40.0 percent for the three months ended June 30, 2009 compared to 38.8 percent for the three months ended June 30, 2008.
 
25

 
RPC, INC. AND SUBSIDIARIES
 
SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008
 
          Revenues. Revenues for the six months ended June 30, 2009 decreased 26.4 percent compared to the six months ended June 30, 2008. Domestic revenues decreased 27.8 percent to $285.0 million compared to the same period in the prior year. The decreases in revenues are due primarily to lower pricing for our services and lower utilization of our equipment and personnel. International revenues increased from $17.1 million to $18.3 million compared to the same period in the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration and can be volatile in nature.
 
          The average price of natural gas decreased approximately 58.9 percent and the average price of oil decreased 53.6 percent during the six months ended June 30, 2009 as compared to the prior year. The average domestic rig count during the period was approximately 37.3 percent lower than the same period in 2008. This decrease in drilling activity had a negative impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells.
 
          The Technical Services segment revenues for the first six months of 2009 decreased 26.4 percent compared to the prior year. Revenues in this segment decreased due primarily to competitive pricing and lower equipment utilization. The Support Services segment revenues for the first six months of 2009 fell by 26.4 percent compared to the prior year. This decline was due primarily to decreased activity in the rental tool service line, the largest within this segment. Operating profit decreased in both segments primarily due to lower revenues and higher costs and expenses as a percentage of revenues.
 
          Cost of revenues. Cost of revenues decreased 15.5 percent to $201.1 million for the six months ended June 30, 2009 compared to $237.8 million for six months ended June 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures taken during 2009. Cost of revenues, as a percentage of revenues, increased in the first six months of 2009 compared to the first six months of 2008 due primarily to lower pricing for our services, higher maintenance and repairs expenses and negative leverage from direct personnel costs.
 
          Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2009 decreased 11.1 percent to $51.0 million compared to $57.3 million for the six months ended June 30, 2008. This decrease was primarily due to lower employment costs and other expenses resulting from expense reduction efforts instituted in 2009. However, these costs as a percent of revenues increased during the six months ended June 30, 2009 compared to the same period in the prior year due to lower revenues and the fixed nature of several of these expenses.
 
          Depreciation and amortization. Depreciation and amortization totaled $64.4 million for the six months ended June 30, 2009, a 14.0 percent increase, compared to $56.5 million for the six months ended June 30, 2008. This increase in depreciation and amortization resulted from capital expenditures made during the last twelve months within both Technical Services and Support Services to increase capacity, expand facilities and to maintain our existing fleet of equipment.
 
26

 
RPC, INC. AND SUBSIDIARIES
 
          Gain on disposition of assets, net. Gain on disposition of assets, net was $2.0 million for the six months ended June 30, 2009 compared to $3.0 million for the six months ended June 30, 2008. The gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.
 
          Other income, net. Other income, net was $751 thousand for the six months ended June 30, 2009 and $98 thousand for the same period in the prior year. Other income, net primarily includes gains and losses from investments in the non-qualified benefit plan being marked to market, settlements of various legal and insurance claims, and royalty receipts.
 
          Interest expense and interest income. Interest expense was $1.1 million for the six months ended June 30, 2009 compared to $2.7 million for the six months ended June 30, 2008. The decrease in 2009 is due to lower interest rates and a lower average balance on our revolving line of credit, net of interest capitalized on equipment and facilities under construction. Interest income was $85 thousand for the six months ended June 30, 2009 and $46 thousand for the six months ended June 30, 2008.