10-Q 1 a10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-8726 RPC, INC. (exact name of registrant as specified in its charter) DELAWARE 58-1550825 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2170 PIEDMONT ROAD, NE, ATLANTA, GEORGIA 30324 (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 --- --- As of June 30, 2000, RPC, Inc. had 28,255,167 shares of common stock outstanding. RPC, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000, AND DECEMBER 31, 1999 (In thousands)
JUNE 30, DECEMBER 31, 2000 1999 (UNAUDITED) (AUDITED) ----------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $4,866 $8,278 Marketable securities 4,364 4,798 Accounts receivable, net of allowance for doubtful accounts of $4,897 and $4,659, respectively 43,881 34,871 Inventories, at lower of cost or market 21,198 19,631 Deferred income taxes 8,512 8,254 Federal income taxes receivable - 1,806 Prepaid expenses and other current assets 1,597 2,337 ----------------------------------------------------------------------------------------------------------- Current assets 84,418 79,975 ----------------------------------------------------------------------------------------------------------- Equipment and property, net 88,565 75,472 Marketable securities 19,512 24,871 Intangibles, net 8,576 9,006 Other assets 1,437 1,251 ----------------------------------------------------------------------------------------------------------- Total assets $202,508 $190,575 =========================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $10,815 $13,728 Accrued payroll and related expenses 7,029 5,725 Accrued insurance expenses 7,213 7,689 Accrued state, local and other taxes 4,498 4,106 Federal income taxes payable 938 - Accrued discounts 2,159 1,131 Current portion of long-term debt 610 255 Other accrued expenses 8,195 8,976 ----------------------------------------------------------------------------------------------------------- Current liabilities 41,457 41,610 ----------------------------------------------------------------------------------------------------------- Long-term accrued insurance expenses 3,881 3,684 Long-term debt 918 1,547 Deferred income taxes 1,220 926 ----------------------------------------------------------------------------------------------------------- Total liabilities 47,476 47,767 ----------------------------------------------------------------------------------------------------------- Commitments and contingencies ----------------------------------------------------------------------------------------------------------- Common stock 2,825 2,826 Capital in excess of par value 22,456 22,548 Earnings retained 129,751 117,434 ----------------------------------------------------------------------------------------------------------- Total stockholders' equity 155,032 142,808 ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $202,508 $190,575 ===========================================================================================================
The accompanying notes are an integral part of these statements. 2 of 15 RPC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000, AND 1999 (In thousands except per share data) (Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------------- ------------------------------------- 2000 1999 2000 1999 -------------------------------------------------------------------------------------- ------------------------------------- REVENUE $82,472 $59,978 $156,241 $114,913 ------------------------------------------------------------------------------------------------------------------------------- Cost of goods sold 34,778 28,475 66,662 54,386 Operating expenses 35,123 23,150 65,333 46,513 Depreciation and amortization 4,670 4,153 9,097 8,197 Gain on settlement of claim - - (6,817) - Interest income (441) (482) (817) (848) ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 8,342 4,682 22,783 6,665 Income tax provision 3,170 1,778 8,657 2,532 ------------------------------------------------------------------------------------------------------------------------------- NET INCOME $5,172 $2,904 $14,126 $4,133 =============================================================================================================================== EARNINGS PER SHARE Basic $0.19 $0.10 $0.51 $0.15 ------------------------------------------------------------------------------------------------------------------------------- Diluted $0.18 $0.10 $0.50 $0.15 ------------------------------------------------------------------------------------------------------------------------------- AVERAGE SHARES OUTSTANDING Basic 27,834 28,178 27,831 28,251 ------------------------------------------------------------------------------------------------------------------------------- Diluted 28,258 28,480 28,210 28,478 -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 3 of 15 RPC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000, and 1999 (In thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------------------- 2000 1999 ------------------------------------------------------------------------------------------------------ OPERATING ACTIVITES Net income $14,126 $4,133 Noncash charges (credits) to earnings: Depreciation and amortization 9,711 8,623 (Gain) on sale of equipment and property (680) (1,048) Deferred income tax (benefit) provision 36 1,047 (Increase) decrease in assets: Accounts receivable (9,010) (1,202) Federal income tax receivable 1,806 2,439 Inventories (1,567) 280 Prepaid expenses and other current assets 740 187 Other non-current assets (186) (29) Increase (decrease) in liabilities: Accounts payable (2,913) 4,294 Federal income tax payable 938 0 Accrued payroll and related expenses 1,304 494 Accrued insurance expenses (279) 387 Other accrued expenses 639 1,200 ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 14,665 20,805 ------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Capital expenditures (22,806) (6,657) Proceeds from sale of equipment and property 1,378 1,257 Net sale (purchase) of marketable securities 5,793 (3,020) Other (100) (19) ------------------------------------------------------------------------------------------------------ Net cash used for investing activities (15,735) (8,439) ------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Dividend distributions (1,976) (2,003) Repayments of long term debt (274) (434) Purchase of treasury stock (152) (2,774) Proceeds from exercise of stock options 60 51 ------------------------------------------------------------------------------------------------------ Net cash used for financing activities (2,342) (5,160) ------------------------------------------------------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (3,412) 7,206 Cash and cash equivalents at beginning of period 8,278 10,029 ------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $4,866 $17,235 ======================================================================================================
The accompanying notes are an integral part of these statements. 4 of 15 RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999. In the opinion of management, the consolidated financial statements included herein contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2000, the results of operations for the quarter and the six months ended June 30, 2000 and 1999, and the cash flows for the six months ended June 30, 2000 and 1999. The results of operations for the quarter and six months ended June 30, 2000, are not necessarily indicative of the results to be expected for the full year. 2. EARNINGS PER SHARE Basic and diluted earnings per share are computed by dividing net income by the respective weighted average number of shares outstanding during the respective periods. 3. RECENT ACCOUNTING PRONOUNCEMENTS In June, 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not anticipate the adoption of these standards to have a material impact on its financial position or results of operations. 5 of 15 RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D 4. BUSINESS SEGMENT INFORMATION RPC has two primary business segments: oil and gas services and powerboat manufacturing. The oil and gas services companies provide a variety of equipment, personnel, and specialized services to exploration and production companies in the mid-continent and Gulf of Mexico regions and selected international locations. The companies are capable of, among other things, providing personnel and equipment for performing well control services, renting specialized oil field equipment including drill pipe, and providing tubular handling and inspection services. The powerboat manufacturing segment, through Chaparral Boats, is a leading national powerboat manufacturer with sales through a domestic and international network of independent dealers. RPC evaluates the performance of its business segments using profit or loss from operations before corporate expenses and income taxes. RPC accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. RPC's business segments are strategic business units that offer different products and services. They are managed separately because each business requires different technologies and marketing strategies. Each of these businesses was acquired as a unit, and the management at the time of acquisition was retained. Certain information with respect to RPC's business segments is set forth in the following table:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2000 1999 2000 1999 --------------------------- ------------------------- (IN THOUSANDS) (IN THOUSANDS) REVENUE: Oil and gas services $ 36,317 $ 21,761 $ 68,789 $ 42,273 Boat manufacturing 42,608 35,135 80,493 66,368 Other segments 3,547 3,082 6,959 6,272 ----------------------- ---------------------------- -------------------------- Total revenue $ 82,472 $ 59,978 $ 156,241 $114,913 ======================= ============================ ========================== OPERATING INCOME (LOSS): Oil and gas services $ 3,367 $ 395 $ 7,335 $ (1,444) Boat manufacturing 5,650 5,126 10,175 9,420 Other segments 54 (452) (160) (323) ----------------------- ---------------------------- -------------------------- Total operating income $ 9,071 $ 5,069 $ 17,350 $ 7,653 ======================= ============================ ========================== Corporate expenses (1,170) (869) (2,201) (1,836) Gain on settlement of claim 0 0 6,817 0 Interest income 441 482 817 848 ----------------------- ---------------------------- -------------------------- Income before income taxes $ 8,342 $ 4,682 $ 22,783 $ 6,665 ======================= ============================ ==========================
6 of 15 RPC, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Revenue for the second quarter ended June 30, 2000 increased $22,494,000 or 38% to $82,472,000 compared with $59,978,000 last year. The oil and gas services segment revenue was $36,317,000 for the second quarter of 2000, a $14,556,000 or 67% increase, compared to $21,761,000 for the second quarter of 1999. Beginning in the fourth quarter of 1999, oil and gas services revenues began to improve as customer spending increased in response to higher oil and natural gas prices. In the last six months, exploration and production companies have been undertaking activities to increase production from existing wells to take advantage of current commodity price levels. Although the number of active drilling rigs in the United States has increased 59% when compared to the prior year, spending on exploration activities has been weaker than spending on production enhancement activities. If supply and demand for oil and natural gas remain at current levels, exploration activities should increase and generate additional opportunities for revenue growth for our oil and gas services companies. Contributing to this segment's revenue increase was a new pressure pumping service line which generated $3.5 million in revenue in the second quarter of 2000, and a $2.2 million or 61% increase in revenue from foreign projects, primarily in Venezuela. The powerboat manufacturing segment revenue for the second quarter of 2000, was $42,608,000 a 21% increase compared to $35,135,000 for the second quarter of 1999. The powerboat market continues to experience revenue increases and Chaparral's sales backlog remains high by historical measures. However, recent interest rate increases and signs of weakness in consumer confidence levels could negatively impact future sales. The revenue increase for the second quarter of 2000 compared to the second quarter of 1999 resulted from an increase in the volume of boats sold coupled with a small increase in the average sales price. 7 of 15 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D Cost of goods sold for the second quarter of 2000 was $34,778,000 compared to $28,475,000 for the second quarter of 1999, an increase of $6,303,000 or 22%. Cost of goods sold for the powerboat manufacturing segment totaled $32,341,000 for the second quarter of 2000 compared to $26,212,000 for the second quarter of 1999. The remainder of cost of goods sold relates to businesses in other industries. The increase in cost of goods sold (as a percent of revenue) from 75% in 1999 to 76% in 2000 for the powerboat manufacturing segment is due primarily to lower manufacturing efficiency due to manufacturing space constraints caused by the large production volumes, to delays in vendor delivery of certain parts, and to normal employee turnover. In the third quarter of 2000, additional manufacturing space will be opened to address current space constraints. In addition, the Company is working closely with its vendors to improve vendor delivery performance. Operating expenses for the second quarter of 2000 were $35,123,000 compared to $23,150,000 for the second quarter of 1999, an increase of $11,973,000 or 52%. The oil and gas services segment operating expenses were 79% of segment revenue for the second quarter of 2000 compared to 85% in the second quarter of 1999. The reduction in operating expenses as a percent of revenue within oil and gas services is due to improved operating efficiencies resulting from higher activity levels and revenue. Operating expenses in the boat manufacturing segment were 10% of segment revenue for the second quarter of 2000 and 10% of segment revenue for the second quarter of 1999. Interest income for the second quarter of 2000 was $441,000 a 9% decrease from $482,000 for the second quarter of 1999. The decrease in interest income resulted from decreases in average investable balances of cash and marketable securities offset by higher interest yields. Net income for the second quarter of 2000 increased 78% to $5,172,000 or $0.18 diluted earnings per share compared to net income of $2,904,000 or $0.10 diluted earnings per share for the second quarter of 1999. The increase in net income and earnings per share was due primarily to the increases in revenue and operating profits for all three business segments. 8 of 15 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Revenue for the six months ended June 30, 2000 was $156,241,000 compared with $114,913,000 for the six months ended June 30, 1999, an increase of $41,328,000 or 36%. The oil and gas services segment revenue increased 63% and the powerboat manufacturing segment revenue increased 21%. See the discussion of results for the three months ended June 30, 2000 for an explanation of these increases. Cost of goods sold for the six months ended June 30, 2000 was $66,662,000 compared to $54,386,000 for the six months ended June 30, 1999, an increase of $12,276,000 or 23%. Cost of goods sold for the powerboat manufacturing segment totaled $61,840,000 for the six months ended June 30, 2000 compared to $49,687,000 for the six months ended June 30, 1999. The remainder of cost of goods sold relates to businesses in other industries. The increase in cost of goods sold (as a percent of revenue) from 75% in 1999 to 77% in 2000 for the powerboat manufacturing segment is due primarily to lower manufacturing efficiency. See the discussion of results for the three months ended June 30, 2000 for an explanation of these changes. Operating expenses for the six months ended June 30, 2000 were $65,333,000 compared to $46,513,000 for the six months ended June 30, 1999, an increase of $18,820,000 or 41%. The oil and gas services segment operating expenses were 77% of segment revenue for the six months ended June 30, 2000 compared to 86% of segment revenue for the six months ended June 30, 1999. The reduction in operating expenses as a percent of revenue is due to improved operating efficiencies as a result of higher activity levels and revenue. Operating expenses in the boat manufacturing segment were 10% of segment revenue for the six months ended June 30, 2000 compared to 10% of segment revenue for the six months ended June 30, 1999. Interest income for the six months ended June 30, 2000 was $817,000 a 4% decrease from $848,000 for the six months ended June 30, 1999. The decrease in interest income was caused by decreases in average investable balances of cash and marketable securities offset by higher interest yields. 9 of 15 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D Net income for the six months ended June 30, 2000 was $14,126,000 or $0.50 diluted earnings per share compared to net income of $4,133,000 or $0.15 diluted earnings per share for the six months ended June 30, 1999. In the first quarter of 2000, RPC recorded a pre-tax gain in its powerboat manufacturing business segment of $6,817,000 or $0.15 after tax diluted earnings per share relating to a gain on settlement of a claim. For the six months ended June 30, 2000, net income excluding the gain would have been approximately $9,899,000 or $0.35 diluted earnings per share compared to $4,133,000 or $0.15 diluted earnings per share for the six months ended June 30, 1999. These increases were due to increased revenues and improved operating results for all three business segments. FINANCIAL CONDITION The Company's current ratio remained strong as of June 30, 2000, with current assets of $84,418,000 exceeding current liabilities of $41,457,000 by a ratio of 2.0-to-1. This compares to a current ratio of 1.9-to-1 at December 31, 1999. Capital expenditures during the first six months of 2000 totaling $22,806,000 were primarily for revenue-producing equipment in the oil and gas services segment ($16,895,000) and the cost incurred to expand manufacturing facilities ($2,378,000) for the powerboat manufacturing segment. Funding for future capital requirements is expected to be provided by available cash and marketable securities and cash flow from operations. SPIN-OFF TRANSACTION RPC has made administrative progress toward completing the spin-off of its 100% ownership in Chaparral Boats to shareholders including the receipt of a favorable tax ruling from the Internal Revenue Service. The private letter ruling provides that the proposed spin-off to its shareholders of the stock of its powerboat manufacturing company will be tax-free to RPC and its shareholders. The spin-off is intended to improve management focus, facilitate additional acquisitions, and set the stage for enhanced future growth opportunities for both of the separate companies. 10 of 15 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D FORWARD-LOOKING STATEMENTS This form 10-Q includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated by reference which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including statements regarding future capital requirements, anticipated impact of IBBI legal proceedings, expected improvements in boat production efficiency, timing and structure of the proposed spin-off transaction, potential exposure to market risk, the impact of the year 2000 programming issue, and anticipated trends and similar expressions concerning matters that are not historical facts, are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate under the circumstances. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from the company's expectations, including economic conditions, the price of oil and gas, the supply and demand for oil and gas, interest rate increases, conditions in the industries in which the Company operates, competition, and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise. 11 of 15 RPC, INC. AND SUBSIDIARIES ITEM 3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK RPC maintains an investment portfolio, comprised of U.S. Government and corporate debt securities, which is subject to interest rate risk exposure. This risk is managed through conservative policies to invest in high-quality obligations. RPC has performed an interest rate sensitivity analysis using a duration model over the near term with a 10 percent change in interest rates. RPC's portfolio is not subject to material interest rate risk exposure based on this analysis. RPC does not expect any material changes in market risk exposures or how those risks are managed. 12 of 15 RPC, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on April 25, 2000. At the meeting, stockholders elected one Class II Director for the three year term expiring in 2003. Results of the voting were as follows:
ELECTION OF CLASS II DIRECTOR FOR WITHHELD ----------------------------- --- -------- Richard A. Hubbell 26,591,242 117,478
ITEM 5. OTHER INFORMATION None 13 of 15 RPC, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION CONT'D ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1 RPC's Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the annual report Form 10-K for the fiscal year ended December 31, 1999). 3.2 By-laws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 4 Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 27 Financial Data Schedule
(b) Reports on Form 8-K No reports on Form 8-K were filed or required to be filed during the quarter ended June 30, 2000. 14 of 15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RPC, INC. Date: August 11, 2000 /s/ Richard A. Hubbell ---------------------------------- Richard A. Hubbell President and Chief Operating Officer Date: August 11, 2000 /s/ Ben M. Palmer ---------------------------------- Ben M. Palmer Treasurer and Chief Financial Officer 15 of 15