-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JMbfWhHjvb+DvAIb49gZsw8D3tDRTs9HGRPHpKbldJQXngKNfbj/E2bdLNR6pQmJ tDuZvmTjePQaTzSRAjJ0Hw== 0001157523-03-003352.txt : 20030725 0001157523-03-003352.hdr.sgml : 20030725 20030725164756 ACCESSION NUMBER: 0001157523-03-003352 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RPC INC CENTRAL INDEX KEY: 0000742278 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 581550825 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08726 FILM NUMBER: 03804016 BUSINESS ADDRESS: STREET 1: 2170 PIEDMONT RD NE CITY: ATLANTA STATE: GA ZIP: 30324 BUSINESS PHONE: 4048882950 MAIL ADDRESS: STREET 1: 2170 PIEDMONT ROAD CITY: ATLANTA STATE: GA ZIP: 30324 FORMER COMPANY: FORMER CONFORMED NAME: RPC ENERGY SERVICES INC DATE OF NAME CHANGE: 19920703 10-Q 1 a4441656.txt RPC 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, 2003 | | 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 (I.R.S. Employer Identification Number) of incorporation or organization) 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No -- -- 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, 2003, RPC, Inc. had 28,807,606 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 - June 30, 2003 and December 31, 2002 3 Consolidated statements of operations - Three and six months ended June 30, 2003 and 2002 4 Consolidated statements of cash flows - Six months ended June 30, 2003 and 2002 5 Notes to consolidated financial statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosure of Market Risk 18 Item 4. Controls and Procedures 18 Part II. Other Information Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
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RPC, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003 AND DECEMBER 31, 2002 (In thousands) (Unaudited) June 30, December 31, 2003 2002 - ------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 10,182 $ 11,533 Accounts receivable, net 52,388 40,168 Inventories 9,629 9,206 Deferred income taxes 6,548 5,873 Taxes receivable 267 8,817 Prepaid expenses and other current assets 2,774 3,478 - ------------------------------------------------------------------------------------------ Total current assets 81,788 79,075 Equipment and property, net 110,802 105,338 Intangibles, net 12,657 9,609 Other assets 1,627 1,932 - ------------------------------------------------------------------------------------------ Total assets $ 206,874 $ 195,954 ========================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 14,151 $ 12,280 Accrued payroll and related expenses 6,440 7,641 Accrued insurance expenses 4,507 4,115 Accrued state, local and other taxes 2,075 1,659 Short-term debt 1,133 552 Other accrued expenses 526 1,497 - ------------------------------------------------------------------------------------------ Total current liabilities 28,832 27,744 Long-term accrued insurance expenses 4,137 3,583 Long-term debt 4,800 2,410 Pension liability 7,891 6,931 Deferred income taxes 10,424 10,205 - ------------------------------------------------------------------------------------------ Total liabilities 56,084 50,873 - ------------------------------------------------------------------------------------------ Common stock 2,881 2,861 Capital in excess of par value 28,581 26,431 Deferred compensation (1,197) (1,186) Earnings retained 124,380 120,805 Accumulated other comprehensive loss (3,855) (3,830) - ------------------------------------------------------------------------------------------ Total stockholders' equity 150,790 145,081 - ------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 206,874 $ 195,954 ========================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
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RPC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (In thousands except per share data) (Unaudited) Three months ended June 30, Six months ended June 30, ----------------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------------------------- Revenues $ 70,864 $ 49,821 $ 131,564 $ 100,587 Cost of services rendered and goods sold 42,390 34,898 82,316 68,845 Selling, general and administrative expenses 13,208 10,705 25,161 23,030 Depreciation and amortization 8,401 7,806 16,397 15,530 - ---------------------------------------------------------------------------- -------------------------------- Operating profit (loss) 6,865 (3,588) 7,690 (6,818) Interest expense, net (77) (29) (92) (45) Other income, net 801 466 483 1,830 - ---------------------------------------------------------------------------- -------------------------------- Income (loss) before income taxes 7,589 (3,151) 8,081 (5,033) Income tax provision (benefit) 2,884 (1,198) 3,071 (1,913) - ---------------------------------------------------------------------------- -------------------------------- Net income (loss) $ 4,705 $ (1,953) $ 5,010 $ (3,120) ============================================================================ ================================ Dividends paid per share $ 0.025 $ 0.025 $ 0.050 $ 0.050 ============= ============== ============ ============== Earnings (loss) per share Basic $ 0.17 $ (0.07) $ 0.18 $ (0.11) Diluted 0.16 (0.07) 0.17 (0.11) Average shares outstanding Basic 28,439 28,265 28,348 28,265 ============= ============== ============ ============== Diluted 28,851 28,265 28,754 28,265 ============= ============== ============ ============== The accompanying notes are an integral part of these consolidated financial statements.
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RPC, INC. AND SUBSIDIARIES MACROS CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 and 2002 (In thousands) (Unaudited) Six months ended June 30, ----------------------------- 2003 2002 - ---------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITES Net income (loss) $ 5,010 $ (3,120) Noncash charges (credits) to earnings: Depreciation and amortization 16,450 15,578 Loss (gain) on sale of equipment and property 354 (985) Deferred income tax (benefit) provision (440) 3,182 (Increase) decrease in assets, excluding effect of business acquired: Accounts receivable (12,220) 4,319 Taxes receivable 8,550 (5,610) Inventories (27) (271) Prepaid expenses and other current assets 652 1,520 Other non-current assets 316 (26) Increase (decrease) in liabilities: Accounts payable 1,871 (287) Accrued payroll and related expenses (241) (3,522) Accrued insurance expenses 946 (654) Accrued state, local and other expenses 416 (1,078) Other accrued expenses (971) 759 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 20,666 9,805 - ---------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (14,584) (10,613) Purchase of businesses (6,194) (1,654) Proceeds from sale of equipment and property 686 1,661 - ---------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (20,092) (10,606) - ---------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Dividend distributions (1,435) (1,435) Reduction of debt (529) (817) Cash paid for common stock purchased and retired (14) (484) Proceeds from exercise of stock options 53 166 - ---------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (1,925) (2,570) - ---------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (1,351) (3,371) Cash and cash equivalents at beginning of period 11,533 10,735 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 10,182 $ 7,364 ================================================================================================================ The accompanying notes are an integral part of these consolidated financial statements.
5 RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying unaudited condensed 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 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. The balance sheet at December 31, 2002 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, 2002. Certain prior year balances have been reclassified to conform to the current year presentations. 2. EARNINGS (LOSS) PER SHARE Basic and diluted earnings (loss) per share are computed by dividing net income or loss by the respective weighted average number of shares outstanding during the respective periods. A reconciliation of the weighted average shares outstanding is as follows:
Three months ended Six months ended (In thousands) June 30, June 30, --------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- Basic 28,439 28,265 28,348 28,265 Dilutive effect of stock options and restricted shares 412 - 406 - ---------------- -------------- -------------- --------------- Diluted 28,851 28,265 28,754 28,265 ================ ============== ============== ===============
6 For the three and six months ended June 30, 2002, the stock equivalents that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the periods presented. 3. RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the FASB issued FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities. The Interpretation requires that a variable interest entity be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company believes the adoption of the Interpretation will not have a material impact on the financial position, results of operations or liquidity of the Company. 4. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows: Three months ended Six months ended (In thousands) June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss) as reported $ 4,705 $ (1,953) $ 5,010 $ (3,120) Change in unrealized gain on marketable securities, net of taxes of $27 and ($15) 44 - (25) - -------------- -------------- -------------- -------------- Comprehensive income (loss) $ 4,749 $ (1,953) $ 4,985 $ (3,120) ============== ============== ============== ===============
5. STOCK-BASED COMPENSATION RPC accounts for its stock incentive plan using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." If RPC had accounted for the stock incentive plans in accordance with SFAS No. 123, RPC's reported net income (loss) per share would have been as follows: 7
Three moths ended Six months ended June 30, June 30, ---------------------------------------------------------------------------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (in thousands) Net income (loss) - as reported $ 4,705 $ (1,953) $ 5,010 $ (3,120) Add: Stock-based employee compensation cost, included in reported net income (loss), net of related tax effect 38 55 75 116 Deduct: Stock-based employee compensation cost, computed using the fair value method for all awards, net of related tax effect (240) (206) (479) (418) --------------------------------------- --------- ---------- -------- ---------- Pro forma net income (loss) $ 4,503 $ (2,104) 4,606 (3,422) ======================================= ========= ========== ======== ========== Pro forma earnings (loss) per share Basic $ 0.16 $ (0.07) $ 0.16 $ (0.12) Diluted 0.16 (0.07) 0.16 (0.12)
6. BUSINESS SEGMENT INFORMATION RPC has two reportable segments: Technical Services and Support Services. 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 are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services business segment consists primarily of snubbing, coiled tubing, hydraulic pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and casing installation services. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and selected international locations. 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, work platform marine vessels, 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, Gulf of Mexico and mid-continent regions. Customers include domestic operations of major multi-national and independent oil and gas producers. 8 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, --------------------------------------------------------------------------------- 2003 2002 2003 2002 --------------------------------------------------------------------------------- (in thousands) Revenues: Technical services $ 58,073 $ 38,796 $ 105,891 $ 78,732 Support services 10,670 8,359 20,368 16,860 Other 2,121 2,666 5,305 4,995 - --------------------------------------- ---------------- ---------------- -------------------- ------------------- Total revenues $ 70,864 $ 49,821 $ 131,564 $ 100,587 - --------------------------------------- ---------------- ---------------- -------------------- ------------------- Operating income (loss): Technical services $ 8,440 $ (1,321)$ 11,185 $ (495) Support services 750 (813) 697 (3,137) Other (543) (415) (781) (879) Corporate expenses (1,782) (1,039) (3,411) (2,307) - --------------------------------------- ---------------- ---------------- -------------------- ------------------- Total operating profit (loss) $ 6,865 $ (3,588)$ 7,690 $ (6,818) - --------------------------------------- ---------------- ---------------- -------------------- ------------------- Other income, net 801 466 483 1,830 Interest expense, net (77) (29) (92) (45) - --------------------------------------- ---------------- ---------------- -------------------- ------------------- Income (loss) before income taxes $ 7,589 $ (3,151)$ 8,081 $ (5,033) - --------------------------------------- ---------------- ---------------- -------------------- -------------------
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7. INVENTORIES Inventories consist of the following: June 30, December 31, 2003 2002 ------------------------------------------------------------------------------------------ [in thousands] Raw materials and supplies $ 7,752 $ 6,920 Work in process 326 428 Finished goods 1,551 1,858 ------------------------------------------------------------------------------------------ Total inventories $ 9,629 $ 9,206 ==========================================================================================
8. ACQUISITION On April 1, 2003, RPC purchased all of the assets of Bronco Oilfield Services, Inc.("Bronco"), a privately-held company, specializing in surface pressure control services and equipment. The results of Bronco's acquisition have been included in the consolidated financial statements since that date. As a result of the acquisition, RPC will be better equipped to provide a broader range of services to its customers in different geographic markets. The aggregate purchase price was $11,033,000, including $5,533,000 of cash, $3,500,000 in seller financed debt and common stock valued at $2,000,000. The common stock issued for the acquisition was valued at the average of RPC's closing price for the 10 day period ending five days before the close of the transaction. Interest on the seller financed debt accrues at 6%, with principal repaid over five years in equal annual installments. The payments of principal and interest are due April 1 of each year from 2004 through 2008. Additionally, Bronco's former owners, who have remained as employees, are eligible for an earnout to be paid in cash and stock, based upon future earnings in accordance with the agreement on an annual basis. The earnouts are recorded as goodwill when the amounts are determinable. The consolidated statements of cash flows for the six months ended June 30, 2003, exclude the $3,500,000 of promissory notes payable in connection with the acquisition and the $2,000,000 common stock issuance. The purchase cost has been allocated to the assets acquired based on estimated fair values as follows: Inventory $ 395,500 Vehicles 571,000 Operating equipment 7,617,500 Goodwill 2,449,000 ------------------------------------------------------- TOTAL $ 11,033,000 ======================================================= All of the goodwill has been assigned to the Technical Services segment. Such goodwill is expected to be deductible for tax purposes. 10 RPC, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW 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. CRITICAL ACCOUNTING POLICIES The discussion on Critical Accounting Polices is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended December 31, 2002. There have been no significant changes in the critical accounting policies since year end. GENERAL The Company's operations are influenced by U.S. domestic oil and natural gas well drilling and production activity. Factors within the drilling and production industry that impact the Company's business include the geographic location of wells, the conditions under which they are drilled, and the production enhancement services which they require. The Technical Services segment provides completion, production, and maintenance services to a customer's well. The demand for these services is more influenced by production activities than drilling activities, however, production activity typically increases at the same time drilling activity increases. The Support Services segment primarily provides equipment for customer operations, and the demand for these services tends to depend more on drilling activities than production activities. Drilling activity is influenced by the price of oil and natural gas. We believe that our activity levels are affected more by natural gas prices than oil prices, due to the nature of our services and our current geographic concentration in the domestic U.S. market. The prices of oil and natural gas are influenced by a wide variety of factors and can be very volatile. This volatility can cause a great deal of fluctuation in the Company's revenues, profitability, and cash flow. Although the Company has historically generated revenues internationally, the majority of revenues generated during the three months ended June 30, 2003 were from the U.S. domestic oilfields. Domestic drilling activity, as measured by the weekly rig count, reached its most recent cyclical peak in July 2001 with 1,293 active rigs in operation. Activity began to decline in the third and fourth quarter of 2001 due to decreased demand and high natural gas storage levels. This depressed rig count continued in early 2002 and reached a weekly low of 738 during the second quarter of 2002. The average weekly rig count for the three months ending June 30, 2003 was 1,028, which was over 27 percent higher than the average weekly rig count during the three months ending June 30, 2002. The Company believes that the rig count has stabilized for the near term, but is susceptible to further fluctuation based on the strength and timing of the economic recovery, near term weather conditions in the United States, the supply of oil and natural gas in the United States, and the prospect of continued tensions in the oil-producing countries of the Middle East. 11 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002 Revenues for the three months ended June 30, 2003 increased $21,043,000 or 42.2 percent to $70,864,000 compared to $49,821,000 for the three months ended June 30, 2002. The Technical Services segment revenues of $58,073,000 increased 49.7 percent from last year's second quarter revenues of $38,796,000. The Support Services segment revenues for the quarter ended June 30, 2003, of $10,670,000 increased 27.6 percent from last year's second quarter revenues of $8,359,000. Technical Services revenues increased relatively more than Support Services revenues because of greater pricing improvements in Technical Services than in Support Services, although equipment utilization in both segments improved compared to the three months ended June 30, 2002. Revenues increased due to higher activity levels in most of our service lines, but also due to slightly increased pricing in several of our service lines. Although pricing has improved in several of our service lines, pricing in our largest service lines remains low as compared to historical measures during periods of favorable industry conditions. Our revenue increases were consistent with a domestic drilling rig count of 1,028, which was more than 27 percent higher during the three months ending June 30, 2003 than in the prior year period. The U.S. land rig count grew by 31.5 percent, from 695 last year to 914 this year. Also, the average natural gas price was $5.59 this quarter, 70 percent higher than the second quarter of last year. Foreign revenues were the same for the three months ended June 30, 2003 and June 30, 2002. The domestic revenue increase during the quarter was driven by increased equipment utilization in response to higher customer demand and, to a lesser extent, by better pricing in many of our service lines. Operation Iraqi Freedom, which began in the first quarter of 2003 and ended during the second quarter of 2003, has not directly impacted the Company's financial results. We continue to monitor the effect that ongoing conflict in petroleum-producing countries, and any responses to the conflict by OPEC, will have on our business. Cost of services rendered and goods sold for the three months ended June 30, 2003 was $42,390,000 compared to $34,898,000 for the three months ended June 30, 2002, an increase of $7,492,000 or 21.5 percent. This increase was due to the increased customer activity levels. Cost of services rendered and goods sold, as a percent of revenues, decreased from 70.0 percent in the second quarter of 2002 to 59.8 percent in the second quarter of 2003 as a result of improved leverage due to overall higher utilization of personnel and operating equipment. 12 Selling, general and administrative expenses for the three months ended June 30, 2003 were $13,208,000 compared to $10,705,000 for the three months ended June 30, 2002, an increase of $2,503,000 or 23.4 percent. These expenses increased primarily due to higher incentive compensation expenses consistent with improved operating results and increased pension plan expense relating to our pension plan obligation. Selling, general and administrative expenses as a percent of revenues decreased from 21.5 percent in the second quarter of 2002 to 18.6 percent in the second quarter of 2003 due primarily to a large amount of fixed costs leveraged over a higher revenue base. Depreciation and amortization was $8,401,000 for the three months ended June 30, 2003, an increase of $595,000 or 7.6 percent compared to $7,806,000 for the quarter ended June 30, 2002. This increase in depreciation and amortization resulted from various capital expenditures within Support Services and Technical Services, and from the effect of the acquisition completed at the beginning of the period. The percentage increase in depreciation and amortization was lower than in the same period of 2002 due to the Company's decision to reduce its level of capital expenditures in response to the domestic industry downturn which began during the fourth quarter of 2001. Operating profit (loss) for the three months ended June 30, 2003 was a profit of $6,865,000, an increase of $10,453,000 compared to a loss of $3,588,000 for the three months ended June 30, 2002. This improvement is the result of increased revenues because of higher customer activity levels, partially offset by the increases in costs of services rendered and goods sold, selling, general and administrative expenses, and depreciation and amortization. Other income, net for the three months ending June 30, 2003 was $801,000, an increase of $335,000 or 71.9 percent compared to income of $466,000 for the three months ended June 30, 2002. For the three months ended June 30, 2003, other income included a gain of $410,000 related to proceeds from an insurance claim for wrecked operating equipment. For the three months ending June 30, 2002, this included gains related to the sale of operating equipment. Interest expense, net was $77,000 for the three months ended June 30, 2003 compared to $29,000 for the quarter ended June 30, 2002. The increase in interest expense, net resulted primarily from interest expense on the promissory note issued in connection with an acquisition made during the period. RPC generates interest income from investment of its available cash primarily in highly liquid investments with original maturities of three months or less. Interest income did not vary in the current period compared to the prior year. 13 Income tax provision (benefit) was a provision of $2,884,000 during the three months ending June 30, 2003, compared to a benefit of $1,198,000 in 2002. This increase was due to the increase in operating profit during the period as the effective tax rate was the same for the three months ended June 30, 2003 and 2002. SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002 Revenues for the six months ended June 30, 2003 increased $30,977,000 or 30.8 percent to $131,564,000 compared to $100,587,000 for the six months ended June 30, 2002. The Technical Services segment revenues of $105,891,000 increased 34.5 percent from last year's revenues of $78,732,000. The Support Services segment revenues for the six months ended June 30, 2003 of $20,368,000 increased 20.8 percent from the revenues of $16,860,000 during the six months ended June 30, 2002. Revenues increased due to higher domestic customer activity levels consistent with the more than 18 percent higher domestic drilling rig count during the six months ending June 30, 2003 than during the prior year period. These domestic increases were partially offset by a decline in foreign revenues during the period as compared to the prior year. Domestic revenues for the six months ending June 30, 2003 increased $34,042,000 or 35.8 percent to $129,067,000 from $95,025,000 in the prior year period. The domestic revenue increase during the quarter was driven by increased equipment utilization in response to higher customer demand and, to a lesser extent, by improved pricing and new equipment purchased during previous periods. Although pricing for many of our services improved during the period, in general, it remains at historically low levels due to intense competition. Operation Iraqi Freedom, which occurred during the period, did not impact the Company's financial results during the six months ended June 30, 2003. We continue to monitor the effect that ongoing conflict in petroleum-producing countries, and any responses to the conflict by OPEC, will have on our business. Foreign revenues during the period declined by $3,065,000 or 55.1 percent, from $5,562,000 during the six months ending June 30, 2002 to $2,497,000 in the current period. The most significant decline in foreign revenues occurred in Algeria because the Company had a contract in that country which expired during the second quarter of 2002 and was not renewed. Cost of services rendered and goods sold for the six months ended June 30, 2003 was $82,316,000 compared to $68,845,000 for the six months ended June 30, 2002, an increase of $13,471,000 or 19.6 percent. Cost of services rendered and goods sold, as a percent of revenues, decreased from 68.4 percent during the six months ending June 30, 2002 to 62.6 percent during the six months ended June 30, 2003. The increase in cost of services rendered and goods sold during the period was a result of higher customer activity levels due to improved industry conditions. The decrease, as a percent of revenues, was primarily the result of improved operating leverage due to overall higher utilization of personnel and operating equipment. 14 Selling, general and administrative expenses for the six months ended June 30, 2003 were $25,161,000 compared to $23,030,000 for the six months ended June 30, 2002, an increase of $2,131,000 or 9.3 percent. These expenses increased primarily due to incentive compensation expenses associated with improved operating results. Selling, general and administrative expenses as a percent of revenues decreased from 22.9 percent in the second quarter of 2002 to 19.1 percent in the second quarter of 2003, because many of these costs are fixed and do not vary directly in proportion to the change in revenues. Depreciation and amortization was $16,397,000 for the six months ended June 30, 2003, an increase of $867,000 or 5.6 percent compared to $15,530,000 for the six months ended June 30, 2002 because of various capital expenditures within Support Services and Technical Services. The percentage increase in depreciation and amortization was significantly lower than in many prior periods due to the Company's decision to reduce its level of capital expenditures in response to the domestic industry downturn which began during the fourth quarter of 2001. Operating profit (loss) for the six months ended June 30, 2003 was a profit of $7,690,000, an increase of $14,508,000 compared to a loss of $6,818,000 for the six months ended June 30, 2002. This improvement is the result of increased revenues because of higher customer activity levels, partially offset by the increases in costs of services rendered and goods sold and selling, general and administrative expenses. Other expense (income), net for the six months ending June 30, 2003 was income of $483,000 compared to income of $1,830,000 for the six months ended June 30, 2002. For the six months ended June 30, 2003, this amount included income from a gain from the settlement of an insurance claim of $410,000 and proceeds from a settlement of a dispute with a vendor of $200,000 partially offset by the recognition of a loss sustained on damaged operating equipment of $289,000. For the six months ended June 30, 2002, other income included primarily gains relating to the sale of operating equipment, proceeds from the settlement of a lawsuit, and a gain from the sale of a discontinued business unit. Interest expense, net was $92,000 for the six months ended June 30, 2003 compared to $45,000 for the six months ended June 30, 2002. The increase in interest expense, net resulted from decreases in available cash balances, which yielded lower interest income, and from interest expense on the promissory note issued in connection with the acquisition made during the second quarter. RPC generates interest income from investment of its available cash primarily in highly liquid investments with original maturities of six months or less. Income tax provision (benefit) was a provision of $3,071,000 during the six months ending June 30, 2003, compared to a benefit of $1,913,000 in 2002. This increase in the income tax provision was due to the increase in income before income taxes. The effective tax rate was the same for the six months ended June 30, 2003 and 2002. 15 LIQUIDITY AND CAPITAL RESOURCES The Company's decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations. Cash provided by operating activities for the six months ended June 30, 2003, was $20,666,000 compared to $9,805,000 for the six months ended June 30, 2002, a $10,861,000 or 110.8 percent increase. Cash provided by operating activities increased primarily due to improved operating results coupled with lower working capital requirements. Working capital changes during the period included an increase in accounts payable consistent with higher business activity levels, receipt of an income tax refund, and an increase in accounts receivable due to higher revenues. Cash used in investing activities for the six months ended June 30, 2003 was $20,092,000, or an increase of $9,486,000, compared to $10,606,000 for the six months ended June 30, 2002, primarily as a result of increased capital expenditures and the purchase of assets of Bronco Oilfield Services, Inc. Cash used in financing activities for the six months ended June 30, 2003 was $1,925,000, or a decrease of $645,000, compared to $2,570,000 used for financing activities for the six months ended June 30, 2002, primarily as a result of lower debt service requirements and lower stock repurchases. The Company did not purchase any of its common stock on the open market during the six months ended June 30, 2003. Under a plan authorized by its Board of Directors, the Company has purchased its common stock on the open market during prior periods, and can purchase up to 346,600 additional shares. The prices for oil and natural gas remain historically strong, but until recently, have failed to lead to an increase in drilling activity. Prices have also been volatile in the last several quarters, due to uncertainties over the conflict in the Middle East and fluctuating natural gas storage levels. Although the weekly domestic rig count has recently increased, the Company still believes that the operating environment for our services is uncertain in the near term. As a result of this uncertainty, RPC is monitoring customer exploration and production activity levels very closely, and is only making capital expenditure to support known customer requirements or to maintain our existing fleet of operating equipment. The Company currently expects that capital expenditures during 2003 will be approximately $30 million, but the actual amount will be highly dependent upon our financial results for the remainder of 2003. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization, which includes access to a $25 million credit facility with a financial institution, of which $14 million is available, and cash expected to be generated from operations, will provide sufficient capital to meet our requirements for at least the next twelve months. The portion of credit facility that is not currently available supports letters of credits relating to insurance requirements or contract bids. We believe our liquidity will allow us to grow our asset base and revenues as business conditions and customer activity levels improve. 16 SEASONALITY Oil prices affect demand throughout the oil and natural gas industry, including the demand for the Company's products and services. The Company's business depends in large part on the conditions of the oil and gas industry, and specifically on the capital expenditures of its customers related to the exploration and production of oil and natural gas. When these expenditures fluctuate, customers' demand for the Company's services fluctuates as well. These fluctuations depend on the current and projected prices of oil and natural gas and resulting drilling activity, and are not seasonal to any material degree. INFLATION RPC purchases its equipment and materials from suppliers who provide competitive prices and the Company believes that the labor markets from which it hires employees are not experiencing upward wage pressures. If inflation in the general economy increases, however, the Company's costs for equipment, materials and labor could increase as well. The Company operates in highly competitive areas of the oilfield services industry. The products and services of each of the Company's principal industry segments are sold in highly competitive markets, and its revenues and earnings may be affected by the following factors: changes in competitive prices, fluctuations in the level of activity and major markets, general economic conditions, and governmental regulation. FORWARD-LOOKING STATEMENTS Certain statements made in this report that are not historical facts are "forward-looking statements" under Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, market risk exposure, adequacy of capital resources and funds, opportunity for growth, and the impact of SFAS No. 143, 146, 149 and 150, and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and our performance in the future. The words "may," "will," "expect," "believe," "anticipate," "project," "estimate," and similar expressions generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and the following: the volatility of oil and natural gas prices, continued downturn in the economy leading to decreased oil and gas exploration, inability to identify or complete acquisitions, adverse weather conditions, inability to attract and retain skilled employees, personal injury or property damage claims, and the changes in the supply and demand for oil and gas. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 30, 2003, there were no material amounts of marketable securities held by RPC. There have been no material changes to RPC's exposure to market risk since December 31, 2002. As of June 30, 2003, RPC had accounts receivable of $52.4 million (net of an allowance for doubtful accounts of $2.4 million). RPC is subject to a concentration of credit risk because a majority of the accounts receivable are due from companies operating in the oil and gas industry. Although the Company believes that it has strong credit evaluation and monitoring control procedures, its customers are subjected to the risks of the highly cyclical and capital intensive oil and gas industry. In the case of customers that are oil companies owned by foreign governments, the economic and political environment of the related country and region play a part in the collectibility of the receivables. ITEM 4. CONTROLS AND PROCEDURES Under the supervision and participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of June 30, 2003. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission ("SEC") reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to RPC, Inc., including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. In addition, there were no significant changes in our internal control over financial reporting that could significantly affect these controls during the quarter. We have not identified any significant deficiency or material weaknesses in our internal controls, and therefore there were no corrective actions taken. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS RPC is involved in litigation from time to time in the ordinary course of its business. RPC does not believe that the outcomes of such litigation will have a material adverse effect on the financial position or results of operations of RPC. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 1, 2003, RPC issued 179,195 unregistered shares of RPC common stock for a total consideration of $2.0 million in connection with the acquisition of the assets of Bronco Oilfield Services, Inc. The shares were issued to Bronco Oilfield Services, Inc. pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. 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 22, 2003. At the meeting, stockholders elected two Class II directors to the Board of Directors for the terms expiring in 2006. Results of the voting were as follows:
Names of Nominees For Withheld ------------------------------------------------------------------------------------ Richard A. Hubbell 27,318,618 47,727 Linda H. Graham 27,310,018 56,327
ITEM 5. OTHER INFORMATION None 19 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits
Exhibit Number Description - -------------------------- --------------------------------------------------------------------------------------------- 3.1 RPC's restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 to the 1999 Form 10-K. 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). 99.1 Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K. 99.2 Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K. 99.3 Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K. 99.4 Certification of Chief Financial Officer pursuant to Item 601(b)(32) of Regulation S-K. b) Reports on Form 8-K Date of Date filed earliest event Description of event - --------------------- ------------------ ------------------------------------------------------------------------------- April 8, 2003 April 3, 2003 Press release announcing the acquisition of Bronco Oilfield Services, Inc. April 23, 2003 April 23, 2003 Press release announcing 2003 First Quarter results April 23, 2003 April 23, 2003 Press release announcing First Quarter Cash Dividend April 28, 2003 April 28, 2003 Press release announcing Richard A. Hubbell was named as Chief Executive Officer
20 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. /s/ Richard A. Hubbell -------------------------------------------- Date: July 25, 2003 Richard A. Hubbell President and Chief Executive Officer (Principal Executive Officer) /s/ Ben M. Palmer -------------------------------------------- Date: July 25, 2003 Ben M. Palmer Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 21 EX-99 3 a4441656ex991.txt EXHIBIT 99.1 CERTIFICATION OF HUBBELL Exhibit 99.1 CERTIFICATIONS I, Richard A. Hubbell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RPC, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ Richard A. Hubbell --------------------------------------- Date: July 25, 2003 Richard A. Hubbell President and Chief Executive Officer (Principal Executive Officer) EX-99 4 a4441656ex992.txt EXHIBIT 99.2 CERTIFICATION OF PALMER Exhibit 99.2 I, Ben M. Palmer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RPC, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 6. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ Ben M. Palmer ----------------------------------------------- Date: July 25, 2003 Ben M. Palmer Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-99 5 a4441656ex993.txt EXHIBIT 99.3 RPC, INC. AND SUBSIDIARIES EXHIBIT 99.3 Form 10-Q - Second Quarter Ended June 30, 2003 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard A. Hubbell, certify that: The Form 10-Q of RPC, Inc. for the period ended June 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of RPC, Inc. for the periods presented. /S/ Richard A. Hubbell -------------------------------------- Richard A. Hubbell President and Chief Executive Officer (Principal Executive Officer) Date: July 25, 2003 EX-99 6 a4441656ex994.txt EXHIBIT 99.4 EXHIBIT 99.4 Form 10-Q - Second Quarter Ended June 30, 2003 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Ben M. Palmer, certify that: The Form 10-Q of RPC, Inc. for the period ended June 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of RPC, Inc. for the periods presented. /S/ Ben M. Palmer ------------------------------------------ Ben M. Palmer Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: July 25, 2003 -----END PRIVACY-ENHANCED MESSAGE-----