UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
x     Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2005March 31, 2006
oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Commission File No. 1-8726


RPC, INC.
(exactExact name of registrant as specified in its charter)
 

Delaware
58-1550825
 (State(State or other jurisdiction of incorporation or organization) (I.R.S.(I.R.S. Employer 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  [xX]No o[  ] 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). Yes     Act. (Check one):
Large Accelerated Filer [  ]        Accelerated Filer [xX]No     o        Non-Accelerated Filer [  ]  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ]   Noo[X]No     x

As of October 25, 2005,April 24, 2006, RPC, Inc. had 42,914,21164,825,156 shares of common stock outstanding.




RPC, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 
Part I. Financial Information
Page No.
Item 1.
Financial Statements (Unaudited)
 
 
Consolidated balance sheets -
As of September 30, 2005March 31, 2006 and December 31, 20042005
 
3
     
 
Consolidated statements of operations -
For the three and nine months ended September 30,March 31, 2006 and 2005 and 2004
 
4
     
 
Consolidated statements of cash flows -
For the ninethree months ended September 30,March 31, 2006 and 2005 and 2004
 
5
     
 
Notes to consolidated financial statements
6 - 13
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14 - 2522
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
2522
     
Item 4.
Controls and Procedures
22
    26
Part II. Other Information
 
     
Item 1.
Legal Proceedings
2723
Item 1A.
Risk Factors
23
   
Item 2.
Unregistered salesSales of equity securitiesEquity Securities and useUse of proceedsProceeds
2723
   
Item 3.
Defaults upon Senior Securities
2824
   
Item 4.
Submission of Matters to a Vote of Security Holders
2824
   
Item 5.
Other Information
2824
   
Item 6.
Exhibits
2824
   
Signatures
 2925
   


2
Table of ContentsRPC, INC. AND SUBSIDIARIES


RPC, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
 
        
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
 
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
AS OF MARCH 31, 2006 AND DECEMBER 31, 2005AS OF MARCH 31, 2006 AND DECEMBER 31, 2005 
(In thousands)(In thousands)(In thousands) 
(Unaudited)(Unaudited)(Unaudited) 
            
 
September 30,
 December 31,  
 March 31,
  December 31, 
 
2005
 2004  
2006
 2005 
ASSETS
              
              
Cash and cash equivalents 
$
21,560
 $29,636  
$
7,386
 $12,809 
Accounts receivable, net  
98,833
  75,793   
116,165
  107,428 
Inventories  
12,186
  10,587   
15,090
  13,298 
Deferred income taxes  
4,818
  6,144   
4,273
  5,304 
Prepaid expenses and other current assets  
1,936
  3,638   
3,542
  4,004 
Total current assets  
139,333
  125,798   
146,456
  142,843 
Property, plant and equipment, net  
135,290
  114,222   
156,159
  141,218 
Goodwill and other intangibles, net  
24,151
  20,183 
Goodwill  
24,093
  24,093 
Other assets  
3,219
  2,739   
4,254
  3,631 
Total assets
 
$
301,993
 $262,942  
$
330,962
 $311,785 
              
              
              
LIABILITIES AND STOCKHOLDERS' EQUITY
              
              
Accounts payable 
$
34,163
 $23,389  
$
31,066
 $30,437 
Accrued payroll and related expenses  
10,706
  10,842   
9,872
  11,903 
Accrued insurance expenses  
4,018
  3,875   
3,606
  3,695 
Accrued state, local and other taxes  
2,665
  2,183   
1,781
  2,585 
Income taxes payable  
7,216
  113   
2,393
  791 
Current portion of long-term debt  
-
  2,700 
Other accrued expenses  
2,512
  5,187   
503
  544 
Total current liabilities  
61,280
  48,289   
49,221
  49,955 
Accrued insurance expenses  
6,774
  6,451   
6,479
  6,168 
Long-term debt  
-
  2,100 
Pension liabilities  
11,515
  11,379 
Long-term pension liabilities  
11,798
  13,614 
Deferred income taxes  
7,923
  11,945   
7,777
  8,758 
Other long-term liabilities  
1,381
  1,355   
789
  789 
Total liabilities  
88,873
  81,519   
76,064
  79,284 
Common stock  
4,290
  4,321   
6,480
  6,445 
Capital in excess of par value  
21,126
  27,326   
14,584
  19,235 
Retained earnings  
200,051
  160,189   
241,637
  219,907 
Deferred compensation  
(5,722
)
 (3,527)  
-
  (5,391)
Accumulated other comprehensive loss  
(6,625
)
 (6,886)  
(7,803
)
 (7,695)
Total stockholders' equity  
213,120
  181,423   
254,898
  232,501 
Total liabilities and stockholders' equity
 
$
301,993
 $262,942  
$
330,962
 $311,785 
              
       
The accompanying notes are an integral part of these consolidated financial statements.       The accompanying notes are an integral part of these consolidated financial statements.
 
3
Table of ContentsRPC, INC. AND SUBSIDIARIES
 

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(In thousands except per share data)
(Unaudited)
RPC, INC. AND SUBSIDIARIES  
           
CONSOLIDATED STATEMENTS OF OPERATIONS  
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004  
(In thousands except per share data)  
(Unaudited)  
           
           
           
  Three months ended September 30,  Nine months ended September 30, 
  
2005
 2004 
 2005
 2004 
           
Revenues
 
$
115,801
 $88,721 
$
310,076
 $254,149 
Cost of services rendered and goods sold  
61,424
  50,233  
167,581
  146,529 
Selling, general and administrative expenses  
19,000
  16,921  
55,594
  48,213 
Depreciation and amortization  
9,863
  8,596  
28,750
  25,736 
Operating profit  
25,514
  12,971  
58,151
  33,671 
Interest income (expense), net  
131
  (17) 
301
  (75)
Other income, net  
11,120
  1,555  
13,994
  2,324 
Income before income taxes  
36,765
  14,509  
72,446
  35,920 
Income tax provision  
13,658
  4,272  
27,502
  12,408 
Net income
 
$
23,107
 $10,237 
$
44,944
 $23,512 
              
              
HISTORICAL (ACTUAL) BASIS            
              
Earnings per share
             
Basic 
$
0.55
 $0.24 
$
1.06
 $0.55 
Diluted 
$
0.53
 $0.24 
$
1.03
 $0.54 
              
Dividends per share
 
$
0.04
 $0.02 
$
0.12
 $0.06 
              
Average shares outstanding
             
Basic  
42,029
  42,482  
42,291
  42,443 
Diluted  
43,554
  43,371  
43,726
  43,188 
              
              
PRO FORMA BASIS
(AS ADJUSTED FOR 3-FOR-2 STOCK SPLIT TO BE EFFECTIVE DECEMBER 12, 2005)
             
              
Earnings per share
             
Basic 
$
0.37
 $0.16 
$
0.71
 $0.37 
Diluted 
$
0.35
 $0.16 
$
0.69
 $0.36 
              
Dividends per share
 
$
0.03
 $0.01 
$
0.08
 $0.04 
              
Average shares outstanding
             
Basic  
63,043
  63,723  
63,437
  63,665 
Diluted  
65,331
  65,057  
65,589
  64,782 
              
              
The accompanying notes are an integral part of these consolidated financial statements.     
   Three months ended March 31, 
  
2006
 2005 
       
Revenues
 
$
136,024
 $92,330 
Cost of services rendered and goods sold  
65,751
  50,411 
Selling, general and administrative expenses  
21,083
  18,406 
Depreciation and amortization  
10,705
  9,280 
Gain on disposition of assets, net  
(1,032
)
 (626)
Operating profit  
39,517
  14,859 
Interest income, net  
153
  92 
Other income, net  
261
  1,270 
Income before income taxes  
39,931
  16,221 
Income tax provision  
15,031
  6,294 
Net income
 
$
24,900
 $9,927 
        
      
Earnings per share
       
Basic 
$
0.39
 $0.15 
Diluted 
$
0.38
 $0.15 
        
Dividends per share
 
$
0.050
 $0.027 
        
Average shares outstanding
       
Basic  
63,354
  63,920 
Diluted  
65,831
  66,049 
        
        
The accompanying notes are an integral part of these consolidated financial statements.

4
Table of ContentsRPC, INC. AND SUBSIDIARIES
 

RPC, INC. AND SUBSIDIARIES
     
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004
FOR THE THREE MONTHS ENDED MARCH 31, 2006 and 2005FOR THE THREE MONTHS ENDED MARCH 31, 2006 and 2005 
(In thousands)(In thousands)(In thousands) 
(Unaudited)(Unaudited)(Unaudited) 
            
 Nine months ended September 30,  Three months ended March 31, 
 
2005
 2004  
2006
 2005 
OPERATING ACTIVITIES
              
Net income
 
$
44,944
 $23,512  $
24,900
 $9,927 
Noncash charges (credits) to earnings:              
Depreciation, amortization and other non-cash charges  
29,706
  26,074   
11,405
  9,621 
Gain on sale of property and equipment  
(12,212
)
 (2,195)  
(1,032
)
 (626)
Deferred income tax (benefit) provision  
(2,856
)
 812 
(Increase) decrease in assets:       
Deferred income tax provision  
115
  446 
Changes in current assets and liabilities:       
Accounts receivable  
(23,040
)
 (19,684)  
(8,737
)
 (4,012)
Income taxes receivable  
0
  267   
-
  (286)
Inventories  
(1,542
)
 (104)  
(1,788
)
 (969)
Prepaid expenses and other current assets  
2,122
  2,276   
289
  357 
Other non-current assets  
(480
)
 (532)
Increase (decrease) in liabilities:       
Accounts payable  
10,774
  2,243   
629
  415 
Income taxes payable  
1,602
  (113)
Accrued payroll and related expenses  
(136
)
 921   
(2,031
)
 (3,197)
Pension liabilities  
136
  (2,959)
Income taxes payable  
7,221
  - 
Accrued insurance expenses  
466
  1,791 
Accrued insurance expenses (current portion)  
(89
)
 (31)
Accrued state, local and other expenses  
482
  172   
(804
)
 (602)
Other accrued expenses  
(315
)
 174   
(41
)
 (436)
Changes in working capital  
(10,970
)
 (8,874)
Changes in other assets and liabilities:      
Long-term pension liabilities  
(1,816
)
 (852)
Long-term accrued insurance expenses  
311
  (157)
Other non-current assets  
(628
)
 (382)
Other non-current liabilities  
26
  899   
-
  17 
Net cash provided by operating activities  
55,296
  33,667   
22,285
  9,120 
              
INVESTING ACTIVITIES
              
Capital expenditures  
(55,439
)
 (36,594)  
(25,970
)
 (13,318)
Purchase of businesses  
(6,965
)
 (3,310)
Proceeds from sale of assets  
18,414
  5,244 
Proceeds from sale of property and equipment  
1,357
  947 
Net cash used for investing activities  
(43,990
)
 (34,660)  
(24,613
)
 (12,371)
              
FINANCING ACTIVITIES
              
Payment of dividends  
(5,082
)
 (2,558)  
(3,170
)
 (1,704)
Payments on debt  
(4,800
)
 (1,110)  
-
  (2,800)
Excess tax benefit for share based payments  
640
  
-
 
Cash paid for common stock purchased and retired  
(10,268
)
 (1,963)  
(1,110
)
 (73)
Proceeds received upon exercise of stock options  
768
  423   
545
  464 
Net cash used for financing activities  
(19,382
)
 (5,208)  
(3,095
)
 (4,113)
              
Net decrease in cash and cash equivalents  
(8,076
)
 (6,201)  
(5,423
)
 (7,364)
Cash and cash equivalents at beginning of period  
29,636
  22,302   
12,809
  29,636 
Cash and cash equivalents at end of period 
$
21,560
 $16,101  $
7,386
 $22,272 
              
       
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 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 ninethree month period ended September 30, 2005March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.2006.

The balance sheet at December 31, 20042005 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.

On October 25, 2005 at its quarterly meeting, the Board of Directors authorized a three-for-two stock split by issuance on December 12, 2005 of one additional common share for every two common shares held of record as of November 11, 2005. Accordingly, the par value of additional shares issued will be adjusted between common stock and capital in excess of par value, and fractional shares resulting from the stock split will be settled in cash. The share and per share data on the historical (actual) basis presented in the interim financial statements have not been adjusted for the stock split. The consolidated statement of operations also presents, on a pro forma basis, share and per share information which reflects the stock split.

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, 2004. 2005.

Certain prior year balances have been reclassified to conform to the current year’s presentation.
2.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 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
March 31
 
(In thousands except per share data amounts)
  
2006
  2005 
Net income available for stockholders (numerator for basic and diluted earnings
per share):
 
$
24,900
 $9,927 
Shares (denominator):       
Weighted-average shares outstanding (denominator for basic earnings per share)  
63,354
  63,920 
Effect of dilutive securities:       
Employee stock options and restricted stock  
2,477
  2,129 
Adjusted weighted average shares (denominator for diluted earnings per share)  
65,831
  66,049 
Earnings per share:       
Basic 
$
0.39
 $0.15 
Diluted 
$
0.38
 $0.15 

6
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   
Three months ended
September 30 
  
Nine months ended
September 30 
 
(In thousands except per share data amounts)
  
2005 
  
2004 
  
2005 
  
2004 
 
Net income available for stockholders
(numerator for basic and diluted
earnings per share):
 $23,107 $10,237 $44,944 $23,512 
Shares (denominator):             
Weighted-average shares outstanding (denominator for basic earnings per share)  42,029  42,482  42,291  42,443 
Effect of dilutive securities:             
Employee stock options and restricted stock  1,525  889  1,435  745 
Adjusted weighted average shares (denominator for diluted earnings per share)  43,554  43,371  43,726  43,188 
              
Earnings per share:              
Basic  $ 0.55 $ 0.24 $ 1.06 $ 0.55 
Diluted $ 0.53 $ 0.24 $ 1.03 $ 0.54 

3.RECENT ACCOUNTING PRONOUNCEMENTS

The recent accounting pronouncements previously reported on the Company’s Form 10-K for the year ended December 31, 2005 is incorporated herein by reference. As disclosed on the 10-K, the Company adopted the following standards in the first quarter of 2006 with no material impact on the Company’s consolidated results of operation and financial condition:
·SFAS 151, “Inventory Costs - An amendment of ARB No. 43, Chapter 4”
·SFAS 154, “Accounting changes and error correction”

In November 2004,the first quarter of 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), “SFAS 123R,” “Share-Based Payment”, which revises No. SFAS 123, “Accounting for Stock-Based Compensation.” See Note 5, “Stock-based compensation” for additional information.

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140,” to permit fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation in accordance with the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company will adopt SFAS No. 155 in fiscal year 2007. The adoption of this Statement is not expected to have a material effect on the Company’s Consolidated Financial Statements.

In March 2006, the FASB issued SFAS No. 151, "Inventory Costs—An Amendment156, “Accounting for Servicing of ARBFinancial Assets—an amendment of FASB Statement No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the140,” that provides guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify theon accounting for abnormal amountsseparately recognized servicing assets and servicing liabilities. In accordance with the provisions of idle facility expense, freight, handling costs,SFAS No. 156, separately recognized servicing assets and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costsservicing liabilities must be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheadsinitially measured at fair value, if practicable. Subsequent to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and therefore is required to be adopted byinitial recognition, the Company inmay use either the first quarteramortization method or the fair value measurement method to account for servicing assets and servicing liabilities within the scope of fiscal 2006, beginning on January 1, 2006.this Statement. The Company is currently evaluating the effect that thewill adopt SFAS No. 156 in fiscal year 2007. The adoption of SFAS 151 will have on its consolidated results of operations and financial condition but doesthis Statement is not expect SFAS 151expected to have a material impact.effect on the Company’s Consolidated Financial Statements.

4.COMPREHENSIVE INCOME

The components of comprehensive income are as follows:
 
  
Three months ended
 
  
 March 31,
 
(In thousands)
 
2006
 2005 
      
Net income as reported 
$
24,900
 
$
9,927 
Change in unrealized gain on securities, net of taxes  
(108
)
 112 
Comprehensive income 
$
24,792
 
$
10,039 

7
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK-BASED COMPENSATION

In DecemberThe Company has issued stock options and restricted stock to employees under two stock incentive plans that were approved by shareholders in 1994 and 2004. The 1994 plan expired in 2004. The Company reserved 3,375,000 shares of common stock under the 2004 Plan which expires 10 years from the FASB issueddate 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 which are discussed in detail below. As of March 31, 2006, there were 2,463,425 shares available for grants.

On January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”),123R, which replacesrevises SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro formaStatement 123R also requires that cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) be classified as financing cash flows.
Prior to January 1, 2006, the Company provided the disclosures previously permitted underrequired by SFAS 123, will no longer be an alternative to financial statement recognition. Underas amended by SFAS 123R, the Company must determine the appropriate fair value model to be used148, “Accounting for valuing share-based payments, the amortization method for compensation cost Stock Based Compensation - Transition
and the transition method to be used at date of adoption. The transition methods include the modified prospective applicationDisclosures”, and the modified retrospective application. Under the modified retrospective application, prior periods may be restated either as of the beginning of the year of adoption oraccounted for all periods presented. The modified prospective application requires thatof its stock-based compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the modified retrospective application would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. SFAS No. 123R states that the requirement is to adopt the provisions in the first interim or annual period beginning after June 15, 2005. However, the Securities and Exchange Commission issued a new rule that allows companies to implement Statement No. 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. The Company will implementunder the provisions of SFAS 123R in the first quarter of 2006 pursuant to this rule. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of shared-based payments for public companies. The Company is currently evaluating the impact of applying the various provisions of SFAS 123R and SAB 107.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. By focusing the exception on exchanges that lack commercial substance, SFAS 153 intends to produce financial reporting that more faithfully represents the economics of the transaction. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 with earlier application permitted for nonmonetary exchanges occurring in fiscal periods beginning after the date of issuance. The provisions are to be applied prospectively. The adoption of SFAS 153 did not have a material impact on the Company’s consolidated results of operations and financial condition.
FASB Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP 109-2"), issued in December 2004, is intended to provide limited relief in the application of the indefinite reinvestment criterion due to ambiguities surrounding the implementation of the Act. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. RPC is currently evaluating the impact of the repatriation provisions but does not expect it to have a material impact.

8
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” ("FIN 47"), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005 and therefore is required to be adopted by the Company in the fiscal year ended December 31, 2005. The Company is currently evaluating the effect that the adoption of FIN 47 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In May 2005, the FASB has issued FASB Statement No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” Among other changes, SFAS 154 requires that a voluntary change in accounting principle or a change required by a new accounting pronouncement that does not include specific transition provisions be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 with early adoption permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. Accordingly, the Company is required to adopt the provisions of SFAS 154 in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition but does not expect SFAS 154 to have a material impact.

9
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.COMPREHENSIVE INCOME

The components of comprehensive income are as follows:
  
Three months ended
September 30,
 
Nine months ended
September 30 
 
(In thousands)
 
 2005
 2004 2005 2004 
           
Net income as reported 
$
23,107
 $10,237 $44,944 $23,512 
Change in unrealized gain on securities,
net of taxes
  
129
  38  261  31 
Comprehensive income 
$
23,236
 $10,275 $45,205 $23,543 


5.STOCK-BASED COMPENSATION

RPC accounts for its stock incentive plans using the intrinsic value method prescribed by Accounting Principles Board (”(“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Employees” using the intrinsic value method prescribed therein. Accordingly, the Company did not recognize compensation expense for the options granted since the exercise price was the same as the market price of the shares on the date of grant. Compensation cost on the restricted stock was recorded as deferred compensation in
stockholders’ equity based on the fair market value of the shares on the date of issuance and amortized pro-ratably over the respective vesting period. Forfeitures related to
restricted stock were previously accounted for as they occurred.

As permitted by SFAS 123R, the Company has elected to use the modified prospective transition method and therefore financial results for prior periods have not been restated. Under this transition method, the Company will recognize compensation expense for the unvested portion of stock options outstanding over the remainder of the service period. The compensation cost recorded for these stock options is based on their fair value at grant date as calculated for pro forma disclosures required by SFAS 123. Additionally we have recognized the estimated effect of forfeiture on compensation expense related to restricted shares.

Pre-tax compensation cost for stock-based employee compensation was $700,000 ($533,000 after tax) for the three months ended March 31, 2006. As a result of the adoption of SFAS 123R, financial results were lower than under the previous accounting method for share-based compensation by the following amounts:

8
RPC, INC. AND SUBSIDIARIES


  
Three months ended
 
(In thousands)
 
March 31, 2006
 
    
Earnings before income taxes   $268 
Net earnings   $265 

For the three months ended March 31, 2006, there was no impact to diluted earnings per share, however, basic earnings per share decreased from $0.40 to $0.39.
The following table illustrates the effect on net income after tax and net income per common share as if we had applied the fair value recognition provisions of Statement 123 to stock-based compensation for the three-month period ended March 31, 2005:

 Three months ended 
(In thousands except per share data amounts)
March 31, 2005 
     
Net income - as reported  $9,927 
Add: Stock-based employee compensation cost, previously included in reported net income,
net of related tax effect
   343 
Deduct: Stock-based employee compensation cost, computed using the Black-Scholes option
pricing model, for all awards, net of related tax effect
   (512)
Pro forma net income  $9,758 
Earnings per share, as reported     
Basic  $0.15 
Diluted  $0.15 
      
Pro forma earnings per share     
Basic  $0.15 
Diluted  $0.15 

Stock Options

Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years.


9
RPC, INC. AND SUBSIDIARIES

The Company has computed for pro forma disclosure purposes thenot granted stock options to employees since 2003. The fair value of allexisting options granted duringwas estimated as of the nine months ended September 30, 2005 and 2004date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation." If RPC had accounted123.

Transactions involving RPC’s stock options for the stock incentive plans in accordance with SFAS No.123, RPC’s reported net income and net income per share would have beenthree months ended March 31, 2006 were as follows:

  Three months ended Nine months ended 
  September 30, September 30 
(In thousands)
 
2005
 2004 
2005
 2004 
          
Net income - as reported
 
$
23,107
 $10,237 
$
44,944
 $23,512 
Add:    Stock-based employee compensation cost,
included in reported net income, net of
related tax effect
  
187
  113  
593
  239 
Deduct:  Stock-based employee compensation cost,
computed using the Black-Scholes option
pricing model, for all awards, net of related
tax effect 
  
(356
)
 42  
(1,101
)
 (467)
Pro forma net income
 
$
22,938
 $10,392 $
44,436
 $23,284 
              
Earnings per share, as reported
             
Basic
 
$
0.55
 $0.24 $
1.06
 $0.55 
Diluted
 
$
0.53
 
$
0.24 $
1.03
 $0.54 
              
Pro forma earnings per share
             
Basic
 
$
0.55
 $0.24 $
1.05
 $0.55 
Diluted
 
$
0.53
 
$
0.24 $
1.02
 $0.54 
              

  
Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Aggregate Intrinsic Value
 
          
Outstanding at January 1, 2006  2,329,110 $4.64  5.4 years    
Granted  
-
  -  N/A    
Exercised  (226,417) 3.89  N/A    
Forfeited  (9,000) 5.02  N/A    
Expired  -  -  N/A    
Outstanding at March 31, 2006  2,093,693  4.72  5.2 years $37,958,672 
Exercisable at March 31, 2006  1,411,944 $4.73  4.7 years $25,584,425 
The total intrinsic value of stock options exercised were $5,381,000 during the three months ended March 31, 2006 and $793,000 during the three months ended March 31, 2005. There were no recognized excess tax benefits associated with the exercise of stock options during the three months ended March 31, 2006 and 2005, since all of the stock options exercised were incentive stock options which do not generate tax deductions for the Company.

Restricted Stock

The Company has granted employees two forms of restricted stock: time lapse restricted and performance restricted. Time lapse restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest after ten years. Time lapse restricted shares issued subsequent to fiscal year 2003 vest in 20 percent increments annually starting with the second anniversary of the grant, over six years from the date of grant. Grantees receive dividends declared and retain voting rights for the granted shares. The performance restricted shares are granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC’s common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. After the determination date, the grantee will receive dividends declared and voting rights to the shares.


10
RPC, INC. AND SUBSIDIARIES

The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2006:
  
Shares
 
Weighted Average
Grant-Date
Fair Value
 
Non-vested shares at January 1, 2006  1,235,991 $6.65 
Granted  166,900  33.48 
Vested  (79,200) 2.96 
Forfeited  (5,700) 11.90 
Non-vested shares at March 31, 2006  1,317,991 $10.25 

The total fair value of shares vested during the three months ended March 31, 2006 was $2,508,000 and during the three months ended March 31, 2005 was $0. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating $640,000 during the three months ended March 31, 2006 and $0 during the three months ended March 31, 2005. This excess tax deduction is classified as a financing cash flow during the three months ended March 31, 2006 in accordance with FAS123R.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOther information

As of March 31, 2006, total unrecognized compensation cost related to non-vested restricted shares was $10,507,000 which is expected to be recognized over a weighted-average period of 4.1 years. Unearned compensation cost associated with non-vested restricted shares previously reflected as deferred compensation in stockholders’ equity was reclassified to capital in excess of par value as required by SFAS 123R. As of March 31, 2006, total unrecognized compensation cost related to non-vested stock options was $981,000 which is expected to be recognized over a weighted-average period of 1.7 years.
The Company received cash from options exercised of $545,000 during the three months ended March 31, 2006 and of $464,000 during the three months ended March 31, 2005. These cash receipts are included in financing activities in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled approximately $337,000 during the three months ended March 31, 2006 and $125,000 during the three months ended March 31, 2005 and has been excluded from the consolidated statements of cash flows.

6.6. 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. The other business segment includes information concerning RPC’s business units that do not qualify for separate segment reporting. These business units includeincluded an interactive training software developer, prior to its disposition in May 2005, and an overhead crane fabricator, prior to its disposition in April 2004.2005. Corporate includes selected administrative costs incurred by the Company.

11
RPC, INC. AND SUBSIDIARIES
 
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. 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. During the fourth quarter of 2004, RPC sold the marine liftboat division previously reported in this segment.


11
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain information with respect to RPC’s business segments is set forth in the following table:



  Three months ended September 30,  Nine months ended September 30, 
  
2005
 2004 
 2005
 2004 
(in thousands)
             
              
Revenues:
             
Technical Services 
$
99,046
 $73,404 
$
262,963
 $209,523 
Support Services  
16,755
  15,302  
47,096
  40,848 
Other  
0
  15  
17
  3,778 
Total revenues 
$
115,801
 $88,721 
$
310,076
 $254,149 
Operating profit (loss):
             
Technical Services 
$
24,911
 $13,024 
$
57,029
 $35,706 
Support Services  
3,255
  2,378  
8,737
  4,629 
Other  
(2
)
 (382) 
(300
)
 (803)
Corporate  
(2,650
)
 (2,049) 
(7,315
)
 (5,861)
Total operating profit 
$
25,514
 $12,971 
$
58,151
 $33,671 
Interest income (expense), net  
131
  (17) 
301
  (75)
Other income, net  
11,120
  1,555  
13,994
  2,324 
Income before income taxes 
$
36,765
 $14,509 
$
72,446
 $35,920 

  Three months ended March 31, 
  
2006
 2005 
(in thousands)
     
      
Revenues:
       
Technical Services 
$
114,761
 $77,958 
Support Services  
21,263
  14,355 
Other  -  17 
Total revenues 
$
136,024
 $92,330 
Operating profit (loss):
       
Technical Services 
$
36,239
 $14,788 
Support Services  
5,191
  2,171 
Other  
-
  (165)
Corporate  
(2,945
)
 (2,561)
Gain on disposition of assets, net  
1,032
  626 
Total operating profit 
$
39,517
 $14,859 
Interest income, net  
153
  92 
Other income, net  
261
  1,270 
Income before income taxes 
$
39,931
 $16,221 
 
At the end of April 2004, RPC sold its overhead crane fabricator company, which was previously reported in the Other Services segment. This sale generated approximately $4 million in cash. The impact of the sale of this business unit on consolidated operating and other income was immaterial.
In August of 2005, RPC sold all of the operating and intangible assets with a net book value of approximately $5.0 million related to its hammer, casing, laydown and casing torque-turn service lines, which were previously reported in the Technical Services segment. This sale generated approximately $15.7 million in cash and a pre-tax gain of $10.7 million which is included in other income, net.
7.INVENTORIES

Inventories of $12,186,000 at September 30, 2005 and of $10,587,000 at December 31, 2004 consist of raw materials and supplies.


12
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.EMPLOYEE BENEFIT PLAN
7. INVENTORIES

Inventories of $15,090,000 at March 31, 2006 and $13,298,000 at December 31, 2005 consist of raw materials and supplies.

8. EMPLOYEE BENEFIT PLAN

The following represents the net periodic benefit cost and related components of the Company’s multiple employer Retirement Income Plan.

  
Three months ended
 
  
March 31,
 
(in thousands)
 
2006
 2005 
      
Service cost 
$
-
 $- 
Interest cost  
426
  436 
Expected return on plan assets  
(472
)
 (428)
Amortization of unrecognized net losses  
250
  263 
Net periodic benefit cost 
$
204
 $271 
   
Three months ended
September 30,
  
Nine months ended
September 30,
 
(in thousands)
  2005   2004   2005   2004  
              
Service cost 
$
-
 $
-
 $
-
 $
-
 
Interest cost  
436
  437  1,308  1,311 
Expected return on plan assets  
(428
)
 (361) (1,285) (1,083)
Amortization of unrecognized net losses  
263
  231  790  692 
Net periodic benefit cost 
$
271
 $307 $813 $920 

In the first quarter of 2005,2006, the Company contributed $1.6$2.6 million to the multiple employer pension plan. Previously the Company disclosed an expected contribution of $1,100,000 in the Form 10-K for the year ended December 31, 2005. The Company does not currently expect to make any additional contributions to this plan in 2005.2006.

9.9. INCOME TAXES

The Company determines its periodic income tax expense based upon the current period income and the annual estimated tax rate for the Company adjusted for any change to prior year 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.

The Company has previously filed amended federal tax returns for the years 1999, 2000 and 2001 to claim higher deductions for certain expenses and additional foreign tax credits representing potential tax benefits totaling up to approximately $4.0 million. These returns have been reviewed by the Internal Revenue Service and are currently being evaluated by the Joint Committee. The Company believes it has supportable positions for claiming these deductions and credits, but the amounts are subject to final approvals. Accordingly, the Company has not reflected these potential tax benefits in its financial statements. No tax benefits will be recognized in the financial statements until these gain contingencies are resolved through the eventual disposition with the respective tax authorities.


13
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 25.21.
 
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, 20042005 is incorporated herein by reference. There have been no significant changes in the Company’s strategies since year-end.
 
During the thirdfirst quarter of 2005,2006, revenues increased 30.547.3 percent to $115.8$136.0 million compared to the same period in the prior year. The growth in revenues resulted primarily from improved pricing for our equipment and services, higher capacity, and increased utilization consistent with higher customer activity levels, and improved pricing for our equipment and services.levels. The growth in revenues was partially offset by the absence of revenues from selected service lines that we sold in the third quarter of 2005. The increase in prices is partially attributable to the issuance of new price books for portions of our business during the current quarter. Domestic revenues for the current quarter were affected by hurricanes Katrina and Rita which severely curtailed oilfield drilling and production activity in the Gulf of Mexico. We estimate that the financial impact of the hurricanes to the Company was not significant. International revenues for the thirdfirst quarter of 2005 declined mainly2006 increased due to a decreaseincreases in our ChinaKuwait, Turkmenistan, and West Africa operations partially offset by increases from business in our Mexico and Kuwait operations.Argentina. 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.
 
In the third quarter we sold all of the operating and intangible assets of the Company’s hammer, casing, laydown and casing torque-turn service lines generating proceeds of approximately $15.7 million and a pretax gain of approximately $10.7 million. The after tax gain was approximately $6.7 million or $0.15 diluted earnings per share ($0.10 adjusted for the three-for-two stock split payable December 12, 2005). Income before income taxes were $36.8was $39.9 million during the thirdfirst quarter of 20052006 compared to $14.5$16.2 million in the prior year. The effective tax rate for the three months ended September 30, 2005March 31, 2006 was 37.137.6 percent compared to 29.438.8 percent in the prior year. The prior year effective rate was lower due primarily to recognition of previously reserved foreign

14
RPC, INC. AND SUBSIDIARIES

tax credits carryovers. Diluted earnings per share increased to $0.53 ($0.35 adjusted for the three-for-two stock split)$0.38 for the three months ended September 30, 2005March 31, 2006 compared to $0.24 ($0.16 adjusted for the three-for-two stock split) for$0.15 in the prior year. Cash flows from operating activities were $55.3$22.3 million for the ninethree months ended September 30, 2005March 31, 2006 compared to $33.7$9.1 million for the same period ofin the prior year, and cash and cash equivalents were $21.6$7.4 million at September 30, 2005,March 31, 2006, a decrease of $8.1$5.4 million compared to December 31, 2004.2005. This decrease in cash and cash equivalents occurred despite improved operating results and proceeds from the saleprimarily because of assets, primarily due to increased capital expenditures and increased share repurchases.to expand our fleet of equipment. As of September 30, 2005,March 31, 2006, we had no long termlong-term debt.

14
RPC, INC. AND SUBSIDIARIES
 
Cost of services rendered and goods sold as a percentage of revenues decreased approximately 3.66.3 percentage points in the thirdfirst quarter of 20052006 compared to the thirdfirst quarter of 2004.2005. This improvement was due to higher equipment and personnel utilization, improved pricing and the leverage of fixed costs over higher revenues.

Selling, general and administrative expenses as a percentage of revenues decreased by 2.74.4 percentage points, which was due to the leverage of these costs over higher revenues partially offset by an increase in field administrative personnel consistent with higher activity levels.levels, and increased incentive compensation consistent with improved financial results.

Consistent with our strategy to selectively grow our capacity and maintain our existing fleet of high demand equipment, capital expenditures were $21$26 million in the thirdfirst quarter of 2005.2006. Although we currently expect capital expenditures to be approximately $80in excess of $100 million during 2005,2006, the total amount of 20052006 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities and the ultimate delivery dates for equipment on order. We expect these expenditures to be primarily directed toward our larger, core service lines including primarily pressure pumping, snubbing,but also hydraulic workover, coiled tubing, nitrogen, and rental tools.

In response to our strong earnings and stock price performance, the Board approved the Company’s second three-for-two stock split for 2005 at its regular quarterly meeting on October 25, 2005. The Company believes that this will reward our current shareholders and increase the investment appeal of our common stock.  The share and per share data on the historical (actual) basis presented in the accompanying interim financial statements and management's discussion and analysis have not been adjusted for the stock split. The consolidated statement of operations and selected information in management's discussion and analysis also presents, on a pro forma basis, share and per share information which reflects the stock split.
 
Outlook
 
Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, has been stable or gradually increasing for several years, and the overall domestic rig count during the thirdfirst quarter of 20052006 was approximately 1719 percent higher than in the comparable period in 2004.2005. The average price of oil rose by approximately 4527 percent and the average price of natural gas rose by approximately 8617 percent during the quarter compared to the prior year. While the overall drilling rig count has increased, drilling activity in the Gulf of Mexico remains weak, which is unfavorable to the Company because of its historical presence in this geographic market. The Company has responded to these trends by emphasizing investments in more robust domestic markets and making only selective investments in the Gulf of Mexico market. In spite of relatively stable industry conditions, the Company understands that factors influencing the industry are unpredictable. Our response to the industry's potential uncertainty is to maintain sufficient liquidity and a conservative capital structure. Based on current industry conditions and trends during the thirdfirst quarter of 2005,2006, we expect consolidated revenues for 20052006 to increase as compared to 2004,2005, although the volatility in our industry makes accurate near-term forecasts difficult.

15
RPC, INC. AND SUBSIDIARIES


 
The high activity levels in the domestic oilfield have increased demand for equipment from the manufacturesmanufacturers of equipment and components used in the Company's business. This increased demand has increased the lead times for ordering and delivery of such equipment and components. If this increased demand and resulting delays in delivery continues, it could constrain the Company's ability to expand its capacity, which would negatively impact the Company's future financial results.
 
The oil and gas industry is undertaking a great deal of effort to rebuild the industry’s production infrastructure in the Gulf Coast region following Hurricanes Katrina and Rita during the third quarter of 2005. Several of the Company’s services may be utilized in support of this effort, and the Company hopes to participate in this effort during the fourth quarter of 2005 and during 2006. However, the Company is unable to predict the timing or the magnitude of its participation in the effort to rebuild the Gulf Coast’s oil and gas infrastructure.

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, 20042005 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 2004.2005.


1615
RPC, INC. AND SUBSIDIARIES


RESULTS OF OPERATIONS

  
Three months ended
September 30, 
 
Nine months ended
September 30, 
 
  
2005 
 2004  
2005 
 2004  
          
Consolidated revenues [in thousands]
 
$
115,801
 $88,721 
$
310,076
 $254,149 
Revenues by business segment [in thousands]:
             
Technical
 
$
99,046
 $73,404 
$
262,963
 $209,523 
Support
  
16,755
  15,302  
47,096
  40,848 
Other
  -  15  
17
  3,778 
              
Consolidated operating profit [in thousands]
 
$
25,514
 $12,971 
$
58,151
 $33,671 
Operating profit (loss) by business segment [in thousands]:
             
Technical
 
$
24,911
 $13,024 
$
57,029
 $35,706 
Support
  
3,255
  2,378  
8,737
  4,629 
Other
  
(2
)
 (382) 
(300
)
 (803)
Corporate
 
$
(2,650
)
$(2,049)
$
(7,315
)
$(5,861)
              
Percentage cost of services rendered & goods sold to revenues
  
53.0
%
 56.6% 
54.0
%
 57.7%
Percentage selling, general & administrative expenses to revenues
  
16.4
%
 19.1% 
17.9
%
 19.0%
Percentage depreciation and amortization expense to revenues
  
8.5
%
 9.7% 
9.3
%
 10.1%
Average U.S. domestic rig count
  
1,432
  1,228  
1,351
  1,170 
Average natural gas price (per thousand cubic feet (mcf))
 
$
10.11
 $5.45 
$
7.85
 $5.73 
Average oil price (per barrel)
 
$
63.15
 $43.66 
$
55.60
 $39.03 
              

   
    
 Three months ended
March 31,
 
     
2006
  2005 
Consolidated revenues [in thousands]
    
$
136,024
 $92,330 
Revenues by business segment [in thousands]:
          
Technical
    
$
114,761
 $77,958 
Support
     
21,263
  14,355 
Other
     
-
  17 
           
Consolidated operating profit [in thousands]
    
$
39,517
 $14,859 
Operating profit (loss) by business segment [in thousands]:
          
Technical
    
$
36,239
 $14,788 
Support
     
5,191
  2,171 
Other
     
-
  (165)
Corporate
    
$
(2,945
)
$(2,561)
Gain on disposition of assets, net
    
$
1,032
 $626 
           
           
Percentage cost of services rendered & goods sold to revenues
     
48
%
 55%
Percentage selling, general & administrative expenses to revenues
     
15
%
 20%
Percentage depreciation and amortization expense to revenues
     
8
%
 10%
Average U.S. domestic rig count
     
1,521
  1,283 
Average natural gas price (per thousand cubic feet (mcf))
    
$
7.64
 $6.55 
Average oil price (per barrel)
    
$
63.92
 $50.43 
           

THREE MONTHS ENDED SEPTEMBER 30, 2005MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004MARCH 31, 2005
 
Revenues for the three months ended September 30, 2005March 31, 2006 increased 30.547.3 percent compared to the three months ended September 30, 2004.March 31, 2005. Domestic revenues increased 32.843.3 percent to $113.4$128.9 million during the thirdfirst quarter of 20052006 compared to the same period in the prior year. The increases in revenues are due to higher activity levels, increased capacity in our largest service lines and improved pricing. The increase in pricing is mostly attributed to new price books effective during the third quarter of 2005 and first quarter of 2006 and higher customer demand for our services. The strength in our domestic oilfield revenues compared to the prior year was partially offset by the effects of no revenues from our domestic marine liftboat division, which was sold in the fourth quarter of 2004, and reduced revenues from our hammer, casing, laydown and casing torque-turn service lines, which were sold during the third quarter of 2005. During the third quarter of 2005, hurricanes Katrina and Rita severely curtailed oilfield drilling and production activity in the Gulf of Mexico which affected our operations by lost working days and temporary disruptions in the availability of materials and supplies. The Company estimates that the financial impact of these storms during the third quarter was a one percent reduction in revenues and a two to three percent reduction in net income. International revenues declined slightlyincreased from $3.3$2.3 million to $2.4$7.1 million. Revenues declinedincreased in our ChinaKuwait, Turkmenistan and West African operations, although this decline was partially offset by increases from our Mexico and Kuwait operations.Argentina. Our international revenues are impacted by the timing of project initiation and their ultimate duration.

1716
RPC, INC. AND SUBSIDIARIES



In addition, the average price of natural gas increased by approximately 8617 percent and the average price of oil increased almost 45approximately 27 percent during the thirdfirst quarter of 20052006 as compared to the prior year. The average domestic rig count during the quarter was 17almost 19 percent higher than the same period in 2004.2005. This increase in oil and gas prices and resulting increase in drilling activity had a positive 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 increased 34.947.2 percent compared to the thirdfirst quarter of last year. Revenues in this segment increased due to higher customer activity, higher capacity through increased capital expenditures, and improved pricing. The Support Services segment revenues for the quarter increased 9.548.1 percent compared to the thirdfirst quarter of prior year. This improvement was due to increased capacity driven by higher capital expenditures and improved pricing driven by higher customer demand in the rental tool service line, the largest within this segment, partially offset by the effect of having no revenues from our marine liftboat division, which was sold during the fourth quarter of 2004. The marine liftboat division generated revenues of $1.2 million during the third quarter of 2004. There were no revenues in the Other segment primarily due to the sale of a non-oilfield business unit in April 2004.segment.
 
Cost of services rendered and goods sold increased 22.330.4 percent due to the variable nature of many of these expenses, including compensation, maintenance and repair expenses, materials and supplies expenses, as well as increases in fuel cost due to higher prices. Cost of services rendered and goods sold, as a percent of revenues, decreased from the thirdfirst quarter of 20042005 compared to the thirdfirst quarter of 20052006 due to leveraging of fixed costs over higher revenues as a result of increased equipment and personnel utilization, and improved pricing for our services.pricing.

Selling, general and administrative expenses for the three months ended September 30, 2005March 31, 2006 increased 12.314.5 percent to $19.0$21.1 million compared to $16.9$18.4 million for the three months ended September 30, 2004.March 31, 2005. This increase was primarily due to higher employment costs because of an increase in field administrative personnel consistent with higher activity levels.levels, and increased compensation costs consistent with profitability. These costs as a percent of revenues, however, decreased due to leveraging of these costs over higher revenues.

Depreciation and amortization were $9.9$10.7 million for the three months ended September 30, 2005,March 31, 2006, a 14.715.4 percent increase, compared to $8.6$9.3 million for the quarter ended September 30, 2004.March 31, 2005. This increase in depreciation and amortization resulted from a higher level of capital expenditures during recent quarters within both Support Services and Technical Services to increase capacity and to maintain our existing equipment.

Gain on disposition of assets, net was $1.0 million compared to $0.6 million in the comparable period in the prior year. 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 for the three months ended September 30, 2005March 31, 2006 was $11.1$0.3 million, an increasea decrease of $9.6$1.0 million compared to $1.6$1.3 million for the three months ended September 30, 2004. DuringMarch 31, 2005. The decrease is primarily due to proceeds from a litigation settlement that were realized during the currentfirst quarter the Company sold the operating and intangible assets related to the hammer, casing, laydown and casing torque-turn service lines generating a pre-tax gain of $10.7 million.2005. The remainder ofremaining other income, net for the third quarters of 2005also includes gains from various other legal and 2004 primarily reflects net gains and losses related to the sale or retirement of property and operating equipment.insurance claims.

1817
RPC, INC. AND SUBSIDIARIES


Interest income (expense), net was $131,000$153,000 of net interest income for the three months ended September 30, 2005March 31, 2006 compared to net interest expenseincome of $17,000$92,000 for the quarter ended September 30, 2004.March 31, 2005. The increase in interest income (expense), net resulted primarily from the reduction in outstanding debt through annual principal payments made during 2004 and the first and third quarters of 2005, and small increases in interest income in the thirdfirst quarter compared to the prior year. RPC generates interest income from investment of its available cash primarily in highly liquid investments with original maturities of three months or less.

Income tax provision was $13.7$15.0 million during the three months ended September 30, 2005,March 31, 2006, compared to $4.3$6.3 million in 2004.2005. This increase was due to the increase in income before taxes coupled with an increasepartially offset by a slight decrease in the effective tax rate to 37.1 percent for the quarter compared to 29.4 percent in the prior year. The lower effective tax rate in the third quarter of the prior year was due primarily to recognition during the quarter of previously reserved foreign tax credit carryovers.rate.

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004

Revenues for the nine months ended September 30, 2005 increased $55.9 million or 22.0 percent compared to the nine months ended September 30, 2004. The Technical Services segment revenues for the nine months ended September 30, 2005 increased 25.5 percent from the same period of the prior year due primarily to increases in capacity driven by higher capital expenditures, improved utilization, and pricing driven by higher customer demand for our services. The Support Services segment revenues for the nine months ended September 30, 2005 increased 15.3 percent from the same period of the prior year as a result of higher equipment utilization and capacity in rental tools, which is the largest service line within this segment. The effects of higher equipment utilization and capacity were partially offset by the lack of revenues for the nine months ended September 30, 2005 from our marine liftboat division, which was sold in the fourth quarter of 2004. The marine liftboat division generated revenues of $3.0 million for the nine months ended September 30, 2004.
Domestic revenues increased during the period due to increases in capacity, utilization and improved pricing as a result of new price books issued during the third quarter of 2005 and increased customer demand for our services. The average domestic rig count during the nine months ended September 30, 2005 was 15 percent higher than the same period in 2004. In addition, the average price of natural gas increased by approximately 37 percent and the average price of oil increased by approximately 42 percent during the nine months ended September 30, 2005 compared to the same period in the prior year. This increase in oil and gas prices and the resulting increase in drilling activity had a positive impact on our financial results. These increases were partially offset by continued weakness in the Gulf of Mexico market. Foreign revenues decreased from $14.0 million for the nine months ended September 30, 2004 to $8.2 million for the nine months ended September 30, 2005 due to a decline in our Kuwait and West African operations which was partially offset by increases from new business in China and Mexico. Our international revenues are impacted by the timing of project initiation and their ultimate duration.

Cost of services rendered and goods sold for the nine months ended September 30, 2005 was $167.6 million compared to $146.5 million for the nine months ended September 30, 2004, an increase of $21.1 million or 14.4 percent. The increase in these costs was due to the variable nature of many of these expenses, including compensation, materials and supplies, maintenance and repair, and fuel costs. Cost of services rendered and goods sold, as a percent of revenues, decreased from the nine months ended September 30, 2004 compared to the same period of 2005 as a result of higher utilization of personnel and operating equipment, improved pricing, and the leveraging of fixed costs over higher revenues.

19
RPC, INC. AND SUBSIDIARIES


Selling, general and administrative expenses for the nine months ended September 30, 2005 were $55.6 million compared to $48.2 million for the nine months ended September 30, 2004, an increase of $7.4 million or 15.3 percent. This increase was primarily due to higher employment costs mainly as a result of an increase in number of employees and higher incentive compensation expenses consistent with higher activity levels and improved profitability. These expenses also increased due to higher public company compliance costs.

Depreciation and amortization were $28.8 million for the nine months ended September 30, 2005, an increase of $3.0 million or 11.7 percent compared to $25.7 million for the nine months ended September 30, 2004. This increase in depreciation and amortization resulted from various capital expenditures made during recent quarters within Support Services and Technical Services.

Other income,net for the nine months ended September 30, 2005 was $14.0 million, an increase of $11.7 million compared to $2.3 million for the nine months ended September 30, 2004. The increase is due primarily to the sale of the operating and intangible assets of the hammer, casing, laydown and casing torque-turn service lines which generated a pre-tax gain of $10.7 million during the third quarter of 2005. The remaining increase is attributed to proceeds of approximately $1.3 million from a litigation settlement in the first quarter of 2005 and higher other income from the net gains and losses related to the sale or retirement of property and equipment.
Interest income (expense), net was net interest income of $301,000 for the nine months ended September 30, 2005 compared to net interest expense of $75,000 for the nine months ended September 30, 2004. The increase in interest income (expense), net resulted primarily from the reduction in outstanding debt through annual principal payments made during 2004 and the nine months ended September 30, 2005, and small increases in interest income in the current year compared to the prior year.

Income tax provision was $27.5 million during the nine months ended September 30, 2005, compared to $12.4 million in 2004. This increase was due to the increase in income before income taxes during the period coupled with an increase in the effective tax rate to 38.0 percent for the period ending September 30, 2005 compared to 34.5 percent in the prior year. The lower effective tax rate during the prior year was due to the recognition of previously reserved foreign tax credit carryovers during the third quarter of 2004.

20
RPC, INC. AND SUBSIDIARIES


LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
 
The Company’s cash and cash equivalents at March 31, 2006 were $7.4 million. The following table sets forth the historical cash flows for the three months ended March 31, 2006 and 2005:
  
Nine months ended
September 30, 
   
(In thousands)
  
2005 
  2004  
           
   
Three months ended
March 31, 
 
(In thousands)   
 2006
 2005  
Net cash provided by operating activities 
$
55,296
 $33,667     
$
22,285
 $9,120 
Net cash used for investing activities  
(43,990
)
 (34,660)     
24,613
  12,371 
Net cash used for financing activities  
(19,382
)
 (5,208)     
3,095
  4,113 

Cash provided by operating activities for the ninethree months ended September 30, 2005March 31, 2006 increased $21.6$13.2 million compared to the comparable period in the prior year. Cash provided by operating activities increased primarily due to a $21.4$15.0 million increase in net income which includesand a pre-tax gain of $10.7$1.0 million generated from the sale of assets of the hammer, casing, laydown and casing torque-turn service lines, a reduction of $1.6 million inlower cash contributionscontribution to the Company’s pension plan, and slower growth in ourpartially offset by higher working capital requirements in the current period comparedrequirements. Working capital increases were primarily related to the same period in the prior year. The primary contributors to this slower growth were increases inhigher accounts payablereceivable and inventories consistent with higher business activity levels, partially offset by lower income taxes payable and accrued payroll due to the timing of payments.

Cash used for investing activities for the ninethree months ended September 30, 2005March 31, 2006 increased by $9.3$12.2 million, compared to the ninethree months ended September 30, 2004,March 31, 2005, primarily as a result of an increase in capital expenditures to increase capacity and maintain our existing equipment and earnout payments for acquisitions. These increases were partially offset by higher proceeds from the sale of assets including the assets of the service lines noted above.equipment.

Cash used for financing activities for the ninethree months ended September 30, 2005 increasedMarch 31, 2006 decreased by $14.2$1.0 million, compared to the ninethree months ended September 30, 2004,March 31, 2005, primarily due to principal loan repayments made in the first quarter of 2005 not made in the current quarter. This decrease was offset by increased repurchases of outstanding shares of our common stock during the secondfirst quarter of 2005,2006, as well as a 100an 85 percent increase in dividends paid to common shareholders, and principal repayments totaling $4.8 million during the first and third quarters of 2005.partially offset by an excess tax benefit for share based payments.

18
RPC, INC. AND SUBSIDIARIES
 
Financial Condition and Liquidity
 
The Company’s financial condition as of September 30, 2005,March 31, 2006, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization, which includes access to a $25$50 million credit facility with a financial institution, of which $12.1$34.1 million was available as of September 30, 2005,March 31, 2006, 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 the credit facility that is not currently available supports letters of credit relating to self-insurance programs or contract bids.

The Company has previously filed amended federal returns representing potential tax benefits totaling up to approximately $4.0 million. See Note 9 of the Notes to Consolidated Financial Statements for further information.

21
RPC, INC. AND SUBSIDIARIES


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. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels.
 
Cash Requirements
 
The Company currently expects that capital expenditures during 20052006 will be approximately $80in excess of $100 million, of which $55.4$26 million has been spent as of September 30, 2005,March 31, 2006, but the actual amount of 20052006 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules.

The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During the first quarter of 2005,2006, the Company contributed $1.6$2.6 million to the pension plan. The Company does not currently expect to make any additional contributions to the pension plan in 2005.2006.

The Company’s Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of 5,250,0007,875,000 shares. During the second quarter of 2005, the Company repurchased 683,960 shares in the open market. The Company did not repurchase any common shares instock under the open marketprogram during the thirdfirst quarter of 2005. As of September 30, 2005, there are 1,807,540 shares available for purchase under this program. The Company2006, but it expects to continue repurchasing outstanding common shares periodically based on market conditions and our capital allocation strategies. The program does not have a predetermined expiration date.
 
On January 25, 2005,24, 2006, the Board of Directors approved a 100 percent increase in the quarterly cash dividend$0.05 per share common share, from $0.02 to $0.04.dividend. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors.
 
In accordance with the respective purchase agreements, earnout payments to sellers of two businesses previously acquired by the Company have been paid on an annual basis and will be paid on interim periods ending during 2005. The Company made earnout payments of $4.6 million in April 2005 related to 2004 operating results and $2.4 million in August 2005 related to interim 2005 operating results. A final earnout payment of approximately $1.9 million is expected to be made to the seller of an acquired business during the fourth quarter of 2005 based on the results for the interim period ended June 30, 2005.

INFLATION 
 
The Company purchases its equipment and materials from suppliers who provide competitive prices. Due to the recent increases in activity in the domestic oilfield, the Company has experienced some upward wage pressures in the labor markets from which it hires employees. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. Also the price of steel, for both the commodity and for products manufactured with steel, has increased dramatically due to increased worldwide demand. Although prices have moderated, they remain high by historical standards. This factor has affected the Company's operations through delays in scheduled deliveries of new equipment and price quotations that were only valid for a limited period of time. If this factor continues, it is possible that the cost of the Company's new equipment will increase which would result in higher capital expenditures and depreciation expense. RPC may not be able to recover such increased costs through price increases to its customers, thereby reducing the Company's future profits.


2219
RPC, INC. AND SUBSIDIARIES


During the third quarter of 2005, Hurricanes Katrina and Rita caused delivery disruptions and very high price increases for certain materials and supplies used in the Company’s pressure pumping service line. The impact on the Company’s financial results during the third quarter from these price increases was immaterial. However, if these increased prices continue, the Company’s future financial results may be negatively impacted.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any material off balance sheet arrangements.

RELATED PARTY TRANSACTIONS  
 
Marine Products Corporation
 
Effective February 28, 2001, the Company spun-off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship. A detailed discussion of the various agreements in effect is contained in the Company’s annual report on Form 10-K for the year ended December 31, 2004.2005. During the ninethree months ended September 30, 2005,March 31, 2006, RPC charged Marine Products for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling $449,000$203,000 compared to $408,000$158,000 for the comparable period in 2004.

23
RPC, INC. AND SUBSIDIARIES

2005.
 
Other
 
The Company periodically purchases in the ordinary course of business products or services from suppliers who are owned by officers or significant shareholders of, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $670,000$131,000 for the ninethree months ended September 30, 2005March 31, 2006 and $422,000$327,000 for the ninethree months ended September 30, 2004.March 31, 2005.
 
RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman, and which is controlled by Mr. Rollins and his affiliates). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, selected administration services for certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $53,000$18,000 for the ninethree months ended September 30, 2005March 31, 2006 and $68,000$17,000 for the ninethree months ended September 30, 2004.March 31, 2005.
 

CRITICAL ACCOUNTING POLICIES

The discussion of Critical Accounting Policies is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004.2005. There have been no significant changes in the critical accounting policies since year-end.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 of the Notes to Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

20
RPC, INC. AND SUBSIDIARIES
During the first quarter of 2006, the Company adopted the provisions of SFAS 123R. Accordingly, the Company is now recording compensation expense related to the unvested portion of the options and recording estimated forfeitures for the compensation expense related to restricted shares. The estimated forfeiture rate is determined based on historical experience. The incremental impact of adoption of SFAS 123R was a reduction in pre-tax income of approximately $268,000 in the first quarter of 2006. See Note 5 of the Notes to Consolidated Financial Statements for additional information regarding the adoption of SFAS123R.

SEASONALITY

Oil and natural gas 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. There is a positive correlation between these expenditures and customers’ demand for the Company’s services. As such, 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.


24
RPC, INC. AND SUBSIDIARIES

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 regarding the impact of inflation on the Company’s results, Hurricanes Katrina and Rita, the impact of efforts to rebuild the Gulf of Mexico region’s oil and gas infrastructure on the demand for our services, our ability to maintain a conservative, liquid balance sheet, our business strategy, plans and objectives, including the development of international growth opportunities, market risk exposure, adequacy of capital resources and funds, opportunity for growth and expansion, the anticipated relative impact of natural gas and oil prices on Company activity levels, the anticipated pension funding payments and capital expenditures, the impact of SFAS 151, SFAS 123R, SAB 107, SFAS 153, FSP 109-2, FIN 47 and SFAS 154, the effect of the three-for-two stock split on the appeal of the Company’s common stock, expectations as to future stock repurchases and payment of dividends the anticipated amount of future earnout payments, 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 Company does not undertake to update its forward-looking statements.


21
RPC, INC. AND SUBSIDIARIES

The words "may," "will," ""expect," "believe," "anticipate," "project," "estimate," "focus," "plan,"“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” “focus,” “plan,” 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. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RPC to be materially different from any future results, performance or achievements expressed or implied in such 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, 2004,2005, its other SEC filings and the following: the possibility of declines in the price of oil and natural gas, which tend to result in a decrease in drilling activity and therefore a decline in the demand for our services, the actions of the OPEC cartel, the ultimate impact of current and potential political unrest and armed conflict in the oil producing regions of the world, which could impact drilling activity, adverse weather conditions in oil or gas producing regions, including the Gulf of Mexico, competition in the oil and gas industry, the Company’s ability to implement price increases, and risks of international operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
As of September 30, 2005, cash and cash equivalents were primarily invested in overnight U.S. treasury bills and money market accounts which are highly liquid with maturities of three months or less. Management believes that we are notThe Company is subject to material interest rate risk exposure through borrowings on these investments, andits credit facility which was recently increased to $50 million during 2005, the Company has benefited from higher interest income as a result of an increase in interest rates. However, inherent in the Company’s investment philosophy is the possibility that lower interest rates could result in lower interest income from its short-term investments. This risk is managed through conservative policies to invest in high-quality obligations. During the thirdfirst quarter of 2005 RPC repaid its debt with a variable interest rate and as of September 30, 2005 RPC is no longer exposed to any interest rate risk on debt. RPC did not experience any material changes in market risk exposures or how those risks are managed during the nine months ended September 30, 2005.

25
RPC, INC. AND SUBSIDIARIES


2006. As of September 30, 2005, RPC had accounts receivable of approximately $98.9 million (net of an allowance for doubtful accounts of approximately $3.5 million). RPC is subject to a concentration ofMarch 31, 2006, there are no outstanding interest-bearing advances on our credit risk because most of the accounts receivable are due from companies in the oil and gas industry.facilities.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures - The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, September 30, 2005March 31, 2006 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date.

Changes in internal control over financial reporting - Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


2622
RPC, INC. AND SUBSIDIARIES


PART II. OTHER INFORMATION

PART II.   OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGSPROCEEDINGS

RPC is involved in litigation from time to time in the ordinary course of its business. RPC does not believe that the outcome of such litigation will have a material adverse effect on the financial position or results of operations of RPC.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
Shares repurchased by the Company in the thirdfirst quarter of 20052006 are outlined below.
 
            

Period
 
Total Number
of Shares (or
Units)
Purchased  
 
 
 
Average
Price Paid
Per Share
(or Unit)
 
Total number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs (3)
 
Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
 
            
Month #1           
July 1, 2005 to July 31, 2005  10,785  (1) $18.65  -  1,807,540 
                 
Month #2                
August 1, 2005 to August 31, 2005  3,558  (1)  22.05  -  1,807,540 
                 
Month #3                
September 1, 2005 to September 30, 2005  14,909  (2)  25.30  -  1,807,540 
                 
Totals  29,252      $22.45  -  1,807,540 

 Period 
Total Number of
Shares (or Units)
Purchased
 
Average Price
Paid Per Share
(or Unit)
 
Total number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (3)
 
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units) that
May Yet Be
Purchased Under the
Plans or Programs
 
          
Month #1
January 1, 2006 to January 31, 2006		  34,176 (1) $32.72  -  2,711,310 
              
Month #2
February 1, 2006 to February 28, 2006
  9,101(1) 27.60  -  2,711,310 
              
Month #3
March 1, 2006 to March 31, 2006
  3,605 (2) 21.51  -  2,711,310 
                     
Totals  46,882 $30.87  -  2,711,310 
 
(1) Consists solely of shares tendered to the Company in connection with option exercises and shares repurchased for taxes related to the release of
                  restricted shares.
(2) Consists solely of shares tendered to the Company in connection with option exercises.
(3) The Company's Board of Directors announced a stock buyback program in March 1998 authorizing the repurchase of 7,875,000 shares  in the open market.
      During the first quarter of 2006, there were no purchases of shares on the open market. Currently the program does not have a predetermined expiration date.

 
(1)All shares shown were tendered to the Company in connection with option exercises.
(2)Includes 2,292 shares repurchased for taxes related to the release of performance restricted shares. The remaining shares shown were tendered to the Company in connection with option exercises.
(3)The Company’s Board of Directors announced a stock buyback program in March 1998 authorizing the repurchase of 5,250,000 shares in the open market. During the third quarter of 2005, there were no purchases of shares on the open market. The program does not have a predetermined expiration date.


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RPC, INC. AND SUBSIDIARIES

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None

ITEM 5. OTHER INFORMATIONINFORMATION

None

ITEM 6. Exhibits
 

Exhibit
Number
 
Description
3.13.1(a) Restated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibitExhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
3.1(b)Certificate of amendment of the certificate of incorporation of RPC, Inc.
3.2 Bylaws of RPC, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2004).
4 Form of Stock Certificate (incorporated herein by reference to Exhibit 4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998).
10.1Summary of ‘at will’ compensation arrangements with the Executive Officers (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005).
10.2Amended and Restated Credit Agreement dated as of March 10, 2006, between the Company and SunTrust Bank (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005).
31.1 Section 302 certification for Chief Executive Officer.
31.2 Section 302 certification for Chief Financial Officer.
32.1 Section 906 certifications for Chief Executive Officer and Chief Financial Officer.

2824
RPC, INC. AND SUBSIDIARIES


SIGNATURES

Pursuant to the requirements of the Securities 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:  May 8, 2006By:  /s/ Richard A. Hubbell                                               
 /s/ Richard A. Hubbell
Date: November 4, 2005
Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)Officer
  
 
 

Date:  May 8, 2006By:  /s/ Ben M. Palmer                                                        
 /s/ Ben M. Palmer
Date: November 4, 2005
Ben M. Palmer
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

 
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