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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2001
/ / | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File No. 1-8726
RPC, INC.
(exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 58-1550825 (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 /x/ No / /
As of September 30, 2001, RPC, Inc. had 28,676,728 shares of common stock outstanding.
RPC, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001, AND DECEMBER 31, 2000
(In thousands)
| September 30, 2001 (Unaudited) | December 31, 2000 (Audited) | ||||
---|---|---|---|---|---|---|
ASSETS | ||||||
Cash and cash equivalents | $ | 5,870 | $ | 5,437 | ||
Marketable securities | — | 3,888 | ||||
Accounts receivable, net | 70,933 | 55,485 | ||||
Inventories | 9,018 | 7,212 | ||||
Deferred income taxes | 7,129 | 6,837 | ||||
Prepaid expenses and other current assets | 1,402 | 2,322 | ||||
Current assets | 94,352 | 81,181 | ||||
Equipment and property, net | 112,355 | 85,032 | ||||
Marketable securities | — | 13,868 | ||||
Intangibles, net | 7,910 | 4,044 | ||||
Other assets | 1,262 | 1,197 | ||||
Net assets of discontinued operation | — | 92,593 | ||||
Total assets | $ | 215,879 | $ | 277,915 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Accounts payable | $ | 16,859 | $ | 10,237 | ||
Accrued payroll and related expenses | 8,461 | 7,108 | ||||
Accrued insurance expenses | 7,020 | 5,927 | ||||
Accrued state, local and other taxes | 4,456 | 3,804 | ||||
Short-term debt | 7,373 | 470 | ||||
Other accrued expenses | 2,308 | 2,904 | ||||
Federal income taxes payable | 2,138 | 2,937 | ||||
Current liabilities | 48,615 | 33,387 | ||||
Payable to Marine Products Corporation | — | 68,276 | ||||
Long-term accrued insurance expenses | 3,943 | 5,007 | ||||
Long-term debt | 3,045 | 848 | ||||
Deferred income taxes | 1,301 | 1,078 | ||||
Total liabilities | 56,904 | 108,596 | ||||
Common stock | 2,868 | 2,830 | ||||
Capital in excess of par value | 27,195 | 22,541 | ||||
Earnings retained | 128,912 | 143,948 | ||||
Total stockholders' equity | 158,975 | 169,319 | ||||
Total liabilities and stockholders' equity | $ | 215,879 | $ | 277,915 | ||
The accompanying notes are an integral part of these statements.
2
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001, AND 2000
(In thousands except per share data)
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||||
Revenues | $ | 75,674 | $ | 51,116 | $ | 209,238 | $ | 126,863 | ||||||
Cost of services rendered and goods sold | 39,862 | 28,522 | 112,293 | 73,532 | ||||||||||
Gross profit | 35,812 | 22,594 | 96,945 | 53,331 | ||||||||||
Selling, general and administrative expenses | 12,820 | 8,865 | 36,167 | 24,649 | ||||||||||
Depreciation and amortization | 6,791 | 4,740 | 18,024 | 13,439 | ||||||||||
Operating profit | 16,201 | 8,989 | 42,754 | 15,243 | ||||||||||
Interest expense (income), net | 138 | (341 | ) | (39 | ) | (1,037 | ) | |||||||
Income before income taxes | 16,063 | 9,330 | 42,793 | 16,280 | ||||||||||
Income tax provision | 6,104 | 3,545 | 16,261 | 6,186 | ||||||||||
Income from continuing operations | 9,959 | 5,785 | 26,532 | 10,094 | ||||||||||
Income from discontinued operation, net of income taxes | — | 2,332 | 1,486 | 12,149 | ||||||||||
Net Income | $ | 9,959 | $ | 8,117 | $ | 28,018 | $ | 22,243 | ||||||
Earnings per share—Basic | ||||||||||||||
Income from continuing operations | $ | 0.35 | $ | 0.21 | $ | 0.95 | $ | 0.36 | ||||||
Income from discontinued operation | — | 0.08 | 0.05 | 0.44 | ||||||||||
Net income | $ | 0.35 | $ | 0.29 | $ | 1.00 | $ | 0.80 | ||||||
Earnings per share—Diluted | ||||||||||||||
Income from continuing operations | $ | 0.35 | $ | 0.21 | $ | 0.93 | $ | 0.36 | ||||||
Income from discontinued operation | — | 0.08 | 0.05 | 0.43 | ||||||||||
Net income | $ | 0.35 | $ | 0.29 | $ | 0.98 | $ | 0.79 | ||||||
Average shares outstanding | ||||||||||||||
Basic | 28,207 | 27,844 | 28,021 | 27,835 | ||||||||||
Diluted | 28,708 | 28,312 | 28,528 | 28,243 | ||||||||||
The accompanying notes are an integral part of these statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001, and 2000
(In thousands)
(Unaudited)
| Nine months ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||||
OPERATING ACTIVITES | |||||||||
Net Income | $ | 28,018 | $ | 22,243 | |||||
Noncash charges (credits) to earnings: | |||||||||
Depreciation and amortization | 18,100 | 13,527 | |||||||
Loss (gain) on sale of equipment and property | 39 | (1,138 | ) | ||||||
Deferred income tax provision | (69 | ) | (614 | ) | |||||
Income from discontinued operation | (1,486 | ) | (12,149 | ) | |||||
(Increase) decrease in assets, excluding effect of businesses acquired: | |||||||||
Accounts receivable | (15,448 | ) | (13,270 | ) | |||||
Federal income taxes receivable | — | 1,806 | |||||||
Inventories | (1,489 | ) | (1,574 | ) | |||||
Prepaid expenses and other current assets | 920 | 455 | |||||||
Other non-current assets | (65 | ) | (183 | ) | |||||
Increase (decrease) in liabilities: | |||||||||
Accounts payable | 6,622 | (897 | ) | ||||||
Federal income taxes payable | (614 | ) | 3,958 | ||||||
Accrued payroll and related expenses | 1,353 | 787 | |||||||
Accrued insurance expenses | 29 | 734 | |||||||
Other accrued expenses | 56 | (227 | ) | ||||||
Net cash (used for) provided by discontinued operation | (614 | ) | 8,865 | ||||||
Net cash provided by operating activities | 35,352 | 22,323 | |||||||
INVESTING ACTIVITIES | |||||||||
Capital expenditures | (35,441 | ) | (26,503 | ) | |||||
Purchase of businesses | (8,391 | ) | — | ||||||
Proceeds from sale of equipment and property | 1,804 | 2,552 | |||||||
Net sale of marketable securities | 17,756 | 5,955 | |||||||
Transfer of cash and marketable securites to Marine Products Corporation | (13,833 | ) | — | ||||||
Net cash used for investing activities | (38,105 | ) | (17,996 | ) | |||||
FINANCING ACTIVITIES | |||||||||
Dividend distributions | (2,419 | ) | (2,964 | ) | |||||
Increase in (reduction of) debt | 5,850 | (708 | ) | ||||||
Cash paid for common stock purchased and retired | (678 | ) | (184 | ) | |||||
Proceeds from exercise of stock options | 433 | 111 | |||||||
Net cash provided by (used for) financing activities | 3,186 | (3,745 | ) | ||||||
Net increase in cash and cash equivalents | 433 | 582 | |||||||
Cash and cash equivalents at beginning of period | 5,437 | 4,847 | |||||||
Cash and cash equivalents at end of period | $ | 5,870 | $ | 5,429 | |||||
The accompanying notes are an integral part of these statements.
4
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 1.
- SPIN-OFF TRANSACTION
On February 12, 2001, the Board of Directors of RPC, Inc. ("RPC") approved the spin-off of Chaparral Boats, Inc. ("Chaparral"), RPC's Powerboat Manufacturing Segment (the "Spin-off"). RPC accomplished the Spin-off on February 28, 2001 by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation ("Marine Products"), a Delaware corporation, and then distributing the common stock of Marine Products to RPC stockholders. RPC stockholders received 0.6 share of Marine Products Common Stock for each share of RPC Common Stock owned as of the record date.
Marine Products has been accounted for as a discontinued operation and the accompanying consolidated financial statements separately reflect the net assets and operations of this discontinued operation. As part of the Spin-off, RPC transferred $13.8 million in cash and marketable securities to Marine Products. Also as part of the Spin-off, a $53.8 million payable to Marine Products was cancelled.
- 2.
- GENERAL
The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000.
In the opinion of management, the consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2001, the results of operations for the quarter and nine months ended September 30, 2001 and 2000, and the cash flows for the nine months ended September 30, 2001 and 2000.
The results of operations for the quarter and nine months ended September 30, 2001, are not necessarily indicative of the results to be expected for the full year.
- 3.
- EARNINGS PER SHARE
Basic and diluted earnings per share are computed by dividing net income by the respective weighted average number of shares outstanding during the respective periods.
A reconciliation of the weighted shares outstanding is as follows:
| Three months ended Sept 30, | Nine months ended Sept 30, | ||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||
| (In thousands) | |||||||
Basic | 28,207 | 27,844 | 28,021 | 27,835 | ||||
Dilutive effect of stock options and restricted shares | 501 | 468 | 507 | 408 | ||||
Diluted | 28,708 | 28,312 | 28,528 | 28,243 | ||||
- 4.
- RECENT ACCOUNTING PRONOUNCEMENTS
5
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. As amended, the adoption of SFAS No. 133, effective for the Company as of January 1, 2001, did not impact the results of operations or financial condition of the Company as the Company is not a party to any derivative transactions that fall under the provisions of this statement.
In June 2001, the Financial Accounting Standards Board (FASB) approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed on June 30, 2001 after December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Beginning in the first quarter of 2002, if an impairment occurs, the adoption of SFAS No. 142 could have an adverse effect on the Company's future results of operations. The Company has not completed its analysis of the impact of adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses accounting and reporting for asset retirement costs of long lived assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company plans to adopt SFAS No. 143 in January 2003. Management has determined the adoption of this statement will not have a material effect on the Consolidated Financial Statements of the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company plans to adopt SFAS No. 144 in January 2002. Management does not believe the adoption of this statement will have a material effect on the Consolidated Financial Statements of the Company.
- 5.
- ACQUISITIONS
Effective February 2001, RPC purchased the assets of Sooner Testing, Inc. ("Sooner") for a total consideration of $4.4 million, plus an earnout based on future operating results of Sooner. The earnout payments, if any, will be paid annually in accordance with the agreement between the Company and Sooner and will be recorded as goodwill when paid. Sooner is in the pressure pumping business. Operating results of Sooner have been included in the accompanying financial statements since the date of acquisition. The purchase was funded by $3.1 in cash and a promissory note of $1.25 million payable in three annual installments, plus interest at prime rate. The acquisition has been accounted for using the purchase method of accounting. The purchase cost has been allocated to the assets acquired based on estimated fair values as follows:
| (In thousands) | ||
---|---|---|---|
Inventory | $ | 317 | |
Operating equipment and vehicles | 2,788 | ||
Goodwill | 1,250 | ||
Total cost | $ | 4,355 | |
6
The Consolidated Statements of Cash Flow for the nine months ended September 30, 2001 excludes the $1.25 million promissory note payable issued in connection with this acquisition. This amount has been recorded as goodwill.
On July 9, 2001, RPC purchased the assets of Mathews Energy Services Inc. ("Mathews"), a pressure pumping company, for a total consideration of $11 million plus an earnout based on future operating results of Mathews. The earnout payments, if any, will be made annually starting 2002, in accordance with the agreement between the Company and Mathews and will be recorded as goodwill when paid. The purchase was funded with $5.0 million in cash, $4.0 million in stock and a promissory note of $2.0 million, payable in full after four years, plus interest payable quarterly at prime rate. Operating results of Mathews have been included in the accompanying financial statements since the date of acquisition. The acquisition has been accounted for using the purchase method of accounting. The purchase cost has been allocated to the assets acquired based on estimated fair values as follows:
| (in thousands) | ||
---|---|---|---|
Operating equipment | $ | 7,396 | |
Other assets | 648 | ||
Goodwill and other intangibles | 2,956 | ||
Total cost | $ | 11,000 | |
The Consolidated Statements of Cash Flow for the nine months ended September 30, 2001 excludes the $2 million promissory note payable and $4 million in stock issued in connection with this acquisition.
Payments totaling $286,000 have made in connection with the earnouts related to previous acquisitions.
- 6.
- BUSINESS SEGMENT INFORMATION
RPC has two reportable segments: Technical Services and Support Services. Technical Services include RPC's oil and gas service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services business segment consists primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control, down-hole tools, wire line, fluid pumping, hot-tapping, gate valve drilling and casing installation services. The principal markets for this business segment include the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and international locations including primarily Algeria and Venezuela. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. Support Services include RPC's oil and gas service lines that primarily provide equipment for customer use or services to assist customer operations. The equipment and services include drill pipe and related tools, pipe handling, inspection and storage services, work platform marine vessels, and oilfield training services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels. The principal markets for this segment include the United States, Gulf of Mexico and mid-continent regions. Customers include domestic operations of major multi-national and independent oil and gas producers.
RPC evaluates the performance of its segments based on revenues, operating profits, and earnings before interest, taxes, depreciation and other non-cash charges (EBITDA). Results for 2000 have been reallocated between Technical and Support Services to ensure consistency with the amounts reported for 2001.
7
Certain information with respect to RPC's continuing business segments is set forth in the following table:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 2001 | 2000 | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||
Revenues: | ||||||||||||||
Technical Services | $ | 58,987 | $ | 35,178 | $ | 159,489 | $ | 85,172 | ||||||
Support Services | 13,785 | 12,617 | 40,523 | 31,411 | ||||||||||
Other | 2,902 | 3,321 | 9,226 | 10,280 | ||||||||||
Total revenues | $ | 75,674 | $ | 51,116 | $ | 209,238 | $ | 126,863 | ||||||
Operating income(loss): | ||||||||||||||
Technical Services | $ | 12,545 | $ | 6,068 | $ | 34,433 | $ | 11,881 | ||||||
Support Services | 4,881 | 3,689 | 12,504 | 5,204 | ||||||||||
Other | (160 | ) | (237 | ) | (828 | ) | (397 | ) | ||||||
Total operating income | $ | 17,266 | $ | 9,520 | $ | 46,109 | $ | 16,688 | ||||||
Corporate expenses | 1,065 | 531 | 3,355 | 1,445 | ||||||||||
Interest expense (income), net | 138 | (341 | ) | (39 | ) | (1,037 | ) | |||||||
Income before income taxes | $ | 16,063 | $ | 9,330 | $ | 42,793 | $ | 16,280 | ||||||
EBITDA: | ||||||||||||||
Technical Services | $ | 17,372 | $ | 8,724 | $ | 46,265 | $ | 19,090 | ||||||
Support Services | 6,569 | 5,623 | 17,821 | 10,916 | ||||||||||
Other and Corporate | (925 | ) | (588 | ) | (3,232 | ) | (1,236 | ) | ||||||
Total EBITDA | $ | 23,016 | $ | 13,759 | $ | 60,854 | $ | 28,770 | ||||||
8
RPC, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues for the third quarter ended September 30, 2001, increased $24,558,000 or 48 percent to $75,674,000 compared to $51,116,000 for the quarter ended September 30, 2000. The Technical Services segment revenues of $58,987,000 increased 68 percent from last year's third quarter of $35,178,000. The Support Services segment revenues for the quarter ended September 30, 2001, of $13,785,000 increased nine percent from last year's third quarter revenues of $12,617,000. These increases were due to higher customer drilling and production enhancement activities domestically. During the third quarter 2001, the average working rig count in the United States had increased 26 percent from last year's third quarter. The Company has realized higher percentage growth in revenues within Technical Services' value-added service lines such as pressure pumping because of investments in new equipment coupled with acquisitions.
Cost of services rendered and goods sold for the third quarter ended September 30, 2001, was $39,862,000 compared to $28,522,000 for the third quarter ended September 30, 2000, an increase of $11,340,000 or 40 percent. Cost of services rendered and goods sold, as a percent of revenues, decreased from 56 percent in 2000 to 53 percent in 2001. This improvement resulted from a favorable operating environment allowing for better utilization of our equipment and personnel, and better pricing.
Selling, general and administrative expenses for the third quarter ended September 30, 2001 were $12,820,000 compared to $8,865,000 for the third quarter ended September 30, 2000, an increase of $3,955,000 or 45 percent. This increase was due to additional overhead required to administer the significant growth in the company's oil and gas services business lines. Selling, general and administrative expenses as a percent of revenues remained at 17 percent in 2000 and 2001.
Depreciation and amortization was $6,791,000 for the third quarter ended September 30, 2001, an increase of $2,051,000 or 43 percent compared to $4,740,000 in 2000. This increase in depreciation and amortization resulted primarily from capital expenditures relating to the new pressure pumping service line, and various maintenance and growth capital expenditures in other oil and gas service lines.
Operating profit for the third quarter ended September 30, 2001 was $16,201,000 an increase of $7,212,000 compared to an operating profit of $8,989,000 in 2000. This significant improvement in operating profit resulted from improvements in industry conditions in 2001 compared to 2000, leading to improved operating leverage, as discussed above.
Interest expense (income), net was an expense of $138,000 in the third quarter of 2001 compared to income of $341,000 in the third quarter of 2000. RPC generates interest income from investment of its available cash primarily in marketable securities. The decrease in interest income resulted primarily from interest on the promissory notes issued in connection with the acquisitions of Sooner and Mathews as well as a decrease in investment balances, due to the transfer of cash and marketable securities to Marine Products in connection with the Spin-off.
Income from continuing operations increased $4,174,000 from $5,785,000 in 2000 to $9,959,000 in 2001. This improvement is consistent with the increases in operating profit, as the income tax rate was the same in both periods.
9
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues for the nine months ended September 30, 2001, increased $82,375,000 or 65 percent to $209,238,000 compared to $126,863,000 for the nine months ended September 30, 2000. The Technical Services segment revenues of $159,489,000 increased 87 percent from last year's nine months of $85,172,000. The Support Services segment revenues for the nine months ended September 30, 2001, of $40,523,000 increased 29 percent from revenues of $31,411,000 for the nine months ended September 30, 2000. These increases were due to higher customer drilling and production enhancement activity levels. During the first nine months of 2001, the average working rig count in the United States increased 39 percent from the first nine months of 2000.
Cost of services rendered and goods sold for the nine months ended September 30, 2001, was $112,293,000 compared to $73,532,000 for the nine months ended September 30, 2000, an increase of $38,761,000 or 53 percent. Cost of services rendered and goods sold, as a percent of revenues, decreased from 58 percent in 2000 to 54 percent in 2001. This improvement resulted from a favorable operating environment allowing for better utilization of our equipment and personnel, and better pricing.
Selling, general and administrative expenses for the nine months ended September 30, 2001 were $36,167,000 compared to $24,649,000 for the nine months ended September 30, 2000, an increase of $11,518,000 or 47 percent. This increase was due to additional overhead required to administer the significant growth in the company's oil and gas services business lines. Selling, general and administrative expenses as a percent of revenues fell from 19 percent in 2000 to 17 percent in 2001.
Depreciation and amortization was $18,024,000 for the nine months ended September 30, 2001, an increase of $4,585,000 or 34 percent compared to $13,439,000 in 2000. This increase in depreciation and amortization resulted primarily from capital expenditures relating to the new pressure pumping service line, and various maintenance and growth capital expenditures in other oil and gas service lines.
Operating profit for the nine months ended September 30, 2001 was $42,754,000, an increase of $27,511,000 compared to an operating profit of $15,243,000 in 2000. This significant improvement in operating profit resulted from improvements in industry conditions in 2001 compared to 2000, as discussed above.
Interest expense (income),net was $39,000 in the first nine months of 2001 compared to $1,037,000 in the first nine months of 2000. RPC generates interest income from investment of its available cash primarily in marketable securities. The decrease in interest income results primarily from interest on promissory notes issued in connection with the acquisitions of Sooner and Mathews and a decrease in investment balances, due to the transfer of cash and securities to Marine Products in connection with the Spin-off.
Income from continuing operations improved $16,438,000 from $10,094,000 in 2000 to $26,532,000 in 2001. This improvement is consistent with the increases in operating profit, as the income tax rate was the same in both periods.
Income from discontinued operation (net of income taxes) is from RPC's powerboat manufacturing segment, classified as a discontinued operation, which earned $1,486,000 in 2001 compared to $12,149,000 in 2000. The 2001 amount includes the results for the first two months before the Spin-off while the 2000 amount includes results for nine months and an after-tax gain of $4,227,000 from the settlement of a claim.
10
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended September 30, 2001, was $35,352,000 compared to $22,323,000 for the nine months ended September 30, 2000, a $13,029,000 or 58 percent increase. The increase is due to increased net income partially offset by increased working capital requirements necessary to support the increased business activity levels.
Cash used for investing activities for the nine months ended September 30, 2001, was $38,105,000 compared to $17,996,000 for the nine months ended September 30, 2000, a $20,109,000 increase. The increase relates primarily to higher capital expenditures and the acquisition of Sooner and Mathews. Capital expenditures included revenue-producing equipment purchases in both the Technical Services and Support Services business segments.
Cash provided by financing activities for the nine months ended September 30, 2001, was $3,186,000 compared to cash used of $3,745,000 for the nine months ended September 30, 2000, an increase of $6,931,000. This increase in cash provided is primarily due to the increase in debt for general corporate purposes.
The prices of oil and natural gas have declined significantly during the third quarter, reflecting supply considerations and demand reductions caused by weakening economic conditions in the United States and globally. As a result of these declines, RPC is monitoring customer exploration and production activity levels very closely, and making conservative decisions regarding capital expenditures and other commitments.
Funding for future liquidity and capital resource requirements is expected to be provided primarily from cash generated by operations.
In June 2001, the FASB approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed on June 30, 2001 after December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Beginning in the first quarter of 2002, if an impairment occurs, the adoption of SFAS No. 142 could have an adverse effect on the Company's future results of operations. The Company has not completed its analysis of the impact of adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses accounting and reporting for asset retirement costs of long lived assets resulting from legal obligations associated with acquisition, construction or development transactions. The Company plans to adopt SFAS No. 143 in January 2003. Management has determined the adoption of this statement will not have a material effect on the Consolidated Financial Statements of the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company plans to adopt SFAS No. 144 in January 2002. Management does not believe the adoption of this statement will have a material effect on the Consolidated Financial Statements of the Company.
11
FORWARD-LOOKING STATEMENTS
Certain statements made in this report that are not historical facts are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, market risk exposure and the impact of SFAS No. 142 and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence the oilfield services market and our performance in the future.
The words "may," "will," "expect," "believe," "anticipate," "project," "estimate," and similar expressions generally identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: the volatility of oil and natural gas prices, inability to identify or complete acquisitions, adverse weather conditions, inability to attract and retain skilled employees, personal injury or property damage claims, the changes in the supply and demand for oil and gas.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2001, there were no material amount of marketable securities held by RPC.
As of September 30, 2001, RPC had debt with variable interest rates which exposes RPC to certain market risks. RPC has performed an interest rate sensitivity analysis using a duration model over the term of the debt with a 10 percent change in interest rates. RPC is not subject to material interest rate risk exposure based on this analysis, and no material changes in market risk exposures or how those risks are managed is expected.
As of September 30, 2001, RPC had accounts receivable of $71 million (net of an allowance for doubtful accounts of $6 million). RPC is subject to a concentration of credit risk because most of the accounts receivable are due from companies in the oil and gas industry.
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RPC, INC. AND SUBSIDIARIES
None
On July 9, 2001, RPC issued 280,446 unregistered shares of RPC common stock for a total consideration of $4.0 million in connection with the acquisition of Mathews. The shares were issued to Mathews Energy Services, Inc. pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
None
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ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit Number | Description | |
---|---|---|
3.1 | RPC's restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 to the 1999 Form 10-K. | |
3.2 | By-laws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). | |
4 | Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). | |
10.1 | Tax Sharing Agreement by and between RPC, Inc. and Marine Products Corporation (Incorporated by reference to Exhibit 10.5 to the Marine Products Corporation Registration Statement on Form 10 (File No. 1-16263) filed with the SEC on February 12, 2001). | |
10.2 | Employee Benefits Agreement by and between RPC, Inc., Marine Products Corporation and Chaparral Boats, Inc.(Incorporated by reference to Exhibit 10.3 to the Marine Products Corporation Registration Statement on Form 10 (File No. 1-16263) filed with the SEC on February 12, 2001). | |
10.3 | Transaction Support Services Agreement by and between RPC, Inc. and Marine Products Corporation (Incorporated by reference to Exhibit 10.4 to the Marine Products Corporation Registration Statement on Form 10 (File No. 1-16263) filed with the SEC on February 12, 2001). |
b) Reports on Form 8-K
None.
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RPC, INC. | ||
/s/ Richard A. Hubbell | ||
Date: November 14, 2001 | Richard A. Hubbell President and Chief Operating Officer | |
/s/ Ben M. Palmer | ||
Date: November 14, 2001 | Ben M. Palmer Treasurer and Chief Financial Officer |
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RPC, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001, AND DECEMBER 31, 2000 (In thousands)
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001, AND 2000 (In thousands except per share data) (Unaudited)
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001, and 2000 (In thousands) (Unaudited)
RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
- ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K