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 MARCH 31, 2000 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-8726 RPC, INC. (exact name of registrant as specified in its charter) DELAWARE 58-1550825 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2170 PIEDMONT ROAD, NE, ATLANTA, GEORGIA 30324 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code -- (404) 321-2140 Indicate by check mark whether the registrant (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 March 31, 2000, RPC, Inc. had 28,242,263 shares of common stock outstanding. 1 of 14 RPC, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000, AND DECEMBER 31, 1999 (In thousands) MARCH 31, December 31, 2000 1999 (UNAUDITED) (Audited) -------- -------- ASSETS Cash and cash equivalents $ 11,657 $ 8,278 Marketable securities 4,374 4,798 Accounts receivable, net of allowance for doubtful accounts of $4,870 and $4,659, respectively 38,258 34,871 Inventories, at lower of cost or market 20,148 19,631 Deferred income taxes 8,385 8,254 Federal income taxes receivable -- 1,806 Prepaid expenses and other current assets 2,242 2,337 -------- -------- Current assets 85,064 79,975 -------- -------- Equipment and property, net 81,271 75,472 Marketable securities 21,739 24,871 Intangible assets, net 8,741 9,006 Other assets 1,255 1,251 -------- -------- TOTAL ASSETS $198,070 $190,575 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 10,433 $ 13,728 Accrued payroll and related expenses 6,268 5,725 Accrued insurance expenses 7,699 7,689 Accrued state, local and other taxes 4,222 4,106 Federal income taxes payable 2,300 -- Accrued discounts 1,453 1,131 Current portion of long-term debt 610 255 Other accrued expenses 8,576 8,976 -------- -------- Current liabilities 41,561 41,610 -------- -------- Long-term accrued insurance expenses 3,850 3,684 Long-term debt 902 1,547 Deferred income taxes 1,026 926 -------- -------- Total liabilities 47,339 47,767 -------- -------- Commitments and contingencies -------- -------- Common stock 2,824 2,826 Capital in excess of par value 22,424 22,548 Earnings retained 125,483 117,434 -------- -------- Total stockholders' equity 150,731 142,808 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $198,070 $190,575 ======== ======== The accompanying notes are an integral part of these statements. 2 of 14 RPC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) Three months ended March 31, --------------------------- 2000 1999 -------- -------- REVENUE $ 73,768 $ 54,935 -------- -------- Cost of goods sold 31,884 25,911 Operating expenses 30,209 23,363 Depreciation and amortization 4,427 4,044 Gain on settlement of claim (6,817) -- Interest income (376) (366) -------- -------- Income before income taxes 14,441 1,983 Income tax provision 5,487 754 -------- -------- NET INCOME $ 8,954 $ 1,229 ======== ======== EARNINGS PER SHARE Basic $ 0.32 $ 0.04 -------- -------- Diluted $ 0.32 $ 0.04 -------- -------- AVERAGE SHARES OUTSTANDING Basic 27,828 28,331 -------- -------- Diluted 28,124 28,532 -------- -------- The accompanying notes are an integral part of these statements. 3 of 14 RPC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months ended March 31, --------------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES $ 10,829 $ 10,371 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (10,351) (2,282) Proceeds from sale of equipment and property 703 728 Net sale (purchase) of marketable securities 3,556 (4,621) Other 46 -- -------- -------- Net cash used for investing activities (6,046) (6,175) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Dividend distributions (988) (1,005) Repayments of long term debt (290) (301) Purchase of treasury stock (152) (2,625) Proceeds from exercise of stock options 26 51 -------- -------- Net cash (used for) financing activities (1,404) (3,880) -------- -------- Net increase in cash and cash equivalents 3,379 316 Cash and cash equivalents at beginning of period 8,278 10,029 -------- -------- Cash and cash equivalents at end of period $ 11,657 $ 10,345 ======== ======== The accompanying notes are an integral part of these statements. 4 of 14 RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999. In the opinion of management, the consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2000, and the results of operations and the cash flows for the three months then ended. 2. Basic and diluted earnings per share are computed by dividing net income by the respective weighted average number of shares outstanding during the respective periods. 3. The results of operations for the quarter ended March 31, 2000, are not necessarily indicative of the results to be expected for the full year. 4. In June, 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. It requires entities to recognize all instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not anticipate the adoption of these standards to have a material impact on its financial position or results of operations. 5 of 14 RPC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D 5 RPC has two reportable segments: oil and gas services and boat manufacturing. The oil and gas services segment provides a variety of services, equipment, and personnel to the oil and gas industry. The boat manufacturing segment manufactures and sells powerboats to a nationwide network of independent dealers. RPC evaluates performance based on profit or loss from operations before income taxes. RPC accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. RPC's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. All of these businesses were acquired as a unit, and the management at the time of acquisition was retained. Certain information with respect to RPC's business segments is set forth in the following table: ---------------------------------------------------------------- March 31, 2000 1999 ---------------------------------------------------------------- (IN THOUSANDS) REVENUE: Oil and gas services $ 32,472 $ 20,512 Boat manufacturing 37,885 31,233 Other 3,411 3,190 -------- -------- Total revenue $ 73,768 $ 54,935 -------- -------- OPERATING INCOME(LOSS): Oil and gas services $ 3,968 ($ 1,839) Boat manufacturing 4,525 4,294 Other (214) 129 -------- -------- Total operating income $ 8,279 $ 2,584 -------- -------- Corporate expenses (1,031) (967) Gain on settlement of claim 6,817 -- Interest income 376 366 -------- -------- Income before income taxes $ 14,441 $ 1,983 ======== ======== The identifiable assets for the powerboat manufacturing segment increased by $495,000 from $30,850,000 at December 31, 1999 to $31,345,000 at March 31, 2000. The identifiable assets for the oil and gas services segment increased by $2,774,000 from $107,894,000 at December 31, 1999 to $110,668,000 at March 31, 2000. 6 of 14 RPC, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Revenue for the first quarter ended March 31, 2000, increased $18,833,000 or 34% to $73,768,000 compared with $54,935,000 for the quarter ended March 31, 1999. The oil and gas services segment revenue of $32,472,000 increased 58% from last year's first quarter. This increase was due to increased customer drilling and production enhancement activity relating to the improved commodity prices. The average working US rig count has increased 54% from last year's first quarter. The powerboat manufacturing segment revenue for the quarter ended March 31, 2000, of $37,885,000 increased 21% from last year's first quarter revenue of $31,233,000. This revenue increase resulted from an increase in the volume of boats sold coupled with a small increase in the average sales price compared to the prior year. Cost of goods sold for the first quarter ended March 31, 2000, was $31,884,000 compared to $25,911,000 for the first quarter ended March 31, 1999, an increase of $5,973,000 or 23%. Cost of goods sold for the boat manufacturing segment totaled $29,499,000 for the quarter ended March 31, 2000 compared to $23,475,000 for the same period one year ago. The remainder of cost of goods sold relates to businesses in other industries. The increase in cost of goods sold (as a percent of revenue) for the powerboat manufacturing segment is due primarily to higher cost of materials used to manufacture the current year's newly designed boat models. With more experience in manufacturing these new models, production efficiency is expected to improve. Operating expenses for the first quarter ended March 31, 2000 were $30,209,000 compared to $23,363,000 for the first quarter ended March 31, 1999, an increase of $6,846,000 or 29%. The oil and gas services segment operating expenses were $24,459,000 or 75% of segment revenue for the first quarter 2000 compared to $18,500,000 or 90% of segment revenue for the same period one year earlier. The reduction in the operating expenses as a percent of segment revenue is due to improved operating efficiencies as a result of higher activity levels and revenue. Operating expenses in the boat manufacturing segment were $3,564,000 or 9% of segment revenue for the first quarter 2000 and $2,936,000 or 9% of segment revenue for the first quarter 1999. 7 of 14 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D Net income for the quarter ended March 31, 2000, was $8,954,000 or $0.32 diluted earnings per share compared to net income of $1,229,000 or $0.04 diluted earnings per share for the quarter ended March 31, 1999. In the first quarter of 2000, RPC recorded a pre-tax gain in its powerboat manufacturing business segment of $6,817,000 ($4,227,000 after-tax), or $0.15 after-tax diluted earnings per share. Net income excluding the gain would have been approximately $4,727,000 or $0.17 diluted earnings per share. The increase in earnings per share (excluding the gain on settlement) from the same period one year ago was due primarily to the increase in revenues and operating profits in the oil and gas services segment. GAIN ON SETTLEMENT During the three months ended March 31, 2000, a gain was recorded related to settlement of a claim. The gain is a result of Chaparral Boats' receipt of its share of a non-refundable $35 million settlement payment made by Brunswick Corporation (Brunswick), a major engine supplier, to the members of the American Boatbuilders Association (ABA), a buying group which includes Chaparral Boats. Under the terms of this agreement between the ABA and Brunswick, additional payments will be made to the ABA depending on the final judgment or settlement of a lawsuit brought by Independent Boatbuilders Association (IBBI), another buying group supplied engines by Brunswick. In March 2000, the U.S. Court of Appeals for the Eighth Circuit ordered the trial court to enter a judgment for Brunswick, thereby reversing the initial decision in favor of IBBI. No additional settlement payments are expected to be made to the ABA. FINANCIAL CONDITION The Company's current ratio remained strong as of March 31, 2000, with current assets of $85,064,000 exceeding current liabilities of $41,561,000 by a ratio of 2.0-to-1. This compares to a current ratio of 1.9-to-1 at December 31, 1999. 8 of 14 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D Capital expenditures during the first three months of 2000 totaled $10,351,000. Revenue-producing equipment purchases in the oil and gas services segment totaled approximately $8,400,000 while the boat manufacturing segment spent $1,845,000 on plant expansion. Funding for future capital requirements is expected to be provided from operations. SPIN-OFF TRANSACTION On January 14, 2000, RPC announced it had taken the initial steps to spin-off its 100% ownership in Chaparral Boats. The transaction, if effected, is expected to be completed during the third quarter of 2000 and will be structured as a tax-free distribution of Chaparral Boats stock to RPC shareholders. The spin-off transaction is subject to various approvals including a favorable tax ruling from the Internal Revenue Service and final approval of RPC's Board of Directors. YEAR 2000 ISSUE Aware that the Year 2000 (Y2K) information technology programming issue could have a significant potential impact on its future operations and financial reporting, RPC began its assessment and remediation processes regarding its primary financial and operating systems in 1997. RPC's assessment activities included (1) identifying critical systems, (2) testing for Y2K compliance, (3) obtaining assurances from its vendors and its large commercial customers, and (4) developing contingency plans to address Y2K issues which could occur. RPC's remediation activities included replacing certain software and operating systems, followed by testing to ensure Y2K compliance of the replacements. No negative or materially significant impact has yet been experienced internally with RPC's systems or from any supplier due to the Y2K related issue, nor is any such impact anticipated. No contingency plans have yet been invoked. FORWARD-LOOKING STATEMENTS Management's discussion and analysis of results of operations and financial condition include "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange 9 of 14 RPC, INC. AND SUBSIDIARIES ITEM 2. CONT'D Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated by reference which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including statements regarding future capital requirements, anticipated impact of IBBI legal proceedings, expected improvements in boat production efficiency, timing and structure of the proposed spin-off transaction, potential exposure to market risk, the impact of Year 2000 programming issues, and anticipated trends and similar expressions concerning matters that are not historical facts, are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate under the circumstances. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from the company's expectations, including economic conditions, the price of oil and gas, conditions in the industries in which the Company operates, competition, and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise. 10 of 14 RPC, INC. AND SUBSIDIARIES ITEM 3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK RPC maintains an investment portfolio, comprised of U.S. Government and corporate debt securities, which is subject to interest rate risk exposure. This risk is managed through conservative policies to invest in high-quality obligations. RPC has performed an interest rate sensitivity analysis using a duration model over the near term with a 10 percent change in interest rates. RPC's portfolio is not subject to material interest rate risk exposure based on this analysis. RPC does not expect any material changes in market risk exposures or how those risks are managed. 11 of 14 RPC, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 12 of 14 RPC, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1 RPC's restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 to the 1999 Form 10-K. 3.2 By-laws of RPC (incorporated herein by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 4 Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed or required to be filed during the quarter ended March 31, 2000. 13 of 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RPC, INC. /S/ RICHARD A. HUBBELL -------------------------- Date: May 11, 2000 Richard A. Hubbell President and Chief Operating Officer /S/ BEN M. PALMER -------------------------- Date: May 11, 2000 Ben M. Palmer Treasurer and Chief Financial Officer 14 of 14