10-Q 1 res-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

Commission File No. 1-8726

RPC, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

58-1550825

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

2801 Buford Highway, Suite 300, Atlanta, Georgia 30329

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code -- (404) 321-2140

Securities Registered under Section 12(b) of the Act:

Title of each class:

    

Trading Symbol(s)

    

Name of each exchange on which registered:

Common stock, par value $0.10

RES

New York Stock Exchange

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 No

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of April 22, 2022, RPC, Inc. had 216,476,421 shares of common stock outstanding.

RPC, INC. AND SUBSIDIARIES

Table of Contents

    

Page No.

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets –As of March 31, 2022 and December 31, 2021

3

Consolidated Statements of Operations – For the three months ended March 31, 2022 and 2021

4

Consolidated Statements of Comprehensive Income (Loss) – For the three months ended March 31, 2022 and 2021

5

Consolidated Statements of Stockholders’ Equity – For the three months ended March 31, 2022 and 2021

6

Consolidated Statements of Cash Flows – For the three months ended March 31, 2022 and 2021

7

Notes to Consolidated Financial Statements

8 – 18

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 – 26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

Controls and Procedures

26

Part II. Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

29

2

RPC, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

(In thousands)

(Unaudited)

March 31, 

December 31, 

    

2022

    

2021

ASSETS

(Note 1)

Cash and cash equivalents

$

73,189

$

82,433

Accounts receivable, net of allowance for credit losses of $6,190 in 2022 and $5,717 in 2021

285,517

258,635

Inventories

 

84,381

 

78,983

Income taxes receivable

 

57,448

 

58,504

Prepaid expenses

 

13,545

 

9,773

Assets held for sale

692

692

Other current assets

 

2,430

 

2,990

Total current assets

 

517,202

 

492,010

Property, plant and equipment, less accumulated depreciation of $771,267 in 2022 and $788,922 in 2021

257,137

254,408

Operating lease right-of-use assets

23,741

24,572

Finance lease right-of-use assets

22,922

20,327

Goodwill

 

32,150

 

32,150

Other assets

 

38,016

 

40,898

Total assets

$

891,168

$

864,365

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

LIABILITIES

 

  

 

  

Accounts payable

$

76,974

$

74,404

Accrued payroll and related expenses

 

21,888

 

15,350

Accrued insurance expenses

 

5,380

 

10,129

Accrued state, local and other taxes

 

2,996

 

1,905

Income taxes payable

 

982

 

656

Current portion of operating lease liabilities

6,655

6,387

Current portion of finance lease liabilities

22,694

20,194

Other accrued expenses

 

1,663

 

1,824

Total current liabilities

 

139,232

 

130,849

Long-term accrued insurance expenses

 

10,628

 

11,770

Long-term pension liabilities

 

32,570

 

35,376

Deferred income taxes

 

24,787

 

17,749

Long-term operating lease liabilities

18,562

19,719

Other long-term liabilities

 

7,621

 

7,111

Total liabilities

 

233,400

 

222,574

Commitments and contingencies (Note 9)

 

 

  

STOCKHOLDERS’ EQUITY

 

  

 

  

Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued

 

 

Common stock, $0.10 par value, 349,000,000 shares authorized, 216,476,421 and 215,628,716 shares issued and outstanding in 2022 and 2021, respectively

 

21,648

 

21,563

Capital in excess of par value

 

 

Retained earnings

 

656,517

 

640,936

Accumulated other comprehensive loss

 

(20,397)

 

(20,708)

Total stockholders’ equity

 

657,768

 

641,791

Total liabilities and stockholders’ equity

$

891,168

$

864,365

The accompanying notes are an integral part of these consolidated financial statements.

3

RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(In thousands except per share data)

(Unaudited)

Three months ended

March 31, 

    

2022

    

2021

Revenues

$

284,624

$

182,610

COSTS AND EXPENSES:

  

  

Cost of revenues (exclusive of items shown below)

 

208,837

 

146,223

 

Selling, general and administrative expenses

 

36,240

 

30,595

 

Depreciation and amortization

 

19,466

 

17,773

 

Gain on disposition of assets, net

 

(2,954)

 

(1,460)

 

Operating income (loss)

 

23,035

 

(10,521)

 

Interest expense

 

(178)

 

(380)

 

Interest income

 

15

 

18

 

Other income, net

 

504

 

507

 

Income (loss) before income taxes

 

23,376

 

(10,376)

 

Income tax provision (benefit)

 

8,297

 

(714)

 

Net income (loss)

$

15,079

$

(9,662)

Earnings (loss) per share

 

  

 

  

Basic

$

0.07

$

(0.05)

Diluted

$

0.07

$

(0.05)

The accompanying notes are an integral part of these consolidated financial statements.

4

RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(In thousands)

(Unaudited)

Three months ended

March 31, 

    

2022

    

2021

Net income (loss)

$

15,079

$

(9,662)

Other comprehensive income (loss):

  

  

Pension adjustment and reclassification adjustment, net of taxes

 

195

 

153

 

Foreign currency translation

 

116

 

136

 

Comprehensive income (loss)

$

15,390

$

(9,373)

The accompanying notes are an integral part of these consolidated financial statements.

5

RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(In thousands)

(Unaudited)

Three months ended March 31, 2022

Accumulated

Capital in 

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

(Loss) Income

    

Total

Balance, December 31, 2021

 

215,629

$

21,563

$

$

640,936

$

(20,708)

$

641,791

Stock issued for stock incentive plans, net

 

1,037

 

104

 

1,393

 

 

 

1,497

Stock purchased and retired

 

(190)

 

(19)

 

(1,393)

 

502

 

 

(910)

Net income

 

 

 

 

15,079

 

 

15,079

Pension adjustment, net of taxes

 

 

 

 

 

195

 

195

Foreign currency translation

 

 

 

 

 

116

 

116

Balance, March 31, 2022

216,476

$

21,648

$

$

656,517

$

(20,397)

$

657,768

Three months ended March 31, 2021

Accumulated

Capital in 

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

(Loss) Income

    

Total

Balance, December 31, 2020

 

214,951

$

21,495

$

$

627,778

$

(17,706)

$

631,567

Stock issued for stock incentive plans, net

 

924

 

93

 

1,446

 

 

 

1,539

Stock purchased and retired

 

(140)

 

(14)

 

(1,446)

 

903

 

 

(557)

Net loss

 

 

 

(9,662)

 

 

(9,662)

Pension adjustment, net of taxes

 

 

 

 

 

153

 

153

Foreign currency translation

 

 

 

 

 

136

 

136

Balance, March 31, 2021

215,735

$

21,574

$

$

619,019

$

(17,417)

$

623,176

The accompanying notes are an integral part of these consolidated financial statements.

6

RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(In thousands)

(Unaudited)

Three months ended March 31, 

    

2022

    

2021

OPERATING ACTIVITIES

  

  

Net income (loss)

$

15,079

$

(9,662)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

  

 

Depreciation, amortization and other non-cash charges

 

19,343

 

17,800

 

Stock-based compensation expense

 

1,497

 

1,539

 

Gain on disposition of assets, net

 

(2,954)

 

(1,460)

 

Deferred income tax provision (benefit)

 

6,975

 

(752)

 

(Increase) decrease in assets:

 

 

  

 

Accounts receivable

 

(26,586)

 

(25,076)

 

Income taxes receivable

 

1,056

 

331

 

Inventories

 

(5,326)

 

2,800

 

Prepaid expenses

 

(3,771)

 

1,097

 

Other current assets

 

677

 

614

 

Other non-current assets

 

2,875

 

2,735

 

Increase (decrease) in liabilities:

 

 

  

 

Accounts payable

 

(168)

 

18,155

 

Income taxes payable

 

326

 

187

 

Accrued payroll and related expenses

 

6,529

 

4,638

 

Accrued insurance expenses

 

(4,749)

 

(1,046)

 

Accrued state, local and other taxes

 

1,091

 

1,751

 

Other accrued expenses

 

(1,746)

 

(1,611)

 

Pension liabilities

 

(2,548)

 

(1,788)

 

Long-term accrued insurance expenses

 

(1,142)

 

(1,279)

 

Other long-term liabilities

 

1,790

 

291

 

Net cash provided by operating activities

 

8,248

 

9,264

 

INVESTING ACTIVITIES

 

  

 

  

 

Capital expenditures

 

(19,084)

 

(11,750)

 

Proceeds from sale of assets

 

3,825

 

3,968

 

Net cash used for investing activities

 

(15,259)

 

(7,782)

 

FINANCING ACTIVITIES

 

  

 

  

 

Cash paid for common stock purchased and retired

 

(910)

 

(557)

 

Cash paid for finance lease

(1,323)

Net cash used for financing activities

 

(2,233)

 

(557)

 

Net (decrease) increase in cash and cash equivalents

 

(9,244)

 

925

 

Cash and cash equivalents at beginning of period

 

82,433

 

84,496

 

Cash and cash equivalents at end of period

$

73,189

$

85,421

Supplemental cash flows disclosure:

Income taxes refund, net

$

(333)

$

(481)

Interest paid

$

43

$

42

Supplemental disclosure of noncash investing activities:

Capital expenditures included in accounts payable

$

7,020

$

5,271

The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents

RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    GENERAL

The accompanying unaudited 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 accounting principles generally accepted in the United States for complete financial statements. These consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, “Consolidation” and Rule 3A-02(a) of Regulation S-X. In accordance with ASC Topic 810 and Rule 3A-02 (a) of Regulation S-X, the Company’s policy is to consolidate all subsidiaries and investees where it has voting control.

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 three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021.

A group that includes the Company’s Chairman of the Board, Gary W. Rollins, controls in excess of fifty percent of the Company’s voting power.

Recently Issued Accounting Standards Not Yet Adopted:

ASU No. 2020-04 Reference Rate Reform (Topic 848): The amendments in this ASU, provides optional guidance for a limited time to ease the impact of the reference rate reform on financial reporting. The amendments, which are elective, provide expedients to contract modifications, affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or other reference rate that is expected to be discontinued due to reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company plans to adopt these provisions when LIBOR is discontinued (currently expected to be in July 2022) and does not expect adoption to have a material impact on its consolidated financial statements.

ASU No. 2021-08: Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: The amendments in this ASU address diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination, by adopting guidance requiring an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer would recognize and measure the acquired contract assets and contract liabilities in the same manner that they were recognized and measured in the acquiree's financial statements before the acquisition. The company plans to adopt these provisions prospectively to business combinations occurring after January 1, 2023 and does not expect adoption to have a material impact on its consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.    REVENUES

Accounting Policy:

RPC’s contract revenues are generated principally from providing oilfield services. These services are based on mutually agreed upon pricing with the customer prior to the services being delivered and, given the nature of the services, do not include the right of return. Pricing for these services is a function of rates based on the nature of the specific job, with consideration for the extent of equipment, labor, and consumables needed for the job. RPC typically satisfies its performance obligations over time as the services are performed. RPC records revenues based on the transaction price agreed upon with its customers.

Sales tax charged to customers is presented on a net basis within the consolidated statements of operations and therefore excluded from revenues.

Nature of services:

RPC provides a broad range of specialized oilfield services to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets. RPC manages its business as either (1) services offered on the well site with equipment and personnel (Technical Services) or (2) services and tools offered off the well site (Support Services). For more detailed information about operating segments, see Note 6.

RPC contracts with its customers to provide the following services by reportable segment:

Technical Services

Includes pressure pumping, downhole tools services, coiled tubing, nitrogen, snubbing and other oilfield related services including wireline, well control, fishing and pump down services.

Support Services

Rental tools – RPC rents tools to its customers for use with onshore and offshore oil and gas well drilling, completion and workover activities.
Other support services include oilfield pipe inspection services, pipe management and pipe storage; well control training and consulting.

Our contracts with customers are generally very short-term in nature and generally consist of a single performance obligation – the provision of oilfield services.

Payment terms:

RPC’s contracts with customers state the final terms of the sales, including the description, quantity, and price of each service to be delivered. The Company’s contracts are generally short-term in nature and in most situations, RPC provides services ahead of payment - i.e., RPC has fulfilled the performance obligation prior to submitting a customer invoice. RPC invoices the customer upon completion of the specified services and collection is generally expected between 30 to 60 days after invoicing. As the Company enters into contracts with its customers, it generally expects there to be no significant timing difference between the date the services are provided to the customer (satisfaction of the performance obligation) and the date cash consideration is received. Accordingly, there is no financing component to our arrangements with customers.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Significant judgments:

RPC believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (1) our performance toward complete satisfaction of the performance obligation under the contract and (2) the value transferred to the customer of the services performed under the contract. RPC has elected the right to invoice practical expedient for recognizing revenue related to its performance obligations.

Disaggregation of revenues:

See Note 6 for disaggregation of revenue by operating segment and services offered in each of them and by geographic regions.

Timing of revenue recognition for each of the periods presented is shown below:

Three months ended

March 31, 

(in thousands)

    

2022

    

2021

Oilfield services transferred at a point in time

$

$

Oilfield services transferred over time

284,624

 

182,610

Total revenues

$

284,624

$

182,610

Contract balances:

Contract assets representing the Company’s rights to consideration for work completed but not billed are included in accounts receivable, net on the consolidated balance sheets are shown below:

March 31, 

December 31, 

(in thousands)

    

2022

    

2021

Unbilled trade receivables

$

70,061

$

50,370

Substantially all of the unbilled trade receivables disclosed were or are expected to be invoiced during the following quarter.

4.    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. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities. Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted average shares outstanding is as follows:

Three months ended

March 31

(In thousands)

    

2022

    

2021

Net income (loss) available for stockholders:

$

15,079

$

(9,662)

Less: Adjustments for earnings attributable to participating securities

(208)

Net income (loss) used in calculating earnings per share

$

14,871

$

(9,662)

Weighted average shares outstanding (including participating securities)

 

216,242

 

215,538

Adjustment for participating securities

 

(2,990)

 

(2,579)

Shares used in calculating basic and diluted earnings per share

 

213,252

 

212,959

5.    STOCK-BASED COMPENSATION

In April 2014, the Company reserved 8,000,000 shares of common stock under the 2014 Stock Incentive Plan with a term of 10 years expiring in April 2024. This plan provides for the issuance of various forms of stock incentives, including, among others incentive and non-qualified stock options and restricted shares. As of March 31, 2022, there were 2,188,635 shares available for grant.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock-based employee compensation expense was as follows for the periods indicated:

Three months ended

March 31, 

(in thousands)

    

2022

2021

Pre-tax expense

$

1,497

$

1,539

After tax expense

$

1,130

$

1,154

Restricted Stock

The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2022:

Weighted Average 

    

Shares

    

Grant-Date Fair Value

Non-vested shares at January 1, 2022

2,619,691

$

7.89

Granted

 

1,037,350

 

6.23

Vested

 

(490,313)

 

11.91

Forfeited

 

(31,925)

 

6.49

Non-vested shares at March 31, 2022

 

3,134,803

$

6.73

The total fair value of shares vested was $2,831,000 during the three months ended March 31, 2022 and $1,732,000 during the three months ended March 31, 2021. Excess tax benefits or deficits realized from tax compensation deductions in excess of, or lower than compensation expense are recorded as either a beneficial or detrimental discrete income tax adjustment. This was a detrimental adjustment of $669,000 for the three months ended March 31, 2022 and a detrimental adjustment of $1,160,000 for the three months ended March 31, 2021.

As of March 31, 2022, total unrecognized compensation cost related to non-vested restricted shares was $43,193,000 which is expected to be recognized over a weighted-average period of 4.2 years.

6.    BUSINESS SEGMENT INFORMATION

RPC’s reportable segments are the same as its operating segments. RPC manages its business under Technical Services and Support Services. Technical Services is comprised of service lines that generate revenue based on equipment, personnel or materials at the well site and are closely aligned with completion and production activities of the customers. Support Services is comprised of service lines which generate revenue from services and tools offered off the well site and are more closely aligned with the customers’ drilling activities. Selected overhead including certain centralized support services and regulatory compliance are classified as Corporate.

Technical Services consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The services offered under Technical Services are high capital and personnel intensive businesses. The Company considers all of these services to be closely integrated oil and gas well servicing businesses, and makes resource allocation and performance assessment decisions based on this operating segment as a whole across these various services.

Support Services consist primarily of drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training and consulting services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels.

The Company’s Chief Operating Decision Maker (“CODM”) assesses performance and makes resource allocation decisions regarding, among others, staffing, growth and maintenance capital expenditures and key initiatives based on the operating segments outlined above.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment Revenues:

RPC’s operating segment revenues by major service lines are shown in the following table:

Three months ended

March 31, 

(in thousands)

    

2022

    

2021

Technical Services:

  

  

Pressure Pumping

$

119,898

$

74,900

Downhole Tools

81,070

 

56,377

Coiled Tubing

26,850

 

14,768

Nitrogen

7,603

 

11,160

Snubbing

6,212

 

3,832

All other

24,716

 

11,604

Total Technical Services

$

266,349

$

172,641

Support Services:

 

  

 

  

Rental Tools

$

13,063

$

6,032

All other

 

5,212

 

3,937

Total Support Services

$

18,275

$

9,969

Total revenues

$

284,624

$

182,610

The following summarizes revenues for the United States and separately for all international locations combined for the three months ended March 31, 2022 and 2021. The revenues are presented based on the location of the use of the equipment or services. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented.

(in thousands)

    

2022

    

2021

United States revenues

$

275,345

$

172,929

International revenues

9,279

 

9,681

Total revenues

$

284,624

$

182,610

The accounting policies of the reportable segments are the same as those referenced in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the CODM on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not material to operating results.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information with respect RPC’s reportable segments for the three months ended March 31, 2022 and 2021 are shown in the following table:

Three months ended

March 31, 

(in thousands)

    

2022

    

2021

Revenues:

 

  

 

  

Technical Services

$

266,349

$

172,641

Support Services

 

18,275

 

9,969

Total revenues

$

284,624

$

182,610

Operating income (loss):

 

 

Technical Services

$

21,811

$

(5,762)

Support Services

 

2,780

 

(2,896)

Corporate Expenses

 

(4,510)

 

(3,323)

Gain on disposition of assets, net

 

2,954

 

1,460

Total operating income (loss)

$

23,035

$

(10,521)

Interest expense

 

(178)

 

(380)

Interest income

 

15

 

18

Other income, net

 

504

 

507

Income (loss) before income taxes

$

23,376

$

(10,376)

As of and for the three months ended

Technical

Support

March 31, 2022

    

Services

    

Services

    

Corporate

    

Total

(in thousands)

 

  

 

  

 

  

 

  

Depreciation and amortization

$

16,974

$

2,427

$

65

$

19,466

Capital expenditures

 

16,624

 

2,410

 

50

 

19,084

Identifiable assets

$

616,961

$

74,021

$

200,186

$

891,168

As of and for the three months ended

Technical

Support

March 31, 2021

    

Services

    

Services

    

Corporate

    

Total

(in thousands)

Depreciation and amortization

$

15,728

$

1,977

$

68

$

17,773

Capital expenditures

 

9,648

 

1,937

 

165

 

11,750

Identifiable assets

$

507,815

$

70,304

$

221,954

$

800,073

7.    CURRENT EXPECTED CREDIT LOSSES

The Company utilizes an expected credit loss model for valuing its accounts receivable, a financial asset measured at amortized cost. The Company is exposed to credit losses primarily from providing oilfield services. The Company’s expected credit loss allowance for accounts receivable is based on historical collection experience, current and future economic and market conditions and a review of the current status of customers’ account receivable balances. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible and recoveries of amounts previously written off are recorded when collected. Estimates used to determine the allowance for current expected credit losses are based on an assessment of anticipated payment and all other historical, current and future information that is reasonably available.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected:

Three months ended March 31, 

    

2022

    

2021

(in thousands)

Beginning balance

$

6,765

$

4,815

Provision for current expected credit losses

1,131

 

946

Write-offs

(1,708)

 

(53)

Recoveries collected (net of expenses)

2

 

9

Ending balance

$

6,190

$

5,717

8.    INVENTORIES

Inventories consist of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) components and attachments for manufactured equipment used in providing services. In the table below, spare parts and components are included as part of raw materials and supplies; tools that are assembled using components are reported as finished goods. Inventories are recorded at the lower of cost or net realizable value. Cost is determined using first-in, first-out method or the weighted average cost method.

March 31, 

December 31, 

2022

2021

(in thousands)

Raw materials and supplies

$

83,001

$

77,709

Finished goods

1,380

 

1,274

Ending balance

$

84,381

$

78,983

9.     COMMITMENTS AND CONTINGENCIES

Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes. In accordance with ASC 450-20, Loss Contingencies, any probable and reasonable estimate of assessment costs have been included in accrued state, local and other taxes.

The Company has received a state tax notification of audit results related to sales and use tax and with its outside legal counsel has evaluated the perceived merits of this tax assessment. The Company believes the likelihood of a material loss related to this contingency is remote and cannot be reasonably estimated at this time. Therefore, no loss has been recorded and the Company currently does not believe the resolution of this claim will have a material impact on its consolidated financial position, results of operations or cash flows.

10.    EMPLOYEE BENEFIT PLAN

The following represents the net periodic benefit cost and related components of the Company’s multiple employer Retirement Income Plan, a trusteed defined benefit pension plan:

Three months ended March 31, 

(in thousands)

    

2022

    

2021

Interest cost

 

$

243

 

$

247

Expected return on plan assets

 

-

 

(377)

Amortization of net losses

 

253

 

202

Net periodic benefit cost

$

496

$

72

During the fourth quarter of 2021, the Company initiated actions to terminate the defined benefit pension plan, which is expected to be completed in early 2023. The Company currently expects to make a final cash contribution of approximately $6 million to $7 million as part of the termination. As of the plan termination date, the Company will recognize a pre-tax, non-cash settlement charge representing the unamortized net loss in the plan which was approximately $23.2 million as of March 31, 2022. The final amount is subject to change based on the actual return on plan assets and the periodic actuarial updates of the net losses

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in the plan. For the year ending December 31, 2022, the Company has utilized an expected return on plan assets of zero percent based on the current short-term rates and investment horizon as a result of the expected plan termination.

The Company did not make a cash contribution to this plan during the three months ended March 31, 2022 or March 31, 2021.

The Company permits selected highly compensated employees to defer a portion of their compensation into the non-qualified Supplemental Retirement Plan (“SERP”). The Company maintains certain securities primarily in mutual funds and company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligation of the SERP that have been classified as trading, and are stated at fair value totaling $30.2 million as of March 31, 2022 and $31.7 million as of December 31, 2021. Trading losses related to the SERP assets totaled approximately $1.5 million during the three months ended March 31, 2022, compared to trading gains of approximately $471 thousand during the three months ended March 31, 2021. The SERP assets are reported in non-current other assets on the consolidated balance sheets and changes in the fair value of these assets are reported in the consolidated statements of operations as compensation cost in selling, general and administrative expenses.

The SERP liabilities includes participant deferrals net of distributions and are stated at fair value of approximately $26.6 million as of March 31, 2022 and $29.7 million as of December 31, 2021. The SERP liabilities are reported on the consolidated balance sheets in long-term pension liabilities and any change in the fair value is recorded as compensation cost within selling, general and administrative expenses in the consolidated statements of operations. Changes in the fair value of the SERP liabilities represented unrealized losses of approximately $1.4 million during the three months ended March 31, 2022, compared to unrealized gains of approximately $586 thousand during the three months ended March 31, 2021.

11.    NOTES PAYABLE TO BANKS

The Company has a revolving Credit Agreement with Bank of America and four other lenders which provides for a line of credit of up to $100 million, including a $35 million letter of credit subfacility, and a $35 million swingline subfacility. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. The revolving credit facility includes a full and unconditional guarantee by the Company's 100 percent owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of the Company and its subsidiaries. Certain of the Company’s minor subsidiaries are not guarantors. The Credit Agreement’s maturity date is July 26, 2023.

During the third quarter of 2020, the Company entered into Amendment No. 5 to Credit Agreement (the “Amendment”). This Amendment (1) reduced the maximum amount available for borrowing under the credit facility from $125 million to $100 million, (2) decreased the minimum tangible net worth covenant level from not less than $600 million to not less than $400 million, and (3) increased the margin spreads and commitment fees payable by RPC by 37.5 and 5 basis points, respectively, at each pricing level of the applicable rate without any changes to the leverage ratios used to calculate such spreads.

The Credit Agreement includes the following covenants: (i) when RPC’s trailing four quarter EBITDA (as calculated under the Credit Agreement) is equal to or greater than $50 million, a maximum consolidated leverage ratio of 2.50:1.00 and a minimum debt service coverage ratio of 2.00:1.00, and (ii) when RPC’s trailing four quarter EBITDA is less than $50 million, a minimum tangible net worth of no less than $400 million.

As of March 31, 2022, the Company was in compliance with these covenants.

Revolving loans under the amended revolving credit facility bear interest at one of the following two rates at the Company’s election:

the Eurodollar Rate, which is the rate per annum equal to the London Interbank Offering Rate (“LIBOR”); plus, a margin ranging from 1.5% to 2.5%, based on a quarterly consolidated leverage ratio calculation; or
the Base Rate, which is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America’s publicly announced “prime rate,” and (c) the Eurodollar Rate plus 1.00%; in each case plus a margin that ranges from 0.5% to 1.5% based on a quarterly consolidated leverage ratio calculation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company pays an annual fee ranging from 0.20% to 0.30%, based on a quarterly consolidated leverage ratio calculation, on the unused portion of the credit facility.

The Company has incurred total loan origination fees and other debt related costs associated with this revolving credit facility in the aggregate of approximately $3.4 million. These costs are being amortized to interest expense over the remaining term of the loan, and the remaining unamortized balance of $0.2 million at March 31, 2022 is classified as part of non-current other assets.

As of March 31, 2022, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $16.3 million; therefore, a total of $83.7 million of the facility was available. Interest incurred, which includes facility fees on the unused portion of the revolving credit facility and the amortization of loan costs, and interest paid on the credit facility were as follows for the periods indicated:

Three months ended

March 31, 

 

(in thousands)

    

2022

    

2021

 

Years Ended December 31, 

(in thousands)

  

  

 

Interest incurred

$

65

$

41

 

Interest paid

43

42

12.  INCOME TAXES

The Company generally determines its periodic income tax expense or benefit based upon the current period income or loss and the annual estimated tax rate for the Company adjusted for discrete items including changes to prior period 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.

In the first quarter of 2021, the Company used the discrete method since the actual year-to-date effective rate provided a more reliable estimate of its income tax rate for the period. For the three months ended March 31, 2022, the effective rate reflects a provision of 35.5 percent compared to a benefit of 6.9 percent for the comparable period in the prior year. In addition to the discrete method used in the first quarter of 2021, the change in effective tax rate for the quarter ended March 31, 2022 is mainly related to unfavorable permanent adjustments together with detrimental discrete adjustments related to restricted stock vesting and other deferred items.

13.  FAIR VALUE DISCLOSURES

The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:

1.Level 1 – Quoted market prices in active markets for identical assets or liabilities.
2.Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
3.Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheets as of March 31, 2022 and December 31, 2021:

Fair Value Measurements at March 31, 2022 with:

Quoted prices in

Significant 

active markets

 other 

Significant 

 for identical

observable

unobservable 

(in thousands)

    

Total

    

assets

    

 inputs

    

inputs

  

(Level 1)

(Level 2)

(Level 3)

Assets:

Equity securities

$

228

$

228

$

$

Investments measured at net asset value

$

30,194

 

  

 

  

 

  

Fair Value Measurements at December 31, 2021 with:

Quoted prices in

Significant 

active markets

 other 

Significant 

 for identical

observable

unobservable 

(in thousands)

    

Total

    

assets

    

 inputs

    

inputs

 

  

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

Equity securities

$

197

$

197

$

$

Investments measured at net asset value

$

31,738

 

  

 

  

 

  

The Company determines the fair value of equity securities that have a readily determinable fair value through quoted market prices. The total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. Marketable securities comprised of the SERP assets, are recorded primarily at their net cash surrender values, calculated using their net asset values, which approximates fair value, as provided by the issuing insurance or investment company. Significant observable inputs, in addition to quoted market prices, were used to value the trading securities. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods. For the quarter ended March 31, 2022, there were no significant transfers in or out of levels 1, 2 or 3.

Under the Company’s revolving credit facility, there was no balance outstanding at March 31, 2022 and December 31, 2021. Borrowings under our revolving credit facility are typically based on the quote from the lender (level 2 inputs), which approximates fair value, and bear variable interest rates as described in Note 11. The Company is subject to interest rate risk, to the extent there are outstanding borrowings on the variable component of the interest rate.

The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether it will elect this option for financial instruments acquired in the future.

The Company’s real estate classified as held for sale has been stated at fair value less costs. The fair value measurement was based on observable market data that includes estimated values per square foot involving comparable properties in similar locations.

The non-recurring fair value measurement of both these asset categories are reflected in the table below:

Fair Value Measurements at March 31, 2022 with:

Quoted prices in

Significant

active markets

other

Significant

for identical

observable

unobservable

(in thousands)

    

Total

    

assets

    

inputs

    

inputs

(Level 1)

(Level 2)

(Level 3)

Assets:

 

  

 

  

 

  

 

  

Assets held for sale

$

692

$

$

692

$

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements at December 31, 2021 with: