The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 are not necessarily indicative of the results to be expected for the
year ending December 31, 2018.
The balance sheet at December 31,
2017 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, 2017.
A group that includes the Company’s
Chairman of the Board, R. Randall Rollins, and his brother Gary W. Rollins, who is also a director of the Company, and certain
companies under their control, controls in excess of fifty percent of the Company’s voting power.
|
2.
|
RECENT ACCOUNTING STANDARDS
|
The Financial Accounting Standards
Board (FASB) issued the following applicable Accounting Standards Updates (ASU):
Recently Adopted Accounting Standards:
Accounting Standards Update (ASU)
No. 2014-09, Revenue from Contacts with Customers (Topic 606).
On January 1, 2018, the Company adopted
ASC 606, Revenue
from Contracts with Customers
and all the related amendments (“new revenue standard”) for all contracts using the
modified retrospective method, with no cumulative-effect adjustment to retained earnings upon adoption since most of the Company’s
services are primarily short-term in nature and the pattern of transfer under ASC 605 is consistent with the pattern of transfer
when evaluated under ASC 606. The comparative information has not been restated and continues to be reported under the accounting
standards that were in effect for those periods. The adoption of the new revenue standard did not have a material impact on our
consolidated financial statements. See “Revenues” in the Notes to Consolidated Financial Statements for expanded disclosures.
ASU No. 2016-01, Financial Instruments
– Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The amendments
make targeted improvements to existing U.S. GAAP and affects accounting for equity investments and financial instruments and liabilities
and related disclosures. The Company adopted these provisions in the first quarter of 2018 and recognized the change of approximately
$26,000 in fair value of its equity securities, as part of other income. In addition, as of the beginning of the first quarter
of 2018, the Company adjusted opening retained earnings to recognize the cumulative impact of the adoption of these amendments.
The Company does not expect the adoption of these provisions to have an ongoing material impact on its consolidated financial statements.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASU No. 2016-15, Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
The amendments provide guidance in the presentation
and classification of certain cash receipts and cash payments in the statement of cash flows including debt prepayment or debt
extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance
claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method
investees. The Company adopted these provisions in the first quarter of 2018 and will present cash flow statements in conformity
with these provisions when such issues arise. The Company does not expect the adoption of these provisions to have an ongoing material
impact on its consolidated financial statements.
ASU No. 2016-16, Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
The amendments require an entity to recognize the income
tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate
the exception for an intra-entity transfer of an asset other than inventory. The Company adopted these provisions in the first
quarter of 2018, and since the Company’s intra-entity transfers of property, plant and equipment are carried out at net book
values, the adoption did not have a material impact on its consolidated financial statements.
ASU No. 2017-01, Business Combinations
(Topic 805): Clarifying the Definition of a Business.
The amendments are intended to help companies and other organizations
evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of
a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments provide
a more robust framework to use in determining when a set of assets and activities is a business. The Company adopted these provisions
in the first quarter of 2018 and will apply these provisions as it completes future acquisitions. The Company does not expect the
adoption of these provisions to have an ongoing material impact on its consolidated financial statements.
ASU No. 2017-09, Compensation
- Stock Compensation (Topic 718): Scope of Modification Accounting.
The provisions are applicable when there are changes to
the terms or conditions of a share-based payment award. The amendments require an entity to apply modification accounting for the
effects of changes to the terms and conditions of a share-based payment award unless certain conditions including fair value, vesting
conditions and classification are met. The Company adopted these provisions in the first quarter of 2018 and will apply these provisions
if changes to the terms or conditions of a share-based payment award are made. The Company does not expect the adoption of these
provisions to have an ongoing material impact on its consolidated financial statements.
Recently Issued Accounting Standards Not
Yet Adopted:
To be adopted in 2019:
ASU No. 2016-02, Leases (Topic
842).
Under the new guidance, lessees will need to recognize a right-of-use asset and a lease liability for virtually all of
their leases (other than leases that meet the definition of a short-term lease), at the commencement of the lease term. The liability
will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as
for initial direct costs. The amendments are effective starting in the first quarter of 2019, with early adoption permitted. Lessees
(for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective
transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in
the financial statements. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial
statements.
ASU No. 2018-02, Income Statement
- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The amendments provide an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which
the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.
The provisions require additional disclosures including a description of the accounting policy for releasing income tax effects
from AOCI, the election, if made, to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act; and information
about the other income tax effects that are reclassified. The amendments are effective starting in the first quarter of 2019, with
early adoption permitted. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial
statements.
To be adopted in 2020 and later:
ASU No. 2016-13, Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The amendments require the credit losses
on available-for-sale debt securities and purchased financial assets with credit deterioration to be presented as an allowance
rather than a write-down. It also allows recording of credit loss reversals in current period net income. The amendments are effective
starting in the first quarter of 2020 with early application permitted a year earlier. The Company is currently evaluating the
impact of adopting these provisions on its consolidated financial statements.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASU No. 2017-04, Intangibles
- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
To simplify the subsequent measurement of goodwill,
the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed
by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount
by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the
total amount of goodwill allocated to that reporting unit. The amendments are effective for annual or any interim goodwill impairment
tests beginning in 2020 applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting these provisions on
its consolidated financial statements.
Accounting Policy:
RPC’s contract revenues are
generated principally from providing oil field 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
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 oil field services.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Payment terms:
RPC’s contracts with the customer
states 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 generally occurs 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.
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
|
|
(in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Oil field services transferred at a point in time
|
|
$
|
-
|
|
|
$
|
-
|
|
Oil field services transferred over time
|
|
|
436,334
|
|
|
|
298,119
|
|
Total revenues
|
|
$
|
436,334
|
|
|
$
|
298,119
|
|
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:
(in thousands)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Unbilled trade receivables
|
|
$
|
79,688
|
|
|
$
|
68,494
|
|
|
$
|
78,113
|
|
|
$
|
39,223
|
|
Substantially all of the unbilled trade receivables as
of December 31, 2017 and December 31, 2016 were invoiced during the three months ended March 31, 2018 and March 31, 2017.
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:
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three months ended
March 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Net income available for stockholders:
|
|
$
|
52,130
|
|
|
$
|
3,634
|
|
Less: Adjustments for earnings attributable to participating securities
|
|
|
(591
|
)
|
|
|
(51
|
)
|
Net income used in calculating earnings per share
|
|
$
|
51,539
|
|
|
$
|
3,583
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (including participating securities)
|
|
|
215,877
|
|
|
|
217,713
|
|
Adjustment for participating securities
|
|
|
(2,584
|
)
|
|
|
(3,042
|
)
|
Shares used in calculating basic and diluted earnings per share
|
|
|
213,293
|
|
|
|
214,671
|
|
|
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, 2018, there were 5,287,458 shares available for grant.
Stock-based employee compensation
expense was as follows for the periods indicated:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Pre-tax expense
|
|
$
|
2,555
|
|
|
$
|
2,687
|
|
After tax expense
|
|
$
|
1,929
|
|
|
$
|
1,706
|
|
Restricted Stock
The following is a summary of the
changes in non-vested restricted shares for the three months ended March 31, 2018:
|
|
Shares
|
|
|
Weighted Average
Grant-Date Fair
Value
|
|
Non-vested shares at December 31, 2017
|
|
|
2,736,365
|
|
|
$
|
14.50
|
|
Granted
|
|
|
522,800
|
|
|
|
25.13
|
|
Vested
|
|
|
(731,008
|
)
|
|
|
13.02
|
|
Forfeited
|
|
|
(24,887
|
)
|
|
|
16.14
|
|
Non-vested shares at March 31, 2018
|
|
|
2,503,270
|
|
|
$
|
17.14
|
|
The total fair value of shares vested
was approximately $16,190,000 during the three months ended March 31, 2018 and $17,527,000 during the three months ended March
31, 2017. Excess tax benefits realized from tax compensation deductions in excess of compensation expense are recorded as a discrete
tax adjustment. This discrete tax adjustment was $1,604,000 for the three months ended March 31, 2018 and $2,536,000 for the three
months ended March 31, 2017.
As
of March 31, 2018, total unrecognized compensation cost related to non-vested restricted shares was $50,362,000, which is expected
to be recognized over a weighted-average period of 4.0 years
.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 closely aligned with the customers’ drilling activities.
Selected overhead including 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.
Segment Revenues:
RPC’s operating segment revenues
by major service lines are shown in the following table:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Technical Services:
|
|
|
|
|
|
|
|
|
Pressure Pumping
|
|
$
|
256,155
|
|
|
$
|
182,933
|
|
Downhole Tools
|
|
|
93,041
|
|
|
|
52,345
|
|
Coiled Tubing
|
|
|
25,196
|
|
|
|
21,379
|
|
Nitrogen
|
|
|
11,431
|
|
|
|
8,676
|
|
Snubbing
|
|
|
3,973
|
|
|
|
5,643
|
|
All other
|
|
|
29,267
|
|
|
|
15,222
|
|
Total Technical Services
|
|
$
|
419,063
|
|
|
$
|
286,198
|
|
Support Services:
|
|
|
|
|
|
|
|
|
Rental Tools
|
|
$
|
10,020
|
|
|
$
|
5,389
|
|
All other
|
|
|
7,251
|
|
|
|
6,532
|
|
Total Support Services
|
|
$
|
17,271
|
|
|
$
|
11,921
|
|
Total revenues
|
|
$
|
436,334
|
|
|
$
|
298,119
|
|
The following summarizes revenues
for the United States and separately for all international locations combined for the three months ended March 31, 2018. 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.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three months ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
United States revenues
|
|
$
|
417,385
|
|
|
$
|
284,432
|
|
International revenues
|
|
|
18,949
|
|
|
|
13,687
|
|
Total revenues
|
|
$
|
436,334
|
|
|
$
|
298,119
|
|
The accounting policies of the reportable
segments are the same as those described 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.
Summarized financial information
with respect RPC’s reportable segments for the three months ended March 31, 2018 and 2017 are shown in the following table:
|
|
Three months ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
Technical Services
|
|
$
|
419,063
|
|
|
$
|
286,198
|
|
Support Services
|
|
|
17,271
|
|
|
|
11,921
|
|
Total revenues
|
|
$
|
436,334
|
|
|
$
|
298,119
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Technical Services
|
|
$
|
65,005
|
|
|
$
|
9,205
|
|
Support Services
|
|
|
(905
|
)
|
|
|
(5,221
|
)
|
Corporate
|
|
|
(4,665
|
)
|
|
|
(3,927
|
)
|
Gain on disposition of assets, net
|
|
|
1,363
|
|
|
|
1,517
|
|
Total operating income
|
|
$
|
60,798
|
|
|
$
|
1,574
|
|
Interest expense
|
|
|
(105
|
)
|
|
|
(103
|
)
|
Interest income
|
|
|
402
|
|
|
|
129
|
|
Other income, net
|
|
|
5,395
|
|
|
|
212
|
|
Income before income taxes
|
|
$
|
66,490
|
|
|
$
|
1,812
|
|
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the three months ended
March 31, 2018
|
|
Technical
Services
|
|
|
Support
Services
|
|
|
Corporate
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
33,937
|
|
|
$
|
3,432
|
|
|
$
|
111
|
|
|
$
|
37,480
|
|
Capital expenditures
|
|
|
48,551
|
|
|
|
1,406
|
|
|
|
525
|
|
|
|
50,482
|
|
Identifiable assets
|
|
$
|
933,979
|
|
|
$
|
73,801
|
|
|
$
|
173,237
|
|
|
$
|
1,181,017
|
|
As
of and for the three months ended
March 31, 2017
|
|
Technical
Services
|
|
|
Support
Services
|
|
|
Corporate
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
39,494
|
|
|
$
|
5,052
|
|
|
$
|
117
|
|
|
$
|
44,663
|
|
Capital expenditures
|
|
|
9,766
|
|
|
|
1,909
|
|
|
|
32
|
|
|
|
11,707
|
|
Identifiable assets
|
|
$
|
782,778
|
|
|
$
|
74,631
|
|
|
$
|
191,645
|
|
|
$
|
1,049,054
|
|
Inventories of $120,944,000 at March
31, 2018 and $114,866,000 at December 31, 2017 consist of raw materials, parts and supplies.
The following represents the net
periodic benefit cost and related components of the Company’s multiple employers Retirement Income Plan:
|
|
Three months ended
March 31
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Interest cost
|
|
$
|
458
|
|
|
$
|
483
|
|
Expected return on plan assets
|
|
|
(709
|
)
|
|
|
(589
|
)
|
Amortization of net losses
|
|
|
206
|
|
|
|
213
|
|
Net periodic benefit (credit) cost
|
|
$
|
(45
|
)
|
|
$
|
107
|
|
The Company did not make a contribution
to this plan during the three months ended March 31, 2018 and 2017; however, subsequent to the first quarter of 2018, a contribution
of $5,000,000 was made on April 10, 2018.
The Company permits selected highly
compensated employees to defer a portion of their compensation into the non-qualified Supplemental Retirement Plan (“SERP”).
The SERP assets are marked to market and totaled $23,236,000 as of March 31, 2018 and $23,463,000 as of December 31, 2017. 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.
Unrealized (losses) gains related to the SERP assets were approximately as follows:
|
|
Three months ended
March 31
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Unrealized (losses) gains, net
|
|
$
|
(486
|
)
|
|
$
|
616
|
|
The
SERP liability includes participant deferrals net of distributions and is recorded on the consolidated balance sheets in long-term
pension liabilities with any change in the fair value of the liabilities recorded as compensation cost within selling, general
and administrative expenses in the consolidated statements of operations.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
9.
|
NOTES PAYABLE TO BANKS
|
The Company has a revolving credit
facility with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers
and Joint Book Managers, and a syndicate of four other lenders. The facility has a general term of five years ending January
17, 2019 and provides for a line of credit of up to $125 million, including a $50 million letter of credit subfacility, and a $35
million swingline subfacility. The revolving credit 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.
On June 30, 2016, the Company amended
the revolving credit facility to (1) establish a borrowing base to be the lesser of (a) $125 million or (b) the difference between
(i) a specified percentage (ranging from 70% to 80%) of eligible accounts receivable less (ii) the amount of any outstanding letters
of credit, (2) secure payment obligations under the credit facility with a security interest in the consolidated accounts receivable,
and (3) replace the financial covenants related to minimum leverage and debt service coverage ratios with a covenant to maintain
a minimum tangible net worth of not less than $700 million. As of March 31, 2018, the Company was in compliance with this covenant.
Revolving loans under the amended
revolving credit facility bear interest at one of the following two rates at the Company’s election:
|
·
|
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 0.125% to 1.125% based on a quarterly consolidated leverage ratio calculation; or
|
|
·
|
the Eurodollar Rate, which is the rate per annum equal to the London Interbank Offering Rate (“LIBOR”) plus, a
margin ranging from 1.125% to 2.125%, based upon a quarterly debt covenant calculation.
|
In addition, the Company pays an
annual fee ranging from 0.225% to 0.325%, based on a quarterly consolidated leverage ratio calculation, on the unused portion of
the credit facility.
The Company has incurred loan origination
fees and other debt related costs associated with the revolving credit facility in the aggregate of approximately $3.0 million. These
costs, net of amounts written off as a result of a reduction in the size of the revolving credit facility in 2015, are being amortized
to interest expense over the remaining term of the five-year loan, and the remaining net balance of $0.1 million at March 31, 2018
is classified as part of non-current other assets.
All letters of credit are currently
issued under RPC’s $125 million credit facility. As of March 31, 2018, RPC had no outstanding borrowings under the revolving
credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $19.6 million;
therefore, a total of $105.4 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, was as follows:
|
|
Three months ended
March 31
|
|
(in thousands except interest rate data)
|
|
2018
|
|
|
2017
|
|
Interest incurred
|
|
$
|
103
|
|
|
$
|
103
|
|
The Company determines its periodic
income tax benefit or expense based upon the current period income 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.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March
31, 2018, the effective tax rate reflects an income tax provision of 21.6 percent compared to an income tax benefit of 100.6 percent
for the comparable period in the prior year. The 2018 effective rate reflects increased income offset by the lower corporate income
tax rate from the recently enacted Tax Cuts & Jobs Act. Both quarters reflect beneficial discrete adjustments of ASU
2016-09 that requires excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than stockholders’
equity.
On January 1, 2018, the
Company implemented the provisions of Tax Cuts and Jobs Act (“the Act”) and recorded adjustments relating to
changes in tax rates on deferred tax assets and liabilities during the year ended December 31, 2017. The Company is currently
analyzing additional information related to its accounting for the income tax effects of the Act as it pertains to the
deduction for executive compensation, including the impact for compensation that is paid pursuant to a binding contract that
would have been deductible under the prior rules. Due to the complexity of this provision, additional time is needed to
further analyze our executive compensation program, exceptions under the binding contract rule, and the impact of vesting of
restricted stock grants, dividends, and bonuses. We are also conducting additional testing and review of assets that qualify
for immediate expensing under the new rules that may adjust the provisional amounts that were recognized in our financial
statements at December 31, 2017. The ultimate impact of the Act may differ from the recorded amounts due to changes in our
interpretations and assumptions, as well as additional regulatory guidance that may be issued. We expect to complete the
accounting for tax reform with the completion of our 2017 Federal income tax return, expected to be complete by the third
quarter of 2018.
|
11.
|
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.
|
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, 2018 and December
31, 2017:
|
|
Fair Value Measurements at March 31, 2018 with:
|
|
(in thousands)
|
|
Total
|
|
|
Quoted prices in
active markets
for identical
assets
|
|
|
Significant
other
observable
inputs
|
|
|
Significant
unobservable
inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
244
|
|
|
$
|
244
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investments
measured at net asset value
|
|
$
|
23,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Fair Value Measurements at December 31, 2017 with:
|
|
(in thousands)
|
|
Total
|
|
|
Quoted prices in
active markets
for identical
assets
|
|
|
Significant
other
observable
inputs
|
|
|
Significant
unobservable
inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
270
|
|
|
$
|
270
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investments
measured at net asset value
|
|
$
|
23,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, as
described in Note 8, 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 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 period ended March 31, 2018, 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, 2018 and December 31, 2017. 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 9. The Company is subject to interest rate risk 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.
|
12.
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
|
Accumulated other comprehensive
(loss) income consists of the following (in thousands):
|
|
Pension
Adjustment
|
|
|
Unrealized
Gain (Loss) On
Securities
|
|
|
Foreign
Currency
Translation
|
|
|
Total
|
|
Balance at December 31, 2017
|
|
$
|
(14,470
|
)
|
|
$
|
15
|
|
|
$
|
(2,247
|
)
|
|
$
|
(16,702
|
)
|
Change during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
(481
|
)
|
|
|
(496
|
)
|
Tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Reclassification adjustment, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
|
173
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173
|
|
Total activity for the period
|
|
|
173
|
|
|
|
(15
|
)
|
|
|
(481
|
)
|
|
|
(323
|
)
|
Balance at March 31, 2018
|
|
$
|
(14,297
|
)
|
|
$
|
—
|
|
|
$
|
(2,728
|
)
|
|
$
|
(17,025
|
)
|
|
(1)
|
Reported as part of selling, general and administrative expenses.
|
As of January 1, 2018, the balance
related to the cumulative unrealized gain on marketable securities included in accumulated other comprehensive income was reclassed
upon adoption of ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Pension
Adjustment
|
|
|
Unrealized
Gain (Loss) On
Securities
|
|
|
Foreign
Currency
Translation
|
|
|
Total
|
|
Balance at December 31, 2016
|
|
$
|
(15,503
|
)
|
|
$
|
39
|
|
|
$
|
(2,638
|
)
|
|
$
|
(18,102
|
)
|
Change during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
42
|
|
|
|
18
|
|
Tax benefit
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
Reclassification adjustment, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
|
135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135
|
|
Total activity for the period
|
|
|
135
|
|
|
|
(15
|
)
|
|
|
42
|
|
|
|
162
|
|
Balance at March 31, 2017
|
|
$
|
(15,368
|
)
|
|
$
|
24
|
|
|
$
|
(2,596
|
)
|
|
$
|
(17,940
|
)
|
|
(1)
|
Reported as part of selling, general and administrative expenses.
|
April 24, 2018, the Board of Directors
declared a regular quarterly cash dividend of $0.10 per share payable June 11, 2018 to common stockholders of record at the close
of business May 10, 2018.
RPC, INC. AND SUBSIDIARIES