SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 8, 2000
RPC, INC.
(Exact name of registrant as specified in its charter)
Commission File Number 1-08726
Delaware 58-1550825
(State or other jurisdiction of (IRS Employer Identification
incorporation) No.)
2170 Piedmont Avenue
Atlanta, Georgia 30324
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 321-2140
(Former name or former address, if changed since last report)
N/A
<PAGE>
Item 5. Other Events.
RPC, Inc. ("RPC") is filing this Form 8-K concurrently with the filing of a
Registration Statement on Form 10 by Marine Products Corporation ("Marine
Products") with the Securities and Exchange Commission ("SEC"). The purpose of
this Form 8-K is to provide information about RPC assuming the spin-off of the
powerboat manufacturing segment had been completed as of such filing date.
Accordingly, the powerboat manufacturing segment is presented in this report for
accounting purposes as a discontinued operation.
In January 2000, RPC announced plans to spin-off Chaparral Boats, Inc.
("Chaparral"), the recreational powerboat manufacturing business of RPC, to
RPC's stockholders. RPC will accomplish the spin-off by contributing 100% of the
issued and outstanding stock of Chaparral to Marine Products, a newly formed
wholly owned subsidiary of RPC, and then distributing the common stock of Marine
Products to RPC stockholders. As part of the transaction, RPC's stockholders
will receive 0.5 shares of Marine Products common stock for every one share of
RPC common stock owned as of the record date for the spin-off.
In connection with the spin-off, RPC and Marine Products will enter into an
Agreement Regarding Distribution and Plan of Reorganization (the "Distribution
Agreement"), providing for the principal corporate transactions required to
effect the spin-off and certain other agreements governing the relationship
between RPC and Marine Products with respect to or as a result of the spin-off.
In addition to the Distribution Agreement, RPC and Marine Products will also
enter into other agreements governing the spin-off and the subsequent
relationship between the two companies, including a Tax Sharing Agreement, an
Employee Benefits Agreement and a Transition Support Services Agreement.
No consideration is payable by RPC stockholders for the shares of Marine
Products common stock to be received in the spin-off, nor are RPC stockholders
required to surrender or exchange shares of RPC common stock or take any other
action in order to receive the Marine Products shares pursuant to the spin-off.
The only changes to the directors and officers of RPC as a result of the
spin-off will be the resignation of James A. Lane, Jr., Executive Vice President
of RPC and President of Chaparral, and the nomination of Linda H. Graham as a
director. After the spin-off, Messrs. R. Randall Rollins, Richard A. Hubbell,
and Ben M. Palmer, RPC's Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer, respectively, together with Ms. Graham, RPC's
secretary, will become dual employees of both RPC and Marine Products and split
their time among the two companies. Employees of the corporate office of RPC
will remain employees of RPC and will provide corporate management services to
Marine Products.
Additional information concerning Marine Products and the spin-off is contained
in Marine Products' Registration Statement on Form 10 (Commission File No.
1-16263) filed with the Securities and Exchange Commission on December 8, 2000.
The foregoing description of the terms of the spin-off is qualified in its
entirety by reference to the agreements attached hereto and incorporated herein
by reference.
Certain statements made in this report that are not historical facts are
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements may include, without limitation,
statements that relate to our business strategy, plans and objectives, and our
beliefs and expectations regarding future demand for our products and services
and other events and conditions that may influence the oilfield services market
and our performance in the future.
The words "may," "will," "expect," "believe," "anticipate," "project,"
"estimate," and similar expressions generally identify forward-looking
statements. Such statements are based on certain assumptions and analyses made
by our management in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes to be appropriate. We caution you that such statements are only
predictions and not guarantees of future performance and that actual results,
developments and business decisions may differ from those envisioned by the
forward-looking statements. Some important risk factors that could cause actual
results to differ materially from the anticipated results or other expectations
expressed in our forward-looking statements are contained herein under the
heading "Risk Factors."
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements
As a result of RPC's decision to spin-off Chaparral and the related filing by
Marine Products of its registration statement on Form 10 with the SEC, RPC has
reclassified the historical operations of this segment for accounting purposes
as a discontinued operation.
We have restated our historical financial statements for the years 1997, 1998
and 1999 and the nine months ended September 30, 2000 and 1999 in light of the
reclassification of Chaparral as a discontinued operation. We have also revised
our Management's Discussion and Analysis of Financial Condition and Results of
Operations for each of those periods to correspond with the new reporting.
The restated financial information described below is presented in this filing
as follows:
o Selected Financial Data for the years ended December 31, 1997 through 1999
and the nine months ended September 30, 2000 and 1999;
o Restated audited Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997, and the notes to the Consolidated Financial
Statements for the years then ended; and
o Restated unaudited Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999, and the notes to the Consolidated Financial
Statements for the nine months ended September 30, 2000 and 1999.
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SELECTED FINANCIAL DATA
The following summary financial data of RPC highlights selected historical and
pro forma financial data and should be read in conjunction with the consolidated
financial statements and the pro forma consolidated financial data included
elsewhere in this document. The pro forma consolidated balance sheet data has
been derived from the unaudited consolidated balance sheet as of September 30,
2000 and the audited consolidated balance sheets as of December 31, 1999 and
1998. The pro forma statement of income data presents the consolidated results
of operations of RPC assuming the spin-off transaction occurred as of the
beginning of the applicable period. Management believes no pro forma
adjustments, other than the elimination of discontinued operations, are required
to the historical statement of income data presented below. Neither the
historical financial information nor the pro forma data presented below is
necessarily indicative of the results of operations or financial position that
RPC would have reported if it had operated exclusive of the discontinued
operation during the periods presented historically or in the future.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
--------------------------------------------- ---------------------------------
(Unaudited) (Audited)
--------------------------------------------- ---------------------------------
Pro Forma Pro Forma
2000 2000 1999 1999 1999 1998 1997
----------- -------- -------- -------- --------- -------- ---------
(In thousands, except employees and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $ 126,863 $126,863 $ 76,427 $107,585 $ 107,585 $140,777 $ 150,770
Cost of services rendered and
goods sold 79,294 79,294 51,580 71,439 71,439 83,691 90,046
----------- -------- -------- -------- --------- -------- ---------
Gross profit 47,569 47,569 24,847 36,146 36,146 57,086 60,724
Selling, general and administrative
expenses 18,887 18,887 16,489 23,364 23,364 30,529 27,694
Depreciation and amortization 13,439 13,439 11,743 15,837 15,837 14,877 11,857
----------- -------- -------- -------- --------- -------- ---------
Operating profit (loss) 15,243 15,243 (3,385) (3,055) (3,055) 11,680 21,173
Interest income 1,037 1,037 1,229 1,485 1,485 1,783 2,162
----------- -------- -------- -------- --------- -------- ---------
Income (loss) from continuing
operations before income taxes 16,280 16,280 (2,156) (1,570) (1,570) 13,463 23,335
Income tax provision (benefit) 6,186 6,186 (821) (603) (603) 5,112 7,651
----------- -------- -------- -------- --------- -------- ---------
Income (loss) from continuing operations 10,094 10,094 (1,335) (967) (967) 8,351 15,684
Income from discontinued
operation, net of income taxes -- 12,149 6,868 -- 9,118 7,674 6,561
----------- -------- -------- -------- --------- -------- ---------
Net income (loss) $ 10,094 $ 22,243 $ 5,533 $ (967) $ 8,151 $ 16,025 $ 22,245
=========== ======== ======== ======== ========= ======== =========
Earnings per share--basic:
Income (loss) from continuing operations $ 0.36 $ 0.36 $ (0.05) $ (0.03) $ (0.03) $ 0.29 $ 0.54
Income from discontinued operation -- 0.44 0.25 -- 0.32 0.26 0.22
----------- -------- -------- -------- --------- -------- ---------
Net income (loss) $ 0.36 $ 0.80 $ 0.20 $ (0.03) $ 0.29 $ 0.55 $ 0.76
=========== ======== ======== ======== ========= ======== =========
Earnings per share-diluted:
Income (loss) from continuing operations $ 0.36 $ 0.36 $ (0.05) $ (0.03) $ (0.03) $ 0.29 $ 0.53
Income from discontinued operation - 0.43 0.24 - 0.32 0.26 0.22
----------- -------- -------- -------- --------- -------- ---------
Net income (loss) $ 0.36 $ 0.79 $ 0.19 $ (0.03) $ 0.29 $ 0.55 $ 0.75
=========== ======== ======== ======== ========= ======== =========
OTHER DATA:
Adjusted EBITDA (a) $ 28,701 $ 28,701 $ 8,483 $ 12,907 $ 12,907 $ 26,617 $ 33,208
Gross profit margin percent 37.5% 37.5% 32.5% 33.6% 33.6% 40.6% 40.3%
Operating margin percent 12.0% 12.0% (4.4%) (2.8%) (2.8%) 8.3% 14.0%
Net cash provided by continuing
operations 13,389 13,389 16,483 16,419 16,419 16,808 23,462
Net cash used for investing activities (17,927) (17,927) (13,907) (16,352) (16,352) (17,145) (24,680)
Net cash used for financing activities (3,745) (3,745) (5,190) (9,388) (9,388) (13,233) (1,010)
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Depreciation and amortization (b) 13,458 13,458 11,868 15,962 15,962 14,937 12,035
Capital expenditures 26,442 26,442 10,380 20,319 20,319 28,840 19,800
Employees at end of period (c) 1,340 1,340 1,003 1,066 1,066 1,043 1,253
BALANCE SHEET DATA:
Inventories 7,502 7,502 5,718 5,928 5,928 6,758 6,273(d)
Working capital 30,794 37,518 26,512 21,053 25,851 28,827 40,043(d)
Property, plant and equipment, net 80,759 80,759 62,897 68,758 68,758 64,438 51,381(d)
Total assets 165,403 268,263 229,663 145,514 235,715 219,677 217,239(d)
Total stockholders' equity 122,950 162,269 143,003 107,283 142,808 143,066 139,376(d)
---------------------
</TABLE>
(a) Adjusted EBITDA represents income (loss) from continuing operations before
income taxes and interest income, plus depreciation and amortization.
EBITDA is not presented as a substitute for income from operations, net
income or net cash provided by operating activities. RPC has presented
EBITDA data (which is not a measure of financial performance under
accounting principles generally accepted in the United States) because such
data is used by certain investors to analyze and compare companies on the
basis of operating performance, leverage and liquidity, and to determine a
company's ability to service debt.
(b) Depreciation and amortization was derived from the statement of cash flows.
This amount differs from depreciation and amortization presented on the
statement of income due to depreciation related to the manufacturing of
goods which is included in cost of goods sold and services rendered.
(c) Represents employees of continuing operations for all periods presented.
This data is unaudited.
(d) Unaudited.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction with
"Selected Financial Data" "Pro Forma Consolidated Balance Sheet" and the notes
thereto and the "Consolidated Financial Statements" included elsewhere in this
document. See also cautionary statement concerning forward-looking information
above.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared To Nine Months Ended September 30,
1999
Revenues. RPC generated revenues of $126,863,000 for the nine months ended
September 30, 2000 compared to $76,427,000 for the nine months ended September
30, 1999, an increase of $50,436,000 or 66 percent. Revenues increased as a
result of improvements in overall customer activity levels domestically and
internationally, especially in Venezuela, the start-up of a pressure pumping
service line, and several well control jobs in the United States and various
international locations, including Egypt and Argentina.
Beginning in the fourth quarter of 1999, revenues began to improve as customer
spending increased in response to higher oil and natural gas prices. At of the
end of the third quarter of 2000, the number of active drilling rigs in the
United States was approximately 40 percent higher than one year prior. Our
services that increase production from existing wells have been increasingly in
demand as production companies seek to take advantage of the higher prices for
oil and natural gas; there has been less customer emphasis on exploration
activities.
Cost of Services Rendered and Goods Sold. Cost of services rendered and goods
sold were $79,294,000 for the nine months ended September 30, 2000 compared to
$51,580,000 for the nine months ended September 30, 1999. Cost of services
rendered and goods sold, as a percent of revenue, decreased from 67 percent for
the nine months ended September 30, 1999 to 63 percent for the nine months ended
September 30, 2000. This improvement resulted from an improved operating
environment allowing for better utilization of our equipment and personnel. In
addition, the increasing industry demand for oil and gas services has allowed
for slightly improved pricing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18,887,000 for the nine months ended September 30,
2000 compared to $16,489,000 for the nine months ended September 30, 1999. This
increase of $2,398,000, or 15 percent, was due to additional overhead required
to administer the significant growth in the company's oil and gas service
business lines. Selling, general and administrative expenses as a percent of
revenue fell from 22 percent for the first nine months of 1999 to 15 percent for
the first nine months of 2000.
Depreciation and Amortization. Depreciation and amortization were $13,439,000
for the nine months ended September 30, 2000, an increase of $1,696,000 or 14
percent compared to $11,743,000 for the nine months ended September 30, 1999.
This increase in depreciation and amortization results primarily from capital
expenditures relating to a new pressure pumping service line, and various
maintenance and growth capital expenditures in other oil and gas service lines.
Operating Profit (Loss). Operating profit was $15,243,000 for the nine months
ended September 30, 2000, an increase of $18,628,000 compared to an operating
loss of $3,385,000 for the nine months ended September 30, 1999. This
significant improvement in operating profits resulted from improvements in
industry conditions in 2000 compared to 1999.
Interest Income. Interest income was $1,037,000 for the nine months ended
September 30, 2000 compared to $1,229,000 for the nine months ended September
30, 1999. RPC generates interest income from investment of its available cash
primarily in marketable securities. The decrease in interest income results
primarily from a decrease in average investable cash balances. See "Liquidity
and Capital Resources" for additional explanations.
Income (Loss) from Continuing Operations (net of income taxes). RPC's results of
continuing operations improved $11,429,000 from a loss of $1,335,000 for the
nine months ended September 30, 1999 to a profit of $10,094,000 for the nine
months ended September 30, 2000. This improvement is consistent with the
increases in operating profits, as the income tax rate was the same in both
periods.
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Income from Discontinued Operation (net of income taxes). RPC's powerboat
manufacturing segment classified as a discontinued operation, earned $12,149,000
for the nine months ended September 30, 2000 compared to $6,868,000 for the nine
months ended September 30, 1999, an increase of $5,281,000 or 77 percent.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. RPC generated revenues of $107,585,000 in 1999 compared to
$140,777,000 in 1998, a decrease of $33,192,000 or 24 percent. The decrease in
revenues during 1999 was similar to that experienced by the overall oil and gas
services industry and was the result of a perceived imbalance between the supply
and demand for oil and natural gas. Despite a significant improvement in the
price of oil and natural gas during 1999, exploration and production spending
increased only modestly.
Cost of Services Rendered and Goods Sold. Cost of services rendered and goods
sold were $71,439,000 in 1999 compared to $83,691,000 in 1998, a decrease of
$12,252,000 or 15 percent. Cost of services rendered and goods sold as a percent
of revenues increased to 66 percent in 1999 compared to 59 percent in 1998. This
increase was the result of significantly lower utilization of our equipment and
personnel combined with softness in pricing experienced as a result of declines
in overall oil and gas industry activity levels.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $23,364,000 in 1999 compared to $30,529,000 in
1998, a decrease of $7,165,000 or 24 percent. The decrease in selling, general,
and administrative expenses in 1999 compared to 1998 can be attributed to RPC's
efforts to reduce overhead in its oil and gas services businesses because of the
reduction in industry activity levels. Also contributing to the reduction was
RPC's decision to discontinue some business development efforts unrelated to the
oil and gas services industry. Selling, general and administrative expenses as a
percent of revenue were 22 percent for 1999 and 1998.
Depreciation and Amortization. Depreciation and amortization were $15,837,000 in
1999 compared to $14,877,000 in 1998, an increase of $960,000 or 6 percent. This
increase can be attributed to the capital expenditures in 1998 and 1999 to both
rebuild certain of RPC's existing oil and gas services equipment and expand our
fleet of equipment.
Operating Profit (Loss). RPC experienced an operating loss in 1999 of $3,055,000
compared to an operating profit of $11,680,000 in 1998, a decrease of
$14,735,000. This decrease in operating profits resulted from the rapid
decreases in revenues experienced during 1999 due to poor industry conditions.
RPC was not able to decrease its costs as quickly as revenues declined.
Interest Income. Interest income was $1,485,000 in 1999 compared to $1,783,000
in 1998. Interest income decreased 17 percent as the result of lower average
investable cash balances and moderately lower yields. RPC generates interest
income from investment of its available cash primarily in marketable securities.
The amount of cash available for investment varies. See "Liquidity and Capital
Resources" for additional explanations.
Income from Continuing Operations (net of income taxes). RPC's results of
continuing operations, net of income taxes, declined $9,318,000 to a loss of
$967,000 in 1999 compared to a profit of $8,351,000 in 1998. This decrease is
consistent with the decrease in revenues partially offset by decreases in
selling, general and administrative expenses. The income tax rates were the same
in both periods.
Income from Discontinued Operation (net of income taxes). RPC's powerboat
manufacturing segment, classified as a discontinued operation, earned $9,118,000
in 1999 compared to $7,674,000 in 1998, a 19 percent increase. The increase was
due to several factors including, selling 8 percent more boats and selling a
larger quantity of higher priced and more profitable deckboats and cruisers.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. RPC generated revenues of $140,777,000 in 1998 compared to
$150,770,000 in 1997, a decrease of $9,993,000 or 7 percent. This decrease was
attributed to a number of factors, including a decrease in oil and natural gas
prices caused by decreases in demand and the resulting decrease in customer
exploration and production activity. Oil and natural gas prices decreased 35
percent and 22 percent, respectively, in 1998 compared to 1997.
Cost of Services Rendered and Goods Sold. Cost of services rendered and goods
sold were $83,691,000 in 1998 compared to $90,046,000 in 1997, a decrease of
$6,355,000 or 7 percent. The cost of services rendered and goods sold decreased
as a result of the reduction in revenues. As a percent of revenues, cost of
services rendered and goods sold were 59 percent in 1998 and 60 percent in 1997.
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Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $30,529,000 in 1998 compared to $27,694,000 in
1997, an increase of $2,835,000 or 10 percent. This increase was due primarily
to increased costs incurred in anticipation of increased oil and gas services
business levels. Selling, general and administrative expenses as a percent of
revenue was 22 percent in 1998 compared to 18 percent in 1997.
Depreciation and Amortization. Depreciation and amortization were $14,877,000 in
1998 compared to $11,857,000 in 1997, an increase of $3,020,000 or 25 percent.
This increase is attributable to the capital expenditures in 1997 and 1998 to
rebuild certain of RPC's existing equipment and to expand its fleet of available
equipment.
Operating Profit. Operating profit was $11,680,000 in 1998, a decrease of
$9,493,000 or 45 percent compared to $21,173,000 in 1997. The decrease in 1998
operating profit resulted from a decline in gross profit caused by the decrease
in revenues and an increase in selling, general and administrative expenses and
depreciation and amortization, partially offset by decreases in cost of services
rendered and goods sold.
Interest Income. Interest income was $1,783,000 in 1998 compared to $2,162,000
in 1997. Interest income decreased 18 percent as the result of lower average
investable cash balances and moderately lower yields. RPC generates interest
income from investment of its available cash primarily in marketable securities.
The amount of cash available for investment varies. See "Liquidity and Capital
Resources" for additional explanations.
Income from Continuing Operations (net of income taxes). RPC's income from
continuing operations, net of income taxes, was $8,351,000 in 1998 compared to
income of $15,684,000 in 1997, a decrease of $7,333,000 or 47 percent. The
income tax rates were the same in both periods.
Income from Discontinued Operation (net of income taxes). RPC's powerboat
manufacturing segment, classified as a discontinued operation, earned $7,674,000
in 1998 compared to $6,561,000 in 1997, an increase of $1,113,000 or 17 percent.
The total number of boats sold in 1998 decreased less than 1 percent compared to
1997 while the average sales price increased 10 percent. Additionally, there was
a 2 percent decrease in 1998 compared to 1997 in cost of goods sold as a percent
of revenue. This decrease was the result of an emphasis on improving inventory
controls.
Liquidity and Capital Resources
Net cash provided by continuing operations was $13,389,000 for the nine months
ended September 30, 2000 compared to $16,483,000 for the nine months ended
September 30, 1999. The decrease is due primarily to higher working capital
requirements necessary to support the increased level of oil and gas services
business activity levels. The higher working capital, primarily accounts
receivable, was partially offset by increases in net income from continuing
operations.
Net cash used for investing activities increased from $13,907,000 for the nine
months ended September 30, 1999 to $17,927,000 for the nine months ended
September 30, 2000. Capital expenditures during the first nine months of 2000
were $26,442,000 related to the purchase of revenue producing equipment. Funding
for capital requirements over the next twelve months is expected to be provided
by available cash and marketable securities and cash flow generated from
continuing operations.
Net cash used for financing activities was $3,745,000 for the nine months ended
September 30, 2000 compared to $5,190,000 for the nine months ended September
30, 1999. This decrease is due primarily to less stock repurchased in 2000
compared to 1999.
Management has commenced preliminary discussions with a number of companies
engaged in complementary businesses to explore the potential for mutually
beneficial business arrangements. While none of these discussions has progressed
to the point where RPC believes a particular transaction is probable, management
believes that additional acquisitions, joint ventures and strategic alliances
are likely. While RPC has historically completed acquisitions using a
combination of cash and seller financing, RPC expects that it may use its stock
as acquisition currency following the separation from its powerboat
manufacturing business segment.
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BUSINESS
General
RPC, Inc. is a Delaware corporation originally organized in 1984 as part of a
spin-off from Rollins, Inc. (NYSE:ROL). Two of RPC's businesses, Cudd Pressure
Control ("Cudd") and Patterson Services ("Patterson"), have been conducted for
more than 20 years.
RPC, Inc. ("RPC") provides a broad range of specialized oilfield services and
equipment primarily to independent and major oilfield companies engaged in the
exploration, production and development of oil and gas properties throughout the
United States, including the Gulf of Mexico, mid-continent, southwest and rocky
mountain regions, and in selected international markets. The services and
equipment provided include among other things, (1) snubbing services, (2) coiled
tubing services, (3) pressure pumping services, (4) marine services, (5)
firefighting and well control, and (6) the rental of drill pipe and other
specialized oilfield equipment. RPC acts as a holding company for its operating
subsidiaries, Cudd Pressure Control, Inc., Patterson Services, Inc. and
Patterson Tubular Services, Inc. together with several smaller non-core
businesses.
RPC's service lines have been aggregated into two reportable oil and gas
services business segments - Technical Services and Support Services - because
of the similarities between the financial performance and approach to managing
these service lines within each of the segments as well as the economic and
business conditions impacting their business activity levels. The Other business
segment includes information concerning RPC's business units that do not qualify
for separate segment reporting. These business units include an overhead crane
fabricator, an enhanced facsimile service provider and other non-oilfield
research and development operations. The research and development operations
have been scaled back since approximately 1997.
Technical Services include RPC's oil and gas service lines that utilize people
and equipment to perform value-added completion, production and maintenance
services directly to a customer's well. These services are generally directed
towards improving the flow of oil and natural gas from producing formations or
to address well control issues. The Technical Services business segment consists
primarily of snubbing, coiled tubing, pressure pumping, nitrogen, well control,
downhole tools, wire line, fluid pumping, hot tapping, gate valve drilling and
casing installation services. The principal markets for this business segment
include the United States, including the Gulf of Mexico, mid-continent,
southwest and rocky mountain regions, and international locations including
primarily Algeria and Venezuela. Customers include major multi-national and
independent oil and gas producers, and selected nationally owned oil companies.
Support services include RPC's oil and gas service lines that primarily provide
equipment for customer use or services to assist customer operations. The
equipment and services include drill pipe and related tools, pipe handling,
inspection and storage services, work platform marine vessels, and oilfield
training services. The demand for these services tends to be influenced
primarily by customer drilling-related activity levels. The principal markets
for this segment include the United States Gulf of Mexico and the mid-continent
regions. Customers include domestic operations of major multi-national and
independent oil and gas producers.
Technical Services
The following is a description of the primary service lines conducted within the
Technical Services business segment.
Snubbing. Snubbing involves using a high-pressure workover rig that permits an
operator to repair damaged casing, production tubing and down-hole production
equipment in a high-pressure environment. Using a series of highly sophisticated
blowout prevention devices, a snubbing unit makes it possible to remove and
replace down-hole equipment in a pressurized environment. Customers benefit
8
<PAGE>
because these operations can be performed without removing the pressure from or
"killing" the well. "Killing" a well can result in formation damage and may
cause difficulties on the subsequent repressurization. Typically, performing
snubbing workover operations can be done quickly and is therefore more cost
effective than alternative procedures. Since snubbing is a very hazardous
process that entails high risk, the snubbing segment of the oil and gas services
industry is limited to a few operators who have the experience and knowledge
required to safely and efficiently perform such services.
Coiled Tubing. Coiled tubing services involve the injection of coiled tubing
into wells to perform various applications and functions for use principally in
well-servicing operations. Coiled tubing is a flexible steel pipe with a
diameter of less than five inches manufactured in continuous lengths of
thousands of feet and wound or coiled around a large reel on a truck or
skid-mounted unit. Due to the small diameter of coiled tubing, it can be
inserted through existing production tubing and used to perform workovers
without using a larger, more costly workover rig. Principal advantages of
employing coiled tubing in a workover include; (i) not having to "shut-in" the
well during such operations, thereby allowing production to continue and
reducing the risk of formation damage to the well, (ii) the ability to reel
continuous coiled tubing in and out of a well significantly faster than
conventional pipe which must be jointed and unjointed, (iii) the ability to
direct fluids into a wellbore with more precision, allowing for localized
stimulation treatments and providing a source of energy to power a downhole
motor or manipulate downhole tools and (iv) enhanced access to remote or
offshore fields due to the smaller size and mobility of a coiled tubing unit.
Recent technological improvements to coiled tubing have increased its
dependability and durability, expanding coiled tubing's potential uses and
markets.
Pressure Pumping Services. Cudd provides pumping services are provided to
customers throughout the Gulf Coast and mid-continent regions of the United
States. Cudd utilizes complex, truck-or skid-mounted equipment designed and
constructed for each specific pumping service offered (see more detailed
descriptions below). After such equipment is moved to a well location, it is
configured with appropriate connections to perform the specific services
required. The mobility of this equipment permits Cudd to provide pressure
pumping services in varying geographic areas. Principal materials utilized in
the pressure pumping business include, fracturing proppants, acid and bulk
chemical additives. Generally, these items are available from several suppliers,
and Cudd utilizes more than one supplier for each item.
Fracturing. Fracturing services are performed to enhance the production
of oil and natural gas from formations where the well's natural flow is
restricted due to permeability issues. The fracturing process consists
of pumping a fluid gel into a cased well at sufficient pressure to
"fracture" the formation. Sand, bauxite or synthetic proppant, which is
suspended in the gel, is pumped into the fracture to prop it open. The
main pieces of equipment used in the fracturing process are the
blender, which blends the proppant and chemicals into the fracturing
fluid, the pumping unit, which is capable of pumping significant
volumes at high pressures, and a monitoring van loaded with real time
monitoring equipment and computers used to control the fracturing
process. In some cases, fracturing is performed by an acid solution
pumped under pressure without a proppant or with small amounts of
proppant. An important element of fracturing services is the design of
the fracturing treatment, which includes determining the proper
fracturing fluid, proppants and injection program to maximize results.
Cudd's field engineering staff provides technical evaluation and job
design recommendations as an integral element of its fracturing
services.
Acidizing. Acidizing services are performed to enhance the flow rate of
oil and natural gas from wells with reduced flow caused by formation
damage due to drilling or completion fluids, or the buildup over time
of various materials that block the formation. Acidizing entails
pumping large volumes of specially formulated acids into reservoirs to
dissolve barriers and enlarge crevices in the formation, thereby
eliminating obstacles to the flow of oil and natural gas. Cudd
maintains a fleet of mobile acid transport and pumping units to provide
acidizing services for the onshore market.
Nitrogen. There are a number of uses for nitrogen, an inert gas, in pressure
pumping operations. Used alone, it is effective in displacing fluids in various
oilfield applications, including underbalanced drilling and pipeline purging.
Nitrogen services are used principally in applications which support Cudd's
coiled tubing, snubbing and pressure pumping services.
Well Control. Cudd Pressure Control specializes in responding to and controlling
oil and gas well emergencies, including blowouts and well fires domestically and
internationally. In connection with these services, Cudd, along with Patterson
Services, has the capacity to supply the equipment, expertise and personnel
necessary to contain the oil and hazardous materials spills and discharges
associated with such oil and gas well emergencies, to remediate affected sites
and to restore affected oil and gas wells to production. In the last five years,
9
<PAGE>
Cudd has responded to well control situations in several international locations
including Argentina, Australia, Bolivia, Colombia, Egypt, India, Peru, Taiwan
and Venezuela.
Cudd Pressure Control's professional firefighting staff has more than 340 years
of aggregate industry experience in responding to well fires and blowouts. This
team of seventeen experts responds to well control projects where hydrocarbons
are escaping from a well bore, regardless of whether a fire has occurred. In the
most critical situations, there are explosive fires, loss of life, the
destruction of drilling and production facilities, substantial environmental
damage and the loss of hundreds of thousands of dollars per day in production
revenue. Since these events ordinarily arise from equipment failures or human
error, it is impossible to predict accurately the timing or scope of this work,
although events of catastrophic proportions can result in significant revenues.
Additionally, less critical events frequently occur in connection with the
drilling of new wells into high-pressure reservoirs. In these situations, the
blowout preventers and other safety systems on the drilling rig function
according to design and Cudd is then called upon to supervise and assist in the
well control effort so that drilling operations can resume as promptly as safety
permits.
Downhole Tools. Cudd Pressure Control's division ThruTubing Solutions (TTS)
provides proprietary downhole motors and fishing tools to operators and service
companies throughout the oil and gas industry. TTS' experience for reliable tool
services allows it to work with virtually any coiled tubing unit or snubbing
unit that is equipped for the task. TTS' engineered solutions are backed by more
than 70 years of "hands on" experience.
Wireline Services. We are a provider of mechanical wireline services. A wireline
unit is a spooled wire that can be unwound and lowered into a well carrying
various types of tools. Wireline services are used for a variety of purposes,
such as: accessing a well to assist in data acquisition or logging activities,
fishing tool operations to retrieve lost or broken equipment, pipe recovery, and
remedial activities. In addition, wireline services are an integral part of plug
and abandonment services.
Special Services. When a valve malfunctions, the only solution may be to drill
out the gate or the plug. If pressure is trapped, hot-tapping, a technique of
drilling into a medium that is under pressure, is one method of relieving that
pressure. Cudd Pressure Control maintains hot tapping and valve drilling
equipment capable of drilling out valve seats in an environment with up to
15,000 psi working pressure and hydrogen sulfide. In order to isolate wellheads,
valves and other circulating equipment from subsurface or upstream pressure,
Cudd Pressure Control also performs freezing operations.
Casing and Torque-Turn Services. Casing and laydown principally consists of
installing casing and production tubing into a wellbore. Casing is run to
protect the structural integrity of the wellbore and to seal various zones in
the well. These services are normally provided during the drilling and
completion phases of a well. Production tubing is run inside the casing. Oil and
natural gas are produced through the tubing. These services are provided during
the completion and workover phases.
Torque-Turn is used on tubulars in the deeper, higher pressured gas wells where
connection integrity and leak resistance are most critical. By monitoring the
make up of API connections with both torque and turns simultaneously, we are
able to achieve the optimum bearing pressure between the connection. The level
of bearing pressure directly affects the leak resistance of the connection. The
use of the Torque-Turn system allows us to obtain the maximum bearing pressure
without permanently deforming (yielding) the material.
Support Services
The following is a description of the primary service lines conducted within the
Support Services business segment.
Rental Tools - RPC rents specialized equipment for use with onshore and offshore
oil and gas well drilling, completion and workover activities. The drilling and
operation of oil and gas wells generally requires a variety of equipment. The
equipment needed is in large part determined by the geological features of the
well area and the size of the well itself. As a result, operators and drilling
contractors often find it more economical to supplement their inventories with
rental tools instead of maintaining a complete inventory of tools.
RPC is strategically located to serve the major staging points for oil and gas
activities in the Gulf of Mexico and mid-continent regions.
10
<PAGE>
RPC, through Patterson Rental Tools, offers a broad range of rental tools
including:
Blowout Preventors Hydraulic Torque Wrenches
Casing Jacks Power Swivels
Casing Saws Power Tongs
Coflexip Hoses Pressure Control Equipment
Drill Collars Stabilizers
Drill Pipe Test Pumps
Gravel Pack Equipment Tubulars
Handling Tools Tubular Handling Tools
Hole Openers
Marine Services. A liftboat is a self-propelled, self-elevating work platform
with legs, cranes and living accommodations. Our fleet consists of five
liftboats, two of which have leg lengths of 200 feet or more. Upon arriving at a
destination, a liftboat hydraulically lowers its legs until they are positioned
on the ocean floor, and then jacks up until the work platform is sufficiently
above the water level. Once positioned, the stability, open deck area, crane
capacity, and relatively low cost of operation make liftboats ideal work
platforms for a wide range of offshore activity from platform construction to
plug and abandonment services. Our liftboats have either one or two cranes with
lift capacities up to 75 tons. A liftboat's capability to reposition at a work
site or to move to another location within a short time adds to their
versatility. These boats are also subcontracted to customers in a bare boat
charter, whereby RPC provides only the crew to operate the boat. In addition,
liftboat services are also highly complementary to RPC's service lines within
the Technical Services business segment as it relates to offshore.
Pipe Inspection And Handling Services. Pipe inspection services involve the
inspection and testing of the integrity of pipe used in oil and gas wells. These
services are provided primarily at RPC's inspection yard located on a water
channel near Houston, Texas. Customers rely on tubular inspection services to
avoid failure of in-service tubing, casing, flowlines, and drill pipe. Such
tubular failures are expensive and in some cases catastrophic. All inspection
equipment is maintained and calibrated in strict compliance with API
specifications. In addition to electromagnetic inspections of tubulars from 2
3/8" to 13 5/8" and full length ultrasonic inspection of tubulars from 2 3/8" to
20", RPC offers ultrasonic weld line inspections and complete API thread gauging
with PD and Ovality. RPC's yard in Houston, Texas is equipped with bulkhead
waterfronts, large capacity cranes, specially designed forklifts, and a
computerized inventory system to serve a variety of other storage and handling
issues. In selecting a provider of tubular inspection and tubular services, oil
and gas operators consider such factors as reputation, experience, technology of
products offered, reliability and price.
Well Control School. Well Control School provides industry and government
accredited training for the oil and gas industry. Well Control School provides
this training in various formats including conventional classroom training,
interactive computer training and mobile simulator training. Well Control
School, through its division, Interactive Training Solutions (ITS), also
develops customized training solutions for clients.
Energy Personnel International. Energy Personnel International provides
consultants to the oil and gas industry to meet customers' needs for staff
engineering and wellsite management.
Industry
United States. The United States represents the largest single oilfield services
market in the world. RPC provides its services to its U.S. customers through a
network of locations strategically located including the Gulf of Mexico,
Mid-continent, Southwest and Rocky Mountains. Demand for RPC's services in the
U.S. is driven by the current and projected prices of oil and natural gas and
the resulting drilling activities. Our business tends to be extremely volatile
and fluctuates with the price level of these commodities and
production-enhancement.
Due to aging oilfields and lower-cost sources of oil internationally, drilling
activity in the U.S. has declined more than 75% from its peak in 1981. Record
low drilling activity levels were experienced in 1986, 1992 and again in 1999,
with April 1999 recording the lowest U.S. drilling rig count in recorded
history.
Currently, the industry is in the midst of a dramatic increase in drilling
activity in North America. At the end of the second quarter 2000, there were 920
working drilling rigs domestically compared to only 580 at the same time in
1999, a one year increase of approximately 60 percent. This level of activity is
only 12 percent below the peak rig count of 1,032 reached in September 1997, the
height of the last cycle. Natural gas has been the key driver of the cyclical
recovery thus far. Since 1991, gas drilling rigs have typically represented just
over 50 percent of the total drilling rig count. However, gas-directed drilling
rigs have averaged 80 percent of the total domestic drilling rig count since the
11
<PAGE>
record low seen in the second quarter of 1999. Demand for natural gas is
continuing to rise, primarily as a result of increased emphasis on gas-fired
power generation. Based on the current demand for natural gas as well as the
high depletion rates experienced over the past several years, it is anticipated
that gas-directed drilling will represent at least 70 percent of the total
drilling rig count in the foreseeable future.
Thus, in North America the demand for our services and products associated with
natural gas development is currently more robust than demand related to oil
drilling. We expect to see continued improvement in oil exploration and
development in 2001 and we expect natural gas development activity will continue
in North America at the current improved levels as our customers seek to meet
increased demand and to replace depleting reserves and inventory levels.
International. RPC operates in several countries including the major
international oil and natural gas producing areas of Algeria, Argentina,
Bolivia, Colombia, Gabon, Indonesia, Mexico and Venezuela. RPC provides services
to its international customers through wholly owned foreign subsidiaries or
branch locations. The international market is somewhat less volatile than the
U.S. market although prone to risk of political uncertainties. Due to the
significant investment and complexity in international projects, drilling
decisions relating to such projects tend to be evaluated and monitored with a
longer-term perspective with regard to oil and natural gas pricing.
Additionally, the international market is dominated by major oil companies and
national oil companies which tend to have different objectives and more
operating stability than the typical independent producer does in the U.S.
International activities have been increasingly important to RPC's results of
operations since 1995, when RPC implemented a strategy to expand its
international presence.
Growth Strategies
RPC's primary objective is to provide stockholders with excellent long-term
returns on their investment through income growth and asset appreciation. This
objective will be pursued through strategic investments and opportunities
designed to enhance the long-term value of RPC while improving market share,
product offerings and the profitability of existing businesses. Growth
strategies are focused on selected areas and markets in which there exist
opportunities for higher market growth or penetration or enhanced returns
through consolidations or through the provision of proprietary value-added
products and services. RPC does not seek to provide all products and services
necessary for the exploration and development of oil and gas reserves. Rather it
intends to focus on specific market segments in which it believes that it has a
competitive advantage or there exists significant growth potential.
RPC seeks to expand its service capabilities through a combination of internal
growth, acquisitions, joint ventures and strategic alliances. Because of the
fragmented nature of the oil and gas services industry, RPC believes a number of
attractive acquisition opportunities exist. The oil and gas services business is
generally characterized by a small number of dominant global competitors and a
significant number of locally oriented businesses, many of which tend to be
viable acquisition targets. RPC believes that the owners of locally oriented
companies may be willing to consider becoming part of a larger organization.
Customers
Demand for RPC's services and products depends primarily upon the number of oil
and natural gas wells being drilled, the depth and drilling conditions of such
wells, the number of well completions and the level of workover activity
worldwide. RPC's principal customers consist of major and independent oil and
natural gas producing companies. During the first nine months of 2000, RPC
provided oilfield services to several hundred customers, none of which accounted
for more than 6 percent of consolidated revenues. While the loss of certain of
RPC's largest customers could have a material adverse effect on Company revenues
and operating results in the near term, management believes RPC would be able to
obtain other customers for its services in the event of a loss of any of its
largest customers.
Competition
RPC competes in highly competitive areas of the oilfield service industry. The
products and services of each of RPC's principal industry segments are sold in
highly competitive markets, and its revenues and earnings are affected by
changes in competitive prices, fluctuations in the level of activity in major
markets, general economic conditions and governmental regulation. RPC competes
with oil and gas industry's largest integrated oilfield service companies. RPC
believes that the principal competitive factors in the market areas that it
serves are product and service quality, availability, price and technical
proficiency.
12
<PAGE>
Employees
As of September 30, 2000, RPC had approximately 1,340 employees. None of the
employees is represented by a union or covered by a collective bargaining
agreement. RPC believes that it has good relations with its employees.
Proposed Spin-Off; Discontinued Operation
RPC's powerboat manufacturing business segment is classified for accounting
purposes as a discontinued operation in light of the board of directors'
anticipated approval of the 100% spin-off of that business to our stockholders.
This business is conducted through Marine Products, a newly formed holding
company, the sole asset of which consists of the stock of Chaparral.
Chaparral is a leading company in the recreational powerboat industry. Chaparral
designs, manufactures, and sells recreational fiberglass powerboats in the
stern-drive, sportboat, and cruiser markets. According to state boater
registrations in the stern-drive market, Chaparral is the third largest
stern-drive boatbuilder in the United States. Chaparral has a reputation for
superior quality evidenced by twenty-one Powerboat Magazine Awards for Product
Excellence, including seven coveted "Boat of the Year" awards.
Chaparral sells its three lines of powerboats to a nationwide network of
independent authorized dealers. These lines consist of sportboats, deckboats,
and cruisers. New models are introduced each year, with each model generally
being manufactured for up to five years before being replaced or discontinued.
Operations are somewhat seasonal in nature with the second quarter recording the
highest sales volume for the year. Chaparral's dealer network now includes more
than 135 domestic dealers and 60 international dealers.
Additional information regarding Marine Products Corporation may be found in its
Registration Statement on Form 10 filed with the Securities and Exchange
Commission on December 8, 2000.
Facilities/Equipment
RPC's equipment consists primarily of oil and gas services equipment used either
in servicing customer wells. Substantially all of this equipment is owned and
unencumbered. RPC both owns and leases regional and district facilities from
which its oilfield services are provided to land-based and offshore customers.
RPC's principal executive offices in Atlanta, Georgia are leased. RPC believes
that its facilities are adequate for its current operations. RPC owns and
operates five offshore liftboats, including three in Venezuela and two in the
Gulf of Mexico. For additional information with respect to RPC's lease
commitments, see Note 9 of the Notes to Consolidated Financial Statements.
Governmental Regulation
RPC's business is significantly affected by state and federal laws and other
regulations relating to the oil and gas industry. RPC cannot predict the level
of enforcement of existing laws and regulations or how such laws and regulations
may be interpreted by enforcement agencies or court rulings, whether additional
laws and regulations will be adopted, or the effect such changes may have on it,
its businesses or financial condition.
Intellectual Property
RPC uses several patented items in its operations, which management believes are
important but are not indispensable to RPC's operations. Although RPC
anticipates seeking patent protection when possible, it relies to a greater
extent on the technical expertise and know-how of its personnel to maintain its
competitive position.
Legal Proceedings
RPC is a party to various routine legal proceedings primarily involving
commercial claims, workers' compensation claims and claims for personal injury.
RPC insures against these risks to the extent deemed prudent by its management,
but no assurance can be given that the nature and amount of such insurance will
in every case fully indemnify RPC against liabilities arising out of pending and
future legal proceedings related to its business activities. While the outcome
of these lawsuits, legal proceedings and claims cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even if
determined adversely, would not have a material adverse effect on RPC's business
or financial condition.
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of RPC, Inc.:
We have audited the accompanying consolidated balance sheets of RPC, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RPC, Inc. and subsidiaries as
of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
September 29, 2000
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands except share information)
-------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 4,847 $ 6,549
Marketable securities 4,798 3,414
Accounts receivable, net 33,454 23,080
Inventories 5,928 6,758
Deferred income taxes 5,612 8,344
Federal income taxes receivable 1,806 3,673
Prepaid expenses and other current assets 1,786 1,636
-------------------------------------------------------------------------------------------------------------
Current assets 58,231 53,454
-------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 68,758 64,438
Goodwill, net of accumulated amortization
of $796 in 1999 and $521 in 1998 4,330 2,040
Marketable securities 24,871 29,507
Other assets 893 724
Net assets of discontinued operation 78,632 69,514
-------------------------------------------------------------------------------------------------------------
Total assets $ 235,715 $ 219,677
-------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 11,617 $ 4,624
Accrued payroll and related expenses 4,758 3,318
Accrued insurance expenses 7,092 5,764
Accrued state, local and other taxes 4,164 3,849
Current portion of long-term debt 255 659
Other accrued expenses 4,494 6,413
-------------------------------------------------------------------------------------------------------------
Current liabilities 32,380 24,627
-------------------------------------------------------------------------------------------------------------
Payable to Marine Products Corporation 54,676 47,057
Long-term accrued insurance expenses 3,684 3,308
Long-term debt 1,547 636
Deferred income taxes 620 983
-------------------------------------------------------------------------------------------------------------
Total liabilities 92,907 76,611
-------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Common stock, $.10 par value,
79,000,000 shares authorized,
28,262,463 shares issued in 1999,
28,887,872 shares issued in 1998 2,826 2,888
Capital in excess of par value 22,548 26,538
Earnings retained 117,434 113,640
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity 142,808 143,066
-------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 235,715 $ 219,677
-------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands except per share data)
-------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 107,585 $ 140,777 $ 150,770
Cost of services rendered and goods sold 71,439 83,691 90,046
-------------- -------------- -------------
Gross profit 36,146 57,086 60,724
Selling, general and administrative expenses 23,364 30,529 27,694
Depreciation and amortization 15,837 14,877 11,857
-------------- -------------- -------------
Operating profit (loss) (3,055) 11,680 21,173
Interest income 1,485 1,783 2,162
-------------- -------------- -------------
Income (loss) from continuing operations
before income taxes (1,570) 13,463 23,335
Income tax provision (benefit) (603) 5,112 7,651
-------------- -------------- -------------
Income (loss) from continuing operations (967) 8,351 15,684
Income from discontinued operation, net of income
taxes of $5,599 in 1999, $4,709 in 1998
and $4,067 in 1997 9,118 7,674 6,561
-------------- -------------- -------------
Net income $ 8,151 $ 16,025 $ 22,245
============== ============== =============
EARNINGS PER SHARE - BASIC
Income (loss) from continuing operations $ (0.03) $ 0.29 $ 0.54
Income from discontinued operation 0.32 0.26 0.22
-------------- -------------- -------------
Net income $ 0.29 $ 0.55 $ 0.76
============== ============== =============
EARNINGS PER SHARE - DILUTED
Income (loss) from continuing operations $ (0.03) $ 0.29 $ 0.53
Income from discontinued operation 0.32 0.26 0.22
-------------- -------------- -------------
Net income $ 0.29 $ 0.55 $ 0.75
============== ============== =============
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Years ended Common Capital in Excess Earnings Treasury
December 31, 1999 Stock of Par Value Retained Stock
---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ 1,471 $ 35,176 $ 81,555 $ 403
Two-for-one stock split 1,487 (1,487) -- --
Stock issued for stock incentive plans, net 20 1,522 (520) 215
Net income -- -- 22,245 --
Dividends declared -- -- (1,475) --
---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 2,978 35,211 101,805 618
Stock issued for stock incentive plans, net 5 437 (82) 19
Stock purchased and retired (95) (9,110) -- (637)
Net income -- -- 16,025 --
Dividends declared -- -- (4,108) --
---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 2,888 26,538 113,640 --
Stock issued for stock incentive plans, net 14 758 (355) --
Stock purchased and retired (76) (4,748) -- --
Net income -- -- 8,151 --
Dividends declared -- -- (4,002) --
---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ 2,826 $ 22,548 $ 117,434 $ --
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands)
----------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,151 $ 16,025 $ 22,245
Noncash charges (credits) to earnings:
Depreciation and amortization 15,962 14,937 12,035
Gain on sale of equipment and property (1,474) (2,349) (2,032)
Deferred income tax provision (benefit) 2,369 (778) (338)
Income from discontinued operation (9,118) (7,674) (6,561)
(Increase) decrease in assets:
Accounts receivable (10,374) 7,470 (7,866)
Inventories 830 (485) (223)
Federal income taxes receivable 1,867 (3,673) --
Prepaid expenses and other current assets (150) (108) (207)
Other noncurrent assets (169) 452 428
Increase (decrease) in liabilities:
Accounts payable 6,985 (2,324) 1,393
Federal income taxes payable -- (1,060) 971
Accrued payroll and related expenses 1,440 (1,792) 1,154
Accrued insurance expenses 1,704 (1,628) 1,041
Other accrued expenses (1,604) (205) 1,422
----------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 16,419 16,808 23,462
Net cash provided by discontinued operation 7,619 5,414 7,555
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,038 22,222 31,017
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (20,319) (28,840) (19,800)
Proceeds from sale of equipment and property 2,103 3,657 2,498
Net sale (purchase) of marketable securities 3,252 8,038 (8,010)
Other (1,388) -- 632
----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (16,352) (17,145) (24,680)
----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends (4,002) (4,108) (1,475)
Reduction of long-term debt (680) (877) --
Cash paid for common stock purchased and retired (4,815) (8,587) --
Proceeds received upon exercise of stock options 109 339 465
----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (9,388) (13,233) (1,010)
----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,702) (8,156) 5,327
Cash and cash equivalents at beginning of year 6,549 14,705 9,378
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,847 $ 6,549 $ 14,705
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
17
<PAGE>
Notes to Consolidated Financial Statements
RPC, Inc. and Subsidiaries
Years ended December 31, 1999, 1998, and 1997
Note 1: Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of RPC, Inc. and its wholly owned subsidiaries ("RPC"). All material
intercompany accounts and transactions have been eliminated. In 1999, the Board
of Directors authorized management to pursue a plan to distribute the Powerboat
Manufacturing Segment of the Company to RPC stockholders. Accordingly, as
discussed in Note 2, this segment has been accounted for as a discontinued
operation and the accompanying consolidated financial statements for all periods
presented have been restated to report separately the net assets and operating
results of this discontinued operation.
Nature of Operations--RPC provides a broad range of specialized oil and gas
services and equipment primarily to independent and major oilfield companies
engaged in the exploration, production and development of oil and gas properties
in the United States Gulf of Mexico and mid-continent regions, and in selected
international markets. These services and equipment include among other things,
(1) snubbing services, (2) coiled tubing services, (3) firefighting and well
control, and (4) the rental of drill pipe and other specialized oilfield
equipment. RPC acts as a holding company for its operating subsidiaries, Cudd
Pressure Control, Inc., Patterson Services, Inc. and Patterson Tubular Services,
Inc. along with several smaller non-oilfield businesses.
Use of Estimates in the Preparation of Financial Statements--The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue--Revenue is recognized at the time services are performed or goods are
delivered.
Cash Equivalents--Highly liquid investments with original maturities of 3 months
or less are considered to be cash equivalents.
Marketable Securities--Marketable securities are classified as either "trading"
or "available-for-sale," which requires reporting at fair value on the balance
sheet. Any unrealized gains and losses on trading securities are included in
earnings. For available-for-sale securities, any unrealized gains and losses are
excluded from earnings and, if significant, reported in a separate component of
stockholders' equity. As of December 31, 1999 and 1998, the difference between
fair value and cost for both classifications was not material.
Investments with original maturities between 3 and 12 months are considered to
be current marketable securities. Investments with original maturities greater
than 12 months are considered to be noncurrent marketable securities.
Inventories--Inventories, which consist principally of (i) products which are
consumed in RPC's services provided to customers, (ii) spare parts for equipment
used in providing these services and (iii) manufacturing components and
attachments for equipment used in providing services, are recorded at the lower
of cost (first-in, first-out basis) or market value.
Long-Lived Assets--Long-lived assets and certain intangibles are reviewed
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company periodically reviews the values
assigned to long-lived assets, such as property, plant and equipment and other
assets, to determine if any impairments are other than temporary. Management
believes that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Property, Plant and Equipment--Depreciation is provided principally on a
straight-line basis over the estimated useful lives of assets. Annual provisions
for depreciation are computed using the following useful lives: operating
equipment and property, 3 to 10 years; buildings and leasehold improvements, 15
to 30 years; furniture and fixtures, 5 to 7 years; and vehicles, 3 to 5 years.
The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal with the
resulting gain or loss credited or charged to income. Expenditures for
additions, major renewals, and betterments are capitalized.
18
<PAGE>
Intangibles--Intangibles represent the excess of the purchase price over the
fair value of net assets of businesses acquired and noncompete agreements
related to businesses acquired. Intangibles are presented net of accumulated
amortization and are amortized using the straight-line method over a period not
exceeding 20 years or the period of the noncompete agreement.
Insurance Expenses--RPC self insures, up to specified limits, certain risks
related to general liability, product liability, workers' compensation, and
vehicle liability. The estimated cost of claims under the self-insurance program
is accrued as the claims are incurred (although actual settlement of the claims
may not be made until future periods) and may subsequently be revised based on
developments relating to such claims. The noncurrent portion of these estimated
outstanding claims is classified as long-term accrued insurance expense.
Income Taxes--Deferred tax liabilities and assets are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Earnings per Share--Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," requires a basic earnings per share and diluted
earnings per share presentation. The two calculations differ as a result of
common stock equivalents and restricted shares included in diluted earnings per
share, but excluded in basic earnings per share. A reconciliation of the
weighted shares outstanding is as follows:
1999 1998 1997
---------------------- ----------------- ------------------ ------------------
Basic 28,177,251 28,987,345 29,181,668
Common stock
equivalents and
restricted shares 256,089 377,870 423,195
---------------------- ----------------- ------------------ ------------------
Diluted 28,433,340 29,365,215 29,604,863
---------------------- ----------------- ------------------ ------------------
New Accounting Standards - SFAS No. 133 , "Accounting for Derivative Instruments
and Hedging Activities," establishes accounting and reporting standards for
derivative instruments including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires entities to recognize
all instruments as either assets or liabilities in the balance sheet and measure
those instruments at fair value. As amended, SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. RPC does not
anticipate the adoption of this standard to have a material impact on its
financial position or results of operations.
Note 2: Discontinued Operation
In January 2000, the Board of Directors of RPC, Inc. announced that it planned
to spin off to stockholders the business conducted through Chaparral Boats, Inc.
("Chaparral"), RPC's Powerboat Manufacturing Segment (the "spin-off"). The
spin-off transaction remains subject to final approval of RPC's Board of
Directors. RPC will accomplish the spin-off by contributing 100% of the issued
and outstanding stock of Chaparral to Marine Products Corporation (a Delaware
corporation) ("Marine Products"), a newly formed wholly-owned subsidiary of RPC,
and then distributing the common stock of Marine Products to RPC stockholders.
RPC stockholders will receive one-half of one share of Marine Products Common
Stock for each share of RPC Common Stock owned as of the record date. Based on
an Internal Revenue Service Private Letter ruling, the spin-off will be tax-free
to RPC and RPC stockholders, except for cash received for any fractional shares.
If the facts upon which the letter ruling is based are materially different from
the facts at the time of the spin-off, the spin-off could be taxable to RPC
stockholders, to RPC, or to both stockholders. Immediately after the spin-off is
completed, RPC will not own any shares of Marine Products common stock, and
Marine Products will be an independent public company. The actual number of
shares of Marine Products Common Stock to be distributed will depend on the
number of shares of RPC Common Stock outstanding on the record date.
The Powerboat Manufacturing Segment of RPC has been accounted for as a
discontinued operation and, accordingly, the accompanying consolidated financial
statements of RPC have been restated to report separately the net assets and
operating results of this discontinued operation. A summary of the net assets of
this segment is as follows (in thousands):
19
<PAGE>
December 31, 1999 1998
------------------------------------------- ------------------ ---------------
Current assets $ 21,744 $ 19,070
Property, plant and equipment, net 6,714 5,768
Goodwill, net 4,676 5,361
Receivable from RPC, Inc. 54,676 47,057
Other assets 358 329
Current liabilities (9,230) (7,798)
Long-term liabilities (306) (273)
------------------------------------------- ------------------ ---------------
Net assets of discontinued operation $ 78,632 $ 69,514
------------------------------------------- ------------------ ---------------
A summary of the operating results of RPC's Powerboat Manufacturing Segment is
as follows (in thousands):
Years ended December 31, 1999 1998 1997
---------------------------------- -------------- -------------- ------------
Revenues $ 122,878 $ 103,497 $ 95,029
Operating income 14,484 12,143 10,414
Income before income taxes 14,717 12,383 10,628
Income tax provision 5,599 4,709 4,067
---------------------------------- -------------- -------------- ------------
Net income $ 9,118 $ 7,674 $ 6,561
---------------------------------- -------------- -------------- ------------
In conjunction with the spin-off, RPC and Marine Products have entered into
various agreements that address the allocation of assets and liabilities between
the two companies and that define the companies' relationship after the
separation. These include the Distribution Agreement and Plan of Reorganization,
the Transition Support Services Agreement, the Employee Benefits Agreement, and
the Tax Sharing Agreement.
The Distribution Agreement and Plan of Reorganization provides for the principal
corporate transactions required to effect the spin-off including the
distribution ratio of Marine Products shares to RPC shares, the contribution of
cash by RPC to Marine Products at the date of the spin-off, and the cancellation
of any remaining intercompany balances.
The Transition Support Services Agreement provides for RPC to provide certain
services, including financial reporting and income tax administration,
acquisition assistance, etc. to Marine Products until the agreement is
terminated by either party. During 1999, 1998, and 1997, RPC allocated expenses
for these services to Marine Products totaling $1,966,000, $1,777,000, and
$1,341,000, respectively. The allocation was based on Marine Products' revenue
as a percent of RPC's total revenue. Management believes that such allocation
methodology is reasonable. The costs allocated to Marine Products for these
services are not necessarily indicative of the costs that would have been
incurred if Marine Products had been a separate, independent entity and had
otherwise independently managed these functions. Subsequent to the spin-off,
Marine Products will reimburse RPC for its allocable share of costs incurred for
services rendered on behalf of Marine Products.
The Employee Benefits Agreement provides for Marine Products to continue
participating subsequent to the spin-off in two RPC sponsored benefit plans,
specifically, the defined contribution 401(k) plan and the defined benefit
retirement income plan. It also sets forth the method of handling the stock
options and other stock incentive awards issued to RPC employees that will be
employed by Marine Products subsequent to the spin-off.
The Tax Sharing Agreement provides for the treatment of income tax matters for
periods through the date of the spin-off and responsibility for any adjustments
as a result of audit by any taxing authority. The general terms provide for the
indemnification for any tax detriment incurred by one party caused by the other
party's action.
Subsequent to December 31, 1999, RPC recorded an after-tax gain of $4,227,000.
The gain is a result of Chaparral's receipt, in the first quarter of 2000, 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. Under
the terms of this agreement between the ABA and Brunswick, additional payments
were to 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 payments will be received by Marine Products in connection with this
settlement.
20
<PAGE>
Note 3: Accounts Receivable
Accounts receivable, net, at December 31, 1999, of $33,454,000 and at December
31, 1998, of $23,080,000 are net of allowances for doubtful accounts of
$4,590,000 in 1999, and $6,927,000 in 1998.
Note 4: Inventories
Inventories consist of the following:
December 31, 1999 1998
-------------------------------------- ----------------------------------------
(in thousands)
-------------------------------------- ----------------------------------------
Raw materials and supplies $3,798 $3,984
Work in process 1,426 995
Finished goods 704 1,779
-------------------------------------- --------------------- ------------------
Total inventories $5,928 $6,758
====================================== ===================== ==================
Note 5: Property, Plant and Equipment
Property, plant and equipment are presented at cost net of accumulated
depreciation and consist of the following:
December 31, 1999 1998
----------------------------------------- ------------------------------------
(in thousands)
----------------------------------------- ------------------------------------
Operating equipment and property $ 183,442 $ 172,513
Buildings 12,707 12,102
Furniture and fixtures 3,959 3,927
Vehicles 18,092 16,551
Land 4,649 4,663
Construction in progress 493 --
----------------------------------------- --------------------- --------------
Gross property, plant and equipment 223,342 209,756
Less: accumulated depreciation 154,584 145,318
----------------------------------------- --------------------- --------------
Net property, plant and equipment $ 68,758 $ 64,438
========================================= ===================== ==============
Note 6: Income Taxes
The following table lists the components of the (benefit) provision for income
taxes:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
-------------------------------------------- -------------- -------------- --------------
(in thousands)
-------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal ($ 2,874) $ 5,511 $ 7,833
State (98) 379 156
Deferred 2,369 (778) (338)
-------------------------------------------- -------------- -------------- --------------
Total income tax (benefit) provision ($ 603) $ 5,112 $ 7,651
============================================ ============== ============== ==============
</TABLE>
A reconciliation between the federal statutory rate and RPC's effective tax rate
is as follows:
Year ended December 31, 1999 1998 1997
----------------------------- -------------- --------------- -------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes 4.1 1.8 0.4
Other (0.7) 1.2 (2.6)
----------------------------- -------------- --------------- -------------
Effective tax rate 38.4% 38.0% 32.8%
============================= ============== =============== =============
21
<PAGE>
The components of the net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
------------------------------------------------------- --------------------- ------------------
(in thousands)
------------------------------------------------------- --------------------- ------------------
<S> <C> <C>
Current deferred tax assets:
Self-insurance reserves $ 2,111 $ 2,158
Bad debt reserves 1,726 2,249
State, local & other taxes 698 669
Payroll accruals 786 890
All others 291 2,378
------------------------------------------------------- --------------------- ------------------
Total current deferred tax assets $ 5,612 $ 8,344
------------------------------------------------------- --------------------- ------------------
Noncurrent deferred tax assets (liabilities):
Self-insurance reserves $ 1,761 $ 1,375
Depreciation (2,191) (2,079)
All others (190) (279)
------------------------------------------------------- --------------------- ------------------
Total noncurrent deferred tax liabilities: ($ 620) ($ 983)
------------------------------------------------------- --------------------- ------------------
</TABLE>
Total income tax payments, net of refunds, were $1,616,000 in 1999, $12,765,000
in 1998, and $11,260,000 in 1997.
Note 7: Payable to Marine Products Corporation
At December 31, 1999 and 1998, the consolidated balance sheets reflect a Payable
to Marine Products. This represents the amount of cash transferred from Marine
Products to RPC since RPC's acquisition of Chaparral in 1986. At the spin-off,
RPC will establish a cash balance at Marine Products of approximately $15
million. The remaining Payable to Marine Products after the $15 million cash
balance is established will be cancelled and RPC's retained earnings will be
increased by an equal amount.
Note 8: Long-Term Debt
The fair value of the long-term debt approximates the carrying value. All
obligations are collateralized by equipment and property.
At December 31, 1999, future minimum payments on long-term debt and capitalized
lease obligations were as follows:
----------------------------------------------------------------------------
(in thousands)
----------------------------------------------------------------------------
2000 $ 255
2001 626
2002 526
2003 395
2004 --
------------------------------------------------------------ ---------------
Total minimum principal payments $ 1,802
------------------------------------------------------------ ---------------
The long-term debt of RPC as of December 31, 1999, and December 31, 1998, is
summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------------------------
Range of Interest
Type Maturity Dates Rates 1999 1998
------------------------- ---------------------- ----------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Notes payable 2001-2002 6.25-8.50% $ 1,703 $ 820
Capital leases 2003 10.99% 99 475
------------------------- ---------------------- ----------------------- ------------------ ----------------
Total debt 1,802 1,295
Less current portion 255 659
------------------------- ---------------------- ----------------------- ------------------ ----------------
Long-term debt $ 1,547 $ 636
------------------------- ---------------------- ----------------------- ------------------ ----------------
</TABLE>
The net book value of equipment under capital leases was $801,000 at December
31, 1999.
22
<PAGE>
Note 9: Commitments and Contingencies
Minimum annual rentals, principally for noncancelable real estate leases with
terms in excess of one year, in effect at December 31, 1999, are summarized in
the following table:
----------------------------------------------------------------------------
(in thousands)
----------------------------------------------------------------------------
2000 $ 1,067
2001 684
2002 360
2003 262
2004 174
Thereafter 18
------------------------------------------------------------ ---------------
Total rental commitments $ 2,565
------------------------------------------------------------ ---------------
Total rental expense charged to operations was $2,014,000 in 1999, $2,514,000 in
1998, and $3,610,000 in 1997.
RPC is a defendant in a number of lawsuits which allege that plaintiffs have
been damaged as a result of the rendering of services by RPC personnel and
equipment. RPC is vigorously contesting these actions. Management is of the
opinion that the outcome of these lawsuits will not have a material adverse
effect on the financial position or results of operations or liquidity of RPC.
Note 10: Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair
value-based method of accounting for an employee stock option plan or similar
equity instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed in
Accounting Principles Board ("APB") Opinion No. 25. Entities electing to remain
with the accounting in APB No. 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value-based method of accounting defined
in the statement had been applied.
RPC has elected to account for its stock-based compensation plans under APB No.
25. The Company has computed for pro forma disclosure purposes the value of all
options granted during 1999, 1998, and 1997 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following weighted average
assumptions for grants:
-------------------------------- -------------- --------------- -------------
1999 1998 1997
-------------------------------- -------------- --------------- -------------
Risk free interest rate 4.6% 5.4% 6.2%
Expected dividend yield 1% 2% 0%
Expected lives 7 years 7 years 7 years
Expected volatility 34-37% 31-34% 26-31%
-------------------------------- -------------- --------------- -------------
The total fair value of options granted to RPC and Marine Products employees was
computed as follows:
----------------------------- -------------- --------------- -------------
Years ended December 31, 1999 1998 1997
----------------------------- -------------- --------------- -------------
(in thousands)
----------------------------- --------------------------------------------
Continuing operations $ 583 $ 731 $ 277
Discontinued operation 159 361 247
----------------------------- -------------- --------------- -------------
Total $ 742 $ 1,092 $ 524
----------------------------- -------------- --------------- -------------
23
<PAGE>
The total fair value of options granted would be amortized over the vesting
period of the options. If RPC had accounted for these plans in accordance with
SFAS No. 123, RPC's reported pro forma net income and pro forma net income per
share would have been as follows:
<TABLE>
<CAPTION>
------------------------------------------- -------------- --------------- -------------
Year ended December 31, 1999 1998 1997
------------------------------------------- -------------- --------------- -------------
(in thousands)
------------------------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
As reported
Income (loss)
Continuing operations $ (967) $ 8,351 $ 15,684
Discontinued operation 9,118 7,674 6,561
-------------- --------------- -------------
Net Income $ 8,151 $ 16,025 $ 22,245
Income (loss) per share
Continuing operations $ (0.03) $ 0.29 $ 0.53
Discontinued operation 0.32 0.26 0.22
-------------- --------------- -------------
Net Income $ 0.29 $ 0.55 $ 0.75
Pro forma
Income (loss)
Continuing operations $ (1,174) $ 8,219 $ 15,635
-------------- --------------- -------------
Discontinued operation 9,022 7,599 6,528
Net Income $ 7,848 $ 15,818 $ 22,163
Income (loss) per share
Continuing operations $ (0.04) $ 0.28 $ 0.53
Discontinued operation 0.32 0.26 0.22
-------------- --------------- -------------
Net Income $ 0.28 $ 0.54 $ 0.75
</TABLE>
Note 11: Employee Benefit Plans
Retirement Plan--RPC has a tax-qualified defined benefit, noncontributory,
trusteed retirement income plan that covers substantially all RPC and Marine
Products employees with at least one year of service. Benefits are based on an
employee's years of service and compensation near retirement. RPC has the right
to terminate or modify the plan at any time.
The following table sets forth the funded status of the retirement income plan
and the amounts recognized in RPC's consolidated balance sheets:
<TABLE>
<CAPTION>
-------------------------------------------------- ----------------------- --------------------
December 31 1999 1998
-------------------------------------------------- ----------------------- --------------------
(in thousands)
-------------------------------------------------- ----------------------- --------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 20,126 $16,172
Service cost 1,031 914
Interest cost 1,453 1,343
Actuarial (gain) loss (2,115) 2,244
Benefits paid (699) (547)
-------------------------------------------------- ----------------------- --------------------
Benefit obligation at end of year 19,796 20,126
-------------------------------------------------- ----------------------- --------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 18,107 16,493
Actual return on plan assets 1,136 2,161
Benefits paid (699) (547)
-------------------------------------------------- ----------------------- --------------------
Fair value of plan assets at end of year 18,544 18,107
-------------------------------------------------- ----------------------- --------------------
Funded status (1,252) (2,019)
Unrecognized net asset (482) (674)
Unrecognized net loss 824 2,458
Unrecognized prior service cost (14) (25)
-------------------------------------------------- ----------------------- --------------------
Net accrued benefit cost ($ 924) ($ 260)
-------------------------------------------------- ----------------------- --------------------
ACTUARIAL PRESENT VALUE OF
BENEFIT OBLIGATIONS:
Accumulated benefit obligation $16,192 $16,928
-------------------------------------------------- ----------------------- --------------------
Plan assets at fair value $18,544 $18,107
-------------------------------------------------- ----------------------- --------------------
</TABLE>
24
<PAGE>
RPC's funding policy is to contribute to the retirement income plan the amount
required, if any, under the Employee Retirement Income Security Act of 1974. No
contributions were required in 1999, 1998, and 1997.
The components of net periodic benefit cost are summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------ ---------------- --------------- ---------------
Year ended December 31, 1999 1998 1997
------------------------------------------------ ---------------- --------------- ---------------
<S> <C> <C> <C>
Service cost for benefits earned during the
period $ 1,031 $ 914 $ 602
Interest cost on projected benefit obligation 1,453 1,342 1,053
Expected return on plan assets (1,680) (1,531) (2,243)
Net amortization and deferral (141) (156) 674
------------------------------------------------ ---------------- --------------- ---------------
Net periodic benefit cost $ 663 $ 569 $ 86
------------------------------------------------ ---------------- --------------- ---------------
</TABLE>
Total retirement plan cost attributable to Marine Products, which is included in
net periodic benefit cost above, was $136,000 in 1999, $127,000 in 1998, and
$93,000 in 1997, respectively.
The weighted average assumptions were as follows:
--------------------------------- ---------------- --------------- -------------
December 31, 1999 1998 1997
--------------------------------- ---------------- --------------- -------------
Discount rate 8.00% 7.00% 7.50%
Expected return on plan assets 9.50% 9.50% 9.50%
Rate of compensation increase 5.00% 4.00% 4.50%
--------------------------------- ---------------- --------------- -------------
401(k) Plan--RPC sponsors a defined contribution 401(k) plan that is available
to substantially all full-time employees with more than six months of service.
This plan allows employees to make tax-deferred contributions of up to 15
percent of their annual compensation, not exceeding the permissible deduction
imposed by the Internal Revenue Code. RPC matches 40 percent of each employee's
contributions up to 3 percent of the employee's compensation. Employees vest in
the RPC contributions after five years of service. Marine Products will continue
participating subsequent to the spin-off in the RPC sponsored defined
contribution 401(k) plan. The charges to expense for RPC's contributions were
$356,000 in 1999, $392,000 in 1998, and $315,000 in 1997. The charges to expense
for RPC's contribution for Marine Products were $74,000 in 1999, $74,000 in
1998, and $55,000 in 1997, respectively.
Stock Incentive Plans--RPC has an Employee Incentive Stock Option Plan (the
"1984 Plan") under which 1,000,000 shares of common stock were reserved for
issuance. The 1984 Plan expired in October 1994. On January 25, 1994, RPC
adopted a new ten-year Employee Stock Incentive Plan (the "1994 Plan") under
which 1,000,000 shares of common stock were reserved for issuance. During 1997,
an additional 1,600,000 shares were reserved for issuance. These plans provide
for the issuance of various forms of stock incentives, including, among others,
incentive stock options and restricted stock. Historically, certain RPC
employees, including employees of Marine Products, have participated in these
RPC Stock Incentive Plans (the "RPC SIP").
In conjunction with the spin-off, Marine Products has adopted a ten year
Employee Stock Incentive Plan (the "Marine Products SIP") under which 1,500,000
shares of common stock have been reserved for issuance to Marine Products
employees. The Marine Products SIP provides for the issuance of various forms of
stock incentives, including, among others, incentive stock options and
restricted stock.
Following the spin-off, outstanding stock option grants under the RPC SIP held
by Marine Products employees who will not also be RPC employees will be replaced
with the Marine Products SIP stock option grants. The Marine Products SIP grants
will have the same relative ratio of the exercise price per option to the market
value per share, the same aggregate difference between market value and exercise
price and the same vesting provisions, option periods and other applicable terms
and conditions as the RPC SIP stock option grants being replaced. At December
31, 1999 there were 246,664 RPC SIP stock options held by Marine Products
employees subject to replacement with Marine Products SIP stock option grants.
RPC cannot currently determine the number of shares of Marine Products' common
25
<PAGE>
stock that will be subject to substitute grant until after the spin-off. As of
December 31, 1999, there were 1,323,900 shares available for the granting of
options or other awards under the RPC SIP.
Employees of RPC with outstanding options that have not been earned and issued
into escrow will be adjusted to account for the spin-off, based on the average
trading price of RPC's common stock relative to that of the combined daily
average trading prices of one share of RPC and one-half share of Marine
Products, in each case during the ten consecutive trading days beginning on the
trading day that is ten trading days after the effective date of the spin-off.
Incentive Stock Options--Transactions involving the RPC SIP were as follows:
<TABLE>
<CAPTION>
Shares Weighted
Average
Option Price Exercise
(Per Share) Price
------------------------------- ---------------------------- ------------------------------- -------------
<S> <C> <C> <C>
Outstanding 12/31/96 554,292 $1.625-$4.438 $ 3.23
Granted 158,000 7.500 7.50
Canceled (5,232) 1.625-7.500 6.12
Exercised (264,260) 1.625-4.438 2.58
---------------------------- ------------------------------- -------------
Outstanding 12/31/97 442,800 $3.000-$7.500 5.11
Granted 218,000 12.750 12.75
Canceled (28,400) 3.063-12.750 4.44
Exercised (30,300) 3.063-7.500 3.63
---------------------------- ------------------------------- -------------
Outstanding 12/31/98 602,100 $3.000-$12.750 $ 7.85
Granted 246,500 6.875 6.88
Exercised (65,200) 3.063-7.500 3.21
---------------------------- ------------------------------- -------------
Outstanding 12/31/99 783,400 $3.000-$12.750 $ 7.93
============================ =============================== =============
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Exerciseable at December 31 232,600 210,660 151,120
Weighted average exercise price of
exerciseable options $6.51 $4.27 $3.51
Per share weighted average grant date
fair value of options granted $3.01 $5.20 $3.40
------------------------------------------- -------------------- -------------------- --------------------
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31, 1999 was 7 years.
Restricted Stock--RPC has granted employees two forms of restricted stock:
performance restricted and time lapse restricted. The performance restricted
shares are granted, but not earned and issued, until certain five-year tiered
performance criteria are met. The performance criteria are predetermined market
prices of RPC stock. On the date the stock appreciates to each level
(determination date), 20 percent of performance shares are earned. Once earned,
the performance shares vest five years from the determination date. Time lapse
restricted shares vest ten years from the grant date. There were 90,000 units
granted under these restricted stock programs during 1999, 52,000 units granted
during 1998 and 52,000 units granted during 1997. There were 7,600 performance
shares earned under the plans in 1999. During 1999, 1998, and 1997, no shares
were forfeited or canceled. Shares of performance restricted stock totaling
15,600 will be forfeited and replaced with grants of performance restricted
stock under the Marine Products SIP pursuant to the spin-off.
Employees of RPC with outstanding performance restricted stock awards that have
not been earned and issued into escrow will be adjusted to account for the
spin-off, based on the average trading price of RPC's common stock relative to
that of the combined daily average trading prices of one share of RPC and
one-half share of Marine Products, in each case during the ten consecutive
trading days beginning on the trading day that is ten trading days after the
effective date of the spin-off. In addition, RPC employees with time-lapse
restricted stock awards or performance restricted stock awards that have been
issued and are being held in escrow on their behalf as of the close of business
on the record date will receive 0.5 shares of Marine Products common stock for
each share of RPC common stock held in escrow as of the close of business on the
26
<PAGE>
record date, pursuant to the spin-off. Any shares of Marine Products common
stock received by an RPC employee will also be held in escrow on the same terms
as the time-lapse or performance restricted stock awards with respect to which
they were issued.
The agreements under which the restricted stock is issued provide that shares
awarded may not be sold or otherwise transferred until restrictions as
established under the RPC SIP have lapsed. Upon termination of employment from
RPC or, in certain cases, termination of employment from Marine Products or
Chaparral, shares with restrictions must be returned to RPC. As of December 31,
1999, none of the shares of restricted stock were vested.
Note 12: Business Segment Information
RPC's service lines have been aggregated into two reportable oil and gas
services segments - technical services and support services - because of the
similarities between the financial performance and approach to managing the
service lines within each of the segments as well as the economic and business
conditions impacting their business activity levels.
Technical services include RPC's oil and gas service lines that utilize people
and equipment to perform value-added completion, production and maintenance
services directly to a customer's well. These services include coiled tubing,
fluid pumping, nitrogen pumping, fracturing and acidizing services, wireline,
snubbing, well control consulting and firefighting, downhole tools, and casing
installation services. These technical services are primarily used in the
completion, production and maintenance of oil and gas wells. The principal
markets for this segment include the United States, including the Gulf of
Mexico, the mid-continent, southwest and Rocky Mountain regions, and
international locations including primarily Algeria and Venezuela. Customers
include major multi-national and independent oil and gas producers, and selected
nationally-owned oil companies.
Support services include RPC's oil and gas service lines that primarily provide
equipment for customer use or services to assist customer operations. The
equipment and services include drill pipe and related tools, pipe handling,
inspection and storage services, work platform marine vessels, and oilfield
training services. The demand for these services tends to be influenced
primarily by customer drilling-related activity levels. The principal markets
for this segment include the United States, including the Gulf of Mexico and the
mid-continent regions. Customers include domestic operations of major
multi-national and independent oil and gas producers.
The other business segment includes information concerning RPC's business units
that do not qualify for separate segment reporting. These business units include
an overhead crane fabricator, an enhanced facsimile service provider and other
non-oilfield business development activities.
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
earnings before interest, taxes, depreciation and amortization and other
non-cash charges (EBITDA). RPC's balance sheets are generally managed on a
consolidated basis and therefore it is impractical to report assets by business
segment.
27
<PAGE>
Summarized financial information concerning RPC's reportable segments for the
years ended December 31, 1999, 1998, and 1997 is shown in the following table.
<TABLE>
<CAPTION>
Technical Support
Services Services Other Corporate Total
------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 70,366 $ 24,500 $ 12,719 $ -- $107,585
Segment profit (loss) 5,142 (5,424) (819) (1,954) (3,055)
Capital expenditures 13,138 6,059 102 1,020 20,319
Depreciation and
amortization 7,949 7,371 318 324 15,962
EBITDA 13,091 1,947 (501) (1,630) 12,907
1998
Revenues 79,031 44,918 16,828 -- 140,777
Segment profit (loss) 12,031 5,304 (3,520) (2,135) 11,680
Capital expenditures 7,560 21,162 118 -- 28,840
Depreciation and
amortization 7,909 6,452 350 226 14,937
EBITDA 19,940 11,756 (3,170) (1,909) 26,617
1997
Revenues 85,696 51,893 13,181 -- 150,770
Segment profit(loss) 15,342 10,793 (3,211) (1,751) 21,173
Capital expenditures 9,259 10,409 103 29 19,800
Depreciation and
amortization 6,480 4,962 146 447 12,035
EBITDA 21,822 15,755 (3,065) (1,304) 33,208
</TABLE>
The following summarizes selected information between the United States and all
international locations combined for the years ended December 31, 1999, 1998,
and 1997. The revenues are presented based on the location of the use of the
product or service. Assets related to international operations are less than ten
percent of RPC's consolidated assets, and therefore are not presented.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States
-Revenues $ 96,062 $130,955 $133,363
International
-Revenues 11,523 9,822 17,407
---- ---- ----
$ 107,585 $140,777 $150,770
</TABLE>
28
<PAGE>
Note 13: Unaudited Quarterly Data
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
----------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 23,702 $ 24,843 $ 27,861 $ 31,179
Income (loss) from continuing operations (1,153) 38 (214) 362
Income from discontinued operation 2,382 2,866 1,614 2,256
-----------------------------------------------------------
Net income $ 1,229 $ 2,904 $ 1,400 $ 2,618
===========================================================
Net income (loss) per share - basic
Continuing operations $ (0.04) $ 0.00 $ (0.01) $ 0.01
Discontinued operation 0.08 0.10 0.06 0.08
-----------------------------------------------------------
Total $ 0.04 $ 0.10 $ 0.05 $ 0.09
===========================================================
Net income (loss) per share - diluted
Continuing operations $ (0.04) $ 0.00 $ (0.01) $ 0.01
Discontinued operation 0.08 0.10 0.06 0.08
-----------------------------------------------------------
Total $ 0.04 $ 0.10 $ 0.05 $ 0.09
===========================================================
1998
Revenues $ 40,453 $ 37,319 $ 34,557 $ 28,448
Income (loss) from continuing operations 3,611 4,165 2,187 (1,612)
Income from discontinued operation 2,043 2,245 1,566 1,820
-----------------------------------------------------------
Net income $ 5,654 $ 6,410 $ 3,753 $ 208
===========================================================
Net income (loss) per share - basic
Continuing operations $ 0.12 $ 0.14 $ 0.08 $ (0.05)
Discontinued operation 0.07 0.08 0.05 0.06
-----------------------------------------------------------
Total $ 0.19 $ 0.22 $ 0.13 $ 0.01
===========================================================
Net income (loss) per share - diluted
Continuing operations $ 0.12 $ 0.14 $ 0.08 $ (0.05)
Discontinued operation 0.07 0.08 0.05 0.06
-----------------------------------------------------------
Total $ 0.19 $ 0.22 $ 0.13 $ 0.01
===========================================================
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Unaudited Audited
----------------------------------------------------------------------------------------------------------------------
RPC, INC. and SUBSIDIARIES (in thousands) September December
30, 2000 31, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,429 $ 4,847
Marketable securities 6,724 4,798
Accounts receivable, net 46,724 33,454
Inventories 7,502 5,928
Deferred income taxes 6,801 5,612
Federal income taxes receivable -- 1,806
Prepaid expenses and other current assets 1,331 1,786
----------------------------------------------------------------------------------------------------------------------
Current assets 74,511 58,231
----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 80,759 68,758
Intangibles, net 4,146 4,330
Marketable securities 16,990 24,871
Other assets 1,076 893
Net assets of discontinued operation 90,781 78,632
----------------------------------------------------------------------------------------------------------------------
Total assets $ 268,263 $ 235,715
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 10,720 $ 11,617
Accrued payroll and related expenses 5,545 4,758
Accrued insurance expenses 7,729 7,092
Accrued state, local and other taxes 4,863 4,164
Current portion of long-term debt 610 255
Other accrued expenses 3,568 4,494
Federal income taxes payable 3,958 --
----------------------------------------------------------------------------------------------------------------------
Current liabilities 36,993 32,380
----------------------------------------------------------------------------------------------------------------------
Payable to Marine Products Corporation 63,541 54,676
Long-term accrued insurance expenses 3,781 3,684
Long-term debt 484 1,547
Deferred income taxes 1,195 620
----------------------------------------------------------------------------------------------------------------------
Total liabilities 105,994 92,907
----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Common stock 2,826 2,826
Capital in excess of par value 22,480 22,548
Earnings retained 136,963 117,434
----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 162,269 142,808
----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 268,263 $ 235,715
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands except per share data)
-------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 126,863 $ 76,427
Cost of services rendered and goods sold 79,294 51,580
-------------- ---------------
Gross profit 47,569 24,847
Selling, general and administrative expenses 18,887 16,489
Depreciation and amortization 13,439 11,743
-------------- ---------------
Operating profit (loss) 15,243 (3,385)
Interest income 1,037 1,229
-------------- ---------------
Income (loss) from continuing operations before income taxes 16,280 (2,156)
Income tax provision (benefit) 6,186 (821)
-------------- ---------------
Income (loss) from continuing operations 10,094 (1,335)
Income from discontinued operation, net of income taxes of $7,446 in 2000,
and $4,209 in 1999 12,149 6,868
-------------- ---------------
Net income $ 22,243 $ 5,533
============== ===============
EARNINGS PER SHARE - BASIC
-------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 0.36 $ (0.05)
Income from discontinued operation 0.44 0.25
-------------- ---------------
Net income $ 0.80 $ 0.20
============== ===============
EARNINGS PER SHARE - DILUTED
-------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 0.36 $ (0.05)
Income from discontinued operation 0.43 0.24
-------------- ---------------
Net income $ 0.79 $ 0.19
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------
RPC, INC. AND SUBSIDIARIES (in thousands)
----------------------------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 22,243 $ 5,533
Noncash charges (credits) to earnings:
Depreciation and amortization 13,458 11,868
Gain on sale of equipment and property (1,138) (1,138)
Deferred income tax (benefit) provision (614) 1,317
Income from discontinued operation (12,149) (6,868)
(Increase) decrease in assets:
Accounts receivable (13,270) (1,849)
Inventories (1,574) 1,040
Federal income taxes receivable 1,806 1,798
Prepaid expenses and other current assets 455 399
Other noncurrent assets (183) (215)
Increase (decrease) in liabilities:
Accounts payable (897) 3,155
Accrued payroll and related expenses 787 782
Federal income taxes payable 3,958 --
Accrued insurance expenses 734 1,429
Other accrued expenses (227) (768)
----------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 13,389 16,483
Net cash provided by discontinued operation 8,865 5,123
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,254 21,606
----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (26,442) (10,380)
Proceeds from sale of equipment and property 2,552 1,577
Net sale (purchase) of marketable securities 5,955 (2,539)
Other 8 (2,565)
----------------------------------------------------------------------------------------------------
Net cash used for investing activities (17,927) (13,907)
----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends (2,964) (3,003)
(Decrease) increase in long-term debt (708) 643
Cash paid for common stock purchased and retired (184) (2,885)
Proceeds received upon exercise of stock options 111 55
----------------------------------------------------------------------------------------------------
Net cash used for financing activities (3,745) (5,190)
----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 582 2,509
Cash and cash equivalents at beginning of year 4,847 6,549
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,429 $ 9,058
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
RPC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE 1. GENERAL
The consolidated financial statements included herein have been prepared by RPC,
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.
In the opinion of management, the consolidated financial statements included
herein contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position of RPC, Inc. as of September
30, 2000, the results of operations and the cash flows for the nine months ended
September 30, 2000 and 1999. See the audited consolidated financial statements
and related footnotes included elsewhere in this document.
The results of operations for the nine months ended September 30, 2000 and 1999
are not necessarily indicative of the results to be expected for the full year.
NOTE 2. SPIN-OFF TRANSACTION
In January 2000, the Board of Directors of RPC, Inc. announced that it planned
to spin-off its 100% ownership in Chaparral to stockholders. Also, a favorable
tax ruling from the Internal Revenue Service was received in May 2000. The
private letter ruling provides that the proposed spin-off to its stockholders of
the stock of its powerboat manufacturing company will be tax-free to RPC and its
stockholders. If the facts upon which the letter ruling is based are materially
different from the facts at the time of the spin-off, the spin-off could be
taxable to RPC stockholders, to RPC, or to both stockholders. The spin-off is
intended to improve management focus, facilitate additional acquisitions, and
set the stage for enhanced future growth opportunities for both of the separate
companies. The spin-off transaction remains subject to final approval of RPC's
Board of Directors.
The consolidated financial statements included herein classify the historical
operations of the powerboat manufacturing segment for accounting purposes as a
discontinued operation.
A summary of the net assets of the discontinued operation is as follows (in
thousands):
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Current assets $ 23,342 $ 21,744
Property, plant and equipment, net 9,794 6,714
Goodwill, net 4,163 4,676
Receivable from RPC, Inc. 63,541 54,676
Other assets 378 358
Current liabilities (10,131) (9,230)
Long-term liabilities (306) (306)
--------------------------------------------------------------------------------
Net assets of discontinued operation $ 90,781 $ 78,632
A summary of the operating results of the discontinued operation is as follows
(in thousands):
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
Revenues $115,573 $ 91,592
Operating income 12,582 10,910
Gain on settlement of claim 6,817 --
Income before income taxes 19,595 11,077
Income tax provision 7,446 4,209
--------------------------------------------------------------------------------
Net income $ 12,149 $ 6,868
During the quarter ended March 31, 2000, a gain was recorded related to
settlement of a claim. The gain is a result of Chaparral's 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.
NOTE 3. EARNINGS PER SHARE
Basic and diluted earnings per share are computed by dividing net income by the
respective weighted average number of shares outstanding during the respective
periods.
Year-to-Date Year-to-Date
2000 1999
------------------------------------------------------------------------------
Basic EPS 27,835,208 28,210,890
Common stock
equivalents and
restricted shares 407,940 250,927
------------------------------------------------------------------------------
Diluted EPS 28,243,148 28,461,817
------------------------------------------------------------------------------
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires entities to recognize all instruments as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. As amended, SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. RPC does not anticipate the adoption
of this standard will have a material impact on its financial position or
results of operations.
33
<PAGE>
NOTE 5. BUSINESS SEGMENT INFORMATION
RPC's service lines have been aggregated into two reportable oil and gas
services segments - technical services and support services - because of the
similarities between the financial performance and approach to managing the
service lines within each of the segments as well as the economic and business
conditions impacting their business activity levels.
Technical services include RPC's oil and gas service lines that utilize people
and equipment to perform value-added completion, production and maintenance
services directly to a customer's well. These services include coiled tubing,
fluid pumping, nitrogen pumping, facturing and acidizing services, wireline,
snubbing, well control consulting and firefighting, downhole tools, and casing
installation services. These technical services are primarily used in the
completion, production and maintenance of oil and gas wells. The principal
markets for this segment include the United States, including the Gulf of
Mexico, the mid-continent, southwest and Rocky Mountain regions, and
international locations including primarily Algeria and Venezuela. Customers
include major multi-national and independent oil and gas producers, and selected
nationally-owned oil companies.
Support services include RPC's oil and gas service lines that primarily provide
equipment for customer use or services to assist customer operations. The
equipment and services include drill pipe and related tools, pipe handling,
inspection and storage services, work platform marine vessels, and oilfield
training services. The demand for these services tends to be influenced
primarily by customer drilling-related activity levels. The principal markets
for this segment include the United States, including the Gulf of Mexico and the
mid-continent regions. Customers include domestic operations of major
multi-national and independent oil and gas producers.
The other business segment includes information concerning RPC's business units
that do not qualify for separate segment reporting. These business units include
an overhead crane fabricator, an enhanced facsimile service provider and other
non-oilfield business development activities.
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
earnings before interest, taxes, depreciation and amortization and other
non-cash charges (EBITDA). RPC's balance sheets are generally managed on a
consolidated basis and therefore it is impractical to report assets by business
segment.
Summaried financial information concerning RPC's reportable segments for the
nine months ended September 30, 2000 and 1999 is shown in the following table.
<TABLE>
<CAPTION>
Technical Support
Services Services Other Corporate Total
------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Nine months ended
September 30, 2000
Revenues $ 89,341 $ 27,247 $ 10,275 $ -- $126,863
Segment profit (loss) 13,543 3,545 (391) (1,454) 15,243
Capital expenditures 18,793 6,777 78 794 26,442
Depreciation and
Amortization 7,358 5,497 235 368 13,458
EBITDA 20,901 9,042 (156) (1,086) 28,701
Nine months ended
September 30, 1999
Revenues 49,215 17,976 9,236 -- 76,427
Segment profit (loss) 3,799 (5,223) (629) (1,332) (3,385)
Capital expenditures 5,354 4,231 71 724 10,380
Depreciation and
Amortization 5,840 5,516 230 282 11,868
EBITDA 9,639 293 (399) (1,050) 8,483
</TABLE>
The following summarizes selected information between the United States and all
international locations combined for the nine months ended September 30, 2000
and 1999. The revenues are presented based on the location of the use of the
product or service. Assets related to international operations are less than ten
percent of RPC's consolidated assets, and therefore are not presented.
Nine months ended September 30, 2000 1999
--------- --------
United States
- Revenues $ 110,613 $ 68,171
International
- Revenues 16,250 8,256
--------- --------
$ 126,863 $ 76,427
========= ========
34
<PAGE>
RISK FACTORS
DEMAND FOR OUR PRODUCTS AND SERVICES IS AFFECTED BY THE VOLATILITY OF OIL
PRICES. Oil prices affect demand throughout the oil and natural gas industry,
including the demand for our products and services. Our business depends in
large part on the conditions of the oil and gas industry, and specifically on
the capital expenditures of our customers related to the exploration and
production of oil and natural gas. When these expenditures decline, our
customers' demand for our services declines. Second, exploration and drilling
activity declines as marginally profitable projects become uneconomical and
either are delayed or eliminated. As a result, the cyclical nature of the oil
and gas industry and general economic conditions have a significant effect on
the demand for our oilfield services and our revenues and profitability.
Although the production sector of the oil and gas industry is less immediately
affected by changing prices, and, as a result, less volatile than the
exploration sector, producers react to declining oil and gas prices by reducing
expenditures. This would adversely affect our business. We are unable to predict
future oil and gas prices, the level of oil and gas industry activity, the
perceived level of enforcement of laws requiring well remediation or levels of
environmental awareness. A prolonged low level of activity in the oil and gas
industry will adversely affect the demand for our products and services and our
financial condition and results of operations.
WE MAY BE UNABLE TO COMPETE IN THE HIGHLY COMPETITIVE OIL AND GAS INDUSTRY IN
THE FUTURE. We compete in highly competitive areas of the oilfield services
industry. The products and services of each of our principal industry segments
are sold in highly competitive markets, and our revenues and earnings may be
affected by the following factors: changes in competitive prices, fluctuations
in the level of activity and major markets, general economic conditions, and
governmental regulation. We compete with the oil and gas industry's largest
integrated oilfield service providers. We believe that the principal competitive
factors in the market areas that we serve are product and service quality and
availability, technical proficiency and price. Our operations may be adversely
affected if our current competitors or new market entrants introduce new
products or services with better features, performance, prices or other
characteristics than our products and services. Competitive pressures or other
factors also may result in significant price competition that could have a
material adverse effect on our results of operations and financial condition.
Furthermore, competition among oilfield service and equipment providers is also
based on a provider's reputation for safety and quality. Although we believe
that our reputation for safety and quality service is good, we cannot assure you
that we will be able to maintain our competitive position.
WE MAY BE UNABLE TO IDENTIFY OR COMPLETE ACQUISITIONS. Acquisitions have been
and will continue to be a key element of our business strategy. We cannot assure
you that we will be able to identify and acquire acceptable acquisition
candidates on terms favorable to us in the future. We may be required to incur
substantial indebtedness to finance future acquisitions and also may issue
equity securities in connection with such acquisitions. Additional debt service
requirements may impose a significant burden on our results of operations and
financial condition. The issuance of additional equity securities could result
in significant dilution to our stockholders. We cannot assure you that we will
be able to consolidate successfully the operations and assets of any acquired
business with our own business. In addition, our management may not be able to
effectively manage our increased size or operate a new line of business due to
the lack of sufficient executive-level personnel, increased administrative
burdens, and the increased logistical problems of large, expansive operations.
Any inability on our part to consolidate and manage the growth from acquired
businesses could have a material adverse effect on our results of operations and
financial condition.
OUR OPERATIONS ARE AFFECTED BY ADVERSE WEATHER CONDITIONS. Our operations are
directly affected by the weather conditions in the Gulf of Mexico and Gulf Coast
regions. Due to seasonal differences in weather patterns, our crews may operate
more days in some periods than others. Rainy weather, hurricanes and other
storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the
year may also affect our operations. Accordingly, our operating results may vary
from quarter to quarter, depending on factors outside of our control. As a
result, full year results are not likely to be a direct multiple of any
particular quarter or combination of quarters.
OUR INABILITY TO ATTRACT AND RETAIN SKILLED WORKERS MAY IMPAIR GROWTH POTENTIAL
AND PROFITABILITY. Our ability to remain productive and profitable will depend
substantially on our ability to attract and retain skilled workers. Our ability
to expand our operations is in part impacted by our ability to increase our
labor force. The demand for skilled oil and gas services employees in the Gulf
Coast region is high and the supply is very limited. A significant increase in
the wages paid by competing employers could result in a reduction in our skilled
labor force, increases in the wage rates paid by us, or both. If either of these
events occurred, our capacity and profitability could be diminished and our
growth potential could be impaired.
35
<PAGE>
OUR INABILITY TO PERFORM SERVICES FOR A NUMBER OF OUR LARGE EXISTING CUSTOMERS
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS. We depend
on key customers, and derive a significant amount of our revenues from a small
number of major and independent oil and gas companies. Our inability to continue
to perform services for a number of our large existing customers could have a
material adverse effect on our business and operations. Substantially all of our
customers are engaged in the energy industry. This concentration of customers
may impact our overall exposure to credit risk, either positively or negatively,
in that customers may be similarly affected by changes in economic and industry
conditions. We perform ongoing credit evaluations of our customers and do not
generally require collateral in support of our trade receivables. While we
maintain reserves for potential credit losses, our actual losses have
historically been within expectations.
OUR BUSINESS HAS POTENTIAL LIABILITY FOR PERSONAL INJURY AND PROPERTY DAMAGE
CLAIMS. Our operations involve the use of heavy equipment and exposure to
inherent risks, including blowouts, explosions and fires. If any of these events
were to occur, this could result in liability for personal injury and property
damage, pollution or other environmental hazards or loss of production. In
addition, certain of our employees who perform services on offshore platforms
and vessels are covered by provisions of the Jones Act, the Death on the High
Seas Act and general maritime law. These laws make the liability limits
established by state workers' compensation laws inapplicable to these employees
and instead permit them or their representatives to pursue actions against us
for damages on job-related injuries. In such actions, there is generally no
limitation on our potential liability. If our equipment were to fail, this could
result in property damage, personal injury, environmental pollution and
resulting damage for which we could be liable. Litigation may arise from a
catastrophic occurrence at a location where our equipment and services are used.
This could result in large claims for damages. The frequency and severity of
such incidents will affect our operating costs, insurability and relationships
with customers, employees and regulators. Any increase in the frequency or
severity of such incidents, or the general level of compensation awards with
respect to such incidents, could affect our ability to obtain projects from oil
and gas companies or insurance. This could have a material adverse effect on us.
We maintain what we believe is prudent insurance protection. We cannot assure
you that we will be able to maintain adequate insurance in the future at rates
we consider reasonable or that our insurance coverage will be adequate to cover
future claims that may arise.
OUR OPERATIONS MAY BE AFFECTED IF WE ARE UNABLE TO COMPLY WITH REGULATORY AND
ENVIRONMENTAL LAWS. Our business is significantly affected by environmental laws
and other regulations relating to the oil and gas industry and by changes in
such laws and the level of enforcement of such laws. We are unable to predict
the level of enforcement of existing laws and regulations, how such laws and
regulations may be interpreted by enforcement agencies or court rulings, or
whether additional laws and regulations will be adopted. We are also unable to
predict the effect that any such events may have on us, our business or our
financial condition. In addition, we depend on the demand for our services from
the oil and gas industry. Such demand is affected by changing taxes, price
controls and other laws and regulations relating to the oil and gas industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas in our areas of operations for economic, environmental
or other policy reasons would adversely affect our operations by limiting demand
for our services. We also have potential environmental liabilities with respect
to our offshore and onshore operations. Certain environmental laws provide for
joint and several liabilities for remediation of spills and releases of
hazardous substances. These environmental statutes may impose liability without
regard to negligence or fault. In addition, we may be subject to claims alleging
personal injury or property damage as a result of alleged exposure to hazardous
substances. We believe that our present operations substantially comply with
applicable federal and state pollution control and environmental protection laws
and regulations. We also believe that compliance with such laws has had no
material adverse effect on our operations to date. However, such environmental
laws are changed frequently. Sanctions for noncompliance may include revocation
of permits, corrective action orders, administrative or civil penalties and
criminal prosecution. We are unable to predict whether environmental laws will
in the future materially adversely affect our operations and financial
condition.
OUR INTERNATIONAL OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS. Our operations in Venezuela, Algeria and other foreign countries,
although presently limited, are subject to risks inherent in doing business in
foreign countries. These risks include, but are not limited to, political
changes, expropriation, currency restrictions and changes in currency exchange
rates, taxes, and boycotts and other civil disturbances. Although it is
impossible to predict the likelihood of such occurrences or their effect on our
operations, our management believes that these risks are acceptable. However,
the occurrence of any one of these events could have a material adverse effect
on our operations.
OUR COMMON STOCK PRICE MAY BE ADVERSELY AFFECTED BY CHANGES IN OIL AND GAS
PRICES AND THE SUPPLY AND DEMAND FOR OIL AND GAS. Historically, and in recent
months in particular, the market price of common stock of companies engaged in
the oil and gas services industry has been highly volatile. Likewise, the market
price of our common stock has varied significantly in the past. Changes in oil
36
<PAGE>
and natural gas prices, changes in the demand for oil and natural gas
exploration, and changes in the supply and demand for oil and natural gas have
all been factors affecting the price of our common stock.
Dividend Policy
Since December 1997, RPC has paid a quarterly dividend on its common stock.
While RPC expects to pay dividends on its common stock for the foreseeable
future, the final determination of any future cash dividends will depend upon
declaration by the board of directors. Factors such as RPC's financial
condition, results of operations, cash flow, level of capital expenditures,
future business prospects and other such matters as the board of directors deems
relevant will be considered. In the future, we may be restricted in our ability
to declare and pay dividends by the terms of any credit facility or other
financial instrument that may be entered into from time to time. RPC is not
currently subject to any such restriction, but no assurance can be given that
this will always continue to be the case.
RPC, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
The following unaudited pro forma consolidated balance sheet as of September 30,
2000 presents the consolidated financial position of RPC assuming the spin-off
of its powerboat manufacturing business segment had been completed as of
September 30, 2000 and reflects all adjustments that, in the opinion of
management, are necessary to present fairly the pro forma financial position of
RPC. No pro forma statement of income has been presented because no pro forma
adjustments are required to present fairly the historical results of operations
of RPC, except to eliminate the income of the discontinued operation. No
adjustment has been made to the selling, general and administrative expenses
because such expenses included in the historical statements include an
allocation of corporate administrative expenses which RPC believes, based upon
current circumstances, will not materially differ from actual corporate selling,
general and administrative expenses to be incurred following the spin-off.
The Pro Forma Consolidated Financial Data of RPC should be read in conjunction
with the Consolidated Financial Statements of RPC included elsewhere in this
report. The pro forma financial information presented below, as well as that
found in the Selected Financial Data presented elsewhere in this report, are not
necessarily indicative of the financial position or results of operations that
RPC would have reported if it had operated exclusive of the discontinued
operation during the periods presented, nor is it necessarily indicative of
RPC's future performance subsequent to the spin-off of the powerboat
manufacturing business.
37
<PAGE>
RPC, Inc.
Pro Forma Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------
Historical Pro Forma Pro Forma
Adjustments
-------------- --------------- -----------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,429 $ $ 5,429
Marketable securities 6,724 (6,724)(1) --
Accounts receivable, net 46,724 46,724
Inventories 7,502 7,502
Deferred income taxes 6,801 6,801
Federal income tax receivable -- --
Prepaid expenses and other current assets 1,331 1,331
-------------- --------------- -----------
Total Current Assets 74,511 (6,724) 67,787
Property, plant and equipment, net 80,759 80,759
Intangibles, net 4,146 4,146
Marketable securities 16,990 (5,355)(1) 11,635
Other assets 1,076 1,076
Net assets of discontinued operation 90,781 (90,781)(2) --
-------------- --------------- -----------
Total Assets $ 268,263 $ (102,860) $165,403
============== =============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,720 $ $ 10,720
Accrued payroll and related expenses 5,545 5,545
Accrued insurance expense 7,729 7,729
Accrued state, local and other taxes 4,863 4,863
Current portion of long-term debt 610 610
Other accrued expenses 3,568 3,568
Federal income taxes payable 3,958 3,958
-------------- --------------- -----------
Total Current Liabilities 36,993 36,993
Payable to Marine Products Corporation 63,541 (63,541)(3) --
Long-term accrued insurance expenses 3,781 3,781
Long-term debt 484 484
Deferred income taxes 1,195 1,195
-------------- --------------- -----------
Total Liabilities 105,994 (63,541) 42,453
Stockholders' Equity
Common stock 2,826 2,826
Capital in excess of par value 22,480 22,480
Earnings retained 136,963 (12,079)(1) 97,644
(90,781)(2)
63,541 (3)
-------------- --------------- -----------
Total Stockholders' Equity 162,269 (39,319) 122,950
-------------- --------------- -----------
Total Liabilities & Stockholders' Equity $ 268,263 $ (102,860) $ 165,403
============== =============== ===========
</TABLE>
(1) To reflect the liquidation of marketable securities and subsequent cash
payment to Marine Products by RPC immediately prior to the spin-off. See
Note 1 to RPC's consolidated financial statements for a discussion of
marketable securities. As set forth in the Agreement Regarding Distribution
and Plan of Reorganization, RPC is required to establish a cash balance at
Marine Products of approximately $15 million. See Note 7 to RPC's
consolidated financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) To reflect the distribution of RPC's 100% equity interest in Marine
Products to RPC stockholders.
(3) To record cancellation of the remaining payable to Marine Products
Corporation.
38
<PAGE>
(c) Exhibits
Exhibit
No. Description
-------- -----------
2.1* Agreement Regarding Distribution and Plan of Reorganization Agreement
dated __________, 2000 by and between RPC, Inc. and Marine Products
Corporation.
23 Consent of Arthur Andersen LLP.
99.1* Tax Sharing Agreement dated ___________, 2000 by and between RPC,
Inc. and Marine Products Corporation.
99.2* Employee Benefits Agreement dated ________, 2000 by and between RPC,
Inc., Marine Products Corporation and Chaparral Boats, Inc.
99.3* Transaction Support Services Agreement dated ________, 2000 by and
between RPC, Inc. and Marine Products Corporation.
---------------------
* To be filed by amendment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RPC, INC.
/s/ Richard A. Hubbell
------------------------------------------
Richard A. Hubbell
President and Chief Operating Officer
Dated: December 7, 2000
39
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
-------- -----------
2.1* Agreement Regarding Distribution and Plan of Reorganization Agreement
dated __________, 2000 by and between RPC, Inc. and Marine Products
Corporation.
23 Consent of Arthur Andersen LLP.
99.1* Tax Sharing Agreement dated ___________, 2000 by and between RPC,
Inc. and Marine Products Corporation.
99.2* Employee Benefits Agreement dated ________, 2000 by and between RPC,
Inc., Marine Products Corporation and Chaparral Boats, Inc.
99.3* Transaction Support Services Agreement dated ________, 2000 by and
between RPC, Inc. and Marine Products Corporation.
---------------------
* To be filed by amendment.
40
