NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC”
or the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. These consolidated financial statements have been prepared in accordance with the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, “Consolidation” and Rule 3A-02(a)
of Regulation S-X. In accordance with ASC Topic 810 and Rule 3A-02 (a) of Regulation S-X, the Company’s policy is to consolidate
all subsidiaries and investees where it has voting control.
In
the opinion of management, all adjustments (all of which consisted of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2017.
The
balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all
of the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in
the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016.
A
group that includes the Company’s Chairman of the Board, R. Randall Rollins, and his brother Gary W. Rollins, who is also
a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s
voting power.
RPC’s
revenues are generated principally from providing services and the related equipment. Revenues are recognized when the services
are rendered and collectability is reasonably assured. Revenues from services and equipment are based on fixed or determinable
priced purchase orders or contracts with the customer and do not include the right of return. Rates for services and equipment
are priced on a per day, per unit of measure, per man hour or similar basis. Sales tax charged to customers is presented on a
net basis within the consolidated statement of operations and excluded from revenues.
|
3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
The
Financial Accounting Standards Board (FASB) issued the following applicable Accounting Standards Updates (ASU):
Recently
Adopted Accounting Pronouncements:
Accounting
Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.
Current requirements
are to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable
value less an approximated normal profit margin. These amendments allow inventory to be measured at lower of cost or net realizable
value and eliminates the market requirement. Net realizable value is the estimated selling price in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation. The Company adopted these provisions in the first
quarter of 2017 on a prospective basis. The adoption of these provisions did not have a material impact on the Company’s
consolidated financial statements.
ASU
No. 2016-07, Investments — Equity Method and Joint Ventures (Topic 323) Simplifying the Transition to the Equity Method
of Accounting.
The amendments eliminate the requirement to adjust the investment, results of operations, and retained earnings
retroactively when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest
or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the
investor’s previously held interest and the equity method is to be adopted as of the date the investment qualifies. In addition,
an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting is required
to recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment
becomes qualified for use of the equity method. The Company adopted these provisions in the first quarter of 2017 on a prospective
basis. The adoption of these provisions did not have a material impact on the Company’s consolidated financial statements.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
ASU
No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The
amendments simplify several aspects of the accounting for share-based payment award transactions, requiring excess tax benefits
and deficiencies to be recognized as a component of income tax expense rather than equity. This guidance also requires excess
tax benefits and deficiencies to be presented as an operating activity on the statement of cash flows and allows an entity to
make an accounting policy election either to estimate expected forfeitures or to account for them as they occur. The Company will
continue to estimate expected forfeitures. The Company adopted these provisions in the first quarter of 2017 on a prospective
basis. See Notes 5 and 10 on Stock Based Compensation and Income Taxes, respectively, for the effect of adoption on the financial
statements.
ASU
No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That are under Common Control.
The amendments
affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain
situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting
entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker
of a variable interest entity treats indirect interests in the entity held through related parties that are under common control
with the reporting entity. The Company adopted these provisions in the first quarter of 2017 and
the
adoption did not have a material impact on its consolidated financial statements.
Recently
Issued Accounting Pronouncements Not Yet Adopted:
To
be adopted in 2018:
REVENUE
RECOGNITION:
The
Financial Accounting Standards Board and International Accounting Standards Board issued their converged standard on revenue recognition
in May 2014. The standard provides a comprehensive, industry-neutral revenue recognition model intended to increase financial
statement comparability across companies and industries and significantly reduce the complexity inherent in today’s revenue recognition
guidance. The various ASUs related to
Revenue from Contracts with Customers (Topic 606)
have been listed below:
|
●
|
ASU
No. 2014-09.
The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services using a five step process.
|
|
●
|
ASU
No. 2015-14
deferred the effective date of ASU 2014-09 for all entities by one year
to the first quarter of 2018 with early application permitted.
|
|
●
|
ASU
No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
The amendments provide guidance on whether an entity is a principal or agent when
providing services to a customer along with another party.
|
|
●
|
ASU
No. 2016-10, Identifying Performance Obligations and Licensing.
The amendments clarify
the earlier guidance on identifying performance obligations and licensing implementation.
|
|
●
|
ASU
No. 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09
and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting.
This
ASU rescinds certain SEC guidance related to issues that are currently codified under
various topics.
|
|
●
|
ASU
No. 2016-12, Narrow - Scope Improvements and Practical Expedients.
The amendments
provide clarifying guidance on certain aspects of the five step process and practical
expedients regarding the effect of modifications and status of completed contracts under
legacy GAAP and disclosures related to the application of this guidance using the modified
retrospective or retrospective transition method.
|
|
●
|
ASU
No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers.
The amendments in ASU 2016-20 affect narrow aspects of the guidance
issued in ASU 2014-09 and includes among others, loan guarantees, impairment testing
of contract costs, performance obligations disclosures and accrual of advertising costs.
|
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Current
status of implementation:
The
Company is currently analyzing the effect of the standard
across all of its revenue streams
to evaluate the impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices
to identify potential differences that would result from applying the requirements under the new standard.
Most of the
Company’s services are primarily short-term in nature, and the assessment at this stage is that the Company does not expect
the adoption of the new revenue recognition standard to have a material impact on its financial statements. The Company plans
to adopt the standard in the first quarter of 2018 using the modified retrospective method by recognizing the cumulative effect
of initially applying the new standard as an adjustment to the opening balance of retained earnings.
ASU
No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities.
The amendments make targeted improvements to existing U.S. GAAP and affects accounting for equity investments
and financial instruments and liabilities and related disclosures. The amendments are effective starting in the first quarter
of 2018, with early adoption permitted for certain provisions. The Company is currently evaluating the impact of these provisions
on its consolidated financial statements.
ASU
No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
The amendments
provide guidance in the presentation and classification of certain cash receipts and cash payments in the statement of cash flows
including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds
from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions
received from equity method investees. The amendments are effective starting in the first quarter of 2018 with early adoption
permitted. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable
to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively
as of the earliest date practicable. The Company is currently evaluating the impact of adopting these provisions on its consolidated
financial statements.
ASU
No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
The amendments require an entity
to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.
The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets
included in the scope of the amendments are intellectual property and property, plant, and equipment. The amendments do not include
new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and
deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments are effective starting in
the first quarter of 2018 with early adoption permitted. The amendments are required to be applied on a modified retrospective
basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The
Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU
No. 2016-18, Statement of Cash Flows (230): Restricted Cash.
The amendments require that a statement of cash flows explain
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement
of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The amendments are
effective starting in the first quarter of 2018 with early adoption permitted. The amendments should be applied using a retrospective
transition method to each period presented.
The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU
No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
: The amendments are intended to help
companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business.
They also provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business
more operable. The amendments are effective beginning in the first quarter of 2018 with early application permitted under certain
circumstances. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
ASU
No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
To simplify
the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim,
goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment
charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects
from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill
impairment loss, if applicable. The amendments are effective for annual or any interim goodwill impairment tests beginning in
2020 applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting these provisions on its consolidated
financial statements.
To
be adopted in 2019 and later:
ASU
No. 2016-02, Leases (Topic 842).
Under the new guidance, lessees will need to recognize a right-of-use asset and a lease
liability for virtually all of their leases (other than leases that meet the definition of a short-term lease), at the commencement
of the lease term. The liability will be equal to the present value of lease payments. The asset will be based on the liability,
subject to adjustment, such as for initial direct costs. The amendments in this standard are effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital
and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective
transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU
No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The
amendments require the credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration
should presented as an allowance rather than a write-down. It also allows recording of credit loss reversals in current period
net income. The amendments are effective starting in the first quarter of 2020 with early application permitted a year earlier.
The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
EARNINGS
(LOSS) PER SHARE
|
Basic
and diluted earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares outstanding
during the respective periods. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable
rights to dividends and are therefore considered participating securities. Restricted shares of common stock (participating securities)
outstanding and a reconciliation of weighted average shares outstanding is as follows:
|
|
Three
months ended
March
31,
|
|
(In
thousands)
|
|
2017
|
|
|
2016
|
|
Net
income (loss) available for stockholders:
|
|
$
|
3,634
|
|
|
$
|
(32,511
|
)
|
Less: Adjustments
for earnings attributable to participating securities
|
|
|
(51
|
)
|
|
|
-
|
|
Net
income (loss) used in calculating losses per share
|
|
$
|
3,583
|
|
|
$
|
(32,511
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (including participating securities)
|
|
|
217,713
|
|
|
|
217,433
|
|
Adjustment
for participating securities
|
|
|
(3,042
|
)
|
|
|
(3,322
|
)
|
Shares
used in calculating basic and diluted earnings (loss) per share
|
|
|
214,671
|
|
|
|
214,111
|
|
|
5.
|
STOCK-BASED
COMPENSATION
|
In
April 2014, the Company reserved 8,000,000 shares of common stock under the 2014 Stock Incentive Plan with a term of 10 years
expiring in April 2024. This plan provides for the issuance of various forms of stock incentives, including, among others,
incentive and non-qualified stock options and restricted shares. As of March 31, 2017, there were 5,696,000 shares available
for grant.
Stock-based
employee compensation expense was as follows for the periods indicated:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
(in
thousands)
|
|
2017
|
|
|
2016
|
|
Pre-tax
expense
|
|
$
|
2,687
|
|
|
$
|
2,660
|
|
After
tax expense
|
|
$
|
1,706
|
|
|
$
|
1,689
|
|
Restricted
Stock
The
following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2017:
|
|
Shares
|
|
|
Weighted
Average
Grant-Date Fair
Value
|
|
Non-vested
shares at December 31, 2016
|
|
|
3,217,075
|
|
|
$
|
12.91
|
|
Granted
|
|
|
563,065
|
|
|
|
21.66
|
|
Vested
|
|
|
(800,225
|
)
|
|
|
13.22
|
|
Forfeited
|
|
|
(13,500
|
)
|
|
|
13.50
|
|
Non-vested
shares at March 31, 2017
|
|
|
2,966,415
|
|
|
$
|
14.49
|
|
The
total fair value of shares vested was approximately $17,527,000 during the three months ended March 31, 2017 and $9,527,000 during
the three months ended March 31, 2016. Excess tax benefits realized from tax compensation deductions in excess of compensation
expense have been reflected as follows:
|
●
|
$2,536,000 for the
three months ended March 31, 2017 has been recorded as a discrete tax adjustment and classified within operating activities in
the consolidated statements of cash flows; and
|
|
●
|
$403,000 for the three
months ended March 31, 2016 were credited to capital in excess of par value and
classified within financing activities as an inflow in addition to being disclosed as an outflow within operating activities
in
the
consolidated
statements of cash flows.
|
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
change in classification for the first quarter of 2017 was in accordance with the amendments of ASU 2016-09.
As
of March 31, 2017, total unrecognized compensation cost related to non-vested restricted shares was $48,182,000, which is expected
to be recognized over a weighted-average period of 4.0 years.
|
6.
|
BUSINESS
SEGMENT INFORMATION
|
RPC’s
reportable segments are the same as its operating segments. RPC manages its business as either services offered on the well
site with equipment and personnel (Technical Services) or services and equipment offered off the well site (Support
Services). The businesses under Technical Services generate revenue based on equipment, personnel operating the equipment and
the materials utilized to provide the service. They are all managed, analyzed and reported based on the similarities of the
operational characteristics and costs associated with providing the service. The businesses under Support Services are
primarily able to generate revenue through one source, which is either a hard asset or a personnel resource. Selected
overhead including certain centralized support services and regulatory compliance are classified under Corporate.
Technical
Services include RPC’s oil and gas services that utilize people and equipment to perform value-added completion, production
and maintenance services directly to a customer’s well. The demand for these services is generally influenced by customers’
decisions to invest capital toward initiating production in a new oil or natural gas well, improving production flows in an existing
formation, or to address well control issues. This operating segment consists primarily of pressure pumping, downhole tools, coiled
tubing, snubbing, nitrogen, well control, wireline and fishing. The services offered under Technical Services are high capital
and personnel intensive businesses. The common drivers of operational and financial success of these services include diligent
equipment maintenance, strong logistical processes, and appropriately trained personnel who function well in a team environment.
The Company considers all of these service to be closely integrated oil and gas well servicing businesses, and makes resource
allocation and performance assessment decisions based on this operating segment as a whole across these various services. The
principal markets for this segment include the United States, including the Gulf of Mexico, the mid-continent, southwest, Rocky
Mountain and Appalachian regions, and international locations including primarily Argentina, Canada, Gabon, China, Colombia and
the Middle East. Customers include major multi-national and independent oil and gas producers, and selected nationally-owned oil
companies.
Support
Services include all of the services that provide (i) equipment for customers’ use on the well site without RPC personnel
and (ii) services that are provided in support of customer operations off the well site such as classroom and computer training,
and other consulting services. The primary drivers of operational success for equipment provided for customers’ use on the
well site without RPC personnel are offering safe, high quality and in-demand equipment appropriate for the well design characteristics.
The drivers of operational success for the other Support Services relate to meeting customer needs off the well site and competitive
marketing of such services. The equipment and services offered include drill pipe and related tools, pipe handling, pipe inspection
and storage services, and oilfield training and consulting services. The demand for these services tends to be influenced primarily
by customer drilling-related activity levels. The equipment and services offered include drill pipe and related tools, pipe handling,
inspection and storage services, and oilfield training services. The principal markets for this segment include the United States,
including the Gulf of Mexico, the mid-continent and Appalachian regions, and selected international locations. Customers include
domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies.
The
Company’s Chief Operating Decision Maker (“CODM”) assesses performance and makes resource allocation decisions
regarding, among others, staffing, growth and maintenance capital expenditures and key initiatives based on operating segments
outlined above.
RPC
evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses
on disposition of assets are reviewed by the CODM on a consolidated basis, and accordingly the Company does not report gains or
losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management
believes approximate prices for arm’s length transactions and are not material to operating results.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized
financial information with respect RPC’s reportable segments for the three months ended March 31, 2017 and 2016 are shown
in the following table:
|
|
Three
months ended
March
31,
|
|
(in
thousands)
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
Technical
Services
|
|
$
|
286,198
|
|
|
$
|
175,472
|
|
Support
Services
|
|
|
11,921
|
|
|
|
13,623
|
|
Total
revenues
|
|
$
|
298,119
|
|
|
$
|
189,095
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
Technical
Services
|
|
$
|
9,205
|
|
|
$
|
(63,264
|
)
|
Support
Services
|
|
|
(5,221
|
)
|
|
|
(6,636
|
)
|
Corporate
|
|
|
(3,927
|
)
|
|
|
(6,443
|
)
|
Gain
on disposition of assets, net
|
|
|
1,517
|
|
|
|
1,256
|
|
Total
operating income (loss)
|
|
$
|
1,574
|
|
|
$
|
(75,087
|
)
|
Interest
expense
|
|
|
(103
|
)
|
|
|
(325
|
)
|
Interest
income
|
|
|
129
|
|
|
|
23
|
|
Other
income, net
|
|
|
212
|
|
|
|
342
|
|
Income
(loss) before income taxes
|
|
$
|
1,812
|
|
|
$
|
(75,047
|
)
|
As
of and for the three months ended March 31, 2017
|
|
Technical
Services
|
|
|
Support
Services
|
|
|
Corporate
|
|
|
Total
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
39,494
|
|
|
$
|
5,052
|
|
|
$
|
117
|
|
|
$
|
44,663
|
|
Capital
expenditures
|
|
|
9,766
|
|
|
|
1,909
|
|
|
|
32
|
|
|
|
11,707
|
|
Identifiable
assets
|
|
$
|
782,778
|
|
|
$
|
74,631
|
|
|
$
|
191,645
|
|
|
$
|
1,049,054
|
|
As
of and three months ended March 31, 2016
|
|
Technical
Services
|
|
|
Support
Services
|
|
|
Corporate
|
|
|
Total
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
53,618
|
|
|
$
|
6,899
|
|
|
$
|
119
|
|
|
$
|
60,636
|
|
Capital
expenditures
|
|
|
8,032
|
|
|
|
858
|
|
|
|
691
|
|
|
|
9,581
|
|
Identifiable
assets
|
|
$
|
875,622
|
|
|
$
|
94,667
|
|
|
$
|
184,907
|
|
|
$
|
1,155,196
|
|
Inventories
of $111,945,000 at March 31, 2017 and $108,316,000 at December 31, 2016 consist of raw materials, parts and supplies.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents the net periodic benefit
cost and related components of the Company’s multiple employers Retirement Income Plan:
|
Three months ended
March 31
|
|
(in thousands)
|
2017
|
|
2016
|
|
Interest cost
|
$
|
483
|
|
$
|
502
|
|
Expected return on plan assets
|
|
(589
|
)
|
|
(534
|
)
|
Amortization of net losses
|
|
213
|
|
|
200
|
|
Net periodic benefit cost
|
$
|
107
|
|
$
|
168
|
|
The Company did not contribute to this plan
during the three months ended March 31, 2017 and contributed $900,000 during the three months ended March 31, 2016.
The Company permits selected highly compensated
employees to defer a portion of their compensation into the non-qualified Supplemental Retirement Plan (“SERP”). The
SERP assets are marked to market and totaled $19,313,000 as of March 31, 2017 and $18,367,000 as of December 31, 2016. The SERP
assets are reported in non-current other assets on the consolidated balance sheets and changes in the fair value of these assets
are reported in the consolidated statements of operations as compensation cost in selling, general and administrative expenses.
Trading gains (losses) related to the SERP assets were approximately as follows:
|
Three months ended
March 31
|
|
(in thousands)
|
2017
|
|
2016
|
|
Trading gains (losses), net
|
$
|
616
|
|
$
|
(327
|
)
|
The SERP
liability includes participant deferrals net of distributions and is recorded on the consolidated balance sheets in long-term pension
liabilities with any change in the fair value of the liabilities recorded as compensation cost within selling, general and administrative
expenses in the consolidated statements of operations.
9.
|
NOTES PAYABLE TO BANKS
|
The Company has a revolving credit facility
with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc., and Regions Capital Markets as Joint Lead Arrangers and
Joint Book Managers, and a syndicate of four other lenders. The facility has a general term of five years ending January 17,
2019 and provides for a line of credit of up to $125 million, including a $50 million letter of credit subfacility, and a $35 million
swingline subfacility. The revolving credit facility contains customary terms and conditions, including restrictions on indebtedness,
dividend payments, business combinations and other related items. The revolving credit facility includes a full and unconditional
guarantee by the Company’s 100 percent owned domestic subsidiaries whose assets equal substantially all of the consolidated assets
of the Company and its subsidiaries. Certain of the Company’s minor subsidiaries are not guarantors.
On June 30, 2016, the Company amended the
revolving credit facility to (1) establish a borrowing base to be the lesser of (a) $125 million or (b) the difference between
(i) a specified percentage (ranging from 70% to 80%) of eligible accounts receivable less (ii) the amount of any outstanding letters
of credit, (2) secure payment obligations under the credit facility with a security interest in the consolidated accounts receivable,
and (3) replace the financial covenants related to minimum leverage and debt service coverage ratios with a covenant to maintain
a minimum tangible net worth of not less than $700 million. As of March 31, 2017, the Company was in compliance with this covenant.
Revolving loans under the amended revolving
credit facility bear interest at one of the following two rates at the Company’s election:
|
●
|
the Base Rate, which is a fluctuating rate per annum equal to the highest of (a)
the Federal Funds Rate plus 0.50%, (b) Bank of America’s publicly announced “prime rate,” and (c) the Eurodollar
Rate plus 1.00%; in each case plus a margin that ranges from 0.125% to 1.125% based on a quarterly consolidated leverage ratio
calculation; or
|
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
●
|
the Eurodollar Rate, which is the rate per annum equal to the London Interbank Offering
Rate (“LIBOR”); plus, a margin ranging from 1.125% to 2.125%, based upon a quarterly debt covenant calculation.
|
In addition, the Company pays an annual fee
ranging from 0.225% to 0.325%, based on a quarterly consolidated leverage ratio calculation, on the unused portion of the credit
facility.
The Company has incurred loan origination
fees and other debt related costs associated with the revolving credit facility in the aggregate of approximately $3.0 million. These
costs, net of amounts written off as a result of a reduction in the size of the revolving credit facility in 2015, are being amortized
to interest expense over the remaining term of the five-year loan, and the remaining net balance of $0.2 million at March 31, 2017
is classified as part of non-current other assets.
On January 4, 2016, the Company entered into
a separate one year $35 million uncommitted letter of credit facility with Bank of America, N.A. Under the terms of the letter
of credit facility, the Company paid 0.75% per annum on outstanding letters of credit. This letter of credit facility expired on
January 3, 2017. All letters of credit are currently issued under RPC’s $125 million credit facility. Letters of credit outstanding
totaled $19.1 million as of December 31, 2017 and 2016.
As of March 31, 2017, RPC
had no outstanding borrowings under the revolving credit facility. Interest incurred, which includes facility fees on the
unused portion of the revolving credit facility and the amortization of loan costs, was as follows:
|
Three months ended
March 31
|
|
|
2017
|
|
2016
|
|
(in thousands)
|
|
|
|
|
Interest incurred
|
$
|
103
|
|
$
|
109
|
|
The Company determines its periodic income
tax benefit or expense based upon the current period income and the annual estimated tax rate for the Company adjusted for any
change to prior period estimates. The estimated tax rate is revised, if necessary, as of the end of each successive interim period
during the fiscal year to the Company’s current annual estimated tax rate.
For
the three months ended March 31, 2017, the effective rate reflects an income tax benefit of 100.6 percent compared to
an income tax benefit of 56.7 percent for the comparable period in the prior year. The Company adopted the provisions of
ASU 2016-09 in the first quarter of 2017 that requires excess tax benefits and deficiencies to be recognized as a component
of income tax expense rather than stockholders’ equity. This resulted in a beneficial discrete adjustment of $2.5
million to the provision for income taxes in the first quarter of 2017. The 2016 beneficial rate was the result of
operational losses and the one-time beneficial impact of a resolution of a tax matter with a state taxing
authority, offset by the detrimental effect of non-deductible permanent items
.
11.
|
FAIR VALUE DISCLOSURES
|
The various inputs used to measure assets
at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s
assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:
|
1.
|
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
|
|
2.
|
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the
market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that
market participants would use.
|
The following table summarizes the valuation
of financial instruments measured at fair value on a recurring basis in the balance sheets as of March 31, 2017 and December 31,
2016:
|
Fair Value Measurements at March 31, 2017
with:
|
|
(in thousands)
|
Total
|
|
Quoted prices
in active
markets for identical
assets
|
|
Significant
other
observable
inputs
|
|
Significant
unobservable
inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities – equity securities
|
$
|
240
|
|
$
|
240
|
|
$
|
—
|
|
$
|
—
|
|
Investments measured at net asset value - trading securities
|
$
|
19,313
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31,
2016 with:
|
|
(in thousands)
|
Total
|
|
Quoted prices
in active
markets for
identical
assets
|
|
Significant
other
observable
inputs
|
|
Significant
unobservable
inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale securities – equity securities
|
$
|
264
|
|
$
|
264
|
|
$
|
—
|
|
$
|
—
|
|
Investments measured at net asset value - trading securities
|
$
|
18,367
|
|
|
|
|
|
|
|
|
|
|
The Company determines the fair value of marketable
securities classified as available-for-sale through quoted market prices. The total fair value is the final closing price, as defined
by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units
held without consideration of transaction costs. Marketable securities classified as trading are comprised of the SERP assets,
as described in Note 8, and are recorded primarily at their net cash surrender values, calculated using their net asset values,
which approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to quoted
market prices, were used to value the trading securities. The Company’s policy is to recognize transfers between levels at
the beginning of quarterly reporting periods. For the period ended March 31, 2017, there were no significant transfers in or out
of levels 1, 2 or 3.
Under the Company’s revolving credit
facility, there was no balance outstanding at March 31, 2017 and December 31, 2016. Outstanding balances based on the quote from
the lender (level 2 inputs) is similar to the fair value at the same date. The borrowings under our revolving credit facility bear
variable interest rates as described in Note 9. The Company is subject to interest rate risk on the variable component of the interest
rate.
The carrying amounts of other financial instruments
reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity
of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments
and has not determined whether it will elect this option for financial instruments acquired in the future.
RPC,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
12.
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
|
Accumulated other comprehensive (loss) income
consists of the following (in thousands):
|
Pension
Adjustment
|
|
Unrealized
Gain (Loss) On
Securities
|
|
Foreign
Currency
Translation
|
|
Total
|
|
Balance at December 31, 2016
|
$
|
(15,503
|
)
|
$
|
39
|
|
$
|
(2,638
|
)
|
$
|
(18,102
|
)
|
Change during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
-
|
|
|
(24
|
)
|
|
42
|
|
|
18
|
|
Tax benefit
|
|
-
|
|
|
9
|
|
|
-
|
|
|
9
|
|
Reclassification adjustment, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
135
|
|
|
-
|
|
|
-
|
|
|
135
|
|
Total activity for the period
|
|
135
|
|
|
(15
|
)
|
|
42
|
|
|
162
|
|
Balance at March 31, 2017
|
$
|
(15,368
|
)
|
$
|
24
|
|
$
|
(2,596
|
)
|
$
|
(17,940
|
)
|
|
(1)
|
Reported as part of selling, general and administrative expenses.
|
|
Pension
Adjustment
|
|
Unrealized
Gain (Loss) On
Securities
|
|
Foreign
Currency
Translation
|
|
Total
|
|
Balance at December 31, 2015
|
$
|
(14,715
|
)
|
$
|
36
|
|
$
|
(3,290
|
)
|
$
|
(17,969
|
)
|
Change during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
-
|
|
|
(14
|
)
|
|
692
|
|
|
678
|
|
Tax benefit
|
|
-
|
|
|
5
|
|
|
-
|
|
|
5
|
|
Reclassification adjustment, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
127
|
|
|
-
|
|
|
-
|
|
|
127
|
|
Total activity for the period
|
|
127
|
|
|
(9
|
)
|
|
692
|
|
|
810
|
|
Balance at March 31, 2016
|
$
|
(14,588
|
)
|
$
|
27
|
|
$
|
(2,598
|
)
|
$
|
(17,159
|
)
|
|
(1)
|
Reported as part of selling, general and administrative expenses.
|
RPC,
INC. AND SUBSIDIARIES