RPC, Inc. — FY 2012 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2012; it is not a standalone fourth-quarter filing. RPC provides oilfield services and equipment, principally in the U.S., through Technical Services and Support Services. Pressure pumping generated approximately 53% of 2012 revenue. About 57% of revenue related to oil activity and 43% to natural gas; international revenue was 4%.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $1,945.0 million | $1,809.8 million |
| Operating profit / margin | $442.4 million / 22.7% | $482.1 million / 26.6% |
| Net income | $274.4 million | $296.4 million |
| Diluted EPS | $1.27 | $1.35 |
| Cash from operations | $559.9 million | $386.0 million |
| Capital expenditures | $328.9 million | $416.4 million |
- Revenue rose 7.5%, but operating profit and net income declined. Cost of revenue increased to 57% of revenue from 55%; SG&A rose to 9.0% from 8.4% of revenue, and depreciation and amortization to 11.0% from 9.9%.
- Cash and cash equivalents were $14.2 million, working capital was $403.3 million, and long-term debt was $107.0 million at year-end. The $350 million revolving facility had $224.9 million available after outstanding letters of credit; it matures in August 2015. RPC reported compliance with its covenants.
- Investing cash outflow was $315.8 million; financing cash outflow was $237.3 million, including $114.1 million in dividends and $30.2 million in share repurchases.
- FY 2012 dividends were $0.52 per share, versus $0.213 in 2011. The board approved a further $0.10 per share dividend in January 2013, subject to the company’s financial condition and other factors.
Material changes and quarterly trend
- Technical Services revenue increased 7.8%, while segment operating profit fell to $420.2 million from $451.3 million. Support Services revenue rose 3.4%, while operating profit declined to $45.9 million from $51.7 million.
- Management attributed weaker profitability to lower equipment and personnel utilization, more competitive pricing, and higher costs. Natural gas prices averaged $2.73/mcf, down from $3.95; oil averaged $94.20/barrel, nearly unchanged from 2011.
- Revenue declined sequentially during 2012: fourth-quarter revenue was $469.9 million, operating profit $89.3 million, and net income $55.4 million. Compared with fourth-quarter 2011, these were lower by approximately 2.7%, 26.8%, and 25.7%, respectively.
- Operating cash flow increased substantially, primarily reflecting lower working-capital requirements. Capital spending declined as RPC curtailed equipment purchases amid moderating activity and pricing pressure.
Outlook, risks, and unusual items
- Management expected 2013 revenue and financial performance to improve moderately versus 2012, while anticipating only modest potential U.S. rig-count growth. It expected equipment purchases below 2012 levels and forecast capital expenditures of approximately $250–$300 million, primarily for maintenance and refurbishment.
- Management cited high oil prices and oil-directed drilling as supportive, but low natural gas and natural gas liquids prices, excess domestic service capacity, pricing competition, and expiring customer service agreements as constraints. The company did not expect to enter into many additional drilling/completion service contracts during 2013.
- Key risks include commodity-price and customer-spending volatility; competition and service overcapacity; labor availability and costs; hydraulic-fracturing regulation; weather; equipment and material supply constraints; international political and currency risks; and significant operational, environmental, personal-injury, and property-damage exposures. RPC self-insures certain risks; estimated self-insurance exposure was $14.0–$19.2 million, with $16.6 million accrued.
- The defined-benefit pension plan was underfunded by $13.2 million at year-end; RPC expected to contribute approximately $0.4 million in 2013. Routine legal proceedings were not expected by management to have a material adverse effect. The filing reports no material off-balance-sheet arrangements.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Management also assessed disclosure controls as effective.
Most important facts for investors to verify
- Whether utilization and pricing stabilize, particularly in pressure pumping, and whether the forecast moderate 2013 improvement materializes.
- Whether the $250–$300 million capital-spending plan and operating cash generation support liquidity, dividends, and continued debt reduction.
- How low gas and natural gas liquids prices, excess service capacity, and expiring customer agreements affect activity, margins, and equipment returns.
- Whether self-insurance claims, pension assumptions and funding, or environmental and litigation exposures change materially.
- RPC is controlled by insiders and affiliates holding approximately 72% of shares, a governance and public-float consideration.