RPC, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual report; quarterly figures below identify the fourth quarter where relevant. RPC provides oilfield services and equipment, primarily in the United States, through Technical Services and Support Services. Figures are in U.S. dollars; financial amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | FY 2011 | FY 2010 | Change / context |
|---|---|---|---|
| Revenue | $1,809.8 | $1,096.4 | Up 65.1% |
| Operating profit | $482.1 | $238.8 | Operating margin rose to 26.6% from 21.8% |
| Net income | $296.4 | $146.7 | Up 102%; 2011 diluted EPS was $2.02 versus $1.00 |
| Operating cash flow | $386.0 | $168.7 | Increase partly offset by higher working-capital needs |
| Capital expenditures | $416.4 | $187.5 | Cash flow less capex was negative $30.4 |
| Cash and cash equivalents | $7.4 | $9.0 | At year-end |
| Long-term debt | $203.3 | $121.3 | Borrowings under revolving credit facility |
| Working capital | $447.1 | $281.2 | At year-end |
Revenue growth was led by Technical Services, with segment revenue of $1,663.8 million, up 69.8%; Support Services revenue was $146.0 million, up 25.3%. Fourth-quarter revenue was $482.8 million and net income was $74.6 million, compared with $328.1 million and $55.5 million, respectively, in Q4 2010.
Material changes versus the prior period
- Domestic revenue increased 69% to $1,757.7 million, reflecting greater activity, expanded equipment capacity, higher utilization and improved pricing. International revenue declined to $52.1 million from $54.9 million.
- Cost of revenues rose 63.8% in dollars but remained about 55% of revenue. SG&A rose 24.2% to $151.3 million, while its share of revenue fell to 8.4% from 11.1%. Depreciation and amortization increased 34.9% to $179.9 million.
- Average U.S. rig count rose 22% to 1,877. Average oil price increased to $94.94 per barrel from $79.39; average natural gas price declined to $3.95 per mcf from $4.34.
- Receivables increased to $461.3 million from $294.0 million, and inventory rose to $100.4 million from $64.1 million, contributing to increased working-capital requirements.
- Debt increased by $82.1 million year over year. RPC reported $128.3 million available under its $350 million revolving facility at year-end, including the effects of outstanding letters of credit; it was in compliance with its financial covenants.
Outlook, risks and notable items
- Management expected 2012 consolidated revenue and financial performance to improve from 2011, while noting that further increases in the U.S. rig count were unlikely. It expected oil-directed drilling to remain a larger share of activity as gas prices stayed weak.
- Management expected 2012 capital expenditures to exceed $350 million, primarily for revenue-producing equipment and fleet refurbishment, but anticipated lower spending than in 2011. It cited high equipment returns alongside concerns about competition and potential service-price pressure from expanding industry capacity.
- Key risks include commodity-price and customer-capital-spending volatility, dependence on one customer (about 12% of 2011 revenue and 19% of year-end receivables), equipment and material supply constraints, labor and cost inflation, weather, safety and environmental claims, and political risks in international markets.
- Routine legal proceedings include commercial, workers’ compensation and personal-injury claims; management believed adverse outcomes would not materially affect the business or financial condition. Self-insurance exposure was estimated at $12.8–$16.7 million, with $14.7 million recorded.
- The defined-benefit pension plan was underfunded by $14.1 million. RPC expected to contribute about $0.6 million to the plan in 2012.
- After year-end, the board declared a three-for-two stock split and a $0.12-per-share cash dividend. The company stated future dividends remain subject to earnings, financial condition and other factors.
- Grant Thornton issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting at December 31, 2011.
Most important facts for investors to verify
- Whether the forecast improvement in 2012 revenue and financial performance materialized, particularly amid weak natural-gas prices and a largely flat expected rig count.
- Returns and utilization from the substantial 2011 equipment investment, planned 2012 capital spending, and the effect of new industry capacity on pricing.
- Collection and credit quality of receivables, including exposure to the largest customer, and the working capital required to support growth.
- Debt availability, covenant headroom, floating-rate exposure, and the funding balance among capital expenditure, dividends and share repurchases.
- Developments in self-insurance claims, pension funding, environmental and legal contingencies, and related-party transactions.