UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
☒xAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
☐¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2014

2016

Commission File No. 1-8726

RPC, INC.

Delaware
(State of Incorporation)
58-1550825
(I.R.S. Employer Identification No.)

2801 BUFORD HIGHWAY NE, SUITE 520

ATLANTA, GEORGIA 30329

(404) 321-2140

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
COMMON STOCK, $0.10 PAR VALUE
Name of each exchange on which registered

NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.x
☒ Yes ☐¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐¨ Yes ☒x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐

¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐

¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒x      Accelerated filer ☐¨      Non-accelerated filer ☐¨      Smaller reporting company ☐

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ ¨ No ☒
x

The aggregate market value of RPC, Inc. Common Stock held by non-affiliates on June 30, 2014,2016, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,436,608,678$905,616,000 based on the closing price on the New York Stock Exchange on June 30, 20142016 of $23.49$15.53 per share.

RPC, Inc. had 217,090,722217,792,539 shares of Common Stock outstanding as of February 13, 2015.

17, 2017.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 20152017 Annual Meeting of Stockholders of RPC, Inc. are incorporated by reference into Part III, Items 10 through 14 of this report.

 

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PART I

Throughout this report, we refer to RPC, Inc., together with its subsidiaries, as “we,” “us,” “RPC” or “the Company.”

Forward-Looking Statements

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. Forward-looking statements made elsewhere in this report include without limitation statements regarding our beliefs regardingbelief that the long-term demand outlook for natural gas prices, production levelsis favorable and that natural gas-directed drilling activities; our belief that petroleum prices carry significant negative implications for RPC’s customer activity levels forwill increase over the next twelve months;long-term; our belief that oil-directed drilling will continue to represent the majority of the total drilling rig activity; our continued belief in the long-term growth opportunities for our business; our expectation to continue to focus on the development of international business opportunities in current and other international markets; our expectations regarding acquisition targets in our industry; the adequacy of our insurance coverage; the impact of lawsuits, legal proceedings and claims on our business and financial condition; our expectation to continue to payexpectations regarding payment of cash dividends to the common stockholders subject to the earnings and financial condition of the Company and other relevant factors;stockholders; our belief that the domestic rig countindustry factors will continue to decline;depress natural gas directed drilling activity during the near-term; our belief that we will not enter into additional long-term contractual arrangements with customers during 2015; our statement that most industry analysts believe that the rig countU.S. oilfield activity will continue to declineincrease during the remainder of the first quarter and into second quarter 2015;near term; our statementbelief that industry trendsrecovering commodity prices will have negativemoderately positive implications for our near-term activity levels; our belief that it is likely that our near-term financial results will be negatively impacted by declining prices; our belief that the overallU.S. domestic rig count will not increasecontinue to recover moderately during 2015 unless the price of oil increases from its current price; our cautious view about the market for our services;near term; our belief that anyregarding potential increaserevenue related to uncompleted wells; our expectations regarding competition in our market; our expectations regarding the pricereturn of natural gas will not be enoughassets to encourage our customers to increase their natural gas-directed drilling activities; our belief that the steep decline in oil-directed drilling in the U.S. domestic market will reduce U.S. domestic oil production and over the long term serve as a catalyst for oil prices to increase; our belief that the majority of our customers have access to adequate capital to finance their own ongoing operations;service when markets improve; our statement that we do not plan additionalminimal increases in our fleet of revenue-producing equipment during 2015;2017; our ability to maintain sufficient liquidity and a conservative capital structure; our beliefexpectations about the amount of the contributioncontributions to the defined benefit pension plan in 2015;2017; our ability to fund capital requirements in the future; the estimated amount of our capital expenditures and contractual obligations for future periods; our statement that indications atexpectations regarding the end fourth quarter 2014 and early in the first quartercosts of 2015 are that the prices of both skilled labor and many of the raw materials used in providing our services has started to decline; our belief that declining oilfield activity during 2015 will decrease both wage rates for skilled labor and the prices of raw materials;services; our belief that it will be difficult to realize higher operating profits from these anticipated cost decreases;increase prices for our services; estimates made with respect to our critical accounting policies; the effect of new accounting standards; and the effect of the changes in foreign exchange rates on our consolidated results of operationoperations or financial condition.

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. See “Risk Factors” contained in Item 1A. for a discussion of factors that may cause actual results to differ from our projections.

Item 1. Business

Organization and Overview

RPC is a Delaware corporation originally organized in 1984 as a holding company for several oilfield services companies and is headquartered in Atlanta, Georgia.

RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include, among others, (1) pressure pumping services, (2) downhole tool services, (3) coiled tubing services, (4) snubbing services (also referred to as hydraulic workover services), (5) nitrogen services, (6) the rental of drill pipe and other specialized oilfield equipment, and (7) well control. RPC acts as a holding company for its operating units,units: Cudd Energy Services, Patterson Rental and Fishing Tools, Bronco Oilfield Services, Thru Tubing Solutions Well Control School, and others.  As of December 31, 2014,Patterson Services. Selected overhead including centralized support services and regulatory compliance are classified under Corporate. RPC had approximately 4,500 employees.

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Business Segments
RPC’s service lines have been aggregatedis further organized into two reportable oil and gas services business segments, Technical Services and Support Services becausewhich are its operating segments. As of December 31, 2016, RPC had approximately 2,500 employees.

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Business 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 revenues 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 similarities betweenoperational characteristics and costs associated with providing the financial performance and approachservice. The businesses under Support Services are primarily able to managing the service lines within each of the segments, as well as the economic and business conditions impacting their business activity levels.

generate revenues through one source, which is either a hard asset or a personnel resource. During 2014, approximately2016, less than one percent of RPC’s consolidated revenues were generated from offshore operations in the U.S. Gulf of Mexico and in the Gulf of Alaska.Mexico. We also estimate that 6070 percent of our 20142016 revenues were related to drilling and production activities for oil, and 4030 percent were related to drilling and production activities for natural gas.

Technical Services include RPC’s oil and gas service linesservices 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 businessoperating segment consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. Customers include major multi-national and independent oil and gas producers, and selected nationally owned oil companies. 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 services to be closely integrated oil and gas well servicing businesses, and makes resource allocation and performance assessment decisions based on this operating segment as a whole across these various services. The principal markets for this business segment include the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets.  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 linesall of the services that primarily 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 or serviceson 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 assistmeeting customer operations.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 principal markets for this segment include the United States, including the Gulf of Mexico, mid-continent, Rocky Mountain and Appalachian regions and project work in selected international locations in the last three years, including primarily Canada, Latin America and the Middle East. Customers primarily include domestic operations of major multi-national and independent oil and gas producers, and selected nationally owned oil companies.

Technical Services
The following is a

A brief description of the primary service linesservices conducted within each of the operating segments follows:

Technical Services business segment:

Pressure Pumping. Pressure pumping services, which accounted for approximately 46 percent of 2016 revenues, 54 percent of 2015 revenues and 57 percent of 2014 revenues, 55 percent of 2013 revenues and 53 percent of 2012 revenues are provided to customers throughout Texas, and the Appalachian, mid-continent and Rocky Mountain regions of the United States. We primarily provide these services to customers in order to enhance the initial production of hydrocarbons in formations that have low permeability. Pressure pumping services involve using complex, truck or skid-mounted equipment designed and constructed for each specific pumping service offered. The mobility of this equipment permits pressure pumping services to be performed 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 the Company utilizes more than one supplier for each item. Pressure pumping services offered include:

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Fracturing — Fracturing services are performed to stimulate production of oil and natural gas by increasing the permeability of a formation. Fracturing is particularly important in shale formations, which have low permeability, and unconventional completion, because the formation containing hydrocarbons is not concentrated in one area and requires multiple fracturing operations. The fracturing process consists of pumping fluid gel and sometimes nitrogen into a cased well at sufficient pressure to fracture the formation at desired locations and depths. Sand, bauxiteceramics, or synthetic proppant,materials, which isare often suspended in gel, iscoated with a material to increase their resistance to crushing, are pumped into the fracture. When the pressure is released at the surface, the fluid gel returns to the well surface, but the proppant remains in the fracture, thus keeping it open so that oil and natural gas can flow through the fracture into the production tubing and ultimately to the well surface. In some cases, fracturing is performed in formations with a high amount of carbonate rock by an acid solution pumped under pressure without a proppant or with small amounts of proppant.

Acidizing — Acidizing services are also performed to stimulate production of oil and natural gas, but they are used in wells that have undergone formation damage due to the buildup 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. Acidizing services can also enhance production in limestone formations.

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Acid is also frequently used in the beginning of a fracturing operation.

Downhole Tools. Thru Tubing Solutions (“TTS”) accounted for approximately 23 percent of 2016 revenues, 18 percent of 2015 revenues and 15 percent of 2014 revenues, 16 percent of 2013 revenues and 14 percent of 2012 revenues. TTS provides services and proprietary downhole motors, fishing tools and other specialized downhole tools and processes to operators and service companies in drilling and production operations, including casing perforation at the completion stage of an oil or gas well. The services that TTS provides are especially suited for unconventional drilling and completion activities. TTS’ experience providing reliable tool services allows it to work in a pressurized environment with virtually any coiled tubing unit or snubbing unit.

Coiled Tubing. Coiled tubing services, which accounted for approximately 10 percent of revenues in 2016 and nine percent ofin 2015 and 2014, and 2013 revenues and 11 percent of 2012 revenues, involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations and to facilitate completion of horizontal wells. Coiled tubing is a flexible steel pipe with a diameter of less than four inches manufactured in continuous lengths of thousands of feet and wound or coiled around a large reel. It can be inserted through existing production tubing and used to perform workovers without using a larger, more costlycostlier workover rig. Principal advantages of employing coiled tubing in a workover operation include: (i) not having to “shut-in” the well during such operations, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, (iii) the ability to direct fluids into a wellbore with more precision, and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit compared to a workover rig. Increasingly, coiled tubing units are also used to support completion activities in directional and horizontal wells. Such completion activities usually require multiple entrances in a wellbore in order to complete multiple fractures in a pressure pumping operation. A coiled tubing unit can accomplish this type of operation because its flexibility allows it to be steered in a direction other than vertical, which is necessary in this type of wellbore. At the same time, the strength of the coiled tubing string allows various types of tools or motors to be conveyed into the well effectively. The uses for coiled tubing in directional and horizontal wells have been enhanced by improved fabrication techniques and higher-diameter coiled tubing which allows coiled tubing units to be used effectively over greater distances, thus allowing them to function in more of the completion activities currently taking place in the U.S. domestic market. There are several manufacturers of flexible steel pipe used in coiled tubing services, and the Company believes that its sources of supply are adequate.

Snubbing. Snubbing (also referred to as hydraulic workover services), which accounted for approximately three percent of revenues in 20142016, 2015 and four percent of revenues in 2013 and 2012,2014, involves using a hydraulic workover rig that permits an operator to repair damaged casing, production tubing and downhole production equipment in a high-pressure environment. A snubbing unit makes it possible to remove and replace downhole equipment while maintaining pressure on the well. Customers benefit because these operations can be performed without removing the pressure from the well, which stops production and can damage the formation, and because a snubbing rigunit can perform many applications at a lower cost than other alternatives. Because this service involves a very hazardous process that entails high risk, the snubbing segment of the oil and gas services industry is limited to a relative few operators who have the experience and knowledge required to perform such services safely and efficiently. Increasingly, snubbing units are used for unconventional completions at the outer reaches of long wellbores which cannot be serviced by coiled tubing because coiled tubing has a more limited range than drill pipe conveyed by a snubbing unit.

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Nitrogen. Nitrogen accounted for approximately five percent of revenues in 2016, four percent of revenues in 2015 and three percent of revenues in 2014 and four percent of revenues in 2013 and 2012.2014. There are a number of uses for nitrogen, an inert, non-combustible element, in providing services to oilfield customers and industrial users outside of the oilfield. For our oilfield customers, nitrogen can be used to clean drilling and production pipe and displace fluids in various drilling applications. Increasingly, it is used as a displacement medium to increase production in older wells in which production has depleted. It also can be used to create a fire-retardant environment in hazardous blowout situations and as a fracturing medium for our fracturing service line.service. In addition, nitrogen can be complementary to our snubbing and coiled tubing service lines,services, because it is a non-corrosive medium and is frequently injected into a well using coiled tubing. Nitrogen is complementary to our pressure pumping service line as well, because foam-based nitrogen stimulation is appropriate in certain sensitive formations in which the fluids used in fracturing or acidizing would damage a customer’s well.

For non-oilfield industrial users, nitrogen can be used to purge pipelines and create a non-combustible environment. RPC stores and transports nitrogen and has a number of pumping unit configurations that inject nitrogen in its various applications. Some of these pumping units are set up for use on offshore platforms or inland waters. RPC purchases its nitrogen in liquid form from several suppliers and believes that these sources of supply are adequate.

Well Control. Cudd Energy Services 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 Energy Services, along with Patterson Services, has the capacity to supply the equipment, expertise and personnel necessary to restore affected oil and gas wells to production. During the past several years, the Company has responded to numerous well control situations in the domestic U.S. oilfield and in various international locations.

The Company’s professional firefighting staff has many years of aggregate industry experience in responding to well fires and blowouts. This team of experts responds to well control situations where hydrocarbons are escaping from a wellbore, regardless of whether a fire has occurred. In the most critical situations, there are explosive fires, the destruction of drilling and production facilities, substantial environmental damage and the loss of hundreds of thousands of dollars per day in well operators’ 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. Additionally, less critical events frequently occur in connection with the drilling of new wells in high-pressure reservoirs. In these situations, the Company is called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits.

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Wireline Services. Wireline is classified into two types of services: slick or braided line and electric line. In both, a spooled wire is unwound and lowered into a well, conveying various types of tools or equipment. Slick or braided line services use a non-conductive line primarily for jarring objects into or out of a well, as in fishing or plug-setting operations. Electric line services lower an electrical conductor line into a well allowing the use of electrically-operated tools such as perforators, bridge plugs and logging tools. Wireline services can be an integral part of the plug and abandonment process near the end of the life cycle of a well.

Fishing. Fishing involves the use of specialized tools and procedures to retrieve lost equipment from a well drilling operation and producing wells. It is a service required by oil and gas operators who have lost equipment in a well. Oil and natural gas production from an affected well typically declines until the lost equipment can be retrieved. In some cases, the Company creates customized tools to perform a fishing operation. The customized tools are maintained by the Company after the particular fishing job for future use if a similar need arises.

Support Services

The following is a description of the primary service lines conducted within the Support Services business segment:

Rental Tools. Rental tools accounted for approximately three percent of revenues in 2016 and four percent of 2014revenues in 2015 and 2013 revenues and five percent of 2012 revenues.2014. The Company rents specialized equipment for use with onshore and offshore oil and gas well drilling, completion and workover activities. The drilling and subsequent operation of oil and gas wells generally require a variety of equipment. The equipment needed is in large part determined by the geological features of the production zone and the size of the well itself. As a result, operators and drilling contractors often find it more economical to supplement their tool and tubular assets with rental items instead of owning a complete set of assets. The Company’s facilities are strategically located to serve the major staging points for oil and gas activities in Texas, the Gulf of Mexico, mid-continent region, Appalachian region and the Rocky Mountains.

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Patterson Rental Tools offers a broad range of rental tools including:

Blowout PreventorsDiverters
High Pressure Manifolds and ValvesDrill Pipe
Hevi-wate Drill PipeDrill Collars
TubingHandling Tools
Production Related Rental ToolsCoflexip® Hoses
Pumps
Wear KnotTM Drill Pipe

Oilfield Pipe Inspection Services, Pipe Management and Pipe Storage.Pipe inspection services include Full Body Electromagnetic and Phased Array Ultrasonic inspection of pipe used in oil and gas wells. These services are provided at both the Company’s inspection facilities and at independent tubular mills in accordance with negotiated sales and/or service contracts. Our customers are major oil companies and steel mills, for which we provide in-house inspection services, inventory management and process control of tubing, casing and drill pipe. Our locations in Channelview, Texas and Morgan City, Louisiana are equipped with large capacity cranes, specially designed forklifts and a computerized inventory system to serve a variety of storage and handling services for both oilfield and non-oilfield customers.

Well Control School. Well Control School provides industry and government accredited training for the oil and gas industry both in the United States and in limited international locations. Well Control School provides training in various formats including conventional classroom training, interactive computer training including training delivered over the internet, and mobile simulator training.

Energy Personnel International. Energy Personnel International provides drilling and production engineers, well site supervisors, project management specialists, and workover and completion specialists on a consulting basis to the oil and gas industry to meet customers’ needs for staff engineering and well site management.

Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional financial information on our business segments.

Industry

United States. RPC provides its services to its domestic customers through a network of facilities strategically located to serve oil and gas drilling and production activities of its customers in Texas, the Gulf of Mexico, the mid-continent, the southwest, the Rocky Mountains and the Appalachian regions. Demand for RPC’s services in the U.S. tends to be extremely volatile and fluctuates with current and projected price levels of oil and natural gas and activity levels in the oil and gas industry. Customer activity levels are influenced by their decisions about capital investment toward the development and production of oil and gas reserves.

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Due to aging oilfields and lower-cost sources of oil internationally, the drilling rig count in the U.S. has declined by approximately 6683 percent from its peak in 1981. However, due to recentlycontinuously enhanced technology, more wells are being drilled during periods of strong industry activity, and these wells are increasingly productive. For these reasons, the domestic production of natural gas has risenrose to record levels in the third quarter of 2015, and we estimate that the domestic production of crude oil during 2014 was atin the third quarter of 2015 reached its highest level since 1986.the third quarter of 1971. Due to the decline in domestic drilling and completion activities, domestic production of both natural gas and oil began to decline during the third and fourth quarters of 2015, although production continues to remain high in comparison to historical levels. Oil and gas industry activity levels have historically been volatile, experiencing multiple cycles, including six down cycle troughs in 1986, 1992, 1999 (with April 1999 recordingbetween 1981 and 2016, with May 2016 marking the lowest U.S. drillingdomestic rig count in the industry’s history), 2002 and again in 2009.U.S. oilfield history. The rig count during the peak of the most recent cycle occurred at the end of the third quarter of 2014, and began to decline sharply during the fourth quarter of 20142014. The rig count continued to decline in 2015 and into the first quarter2016, until June of 2015.2016 when it stabilized and began to increase. Early in 2017, the first quarter of 2015, the U.S. domestic drilling rig count has declinedhad recovered by approximately 3087 percent from the peak.historical low set during the second quarter of 2016, but was still approximately 62 percent lower than the most recent cyclical peak in the third quarter of 2014.

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The fluctuations in domestic drilling activity since 2008the most recent peak in the third quarter of 2014 are consistent with global supply of and demand for oil, the changes in the pricesdomestic supply of and demand for natural gas, U.S. domestic storage levels of oil and natural gas, fluctuations in the overallvalue of the U.S. dollar on world currency markets, and projected near-term economic recovery following the recession in 2008growth. During 2015 and 2009, and most recently, the large increase in global oil production that became apparent during the third and fourth quarters of 2014.  During 2014 the average price of natural gas increased by approximately 15 percent, although it began to decline during the end ofinto the first quarter of 2014, and at2016, the endprice of oil fell by approximately 78 percent from its most recent cyclical peak in the year wasthird quarter of 2014. From its low price in early 2016, the price of oil had risen by approximately 3580 percent lower than at the same timeearly in 2013.  During the first quarter of 2015, the price of natural gas continued to decline slightly.   The average price of oil decreased by approximately five percent during 2014 compared to 2013.  However, the price of oil decreased significantly during the third and fourth quarters of 2014, falling by approximately 48 percent during that time.  The price of oil has continued to decline during 2015, and in the first quarter to date was approximately five percent lower than at the end of 2014.2017. RPC believes that the decrease in the price of oil during this period has beenwas caused by the actions of the Organization of the Petroleum Exporting Countries (OPEC) cartel, increased supply from the domestic U.S. market, weak global demand, the actions of the OPEC cartel, and the strength of the U.S. dollar on global currency markets.markets and high storage levels of oil. The precipitous decline in the price of oil duringthat took place between the third and fourth quartersquarter of 2014 and the firstsecond quarter of 2015 has2016 caused a significant decrease in oil-directed drilling activity. During this period the U.S. domestic oil-directed drilling rig count has fallen by approximately 21 percent. The price of natural gas fell during this time as well, declining by approximately 42 percent from the beginning of 2015 to the second quarter of 2016. Early in the first quarter of 2017, however, the price of natural gas had risen by approximately 77 percent from the low recorded in the second quarter of 2016, and was approximately 19 percent higher than its price early in 2015. Early in 2017, the price of oil was high enough to encourage increased drilling and production activity, but the price of natural gas had not reached levels that were adequate to encourage natural gas-directed drilling activity in the U.S. domestic oilfield. In addition to oil and natural gas, the price of natural gas liquids has become an increasingly importantis a determinant of our customers’ activity levels, since it is produced in many of the shale resource plays which also produce oil, and production of various natural gas liquids has increased to a level comparable to that of natural gas. During 2015 the average price of natural gas liquids decreased by approximately 56 percent compared to 2014, but during 2016 the average price of natural gas liquids increased by approximately fivesix percent compared to 2013, but early2015. Early in the first quarter of 20152017, the price of natural gas liquids had declinedincreased by approximately seven percent.65 percent compared to the average price in 2016. The declinesfluctuations in the prices of these commodities, and in particular, the extreme volatility in the price of oil, natural gas, and natural gas liquids during 2014 and the first quarter of 2015 to date carry significant negative implications forsignificantly impact RPC’s customer activity levels for the next twelve months.

financial results.

From 2001 to 2009, gas drilling rigs represented over 80 percent of the drilling rig count. In 2010, the percentage of drilling rigs drilling for natural gas began to decline, and by early in the first quarter of 2015 had fallen to approximately 2118 percent of total drilling activity. In absolute terms, the natural gas drilling rig count in the third quarter of 2016 was the lowest natural gas drilling rig count ever recorded. Early in the first quarter of 2017, the natural gas drilling rig count had risen by approximately 79 percent, although it remains very low by historical standards. Although the demand for natural gas has remained stable, the price of natural gas has fallen in recent years due to increased domestic reserves, productivity of new wells, and high associated natural gas production from oil-directed wells.  The price of natural gas has declined following a colder than normal winter in 2014, and by early in the first quarter of 2015 had fallen below $3 per Mcf for the first time since the third quarter of 2012.  Early in the first quarter of 2015, the amount of natural gas in storage in the United States was approximately one percent lower than the five-year average at this time in the year.  We believe that these natural gas market dynamics discourage our customers from conducting natural gas-directed drilling activities. In spite of these unfavorable near-term dynamics, the long-term demand outlook for natural gas is still favorable because, unlike oil, foreign imports of natural gas do not compete with domestic production to a meaningful degree. This lackdegree, and in the fourth quarter of foreign competition tends2015, the United States began to keep prices high enough to ensure that domestic drilling and production will continue at certain minimum levels.export natural gas for the first time. We anticipate that oil-directed drilling will continue to represent the majority of the total drilling rig count in spite of the fact that the price of oil has declined tremendously during the third and fourth quarters of 2014 and the first quarter of 2015 to date.near term. Over the long term, we believe that natural gas-directed drilling will increase due to the lack of natural gas production from oil-directed drilling and increased natural gas demand from U.S. exports of natural gas and changes in demand due to increased use of natural gas as a transportation fuel or for other purposes. We continue to believe in the long-term growth opportunities for our business due to the continued high demand for hydrocarbons generally and the growing production of oil in the domestic U.S. market in particular. Furthermore, we note that the techniques used to extract oil and natural gas in the U.S. domestic market increasingly require the types of services that RPC provides to its customers, and during 2014 equipment and raw materials requirements of the services we perform for our customers continued to increase.

There are certain types ofcustomers.

Unconventional wells being drilled in the U.S. domestic market for which there isgenerate a higher demand for RPC’s services.  Known as either directional or horizontal wells, these wellsservices because they are more difficult and costly to complete. They have become an increasingly large percentage of the U.S. domestic market, and since the third quarter of 2008, have consistently comprisedcomprise the majority of U.S. domestic drilling.drilling and reached a historical high of approximately 90 percent of total drilling during the first quarter of 2017. Because they are drilled through a typically narrow and relatively impermeable formation such as shale, they require additional stimulation when they are completed. Also, many of these formations require high pumping rates of stimulation fluids under high pressures, which in turn requiresrequire a great deal of pressure pumping horsepower on location to complete the well. Furthermore, since they are not drilled in a straight vertical direction from the Earth’s surface, they require tools and drilling mechanisms that are flexible, rather than rigid, and can be steered once they are downhole. Specifically, these types of wells require RPC’s pressure pumping and coiled tubing services, as well as our downhole tools and services.

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International.RPC has historically operated in several countries outside of the United States, and international revenues presently accountaccounted for approximately fourseven percent of RPC’s consolidated revenues.revenues in 2016, six percent in 2015 and four percent in 2014. RPC’s equipment investmentsallocation of growth capital over the last several years have emphasized domestic rather than international expansion because of higher domestic activity levels and expected financial returns. International revenues for 2014 increaseddecreased 29 percent in 2016 compared to 2013the prior year primarily due to higherlower customer activity levels in Australia, ArgentinaGabon, Equatorial Guinea, China and GabonArgentina partially offset by lower customerincreased activity in Canada.Bolivia. During 2014,2016, RPC provided snubbing, well control and oilfield training services in several countries including Gabon and Australia. We also provided downhole motors and tools in Argentina, Canada, MexicoChina and Oman, and rental tools in Bolivia and Equatorial Guinea. We continue to focus on the selected development of international opportunities in these and other markets, although we believe that it will continue to be less than fiveten percent of total revenues in 2015.2017.

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RPC provides services to its international customers through branch locations or wholly owned foreign subsidiaries. The international market is prone to political uncertainties, including the risk of civil unrest and conflicts. However, due to the significant investment requirement and complexity of international projects, customers’ 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, and therefore have the potential to be more stable than most U.S. domestic operations. 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 oil and gas producer in the U.S. Predicting the timing and duration of contract work is not possible. Refer to Note 12 in the Notes to Consolidated Financial Statements for further information on our international operations.

Growth Strategies

RPC’s primary objective is to generate excellent long-term returns on investment through the effective and conservative management of its invested capital to generate strong cash flow. This objective continues to 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 customers and markets in which we believe there exist opportunities for higher growth, customer and market penetration, or enhanced returns achieved through consolidations or through providing proprietary value-added products and services. RPC intends to focus on specific market segments in which it believes that it has a competitive advantage and on potential large customers who have a long-term need for our services in markets in which we operate.

RPC seeks to expand its service capabilities through a combination of internal growth, acquisitions, joint ventures and strategic alliances. Historically, we have found that we generate higher financial returns from organic growth with our services and geographical locations in which we have experience. Because of the fragmented nature of the oil and gas services industry, RPC believes a number of acquisition opportunities exist.  However, the favorable long-term outlook for our industryexist, and we frequently consider such opportunities. We have consummated relatively few acquisitions, however, due to high seller valuation expectations and the strong historical profitability of many potential acquisitions has encouraged potential sellers of businesses to expect high valuations for their businesses.  Due to these high valuations and the potential difficultyrisk of integrating acquired businesses into our existing operations,operations. As the current industry downturn continues, we believe we generate better returns on investments growing organicallythat many financial investors who have provided capital to smaller oilfield service companies in service lines and geographic locationsthe past several years are seeking to liquidate their investments. This development, along with continued depressed financial results in which we have experience and presence.our industry, may make valuations for acquisition targets more attractive. We will continue to be selective in pursuing growth throughconsider the acquisitions of existing businesses.

businesses but will also continue to maintain a conservative capital structure, which may limit our ability to consummate large transactions.

RPC has a revolving credit facility which can be used to fund the purchase of revenue-producing equipment and other working capital requirements. In January 2014,The borrowing base for this credit facility is the lesser of $125 million or a specified percentage of eligible accounts receivable less the amount of any outstanding letters of credit. There was extended for five years.  We have pursuedno outstanding balance on this credit facility as of December 31, 2016. Our capital source becausestructure is more conservative than that of the high returns on investment that have been generated by many of our service lines during the previous several years, and because of the low cost and ready availability of debt capital. During 2014, we purchased additional revenue-producing equipment to support high industry activity levels.  We began to take delivery of this equipment during the third and fourth quarters of 2014, and anticipate that the remainder of the equipment will be delivered during the first quarter of 2015.  The outstanding balance on our credit facility at the end of 2014 was higher than at the end of the prior year due to an increase in capital expenditures and working capital, and our ratio of debt to total capitalization continues to be conservative compared to a number of our peers.

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 production enhancement activity worldwide. RPC’s principal customers consist of major and independent oil and natural gas producing companies. During 2014,2016, RPC provided oilfield services to several hundred customers. Of these customers, nonethere were no customers in 2016 and only one, Anadarko Petroleum Corporation (Anadarko) at 23 percent of whichrevenues in 2015, that accounted for more than 10 percent of revenues.

Sales are generated by RPC’s sales force and through referrals from existing customers.  Over the past three years we have from time to time entered into agreements, with terms beyond one year, to provide services to certain domestic customers. We monitor closely the financial condition of these customers, their capital expenditure plans, and other indications of their drilling and completion activities. Due to the short lead time between ordering services or equipment and providing services or delivering equipment, there is no significant sales backlog in most of our service lines.

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services.

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Competition

RPC operates in highly competitive areas of the oilfield services industry. OurWe sell our products and services are sold in highly competitive markets, and the revenues and earnings generated are affected by changes in prices for our services, fluctuations in the level of customer activity in major markets, general economic conditions and governmental regulation. RPC competes with many large and small oilfield industry competitors, including the largest integrated oilfield services companies. Strong oilfield activity duringDuring the past several years, a number of small oilfield services companies as well as several of our publicly traded peers have become insolvent and either been forced to liquidate or undergo bankruptcy proceedings. During the third and fourth quarters of 2016, however, the availability of capital and high public equity valuations have encouraged several new, smallerallowed many insolvent companies to seek debt and equity capital and accelerate their growth rates.  The presenceresume operations or continue operations as the result of a business combination. As of the first quarter of 2017, RPC has not experienced increased competition from these entities, but we assume that the financial capabilities of these new competitors has increasedwill increase competitive pricing pressures as domestic oilfield activity moderated during 2012, 2013 and 2014.  Although the growth in the overall domestic fleet of revenue-producing equipment has moderated, pricingfuture. Pricing for our services remains competitive.has been extremely competitive over the past several years due to the severe industry downturn and the oversupply of equipment and crews operating in the U.S. domestic oilfield. RPC believes that the principal competitive factors in the market areas that it serves are product availability and quality of our equipment and raw materials used to provide our services, service quality, reputation for safety and technical proficiency, and price.

The oil and gas services industry includes a small number of dominant global competitors including, among others, Halliburton Energy Services Group, a division of Halliburton Company, Baker Hughes and Schlumberger Ltd., and The industry also includes a significant number of publicly traded peers whose operations are more similar to RPC, including Patterson-UTI Energy, Inc., Superior Energy Services, Weatherford International, Inc., Mammoth Energy Services, Inc. and Keane Group, Inc., as well as numerous smaller, locally oriented businesses.

owned competitors.

Facilities/Equipment

RPC’s equipment consists primarily of oil and gas services equipment used either in servicing customer wells or provided on a rental basis for customer use. Substantially all of this equipment is Company owned. RPC purchases oilfield service equipment from a limited number of manufacturers. These manufacturers of our oilfield service equipment may not be able to meet our requests for timely delivery during periods of high demand which may result in delayed deliveries of equipment and higher prices for equipment.

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. The Company has two primary administrative buildings, one it leases in The Woodlands, Texas that includes the Company’s operations, engineering, sales and marketing headquarters, and one it owns in Houma, Louisiana that includes certain administrative functions. RPC believes that its facilities are adequate for its current operations. 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 affected by state, federal and foreign laws and other regulations relating to the oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection. 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.

In addition, our customers are affected by laws and regulations relating to the exploration for and production of natural resources such as oil and natural gas. These regulations are subject to change, and new regulations may curtail or eliminate our customers’ activities in certain areas where we currently operate. We cannot determine the extent to which new legislation may impact our customers’ activity levels, and ultimately, the demand for our services.

Intellectual Property

RPC uses several patented items in its operations, which management believes are important but are not indispensable to RPC’s success. 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.

Availability of Filings

RPC makes available, free of charge, on its website, www.rpc.net, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the same day as they are filed with the Securities and Exchange Commission.

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Item 1A. Risk Factors

Demand for our products and services is affected by the volatility of oil and natural gas prices.

Oil and natural gas prices affect demand throughout the oil and 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 investments of our customers related to the exploration and production of oil and natural gas. When these capital investments decline, our customers’ demand for our services declines.

The price of oil is affected by, among other things, the potential of armed conflict in politically unstable areas such as the Middle East as well as the actions of the Organization of the Petroleum Exporting Countries (OPEC),OPEC, an oil cartel which controls slightly less than 40 percent of global oil production. OPEC’s actions have historically been unpredictable, and can contribute to the volatility of the price of oil on the world market.

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 curtailing capital spending, which would adversely affect our business. A prolonged low level of customer activity in the oil and gas industry willhas adversely affectaffected the demand for our products and services and our financial condition and results of operations.

Reliance upon a large customer may adversely affect our revenues and operating results.

At times our business has had a concentration of one or more major customers. There were no customers that accounted for more than 10 percent of the Company’s revenues in 2016 and 2014. However, one of our customers,Anadarko,accounted for approximately 23 percent of revenues in 2015 with no other customers exceeding 10 percent of revenues in 2015. In addition, there was no customer as of December 31, 2016 that accounted for more than 10 percent of accounts receivable, while Anadarkoaccounted for approximately 14 percent of accounts receivable as of December 31, 2015. The reliance on a large customer for a significant portion of our total revenues exposes us to the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and disproportionate adverse impact upon our revenues and operating results.

Our concentration of customers in one industry and periodic downturns may impact our overall exposure to credit risk and cause us to experience increased losses for doubtful accounts.

Substantially all of our customers operate in the energy industry. This concentration of customers in one industry 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.The periodic downturns that our industry experiences may adversely affect our customers’ operations which could cause us to experience increased losses for doubtful accounts.  

We may be unable to compete in the highly competitive oil and gas industry in the future.

We operate in highly competitive areas of the oilfield services industry. The products and services in our industry segments are sold in highly competitive markets, and our revenues and earnings have in the past been affected by changes in competitive prices, fluctuations in the level of activity in major markets and general economic conditions. We compete with the oil and gas industry’s many large and small industry competitors, including the 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, reputation for safety, technical proficiency and price. 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 may 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. The issuance of additional equity securities could result in significant dilution to our stockholders. We cannot assure you that we will be able to integrate successfully the operations and assets of any acquired business with our own business. Any inability on our part to integrate and manage the growth from acquired businesses could have a material adverse effect on our results of operations and financial condition.

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Our operations are affected by adverse weather conditions.

Our operations are directly affected by the weather conditions in several domestic regions, including the Gulf of Mexico, the Gulf Coast, the mid-continent, the Rocky Mountains and the Appalachian region. Hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during certain times of the year may also affect our operations, and severe hurricanes may affect our customers’ activities for a period of several years. While the impact of these storms may increase the need for certain of our services over a longer period of time, such storms can also decrease our customers’ activities immediately after they occur. Such hurricanes may also affect the prices of oil and natural gas by disrupting supplies in the short term, which may increase demand for our services in geographic areas not damaged by the storms. Prolonged rain, snow or ice in many of our locations may temporarily prevent our crews and equipment from reaching customer work sites. Due to seasonal differences in weather patterns, our crews may operate more days in some periods than others. Accordingly, our operating results may vary from quarter to quarter, depending on the impact of these weather conditions.

Our ability to attract and retain skilled workers may impact growth potential and profitability.

Our ability to be 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. 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.

Our concentration of customers in one industry and decreased demand for petroleum may impact our overall exposure to credit risk and cause us to experience increased losses for doubtful accounts.
Substantially all of our customers operate in the energy industry. This concentration of customers in one industry 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. Recent decreased demand for petroleum adversely affecting our customers may cause us to experience increased losses for doubtful accounts.
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Reliance upon a large customer may adversely affect our revenues and operating results.
At times our business has had a concentration of one or more major customers.  In 2014, 2013 and 2012, none of our customers exceeded 10 percent of our total revenues.  In addition, no customer accounted for more than ten percent of accounts receivable as of December 31, 2014 and 2013.  Reliance on a large customer for a significant portion of our total revenues could expose us to the risk that the loss or reduction in revenues from this customer, which could occur unexpectedly, could have a material and disproportionate adverse impact upon our revenues and operating results.

Our business has potential liability for litigation, personal injury and property damage claims assessments.

RPC’s subsidiaries have a number of agreements of various types in place with our customers. In general, these agreements indemnify RPC and its subsidiaries against damage or liabilities that arise from the actions of our employees or the operation of our equipment. The provisions in these agreements do not make a distinction among the types of services that RPC provides or the location of the work. These agreements also require that RPC maintain a certain level and type of insurance coverage against any claims that are determined to be our responsibility. RPC has insurance coverage in place with several well-capitalized insurance companies for accidental environmental 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, it could result in liability for personal injury and property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a catastrophic occurrence at a location where our equipment and services are used. This litigation 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. These occurrences 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 and assessments that may arise.

Our operations may be adversely affected if we are unable to comply with regulations and environmental laws.

Our business is significantly affected by stringent 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. The adoption of laws and regulations curtailing exploration and development of oil and gas fields 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, and could be liable for cleanup costs, or environmental and natural resource damage due to conduct that was lawful at the time it occurred, but is later ruled to be unlawful. We also may be subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations. 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. We are unable to predict whether environmental laws will, in the future, materially adversely affect our operations and financial condition. Penalties for noncompliance with these laws may include cancellation of permits, fines, and other corrective actions, which would negatively affect our future financial results.

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Compliance with federal and state regulations relating to hydraulic fracturing and designation of economic development zones related to natural gas-directed drilling from shale formations could increase our operating costs, cause operational delays, and could reduce or eliminate the demand for our pressure pumping services.

RPC’s pressure pumping services are the subject of continuing federal, state and local regulatory oversight. This scrutiny is prompted in part by public concern regarding the potential impact on drinking and ground water and other environmental issues arising from the growing use of hydraulic fracturing. Among these regulatory entities is the White House Council on Environmental Quality, which is coordinatingcoordinated a review of hydraulic fracturing practices. In addition, a committee of the United States House of Representatives has investigated hydraulic fracturing practices and publicized information regarding the materials used in hydraulic fracturing. The U.S. Environmental Protection Agency (EPA) has also undertaken a study of the environmental impact of hydraulic fracturing practices. As of early inIn the firstsecond quarter of 2015, the issuance of theEPA issued a report disclosing these findings is pending.  One of the results of this scrutiny has been to require disclosure of materials used inwhich concluded that hydraulic fracturing had not caused a measureable impact on certain public lands.  RPC participatesdrinking water sources in the U.S. While this disclosure processconclusion and has cooperated fully with all governmental requests for information regarding our operations.  In addition, during the first quarter of 2014, the federal government proposed that specific geographic areas in which natural gas-directed drilling and productionother conclusions from shale formations be set aside as economic development zones.  Such designations, if they arise in geographic areas in which RPC conducts its operations, may increase demandsimilar efforts are favorable for our customers’ natural gas production, thus increasing demand for RPC’s services.  Such designations may also increase our operating costs due to the cost of compliance with increased regulation as well as subsidies paid by firms engaged in natural gas-directed drilling to other industries which establish operations in these economic development zones.  Weindustry, we are unable to predict whether thefuture scrutiny of RPC’s pressure pumping business and any resulting regulatory change will impact our business through increased operational costs, operational delays, or a reduction in demand for hydraulic fracturing services.  Also, we are unable to predict the magnitude and timing of the impact on our operations and operational costs, if any, of the creation of economic development zones in geographic areas in which natural gas-directed drilling and production from shale formations take place.

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Our international operations could have a material adverse effect on our business.

Our operations in various countries including, but not limited to, Africa, Canada, Argentina, China, Mexico, Eastern Europe, Latin America and the Middle East are subject to risks. These risks include, but are not limited to, political changes, expropriation, currency restrictions and changes in currency exchange rates, taxes, boycotts and other civil disturbances. The occurrence of any one of these events could have a material adverse effect on our operations.

Our common stock price has been volatile.

Historically, 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.

Our management has a substantial ownership interest, and public stockholders may have no effective voice in the management of the Company.

The Company has elected the “Controlled Corporation” exemption under Section 303A of the New York Stock Exchange (“NYSE”) Listed Company Manual. The Company is a “Controlled Corporation” because 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. As a “Controlled Corporation,” the Company need not comply with certain NYSE rules including those requiring a majority of independent directors.

RPC’s executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 7273 percent of RPC’s outstanding shares of common stock. As a result, these stockholders effectively control the operations of RPC, including the election of directors and approval of significant corporate transactions such as acquisitions and other matters requiring stockholder approval. This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control over the Company at a premium.

Our management has a substantial ownership interest, and the availability of the Company’s common stock to the investing public may be limited.

The availability of RPC’s common stock to the investing public may be limited to those shares not held by the executive officers, directors and their affiliates, which could negatively impact RPC’s stock trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers, directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our common stock.

Provisions in RPC’s certificate of incorporation and bylaws may inhibit a takeover of RPC.

RPC’s certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for stockholder proposals and staggered terms for the Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that is opposed by RPC’s Board of Directors more difficult or expensive.

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Some of our equipment and several types of materials used in providing our services are available from a limited number of suppliers.

We purchase equipment provided by a limited number of manufacturers who specialize in oilfield service equipment. During periods of high demand, these manufacturers may not be able to meet our requests for timely delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in pressure pumping services, our largest service line.service. While these materials are generally available, supply disruptions can occur due to factors beyond our control. Such disruptions, delayed deliveries, and higher prices canmay limit our ability to provide services, or increase the costs of providing services, thus reducingwhich could reduce our revenues and profits.

We have used outside financing to accomplish our growth strategy, and outside financing may become unavailable or may be unfavorable to us.

Our business requires a great deal of capital in order to maintain our equipment and increase our fleet of equipment to expand our operations, and we have access to our $350 million credit facility to fund our necessary working capital and equipment requirements. MostOur credit facility, as amended June 30, 2016, provides a borrowing base at the lesser of our existing(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, facilityand bears interest at a floating rate, which exposes us to market risks as interest rates rise. If our existing capital resources become unavailable, inadequate or unfavorable for purposes of funding our capital requirements, we would need to raise additional funds through alternative debt or equity financings to maintain our equipment and continue our growth. Such additional financing sources may not be available when we need them, or may not be available on favorable terms. If we fund our growth through the issuance of public equity, the holdings of stockholders will be diluted. If capital generated either by cash provided by operating activities or outside financing is not available or sufficient for our needs, we may be unable to maintain our equipment, expand our fleet of equipment, or take advantage of other potentially profitable business opportunities, which could reduce our future revenues and profits.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

RPC owns or leases approximately 120 offices and operating facilities. The Company leases approximately 18,600 square feet of office space in Atlanta, Georgia that serves as its headquarters, a portion of which is allocated and charged to Marine Products Corporation. See “Related Party Transactions” contained in Item 7. The lease agreement on the headquarters is effective through October 2020. RPC believes its current operating facilities are suitable and adequate to meet current and reasonably anticipated future needs. Descriptions of the major facilities used in our operations are as follows:

Owned Locations

Broussard, Louisiana — Operations, sales and equipment storage yards

Vilonia, Arkansas — Maintenance and rebuild facilities

Elk City, Oklahoma — Operations, sales and equipment storage yards

Houma, Louisiana — Administrative office

Houston, Texas — Pipe storage terminal and inspection sheds

Kilgore, Texas — Operations, sales and equipment storage yards

Odessa, Texas — Operations, sales and equipment storage yards

Rock Springs, Wyoming — Operations, sales and equipment storage yards

Vernal, Utah — Operations, sales and equipment storage yards

Williston, North Dakota — Operations, sales and equipment storage yards

Leased Locations

Canton, Pennsylvania — Pumping services facility

Operations, sales and equipment storage yards

Hobbs, New Mexico — Pumping services facility

Oklahoma City, Oklahoma — Operations, sales and administrative office

San Antonio, Texas — Operations, sales and equipment storage yards

Seminole, Oklahoma — Pumping services facility

The Woodlands, Texas — Operations, sales and administrative office

Washington, Pennsylvania — Operations, sales and equipment storage yards

Williston, North Dakota — Operations, sales and equipment storage yards

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Item 3. 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.

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Item 4. Mine Safety Disclosures


The information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-K.

Item 4A. Executive Officers of the Registrant

Each of the executive officers of RPC was elected by the Board of Directors to serve until the Board of Directors’ meeting immediately following the next annual meeting of stockholders or until his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the executive officers of RPC and their ages, offices, and terms of office with RPC.


Name and Office with RegistrantAgeDate First Elected to Present Office
R. Randall Rollins (1)83851/24/84
Chairman of the Board  
Richard A. Hubbell (2)70724/22/03
President and
 Chief Executive Officer
  
Linda H. Graham (3)78801/27/87
Vice President and
 Secretary
  
Ben M. Palmer (4)54567/8/96
Vice President,
 Chief Financial Officer and
 Treasurer
  
(1) R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984.  He has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001 and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.
(2) Richard A. Hubbell has been the President of RPC since 1987 and Chief Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was spun off from RPC in February 2001. Mr. Hubbell serves on the Board of Directors of both of these companies.
(3) Linda H. Graham has been the Vice President and Secretary of RPC since 1987.  She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from RPC in 2001. Ms. Graham serves on the Board of Directors of both of these companies.
(4) Ben M. Palmer has been the Vice President, Chief Financial Officer and Treasurer of RPC since 1996.  He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation since it was spun off from RPC in 2001.

13(1)R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. Mr. Rollins has served as Chairman of the Board of RPC since the spin-off of RPC from Rollins, Inc. in 1984. He has served as Chairman of the Board of Marine Products Corporation (boat manufacturing) since it was spun off from RPC in 2001 and Chairman of the Board of Rollins, Inc. since October 1991. He is also a director of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.

(2)Richard A. Hubbell has been the President of RPC since 1987 and Chief Executive Officer since 2003. He has also been the President and Chief Executive Officer of Marine Products Corporation since it was spun off from RPC in 2001. Mr. Hubbell serves on the Board of Directors of both of these companies.

(3)Linda H. Graham has been the Vice President and Secretary of RPC since 1987. She has also been the Vice President and Secretary of Marine Products Corporation since it was spun off from RPC in 2001. Ms. Graham serves on the Board of Directors of both of these companies.

(4)Ben M. Palmer has been the Vice President, Chief Financial Officer and Treasurer of RPC since 1996. He has also been the Vice President, Chief Financial Officer and Treasurer of Marine Products Corporation since it was spun off from RPC in 2001.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

RPC’s common stock is listed for trading on the New York Stock Exchange under the symbol RES. As of February 13, 201517, 2017 there were 217,090,722217,792,539 shares of common stock outstanding and approximately 40,30016,600 beneficial holders of our common stock. The following table sets forth the high and low prices of RPC’s common stock and dividends paid for each quarter in the years ended December 31, 20142016 and 2013:

  2014  2013 
Quarter High  Low  Dividends  High  Low  Dividends 
First $21.09  $16.16  $0.105  $17.40  $12.46  $0.10 
Second  23.75   19.27   0.105   15.55   12.41   0.10 
Third  25.15   20.67   0.105   15.94   13.48   0.10 
Fourth  22.15   11.55   0.105   18.88   15.34   0.10 
2015:

  2016  2015 
Quarter High  Low  Dividends  High  Low  Dividends 
First $15.51  $9.73  $-  $14.15  $10.58  $0.105 
Second  16.84   13.12   -   16.66   12.81   0.050 
Third  16.92   13.50   -   13.85   8.54   - 
Fourth  22.28   16.48   0.050   13.69   8.45   - 

On January 27,July 28, 2015, RPC’sthe Board of Directors approvedvoted to temporarily suspend RPC’s regular quarterly cash dividend to common stockholders; however, a $0.105special year-end cash dividend of $0.05 per share cash dividend, payable March 10, 2015was paid to common stockholders during the fourth quarter of record at2016.  Subject to industry conditions and RPC’s earnings, financial condition, and other relevant factors, the close of business on February 10, 2015.  The Company expects to continue to payresume regular quarterly cash dividends to the common stockholders subject tosometime in the earnings and financial condition of the Company and other relevant factors.

future.

Issuer Purchases of Equity Securities

Shares repurchased by the Company and affiliated purchases in the fourth quarter of 20142016 are outlined below.

Period Total Number
of Shares (or
Units)
Purchased (1)		     Average Price
Paid Per Share
(or Unit)		  
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
  Maximum Number (or
Approximate Dollar
Value) of Shares (or Units)
that May Yet Be
Purchased Under the Plans
or Programs (1)		 
October 1, 2014 to October 31, 2014  780,000  $16.08   780,000   3,323,138 
November 1, 2014 to November 30, 2014  1,252,984   15.36   1,252,984   2,070,154 
December 1, 2014 to December 31, 2014  1,664,260
(2)
   12.15   20,000   2,050,154 
Totals  3,697,244   $14.06   2,052,984   2,050,154 

Period Total Number
of Shares
(or Units)
Purchased		 Average Price
Paid Per Share
(or Unit)		  Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs		  Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (1)		 
October 1, 2016 to October 31, 2016  -  $-   -   2,050,154 
November 1, 2016 to November 30, 2016  1,533(2)  17.08   -   2,050,154 
December 1, 2016 to December 31, 2016  718(2)  18.12   -   2,050,154 
Totals  2,251  $17.41   -   2,050,154 
(1)The Company has a stock buyback program initially adopted in 1998 and subsequently amended in 2013 that authorizes the repurchase of up to 31,578,125 shares.  There were 2,052,984no shares repurchased as part of this program during the fourth quarter of 2014.2016.  As of December 31, 2014,2016, there are 2,050,154 shares available to be repurchased under the current authorization.  Currently the program does not have a predetermined expiration date.
(2)IncludesRepresents shares purchasedrepurchased by “affiliated purchasers” under Rule 10b - 18the Company in connection with taxes related to vesting of the Securities Exchange Act in open market transactions.  These affiliated purchases were made by RFPS Investment II, L.P. and RFPS Management Co. II, L.P. of which LOR, Inc. is the manager.  Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc.restricted shares.

Performance Graph

The following graph shows a five-year comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 1000 Index (“("Russell 1000”1000"), the Philadelphia Stock Exchange’sExchange's Oil Service Index (“OSX”("OSX"), and a peer group which includes companies that are considered peers of the Company (the “Peer Group”"Peer Group"). The Company has voluntarily chosen to provide both an industry and a peer group index.

14

 15

 

The Company was a component of the Russell 1000 during 2014.2016. The Russell 1000 is a stock index representing large capitalization U.S. stocks with high historical growth in revenues and earnings. The components of the index had a weighted average market capitalization in 20142016 of $122.7$140 billion, and a median market capitalization of $8.1$9 billion. The Russell 1000 was chosen because it represents companies with comparable market capitalizations to the Company, and because the Company is a component of the index. The OSX is a stock index of 15 companies that provide oil drilling and production services, oilfield equipment, support services and geophysical/reservoir services. The Company is not a component of the OSX, but this index was chosen because it represents a large group of companies that provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., Superior Energy Services, Inc., Patterson-UTI Energy, Inc., and Halliburton Company. Patterson-UTI Energy, Inc. was not previously included in the Peer Group because it conducts exploration and production activities and contract drilling activities as well as providing pressure pumping services. However, during 2016 Patterson-UTI Energy, Inc. eliminated exploration and production activities as an operating segment and announced a significant acquisition in the pressure pumping and rental tools business. Also, Patterson-UTI Energy’s market capitalization was similar to the market capitalization of the Company as of December 31, 2016. For these reasons, the Company added Patterson-UTI Energy to the Peer Group. In addition, the Company eliminated Basic Energy Services, Inc. from the Peer Group because during the third and fourth quarters of 2016, Basic Energy Services announced that it could not fulfill its financial obligations and was entering bankruptcy proceedings. We believe that Basic Energy Services’ stock price performance during 2016 reflected the risk of bankruptcy to its shareholders rather than the financial performance of a peer of the Company. For comparison purposes, the following graph includes the Peer Group as well as a group of companies which includes Weatherford International, Inc., Basic Energy Services, Inc., Superior Energy Services, Inc., and Halliburton Company.Company (the Former Peer Group). The companies included in the Peer Group and the Former Peer Group have been weighted according to each respective issuer’sissuer's stock market capitalization at the beginning of each year.


15

 

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Item 6. Selected Financial Data

The following table summarizes certain selected financial data of the Company. The historical information may not be indicative of the Company’s future results of operations. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document.


STATEMENT OF OPERATIONS DATA:

Years Ended December 31, 2014  2013  2012  2011  2010 
  (in thousands, except employee and per share amounts) 
Revenues $2,337,413  $1,861,489  $1,945,023  $1,809,807  $1,096,384 
Cost of revenues  1,493,082   1,178,412   1,105,886   992,704   606,098 
Selling, general and administrative expenses  198,076   185,165   175,749   151,286   121,839 
Depreciation and amortization  230,813   213,128   214,899   179,905   133,360 
Loss (gain) on disposition of assets, net  15,472   9,371   6,099   3,831   (3,758)
Operating profit  399,970   275,413   442,390   482,081   238,845 
Interest expense  (1,431)  (1,822)  (1,976)  (3,453)  (2,662)
Interest income  19   419   30   18   46 
Other income, net  828   2,260   2,175   169   1,303 
Income before income taxes  399,386   276,270   442,619   478,815   237,532 
Income tax provision  154,193   109,375   168,183   182,434   90,790 
Net income $245,193  $166,895  $274,436  $296,381  $146,742 
Earnings per share:                    
  Basic $1.14  $0.77  $1.28  $1.36  $0.67 
  Diluted $1.14  $0.77  $1.27  $1.35  $0.67 
Dividends paid per share $0.42  $0.40  $0.52  $0.21  $0.09 
 
OTHER DATA:
                    
Operating margin percent  17.1%  14.8%  22.7%  26.6%  21.8%
Net cash provided by operating activities $322,757  $365,624  $559,933  $386,007  $168,657 
Net cash used for investing activities  (355,349)  (207,654)  (315,838)  (391,637)  (171,769)
Net cash (used for) provided by financing activities  33,664   (163,433)  (237,325)  3,988   7,658 
Capital expenditures $371,502  $201,681  $328,936  $416,400  $187,486 
Employees at end of period  4,500   3,900   3,600   3,400   2,500 
 
BALANCE SHEET DATA AT END OF YEAR:
                 
Accounts receivable, net $634,730  $437,132  $387,530  $461,272  $294,002 
Working capital  612,616   436,873   403,316   447,089   281,174 
Property, plant and equipment, net  849,383   726,307   756,326   675,360   453,017 
Total assets  1,759,358   1,383,860   1,367,163   1,338,211   887,871 
Long-term debt  224,500   53,300   107,000   203,300   121,250 
Total stockholders’ equity $1,078,382  $968,702  $899,232  $762,592  $538,895 
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Years Ended December 31, 2016  2015  2014  2013  2012 
  (in thousands, except employee and per share amounts) 
Revenues $728,974  $1,263,840  $2,337,413  $1,861,489  $1,945,023 
Cost of revenues  607,888   986,144   1,493,082   1,178,412   1,105,886 
Selling, general and administrative expenses  150,690   156,579   197,117   183,139   174,397 
Depreciation and amortization  217,258   270,977   230,813   213,128   214,899 
(Gain) loss on disposition of assets, net  (7,920)  6,417   15,472   9,371   6,099 
Operating (loss) profit  (238,942)  (156,277)  400,929   277,439   443,742 
Interest expense  (681)  (2,032)  (1,431)  (1,822)  (1,976)
Interest income  467   83   19   408   28 
Other (expense) income, net  (204)  5,185   (131)  245   825 
(Loss) income before income taxes  (239,360)  (153,041)  399,386   276,270   442,619 
Income tax (benefit) provision  (98,114)  (53,480)  154,193   109,375   168,183 
Net (loss) income $(141,246) $(99,561) $245,193  $166,895  $274,436 
(Loss) earnings per share :                    
Basic $(0.66) $(0.47) $1.14  $0.77  $1.28 
Diluted $(0.66) $(0.47) $1.14  $0.77  $1.27 
Dividends paid per share $0.050  $0.155  $0.420  $0.400  $0.520 
                     
OTHER DATA:                    
Operating margin percent  (32.8)%  (12.4)%  17.2%  14.9%  22.8%
Net cash provided by operating activities $101,704  $473,792  $322,757  $365,624  $559,933 
Net cash used for investing activities  (21,339)  (157,583)  (355,349)  (207,654)  (315,838)
Net cash (used for) provided by financing activities  (13,726)  (260,785)  33,664   (163,433)  (237,325)
Capital expenditures $33,938  $167,426  $371,502  $201,681  $328,936 
Employees at end of period  2,500   3,100   4,500   3,900   3,600 
                     
BALANCE SHEET DATA AT END OF YEAR:                    
Accounts receivable, net $169,166  $232,187  $634,730  $437,132  $387,530 
Working capital  377,589   384,744   612,616   436,873   403,316 
Property, plant and equipment, net  497,986   688,335   849,383   726,307   756,326 
Total assets  1,035,452   1,237,094   1,759,358   1,383,860   1,367,163 
Long-term debt  -   -   224,500   53,300   107,000 
Total stockholders’ equity $806,799  $952,281  $1,078,382  $968,702  $899,232 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion should be read in conjunction with “Selected Financial Data,”Data” and the Consolidated Financial Statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2.

RPC, Inc. (“RPC”) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells.

Our key business and financial strategies are:

-To focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital.

-To maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels.

-To maintain an efficient, low-cost capital structure which includes an appropriate use of debt financing.

-To maintain high asset utilization which leads to increased revenues and leverage of direct and overhead costs, while also ensuring that increased maintenance resulting from high utilization does not interfere with customer performance requirements or jeopardize safety.

-To deliver equipment and services to our customers safely.

-To secure adequate sources of supplies of certain high-demand raw materials used in our operations, both in order to conduct our operations and to enhance our competitive position.

-To maintain and selectively increase market share.

-To maximize stockholder return by optimizing the balance between cash invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of our common stock on the open market.

-To align the interests of our management and stockholders.

In assessing the outcomes of these strategies and RPC’s financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and personnel, maintenance and repair expenses, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our invested capital. Additionally, we compare our trends to those of our peers. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities.

18

Current industry conditions are characterized by oil prices which have declined rapidlyrisen from more than $100a low of approximately $29 per barrel in the thirdfirst quarter of 20142016 to approximately $50$53 per barrel in the first quarter of 2017. As a result of this moderate increase in the price of oil, as well as improvements in the prices of natural gas and natural gas liquids, the U.S. domestic rig count has risen from an historic low of 404 in the second quarter of 2016 to 751 early in the first quarter of 2015, a level not observed since2017. We believe that the second quarter of 2009.  As a result, the U.S. domestic rig count is declining, and early in the first quarter of 2015 has declined by almost 30 percent since the third quarter of 2014.  The catalystsprincipal reason for the recent steep declineincrease in the price of oil include the perception that global oil supplies are higher than demand, the forecasted decline in oil demand growth, and the strengthimprovement in U.S. domestic oilfield activity relates to the announcement by the OPEC cartel during the fourth quarter of the U.S. dollar2016 that it would impose production quotas on global currency markets.  The declineits member countries in bothorder to support the price of oil and our customers’ drilling and completion activities accelerated inon the first quarter of 2015 following an announcement by OPEC that the oil cartel would not limit its production in response to falling prices and excess supply.  We anticipate that the U.S. domestic rig count will continue to decline until world oil prices increase due to a combination of increased global demand, declining production, or an increase in political instability in the world’s oil-producing regions outside of the United States.market. RPC believes that the most predictablean important catalyst for an increase in world oil prices is declining production in the United States. We believe this because the United States grew to be the world’s largest producer of oil during the second quarter of 2014,2015, and the increase in oil production was due to the growth of oil-directed drilling in shale formations. These wells produce a large amount of oil immediately following their completion, but typically experience large production declines within two years. Following its recent peak, U.S. oil production has fallen by approximately nine percent as of the most recent reported statistic during the fourth quarter of 2016. Therefore, the declining production of these wells, and the rapid decline in drilling of new wells of this type in 2015 are the most likely initial catalystadditional catalysts for improving industry conditions. Customer activities directed towards natural gas drilling and production have been weak for several years, with the U.S. domestic natural gas rig count remaining at itsduring the first quarter of 2016 falling to the lowest level since the second quarter of 1995.ever recorded. We believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells, the high amount of natural gas production associated with oil-directed shale wells in the U.S. domestic market, and relatively constant consumption of natural gas in the United States, and the fact thatStates. While natural gas presently cannot be exported from the United States to other markets in which demand and prices are higher.  The price of natural gasgas-directed drilling has increased during the first quarter of 2014 due to winter weather that was colder than normal, but has declined during the third and fourth quarters of 2014 and the first quarter of 2015.  Earlythrough early in the first quarter of 2015,2017, we believe that these factors will continue to depress natural gas-directed drilling during the near term. From a low of $1.72 per Mcf during the second quarter of 2016, the price of natural gas had fallenrisen to its lowest level since the second quarter of 2012, due to the fact that winter$3.04 per Mcf early in 2015 has thus far not been as cold as the previous winter, and that natural gas in storage in the United States has increased and is now approaching its average long-term storage level.

17

RPC monitors the number of horizontal and directional wells drilled in the U.S. domestic market, because this type of well is more service-intensive than a vertical oil or gas well, thus requiring more of the Company’s services provided for a longer period of time.  During 2014, the average number of horizontal and directional wells drilled in the United States increased by approximately 14 percent, and was 81 percent of total wells drilled during the year.  During the first part of 2015, the percentage of horizontal and directional wells drilled as a percentage of total wells rose to approximately 84 percent.  In addition, the percentage of wells drilled for oil increased to 82 percent during 2014 compared to 78 percent during 2013.  During the beginning of the first quarter of 2015, the percentage2017. In spite of wells drilled for oil decreased slightly to 81 percent.  We also monitor the U.S. domestic well count, which is a measure of wells drilled by the existing drilling rig fleet.  Wethis increase, we believe that the well count is an important measureprice of natural gas remains too low to encourage our customers to conduct exploration and production activities directed exclusively towards natural gas.

In 2016, the Company’s strategy of utilizing equipment in unconventional basins has continued. During 2016, we made capital expenditures totaling $33.9 million primarily for the maintenance of our potential activity levels because it reflects changes in rig efficiencies.  During 2014, the total U.S. domestic well count increased by approximately five percent.  In the markets in which RPC has operational locations, the well count increased by approximately seven percent.  Pricing for our services did not change materially during 2014.  While there was continued downward pricing pressure due to a larger fleet ofexisting revenue-producing equipment in the U.S. domestic market, this impact was offset by greater service intensity and moderately higher customer activity levels.  During previous years, a number of our customers entered into contractual relationships with us to provide services to support their completion programs.  Such arrangements were advantageous to our customers because of the repetitive nature of this type of activity and their need to have service providers dedicated exclusively to their drilling programs.  These arrangements also positively impacted the Company’s financial results, because of increased utilization of our revenue-producing equipment and increased efficiency.  All of these arrangements had expired by the third quarter of 2013.  We do not expect to enter into additional contractual arrangements with such terms during 2015.

During 2014 the Company increased our purchases of revenue-producing equipment.  Cash flows from operating activities as well as borrowings under our revolving credit facility have been sufficient to fund the Company’s higher capital expenditures which increased to $371.5 million in 2014 compared to $201.7 million in 2013. The Company has a syndicated revolving credit facility in order to maintain sufficient liquidity to fund its capital expenditure and other funding requirements.

Revenues during 20142016 totaled $2.3 billion, an increase$729.0 million, a decrease of 25.642.3 percent compared to 2013 due2015 primarily to higheras a result of lower industry activity levels and service intensity in our major services lines and a larger fleet revenue-producing equipment in our pressure pumping service line.levels. Cost of revenues increased $314.7decreased $378.3 million in 20142016 compared to the prior year also due to higher materials and supplies expense and employment costs associated with higherlower activity levels. As a percentage of revenue, cost of revenues also increased due to inefficiencies resulting from lower activity levels and was approximately 64 percent of revenues in 2014 compared to 63 percent of revenues in 2013.coupled with continued low pricing for our services. Selling, general and administrative expenses as a percentage of revenues decreased approximately 1.4 percentage pointsincreased to 20.7 percent of revenues in 20142016 compared to 2013.

Income12.4 percent of revenues in 2015 due to increases in bad debt expense and professional fees as well as significantly lower revenues.

Losses before income taxes increasedwere $239.4 million for 2016 compared to $399.4$153.0 million in 20142015. Net loss for 2016 was $141.2 million, or $0.66 loss per share compared to $276.3net loss of $99.6 million, in the prior year.  Diluted earningsor $0.47 loss per share were $1.14 in 2014 compared to $0.77 in the prior year.

2015.

Cash flows from operating activities decreased slightly to $322.8$101.7 million in 20142016 compared to $365.6$473.8 million in 20132015 primarily due to higherunfavorable changes in working capital requirements partially offset by highercoupled with lower earnings. As of December 31, 2014,2016, there were $224.5 million inno outstanding borrowings under our credit facility, an increase from $53.3 million at December 31, 2013.

facility.

Outlook

Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a recent cyclical peak of 1,931 during the third quarter of 2014. Between the third quarter of 2014 and early in the firstsecond quarter of 2015,2016, the drilling rig count has fallenfell by approximately 3079 percent. During the second quarter of 2016, the U.S. domestic drilling rig count reached the lowest level ever recorded. The principal catalyst for this steep rig count decline is the declinedecrease in the price of oil in the world markets, which began in the second quarter of 2014. The price of oil has fallen by approximately 50 percent during this period. The price of oil began to fall at the end of the second quarter of 2014that time due to the perceived oversupply of oil, weak global demand growth, and the strength of the U.S. dollar on world currency markets. This decline accelerated duringDuring the fourthsecond quarter of 2014 when OPEC stated that it would not curtail its production2016, the price of oil in orderand the U.S. domestic rig count began to bring stability to oil prices.  Asincrease, and increased steadily throughout the remainder of 2016 and into the beginning of the first quarter of 2015, most industry analysts believe that2017. As of the rig count will continue to decline during the remainderbeginning of the first quarter and into second quarter of 2015.

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2017, RPC believes that U.S. oilfield activity will continue to increase during the near term, although our long-term visibility remains limited.

 

The current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity. As discussed above,During the first two quarters of 2016, the prices of oil and natural gas remained at low levels that discouraged our customers from undertaking most of their potential exploration and production activities. The prices of oil and natural gas have increased during the third and fourth quarters of 2016 and into the first quarter of 2017, and we believe that the price of oil beganhas risen to decline duringa level that provides adequate financial returns to our customers and encourages increased drilling and production activities in many domestic oil-producing basins. However, the second quarter of 2014, and early in the first quarter of 2015 had fallen to its lowest recorded level since the second quarter of 2009.  The price of natural gas has also fallennot risen to a level that encourages our customers to increase their drilling and production activities, and we remain discouraged that U.S. production of natural gas remains high in spite of historically low drilling activities. The average price of natural gas liquids during 2014 and early in2016 increased by approximately six percent compared to 2015, and early in the first quarter of 2015 had reached its lowest recorded level since2017 the second quarter of 2012.  The price of natural gas liquids has become an increasingly important determinant of our customers’ activities,rose to levels not recorded since its sales comprise a component of our customers’ revenues, and it is produced in many of the shale resource plays that also produce oil.  During 2014, the average price of benchmark natural gas liquids increased by approximately five percent compared to the prior year, but early in the firstfourth quarter of 2015 decreased by approximately seven percent compared to the end of 2014. These commodity price trends, if they continue, have negativemoderately positive implications for our near-term activity levels. In particular,As evidence of the low priceimpact of oil should continue to have a negative impactrecovering commodity prices on our customers’ activity levels, and our financial results, since the majority of the U.S. domesticoil-directed drilling rig count is directed towards oil.  RPC has operational locationsat the beginning of the first quarter of 2017 had increased by approximately 89 percent compared to the lowest oil-directed rig count recorded during the second quarter of 2016, and revenue-producing equipment in most of these locations, so it is likely that our near-term financial results will be negatively impactedthe natural gas-directed rig count had increased by these declining prices.approximately 79 percent during the same period.

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The majority of the U.S. domestic rig count remains directed towards oil, although this percentage will decline as oil-directed drilling continues to fall in 2015.  Early inoil. At the beginning of the first quarter of 2015,2017, approximately 7980 percent of the U.S. domestic rig count was directed towards oil, a slight decrease compared to approximately 82 percent atconsistent with the end of 2014.prior year. We believe that oil-directed drilling will remain the majority of domestic drilling, and that natural gas-directed drilling will remain a low percentage of U.S. domestic drilling in the near term. We believe that this relationship will continue due to relatively low prices for natural gas, high production from existing natural gas wells, and industry projections of limited increases in domestic natural gas demand during the near term.  We do not believe that the overall rig count will increase during 2015 unless the price of oil increases from its current price early in the first quarter of 2015.


We continue to monitor the market for our services and the competitive environment in 2015.2017. We are cautious about the market for our services because of the recent steep decline in the U.S. domestic rig count and the highly competitive nature of pricing for our services in the current environment.  The current low prices of oil and natural gas discourage us from believingbelieve that the U.S. domestic rig count will continue to recover moderately during the near term. WeHowever, we believe that in spite of the price of natural gas may increaselarge percentage increases in oilfield activity during the short term becausepast several quarters, the pricing for our services has not yet reached a level that provides financial returns that will allow the industry to maintain its fleet of cold weatherrevenue-producing equipment or hire additional personnel to operate idle equipment. Furthermore, our customers during the first quarter of 2015, but2017 have thus far been very reluctant to accept increases in pricing for their services in order to compensate us for our increased costs and to allow us to generate higher financial returns. For this reason, we do not believe that any potential increasecontinued near-term expansion in U.S. domestic oilfield activities will be enough to encourage our customers tomoderate until commodity prices increase their natural gas-directed drilling activities.significantly. Over the long term, we believe that the steep decline in oil-directed drilling in the U.S. domestic market will reduce U.S. domestic oil production and serve as a catalyst for oil prices to increase. This belief is due to the fact that oil-directed wells drilled in shale resource plays typically exhibit high initial production soon after being completed followed by a decline in production in later years. We note that U.S. domestic oil production has declined by approximately 10 percent since its most recent peak in the third quarter of 2014. We are also encouraged by the fact that the drilling and completion activities that are taking place during 2015 continue to be highly service-intensive and require a large amount of equipment and raw materials.


As Furthermore, we monitornote that some wells in the competitive environmentU.S. domestic market have been drilled but not completed. We believe that many of our customers have started to complete these wells, and that they provide potential revenue for RPC’s completion-directed services during 2015,the near term. Finally, we also noteare encouraged by our belief that many of our competitors are relatively new entrants intohave not maintained their equipment to a level that allows them to provide reliable, consistent services to their customers. During 2015 and the oilfieldfirst three quarters of 2016, we responded to the significant declines in industry activity levels and pricing for our services market,by reducing costs and mayemployee headcount and closed selected operational locations. During the fourth quarter of 2016 and the first quarter of 2017, however, we have started recruiting and hiring operational personnel to respond to increased industry activity levels.

We note in the current competitive environment that many of our smaller competitors have high levels of debt, higher cost structures, and less-developed logistical capabilities than RPC. Also, manyDuring 2015 and through the first three quarters of 2016, a number of smaller competitors ceased operations and sold their businesses or liquidated their assets. During 2016, several of our peers filed for bankruptcy protection. While these new entrantsdevelopments place us in a more favorable competitive position, they are offset by the fact that the capital markets have financed their operations with arecently provided capital structure that includes a large amount of debt, so they may not have the ability to maintain their equipment in highly service intensive operating environments, and may not be able to operate for long periods of time in which they do not generate positive cash flow from operations.  These characteristicsallow several of our competitors to emerge from bankruptcy and several other private equity-funded companies to complete initial public offerings of their common stock. In the fourth quarter of 2015 we initiated a process whereby we more closely scrutinize the maintenance status of our currently idled revenue-producing assets. Through this process, we are attempting to ensure that our idle equipment is prepared to return to service as soon as market conditions encourage us regarding the overall level of competition into do so. We believe that this process will allow RPC to return our markets.idle revenue-producing equipment to service quickly and at minimal cost as market conditions improve. In this environment RPC also monitors the financial capabilitiesstability of our customers, due to the fact that many of them have also financed their operations with a large amount of debt, and this type of financing is less available in 2015 than in previous years.  At this time RPC believesyears, although we also note that the majoritymany of itsour customers have accessrecently raised equity to adequatestabilize their capital to financestructures and expand their ongoing operations. RPC initiated an expansion of its pressure pumping fleet in 2014, and during the fourth quarter of 2014 began to take delivery of this equipment.  We continue to take delivery of this revenue-producing equipment during the first quarter of 2015, but we do not plan additionalplans minimal increases in our fleet of revenue-producing equipment during 2015.2017. Our consistent response to the industry’s potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending. Although we have used our bank credit facility to finance our current expansion, we will continueWe intend to maintain a conservative financial and capital structure by industry standards.

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which includes little or no debt during the near term.

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Results of Operations


Years Ended December 31, 2014  2013  2012 
(in thousands except per share amounts and industry data)      
Consolidated revenues $2,337,413  $1,861,489  $1,945,023 
Revenues by business segment:            
Technical $2,180,457  $1,729,732  $1,794,015 
Support  156,956   131,757   151,008 
             
Consolidated operating profit $399,970  $275,413  $442,390 
Operating profit by business segment:            
Technical $390,004  $276,246  $420,231 
Support  42,510   26,223   45,912 
Corporate expenses  (17,072)  (17,685)  (17,654)
Loss on disposition of assets, net  (15,472)  (9,371)  (6,099)
             
Net income $245,193  $166,895  $274,436 
Earnings per share — diluted $1.14  $0.77  $1.27 
Percentage of cost of revenues to revenues  64%  63%  57%
Percentage of selling, general and administrative expenses to revenues  9%  10%  9%
Percentage of depreciation and amortization expenses to revenues  10%  11%  11%
Effective income tax rate  38.6%  39.6%  38.0%
Average U.S. domestic rig count  1,862   1,762   1,919 
Average natural gas price (per thousand cubic feet (mcf)) $4.25  $3.71  $2.73 
Average oil price (per barrel) $93.25  $98.06  $94.20 

Years Ended December 31, 2016  2015  2014 
(in thousands except per share amounts and industry data)            
Consolidated revenues $728,974  $1,263,840  $2,337,413 
Revenues by business segment:            
Technical $679,654  $1,175,293  $2,180,457 
Support  49,320   88,547   156,956 
             
Consolidated operating (loss) profit $(238,942) $(156,277) $400,929 
Operating (loss) profit by business segment:            
Technical $(203,804) $(132,982) $390,004 
Support  (26,021)  (2,363)  42,510 
Corporate expenses  (17,037)  (14,515)  (16,113)
Gain (loss) on disposition of assets, net  7,920   (6,417)  (15,472)
             
Net (loss) income $(141,246) $(99,561) $245,193 
(Loss) earnings per share — diluted $(0.66) $(0.47) $1.14 
Percentage of cost of revenues to revenues  83%  78%  64%
Percentage of selling, general and administrative expenses to revenues  21%  12%  8%
Percentage of depreciation and amortization expenses to revenues  30%  21%  10%
Effective income tax rate  41.0%  34.9%  38.6%
Average U.S. domestic rig count  509   982   1,862 
Average natural gas price (per thousand cubic feet (mcf)) $2.52  $2.58  $4.25 
Average oil price (per barrel) $43.49  $48.77  $93.25 

Year Ended December 31, 20142016 Compared Toto Year Ended December 31, 2013

2015

Revenues.Revenues in 2014 increased $475.92016 decreased $534.9 million or 25.642.3 percent compared to 2013.2015. The Technical Services segment revenues for 2014 increased 26.12016 decreased $495.6 million or 42.2 percent compared to the prior year due primarily to increasedlower activity levels and pricing as compared to prior year, particularly within our pressure pumping service, intensity inwhich is the largest service lines within this segment and a larger fleet of pressure pumping equipment.segment. The Support Services segment revenues for 2014 increased 19.1in 2016 decreased $39.2 million or 44.3 percent compared to 20132015 due principallyprimarily to an improved job mixlower pricing and higher activity levels in the rental tool service line, which is the largest service linemajority of our services within this segment, as well as higher activity levels in the other service lines which comprise this segment. Operating profit in bothBoth the Technical and Support Services segments increasedcontinue to report operating losses due to higherlower levels of revenues, partially offset by cost control efforts undertaken throughout the Company and greater utilization of personnellower depreciation and equipment.

amortization expenses. The average price of oil decreased 4.910.8 percent while the average price of natural gas increased 14.6decreased 2.4 percent during 20142016 compared to the prior year. The average domestic rig count during 20142016 was 5.748.2 percent higherlower than 2013.  We believe that our activity levels are affected primarily by the price of oil, since oil-directed activity has become the majority of total U.S. drilling activity.  The prices of natural gas and natural gas liquids also impact our activity levels because of the service-intensive nature of this type of drilling and completion.  We also believe that the total number of directional and horizontal wells more directly affect our activity levels, regardless of whether the wells are directed towards oil or natural gas.  This belief is based on the fact that directional and horizontal wells require more of the services within our technical services segment.2015. International revenues, which increaseddecreased from $65.9$72.1 million in 20132015 to $88.2$51.2 million in 2014,2016, were as a percentageseven percent of consolidated revenues fourin 2016 and six percent of consolidated revenues in 2014 and 2013.2015. International revenues increaseddecreased primarily due primarily to higherlower customer activity levels in Australia, Gabon, Equatorial Guinea, China and SingaporeArgentina in 20142016, partially offset by decreasedincreased activity in Mexico, Congo and Tunisia, compared to the prior year.  Our international revenues are impacted by the timing of project initiation and their ultimate duration.
Cost of revenues.  Cost of revenues in 2014 was $1.5 billion compared to $1.2 billion in 2013, an increase of $314.7 million or 26.7 percent.  The increase in these costs was due to the variable nature of these expenses especially materials and supplies expenses and employment costs associated with higher activity levels.  Cost of revenues, as a percent of revenues, increased slightly in 2014 compared to 2013 due primarily to competitive pricing for our services.
Selling, general and administrative expenses.  Selling, general and administrative expenses increased 7.0 percent to $198.1 million in 2014 compared to $185.2 million in 2013.  This increase was due primarily to increases in total employment costs partially offset by a decrease in bad debt expense.  As a percentage of revenues, selling, general and administrative expenses decreased to 8.5 percent in 2014 compared to 9.9 percent in 2013 due to cost leverage achieved with higher revenues.
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Depreciation and amortization.  Depreciation and amortization were $230.8 million in 2014, an increase of $17.7 million, compared to $213.1 million in 2013. As a percentage of revenues, depreciation and amortization decreased to 9.9 percent in 2014 compared to 11.4 percent in 2013.
Loss on disposition of assets, net. Loss on disposition of assets, net was $15.5 million in 2014 compared to $9.4 million in 2013.   The loss on disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment.
Other income, net.  Other income, net was $0.8 million in 2014 compared to $2.3 million in 2013.  Other income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan.
Interest expense and interest income.   Interest expense was $1.4 million in 2014 compared to $1.8 million in 2013.  The decrease in 2014 is due to lower interest rates net of interest capitalized on equipment and facilities under construction partially offset by a higher average debt balance on our revolving credit facility.  Interest income decreased to $19 thousand in 2014 compared to $419 thousand in 2013.
Income tax provision.  The income tax provision was $154.2 million in 2014 compared to $109.4 million in 2013.  This increase was due to higher income before taxes partially offset by a decrease in the effective tax rate to 38.6 percent in 2014 compared to 39.6 percent in 2013.
Net income and diluted earnings per share.   Net income was $245.2 million in 2014, or $1.14 per diluted share, compared to net income of $166.9 million, or $0.77 per diluted share in 2013.  This increase was due to higher profitability as average shares outstanding was essentially unchanged.
Year Ended December 31, 2013 Compared To Year Ended December 31, 2012
Revenues. Revenues in 2013 decreased $83.5 million or 4.3 percent compared to 2012.  The Technical Services segment revenues for 2013 decreased 3.6 percent from the prior year due primarily to lower pricing experienced in most of our service lines within this segment partially offset by higher service intensity and activity in our pressure pumping service line.  The Support Services segment revenues for 2013 decreased 12.7 percent compared to 2012 due primarily to lower pricing in the rental tool service line, which is the largest service line within this segment.  Operating profit in the both Technical Services and Support Services segment declined due to lower pricing.  Operating profit in the Technical Services segment also declined due to higher materials and supplies expense consistent with increased service intensity.
Domestic revenues decreased 4.0 percent during 2013 compared to 2012 to $1.8 billion due primarily to competitive pricing for our services in most service lines.  The average price of oil increased by four percent while the average price of natural gas increased by 36 percent during 2013 compared to the prior year.  The average domestic rig count during 2013 was eight percent lower than in 2012.   Increased competitive pricing for our services negatively impacted our operating income, income before income taxes, net income and earnings per share.  International revenues, which decreased from $74.2 million in 2012 to $65.9 million in 2013, were four percent of consolidated revenues in 2013 and 2012.  These international revenue decreases were due mainly to lower customer activity levels in New Zealand and Mexico in 2013 partially offset by an increase in activity in Equatorial Guinea, Gabon, Australia, Argentina and Bolivia compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration.

Cost of revenues.Cost of revenues in 20132016 was $1.2 billion$607.9 million compared to $986.1 million in 2015, a decrease of $378.3 million or 38.4 percent, due to lower activity levels coupled with reduced personnel headcount and incentive compensation. As a percentage of revenues, cost of revenues increased in 2016 compared to 2015 due to inefficiencies resulting from lower activity levels coupled with continued low pricing for our services.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 3.8 percent to $150.7 million in 2016 compared to $156.6 million in 2015. These expenses decreased due to lower total employment costs due to headcount reductions, as well as other expense reduction efforts partially offset by an increase in bad debt expense and professional fees. The Company recorded a contingent professional fee of $2.0 million during the first quarter of 2016 in connection with the resolution of an open income tax matter. As a percentage of revenues, these costs increased during 2016 compared to 2015 due to increases in bad debt expense and professional fees previously noted as well as significantly lower revenues.

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Depreciation and amortization.Depreciation and amortization were $217.3 million in 2016, a decrease of $53.7 million, compared to $271.0 million in 2015 due to lower capital expenditures during the last two years. As a percentage of revenues, depreciation and amortization increased in 2016 compared to 2015 due to significantly lower revenues.

Gain (loss) on disposition of assets, net.Gain on disposition of assets, net was $7.9 million in 2016 compared to a loss on disposition of assets, net of $6.4 million in 2015. RPC recorded a gain on disposition of assets of $4.0 million during the fourth quarter of 2016 resulting from the sale of operating equipment related to its oilfield pipe inspection service. The remaining gain (loss) on disposition of assets, net is comprised of gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.

Other (expense) income, net.Other expense, net was $204 thousand in 2016 compared to other income, net of $5.2 million in 2015. Proceeds from a legal settlement totaling $6.3 million was recorded during 2015.

Interest expense and interest income.Interest expense decreased to $0.7 million in 2016 compared to $2.0 million in 2015. Interest expense in 2016 declined in comparison to the prior year because interest expense in the prior year included the accelerated amortization of loan fees totaling $0.6 million associated with RPC’s voluntary reduction of its syndicated credit facility. The current year expense principally consists of facility fees on the unused portion of the credit facility. Interest income increased to $467 thousand in 2016 compared to $83 thousand in 2015.

Income tax benefit.The income tax benefit was $98.1 million in 2016 compared to $53.5 million in 2015. The effective tax rate was 41.0 percent in 2016 compared to 34.9 percent in 2015. The income tax benefit in 2016 includes a discrete tax benefit of $15.7 million recorded in connection with the favorable resolution of an open income tax matter.

Net loss and diluted loss per share. Net loss was $141.2 million in 2016, or $0.66 loss per diluted share, compared to a net loss of $99.6 million in 2015, or $0.47 loss per diluted share. This increase in loss per share was due to lower profitability as average shares outstanding was essentially unchanged.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenues.Revenues in 2015 decreased $1.1 billion or 45.9 percent compared to 2014. The Technical Services segment revenues for 2015 decreased 46.1 percent compared to the prior year due primarily to lower activity levels and pricing as compared to prior year, partially offset by increasing service intensity in 2012, an increaseour pressure pumping service, which is the largest service within this segment. The Support Services segment revenues for 2015 decreased 43.6 percent compared to 2014 due primarily to lower pricing and activity levels in the rental tool service, which is the largest service within this segment. Both the Technical and Support Services reported operating losses due to lower revenues, partially offset by cost control efforts undertaken throughout the Company. The average price of $72.5oil decreased 47.7 percent while the average price of natural gas decreased 39.3 percent during 2015 compared to the prior year. The average domestic rig count during 2015 was 47.3 percent lower than 2014. International revenues, which decreased from $88.2 million in 2014 to $72.1 million in 2015, were as a percentage of consolidated revenues, six percent in 2015 and four percent in 2014. International revenues decreased primarily due to lower customer activity levels in Canada, Australia, Bolivia and Mexico in 2015 partially offset by increased activity in Argentina compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration.

Cost of revenues.Cost of revenues in 2015 was $986.1 million compared to $1.5 billion in 2014, a decrease of $506.9 million or 6.634.0 percent. The increasedecrease in these costs was due to lower costs resulting from lower activity levels, reduced personnel headcount and incentive compensation, and price reductions from suppliers, partially offset by the variable natureimpact of these expenses especially materials and supplies expenses and employment costs associated with higher activity levels.  Costincreasing service intensity. Also during 2015, replacement parts totaling approximately $41.9 million were charged to cost of revenues rather than capitalized as a percentresult of a change in accounting estimate. As a percentage of revenues, cost of revenues increased in 20132015 compared to 20122014 due primarily to competitive pricing for our services.

services and inefficiencies resulting from lower activity levels.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 5.4decreased 20.6 percent to $185.2$156.6 million in 20132015 compared to $175.7$197.1 million in 2012.  This increase2014.  \This decrease was due primarily to increases inlower total employment costs and bad debt expense.other cost reduction efforts as well as decreases in expenses which vary with activity and profitability. As a percentage of revenues, selling, general and administrative expenses increased to 9.9 percent in 20132015 compared to 9.0 percent in 2012.2014 due to the relatively fixed nature of some of these costs during the short term.

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Depreciation and amortization.Depreciation and amortization were $213.1$271.0 million in 2013, a decrease2015, an increase of $1.8$40.2 million, compared to $214.9$230.8 million in 2012.2014 due to assets placed in service during late 2014 and the first six months of 2015. As a percentage of revenues, depreciation and amortization remained relatively unchanged at 11.4 percentincreased in 20132015 compared to 11.0 percent in 2012.

2014.

Loss on disposition of assets, net.Loss on disposition of assets, net was $9.4$6.4 million in 20132015 compared to $6.1$15.5 million in 2012.2014. The loss on disposition of assets, net includesis comprised of gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment.

The decrease in losses compared to the prior year resulted from a change in accounting estimate beginning in 2015 whereby the cost of replacing certain pressure pumping unit components was recorded as cost of revenues upon installation rather than being capitalized. During 2014, the remaining net book value of these components damaged beyond repair was recorded as a loss on disposition.

Other income (expense), net.Other income, net was $2.3$5.2 million in 20132015 compared to $2.2other expense, net of $131 thousand in 2014. Proceeds from a legal settlement totaling $6.3 million in 2012.  Other income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan.

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was recorded during 2015.

Interest expense and interest income.Interest expense was $1.8 million in 2013 compared to $2.0 million in 2012.  The decrease2015 compared to $1.4 million in 2013 is2014. Interest expense in 2015 included the accelerated amortization of loan fees totaling $0.6 million associated with RPC’s voluntary reduction of the borrowing capacity under its syndicated credit facility from $350 million to $125 million. This cost was partially offset by lower interest expense due to a lower average debt balance on our revolving credit facility partially offset by slightly higher interest rates net of interest capitalized on equipment and facilities under construction.facility. Interest income increased to $419$83 thousand in 20132015 compared to $30$19 thousand in 2012.

2014.

Income tax (benefit) provision.The income tax provisionbenefit was $109.4$53.5 million in 20132015 compared to $168.2an income tax provision of $154.2 million in 2012.  This decrease2014. The benefit in 2015 resulted from the pretax loss. The effective tax rate was due to lower income before taxes34.9 percent in 20132015 compared to 2012 partially offset by an increase38.6 percent in 2014. The decrease in the effective tax rate in 2015 is due primarily to 39.6 percent in 2013 compared to the effectivestate tax rate of 38.0 percent in 2012.

calculations based on revenues rather than taxable income or losses.

Net (loss) income and diluted (loss) earnings per share. Net incomeloss was $166.9$99.6 million in 2013,2015, or $0.77$0.47 loss per diluted share, compared to net income of $274.4$245.2 million, or $1.27$1.14 earnings per diluted share in 2012.  This decline was due to lower profitability.

2014.

Liquidity and Capital Resources

Cash and Cash Flows

The Company’s cash and cash equivalents were $131.8 million as of December 31, 2016, $65.2 million as of December 31, 2015 and $9.8 million as of December 31, 2014, $8.7 million as of December 31, 2013 and $14.2 million as of December 31, 2012.

2014.

The following table sets forth the historical cash flows for the years ended December 31:

 (in thousands) 
 2014 2013 2012 
Net cash provided by operating activities $322,757  $365,624  $559,933 
Net cash used for investing activities  (355,349)  (207,654)  (315,838)
Net cash provided by (used for) financing activities  33,664   (163,433)  (237,325)

  (in thousands) 
  2016  2015  2014 
Net cash provided by operating activities $101,704  $473,792  $322,757 
Net cash used for investing activities  (21,339)  (157,583)  (355,349)
Net cash (used for) provided by financing activities  (13,726)  (260,785)  33,664 

20142016

Cash provided by operating activities in 2016 decreased $42.9by $372.1 million in 2014 compared to the same period in the prior yearyear. This decrease is due primarily to annet unfavorable changechanges in working capital of $173.0$237.0 million partially offset bycoupled with an increase in net incomelosses of $78.3$41.7 million, an increasea decrease in depreciation and amortization expenses of $18.1$54.4 million, a decrease in (gains) and losses on sale of assets of $14.3 million and a favorable changedecrease in deferred taxeslong-term liabilities of $25.4$15.7 million dueprimarily related to the positive resolution of an income tax benefits resulting from higher capital expenditures.

matter.

The net unfavorable change in working capital is primarily due to the following: an unfavorable changechanges of $148.1$337.0 million in accounts receivable due to highera less significant decline in business activity levels in 20142016 compared to prior year; an2015, and $6.4 million decrease in inventory consistent with lower business activity levels. This unfavorable change was partially offset by favorable changes of $43.8$56.2 million in inventories due to an increaseaccounts payable; $28.6 million in materialsaccrued payroll and supplies that require longer lead times; an unfavorable change of $3.4related expenses; $6.1 million in income taxes payable/ receivable, net; $5.0 million in prepaid expenses and other current assets due to lower deposits for raw materials; and an unfavorable net change of $13.4 million in net current income taxes receivable/payable.  These unfavorable changes were partially offset by a favorable change in accounts payable of $22.4 million; a favorable change in accrued payroll of $8.6 million; and a favorable change of $4.1$4.2 million in accrued state, local and other taxes due to higherconsistent with lower business activity levels coupled with the timing of payments.

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Cash used for investing activities in 2014 increasedfor 2016 decreased by $147.7$136.2 million, compared to 2013,2015, primarily as a result of highersignificantly lower capital expenditures primarily directedin response to expand or maintain our revenue-producing equipment.

weaker industry conditions.

Cash provided byused for financing activities in  2014 increasedfor 2016 decreased by $197.1$247.1 million primarily as a result of higherlower net loan repayments as there has been no outstanding borrowings since the fourth quarter of 2015 coupled with lower open market share repurchases, partially offset by a 5 percent increasecommon stock dividends during 2016 compared to the same period in the per shareprior year. The Company reduced its common stock dividend declared during 2014 comparedthe first quarter of 2015 and then temporarily suspended its regular quarterly common stock dividend beginning in the second quarter of 2015. The Company paid a special year-end cash dividend of $0.05 per share to common stockholders in the prior year.

fourth quarter of 2016.

20132015

Cash provided by operating activities decreased $194.3increased $151.0 million in 20132015 compared to the prior year due primarily to a favorable change in working capital of $506.8 million partially offset by a decrease in net income (loss) of $107.5$344.8 million, an increase in depreciation and amortization of $41.3 million, and an unfavorable change in deferred taxes of $17.9$45.4 million due to a decrease in tax depreciation benefits resulting from lower capital expenditures coupled with an unfavorable change in working capital of $83.2 million.

expenditures.

The unfavorablefavorable change in working capital was primarily due to the following: an unfavorable changefavorable changes of $123.8$599.8 million in accounts receivable due to slightly higherand $56.4 million in inventory as a result of lower business activity levels at the end of 2013in 2015 compared to declining activity levels at the end of the prior year; an unfavorableyear. Also, there was a favorable change of $25.1 million in other current assets due to lower deposits for raw materials; an unfavorable net change of $9.8 million in net current income taxes receivable/payable; and an unfavorable changepayable of $4.6$3.9 million in accrued state, local and other taxes due to the timing of payments. These unfavorablefavorable changes were partially offset by a favorable changeunfavorable changes in accounts payable of $54.4$98.9 million, in inventoriesaccrued payroll of $46.4 million and accrued state, local and other taxes of $5.8 million due to improved sourcinglower business activity levels coupled with the timing of critical materials and supplies that require longer lead times.

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payments.

 

Cash used for investing activities in 20132015 decreased by $108.2$197.8 million compared to 2012,2014, primarily as a result of lower capital expenditures in response to highly competitive pricing.

weaker industry conditions.

Cash used for financing activities in 2013 decreased2015 increased by $73.9$294.4 million primarily as a result of lowerhigher net loan repayments coupled withpayments funded primarily by the favorable changes in working capital, partially offset by lower open market share repurchases partially offset by a 25 percent increase in the per shareand common stock dividend declareddividends during 20132015 compared to the prior year.

The Company reduced and then suspended its common stock dividend during 2015.

Financial Condition and Liquidity

The Company’s financial condition as of December 31, 2014,2016 remains strong.  We believe the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization which includes a revolving credit facility and cash expected to be generated from operations will provide sufficient capitalliquidity to meet our requirements for at least the next twelve months. On January 17, 2014, theThe Company amended the $350currently has a $125 million revolving credit facility which extended the maturity of the loan tothat matures in January 2019. The facility contains customary terms and conditions, including certain financial covenants including covenants restricting RPC’s abilityrestrictions on indebtedness, dividend payments, business combinations and other related items. On June 30, 2016, the Company amended the revolving credit facility to incur liens, merge(1) establish a borrowing base to be the lesser of $125 million or consolidate with another entity.  A totala specified percentage of $96.2eligible accounts receivable less the amount of any outstanding letters of credit. As of December 31, 2016, there were no outstanding borrowings. RPC had letters of credit outstanding relating to self-insurance programs and contract bids totaling $19.1 million was available under the facility as of December 31, 2014; $29.3 million of the facility supports outstanding letters of credit related to self-insurance programs or contract bids.2016. For additional information with respect to RPC’s facility, see Note 6 of the Notes to Consolidated Financial Statements.

The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels. The Company’s decisions about the amount of cash to be used for investing and financing activities could be influenced by the financial covenants in our credit facility but we do not expect the covenants to restrict our planned activities. The Company is in compliance with these financial covenants.

Cash Requirements

Capital expenditures were $371.5$33.9 million in 2014,2016, and we currently expect capital expenditures to be approximately $200$70 million in 2015.2017. We expect that a majority of these expenditures in 20152017 will be directed towards maintenance of our revenue-producingcapitalized equipment and refurbishment of our existing fleet of pressure pumping equipment.maintenance.  The remaining capital expenditures will be directed towards the purchase of revenue-producing equipment in several of our core service lines, including pressure pumping, coiled tubing and rental tools.equipment. The actual amount of capital expenditures will depend primarily on equipment maintenance requirements, customerexpansion opportunities, and equipment delivery schedules.

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The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. During 2014,2016, the Company contributed $0.8$4.3 million to the pension plan.  The Company expects thatplan and does not expect to make any additional contributions to the defined benefit pension plan of approximately $0.9 million will be required in 2015 to achieve the Company’s funding objective.

during 2017.

The Company has a stock buyback program, initially adopted in 1998 and subsequently amended in 2013, that authorizes the repurchase of up to 26,578,12531,578,125 shares.  On June 5, 2013, the Board of Directors authorized an additional 5,000,000 shares for repurchase under this program. There were 2,662,080no shares purchased on the open market during 2014 by the Company during 2016, and 2,050,154 shares remain available to be repurchased under the current authorization as of December 31, 2014.2016. The Company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility. The stock buyback program does not have a predetermined expiration date.

On January 27,July 28, 2015, the Board of Directors approvedvoted to temporarily suspend RPC’s regular quarterly dividend to common stockholders; however, the Board of Directors voted to pay a $0.105special year-end cash dividend of $0.05 per share cash dividend, payable March 10, 2015 to common stockholders during the fourth quarter of record at the close of business on February 10, 2015.2016. The Company expects to continue to payresume cash dividends to common stockholders sometime in the future, subject to the earnings and financial condition of the Company and other relevant factors.

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Contractual Obligations

The Company’s obligations and commitments that require future payments include our credit facility, certain non-cancelable operating leases, purchase obligations and other long-term liabilities. The following table summarizes the Company’s significant contractual obligations as of December 31, 2014:


Contractual obligations Payments due by period 
(in thousands) Total  
Less than
1 year
  
1-3
years
  
3-5
years
  
More than
5 years
 
Long-term debt obligations $224,500  $—  $—  $224,500  $— 
Interest on long-term debt obligations  24,650   4,850��  9,698   9,698   404 
Capital lease obligations  —   —   —   —   — 
Operating leases (1)  41,458   10,938   12,669   8,402   9,449 
Purchase obligations (2)  218,577   178,977   39,600   
—		   — 
Other long-term liabilities (3)  2,554   50   2,404   100   — 
Total contractual obligations $511,739  $194,815  $64,371  $242,700  $9,853 
2016:

Contractual obligations Payments due by period 
(in thousands) Total  Less than
1 year		  1-3
years		  3-5
years		  More than
5 years		 
Long-term debt obligations $—  $—  $—  $—  $— 
Interest on long-term debt obligations  —   —   —   —   — 
Capital lease obligations  —   —   —   —   — 
Operating leases (1)  42,994   12,648   18,077   8,074   4,195 
Purchase obligations (2)  21,316   10,354   10,962   —   — 
Other long-term liabilities (3)  1,054   860   194   —   — 
Total contractual obligations $65,364  $23,862  $29,233  $8,074  $4,195 
(1)Operating leases include agreements for various office locations, office equipment, and certain operating equipment.
(2)Includes agreements to purchase raw materials, goods or services that have been approved and that specify all significant terms (pricing, quantity, and timing). As part of the normal course of business the Company occasionally enters into purchase commitments to manage its various operating needs.
(3)Includes expected cash payments for long-term liabilities reflected on the balance sheet where the timing of the payments areis known. These amounts include incentive compensation. These amounts exclude pension obligations with uncertain funding requirements and deferred compensation liabilities.

Fair Value Measurements

The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation.  Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan assets classified as Level 3,and Supplemental Executive Retirement Plan (“SERP”) investments measured at net asset value, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund or when not publicly available.

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Inflation

The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. Also, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees as well as increases in the costs of certain materials and key equipment components used to provide services to the Company’s customers. During 2013 and 2014,In previous periods of strong oilfield activity, we experienced high employment costs due to the demand for skilled labor in our markets.  In addition, we experienced continuedmarkets as well as high costcosts for certain raw materials the Company uses to provide its services, in spite of our efforts to secure raw materials from alternative sources.services. During the third2015 and fourth quarter of 2014, there were indications that increased2016, however, supplies of raw materials were becomingbecame more readily available.  Atavailable as domestic oilfield activity decreased. In addition, skilled labor became more available, and upward wage pressures subsided. During the end of the fourththird quarter of 20142016, however, the Company began to experience upward pressure on the price of labor, due to increased oilfield activity and earlya shortage of skilled employees caused by the industry’s headcount reductions since the first quarter of 2015. Early in the first quarter of 2015, there were many indications that2017, the Company has also started to experience increases in the prices of both skilled labor and many of the raw materials used in providing our services had started to decline due to lower demand caused by the sudden and steep decline in the price of oil and the resulting decline in oil-directed drilling and completion.  We believe that declining oilfield activity during 2015 will decrease both wage rates for skilled labor and the prices ofcertain raw materials used in providing our services. Because customers are pressuringThe market for the Company’s services remains competitive, due to relatively low commodity prices, so it may be difficult for the Company to increase the prices we chargecharged to our customers to compensate for our services, it will be difficult to realize higher operating profit from these anticipated costs decreases.

cost increases. 

Off Balance Sheet Arrangements

The Company does not have any material off balance sheet arrangements.

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Related Party Transactions

Marine Products Corporation

Effective in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent 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. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship.

In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services were $739,000 in 2016, $753,000 in 2015, and $663,000 in 2014, $670,000 in 2013, and $544,000 in 2012. 2014. The Company’s receivable (payable) due fromto (from) Marine Products for these services was $47,000$60,000 as of December 31, 20142016 and $145,000$(11,000) as of December 31, 2013.  2015. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products.

Other

The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were $890,000 in 2016, $1,127,000 in 2015 and $1,092,000 in 2014, $1,039,000 in 2013 and $1,676,000 in 2012.

2014.

RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $111,000 in 2016, $100,000 in 2015 and $84,000 in 2014 and $83,000 in 2013 and 2012.

2014.

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.

During the year ended December 31, 2014,

RPC and Marine Products entered into a joint venture creatingown 50 percent each of a limited liability company called 255 RC, LLC that is owned 50 percent eachwas created for the joint purchase and ownership of a corporate aircraft.  255 RC, LLC was funded with a contribution of approximately $2,554,000 each from RPC and Marine Products.  The purchase of the aircraft was completed in January 2015, and the purchase was funded primarily by a $2,554,000 contribution by each company to 255 RC, LLC.  Each of RPC and Marine Products have entered intois a party to an operating lease agreement with 255 RC, LLC for a period of five years. RPC recorded certain net operating costs comprised of rent and an allocable share of fixed costs of approximately $197,000 in 2016 and $186,000 in 2015 for the corporate aircraft. The Company accounts for this investment using the equity method and its proportionate share of income or loss is recorded in selling, general and administrative expenses. As of December 31, 2016, the investment closely approximates the underlying equity in the net assets of 255 RC, LLC.

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Critical Accounting Policies

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting policies involve estimates that require a higher degree of judgment and complexity:

Allowance for doubtful accounts — Substantially all of the Company’s receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our allowance for doubtful accounts is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Provisions for doubtful accounts are recorded in selling, general and administrative expenses. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery. Therefore, the provision for doubtful accounts can fluctuate significantly from period to period. Recoveries were insignificant in 2016 and 2014 2013 and 2012.approximately $1.0 million in 2015. We record specific provisions when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change,a customer changes, our estimatesestimate of the realizability of receivablesthe receivable would be further adjusted, either upward or downward.

The estimated allowance for doubtful accounts is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The net provisions for doubtful accounts as a percentage of revenues have ranged from .090.8 percent to 0.47(0.2) percent over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 20142016 would have resulted in a change of approximately $3.3$0.9 million to the allowance for doubtful accounts and a corresponding change to selling, general and administrative expenses.

Income taxes— The effective income tax rates were 41.0 percent in 2016, 34.9 percent in 2015 and 38.6 percent in 2014, 39.6 percent in 2013 and 38.0 percent in 2012.2014. Our effective tax rates vary due to changes in estimates of our future taxable income or losses, fluctuations in the tax jurisdictions in which our earnings and deductions are realized, and favorable or unfavorable adjustments to our estimated tax liabilities related to proposed or probable assessments. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis.

We establish a valuation allowance against the carrying value of deferred tax assets when we determine that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are expected to reverse.

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates.

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Insurance expenses – The Company self insures,self-insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2014,2016, the Company estimates the range of exposure to be from $13.7$12.1 million to $17.8$15.3 million. The Company has recorded liabilities at December 31, 20142016 of approximately $15.7$13.6 million which represents management’s best estimate of probable loss.

Depreciable life of assets — RPC’s net property, plant and equipment at December 31, 20142016 was $849.4$498.0 million representing 48.348.1 percent of the Company’s consolidated assets. Depreciation and amortization expenses for the year ended December 31, 20142016 were $230.8$217.3 million. Management judgment is required in the determination of the estimated useful lives used to calculate the annual and accumulated depreciation and amortization expense.

Property, plant and equipment are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. The estimated useful life represents the projected period of time that the asset will be productively employed by the Company and is determined by management based on many factors including historical experience with similar assets. Assets are monitored to ensure changes in asset lives are identified and prospective depreciation and amortization expense is adjusted accordingly. During 2015 the Company reassessed the useful life of a specific component of its pressure pumping equipment that prior to 2015 had an expected useful life of 18 months. As a result of this reassessment, the Company concluded that this component is no longer a long-lived asset, but instead a consumable supply inventory item. Accordingly, effective January 1, 2015, the cost of this component was expensed as repairs and maintenance as part of cost of revenues at the time of installation. Management deemed the change preferable because it more closely reflects the pattern of consumption of this component as a result of continual increases in wear and tear resulting from harsher geological environments. We havedid not mademake any changes to the estimated lives of assets resulting in a material impact in the last three years.

2016 and 2014.

Defined benefit pension plan – In 2002, the Company ceased all future benefit accruals under the defined benefit plan, although the Company remains obligated to provide employees benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of FASBFinancial Accounting Standards Board (FASB) ASC 715, “Compensation – Retirement Benefits” and engages an outside actuary to calculate its obligations and costs. With the assistance of the actuary, the Company evaluates the significant assumptions used on a periodic basis including the estimated future return on plan assets, the discount rate, and other factors, and makes adjustments to these liabilities as necessary.

The Company chooses an expected rate of return on plan assets based on historical results for similar allocations among asset classes, the investments strategy, and the views of our investment advisor. Differences between the expected long-term return on plan assets and the actual return are amortized over future years. Therefore, the net deferral of past asset gains (losses) ultimately affects future pension expense. The Company’s assumption for the expected return on plan assets was seven percent for 2014, 20132016, 2015 and 2012.

2014.

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company utilizes a yield curve approach. The approach utilizes an economic model whereby the Company’s expected benefit payments over the life of the plan are forecasted and then compared to a portfolio of investment grade corporate bonds that will mature at the same time that the benefit payments are due in any given year. The economic model then calculates the one discount rate to apply to all benefit payments over the life of the plan which will result in the same total lump sum as the payments from the corporate bonds. A lower discount rate increases the present value of benefit obligations. The discount rate was 4.154.45 percent as of December 31, 20142016 compared to 5.204.70 percent as of December 31, 20132015 and 4.164.15 percent in 2012.2014.

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As set forth in noteNote 10 to the Company’s financial statements, included among the asset categories for the Plan’s investments are real estate and alternative/ opportunistic/ special fund investments comprised of real estate funds and private equity funds.  These investments are categorized as level 3 investmentsmeasured at net asset value and are valued using significant non-observable inputs which do not have a readily determinable fair value.  In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested.  These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments.  The Company seeks to mitigate these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness.

As of December 31, 2014,2016, the defined benefit plan was under-funded and the recorded change within accumulated other comprehensive loss decreased stockholders’ equity by approximately $6.8$1.3 million after tax.  Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in a pre-tax increase or decrease of approximately $1.5$1.2 million to the net loss related to pension reflected in accumulated other comprehensive loss.

The Company recognized pre-tax pension expense of $0.7 million in 2016, $0.4 million in 2015 and $0.2 million in 2014, $0.5 million in 2013 and $0.7 million in 2012.2014. Based on the under-funded status of the defined benefit plan as of December 31, 2014,2016, the Company expects to recognize pension expense of $0.5$0.4 million in 2015.2017. Holding all other factors constant, a change in the expected long-term rate of return on plan assets by 0.50 percentage points would result in an increase or decrease in pension expense of approximately $0.2 million in 2015.2017. Holding all other factors constant, a change in the discount rate used to measure plan liabilities by 0.25 percentage points would result in an increase or decrease in pension expense of approximately $2 thousandan immaterial amount in 2015.

2017.

Recent Accounting Pronouncements

During the year ended December 31, 2014,2016, the Financial Accounting Standards Board (FASB) issued the following applicable Accounting Standards Updates (ASU)(ASUs):

Recently Adopted Accounting Pronouncements:

Accounting Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this ASU require that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent should release the cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.  Sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity; and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date.  The Company adopted these provisions in the first quarter of 2014 and adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  The amendments in this ASU requires an unrecognized tax benefit, or a portion of thereof, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward.  The only exception would be if the deferred taxes related to these items are not available to settle any additional income taxes that would result from the disallowance of a tax position either by statute or at the entity’s choosing.   In such cases, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  The Company adopted these provisions in the first quarter of 2014 and adoption did not have a material impact on the Company’s consolidated financial statements.

·ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.The amendments eliminate the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. Adjustments to provisional amounts that are identified during the measurement period are required to be recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed at the acquisition date and either disclosed on the face of the income statement or in the notes by each category. The Company adopted these provisions in the first quarter of 2016 and plans to apply the provisions for all future business combinations. The adoption did not have a material impact on the Company’s consolidated financial statements.

·ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share (or its equivalent) practical expedient. In addition, there is no requirement to make certain disclosures for such investments. The Company adopted these provisions in the first quarter of 2016 applied retrospectively and has excluded the pension assets that are measured using the net asset value per share from the fair value hierarchy disclosure. The adoption did not have a material impact on the Company’s consolidated financial statements.

·ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.Financial statements are generally prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This ASU provides guidance on management’s responsibility to include footnote disclosures when there is substantial doubt about the organization’s ability to continue as a going concern. The Company adopted these provisions in the first quarter of 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern. The adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted:

Accounting Standards Update No. 2015-01, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to

To be an ordinary and usual activity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, then the extraordinary item needs to be segregated from the results of ordinary operations and disclosed separatelyadopted in the income statement, net of tax, after income from continuing operations. Disclosure of all applicable income taxes and presentation or disclosure of earnings-per-share data applicable to the extraordinary item is required. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.2017:

·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 amendments do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments will be adopted in the first quarter of 2017 and applied prospectively. The Company plans to adopt the provisions for the year ending December 31, 2016 and currently does not expect the adoption of these provisions to have a material impact on its consolidated financial statements.

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·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 amendments will be adopted in the first quarter of 2017 and applied prospectively. The Company does not expect the adoption of these provisions to have a material impact on its 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 to either estimate expected forfeitures or to account for them as they occur. The Company will adopt these provisions in the first quarter of 2017 and adoption of these provisions will result in the inclusion of excess tax benefits and deficiencies as a component of income tax expense which may increase volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based compensation awards are dependent on the Company’s stock price as of the date the stock awards vest. Based on the Company’s current stock price and its stock incentive plan awards, this change resulted in a beneficial adjustment of approximately $2.5 million to the provision for income taxes in the first quarter of 2017. The Company will continue to estimate expected forfeitures.

·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 amendments will be adopted in the first quarter of 2017 and the Company does not expect the adoption to have a material impact on its consolidated financial statements.

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 toRevenue 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.

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·ASU No. 2016-11, Rescission of SEC Guidance Because of ASUs 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.

Current Status of implementation:

The Company is currently analyzing the effect of the standardacross 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 consolidated financial statements.

Accounting Standards Update No. 2014-15, Presentation of Financial Statements —Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The provisions in this ASU are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Currently, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. This ASU provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern and the related footnote disclosures. The amendments are effective for the year ending December 31, 2016, and for interim periods beginning the first quarter of 2017, with early application permitted. The Company plans to adopt the provisions for the year ending December 31, 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern.  The Company currently does not expect the adoption to have a material impact on its consolidated financial statements.
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). 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. To achieve that core principle, an entity should apply a five step process – (i) identifying the contract(s) with a customer, (ii)  identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation.  The Company plans to adopt these provisionsstandard in the first quarter of 2017 and is currently evaluating2018 using the impactmodified retrospective method by recognizing the cumulative effect of these provisions on its financial statements. Early adoption is not permitted.
Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in the ASU require that only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment.  In addition,initially applying the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information aboutstandard as an adjustment to the assets,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.

31

To be adopted in 2019 and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 with early adoption permitted.  The Company plans to adopt these provisions in the first quarter of 2015 and does not expect the adoption to have a material impact on the Company’s consolidated financial statements.

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 that credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration should be presented as an allowance rather than a write-down. It also allows recording of credit loss reversals in current period net income. The amendments are effective 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is subject to interest rate risk exposure through borrowings on its credit agreement. As of December 31, 2014,2016, there are no outstanding interest-bearing advances of $224.5 million on our credit facility which bear interest at a floating rate.  A change in interest rates of one percent on the outstanding balance on the credit facility at December 31, 2014 would cause a change of approximately $2.2 million in total annual interest costs incurred.

Additionally, the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated results of operations or financial condition.

32

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders of RPC, Inc.:

The management of RPC, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. RPC, Inc. maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations.

There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its internal controls.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting as of December 31, 20142016 based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management’s assessment is that RPC, Inc. maintained effective internal control over financial reporting as of December 31, 2014.

2016.

The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2014,2016, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 31.

34.

 
/s/ Richard A. Hubbell/s/  Ben M. Palmer
Richard A. Hubbell
President and Chief Executive Officer
 
Ben M. Palmer
Vice President, Chief Financial Officer and Treasurer

Atlanta, Georgia

February 28, 2017

33
February 27, 2015

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting


Board of Directors and Stockholders

RPC, Inc.

We have audited the internal control over financial reporting of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014,2016, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on criteria established in the 2013Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2014,2016, and our report dated February 27, 201528, 2017 expressed an unqualified opinion on those financial statements.

/S/s/ GRANT THORNTON LLP

Atlanta, Georgia

February 27, 2015

31
28, 2017

 34

 


Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements


Board of Directors and Stockholders

RPC, Inc.

We have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 20142016 and 2013,2015, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014.2016. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of RPC, Inc. and subsidiaries as of December 31, 20142016 and 2013,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20142016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014,2016, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 201528, 2017 expressed an unqualified opinion thereon.

/S/s/ GRANT THORNTON LLP

Atlanta, Georgia

February 27, 2015

32
28, 2017

 35

 

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS
RPC, INC. AND SUBSIDIARIES

(in thousands except share information)

 
December 31, 2014  2013 
ASSETS 
Cash and cash equivalents $9,772  $8,700 
Accounts receivable, net  634,730   437,132 
Inventories  155,611   126,604 
Deferred income taxes  9,422   14,185 
Income taxes receivable  29,115   5,720 
Prepaid expenses  9,135   9,143 
Other current assets  3,843   3,441 
Current assets  851,628   604,925 
Property, plant and equipment, net  849,383   726,307 
Goodwill  32,150   31,861 
Other assets  26,197   20,767 
Total assets $1,759,358  $1,383,860 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES        
Accounts payable $175,416  $119,170 
Accrued payroll and related expenses  49,798   36,638 
Accrued insurance expenses  5,632   6,072 
Accrued state, local and other taxes  6,821   5,002 
Income taxes payable  944   — 
Other accrued expenses  401   1,170 
Current liabilities  239,012   168,052 
Long-term accrued insurance expenses  10,099   10,225 
Notes payable to banks  224,500   53,300 
Long-term pension liabilities  34,399   21,966 
Deferred income taxes  156,977   153,176 
Other long-term liabilities  15,989   8,439 
Total liabilities  680,976   415,158 
Commitments and contingencies (Note 9)        
STOCKHOLDERS’ EQUITY        
Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued  —   — 
Common stock, $0.10 par value, 349,000,000 shares authorized, 216,539,015 and 218,985,816 shares issued and outstanding in 2014 and 2013, respectively  21,654   21,899 
Capital in excess of par value  —   — 
Retained earnings  1,074,561   956,918 
Accumulated other comprehensive loss  (17,833)  (10,115)
Total stockholders’ equity  1,078,382   968,702 
Total liabilities and stockholders’ equity $1,759,358  $1,383,860 

December 31, 2016  2015 
ASSETS        
Cash and cash equivalents $131,835  $65,196 
Accounts receivable, net  169,166   232,187 
Inventories  108,316   128,441 
Income taxes receivable  57,174   51,392 
Prepaid expenses  6,718   8,961 
Other current assets  5,848   6,031 
Current assets  479,057   492,208 
Property, plant and equipment, net  497,986   688,335 
Goodwill  32,150   32,150 
Other assets  26,259   24,401 
Total assets $1,035,452  $1,237,094 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES        
Accounts payable $70,536  $75,811 
Accrued payroll and related expenses  12,130   16,654 
Accrued insurance expenses  4,099   4,296 
Accrued state, local and other taxes  3,094   2,838 
Income taxes payable  4,929   7,639 
Other accrued expenses  6,680   226 
Current liabilities  101,468   107,464 
Long-term accrued insurance expenses  9,537   11,348 
Long-term pension liabilities  32,864   33,009 
Deferred income taxes  81,466   115,495 
Other long-term liabilities  3,318   17,497 
Total liabilities  228,653   284,813 
Commitments and contingencies (Note 9)        
STOCKHOLDERS’ EQUITY        
Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued  —   — 
Common stock, $0.10 par value, 349,000,000 shares authorized, 217,489,402 and 216,991,357 shares issued and outstanding in 2016 and 2015, respectively  21,749   21,699 
Capital in excess of par value  —   — 
Retained earnings  803,152   948,551 
Accumulated other comprehensive loss  (18,102)  (17,969)
Total stockholders’ equity  806,799   952,281 
Total liabilities and stockholders’ equity $1,035,452  $1,237,094 

The accompanying notes are an integral part of these statements.

33

 36

 

CONSOLIDATED STATEMENTS OF OPERATIONS
RPC, INC. AND SUBSIDIARIES

(in thousands except per share data)


Years ended December 31, 2014  2013  2012 
REVENUES $2,337,413  $1,861,489  $1,945,023 
COSTS AND EXPENSES:            
Cost of revenues (exclusive of items shown separately below)  1,493,082   1,178,412   1,105,886 
Selling, general and administrative expenses  198,076   185,165   175,749 
Depreciation and amortization  230,813   213,128   214,899 
Loss on disposition of assets, net  15,472   9,371   6,099 
Operating profit  399,970   275,413   442,390 
Interest expense  (1,431)  (1,822)  (1,976)
Interest income  19   419   30 
Other income, net  828   2,260   2,175 
Income before income taxes  399,386   276,270   442,619 
Income tax provision  154,193   109,375   168,183 
Net income $245,193  $166,895  $274,436 
EARNINGS PER SHARE            
Basic $1.14  $0.77  $1.28 
Diluted $1.14  $0.77  $1.27 
Dividends paid per share $0.42  $0.40  $0.52 

Years ended December 31, 2016  2015  2014 
REVENUES $728,974  $1,263,840  $2,337,413 
COSTS AND EXPENSES:            
Cost of revenues (exclusive of items shown separately below)  607,888   986,144   1,493,082 
Selling, general and administrative expenses  150,690   156,579   197,117 
Depreciation and amortization  217,258   270,977   230,813 
(Gain) loss on disposition of assets, net  (7,920)  6,417   15,472 
Operating (loss) profit  (238,942)  (156,277)  400,929 
Interest expense  (681)  (2,032)  (1,431)
Interest income  467   83   19 
Other (expense) income, net  (204)  5,185   (131)
(Loss) income before income taxes  (239,360)  (153,041)  399,386 
Income tax (benefit) provision  (98,114)  (53,480)  154,193 
Net (loss) income $(141,246) $(99,561) $245,193 
(LOSS) EARNINGS PER SHARE            
Basic $(0.66) $(0.47) $1.14 
Diluted $(0.66) $(0.47) $1.14 
Dividends paid per share $0.050  $0.155  $0.420 

The accompanying notes are an integral part of these statements.

34

 37

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

RPC, INC. AND SUBSIDIARIES

(in thousands except per share data)


Years ended December 31, 2014  2013  2012 
NET INCOME $245,193  $166,895  $274,436 
OTHER COMPREHENSIVE INCOME, NET OF TAXES:            
Pension adjustment  (6,486)  4,928   (1,707)
Foreign currency translation  (1,124)  (778)  265 
Unrealized loss on securities, net of reclassification adjustments  (108)  (19)  (158)
COMPREHENSIVE INCOME $237,475  $171,026  $272,836 

Years ended December 31, 2016  2015  2014 
NET (LOSS) INCOME $(141,246) $(99,561) $245,193 
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXES:            
Pension adjustment  (788)  1,531   (6,486)
Foreign currency translation  652   (1,801)  (1,124)
Unrealized gain (loss) on securities, net reclassification adjustments  3   134   (108)
COMPREHENSIVE (LOSS) INCOME $(141,379) $(99,697) $237,475 

The accompanying notes are an integral part of these statements.

35

 38

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
RPC, INC. AND SUBSIDIARIES

(in thousands)

 
 
Accumulated
Other
Comprehensive
Income (Loss)
Three Years Ended
December 31, 2014  
 Common Stock    
Capital in
Excess of
Par Value
    
Retained
Earnings
        Total  
Shares  Amount
Balance, December 31, 2011  221,188  $22,119  $—  $753,119  $(12,646) $762,592 
Stock issued for stock incentive plans and other, net  1,530   152   11,105   —   —   11,257 
Stock purchased and retired  (2,011)  (201)  (13,885)  (16,515)  —   (30,601)
Increased ownership interest in subsidiary, net of taxes  —   —   —   (5,507)  —   (5,507)
Net income  —   —   —   274,436   —   274,436 
Pension adjustment, net of taxes  —   —   —   —   (1,707)  (1,707)
Foreign currency translation, net of taxes  —   —   —   —   265   265 
Unrealized loss on securities, net of taxes  —   —   —   —   (158)  (158)
Dividends declared  —   —   —   (114,069)  —   (114,069)
Excess tax benefits for share-based payments  —   —   2,724   —   —   2,724 
Three-for-two stock split  (563)  (56)  56   —   —   — 
Balance, December 31, 2012  220,144   22,014   —   891,464   (14,246)  899,232 
Stock issued for stock incentive plans, net  699   70   8,107   —   —   8,177 
Stock purchased and retired  (1,857)  (185)  (11,285)  (13,652)  —   (25,122)
Net income  —   —   —   166,895   —   166,895 
Pension adjustment, net of taxes  —   —   —   —   4,928   4,928 
Foreign currency translation  —   —   —   —   (778)  (778)
Unrealized loss on securities, net of taxes  —   —   —   —   (19)  (19)
Dividends declared  —   —   —   (87,789)  —   (87,789)
Excess tax benefits for share-based payments  —   —   3,178   —   —   3,178 
Balance, December 31, 2013  218,986   21,899   —   956,918   (10,115)  968,702 
Stock issued for stock incentive plans, net  569   57   9,017   —   —   9,074 
Stock purchased and retired  (3,016)  (302)  (13,353)  (35,942)  —   (49,597)
Net income  —   —   —   245,193   —   245,193 
Pension adjustment, net of taxes  —   —   —   —   (6,486)  (6,486)
Foreign currency translation  —   —   —   —   (1,124)  (1,124)
Unrealized loss on securities, net of taxes  —   —   —   —   (108)  (108)
Dividends declared  —   —   —   (91,608)  —   (91,608)
Excess tax benefits for share-based payments  —   —   4,336   —   —   4,336 
Balance, December 31, 2014  216,539  $21,654  $—  $1,074,561  $(17,833) $1,078,382 

Three Years Ended Common Stock  

Capital in

Excess of

  Retained  

Accumulated

Other

Comprehensive

    
December 31, 2016 Shares  Amount  Par Value  Earnings  Income (Loss)  Total 
Balance, December 31, 2013  218,986  $21,899  $—  $956,918  $(10,115) $968,702 
Stock issued for stock incentive plans, net  569   57   9,017   —   —   9,074 
Stock purchased and retired  (3,016)  (302)  (13,353)  (35,942)  —   (49,597)
Net income  —   —   —   245,193   —   245,193 
Pension adjustment, net of taxes  —   —   —   —   (6,486)  (6,486)
Foreign currency translation  —   —   —   —   (1,124)  (1,124)
Unrealized loss on securities, net of taxes  —   —   —   —   (108)  (108)
Dividends declared  —   —   —   (91,608)  —   (91,608)
Excess tax benefits for share-based payments  —   —   4,336   —   —   4,336 
Balance, December 31, 2014  216,539   21,654   —   1,074,561   (17,833)  1,078,382 
Stock issued for stock incentive plans, net  791   79   9,802   —   —   9,881 
Stock purchased and retired  (339)  (34)  (11,212)  7,153   —   (4,093)
Net loss  —   —   —   (99,561)  —   (99,561)
Pension adjustment, net of taxes  —   —   —   —   1,531   1,531 
Foreign currency translation  —   —   —   —   (1,801)  (1,801)
Unrealized gain on securities, net of taxes and reclassification adjustment  —   —   —   —   134   134 
Dividends declared  —   —   —   (33,602)  —   (33,602)
Excess tax benefits for share-based payments  —   —   1,410   —   —   1,410 
Balance, December 31, 2015  216,991   21,699   —   948,551   (17,969)  952,281 
Stock issued for stock incentive plans, net  796   80   9,508   —   —   9,588 
Stock purchased and retired  (298)  (30)  (9,935)  6,708   —   (3,257)
Net loss  —   —   —   (141,246)  —   (141,246)
Pension adjustment, net of taxes  —   —   —   —   (788)  (788)
Foreign currency translation  —   —   —   —   652   652 
Unrealized gain on securities, net of taxes and reclassification adjustment  —   —   —   —   3   3 
Dividends declared  —   —   —   (10,861)  —   (10,861)
Excess tax benefits for share-based payments  —   —   427   —   —   427 
Balance, December 31, 2016  217,489  $21,749  $—  $803,152  $(18,102) $806,799 

The accompanying notes are an integral part of these statements.

36

 39

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
RPC, Inc. and Subsidiaries

(in thousands)

 
Years ended December 31, 2014  2013  2012 
OPERATING ACTIVITIES      
Net income
 $245,193  $166,895  $274,436 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation, amortization and other non-cash charges  233,940   215,812   214,153 
Stock-based compensation expense  9,074   8,177   7,860 
Loss on disposition of assets, net  15,472   9,371   6,099 
Deferred income tax provision (benefit)  12,354   (13,060)  4,821 
Excess tax benefits for share-based payments  (4,336)  (3,178)  (2,724)
(Increase) decrease in assets:            
Accounts receivable  (198,021)  (49,959)  73,809 
Income taxes receivable  (19,059)  1,692   9,295 
Inventories  (29,708)  14,078   (40,354)
Prepaid expenses  2   1,519   (2,284)
Other current assets  (749)  1,114   26,189 
Other non-current assets  (2,238)  (1,881)  (6,415)
Increase (decrease) in liabilities:            
Accounts payable  36,421   14,062   (4,929)
Income taxes payable  944   (6,428)  (4,277)
Accrued payroll and related expenses  13,221   4,585   (1,627)
Accrued insurance expenses  (440)  (80)  408 
Accrued state, local and other taxes  1,819   (2,324)  2,260 
Other accrued expenses  (775)  (1,548)  1,412 
Pension liabilities  2,219   3,183   (589)
Long-term accrued insurance expenses  (126)  (175)  1,400 
Other long-term liabilities  7,550   3,769   990 
Net cash provided by operating activities  322,757   365,624   559,933 
INVESTING ACTIVITIES            
Capital expenditures  (371,502)  (201,681)  (328,936)
Proceeds from sale of assets  18,707   11,071   19,309 
Purchase of business  —   (17,044)  — 
Increased ownership interest in subsidiary  —   —   (6,211)
Investment in joint venture  (2,554)  —   — 
Net cash used for investing activities  (355,349)  (207,654)  (315,838)
FINANCING ACTIVITIES            
Payment of dividends  (91,608)  (87,789)  (114,069)
Borrowings from notes payable to banks  1,168,100   686,700   844,050 
Repayments of notes payable to banks  (996,900)  (740,400)  (940,350)
Debt issue costs for notes payable to banks  (667)  —   — 
Excess tax benefits for share-based payments  4,336   3,178   2,724 
Cash paid for common stock purchased and retired  (49,597)  (25,122)  (30,224)
Proceeds received upon exercise of stock options  —   —   544 
Net cash provided by (used for) financing activities  33,664   (163,433)  (237,325)
Net increase (decrease) in cash and cash equivalents  1,072   (5,463)  6,770 
Cash and cash equivalents at beginning of year  8,700   14,163   7,393 
Cash and cash equivalents at end of year $9,772  $8,700  $14,163 

Years ended December 31, 2016  2015  2014 
OPERATING ACTIVITIES            
Net (loss) income $(141,246) $(99,561) $245,193 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:            
Depreciation, amortization and other non-cash charges  221,038   275,413   233,940 
Stock-based compensation expense  10,218   9,960   9,074 
(Gain) loss on disposition of assets, net  (7,920)  6,417   15,472 
Deferred income tax (benefit) provision  (34,209)  (33,013)  12,354 
Excess tax benefits for share-based payments  (427)  (1,410)  (4,336)
(Increase) decrease in assets:            
Accounts receivable  64,715   401,753   (198,021)
Income taxes receivable  (5,355)  (20,867)  (19,059)
Inventories  20,294   26,667   (29,708)
Prepaid expenses  2,244   161   2 
Other current assets  2   (2,881)  (749)
Other non-current assets  (1,851)  1,768   (2,238)
Increase (decrease) in liabilities:            
Accounts payable  (6,250)  (62,446)  36,421 
Income taxes payable  (2,710)  6,695   944 
Accrued payroll and related expenses  (4,540)  (33,143)  13,221 
Accrued insurance expenses  (197)  (1,336)  (440)
Accrued state, local and other taxes  256   (3,983)  1,819 
Other accrued expenses  5,017   (180)  (775)
Pension liabilities  (1,385)  1,021   2,219 
Long-term accrued insurance expenses  (1,811)  1,249   (126)
Other long-term liabilities  (14,179)  1,508   7,550 
Net cash provided by operating activities  101,704   473,792   322,757 
INVESTING ACTIVITIES            
Capital expenditures  (33,938)  (167,426)  (371,502)
Proceeds from sale of assets  12,599   9,843   18,707 
Investment in joint venture  —   —   (2,554)
Net cash used for investing activities  (21,339)  (157,583)  (355,349)
FINANCING ACTIVITIES            
Payment of dividends  (10,861)  (33,602)  (91,608)
Borrowings from notes payable to banks  —   613,300   1,168,100 
Repayments of notes payable to banks  —   (837,800)  (996,900)
Debt issue costs for notes payable to banks  (35)  —   (667)
Excess tax benefits for share-based payments  427   1,410   4,336 
Cash paid for common stock purchased and retired  (3,257)  (4,093)  (49,597)
Net cash (used for) provided by financing activities  (13,726)  (260,785)  33,664 
Net increase in cash and cash equivalents  66,639   55,424   1,072 
Cash and cash equivalents at beginning of year  65,196   9,772   8,700 
Cash and cash equivalents at end of year $131,835  $65,196  $9,772 

The accompanying notes are an integral part of these statements.

37

 40

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

Note 1: Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (“RPC” or the “Company”). All significant intercompany accounts and transactions have been eliminated.

Nature of Operations

RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States of America, including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services and equipment provided include Technical Services such as pressure pumping services, coiled tubing services, snubbing services (also referred to as hydraulic workover services), nitrogen services, and firefighting and well control, and Support Services such as the rental of drill pipe and other specialized oilfield equipment and oilfield training.

training and consulting.

Common Stock

RPC is authorized to issue 349,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends when, as, and if declared by the Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders.

Preferred Stock

RPC is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2014,2016, there were no shares of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior to the common stock with respect to dividend rights and rights on liquidation.

Dividends

On January 27,July 28, 2015, the Board of Directors declaredvoted to temporarily suspend RPC’s regular quarterly dividend to common stockholders. However, the Company paid a $0.105special year-end cash dividend of $0.05 per share cash dividend payable March 10, 2015 to common stockholders during the fourth quarter of record at the close of business on February 10, 2015.

2016.

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 of America 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.

Significant estimates are used in the determination of the allowance for doubtful accounts, income taxes, accrued insurance expenses, depreciable lives of assets, and pension liabilities.

Revenues

RPC’s revenues are generated principally from providing services and the related equipment. Revenues are recognized when the services are rendered and collectibility 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 statementstatements of operations and excluded from revenues.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Concentration of Credit Risk

Substantially all of the Company’s customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company provided oilfield services to several hundred customers during each of the last three years. There were no customers that accounted for more than 10 percent of the Company’s revenues during 2014, 2013in 2016 and 2012.2014; and one customer accounted for approximately 23 percent of revenues in 2015. Additionally, there were no single customercustomers that accounted for more than 10 percent of accounts receivable as of December 31, 20142016 and 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years endedone customer accounted for approximately 14 percent of accounts receivable as of December 31, 2014, 2013 and 20122015.

 

Cash and Cash Equivalents

Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. RPC maintains cash equivalents and investments in one or more large financial institutions, and RPC’s policy restricts investment in any securities rated less than “investment grade” by national rating services.

Investments

Investments classified as available-for-sale securities are stated at their fair values, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value judged to be other than temporary, interest, and dividends with respect to available-for-sale securities are included in interest income. The Company did not realize anyrealized no gains or losses during 2014, 2013 or 2012 on its available-for-sale securities.securities during 2016 and 2014, and an immaterial realized loss during 2015. Securities that are held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) are classified as trading. See Note 10 for further information regarding the SERP. The change in fair value of trading securities is presented as compensation cost in other income (expense)selling, general and administrative expenses on the consolidated statements of operations.

Management determines the appropriate classification of investments at the time of purchase and re-evaluates such designations as of each balance sheet date.

Accounts Receivable

The majority of the Company’s accounts receivable is due principally from major and independent oil and natural gas exploration and production companies. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are considered past due after 60 days and are stated at amounts due from customers, net of an allowance for doubtful accounts.

Allowance for Doubtful Accounts

Accounts receivable are carried at the amounts due from customers, reduced by an allowance for estimated amounts that may not be collectible in the future. The estimated allowance for doubtful accounts is based on an evaluation of industry trends, financial condition of customers, historical write-off experience, current economic conditions, and in the case of international customers, judgments about the economic and political environment of the related country and region. Accounts are written off against the allowance for doubtful accounts when the Company determines that amounts are uncollectible and recoveries of previously written-off accounts are recorded when collected.

Inventories

Inventories, which consist principally of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) components and attachments for manufactured equipment used in providing services, are recorded at the lower of cost or market value. Cost is determined using first-in, first-out (“FIFO”) method or the weighted average cost method. Market value is determined based on replacement cost for materials and supplies. The Company regularly reviews inventory quantities on hand and records a write-down for excess or obsolete inventory based primarily on its estimated forecast of product demand, market conditions, production requirements and technological developments.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Property, Plant and Equipment

Property, plant and equipment, including software costs, are reported at cost less accumulated depreciation and amortization, which is provided on a straight-line basis over the estimated useful lives of the assets. Annual depreciation and amortization expenses are computed using the following useful lives: operating equipment, 3 to 20 years; buildings and leasehold improvements, 15 to 39 years or the life of the lease; furniture and fixtures, 5 to 7 years; software, 5 years; and vehicles, 3 to 5 years. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income from operations. Expenditures for additions, major renewals, and betterments are capitalized. Expenditures for restoring an identifiable asset to working condition or for maintaining the asset in good working order constitute repairs and maintenance and are expensed as incurred.

RPC records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. 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 should be recognized. Management believes that the long-lived assets in the accompanying balance sheets have not been impaired.

39
During 2015, RPC recorded immaterial write-downs on certain equipment to comply with the Company’s policy to store and maintain key equipment in an efficient manner.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012Goodwill

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired.  The carrying amount of goodwill was $32,150,000 at December 31, 20142016 and $31,861,000 at December 31, 2013.  During 2013, the Company completed an acquisition of assets of a business totaling $17,044,000 that included goodwill of $7,768,000.2015. Goodwill is reviewed annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount, for impairment. In light of the operating losses for the years ended December 31, 2016 and 2015, the Company proceeded to step 1 of the goodwill impairment test at the annual test date in 2016.  The Company completesestimated the fair value of each of its reporting unit using a discounted cash flow analysis based on management’s short-term and long-term forecast of operating results.  The discounted cash flow analysis for each reporting unit includes assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures, the timing of an anticipated market recovery and the timing of expected future cash flows. Based on the analysis, the Company concluded that the fair value of its reporting units exceeded their carrying amount and therefore no impairment of goodwill occurred for the year ended December 31, 2016.  The Company completed on an annual basis a comprehensive qualitative assessment of the various factors that impact goodwill for the years ended December 31, 2015 and 2014, and concluded it is more likely than not that the fair value of its reporting units exceedsexceeded their carrying amounts as of the annual test date.  Therefore, the Company did not proceed to Step 1 of the goodwill impairment test in 2014, 20132015 and 2012.2014. Based on the qualitative assessment in 2015 and 2014, the Company concluded that no impairment of its goodwill occurred for the years ended December 31, 2014, 20132015 and 2012.

2014.

Advertising

Advertising expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $1,296,000 in 2016, $2,058,000 in 2015, and $3,959,000 in 2014, $3,458,000 in 2013, and $2,965,000 in 2012.

2014.

Insurance Expenses

RPC self insures,self-insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, vehicle and equipment liability, and employee health insurance plan costs. The estimated cost of claims under these self-insurance programs is estimated and 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 portion of these estimated outstanding claims expected to be paid more than one year in the future is classified as long-term accrued insurance expenses.

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. The Company establishes a valuation allowance against the carrying value of deferred tax assets when the Company determines that it is more likely than not that the asset will not be realized through future taxable income.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Defined Benefit Pension Plan

The Company has a defined benefit pension plan that provides monthly benefits upon retirement at age 65 to eligible employees with at least one year of service prior to 2002. In 2002, the Company’s Board of Directors approved a resolution to cease all future retirement benefit accruals under the defined benefit pension plan. See Note 10 for a full description of this plan and the related accounting and funding policies.

Share Repurchases

The Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is allocated to capital in excess of par value and retained earnings if capital in excess of par value is depleted.

The Company tracks capital in excess of par value on a cumulative basis and at each reporting period, discloses the excess over capital in excess of par value as part of stock purchased and retired in the consolidated statements of stockholders’ equity.

Earnings per Share

FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. The Company considers all outstanding unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, to be participating securities. The Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends, and therefore are considered participating securities. See Note 10 for further information on restricted stock granted to employees.

The basic and diluted calculations differ as a result of the dilutive effect of stock options, time lapse restricted shares and performance restricted shares included in diluted earnings per share, but excluded from basic (loss) earnings per share. Basic and diluted (loss) earnings per share are computed by dividing net (loss) income by the weighted average number of shares outstanding during the respective periods.

40

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc.Restricted shares of common stock (participating securities) outstanding and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Aa reconciliation of weighted average shares outstanding along with the earnings per share attributable to restricted shares of common stock (participating securities) is as follows:
(In thousands except per share data ) 2014  2013  2012 
Net income available for stockholders: $245,193  $166,895  $274,436 
Less:  Dividends paid            
Common stock  (90,231)  (86,282)  (111,966)
Restricted shares of common stock  (1,377)  (1,507)  (2,103)
Undistributed earnings $153,585  $79,106  $160,367 
             
Allocation of undistributed earnings:            
Common stock $151,049  $77,620  $157,093 
Restricted shares of common stock  2,536   1,486   3,274 
             
Basic shares outstanding:
            
Common stock  211,208   211,305   210,707 
Restricted shares of common stock  3,632   4,199   4,534 
   214,840   215,504   215,241 
Diluted shares outstanding:            
Common stock  211,208   211,305   210,707 
Dilutive effect of stock-based awards  1,049   1,229   1,555 
   212,257   212,534   212,262 
Restricted shares of common stock  3,632   4,199   4,534 
   215,889   216,733   216,796 
Basic earnings per share:            
Common stock:            
Distributed earnings $0.43  $0.40  $0.53 
Undistributed earnings  0.71   0.37   0.75 
  $1.14  $0.77  $1.28 
Restricted shares of common stock:            
Distributed earnings $0.38  $0.36  $0.46 
Undistributed earnings  0.70   0.35   0.72 
  $1.08  $0.71  $1.18 
Diluted earnings per share:            
Common Stock:            
Distributed earnings $0.43  $0.40  $0.53 
Undistributed earnings  0.71   0.37   0.74 
  $1.14  $0.77  $1.27 

(In thousands except per share data ) 2016  2015  2014 
Net (loss) income available for stockholders $(141,246) $(99,561) $245,193 
Less:  Adjustments for losses attributable to participating securities  (147)  (240)  (3,913)
Net loss used in calculating losses per share $(141,393) $(99,801) $241,280 
             
Weighted average shares outstanding (including participating securities)  217,509   213,632   214,840 
Adjustment for participating securities  (3,282)  (3,359)  (3,632)
Shares used in calculating basic losses per share  214,227   210,273   211,208 
Dilutive effect of stock based awards  —   —   1,049 
Shares used in calculating diluted losses per share  214,227   210,273   212,257 

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, and debt. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The Company’s investments are classified as available-for-sale securities with the exception of investments held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) which are classified as trading securities. All of these securities are carried at fair value in the accompanying consolidated balance sheets. See Note 8 for additional information.

Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for additional information.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Recent Accounting Pronouncements

During the year ended December 31, 2014,2016, the Financial Accounting Standards Board (FASB) issued the following applicable Accounting Standards Updates (ASU)(ASUs):

Recently Adopted Accounting Pronouncements:

Accounting Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this ASU require that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent should release the cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.  Sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity; and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date.  The Company adopted these provisions in the first quarter of 2014 and adoption did not have a material impact on the Company’s consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  The amendments in this ASU requires an unrecognized tax benefit, or a portion of thereof, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward.  The only exception would be if the deferred taxes related to these items are not available to settle any additional income taxes that would result from the disallowance of a tax position either by statute or at the entity’s choosing.   In such cases, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  The Company adopted these provisions in the first quarter of 2014 and adoption did not have a material impact on the Company’s consolidated financial statements.
·ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.The amendments eliminate the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. Adjustments to provisional amounts that are identified during the measurement period are required to be recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed at the acquisition date and either disclosed on the face of the income statement or in the notes by each category. The Company adopted these provisions in the first quarter of 2016 and plans to apply the provisions for all future business combinations. The adoption did not have a material impact on the Company’s consolidated financial statements.

·ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share (or its equivalent) practical expedient. In addition, there is no requirement to make certain disclosures for such investments. The Company adopted these provisions in the first quarter of 2016 applied retrospectively and has excluded the pension assets that are measured using the net asset value per share from the fair value hierarchy disclosure. The adoption did not have a material impact on the Company’s consolidated financial statements.

·ASU No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.Financial statements are generally prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This ASU provides guidance on management’s responsibility to include footnote disclosures when there is substantial doubt about the organization’s ability to continue as a going concern. The Company adopted these provisions in the first quarter of 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern. The adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted:

Accounting Standards Update No. 2015-01, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to

To be an ordinary and usual activity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, then the extraordinary item needs to be segregated from the results of ordinary operations and disclosed separatelyadopted in the income statement, net of tax, after income from continuing operations. Disclosure of all applicable income taxes and presentation or disclosure of earnings-per-share data applicable to the extraordinary item is required. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.2017:

·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 amendments do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments will be adopted in the first quarter of 2017 and applied prospectively. The Company plans to adopt the provisions for the year ending December 31, 2016 and currently does not expect the adoption of these provisions to have a material impact on its 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 amendments will be adopted in the first quarter of 2017 and applied prospectively. The Company does not expect the adoption of these provisions to have a material impact on its consolidated financial statements.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

·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 to either estimate expected forfeitures or to account for them as they occur. The Company will adopt these provisions in the first quarter of 2017 and adoption of these provisions will result in the inclusion of excess tax benefits and deficiencies as a component of income tax expense which may increase volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based compensation awards are dependent on the Company’s stock price as of the date the stock awards vest. Based on the Company’s current stock price and its stock incentive plan awards, this change resulted in a beneficial adjustment of approximately $2.5 million to the provision for income taxes in the first quarter of 2017. The Company will continue to estimate expected forfeitures.

·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 amendments will be adopted in the first quarter of 2017 and the Company does not expect the adoption to have a material impact on its consolidated financial statements.

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 toRevenue 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 ASUs 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.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Current Status of implementation:

The Company is currently analyzing the effect of the standardacross 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 consolidated financial statements.

Accounting Standards Update No. 2014-15, Presentation of Financial Statements —Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The provisions in this ASU are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Currently, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. This ASU provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern and the related footnote disclosures. The amendments are effective for the year ending December 31, 2016, and for interim periods beginning the first quarter of 2017, with early application permitted. The Company plans to adopt the provisions for the year ending December 31, 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern.  The Company currently does not expect the adoption to have a material impact on its consolidated financial statements.
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).  This ASU affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). 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. To achieve that core principle, an entity should apply a five step process – (i) identifying the contract(s) with a customer, (ii)  identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation.  The Company plans to adopt these provisionsstandard in the first quarter of 2017 and is currently evaluating2018 using the impactmodified retrospective method by recognizing the cumulative effect of these provisions on its financial statements. Early adoption is not permitted.
Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The amendments in the ASU require that only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment.  In addition,initially applying the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information aboutstandard as an adjustment to the assets, liabilities, income, and expensesopening balance of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 with early adoption permitted.  The Company plans to adopt these provisions in the first quarter of 2015 and does not expect the adoption to have a material impact on the Company’sretained 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.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

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 that credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration should be presented as an allowance rather than a write-down. It also allows recording of credit loss reversals in current period net income. The amendments are effective 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.

Note 2: Accounts Receivable

Accounts receivable, net consists of the following:


December 31, 2014  2013 
(in thousands)    
Trade receivables:    
Billed $521,693  $368,583 
Unbilled  125,363   80,806 
Other receivables  3,025   1,240 
Total  650,081   450,629 
Less: allowance for doubtful accounts  (15,351)  (13,497)
Accounts receivable, net $634,730  $437,132 

December 31, 2016  2015 
(in thousands)        
Trade receivables:        
Billed $122,216  $190,567 
Unbilled  39,223   40,731 
Other receivables  10,280   11,494 
Total  171,719   242,792 
Less: allowance for doubtful accounts  (2,553)  (10,605)
Accounts receivable, net $169,166  $232,187 

Trade receivables relate to sale of our services and products, for which credit is extended based on our evaluation of the customer’s credit worthiness. Unbilled receivables represent revenues earned but not billed to the customer until future dates, usually within one month. Other receivables consistrelate primarily of amounts due from purchasersto sale of Company property and rebates from suppliers.

Changes in the Company’s allowance for doubtful accounts are as follows:


Years Ended December 31, 2014  2013 
(in thousands)    
Beginning balance $13,497  $9,110 
Bad debt expense  2,280   8,815 
Accounts written-off  (1,225)  (5,421)
Recoveries  799   993 
Ending balance $15,351 $13,497 

Years Ended December 31, 2016  2015 
(in thousands)        
Beginning balance $10,605  $15,351 
Bad debt expense (reduction)  6,021   (2,958)
Accounts written-off  (14,101)  (2,825)
Recoveries  28   1,037 
Ending balance $2,553  $10,605 

Note 3: Inventories

Inventories are $155,611,000$108,316,000 at December 31, 20142016 and $126,604,000$128,441,000 at December 31, 20132015 and consist of raw materials, parts and supplies.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Note 4: Property, Plant and Equipment

Property, plant and equipment are presented at cost net of accumulated depreciation and consist of the following:

December 31, 2014  2013 
(in thousands)
Land $18,563  $19,264 
Buildings and leasehold improvements  134,994   130,072 
Operating equipment  1,425,846   1,231,504 
Computer software  19,005   17,121 
Furniture and fixtures  7,835   7,737 
Vehicles  479,628   387,854 
Construction in progress  2,675   2,076 
Gross property, plant and equipment  2,088,546   1,795,628 
Less: accumulated depreciation  (1,239,163)  (1,069,321)
Net property, plant and equipment $849,383  $726,307 

December 31, 2016  2015 
(in thousands)        
Land $19,070  $19,056 
Buildings and leasehold improvements  142,741   142,715 
Operating equipment  1,432,007   1,440,508 
Computer software  22,050   19,650 
Furniture and fixtures  8,056   8,043 
Vehicles  469,570   480,899 
Construction in progress  —   6 
Gross property, plant and equipment  2,093,494   2,110,877 
Less: accumulated depreciation  (1,595,508)  (1,422,542)
Net property, plant and equipment $497,986  $688,335 

Depreciation expense was $220.6 million in 2016, $274.4 million in 2015, and $233.4 million in 2014, $215.4 million in 2013, and $214.9 million in 2012, and includes amounts recorded as costs of salesrevenues and inventory. There were no capital leases outstanding as of December 31, 20142016 and December 31, 2013.2015. The Company had accounts payable for purchases of property and equipment of $3.4 million as of December 31, 2016, $2.4 million as of December 31, 2015, and $38.5 million as of December 31, 2014, $19.7 million2014.

Effective January 1, 2015, the Company reassessed the useful life of a specific component of its pressure pumping equipment. Prior to January 1, 2015, this component was recorded as property, plant and equipment and depreciated over an expected useful life of 18 months. As a result of this reassessment, the Company concluded that this component is no longer a long-lived asset, but instead a consumable supply inventory item. Accordingly, effective January 1, 2015, the cost of this component was expensed as repairs and maintenance as part of cost of revenues at the time of installation. Management deemed the change preferable because it more closely reflects the pattern of consumption of this component as a result of continual increases in wear and tear resulting from harsher geological environments.

This change was accounted for as a change in accounting estimate effected by a change in accounting principle. The net impact of this change in accounting estimate effected by a change in accounting principle on operating income and net income is not material. The change has resulted in an increase in the cost of revenues of $41,919,000 during 2015, while loss on dispositions and depreciation expense relating to this component decreased by a comparable amount during the period. Additionally, due to the change in accounting estimate effected by a change in accounting principle, purchases and deployment of this component will no longer be reflected as a capital expenditure under the investing activities section in the consolidated statement of cash flows, but instead will be reflected within cash flows from operating activities. The remaining net book value of these components at December 31, 2013,2014 was $16,406,000 and $24.4 million aswas depreciated over an estimated weighted average remaining useful life of December 31, 2012.

43
approximately 12 months. Loss on disposition related to this component totaled $21,408,000 in 2014.

 49

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

Note 5: Income Taxes

The following table lists the components of the (benefit) provision for income taxes:

Years ended December 31, 2014  2013  2012 
(in thousands)      
Current provision:      
Federal $119,074  $104,890  $147,580 
State  19,858   15,627   14,673 
Foreign  2,907   1,918   1,109 
Deferred provision (benefit):            
Federal  11,514   (12,025)  5,027 
State  840   (1,035)  (206)
Total income tax provision $154,193  $109,375  $168,183 

Years ended December 31, 2016  2015  2014 
(in thousands)            
Current (benefit) provision:            
Federal $(43,993) $(24,727) $119,074 
State  (24,479)  (3,638)  19,858 
Foreign  4,567   7,898   2,907 
Deferred (benefit) provision:            
Federal  (31,505)  (31,178)  11,514 
State  (2,704)  (1,835)  840 
Total income tax (benefit) provision $(98,114) $(53,480) $154,193 

Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows:

Years ended December 31, 2014  2013  2012 
Federal statutory rate  35.0%  35.0%  35.0%
State income taxes, net of federal benefit  3.3   3.8   3.2 
Tax credits  (0.7)  (0.3)  (0.3)
Non-deductible expenses  0.4   0.5   0.5 
Other  0.6   0.6   (0.4)
Effective tax rate  38.6%  39.6%  38.0%

Years ended December 31, 2016  2015  2014 
Federal statutory rate  35.0%  35.0%  35.0%
State income taxes, net of federal benefit  1.3   —   3.3 
Tax credits  0.1   0.3   (0.7)
Non-deductible expenses  (0.7)  (1.3)  0.4 
Change in contingencies  6.6   —   — 
Other  (1.3)  0.9   0.6 
Effective tax rate  41.0%  34.9%  38.6%

Significant components of the Company’s deferred tax assets and liabilities are as follows:

December 31, 2016  2015 
(in thousands)        
Deferred tax assets:        
Self-insurance $5,907  $7,274 
Pension  11,995   12,048 
State net operating loss carryforwards  1,455   370 
Bad debt  991   4,041 
Accrued payroll  857   1,330 
Stock-based compensation  5,847   5,885 
All others  2,483   4,704 
Valuation allowance  (356)  (276)
Gross deferred tax assets  29,179   35,376 
Deferred tax liabilities:        
Depreciation  (95,606)  (137,606)
Goodwill amortization  (9,340)  (8,887)
Basis differences in variable interest entities  (5,281)  (4,876)
Basis differences in joint ventures  (396)  518 
All others  (22)  (20)
Gross deferred tax liabilities  (110,645)  (150,871)
Net deferred tax liabilities $(81,466) $(115,495)

50

December 31, 2014  2013 
(in thousands)    
Deferred tax assets:    
Self-insurance $7,675  $7,247 
Pension  12,555   8,018 
State net operating loss carryforwards  451   484 
Bad debts  5,755   4,748 
Accrued payroll  2,833   2,019 
Stock-based compensation  5,583   5,183 
Tangible property regulations 481(a)  —   7,665 
All others  2,121   1,541 
Valuation allowance  (2)  (83)
Gross deferred tax assets  36,971   36,822 
Deferred tax liabilities:        
Depreciation  (172,813)  (165,960)
Goodwill amortization  (7,974)  (7,094)
All Others  (3,739)  (2,759)
Gross deferred tax liabilities  (184,526)  (175,813)
Net deferred tax liabilities $(147,555) $(138,991)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

As of December 31, 2014,2016, undistributed earnings of the Company’s foreign subsidiaries totaled $12.9$10.2 million. ThoseAdditional U.S. taxes due upon full repatriation would be negligible. However, those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries. The Company’s current intention is to permanently reinvest funds held in our foreign subsidiaries outside of the U.S., with the possible exception of repatriation of funds that have been previously subject to U.S. federal and state taxation or when it would be tax effective through the utilization of foreign tax credits, or would otherwise create no additional U.S. tax cost.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

As of December 31, 2014,2016, the Company has net operating loss carry forwardscarryforwards related to state income taxes of approximately $11.3$33.5 million that will expire between 20152017 and 2034.2035. As of December 31, 2014,2016, the Company has a negligible valuation allowance of approximately $356 thousand, representing the tax affected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset.

Total net income tax (refunds) payments were $(42.4) million in 2016, $(7.9) million in 2015, and $152.2 million in 2014, $122.9 million in 2013, and $158.7 million in 2012.

2014.

The Company and its subsidiaries are subject to U.S. federal and state income taxes in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 20112013 through 20142016 tax years remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

The InternalCompany’s subsidiaries are also subject to foreign income taxes in certain jurisdictions. In November 2016, the Canadian Revenue Service (IRS) commencedAgency (CRA) initiated an examination of the Company’s US federal income tax returnCanadian subsidiary for the 2011 tax year during the fourth quarter ofperiods 2013 that is anticipated to be completed by the middle of– 2015. As of December 31, 2014,2016, the IRSCRA has not proposed any adjustments in connection with thethis examination.

During 2014 and 2013,2016, the Company recognized an increasea decrease in its liability for unrecognized tax benefits in the current year related primarily due to refund claims filed forsettlements with state income taxes.  Iftax authorities. The remaining liability, if recognized, the liability would affect our effective rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

  2014  2013 
Balance at January 1 $16,345,000  $38,000 
Additions based on tax positions related to the current year  5,193,000   3,430,000 
Additions for tax positions of prior years  1,729,000   12,877,000 
Balance at December 31 $23,267,000  $16,345,000 

  2016  2015 
Balance at January 1 $26,152,000  $23,267,000 
Additions based on tax positions related to the current year  0   2,171,000 
Additions for tax positions of prior years  0   714,000 
Reductions for tax positions of prior years  (23,937,000)  0 
Balance at December 31 $2,215,000  $26,152,000 

The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial as of December 31, 20142016 and 2013.

2015 were approximately $76 thousand and $411 thousand, respectively.

It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will significantly decrease in the next 12 months. These changes may result from, among other things, state tax settlements under or conclusions of ongoing examinations or reviews, however, quantification of an estimated range cannot be made at this time.

The Tax Increase Prevention Act of 2014 was signed into law on December 19, 2014 and included an extension for one year of the 50 percent bonus depreciation allowance. The provision specifically applied to qualifying property placed in service before January 1, 2015.  The acceleration of deductions on 2014 qualifying capital expenditures resulting from the bonus depreciation provision had no impact on our 2014 effective tax rate.
In September 2013, the U.S. Department of the Treasury issued final regulations under Internal Revenue Code Sections 162(a), 263(a), and 168 that provide guidance on the deduction and capitalization of expenditures related to tangible property.  Adoption of these regulations requires certain mandatory and elective accounting methods with respect to property and equipment, inventory and supplies.  RPC adopted these regulations as of January 1, 2014 and estimated favorable IRC Section 481(a) adjustments of approximately $21.7 million (gross).  Additionally, for assets placed in service after December 31, 2013, estimated accelerated deductions total approximately $16.9 million (gross).  This amount is subject to change as the analysis is finalized and method changes are filed under the new regulations during 2015.

Note 6: Long-Term Debt

The Company has a $350 million revolving credit facility with Banc of America Securities, LLC, SunTrust Robinson Humphrey, Inc,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%100 percent owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of RPCthe Company and its subsidiaries. The subsidiariesCertain of the Company thatCompany’s minor subsidiaries are not guarantors are considered minor.guarantors.

51
The facility has a general term of five years

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and provides for an unsecured line of credit of up to $350 million, which includes a $50 million letter of credit subfacility,Subsidiaries

Years ended December 31 2016, 2015 and a $25 million swingline subfacility.  2014

On January 17, 2014,June 30, 2016, the Company amended the revolving credit facility which extendedto (1) establish a borrowing base to be the maturity datelesser of all(a) $125 million or (b) the revolvingdifference 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 December 31, 2016, the Company was in compliance with this covenant.

Revolving loans from August 31, 2015 to January 17, 2019.  RPC incurred commitment fees and other debt related costs associated with the amendment of approximately $0.7 million.  Interest rates on the amended loans were reduced by 0.125% at all pricing levels under the amended revolving credit facility.  The amount of the swing line sub-facility as a result of the amendment was increased from $25 million to $35 million.

The Company incurred loan origination fees and other debt related costs associated with the facility in the aggregate of approximately $3.0 million.  These costs are being amortized to interest expense over the remaining term of the five year loan, and the net amount of $1.2 million at December 31, 2014 is classified as non-current other assets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Revolving loans under the Revolving Credit Agreement bear interest at one of the following two rates at the Company’s election:

●·the Base Rate, which is the highest of Bank of America’s “prime rate” for the day of the borrowing, 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 a rate per annum equal to(c) the one (1) month LIBOR rateEurodollar Rate plus 1.00%; in each case plus a margin that ranges from 0.125% to 1.125% based on a quarterly debt covenantconsolidated leverage ratio calculation; or

●with respect·the Eurodollar Rate, which is the rate per annum equal to any Eurodollar borrowings, Adjusted LIBOR (which equals LIBOR as increased to account for the maximum reserve percentages established by the U.S. Federal Reserve)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 debt covenantconsolidated leverage ratio calculation, ofon the unused portion of the credit facility.

The facility contains customary terms and conditions, including certain financial covenants and restrictions on indebtedness, dividend payments, business combinationsCompany has incurred loan origination fees and other debt related items.  Further,costs associated with the revolving credit facility contains financial covenants limitingin the ratioaggregate of approximately $3.0 million. These costs, net of amounts written off as a result of a reduction in the size of the Company’s consolidated debt-to-EBITDA to no more than 2.5 to 1, and limiting the ratio of the Company’s consolidated EBITDArevolving credit facility in 2015, are being amortized to interest expense to no less than 2 to 1.  The Company was in compliance with these covenants forover the year endedremaining term of the five-year loan, and the remaining net balance of $0.2 million at December 31, 2014.

2016 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, 2016 and $29.3 million as of December 31, 2015.

As of December 31, 2014,2016, RPC had no outstanding borrowings of $224.5 million under the facility andletters ofrevolving credit outstanding relating to self-insurance programs and contract bids totaling $29.3 million; therefore, a total of $96.2 million was available under the facility. Interest incurred and paid on the credit facility, interest capitalized related to facilities and equipment under construction, and the related weighted average interest rates were as follows for the periods indicated:

Years Ended December 31, 2016  2015  2014 
(in thousands except interest rate data)            
Interest incurred $449  $1,913  $2,295 
Capitalized interest $—  $534  $563 
Interest paid (net of capitalized interest) $284  $1,169  $1,314 
Weighted average interest rate  —%  2.2%  2.2%

52

Years Ended December 31, 2014  2013  2012 
(in thousands except interest rate data)      
Interest incurred $2,295  $2,090  $2,936 
Capitalized interest $563  $935  $1,026 
Interest paid (net of capitalized interest) $1,314  $618  $1,498 
Weighted average interest rate  2.2%  3.7%  2.3%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Note 7: 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, 2012 $(14,688) $29  $413  $(14,246)
Change during 2013:                
  Before-tax amount  6,976   (30)  (778)  6,168 
  Tax (expense) benefit  (2,546)  11   —   (2,535)
   Reclassification adjustment, net of taxes:                
        Amortization of net loss (1)
  498   —   —   498 
Total activity in 2013  4,928   (19)  (778)  4,131 
Balance at December 31, 2013 $(9,760) $10  $(365) $(10,115)
Change during 2014:                
  Before-tax amount  (10,745)  (170)  (1,124)  (12,039)
  Tax benefit  3,922   62   —   3,984 
   Reclassification adjustment, net of taxes:                
        Amortization of net loss (1)
  337   —   —   337 
Total activity in 2014  (6,486)  (108)  (1,124)  (7,718)
Balance at December 31, 2014 $(16,246) $(98) $(1,489) $(17,833)

  Pension
Adjustment		  Unrealized
Gain (Loss) On
Securities		  Foreign
Currency
Translation		  Total 
Balance at December 31, 2014 $(16,246) $(98) $(1,489) $(17,833)
Change during 2015:                
Before-tax amount  1,621   (16)  (1,801)  (196)
Tax (expense) benefit  (592)  6   —   (586)
Reclassification adjustment, net of taxes:                
Realized loss on securities  —   144   —   144 
Amortization of net loss(1)  502   —   —   502 
Total activity in 2015  1,531   134   (1,801)  (136)
Balance at December 31, 2015  (14,715)  36   (3,290)  (17,969)
Change during 2016:                
Before-tax amount  (2,039)  5   652   (1,382)
Tax (expense) benefit  744   (2)  —   742 
Reclassification adjustment, net of taxes:                
Realized loss on securities  —   —   —   — 
Amortization of net loss(1)  507   —   —   507 
Total activity in 2016  (788)  3   652   (133)
Balance at December 31, 2016 $(15,503) $39  $(2,638) $(18,102)

(1)Reported as part of selling, general and administrative expenses.
46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Note 8: Fair Value Disclosures

The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:

1.Level 1 – Quoted market prices in active markets for identical assets or liabilities.
2.
Level 2 –Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
3.Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of December 31, 20142016 and 2013:


  Fair Value Measurements at December 31, 2014 with: 
(in thousands)
 Quoted prices in
active markets for
identical assets		  Significant other
observable inputs		  Significant
unobservable
inputs		 
  (Level 1)  (Level 2)  (Level 3) 
Assets:      
Trading securities $—  $16,491  $— 
Available-for-sale securities – equity securities $275  $—  $— 

  Fair Value Measurements at December 31, 2013 with: 
(in thousands)
 Quoted prices in
active markets for
identical assets		  Significant other
observable inputs		  Significant
unobservable
inputs		 
  (Level 1)  (Level 2)  (Level 3) 
Assets:      
Trading securities $—  $13,963  $— 
Available-for-sale securities – equity securities $445  $—  $— 
2015:

  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             
                 
  Fair Value Measurements at December 31, 2015 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 $259  $259  $—  $— 
Investments measured at net asset value - trading securities $16,081             

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 10, 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. As a result, the Company measured the fair value of these investments using level 2 inputs. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods. For the year ended December 31, 20142016 there were no significant transfers in or out of levels 1, 2 or 3.

At

Under the Company’s revolving credit facility, there was no balance outstanding at December 31, 20142016 and 2013, amounts outstanding under the Company’s credit facility were $224,500,000 and $53,300,000 and2015. Outstanding balances based on quotesthe quote from the lender (level 2 inputs) areis similar to the fair values of these amountsvalue at the respective dates.same date. The borrowings under our revolving credit facility bear variable interest rates as described in Note 6. 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 or not it will elect this option for financial instruments it may acquire in the future.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Note 9: Commitments and Contingencies

Lease Commitments - Minimum annual rentals, principally for noncancelable real estate and equipment leases with terms in excess of one year, in effect at December 31, 2014,2016, are summarized in the following table:

(in thousands)   
2017 $10,267 
2018  10,280 
2019  7,797 
2020  4,786 
2021  3,288 
Thereafter  4,195 
Total rental commitments $40,613 

54
(in thousands)      
2015 $8,857 
2016  7,291 
2017  5,379 
2018  4,515 
2019  3,887 
Thereafter  9,449 
Total rental commitments $39,378 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

Total rental expense, including short-term rentals, charged to operations was $15,723,000 in 2016, $20,658,000 in 2015, and $22,968,000 in 2014, $20,582,000 in 2013, and $18,224,000 in 2012.

2014.

Income Taxes - The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments.

Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes. Any probable and estimable assessment costs are included in accrued state, local and other taxes.

Litigation - 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, after consultation with legal counsel, believes that it is not reasonably possible that the outcome of all such proceedings, even if determined adversely, would have a material adverse effect on the Company’s business or financial condition.

Note 10: Employee Benefit Plans

Defined Benefit Pension Plan

The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to substantially all employees with at least one year of service prior to 2002. During 2001, the plan became a multiple employer plan, with Marine Products Corporation as an adopting employer.

The Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $14.8$9.6 million and thus the plan was under-funded as of December 31, 2014. The increase in the projected benefit obligation resulted from the adoption of new mortality tables reflecting longer life expectancies, and lower discount rates.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

2016. The following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets:

December 31, 2016  2015 
(in thousands)        
Accumulated benefit obligation at end of year $44,315  $42,894 
         
CHANGE IN PROJECTED BENEFIT OBLIGATION:        
Benefit obligation at beginning of year $42,894  $47,410 
Service cost  —   — 
Interest cost  2,006   1,898 
Amendments  —   — 
Actuarial loss (gain)  1,371   (4,593)
Benefits paid  (1,956)  (1,821)
Projected benefit obligation at end of year $44,315  $42,894 
CHANGE IN PLAN ASSETS:        
Fair value of plan assets at beginning of year $30,937  $32,622 
Actual return on plan assets  1,464   (714)
Employer contribution  4,300   850 
Benefits paid  (1,956)  (1,821)
Fair value of plan assets at end of year $34,745  $30,937 
         
Funded status at end of year $(9,570) $(11,957)

55

December 31, 2014  2013 
(in thousands)    
Accumulated Benefit Obligation at end of year $47,410  $37,528 
         
CHANGE IN PROJECTED BENEFIT OBLIGATION:        
Benefit obligation at beginning of year $37,528  $42,699 
Service cost  —   — 
Interest cost  1,946   1,741 
Amendments  —   — 
Actuarial loss (gain)  9,725   (5,199)
Benefits paid  (1,789)  (1,713)
Projected benefit obligation at end of year $47,410  $37,528 
CHANGE IN PLAN ASSETS:        
Fair value of plan assets at beginning of year $32,426  $29,519 
Actual return on plan assets  1,220   3,820 
Employer contribution  765   800 
Benefits paid  (1,789)  (1,713)
Fair value of plan assets at end of year  32,622   32,426 
         
Funded status at end of year $(14,788) $(5,102)

December 31, 2014  2013 
(in thousands)    
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:    
Noncurrent assets $—  $— 
Current liabilities  —   — 
Noncurrent liabilities  (14,788)  (5,102)
  $(14,788) $(5,102)

December 31, 2014  2013 
(in thousands)    
AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF:    
Net loss (gain) $25,583  $15,369 
Prior service cost (credit)  —   — 
Net transition obligation (asset)  —   — 
  $25,583  $15,369 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

December 31, 2016  2015 
(in thousands)        
AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF:        
Net loss (gain) $24,412  $23,172 
Prior service cost (credit)  —   — 
Net transition obligation (asset)  —   — 
  $24,412  $23,172 

The accumulated benefit obligation for the Retirement Income Plan at December 31, 20142016 and 20132015 has been disclosed above. The Company uses a December 31 measurement date for this qualified plan.

Amounts recognized in the consolidated balance sheets consist of:

December 31, 2014  2013 
(in thousands)    
Funded status $(14,788) $(5,102)
SERP liability  (19,611)  (16,864)
Long-term pension liability $(34,399) $(21,966)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

December 31, 2016  2015 
(in thousands)        
Funded status of the Retirement Income Plan $(9,570) $(11,957)
SERP liability  (23,294)  (21,052)
Long-term pension liabilities $(32,864) $(33,009)

RPC’s funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. Amounts contributed to the plan totaled $765,000$4,300,000 in 20142016 and $800,000$850,000 in 2013.

2015.

The components of net periodic benefit cost of the Retirement Income Plan are summarized as follows:

Years ended December 31, 2014  2013  2012 
(in thousands)      
Service cost for benefits earned during the period $—  $—  $— 
Interest cost on projected benefit obligation  1,946   1,741   1,869 
Expected return on plan assets  (2,240)  (2,043)  (1,846)
Amortization of net loss  531   784   667 
Net periodic benefit plan cost $237  $482  $690 

Years ended December 31, 2016  2015  2014 
(in thousands)            
Service cost for benefits earned during the period $—  $—  $— 
Interest cost on projected benefit obligation  2,006   1,898   1,946 
Expected return on plan assets  (2,131)  (2,259)  (2,240)
Amortization of net loss  799   790   531 
Net periodic benefit plan cost $674  $429  $237 


56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

The Company recognized pre-tax (increases) decreases (increases) to the funded status in accumulated other comprehensive loss of $1,240,000 in 2016, $(2,411,000) in 2015, and $10,214,000 in 2014, $(7,760,000) in 2013 and $2,688,000 in 2012.2014. There were no previously unrecognized prior service costs as of December 31, 2014, 20132016, 2015 and 2012.2014. The pre-tax amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2014, 20132016, 2015 and 20122014 are summarized as follows:


(in thousands) 2014  2013  2012 
Net loss (gain) $10,745  $(6,976) $3,355 
Amortization of net loss  (531)  (784)  (667)
Net transition obligation (asset)  —   —   — 
Amount recognized in accumulated other comprehensive loss $10,214  $(7,760) $2,688 

(in thousands) 2016  2015  2014 
Net loss (gain) $2,039  $(1,621) $10,745 
Amortization of net loss  (799)  (790)  (531)
Net transition obligation (asset)  —   —   — 
Amount recognized in accumulated other comprehensive loss $1,240  $(2,411) $10,214 

The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost in 20152017 are as follows:


(in thousands) 2015 
Amortization of net loss $804 
Prior service cost (credit)  — 
Net transition obligation (asset)  — 
Estimated net periodic benefit plan cost $804 

(in thousands) 2017 
Amortization of net loss $825 
Prior service cost (credit)  — 
Net transition obligation (asset)  — 
Estimated net periodic benefit plan cost $825 

The weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as follows:


December 31, 2014  2013  2012 
Projected Benefit Obligation:
      
Discount rate  4.15%  5.20%  4.16%
Rate of compensation increase  N/A  N/A   N/A 
Net Benefit Cost:            
Discount rate  5.20%  4.16%  5.00%
Expected return on plan assets  7.00%  7.00%  7.00%
Rate of compensation increase  N/A   N/A   N/A 

December 31, 2016  2015  2014 
Projected Benefit Obligation:            
Discount rate  4.45%  4.70%  4.15%
Rate of compensation increase  N/A   N/A   N/A 
Net Benefit Cost:            
Discount rate  4.70%  4.15%  5.20%
Expected return on plan assets  7.00%  7.00%  7.00%
Rate of compensation increase  N/A   N/A   N/A 

The Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management and its investment advisor. It includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected long-term return assumption of seven percent is reasonable.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

 

The plan’s weighted average asset allocation at December 31, 20142016 and 20132015 by asset category along with the target allocation for 20152017 are as follows: 

Asset Category 
Target
Allocation
for 2015
 
Percentage of
Plan Assets as of
December 31,
2014
 
Percentage of
Plan Assets as of
December 31,
2013
 
Cash and Cash Equivalents  0% -   5% 1.0% 0.6%
Debt Securities – Core Fixed Income  15% - 50% 24.3% 25.3%
Domestic Equity Securities  0% - 40% 37.0% 26.6%
International Equity Securities  0% - 30% 22.8% 31.4%
Real Estate  0% - 20% 10.5% 8.3%
Real Return  0% - 20% 1.6% 7.8%
Alternative/Opportunistic/Special funds  0% - 20% 2.8% —%
Total  100% 100.0% 100.0%

Asset Category Target
Allocation
for 2017		  Percentage of
Plan Assets as of
December 31,
2016		  Percentage of
Plan Assets as of
December 31,
2015		 
Cash and cash equivalents  0% -   5 %   3.3%  0.7%
Fixed income securities  15% - 50 %   25.3%  25.8%
Domestic equity securities  0% - 40 %   25.5%  27.6%
International equity securities  0% - 40 %   20.8%  19.1%
Investments measured at net asset value  0% - 20 %   25.1%  26.8%
Total      100.0%  100.0%

The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of investments for long-term growth and 30 percent for near-term benefit payments, with a wide diversification of asset types, fund strategies and fund managers.  Equity securities primarily include investments in large-cap and small-cap companies domiciled domestically and internationally. Fixed-income securities include corporate bonds, mortgage-backed securities, sovereign bonds, and U.S. Treasuries.  Other types of investments include real estate funds and private equity funds that follow several different investment strategies. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required.  The plan utilizes a number of investment approaches, including but not limited to individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation.  Company management expectsdoes not expect to make aany contribution to the pension plan of approximately $850,000 during fiscal year 2015.

2017.

Some of our assets, primarily our private equity and real estate funds, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For theplan asset reporting as of December 31, 2014 plan asset reporting,2016, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager statements combined with discussions focusing on underlying fundamentals and significant events. Additionally, these investments are categorized as level 3 investments and are valued using significant non-observable inputs which do not have a readily determinable fair value.  In accordance with ASU No. 2009-12 “Investments In Certain Entities That Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net asset value per share calculated by the funds in which the plan has invested.invested and the valuation is based on significant non-observable inputs which do not have a readily determinable fair value. These assets have been excluded from the fair value hierarchy applied retrospectively based on the accounting guidance recently adopted. The valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate against these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements for reasonableness.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

The following tables present our plan assets using the fair value hierarchy as of December 31, 20142016 and 2013.2015. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy.

Fair Value Hierarchy as of December 31, 2014:
Investments (in thousands)
    Total  Level 1  Level 2  Level 3 
Cash and Cash Equivalents  (1) $329  $329  $—  $— 
Fixed Income Securities  (2)  7,915   3,194   4,721   — 
Domestic Equity Securities  (3)  12,076   4,324   7,752   — 
International Equity Securities  (4)  7,442   —   7,442   — 
Real Estate  (5)  3,420   —   —   3,420 
Real Return  (6)  515   —   515   — 
Alternative/Opportunistic/Special funds  (7)  925   —   —   925 
      $32,622  $7,847  $20,430  $4,345 

Fair Value Hierarchy as of December 31, 2016:            
Investments (in thousands)    Total  Level 1  Level 2 
Cash and Cash Equivalents  (1) $1,154  $1,154  $— 
Fixed Income Securities  (2)  8,804   —   8,804 
Domestic Equity Securities  (3)  8,865   4,469   4,396 
International Equity Securities  (4)  7,215   —   7,215 
Total Assets in the Fair Value Hierarchy     $26,038  $5,623  $20,415 
Investments measured at Net Asset Value      8,707         
Investments at Fair Value     $34,745         
                 
Fair Value Hierarchy as of December 31, 2015:                
Investments (in thousands)      Total   Level 1   Level 2 
Cash and Cash Equivalents  (1) $210  $210  $— 
Fixed Income Securities  (2)  7,987   —   7,987 
Domestic Equity Securities  (3)  8,527   4,285   4,242 
International Equity Securities  (4)  5,911   —   5,911 
Total Assets in the Fair Value Hierarchy     $22,635  $4,495  $18,140 
Investments measured at Net Asset Value      8,302         
Investments at Fair Value     $30,937         

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Fair Value Hierarchy as of December 31, 2013:
Investments (in thousands)
     Total  Level 1  Level 2  Level 3 
Cash and Cash Equivalents  (1) $210  $210  $—  $— 
Fixed Income Securities  (2)  8,201   —   8,201   — 
Domestic Equity Securities  (3)  8,590   8,590   —   — 
International Equity Securities  (4)  10,192   —   10,192   — 
Real Estate  (5)  2,705   —   —   2,705 
Real Return  (6)  2,528   —   2,528   — 
      $32,426  $8,800  $20,921  $2,705 

(1)Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds.
(2)Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.
(3)Domestic equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets.
(4)International equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective markets.
(5)Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data.
(6)Real return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a market approach based on the quoted market prices of identical instruments in their respective markets.
(7)Alternative/Opportunistic/Special funds can invest across the capital structure in both liquid and illiquid securities that are valued using a market approach based on the quoted market prices of identical instruments, or if no market price is available, instruments will be held at their fair market value (which may be cost) as reasonably determined by the investment manager, independent dealers, or pricing services.
The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2014:
Investments (in thousands) Balance at
December 31,
2013		  Net Realized
and
Unrealized
Gains/(Losses)		  
Net
Purchases,
Issuances
and
Settlements
  Net
Transfers In
to (Out of)
Level 3		  Balance at
December 31,
2014		 
Real Estate $2,705  $133  $582  $—  $3,420 
Alternative/Opportunistic/Special funds  —   21   904   —   925 
  $2,705  $154  $1,486  $—  $4,345 
The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2013:
Investments (in thousands)
Balance at December
31, 2012		 Net Realized
and
Unrealized
Gains/(Losses)		 Net Purchases,
Issuances and
Settlements		 Net
Transfers In
to (Out of)
Level 3		 Balance at
December 31,
2013		 
Real Estate $2,730  $217  $(242) $—  $2,705 

The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows:

(in thousands)    
2015 $2,074 
2016  2,288 
2017  2,360 
2018  2,461 
2019  2,522 
2020-2024  13,669 

(in thousands)   
2017 $2,432 
2018  2,530 
2019  2,589 
2020  2,626 
2021  2,710 
2022-2026  14,194 

Supplemental Executive Retirement Plan (SERP)

The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligations of the SERP. The assets are subject to claims by creditors, and the Company can designate them to another purpose at any time. Investments in COLI policies consisted of $48.0$47.7 million in variable life insurance policies as of December 31, 20142016 and $47.4$46.8 million as of December 31, 2013.2015. In the COLI policies, the Company is able to allocate investment of the assets across a set of choices provided by the insurance company, including fixed income securities and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company, whose Standard & Poor’s credit rating was A+.

52

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets totaled $16,491,000$18,367,000 as of December 31, 20142016 and $13,963,000$16,081,000 as of December 31, 2013.2015. The SERP assets are reported in other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in the consolidated statement of operations as part of other income (expense), net.compensation cost within selling, general and administrative expenses. Trading (losses) gains related to the SERP assets totaled $966,000 in 2016, $(519,000) in 2015, and $959,000 in 2014, $2,026,000 in 2013, and $1,352,000 in 2012.2014. The SERP liability is recorded on the balance sheet 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 statementconsolidated statements of operations.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

401(k) Plan

RPC sponsors a defined contribution 401(k) plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal Revenue Code. RPC matches 50 percent of each employee’s contributions that do not exceed six percent of the employee’s compensation, as defined by the plan. Employees vest in the RPC contributions after three years of service. The charges to expense for the Company’s contributions to the 401(k) plan were $3,250,000 in 2016, $4,796,000 in 2015, and $6,970,000 in 2014, $5,451,000 in 2013, and $5,088,000 in 2012.

2014.

Stock Incentive Plans


The Company has issued stock options and restricted stock to employees under three 10 year10-year stock incentive plans that were approved by stockholders in 1994, 2004 and 2014. The 1994 plan expired in 2004 and the 2004 Plan expired in 2014. In April 2014,2015, 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 December 31, 2014, 8,000,0002016, 6,250,634 shares were available for grant.

The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their fair value at the grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. Cash flows related to share-based payment awards to employees that result in tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) are classified as a financing activity in the accompanying consolidated statements of cash flows.

Pre-tax stock-based employee compensation expense was $10,218,000 in 2016 ($6,488,000 after tax), $9,960,000 in 2015 ($6,325,000 after tax), and $9,074,000 in 2014 ($5,762,000 after tax), $8,177,000 in 2013 ($5,192,000 after tax), and $7,860,000 in 2012 ($4,991,000 after tax).


Stock Options

Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years.

The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options to employees since 2003.

2003 and there are none outstanding. There were no stock options exercised during 2016, 2015 or 2014 and 2013 and there have beenare no stock options outstanding sinceas of December 31, 2012.  The total intrinsic value of stock options exercised was $7,467,000 during 2012.  Tax benefits associated with the exercise of stock options exercised totaled $431,000 during 2012 and were credited to capital in excess of par value and classified as financing cash flows.
2016.

Restricted Stock

The Company has granted employees time lapse restricted stock which vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued vest in 20 percent increments annually starting with the second anniversary of the grant. Grantees receive dividends declared and retain voting rights for the granted shares. The agreement under which the restricted stock is issued provides that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans have lapsed. Upon termination of employment from RPC (other than due to death, disability or retirement on or after age 65), shares with restrictions must be returned to the Company.

60

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2014:

  Shares  Weighted Average Grant-
Date Fair Value		 
Non-vested shares at January 1, 2014  4,114,800  $9.67 
Granted  657,375   18.84 
Vested  (1,108,790)  7.20 
Forfeited  (88,235)  12.83 
Non-vested shares at December 31, 2014  3,575,150  $12.04 
2016:

  Shares  Weighted Average Grant-
Date Fair Value		 
Non-vested shares at January 1, 2016  3,312,175  $13.17 
Granted  920,100   10.77 
Vested  (891,245)  11.58 
Forfeited  (123,955)  13.41 
Non-vested shares at December 31, 2016  3,217,075  $12.91 

The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2013:

  Shares  Weighted Average Grant-
Date Fair Value		 
Non-vested shares at January 1, 2013  4,494,191  $8.12 
Granted  850,500   13.68 
Vested  (1,078,534)  6.36 
Forfeited  (151,357)  9.72 
Non-vested shares at December 31, 2013  4,114,800  $9.67 
2015:

  Shares  Weighted Average Grant-
Date Fair Value		 
Non-vested shares at January 1, 2015  3,575,150  $12.04 
Granted  895,725   12.30 
Vested  (1,054,625)  8.66 
Forfeited  (104,075)  12.78 
Non-vested shares at December 31, 2015  3,312,175  $13.17 

The fair value of restricted share awards is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period. The weighted average grant date fair value per share of these restricted stock awards was $10.77 for 2016, $12.30 for 2015 and $18.84 for 2014, $13.68 for 2013 and $11.69 for 2012.2014. The total fair value of shares vested was $9,751,000 during 2016, $12,727,000 during 2015 and $20,664,000 during 2014, $15,471,000 during 2013 and $10,695,000 during 2012.2014. The tax benefit for compensation tax deductions in excess of compensation expense was credited to capital in excess of par value aggregating $427,000 for 2016, $1,410,000 for 2015 and $4,336,000 for 2014, $3,178,000 for 2013 and $2,293,000 for 2012.2014. The excess tax deductions are classified as a financing activity in the accompanying consolidated statements of cash flows.

Other Information

As of December 31, 2014,2016, total unrecognized compensation cost related to non-vested restricted shares was $37,925,000$38,673,000 which is expected to be recognized over a weighted-average period of 3.03.4 years.  As of December 31, 2014, there was no unrecognized compensation cost related to non-vested stock options.

The Company received cash from options exercised of $544,000 during 2012. These cash receipts are classified as a financing activity in the accompanying consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock options totaled $377,000 during 2012 and have been excluded from the consolidated statements of cash flows.

Note 11: Related Party Transactions

Marine Products Corporation

Effective in 2001, the Company spun off the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former powerboat manufacturing segment. RPC accomplished the spin-off by contributing 100 percent 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. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies’ relationship.

In accordance with a Transition Support Services agreement, which may be terminated by either party, RPC provides certain administrative services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products. Charges from the Company (or from corporations that are subsidiaries of the Company) for such services were $739,000 in 2016, $753,000 in 2015, and $663,000 in 2014, $670,000 in 2013, and $544,000 in 2012. 2014. The Company’s receivable (payable) due fromto (from) Marine Products for these services was $47,000$60,000 as of December 31, 20142016 and $145,000$(11,000) as of December 31, 2013.  2015. The Company’s directors are also directors of Marine Products and all of the executive officers are employees of both the Company and Marine Products.

Other

The Company periodically purchases in the ordinary course of business products or services from suppliers, who are owned by significant officers or stockholders, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were $890,000 in 2016, $1,127,000 in 2015 and $1,092,000 in 2014, $1,039,000 in 2013 and $1,676,000 in 2012.

2014.

RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman and which is otherwise affiliated with RPC). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months’ notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent totaled $111,000 in 2016, $100,000 in 2015 and $84,000 in 2014 and $83,000 in 2013 and 2012.

54
2014.

 61

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2014, 20132016, 2015 and 20122014

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.

During the year ended December 31, 2014,

RPC and Marine Products entered into a joint venture creatingown 50 percent each of a limited liability company called 255 RC, LLC that is owned 50 percent eachwas created for the joint purchase and ownership of a corporate aircraft.  255 RC, LLC was funded with a contribution of approximately $2,554,000 each from RPC and Marine Products.  The purchase of the aircraft was completed in January 2015, and the purchase was funded primarily by a $2,554,000 contribution by each company to 255 RC, LLC.  Each of RPC and Marine Products have entered intois a party to an operating lease agreement with 255 RC, LLC for a period of five years.

RPC recorded certain net operating costs comprised of rent and an allocable share of fixed costs of approximately $197,000 in 2016 and $186,000 in 2015 for the corporate aircraft. The Company accounts for this investment using the equity method and its proportionate share of income or loss is recorded in selling, general and administrative expenses. As of December 31, 2016, the investment closely approximates the underlying equity in the net assets of 255 RC, LLC.

Note 12: Business Segment Information

RPC’s service lines have been aggregated into two reportable oilsegments are the same as its operating segments. RPC manages its business as either services offered on the well site with equipment and gaspersonnel (Technical Services) or services segments —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 — because of the similarities between the financial performanceare primarily able to generate revenue through one source, which is either a hard asset or a personnel resource. Selected overhead including centralized support services 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.  Corporate includes selected administrative costs incurred by the Company.

regulatory compliance are classified under Corporate.

Technical Services include RPC’s oil and gas service linesservices that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. TheseThe demand for these services includeis 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, services,downhole tools, coiled tubing, snubbing, nitrogen, pumping, well control, consulting and firefighting, downhole tools, wireline and fluid pumping services. Thesefishing. The services offered under Technical Services are primarily usedhigh capital and personnel intensive businesses. The common drivers of operational and financial success of these service lines include diligent equipment maintenance, strong logistical processes, and appropriately trained personnel who function well in the completion, production and maintenancea team environment. The Company considers all of these service to be closely integrated oil and gas wells.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 Africa,Argentina, Canada, Gabon, Bolivia, China, Latin America,Mexico and the Middle East and New Zealand.East. 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 linesall of the services that primarily 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 class room and computer training, and other consulting services. The primary drivers of operational success for equipment provided for customers’ use or serviceson 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 assistmeeting customer operations.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 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, the mid-continent and Appalachian regions, and selected international locations, including primarily Canada, Latin America, and the Middle East.locations. Customers include domestic operations of major multi-national and independent oil and gas producers, and selected nationally-owned oil companies.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31 2016, 2015 and 2014

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.

The accounting policies of the reportable segments are the same as those described in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the Company’s chief decision makerCODM 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RPC, Inc. and Subsidiaries
Years ended December 31, 2014, 2013 and 2012

Summarized financial information concerning RPC’s reportable segments for the years ended December 31, 2014, 20132016, 2015 and 20122014 are shown in the following table:

(in thousands) 
Technical
Services
  
Support
Services
  Corporate  Loss on disposition of assets, net  Total 
2014          
Revenues $2,180,457  $156,956  $—  $—  $2,337,413 
Operating profit (loss)  390,004   42,510   (17,072)  (15,472)  399,970 
Capital expenditures  342,932   27,148   1,422   —   371,502 
Depreciation and amortization  198, 636   31,578   599   —   230,813 
Identifiable assets  1,514,084   157,688   87,586       1,759,358 
2013                    
Revenues $1,729,732  $131,757  $—  $—  $1,861,489 
Operating profit (loss)  276,246   26,223   (17,685)  (9,371)  275,413 
Capital expenditures  167,586   32,250   1,845   —   201,681 
Depreciation and amortization  181,026   31,417   685   —   213,128 
Identifiable assets  1,113,877   202,243   67,740   —   1,383,860 
2012                    
Revenues $1,794,015  $151,008  $—  $—  $1,945,023 
Operating profit (loss)  420,231   45,912   (17,654)  (6,099)  442,390 
Capital expenditures  277,686   46,053   5,197   —   328,936 
Depreciation and amortization  183,762   30,707   430   —   214,899 
Identifiable assets  1,128,124   175,611   63,428   —   1,367,163 

(in thousands) Technical
Services		  Support
Services		  Corporate  Loss on disposition of
assets, net		  Total 
2016                    
Revenues $679,654  $49,320  $—  $—  $728,974 
Operating (loss)  (203,804)  (26,021)  (17,037)  7,920   (238,942)
Capital expenditures  28,380   2,928   2,630   —   33,938 
Depreciation and amortization  191,181   25,606   471   —   217,258 
Identifiable assets  733,008   76,876   225,568   —   1,035,452 
2015                    
Revenues $1,175,293  $88,547  $—  $—  $1,263,840 
Operating (loss)  (132,982)  (2,363)  (14,515)  (6,417)  (156,277)
Capital expenditures  155,361   11,055   1,010   —   167,426 
Depreciation and amortization  237,778   32,697   502   —   270,977 
Identifiable assets  976,761   108,262   152,071   —   1,237,094 
2014                    
Revenues $2,180,457  $156,956  $—  $—  $2,337,413 
Operating profit (loss)  390,004   42,510   (16,113)  (15,472)  400,929 
Capital expenditures  342,932   27,148   1,422   —   371,502 
Depreciation and amortization  198, 636   31,578   599   —   230,813 
Identifiable assets  1,514,084   157,688   87,586   —   1,759,358 

The following summarizes selected information between the United States and all international locations combined for the years ended December 31, 2014, 20132016, 2015 and 2012.2014. The revenues are presented based on the location of the use of the product or service. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented.


Years ended December 31,2014 2013 2012 
(in thousands)   
United States Revenues $2,249,260  $1,795,592  $1,870,815 
International Revenues  88,153   65,897   74,208 
  $2,337,413  $1,861,489  $1,945,023 
56

Years ended December 31, 2016  2015  2014 
(in thousands)            
United States Revenues $677,755  $1,191,704  $2,249,260 
International Revenues  51,219   72,136   88,153 
  $728,974  $1,263,840  $2,337,413 

 63

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures— The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, December 31, 20142016 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date.

Management’s report on internal control over financial reporting— Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial reporting is included on page 3033 of this report. Grant Thornton LLP, the Company’s independent registered public accounting firm, has audited the effectiveness of internal control as of December 31, 20142016 and issued a report thereon which is included on page 3134 of this report.

Changes in internal control over financial reporting— Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information concerning directors and executive officers will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders, in the section titled “Election of Directors.” This information is incorporated herein by reference. Information about executive officers is contained on page 13Page 14 of this document.

Audit Committee and Audit Committee Financial Expert

Information concerning the Audit Committee of the Company and the Audit Committee Financial Expert(s) will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and Meetings – Audit Committee.” This information is incorporated herein by reference.

Code of Ethics

RPC, Inc. has a Code of Business Conduct that applies to all employees. In addition, the Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transaction Policy. Both of these documents are available on the Company’s Web site at www.rpc.net.www.rpc.net. Copies are available at no charge by writing to Attention: Human Resources, RPC, Inc., 2801 Buford Highway, Suite 520, N.E., Atlanta, GA 30329.

RPC, Inc. intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code that relates to any elements of the code of ethics definition enumerated in SEC rules by posting such information on its internet website, the address of which is provided above.

64

Section 16(a) Beneficial Ownership Reporting Compliance

Information regarding compliance with Section 16(a) of the Exchange Act will be included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 20152017 Annual Meeting of Stockholders, which is incorporated herein by reference.

57

Item 11. Executive Compensation

Information concerning director and executive compensation will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders, in the sections titled “Compensation Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.” This information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Information concerning security ownership will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders, in the sections “Capital Stock” and “Election of Directors.” This information is incorporated herein by reference.


Securities Authorized for Issuance Under Equity Compensation Plans


The following table sets forth certain information regarding equity compensation plans as of December 31, 2014.


Plan Category 
(A)
Number of Securities To
Be Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
  
(B)
Weighted Average Exercise Price of
Outstanding Options, Warrants and
Rights
  
(C)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (A))
 
Equity compensation plans approved by securityholders  —  $—   8,000,000(1)
Equity compensation plans not approved by securityholders  —   —   — 
             Total  —  $—   8,000,000 

2016.

Plan Category (A)
Number of Securities To
Be Issued Upon Exercise of
 Outstanding Options,
Warrants and Rights		  (B)
Weighted Average Exercise Price of
Outstanding Options, Warrants and
Rights		  (C)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (A))		 
Equity compensation plans approved by securityholders  —  $—   6,250,634(1)
Equity compensation plans not approved by securityholders  —   —   — 
Total  —  $—   6,250,634 

(1)All of the securities can be issued in the form of restricted stock or other stock awards.

See Note 10 to the Consolidated Financial Statements for information regarding the material terms of the equity compensation plans.

Item 13. Certain Relationships and Related Party Transactions and Director Independence


Information concerning certain relationships and related party transactions will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders, in the sections titled, “Certain Relationships and Related Party Transactions.” Information regarding director independence will be included in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders in the section titled “Director Independence and NYSE Requirements.” This information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding principal accountant fees and services will be included in the section titled “Independent Registered Public Accounting Firm” in the RPC Proxy Statement for its 20152017 Annual Meeting of Stockholders. This information is incorporated herein by reference.

65

PART IV

Item 15. Exhibits and Financial Statement Schedules

Consolidated Financial Statements, Financial Statement Schedule and Exhibits

1.
1.
Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this report.

2.The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule is filed as part of this report.

3.Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following such exhibits are management contracts or compensatory plans or arrangements:

10.12004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004).

10.6Form of Time Lapse Restricted Stock Grant Agreement (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 2, 2004).

10.7Form of Performance Restricted Stock Grant agreementAgreement (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 2, 2004).

10.8Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005).

10.9First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007).

10.10Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006).

10.11
10.11
Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010).

10.14Form of Time Lapse Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012).

10.15Summary of Compensation Arrangements with Non-Employee Directors.Directors (incorporated herein by reference to Exhibit 10.15 to the Form 10-K filed on February 27, 2015).

10.172014 Stock Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s definitive Proxy Statement filed on March 17, 2014).

5910.20Form of award agreement under Performance-Based Incentive Cash Compensation Plan.

 66

 

Exhibits (inclusive of item 3 above):

Exhibit
Number
Description
3.1ARestated certificate of incorporation of RPC, Inc. (incorporated herein by reference to exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1999).
3.1BCertificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(B) to the Quarterly Report on Form 10-Q filed May 8, 2006).
3.1CCertificate of Amendment of Certificate of Incorporation of RPC, Inc. (incorporated by reference to Exhibit 3.1(C) to the Quarterly Report on Form 10-Q filed August 2, 2011).
3.2Amended and Restated Bylaws of RPC, Inc. (incorporated herein by reference to Exhibit 3.2 to the Form 10-Q filed on November 3, 2014).
4Form of Stock Certificate (incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998).
10.12004 Stock Incentive Plan (incorporated herein by reference to Appendix B to the Registrant’s definitive Proxy Statement filed on March 24, 2004).
10.2Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.2 to the Form 10-K filed on February 13, 2001).
10.3Employee Benefits Agreement dated February 12, 2001, by and between RPC, Inc., Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on February 13, 2001).
10.4Transition Support Services Agreement dated February 12, 2001 by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10-K filed on February 13, 2001).
10.5Tax Sharing Agreement dated February 12, 2001, by and between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10-K filed on February 13, 2001).
10.6Form of time lapse restricted stock grant agreementTime Lapse Restricted Stock Grant Agreement (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 2, 2004).
10.7Form of performance restricted stock grant agreementPerformance Restricted Stock Grant Agreement (incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 2, 2004).
10.8Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the Form 10-K filed on March 16, 2005).
10.9First Amendment to 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to the Form 10-K filed on March 2, 2007).
10.10Performance-Based Incentive Cash Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed April 28, 2006).
10.11Summary of Compensation Arrangements with Executive Officers (incorporated herein by reference to Exhibit 10.17 to the Form 10-K filed on March 3, 2010).
10.12Credit Agreement dated August 31, 2010 between the Company, Banc of America, N.A., SunTrust Bank, Regions Bank and certain other lenders party thereto (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on September 7, 2010).
10.13Amendment No. 1 to Credit Agreement dated as of June 16, 2011 between the Company, the Subsidiary Loan Parties party thereto, Bank of America, N.A. and certain other lenders party thereto (incorporated herein by reference to Exhibit 10.16 to the Form 10-K filed on February 29, 2012).
10.14Form of Time Lapse Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on May 2, 2012).
10.15Summary of Compensation Arrangements with Non-Employee Directors.
Directors (incorporated herein by reference to Exhibit 10.15 to the Form 10-K filed on February 27, 2015).
10.16
Amendment No. 2 to Credit Agreement and Amendment No. 1 to Subsidiary Guaranty Agreement dated as of January 17, 2014 between RPC, Bank of America, N.A., certain other Lenders party thereto, and the Subsidiary Loan Parties party thereto (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K dated January 17, 2014).
10.17
2014 Stock Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s definitive Proxy Statement filed on March 17, 2014).
10.18Reduction of Commitment Notice, dated November 3, 2015 (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed on November 6, 2015).
10.19Amendment No. 3 to Credit Agreement dated as of June 30, 2016 among RPC, Bank of America, N.A., certain other lenders party thereto, and the Subsidiary Loan Parties party thereto (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K dated June 30, 2016).
10.20Form of award agreement under Performance-Based Incentive Cash Compensation Plan.  
21Subsidiaries of RPC
23Consent of Grant Thornton LLP
24Powers of Attorney for Directors
31.1Section 302 certification for Chief Executive Officer
31.2Section 302 certification for Chief Financial Officer
32.1Section 906 certifications for Chief Executive Officer and Chief Financial Officer
95.1Mine Safety Disclosure

 67

101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES
68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 RPC, Inc.
 
   
 /s/ Richard A. Hubbell 
 
Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer) 
   
 February 27, 201528, 2017 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 NameTitleDate
NameTitleDate
 
/s/ Richard A. Hubbell  
Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)
February 27, 201528, 2017
 
/s/ Ben M. Palmer  
Ben M. Palmer
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
February 27, 201528, 2017

The Directors of RPC (listed below) executed a power of attorney, appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their behalf.


R. Randall Rollins, DirectorJames A. Lane, Jr.,Amy Rollins Kreisler, Director
Gary W. Rollins, DirectorLinda H. Graham, Director
Henry B. Tippie, DirectorBill J. Dismuke, Director
James B. Williams, DirectorLarry L. Prince, Director

/s/ Richard A. Hubbell
Richard A. Hubbell
Director and as Attorney-in-fact
February 27, 201528, 2017

69

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE

The following documents are filed as part of this report.

FINANCIAL STATEMENTS AND REPORTSPAGE
 
Management’s Report on Internal Control Over Financial Reporting3033
 
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting3134
 
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements3235
 
Consolidated Balance Sheets as of December 31, 20142016 and 201320153336
 
Consolidated Statements of Operations for the three years ended December 31, 201420163437
 
Consolidated Statements of Comprehensive (Loss) Income for the three years ended December 31, 201420163538
 
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 201420163639
 
Consolidated Statements of Cash Flows for the three years ended December 31, 201420163740
 
Notes to Consolidated Financial Statements3841 - 5663

SCHEDULE 
Schedule II — Valuation and Qualifying Accounts
62
70

Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

  
For the years ended
December 31, 2014, 2013 and 2012
 
(in thousands) 
Balance at
Beginning
of Period
  
Charged to
Costs and
Expenses
  Net (Deductions)
Recoveries		 
Balance
at End of
Period
 
Year ended December 31, 2014       
Allowance for doubtful accounts $13,497  $2,280  $(426) (1) $15,351 
Deferred tax asset valuation allowance $83  $—  $(81)(2) $2 
Year ended December 31, 2013                 
Allowance for doubtful accounts $9,110  $8,815  $(4,428)(1) $13,497 
Deferred tax asset valuation allowance $1,003  $—  $(920)(2) $83 
Year ended December 31, 2012                 
Allowance for doubtful accounts $8,093  $1,784  $(767)(1) $9,110 
Deferred tax asset valuation allowance $1,295  $—  $(292)(2) $1,003 

  For the years ended
December 31, 2016, 2015 and 2014		 
(in thousands) Balance at
Beginning
of Period		  Charged to
Costs and
Expenses		  Net (Deductions)
Recoveries		  Balance
at End of
Period		 
Year ended December 31, 2016                
Allowance for doubtful accounts $10,605  $6,021  $(14,073)(1) $2,553 
Deferred tax asset valuation allowance $276  $80  $—(2) $356 
Year ended December 31, 2015                
Allowance for doubtful accounts $15,351  $(2,958) $(1,788)(1) $10,605 
Deferred tax asset valuation allowance $2  $274  $—(2) $276 
Year ended December 31, 2014                
Allowance for doubtful accounts $13,497  $2,280  $(426)(1) $15,351 
Deferred tax asset valuation allowance $83  $—  $(81)(2) $2 

(1)Net (deductions) recoveries in the allowance for doubtful accounts principally reflect the write-off of previously reserved accounts net of recoveries.
(2)The valuation allowance for deferred tax assets is increased or decreased each year to reflect the state net operating losses that management believes will not be utilized before they expire.
62

 70

 

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


Quarters ended March 31  June 30  September 30  December 31 
(in thousands except per share data)        
2014        
Revenues $501,692  $582,831  $620,684  $632,206 
Operating profit $65,232  $103,031  $106,661  $125,046 
Net income $39,388  $63,283  $64,885  $77,637 
Net income per share — basic (a)
 $0.18  $0.29  $0.30  $0.36 
Net income per share — diluted (a)
 $0.18  $0.29  $0.30  $0.36 
2013                
Revenues $425,821  $457,566  $491,121  $486,981 
Operating profit $57,219  $67,853  $85,839  $64,502 
Net income $35,076  $40,416  $53,760  $37,643 
Net income per share — basic (a)
 $0.16  $0.19  $0.25  $0.18 
Net income per share — diluted (a)
 $0.16  $0.19  $0.25  $0.17 

Quarters ended March 31  June 30  September 30  December 31 
(in thousands except per share data)                
2016                
Revenues $189,095  $142,998  $175,884  $220,997 
Operating loss $(75,087) $(75,222) $(56,417) $(32,216)
Net loss $(32,511) $(48,686) $(38,942) $(21,107)
Net loss per share — basic(a) $(0.15) $(0.23) $(0.18) $(0.10)
Net loss per share — diluted(a) $(0.15) $(0.23) $(0.18) $(0.10)
2015                
Revenues $406,270  $297,560  $291,924  $268,086 
Operating profit (loss) $6,374  $(52,347) $(52,899) $(57,405)
Net income (loss) $7,548  $(34,055) $(35,173) $(37,881)
Net income (loss) per share — basic(a) $0.04  $(0.16) $(0.16) $(0.18)
Net income (loss) per share — diluted(a) $0.04  $(0.16) $(0.16) $(0.18)
(a)The sum of the (loss) income per share for the four quarters may differ from annual amounts due to the required method of computing the weighted average shares for the respective periods.

6371