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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” and the consolidated financial statements included elsewhere in this document. See also “Forward-Looking Statements” on page 2. Discussions of year-to-year comparisons of 2019 and 2018 and 2018 items that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual report on Form 10-K for the year ended December 31, 2019, which Item is incorporated herein by reference.

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 deliver product and services to our customers safely.

- To maintain and selectively increase market share.

- 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 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.

The oil and gas industry experienced an unprecedented disruption during 2020 due to the substantial decline in global demand for oil caused by the combined impact of the OPEC disputes and COVID-19 pandemic that has continued throughout 2020. The pandemic has significantly impacted the economic conditions in the United States, as federal, state and local governments have reacted to the public health crisis, creating significant uncertainties in the United States, as well as the global economy. RPC continued our regular operations during the period since we function as an essential infrastructure business in the energy sector under

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guidance issued by the Department of Homeland Security. However, in response to the pandemic, RPC instituted strict procedures to assess employee health and safety while in our facilities or on operational locations.

Current industry conditions are characterized by oil prices which fell from a cyclical peak of $75 per barrel in the fourth quarter of 2018 to less than $20 per barrel in the second quarter of 2020. In response to this significant decrease in the price of oil, the drilling rig count fell from 1,083 in the fourth quarter of 2018 to 244 in the third quarter of 2020. Also, monthly U.S. well completions fell from a cyclical peak of 1,371 in the second quarter of 2018 to 292 in the second quarter of 2020. Early in the first quarter of 2021, the price of oil had recovered to approximately $56 per barrel, and both the drilling rig count and well completions had increased as well. One catalyst for the decrease in the price of oil during 2020 relates to the significant decrease in global oil demand resulting from the COVID-19 pandemic. In late 2019, the global oil supply and demand were in equilibrium. By the second quarter of 2020, however, global oil demand had fallen by approximately 16 percent, while supply had only fallen by approximately nine percent. The tremendous decline in oil prices, drilling and well completions during 2020 resulted from this sudden and unpredicted decrease in demand.

RPC believes that oil production in the United States has also become an increasingly important determinant of global oil prices, because the United States has grown to be the world’s largest producer of oil and is more flexible in its ability to increase or decrease drilling and production activities rapidly than the state-owned oil companies which comprise OPEC membership. During the past several years, improving drilling and completion activity have caused U.S. domestic oil production to continue to rise to a record production level in December 2019. Since that time, U.S. oil production has declined due to lower drilling and completion activity, but it remains historically high, and as of the most recent monthly reported statistics, was 30 percent higher than the cyclical low production recorded during the third quarter of 2016. We believe that continued high U.S. oil production is a catalyst for lower oil prices during the near term. Customer activities directed towards natural gas drilling and production have been weak for several years 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. One of these factors has been mitigated by the decline in oil-directed drilling. In addition, weather in the United States during the first quarter of 2021 is colder than during the comparable period in 2020. As a result, the price of natural gas has recovered from a low of $1.63 per Mcf during the second quarter of 2020 to $2.96 per Mcf early in the first quarter of 2021. While current natural gas prices are higher than at the recent cyclical trough, we believe that they are still too low to encourage our customers to conduct increased levels of exploration and production activities directed exclusively towards natural gas.

In 2020, the Company’s strategy of utilizing equipment in unconventional basins has continued. During 2020, we made capital expenditures totaling $65.1 million, a decrease of $185.6 compared to the prior year. Capital expenditures during 2020 were primarily for new revenue-producing equipment and capitalized maintenance of our existing equipment, as well as upgrades of selected pressure pumping equipment for dual-fuel capability.

Revenues during 2020 totaled $598.3 million, a decrease of 51.1 percent compared to 2019 primarily as a result of lower activity levels and lower pricing for most of our service lines caused by a steep decline in oil and gas prices due to COVID-19. Cost of revenues decreased $438.9 million in 2020 compared to the prior year primarily due to lower materials and supplies expenses and employment costs consistent with lower activity levels and as a result of RPC’s expense reduction initiatives. As a percentage of revenues, cost of revenues increased to 80.4 percent in 2020 compared to 75.2 percent in 2019.

Selling, general and administrative expenses as a percentage of revenues increased to 20.7 percent in 2020 compared to 13.8 percent in 2019, primarily due to lower revenues, partially offset by personnel headcount decreases and other reductions.

Impairment and other charges were $217.5 million in 2020. These charges were comprised primarily of the total amount by which several of our asset groups’ carrying amounts exceeded their fair value partly due to the pandemic related demand reductions, a non-cash pension settlement loss, costs to finalize the disposal of our former sand facility and employee severance costs.

Loss before income taxes was $309.4 million for 2020 compared to loss before income taxes of $113.1 million in 2019. Net loss for 2020 was $212.2 million, or $1.00 loss per share compared to net loss of $87.1 million, or $0.41 loss per share in 2019.

Cash flows from operating activities decreased to $78.0 million in 2020 compared to $209.1 million in 2019 primarily due to lower earnings, partially offset by favorable changes in working capital. As of December 31, 2020, there were no outstanding borrowings under our credit facility.

Outlook

Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a cyclical peak of 1,083 during the fourth quarter of 2018. Between the fourth quarter of 2018 and the third quarter of 2020, the drilling rig count fell by 77

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percent. During the third quarter of 2020, the U.S. domestic drilling rig count reached the lowest level recorded up to that time. The principal catalyst for this steep rig count decline was the decrease in the price of oil in the world markets resulting from the decline in global oil demand associated with the COVID-19 pandemic which began in the first quarter of 2020. RPC monitors rig count efficiencies and well completion trends because the majority of our services are directed toward well completions. Improvements in drilling rig efficiencies have increased the number of potential well completions for a given drilling rig count; therefore, the statistics regarding well completions are more meaningful indicators of the outlook for RPC’s activity levels and revenues. Annual well completions during 2018 increased by approximately 25 percent compared to 2017, and by approximately five percent in 2019 compared to 2018. Well completions in 2020 decreased by approximately 49 percent compared to 2019. Although the price of oil and well completions increased in the fourth quarter of 2020, we believe that U.S. oilfield well completion activity will remain weak during the near term because of continued low oil prices and projections of depressed industry activity.

The current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity. Following the trough of the most recent oilfield downturn in the second quarter of 2020, the price of oil has risen by more than 100 percent early in the first quarter of 2021 compared to the average price of oil in the second quarter of 2020. The price of natural gas has risen by approximately 94 percent during the same time period, due to steady demand for natural gas and normal seasonal demand in the first quarter of 2021. Following a low price of $0.23 per gallon in the first quarter of 2020, the price of benchmark natural gas liquids has risen to $0.87 per gallon early in the first quarter of 2021, an increase of almost 300 percent. The price increases in these commodities during the past three quarters are encouraging, and RPC believes that they have encouraged our customers to increase drilling and completion activities. We remain cautious, however, because we do not believe that current commodity prices are sufficiently high to encourage our customers to increase their drilling and production activities to previous cyclical peak levels.

The majority of the U.S. domestic rig count remains directed towards oil. Early in the first quarter of 2021, approximately 77 percent of the U.S. domestic rig count was directed towards oil, a decrease compared with approximately 85 percent during the same period in the 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 continue to monitor the market for our services and the competitive environment. An increasingly important factor impacting the demand for our services is the growing efficiency with which oilfield completion crews are providing services. We began to observe this in 2018, and we believe that this higher efficiency has contributed to the oversupplied nature of our market. In addition, the U.S. domestic rig count began to decline during the first quarter of 2019, and by the beginning of the second quarter of 2020 had fallen to the lowest level ever recorded. Combined with the long-term trend of increased efficiency, the U.S. domestic rig count decline has caused significant decreases in activity levels and pricing for our services.

RPC expanded its fleet of revenue-producing equipment in 2019, while also retiring older equipment which could no longer function effectively in service-intensive operating environments. We continue to upgrade our existing equipment to operate using multiple fuel sources and to take advantage of advances in technology and data collection. However, we do not plan meaningfully to increase our fleet capacity either through purchases of new equipment or bringing idled equipment into service until the projected financial returns for such an investment are justified. Our consistent response to the near-term potential of lower activity levels and pricing has been to undertake moderate fleet expansions which we believe will allow us to maintain a strong balance sheet, while also positioning RPC for long-term growth and strong financial returns.

In connection with the preparation of our financial statements for the quarter ended March 31, 2020, the Company recorded long-lived asset impairment and other charges of $205.5 million. See Note 3 of the consolidated financial statements for a discussion of the changes in our industry resulting in these charges. In addition, we are aware that our customers have been forced to conduct their operations with little or no access to outside capital for the first time in many years, and we anticipate that this aspect of exploration and production financing will remain in place for the foreseeable future, thereby impacting the volume of future drilling and completion of new wells.

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Results of Operations

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(in thousands except per share amounts and industry data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Revenues by business segment: ​ ​ ​ ​ ​ ​ ​

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Operating (loss) profit by business segment: ​ ​ ​ ​ ​ ​ ​

Impairment and other charges (1)(2) ​ ​ (217,493) ​ ​ (82,273) ​ ​ - ​

Gain on disposition of assets, net ​ $ 9,523 ​ $ 3,707 ​ $ 3,344 ​

​ ​ ​ ​ ​ ​ ​ ​

(Loss) Earnings per share — diluted ​ $ (1.00) ​ $ (0.41) ​ $ 0.82 ​

Percentage of cost of revenues to revenues ​ 80 % 75 % 69 %

Effective income tax rate ​ 31.4 % 23.0 % 20.7 %

Average U.S. domestic rig count ​ 436 ​ 943 ​ 1,032 ​

Average oil price (per barrel) ​ $ 39.50 ​ $ 56.90 ​ $ 65.02 ​

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenues. Revenues in 2020 decreased $624.1 million or 51.1 percent compared to 2019 primarily due to the substantial decline in global demand for oil caused by the combined impact of the OPEC disputes and COVID-19 pandemic. The Technical Services segment revenues in 2020 decreased $589.1 million or 51.4 percent compared to the prior year. The decrease is due primarily to lower activity levels and lower pricing within most of our service lines as compared to the prior year. The Support Services segment revenues in 2020 decreased $35.0 million or 45.6 percent compared to 2019 due primarily to lower activity levels and pricing in the rental tools service line, which is the largest service line within this segment. Technical Services reported an operating loss of $82.5 million during 2020 compared to a loss of $33.0 million in the prior year, while Support Services reported an operating loss of $6.7 million in 2020 compared to income of $10.0 million in the prior year. The average price of oil decreased 30.6 percent and the average price of natural gas decreased 20.9 percent during 2020 compared to the prior year. The average domestic rig count during 2020 was 53.8 percent lower than 2019. International revenues, which decreased from $64.6 million in 2019 to $35.9 million in 2020, were six percent of consolidated revenues in 2020 compared to five percent 2019. International revenues decreased in 2020 primarily due to lower customer activity levels in Argentina, and Canada, partially offset by higher activity in Algeria 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 2020 was $480.7 million compared to $919.6 million in 2019, a decrease of 47.7 percent primarily due to lower materials and supplies expenses and employment costs consistent with lower activity levels and as a result of RPC’s personnel headcount decreases and other expense reduction initiatives. As a percentage of revenues, cost of revenues increased to 80.4 percent in 2020 compared to 75.2 percent in 2019 primarily due to lower pricing and the negative leverage of certain fixed expenses over significantly lower revenues.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $123.7 million in 2020 compared to $168.1 million in 2019. These expenses decreased due to lower employment costs, primarily the result of personnel headcount decreases and other cost reduction initiatives during the year. Selling, general and administrative expenses as a percentage of revenues increased to 20.7 percent of revenues in 2020 compared to 13.8 percent of revenues in 2019 due to the negative leverage of lower revenues over primarily fixed expenses.

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Depreciation and amortization. Depreciation and amortization were $95.5 million in 2020, a decrease of $74.9 million, compared to $170.4 million in 2019. Depreciation and amortization decreased significantly because of the asset impairment charges recorded during the first quarter of 2020.

Impairment and other charges. Impairment and other charges were $217.5 million in 2020 compared to $82.3 million in 2019. Impairment and other charges in 2020 is comprised primarily of the total amount by which several of our asset groups’ carrying amounts exceed their fair value, a non-cash pension settlement loss, costs to finalize the disposal of our former sand facility and employee severance costs. Impairment and other charges for 2019 was comprised primarily of equipment disposals, closing operating locations and employee severance.

Gain on disposition of assets, net. Gain on disposition of assets, net was $9.5 million in 2020 compared to $3.7 million in 2019. The gain on disposition of assets, net is generally comprised of gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.

Otherincome (expense),net. Other income, net was $0.1 million in 2020 compared to other expense, net of $0.4 million in 2019.

Interest expense and interest income. Interest expense was $0.4 million in 2020 compared to $0.3 million in 2019. Interest expense in 2020 and 2019 principally consists of fees on the unused portion of the credit facility. Interest income decreased to $0.5 million in 2020 compared to $1.9 million in 2019 due to lower interest rates earned on cash balances.

Income tax benefit. Income tax benefit was $97.2 million in 2020, compared to $26.0 million income tax benefit for the same period in 2019. The effective tax rate was 31.4 percent for 2020 compared to a 23.0 percent effective tax rate for 2019. The effective tax rate in 2020 reflects the benefit of the CARES Act allowing tax loss carrybacks including the beneficial revaluation of our 2019 net operating losses and the recording of our 2020 net operating losses both at 35 percent.

Net loss and diluted loss per share. Net loss was $212.2 million in 2020, or $1.00 loss per diluted share, compared to net loss of $87.1 million in 2019, or $0.41 earnings per diluted share. This increase in loss per share was due to lower profitability as average shares outstanding was essentially unchanged.

Liquidity and Capital Resources

Cash and Cash Flows

The Company’s cash and cash equivalents were $84.5 million as of December 31, 2020, $50.0 million as of December 31, 2019 and $116.3 million as of December 31, 2018.

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

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​ (in thousands)

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Cash provided by operating activities for 2020 decreased by $131.2 million compared to the prior year. This decrease is due primarily to an increase in net loss of $125.1 million partially offset by favorable changes in working capital during 2020, coupled with non-cash impairment charges of $211.0 million. The net favorable change in working capital is due primarily to favorable changes of $80.8 million in accounts receivable and $18.1 million in inventories, partially offset by unfavorable changes of $9.1 million in accounts payable and $58.8 million in income taxes receivable/(payable), (net).

Cash used for investing activities for 2020 decreased by $193.1 million compared to 2019, primarily because of a reduction in capital expenditures in response to lower industry activity levels, coupled with an increase in proceeds from the sale of assets.

Cash used for financing activities for 2020 decreased by $38.8 million primarily as a result of lower dividends paid to common stockholders as well as lower cost of repurchases of the Company’s shares both on the open market and for taxes related to the vesting of restricted shares. There were no dividends paid to common stockholders in 2020.

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Financial Condition and Liquidity

The Company’s financial condition as of December 31, 2020 remains strong. We believe the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization will provide sufficient liquidity to meet our requirements for at least the next twelve months. The Company’s decisions about the amount of cash to be used for investing and financing activities are influenced by our capital position, and the expected amount of cash to be provided by operations. RPC does not expect to need our revolving credit facility to meet these liquidity requirements.

The Company currently has a $100 million revolving credit facility that matures in October 2023, as recently amended. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. On September 25, 2020, the Company further amended the revolving credit facility. Among other matters, the amendment (1) reduced the maximum amount available for borrowing from $125 million to $100 million, (2) decreased the minimum tangible net worth covenant level from not less than $600 million to not less than $400 million, and (3) increased the margin spreads and commitment fees payable by 37.5 and 5 basis points, respectively, at each pricing level of the applicable rate without any changes to the leverage ratios used to calculate such spreads. As of December 31, 2020, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $19.8 million; therefore, a total of $80.2 million of the facility was available. The Company was in compliance with the credit facility financial covenants as of December 31, 2020. For additional information with respect to RPC’s facility, see Note 9 of the consolidated financial statements included in this report and which is incorporated herein by reference.

Cash Requirements

Capital expenditures were $65.1 million in 2020, and we currently expect capital expenditures to be approximately $56 million in 2021. We expect that a majority of these expenditures in 2021 will be directed mostly towards capitalized maintenance of our existing equipment, as well as upgrades of selected pressure pumping equipment for dual-fuel capability. The actual amount of capital expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules.

The Company has ongoing sales and use tax audits in various jurisdictions subject to varying interpretations of statutes. The Company has recorded the exposure from these audits to the extent issues are resolved or can be reasonably estimated. There are issues that could result in unfavorable outcomes that cannot be currently estimated.

The Company’s Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon normal retirement at age 65 or early retirement at 591/2 to eligible employees. During, 2020, the Company made a cash contribution of $4,450,000 to the plan but does not currently expect to make any contributions to the plan during 2021.

As of December 31, 2020, the Company’s stock buyback program authorizes the aggregate repurchase of up to 41,578,125 shares, including an additional 10,000,000 shares authorized for repurchase by the Board of Directors on February 12, 2018. No shares have been purchased on the open market during the twelve months ended December 31, 2020, and 8,248,184 shares remain available to be repurchased under the current authorization. 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.

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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, 2020:

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Contractual Obligations Payments due by period

​ ​ ​ Less than 1-3 3-5 More than

(in thousands) ​ Total 1 year years years 5 years

Long-term debt obligations ​ $ — ​ $ — ​ $ — ​ $ — ​ $ —

Interest on long-term debt obligations ​ — ​ — ​ — ​ — ​ —

Capital lease obligations ​ — ​ — ​ — ​ — ​ —

Purchase obligations (2) ​ 229 ​ 229 ​ — ​ — ​ —

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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 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 when not publicly available.

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. In addition, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees, especially if employment in the general economy increases. Also, activity increases can cause increases in the costs of certain materials and key equipment components used to provide services to the Company’s customers. Beginning in 2018, prices for the raw material comprising the Company’s single largest purchase began to decline due to increased sources of supply of the material, particularly in geographic markets located close to the largest U.S. oil and gas basin. In addition, labor costs declined throughout 2020 due to the significant decline in oilfield activity. However, during the fourth quarter of 2020 and early in the first quarter of 2021, the price of labor began to rise due to increasing oilfield activity and the departure of skilled labor from the domestic oilfield industry during 2020. Also, the prices of raw materials used in the Company’s operations began to increase because many suppliers of these materials ceased operations. During the first quarter of 2021, the Company is attempting to pass these price increases along to our customers, but due to the competitive nature of the oilfield services business, there is no assurance that these efforts will be successful.

Off Balance Sheet Arrangements

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

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Related Party Transactions

See “NOTE 14: RELATED PARTY TRANSACTIONS” of the consolidated financial statements, which is incorporated herein by reference, for a description of related party transactions.

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 policies requiring significant judgements and 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:

Credit loss allowance for accounts receivable — 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 credit loss allowance 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. Credit loss allowance for accounts receivable are recorded in selling, general and administrative expenses. Accounts are written off against the allowance 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, thereby causing credit loss allowance to fluctuate significantly from period to period. Recoveries were insignificant in 2020, 2019 and 2018. We record specific provisions when we become aware of a customer's inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to a customer changes, our estimate of the realizability of the receivable would be further adjusted, either upward or downward.

The estimated credit loss allowance 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 credit loss allowance as a percentage of revenues ranged from 0.03 percent to 0.8 percent over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2020 would have resulted in a change of $3.0 million in the recorded provision for current expected credit losses.

Insurance expenses —The Company 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, 2020, the Company estimates the range of exposure to be from $14.9 million to $20.1 million. The Company has recorded liabilities at December 31, 2020 of $17.3 million which represents management’s best estimate of probable loss.

Long-lived assets including goodwill — RPC carries a variety of long-lived assets on its balance sheet including property, plant and equipment and goodwill. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The Company conducts impairment tests on goodwill annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate an impairment may exist. In addition, the Company conducts impairment tests on long-lived assets, other than goodwill, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

For the impairment testing on long-lived assets, other than goodwill, a long-lived asset is grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimated future undiscounted cash flows expected to result from the use and eventual disposition of the asset group are compared to its carrying amount. If the undiscounted cash flows are less than the asset group’s carrying amount, then the Company is required to determine the asset group's fair value by using a discounted cash flow analysis. This analysis is based on estimates such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining

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useful life and service potential of the assets within the asset group, and a discount rate based on weighted average cost of capital. An impairment loss is measured and recorded as the amount by which the asset group's carrying amount exceeds its fair value. Assessment of goodwill impairment is conducted at the level of each reporting unit, which is the same as our reportable segments, Technical Services and Support Services, comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. The fair value of each reporting unit is estimated using an income approach and a market approach. The income approach uses discounted cash flow analysis based on management’s short-term and long-term forecast of operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures and the timing of expected future cash flows based on market conditions. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.

During the year ended December 31, 2020, the Company recorded an asset impairment loss totaling $205.5 million related to its long-lived asset groups, in response to the drastic decline in oilfield drilling and completion activities. See Note 3 of the consolidated financial statements for additional information which is incorporated herein by reference.

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 certain employees benefits earned through March 2002. The Company accounts for the defined benefit plan in accordance with the provisions of Financial Accounting Standards Board (FASB) ASC 715, “Compensation – Retirement Benefits” and engages an outside actuary to assist management in calculating 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 adjusts 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 four percent for 2020, seven percent for 2019 and seven percent for 2018.

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 2.50 percent as of December 31, 2020, 3.60 percent as of December 31, 2019 and 4.65 percent in 2018.

As set forth in Note 13 to the Company’s financial statements, included among the asset categories for the Plan’s investments are fixed income securities that include corporate bonds, mortgage-backed securities, sovereign bonds, and U.S. Treasuries. These investments are measured at net asset value and are valued using significant non-observable inputs which do not have a readily determinable fair value. 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, 2020, the defined benefit plan was over-funded and the recorded change within accumulated other comprehensive loss increased stockholders’ equity by $0.9 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 $1.1 million to the net loss related to pension reflected in accumulated other comprehensive loss.

The Company recognized pre-tax pension expense (income) of $5.7 million in 2020, $0.3 million in 2019 and $(0.2) million in 2018. Pension expense during 2020, includes $3.5 million related to the lump-sum payments to certain participants in the Company’s Retirement Income Plan. Based on the over-funded status of the defined benefit plan as of December 31, 2020, the Company expects to recognize pension income of $356 thousand in 2021. 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 $189 thousand in 2021. 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 $21 thousand in 2021.

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Recent Accounting Pronouncements

See Note 1 of the consolidated financial statements, which is incorporated herein by reference for a description of recent accounting standards, including the expected dates of adoption and estimated effects on results of operations and financial condition.

​

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is subject to interest rate risk exposre through borrowings on its revolving credit facility. As of December 31, 2020, there are no outstanding interest-bearing advances on our credit facility which bear interest at a floating rate.

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.

​

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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, 2020 based on criteria established in the 2013Internal 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, 2020.

The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2020, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 30.

/s/ Richard A. Hubbell ​ /s/ Ben M. Palmer

​ ​ ​

​ ​ ​

Atlanta, Georgia ​ ​

​

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

RPC, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 26, 2021 expressed an unqualified opinion on those financial statements.

Basis for opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and limitations of internal control over financial reporting

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.

​

/s/ GRANT THORNTON LLP ​

​ ​

Atlanta, Georgia ​

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

RPC, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of RPC, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, statements of stockholders’ equity, and statements of cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 26, 2021 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Long-Lived Assets under ASC 360

As described in Note 7 of the consolidated financial statements, the gross amount of property, plant and equipment as of December 31, 2020 was $1.1 billion with related accumulated depreciation of $790.7 million. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In the first quarter of the year ended December 31, 2020, the Company identified a triggering event when the oil and gas industry experienced an unprecedented disruption due to the substantial decline in global demand for oil and the COVID-19 pandemic. The Company recognized an impairment charge related to property, plant and equipment totaling $204.8 million for the year ended December 31, 2020, as described in Note 3 to the consolidated financial statements.

We identified the evaluation, determination and assessment of the impairment charges of long-lived asset groups as a critical audit matter. There is a high degree of subjectivity in evaluating the significant assumptions used in determining the undiscounted cash flows needed to estimate the recoverability of the asset groups, which in turn led to a high degree of auditor judgment and effort in evaluating management’s assumptions, and to assess the fair value of the asset groups that indicated they were not recoverable using discounted

31

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cash flow. The significant assumptions specifically include the revenue growth rates, projected operating margin and the discount rate used.

The primary procedures we performed to address the critical audit matter included the following: We tested certain internal controls over the Company’s process to estimate the undiscounted cash flows of the asset groups, including controls related to the significant assumptions. We evaluated the Company’s development of the revenue growth rates and operating margin assumptions by identifying and assessing the sources of data that management used in their assessment. We evaluated the revenue growth rates and operating margin for consistency with relevant historical data, changes in the business, and external industry data. In addition, we involved valuation professionals with specialized skills and knowledge to assist with evaluating the selected discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable companies.

Determination and Assessment of Goodwill Impairment under ASC 350

As discussed in Note 1 of the consolidated financial statements, the Company performs goodwill impairment testing on an annual basis, 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. The Company’s goodwill balance was $32.2 million as of December 31, 2020. The Company determined that the substantial decline in global demand for oil and the COIVD-19 pandemic constituted a triggering event that required an interim goodwill impairment assessment as of March 31, 2020 in addition to its annual test as of October 31, 2020. The Company performed a quantitative impairment test at each testing date by estimating the fair value of each of its reporting units by considering both comparable public company multiples (a market approach) and projected discounted future cash flows (an income approach). For the purpose of the impairment test, goodwill has been allocated to the Company's reporting units, which are consistent with their operating segments, and which represents the lowest level within the Company at which the goodwill is monitored for management purposes.

We identified the Company’s assessment of goodwill impairment as a critical audit matter as the process entails high estimation uncertainty due to significant judgments with respect to identification of reporting units and assumptions used to estimate the future revenues and cash flows, including revenue growth rates, operating margins, weighted average cost of capital, discount rates, and future market conditions, as well as valuation methodologies applied by the Company.

The primary procedures we performed related to goodwill impairment testing included the following, among others: We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process. For example, we tested controls over the estimation of the fair values of the reporting units, including the Company’s controls over the valuation models, the mathematical accuracy of the valuation models and development of underlying assumptions used to develop such fair values of the reporting units. We also tested management’s review of the reconciliation of the aggregate estimated fair value of the reporting units to the market capitalization of the Company. We agreed the carrying value of each reporting unit to the underlying accounting records. Additionally, we evaluated the inputs and assumptions for the projections of revenues, expenses and cash flows as well as evaluated the assumptions and methodology used in determining the fair value of the reporting units. To test the estimated fair values of the Company’s reporting units, our audit procedures included, among others, assessing the valuation methodology and the underlying data used by the Company in its analysis, including testing the significant assumptions discussed above. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model and other relevant factors. Further, we involved valuation professionals with specialized skills to assist with reviewing the methodologies and assumptions used by management in its valuation of identified reporting units, including a consideration of the consistency and application of methodologies and assumptions employed.

​

/s/ GRANT THORNTON LLP ​

​ ​

We have served as the Company’s auditor since 2004. ​

​ ​

Atlanta, Georgia ​

​

​

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Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS

RPC, INC. AND SUBSIDIARIES

(in thousands except share information)

​

​ ​ ​ ​ ​ ​ ​

ASSETS ​ ​ ​ ​

Operating lease right-of-use assets ​ ​ 27,270 ​ ​ 33,850

LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​

LIABILITIES ​ ​

Accrued payroll and related expenses ​ 18,428 ​ 19,641

Accrued insurance expenses ​ 5,489 ​ 7,540

Accrued state, local and other taxes ​ 2,788 ​ 2,427

Current portion of operating lease liabilities ​ ​ 9,192 ​ ​ 10,625

Long-term accrued insurance expenses ​ 11,822 ​ 14,040

Long-term operating lease liabilities ​ ​ 21,090 ​ ​ 28,378

Other long-term liabilities ​ 49 ​ 2,492

Commitments and contingencies (Note 12) ​ ​ ​

STOCKHOLDERS’ EQUITY ​ ​

Capital in excess of par value ​ — ​ —

Accumulated other comprehensive loss ​ (17,706) ​ (23,223)

Total liabilities and stockholders’ equity ​ $ 790,505 ​ $ 1,053,218

​

The accompanying notes are an integral part of these statements.

​

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CONSOLIDATED STATEMENTS OF OPERATIONS

RPC, INC. AND SUBSIDIARIES

(in thousands except per share data)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

COSTS AND EXPENSES: ​ ​ ​ ​ ​ ​

Impairment and other charges ​ ​ 217,493 ​ ​ 82,273 ​ ​ —

Gain on disposition of assets, net ​ (9,523) ​ (3,707) ​ (3,344)

Other income (expense), net ​ 81 ​ (385) ​ 9,313

(LOSS) EARNINGS PER SHARE ​ ​ ​ ​ ​

Dividends paid per share ​ ​ — ​ $ 0.15 ​ $ 0.47

​

The accompanying notes are an integral part of these statements.

​

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

RPC, INC. AND SUBSIDIARIES

(in thousands except per share data)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXES: ​ ​ ​ ​ ​ ​

Foreign currency translation ​ (210) ​ 553 ​ (621)

​

The accompanying notes are an integral part of these statements.

​

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

RPC, INC. AND SUBSIDIARIES

(in thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​

​ ​ ​ ​ ​ ​ ​ Capital in ​ ​ ​ ​ Other ​ ​ ​

​ ​ Common Stock ​ Excess of ​ Retained ​ Comprehensive ​ ​ ​

​ ​ Shares ​ Amount ​ Par Value ​ Earnings ​ Income (Loss) ​ Total

Adoption of accounting standard (Note 1) ​ — ​ ​ — ​ ​ — ​ ​ 15 ​ ​ (15) ​ ​ —

Stock issued for stock incentive plans, net ​ 367 ​ 37 ​ 9,382 ​ — ​ — ​ 9,419

Pension adjustment, net of taxes — ​ — ​ — ​ — ​ (1,408) ​ (1,408)

Foreign currency translation — ​ — ​ — ​ — ​ (621) ​ (621)

Adoption of accounting standard (Note 1) ​ — ​ — ​ — ​ 2,464 ​ (2,732) ​ (268)

Stock issued for stock incentive plans, net 667 ​ 66 ​ 8,564 ​ — ​ — ​ 8,630

Pension adjustment, net of taxes — ​ — ​ — ​ — ​ (2,298) ​ (2,298)

Foreign currency translation — ​ — ​ — ​ — ​ 553 ​ 553

Dividends declared — ​ — ​ — ​ (32,231) ​ — ​ (32,231)

Stock issued for stock incentive plans, net 716 ​ 71 ​ 8,664 ​ — ​ — ​ 8,735

Pension adjustment, net of taxes — ​ — ​ — ​ — ​ 5,727 ​ 5,727

Foreign currency translation — ​ — ​ — ​ — ​ (210) ​ (210)

​

The accompanying notes are an integral part of these statements.

​

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CONSOLIDATED STATEMENTS OF CASH FLOWS

RPC, Inc. and Subsidiaries

(in thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​

Gain on disposition of assets, net ​ (9,523) ​ (2,645) ​ (3,344)

Gain due to insurance recovery ​ — ​ — ​ (9,646)

Gain due to benefit plan financing arrangement ​ (891) ​ (126) ​ (1,020)

(Increase) decrease in assets: ​ ​ ​ ​

Increase (decrease) in liabilities: ​ ​ ​ ​

Accrued payroll and related expenses ​ (1,219) ​ (6,103) ​ 2,193

Accrued state, local and other taxes ​ 361 ​ (654) ​ (5,574)

Long-term accrued insurance expenses ​ (2,218) ​ 1,968 ​ 1,696

Other long-term liabilities ​ (2,004) ​ 483 ​ (880)

INVESTING ACTIVITIES ​ ​ ​

Proceeds from insurance recovery ​ — ​ — ​ 9,646

Proceeds from benefit plan financing arrangement ​ 1,566 ​ 507 ​ 2,218

Re-investment in benefit plan financing arrangement ​ (1,566) ​ (507) ​ (2,218)

FINANCING ACTIVITIES ​ ​ ​

Cash paid for common stock purchased and retired ​ (826) ​ (7,361) ​ (43,001)

​

The accompanying notes are an integral part of these statements.

​

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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.

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, 2020, 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 July 22, 2019, the Board of Directors voted to suspend RPC’s dividend to common stockholders. The Company expects to resume cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. The Company has no timetable for the resumption of dividends.

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 credit loss allowance, income taxes, accrued insurance expenses, depreciable lives of assets, and pension liabilities.

Revenues

RPC recognizes revenues from contracts with its customers based on the amount of consideration it receives in exchange for the services provided. See Note 2 for additional information.

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 was no customer that accounted for 10 percent or more of the Company’s revenues in 2020, 2019 or 2018. Additionally, there was no customer that accounted for 10 percent or more of accounts receivable as of December 31, 2020 or 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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 realized no gains or losses on its available-for-sale securities during 2020, 2019 and 2018. Securities that are held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) are classified as trading. See Note 13 for further information regarding the SERP. The change in fair value of trading securities is presented as compensation cost in 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 a credit loss allowance.

Credit Loss Allowance for Accounts Receivable

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 credit loss allowance 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 receivable balances are written off when determined to be uncollectible and recoveries of amounts previously written off 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 net realizable value. Cost is determined using first-in, first-out (“FIFO”) method or the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company 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.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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, to determine if any impairments should be recognized.

During the year ended December 31, 2020, the Company recorded accelerated depreciation related to certain operating equipment that was retired. In addition, the Company recorded a write down for certain real estate that was classified as held for sale. See Note 3 for additional information.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill by reportable segment was as follows:

​

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​

​

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 2020 and 2019, the Company performed a quantitative impairment test by estimating the fair value of each of its reporting units by considering both comparable public company multiples (a market approach) and projected discounted future cash flows (an income approach). The discounted cash flow analysis is based on management’s short-term and long-term forecast of operating results for each reporting unit and includes assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures, and the timing of expected future cash flows. Based on this analysis, the Company concluded that the fair value of its reporting units exceeded their carrying amount and therefore no impairment of goodwill occurred during the years ended December 31, 2020 and 2019.

Advertising

Advertising expenses are charged to expense during the period in which they are incurred. Advertising expenses totaled $806,000 in 2020, $2,003,000 in 2019, and $2,220,000 in 2018.

Insurance Expenses

RPC 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.

Defined Benefit Pension Plan

The Company has a defined benefit pension plan that provides monthly benefits upon normal retirement at age 65 or early retirement at age 591/2 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 13 for a full description of this plan and the related accounting and funding policies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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 for 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

Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the respective periods. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities. See Note 13 for further information on restricted stock granted to employees.

Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted average shares outstanding is as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjustment for participating securities ​ (2,571) ​ (2,509) ​ (2,453)

​

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 10 for additional information.

Stock-Based Compensation

Stock-based compensation expense is recognized for all share-based payment awards, net of estimated forfeitures. 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 13 for additional information.

Recent Accounting Pronouncements

The FASB issued the following applicable Accounting Standards Updates (ASU):

Recently Adopted Accounting Standards:

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

Recently Issued Accounting Standards Not Yet Adopted:

​

Note 2: Revenues

Accounting Policy

RPC’s contract revenues are generated principally from providing oilfield services. These services are based on mutually agreed upon pricing with the customer prior to the services being delivered and, given the nature of the services, do not include the right of return. Pricing for these services is a function of rates based on the nature of the specific job, with consideration for the extent of equipment, labor, and consumables needed for the job. RPC typically satisfies its performance obligations over time as the services are performed. RPC records revenues based on the transaction price agreed upon with its customers.

Sales tax charged to customers is presented on a net basis within the consolidated statements of operations and therefore excluded from revenues.

Nature of services

RPC provides a broad range of specialized oilfield services to independent and major oil and gas companies engaged in the exploration, production and development of oil gas properties throughout the United States and in selected international markets. RPC manages its business as either (1) services offered on the well site with equipment and personnel (Technical Services) or (2) services and tools offered off the well site (Support Services). For more detailed information about operating segments, see Note 15.

RPC contracts with its customers to provide the following services by reportable segment:

Technical Services

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

Support Services

Our contracts with customers are generally short-term in nature and generally consist of a single performance obligation – the provision of oilfield services.

Payment terms

RPC’s contracts with customer states the final terms of the sales, including the description, quantity, and price of each service to be delivered. The Company’s contracts are generally short-term in nature and in most situations, RPC provides services ahead of payment - i.e., RPC has fulfilled the performance obligation prior to submitting a customer invoice. RPC invoices the customer upon completion of the specified services and collection generally occurs between 30 to 60 days after invoicing. As the Company enters into contracts with its customers, it generally expects there to be no significant timing difference between the date the services are provided to the customer (satisfaction of the performance obligation) and the date cash consideration is received. Accordingly, there is no financing component to our arrangements with customers.

Significant judgments

RPC believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (1) our performance toward complete satisfaction of the performance obligation under the contract and (2) the value transferred to the customer of the services performed under the contract. RPC has elected the right to invoice practical expedient for recognizing revenue related to its performance obligations.

Disaggregation of revenues

See Note 15 for disaggregation of revenue by operating segment and services offered in each of them and by geographic regions. Timing of revenue recognition for each of the periods presented is shown below:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Oilfield services transferred at a point in time ​ $ — ​ $ — ​ $ —

​

Contract balances

Contract assets representing the Company’s rights to consideration for work completed but not billed are included in Accounts receivable, net on the consolidated balance sheets are shown below:

​

​ ​ ​ ​ ​ ​ ​

​

Substantially all of the unbilled trade receivables as of December 31, 2020 and December 31, 2019 were invoiced during the following quarter.

​

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

Note 3: Impairment and Other Charges

The Company recorded the following pre-tax charges during 2020 and 2019 as impairment and other charges in the consolidated statements of operations.

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​

Long-lived asset impairments (1) ​ $ 204,765 ​ $ —

Pension settlement loss (3) ​ 4,660 ​ —

Assets held for sale write down (4) ​ 192 ​ 14,326

Retirement of equipment ​ — ​ 17,218

Inventory write-downs ​ ​ — ​ ​ 9,077

​

During the first half of 2020, the Company experienced drastic declines in oilfield drilling and completion activities, with low levels of revenues not experienced by RPC or the industry for many years. This unprecedented disruption was caused by the substantial decline in global demand for oil caused by the COVID-19 pandemic as well as macroeconomic events such as the geopolitical tensions between the Organization of Petroleum Exporting Countries and Russia, regarding limits on oil production. These factors resulted in a significant drop in oil prices and a substantial deterioration of the Company’s public market capitalization. In response, the Company reduced headcount, furloughed employees and implemented compensation reductions for remaining active employees with the goal of adjusting its cost structure caused by low revenue levels. The Company determined these events constituted a triggering event that required a review of the recoverability of its long-lived assets and performed an interim goodwill impairment assessment as of March 31, 2020.

The Company used both income based and market based approaches to determine the fair value of its long-lived asset groups and its reporting units for goodwill impairment assessment. Under the income approach, the fair value for each of its asset groups and reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company used internal forecasts, updated for recent events, to estimate future cash flows and terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on its most recent views of the long-term outlook for each asset group and reporting units. For the market based valuation, the Company used comparable public company multiples. The selection of comparable businesses was based on the markets in which the asset groups and reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. Based on the concluded fair value of the asset groups, the Company measured and recorded an impairment loss that represents the amount by which the asset groups' carrying amounts exceeded their fair value. For purposes of the goodwill impairment assessment, the fair value of each reporting unit exceeded its net book value and therefore, goodwill was deemed to be not impaired.

The Company’s operating losses narrowed in the latter half of 2020 due to revenue increases and increased operational efficiency resulting from expense reduction measures. However, the Company continues its current strategy of minimal capital investment and continued expense scrutiny until financial returns improve. As market conditions evolve and the Company continues to develop its strategy to deal with such conditions, it may be necessary to record further asset impairments, or an impairment of the carrying value of goodwill.

​

​

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

Note 4: Accounts Receivable

Accounts receivable, net consists of the following:

​

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​

Trade receivables: ​ ​

Less: allowance for credit losses ​ (4,815) ​ (5,181)

​

Trade receivables relate to revenues generated from equipment and services, 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 consists primarily of net amounts receivable from an agent, that operates internationally, as well as amounts due from the favorable resolution of state tax audits and rebates due from suppliers.

​

​

Note 5: Current Expected Credit Losses

The Company adopted ASU No 2016-13, Current Expected Credit Losses (Topic 326) on January 1, 2020 on a prospective basis with an immaterial cumulative-effect adjustment to the opening balance of retained earnings. This ASU replaces the current loss model with an expected credit loss model for financial assets measured at amortized cost that includes accounts (trade) receivable. The Company is exposed to credit losses primarily from providing oilfield services. The Company’s expected credit loss allowance for accounts receivable is based on historical collection experience, current and future economic and market conditions and a review of the current status of customers’ account receivable balances. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible and recoveries of amounts previously written off are recorded when collected. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of current expected credit losses was not significantly impacted. Estimates used to determine the allowance for current expected credit losses are based on an assessment of anticipated payment and all other historical, current and future information that is reasonably available.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected:

​

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​

Adoption of ASC 326 ​ — ​ —

Provision (benefit) for current expected credit losses ​ 342 ​ 1,481

Recoveries collected (net of expenses) ​ ​ 31 ​ ​ 29

​

​

Note 6: Inventories

Inventories consist of raw materials, parts and supplies and totaled $82,918,000 at December 31, 2020 and $100,947,000 at December 31, 2019. The reserve for obsolete and slow moving inventory is $13,828,000 at December 31, 2020 and $10,467,000 at December 31, 2019.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

Note 7: Property, Plant and Equipment

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

​

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​

​

Depreciation expense was $95.3 million in 2020, $172.6 million in 2019, and $166.2 million in 2018. There were no capital leases outstanding as of December 31, 2020 and December 31, 2019. The Company had accounts payable for purchases of property and equipment of $3.9 million as of December 31, 2020, $6.8 million as of December 31, 2019, and $14.8 million as of December 31, 2018. The Company transferred inventory to property, plant and equipment totaling $8.6 million in 2020 and $20.8 million in 2019.

Note 8: Income Taxes

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which among other changes, eliminated the taxable income limit for certain net operating losses ("NOL"), allowed businesses to carryback NOLs arising in 2018, 2019 and 2020 to the five prior years, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment. These provisions enabled RPC to carryback federal tax losses related to 2019 and 2020. The Company recorded net tax benefits totaling $29 million in 2020 related to these provisions.

The Tax Cuts and Jobs Act (“the Act”) effective January 1, 2018, included a reduction to the US federal tax rate from 35 percent to 21 percent, and a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act also resulted in an adjustment of deferred tax assets and liabilities for the new corporate tax rate, and adjustments to deductible compensation of our executive officers. In addition, the Act imposes a new tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries referred to as Global Low Taxed Intangible Income (“GILTI”), a new tax on certain payments between a U.S. corporation and its foreign subsidiaries referred to as Base Erosion and Anti-Abuse Minimum Tax (“BEAT”), and a new tax deduction on certain qualifying income related to export sales of property or services referred to as Foreign Derived Intangible Income (“FDII”).

In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, the Company completed its accounting for the provisional amounts recognized as of December 31, 2017 and recorded a reduction in tax expense of $5.1 million, recorded in 2018 as a discrete tax benefit. These adjustments were recorded as components of income tax expense from continuing operations.

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

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​ ​ ​

Current provision (benefit): ​ ​ ​ ​ ​ ​

Deferred provision (benefit): ​ ​ ​ ​

​

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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

​

​ ​ ​ ​ ​ ​ ​ ​

State income taxes, net of federal benefit ​ 1.5 ​ (0.3) ​ 2.6

Non-deductible expenses (0.1) (1.9) 1.8 ​

Adjustments related to CARES Act 8.5 — — ​

Adjustments related to the Act — — (2.3) ​

Adjustments related to vesting of restricted stock (0.8) (0.4) (0.8) ​

​

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

​

​ ​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​

Deferred tax assets: ​ ​

State net operating loss carryforwards ​ 5,853 ​ 1,445

Impairment reserve ​ ​ 338 ​ ​ 2,802

Foreign tax credit carryforwards ​ — ​ 3,086

Federal net operating loss carryforwards ​ ​ — ​ ​ 19,664

Basis differences in consolidated limited liability company ​ ​ 486 ​ ​ 5,778

Deferred tax liabilities: ​ ​ ​ ​

Goodwill amortization ​ (6,893) ​ (6,763)

Basis differences in joint ventures ​ (448) ​ (444)

All others ​ (5) ​ (5)

Gross deferred tax liabilities ​ (40,832) ​ (94,859)

Net deferred tax liabilities ​ $ (13,332) ​ $ (37,319)

​

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.

As of December 31, 2020, the Company had net operating losses related to federal income taxes of $95.5 million which will be carried back to 2015 due to the CARES Act. As of December 31, 2020, the Company has net operating loss carryforwards related to state income taxes of $60.2 million (gross) that will expire between 2021 and 2036, with a valuation allowance of $434 thousand. The valuation allowance is representing the tax-affected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset.

As of December 31, 2020, the Company has foreign tax credits of $4.8 million that the Company intends to carryback to the 2017 tax year.

Additionally, as of December 31, 2020, the Company has capital loss carryforwards of $56 thousand that are not expected to be utilized, and therefore has a full valuation allowance against the corresponding deferred tax asset.

Total net income tax payments (refunds) were $(10.1) million in 2020, $(11.8) million in 2019, and $18.0 million in 2018.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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. In general, the Company’s 2016 through 2019 tax returns remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

As of December 31, 2020 and 2019, our liability for unrecognized tax benefits related to state income taxes was recorded as part of our 2020 effective rate, due to the expiration of the related state tax statute. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

​

​ ​ ​ ​ ​ ​ ​

Additions for tax positions of prior years ​ — ​ —

Reductions for tax positions of prior years $ (2,215,000) ​ —

​

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

The Company's policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties as of December 31, 2020, 2019, and 2018 were $17 thousand, $203 thousand, and $263 thousand, respectively.

Note 9: Long-Term Debt

The Company has a revolving Credit Agreement with Bank of America and five other lenders which provides for a line of credit of up to $100 million, including a $35 million letter of credit subfacility, and a $35 million swingline subfacility. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. The revolving credit facility includes a full and unconditional guarantee by the Company’s 100 percent owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of the Company and its subsidiaries. Certain of the Company’s minor subsidiaries are not guarantors.

The Credit Agreement's maturity date is July 26, 2023. On September 25, 2020, the Company entered into Amendment No. 5 to Credit Agreement (the “Amendment”). This Amendment (1) reduced the maximum amount available for borrowing under the credit facility from $125 million to $100 million, (2) decreased the minimum tangible net worth covenant level from not less than $600 million to not less than $400 million, and (3) increased the margin spreads and commitment fees payable by RPC by 37.5 and 5 basis points, respectively, at each pricing level of the applicable rate without any changes to the leverage ratios used to calculate such spreads.

The Credit Agreement includes the following covenants: (i) when RPC’s trailing four quarter EBITDA (as calculated under the Credit Agreement) is equal to or greater than $50 million, a maximum consolidated leverage ratio of 2.50:1.00 and a minimum debt service coverage ratio of 2.00:1.00, and (ii) when RPC's trailing fourth quarter EBITDA is less than $50 million, a minimum tangible net worth of no less than $400 million. As of December 31, 2020, the Company was in compliance with these covenants.

Revolving loans under the amended revolving credit facility bear interest at one of the following two rates at the Company’s election:

In addition, the Company pays an annual fee ranging from 0.20% to 0.30%, based on a quarterly consolidated leverage ratio calculation, on the unused portion of the credit facility.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

The Company has incurred total loan origination fees and other debt related costs associated with this revolving credit facility in the aggregate of approximately $3.4 million. These costs are being amortized to interest expense over the remaining term of the loan, and the remaining net balance of $0.3 million at December 31, 2020 is classified as part of non-current other assets.

As of December 31, 2020, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $18.3 million; therefore, a total of $81.7 million of the facility was available. Interest incurred, which includes facility fees on the unused portion of the revolving credit facility and the amortization of loan cost, and interest paid on the credit facility were as follows for the periods indicated:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​

(in thousands) ​ ​ ​ ​ ​

​

​

Note 10: Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income consists of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Foreign ​ ​

​ ​ Pension ​ Currency ​ ​ ​

​ Adjustment Translation Total

Change during 2019: ​ ​ ​ ​ ​ ​

Tax (expense) benefit ​ 970 ​ — ​ 970

Adoption of accounting standard ​ ​ (2,732) ​ ​ — ​ ​ (2,732)

Reclassification adjustment, net of taxes: ​ ​ ​

Amortization of net loss (1) ​ 694 ​ — ​ 694

Change during 2020: ​ ​ ​

Tax (expense) benefit ​ (475) ​ — ​ (475)

Pension settlement loss ​ ​ 3,518 ​ ​ — ​ ​ 3,518

Reclassification adjustment, net of taxes: ​ ​ ​ ​

Amortization of net loss (1) ​ 744 ​ — ​ 744

​

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

Note 11: Fair Value Disclosures

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

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RPC, Inc. and Subsidiaries

Years ended December 31, 2020, 2019 and 2018

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, 2020 and 2019:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2020 with:

​ ​ ​ ​ Quoted prices in ​ Significant ​ ​

​ ​ ​ ​ active markets ​ other ​ Significant

​ ​ ​ ​ for identical ​ observable ​ unobservable

(in thousands) Total assets inputs inputs

​ ​ ​ (Level 1) ​ (Level 2) ​ (Level 3)

Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Available-for-sale securities – equity securities ​ $ 132 ​ $ 132 ​ $ — ​ $ —

Investments measured at net asset value - trading securities ​ $ 32,039 ​ ​ ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2019 with:

​ ​ ​ ​ Quoted prices in ​ Significant ​ ​

​ ​ ​ ​ active markets ​ other ​ Significant