rpc report 11.7.14

November 7, 2014

RPC, INC. RES/NYSE Continuing Coverage: Weathering the Storm

Investment Rating: Market Outperform PRICE: $ 16.15 S&P 500: 2,031.92 DJIA: 17,573.93 RUSSELL 2000: 1,173.32

RPC’s stock will rebound while oil prices remain low

Conservative capital structure prepares RPC for decreases in revenues and working capital

RPC’s capital expenditures meet demands for hydraulic fracturing

Increases in service intensity and percentage of unconventional rigs will partially offset losses from decreases in oil drilling activity

RPC is an attractive target in current consolidation market

Our 12‐month target price is $19.00

ValuationEPS

P/ECFPS

P/CFPS

2013 A$ 0.7721.0x $ 1.799.0x

2014 E$ 1.0615.2x $ 2.057.9x

2015 E$ 1.0115.9x $ 2.406.7x

Market Capitalization Stock DataEquity Market Cap (MM): $ 3,530.42 52‐Week Range: $14.87 ‐ $25.15

Enterprise Value (MM): $ 3,690.94 12‐Month Stock Performance: ‐5.90%

Shares Outstanding (MM): 218.60 Dividend Yield: 2.60%

Estimated Float (MM): 60.63 Book Value Per Share: $ 4.856‐Mo. Avg. Daily Volume: 1,252,980 Beta: 1.24

Company Quick View: RPC, Inc. keeps cracking with fracking. RPC spun‐off from Rollins, Inc. in 1984 and has grown into an international holdings company with 3,900 employees. Through its subsidiaries, Cudd Energy Services, Thru Tubing Solutions, Patterson Services, and Bronco Oilfield Services, the Company provides oil and gas field services and equipment for energy companies pursuing the exploration, production, and development of oil and natural gas. The Company differentiates itself through its expertise in hydraulic fracturing. RPC is headquartered in Atlanta, Georgia and operates primarily in the U.S., with minor operations in Africa, Canada, China, Eastern Europe, Latin America, the Middle East, and New Zealand. Company Website: www.rpc.net

Analysts: Investment Research Manager:Douglas Taft Hulsey Nikunj BajajJeremy GohMatthew Ryan SolnickLinda Yuntian Long

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's Freeman School of Business. The reports are not investment advice and you should not and may not rely on them in making any investment decision. You should consult an investment professional and/or conduct your own primary research regarding any potential investment.

Wall Street's Farm Team

BURK

ENRO

AD R

EPO

RTS

4/1/13 4:47 PM

RPC Incorporated (RES) BURKENROAD REPORTS (www.burkenroad.org) November 7, 2014

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Figure 1: 5‐year Stock Price Performance

Source: Yahoo Finance

INVESTMENT SUMMARY

We rate RPC, Inc. as a Market Outperform with a 12‐month price target of $19.00.

RPC provides oil and gas field services and equipment to energy companies pursuing the exploration, production, and development of oil and natural gas in the U.S. Recent drops in oil prices to $80 per barrel will decrease rig counts in the U.S. starting in the second half of 2015. We believe oil prices will remain around $80 per barrel over the next two years based on our projection that OPEC will continue to accept low prices. The drop in oil prices will begin decreasing revenue for RPC in the second half of 2015 when contracts expire and new oil drilling activity decreases. Still, RPC’s earnings over the next three quarters will continue to grow significantly. This is attributed to the expansion of the Company’s pressure pumping fleet as well as increasing service intensity and percentage of unconventional rigs. We believe the recent (27.8%) drop in RPC’s stock price is an overreaction to the recent drop in oil prices. RPC’s stock is now undervalued due to investor fear in energy. Additionally, we believe RPC is extremely attractive compared to its peers due to the Company’s conservative capital structure and ability to effectively allocate capital expenditures to meet customer’s drilling demands.

RPC’s strong liquidity and solvency compared to its peers will protect the Company during the next two years of low oil prices. RPC’s current liquidity ratio of 3.3x and debt‐to‐equity ratio of 14.3% are much stronger than industry averages of 1.3x and 39.4%, respectively. Also, the Company has almost $174 million available on its revolving credit facility until January 2019. As such, RPC’s conservative capital structure positions the Company to perform far better than its peers while oil prices remain low and the U.S. oil and gas field services industry experiences decreases in revenue and working capital. Additionally, the Company’s position make it an extremely attractive acquisition target in a robust consolidation market for the industry.


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Oil and natural gas production is in the process of changing from conventional drilling to unconventional, horizontal drilling. Pressure pumping, the process of hydraulic fracturing in unconventional rigs, makes up over 55% of RPC’s revenue. RPC meets the growing demand of its customers for higher service intensity and more unconventional drilling with its advanced and growing fleet of pressure pumping equipment. In fact, RPC will spend over $250 million in the second half of 2014 to expand and maintain its pressure pumping fleet in order to meet increasing customer demands. However, going forward RPC will decrease its capital expenditures in preparation for decreases in new oil drilling activity when contracts expire in the second half of 2015. Although rig counts will decrease in the near future with the drop in oil prices, service intensity and the percentage of unconventional rigs will continue to rise. These market trends will cushion RPC’s losses from decreases in new oil drilling activity.

Table 1: Historical Burkenroad Ratings and Prices

Date Rating Price*

11/08/2013 Market Perform $17.45


11/11/2011 Market Outperform $12.82










04/15/2001 Buy $1.34

*Price at time of report date

INVESTMENT THESIS

We established a 12‐month target price of $19.00 and a rating of Market Outperform for RPC, Inc. Our analysis of RPC’s future performance is driven by several market and internal conditions: oil prices, service intensity and unconventional rig counts, and RPC’s capital structure, capital expenditures, and share ownership.

RPC’s stock will rebound while oil prices remain low

The recent drop in oil prices to $80 per barrel will likely persist over the next two years or even longer. The U.S. move towards oil independence caused OPEC to maintain production quotas in Saudi Arabia and remain comfortable with oil prices around $80 per barrel. As such, energy companies have plummeted in the markets, seeing average losses in the industry of 30%. RPC’s stock price dropped from $22.37 on September 26 to $16.15 on November 7. We believe this (27.8%) drop is an extreme overreaction to the recent decline in oil prices and RPC’s stock is currently undervalued.


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RPC’s contracts with its customers will not expire until the second half of 2015. As such, strong earnings over the next three quarters will increase investor confidence in RPC. The Company’s extremely conservative capital structure, continued increases in service intensity, and percentage of unconventional rigs prepare RPC for decreases in new oil drilling activity in the second half of 2015.

Conservative capital structure prepares RPC for decreases in revenues and working capital

RPC’s conservative capital structure will maintain the Company’s liquidity and solvency during low oil prices. RPC’s current liquidity ratio of 3.3x and debt‐to‐equity leverage ratio of 14.3% are much stronger than the industry averages of 1.3x and 39.4%, respectively. Additionally, the Company has almost $174 million available on its revolving credit facility through January 2019. RPC’s strong liquidity and solvency will position the Company to outperform its peers while the U.S. oil and gas field services industry experiences low revenue and working capital during low oil prices.

RPC’s capital expenditures meet demands for hydraulic fracturing

RPC successfully maintains and grows equipment in connection with changing drilling demands. Significant increases in unconventional rig counts and service intensity have increased the demand for oil and gas field service companies, like RPC, specializing in hydraulic fracturing and unconventional rigs. RPC spent $237.5 million on capital expenditures through the first three quarters of 2014, and management guidance projects another $137.5 million of capital expenditures in the final quarter of 2014. Recent capital expenditures have been focused towards RPC’s pressure pumping fleet, one of the most significant drivers in the Company’s revenue numbers. The recent increases in property, plant, and equipment (PP&E) will increase revenues for RPC as equipment is put to work. Increases in service intensity will force RPC to focus capital expenditures on maintenance of equipment that is working harder. However, we believe RPC will decrease capital expenditures in preparation for low oil prices and decreases in oil drilling activity in the near future.

Increases in service intensity and percentage of unconventional rigs will partially offset losses from decreases in oil drilling activity

RPC’s main source of revenue is pressure pumping. Consequentially, the recent drop in oil prices will decrease total rig counts and oil drilling activity, and decrease the demand for RPC’s pressure pumping and other products and services. There will be a significant decrease in rig counts once contracts expire in mid‐2015. We predict unconventional rig counts in the U.S. will remain around 1,500 rigs over the next three quarters and then drop to 1,300 rigs by the end of 2015. However, continuous increases in the percentage of unconventional rigs and service intensity per rig will provide relief for RPC. Recent growth in unconventional rig counts have significantly increased the demand for RPC’s pressure pumping services and increased recent revenues. Unconventional rigs increased 12.3% year over year from 459 rigs on July 2, 2004 to 1,490 rigs on July 3, 2014, with an average increase of 7.5% per year over the past decade (see Figure 2). Also, the amount of service provided per rig has recently increased significantly in an effort to produce more oil in a shorter time period.


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Increases in service intensity are increasing RPC’s revenue exponentially faster than the Company’s rising operating expenses. We believe service intensity and percentage of unconventional rigs will continue to grow and partially offset RPC’s losses when low oil prices decrease new oil drilling activity.

Figure 2: Percentage of Unconventional Rigs in the U.S.

Source: Baker Hughes Rig Count

RPC is an attractive target in current consolidation market

RPC’s conservative capital structure and advanced pressure pumping service make the Company extremely attractive to peers interested in increasing market share for hydraulic fracturing services. The recent drop in oil prices has turned the U.S. oil and gas field services industry into a perfect environment for mergers and acquisitions. Oil and gas field service companies’ are currently undervalued due to plummeting stock prices. As such, companies in the industry may start looking to consolidate with discounted peers in an effort to survive decreases in oil drilling activity. Consolidation will allow companies to increase market share and cut overall costs. Additionally, having fewer companies in the industry will decrease competition and potentially increase pricing for services. In contrast, RPC’s position and strategy make the Company an unlikely candidate to pursue full acquisitions. However, RPC may look to strengthen its operations through acquiring discounted equipment or segments sold off from consolidations.

Management retains controlling interest of RPC through insider share ownership

RPC has an equity structure with a market capitalization of $4.73 billion and 215.2 million shares outstanding. The Company’s float is 28%, which indicates that insiders in the Company have well above majority influence in the decisions of the Company. This current insider ownership position presents an issue for institutional investors who might be seeking a significant interest in the Company. RPC also has a share repurchasing program that it has steadily and consistently exercised over the last few years.


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This program serves a dual function of shrinking the number of outstanding shares available to the public and, consequently, giving back to its current shareholders while increasing the price earnings ratio per share. RPC partially uses its retained earnings to give back to its shareholders through issuing quarterly cash dividends that have been $0.105 per share each of the past two quarters.

VALUATION

Our team arrived at a 12‐month target price of $19.00 for RPC, Inc. using an average of the target prices produced from the price to earnings ratio (P/E) method and the enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA) method (see Figure 3).

P/E Ratio Method

The P/E ratio method produced a target price of $19.48. We decided to use RPC’s current P/E ratio, 17.655x, rather than a peer average due to extreme variation in the comparable companies P/E ratios. We multiplied RPC’s current P/E ratio by the sum of forecasted earnings per share over the next four quarters, $1.10 per share, to arrive at the target price of $19.48.

EV/EBITDA Method

The EV/EBITDA method produced a target price of $18.78. We used an average of RPC’s peer’s EV/EBITDA to find an appropriate EBITDA multiple to value RPC. Between C&J Energy Services, Seventy Seven Energy, Inc., Basic Energy Service, Inc., and Patterson‐UTI Energy, Inc. we arrived at an average EBITDA multiple of 6.085x. We then multiplied the average EBITDA multiple by the sum of our forecasted EBITDA over the next four quarters, $662,741, and finally divided that by the forecasted weighted shares outstanding in four quarters to arrive at the target price of $18.78.

Figure 3: 12‐Month Target Price Valuation


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INDUSTRY ANALYSIS

RPC, Inc. operates in the U.S. oil and gas field services industry. The industry provides a range of equipment and solutions to customers engaging in the exploration, production, and development of oil and natural gas. The industry generated 2013 revenue of $112.7 billion from 11,000 companies. Halliburton Company, Schlumberger Limited, and Baker Hughes Incorporated are the major players in the industry, comprising 32.5% of the market share. The U.S. oil and gas field services industry is continuously evolving to meet the demands of exploration and production companies.

Macroeconomic Forces

Oil and natural gas prices are the key drivers for the number of active rigs in the U.S. and, subsequently, the number of active oil and gas rigs in the U.S. is the key determinant of demand for oil and gas field services. The most common metric for oil price is NYMEX Light Sweet Crude Oil (WTI). Oil prices have ranged from $76‐$114 a barrel with a daily average of $97 a barrel since 2011. However, current oil prices of $80 per barrel are a (11.8%) decrease over the last 12 months and a (2.3%) annual decrease over the past five years. Prior to increases in Saudi Arabian oil drilling at the end of September, consistent high oil prices were increasing activity levels and increasing service intensity from oilfield service companies. In fact, the North American rig count has ranged from 876‐2,026 rigs with an average of 1,663 rigs since 2009. The current count of 1,929 rigs is a 9.7% increase over the last 12 months and a 3.8% annual increase over the past five years. Furthermore, the percentage of oil focused rigs increased from 21% in 2009 to 83% currently. Overall, rig counts remained relatively constant over the past few years compared to prior periods, but the demand for oil and gas field services per rig has increased as a result of a substantial increase in activity per rig. However, recent drops in oil prices will decrease overall rig counts and demand for oilfield services in the coming quarters, as new demand for oil drilling decreases.

Industry Trends

A recent trend among oil and natural gas companies shifts drilling techniques from conventional wells (vertical wells) to unconventional wells (horizontal and directional wells). Currently, 80% of U.S. wells are unconventional and 20% are conventional. Unconventional wells cover a much larger area in the ground and produce a much better yield of barrels of oil per day (BOPD) than conventional wells (see Figure 4). Unconventional wells are also significantly more expensive because they require an extraordinary amount of equipment and services. As a result, oil and gas field service companies are experiencing increases in demands for services as the percentage of unconventional wells continues to grow. The strongest players in the U.S. oil and gas field services industry are companies offering the most reliable and efficient equipment and solutions for unconventional drilling.


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Figure 4: Unconventional (Horizontal) Well with Multi‐Stage Frac Technology

Source: Google Images

The recent drop in oil prices has turned the U.S. oil and gas field services industry into an attractive environment for mergers and acquisitions. Oil and gas field service companies’ stock prices have plummeted, resulting in low P/E ratios and undervalued companies. Oil and gas field service companies may start looking to acquire or merge with peers with similar operations in an effort to survive decreases in oil drilling activity. Successful consolidations will allow companies to increase market share and cut overall costs. Additionally, there will be fewer companies in the industry and pricing for services will increase. RPC’s conservative capital structure and advanced pressure pumping service make the Company extremely attractive to peers interested in increasing market share for hydraulic fracturing services. Also, RPC may strengthen its services through acquiring discounted equipment or segments sold off from consolidations.

RPC’s Position

RPC is a specialized company within the U.S. oil and gas field services industry. The major players, Halliburton, Schlumberger, and Baker Hughes have a combined market cap of $215 billion and provide a range of services on a large scale. The rest of the market is comprised of smaller companies that provide fewer, specialized services (see Figure 5). With a market capitalization of just $4.6 billion, RPC focuses on growing previously successful operations, such as pressure pumping for hydraulic fracturing, coiled tubing, and snubbing.


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Figure 5: 2013 U.S. Oil and Gas Field Services’ Revenues with Market Share (In Billions)

Source: IBISWorld

Bargaining Power of Suppliers

The suppliers to the U.S. oil and gas field services industry have high bargaining power. This industry requires highly specialized equipment and raw materials that are not readily available. Thus, RPC faces limited flexibility in choosing its suppliers. Furthermore, hydraulic fracturing, RPC’s biggest service, requires a very specific type of equipment and manpower. As a result, RPC balances its expenditures between acquiring new equipment and maintaining existing equipment.

RPC’s highest operational expense is service materials, especially proppant. Proppant is a material used to “prop” fractured rocks open to maintain oil and gas flow. This material is usually sand and varies in grade and uniformity depending on the quality. RPC has made efforts to reduce supplier power by acquiring a sand mine in Wisconsin that provides approximately 15% of the proppant RPC’s customers require. Another raw material RPC frequently uses is guar, a plant grown mainly in India and Pakistan that is commonly used in shampoo, gum, and other consumer products. The primary function of guar in the U.S. oil and gas field services industry is to increase the viscosity of hydraulic fracturing fluids. The high demand for sand and guar has attracted new suppliers, resulting in a slight decrease in supplier’s pricing power. RPC also establishes long‐term contracts with guar and proppant suppliers to decrease risk of having insufficient inventories.


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Bargaining Power of Buyers

RPC is a price‐taker in the industry market. U.S. oil and gas field services industry revenue is dependent upon the demand from companies engaged in the exploration and production of oil and natural gas. IBIS World’s reports show that there is low concentration in market share for the U.S. oil and gas field services industry. Competition among oil and gas field services companies is high, resulting in a high level of buyer power for oil and gas field services. Halliburton Corp., Schlumberger Ltd., and Baker Hughes Inc. collectively control approximately 32.5% of the market share. Close to 11,000 other oil and gas field services companies constitute the rest of the market with little differentiation in services between companies. Therefore, oil and gas exploration and production companies have a variety of selections and are able to negotiate for low prices.

Threat of Substitution

The U.S. oil and gas field services industry has a low threat of substitute products. For instance, RPC provides highly specific services on unconventional wells involving expensive equipment and highly trained human capital that are not feasible for customers to provide themselves. Since vertical integration for customers is difficult to manage and finance, service companies like RPC face very little threat to substitutes.

Competitive Rivalry

Competition among the companies in the U.S. oil and gas field services industry is fierce. The big players in the industry are able to drive service prices down while smaller companies are price takers. RPC has experienced an increase in demand for its services but at lower prices. While hydraulic fracturing comprises 55% of RPC’s revenue, Halliburton offers RapidSuite for multi‐stage fracture completion, along with other deep water, heavy oil, and mature field services.

Hence, smaller companies like RPC and C&J Energy Service differentiate themselves with exceptional quality of work and reliable equipment. These companies normally have recurring contracts with customers and expand into new business relationships on a referral basis.

Barriers to Entry

The threat of new entrants into the U.S. oil and gas field services industry is historically low due to high barriers to entry. Extremely expensive PP&E and significant expenditures require an immense amount of capital. Furthermore, the U.S. oil and gas field services industry is highly competitive and comprised of established companies with strong customer relationships. It is not economically feasible for most potential entrants to pursue the U.S. oil and gas field services industry when it is tremendously difficult to gain market share.

However, the recent threat of new entrants into the U.S. oil and gas field services industry has increased. High growth in drilling activity and the continuous trend towards unconventional drilling have increased the demand for oil and gas field services. This increase in demand has attracted new entrants to put forward capital in an attempt to break into the growing market.


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Although barriers to entry have recently decreased, the recent drop in oil prices will significantly decrease the threat of new entrants in the industry going forward. Decreases in oil drilling activity and overall rig counts in the near future will decrease the demand for oilfield services. In turn, the market will shrink and potential entrants will avoid entering the industry.

ABOUT RPC

Two Georgia brothers, O. Wayne Rollins and John W. Rollins, Sr., founded RPC, Inc. (RES/NYSE). The brothers owned a car dealership, a radio station, pest‐control company, and a citrus‐fruit growing business. In 1973, Rollins acquired Patterson Services, the leading oil and gas field equipment rental company in the Gulf South.

In 1984, Rollins, Inc. spun off two new companies, Rollins Communications and RPC, Energy Services, to improve efficiency and maximize profits. R. Randall Rollins, son of Wayne Rollins, assumed leadership of RPC Energy Services, which was renamed RPC in 1995. Since then, the Company has grown into an international holding company with 3,900 employees. Through its major subsidiaries, Cudd Energy Services, Thru Tubing Solutions, Patterson Services, and Bronco Oilfield Services, the Company provides specialized oil and gas field services and equipment for energy companies pursuing the exploration, production, and development of oil and natural gas. Geographically, the Company primarily operates domestically to serve the needs of its customers located in Texas, the Gulf of Mexico, Appalachia, and the Rocky Mountains (see Figure 6). International operations have never generated more than 10% of RPC’s total revenues and have accounted for less than 5% of revenues since 2010 (see Figure 7).

Figure 6: RPC Domestic Facilities

Source: RPC Investor Relations Presentation


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Figure 7: RPC 2013 Revenue Allocation ‐ Domestic vs. International

Source: RPC 2013 10‐K

Products and Services

RPC’s business model provides specialized oil and gas field services and equipment primarily to independent and major U.S. oil and gas companies (see Figure 8). The Company offers service lines to its clients divided into two distinct areas: technical services and support services.

Figure 8: RPC Service Lines

Source: RPC Investor Relations Presentation

Technical Services focuses on maintenance, production, and completion services performed directly on a customer’s well. These services include

Pressure Pumping (55% of 2013 Revenue)

This is RPC’s largest service line and is used to help facilitate the flow of hydrocarbons from a formation through the processes of fracturing and acidizing. This service line has received heavy capital investment and is a primary contributor to RPC’s growth.


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Downhole Tools (16% of Revenue)

RPC’s subsidiary, Thru Tubing Solutions provides downhole motors, fishing tools, and other specialized tools used for drilling and production operations.

Coiled Tubing (9% of 2013 Revenue)

This service involves injecting flexible steel tubes into wells to facilitate unconventional well completion.

Snubbing (4% of 2013 Revenue)

Snubbing involves using a “hydraulic work over rig” that allows the operator to repair damaged well casings and to remove and replace equipment inside the well while maintaining the necessary pressure.

Nitrogen (4% of 2013 Revenue)

Nitrogen is highly valued as a purging and cleaning implement because it is non‐flammable, non‐corrosive, and environmentally friendly.

Well Control (<1% of 2013 Revenue)

RPC provides oil and gas emergency services that manage and control potential breakouts.

Support Services provide customers with rental equipment and services that assist in operations. These include

Rental Tools (4% of Revenue)

RPC rents a broad variety of specialized tools and drilling equipment that customers find attractive to supplement as opposed to buying their own.

Oilfield Pipe Inspection, management, and storage Services (<2% of Revenue)

RPC offers inspection services, inventory management, and handling services for all customers.

Well Control School (<1% of Revenue)

RPC provides government and industry accredited training programs for those in the U.S. oil and gas industry.

Energy Personnel International (<1% of Revenue)

The Company provides energy specialists in all divisions of the oil and gas industry on a consulting basis.


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Corporate Strategy

RPC focuses on three strategic areas: (1) Developing capital and equipment in geographic markets with high returns, (2) selectively increasing market share, and (3) maintaining an appropriate blend of short‐term and long‐term revenues.

For the short term, RPC plans to increase its market share through expansion of its pressure pumping position. This is done through focusing capital expenditures on equipment for unconventional wells requiring hydraulic fracturing. This approach has allowed the Company to enjoy favorable market share in the pressure pumping sector.

To bridge the gap between short‐term and long‐term strategy, RPC maintains an appropriate blend of short and long‐term revenues. The Company does this by monitoring relevant industries closely, and making necessary changes to adapt to current market conditions. Maintaining this blend gives investors confidence that the Company’s operations are sustainable.

As the U.S. oil and gas industry has a high level of uncertainty in the long‐term, RPC monitors relevant industry benchmarks, oil and gas prices, demand for its products, and the utilization of equipment and personnel. For example, the Company reduced capital acquisitions in 2013 and focused on increasing the efficiency of current equipment. RPC is ramping up capital expenditures for 2014 with a projected budget of $375 million to meet the increasing demands of its services from increases in service intensity and increases in percentage of unconventional rigs. Due to the high level of volatility within the industry, the Company also ensures that it has sufficient liquidity, a conservative capital structure, and monitors discretionary spending closely.

Recent Developments

The exploration and production of oil and natural gas drive the U.S. oil and gas field services industry. As such, energy commodity prices are the main driver of exploration and production levels. RPC is affected by three categories: events within the oil industry, events within the natural gas industry, and internal developments.

Recent Events Within the Oil Industry

Oil prices in the U.S. have ranged from $76‐$114 a barrel with a daily average of $97 a barrel since 2011. However, current oil prices of $80 per barrel are a (11.8%) decrease over the last 12 months and a (2.3%) annual decrease over the past five years. Prior to increases in Saudi Arabian oil drilling at the end of September, consistent high oil prices were increasing activity levels and increasing service intensity from oilfield service companies. In fact, the North American rig count has ranged from 876‐2,026 rigs with an average of 1,663 rigs since 2009. The current count of 1,929 rigs is a 9.7% increase over the last 12 months and 3.8% annual increase over the past five years. Furthermore, the percentage of oil focused rigs increased from 21% in 2009 to 83% currently.


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Overall, rig counts remained relatively constant over the past few years compared to prior periods, but the demand for oil and gas field services per rig has increased as a result of substantial increases in activity per rig. We believe the recent drops in oil prices will decrease overall rig counts and demand for U.S. oilfield services in the coming quarters as contract expires and new demand for oil drilling decreases.

Recent Events Within the Natural Gas Industry

Since 2011, natural gas prices have ranged from $2‐$6 per thousand cubic feet with a daily average of $4 per thousand cubic feet, with prices rising in 2013 and 2014 after multiple years of decline. Current natural gas prices around $4 per thousand cubic feet are a 13.2% increase over the last 12 months, but a (3.5%) annual decrease over the past five years. Despite the rise in natural gas prices, natural gas drilling activity is at its lowest level since 1993. Increases in natural gas prices show slight improvements in activity levels, but activity is still facing strong headwinds from recent low natural gas prices compared to oil.

Internal Developments

RPC focused 2013 capital spending on maintaining and updating existing equipment. There has been a higher demand for oil and gas field services due to an increase in service intensity. Notably, the Company believes its pricing will improve from the increase in demand of its services. The Company has also expanded its fleet of pressure pumping equipment in the second half of 2014 and projects $375 million in total capital expenditures for the year. The new pressure pumping equipment will begin operations in early 2015.

RPC has historically generated the majority of its revenue from natural gas drilling activities. However, the Company has experienced significant increases in its percentage of revenue generated from oil drilling activities since 2010 (see Figure 9). Unattractive natural gas prices and high oil prices have influenced exploration and production companies to focus operations on oil drilling. The recent drop in oil prices may shift some focus back to natural gas drilling in the near future. In turn, RPC will experience a larger percentage of revenues generated from natural gas drilling activities.

Figure 9: RPC Revenue Allocation ‐ Oil Drilling vs. Natural Gas Drilling

Source: RPC 10‐Ks


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PEER ANALYSIS

The U.S. oil and gas field services industry is highly competitive, with three companies, Baker Hughes, Inc., Halliburton Company, and Schlumberger Limited covering 32.5% of the industry’s market share. However, these companies are much larger than RPC, Inc. As such, smaller, more focused oil and gas field service companies represent better comparables than these services giants.

Based on recommendations from RPC’s management and our own analysis, we chose the following four companies for comparison (see Table 2): Basic Energy Services, Inc., C&J Energy Services, Inc., Patterson‐UTI Energy, Inc., and Seventy Seven Energy, Inc.

Table 2: RPC Comparable’s Key Ratios

Revenue Mkt Cap P/E ROIC (%) Debt/Equity

RPC, Inc. $2.192B $4.724B 23.14 9.5 0.14x

Patterson $2.940B $4.668B 38.73 2.0 0.24x

C&J $1.390B $1.641B 30.55 5.1 0.40x

Seventy Seven $2.097B $1.205B N/A (1.1) 5.48x

Basic $1.398B $0.884B 271.13 0.3 2.18x

Source: S&P Capital IQ ‐ LTM as of September 30, 2014

Patterson‐UTI Energy, Inc. (NASDAQ/PTEN)

Patterson‐UTI Energy, Inc., headquartered in Snyder, Texas, provides pressure pumping and onshore contract drilling services to oil and natural gas producers in the U.S. and western Canada. The pressure pumping segment delivers well stimulation through hydraulic and nitrogen fracturing predominantly in Texas and the Appalachian Basin. The onshore contract drilling segment provides drilling rigs and crews to oil and gas field operators. Patterson‐UTI controls over 275 land‐based drilling rigs in North America.

C&J Energy Services, Inc. (NYSE/CJES)

C&J Energy Services, Inc., headquartered in Houston, Texas, provides oil and gas field services in the U.S. The company operates through its subsidiaries to provide services categorized into three segments: stimulation and well intervention services, wireline services, and equipment manufacturing. C&J Energy Services’ biggest segment is stimulation & well intervention services, which accounts for about 69% of total revenue. Hydraulic fracturing accounts for about 80% of revenue within the segment. Other significant services provided by C&J include constructing and maintaining equipment used by themselves and other companies.


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Seventy Seven Energy, Inc. (NYSE/SSE)

Seventy Seven Energy, Inc. (SSE) is an Oklahoma‐based oil and gas field service company. Formerly known as Chesapeake Oilfield Operating, L.L.C, SSE was part of Chesapeake Energy Corporation (NYSE/CHK) until it was spun off in 2014. The company specializes in hydraulic fracturing, drilling, equipment rentals, and water transference for well completion for unconventional oil rigs.

Basic Energy Services, Inc. (NYSE/BAS)

Basic Energy Services, headquartered in Fort Worth, Texas, is an oil and gas field services company that provides site services to U.S. oil and natural gas production companies. Basic provides services to over 2,000 oil and gas companies in 13 states. The company divides its wide variety of services into four different business segments: completion and remedial services (40% of revenues), fluid services (27%), well servicing (29%), and contract drilling (4%). The completion and remedial segment is the primary generator of Basic’s revenue and includes specialized pumping services similar to RPC’s pressure pumping, thru tubing, coiled tubing units, snubbing units, and fishing tools. Basic Energy Services operates in the same geographic regions as RPC, including the Permian Basin where it competes for the same type of drilling contracts.

MANAGEMENT PERFORMANCE AND BACKGROUND

RPC, Inc.’s management team consists of nine directors. Since RPC is a “Controlled Corporation” (giving the Board full control of operations), it is worth noting some of the Company’s major board members.

Five of RPC’s key employees include R. Randall Rollins, Chairman, who started at Rollins, Inc. in 1949, and has been the Company’s Chairman of the Board since the spin‐off in 1984; Richard A. Hubbell, Chief Executive Officer and President of RPC; Linda H. Graham, Vice‐President and Secretary of RPC since 1987; and Ben M. Palmer, Vice President, Chief Financial Officer, and Treasurer since 1996. Rollins, Hubbell, and Graham are also elected members of the RPC Board of Directors.

RPC’s Board of Directors has an average age of 77, with Richard A. Hubbell (69) as the youngest member. The advanced age of the Board of Directors could potentially be an issue for prospective investors, especially since RPC does not have a succession plan made available to the public despite its emphasis on promoting from within.

Management Performance

RPC’s operations require the Company to hold large amounts of assets. Hence, return on assets is a strong benchmark to evaluate management performance (see Table 3). Since 2011, RPC has exceeded its peers regarding the efficient allocation of the Company’s assets.


18

Table 3: Return on Assets (ROA)

Period RPC, Inc. Patterson‐UTI Energy, Inc.

C&J Energy Service, Inc.

Seventy‐Seven Energy,

Inc.

Basic Energy Services, Inc.

2011 22.1% 7.6% 30.1% 1.7% 3.1%

2012 20.1% 6.6% 18.0% 3.3% 1.2%

2013 12.1% 4.0% 5.9% (1.0%) (2.3%)

9/30/14 (LTM) 12.7% 2.4% 3.5% (0.9%) 0.2%

Source: S&P Capital IQ

R. Randall Rollins Chairman of the Board of Directors (82)

R. Randall Rollins has managed RPC since the spin off from Rollins, Inc. in 1984. Mr. Rollins served RPC as Chief Executive Officer from 1984 to 2003 and is currently Chairman of the Board, a position he has held since 1984. In addition to his roles at RPC, Mr. Rollins is the Chairman of the Board for Marine Products Corporation and Rollins, Inc. Mr. Rollins is also a Director of Dover Downs Gaming & Entertainment and Dover Motorsports, Inc. He has over 30 years of experience in the U.S. oil and gas field services industry.

Richard A. Hubbell President and Chief Executive Officer (69)

Richard A. Hubbell has served as President of RPC since 1987 and the Chief Executive Officer (CEO) since 2003. Mr. Hubbell has also served as a Director for RPC since 1987. Prior to becoming CEO, Mr. Hubbell served as Chief Operating Officer at RPC from 1987 to 2003. In addition to his roles at RPC, Mr. Hubbell is a Director and the President and Chief Executive Officer at Marine Products Corporation. He has over 27 years of experience in the U.S. oil and gas field services industry.

Ben M. Palmer Chief Financial Officer (54)

Ben M. Palmer has served as Chief Financial Officer, Treasurer, Vice President, and Principal Accounting Officer of RPC since 1996. Mr. Palmer also serves as the Treasurer of RPC’s subsidiary, Cudd Energy Services. In addition to his roles at RPC, Mr. Palmer is the Chief Financial Officer, Treasurer, Vice President, and Principal Accounting Officer at Marine Products Corporation. He has over 18 years of experience in the U.S. oil and gas field services industry.


19

Linda H. Graham Vice President and Corporate Secretary (77)

Linda H. Graham has served as Vice President and the Corporate Secretary at RPC since 1987. Ms. Graham also served as a Director at RPC since 2001. In addition to her roles at RPC, Ms. Graham is a Director, Vice President and the Secretary at Marine Products Corporation. She has over 27 years of experience in the U.S. oil and gas field services industry.

Board of Directors

RPC’s Board of Directors consists of nine members: R. Randall Rollins, Linda H. Graham, Richard A. Hubbell, James A. Lane, Jr., Gary W. Rollins, Henry B. Tippie, James B. Williams, Bill J. Dismuke, and Larry L. Prince.

R. Randall Rollins serves as the Chairman of the Board. Linda Graham, Richard Hubbell, and Gary Rollins are inside directors, which means they have management positions within the Company. The rest of the directors are either outside or independent directors.

RPC’s Board of Directors has a relatively large degree of freedom in decision making. This is largely due to the Board’s controlling interest, >50%, of the Company’s stock. This means that the Company is a “Controlled Corporation” giving the Board full control of operations. Another benefit of having controlling interest is the decreased risk of a third party takeover of the Company.

Management Incentives

RPC has two main incentives for management: the 2014 Stock Incentive Plan and executive compensation, both cash based and equity based, is determined by a compensation committee.

RPC’s Board of Directors adopted the 2014 Stock Incentive Plan on January 28, 2014, contingent on approval by the Company’s shareholders. This plan replaces the 2004 Employee Stock Incentive Plan, and lasts for ten years. Under this plan, directors, officers, and other key employees of RPC and its subsidiary companies, receive stock options if they are involved in the growth and/or profitability of the Company. Although there is no limit to the number of award recipients, there is a limit of eight million shares that can be distributed through this plan.

RPC’s compensation committee is responsible for the determination and administration of executive compensation. The committee is composed of three independent directors who are not under the payroll of the Company. As such, this committee ensures that compensation towards management is based on performance of the Company.


20

SHAREHOLDER ANALYSIS

RPC, Inc.’s equity structure, as at September 30, 2014, is comprised of 215.2 million shares outstanding with a free float of 60.26 million shares. The outstanding common stock is distributed among various investor types including investment managers, brokerage firms, and strategic entities composed of two corporations and nine individuals. An important aspect to note is the limited number of shares available for purchase in the open market due to high internal holdings. The Rollins Family Trust holds the largest stake in the Company at approximately 68.8 percent. This figure, in combination with ownership of a select few inside officers and directors, totals around 71.04% (see Table 4). As indicated by the low float ratio, the Company’s equity structure has a high internal ownership in order to obtain the status of a “Controlled Corporation.” This allows the Board of Directors to effectively control the operations of the Company, including the election of the board of directors. The high internal concentration of Company ownership also mitigates the risk of possible third party takeovers.

In 1993, RPC initiated a share buyback program that authorized the repurchasing of 26.57 million shares over an unspecified amount of time. On June 5, 2013, the program was supplemented by an additional authorization of another five million shares able for repurchase. As of September 30, 2014, 4.1 million shares remain available for repurchase. RPC has consistently purchased its shares from the market over the last few years and has announced share repurchases in both the first and third quarters of 2014 in the amounts of 399,611 and 209,485 shares, respectively. This consistent exercising of the buyback program reflects RPC’s priorities of maintaining internal control as well as increasing the value of each share by limiting available shares in the open market.

Table 4: Top Ten Investors (2014)

Investor Name % O/S

R. Randall Rollins 66.40

Gabelli Funds, LLC 4.37

Gary W. Rollins 2.35

The Vanguard Group, Inc. 1.97

BlackRock, Inc. 1.48

Milennium Management LLC 1.34

Richard A. Hubbell 1.19

Henry B. Tippie 1.10

Citadel Investment Group, LLC 0.84

TIAA‐CREF 0..76

Source: S&P Capital IQ September 30, 2014


21

RISK ANALYSIS AND INVESTMENT CAVEATS

RPC, Inc. faces both unique risks that are specific to the Company and common risks that are associated with the U.S. oil and gas field services industry as a whole. These risk caveats can be segmented into three different categories: operational risks, regulatory risks, and financial risks. Operational risks generally involve broader environmental and economic concepts that could apply to the entire industry. Many of these risks involve the variability in demand for types of services that RPC provides. Regulatory risks deal with the potential consequences that RPC could face as a result of government regulations dealing with hydraulic fracturing and designated economic development zones. Finally, financial risks are related to the Company’s unique debt and equity structures.

Operational Risks

Demand Changes Price Volatility

RPC is an oil and gas field services company, and is consequently highly dependent on the volatility of oil and natural gas prices. When prices decline, companies involved in the exploration and production of these resources cut spending, negatively impacting the demand for RPC’s services. The change in prices does not always have immediate consequences due to the nature and extent of the services. Customers that are involved in the exploration are able to react faster by curtailing capital investments, but companies that are involved in production of oil and natural gas have a lag time due to legal obligations to the services. Consistently low prices for these resources may hurt RPC’s financial condition in the future.

Competition

The U.S. oil and gas field services industry is highly competitive because companies tend to operate in concentrated areas with vast oil reserves. RPC provides its services in aggressive markets, competing against large and small oil services companies that price according to constant fluctuation in consumer activity. Consequently, RPC’s revenues and earnings are variable depending on changing prices set by competition based on demand, general economic conditions, and regulations. In order to maintain a competitive position relative to its peers, the Company strives to deliver the highest quality of service to customers through consistent maintenance and ensuring the safety of all parties involved.

Weather and Catastrophe Risks

RPC’s operations are directly impacted by adverse weather conditions. The Company is frequently subjected to significant weather events that could have an effect on performance and demand, particularly in the short run. For instance, RPC has many sites located in areas such as the Gulf Coast and in the Gulf of Mexico that are susceptible to hurricanes and other storms during certain periods in the year. These weather catastrophes could impede the progress of certain activities, decrease the short term needs for services, and may even impact the prices of oil and gas. Rain, snow, and ice are also potential issues that may cause conditions that are not suitable for transportation of equipment and workers.


22

Inability to Identify/Complete Acquisitions

Acquisitions have been an important component of RPC’s business strategy in the past. However, there are uncertainties associated with finding and acquiring favorable companies. For example, RPC may not be able to identify targets for acquisition that would prove beneficial in the near future. In the case that a strong opportunity arises, RPC might not be able to finance the acquisition by itself and will either need to take on debt or issue more equity that would cause dilution to the stockholders. Another potential issue is the risk that a newly acquired company may not integrate well.

Raw Material Availability

RPC’s operations rely heavily on raw material being available at the site. The essential raw materials that RPC needs are sand, used as proppant, and guar, a vital ingredient for fluid that is used during hydraulic fracturing. To be used as proppant, the sand has to be unique, with suitable characteristics. As such, RPC purchases and ships its sand from Wisconsin. Due to the aging rail system, RPC has to monitor the transportation process very closely, as receiving too much sand at once will cause the Company to incur immense storage costs, while shortages will put a halt to the Company’s operations. RPC purchases guar imported from India. This raw material is also a vital ingredient in many other products, like toothpaste, shampoo, and ice cream. As such, there is a very high demand for this raw material. Hence, the Company has to pay a premium to ensure a continuous supply of guar.

Regulatory Risk

RPC has to abide by strict regulations placed on its day‐to‐day operations. These regulations come mostly from governing bodies on the federal and state level and can affect RPC directly or indirectly by affecting customer demand for the Company’s services.

For instance, RPC is greatly affected by regulations placed on its main revenue generator, pressure pumping. The regulations placed on hydraulic fracturing come from both federal and state regulatory agencies. Currently, regulations focus on ensuring that water supply in areas where hydraulic fracturing activities are performed do not become contaminated. The Clean Water Act, Safe Drinking Water Act, and Resource Conservation and Recovery Act are examples of regulations that protect the water supply. RPC’s main area of operations for its pressure pumping segment is in the Permian Basin, Texas, under its subsidiary, Cudd Energy Services. In Texas, the state regulations force companies involved in hydraulic fracturing to disclose the chemicals and additives used in the fracing fluids.

Currently, many federal and state regulatory agencies, like the U.S. Environmental Protection Agency, are conducting research to judge the feasibility and necessity of adding regulations impacting hydraulic fracturing.


23

Financial Risks

Liquidity Risk

Liquidity measures how easily assets can be converted into cash. The current liquidity ratio measures a company’s ability to quickly pay off current liabilities with liquid assets by dividing current assets by current liabilities. RPC’s current liquidity ratio more than two and a half times the industry average (see Table 5). A high level of liquidity puts RPC at a low financial risk because the Company three times more current assets than current liabilities.

Table 5: RPC Liquidity and Solvency

RPC, Inc. Industry Average

Current Liquidity Ratio 3.3x 1.3x

Leverage Ratio 14.3% 39.4%

Source: S&P Capital IQ September 30, 2014

Solvency Risk

RPC’s leverage is driven by the Company’s level of debt. RPC currently has a $350 million revolving credit facility with an expiration date of January 17, 2019. This means RPC can borrow up to $350 million over the life of the revolving credit facility. As of September 30, 2014 RPC had outstanding borrowings of $152 million with $78 million of the balance borrowed in the first two quarters of 2014.

The leverage ratio measures a company’s capital structure by comparing debt‐to‐equity. RPC’s current leverage ratio on September 30, 2014 is three times less than the U.S. oil and gas field services industry average. RPC achieved this low ratio because the Company maintains an extremely conservative capital structure compared to its peers. A conservative capital structure mitigates RPC’s financial risk because the Company does not use debt to finance its operations. RPC’s leverage ratio at year‐end 2013 was 5.5% and rose to 12.9% at June 30, 2014. This significant increase is attributed to the $78 million debt borrowed through the revolving credit facility in the first two quarters of 2014. RPC’s leverage ratio is still conservative compared to the industry average, but RPC will face increased financial risk from its leverage if the Company continues to borrow debt.

Interest Rate on Debt Risk

RPC’s $152 million outstanding balance on the revolving credit facility bears interest on a floating rate. If the interest rate on the outstanding balance changed one percent, interest costs would consequentially change $1.5 million. Although small compared to other risks, the interest rate risk creates financial risk for RPC.


24

FINANCIAL PERFORMANCE AND PROJECTIONS

Our estimate of RPC, Inc.’s future financial performance is based on historical and projected trends within the U.S. oil and gas field services industry and, more specifically, within RPC. We used historical data from Bloomberg, S&P Capital IQ, Thomson One, Yahoo Finance, RPC SEC filings, and Baker Hughes rig count reports, as well as management guidance and analyst and economist predictions to make assumptions and projections on RPC’s future financial condition. Our valuations of RPC resulted in a rating of Market Outperform and a target price of $19.00.

Revenue Drivers

Our analyst team created a regression model to project RPC’s revenue out to the first quarter of 2016. We then used a long‐term growth rate of 3% to forecast revenues out to 2023. We tested over ten descriptive variables and found that property, plant, and equipment (PPE), drops in oil prices, increases in service intensity, and unconventional rig counts are the most significant factors affecting RPC’s revenue.

Drop in Oil Prices

Drops in oil prices significantly hurt RPC’s revenue, but this affect is not immediate. Exploration and production companies finish out contracts with oil and gas field service companies and continue drilling for oil during low prices. RPC will begin seeing large decreases in revenue when its current contracts expire in the second half of 2015. We forecast that oil prices will remain low through 2016. Consequently, RPC will operate under fewer contracts and experience decreases in revenue from low oil prices in the near future.

Increases in Service Intensity

Recent increases in service intensity have significantly increased RPC’s revenues. Improved hydraulic fracturing technology has increased the amount of oil and natural gas wells can produce. Sequentially, unconventional rigs are continuously increasing the amount of stages per well. These recent changes have significantly increased demand for oil and gas field services specializing in hydraulic fracturing, such as RPC. Service intensity per rig will continue rise, even while oil prices remain low and total oil drilling decreases. Increases in revenue from continued increases in service intensity will cushion RPC’s losses from fewer new contracts in the second half of 2015.

Unconventional Rig Counts

RPC’s revenues are highly dependent on the number of unconventional rigs. Changes in unconventional rig counts directly affect RPC’s revenue for the following quarter. Unconventional rig counts have increased 7.5% per year over the past decade and the percentage of total rigs that are unconventional have increased from 35% in 2004 to over 80% in 2014. Unconventional rigs require the specialized services and equipment that RPC provides from its pressure pumping and other product lines.


25

We forecast that the percentage of unconventional rigs will continue to rise during low oil prices. However unconventional rig counts will begin decreasing when contracts expire in the second half of 2015. We project unconventional rig counts will remain constant around 1,500 rigs over the next three quarters and then will decrease to around 1,300 rigs by the first quarter of 2016. Therefore, unconventional rig counts will have no effect on RPC’s revenues for the next four quarters, then RPC’s revenues will begin to decrease starting in the fourth quarter of 2015 due to the one quarter lag.

Property, Plant, and Equipment (PP&E)

RPC’s amount of property, plant and equipment is directly correlated with the Company’s revenues. RPC allocates capital expenditures to adjust PP&E to meet its customer’s drilling demands. In 2014, RPC significantly increased PP&E to match market increases in service intensity and unconventional rig counts. We forecast RPC decreasing capital expenditures in the near future to keep PP&E constant as low oil prices will decrease the demand for RPC’s services when contracts expire in the second half of 2015. Keeping PP&E relatively constant in the near future will have no effect on RPC’s revenues.

Forecast Assumptions

Conservative Capital Structure

One of RPC’s most important strategies is maintaining its conservative capital structure. RPC’s current liquidity ratio and leverage ratio are almost three times stronger than the industry average. We forecast that RPC will increase its debt borrowings as little as possible to maintain its liquidity and solvency. Our minimal forecasted debt borrowings are used for capital expenditures towards PP&E and maintaining quarterly dividends.

Quarterly Dividends

RPC consistently pays out quarterly dividends to shareholders, with a bonus payment in every fourth quarter. Based on historical averages, we forecast that RPC will continue to pay dividends of 50% of net income per share in the first three quarters and 200% of net income per share in the fourth quarter. The only deviations in our forecasts for dividends occurred when RPC lacked sufficient cash and adding debt would jeopardize the Company’s conservative capital structure. In these instances, we forecasted that RPC would slightly decrease its quarterly dividends.

SITE VISIT

Our analyst team including Douglas Taft Hulsey, Jeremy Goh, Matthew Ryan Solnick, Yuntian Linda Long, and Nikunj Bajaj flew to Midland, Texas, on September 19, 2014 to meet with management at the new offices of the Company’s largest subsidiary, Cudd Energy Services. We were greeted by Jim Landers, Vice President of Corporate Finance at RPC, Inc., Sharon Lennon, Manager of Investor Relations and Corporate Communication at RPC, as well as Joe Lee, Regional Technical Manager of Cudd Energy Services ‐ West Texas, and Giles Kemp, Business Unit Manager at Cudd Energy Services.


26

Mr. Landers started off the visit with a review of the history, operational strategies, and financial strategies of RPC. Mr. Landers stressed that the Company continues to maintain a conservative capital structure in an effort to be prepared for unexpected market developments. He also highlighted the Company’s emphasis on return on invested capital and continuous dividend payout.

After a short break, Mr. Lee spoke about Cudd Energy Services’ operations in the Permian Basin, and provided a brief description of the Permian Basin itself. He explained some technical aspects of Cudd’s operations such as hydraulic fracturing (commonly known as fracing) and the benefits of the process to the oil and gas industry. Finally, Mr. Lee ended his presentation by discussing how the industry is making an effort to conserve water by converting recycled water into frac fluid.

Mr. Lee also gave our analyst team a tour of Cudd Energy Services’ operations office. Mr. Lee and his team of geologists walked us through the steps of creating frac fluid from drinking water, actual water samples, and recycled water. This was an extensive process involving many different types of chemicals. We then explored the shop floor where we were introduced to the various types of equipment used for hydraulic fracturing.

The visit helped our team of analysts understand the concept of hydraulic fracturing, the operations of RPC and its biggest subsidiary, Cudd Energy Services. Our team of analysts has a much clearer picture of the U.S. oil and gas field services industry and we will be able to more accurately compare RPC to its peers.


27

INDEPENDENT OUTSIDE RESEARCH

The majority of our research on RPC, Inc. was done online, through databases such as Bloomberg, Baker Hughes, IBISWorld, Yahoo Finance, Thomson One, and S&P Capital IQ. We collected and analyzed key data and information to give us a comprehensive understanding of RPC’s operations and how the Company compares to its peers.

To gain outside professional insight into RPC and current market conditions our team reached out to a Burkenroad alumni currently working as an associate focused on researching U.S. oil and gas field service companies at Evercore ISI. We learned that RPC is seen as a tortoise in a fast growth industry. Analysts also view RPC as relatively undifferentiated compared to its peers. However, RPC is known for having superior financial stability in its industry, which may help the Company as many people are very uncertain on future oil prices and drilling activity. Our conversation reinstated our beliefs that RPC may not be the hottest company in the U.S. oil and gas field services industry, but it is one of the best positioned companies in times of oil price uncertainty.


28

ANOTHER WAY TO LOOK AT IT

ALTMAN Z‐SCORE

The Altman Z‐score, designed by Edward Altman, was published in 1968 and is still widely used today to estimate a company’s risk of bankruptcy. After a Z‐score is calculated, the company under analysis will fall into one of three zones: distress (Z‐score below 1.8), grey (Z‐score between 1.8 and 2.99), and safe (Z‐score above 2.99) For our purposes, we use five key financial ratios to calculate the Z‐score: (1) working capital/total assets, (2) retained earnings/total assets, (3) EBITDA/total assets, (4) market value of equity/total liabilities, and (5) net sales/total assets.

For 2013, RPC, Inc. has a Z‐score of 8.91. This places the Company deep in the “safe” zone, with little risk of bankruptcy. RPC has been in the “safe” zone since 2006 (see Table 6). This is largely due to RPC’s conservative capital structure, and reluctance to take out loans.

Table 6: RPC’s Z‐scores

Year Ended 2006 2007 2008 2009 2010 2011 2012 2013

Z‐score 14.12 6.15 5.27 7.65 10.11 7.79 7.06 8.91

Zone Safe Safe Safe Safe Safe Safe Safe Safe


29

PETER LYNCH EARNINGS MULTIPLE VALUATION

In his best‐selling book, One Up On Wall Street, Peter Lynch reveals a useful and highly effective tool for measuring the value of stocks based on the earnings per share of the company and a fixed multiple.

This method uses a theoretical price by constructing an “earnings line” by multiplying the earnings per share (EPS) by a price‐earnings multiple of 15 and then transposing the lines onto one graph known as the “Peter Lynch Chart.” If the stock price trades below the line, then the Peter Lynch graphing method supports buying the stock because it is undervalued. Conversely, if the stock trades above the line then the method recommends selling the stock because it is overvalued.

RPC, Inc. is interesting in that its price is very close to the theoretical price determined by Peter’s method. Currently, the price is trading barely above the line so Peter’s method would technically prescribe selling the stock (see Figure 10).

Figure 10: Peter Lynch Chart

Source: Bloomberg November 7, 2014


30

WWBD? What Would Ben (Graham) Do?

Benjamin Graham was a professional investor, known by many as “the father of value investing” and Warren Buffet’s mentor. Graham’s method of value investing made him one of the most successful investors in the world. Many investors still incorporate his method of minimizing risks into their own investment strategy today. Graham’s method analyzes a company’s stock based on ten criteria, eight of which are used in this report.

Based on our analysis of RPC, Inc., the Company meets four out of the eight selected criteria. This puts RPC in the category where Ben Graham would “consider the possibility” of buying stock in RPC. The criteria that RPC meets are: (1) The dividend yield is more than half the yield on a 10‐year Treasury bond, (2) Total debt is less than its Book Value of equity, (3) Current Ratio (Current Assets divided by Current Liabilities) of two or more, and (4) An earnings growth of more than 7% over the past five years.

The criteria that RPC does not meet are: (1) Earnings to price yield of two times more than the yield on the 10 year Treasury bond, (2) Price/Earnings ratio less than half of the stock’s highest in five years, (3) A stock price that is less than one and a half times Book Value of equity, and (4) Stability in growth of earnings.

From the mixed results of Ben Graham’s analysis, RPC is shown to be a stock that is neither undervalued nor overvalued (see Figure 11). However, the fluctuation in earnings growth makes predicting RPC’s future performance very difficult.

Figure 11: Ben Graham Analysis


31

Earnings per share (ttm) 0.65$ Price: 16.15$

Earnings to Price Yield 4.01%

10 Year Treasury (2X) 4.64%

P/E ratio as of 12/31/09 (101.2)

P/E ratio as of 12/31/10 27.1

P/E ratio as of 12/31/11 13.6

P/E ratio as of 12/31/12 9.6

P/E ratio as of 12/31/13 23.2

Current P/E Ratio 24.9

Dividends per share (ttm) $0.73 Price: 16.15$

Dividend Yield 4.49%

1/2 Yield on 10 Year Treasury 1.16%

Stock Price 16.15$

Book Value per share as of 9/30/14 4.93$

150% of book Value per share as of 9/30/14 7.39$

Interest‐bearing debt as of 9/30/14 152,000$

Book value as of 9/30/14 1,060,945$

Current assets as of 9/30/14 785,056$

Current liabilities as of 9/30/14 241,476$

Current ratio as of 9/30/14 3.3

EPS for year ended 12/31/13 0.77$




EPS for year ended 12/31/09 (0.10)$

EPS for year ended 12/31/13 0.77$ ‐39%

EPS for year ended 12/31/12 1.27$ ‐6%

EPS for year ended 12/31/11 1.35$ 102%

EPS for year ended 12/31/10 0.67$ 750%

EPS for year ended 12/31/09 (0.10)$

Stock price data as of November 7, 2014

Yes

Hurdle # 8: Stability in Growth of Earnings

No

Hurdle # 5: Total Debt less than Book Value

Yes

Hurdle # 6: Current Ratio of Two or More

Yes

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years

No

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

Yes

Hurdle # 4: A Stock Price less than 1.5 BV

No

RPC INC. (RES)

Ben Graham Analysis

Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

No

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs

RPC In

corporated (RES)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 7, 2014

32

RPC IN

C. (RES)

Annual

and Quarterly Income Statements

In th

ousands

For the period ended

Revenue

Cost

of services rendered and goods sold

Selling,

general

and administrative expenses

Dep

reciation and amortization

(Gain) loss

on disposition or a

ssets

Operating income

Interest

(expense) income

Other income, net

Income before

taxes

Income ta

x provision

2011 A

1,809,807

$

992,704

151,286

179,905

3,831

482,081

(3,435)

169

478,815

182,434

2012 A

1,945,023

$

1,105,886

175,749

214,899

6,099

442,390

(1,946)

2,175

442,619

168,183

2013 A

31‐M

ar A

30‐Jun A

30‐Sep A

31‐Dec E

2014 E

31‐M

ar E

30‐Jun E

30‐Sep

E31‐Dec

E2015 E

1,861,489

$

501,692

$

582,831

$

620,684

$

635,345

$

2,340,552

$

635,696

$

636,959

$

592,909

$

561,824

$

2,427,388

$

1,178,412

330,015

374,275

398,306

409,797

1,512,393

410,024

410,839

382,426

362,377

1,565,665

185,165

48,708

47,603

50,814

57,181

204,306

57,213

57,326

53,362

50,564

218,465

213,128

55,505

56,517

57,219

63,607

232,848

66,742

68,999

71,572

74,172

281,484

9,371

2,232

1,405

7,684

11,321

0

275,413

65,232

103,031

106,661

104,760

379,684

101,718

99,795

85,549

74,712

361,774

(1,403)

(333)

(43)

(452)

(650)

(1,478)

(767)

(767)

(767)

(767)

(3,068)

2,260

80

831

(454)

457

276,270

64,979

103,819

105,755

104,110

378,663

100,951

99,028

84,782

73,945

358,706

109,375

25,591

40,536

40,870

40,603

147,600

39,371

38,621

33,065

28,838

139,895

2015 E

2014 E

Net income

Earnings

per share:

296,381

$

274,436

$

166,895

$

39,388

$

63,283

$

64,885

$

63,507

$

231,063

$

61,580

$

60,407

$

51,717

$

45,106

$

218,810

$

Basic

(net

income)

1.39

$

1.28

$

0.77

$

0.18

$

0.29

$

0.30

$

0.30

$

1.07

$

0.29

$

0.28

$

0.24

$

0.21

$

1.02

$

Diluted (n

et income)

Weighted average

shares:

Basic

Diluted

1.35

$

213,153

220,250

1.27

$

210,707

216,796

0.77

$

0.18

$

0.29

$

0.30

$

0.29

$

1.06

$

0.28

$

0.28

$

0.24

$

0.21

$

1.01

$

215,504

215,175

215,224

215,202

215,139

215,139

215,015

214,895

214,777

214,661

214,661

216,733

216,214

216,238

216,334

216,201

216,201

216,077

215,957

215,839

215,723

215,723

Dividend per share

SELECTED

COMMON‐SIZE AMOUNTS

Cost


Selling,

general


0.21

$

54.85%

8.36%

0.76

$

56.86%

9.04%

0.70

$

0.11

$

0.11

$

0.11

$

0.21

$

0.53

$

0.14

$

0.14

$

0.12

$

0.42

$

0.82

$

63.30%

65.78%

64.22%

64.17%

64.50%

64.62%

64.50%

64.50%

64.50%

64.50%

64.50%

9.95%

9.71%

8.17%

8.19%

9.00%

8.73%

9.00%

9.00%

9.00%

9.00%

9.00%

Dep


Operating income

Income before

taxes

Net income

YEAR

TO

YEA

R CHANGE

Revenue

Cost


Selling,

general


Dep


Operating income

9.94%

26.64%

26.46%

16.38%

65.1%

63.8%

24.2%

34.9%

101.8%

11.05%

22.74%

22.76%

14.11%

7.5%

11.4%

16.2%

19.5%

‐8.2%

11.45%

11.06%

9.70%

9.22%

10.01%

9.95%

10.50%

10.83%

12.07%

13.20%

11.60%

14.80%

13.00%

17.68%

17.18%

16.49%

16.22%

16.00%

15.67%

14.43%

13.30%

14.90%

14.84%

12.95%

17.81%

17.04%

16.39%

16.18%

15.88%

15.55%

14.30%

13.16%

14.78%

8.97%

7.85%

10.86%

10.45%

10.00%

9.87%

9.69%

9.48%

8.72%

8.03%

9.01%

‐4.3%

17.8%

27.4%

26.4%

30.5%

25.7%

26.7%

9.3%

‐4.5%

‐11.6%

3.7%

6.6%

23.0%

30.1%

31.1%

28.5%

28.3%

24.2%

9.8%

‐4.0%

‐11.6%

3.5%

5.4%

8.4%

0.0%

7.9%

25.6%

10.3%

17.5%

20.4%

5.0%

‐11.6%

6.9%

‐0.8%

5.1%

7.1%

7.5%

17.1%

9.3%

20.2%

22.1%

25.1%

16.6%

20.9%

‐37.7%

14.0%

51.8%

24.3%

62.4%

37.9%

55.9%

‐3.1%

‐19.8%

‐28.7%

‐4.7%

Income before

taxes

Net income

Segm

ent Inform

ation

Revenues

Technical

services

Support

services

101.6%

102.0%

1,663,793

$

146,014

$

‐7.6%

‐7.4%

1,794,015

$

151,008

$

‐37.6%

13.1%

55.5%

21.8%

59.7%

37.1%

55.4%

‐4.6%

‐19.8%

‐29.0%

‐5.3%

‐39.2%

12.3%

56.6%

20.7%

68.7%

38.4%

56.3%

‐4.5%

‐20.3%

‐29.0%

‐5.3%

1,729,732

$

466,970

$

544,392

$

576,908

$

590,871

$

2,179,141

$

591,198

$

592,372

$

551,405

$

522,496

$

2,257,471

$

131,757

$

34,722

$

38,439

$

43,776

$

44,474

$

161,411

$

44,499

$

44,587

$

41,504

$

39,328

$

169,917

$

Year

to year changes

Technical

services

Support

services

69.80%

25.28%

7.83%

3.42%

‐3.58%

18.52%

28.39%

25.92%

30.28%

25.98%

26.60%

8.81%

‐4.42%

‐11.57%

3.59%

‐12.75%

9.15%

14.62%

32.84%

32.93%

22.51%

28.16%

15.99%

‐5.19%

‐11.57%

5.27%

Operating profits

Technical

services

Support

services

Corporate

Gains/losses

Total operating profits

451,259

51,672

(17,019)

(3,831)

482,081

$

420,231

45,912

(17,654)

(6,099)

442,390

$

276,246

64,896

99,717

102,849

118,174

385,636

118,240

118,474

110,281

104,499

451,494

26,223

7,457

8,998

14,735

11,119

42,309

11,125

11,147

10,376

9,832

42,479

(17,685)

(4,889)

(4,279)

(3,239)

(3,239)

(15,646)

(3,239)

(3,239)

(3,239)

(3,239)

(12,956)

(9,371)

(2,232)

(1,405)

(7,684)

(7,684)

(19,005)

(7,684)

(7,684)

(7,684)

(7,684)

(30,736)

275,413

$

65,232

$

103,031

$

106,661

$

118,370

$

393,294

$

118,441

$

118,698

$

109,734

$

103,408

$

450,281

$

Operating profit %

Technical

services

Support

services

27.12%

35.39%

23.42%

30.40%

15.97%

13.90%

18.32%

17.83%

20.00%

17.70%

20.00%

20.00%

20.00%

20.00%

20.00%

19.90%

21.48%

23.41%

33.66%

25.00%

26.21%

25.00%

25.00%

25.00%

25.00%

25.00%

RPC In

corporated (RES)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 7, 2014

33

RPC IN

C. (RES)

Annual

and Quarterly Balance

Sheets

In th

ousands

As of

Assets

Cash and cash equivalents

31‐Dec‐11 A

7,393

$

31‐Dec‐12 A

14,163

$

31‐Dec‐13 A

31‐M

ar A

30‐Jun A

30‐Sep A

31‐Dec

E31‐Dec‐14 E

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

31‐Dec‐15 E

8,700

$

44,293

$

22,164

$

8,522

$

5,067

$

5,067

$

6,267

$

11,081

$

66,449

$

24,702

$

24,702

$

2014 E

2015 E

Accounts

receivable, n

et

Inventories

Deferred income ta

xes

Federal income ta

xes receivab

le

Prepaid expenses an

d other current a

ssets

Total current a

ssets

Equipment a

nd property, n

et

461,272

100,438

7,183

10,805

39,464

626,555

675,360

387,530

140,867

5,777

4,234

15,256

567,827

756,326

437,132

467,978

565,940

591,585

607,721

607,721

621,570

615,960

567,130

537,397

537,397

126,604

135,727

138,836

153,948

146,993

146,993

150,342

148,985

137,175

129,983

129,983

14,185

12,502

11,624

10,851

8,151

8,151

7,900

8,031

7,990

8,025

8,025

5,720

2,099

16,874

11,081

11,081

11,081

11,081

11,081

11,081

11,081

11,081

12,584

10,229

12,789

9,069

12,584

12,584

10,229

12,789

9,069

12,584

12,584

604,925

672,828

768,227

785,056

791,597

791,597

807,389

807,928

798,893

723,772

723,772

726,307

707,774

708,598

775,714

849,634

849,634

853,090

865,501

884,653

893,842

893,842

Intangibles,

net

Other a

ssets

24,093

12,203

24,093

18,917

31,861

32,150

32,150

32,150

32,150

32,150

32,150

32,150

32,150

32,150

32,150

20,767

21,543

21,886

23,113

23,113

23,113

23,113

23,113

23,113

23,113

23,113

Total assets

Curren

t liabilities:

Accounts

payab

le

Accrued payroll an

d re

lated expen

ses

Accrued insurance

expenses

Federal income ta

xes payab

le

Accrued state, local and other taxes

1,338,211

$

122,987

$

33,680

5,744

5,066

10,705

1,367,163

$

109,846

$

32,053

6,152

6,428

7,326

1,383,860

$

1,434,295

$

1,530,861

$

1,616,033

$

1,696,494

$

1,696,494

$

1,715,741

$

1,728,691

$

1,738,809

$

1,672,877

$

1,672,877

$

119,170

$

141,398

$

150,894

$

182,123

$

162,450

$

162,450

$

166,193

$

164,693

$

151,655

$

143,718

$

143,718

$

36,638

30,439

37,686

41,446

44,196

44,196

45,214

44,806

41,259

39,100

39,100

6,072

6,374

6,624

5,526

8,361

8,361

8,554

8,477

7,806

7,397

7,397

6,593

535

558

558

558

558

558

558

558

558

5,002

6,505

8,411

10,609

10,609

10,609

10,609

10,609

10,609

10,609

10,609

Other a

ccrued

expenses

Total current liabilities

1,284

179,466

2,706

164,511

1,170

1,230

1,310

1,214

1,911

1,911

1,955

1,938

1,784

1,691

1,691

168,052

192,539

205,460

241,476

228,086

228,086

233,084

231,081

213,672

203,073

203,073

Long‐term

accrued insurance

expenses

9,000

10,400

10,225

11,183

11,412

10,082

13,617

13,617

13,492

13,367

13,242

13,118

13,118

Long‐term

pen

sion liability

Deferred income ta

xes

Notes payable

to ban

ks

Other long‐term

liabilities

Total liabilities

Common stock

Capital

in excess

of p

ar value

Earnings

retained

24,445

155,928

203,300

3,480

575,619

14,746

760,492

26,543

155,007

107,000

4,470

467,931

22,014

891,464

21,966

22,229

22,867

22,786

22,786

22,786

22,786

22,786

22,786

22,786

22,786

153,176

141,330

127,459

114,459

102,729

102,729

103,319

105,200

108,998

110,902

110,902

53,300

80,800

131,400

152,000

237,000

237,000

222,000

207,000

207,000

197,000

197,000

8,439

7,902

10,618

14,285

14,285

14,285

14,285

14,285

14,285

14,285

14,285

415,158

455,983

509,216

555,088

618,503

618,503

608,966

593,719

579,983

561,164

561,164

21,899

21,884

21,883

21,860

21,860

21,860

21,860

21,860

21,860

21,860

21,860

2,398

2,398

4,796

7,194

9,592

11,990

11,990

956,918

966,966

1,009,711

1,049,636

1,064,284

1,064,284

1,090,670

1,116,470

1,137,924

1,088,414

1,088,414

Accumulated other comprehensive

income (loss)

Total liabilities and equity

(12,646)

1,338,211

$

(14,246)

1,367,163

$

(10,115)

(10,538)

(9,949)

(10,551)

(10,551)

(10,551)

(10,551)

(10,551)

(10,551)

(10,551)

(10,551)

1,383,860

$

1,434,295

$

1,530,861

$

1,616,033

$

1,696,494

$

1,696,494

$

1,715,741

$

1,728,691

$

1,738,809

$

1,672,877

$

1,672,877

$

SELECTED


(% of revenues)

Accounts

receivable, n

et

Inventories

Prepaid expenses an

d other current a

ssets

Equipment a

nd property, n

et

Accounts

payab

le

Accrued payroll an

d re

lated expen

ses

Accrued insurance

expenses

Accrued state, local and other taxes

25.49%

5.55%

2.18%

37.32%

6.80%

1.86%

0.32%

0.59%

19.92%

7.24%

0.78%

38.89%

5.65%

1.65%

0.32%

0.38%

23.48%

93.28%

97.10%

95.31%

95.65%

25.96%

97.78%

96.70%

95.65%

95.65%

22.14%

6.80%

27.05%

23.82%

24.80%

23.14%

6.28%

23.65%

23.39%

23.14%

23.14%

5.35%

0.68%

2.04%

2.19%

1.46%

1.98%

0.54%

1.61%

2.01%

1.53%

2.24%

0.52%

39.02%

141.08%

121.58%

124.98%

133.73%

36.30%

134.20%

135.88%

149.21%

159.10%

36.82%

6.40%

28.18%

25.89%

29.34%

25.57%

6.94%

26.14%

25.86%

25.58%

25.58%

5.92%

1.97%

6.07%

6.47%

6.68%

6.96%

1.89%

7.11%

7.03%

6.96%

6.96%

1.61%

0.33%

1.27%

1.14%

0.89%

1.32%

0.36%

1.35%

1.33%

1.32%

1.32%

0.30%

0.27%

1.30%

1.44%

1.71%

1.67%

0.45%

1.67%

1.67%

1.79%

1.89%

0.44%

Other a

ccrued

expenses

Long‐term

accrued insurance

expenses

SELECTED


(% of total assets)

Total current a

ssets

Equipment a

nd property, n

et

0.07%

0.50%

46.82%

50.47%

0.14%

0.53%

41.53%

55.32%

0.06%

0.25%

0.22%

0.20%

0.30%

0.08%

0.31%

0.30%

0.30%

0.30%

0.07%

0.55%

2.23%

1.96%

1.62%

2.14%

0.58%

2.12%

2.10%

2.23%

2.33%

0.54%

43.71%

46.91%

50.18%

48.58%

46.66%

46.66%

47.06%

46.74%

45.94%

43.27%

43.27%

52.48%

49.35%

46.29%

48.00%

50.08%

50.08%

49.72%

50.07%

50.88%

53.43%

53.43%

Intangibles,

net

Other a

ssets

1.80%

0.91%

1.76%

1.38%

2.30%

2.24%

2.10%

1.99%

1.90%

1.90%

1.87%

1.86%

1.85%

1.92%

1.92%

1.50%

1.50%

1.43%

1.43%

1.36%

1.36%

1.35%

1.34%

1.33%

1.38%

1.38%

Total current liabilities

13.41%

12.03%

12.14%

13.42%

13.42%

14.94%

13.44%

13.44%

13.59%

13.37%

12.29%

12.14%

12.14%

Long‐term

accrued insurance

expenses

0.67%

0.76%

0.74%

0.78%

0.75%

0.62%

0.80%

0.80%

0.79%

0.77%

0.76%

0.78%

0.78%

Deferred income ta

xes

Total liabilities

Common stock

Capital

in excess

of p

ar value

Earnings

retained

11.65%

43.01%

1.10%

0.00%

56.83%

11.34%

34.23%

1.61%

0.00%

65.21%

11.07%

9.85%

8.33%

7.08%

6.06%

6.06%

6.02%

6.09%

6.27%

6.63%

6.63%

30.00%

31.79%

33.26%

34.35%

36.46%

36.46%

35.49%

34.34%

33.36%

33.54%

33.54%

1.58%

1.53%

1.43%

1.35%

1.29%

1.29%

1.27%

1.26%

1.26%

1.31%

1.31%

0.00%

0.00%

0.00%

0.00%

0.14%

0.14%

0.28%

0.42%

0.55%

0.72%

0.72%

69.15%

67.42%

65.96%

64.95%

62.73%

62.73%

63.57%

64.58%

65.44%

65.06%

65.06%

RPC In

corporated (RES)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 7, 2014

34

RPC IN

C. (RES)

Annual

and Quarterly Statem

ents

of C

ash Flows

In th

ousands

For the period ended

Cash flow

from

operations:

Net income

Noncash

charges (credits)

to earnings:

Dep

reciation and amortization and other

non‐cash charges

Stock‐based compen

sation

(Gain) loss

on sale of e

quipmen

t and property

2011 A

296,381

$

179,787

8,075

3,831

2012 A

274,436

$

214,153

7,860

6,099

2013 A

31‐M

ar A

30‐Jun A

30‐Sep

A31‐Dec

E2014 E

31‐Mar

E30‐Jun E

30‐Sep E

31‐Dec E

2015 E

166,895

$

39,388

$

63,283

$

64

,885

$

63,50

7$

231

,063

$

61,580

$

60,407

$

51,717

$

45,106

$

218,810

$

215,812

56,280

57,02

8

58,074

63,607

234,989

66,742

68,999

71,572

74,172

281,484

8,177

2,320

2,397

2,398

2,398

9,513

2,398

2,398

2,398

2,398

9,592

9,371

2,232

1,405

7,684

11,321

2014 E

201

5 E

Deferred

income tax provision (b

enefit)

Excess

tax benefits

from

share‐based paymen

ts

77,074

(3,371)

4,821

(2,724)

(13,060)

(10,19

2)

(13,063)

(12,253)

(9,030)

(44,538)

842

1,749

3,840

1,869

8,300

(3,178

)

(4,455)

39

38

(4,378)

(Increase) d

ecrease in

assets:

Accounts

receivable

Inventories

Federal income ta

xes receivable

Prepaid expen

ses and other

current a

ssets

Other curren

t assets

Increase (decrease) in liabilities:

Accounts

payable

Federal income ta

xes payable

Accrued

payroll and re

lated expen

ses

Pen

sion liabilities

Accrued

insurance

expen

ses

Accrued

state, local and other e

xpen

ses

Other a

ccrued

expen

ses

Other n

oncurrent liabilities

Other n

on‐curren

t assets

(167,312)

9,817

(36,511)

(2,783)

(30,524)

30,102

4,917

9,799

1,249

1,114

2,078

958

1,032

294

73,809

(40,354)

9,295

(2,284)

26,189

(4,929)

(4,277)

(1,627)

(589)

1,808

2,260

1,412

990

(6,415)

(49,959)

(31,04

3)

(97,819)

(25,825)

(16,136)

(170,823)

(13,849)

5,610

48,830

29,733

70,324

14,078

(9,421)

(2,840)

(15,485)

6,955

(20,791)

(3,350)

1,357

11,811

7,192

17

,010

1,692

8,076

(14,814)

5,755

(983)

1,519

506

2,543

445

(3,515)

(21)

2,355

(2,560)

3,720

(3,515)

1,114

1,692

(5,034)

3,162

(180)

14,062

19,508

13,72

3

19,939

(19,673)

33,497

3,743

(1,500)

(13,038)

(7,937)

(18,73

2)

(6,428

)

6,593

(6,058)

23

558

4,585

(6,181)

7,229

3,793

2,750

7,591

1,018

(408)

(3,547)

(2,159)

(5,096)

3,183

396

771

51

1,218

(80)

302

250

(1,098)

6,371

5,825

68

(202)

(796)

(533)

(1,464)

(2,324

)

1,503

1,906

2,198

5,607

(1,548

)

60

79

(101)

697

735

44

(18)

(153)

(93)

(220)

3,594

421

2,945

2,337

5,703

(1,881

)

(117)

(350)

(1,234)

(1,701)

Net cash provided

by continuing operations

Cash flows from

investing activities:

Cap

ital

expenditures

386,007

(416,400)

559,933

(328,936)

365,624

77,868

13,62

0

114,786

97,930

304,204

121,591

135,832

176,354

146,231

580,008

(201,681)

(40,29

5)

(72,509)

(124,669)

(137,527)

(375,000)

(70,197)

(81,410)

(90,724)

(83,361)

(325

,692)

Proceeds from

sale of e

quipmen

t and property

24,763

19,309

11,071

2,862

9,096

3,022

14,980

Net cash used in

investing activities

Cash flows from

finan

cing activities:

Payment o

f dividends

Deb

t issue costs

Tax effect

(391,637)

(47,327)

(415)

3,371

(315,838)

(114,069)

2,724

(207,654)

(37,43

3)

(63,413)

(121,647)

(137,527)

(360,020)

(70,197)

(81,410)

(90,724)

(83,361)

(325

,692)

(87,789)

(22,98

6)

(22,897)

(22,939)

(44,455)

(113,277)

(30,790)

(30,204)

(25,858)

(90,212)

(177

,065)

(667)

(667)

‐

3,178

4,455

(39)

(38)

4,378

‐

(Rep

ayments) b

orrowings

of d

ebt

Cash paid fo

r common stock

purchased

and re

tired

Proceeds received upon exercise of stock

options

Net cash provided

by (used in) financing activities

Net increase

(decrease)

in cash

Cash, at b

eginning of p

eriod

Cash, at e

nd of p

eriod

82,050

(34,419)

728

3,988

(1,642)

9,035

7,393

(96,300)

(30,224)

544

(237,325)

6,770

7,393

14,163

(53,700)

27,500

50,60

0

20,600

85,000

183,700

(15,000)

(15,000)

(10,000)

(40,00

0)

(25,122)

(13,14

4)

(4,404)

(4,404)

(21,952)

(4,404)

(4,404)

(4,404)

(4,404)

(17,61

6)

(163,433)

(4,842)

27,66

4

(6,781)

36,141

52,182

(50,194)

(49,608)

(30,262)

(104,616)

(234

,681)

(5,463

)

35

,593

(22,129)

(13,642)

(3,455)

(3,633)

1,200

4,814

55,368

(41,746)

19,635

14,163

8,700

44,29

3

22,164

8,522

8,700

5,067

6,267

11,081

66,449

5,067

8,700

44

,293

22,16

4

8,522

5,067

5,067

6,267

11,081

66,449

24,702

24,702

Supplemental cash flow

disclosures:

Operating cash

flow

per share

excluding working capital

chan

ges

Operating cash

flow

per share

2.57

$

1.75

$

2.34

$

2.58

$

1.79

$

0.42

$

0.51

$

0.56

$

0.56

$

2.05

$

0.61

$

0.62

$

0.60

$

0.57

$

2.40

$

1.69

$

0.36

$

0.06

$

0.53

$

0.45

$

1.41

$

0.56

$

0.63

$

0.82

$

0.68

$

2.69

$

RPC In

corporated (RES)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 7, 2014

35

RPC IN

C. (RES)

Ratios

Productivity Ratios

Receivables turnover

2011 A

4.60

2012 A

4.58

2013 A

31‐M

ar A

30‐Jun A

30‐Sep A

31‐Dec E

2014 E

31‐M

ar E

30‐Jun E

30‐Sep E

31‐Dec E

2015 E

4.51

1.11

1.13

1.07

1.06

4.48

1.03

1.03

1.00

1.02

4.24

2015 E

2014 E

Inventory

turnover

12.21

9.17

8.81

2.52

2.73

2.72

2.72

11.06

2.76

2.75

2.67

2.71

11.31

Working capital

turnover

5.26

4.57

4.43

1.09

1.12

1.12

1.15

4.68

1.12

1.11

1.02

1.02

4.48

Net

fixed asset

turnover

3.22

2.72

2.51

0.70

0.82

0.84

0.78

2.97

0.75

0.74

0.68

0.63

2.78

Gross

fixed asset

turnover

1.41

1.25

1.07

0.28

0.31

0.32

0.31

1.19

0.29

0.28

0.26

0.23

1.06

Total asset turnover

1.63

1.44

1.35

0.36

0.39

0.39

0.38

1.52

0.37

0.37

0.34

0.33

1.44

# of d

ays

Sales in

A/R

93

73

86

84

88

88

88

95

88

88

88

88

81

# of d

ays

Cost

of Sales

in Inventory

37

46

39

37

34

36

33

35

33

33

33

33

30

# of d

ays

Cash‐based expenses in

A/P

and accrued expenses

58

48

48

47

47

51

47

51

47

47

48

48

44

Liquidity measures

Current ratio

3.49

3.45

3.60

3.49

3.74

3.25

3.47

3.47

3.46

3.50

3.74

3.56

3.56

Quick ratio

2.61

2.44

2.65

2.66

2.86

2.49

2.69

2.69

2.69

2.71

2.97

2.77

2.77

Cash ra

tio

2.61

2.44

2.65

2.66

2.86

2.49

2.69

2.69

2.69

2.71

2.97

2.77

2.77

Working capital

447,089

403,316

436,873

480,289

562,767

543,580

563,511

563,511

574,305

576,847

585,221

520,698

520,698

Financial

Risk (Leverage) R

atios

Total debt/equity ratio

0.75

0.52

0.43

0.47

0.50

0.52

0.57

0.57

0.55

0.52

0.50

0.50

0.50

Debt/eq

uity ratio (e

xcluding deferred ta

xes)

0.55

0.35

0.27

0.32

0.37

0.42

0.48

0.48

0.46

0.43

0.41

0.41

0.41

Total LT debt/equity ratio

0.52

0.34

0.26

0.27

0.30

0.30

0.36

0.36

0.34

0.32

0.32

0.32

0.32

LT debt/equity (excluding deferred ta

xes)

0.32

0.17

0.10

0.12

0.17

0.19

0.27

0.27

0.25

0.23

0.22

0.22

0.22

Total debt ratio

0.43

0.34

0.30

0.32

0.33

0.34

0.36

0.36

0.35

0.34

0.33

0.34

0.34

Debt ratio

(excuding deferred ta

xes)

0.35

0.26

0.21

0.24

0.27

0.29

0.32

0.32

0.31

0.30

0.29

0.29

0.29

Profitability/Valuation M

easures

Gross

profit m

argin

45.15%

43.14%

36.70%

34.22%

35.78%

35.83%

35.50%

35.38%

35.50%

35.50%

35.50%

35.50%

35.50%

Operating profit m

argin

26.64%

22.74%

14.80%

13.00%

17.68%

17.18%

16.49%

16.22%

16.00%

15.67%

14.43%

13.30%

14.90%

Return

on assets

26.71%

20.29%

12.13%

2.80%

4.27%

4.12%

3.83%

15.00%

3.61%

3.51%

2.98%

2.64%

12.99%

Return

on equity

45.64%

33.03%

17.87%

4.05%

6.33%

6.23%

5.94%

22.58%

5.64%

5.39%

4.51%

3.97%

19.99%

Earnings

before

interest

and ta

xes margin

26.64%

22.74%

14.80%

13.00%

17.68%

17.18%

16.49%

16.22%

16.00%

15.67%

14.43%

13.30%

14.90%

EBITDA

margin

36.57%

33.76%

26.39%

24.22%

27.46%

26.54%

26.50%

26.26%

26.50%

26.50%

26.50%

26.50%

26.50%

EBITDA/Assets

59.64%

48.54%

35.71%

8.62%

10.80%

10.47%

10.17%

39.91%

9.87%

9.80%

9.06%

8.73%

38.18%

THIS PAGE LEFT INTENTIONALLY BLANK

BURKENROADREPORTSRATINGSYSTEMMARKETOUTPERFORM:Thisratingindicatesthatwebelieveforcesareinplacethatwouldenablethiscompany'sstocktoproducereturnsinexcessofthestockmarketaveragesoverthenext12months.MARKETPERFORM:Thisratingindicatesthatwebelievetheinvestmentreturnsfromthiscompany'sstockwillbeinlinewiththoseproducedbythestockmarketaveragesoverthenext12months.MARKETUNDERPERFORM:Thisratingindicatesthatwhilethisinvestmentmayhavepositiveattributes,webelieveaninvestmentinthiscompanywillproducesubparreturnsoverthenext12months.BURKENROADREPORTSCALCULATIONS

CPFSiscalculatedusingoperatingcashflowsexcludingworkingcapitalchanges. AllamountsareasofthedateofthereportasreportedbyBloombergorYahooFinanceunless

otherwisenoted.BetasarecollectedfromBloomberg. Enterprisevalueisbasedontheequitymarketcapasofthereportdate,adjustedforlong‐

termdebt,cash,&short‐terminvestmentsreportedonthemostrecentquarterlyreportdate. 12‐monthStockPerformanceiscalculatedusinganendingpriceasofthereportdate.

Thestockperformanceincludesthe12‐monthdividendyield.

2014‐2015COVERAGEUNIVERSEAmerisafeInc.(AMSF)BristowGroupInc.(BRS)TheFirstBancshares(FBMS)CalIonPetroleumCompany(CPE)Cal‐MaineFoodsInc.(CALM)CarboCeramicsInc.(CRR)CashAmericaInternationalInc.(CSH)Conn'sInc.(CONN)CrownCraftsInc.(CRWS)CyberonicsIncorporated(CYBX)DenburyResourcesInc.(DNR)EastGroupPropertiesInc.(EGP)EraGroupInc.(ERA)EvolutionPetroleumCorp.(EPM)Globalstar(GSAT)GulfIslandFabricationInc.(GIFI)HibbettSports(HIBB)HornbeckOffshoreServicesInc.(HOS)IBERIABANKCorp.(IBKC)IONGeophysicalCorp.(IO)

KeyEnergyServices(KEG)MarineProductsCorp.(MPX)MidSouthBancorpInc.(MSL)NewparkResourcesInc.(NR)PetroQuestEnergyInc.(PQ)PopeyesLouisianaKitchen(PLKI)PoolCorporation(POOL)PowellIndustriesInc.(POWL)RollinsIncorporated(ROL)RPCIncorporated(RES)Ruth’sHospitalityGroupInc.(RUTH)SandersonFarmsInc.(SAFM)SEACORHoldingsInc.(CKH)SharpsComplianceInc.(SMED)StoneEnergyCorp.(SGY)SunocoLP(SUN)SuperiorEnergyServicesInc.(SPN)TeamIncorporated(TISI)VaalcoEnergyInc.(EGY)WillbrosGroupInc.(WG)

PETERRICCHIUTIDirectorofResearchFounderofBurkenroadReportsPeter.Ricchiuti@tulane.eduANTHONYWOODSeniorDirectorofAccountingAwood11@tulane.edu

JERRYDICOLODAVIDDOWTYELLIOTTEDWARDSAssociateDirectorsofResearch

BURKENROADREPORTSTulaneUniversityNewOrleans,LA70118‐5669(504)862‐8489(504)865‐5430Fax

To receive complete reports on any of the companies we follow, contact:Peter Ricchiuti, Founder & Director of Research

Tulane UniversityFreeman School of BusinessBURKENROAD REPORTS

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E-mail: [email protected] visit our web site at www.BURKENROAD.org

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Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulane’s business school, and funded through contributions from his family and friends, BURKENROAD REPORTS is a nationally recognized program, publishing objective, investment research reports on public companies in our region. Students at Tulane University’s Freeman School of Business prepare these reports.Alumni of the BURKENROAD REPORTS program are employed at a number of highly respected financial institutions including:ABN AMRO Bank · Aegis Value Fund · Invesco/AIM Capital Management · Alpha Omega Capital Partners · American General Investment Management · Ameriprise Financial · Atlas Capital · Banc of America Securities · Bank of Montreal · Bancomer · Barclays Capital · Barings PLC · Bearing Point · Bessemer Trust · Black Gold Capital· Bloomberg · Brookfield Asset Management · Brown Brothers Harriman Capital · Blackrock Financial Management · Boston Consulting Group · Buckingham Research · California Board of Regents · Cambridge Associates· Canaccord Genuity · Cantor Fitzgerald · Chaffe & Associates · Citadel Investment Group · Citibank · Citigroup Private Bank · City National Bank · Cornerstone Resources · Credit Suisse · D. A. Davidson & Co. · Deutsche Banc · Duquesne Capital Management · Equitas Capital Advisors· Factset Research · Financial Models · First Albany · Fiduciary Trust · Fitch Investors Services · Forex Trading · Franklin Templeton · Friedman Billings Ramsay · Fulcrum Global Partners · Gintel Asset Management · Global Hunter Securities · Goldman Sachs · Grosever Funds · Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment Services · Healthcare Markets Group · Capital One Southcoast · Howard Weil Labouisse Friedrichs · IBERIABANK Capital Markets · J.P. Morgan Securities · Janney Montgomery Scott · Jefferies & Co. · Johnson Rice & Co. · KBC Financial · KDI Capital Partners · Key Investments · Keystone Investments · Legacy Capital · Liberty Mutual · Lowenhaupt Global Advisors · Mackay Shields · Manulife/John Hancock Investments · Marsh & McLennan · Mercer Partners · Merrill Lynch · Miramar Asset Management · Moodys Investor Services · Morgan Keegan · Morgan Stanley · New York Stock Exchange · Perkins Wolf McDonnell · Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck Investment Services · RBC · Raymond James · Restoration Capital · Rice Voelker, LLC · Royal Bank of Scotland· Sandler O'Neill & Partners · Sanford Bernstein & Co. · Scotia Capital · Scottrade · Second City Trading LLC · Sequent Energy · Sidoti & Co · Simmons & Co. · Southwest Securities · Stephens & Co. · Sterne Agee · Stewart Capital LLC · Stifel Nicolaus · Sun-Trust Capital Markets · Susquehanna Investment Group · Thomas Weisel Partners · TD Waterhouse Securities · Texas Employee Retirement System · Texas Teachers Retirement System · ThirtyNorth Investments · Thornburg Investment Management · Tivoli Partners · Tudor Pickering & Co. · Tulane University Endowment Fund · Turner Investment Partners · UBS · Value Line Investments · Vaughan Nelson Investment Management · Wells Fargo Capital Management · Whitney National Bank · William Blair & Co. · Zephyr Management

rpc report 11.7.14

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