e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File No. 001-15903
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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72-1100013 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
575 North Dairy Ashford
Suite 300
Houston, Texas 77079
(Address of principal executive offices)
(281) 921-6400
(Registrants telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of April 25, 2011, 23,162,193 shares of the registrants Common Stock,
par value $.01 per share, were outstanding.
CARBO CERAMICS INC.
Index to Quarterly Report on Form 10-Q
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
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March 31, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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(Note 1) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
54,359 |
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$ |
46,656 |
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Trade accounts and other receivables, net |
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107,752 |
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89,531 |
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Inventories: |
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Finished goods, net |
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46,834 |
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47,872 |
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Raw materials and supplies |
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44,910 |
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43,183 |
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Total inventories |
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91,744 |
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91,055 |
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Prepaid expenses and other current assets |
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3,732 |
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2,970 |
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Deferred income taxes |
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7,601 |
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7,443 |
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Total current assets |
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265,188 |
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237,655 |
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Property, plant and equipment: |
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Land and land improvements |
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14,079 |
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14,074 |
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Land-use and mineral rights |
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8,573 |
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8,041 |
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Buildings |
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57,965 |
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56,442 |
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Machinery and equipment |
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372,795 |
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362,286 |
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Construction in progress |
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78,141 |
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67,551 |
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Total |
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531,553 |
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508,394 |
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Less accumulated depreciation and amortization |
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177,601 |
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169,911 |
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Net property, plant and equipment |
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353,952 |
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338,483 |
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Goodwill |
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12,164 |
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13,053 |
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Intangible and other assets, net |
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9,195 |
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10,380 |
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Total assets |
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$ |
640,499 |
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$ |
599,571 |
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
21,797 |
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$ |
22,161 |
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Accrued income taxes |
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12,752 |
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113 |
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Dividends payable |
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4,632 |
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Other accrued expenses |
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25,205 |
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28,973 |
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Total current liabilities |
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64,386 |
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51,247 |
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Deferred income taxes |
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27,994 |
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26,345 |
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Shareholders equity: |
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Preferred stock, par value $0.01 per share, 5,000 shares authorized,
none outstanding |
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Common stock, par value $0.01 per share, 40,000,000 shares authorized;
23,162,193 and 23,108,082 shares issued and outstanding at March 31,
2011 and December 31, 2010, respectively |
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231 |
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231 |
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Additional paid-in capital |
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59,895 |
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57,475 |
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Retained earnings |
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488,511 |
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468,387 |
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Accumulated other comprehensive loss |
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(518 |
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(4,114 |
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Total shareholders equity |
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548,119 |
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521,979 |
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Total liabilities and shareholders equity |
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$ |
640,499 |
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$ |
599,571 |
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The accompanying notes are an integral part of these statements.
3
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
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Three months ended |
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March 31, |
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2011 |
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2010 |
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Revenues |
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$ |
150,830 |
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$ |
123,449 |
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Cost of sales |
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88,774 |
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80,884 |
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Gross profit |
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62,056 |
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42,565 |
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Selling, general and administrative expenses |
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14,287 |
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13,635 |
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Start-up costs |
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135 |
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Loss on disposal or impairment of assets |
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1,679 |
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3 |
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Operating profit |
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46,090 |
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28,792 |
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Other income (expense): |
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Interest income, net |
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44 |
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33 |
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Foreign currency exchange (loss) gain, net |
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(188 |
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36 |
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Other, net |
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(77 |
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(123 |
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(221 |
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(54 |
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Income before income taxes |
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45,869 |
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28,738 |
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Income taxes |
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15,705 |
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9,746 |
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Net income |
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$ |
30,164 |
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$ |
18,992 |
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Earnings per share: |
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Basic |
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$ |
1.30 |
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$ |
0.82 |
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Diluted |
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$ |
1.30 |
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$ |
0.82 |
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Other information: |
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Dividends declared per common share (see Note 4) |
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$ |
0.40 |
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$ |
0.36 |
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The accompanying notes are an integral part of these statements.
4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
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Three months ended |
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March 31, |
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2011 |
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2010 |
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Operating activities |
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Net income |
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$ |
30,164 |
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$ |
18,992 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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8,180 |
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6,734 |
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Deferred income taxes |
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1,272 |
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208 |
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Excess tax benefits from stock based compensation |
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(1,228 |
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(567 |
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Loss on disposal or impairment of assets |
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1,679 |
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3 |
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Foreign currency transaction loss (gain), net |
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188 |
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(36 |
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Stock compensation expense |
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1,359 |
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925 |
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Changes in operating assets and liabilities: |
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Trade accounts and other receivables |
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(17,907 |
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(13,629 |
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Inventories |
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118 |
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4,495 |
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Prepaid expenses and other current assets |
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(722 |
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618 |
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Long-term prepaid expenses |
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433 |
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(13 |
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Accounts payable |
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(377 |
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4,801 |
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Accrued expenses |
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(4,108 |
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13 |
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Accrued income taxes, net |
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13,880 |
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6,530 |
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Net cash provided by operating activities |
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32,931 |
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29,074 |
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Investing activities |
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Capital expenditures |
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(21,568 |
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(14,862 |
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Acquisition of BBL Falcon Industries, Ltd. |
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193 |
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Net cash used in investing activities |
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(21,568 |
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(14,669 |
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Financing activities |
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Net proceeds from stock based compensation |
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76 |
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Dividends paid |
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(4,632 |
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(4,163 |
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Purchase of common stock |
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(776 |
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(563 |
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Excess tax benefits from stock based compensation |
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1,228 |
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567 |
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Net cash used in financing activities |
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(4,104 |
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(4,159 |
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Effect of exchange rate changes on cash |
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444 |
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172 |
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Net increase in cash and cash equivalents |
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7,703 |
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10,418 |
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Cash and cash equivalents at beginning of period |
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46,656 |
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69,557 |
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Cash and cash equivalents at end of period |
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$ |
54,359 |
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$ |
79,975 |
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Supplemental cash flow information |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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$ |
553 |
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$ |
3,008 |
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The accompanying notes are an integral part of these statements.
5
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been
prepared in accordance with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required by accounting
principles generally accepted in the United States for complete financial statements. In the
opinion of management, all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. The results of the interim periods presented
herein are not necessarily indicative of the results to be expected for any other interim period or
the full year. The consolidated balance sheet as of December 31, 2010 has been derived from the
audited financial statements at that date. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto for the year ended
December 31, 2010 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the year
ended December 31, 2010.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its
operating subsidiaries (the Company). The consolidated financial statements also include an
interest in a Texas-based electronic equipment manufacturing company that was acquired in March
2008 that is reported under the cost method of accounting. All significant intercompany
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. The carrying amounts reported in the balance sheet for cash
equivalents approximate fair value.
Loss on
Disposal or Impairment of Assets
Loss on disposal or impairment of assets of $1,679 during the quarter ended March 31, 2011 consists
primarily of a $890 impairment of goodwill related to the Companys geotechnical monitoring business and a
$760 write-down of a 6% interest in an investment accounted for under the cost method, as a result of the sale
of the business by majority shareholders.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share under
the two-class method:
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Three months ended |
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March 31, |
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2011 |
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2010 |
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Numerator for basic and diluted earnings per share: |
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Net income |
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$ |
30,164 |
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$ |
18,992 |
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Effect of reallocating undistributed earnings of participating securities |
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(176 |
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(121 |
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Net income available under the two-class method |
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$ |
29,988 |
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$ |
18,871 |
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Denominator: |
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Denominator for basic earnings per share
weighted-average shares |
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23,014,530 |
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22,967,485 |
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Effect of dilutive securities: |
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Employee stock options (See Note 6) |
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1,302 |
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5,701 |
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Deferred stock awards (See Note 6) |
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4,017 |
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Dilutive potential common shares |
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1,302 |
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9,718 |
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Denominator for diluted earnings per share
adjusted weighted-average shares |
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23,015,832 |
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22,977,203 |
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Basic earnings per share |
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$ |
1.30 |
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$ |
0.82 |
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Diluted earnings per share |
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$ |
1.30 |
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$ |
0.82 |
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6
3. Common Stock Repurchase Program
On August 28, 2008, the Companys Board of Directors authorized the repurchase of up to two
million shares of the Companys common stock. Shares are effectively retired at the time of
purchase. The Company did not repurchase any shares under this plan during the first quarter of
2011. As of March 31, 2011, the Company has repurchased and retired 1,762,576 shares at an
aggregate price of $65,925.
4. Dividends Paid
On January 18, 2011, the Board of Directors declared a cash dividend of $0.20 per common share
payable to shareholders of record on February 1, 2011. The dividend was paid on February 15, 2011.
On March 22, 2011, the Board of Directors declared a cash dividend of $0.20 per common share
payable to shareholders of record on May 2, 2011. The dividend is payable on May 16, 2011 and is
presented in Current Liabilities at March 31, 2011.
5. Comprehensive Income
The following table sets forth the components of comprehensive income:
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Three months ended |
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March 31, |
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2011 |
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2010 |
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Net income |
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$ |
30,164 |
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$ |
18,992 |
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Foreign currency translation adjustment |
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3,596 |
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1,288 |
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Comprehensive income |
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$ |
33,760 |
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$ |
20,280 |
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The foreign currency translation adjustment for the three months ended March 31, 2011 and 2010
is net of deferred income tax expense of $219 and none, respectively.
6. Stock Based Compensation
The CARBO Ceramics Inc. Omnibus Incentive Plan (the Omnibus Incentive Plan), which replaced
the previously expired restricted stock and stock option plans, provides for granting of cash-based
awards, stock options (both non-qualified and incentive) and other equity-based awards (including
stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance
shares, deferred share units or share-denominated performance units) to employees and non-employee
directors. The amount paid under the Omnibus Incentive Plan to any single participant in any
calendar year with respect to any cash-based award shall not exceed $2,000. Awards may be granted
with respect to a number of shares of the Companys Common Stock that in the aggregate does not
exceed 750,000 shares prior to the fifth anniversary of its effective date, plus (i) the number of
shares that are forfeited, cancelled or returned, and (ii) the number of shares that are withheld
from the participants to satisfy an option exercise price or minimum statutory tax withholding
obligations. No more than 50,000 shares may be granted to any single participant in any calendar
year. Equity-based awards may be subject to performance-based and/or service-based conditions.
With respect to stock options and stock appreciation rights granted, the exercise price shall not
be less than the market value of the underlying Common Stock on the date of grant. The maximum
term of an option is ten years. Restricted stock awards granted generally vest (i.e., transfer and
forfeiture restrictions on these shares are lifted) proportionately on each of the first three
anniversaries of the grant date, but subject to certain limitations, awards may specify other
vesting periods. As of March 31, 2011, 615,684 shares were available for issuance under the
Omnibus Incentive Plan. Although the Companys previous restricted stock and stock option plans
have expired, outstanding options and unvested shares granted under these plans remain outstanding
in accordance with their terms.
The Company also had a Director Deferred Fee Plan (the Plan), which terminated on January
19, 2010, that permitted non-employee directors of the Company to defer receipt of cash
compensation for service as a director and to receive those fees in the form of the Companys
Common Stock on a specified later date that was on or after the directors retirement from the
Board of Directors. In January 2011, a total of 4,058 shares were issued in full payment of $171
of deferred fees remaining under the Plan to electing directors.
A summary of stock option activity and related information for the three months ended March
31, 2011 is presented below:
7
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|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Intrinsic |
|
|
Options |
|
Exercise Price |
|
Value |
Outstanding at January 1, 2011 |
|
|
5,900 |
|
|
$ |
22.04 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(3,475 |
) |
|
$ |
21.83 |
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
2,425 |
|
|
$ |
22.35 |
|
|
$ |
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
|
2,425 |
|
|
$ |
22.35 |
|
|
$ |
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, all compensation cost related to stock options granted under the expired
stock option plans has been recognized. The weighted-average remaining contractual term of options
outstanding at March 31, 2011 was 1.5 years. The total intrinsic value of options exercised during
the three months ended March 31, 2011 was $346.
A summary of restricted stock activity and related information for the three months ended
March 31, 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant-Date |
|
|
Shares |
|
Fair Value |
Nonvested at January 1, 2011 |
|
|
134,276 |
|
|
$ |
51.20 |
|
Granted |
|
|
54,740 |
|
|
$ |
104.07 |
|
Vested |
|
|
(52,153 |
) |
|
$ |
46.83 |
|
Forfeited |
|
|
(899 |
) |
|
$ |
68.74 |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
135,964 |
|
|
$ |
74.05 |
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, there was $7,724 of total unrecognized compensation cost, net of
estimated forfeitures, related to restricted shares granted under the restricted stock plans. That
cost is expected to be recognized over a weighted-average period of 2.0 years. The total fair
value of shares vested during the three months ended March 31, 2011 was $2,442.
The Company also had an International Long-Term Incentive Plan that provided for granting
units of stock appreciation rights (SARs) or phantom shares to key international employees. This
plan was replaced by the Omnibus Incentive Plan. One-third of the units subject to an award vests
and ceases to be forfeitable on each of the first three anniversaries of the grant date.
Participants awarded units of SARs have the right to receive an amount, in cash, equal to the
excess of the fair market value of a share of Common Stock as of the vesting date, or in some cases
on a later exercise date chosen by the participant, over the exercise price. Participants awarded
units of phantom shares are entitled to a lump sum cash payment equal to the fair market value of a
share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued
under either plan with regard to outstanding SARs or phantom shares. As of March 31, 2011, there
were 21,565 units of phantom shares granted under the plans, of which 11,026 have vested and 790
have been forfeited, with a total value of $1,376, the vested portion of which is recorded as a
liability within Other Accrued Expenses.
7. Bank Borrowings
The Company has an unsecured revolving credit agreement with a bank. Under the terms of the
agreement, dated January 29, 2010, the Company can borrow up to $10,000. The Company has the
option of choosing either the banks fluctuating Base Rate or LIBOR Fixed Rate, plus an Applicable
Margin, all as defined in the credit agreement. The terms of the credit agreement provide for
certain affirmative and negative covenants and require the Company to maintain certain financial
ratios. Commitment fees are payable quarterly at the annual rate of 0.50% of the unused line of
credit.
8
8. Foreign Currencies
As of March 31, 2011, the Companys net investment that is subject to foreign currency
fluctuations totaled $85,057 and the Company has recorded a cumulative foreign currency translation
loss of $518, net of deferred income tax benefit. This cumulative translation loss is included in
Accumulated Other Comprehensive Loss.
9. New Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their
applicability. Where it is determined that a new accounting pronouncement affects the Companys
financial reporting, the Company undertakes a study to determine the consequence of the change to
its financial statements and assures that there are proper controls in place to ascertain that the
Companys financials properly reflect the change. New pronouncements assessed by the Company
recently are discussed below:
In December 2010, the FASB issued authoritative guidance on application of goodwill impairment
model when a reporting unit has a zero or negative carrying amount. When a reporting unit has a
zero or negative carrying value, Step 2 of the goodwill impairment test should be performed if
qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The
guidance is effective for the Company beginning in the first quarter of fiscal 2012. The Company is
currently evaluating the potential impact, if any, of the adoption of this guidance on its
consolidated financial statements.
In December 2010, the FASB issued authoritative guidance on disclosure of supplementary pro
forma information for business combinations. The new guidance requires that pro forma financial
information should be prepared as if the business combination occurred as of the beginning of the
prior annual period. The guidance is effective for the Company for business combinations with
acquisition dates occurring in and from the first quarter of fiscal 2012.
Other pronouncements issued by the FASB or other authoritative accounting standards groups
with future effective dates are either not applicable or are not expected to be significant to the
financial statements of the Company.
10. Legal Proceedings
The Company is subject to legal proceedings, claims and litigation arising in the ordinary
course of business. While the outcome of these matters is currently not determinable, management
does not expect that the ultimate costs to resolve these matters will have a material adverse
effect on the Companys consolidated financial position, results of operations, or cash flows.
9
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business
The Company generates revenue primarily through the sale of products and services to the oil and
natural gas industry. The Companys principal business consists of manufacturing and selling
ceramic proppant for use primarily in the hydraulic fracturing of oil and natural gas wells. The
Company recently commenced the sale of resin-coated sand, which is an alternative to both ceramic
proppant and raw frac sand, in order to broaden its proppant suite of products. The Company also
provides the industrys most popular fracture simulation software FracPro®, as well as fracture
design and consulting services. In addition, the Company provides a broad range of technologies
for spill prevention, containment and countermeasures, along with geotechnical monitoring.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States, which require the Company to make estimates and
assumptions (see Note 1 to the consolidated financial statements included in the annual report on
Form 10-K for the year ended December 31, 2010). The Company believes that some of its accounting
policies involve a higher degree of judgment and complexity than others. As of December 31, 2010,
critical accounting policies for the Company included revenue recognition, estimating the
recoverability of accounts receivable, inventory valuation, accounting for income taxes and
accounting for long-lived assets. These critical accounting policies are discussed more fully in
the Companys annual report on Form 10-K for the year ended December 31, 2010. There have been no
changes in the Companys evaluation of its critical accounting policies since December 31, 2010.
Results of Operations
Three Months Ended March 31, 2011
Revenues. Revenues of $150.8 million for the first quarter of 2011 increased 22% compared to
$123.4 million for the same period in 2010. The increase is mainly attributed to an 8% increase in
proppant sales volume, an increase in the average proppant selling price as a result of price
increases and an increase in revenues of Falcon Technologies. Worldwide proppant sales volume
totaled 399 million pounds in the first three months of 2011 compared to 370 million pounds for the
same period in 2010. North American (defined as Canada and the U.S.) sales volume increased 11%
due primarily to an increase in the drilling rig count in the U.S. and Canada as well as continued
acceptance of the Companys products in unconventional resource plays, including shale formations.
North American proppant volumes were also favorably impacted by the availability of additional
product from the Companys recently completed third manufacturing line in Toomsboro, Georgia and
increases in sales of CARBOBond® resin-coated sand and ceramic proppant that meets
standards published by the American Petroleum Institute (API) and the International Organization
for Standardization (ISO) manufactured on an outsourced basis. International (excluding Canada)
sales volume decreased 8% primarily due to decreases in Mexico, Africa, and the Middle East
partially offset by increases in China and Russia. The average selling price per pound of all
proppant was $0.351 during the first quarter of 2011 compared to $0.313 for the same period in
2010.
Gross Profit. Gross profit for the first quarter of 2011 was $62.1 million, or 41% of revenues,
compared to $42.6 million, or 34% of revenues, for the first quarter of 2010. The increase in
gross profit was primarily the result of an increase in the average proppant selling price, higher
proppant sales volume, and the contribution of Falcon Technologies. Gross profit as a percentage of
revenues increased primarily as a result of an increase in the average proppant selling price, a
change in the mix of products sold towards lightweight products, and lower natural gas costs in the
Companys U.S. manufacturing facilities, partially offset by higher freight costs.
Selling, General and Administrative (SG&A) and Other Operating Expenses. SG&A expenses totaled
$14.3 million for the first quarter of 2011 compared to $13.6 million for the first quarter of
2010. As a percentage of revenues, SG&A expenses decreased to 9.5% in 2011 compared to 11.0% for
the first quarter of 2010. The increase in SG&A expenses primarily resulted from higher marketing,
research and development spending. Loss on disposal or impairment of assets of $1.7 million in
2011 is attributed to a $0.9 million impairment of goodwill related to the Companys geotechnical monitoring
business and a $0.8 million write-down of a 6% interest in an investment accounted for under the cost method
as a result of the sale of the business by majority shareholders.
10
Other Income (Expense). Other expense for the first quarter of 2011 increased $0.2 million compared
to the same period in 2010. This increase is mainly attributed to losses resulting from changes in
exchange rates between the functional currency and the foreign currency in which the effective
transactions were denominated.
Income Tax Expense. Income tax expense was $15.7 million, or 34.2% of pretax income, for the first
quarter of 2011 compared to $9.7 million, or 33.9% of pretax income, for the same period last year.
The $6.0 million increase is primarily due to higher pre-tax income.
Liquidity and Capital Resources
At March 31, 2011, the Company had cash and cash equivalents of $54.4 million compared to cash and
cash equivalents of $46.7 million at December 31, 2010. During the first quarter of 2011, the
Company generated $32.9 million of cash from operating activities, retained $1.2 million from
excess tax benefits relating to stock based compensation, received $0.1 million proceeds from
exercised stock options and retained $0.4 million from the effect of exchange rate changes on cash.
Uses of cash included $21.5 million for capital expenditures, $4.6 million for the payment of cash
dividends and $0.8 million for repurchases of the Companys common stock made in connection with
the payment of payroll-related taxes upon the vesting of restricted stock awards.
The Company believes its operating results for the remainder of 2011 will continue to be influenced
by the level of oil and natural gas drilling in North America. While natural gas prices remain
low, the continuing shift in oilfield activity by the Companys clients to oily, liquids-rich plays
will likely keep industry activity at high levels for the remainder of 2011. This, in turn, should
provide the Company with continued opportunity with respect to the demand for its proppant. The
Company expects to support this demand by pursuing capacity increases in both ceramic and
resin-coated sand proppant. During periods of high demand, and at the request of its customers,
the Company may also continue to engage in the sale of ceramic proppant that meets API/ISO
standards manufactured on an outsourced basis.
Subject to the Companys financial condition, the amount of funds generated from operations and the
level of capital expenditures, the Companys current intention is to continue to pay quarterly
dividends to holders of its common stock. On March 22, 2011, the Board of Directors declared a
cash dividend of $0.20 per common share, or $4.6 million in the aggregate, to shareholders of
record on May 2, 2011. That dividend is payable on May 16, 2011. The Company estimates its total
capital expenditures for the remainder of 2011 will be between $85 million and $95 million.
Capital expenditures for the remainder of 2011 are expected to include costs associated with
completion of the previously announced construction of the Companys fourth production line at its
Toomsboro, Georgia facility and a second resin coating line at the Companys New Iberia facility.
The Company anticipates that both projects will be completed by the end of 2011.
The Company maintains an unsecured line of credit of $10.0 million with Wells Fargo Bank, N.A. As
of March 31, 2011, there was no outstanding debt under the new credit agreement. The Company
anticipates that cash on hand, cash provided by operating activities and funds available under its
line of credit will be sufficient to meet planned operating expenses, tax obligations, capital
expenditures and other cash needs for the next 12 months. The Company also believes that it could
acquire additional debt financing, if needed. Based on these assumptions, the Company believes
that its fixed costs could be met even with a moderate decrease in demand for the Companys
products.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of March 31, 2011.
Forward-Looking Information
The statements in this Form 10-Q that are not historical statements, including statements regarding
our future financial and operating performance and liquidity and capital resources, are
forward-looking statements within the meaning of the federal securities laws. All forward-looking
statements are based on managements current expectations and estimates, which involve risks and
uncertainties that could cause actual results to differ materially from those expressed in
forward-looking statements. Among these factors are:
|
|
|
changes in overall economic conditions, |
|
|
|
|
changes in the cost of raw materials and natural gas used in manufacturing our
products, |
|
|
|
|
changes in demand and prices charged for our products, |
11
|
|
|
changes in the demand for, or price of, oil and natural gas, |
|
|
|
|
risks of increased competition, |
|
|
|
|
technological, manufacturing and product development risks, |
|
|
|
|
loss of key customers, |
|
|
|
|
changes in foreign and domestic government regulations, including environmental
restrictions on operations and regulation of hydraulic fracturing, |
|
|
|
|
changes in foreign and domestic political and legislative risks, |
|
|
|
|
the risks of war and international and domestic terrorism, |
|
|
|
|
risks associated with foreign operations and foreign currency exchange rates and
controls, and |
|
|
|
|
weather-related risks and other risks and uncertainties. |
Additional factors that could affect our future results or events are described from time to time
in our reports filed with the Securities and Exchange Commission (the SEC). See in particular
our annual report on Form 10-K for the fiscal year ended December 31, 2010 under the caption Risk
Factors and similar disclosures in subsequently filed reports with the SEC. We assume no
obligation to update forward-looking statements, except as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys major market risk exposure is to foreign currency fluctuations that could impact its
investments in China and Russia. As of March 31, 2011, the Companys net investment that is
subject to foreign currency fluctuations totaled $85.1 million and the Company has recorded a
cumulative foreign currency translation loss of $0.5 million, net of deferred income tax benefit.
This cumulative translation loss is included in Accumulated Other Comprehensive Loss. From time to
time, the Company may enter into forward foreign exchange contracts to hedge the impact of foreign
currency fluctuations. There were no such foreign exchange contracts outstanding at March 31,
2011.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed
in the reports filed or submitted under the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported, within the time periods specified in the SECs rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
As of March 31, 2011, management carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurances of
achieving their control objectives. Based upon and as of the date of that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls
and procedures were effective to ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms, and to ensure that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the quarter
ended March 31, 2011 that materially affected, or are reasonably likely to materially affect, those
controls.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors discussed in the Annual Report on
Form 10-K for the year ended December 31, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about the Companys repurchases of Common Stock
during the quarter ended March 31, 2011:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Shares that May |
|
|
Total Number |
|
Average |
|
Shares Purchased |
|
Yet be Purchased |
|
|
of Shares |
|
Price Paid |
|
as Part of Publicly |
|
Under the |
Period |
|
Purchased |
|
per Share |
|
Announced Plan |
|
Plan(1) |
|
01/01/11 to 01/31/11 |
|
|
7,488 |
(2) |
|
$ |
103.67 |
|
|
|
|
|
|
|
237,424 |
|
02/01/11 to 02/28/11 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
237,424 |
|
03/01/11 to 03/31/11 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
237,424 |
|
|
Total |
|
|
7,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 28, 2008, the Company announced the authorization by its Board of Directors
for the repurchase of up to two million shares of its Common Stock. |
|
(2) |
|
Represents shares of stock withheld for the payment of withholding taxes upon the
vesting of restricted stock. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURE
Our U.S. manufacturing facilities process mined minerals, and therefore are viewed as
mine operations subject to regulation by the federal Mine Safety and Health
Administration under the Federal Mine Safety and Health Act of 1977. Information
concerning mine safety violations or other regulatory matters required by section 1503(a)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the recently
proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in Exhibit 99.1 to this
quarterly report.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
|
10.1 |
|
Amendment No. 1 to the Proppant Supply Agreement, dated February 28,
2011, by and between CARBO Ceramics Inc. and Halliburton Energy Services, Inc.
(Confidential treatment has been requested for certain confidential portions of this
exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. In
accordance with Rule 24b-2, these confidential
|
13
|
|
|
portions have been omitted from this exhibit and filed separately with the
Securities and Exchange Commission). |
|
|
10.2 |
|
Description of modification to Annual Non-Employee Director Stock Grants |
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad. |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III. |
|
|
32 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
99.1 |
|
Mine Safety Disclosure |
|
|
101 |
|
The following financial information from the Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2011, formatted in XBRL (eXtensible
Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2011 and
December 31, 2010; (ii) Consolidated Statements of Income for the three months ended
March 31, 2011 and 2010; (iii) Consolidated Statements of Cash Flows for the three
months ended March 31, 2011 and 2010; and (iv) Notes to the Consolidated Financial
Statements, tagged as blocks of text. |
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
CARBO CERAMICS INC.
|
|
|
/s/ Gary A. Kolstad
|
|
|
Gary A. Kolstad |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
/s/ Ernesto Bautista III
|
|
|
Ernesto Bautista III |
|
|
Chief Financial Officer |
|
|
Date:
May 5, 2011
15
EXHIBIT INDEX
|
|
|
EXHIBIT |
|
DESCRIPTION |
|
|
|
10.1
|
|
Amendment No. 1 to the Proppant Supply Agreement, dated February 28, 2011, by and between
CARBO Ceramics Inc. and Halliburton Energy Services, Inc. (Confidential treatment has been
requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. In accordance with Rule 24b-2, these confidential portions
have been omitted from this exhibit and filed separately with the Securities and Exchange
Commission). |
|
|
|
10.2
|
|
Description of modification to Annual Non-Employee Director Stock Grants |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad. |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III. |
|
|
|
32
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
99.1
|
|
Mine Safety Disclosure |
|
|
|
101
|
|
The following financial information from the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i)
Consolidated Balance Sheets at March 31, 2011 and December 31, 2010; (ii) Consolidated
Statements of Income for the three months ended March 31, 2011 and 2010; (iii) Consolidated
Statements of Cash Flows for the three months ended March 31, 2011 and 2010; and (iv) Notes to
the Consolidated Financial Statements, tagged as blocks of text. |
16