<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
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.0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1100013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 E. LAS COLINAS BOULEVARD
SUITE 1520
IRVING, TEXAS 75039
(Address of principal executive offices)
(972) 401-0090
(Registrant's 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 X No
----- -----
As of November 5, 1996, 14,602,000 shares of the registrant's Common
Stock, par value $.01 per share, were outstanding.
<PAGE>
CARBO CERAMICS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
- -----------------------------
Item 1. Financial Statements
Balance Sheets (Unaudited) - 3
September 30, 1996 and December 31, 1995
Statements of Income 4
(Unaudited) - Three months and nine months ended
September 30, 1996 and 1995
Statements of Cash Flows 5
(Unaudited) - Nine months ended September 30,
1996 and 1995
Notes to Financial Statements - September 30, 1996 6-7
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal proceedings 10
Item 2. Changes in securities 10
Item 3. Defaults upon senior securities 10
Item 4. Submission of matters to a vote of security-holders 10
Item 5. Other information 10
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------
CARBO CERAMICS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
------------- ------------
($ in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,794 $ 201
Trade accounts receivable 12,250 8,783
Inventories:
Finished goods 4,121 3,852
Raw materials and supplies 4,172 3 979
------- -------
Total inventories 8,293 7,831
Prepaid expenses and other current assets 719 270
Deferred income taxes 1,521 _
------- -------
Total current assets 33,577 17,085
Property, plant and equipment:
Land and land improvements 57 57
Buildings 4,536 2,759
Machinery and equipment 25,027 16,400
Construction in progress 304 8,746
------- -------
Total 29,924 27,962
Less accumulated depreciation 7,359 5,958
------- -------
Net property, plant and equipment 22,565 22,004
------- -------
Total assets $56,142 $39,089
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ 2,780
Accounts payable 1,317 1,820
Accrued expenses 2,916 3,108
------- -------
Total current liabilities 4,233 7,708
Deferred income taxes 1,634 -
Shareholders' equity:
Preferred stock, par value $0.01 per share,
5,000 shares authorized, none outstanding - -
Common stock, par value $0.01 per share,
40,000,000 shares authorized:
14,602,000 and 12,302,000
shares issued and outstanding in
1996 and 1995, respectively 146 120
Class B nonvoting common stock,
par value $0.01 per share,
4,000,000 shares authorized;
300,000 shares issued
and outstanding in 1995 - 3
Additional paid-in capital 42,919 6,626
Unearned compensation - (1,316)
Retained earnings 7,210 25,948
------- -------
Total shareholders' equity 50,275 31,381
------- -------
Total liabilities and shareholders' equity $56,142 $39,089
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CARBO CERAMICS INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales $ 17,898 $ 15,736 $ 48,330 $ 44,191
Cost of goods sold 9,432 7,867 25,707 22,083
----------- ----------- ----------- -----------
Gross profit 8,466 7,869 22,623 22,108
Selling, general and administrative expenses 1,585 1,761 6,321 5,306
----------- ----------- ----------- -----------
Operating profit 6,881 6,108 16,302 16,802
Other income:
Interest income 97 38 146 153
Interest expense - - (86) -
Other, net (34) 27 (18) (6)
----------- ----------- ----------- -----------
63 65 42 147
----------- ----------- ----------- -----------
Income before taxes 6,944 6,173 16,344 16,949
Income taxes 2,595 - 3,598 -
----------- ----------- ----------- -----------
Net income S 4,349 $ 6,173 $ 12,746 $ 16,949
=========== =========== =========== ===========
Pro forma data:
Income before income taxes $ 6,944 $ 6,173 $ 16,344 $ 16,949
Income taxes 2,595 2,307 6,108 6,334
----------- ----------- ----------- -----------
Net income $ 4,349 $ 3,866 $ 10,236 $ 10,615
=========== =========== =========== ===========
Net income per share $ 0.30 $ 0.26 $ 0.70 $ 0.73
=========== =========== =========== ===========
Weighted average number of shares 14,715,448 14,602,000 14,681,660 14,602,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CARBO CERAMICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,746 $ 16,949
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,401 804
Amortization of unearned compensation 1,316 329
Deferred income taxes 3,599 -
Changes in operating assets and liabilities:
Trade accounts receivable (3,467) (356)
Inventories (462) (2,025)
Prepaid expenses and other current assets (449) (213)
Accounts payable (503) 1,166
Accrued expenses (192) 519
-------- --------
Net cash provided by operating activities 13,989 17,173
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,962) (9,140)
-------- --------
Net cash used in investing activities (1,962) (9,140)
FINANCING ACTIVITIES
Net payments on bank borrowings (2,780) -
Net proceeds from initial public offering 35,285 -
Dividends paid (33,939) (12,139)
-------- --------
Net cash used in financing activities (1,434) (12,139)
-------- --------
Net increase (decrease) in cash and cash equivalents 10,593 (4,106)
Cash and cash equivalents at beginning of period 201 4,413
-------- --------
Cash and cash equivalents at end of period $ 10,794 $ 307
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 92 $ -
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CARBO CERAMICS INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Carbo Ceramics Inc. have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 1O-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles 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. These financial statements should be read
in conjunction with the financial statements and notes thereto for the year
ended December 31, 1995 included in the Company's Form S-1 Registration
Statement No.333-1884 as filed with the SEC.
On April 17, 1996, the Company filed an Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware authorizing
5,000 shares of Preferred Stock with a par value of $0.01 per share, a 2,000 for
1 split of the Company's Common Stock and the conversion of all previously
issued and outstanding shares of Class B common stock into voting shares of
Common Stock. All capital amounts, share and per share data in the accompanying
financial statements have been retroactively restated to reflect the stock split
for all periods presented.
2. DIVIDENDS PAID
On July 9, 1996, the Board of Directors declared a cash dividend of $0.075
per common share payable to stockholders of record on July 19, 1996. The
dividend was paid on July 31, 1996.
3. PRO FORMA INFORMATION
Pro Forma Net Income:
Pro forma net income reflects a provision for income taxes at an effective
rate of approximately 37% to illustrate how historical net income might have
been affected if the Company had not been a Subchapter S Corporation for income
tax purposes. The Company elected to be treated as an S Corporation pursuant to
the Internal Revenue Code from June 23, 1987 through April 23, 1996, immediately
after which it terminated its S Corporation election in conjunction with the
initial public offering. As a result, the Company was not subject to federal
income taxes during this period. By election of the shareholders, S Corporation
status was also applicable to the state jurisdictions where the Company had
significant operations during this period.
Pro Forma Net Income Per Share:
Pro forma net income per share is based on 14,602,000 shares of common stock
outstanding, including 2,300,000 shares issued in the Company's initial public
offering. For the three and nine months ended September 30, 1996, the weighted
average number of shares outstanding also included 113,448 and 79,660 average
common stock equivalent shares, respectively, for the assumed exercise of
options for the purchase of 700,000 shares of Common Stock at an exercise price
of $17.00 per share using the treasury stock method at the average market prices
during the respective periods.
6
<PAGE>
For the three and nine months ended September 30, 1995, pro forma net
income per share is based on (i) 12,302,000 shares of Common Stock outstanding
during the periods and (ii) the assumed issuance of 2,300,000 shares of Common
Stock to pay S Corporation dividends of $29,100,887.
4. INCOME TAXES (FAS 109)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of September 30, 1996 are
as follows:
<TABLE>
<CAPTION>
<S> <C>
DEFERRED TAX ASSETS:
Compensation related to restricted stock................... $ 721,405
Employee benefits.......................................... 283,854
Inventories................................................ 413,662
Other...................................................... 102,250
----------
Total deferred tax assets.................................. 1,521,171
DEFERRED TAX LIABILITIES:
Depreciation............................................... 1,603,645
Other...................................................... 29,678
----------
Total deferred tax liabilities............................. 1,633,323
----------
Net deferred liabilities................................... $ (112,152)
==========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996
- -------------------------------------
Revenues. Revenues for the third quarter 1996 were a record $17.9 million, an
- --------
increase of 14% over the third quarter 1995. The increase was due to a 12%
increase in sales volume and an increase in the average selling price due to a
change in the mix of products sold. Demand was particularly strong for CarboProp
and CarboHSP, the Company's premium products. Revenues from these two products
established a new quarterly high, exceeding the previous quarterly high,
established in the third quarter 1995, by 36%. Much of this demand was due to an
increase in deep natural gas drilling activity in the United States where the
number of rigs drilling for natural gas averaged 493 for the quarter and
exceeded 500 rigs for most of September. The Company believes that a portion of
the sales increase for these products may have been due to production problems
encountered by its primary competitor. For the quarter, domestic revenues
increased by 23% versus the same period in 1995 while export activity declined
5% versus the previous year.
Gross Profit. Gross profit for the quarter was $8.5 million or 47% of sales as
- ------------
compared to $7.9 million and 50% of sales for the third quarter 1995. The
reduction in the gross profit percentage was primarily due to higher
manufacturing costs at the Company's New Iberia plant. Manufacturing costs at
the New Iberia plant increased due to the increase in demand for CarboHSP which
uses a higher cost raw material and generates lower throughput rates than
CarboProp, the second product manufactured at the New Iberia facility. Gross
profit margins were also impacted by higher depreciation expense recorded
subsequent to the completion of the Eufaula expansion in 1996.
Selling, General and Administrative Expenses (SG&A). SG&A was $1.6 million for
- ---------------------------------------------------
the third quarter 1996 and $1.8 million for the corresponding period in 1995.
Expenses incurred for consulting fees and the amortization of unearned
compensation decreased from 1995 while expenses incurred in connection with
distribution operations increased with the higher sales volumes experienced in
1996. Distribution expenses as a percentage of sales were unchanged from the
third quarter 1995.
Nine Months Ended September 30, 1996
- ------------------------------------
Revenues. Revenues for the nine months ended September 30, 1996, were $48.3
- --------
million, up 9% from the same period in 1995. Domestic sales increased 21% from
a year earlier as CarboEconoProp continued to penetrate the market for sand and
resin coated sand, while an increase in natural gas drilling fueled demand for
the Company's high strength proppants.
Gross Profit. Gross profit as a percentage of sales for the nine months ended
- ------------
September 30, 1996, was 47% as compared to 50% for the same period a year
earlier. Gross profit margins declined due to the continued growth in lower
margin CarboEconoProp sales, increased depreciation and overhead costs
attributable to the expansion of the Eufaula plant and higher costs incurred at
the New Iberia plant due to increased production of CarboHSP.
Selling, General and Administrative Expenses (SG&A). SG&A expenses were $6.3
- ---------------------------------------------------
million for the year to date 1996 as compared to $5.3 million for the same
period in 1995. In connection with the vesting of restricted stock which
occurred at the time of the initial public offering of Carbo Ceramics' common
stock in April 1996, the Company accelerated the recognition of unearned
compensation expense. For the year to date 1996, the total expense recognized
was $1.3 million. During the nine months ended September 30, 1995, the Company
recognized a total of $.3 million in unearned compensation expense. Excluding
this incremental charge, SG&A for the year to date was unchanged versus the same
period in 1995.
8
<PAGE>
Net Income. Pro forma net income for the nine months ended September 30, 1996,
- ----------
was $10.2 million, a decrease of 4% versus the same period a year earlier. The
primary reason for the decline in net income is the accelerated recognition of
unearned compensation expense as discussed above in the analysis of SG&A.
Excluding the effect of this incremental charge, pro forma net income for the
nine months ended 1996 increased by 2% from the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $10.8 million as of September 30, 1996, an
increase of $10.6 million from December 31, 1995. The increase in cash and cash
equivalents was due to cash generated from operations of $14.0 million. In April
1996, the Company generated $35.3 million from the sale of shares in the initial
public offering of its common stock. Proceeds from this offering were used to
repay notes and to pay a final dividend of previously taxed, undistributed
earnings to the original shareholders of the Company.
Since the time of the initial public offering of the Company's stock, the
Company has benefited from a significant tax deduction resulting from
compensation expense recognized in connection with the lapsing of restrictions
on stock previously issued to its President. The benefit from this deduction is
expected to be fully realized during the fourth quarter 1996 at which time the
Company expects to begin to pay tax on its income.
The Company anticipates that it will continue to generate cash from operations
and increase its cash balance through the remainder of 1996. The Company is
currently evaluating the possible construction of a new production facility
which is expected to cost $30-$35 million and could begin construction in 1997.
The Company expects to fund a substantial portion of the expansion from existing
cash balances and cash generated from operations. The Company believes that it
has the ability to obtain sufficient debt financing to complete the expansion
project, if necessary.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
10
<PAGE>
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.
By: /S/ Jesse P. Orsini
---------------------------------------
Jesse P. Orsini
President
& Chief Executive Officer
By: /S/ Paul G. Vitek
---------------------------------------
Paul G. Vitek
Vice President, Finance
& Chief Financial Officer
Date: November 5, 1996
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,794
<SECURITIES> 0
<RECEIVABLES> 12,250
<ALLOWANCES> 0
<INVENTORY> 8,293
<CURRENT-ASSETS> 33,577
<PP&E> 29,924
<DEPRECIATION> (7,359)
<TOTAL-ASSETS> 56,142
<CURRENT-LIABILITIES> 4,233
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 50,129
<TOTAL-LIABILITY-AND-EQUITY> 56,142
<SALES> 17,898
<TOTAL-REVENUES> 17,898
<CGS> 9,432
<TOTAL-COSTS> 11,017
<OTHER-EXPENSES> 34
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,944
<INCOME-TAX> 2,595
<INCOME-CONTINUING> 4,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,349
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
