<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 JUNE 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)
(214) 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 August 1, 1996, 14,602,000 shares of the registrant's Common
Stock, par value $.01 per share, were outstanding.
<PAGE>
CARBO CERAMICS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------
Item 1. Financial Statements
Balance Sheets (Unaudited) - 3
June 30, 1996 and December 31, 1995
Statements of Income 4
(Unaudited) - Three months and six months ended
June 30, 1996 and 1995
Statements of Cash Flows 5
(Unaudited) - Six months ended June 30, 1996
and 1995
Notes to Financial Statements - June 30, 1996 6-8
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 9-10
Condition and Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal proceedings 11
Item 2. Changes in securities 11
Item 3. Defaults upon senior securities 11
Item 4. Submission of matters to a vote of
security-holders 11
Item 5. Other information 11
Item 6. Exhibits and reports on Form 8-K 11
Signatures 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------
CARBO CERAMICS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
($ in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,809 $ 201
Trade accounts receivable 12,539 8,783
Inventories:
Finished goods 4,479 3,852
Raw materials and supplies 4,393 3,979
------- -------
Total inventories 8,872 7,831
Prepaid expenses and other current assets 724 270
Deferred income taxes 3,750 -
------- -------
Total current assets 29,694 17,085
Property, plant and equipment:
Land and land improvements 57 57
Buildings 4,536 2,759
Machinery and equipment 24,555 16,400
Construction in progress 639 8,746
------- -------
Total 29,787 27,962
Less accumulated depreciation 6,855 5,958
------- -------
Net property, plant and equipment 22,932 22,004
------- -------
Total Assets $52,626 $ 39,089
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ 2,780
Accounts payable 1,308 1,820
Accrued expenses 3,030 3,108
------- -------
Total current liabilities 4,338 7,708
Deferred income taxes 1,267 -
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 3,956 25,948
------- -------
Total shareholders' equity 47,021 31,381
------- -------
Total liabilities and shareholders' equity $52,626 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales $ 17,399 $ 15,197 $ 30,432 $ 28,455
Cost of goods sold 9,382 7,485 16,275 14,216
----------- ----------- ----------- -----------
Gross profit 8,017 7,712 14,157 14,239
Selling, general and administrative expenses 2,965 1,873 4,736 3,545
----------- ----------- ----------- -----------
Operating profit 5,052 5,839 9,421 10,694
Other income (expense):
Interest income 47 48 49 115
Interest expense (66) - (86) -
Other, net (8) (67) 16 (33)
----------- ----------- ----------- -----------
(27) (19) (21) 82
----------- ----------- ----------- -----------
Income before taxes 5,025 5,820 9,400 10,776
Income taxes 1,003 - 1,003 -
----------- ----------- ----------- -----------
Net income $ 4,022 $ 5,820 $ 8,397 $ 10,776
----------- ----------- ----------- -----------
Pro forma data:
Income before income taxes $ 5,025 $ 5,820 $ 9,400 $ 10,776
Pro forma income taxes 1,910 2,212 3,572 4,095
----------- ----------- ----------- -----------
Pro forma net income $ 3,115 $ 3,608 $ 5,828 $ 6,681
----------- ----------- ----------- -----------
Pro forma net income per share $0.21 $0.25 $0.40 $0.46
----------- ----------- ----------- -----------
Pro forma weighted average number of shares 14,729,863 14,602,000 14,665,932 14,602,000
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CARBO CERAMICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- -------
($ IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,397 $10,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 897 524
Amortization of unearned compensation 1,316 219
Deferred income taxes 1,003
Changes in operating assets and liabilities:
Trade accounts receivable (3,756) (798)
Inventories (1,041) (370)
Prepaid expenses and other current assets (454) (114)
Accounts payable (512) 745
Accrued expenses (78) 356
-------- -------
Net cash provided by operating activities 5,772 11,338
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,825) (5,800)
-------- -------
Net cash used in investing activities (1,825) (5,800)
FINANCING ACTIVITIES
Net payments on bank borrowings (2,780) -
Net proceeds from initial public offering 35,285 -
Dividends paid (32,844) (7,833)
-------- -------
Net cash used in financing activities (339) (7,833)
-------- -------
Net increase (decrease) in cash and cash equivalents 3,608 (2,295)
Cash and cash equivalents at beginning of period 201 4,413
-------- -------
Cash and cash equivalents at end of period $ 3,809 $ 2,118
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 86 $ -
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CARBO CERAMICS INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 10-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
During the six months ended June 30, 1996, the Company paid dividends totaling
$32,843,937 ($2.67 per share based on 12,302,000 shares outstanding) to the
shareholders of the Company prior to its initial public offering.
On March 28, 1996, the Company declared a dividend of $3,383,050 ($.275 per
share based on 12,302,000 shares outstanding) payable to all shareholders of
record on March 28, 1996. In addition, on March 15, 1996, the Company recorded
as a dividend, certain state taxes in the amount of $360,000 paid on behalf of
its shareholders.
On April 24, 1996, the Company terminated its S Corporation status and
declared a dividend of $26,841,926, the amount of previously undistributed S
Corporation earnings as of December 31, 1995, and issued notes to its
shareholders in payment of the dividend. On June 24, 1996, the Company paid a
final S Corporation dividend of $2,258,961 representing the remaining
undistributed S Corporation earnings through the termination of the Company's S
Corporation status. Dividends per share of common stock for the above
distributions were $2.18 and $0.18, respectively, based on 12,302,000 shares of
common stock outstanding.
3. INITIAL PUBLIC OFFERING
The Company completed an initial public offering (the "Offering") of its
Common Stock on April 26, 1996, pursuant to which the Company sold 2,300,000
shares of Common Stock at an initial public offering price of $17.00 per share.
Net proceeds from the Offering (after deducting the underwriting discount of
$2,737,000 and expenses of $1,078,050 incurred in connection with the Offering)
were $35,284,950. Of the net proceeds received from the Offering, the Company
has used (i) $26,841,926 to prepay the principal of notes issued by the Company
6
<PAGE>
to the original shareholders in payment of an S Corporation dividend, (ii)
$2,258,961 to pay a final S Corporation dividend and (iii) $3,615,000 to repay
borrowings on its revolving line of credit.
4. PRO FORMA INFORMATION
Pro Forma Net Income:
Pro forma net income reflects a provision for income taxes at an effective
rate of 38% 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 six months ended June 30, 1996, the weighted
average number of shares outstanding also included 127,863 and 63,932 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.
For the three and six months ended June 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.
5. INCOME TAXES (FAS 109)
Effective April 24, 1996, the Company terminated its S Corporation status and
recorded deferred income taxes as required by FASB Statement No. 109, Accounting
for Income Taxes. The deferred tax effects of the change in tax status have
increased net income by $883,503 in the second quarter of 1996.
The Company also recorded a deferred tax asset of $3,486,196 with a
corresponding increase in additional paid-in capital in the second quarter of
1996 related to the vesting of 800,000 restricted shares of common stock upon
the occurrence of the initial public offering.
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 June 30, 1996, are as
follows:
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DEFERRED TAX ASSETS:
Compensation related to restricted stock.. $3,025,636
Employee benefits......................... 268,872
Inventories............................... 399,674
Other..................................... 77,255
----------
Total deferred tax assets................. 3,771,437
DEFERRED TAX LIABILITIES:
Depreciation.............................. 1,267,106
Other..................................... 21,425
----------
Total deferred tax liabilities............ 1,288,531
----------
Net deferred assets....................... $2,482,906
==========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Result of Operations
Three Months and Six Months Ended June 30, 1996, Compared to Three Months and
Six Months Ended June 30, 1995
Revenues for the three months ended June 30, 1996, increased 14% over the same
period in 1995 to $17.4 million. The increase in revenues was due to a 20%
increase in sales volume which was attributable to increased drilling activity
in the U.S. where natural gas prices averaged $.74/MMBtu higher than the second
quarter 1995 and $1.06/MMBtu higher than the year to date 1995. The average
selling price of the Company's products declined by 5% during the second quarter
when compared to the same period in 1995 as much of the increase in sales volume
was generated by sales of CARBOECONOPROP/(R)/. CARBOECONOPROP/(R)/ is the
Company's lowest priced ceramic proppant, designed for use in areas where
ceramic proppants were not previously used. The growth of this product line is
consistent with the plans and expectations of the Company.
Gross profit for the three months ended June 30, 1996, was $8.0 million versus
$7.7 million during the second quarter 1995. For the year to date, gross profit
was $14.1 million in 1996 and $14.2 million in 1995. Gross profit as a
percentage of sales fell from 51% in the second quarter 1995 to 46% in the
second quarter 1996, and from 50% for the year to date 1995 to 47% for the year
to date 1996. These decreases were due to the decline in the average selling
price and a temporary increase in manufacturing costs at the Company's New
Iberia manufacturing facility due to unexpected maintenance costs.
Manufacturing costs are expected to return to historical levels for the
remainder of the year.
Selling, general and administrative expenses were $3.0 million for the three
months ended June 30, 1996. While this represents an increase of $1.1 million
from the second quarter 1995, the increase is entirely attributable to a non-
recurring, non-cash charge incurred in connection with the vesting of restricted
stock at the time of the Company's initial public offering. Excluding this non-
recurring charge, selling, general and administrative expenses were unchanged
from the same period last year and declined from 12% of sales to 11% of sales.
For the six months ended June 30, 1996, selling, general and administrative
expenses were $4.8 million, an increase of $1.2 million from the same period a
year earlier.
The provision for income taxes was $1.0 million for the three months and six
months ended June 30, 1996. This provision represents an effective tax rate of
20% for the three months ended June 30, 1996, and 11% for the six months ended
June 30, 1996. These low effective tax rates are due to the fact that the
Company's earnings through April 23, 1996, were not taxable because of the
Company's S Corporation status and the fact that the Company reduced its tax
provision by $.9 million during the period due to the cumulative effects of
adopting FASB Statement 109 in connection with the termination of its S
Corporation election. The Company expects that its effective tax rate in the
future will be approximately 38%.
Liquidity and Capital Resources
On April 26, 1996, the Company completed an initial public offering of its
common stock in which it sold 2.3 million shares of stock for net proceeds of
$35.3 million. Proceeds of the offering were used to repay notes issued to the
S Corporation shareholders of $26.8 million, pay a final S Corporation dividend
of $2.3 million, and repay borrowings under the company's revolving line of
credit in the amount of $3.6 million.
9
<PAGE>
The Company increased its investment in working capital by $5.8 million during
the six month period ended June 30, 1996. Trade accounts receivable increased
by $3.8 million due to an increase in revenues during the second quarter 1996.
Inventories increased by $1.0 million as both raw material and finished goods
inventories increased in order to properly service the increasing demand for the
Company's products.
Additionally, the Company recognized a current deferred income tax benefit of
$5.4 million and a deferred tax liability of $1.0 million in connection with the
vesting of restricted stock upon the occurrence of its initial public offering
and the termination of its S Corporation election.
Total capital expenditures for the six months ended June 30, 1996, were $1.8
million of which $1.1 million was spent on completing the expansion of the
Eufaula manufacturing facility.
The Company anticipates that it will generate additional cash balances in the
remainder of 1996 in light of its tax benefits and the low level of capital
spending expected for the balance of the year. The Company is currently
evaluating the possible construction of a new production facility which is
expected to cost approximately $25 million and could begin construction in 1997.
Financing for such a facility is expected to come from cash provided by
operations. The Company believes that it has the ability to obtain additional
borrowing capacity to incur debt to finance a portion of a new manufacturing
facility should it be necessary.
10
<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
11
<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/Paul G. Vitek
-----------------------
Paul G. Vitek
Vice President, Finance
Date: August 1, 1996
12
<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> JUN-30-1996
<CASH> 3,809
<SECURITIES> 0
<RECEIVABLES> 12,539
<ALLOWANCES> 0
<INVENTORY> 8,872
<CURRENT-ASSETS> 29,694
<PP&E> 29,787
<DEPRECIATION> (6,855)
<TOTAL-ASSETS> 52,626
<CURRENT-LIABILITIES> 4,338
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 46,875
<TOTAL-LIABILITY-AND-EQUITY> 52,626
<SALES> 17,399
<TOTAL-REVENUES> 17,446
<CGS> 9,382
<TOTAL-COSTS> 12,347
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 5,025
<INCOME-TAX> 1,003
<INCOME-CONTINUING> 4,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,022
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
