<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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 August 3, 1998, 14,602,000 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding.
<PAGE> 2
CARBO CERAMICS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - 3
June 30, 1998 (Unaudited) and December 31, 1997
Consolidated Statements of Income 4
(Unaudited) - Three and six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows 5
(Unaudited) - Six months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 6-7
(Unaudited) - June 30, 1998
Item 2. Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 10
Item 2. Changes in securities 10
Item 3. Defaults upon senior securities 10
Item 4. Submission of matters to a vote of security-holders 10
Item 5. Other information 10
Item 6. Exhibits and reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
------------ ------------
($ in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,677 $ 8,899
Investment securities 1,950 13,905
Trade accounts receivable 17,361 14,243
Inventories:
Finished goods 3,669 4,347
Raw materials and supplies 3,833 4,034
------------ ------------
Total inventories 7,502 8,381
Prepaid expenses and other current assets 1,260 661
Deferred income taxes 872 772
------------ ------------
Total current assets 43,622 46,861
Property, plant and equipment:
Land and land improvements 270 214
Buildings 4,613 4,536
Machinery and equipment 29,292 27,773
Construction in progress 25,929 11,382
------------ ------------
Total 60,104 43,905
Less accumulated depreciation 10,797 9,812
------------ ------------
Net property, plant and equipment 49,307 34,093
------------ ------------
Total assets $ 92,929 $ 80,954
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,131 $ 2,131
Accrued payroll and benefits 1,931 2,448
Accrued freight 2,192 851
Accrued utilities 421 422
Accrued income taxes 1,338 1,018
Other accrued expenses 1,037 746
------------ ------------
Total current liabilities 9,050 7,616
Deferred income taxes 3,153 2,396
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 shares issued and
outstanding 146 146
Additional paid-in capital 42,919 42,919
Retained earnings 37,661 27,877
------------ ------------
Total shareholders' equity 80,726 70,942
------------ ------------
Total liabilities and shareholders' equity $ 92,929 $ 80,954
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 23,764 $ 20,893 $ 46,381 $ 38,733
Cost of goods sold 11,885 10,546 22,985 19,393
----------- ----------- ----------- -----------
Gross profit 11,879 10,347 23,396 19,340
Selling, general and administrative expenses 2,349 2,080 4,857 4,101
----------- ----------- ----------- -----------
Operating profit 9,530 8,267 18,539 15,239
Other income (expense):
Interest income, net 260 255 577 442
Other, net 188 (2) 217 9
----------- ----------- ----------- -----------
448 253 794 451
----------- ----------- ----------- -----------
Income before income taxes 9,978 8,520 19,333 15,690
Income taxes 3,796 3,071 7,359 5,655
----------- ----------- ----------- -----------
Net income $ 6,182 $ 5,449 $ 11,974 $ 10,035
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.42 $ 0.37 $ 0.82 $ 0.69
=========== =========== =========== ===========
Diluted $ 0.42 $ 0.37 $ 0.81 $ 0.68
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,974 $ 10,035
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,043 961
Deferred income taxes 657 94
Changes in operating assets and liabilities:
Trade accounts receivable (3,118) (1,639)
Inventories 879 (1,339)
Prepaid expenses and other current assets (599) (604)
Accounts payable - 79
Accrued payroll and benefits (517) (290)
Accrued freight 1,341 346
Accrued utilities (1) 74
Accrued income taxes 320 (129)
Other accrued expenses 291 (127)
---------- ----------
Net cash provided by operating activities 12,270 7,461
INVESTING ACTIVITIES
Maturities of investment securities 11,955 -
Purchases of property, plant and equipment (16,257) (2,414)
---------- ----------
Net cash used in investing activities (4,302) (2,414)
FINANCING ACTIVITIES
Dividends paid (2,190) (2,190)
---------- ----------
Net cash used in financing activities (2,190) (2,190)
---------- ----------
Net increase in cash and cash equivalents 5,778 2,857
Cash and cash equivalents at beginning of period 8,899 17,414
---------- ----------
Cash and cash equivalents at end of period $ 14,677 $ 20,271
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 6,382 $ 5,690
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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
consolidated financial statements and notes thereto for the year ended December
31, 1997 included in the Company's Form 10-K Annual Report for the year ended
December 31, 1997.
The consolidated financial statements include the accounts of CARBO
Ceramics Inc. and its wholly owned subsidiaries, CARBO Ceramics Sales
Corporation and CARBO Ceramics (UK) Limited. CARBO Ceramics Sales Corporation
was formed on July 31, 1996 under the laws of Barbados. CARBO Ceramics
(UK) Limited was formed on December 19, 1997 under the laws of Scotland. All
significant intercompany transactions have been eliminated.
2. DIVIDENDS PAID
On April 14, 1998, the Board of Directors declared a cash dividend of
$0.075 per common share payable to shareholders of record on April 30, 1998.
The dividend was paid on May 15, 1998.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share ($ in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income ........................................ $ 6,182 $ 5,449 $ 11,974 $ 10,035
Denominator:
Denominator for basic earnings per share--
weighted-average shares ......................... 14,602,000 14,602,000 14,602,000 14,602,000
Effect of dilutive securities:
Employee stock options .......................... 224,536 92,024 201,211 79,369
----------- ----------- ----------- -----------
Dilutive potential common shares .................. 224,536 92,024 201,211 79,369
----------- ----------- ----------- -----------
Denominator for diluted earnings per share--
adjusted weighted-average shares ................ 14,826,536 14,694,024 14,803,211 14,681,369
=========== =========== =========== ===========
Basic earnings per share ............................. $ 0.42 $ 0.37 $ 0.82 $ 0.69
=========== =========== =========== ===========
Diluted earnings per share ........................... $ 0.42 $ 0.37 $ 0.81 $ 0.68
=========== =========== =========== ===========
</TABLE>
4. INCOME TAXES
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, 1998 and
December 31, 1997 are as follows:
6
<PAGE> 7
4. INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Deferred tax assets: ($ in thousands)
<S> <C> <C>
Employee benefits ............................ $ 358 $ 271
Inventories .................................. 366 377
Other ........................................ 148 124
------------ ------------
Total deferred tax assets .................... 872 772
Deferred tax liabilities:
Depreciation ................................. 3,078 2,356
Other ........................................ 75 40
------------ ------------
Total deferred tax liabilities ............... 3,153 2,396
------------ ------------
Net deferred liabilities ..................... $ 2,281 $ 1,624
============ ============
</TABLE>
5. COMMITMENTS
Construction in progress of $25.9 million at June 30, 1998 includes $23.1
million related to construction of the Company's new manufacturing facility in
McIntyre, Georgia. The new facility is scheduled to be fully operational in
the fourth quarter of 1998 at a total estimated cost of $41 million.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998
Revenues. Revenues for the second quarter 1998 were $23.8 million, an increase
of 14 percent over the second quarter 1997. The increase was due to a five
percent increase in sales volume, a slight switch in product mix favoring the
higher-priced, high strength products, and an increase in the average selling
price due to a price increase which was effective in January 1998. Domestic
sales volume was essentially unchanged from the previous year, while export
sales volume increased by 18 percent - with significant increases in Canada and
Mexico. The strength in natural gas drilling in North America continues to be
the driving force behind the increased sales of the Company.
Natural gas prices increased approximately six percent from the second quarter
1997. Natural gas drilling activity continued its increase over prior year
levels - with the second quarter 1998 about seven percent ahead of the
comparable period of 1997.
Gross Profit. Gross profit for the quarter was $11.9 million or 50 percent of
revenues as compared to $10.3 million or 50 percent of revenues for the second
quarter 1997. The effect of a price increase in January 1998 combined with a
reduction in manufacturing costs at the Company's New Iberia manufacturing
facility was offset by increased freight and packaging costs during the second
quarter 1998. The decrease in manufacturing costs was the result of a five
percent increase in throughput at New Iberia and lower maintenance costs. The
increase in freight and packaging is a direct result of the increase in export
sales volume and increased transportation costs due to Union Pacific railroad
traffic congestion related to movement of finished goods from the Eufaula
manufacturing facility to remote storage in San Antonio, Texas. The additional
costs related to railroad congestion are expected to continue throughout 1998.
Selling, General and Administrative Expenses (SG&A). SG&A expenses were $2.3
million for the second quarter 1998 and $2.1 million for the comparable period
in 1997. Expenses as a percentage of revenues were 10 percent for both
periods. Increases in actual expenses were primarily those associated with
increased sales volume - warehouse and shipping expenses, commission expenses,
and marketing expenses.
Six Months Ended June 30, 1998
Revenues. Revenues for the six months ended June 30, 1998 were $46.4 million,
an increase of 20 percent over the same period in 1997. The increase was due
to an 11 percent increase in sales volume, a shift in product mix towards more
of the higher-priced, high strength products, and the price increase effective
January 1998. Sales volume increased eight percent for the Company's
lightweight products and 19 percent for high strength products. Domestic sales
volume increased by four percent and export volume by 25 percent over the
comparable period in 1997.
Gross Profit. Gross profit for the six months ended June 30, 1998 was $23.4
million or 50 percent of revenues compared to $19.3 million or 50 percent of
revenues for the same period in 1997. The effect of the January 1998 price
increase combined with lower manufacturing costs at the New Iberia facility
were offset by higher freight and packaging costs on export sales and increased
transportation costs due to Union Pacific railroad traffic congestion.
Selling, General and Administrative Expenses (SG&A). SG&A expenses were $4.9
million for the first six months of 1998 compared to $4.1 million for the same
period in 1997. Expenses as a percentage of revenues were approximately 10.5
percent for both periods. Increases in actual expenses were those related to
increased sales volume - warehouse and shipping expenses, commission expenses,
and marketing expenses.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $14.7 million as of June 30, 1998, an
increase of $5.8 million from December 31, 1997. The increase in cash and cash
equivalents was due to cash generated from operations of $12.3 million and $12
million from maturities of U.S. government securities, net of capital spending
of $16.3 million and cash dividends of $2.2 million. As of June 30, 1998, the
Company held $2 million in investments expected to be held to maturity.
Capital spending of $16.3 million during the first six months of 1998 included
$15.2 million related to continuing construction of a new manufacturing
facility in McIntyre, Georgia. The Company plans to spend an additional $18
million for the completion of the new facility, with funding expected to be
provided by existing cash balances and cash generated from operations. The
Company believes that its existing credit agreement is sufficient to fund a
portion of its capital spending program if necessary.
9
<PAGE> 10
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
a. The Annual Meeting of Shareholders of Carbo Ceramics Inc. was held on
April 14, 1998.
b. The following matters were submitted to a vote at the meeting:
(1) the election of the following nominees as directors of Carbo Ceramics
Inc. The vote with respect to each nominee was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Dr. Claude E. Cooke, Jr. 12,898,929 11,100
William A. Griffin, Jr. 12,899,029 11,000
William C. Morris 12,899,029 11,000
John J. Murphy 12,898,929 11,100
Jesse P. Orsini 12,899,029 11,000
Robert S. Rubin 12,898,729 11,300
</TABLE>
(2) a recommendation of the Board of Directors that the shareholders
appoint the firm of Ernst & Young LLP as independent accountants to
audit the consolidated financial statements of Carbo Ceramics Inc. for
the year 1998. The vote on this matter was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
--- ------- -----------
<S> <C> <C> <C>
12,899,029 700 11,000
</TABLE>
ITEM 5. OTHER INFORMATION
None
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. There were no reports filed on Form 8-K during the three months ended
June 30, 1998.
b. Exhibits
27.1 Financial Data Schedule for the interim year to date period
ended June 30, 1998.
11
<PAGE> 12
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
Date: August 7, 1998
12
<TABLE> <S> <C>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,677
<SECURITIES> 1,950
<RECEIVABLES> 17,361
<ALLOWANCES> 0
<INVENTORY> 7,502
<CURRENT-ASSETS> 43,622
<PP&E> 60,104
<DEPRECIATION> 10,797
<TOTAL-ASSETS> 92,929
<CURRENT-LIABILITIES> 9,050
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 80,580
<TOTAL-LIABILITY-AND-EQUITY> 92,929
<SALES> 46,381
<TOTAL-REVENUES> 46,381
<CGS> 22,985
<TOTAL-COSTS> 22,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,333
<INCOME-TAX> 7,359
<INCOME-CONTINUING> 11,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,974
<EPS-PRIMARY> .82
<EPS-DILUTED> .81
</TABLE>
