<PAGE> 1
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 MARCH 31, 1999
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 May 3, 1999, 14,602,000 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding.
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CARBO CERAMICS INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - 3
March 31, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Income 4
(Unaudited) - Three months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows 5
(Unaudited) - Three months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 10
Item 2. Changes in securities 10
Item 3. Defaults upon senior securities 10
Item 4. Submission of matters to a vote of security-holders 10
Item 5. Other information 10
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 219 $ 622
Trade accounts receivable 14,687 11,300
Inventories:
Finished goods 4,355 5,795
Raw materials and supplies 4,631 4,432
------------ ------------
Total inventories 8,986 10,227
Prepaid expenses and other current assets 623 614
Deferred income taxes 955 1,020
------------ ------------
Total current assets 25,470 23,783
Property, plant and equipment:
Land and land improvements 459 459
Buildings 4,613 4,613
Machinery and equipment 31,059 30,772
Construction in progress 57,600 51,709
------------ ------------
Total 93,731 87,553
Less accumulated depreciation 12,479 11,909
------------ ------------
Net property, plant and equipment 81,252 75,644
------------ ------------
Total assets $ 106,722 $ 99,427
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 4,654 $ -
Accounts payable 2,236 3,634
Accrued payroll and benefits 1,377 2,609
Accrued freight 927 792
Accrued utilities 368 350
Accrued income taxes 2,652 266
Other accrued expenses 864 987
------------ ------------
Total current liabilities 13,078 8,638
Deferred income taxes 3,371 3,520
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 47,208 44,204
------------ ------------
Total shareholders' equity 90,273 87,269
------------ ------------
Total liabilities and shareholders' equity $ 106,722 $ 99,427
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 20,078 $ 22,617
Cost of goods sold 10,076 11,100
------------ ------------
Gross profit 10,002 11,517
Selling, general and administrative expenses 3,565 2,508
------------ ------------
Operating profit 6,437 9,009
Other income (expense):
Interest, net (32) 317
Other, net 1 29
------------ ------------
(31) 346
------------ ------------
Income before income taxes 6,406 9,355
Income taxes 2,307 3,563
------------ ------------
Net income $ 4,099 $ 5,792
============ ============
Earnings per share:
Basic $ 0.28 $ 0.40
============ ============
Diluted $ 0.28 $ 0.39
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,099 $ 5,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 570 524
Deferred income taxes (84) 343
Changes in operating assets and liabilities:
Trade accounts receivable (3,387) (2,146)
Inventories 1,241 (342)
Prepaid expenses and other current assets (9) (341)
Accounts payable 470 316
Accrued payroll and benefits (1,232) (963)
Accrued freight 135 118
Accrued utilities 18 (27)
Accrued income taxes 2,386 2,962
Other accrued expenses (123) 281
------------ ------------
Net cash provided by operating activities 4,084 6,517
INVESTING ACTIVITIES
Maturities of investment securities - 2,995
Purchases of property, plant and equipment (8,046) (6,281)
------------ ------------
Net cash used in investing activities (8,046) (3,286)
FINANCING ACTIVITIES
Proceeds from bank borrowings 6,454 -
Repayments on bank borrowings (1,800) -
Dividends paid (1,095) (1,095)
------------ ------------
Net cash provided by (used in) financing activities 3,559 (1,095)
------------ ------------
Net increase (decrease) in cash and cash equivalents (403) 2,136
Cash and cash equivalents at beginning of period 622 8,899
------------ ------------
Cash and cash equivalents at end of period $ 219 $ 11,035
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 32 $ -
============ ============
Income taxes paid $ 5 $ 258
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
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CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 1998 included in the Company's Form 10-K Annual Report for the
year ended December 31, 1998.
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 January 13, 1999, the Board of Directors declared a cash dividend of
$0.075 per common share payable to shareholders of record on January 29, 1999.
The dividend was paid on February 15, 1999.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and 1998 ($ in
thousands, except share and per share data):
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $ 4,099 $ 5,792
Denominator:
Denominator for basic earnings per share--
weighted-average shares 14,602,000 14,602,000
Effect of dilutive securities:
Employee stock options 1,107 177,885
---------- ----------
Dilutive potential common shares 1,107 177,885
---------- ----------
Denominator for diluted earnings per share--
adjusted weighted-average shares 14,603,107 14,779,885
========== ==========
Basic earnings per share $ 0.28 $ 0.40
========== ==========
Diluted earnings per share $ 0.28 $ 0.39
========== ==========
</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 are
as follows:
6
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4. INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
($ in thousands)
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 343 $ 436
Inventories 405 356
Other 207 228
------------ ------------
Total deferred tax assets 955 1,020
Deferred tax liabilities:
Depreciation 3,218 3,359
Other 153 161
------------ ------------
Total deferred tax liabilities 3,371 3,520
------------ ------------
Net deferred liabilities $ 2,416 $ 2,500
============ ============
</TABLE>
5. BANK BORROWINGS
The Company borrowed against its Secured Revolving Credit Agreement
during the first quarter of 1999 at a weighted-average interest rate of 7.86%.
The balance outstanding at March 31, 1999 was $4,654,000.
6. COMMITMENTS
Construction in progress of $57.6 million at March 31, 1999 includes
$55.6 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 second quarter of 1999 at a total estimated cost of $58
million.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999
REVENUES. Revenues for the first quarter 1999 were $20.1 million, an 11%
reduction from the first quarter 1998. The decrease was due to a 7% reduction
in sales volume and a decrease in the average selling price of our high-
strength products (CARBOHSP-TM- and CARBOPROP-Registered Trademark-) due to
competitive pressures in South Texas. While domestic sales volume decreased
by 15% versus the previous year due to decreased drilling activity associated
with low oil prices, export sales volume increased by 7% due to the increasing
development of natural gas reserves outside of North America.
Average natural gas prices in the U.S. declined by 17% from the first quarter
1998 and the number of rigs drilling for natural gas in the U.S. was 28% lower
than the same period a year earlier. Despite the reduction in domestic
natural gas drilling activity over the last six months, management believes
that the long-term worldwide demand for natural gas will continue to increase
due to the abundance, relatively low cost and environmental benefits of
natural gas as a source of energy.
GROSS PROFIT. Gross profit for the quarter was $10.0 million or 50% of sales
as compared to $11.5 million or 51% of sales for the first quarter 1998. The
decrease in gross profit was due to decreased sales volume, the price
reduction on high-strength products and increased manufacturing costs at both
the New Iberia and Eufaula manufacturing facilities due to lower production
rates. These unfavorable changes were partially offset by a reduction in the
freight costs of transporting product from the Eufaula facility to remote
storage in San Antonio, Texas due to an improvement in rail service which had
been adversely affected by the merger of the Southern Pacific and Union
Pacific railroads.
Beginning in the second quarter of 1999, gross profit and gross profit margins
will likely decrease due to the impact of starting up the Company's new
manufacturing facility in McIntyre, Georgia. It is the Company's expectation
that all of its manufacturing facilities will operate at less than full
capacity during the startup phase of the McIntyre plant. In addition, the
Company expects to begin depreciating the McIntyre facility during the second
quarter of 1999 at the rate of approximately $1.2 million per quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A expenses were $3.6
million for the first quarter 1999 and $2.5 million for the corresponding
period of 1998. Expenses as a percentage of sales increased from 11.1% in the
first quarter 1998 to 17.8% for the corresponding period in 1999. The
increased costs were due to research and development activities related to the
development of products for the foundry industry, increased spending related
to the start-up of a new manufacturing facility in McIntyre, Georgia, and the
write-off of a portion of the receivables due from Fracmaster, Ltd., which has
experienced financial difficulties and has obtained a court order under the
Companies Creditors Arrangement Act.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $0.2 million as of March 31, 1999, a
decrease of $0.4 million from December 31, 1998. The decrease in cash and
cash equivalents was due to cash generated from operations of $4.1 million,
net borrowings against the Company's line of credit of $4.7 million, net of
capital spending of $8.0 million and cash dividends of $1.1 million. Total
borrowings under the Company's line of credit as of March 31, 1999 were $4.7
million.
Capital spending of $8.0 million during the first quarter 1999 included $7.5
million related to continuing construction of a new manufacturing facility in
McIntyre, Georgia. The Company plans to spend an additional $2.4 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 existing cash balances and cash generated from operations will
be sufficient to fund its operations, dividend and capital spending
requirements through 1999.
8
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IMPACT OF YEAR 2000
Many currently installed computer systems and software products are coded to
accept, store or report only two digit entries in date code fields. Beginning
in the Year 2000, these date code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. This is
the "Year 2000 Issue". As a result, computer systems and software used by
many companies will need to be upgraded to comply with Year 2000 requirements.
The Company could be impacted by year 2000 Issues occurring in its own
infrastructure or faced by its major suppliers, customers, vendors and
financial service organizations. Such Year 2000 Issues could include
information errors, significant information system failures, or failures of
equipment, vendors, suppliers or customers. Any disruption in the Company's
operations as a result of Year 2000 Issues, whether by the Company or a third
party, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has determined that it will be required to modify or replace some
of its software and certain hardware so that the Company's systems will
properly recognize dates beyond December 31, 1999. The Company presently
believes that with modifications or replacement of existing software and
certain hardware, the Year 2000 Issue can be mitigated but that if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company will utilize both internal and external resources to test and
reprogram, replace, or upgrade its software and operating equipment for the
Year 2000 modifications. The total cost of the Year 2000 project is estimated
at $106,000 and is expected to be funded through operating cash flows. To
date, the Company has incurred approximately $18,000 of these anticipated
expenses, all of which were for new hardware and software systems, which were
capitalized. The remaining project costs are attributable to the purchase of
new software and operating equipment that will be capitalized.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all systems that could be
significantly affected by the Year 2000. The completed assessment indicated
that some of the Company's significant information technology systems could be
affected. However, the major administrative systems (including the general
ledger, billing, and inventory systems) have already been replaced by a Year
2000 compliant system. The assessment also indicated that software and
hardware (embedded chips) used in production and manufacturing systems
(hereafter also referred to as operating equipment) could also be at risk.
Based on a review of its product line, the Company has determined that all of
the products it has sold and will continue to sell are inert and do not
require remediation to be Year 2000 compliant. Accordingly, the Company does
not believe that the Year 2000 presents a material exposure as it relates to
the Company's products. The Company has gathered information about the Year
2000 compliance status of its significant suppliers and subcontractors and
will continue to monitor their compliance.
To date, the Company has completed approximately 81 percent of the remediation
phase for its information technology systems and expects to complete software
replacement during the second quarter of 1999. The Company has completed 76
percent of its testing and has implemented 75 percent of its Year 2000
compliant systems. Completion of the testing phase for all significant
systems is expected by June 30, 1999, with all remediated systems expected to
be fully tested and implemented by September 30, 1999.
The remediation of operating equipment is significantly less difficult than
the remediation of the information technology systems because there are
minimal automated systems in the manufacturing process. The Company is 20
percent complete in the remediation phase of its operating equipment and
expects to complete its testing and implementation efforts by June 30, 1999.
Currently, the Company has no direct interfaces with third parties. The
Company has surveyed its significant suppliers and subcontractors (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of
ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company, although the effect of non-
compliance by external agents is not determinable.
9
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Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, the Company
could be unable to manufacture some products. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among
other actions, manual workarounds, increasing inventories, and adjusting
staffing strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 26, 1999, the Company was served with a U.S. federal grand jury
subpoena requesting the production of documents in connection with an
investigation by the Antitrust Division of the U.S. Department of Justice of
possible anti-competitive activity in the proppants industry. It is not
possible at this time to predict how this investigation will proceed or the
effect, if any, of its ultimate outcome on the Company.
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
a. There were no reports filed on Form 8-K during the three months ended
March 31, 1999.
b. Exhibits
27.1 Financial Data Schedule for the interim year to date period ended
March 31, 1999
10
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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/ JESSE P. ORSINI
-------------------------
Jesse P. Orsini
President
& Chief Executive Officer
/s/ PAUL G. VITEK
-------------------------
Paul G. Vitek
Vice President, Finance
Date: May 3, 1999
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- -----------------------------
<C> <S> <C>
27.1 Financial Data Schedule Filed herewith electronically
</TABLE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 219
<SECURITIES> 0
<RECEIVABLES> 14,687
<ALLOWANCES> 0
<INVENTORY> 8,986
<CURRENT-ASSETS> 25,470
<PP&E> 93,731
<DEPRECIATION> 12,479
<TOTAL-ASSETS> 106,722
<CURRENT-LIABILITIES> 13,078
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 90,127
<TOTAL-LIABILITY-AND-EQUITY> 106,722
<SALES> 20,078
<TOTAL-REVENUES> 20,078
<CGS> 10,076
<TOTAL-COSTS> 10,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 6,406
<INCOME-TAX> 2,307
<INCOME-CONTINUING> 4,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,099
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
