-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WhDH6BZdR4YbUBoW3jVRdoK77ESbkH3X4H+rpaLRIm8vLnBSAcBi4q/3lkeThUGy +moSdKPYVo5PHb1ZRvGYAA== 0001009672-99-000004.txt : 19990505 0001009672-99-000004.hdr.sgml : 19990505 ACCESSION NUMBER: 0001009672-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARBO CERAMICS INC CENTRAL INDEX KEY: 0001009672 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 721100013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28178 FILM NUMBER: 99610379 BUSINESS ADDRESS: STREET 1: 600 EAST LAS COLINAS BLVD STREET 2: STE 1520 CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2144010090 MAIL ADDRESS: STREET 1: 600 E LAS COLINAS BLVD STREET 2: STE 1520 CITY: IRVING STATE: TX ZIP: 75039 10-Q 1 FORM 10-Q MARCH 31, 1999 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 $.01 per share, were outstanding. 2 CARBO CERAMICS INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - 3 March 31, 1999 (Unaudited) and December 31, 1998 Consolidated Statements of Income 4 (Unaudited) - Three months ended March 31, 1999 and 1998 Consolidated Statements of Cash Flows 5 (Unaudited) - Three months ended March 31, 1999 and 1998 Notes to Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial 8-10 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal proceedings 10 Item 2. Changes in securities 10 Item 3. Defaults upon senior securities 10 Item 4. Submission of matters to a vote of security-holders 10 Item 5. Other information 10 Item 6. Exhibits and reports on Form 8-K 10 Signatures 11 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARBO CERAMICS INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
MARCH 31, DECEMBER 31, 1999 1998 ------------ ------------ (Unaudited) 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 ============ ============
The accompanying notes are an integral part of these statements. 3 4 CARBO CERAMICS INC. CONSOLIDATED STATEMENTS OF INCOME ($ in thousands, except per share data) (Unaudited)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ------------ ------------ 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 ============ ============
The accompanying notes are an integral part of these statements. 4 5 CARBO CERAMICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) (Unaudited)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ------------ ------------ 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 ============ ============
The accompanying notes are an integral part of these statements. 5 6 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):
1999 1998 ---------- ---------- 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 ========== ==========
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 7 4. INCOME TAXES -- (CONTINUED)
March 31, December 31, 1999 1998 ------------ ------------ ($ in thousands) 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 ============ ============
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 8 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 9 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 10 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 11 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 EXHIBIT INDEX
Exhibit Method of Filing - ------- ----------------------------- 27.1 Financial Data Schedule Filed herewith electronically
EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 MAR-31-1999 219 0 14,687 0 8,986 25,470 93,731 12,479 106,722 13,078 0 0 0 146 90,127 106,722 20,078 20,078 10,076 10,076 0 0 32 6,406 2,307 4,099 0 0 0 4,099 .28 .28
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