-----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, ItOvFuyZhPR75mPVdU/9/sGoIq8TZIjIRz2mkYagtpkeir5qi9SbPOtNhTwhxLVt XwPyqMQb5UpjJVE1GmbXJA== 0001009672-98-000004.txt : 19981116 0001009672-98-000004.hdr.sgml : 19981116 ACCESSION NUMBER: 0001009672-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98749189 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 SEPTEMBER 30, 1998 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 SEPTEMBER 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 November 12, 1998, 14,602,000 shares of the registrant's Common Stock, par value $.01 per share, were outstanding. 2 CARBO CERAMICS INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - 3 September 30, 1998 (Unaudited) and December 31, 1997 Consolidated Statements of Income 4 (Unaudited) - Three and nine months ended September 30, 1998 and 1997 Consolidated Statements of Cash Flows 5 (Unaudited) - Nine months ended September 30, 1998 and 1997 Notes to Consolidated Financial Statements 6-7 (Unaudited) - September 30, 1998 Item 2. Management's Discussion and Analysis of Financial 8-10 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal proceedings 11 Item 2. Changes in securities 11 Item 3. Defaults upon senior securities 11 Item 4. Submission of matters to a vote of security-holders 11 Item 5. Other information 11 Item 6. Exhibits and reports on Form 8-K 11 Signatures 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARBO CERAMICS INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 DECEMBER 31, (UNAUDITED) 1997 ------------ ------------ ($ in thousands) ASSETS Current assets: Cash and cash equivalents $ 8,553 $ 8,899 Investment securities - 13,905 Trade accounts receivable 15,274 14,243 Inventories: Finished goods 3,867 4,347 Raw materials and supplies 4,701 4,034 ------------ ------------ Total inventories 8,568 8,381 Prepaid expenses and other current assets 929 661 Deferred income taxes 922 772 ------------ ------------ Total current assets 34,246 46,861 Property, plant and equipment: Land and land improvements 459 214 Buildings 4,613 4,536 Machinery and equipment 30,707 27,773 Construction in progress 38,331 11,382 ------------ ------------ Total 74,110 43,905 Less accumulated depreciation 11,341 9,812 ------------ ------------ Net property, plant and equipment 62,769 34,093 ------------ ------------ Total assets $ 97,015 $ 80,954 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,761 $ 2,131 Accrued payroll and benefits 2,425 2,448 Accrued freight 1,009 851 Accrued utilities 462 422 Accrued income taxes 916 1,018 Other accrued expenses 927 746 ------------ ------------ Total current liabilities 8,500 7,616 Deferred income taxes 3,518 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 41,932 27,877 ------------ ------------ Total shareholders' equity 84,997 70,942 ------------ ------------ Total liabilities and shareholders' equity $ 97,015 $ 80,954 ============ ============
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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues $ 22,013 $ 23,062 $ 68,394 $ 61,795 Cost of goods sold 10,775 11,593 33,760 30,986 ----------- ----------- ----------- ----------- Gross profit 11,238 11,469 34,634 30,809 Selling, general and administrative expenses 2,706 2,255 7,563 6,356 ----------- ----------- ----------- ----------- Operating profit 8,532 9,214 27,071 24,453 Other income (expense): Interest income, net 164 230 741 672 Other, net (37) 22 180 31 ----------- ----------- ----------- ----------- 127 252 921 703 ----------- ----------- ----------- ----------- Income before income taxes 8,659 9,466 27,992 25,156 Income taxes 3,293 3,527 10,652 9,182 ----------- ----------- ----------- ----------- Net income $ 5,366 $ 5,939 $ 17,340 $ 15,974 =========== =========== =========== =========== Earnings per share: Basic $ 0.37 $ 0.41 $ 1.19 $ 1.09 =========== =========== =========== =========== Diluted $ 0.36 $ 0.40 $ 1.17 $ 1.09 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 4 5 CARBO CERAMICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ---------- ---------- ($ IN THOUSANDS) OPERATING ACTIVITIES Net income $ 17,340 $ 15,974 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,587 1,447 Deferred income taxes 972 276 Changes in operating assets and liabilities: Trade accounts receivable (1,031) (2,753) Inventories (187) (748) Prepaid expenses and other current assets (268) (633) Accounts payable 630 1,131 Accrued payroll and benefits (23) 32 Accrued freight 158 651 Accrued utilities 40 114 Accrued income taxes (102) 149 Other accrued expenses 181 208 ---------- ---------- Net cash provided by operating activities 19,297 15,848 INVESTING ACTIVITIES Maturities of investment securities 13,905 - Purchases of property, plant and equipment (30,263) (4,966) ---------- ---------- Net cash used in investing activities (16,358) (4,966) FINANCING ACTIVITIES Dividends paid (3,285) (3,285) ---------- ---------- Net cash used in financing activities (3,285) (3,285) ---------- ---------- Net increase (decrease) in cash and cash equivalents (346) 7,597 Cash and cash equivalents at beginning of period 8,899 17,414 ---------- ---------- Cash and cash equivalents at end of period $ 8,553 $ 25,011 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid $ 9,782 $ 8,758 ========== ==========
The accompanying notes are an integral part of these statements. 5 6 CARBO CERAMICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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 July 14, 1998, the Board of Directors declared a cash dividend of $0.075 per common share payable to shareholders of record on July 31, 1998. The dividend was paid on August 17, 1998. 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share ($ in thousands, except per share data):
Three months ended Nine months ended September 30, September 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Numerator for basic and diluted earnings per share: Net income ........................................ $ 5,366 $ 5,939 $ 17,340 $ 15,974 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 .......................... 156,818 179,058 186,413 112,598 ----------- ----------- ----------- ----------- Dilutive potential common shares .................. 156,818 179,058 186,413 112,598 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share-- adjusted weighted-average shares ................ 14,758,818 14,781,058 14,788,413 14,714,598 =========== =========== =========== =========== Basic earnings per share ............................. $ 0.37 $ 0.41 $ 1.19 $ 1.09 =========== =========== =========== =========== Diluted earnings per share ........................... $ 0.36 $ 0.40 $ 1.17 $ 1.09 =========== =========== =========== ===========
6 7 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 September 30, 1998 and December 31, 1997 are as follows:
September 30, December 31, 1998 1997 ------------ ------------ Deferred tax assets: ($ in thousands) Employee benefits ............................ $ 401 $ 271 Inventories .................................. 362 377 Other ........................................ 159 124 ------------ ------------ Total deferred tax assets .................... 922 772 Deferred tax liabilities: Depreciation ................................. 3,439 2,356 Other ........................................ 79 40 ------------ ------------ Total deferred tax liabilities ............... 3,518 2,396 ------------ ------------ Net deferred liabilities ..................... $ 2,596 $ 1,624 ============ ============
5. COMMITMENTS Construction in progress of $38.3 million at September 30, 1998 includes $37 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 first quarter of 1999 at a total estimated cost of $49 million. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended September 30, 1998 Revenues. Revenues for the third quarter 1998 were $22 million, a decrease of five percent from the third quarter 1997. The decrease was due to a three percent decrease in sales volume and a switch in product mix toward the lower-priced, lightweight products. The effect of the decrease in volume was partially offset by an increase in the average selling price due to a price increase that was effective in January 1998. Domestic sales volume was down by six percent from the previous year, while export sales volume increased by four percent - with continued strength in the Canadian and Mexican markets. The Company's financial results were impacted by decreased drilling activity for natural gas and oil. As of September 30, 1998, spot oil prices were down 30 percent from the previous year and the international rig count was 22 percent lower than a year earlier. In North America, natural gas prices decreased approximately 17 percent from the third quarter and the number of rigs drilling for natural gas declined by six percent from the comparable period a year earlier. Gross Profit. Gross profit for the quarter was $11.2 million or 51 percent of revenues as compared to $11.5 million or 50 percent of revenues for the third quarter 1997. The improvement in gross profit margins was the result of a price increase in January 1998, combined with a reduction in manufacturing costs at the Company's Eufaula, Alabama manufacturing facility (Eufaula). The reduction in manufacturing costs was the result of a seven percent increase in throughput. There was 100 percent utilization of the facility during the third quarter 1998, in contrast to the third quarter 1997 when Eufaula experienced 23 days of downtime for mechanical repairs. Also during the third quarter 1998, the Company experienced some easing of the higher transportation costs related to Union Pacific railroad traffic congestion for movement of finished goods from Eufaula to remote storage in San Antonio, Texas. Selling, General and Administrative Expenses (SG&A). SG&A expenses were $2.7 million for the third quarter 1998 (12 percent of revenues) and $2.3 million for the comparable period in 1997 (10 percent of revenues). The increase in expenses was primarily attributable to expenses incurred in connection with the start-up of our McIntyre production facility and increased legal fees. Nine Months Ended September 30, 1998 Revenues. Revenues for the nine months ended September 30, 1998 were $68.4 million, an increase of 11 percent over the same period in 1997. The increase was due to a six percent increase in sales volume, a shift in product mix towards more of the higher-priced, high strength products during the first half of the year, and the price increase effective January 1998. Sales volume increased five percent for the Company's lightweight products and eight percent for high strength products. Domestic sales volume remained essentially flat, while export volume increased by 17 percent over the comparable period in 1997. Gross Profit. Gross profit for the nine months ended September 30, 1998 was $34.6 million or 51 percent of revenues compared to $30.8 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 somewhat 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 $7.6 million for the nine months ended September 30, 1998 (11 percent of revenues) and $6.4 million for the same period in 1997 (10 percent of revenues). Expenses increased primarily as a result of start-up expenses for the McIntyre production facility and an increase in marketing activity in anticipation of the increased capacity that will be available for sale following completion of the new plant. Legal fees also increased by $317,000 versus the previous year due to costs associated with international expansion and the mediation of a legal dispute with our primary competitor. 8 9 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $8.6 million as of September 30, 1998, a decrease of $0.3 million from December 31, 1997. $30.2 million of capital spending and cash dividends of $3.3 million offset cash generated from operations of $19.3 million and $13.9 million from maturities of U.S. government securities. Capital spending of $30.2 million during the first nine months of 1998 included $29.1 million related to continuing construction of a new manufacturing facility in McIntyre, Georgia. The Company plans to spend an additional $12 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. THE YEAR 2000 General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to engage in normal business activities. Based on recent assessments, the Company determined that it will be required to replace some of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, 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'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 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) also are at risk. Affected systems include automated process control equipment used in various aspects of the manufacturing process. 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. In addition, the Company is gathering information about the Year 2000 compliance status of its significant suppliers and subcontractors and will continue to monitor their compliance. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase. For its information technology exposures, to date the Company is 78 percent complete on the remediation phase and expects to complete software replacement during the first quarter of 1999. Once software is replaced for a system, the Company begins testing and implementation. These phases run concurrently for different systems. To date, the Company has completed 72 percent of its testing and has implemented 70 percent of its remediated systems. Completion of the testing phase for all significant systems is expected by March 31, 1999, with all remediated systems fully tested and implemented by June 30, 1999, with 100 percent completion targeted for September 30, 1999. The remediation of operating equipment is significantly less difficult than the remediation of 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 March 31, 1999. Nature and Level of Importance of Third Parties and their Exposure to the Year 2000. Currently, the Company has no direct interfaces with third parties. The Company is in the process of surveying 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. 9 10 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. The effect of non-compliance by external agents is not determinable. Costs. The Company will utilize both internal and external resources to reprogram, or replace, test, and implement the software and operating equipment for the Year 2000 modifications. The total cost of the Year 2000 project is estimated at $106,000 and is being funded through operating cash flows. Costs to replace the general ledger, billing, and inventory systems were excluded from the estimate because the decision to replace those systems was not accelerated by the Year 2000. To date, the Company has incurred approximately $15,000, which was entirely capitalized for new systems. The remaining project costs are attributable to the purchase of new software and operating equipment that will be capitalized. Risks. 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. Contingency Plans. 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. 10 11 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 a. There were no reports filed on Form 8-K during the three months ended September 30, 1998. b. Exhibits 27.1 Financial Data Schedule for the interim year to date period ended September 30, 1998. 11 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: November 13, 1998 12
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 9-MOS DEC-31-1998 SEP-30-1998 8,553 0 15,274 0 8,568 34,246 74,110 11,341 97,015 8,500 0 0 0 146 84,851 97,015 68,394 68,394 33,760 33,760 0 0 0 27,992 10,652 17,340 0 0 0 17,340 1.19 1.17
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