e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 001-15903
CARBO Ceramics Inc.
(Exact name of registrant as
specified in its charter)
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DELAWARE
(State or other jurisdiction
of
incorporation or organization)
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72-1100013
(I.R.S. Employer
Identification Number)
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575 North Dairy Ashford
Suite 300
Houston, Texas 77079
(Address of principal executive
offices)
(281) 921-6400
(Registrants telephone
number)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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New York Stock Exchange
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Preferred Stock Purchase Rights
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act:
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the closing sale
price of the Common Stock on June 30, 2009, as reported on
the New York Stock Exchange, was approximately $547,242,237.
Shares of Common Stock held by each executive officer and
director and by each person who owns 10% or more of the
outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
As of February 23, 2010, the Registrant had
23,123,943 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrants Annual
Meeting of Shareholders to be held May 18, 2010, are
incorporated by reference in Part III.
PART I
General
CARBO Ceramics Inc. (the Company) is the
worlds largest supplier of ceramic proppant, the provider
of the worlds most popular fracture simulation software,
and provides fracture design and consulting services. The
Company also provides a broad range of technologies for spill
prevention, containment and geotechnical monitoring. On
October 10, 2008, the Company completed the sale of its
fracture and reservoir diagnostics business. Because of the
transaction, the results of this business have been accounted
for as discontinued operations. Continuing operations include
the Companys ceramic proppant, software, consulting
services, spill prevention and containment and geotechnical
monitoring businesses. The Company sells the majority of its
products and services to operators of oil and natural gas wells
and to oilfield service companies to help increase the
production rates and the amount of oil and natural gas
ultimately recoverable from these wells. The Companys
products and services are primarily used in the hydraulic
fracturing of natural gas and oil wells. The Company was
incorporated in 1987 in Delaware.
Hydraulic fracturing is the most widely used method of
increasing production from oil and natural gas wells. The
hydraulic fracturing process consists of pumping fluids down a
natural gas or oil well at pressures sufficient to create
fractures in the hydrocarbon-bearing rock formation. A granular
material, called proppant, is suspended and transported in the
fluid and fills the fracture, propping it open once
high-pressure pumping stops. The proppant-filled fracture
creates a permeable channel through which the hydrocarbons can
flow more freely from the formation to the well and then to the
surface.
There are three primary types of proppant that can be utilized
in the hydraulic fracturing process: sand, resin-coated sand and
ceramic. Sand is the least expensive proppant, resin-coated sand
is more expensive and ceramic proppant is typically the most
expensive. The higher initial cost of ceramic proppant is
justified by the fact that the use of these proppants in certain
well conditions results in an increase in the production rate of
oil and natural gas, an increase in the total oil or natural gas
that can be recovered from the well and, consequently, an
increase in cash flow for the operators of the well. The
increased production rates are primarily attributable to the
higher strength and more uniform size and shape of ceramic
proppant versus alternative materials.
The Company primarily manufactures five distinct ceramic
proppants. The Company has historically pursued a strategy of
introducing new products that expand the market for ceramic
proppants relative to sand-based proppants.
CARBOHSP®
and
CARBOPROP®
are high strength proppants designed primarily for use in deep
gas wells.
CARBOHSP®
has the highest strength of any of the ceramic proppants
manufactured by the Company and is used primarily in the
fracturing of deep gas wells.
CARBOPROP®
is slightly lower in weight and strength than
CARBOHSP®
and was developed for use in deep gas wells that do not require
the strength of
CARBOHSP®.
CARBOLITE®,
CARBOECONOPROP®
and
CARBHYDROPROP®
are lightweight ceramic proppants.
CARBOLITE®
is used in medium depth oil and gas wells, where the additional
strength of ceramic proppant may not be essential, but where
higher production rates can be achieved due to the
products uniform size and spherical shape.
CARBOECONOPROP®
was introduced in 1992 to compete directly with sand-based
proppant, and
CARBOHYDROPROP®
was introduced in late 2007 to improve performance in
slickwater fracture treatments.
During the year ended December 31, 2009, the Company
generated approximately 76% of its revenues in the United States
and 24% in international markets.
The Company also sells fracture simulation software and provides
fracture design, engineering and consulting services to oil and
natural gas companies worldwide through its wholly-owned
subsidiary, StrataGen, Inc. The Company provides a suite of
stimulation software solutions to the industry that have marked
capabilities for
on-site
real-time analysis. This has enabled recognition and remediation
of potential stimulation problems. This stimulation software is
tightly integrated with reservoir simulators, thus allowing for
stimulation treatment and production optimization. The
Companys specialized engineering team consults and works
with operators around the world to help optimize well placement,
fracture treatment design and production stimulation. The broad
range of
1
expertise of the Companys consultants includes: fracture
treatment design; completion engineering support;
on-site
treatment supervision, engineering and quality control;
post-treatment evaluation and optimization; reservoir and
fracture engineering studies; rock mechanics and software
application and training.
Demand for most of the Companys products and services
depends primarily upon the demand for natural gas and oil and on
the number of natural gas and oil wells drilled, completed or
re-completed worldwide. More specifically, the demand for the
Companys products and services is dependent on the number
of oil and natural gas wells that are hydraulically fractured to
stimulate production.
The Company also provides a broad range of technologies for
spill prevention and containment and geotechnical monitoring
through its wholly owned subsidiaries Falcon Technologies and
Services, Inc. (Falcon Technologies) and Applied
Geomechanics, Inc. (AGI). AGI provides monitoring
systems and services for bridges, buildings, tunnels, dams,
slopes, embankments, volcanoes, landslides, mines and
construction projects around the world. It serves a wide
spectrum of customers in markets ranging from auto racing teams
to surveyors, experimental physicists, radio astronomers and
naval architects.
On October 2, 2009, Falcon Technologies purchased
substantially all of the assets of BBL Falcon Industries, Ltd.,
a supplier of spill prevention and containment systems for the
oil and gas industry. The acquisition broadened the
Companys product and service offerings to its existing
client base. Falcon Technologies uses proprietary technology to
provide solutions that are designed to enable its clients to
extend the life of their storage assets, reduce the potential
for hydrocarbon spills and provide containment of stored
materials.
Competition
One of the Companys largest worldwide proppant competitors
is Saint-Gobain Proppants (Saint-Gobain).
Saint-Gobain Proppants is a division of Compagnie de
Saint-Gobain, a large French glass and materials company.
Saint-Gobain manufactures a variety of ceramic proppants that it
markets in competition with each of the Companys products.
Saint-Gobains primary manufacturing facility is located in
Fort Smith, Arkansas. Saint-Gobain also manufactures
ceramic proppant in China and Venezuela. Mineracao Curimbaba
(Curimbaba), based in Brazil, is also a large
competitor and manufactures ceramic proppants that it markets in
competition with some of the Companys products.
There are two major manufacturers of ceramic proppant in Russia.
Borovichi Refractory Plant (Borovichi) located in
Borovichi, Russia, and FORES Refractory Plant
(FORES) located in Ekaterinburg, Russia. Although
the Company has limited information about Borovichi and FORES,
the Company believes that Borovichi primarily manufactures
intermediate strength ceramic proppants and markets its products
principally within Russia, and that FORES manufactures
intermediate strength and lightweight ceramic proppant lines.
The Company further believes that these companies have added
manufacturing capacity in recent years and now provide a
majority of the ceramic proppant used in Russia. FORES also
exports a small percentage of its proppant for sales in North
America. The Company is also aware of an increasing number of
manufacturers in China. Most of these companies produce
intermediate strength ceramic proppants that are marketed
primarily in China.
Competition for
CARBOHSP®
and
CARBOPROP®
principally includes ceramic proppant manufactured by
Saint-Gobain and Curimbaba. The Companys
CARBOLITE®,
CARBOECONOPROP®
and
CARBOHYDROPROP®
products compete primarily with ceramic proppant produced by
Saint-Gobain and Curimbaba and with sand-based proppant for use
in the hydraulic fracturing of medium depth natural gas and oil
wells. The leading suppliers of mined sand are Unimin Corp.,
Badger Mining Corp., Fairmount Minerals Limited, Inc., and
Ogelbay-Norton Company. The leading suppliers of resin-coated
sand are Hexion Specialty Chemicals, Inc. and Santrol, a
subsidiary of Fairmount Minerals.
The Company believes that the most significant factors that
influence a customers decision to purchase the
Companys ceramic proppant are (i) price/performance
ratio, (ii) on-time delivery performance,
(iii) technical support and (iv) proppant
availability. The Company believes that its products are
competitively priced and that its delivery performance is
excellent. The Company also believes that its superior technical
support has enabled it to persuade customers to use ceramic
proppant in an increasingly broad range of applications and thus
increased the overall market for the Companys products.
Since 1993, the Company has consistently expanded its
manufacturing
2
capacity and plans to continue its strategy of adding capacity,
as needed, to meet anticipated future increases in sales demand.
The Company continually conducts testing and development
activities with respect to alternative raw materials to be used
in the Companys existing and alternative production
methods. The Company is actively involved in the development of
alternative products for use as proppant in the hydraulic
fracturing process and is aware of others engaged in similar
development activities. The Company believes that while there
are potential specialty applications for these products, they
will not significantly impact the use of ceramic proppants. The
Company believes that the know-how and trade secrets
necessary to efficiently manufacture a product of consistently
high quality are difficult barriers to entry to overcome.
Customers
and Marketing
The Companys largest customers are, in alphabetical order,
BJ Services Company, Halliburton Energy Services, Inc. and
Schlumberger Limited, three of the largest participants in the
worldwide petroleum pressure pumping industry. These companies
collectively accounted for approximately 73% and 72% of the
Companys 2009 and 2008 revenues, respectively. However,
the end users of the Companys products are the operators
of natural gas and oil wells that hire the pressure pumping
service companies to hydraulically fracture wells. The Company
works both with the pressure pumping service companies and
directly with the operators of natural gas and oil wells to
present the technical and economic advantages of using ceramic
proppant. The Company generally supplies its customers with
products on a
just-in-time
basis, as specified in individual purchase orders. Continuing
sales of product depend on the Companys direct customers
and the well operators being satisfied with product quality,
availability and delivery performance. The Company provides its
software simulation products and consulting services directly to
owners
and/or
operators of oil and gas wells.
The Company recognizes the importance of a technical marketing
program in demonstrating long-term economic advantages when
selling products and services that offer financial benefits over
time. The Company has a broad technical sales force to advise
end users on the benefits of using ceramic proppant and
performing fracture simulation and consultation services.
Although the Companys products have historically been used
in deep wells that require high-strength proppant, the Company
believes that there is economic benefit to well operators of
using ceramic proppant in shallower wells that do not
necessarily require a high-strength proppant. The Company
believes that its new product introductions and education-based
technical marketing efforts have allowed it to capture a greater
portion of the market for sand-based proppant in recent years
and will continue to do so in the future.
The Company provides a variety of technical support services and
has developed computer software that models the return on
investment achievable by using the Companys ceramic
proppant versus alternatives in the hydraulic fracturing of a
natural gas or oil well. In addition to the increased technical
marketing effort, the Company from time to time engages in
large-scale field trials to demonstrate the economic benefits of
its products and validate the findings of its computer
simulations. Periodically, the Company provides proppant to
production companies for field trials, on a discounted basis, in
exchange for a production companys agreement to provide
production data for direct comparison of the results of
fracturing with ceramic proppant as compared to alternative
proppants.
The Companys international marketing efforts are conducted
primarily through its sales offices in Dubai, United Arab
Emirates; Aberdeen, Scotland; Beijing, China; and Moscow,
Russia, and through commissioned sales agents located in South
America and China. The Companys products and services are
used worldwide by U.S. customers operating domestically and
abroad, and by foreign customers. Sales outside the United
States accounted for 24%, 29% and 36% of the Companys
sales for 2009, 2008 and 2007, respectively. The decrease in the
proportion of international sales is primarily attributable to
increased imports of products to the U.S. as well as
3
expanded production capacities in the U.S. The distribution
of the Companys international and domestic revenues is
shown below, based upon the region in which the customer used
the products and services:
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For the Years Ended December 31,
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2009
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2008
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2007
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($ in millions)
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Location
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United States
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$
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258.5
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$
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273.8
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$
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191.6
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International
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83.4
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114.0
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108.4
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Total
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$
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341.9
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$
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387.8
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$
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300.0
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Production
Capacity
The Company believes that constructing adequate capacity ahead
of demand while incorporating new technology to reduce
manufacturing costs are important competitive strategies to
increase its overall share of the market for proppant.
In early 2006, the Company completed construction of a
manufacturing facility in Toomsboro, Georgia. A second
production line at this facility was completed in the fourth
quarter of 2007 and commenced operations in January 2008. The
plant is designed to accommodate future expansion to a capacity
of up to one billion pounds per year through the construction of
two additional production lines. The addition of subsequent
lines will be dependent on the expected future demand for the
Companys products. The Company is currently working on the
construction of a third production line, with a production
capacity of 250 million pounds per year, in Toomsboro and
anticipates that it will be completed near the end of 2010.
In the fourth quarter of 2007, the Company announced its plan to
idle ceramic proppant production at its New Iberia facility
originally constructed in 1978. The Companys decision to
idle production at this facility was based on the rising cost of
imported raw material and the small scale of the New Iberia
facility. During the fourth quarter of 2008, the Company
re-started ceramic proppant production at New Iberia due to
increased demand for certain specialty products that could be
produced at this location with minimal engineering modifications
to the facility. In July 2009, the Company once again idled
ceramic proppant manufacturing operations at its New Iberia
facility. The facility continues to function as a distribution
center and the Company has built a resin coating plant within
the existing manufacturing infrastructure of the facility. The
resin coating plant, which began production in 2010, is utilized
to coat proppant manufactured at other locations.
The following table sets forth the current capacity of each of
the Companys existing manufacturing facilities:
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Annual
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Location
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Capacity
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(Millions of pounds)
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New Iberia, Louisiana
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50
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*
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Eufaula, Alabama
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265
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McIntyre, Georgia
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275
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Toomsboro, Georgia
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500
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Luoyang, China
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100
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Kopeysk, Russia
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100
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Total current capacity
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1,290
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*
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Production activities at the New Iberia facility have been
idled. Excluding capacity at the New Iberia facility, total
annual capacity is approximately 1.24 billion pounds. |
The Company generally supplies its domestic pumping service
customers with products on a
just-in-time
basis and operates without any material backlog.
4
Long-Lived
Assets By Geographic Area
Long-lived assets, consisting of net property, plant and
equipment, goodwill, intangibles, and other long-term assets as
of December 31 in the United States and other countries are as
follows:
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2009
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2008
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2007
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($ in millions)
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Long-lived assets:
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United States
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$
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244.1
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$
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198.5
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$
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195.2
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International (primarily China and Russia)
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50.4
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55.1
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65.4
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Total
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$
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294.5
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$
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253.6
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$
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260.6
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Distribution
The Company maintains finished goods inventories at each of its
manufacturing facilities and at remote stocking facilities. The
North American remote stocking facilities consist of bulk
storage silos with truck trailer loading facilities, as well as
rail yards for direct transloading from rail car to tank trucks.
International remote stocking sites are duty-free warehouses
operated by independent owners. North American sites are
typically supplied by rail, and international sites are
typically supplied by container ship. In total, the Company
leases 874 rail cars for use in the distribution of its
products. The price of the Companys products sold for
delivery in the lower 48 United States and Canada includes
just-in-time
delivery of proppant to the operators well site, which
eliminates the need for customers to maintain an inventory of
ceramic proppant.
Raw
Materials
Ceramic proppant is made from alumina-bearing ores (commonly
referred to as clay, bauxite, bauxitic clay or kaolin, depending
on the alumina content) that are readily available on the world
market. Bauxite is largely used in the production of aluminum
metal, refractory material and abrasives. The main known
deposits of alumina-bearing ores in the United States are in
Arkansas, Alabama and Georgia; other economically mineable known
deposits are located in Australia, Brazil, China, Gabon, Guyana,
India, Jamaica, Russia and Surinam.
For the production of
CARBOHSP®
and
CARBOPROP®
in the United States the Company uses bauxite, and has
historically purchased its annual requirements at the
sellers current prices. In 2008, the Company signed
multi-year agreements with both a domestic and international
supplier for a portion of its annual bauxite requirement and the
Company believes that these agreements will sufficiently provide
for its bauxite needs in 2010. The Company is actively
evaluating alternative suppliers for future bauxite requirements.
The Companys Eufaula facility uses primarily locally mined
kaolin for the production of
CARBOLITE®,
CARBOECONOPROP®
and
CARBOHYDROPROP®.
The Company has entered into a bi-lateral contract that requires
a supplier to sell to the Company, and the Company to purchase
from the supplier, a majority of the Eufaula facilitys
annual kaolin requirements through 2010.
The Companys Toomsboro and McIntyre production facilities
in Wilkinson County, Georgia, use locally mined uncalcined
kaolin for the production of
CARBOLITE®,
CARBOECONOPROP®
and
CARBOHYDROPROP®.
The Company has obtained ownership rights in acreage in
Wilkinson County, Georgia, which contains in excess of a fifteen
year supply of kaolin for these facilities at current production
rates. The Company has entered into a long-term agreement with a
third party to mine and transport this material at a fixed price
subject to annual adjustment. The agreement requires the Company
to utilize the third party to mine and transport a majority of
the McIntyre facilitys annual kaolin requirement.
The Companys production facility in Luoyang, China, uses
both kaolin and bauxite for the production of
CARBOPROP®
and
CARBOLITE®.
Each of these materials is purchased under long-term contracts
that stipulate fixed prices subject to periodic adjustment and
provides for minimum purchase requirements.
The Companys production facility in Kopeysk, Russia
currently uses uncalcined bauxite for the production of
CARBOPROP®.
Bauxite is purchased under annual agreements that stipulate
fixed prices for up to a specified quantity of material.
5
Production
Process
Ceramic proppants are made by grinding or dispersing ore to a
fine powder, combining the powder into small pellets and firing
the pellets in a rotary kiln. The Company uses two different
methods to produce ceramic proppant. The Companys plants
in New Iberia, Louisiana; McIntyre, Georgia; Kopeysk, Russia and
Luoyang, China use a dry process, which utilizes clay, bauxite,
bauxitic clay or kaolin. The raw material is ground, pelletized
and screened. The manufacturing process is completed by firing
the product in a rotary kiln.
The Companys plants in Eufaula, Alabama and Toomsboro,
Georgia, use a wet process, which starts with kaolin from local
mines that is formed into slurry. The slurry is then pelletized
in a dryer and the pellets are then fired in a rotary kiln.
The Companys rotary kilns are primarily heated by the use
of natural gas.
Patent
Protection and Intellectual Property
The Company makes ceramic proppant and ceramic media used in
foundry and scouring processes (the later two items comprising a
minimal volume of overall sales) by processes and techniques
that involve a high degree of proprietary technology, some of
which are protected by patents.
The Company owns six U.S. patents, three Russian patents,
three Eurasian patents, one Saudi Arabian patent and one
Singapore patent. One of the Companys U.S. patents
relates to a low-apparent specific gravity ceramic proppant, and
will expire in 2022. Two of the Companys U.S. patents
and the Companys Singapore and Saudi Arabian patents
relate to
TiO2
scouring media, a titanium-based media used in scouring
processes, and will expire in 2023 through 2025. One of the
Companys U.S. patents and one of the Eurasian patents
relate to the spray drying of proppant and will expire in 2025.
One of the Companys U.S. patents, two of the Eurasian
patents and the three Russian patents relate to lightweight and
intermediate strength proppants and will expire in 2025 through
2027. The three Russian patents relate to proppant that is
produced in the Companys Russian manufacturing facility.
The Company owns ten U.S. patent applications (together
with a number of counterpart applications pending in foreign
jurisdictions). Eight of the U.S. patent applications
(together with a number of counterpart applications pending in
foreign jurisdictions) cover ceramic proppant and processes for
making ceramic proppant. Two of the U.S. patent
applications (along with a number of counterpart applications
pending in foreign jurisdictions) relate to detection of
subterranean fractures. The applications are in various stages
of the patent prosecution process, and patents may not issue on
such applications in any jurisdiction for some time, if they
issue at all.
The Company believes that its patents have been important in
enabling the Company to compete in the market to supply proppant
to the natural gas and oil industry, although important patents
expired in 2006 and 2009. The Company intends to enforce, and
has in the past vigorously enforced, its patents. The Company
may from time to time in the future be involved in litigation to
determine the enforceability, scope and validity of its patent
rights. In addition to patent rights, and perhaps more notably,
the Company uses a significant amount of trade secrets, or
know-how, and other proprietary information and
technology in the conduct of its business. None of this
know-how and technology is licensed from third
parties.
Falcon Technologies, through its acquisition of substantially
all of the assets of BBL Falcon Industries, Ltd. in 2009, owns
one U.S. patent, which expires in 2027 and relates to
construction of secondary containment areas, and two U.S. patent
applications (together with a number of counterpart applications
pending in foreign jurisdictions) that relate to construction of
tank bases and load bearing products.
Environmental
and Other Governmental Regulations
The Company believes that its operations are in substantial
compliance with applicable domestic and foreign federal, state
and local environmental and safety laws and regulations.
However, on January 26, 2007, following self-disclosure of
certain air pollution emissions, the Company received a Notice
of Violation (NOV) from the State of Georgia
Environmental Protection Division (EPD) regarding
appropriate permitting for emissions of two specific substances
from its Toomsboro facility. The Company received an additional
NOV with respect to emissions from its McIntyre facility in May
2007. New emissions operating permits for the McIntyre and
6
Toomsboro facilities were received in May and November 2008,
respectively, and the Company is now conducting operations
pursuant to these new permits. In May 2009, the Company entered
into a consent order with the EPD to resolve the Toomsboro and
McIntyre NOVs. Pursuant to the Consent Order, the Company has
paid the EPD a fine of $258,000. In addition, the Company must
pay the EPD a further fine of $112,000 within approximately one
year from the date of the Consent Order, less certain amounts
that the Company can demonstrate have been spent in order to
implement emission reductions at these facilities. Finally, the
Consent Order requires the Company to pay any unpaid permit fees
from certain prior years that would have been payable on account
of the Companys actual emissions at the time. The Company
presently estimates the amount of such fees to be less than
approximately $100,000.
In response to the NOVs, and its desire to expand its production
capacities at both facilities, the Company also submitted
Prevention of Significant Deterioration (PSD) permit
applications for both facilities in June 2008. Permits for both
facilities were obtained in December 2009.
Employees
At December 31, 2009, the Company had 741 employees
worldwide. In addition to the services of its employees, the
Company employs the services of consultants as required. The
Companys employees are not represented by labor unions.
There have been no work stoppages or strikes during the last
three years that have resulted in the loss of production or
production delays. The Company believes its relations with its
employees are satisfactory.
Forward-Looking
Information
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. This
Form 10-K,
the Companys Annual Report to Shareholders, any
Form 10-Q
or any
Form 8-K
of the Company or any other written or oral statements made by
or on behalf of the Company may include forward-looking
statements which reflect the Companys current views with
respect to future events and financial performance. The words
believe, expect, anticipate,
project, estimate, forecast,
plan or intend and similar expressions
identify forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements,
each of which speaks only as of the date the statement was made.
The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise. The Companys
forward-looking statements are based on assumptions that we
believe to be reasonable but that may not prove to be accurate.
All of the Companys forward-looking information is subject
to risks and uncertainties that could cause actual results to
differ materially from the results expected. Although it is not
possible to identify all factors, these risks and uncertainties
include the risk factors discussed below.
The Companys results of operations could be adversely
affected if its business assumptions do not prove to be accurate
or if adverse changes occur in the Companys business
environment, including but not limited to:
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a potential decline in the demand for oil and natural gas;
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potential declines or increased volatility in oil and natural
gas prices that would adversely affect our customers, the energy
industry or our production costs;
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potential reductions in spending on exploration and development
drilling in the oil and natural gas industry that would reduce
demand for our products and services;
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an increase in competition in the proppant market;
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the development of alternative stimulation techniques, such as
extraction of oil or gas without fracturing;
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increased governmental regulation of hydraulic fracturing;
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the development of alternative proppants for use in hydraulic
fracturing;
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general global economic and business conditions;
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an increase in raw materials costs;
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7
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fluctuations in foreign currency exchange rates; and
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the potential expropriation of assets by foreign governments.
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The Companys results of operations could also be adversely
affected as a result of worldwide economic, political and
military events, including war, terrorist activity or
initiatives by the Organization of the Petroleum Exporting
Countries (OPEC). For further information, see
Item 1A. Risk Factors.
Available
Information
The Companys annual reports on
Form 10-K,
proxy statements, quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (Exchange Act) are made available free of
charge on the Companys internet website at
http://www.carboceramics.com
as soon as reasonably practicable after such material is filed
with, or furnished to, the Securities and Exchange Commission
(SEC).
The public may read and copy any materials that the Company
files with the SEC at the SECs Public Reference Room at
100 F Street, Room 1580, N.E.,
Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC, at
http://www.sec.gov.
You should consider carefully the trends, risks and
uncertainties described below and other information in this
Form 10-K
and subsequent reports filed with the SEC before making any
investment decision with respect to our securities. If any of
the following trends, risks or uncertainties actually occurs or
continues, our business, financial condition or operating
results could be materially adversely affected, the trading
prices of our securities could decline, and you could lose all
or part of your investment.
Our
business and financial performance depend on the level of
activity in the natural gas and oil industries.
Our operations are materially dependent upon the levels of
activity in natural gas and oil exploration, development and
production. More specifically, the demand for our products is
closely related to the number of natural gas and oil wells
completed in geologic formations where ceramic proppants are
used in fracture treatments. These activity levels are affected
by both short-term and long-term trends in natural gas and oil
prices. In recent years, natural gas and oil prices and,
therefore, the level of exploration, development and production
activity, have experienced significant fluctuations. Worldwide
economic, political and military events, including war,
terrorist activity, events in the Middle East and initiatives by
OPEC, have contributed, and are likely to continue to
contribute, to price volatility. Additionally, warmer than
normal winters in North America and other weather patterns may
adversely impact the short-term demand for natural gas and,
therefore, demand for our products and services. Natural gas and
oil prices experienced a decline in the second half of 2008 and
during portions of 2009. A prolonged reduction in natural gas
and oil prices would generally depress the level of natural gas
and oil exploration, development, production and well
completions activity and result in a corresponding decline in
the demand for our products. Such a decline could have a
material adverse effect on our results of operations and
financial condition.
Our
business and financial performance could suffer if new processes
are developed to replace hydraulic fracturing or as a result of
increased regulation of hydraulic fracturing.
Substantially all of our products are proppants used in the
completion and re-completion of natural gas and oil wells
through the process of hydraulic fracturing. The development of
new processes for the completion of natural gas and oil wells
leading to a reduction in, or discontinuation of the use of,
hydraulic fracturing could cause a decline in demand for our
products. Additionally, increased regulation of hydraulic
fracturing could negatively affect our business by increasing
the costs of compliance, which could cause operators to abandon
the process
8
altogether due to commercial impracticability. Either of these
events could have a material adverse effect on our results of
operations and financial condition.
We may
be adversely affected by decreased demand for ceramic proppant
or the development by our competitors of effective alternative
proppants.
Ceramic proppant is a premium product capable of withstanding
higher pressure and providing more highly conductive fractures
than mined sand, which is the most commonly used proppant type.
Although we believe that the use of ceramic proppant generates
higher production rates and more favorable production economics
than mined sand, a significant shift in demand from ceramic
proppant to mined sand could have a material adverse effect on
our results of operations and financial condition. The
development and use of effective alternative proppant could also
cause a decline in demand for our products, and could have a
material adverse effect on our results of operations and
financial condition.
We
rely upon, and receive a significant percentage of our revenues
from, a limited number of key customers.
During 2009, our largest customers included three of the largest
participants in the worldwide petroleum pressure pumping
industry. Although the end users of our products are numerous
operators of natural gas and oil wells that hire pressure
pumping service companies to hydraulically fracture wells, these
three customers accounted collectively for approximately 73% of
our 2009 revenues. We generally supply our domestic pumping
service customers with products on a
just-in-time
basis, with transactions governed by individual purchase orders.
Continuing sales of product depend on our direct customers and
the end user well operators being satisfied with product
quality, availability and delivery performance. Although we
believe our relations with our customers and the major well
operators are satisfactory, a material decline in the level of
sales to any one of our major customers due to unsatisfactory
product performance, delivery delays or any other reason could
have a material adverse effect on our results of operations and
financial condition.
We
rely on certain patents.
The Company owns six United States patents, three Russian
patents, three Eurasian patents, one Saudi Arabian patent and
one Singapore patent relating to ceramic proppant. These patents
generally cover the manufacture and use of some of our products.
The U.S. patents expire at various times in the years 2010
through 2027. We believe that patents have historically been
important in enabling us to compete in the market to supply
proppant to the natural gas and oil industry. There can be no
assurance that our patents will not be challenged or
circumvented by competitors in the future or will provide us
with any competitive advantage, or that other companies will not
be able to market functionally similar products without
violating our patent rights. In addition, if our patents are
challenged, there can be no assurance that they will be upheld.
We
provide environmental warranties on certain of our containment
and spill prevention products.
Falcon Technologies tank liners, secondary containments
and related products and services are designed to contain or
avoid spills of hydrocarbons and other materials. If a release
of these materials occurs, it could be harmful to the
environment. Although we attempt to negotiate appropriate
limitations of liability in the applicable terms of sale, some
customers have required expanded warranties, indemnifications or
other terms that could hold Falcon Technologies responsible in
the event of a spill or release under particular circumstances.
If Falcon Technologies is held responsible for a spill or
release of materials from one of its customers facilities,
it could have a material adverse effect on our results of
operations and financial condition.
Third
parties may claim that we are infringing their intellectual
property rights.
The Company uses a significant amount of trade secrets, or
know-how, and other proprietary information and
technology in the conduct of its business. Although the Company
does not believe that it is infringing upon the intellectual
property rights of others by using such proprietary information
and technology, it is possible that such a claim will be
asserted against the Company in the future. In the event any
third party makes a claim against us for
9
infringement of patents or other intellectual property rights of
a third party, such claims, with or without merit, could be
time-consuming and result in costly litigation. In addition, the
Company could experience loss or cancellation of customer
orders, experience product shipment delays, or be subject to
significant liabilities to third parties. If our products or
services were found to infringe on a third partys
proprietary rights, the Company could be required to enter into
royalty or licensing agreements to continue selling its products
or services. Royalty or licensing agreements, if required, may
not be available on acceptable terms, if at all, which could
seriously harm our business. Involvement in any patent dispute
or other intellectual property dispute or action to protect
trade secrets and expertise could have a material adverse effect
on the Companys business.
We
operate in an increasingly competitive market.
We compete with other principal suppliers of ceramic proppant,
as well as with suppliers of sand and resin-coated sand for use
as proppant, in the hydraulic fracturing of natural gas and oil
wells. The proppant market is highly competitive and no one
supplier is dominant. The recent expiration of key patents owned
by the Company has resulted in additional competition in the
market for ceramic proppant. This entry of additional
competitors into the market to supply ceramic proppant could
have a material adverse effect on our results of operations and
financial condition.
Significant
increases in fuel prices for any extended periods of time will
increase our operating expenses.
The price and supply of natural gas are unpredictable, and can
fluctuate significantly based on international, political and
economic circumstances, as well as other events outside our
control, such as changes in supply and demand due to weather
conditions, actions by OPEC and other oil and gas producers,
regional production patterns and environmental concerns. Natural
gas is a significant component of our direct manufacturing costs
and price escalations will likely increase our operating
expenses and can have a negative impact on income from
operations and cash flows. We operate in a competitive
marketplace and may not be able to pass through all of the
increased costs that could result from an increase in the cost
of natural gas.
Environmental
compliance costs and liabilities could reduce our earnings and
cash available for operations.
We are subject to increasingly stringent laws and regulations
relating to environmental protection, including laws and
regulations governing air emissions, water discharges and waste
management. We incur, and expect to continue to incur, capital
and operating costs to comply with environmental laws and
regulations. The technical requirements of environmental laws
and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for strict
liability for damages to natural resources or threats to
public health and safety. Strict liability can render a party
liable for environmental damage without regard to negligence or
fault on the part of the party. Some environmental laws provide
for joint and several strict liability for remediation of spills
and releases of hazardous substances.
We use some hazardous substances and generate certain industrial
wastes in our operations. In addition, many of our current and
former properties are or have been used for industrial purposes.
Accordingly, we could become subject to potentially material
liabilities relating to the investigation and cleanup of
contaminated properties, and to claims alleging personal injury
or property damage as the result of exposures to, or releases
of, hazardous substances. In addition, stricter enforcement of
existing laws and regulations, new laws and regulations, the
discovery of previously unknown contamination or the imposition
of new or increased requirements could require us to incur costs
or become the basis of new or increased liabilities that could
reduce our earnings and our cash available for operations.
Our
international operations subject us to risks inherent in doing
business on an international level that could adversely impact
our results of operations.
International revenues accounted for approximately 24%, 29% and
36% of our total revenues in 2009, 2008 and 2007, respectively.
We cannot assure you that we will be successful in overcoming
the risks that relate to or arise
10
from operating in international markets. Risks inherent in doing
business on an international level include, among others, the
following:
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economic and political instability (including as a result of the
threat or occurrence of armed international conflict or
terrorist attacks);
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changes in regulatory requirements, tariffs, customs, duties and
other trade barriers;
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transportation delays;
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power supply shortages and shutdowns;
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difficulties in staffing and managing foreign operations and
other labor problems;
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currency rate fluctuations, convertibility and repatriation;
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taxation of our earnings and the earnings of our personnel;
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potential expropriation of assets by foreign
governments; and
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other risks relating to the administration of or changes in, or
new interpretations of, the laws, regulations and policies of
the jurisdictions in which we conduct our business.
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In particular, we are subject to risks associated with our
production facilities in Luoyang, China, and Kopeysk, Russia.
The legal systems in both China and Russia are still developing
and are subject to change. Accordingly, our operations and
orders for products in both countries could be adversely
impacted by changes to or interpretation of each countrys
law. Further, if manufacturing in either region is disrupted,
our overall capacity could be significantly reduced and sales
and/or
profitability could be negatively impacted.
Undetected
defects in our fracture simulation software could adversely
affect our business.
Despite extensive testing, our software could contain defects,
bugs or performance problems. If any of these problems are not
detected, the Company could be required to incur extensive
development costs or costs related to product recalls or
replacements. The existence of any defects, errors or failures
in our software products may subject us to liability for
damages, delay the development or release of new products and
adversely affect market acceptance or perception of our software
products or related services, any one of which could materially
and adversely affect the Companys business, results of
operations and financial condition.
The
market price of our common stock will fluctuate, and could
fluctuate significantly.
The market price of the Companys common stock will
fluctuate, and could fluctuate significantly, in response to
various factors and events, including the following:
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the liquidity of the market for our common stock;
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differences between our actual financial or operating results
and those expected by investors and analysts;
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changes in analysts recommendations or projections;
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new statutes or regulations or changes in interpretations of
existing statutes and regulations affecting our business;
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changes in general economic or market conditions; and
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broad market fluctuations.
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Our
actual results could differ materially from results anticipated
in forward-looking statements we make.
Some of the statements included or incorporated by reference in
this
Form 10-K
are forward-looking statements. These forward-looking statements
include statements relating to trends in the natural gas and oil
industries, the demand for ceramic proppant and our performance
in the Managements Discussion and Analysis of
11
Financial Condition and Results of Operations and
Business sections of this
Form 10-K.
In addition, we have made and may continue to make
forward-looking statements in other filings with the SEC, and in
written material, press releases and oral statements issued by
us or on our behalf. Forward-looking statements include
statements regarding the intent, belief or current expectations
of the Company or its officers. Our actual results could differ
materially from those anticipated in these forward-looking
statements. (See Business Forward-Looking
Information.)
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
The Company maintains its corporate headquarters (approximately
27,000 square feet of leased office space) in Houston. The
Company owns its manufacturing facilities, land and
substantially all of the related production equipment in New
Iberia, Louisiana and Eufaula, Alabama, and leases its McIntyre
and Toomsboro, Georgia, facilities. The Company owns the
buildings and production equipment at its facility in Luoyang,
China, and has been granted use of the land on which the
facility is located through 2051 under the terms of a land use
agreement with the Peoples Republic of China. The Company
owns the buildings and production equipment at its facility in
Kopeysk, Russia, and substantially all of the land on which the
facility is located. The Company leases space for sales offices
in Aberdeen, Scotland and Moscow, Russia.
The New Iberia, Louisiana facility is located on 26.7 acres
of land owned by the Company and consists of two ceramic
proppant production units (idle), a resin coating unit, a
laboratory, two office buildings and a warehouse, collectively
totaling approximately 197,000 square feet. The Eufaula,
Alabama facility is located on 14 acres of land owned by
the Company and consists of one production unit, a laboratory
and an office, collectively totaling approximately
113,700 square feet.
The facilities in McIntyre and Toomsboro, Georgia, include real
property, plant and equipment that are leased by the Company
from the Development Authority of Wilkinson County. The original
lease was executed in 1997 and was last amended in 2008. The
term of the current lease, which covers both locations,
commenced on November 1, 2008, and terminates on
November 1, 2013, subject to the Companys ability to
renew the lease through November 2021. Under the terms of the
lease, the Company is responsible for all costs incurred in
connection with the premises, including costs of construction of
the plant and equipment. As an inducement to locate the facility
in Wilkinson County, Georgia, the Company received certain
ad-valorem property tax incentives. At the termination of the
lease, title to all of the real property, plant and equipment is
to be conveyed to the Company in exchange for nominal
consideration. The Company has the right to purchase the
property, plant and equipment at any time during the term of the
lease for a nominal price.
The facility in McIntyre, Georgia is located on approximately
36 acres of land and consists of various production and
support buildings, a laboratory building, a warehouse building
and an administrative building, collectively totaling
approximately 196,100 square feet. The facility in
Toomsboro, Georgia is located on approximately 13 acres of
an approximately 1,100-acre tract of property leased by the
Company. The facility consists of various production and support
buildings, two laboratory buildings, and an administrative
building, collectively totaling approximately
113,900 square feet.
The facility in Luoyang, China is located on approximately
11 acres and consists of various production and support
buildings, a laboratory, and two administrative buildings,
collectively totaling approximately 118,000 square feet.
The facility in Kopeysk, Russia is located on approximately
60 acres of land and consists of various production and
support buildings and an administrative building, collectively
totaling approximately 103,000 square feet.
The Company owns or otherwise utilizes distribution facilities
in multiple locations around the world. See Item 1.
Business Distribution.
Applied Geomechanics, Inc. leases office space in
San Francisco, California (approximately 7,000 square
feet).
12
The Company owns approximately 2,630 acres of land and
leasehold interests in Wilkinson County, Georgia, near its
plants in McIntyre and Toomsboro, Georgia and approximately
80 acres of leasehold interests in Barbour County, Alabama,
near its plant in Eufaula, Alabama. The land contains raw
material for use in the production of the Companys
lightweight ceramic proppants. The Company has contracted with a
third party to mine and haul the reserves and bear the
responsibility for subsequent reclamation of the mined areas.
Falcon Technologies owns its service facility located in
Decatur, Texas, which is located on approximately 25 acres
of land. The facility includes production and administrative
buildings totaling approximately 12,000 square feet. Falcon
Technologies also leases a service facility in Midland, Texas
consisting of 18 acres of land and approximately
2,000 square feet of buildings.
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Item 3.
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Legal
Proceedings
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From time to time, the Company is the subject of legal
proceedings arising in the ordinary course of business. The
Company does not believe that any of these proceedings will have
a material effect on its business or its results of operations.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
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Item 4A.
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Executive
Officers of the Registrant
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Gary A. Kolstad (age 51) was elected on June 1,
2006, by the Companys Board of Directors to serve as
President and Chief Executive Officer and a Director of the
Company. Mr. Kolstad previously served in a variety of
positions over 21 years with Schlumberger, Ltd.
Mr. Kolstad became a Vice President of Schlumberger, Ltd.
in 2001, where he last held the positions of Vice President,
Oilfield Services U.S. Onshore and Vice
President, Global Accounts.
Ernesto Bautista III (age 38) joined the Company
as a Vice President on January 1, 2009, and was appointed
Chief Financial Officer effective January 20, 2009. From
July 2006 until joining the Company, Mr. Bautista served as
Vice President and Chief Financial Officer of W-H Energy
Services, Inc., a Houston, Texas based diversified oilfield
services company (W-H Energy). From July 2000 to
July 2006, he served as Vice President and Corporate Controller
of W-H Energy. From September 1994 to May 2000,
Mr. Bautista served in various positions at Arthur Andersen
LLP, most recently as a manager in the assurance practice,
specializing in emerging, high growth companies.
Mr. Bautista is a certified public accountant in the State
of Texas.
Mark L. Edmunds (age 54) has been the Vice President,
Operations since April 2002. From 2000 until joining the
Company, Mr. Edmunds served as Business Unit Manager and
Plant Manager for FMC Corporation. Prior to 2000,
Mr. Edmunds served Union Carbide Corporation and The Dow
Chemical Company in a variety of management positions, including
Director of Operations, Director of Internal Consulting and
Manufacturing Operations Manager.
David G. Gallagher (age 51) was appointed as Vice
President, Marketing and Sales on April 16, 2007.
Mr. Gallagher previously held a variety of positions over a
26 year period with Schlumberger, Ltd., where from 2002
until 2007, he served as Director of Marketing for Venezuela,
Trinidad and the Caribbean.
R. Sean Elliott (age 35) joined the Company in
November 2007 as General Counsel, and was appointed as Corporate
Secretary and Chief Compliance Officer in January 2008.
Previously, Mr. Elliott served as legal counsel to Aviall,
Inc. (an international aviation company) from 2004 to 2007,
where he last held the positions of Assistant General Counsel
and Assistant Secretary. From 1999 until 2004, Mr. Elliott
practiced law with Haynes and Boone, LLP, a Dallas, Texas-based
law firm.
All officers are elected for one-year terms or until their
successors are duly elected. There are no arrangements between
any officer and any other person pursuant to which he was
selected as an officer. There is no family relationship between
any of the named executive officers or between any of them and
the Companys directors.
13
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Common
Stock Market Prices, Dividends and Stock Repurchases
The Companys common stock is traded on the New York Stock
Exchange (ticker symbol CRR). The number of record and
beneficial holders of the Companys common stock as of
February 9, 2010 was approximately 15,212.
The following table sets forth the high and low sales prices of
the Companys common stock on the New York Stock Exchange
and dividends for the last two fiscal years:
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2009
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2008
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Cash
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Cash
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Sales Price
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Dividends
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Sales Price
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Dividends
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Quarter Ended
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High
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Low
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Declared(1)
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High
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Low
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Declared
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March 31
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$
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39.49
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$
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27.43
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$
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0.34
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$
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40.10
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$
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33.20
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$
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0.14
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June 30
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40.09
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28.54
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58.90
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41.24
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0.14
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September 30
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52.02
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32.50
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0.36
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61.83
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47.90
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0.17
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December 31
|
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70.77
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48.94
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50.47
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31.50
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0.17
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(1) |
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Represents quarters during which dividends were declared. The
payment months for cash dividends were February 2009 ($0.17),
May 2009 ($0.17), August 2009 ($0.18) and November 2009 ($0.18). |
The Company currently expects to continue its policy of paying
quarterly cash dividends, although there can be no assurance as
to future dividends because they depend on future earnings,
capital requirements and financial condition.
On August 28, 2008, the Companys Board of Directors
authorized the repurchase of up to two million shares of the
Companys common stock. Shares are effectively retired at
the time of purchase. The Company did not repurchase any shares
under this plan during the fourth quarter of 2009. As of
December 31, 2009, the Company has repurchased and retired
1,743,076 shares at an aggregate price of
$64.7 million.
The following table provides information about the
Companys repurchases of common stock during the quarter
ended December 31, 2009:
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Total Number of
|
|
Shares that May
|
|
|
Total Number
|
|
Average
|
|
Shares Purchased
|
|
Yet be Purchased
|
|
|
of Shares
|
|
Price Paid
|
|
as Part of Publicly
|
|
Under the
|
Period
|
|
Purchased
|
|
Per Share
|
|
Announced Plan
|
|
Plan(1)
|
|
10/01/09 to 10/31/09
|
|
|
483
|
(2)
|
|
$
|
52.14
|
|
|
|
|
|
|
|
256,924
|
|
11/01/09 to 11/30/09
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
256,924
|
|
12/01/09 to 12/31/09
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
256,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
483
|
(2)
|
|
|
|
|
|
|
|
|
|
|
256,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 28, 2008, the Company announced the authorization
by its Board of Directors for the repurchase of up to two
million shares of its Common Stock. Represents the maximum
number of shares that are available to be repurchased under the
previously announced authorization as of period end. As of
February 25, 2010, a maximum of 256,924 shares are
available to be repurchased under the previously announced
authorization. |
|
(2) |
|
Includes 483 shares of restricted stock withheld for the
payment of withholding taxes upon the vesting of restricted
stock. |
14
Stock
Performance Graph
The following graph compares the cumulative shareholder return
on the Companys common stock versus the total cumulative
return on the S&P 500 Stock Index and the S&P Small
Cap 600, Oil & Gas Equipment & Services
Sub-Industry
Group. The comparison assumes $100 was invested as of
December 31, 1999 and all dividends were reinvested.
COMPARISON
OF 10 YEAR CUMULATIVE TOTAL RETURN*
Among CARBO Ceramics, Inc., The S&P 500 Index
And S&P SmallCap 600 Oil & Gas
Equipment & Services Index
*$100 invested on 12/31/99 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
15
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data are derived from the
audited consolidated financial statements of the Company. The
data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes
thereto included elsewhere in this
Form 10-K.
The Company has determined that its outstanding non-vested
restricted stock awards are participating securities.
Accordingly, effective January 1, 2009, earnings per common
share are computed using the two-class method prescribed by ASC
Topic 260 Earnings Per Share. All previously
reported earnings per common share data were retrospectively
adjusted to conform to the new computation method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands, except per share data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
341,872
|
|
|
$
|
387,828
|
|
|
$
|
299,996
|
|
|
$
|
283,829
|
|
|
$
|
230,711
|
|
Cost of sales
|
|
|
221,369
|
|
|
|
260,394
|
|
|
|
198,070
|
|
|
|
179,897
|
|
|
|
139,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
120,503
|
|
|
|
127,434
|
|
|
|
101,926
|
|
|
|
103,932
|
|
|
|
90,867
|
|
Selling, general and administrative expenses(1)
|
|
|
41,053
|
|
|
|
40,351
|
|
|
|
30,467
|
|
|
|
26,300
|
|
|
|
22,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
79,450
|
|
|
|
87,083
|
|
|
|
71,459
|
|
|
|
77,632
|
|
|
|
68,681
|
|
Other, net
|
|
|
344
|
|
|
|
1,266
|
|
|
|
3,120
|
|
|
|
2,944
|
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
79,794
|
|
|
|
88,349
|
|
|
|
74,579
|
|
|
|
80,576
|
|
|
|
70,217
|
|
Income taxes
|
|
|
26,984
|
|
|
|
27,944
|
|
|
|
24,938
|
|
|
|
28,331
|
|
|
|
24,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
52,810
|
|
|
|
60,405
|
|
|
|
49,641
|
|
|
|
52,245
|
|
|
|
45,463
|
|
Discontinued operations(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
5,784
|
|
|
|
4,229
|
|
|
|
2,008
|
|
|
|
1,157
|
|
Gain on disposal of discontinued operations, net of tax
|
|
|
|
|
|
|
44,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,810
|
|
|
$
|
110,316
|
|
|
$
|
53,870
|
|
|
$
|
54,253
|
|
|
$
|
46,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.47
|
|
|
$
|
2.03
|
|
|
$
|
2.14
|
|
|
$
|
1.89
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
|
|
0.08
|
|
|
|
0.05
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.52
|
|
|
$
|
2.20
|
|
|
$
|
2.22
|
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.46
|
|
|
$
|
2.02
|
|
|
$
|
2.14
|
|
|
$
|
1.88
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
|
|
0.08
|
|
|
|
0.05
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.51
|
|
|
$
|
2.19
|
|
|
$
|
2.22
|
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
($ in thousands, except per share data)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
218,870
|
|
|
$
|
293,310
|
|
|
$
|
190,924
|
|
|
$
|
132,466
|
|
|
$
|
139,369
|
|
Current liabilities
|
|
|
32,458
|
|
|
|
83,848
|
|
|
|
33,264
|
|
|
|
33,164
|
|
|
|
35,846
|
|
Property, plant and equipment, net
|
|
|
270,722
|
|
|
|
244,902
|
|
|
|
253,261
|
|
|
|
214,773
|
|
|
|
167,199
|
|
Total assets
|
|
|
513,412
|
|
|
|
546,877
|
|
|
|
451,523
|
|
|
|
403,753
|
|
|
|
354,928
|
|
Total shareholders equity
|
|
|
457,316
|
|
|
|
442,534
|
|
|
|
389,439
|
|
|
|
342,859
|
|
|
|
293,366
|
|
Cash dividends per share
|
|
$
|
0.70
|
|
|
$
|
0.62
|
|
|
$
|
0.52
|
|
|
$
|
0.44
|
|
|
$
|
0.36
|
|
Discontinued operations (included above)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
66,191
|
|
|
$
|
51,305
|
|
|
$
|
43,170
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
4,024
|
|
|
|
1,082
|
|
|
|
463
|
|
|
|
|
(1) |
|
Selling, general and administrative (SG&A) expenses for
2009, 2008, 2007, 2006 and 2005 include costs of
start-up
activities of none, $1,108, $1,215, $474, and $1,092,
respectively.
Start-up
costs for 2008 relate to the
start-up of
the second production line at the Companys Toomsboro,
Georgia facility and the reopening of the New Iberia, Louisiana
manufacturing facility previously idled earlier during 2008.
Start-up
costs for 2007 are related primarily to the new production
facility in Kopeysk, Russia.
Start-up
costs for 2006 and 2005 are related primarily to the new
production facility in Toomsboro, Georgia. SG&A expenses in
2009, 2008, 2007, 2006 and 2005 also include losses of $156,
$1,599, $268, none, and $95, respectively, associated with the
write-off of a prepayment for the purchase of ceramic proppant
from a China proppant manufacturer in 2008 and disposal of
certain equipment and impairment of certain software in other
years. |
|
(2) |
|
On October 10, 2008, the Company completed the sale of its
fracture and reservoir diagnostics business, the Pinnacle name
and related trademarks. Consequently, these operations are
presented as discontinued operations and the related assets and
liabilities are presented as held for sale. At December 31,
2007, assets and liabilities held for sale are presented as
current assets and current liabilities, respectively. Assets and
liabilities held for sale as of December 31, 2006 and 2005
are presented as previously reported in the Companys
financial statements for those periods. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Level Overview
CARBO Ceramics Inc. generates revenue primarily through the sale
of products and services to the oil and gas industry. The
Companys principal business consists of manufacturing and
selling ceramic proppant for use primarily in the hydraulic
fracturing of oil and natural gas wells. On August 28,
2008, the Company entered into a definitive agreement to sell a
substantial portion of the assets of its wholly-owned
subsidiary, Pinnacle Technologies, Inc. (Pinnacle).
The sale, which includes all of the fracture and reservoir
diagnostic business, the Pinnacle name and related trademarks,
was completed on October 10, 2008. The Company has no
continuing involvement in these operations. The operations
associated with this sale have been classified as income from
discontinued operations in the accompanying consolidated
statements of income and the cash flows associated with
discontinued operations have been segregated in the accompanying
consolidated statements of cash flows. The Company retained the
hydraulic fracturing simulation software FracProPT, the
hydraulic fracturing design, engineering and consulting business
and Applied Geomechanics, Inc., a provider of geotechnical
monitoring applications.
On October 2, 2009, Falcon Technologies, a wholly-owned
subsidiary of the Company, purchased substantially all of the
assets of BBL Falcon Industries, Ltd., a supplier of spill
prevention and containment systems for the oil and gas industry.
The acquisition was made for the purpose of expanding the
Companys product and service offerings to its existing
client base. Falcon Technologies uses proprietary technology to
provide solutions that are designed to enable its clients to
extend the life of their storage assets, reduce the potential
for hydrocarbon spills and provide containment of stored
materials.
17
The Companys products and services help oil and gas
producers increase production and recovery rates from their
wells, thereby lowering overall reservoir development costs. As
a result, the Companys business is dependent to a large
extent on the level of drilling activity in the oil and gas
industry worldwide. However, the Company has increased its
revenues and income over a multiple-year period and across
various industry business cycles by increasing its share of the
worldwide market for all types of proppant. Although the
Companys ceramic proppants are more expensive than
alternative non-ceramic proppants, the Company has been able to
demonstrate the cost-effectiveness of its products to numerous
operators of oil and gas wells through increased technical
marketing activity. The Company believes its future prospects
benefit from both an increase in drilling activity worldwide and
the desire of industry participants to improve production
results and lower their overall development costs.
The Company believes international operations will continue to
represent an important role in its future growth. In 2002, the
Company constructed its first manufacturing facility located
outside the United States in the city of Luoyang, China and
completed a second production line in 2004 that doubled the
capacity of that facility. In 2004, the Company also opened a
sales office in Moscow, Russia and established distribution
operations in the country. In 2005, the Company broke ground on
a new manufacturing facility in the city of Kopeysk, Russia and
completed construction of this new facility during the first
half of 2007. International revenues represented 24%, 29% and
36% of total revenues in 2009, 2008 and 2007, respectively.
Management believes the addition of new manufacturing capacity
is critical to the Companys ability to continue its
long-term growth in sales volume and revenue for ceramic
proppant. In regards to future expansion, the Company is
currently constructing a third production line at its Toomsboro
facility that is expected to be completed near the end of 2010
with an annual capacity of 250 million pounds. Although the
Company has operated near or at full capacity at times during
the previous ten years, the addition of significant new capacity
could adversely impact operating profit margins if the timing of
this new capacity does not match increases in demand for the
Companys products.
Operating profit margin for the Companys proppant business
is principally impacted by manufacturing costs and the
Companys production levels as a percentage of its
capacity. Although most direct production expenses have been
relatively stable or predictable over time, the Company has
experienced recent volatility in the cost of natural gas, which
is used in production by the Companys domestic
manufacturing facilities, and bauxite, which is the primary raw
material for production of the Companys high strength
ceramic proppant. The cost of natural gas has been a significant
component of total monthly domestic direct production expense
over the last three years. In an effort to mitigate volatility
in the cost of natural gas purchases and reduce exposure to
short term spikes in the price of this commodity, the Company
contracts in advance for portions of its future natural gas
requirements. During 2007, the Companys long-standing
supplier of high strength raw materials exited the business.
These materials are used to manufacture high-strength products,
CARBOPROP®
and
CARBOHSP®,
at the McIntyre, Georgia facility. The delivered cost of
bauxite, which represents approximately half of the cost of high
strength products, has increased since the Companys
long-standing supplier exited the business. Management
anticipates its current supplies of bauxite will be sufficient
for 2010, but continues to pursue a long-term source of these
materials to complement its strong position in lightweight raw
material supplies. Despite the efforts to reduce exposure to
changes in natural gas prices and the cost of high strength raw
materials, it is possible that, given the significant portion of
manufacturing costs represented by these items, gross margins as
a percentage of sales may decline and changes in net income may
not directly correlate to changes in revenue.
As the Company has expanded its operations in both domestic and
international markets, there has been an increase in activities
and expenses related to marketing, distribution, research and
development, and finance and administration. As a result,
selling, general and administrative expenses have increased in
recent years. In the future, the Company expects to continue to
actively pursue new business opportunities by:
|
|
|
|
|
increasing marketing activities globally;
|
|
|
|
improving and expanding its distribution capabilities; and
|
|
|
|
focusing on new product development.
|
18
The Company expects that these activities will generate
increased revenue; however selling, general and administrative
expenses may continue to increase in 2010 from 2009 levels as
the Company continues to expand its operations.
General
Business Conditions
The Companys proppant business is impacted by the number
of natural gas wells drilled in North America, where the
majority of wells are hydraulically fractured. In markets
outside North America, sales of the Companys products are
less dependent on natural gas markets but are influenced by the
overall level of drilling and hydraulic fracturing activity.
Furthermore, because the decision to use ceramic proppant is
based on comparing the higher initial costs to the future value
derived from increased production and recovery rates, the
Companys business is influenced by the current and
expected prices of natural gas and oil.
Worldwide oil and natural gas prices and related drilling
activity levels remained very strong from 2004 until the second
half of 2008. During the second half of 2008, oil and natural
gas prices as well as active drilling rigs in North America
declined significantly in connection with declines in many of
the worlds economies. Although the North American drilling
rig count improved during the second half of 2009, it is not
apparent as to whether this is the beginning of a recovery or a
short-term correction. Although difficult to predict, the
Company does not expect a long-term impact for the
Companys products and services.
Critical
Accounting Policies
The Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the U.S., which
require the Company to make estimates and assumptions (see
Note 1 to the Consolidated Financial Statements). The
Company believes that, of its significant accounting policies,
the following may involve a higher degree of judgment and
complexity.
Revenue is recognized when title passes to the customer
(generally upon delivery of products) or at the time services
are performed. The Company generates a significant portion of
its revenues and corresponding accounts receivable from sales to
the petroleum pressure pumping industry. In addition, the
Company generates a significant portion of its revenues and
corresponding accounts receivable from sales to three major
customers, all of which are in the petroleum pressure pumping
industry. As of December 31, 2009, approximately 62% of the
balance in trade accounts receivable was attributable to those
three customers. The Company records an allowance for doubtful
accounts based on its assessment of collectability risk and
periodically evaluates the allowance based on a review of trade
accounts receivable. Trade accounts receivable are periodically
reviewed for collectability based on customers past credit
history and current financial condition, and the allowance is
adjusted, if necessary. If a prolonged economic downturn in the
petroleum pressure pumping industry were to occur or, for some
other reason, any of the Companys primary customers were
to experience significant adverse conditions, the Companys
estimates of the recoverability of accounts receivable could be
reduced by a material amount and the allowance for doubtful
accounts could be increased by a material amount. At
December 31, 2009, the allowance for doubtful accounts
totaled $2.2 million.
The Company values inventory using the weighted average cost
method. Assessing the ultimate realization of inventories
requires judgments about future demand and market conditions.
The Company regularly reviews inventories to determine if the
carrying value of the inventory exceeds market value and the
Company records an adjustment to reduce the carrying value to
market value, as necessary. Future changes in demand and market
conditions could cause the Company to be exposed to additional
obsolescence or slow moving inventory. If actual market
conditions are less favorable than those projected by
management, additional lower of cost or market adjustments may
be required.
Income taxes are provided for in accordance with ASC Topic 740,
Income Taxes (formerly Statement of Financial
Accounting Standards (SFAS) No. 109). This
standard takes into account the differences between financial
statement treatment and tax treatment of certain transactions.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
19
differences are expected to be recovered or settled. The effect
of a change in tax rates is recognized as income or expense in
the period that includes the enactment date. This calculation
requires the Company to make certain estimates about its future
operations. Changes in state, federal and foreign tax laws, as
well as changes in the Companys financial condition, could
affect these estimates.
Long-lived assets, which include net property, plant and
equipment, goodwill, intangibles and other long-term assets,
comprise a significant amount of the Companys total
assets. The Company makes judgments and estimates in conjunction
with the carrying values of these assets, including amounts to
be capitalized, depreciation and amortization methods and useful
lives. Additionally, the carrying values of these assets are
periodically reviewed for impairment or whenever events or
changes in circumstances indicate that the carrying amounts may
not be recoverable. An impairment loss is recorded in the period
in which it is determined that the carrying amount is not
recoverable. This requires the Company to make long-term
forecasts of its future revenues and costs related to the assets
subject to review. These forecasts require assumptions about
demand for the Companys products and services, future
market conditions and technological developments. Significant
and unanticipated changes to these assumptions could require a
provision for impairment in a future period.
Results
of Operations
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Net Income
|
|
$
|
52,810
|
|
|
|
(52
|
)%
|
|
$
|
110,316
|
|
|
|
105
|
%
|
|
$
|
53,870
|
|
For the year ended December 31, 2009, the Company reported
net income of $52.8 million, a decrease of 52% compared to
the previous year. Net income in 2008 reflected
$5.8 million in income from discontinued operations and
$44.1 million in gain from the disposal of discontinued
operations. Discontinued operations relate to the sale of the
Companys fracture and reservoir diagnostics business in
2008.
In 2009, income from continuing operations decreased to
$52.8 million from $60.4 million in 2008, or 13%.
During 2009, the Company experienced a 12% decrease in revenues
primarily resulting from lower sales volumes. The decrease in
revenue was partially offset by an increase in gross profit
margin as a percentage of sales compared to the previous year.
Selling, general and administrative expenses increased primarily
due to the addition of Falcon Technologies and the relocation of
certain administrative offices. Other operating expenses
decreased in 2009 primarily resulting from an impairment charge
in 2008 and costs relating to the 2008
start-up of
certain manufacturing facilities. Other income in 2009 decreased
mainly from foreign currency exchange rate fluctuations and
income tax expense in 2009 decreased due to lower taxable income
partially offset by a higher effective tax rate.
For the year ended December 31, 2008, the Company reported
net income of $110.3 million, an increase of 105% compared
to the previous year. Net income in 2008 benefitted from a
$44.1 million gain from the disposal of discontinued
operations. Income from discontinued operations was
$5.8 million in 2008 and $4.2 million in 2007.
In 2008, income from continuing operations increased to
$60.4 million from $49.6 million in 2007, or 22%. The
Company experienced a 29% increase in revenues in 2008, which
represented the sixth consecutive year the Company achieved a
new revenue record. The increase in revenues was partially
offset by a decline in gross profit margin as a percentage of
sales compared to the previous year. Selling, general and
administrative expenses increased to support revenue growth, and
other operating expenses in 2008 include an impairment charge
relating to the write-off of a prepayment for the purchase of
ceramic proppant from a Chinese proppant manufacturer. Other
income in 2008 decreased mainly from foreign currency exchange
rate fluctuations and income tax expense in 2008 increased due
primarily to higher taxable income.
Individual components of financial results are discussed below.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Consolidated revenues
|
|
$
|
341,872
|
|
|
|
(12
|
)%
|
|
$
|
387,828
|
|
|
|
29
|
%
|
|
$
|
299,996
|
|
20
Revenues of $341.9 million for the year ended
December 31, 2009 decreased 12% compared to
$387.8 million in 2008. Revenues decreased primarily due to
a 10% decrease in sales volume and a 2% decrease in average
proppant selling price. The Companys worldwide proppant
sales volume totaled 1.043 billion pounds for the year
ended December 31, 2009 compared to 1.162 billion
pounds for the same period in 2008. Despite a 42% decrease in
the drilling rig count in the U.S. and Canada, sales volume
in that region decreased by only 8%. Sales volume decreases for
most of the Companys products in the U.S. and Canada
were partially offset by greater demand for the Companys
lightweight products, such as
CARBOHYDROPROP®
in shale formations. International (excluding Canada) sales
volume decreased 20% primarily attributed to decreases in Russia
and North Africa partially offset by an increase in Mexico. The
average selling price per pound of ceramic proppant was $0.315
per pound in 2009 compared to $0.322 per pound in 2008. The
lower average selling price was primarily attributed to a change
in the mix of products sold toward lower priced lightweight
products.
Revenues of $387.8 million for the year ended
December 31, 2008 exceeded revenues of $300.0 million
in 2007 by 29%. Revenues increased primarily due to a 28%
increase in proppant sales volume. The Companys worldwide
proppant sales volume increased for the sixth consecutive year
to 1.162 billion pounds and exceeded the 2007 sales record
of 908 million pounds by 28%. North American sales volume
increased 33% over 2007, driven by the continued strength in the
U.S. market and the introduction of
CARBOHYDROPROP®
in early 2008. Increases in sales volume in Canada of 14% were
partially offset by a decrease in Mexico. Overseas sales volume
increased 5% led by a 61% increase in Russia, which is due to
the start-up
of a manufacturing plant in that market during the second
quarter of 2007. This increase was offset by the impact of other
overseas sales which declined 13% in 2008 compared to 2007. The
average selling price per pound of ceramic proppant was $0.322
per pound in 2008 compared to $0.321 per pound in 2007.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Consolidated gross profit
|
|
$
|
120,503
|
|
|
|
(5
|
)%
|
|
$
|
127,434
|
|
|
|
25
|
%
|
|
$
|
101,926
|
|
Consolidated gross profit%
|
|
|
35
|
%
|
|
|
|
|
|
|
33
|
%
|
|
|
|
|
|
|
34
|
%
|
The Companys cost of sales related to proppant
manufacturing consists of manufacturing costs, packaging and
transportation expenses associated with the delivery of the
Companys products to its customers and handling costs
related to maintaining finished goods inventory and operating
the Companys remote stocking facilities. Variable
manufacturing costs include raw materials, labor, utilities and
repair and maintenance supplies. Fixed manufacturing costs
include depreciation, property taxes on production facilities,
insurance and factory overhead.
Gross profit for the year ended December 31, 2009 was
$120.5 million, or 35% of revenues, compared to
$127.4 million, or 33% of revenues, for 2008. The decrease
in gross profit was the result of decreased revenues driven
primarily by lower sales volumes. Despite the revenue and gross
profit decline, gross profit as a percentage of revenues
increased primarily as a result of a change in the mix of
products sold, lower freight costs and lower natural gas costs
in the Companys U.S. manufacturing facilities.
Gross profit for the year ended December 31, 2008 was
$127.4 million, or 33% of revenues, compared to
$101.9 million, or 34% of revenues, for 2007. The increase
in gross profit was the result of increased revenues driven
primarily by higher sales volumes. Despite the revenue and gross
profit growth, gross profit as a percentage of revenues declined
primarily as a result of lower-margin sales in Russia, sales of
lower-margin
CARBOHYDROPROP®
during the period of initial introduction into the marketplace,
higher manufacturing costs in the Companys
U.S. plants primarily resulting from increases in the cost
of natural gas and raw materials, and increased freight to
transport products to customer locations.
21
Selling,
General & Administrative (SG&A) and Other
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Consolidated SG&A and other
|
|
$
|
41,053
|
|
|
|
2
|
%
|
|
$
|
40,351
|
|
|
|
32
|
%
|
|
$
|
30,467
|
|
As a% of revenues
|
|
|
12
|
%
|
|
|
|
|
|
|
10
|
%
|
|
|
|
|
|
|
10
|
%
|
Operating expenses consisted of $40.9 million of SG&A
expenses and $0.1 million of other operating expenses for
the year ended December 31, 2009 compared to
$37.6 million and $2.7 million, respectively, for
2008. As a percentage of revenues, SG&A and other operating
expenses increased to 12% compared to 10% for the same period in
2008. The increases in SG&A expenses primarily resulted
from the inclusion of Falcon Technologies SG&A in 2009,
costs associated with the relocation of certain administrative
offices and Falcon Technologies acquisition costs. Other
operating expenses in 2008 consisted primarily of a
$1.4 million write-off of a prepayment for the purchase of
ceramic proppant from a third-party proppant manufacturer and
$1.1 million relating to
start-up
costs for the second production line at the Companys
Toomsboro, Georgia facility and the reopening of the New Iberia,
Louisiana manufacturing facility idled earlier in 2008.
Operating expenses consisted of $37.6 million of SG&A
expenses and $2.7 million of other operating expenses for
the year ended December 31, 2008, compared to
$29.0 million and $1.5 million, respectively, for
2007. As a percentage of revenues, SG&A and other operating
expenses remained unchanged at 10% in 2008 and 2007. SG&A
expenses increased primarily because of global marketing
activity and administrative expenses supporting revenue growth.
Other operating expenses of $2.7 million for the year ended
December 31, 2008 consisted primarily of a
$1.4 million write-off of a prepayment for the purchase of
ceramic proppant from a third-party proppant manufacturer and
$1.1 million relating to
start-up
costs for the second production line at the Companys
Toomsboro, Georgia facility and the reopening of the New Iberia,
Louisiana manufacturing facility idled earlier in 2008. Other
operating expenses of $1.5 million for the year ended
December 31, 2007 consisted of $1.2 million relating
to start-up
costs associated with the Companys new manufacturing
facility in Russia and a $0.3 million loss related to
equipment disposals.
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Consolidated Other Income
|
|
$
|
344
|
|
|
|
(73
|
)%
|
|
$
|
1,266
|
|
|
|
(59
|
)%
|
|
$
|
3,120
|
|
Other income for the year ended December 31, 2009 declined
$0.9 million compared to the same period in 2008. This
decline is mainly attributed to a $0.8 million decrease in
foreign currency exchange gains resulting from exchange rate
fluctuations between the local reporting currency and the
currency in which certain liabilities of the Companys
subsidiary in Russia are denominated. The Company recognizes
gains and losses resulting from fluctuations in these currencies
as a result of the capital structure of its investment in that
country. By the end of 2008, the Company had restructured its
investment in Russia thereby limiting income statement exposure
to future changes in currency exchange rates.
Other income for the year ended December 31, 2008 declined
$1.8 million compared to 2007 primarily due to a
$2.6 million decrease in foreign currency exchange gains
resulting from the reduction during 2008 in intercompany
liabilities that were subject to exchange rate fluctuations.
This reduction in foreign currency gains was partially offset by
a $0.5 million increase in gains resulting from changes in
exchange rates between the functional currency and the foreign
currency in which the effective transactions were denominated.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Income Tax Expense
|
|
$
|
26,984
|
|
|
|
(3
|
)%
|
|
$
|
27,944
|
|
|
|
12
|
%
|
|
$
|
24,938
|
|
Effective Income Tax Rate
|
|
|
33.8
|
%
|
|
|
|
|
|
|
31.6
|
%
|
|
|
|
|
|
|
33.4
|
%
|
22
Consolidated income tax expense was $27.0 million, or 33.8%
of pretax income, for the year ended December 31, 2009
compared to $27.9 million, or 31.6% of pretax income for
2008. The $0.9 million decrease is due to lower pretax
income partially offset by an increase in the effective tax rate
primarily due to benefits relating to mining depletion
deductions that the Company recorded during the third quarter of
2008.
Consolidated income tax expense was $27.9 million, or 31.6%
of pretax income, for the year ended December 31, 2008
compared to $24.9 million, or 33.4% of pretax income for
2007. The decrease in the effective tax rate is primarily due to
the additional tax benefits associated with the depletion of
kaolin minerals owned by the Company discussed above. In
addition, the effective tax rate declined in part due to the
final preparation and filing of the Companys prior year
tax returns.
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
|
($ in thousands)
|
|
Income from Discontinued Operations, net of taxes
|
|
|
|
|
|
|
|
|
|
$
|
5,784
|
|
|
|
37
|
%
|
|
$
|
4,229
|
|
Gain on Disposal of Discontinued Operations, net of taxes
|
|
|
|
|
|
|
|
|
|
$
|
44,127
|
|
|
|
|
|
|
|
|
|
On August 28, 2008, the Company entered into a definitive
agreement to sell its fracture and reservoir diagnostics
business, including the Pinnacle name and related trademarks.
The resulting gain on sale and operations of this business are
presented as discontinued operations. The sale was completed on
October 10, 2008 for $142.3 million in cash, net of
working capital adjustments. The Company recorded a gain of
$44.1 million, which is net of income taxes of
$24.4 million. The Company did not record any income from
discontinued operations in 2009.
Liquidity
and Capital Resources
At December 31, 2009, the Company had cash and cash
equivalents of $69.6 million compared to cash and cash
equivalents of $154.8 million at December 31, 2008.
During 2009, the Company generated $22.1 million of cash
from operating activities of continuing operations, which is net
of $70.5 million used for income tax payments associated
with the sale of discontinued operations on October 10,
2008, third and fourth quarter 2008 estimated tax payments that
were deferred to 2009 as a result of hurricane Gustav tax
relief, and 2009 taxable income. The Company also generated
$0.9 million from employee exercises of stock options and
retained $0.2 million cash from excess tax benefits
relating to stock based compensation to employees. Uses of cash
included $46.1 million of capital spending,
$23.0 million for the acquisition of the assets of BBL
Falcon Industries, Ltd., $16.3 million of cash dividends,
$22.7 million for the repurchase of the Companys
common stock and $0.3 million from the effect of exchange
rate changes on cash. Major capital spending in 2009 included
engineering and procurement on a third production line at the
Toomsboro facility, equipment relating to the resin-coating
process at the New Iberia facility, and replacement of various
equipment associated with the McIntyre facility.
The Company believes its operating results for 2010 will
continue to be influenced by the level of natural gas drilling
in North America but expects its ability to demonstrate the
value of ceramic proppant relative to alternatives will allow it
to continue to generate new sales opportunities. Although the
North American drilling rig count improved during the third and
fourth quarters of 2009, it is not apparent whether this is the
beginning of a recovery or a short-term correction. The Company
believes the steep natural gas decline curves in North America
will eventually help in bringing supply and demand more into
balance; however, the timing of a sustainable recovery in the
oil and gas industry is difficult to pinpoint.
Subject to its financial condition, the amount of funds
generated from operations and the level of capital expenditures,
the Companys current intention is to continue to pay
quarterly dividends to holders of its common stock. On
January 19, 2010, the Companys Board of Directors
approved the payment of a quarterly cash dividend of $0.18 per
share to shareholders of the Companys common stock on
February 1, 2010. The dividend is payable on
February 16, 2010. The Company estimates its total capital
expenditures in 2010 will be between $70.0 million and
$78.0 million, which include costs associated with
completion of the previously announced construction of the
23
Companys third production line at its Toomsboro, Georgia
facility. The Company currently anticipates that the project
will be completed near the end of 2010.
The Company has historically maintained an unsecured line of
credit of $10.0 million. That line of credit expired as of
December 31, 2009; however, in January 2010 the Company
secured another $10.0 million line of credit with Wells
Fargo Bank, N.A. The Company anticipates that cash on hand, cash
provided by operating activities and funds available under its
line of credit will be sufficient to meet planned operating
expenses, tax obligations, capital expenditures and other cash
needs for the next 12 months. The Company also believes
that it could acquire additional debt financing, if needed.
Based on these assumptions, the Company believes that its fixed
costs could be met even with a moderate decrease in demand for
the Companys products.
Off-Balance
Sheet Arrangements
The Company had no off-balance sheet arrangements as of
December 31, 2009.
Contractual
Obligations
The following table summarizes the Companys contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Period
|
|
|
|
|
|
|
Less than
|
|
|
1 - 3
|
|
|
3 - 5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
($ in thousands)
|
|
|
Long-term debt obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily railroad equipment
|
|
|
23,745
|
|
|
|
5,700
|
|
|
|
9,248
|
|
|
|
4,949
|
|
|
|
3,848
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
|
43,010
|
|
|
|
24,793
|
|
|
|
18,217
|
|
|
|
|
|
|
|
|
|
Raw materials contracts
|
|
|
26,744
|
|
|
|
1,505
|
|
|
|
4,963
|
|
|
|
6,942
|
|
|
|
13,334
|
|
Other long-term obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
93,499
|
|
|
$
|
31,998
|
|
|
$
|
32,428
|
|
|
$
|
11,891
|
|
|
$
|
17,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 6 and Note 15 to the Notes to the
Consolidated Financial Statements.
Operating lease obligations relate primarily to railroad
equipment leases and include leases of other property, plant and
equipment.
The Company uses natural gas to power its domestic manufacturing
plants. From time to time, the Company enters into contracts to
purchase a portion of the anticipated natural gas requirements
at specified prices. As of December 31, 2009, the last such
contract was due to expire in December 2012.
The Company has entered into contracts to supply raw materials,
primarily kaolin and bauxite, to each of its manufacturing
plants. Each of the contracts is described in Note 15 to
the Notes to the Consolidated Financial Statements. Four of the
contracts do not require the Company to purchase minimum annual
quantities, but do require the purchase of minimum annual
percentages, ranging from 70% to 100% of the respective
plants requirements for the specified raw materials. One
outstanding contract requires the Company to purchase a minimum
annual quantity of material.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
The Companys major market risk exposure is to foreign
currency fluctuations that could impact its investments in China
and Russia. As of December 31, 2009, the Companys net
investment that is subject to foreign currency fluctuations
totaled $77.6 million, and the Company has recorded a
cumulative foreign currency translation loss of
$5.2 million, net of deferred income tax benefit. This
cumulative translation loss is included in Accumulated Other
Comprehensive Loss. From time to time, the Company may enter
into forward foreign
24
exchange contracts to hedge the impact of foreign currency
fluctuations. There were no such foreign exchange contracts
outstanding at December 31, 2009.
The Company has a $10.0 million line of credit with a
commercial bank. Under the terms of the revolving credit
agreement, the Company may elect to pay interest at either a
fluctuating base rate established by the bank from time to time
or at a rate based on the rate established in the London
inter-bank market. There were no borrowings outstanding under
the previous agreement at December 31, 2009. The Company
does not believe that it has any material exposure to market
risk associated with interest rates.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this Item is contained in pages F-3
through F-23 of this Report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or
submitted under the Securities Exchange Act of 1934 (the
Exchange Act) is recorded, processed, summarized and
reported, within the time periods specified in the SECs
rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure
that information required to be disclosed in the reports filed
under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
As of December 31, 2009, management carried out an
evaluation, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure
controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurances
of achieving their control objectives. Based upon and as of the
date of that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Companys
disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the SECs rules and forms, and to ensure that
information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) Managements Report on Internal Control Over
Financial Reporting
For Managements Report on Internal Control Over Financial
Reporting, see
page F-1
of this Report.
(c) Report of Independent Registered Public Accounting Firm
For the Report of Independent Registered Public Accounting Firm
on the Companys internal control over financial reporting,
see
page F-2
of this Report.
(d) Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control
over financial reporting during the quarter ended
December 31, 2009, that materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
25
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
Certain information required by Part III is omitted from
this Report. The Company will file a definitive proxy statement
pursuant to Regulation 14A (the Proxy
Statement) not later than 120 days after the end of
the fiscal year covered by this Report and certain information
included therein is incorporated herein by reference. Only those
sections of the Proxy Statement that specifically address the
items set forth herein are incorporated by reference. Such
incorporation does not include the Compensation Committee Report
included in the Proxy Statement.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information concerning executive officers under Item 401 of
Regulation S-K
is set forth in Part I of this
Form 10-K.
The other information required by this Item is incorporated by
reference to the portions of the Companys Proxy Statement
entitled Security Ownership of Certain Beneficial Owners
and Management, Election of Directors,
Board of Directors, Committees of the Board of Directors
and Meeting Attendance, Code of Business Conduct and
Ethics, Section 16(a) Beneficial Ownership
Compliance and Report of the Audit Committee.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated by
reference to the portions of the Companys Proxy Statement
entitled Compensation of Executive Officers,
Director Compensation and Potential
Termination and Change in Control Payments.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated by
reference from the Companys Proxy Statement under the
captions Securities Ownership of Certain Beneficial Owners
and Management and Equity Compensation Plan
Information.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated by
reference to the portion of the Companys Proxy Statement
entitled Election of Directors.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this Item is incorporated by
reference to the portion of the Companys Proxy Statement
entitled Ratification of Appointment of the Companys
Independent Registered Public Accounting Firm.
26
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Exhibits, Financial Statements and Financial Statement
Schedules:
1. Consolidated Financial Statements
The Consolidated Financial Statements of CARBO Ceramics Inc.
listed below are contained in pages F-3 through F-23 of this
Report:
2. Consolidated Financial Statement Schedules
Schedule II Consolidated Valuation and
Qualifying Accounts is contained on
page S-1
of this Report. All other schedules have been omitted since they
are either not required or not applicable.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are
filed as part of, or incorporated by reference into, this Report.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Gary A. Kolstad
President and Chief Executive Officer
|
|
|
|
By:
|
/s/ Ernesto
Bautista III
|
Ernesto Bautista III
Vice President and
Chief Financial Officer
Dated: February 26, 2010
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Gary A. Kolstad
and Ernesto Bautista III, jointly and severally, his
attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report
on
Form 10-K,
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
C. Morris
William
C. Morris
|
|
Chairman of the Board
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Gary
A. Kolstad
Gary
A. Kolstad
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Ernesto
Bautista III
Ernesto
Bautista III
|
|
Vice President and Chief Financial Officer (Principal Financial
and Accounting Officer)
|
|
February 26, 2010
|
28
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Sigmund
L. Cornelius
Sigmund
L. Cornelius
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ James
B. Jennings
James
B. Jennings
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ H.E.
Lentz, Jr.
H.E.
Lentz, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Randy
L. Limbacher
Randy
L. Limbacher
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Robert
S. Rubin
Robert
S. Rubin
|
|
Director
|
|
February 26, 2010
|
29
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. The Companys
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external reporting purposes in accordance with generally
accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief
Financial Officer, assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on its
assessment and those criteria, management has concluded that the
Company maintained effective internal control over financial
reporting as of December 31, 2009.
The Companys independent registered public accounting
firm, Ernst & Young LLP, has issued an attestation
report on the Companys internal control over financial
reporting. That report is included herein.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders
CARBO Ceramics Inc.
We have audited CARBO Ceramics Inc.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). CARBO Ceramics
Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report
on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, CARBO Ceramics Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of CARBO Ceramics Inc. as of
December 31, 2009, and 2008, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended
December 31, 2009 and our report dated February 26,
2010 expressed an unqualified opinion thereon.
New Orleans,
Louisiana
February 26, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders
CARBO Ceramics Inc.
We have audited the accompanying consolidated balance sheets of
CARBO Ceramics Inc. as of December 31, 2009 and 2008, and
the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of CARBO Ceramics Inc. at December 31,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, in 2008 the Company changed its method of accounting
for inventories.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), CARBO
Ceramics Inc.s internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 26, 2010 expressed an
unqualified opinion thereon.
New Orleans,
Louisiana
February 26, 2010
F-3
CARBO
CERAMICS INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
69,557
|
|
|
$
|
154,817
|
|
Trade accounts and other receivables, net
|
|
|
59,567
|
|
|
|
65,724
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods, net
|
|
|
48,414
|
|
|
|
34,886
|
|
Raw materials and supplies
|
|
|
31,735
|
|
|
|
29,958
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
80,149
|
|
|
|
64,844
|
|
Prepaid expenses and other current assets
|
|
|
2,799
|
|
|
|
2,243
|
|
Deferred income taxes
|
|
|
6,798
|
|
|
|
5,682
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
218,870
|
|
|
|
293,310
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
|
11,326
|
|
|
|
10,208
|
|
Land-use and mineral rights
|
|
|
8,043
|
|
|
|
6,257
|
|
Buildings
|
|
|
44,170
|
|
|
|
42,416
|
|
Machinery and equipment
|
|
|
295,188
|
|
|
|
281,894
|
|
Construction in progress
|
|
|
56,598
|
|
|
|
24,881
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
415,325
|
|
|
|
365,656
|
|
Less accumulated depreciation
|
|
|
144,603
|
|
|
|
120,754
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
270,722
|
|
|
|
244,902
|
|
Goodwill
|
|
|
13,716
|
|
|
|
4,859
|
|
Intangible and other assets, net
|
|
|
10,104
|
|
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
513,412
|
|
|
$
|
546,877
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,732
|
|
|
$
|
15,615
|
|
Accrued payroll and benefits
|
|
|
7,513
|
|
|
|
9,373
|
|
Accrued freight
|
|
|
4,988
|
|
|
|
3,668
|
|
Accrued utilities
|
|
|
2,727
|
|
|
|
4,089
|
|
Accrued income taxes
|
|
|
3,609
|
|
|
|
47,929
|
|
Other accrued expenses
|
|
|
4,889
|
|
|
|
3,174
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,458
|
|
|
|
83,848
|
|
Deferred income taxes
|
|
|
23,638
|
|
|
|
20,495
|
|
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; 23,077,183 and 23,637,678 shares issued and
outstanding at December 31, 2009 and 2008, respectively
|
|
|
231
|
|
|
|
236
|
|
Additional paid-in capital
|
|
|
54,361
|
|
|
|
73,460
|
|
Retained earnings
|
|
|
407,933
|
|
|
|
371,602
|
|
Accumulated other comprehensive loss, net
|
|
|
(5,209
|
)
|
|
|
(2,764
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
457,316
|
|
|
|
442,534
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
513,412
|
|
|
$
|
546,877
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CARBO
CERAMICS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands, except per share data)
|
|
|
Revenues
|
|
$
|
341,872
|
|
|
$
|
387,828
|
|
|
$
|
299,996
|
|
Cost of sales
|
|
|
221,369
|
|
|
|
260,394
|
|
|
|
198,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
120,503
|
|
|
|
127,434
|
|
|
|
101,926
|
|
Selling, general and administrative expenses
|
|
|
40,897
|
|
|
|
37,644
|
|
|
|
28,984
|
|
Start-up
costs
|
|
|
|
|
|
|
1,108
|
|
|
|
1,215
|
|
Loss on disposal or impairment of assets
|
|
|
156
|
|
|
|
1,599
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
79,450
|
|
|
|
87,083
|
|
|
|
71,459
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
451
|
|
|
|
491
|
|
|
|
419
|
|
Foreign currency exchange (loss) gain, net
|
|
|
(192
|
)
|
|
|
257
|
|
|
|
2,882
|
|
Other, net
|
|
|
85
|
|
|
|
518
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
1,266
|
|
|
|
3,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
79,794
|
|
|
|
88,349
|
|
|
|
74,579
|
|
Income taxes
|
|
|
26,984
|
|
|
|
27,944
|
|
|
|
24,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
52,810
|
|
|
|
60,405
|
|
|
|
49,641
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
5,784
|
|
|
|
4,229
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
44,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,810
|
|
|
$
|
110,316
|
|
|
$
|
53,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.47
|
|
|
$
|
2.03
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.52
|
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.46
|
|
|
$
|
2.02
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.51
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CARBO
CERAMICS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
($ in thousands, except per share data)
|
|
|
Balances at January 1, 2007
|
|
$
|
244
|
|
|
$
|
104,784
|
|
|
$
|
235,732
|
|
|
$
|
2,099
|
|
|
$
|
342,859
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
53,870
|
|
|
|
|
|
|
|
53,870
|
|
Foreign currency translation adjustment, net of tax of $1,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,400
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
1,399
|
|
Tax benefit from stock based compensation
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
328
|
|
Stock based compensation
|
|
|
|
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
2,176
|
|
Cash dividends ($0.52 per share)
|
|
|
|
|
|
|
|
|
|
|
(12,723
|
)
|
|
|
|
|
|
|
(12,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
245
|
|
|
|
108,686
|
|
|
|
276,879
|
|
|
|
3,629
|
|
|
|
389,439
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
110,316
|
|
|
|
|
|
|
|
110,316
|
|
Foreign currency translation adjustment, net of tax benefit of
($3,442)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,393
|
)
|
|
|
(6,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,923
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
2,556
|
|
|
|
|
|
|
|
|
|
|
|
2,557
|
|
Tax benefit from stock based compensation
|
|
|
|
|
|
|
1,186
|
|
|
|
|
|
|
|
|
|
|
|
1,186
|
|
Stock based compensation
|
|
|
|
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
3,172
|
|
Shares repurchased and retired
|
|
|
(10
|
)
|
|
|
(42,140
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
(42,240
|
)
|
Shares surrendered by employees to pay taxes
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
(269
|
)
|
Cash dividends ($0.62 per share)
|
|
|
|
|
|
|
|
|
|
|
(15,234
|
)
|
|
|
|
|
|
|
(15,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
236
|
|
|
|
73,460
|
|
|
|
371,602
|
|
|
|
(2,764
|
)
|
|
|
442,534
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
52,810
|
|
|
|
|
|
|
|
52,810
|
|
Foreign currency translation adjustment, net of tax of $1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,445
|
)
|
|
|
(2,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,365
|
|
Exercise of stock options
|
|
|
1
|
|
|
|
895
|
|
|
|
|
|
|
|
|
|
|
|
896
|
|
Tax benefit from stock based compensation
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
261
|
|
Stock granted under restricted stock plan, net
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
2,302
|
|
|
|
|
|
|
|
|
|
|
|
2,302
|
|
Shares repurchased and retired
|
|
|
(7
|
)
|
|
|
(22,556
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,563
|
)
|
Shares surrendered by employees to pay taxes
|
|
|
|
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
(192
|
)
|
Cash dividends ($0.70 per share)
|
|
|
|
|
|
|
|
|
|
|
(16,287
|
)
|
|
|
|
|
|
|
(16,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
$
|
231
|
|
|
$
|
54,361
|
|
|
$
|
407,933
|
|
|
$
|
(5,209
|
)
|
|
$
|
457,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CARBO
CERAMICS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,810
|
|
|
$
|
110,316
|
|
|
$
|
53,870
|
|
Adjustments to reconcile net income to net cash provided by
operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(5,784
|
)
|
|
|
(4,229
|
)
|
Depreciation and amortization
|
|
|
24,905
|
|
|
|
24,638
|
|
|
|
19,895
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
(44,127
|
)
|
|
|
|
|
Provision for doubtful accounts
|
|
|
516
|
|
|
|
72
|
|
|
|
82
|
|
Deferred income taxes
|
|
|
573
|
|
|
|
(5,714
|
)
|
|
|
(776
|
)
|
Excess tax benefits from stock based compensation
|
|
|
(225
|
)
|
|
|
(375
|
)
|
|
|
(170
|
)
|
Loss on disposal or impairment of assets
|
|
|
156
|
|
|
|
1,599
|
|
|
|
237
|
|
Foreign currency exchange loss (gain), net
|
|
|
192
|
|
|
|
(257
|
)
|
|
|
(2,882
|
)
|
Stock compensation expense
|
|
|
2,571
|
|
|
|
2,052
|
|
|
|
1,709
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and other receivables
|
|
|
8,119
|
|
|
|
(15,515
|
)
|
|
|
2,773
|
|
Inventories
|
|
|
(14,639
|
)
|
|
|
(13,162
|
)
|
|
|
(12,143
|
)
|
Prepaid expenses and other current assets
|
|
|
(606
|
)
|
|
|
(596
|
)
|
|
|
204
|
|
Long-term prepaid expenses
|
|
|
236
|
|
|
|
(1,464
|
)
|
|
|
173
|
|
Accounts payable
|
|
|
(7,971
|
)
|
|
|
234
|
|
|
|
1,325
|
|
Accrued expenses
|
|
|
(529
|
)
|
|
|
1,905
|
|
|
|
871
|
|
Accrued income taxes
|
|
|
(44,058
|
)
|
|
|
22,247
|
|
|
|
(369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
22,050
|
|
|
|
76,069
|
|
|
|
60,570
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
(46,127
|
)
|
|
|
(23,343
|
)
|
|
|
(53,944
|
)
|
Acquisition of Applied Geomechanics, Inc., net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(2,545
|
)
|
Acquisition of BBL Falcon Industries, Ltd.
|
|
|
(23,000
|
)
|
|
|
|
|
|
|
|
|
Investment in cost-method investee
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
Net proceeds from sale of discontinued operations
|
|
|
|
|
|
|
142,278
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
Proceeds from maturities of short-term investments
|
|
|
|
|
|
|
|
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities of
continuing operations
|
|
|
(69,127
|
)
|
|
|
117,935
|
|
|
|
(48,989
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
|
|
|
|
|
6,500
|
|
|
|
12,000
|
|
Repayments on bank borrowings
|
|
|
|
|
|
|
(6,500
|
)
|
|
|
(12,000
|
)
|
Net proceeds from stock based compensation
|
|
|
896
|
|
|
|
2,557
|
|
|
|
1,398
|
|
Dividends paid
|
|
|
(16,287
|
)
|
|
|
(15,234
|
)
|
|
|
(12,723
|
)
|
Purchase of common stock
|
|
|
(22,755
|
)
|
|
|
(42,509
|
)
|
|
|
|
|
Excess tax benefits from stock based compensation
|
|
|
225
|
|
|
|
375
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities of continuing operations
|
|
|
(37,921
|
)
|
|
|
(54,811
|
)
|
|
|
(11,155
|
)
|
Effect of exchange rate changes on cash
|
|
|
(262
|
)
|
|
|
(371
|
)
|
|
|
243
|
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
3,699
|
|
|
|
(13,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(85,260
|
)
|
|
|
142,521
|
|
|
|
(12,677
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
154,817
|
|
|
|
12,296
|
|
|
|
24,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
69,557
|
|
|
$
|
154,817
|
|
|
$
|
12,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1
|
|
|
$
|
44
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
70,463
|
|
|
$
|
15,305
|
|
|
$
|
28,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
thousands, except per share data)
|
|
1.
|
Significant
Accounting Policies
|
Description
of Business
CARBO Ceramics Inc. (the Company) was formed in 1987
and is a manufacturer of ceramic proppants. The Company has six
production plants in: New Iberia, Louisiana; Eufaula, Alabama;
McIntyre, Georgia; Toomsboro, Georgia; Luoyang, China; and
Kopeysk, Russia. The Company predominantly markets its proppant
products through pumping service companies that perform
hydraulic fracturing for oil and gas companies. Finished goods
inventories are stored at the plant sites and various domestic
and international remote distribution facilities. The Company
also provides consulting and software services to oil and gas
companies worldwide, as well as a broad range of technologies
for spill prevention, containment, and geotechnical monitoring.
Principles
of Consolidation
The consolidated financial statements include the accounts of
CARBO Ceramics Inc. and its operating subsidiaries. The
consolidated financial statements also include a 6% interest in
a Texas-based electronic equipment manufacturing company that
was acquired in March 2008 and is reported under the cost method
of accounting. All significant intercompany transactions have
been eliminated. Certain prior year amounts have been
reclassified to conform to current year classifications.
Concentration
of Credit Risk, Accounts Receivable and Other
Receivables
The Company performs periodic credit evaluations of its
customers financial condition and generally does not
require collateral. Receivables are generally due within
30 days. The majority of the Companys receivables are
from customers in the petroleum pressure pumping industry. The
Company establishes an allowance for doubtful accounts based on
its assessment of collectability risk and periodically evaluates
the balance in the allowance based on a review of trade accounts
receivable. Trade accounts receivable are periodically reviewed
for collectability based on customers past credit history
and current financial condition, and the allowance is adjusted
if necessary. Credit losses historically have been
insignificant. The allowance for doubtful accounts at
December 31, 2009 and 2008 was $2,169 and $1,739,
respectively. Other receivables were $2,061 and $2,206 as of
December 31, 2009 and 2008, respectively, which related
mainly to miscellaneous receivables in China and value added tax
receivables in Russia for 2009 and miscellaneous receivables in
China for 2008.
Cash
Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The carrying amounts reported in the balance sheet
for cash equivalents approximate fair value.
Inventories
Inventories are stated at the lower of cost (weighted average)
or market. Finished goods inventories include costs of
materials, plant labor and overhead incurred in the production
of the Companys products and costs to transfer finished
goods to distribution centers.
During the second quarter of 2008, the Company changed its
method of accounting for inventories from the
first-in,
first-out (FIFO) method to the weighted average cost method. The
Company believes that the weighted average cost method more
appropriately reflects costs in relation to the physical
movement of bulk-processed finished goods. A change in
accounting method requires retroactive application and thus
restatement of all prior periods presented. However, this change
in inventory costing method did not result in a material
cumulative difference or a material difference in any one
reporting period, and consequently the prior periods have not
been
F-8
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
restated. The cumulative effect of the accounting change, which
was immaterial, was reflected in the results of operations in
the second quarter of 2008.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Repair and
maintenance costs are expensed as incurred. Depreciation is
computed on the straight-line method for financial reporting
purposes using the following estimated useful lives:
|
|
|
|
|
Buildings and improvements
|
|
|
15 to 30 years
|
|
Machinery and equipment
|
|
|
3 to 30 years
|
|
Land-use rights
|
|
|
30 years
|
|
The Company holds approximately 2,630 acres of land and
leasehold interests in Wilkinson County, Georgia, near its
plants in McIntyre and Toomsboro, Georgia and 80 acres of
land and leasehold interests in Barbour County, Alabama near its
plant in Eufaula, Alabama. The Company estimates the land in
Wilkinson County, Georgia and Barbour County, Alabama has an
aggregate total of 12.2 million tons of kaolin reserves for
use as raw material in production of its proppant products. The
capitalized costs of land and mineral rights as well as costs
incurred to develop such property are amortized using the
units-of-production
method based on estimated total tons of kaolin reserves.
Impairment
of Long-Lived Assets and Intangible Assets
Long-lived assets to be held and used and intangible assets that
are subject to amortization are reviewed for impairment whenever
events or circumstances indicate their carrying amounts might
not be recoverable. Recoverability is assessed by comparing the
undiscounted expected future cash flows from the assets with
their carrying amount. If the carrying amount exceeds the sum of
the undiscounted future cash flows an impairment loss is
recorded. The impairment loss is measured by comparing the fair
value of the assets with their carrying amounts. Intangible
assets that are not subject to amortization are tested for
impairment at least annually by comparing their fair value with
the carrying amount and recording an impairment loss for any
excess of carrying amount over fair value. Fair values are
generally determined based on discounted expected future cash
flows or appraised values, as appropriate. Long-lived assets
that are held for disposal are reported at the lower of the
assets carrying amount or fair value less costs related to
the assets disposition. During 2009, 2008 and 2007, the
Company recognized losses of $156, $1,599 and $268,
respectively, on disposal or impairment of various assets from
continuing operations. Disposals in 2009 mainly related to
equipment disposals in its China and Russia operations while
2008 disposals related to the write-off of a prepayment for the
purchase of ceramic proppant from a Chinese proppant
manufacturer. Disposals in 2007 mainly related to equipment
disposals in its U.S. manufacturing facilities.
Capitalized
Software
The Company capitalizes certain software costs, after
technological feasibility has been established, which are
amortized utilizing the straight-line method over the economic
lives of the related products, not to exceed five years.
Goodwill
Goodwill represents the excess of the cost of companies acquired
over the fair value of their net assets at the date of
acquisition. Realization of goodwill is assessed at least
annually by management based on the fair value of the respective
reporting unit. The latest impairment review indicated goodwill
was not impaired.
F-9
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
Revenue
Recognition
Revenue from proppant sales is recognized when title passes to
the customer, generally upon delivery. Revenue from consulting
and geotechnical services is recognized at the time service is
performed. Revenue from the sale of fracture simulation software
is recognized when title passes to the customer at time of
shipment. Revenue from the sale of spill prevention services is
recognized at the time service is performed. Revenue from the
sale of containment goods is recognized at the time goods are
delivered.
Shipping
and Handling Costs
Shipping and handling costs are classified as cost of sales.
Shipping costs consist of transportation costs to deliver
products to customers. Handling costs include labor and overhead
to maintain finished goods inventory and operate distribution
facilities.
Cost
of Start-Up
Activities
Start-up
activities, including organization costs, are expensed as
incurred.
Start-up
costs for 2008 related to the
start-up of
the second production line at the Companys Toomsboro,
Georgia facility and the reopening of the New Iberia, Louisiana
manufacturing facility idled earlier during 2008.
Start-up
costs for 2007 are related primarily to the new proppant
manufacturing facility in Kopeysk, Russia, which began proppant
production in the first half of 2007.
Start-up
costs include organizational and administrative costs associated
with the facilities as well as labor, materials, and utilities
to bring installed equipment to operating condition.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Research
and Development Costs
Research and development costs are charged to operations when
incurred and are included in selling, general and administrative
expenses. The amounts incurred in 2009, 2008 and 2007 were
$2,902, $3,130 and $3,361, respectively.
Foreign
Subsidiaries
Financial statements of the Companys foreign subsidiaries
are translated using current exchange rates for assets and
liabilities; average exchange rates for the period for revenues,
expenses, gains and losses; and historical exchange rates for
equity accounts. Resulting translation adjustments are included
in, and the only component of, accumulated other comprehensive
loss as a separate component of shareholders equity.
New
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (the ASC),
a replacement of SFAS No. 162. The ASC, which was
launched on July 1, 2009, became the single source of
authoritative non-governmental U.S. generally accepted
accounting principles (GAAP), superseding various
existing authoritative accounting pronouncements. The ASC
eliminates the GAAP hierarchy contained in
SFAS No. 162 and establishes one level of
authoritative GAAP. All other literature is considered
non-authoritative. The ASC is effective for financial statements
issued for interim and annual periods ending after
September 15, 2009. The Company adopted the ASC as of
July 1, 2009. Adoption did
F-10
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
not have an impact on the Companys consolidated financial
statements other than changes in reference to various
authoritative accounting pronouncements.
Effective April 1, 2009, the Company adopted ASC Topic 855,
Subsequent Events (formerly
SFAS No. 165) which establishes (i) the
period after the balance sheet date during which management
shall evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements;
(ii) the circumstances under which an entity shall
recognize events or transactions occurring after the balance
sheet date in its financial statements; and (iii) the
disclosures that an entity shall make about events or
transactions that occurred after the balance sheet date. The
adoption did not have a material impact on the Companys
financial position, results of operations or cash flows.
Effective April 1, 2009, the Company adopted ASC Topic 825,
Financial Instruments (formerly FASB Staff
Position (FSP)
FAS 107-1
and APB
28-1). This
standard extends certain disclosure requirements related to the
fair value of financial statements to interim financial
statements. The adoption of this standard only required
additional disclosure in the Companys interim financial
statements.
Effective January 1, 2009, the Company adopted ASC Topic
805, Business Combinations (formerly
SFAS No. 141(R)). The statement retains the purchase
method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are
recognized in purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process
research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. The guidance
in ASC Topic 805 is applied prospectively to business
combinations completed on or after January 1, 2009,
including the Companys acquisition of substantially all of
the assets of BBL Falcon Industries, Ltd. (see Note 3).
Effective January 1, 2009, the Company adopted ASC Topic
260, Earnings Per Share (formerly Staff
Position (FSP)
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities).
This standard provides that unvested share-based payment awards
that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The Company has
determined that its outstanding non-vested restricted stock
awards are participating securities. Accordingly, effective
January 1, 2009, earnings per common share is computed
using the two-class method prescribed by ASC Topic 260
Earnings Per Share. All previously reported
earnings per common share data were retrospectively adjusted to
conform to the new computation method. The impact of adoption of
this standard was not material to earnings per share for any
period presented.
In April 2008, the FASB issued an amendment to the standard
pertaining to intangible assets. This guidance discusses
determination of the useful life of intangible assets and amends
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset. This guidance is intended to
improve the consistency between the useful life of an intangible
asset determined under the guidance for goodwill and other
intangible assets and the period of expected cash flows used to
measure the fair value of the asset. This guidance is effective
for the Company beginning January 1, 2010. Early adoption
is prohibited. The Company does not expect the adoption of this
guidance to have an impact on its consolidated financial
statements.
|
|
2.
|
Sale of
Assets (Discontinued Operations)
|
On August 28, 2008, the Company entered into a definitive
agreement to sell a substantial portion of the assets of its
wholly-owned subsidiary, Pinnacle Technologies, Inc.
(Pinnacle). The sale, which included all of the
fracture and reservoir diagnostic business, the Pinnacle name
and related trademarks, was completed on October 10, 2008
for $142,278 in cash, net of working capital adjustments. The
Company recorded a gain of $44,127, net of
F-11
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
goodwill of $18,340 allocated to the business sold and income
taxes of $24,394. The group of assets sold meets the definition
of a component of an entity as defined in ASC Topic 205,
Presentation of Financial Statements
(formerly SFAS No. 144). The Company has no continuing
involvement in these operations. In accordance with ASC Topic
205, operations associated with these assets have been
classified as income from discontinued operations in the
accompanying consolidated statements of income and the cash
flows associated with discontinued operations have been
segregated in the accompanying consolidated statements of cash
flows. The Company retained the hydraulic fracturing simulation
software FracProPT, the hydraulic fracturing design, engineering
and consulting business and Applied Geomechanics, Inc., a
provider of tiltmeter technology for geotechnical applications.
Previously, the Pinnacle assets and operations were presented in
the Fracture and Reservoir Diagnostics segment, one of the
Companys two reportable segments. Segment information is
no longer presented because the remaining operations do not meet
the quantitative thresholds for a reportable segment. Subsequent
to the sale, the subsidiary name Pinnacle Technologies, Inc. was
changed to StrataGen, Inc.
Revenues and income before income taxes, excluding the gain on
disposed assets, from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
44,087
|
|
|
$
|
40,355
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
9,330
|
|
|
$
|
6,821
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,911
|
|
|
$
|
4,229
|
|
Gain on disposal, net of income taxes
|
|
|
(44,127
|
)
|
|
|
|
|
Depreciation, amortization and other
|
|
|
3,932
|
|
|
|
5,059
|
|
Changes in operating assets and liabilities, net
|
|
|
235
|
|
|
|
(10,121
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
9,951
|
|
|
|
(833
|
)
|
Investing activities: Capital expenditures and other, net
|
|
|
(6,664
|
)
|
|
|
(12,590
|
)
|
Financing activities: Excess tax benefits from stock based
compensation
|
|
|
412
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
$
|
3,699
|
|
|
$
|
(13,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Acquisition
of Business
|
On April 12, 2007, the Company purchased 100 percent
of the outstanding shares of Applied Geomechanics, Inc.
(AGI), a supplier of tiltmeters. Results of
operations for AGI, included in the consolidated financial
statements since that date, are not material. AGI develops and
markets precision measurement instruments for geotechnical and
scientific applications. The Companys acquisition and the
resulting goodwill were attributable to the Companys
strategy to expand its ability to produce tiltmeters and related
equipment and improve the Companys revenue generating
potential in the geotechnical (non-oilfield) monitoring
business. The acquisition was accounted for using the purchase
method of accounting provided for under ASC Topic 805,
Business Combinations (formerly
SFAS No. 141). The aggregate cost of the acquisition
was $2,553 in cash and direct costs of the transaction. Goodwill
of $1,373 arising in the transaction is not deductible for
income tax purposes.
F-12
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
On October 2, 2009 a wholly-owned subsidiary of the Company
purchased substantially all of the assets of BBL Falcon
Industries, Ltd. (Falcon), a supplier of spill
prevention and containment systems for the oil and gas industry.
The acquisition was made for the purpose of expanding the
Companys product and service offerings to its existing
client base. Falcon uses proprietary technology to provide
solutions that are designed to enable its clients to extend the
life of their storage assets, reduce the potential for
hydrocarbon spills and provide containment of stored materials.
The acquisition was accounted for using the purchase method of
accounting under ASC Topic 805, Business
Combinations (formerly SFAS No. 141(R)). The
aggregate purchase price of the acquisition was $23,000 in cash
and direct costs of the transaction. Acquisition costs incurred
during 2009 of $608 are reported in Selling, General and
Administrative Expenses. The operating results of the acquired
company have been included in the consolidated financial
statements from the date of acquisition. Goodwill of $8,857
arising in the transaction is deductible for income tax purposes.
Unaudited pro forma revenue, earnings and earnings per share
were not materially different from reported results and as such
are not presented herein.
The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Current assets
|
|
$
|
3,704
|
|
Property, plant and equipment
|
|
|
5,892
|
|
Intangible assets
|
|
|
6,453
|
|
Goodwill arising in the transaction
|
|
|
8,857
|
|
|
|
|
|
|
|
|
|
24,906
|
|
Current liabilities
|
|
|
(1,906
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
23,000
|
|
|
|
|
|
|
|
|
4.
|
Intangible
and Other Assets
|
Following is a summary of intangible and other assets as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
Average Life
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and licenses, software and hardware designs
|
|
5 years
|
|
$
|
2,836
|
|
|
$
|
1,294
|
|
|
$
|
2,463
|
|
|
$
|
1,157
|
|
Developed technology
|
|
10 years
|
|
|
2,782
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
Customer relationships and non-compete
|
|
9 years
|
|
|
2,838
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
Indefinite
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
2,263
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,552
|
|
|
$
|
1,448
|
|
|
$
|
4,963
|
|
|
$
|
1,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for 2009, 2008 and 2007 was $560, $462 and
$402, respectively. Estimated amortization expense for each of
the ensuing years through December 31, 2014 is $1,115,
$1,045, $871, $785 and $773, respectively.
Other assets totaling $2,263 and $2,500 at December 31,
2009 and 2008, respectively, mainly consisted of a 6% interest
in a Texas-based electronic equipment manufacturing company that
was acquired in March 2008 and is reported under the cost method
of accounting and a prepayment for ore reserves and mineral
rights to land in Saline County, Arkansas.
F-13
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
Under the terms of an unsecured revolving credit agreement with
a bank, dated December 31, 2000 and later amended, the
Company could borrow up to $10,000. This agreement expired on
December 31, 2009. The Company had the option of choosing
either the banks fluctuating Base Rate or LIBOR Fixed Rate
(as defined in the credit agreement). The terms of the credit
agreement provided for certain affirmative and negative
covenants and required the Company to maintain certain financial
ratios. Commitment fees were payable quarterly at the annual
rate of 0.375% of the unused line of credit. Commitment fees
were $38, $37, and $35 in 2009, 2008, and 2007, respectively.
The Company leases certain property, plant and equipment under
operating leases, primarily consisting of railroad equipment
leases. Minimum future rental payments due under non-cancelable
operating leases with remaining terms in excess of one year as
of December 31, 2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
5,700
|
|
2011
|
|
|
5,223
|
|
2012
|
|
|
4,025
|
|
2013
|
|
|
2,890
|
|
2014
|
|
|
2,059
|
|
Thereafter
|
|
|
3,848
|
|
|
|
|
|
|
Total
|
|
$
|
23,745
|
|
|
|
|
|
|
Leases of railroad equipment generally provide for renewal
options for periods from one to five years at their fair rental
value at the time of renewal. In the normal course of business,
operating leases for railroad equipment are generally renewed or
replaced by other leases. Rent expense for all operating leases
was $7,693 in 2009, $7,493 in 2008, and $6,205 in 2007.
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
Companys deferred tax assets and liabilities as of
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
1,265
|
|
|
$
|
975
|
|
Inventories
|
|
|
2,949
|
|
|
|
2,769
|
|
Goodwill
|
|
|
3,295
|
|
|
|
3,777
|
|
Other
|
|
|
2,618
|
|
|
|
3,426
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
10,127
|
|
|
|
10,947
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26,630
|
|
|
|
25,553
|
|
Foreign earnings
|
|
|
337
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
26,967
|
|
|
|
25,760
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
16,840
|
|
|
$
|
14,813
|
|
|
|
|
|
|
|
|
|
|
F-14
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
Foreign earnings in the table above are presented net of foreign
tax credits of $2,942 and $2,402 as of December 31, 2009
and 2008, respectively, that are expected to be utilized upon
repatriation of the foreign earnings.
Significant components of the provision for income taxes from
continuing operations for the years ended December 31 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
23,712
|
|
|
$
|
30,626
|
|
|
$
|
23,641
|
|
State
|
|
|
2,080
|
|
|
|
2,072
|
|
|
|
774
|
|
Foreign
|
|
|
619
|
|
|
|
960
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
26,411
|
|
|
|
33,658
|
|
|
|
25,714
|
|
Deferred
|
|
|
573
|
|
|
|
(5,714
|
)
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,984
|
|
|
$
|
27,944
|
|
|
$
|
24,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In China, the Company benefited from a full income tax holiday
from the inception of that business through 2004 and a partial
tax holiday from 2005 through 2008. However, provision has been
made for deferred U.S. income taxes on all foreign earnings
based on the Companys intent to repatriate foreign
earnings. The reconciliation of income taxes computed at the
U.S. statutory tax rate to the Companys income tax
expense for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
U.S. statutory rate
|
|
$
|
27,928
|
|
|
|
35.0
|
%
|
|
$
|
30,922
|
|
|
|
35.0
|
%
|
|
$
|
26,102
|
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
1,351
|
|
|
|
1.7
|
|
|
|
1,100
|
|
|
|
1.2
|
|
|
|
405
|
|
|
|
0.5
|
|
Mining depletion
|
|
|
(898
|
)
|
|
|
(1.1
|
)
|
|
|
(1,865
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
Section 199 Manufacturing Benefit, ETI Exclusion and other
|
|
|
(1,397
|
)
|
|
|
(1.8
|
)
|
|
|
(2,213
|
)
|
|
|
(2.5
|
)
|
|
|
(1,569
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,984
|
|
|
|
33.8
|
%
|
|
$
|
27,944
|
|
|
|
31.6
|
%
|
|
$
|
24,938
|
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, the Company determined that depletion deductions
should be claimed for the Companys kaolin mining
activities, which supply its lightweight ceramic proppant
operations. Mining depletion recorded during 2008 relates to
deductions available to the Company for mining activities
conducted during 2008, amounts claimed on the 2007 tax return,
as well as additional amounts claimed through the filing of an
amended tax return for 2006. State income taxes, net of federal
tax benefit, in 2007 are net of adjustments totaling $913
resulting from the preparation and filing of prior years
tax returns and a reduction in deferred income tax liabilities
associated with changes in certain state tax regulations.
The Company had a recorded reserve of approximately $312
associated with uncertain tax positions as of December 31,
2009 and there were no significant changes to the recorded
reserve during the year ended December 31, 2009. If these
uncertain tax positions are recognized, substantially all of
this amount would impact the effective tax rate. Related accrued
interest and penalties are recorded in income tax expense and
are not material.
The Company files its tax returns as prescribed by the tax laws
of the jurisdictions in which it operates, the most significant
of which are U.S. federal and certain state jurisdictions.
The Company does not currently have material income tax exposure
in foreign jurisdictions due to tax holidays, recent
commencement of operations or immaterial operations. In June
2007 the Company concluded an audit by the U.S. Internal
Revenue Service for its 2003 tax year. The outcome did not have
a material effect on the financial statements. The 2005 through
2008 tax
F-15
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
years are still subject to examination. Various U.S. state
jurisdiction tax years remain open to examination as well though
the Company believes assessments, if any, would be immaterial to
its consolidated financial statements.
Income tax expense included in discontinued operations for the
years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Income from discontinued operations
|
|
$
|
3,546
|
|
|
$
|
2,592
|
|
Gain on disposal of discontinued operations
|
|
|
24,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,940
|
|
|
$
|
2,592
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders and do not have
cumulative voting rights. Subject to preferences of any
Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally
available for that purpose. In the event of liquidation,
dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution
rights of any Preferred Stock then outstanding. The Common Stock
has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable.
On January 19, 2010, the Board of Directors declared a cash
dividend of $0.18 per share. The dividend is payable on
February 16, 2010 to shareholders of record on
February 1, 2010.
Preferred
Stock
The Companys charter authorizes 5,000 shares of
Preferred Stock. The Board of Directors has the authority to
issue Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the
designation of such series, without further vote or action by
the Companys shareholders. In connection with adoption of
a shareholder rights plan on February 13, 2002, the Company
created the Series A Preferred Stock and authorized
2,000 shares of the Series A Preferred Stock.
Shareholder
Rights Plan
On February 13, 2002, the Company adopted a shareholder
rights plan and declared a dividend of one right for each
outstanding share of Common Stock to shareholders of record on
February 25, 2002. With certain exceptions, the rights
become exercisable if a tender offer for the Company is
announced or any person or group acquires beneficial ownership
of at least 15 percent of the Companys Common Stock.
If exercisable, each right entitles the holder to purchase one
fifteen-thousandth of a share of Series A Preferred Stock
at an exercise price of $133 and, if any person or group
acquires beneficial ownership of at least 15 percent of the
Companys Common Stock, to acquire a number of shares of
Common Stock having a market value of two times the $133
exercise price. The Company may redeem the rights for $0.01 per
right at any time before any person or group acquires beneficial
ownership of at least 15 percent of the Common Stock. The
rights expire on February 13, 2012.
F-16
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
|
|
9.
|
Stock
Based Compensation
|
On May 19, 2009, the shareholders approved the CARBO
Ceramics Inc. Omnibus Incentive Plan (the Omnibus
Incentive Plan). The Omnibus Incentive Plan replaces the
previous restricted stock and stock option plans, which had
expired. Under the Omnibus Incentive Plan, the Company may grant
cash-based awards, stock options (both non-qualified and
incentive) and other equity-based awards (including stock
appreciation rights, phantom stock, restricted stock, restricted
stock units, performance shares, deferred share units or
share-denominated performance units) to employees and
non-employee directors. The amount paid under the Omnibus
Incentive Plan to any single participant in any calendar year
with respect to any cash-based award shall not exceed $2,000.
Awards may be granted with respect to a number of shares of the
Companys Common Stock that in the aggregate does not
exceed 750,000 shares prior to the fifth anniversary of its
effective date, plus (i) the number of shares that are
forfeited, cancelled or returned, and (ii) the number of
shares that are withheld from the participants to satisfy an
option exercise price or minimum statutory tax withholding
obligations. No more than 50,000 shares may be granted to
any single participant in any calendar year. Equity-based awards
may be subject to performance-based
and/or
service-based conditions. With respect to stock options and
stock appreciation rights granted, the exercise price shall not
be less than the market value of the underlying Common Stock on
the date of grant. The maximum term of an option is ten years.
Restricted stock awards granted generally vest (i.e., transfer
and forfeiture restrictions on these shares are lifted)
proportionately on each of the first three anniversaries of the
grant date, but subject to certain limitations, awards may
specify other vesting periods. Unvested shares granted to an
individual vest upon retirement at or after the age of 62. As of
December 31, 2009, 728,681 shares were available for
issuance under the Omnibus Incentive Plan. Although the
Companys previous restricted stock and stock option plans
have expired, outstanding options and unvested shares granted
under these plans remain outstanding in accordance with their
terms.
The Company also has a Director Deferred Fee Plan (the
Plan) that permits non-employee directors of the
Company to elect once in December of each year to defer in the
following calendar year the receipt of cash compensation for
service as a director, which would otherwise be payable in that
year, and to receive those fees in the form of the
Companys Common Stock on a specified later date that is on
or after the directors retirement from the Board of
Directors. The number of shares reserved for an electing
director is based on the fair market value of the Companys
Common Stock on the date immediately preceding the date those
fees would have been paid absent the deferral. As of
December 31, 2009, a total of 4,017 shares were
reserved for future issuance in payment of $167 of deferred fees
under the Plan by electing directors. The Plan was terminated as
of January 19, 2010, and all fees deferred under the Plan
will be paid out no later than 2011.
A summary of stock option activity and related information for
the year ended December 31, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Aggregate
|
|
|
|
|
Average
|
|
Intrinsic
|
|
|
Options
|
|
Exercise Price
|
|
Value
|
|
Outstanding at January 1, 2009
|
|
|
53,675
|
|
|
$
|
23.85
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40,250
|
)
|
|
$
|
22.27
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
13,425
|
|
|
$
|
28.59
|
|
|
$
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
13,425
|
|
|
$
|
28.59
|
|
|
$
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, all compensation cost related to
stock options granted under the expired stock option plans has
been recognized. The weighted-average remaining contractual term
of options outstanding at
F-17
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
December 31, 2009 was 3.1 years. The total intrinsic
value of options exercised during the years ended
December 31, 2009, 2008 and 2007 was $944, $3,622, and
$1,401, respectively.
A summary of restricted stock activity and related information
for the year ended December 31, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
|
Grant-Date
|
|
|
Shares
|
|
Fair Value
|
|
Nonvested at January 1, 2009
|
|
|
103,850
|
|
|
$
|
40.29
|
|
Granted
|
|
|
98,474
|
|
|
$
|
38.91
|
|
Vested
|
|
|
(46,015
|
)
|
|
$
|
42.98
|
|
Forfeited
|
|
|
(16,918
|
)
|
|
$
|
36.57
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
139,391
|
|
|
$
|
38.88
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there was $3,230 of total
unrecognized compensation cost, net of estimated forfeitures,
related to restricted shares granted under the restricted stock
plans. That cost is expected to be recognized over a
weighted-average period of 1.8 years. The weighted-average
grant date fair value of restricted stock granted during the
years ended December 31, 2008 and 2007 was $37.33 and
$38.75, respectively. The total fair value of shares vested
during the years ended December 31, 2009, 2008 and 2007 was
$1,978, $3,012 and $1,997, respectively.
During October 2008, in connection with the sale of Pinnacle
assets, restricted stock vesting was accelerated for certain
Pinnacle employees transferring employment to Halliburton.
Vesting of 26,000 restricted shares accelerated on
October 10, 2008, resulting in accelerated compensation
cost of $588, which is included in the gain on sale of
discontinued operations.
The Company also had an International Long-Term Incentive Plan
that provides for granting units of stock appreciation rights
(SARs) or phantom shares to key international
employees. This plan was replaced by the Omnibus Incentive Plan.
One-third of the units subject to an award vests and ceases to
be forfeitable on each of the first three anniversaries of the
grant date. Participants awarded units of SARs have the right to
receive an amount, in cash, equal to the excess of the fair
market value of a share of Common Stock as of the vesting date,
or in some cases on a later exercise date chosen by the
participant, over the exercise price. Participants awarded units
of phantom shares are entitled to a lump sum cash payment equal
to the fair market value of a share of Common Stock on the
vesting date. In no event will Common Stock of the Company be
issued under the International Long-Term Incentive Plan. As of
December 31, 2009, there were 14,215 units of phantom
shares granted under the plan, of which 3,547 have vested and
325 have been forfeited, with a total value of $705, the vested
portion of which is recorded as a liability within Other Accrued
Expenses.
Effective January 1, 2009, the Company adopted ASC Topic
260, Earnings Per Share (formerly Staff
Position (FSP)
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities).
This standard provides that unvested share-based payment awards
that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The Company has
determined that its outstanding non-vested restricted stock
awards are participating securities. Accordingly, effective
January 1, 2009, earnings per common share is computed
using the two-class method prescribed by ASC Topic 260
Earnings Per Share. All previously reported
earnings per common share data were
F-18
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
retrospectively adjusted to conform to the new computation
method. The impact of adoption of this standard was not material
to earnings per share for any period presented.
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
52,810
|
|
|
$
|
60,405
|
|
|
$
|
49,641
|
|
Effect of reallocating undistributed earnings of participating
securities
|
|
|
(304
|
)
|
|
|
(289
|
)
|
|
|
(210
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
5,784
|
|
|
|
4,229
|
|
Gain on disposal of discontinued operations, net of tax
|
|
|
|
|
|
|
44,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available under the two-class method
|
|
$
|
52,506
|
|
|
$
|
110,027
|
|
|
$
|
53,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
weighted-average shares
|
|
|
23,097,105
|
|
|
|
24,373,007
|
|
|
|
24,367,479
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options (See Note 9)
|
|
|
8,723
|
|
|
|
39,995
|
|
|
|
80,203
|
|
Deferred stock awards (See Note 9)
|
|
|
5,864
|
|
|
|
4,585
|
|
|
|
3,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
14,587
|
|
|
|
44,580
|
|
|
|
83,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted-average shares
|
|
|
23,111,692
|
|
|
|
24,417,587
|
|
|
|
24,450,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.47
|
|
|
$
|
2.03
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.52
|
|
|
$
|
2.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.27
|
|
|
$
|
2.46
|
|
|
$
|
2.02
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
0.24
|
|
|
|
0.17
|
|
Gain on disposal of discontinued operations, net of income taxes
|
|
|
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.27
|
|
|
$
|
4.51
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
|
|
11.
|
Quarterly
Operating Results (Unaudited)
|
Quarterly results for the years ended December 31, 2009 and
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
90,642
|
|
|
$
|
69,322
|
|
|
$
|
91,783
|
|
|
$
|
90,125
|
|
Gross profit
|
|
|
35,984
|
|
|
|
23,192
|
|
|
|
32,271
|
|
|
|
29,056
|
|
Income from continuing operations
|
|
|
16,428
|
|
|
|
9,387
|
|
|
|
14,402
|
|
|
|
12,593
|
|
Earnings per basic share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.70
|
|
|
$
|
0.41
|
|
|
$
|
0.62
|
|
|
$
|
0.55
|
|
Earnings per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.70
|
|
|
$
|
0.41
|
|
|
$
|
0.62
|
|
|
$
|
0.55
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
90,375
|
|
|
$
|
89,285
|
|
|
$
|
102,587
|
|
|
$
|
105,581
|
|
Gross profit
|
|
|
27,044
|
|
|
|
26,420
|
|
|
|
32,138
|
|
|
|
41,832
|
|
Income from continuing operations
|
|
|
12,855
|
|
|
|
11,749
|
|
|
|
15,312
|
|
|
|
20,489
|
|
Discontinued operations
|
|
|
1,376
|
|
|
|
1,781
|
|
|
|
3,108
|
|
|
|
43,646
|
|
Net income
|
|
|
14,231
|
|
|
|
13,530
|
|
|
|
18,420
|
|
|
|
64,135
|
|
Earnings per basic share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.62
|
|
|
$
|
0.85
|
|
Discontinued operations
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
1.81
|
|
Earnings per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.62
|
|
|
$
|
0.85
|
|
Discontinued operations
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
1.81
|
|
Quarterly data may not sum to full year data reported in the
Consolidated Financial Statements due to rounding. Discontinued
operations for the quarter ended December 31, 2008 include
the affects of the gain on sale of discontinued operations. All
quarterly earnings per share data was retrospectively adjusted
to conform to the new computation method discussed in
Note 1.
The following schedule presents the percentages of total
revenues related to the Companys three major customers for
the three-year period ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Customers
|
|
|
|
|
|
|
A
|
|
B
|
|
C
|
|
Others
|
|
Total
|
|
2009
|
|
|
27.5
|
%
|
|
|
34.3
|
%
|
|
|
11.1
|
%
|
|
|
27.1
|
%
|
|
|
100
|
%
|
2008
|
|
|
30.9
|
%
|
|
|
25.3
|
%
|
|
|
15.3
|
%
|
|
|
28.5
|
%
|
|
|
100
|
%
|
2007
|
|
|
25.8
|
%
|
|
|
21.5
|
%
|
|
|
22.6
|
%
|
|
|
30.1
|
%
|
|
|
100
|
%
|
F-20
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
|
|
13.
|
Geographic
Information
|
Long-lived assets, consisting of net property, plant and
equipment and other long-term assets, as of December 31 in the
United States and other countries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
222,572
|
|
|
$
|
192,305
|
|
|
$
|
188,848
|
|
International (primarily China and Russia)
|
|
|
50,413
|
|
|
|
55,097
|
|
|
|
65,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
272,985
|
|
|
$
|
247,402
|
|
|
$
|
254,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues outside the United States accounted for 24%, 29% and
36% of the Companys revenues for 2009, 2008 and 2007,
respectively. Revenues for the years ended December 31 in the
United States, Canada and other countries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
258,453
|
|
|
$
|
273,805
|
|
|
$
|
191,632
|
|
Canada
|
|
|
22,062
|
|
|
|
42,233
|
|
|
|
36,133
|
|
Other international
|
|
|
61,357
|
|
|
|
71,790
|
|
|
|
72,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
341,872
|
|
|
$
|
387,828
|
|
|
$
|
299,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has defined contribution savings and profit sharing
plans pursuant to Section 401(k) of the Internal Revenue
Code. Benefit costs recognized as expense under these plans
consisted of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit sharing
|
|
$
|
1,031
|
|
|
$
|
1,289
|
|
|
$
|
1,385
|
|
Savings
|
|
|
732
|
|
|
|
1,020
|
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,763
|
|
|
$
|
2,309
|
|
|
$
|
2,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All contributions to the plans are 100% participant directed.
Participants are allowed to invest up to 20% of contributions in
the Companys Common Stock.
In 2003, the Company entered into a new agreement with an
existing supplier to purchase kaolin for its Eufaula, Alabama,
plant at a specified contract price. The term of the agreement
is seven years commencing January 1, 2004 and requires the
Company to purchase from the supplier at least 70 percent
of its annual kaolin requirements for its Eufaula, Alabama,
plant at specified contract prices. For the years ended
December 31, 2009, 2008, and 2007, the Company purchased
from the supplier $3,646, $3,891 and $3,092, respectively, of
kaolin under the agreement.
In January 2003, the Company entered into a mining agreement
with a contractor to provide kaolin for the Companys
McIntyre plant at specified contract prices, from lands owned or
leased by either the Company or the contractor. The term of the
agreement is twenty years commencing on January 1, 2003,
and requires the Company to
F-21
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
accept delivery from the contractor of at least 80 percent
of the McIntyre plants annual kaolin requirements. For the
years ended December 31, 2009, 2008 and 2007, the Company
purchased $182, $810 and $556, respectively, of kaolin under the
agreement.
In October 2008, the Company entered into a ten-year agreement
to purchase a minimum of 40,000 tons of uncalcined bauxite each
year during the first three years of the agreement. Thereafter,
the minimum required purchase increases to 70,000 tons annually.
The bauxite is purchased at specified contract prices. For the
years ended December 31, 2009 and 2008, the Company
purchased $842 and $663, respectively, of bauxite under the
agreement.
In 2002, the Company entered into a five-year agreement and a
ten-year agreement with two different suppliers to purchase
bauxite and hard clays for its China plant at specified contract
prices. The five-year agreement was automatically renewed for an
additional three years and requires the Company to purchase a
minimum of 10,000 metric tons of material annually, or
100 percent of its annual requirements for bauxite if less
than 10,000 metric tons. The ten-year agreement requires the
Company to accept delivery from the supplier for at least
80 percent of the plants annual requirements. For the
years ended December 31, 2009, 2008 and 2007, the Company
purchased $2,527, $1,007 and $1,580, respectively, of material
under these agreements.
The Company has entered into a lease agreement dated
November 1, 2008 with the Development Authority of
Wilkinson County (the Development Authority) in the
State of Georgia. This 2008 agreement supersedes and replaces
the prior lease agreement dated November 1, 2003. Pursuant
to the 2008 agreement, the Development Authority holds the title
to the real and personal property of the Companys McIntyre
and Toomsboro manufacturing facilities and leases the facilities
to the Company for an annual rental fee of $50 per year through
the year 2022. At any time prior to the scheduled termination of
the lease, the Company has the option to terminate the lease and
purchase the property for a nominal fee plus the payment of any
rent payable through the balance of the lease term. Furthermore,
the Company has a security interest in the title held by the
Development Authority. The Company has also entered into a
Memorandum of Understanding (the MOU) with the
Development Authority and other local agencies, under which the
Company receives tax incentives in exchange for its commitment
to invest in the county and increase employment. The Company is
required to achieve certain employment levels in order to retain
its tax incentive. In the event the Company does not meet the
agreed-upon
employment targets or the MOU is otherwise terminated, the
Company would be subjected to additional property taxes
annually. The property subject to the lease agreement is
included in Property, Plant and Equipment (net book value of
$175,334 at December 31, 2009) in the accompanying
consolidated financial statements.
The Company uses natural gas to power its domestic manufacturing
plants. From time to time the Company enters into contracts to
purchase a portion of the anticipated natural gas requirements
at specified prices. As of December 31, 2009, the Company
had natural gas contracts totaling $24,793, $14,669 and $3,548
for years ended 2010, 2011 and 2012, respectively.
|
|
16.
|
Employment
Agreements
|
The Company has an employment agreement through
December 31, 2010 with its President and Chief Executive
Officer. The agreement, as amended on October 31, 2008,
provides for an annual base salary and incentive bonus. If the
President and Chief Executive Officer is terminated early
without cause, the Company will be obligated to pay two years
base salary and a prorated incentive bonus. Under the amended
agreement, the timing of the payment of severance obligations to
the President in the event of the termination of his employment
under certain circumstances has been conformed so that a portion
of such obligations will be payable in a lump sum, with the
remainder of the obligations to be paid over an 18 month
period. The agreement also contains a two-year non-competition
covenant that would become effective upon termination for any
reason. The employment agreement extends automatically for
successive one-year periods without prior written notice.
F-22
CARBO
CERAMICS INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
($ in
thousands, except per share data)
As of December 31, 2009, the Companys net investment
that is subject to foreign currency fluctuations totaled $77,599
and the Company has recorded a cumulative foreign currency
translation loss of $5,209, net of deferred income tax benefit.
This cumulative translation loss is included in Accumulated
Other Comprehensive Loss.
|
|
18.
|
Legal
Proceedings and Regulatory Matters
|
The Company is subject to legal proceedings, claims and
litigation arising in the ordinary course of business. Although
the outcome of these matters is currently not determinable,
management does not expect that the ultimate costs to resolve
these matters will have a material adverse effect on the
Companys consolidated financial position, results of
operations, or cash flows.
On January 18, 2010, the Company awarded 55,635 shares
of restricted stock to certain employees. The fair value of the
stock award on the date of grant totaled $3,828, which will be
recognized as expense, net of estimated forfeitures, on a
straight-line basis over the three-year vesting period.
On January 18, 2010, the Company awarded 4,680 units
of phantom shares to certain key international employees. The
fair value of the stock award on the date of grant totaled $322.
On January 29, 2010, the Company entered into a new $10,000
line of credit facility with Wells Fargo Bank, N.A. This
agreement replaces a previous credit facility that expired
December 31, 2009.
The Company has evaluated subsequent events through
February 26, 2010, the date the consolidated financial
statements were issued, and has determined there were no other
subsequent events to recognize or disclose in these consolidated
financial statements.
F-23
CARBO
CERAMICS INC.
Schedule II Consolidated Valuation and
Qualifying Accounts
For the Years Ended December 31, 2009, 2008 and
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
Beginning of
|
|
Costs and
|
|
|
|
Discontinued
|
|
End of
|
Year Ended
|
|
Year
|
|
Expenses
|
|
Write-offs
|
|
Operations
|
|
Year
|
|
|
($ in thousands)
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
1,739
|
|
|
$
|
516
|
|
|
$
|
86
|
|
|
$
|
|
|
|
$
|
2,169
|
|
December 31, 2008
|
|
$
|
1,636
|
|
|
$
|
72
|
|
|
$
|
175
|
|
|
$
|
(206
|
)
|
|
$
|
1,739
|
|
December 31, 2007
|
|
$
|
1,605
|
|
|
$
|
82
|
|
|
$
|
(7
|
)
|
|
$
|
58
|
|
|
$
|
1,636
|
|
S-1
Exhibit Index
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of CARBO
Ceramics Inc. (incorporated by reference to exhibit 3.1 of
the registrants
Form S-1
Registration Statement
No. 333-1884
filed July 19,1996)
|
|
3
|
.2
|
|
Second Amended and Restated By-Laws of CARBO Ceramics Inc.
(incorporated by reference to exhibit 3.1 of the
registrants
Form 8-K
Current Report filed March 20, 2009)
|
|
4
|
.1
|
|
Form of Common Stock Certificate of CARBO Ceramics Inc.
(incorporated by reference to exhibit 4.1 of the
registrants
Form S-1
Registration Statement
No. 333-1884
filed July 19, 1996)
|
|
4
|
.2
|
|
Rights Agreement dated as of February 13, 2002
(incorporated by reference to exhibit 1 of the
registrants
Form 8-A12B
filed on February 25, 2002)
|
|
4
|
.3
|
|
Certificate of Designations of Series A Preferred Stock
(incorporated by reference to exhibit 2 of the
registrants
Form 8-A
Registration Statement
No. 001-15903
filed February 25, 2002)
|
|
10
|
.1
|
|
Raw Material Requirements Agreement dated as of June 1,
2003, between CARBO Ceramics Inc. and C-E Minerals Inc.
(incorporated by reference to exhibit 10.4 of the
registrants
Form 10-K
Annual Report for the year ended December 31, 2003)
|
|
*10
|
.2
|
|
CARBO Ceramics Inc. 1996 Stock Option Plan for Key Employees
(incorporated by reference to exhibit 10.9 of the
registrants
Form S-1
Registration Statement
No. 333-1884
filed July 19, 1996)
|
|
*10
|
.3
|
|
Amendment No. 1 to the CARBO Ceramics Inc. 1996 Stock
Option Plan for Key Employees (incorporated by reference to
exhibit 4.5 of the registrants
Form S-8
Registration Statement
No. 333-88100
filed May 13, 2002)
|
|
*10
|
.4
|
|
Form of Stock Option Award Agreement (incorporated by reference
to exhibit 10.10 of the registrants
Form S-1
Registration Statement
No. 333-1884
filed July 19, 1996)
|
|
10
|
.5
|
|
Mining Agreement dated as of January 1, 2003 between CARBO
Ceramics Inc. and Arcilla Mining and Land Co. (incorporated by
reference to exhibit 10.8 of the registrants
Form 10-K
Annual Report for the year ended December 31, 2002)
|
|
*10
|
.6
|
|
CARBO Ceramics Inc. Incentive Compensation Plan (incorporated by
reference to exhibit 99.1 of the registrants
Form 8-K
Current Report filed January 24, 2005)
|
|
*10
|
.7
|
|
2004 CARBO Ceramics Inc. Long-Term Incentive Plan (incorporated
by reference to exhibit 99.2 of the registrants
Form 8-K
Current Report filed January 24, 2005)
|
|
*10
|
.8
|
|
Amendment No. 1 to the 2004 CARBO Ceramics Inc. Long-Term
Incentive Plan (incorporated by reference to exhibit 10.1
of the registrants
Form 8-K
Current Report filed April 24, 2006)
|
|
*10
|
.9
|
|
CARBO Ceramics Inc. Director Deferred Fee Plan (incorporated by
reference to exhibit 99.1 of the registrants
Form 8-K
Current Report filed December 19, 2005)
|
|
*10
|
.10
|
|
Amendment No. 1 to CARBO Ceramics Inc. Director Deferred
Fee Plan (incorporated by reference to exhibit 10.1 of the
registrants
Form 10-Q
Quarterly Report for the period ended September 30, 2008)
|
|
*10
|
.11
|
|
Amendment No. 2 to CARBO Ceramics Inc. Director Deferred
Fee Plan
|
|
*10
|
.12
|
|
Form of Non-Employee Director Restricted Stock Award Agreement
under the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan
(incorporated by reference to exhibit 10.2 of the
registrants
Form 8-K
Current Report filed April 24, 2006)
|
|
*10
|
.13
|
|
Form of Officer Restricted Stock Award Agreement under the 2004
CARBO Ceramics Inc. Long-Term Incentive Plan (incorporated by
reference to exhibit 10.1 of the registrants
Form 10-Q
Quarterly Report filed for the period ending June 30, 2009)
|
|
*10
|
.14
|
|
Amended and Restated Employment Agreement dated as of
October 31, 2008 between CARBO Ceramics Inc. and Gary
Kolstad (incorporated by reference to exhibit 10.2 of the
registrants
Form 10-Q
Quarterly Report for the quarter ended September 30, 2008)
|
|
*10
|
.15
|
|
Corporate and Proppant Incentive Compensation Plan for Key
Employees (effective January 1, 2009) (incorporated by
reference to exhibit 10.1 of the registrants
Form 8-K
Current Report filed January 26, 2009)
|
|
10
|
.16
|
|
Acquisition Agreement dated as of August 28, 2008 between
Pinnacle Technologies, Inc., CARBO Ceramics Inc. and Halliburton
Energy Services, Inc. (incorporated by reference to
exhibit 10.1 of the registrants
Form 8-K
Current Report filed on September 4, 2008)
|
|
10
|
.17
|
|
Proppant Supply Agreement dated as of August 28, 2008
between CARBO Ceramics Inc. and Halliburton Energy Services,
Inc. (incorporated by reference to exhibit 10.3 of the
registrants
Form 10-Q
Quarterly Report for the quarter ended September 30, 2008)
|
|
|
|
|
|
|
10
|
.18
|
|
Lease Agreement dated as of November 1, 2008 between the
Development Authority of Wilkinson County and CARBO Ceramics
Inc. (incorporated by reference to exhibit 10.1 of the
registrants
Form 8-K
Current Report filed December 30, 2008)
|
|
10
|
.19
|
|
Option Agreement dated as of November 1, 2008 between the
Development Authority of Wilkinson County and CARBO Ceramics
Inc. (incorporated by reference to exhibit 10.2 of the
registrants
Form 8-K
Current Report filed December 30, 2008)
|
|
*10
|
.20
|
|
CARBO Ceramics Inc. Omnibus Incentive Plan (incorporated by
reference to exhibit 10.1 of the registrants
Form 8-K
Current Report filed May 21, 2009)
|
|
*10
|
.21
|
|
Form of Officer Restricted Stock Award Agreement for Omnibus
Inventive Plan (incorporated by reference to exhibit 10.2
of the registrants
Form 8-K
Current Report filed May 21, 2009)
|
|
*10
|
.22
|
|
Form of Non-Employee Director Restricted Stock Award Agreement
for Omnibus Inventive Plan (incorporated by reference to
exhibit 10.3 of the registrants
Form 8-K
Current Report filed May 21, 2009)
|
|
*10
|
.23
|
|
Form of Performance-Based Cash Award Agreement for Omnibus
Inventive Plan (incorporated by reference to exhibit 10.4
of the registrants
Form 8-K
Current Report filed May 21, 2009)
|
|
*10
|
.24
|
|
Form of Relocation Policy (incorporated by reference to
exhibit 10.2 of the registrants
Form 10-Q
Quarterly Report for the quarter ended June 30, 2009)
|
|
*10
|
.25
|
|
CARBO Ceramics Inc. Omnibus Incentive Plan Annual Incentive
Arrangement (incorporated by reference to exhibit 10.1 of
the registrants
Form 8-K
Current Report filed January 21, 2010)
|
|
10
|
.26
|
|
Consultant Agreement dated as of February 27, 2009 between
CARBO Ceramics Inc. and Paul Vitek
|
|
10
|
.27
|
|
Office Lease dated as of January 20, 2009 between I-10 EC
Corridor #2 Limited Partnership and CARBO Ceramics Inc. (Does
not include the Exhibits to this document. These exhibits will
be provided to the Securities and Exchange Commission upon
request.)
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10
|
.28
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|
Amendment Number #1 to Office Lease dated as of January 15,
2010 between I-10 EC Corridor #2 Limited Partnership and CARBO
Ceramics Inc. (Does not include the Exhibits to this document.
These exhibits will be provided to the Securities and Exchange
Commission upon request.)
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10
|
.29
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|
Credit Agreement, dated as of January 29, 2010, among CARBO
Ceramics Inc., as borrower, Wells Fargo Bank, National
Association, as administrative agent, issuing lender and swing
line lender, and the lenders named therein (incorporated by
reference to Exhibit 10.1 of the registrants
Form 8-K
Current Report filed February 4, 2010).
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14
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|
Code of Ethics (incorporated by reference to exhibit 14 of
the registrants
Form 10-K
Annual Report for the year ended December 31, 2003)
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21
|
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Subsidiaries
|
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23
|
|
|
Consent of Independent Registered Public Accounting Firm
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31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification by Gary A. Kolstad
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification by Ernesto Bautista III
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|
32
|
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Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
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* |
|
Management contract or compensatory plan or arrangement filed as
an exhibit pursuant to Item 15(b) of the requirements for an
Annual Report on
Form 10-K. |