e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File No. 001-15903
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE
|
|
72-1100013 |
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification Number) |
6565 MacArthur Boulevard
Suite 1050
Irving, Texas 75039
(Address of principal executive offices)
(972) 401-0090
(Registrants telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ No o
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. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
As
of August 6, 2008, 24,593,060 shares of the registrants Common Stock, par
value $.01 per share, were outstanding.
CARBO CERAMICS INC.
Index to Quarterly Report on Form 10-Q
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Unaudited) |
|
|
(see Note 1) |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,397 |
|
|
$ |
12,296 |
|
Trade accounts and other receivables, net |
|
|
85,799 |
|
|
|
68,950 |
|
Inventories: |
|
|
|
|
|
|
|
|
Finished goods |
|
|
37,312 |
|
|
|
35,070 |
|
Raw materials and supplies |
|
|
26,378 |
|
|
|
18,917 |
|
|
|
|
|
|
|
|
|
Total inventories |
|
|
63,690 |
|
|
|
53,987 |
|
Prepaid expenses and other current assets |
|
|
4,085 |
|
|
|
2,588 |
|
Prepaid income taxes |
|
|
493 |
|
|
|
|
|
Deferred income taxes |
|
|
7,280 |
|
|
|
6,451 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
170,744 |
|
|
|
144,272 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land and land improvements |
|
|
10,924 |
|
|
|
9,707 |
|
Land-use and mineral rights |
|
|
6,255 |
|
|
|
6,168 |
|
Buildings |
|
|
48,171 |
|
|
|
46,903 |
|
Machinery and equipment |
|
|
319,270 |
|
|
|
310,593 |
|
Construction in progress |
|
|
13,811 |
|
|
|
12,767 |
|
|
|
|
|
|
|
|
|
Total |
|
|
398,431 |
|
|
|
386,138 |
|
Less accumulated depreciation |
|
|
124,105 |
|
|
|
110,312 |
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
274,326 |
|
|
|
275,826 |
|
Goodwill |
|
|
23,199 |
|
|
|
23,213 |
|
Intangible and other assets, net |
|
|
10,876 |
|
|
|
9,812 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
479,145 |
|
|
$ |
453,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,762 |
|
|
$ |
11,709 |
|
Accrued payroll and benefits |
|
|
7,111 |
|
|
|
8,812 |
|
Accrued freight |
|
|
4,984 |
|
|
|
2,979 |
|
Accrued utilities |
|
|
4,283 |
|
|
|
3,132 |
|
Accrued income taxes |
|
|
|
|
|
|
2,474 |
|
Retainage related to construction in progress |
|
|
85 |
|
|
|
108 |
|
Other accrued expenses |
|
|
5,712 |
|
|
|
4,050 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
29,937 |
|
|
|
33,264 |
|
Deferred income taxes |
|
|
35,407 |
|
|
|
30,420 |
|
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;
24,594,430 and 24,516,370 shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively |
|
|
246 |
|
|
|
245 |
|
Additional paid-in capital |
|
|
110,405 |
|
|
|
108,686 |
|
Retained earnings |
|
|
297,703 |
|
|
|
276,879 |
|
Accumulated other comprehensive income |
|
|
5,447 |
|
|
|
3,629 |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
413,801 |
|
|
|
389,439 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
479,145 |
|
|
$ |
453,123 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
3
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues |
|
$ |
103,037 |
|
|
$ |
77,918 |
|
|
$ |
204,926 |
|
|
$ |
161,889 |
|
Cost of sales |
|
|
70,534 |
|
|
|
48,237 |
|
|
|
140,551 |
|
|
|
103,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
32,503 |
|
|
|
29,681 |
|
|
|
64,375 |
|
|
|
58,398 |
|
Selling, general and administrative expenses |
|
|
11,966 |
|
|
|
9,508 |
|
|
|
23,177 |
|
|
|
18,980 |
|
Start-up costs |
|
|
|
|
|
|
543 |
|
|
|
231 |
|
|
|
967 |
|
Loss on disposal of assets |
|
|
178 |
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
20,359 |
|
|
|
19,630 |
|
|
|
40,857 |
|
|
|
38,451 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
22 |
|
|
|
133 |
|
|
|
56 |
|
|
|
352 |
|
Foreign currency exchange gain (loss), net |
|
|
(66 |
) |
|
|
323 |
|
|
|
1,427 |
|
|
|
797 |
|
Other, net |
|
|
188 |
|
|
|
(85 |
) |
|
|
227 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
371 |
|
|
|
1,710 |
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
20,503 |
|
|
|
20,001 |
|
|
|
42,567 |
|
|
|
39,615 |
|
Income taxes |
|
|
6,973 |
|
|
|
7,120 |
|
|
|
14,806 |
|
|
|
13,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,530 |
|
|
$ |
12,881 |
|
|
$ |
27,761 |
|
|
$ |
26,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
1.14 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
1.13 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.28 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
27,761 |
|
|
$ |
26,180 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
14,558 |
|
|
|
10,730 |
|
Amortization |
|
|
651 |
|
|
|
537 |
|
Provision for doubtful accounts |
|
|
56 |
|
|
|
36 |
|
Deferred income taxes |
|
|
3,178 |
|
|
|
(162 |
) |
Excess tax benefits from stock based compensation |
|
|
(74 |
) |
|
|
(134 |
) |
Loss on disposal of assets |
|
|
110 |
|
|
|
|
|
Foreign currency transaction gain, net |
|
|
(1,427 |
) |
|
|
(797 |
) |
Non-cash stock compensation expense |
|
|
1,309 |
|
|
|
1,240 |
|
Earnings in equity-method investee |
|
|
(40 |
) |
|
|
(75 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts and other receivables |
|
|
(16,496 |
) |
|
|
761 |
|
Inventories |
|
|
(8,796 |
) |
|
|
(4,089 |
) |
Prepaid expenses and other current assets |
|
|
(1,441 |
) |
|
|
(1,577 |
) |
Prepaid income taxes |
|
|
(493 |
) |
|
|
|
|
Long-term prepaid expenses |
|
|
36 |
|
|
|
69 |
|
Accounts payable |
|
|
(4,080 |
) |
|
|
221 |
|
Accrued payroll and benefits |
|
|
(1,703 |
) |
|
|
(1,777 |
) |
Accrued freight |
|
|
1,999 |
|
|
|
(625 |
) |
Accrued utilities |
|
|
1,144 |
|
|
|
(381 |
) |
Accrued income taxes |
|
|
(2,430 |
) |
|
|
(2,347 |
) |
Other accrued expenses |
|
|
1,482 |
|
|
|
(2,331 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
15,304 |
|
|
|
25,479 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Capital expenditures, net |
|
|
(10,898 |
) |
|
|
(39,694 |
) |
Acquisition of business, net of cash acquired |
|
|
14 |
|
|
|
(2,545 |
) |
Investment in cost-method investee |
|
|
(1,000 |
) |
|
|
|
|
Purchases of short-term investments |
|
|
|
|
|
|
(4,000 |
) |
Proceeds from maturities of short-term investments |
|
|
|
|
|
|
11,500 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,884 |
) |
|
|
(34,739 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from bank borrowings |
|
|
5,500 |
|
|
|
|
|
Repayments on bank borrowings |
|
|
(5,500 |
) |
|
|
|
|
Net proceeds from stock-based compensation |
|
|
315 |
|
|
|
726 |
|
Dividends paid |
|
|
(6,884 |
) |
|
|
(5,868 |
) |
Excess tax benefits from stock based compensation |
|
|
74 |
|
|
|
134 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(6,495 |
) |
|
|
(5,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,075 |
) |
|
|
(14,268 |
) |
Effect of exchange rate changes on cash |
|
|
176 |
|
|
|
77 |
|
Cash and cash equivalents at beginning of period |
|
|
12,296 |
|
|
|
24,973 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
9,397 |
|
|
$ |
10,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
37 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
14,551 |
|
|
$ |
15,945 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc.
have been prepared in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and notes required by
accounting principles generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. The results of the interim
periods presented herein are not necessarily indicative of the results to be expected for any other
interim period or the full year. The consolidated balance sheet as of December 31, 2007 has been
derived from the audited financial statements at that date. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes thereto for the
year ended December 31, 2007 included in the annual report on Form 10-K of CARBO Ceramics Inc. for
the year ended December 31, 2007.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and
its operating subsidiaries (the Company). The significant operating subsidiaries include: CARBO
Ceramics (China) Company Limited, CARBO Ceramics (Eurasia) LLC, and Pinnacle Technologies, Inc.
The consolidated financial statements also include a 49% interest in a fracture-related services
company in Canada that was acquired in April 2005 and a 32% interest in a Texas-based equipment
manufacturing company that was acquired in October 2007, both reported under the equity method of
accounting, and a 6% interest in a Texas-based electronic equipment manufacturing company that was
acquired in March 2008 that is reported under the cost method of accounting. All significant
intercompany transactions have been eliminated.
Change
in Method of Accounting for Inventories During the second quarter of 2008, the
Company changed its method of accounting for Proppant segment 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 restated. The cumulative effect
of the accounting change, which was immaterial, is reflected in results of operations in the second
quarter of 2008.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,530 |
|
|
$ |
12,881 |
|
|
$ |
27,761 |
|
|
$ |
26,180 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
Weighted-average shares |
|
|
24,466,485 |
|
|
|
24,363,774 |
|
|
|
24,458,834 |
|
|
|
24,346,370 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
62,561 |
|
|
|
84,296 |
|
|
|
58,144 |
|
|
|
83,905 |
|
Nonvested and deferred stock awards |
|
|
47,669 |
|
|
|
29,564 |
|
|
|
39,932 |
|
|
|
28,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
110,230 |
|
|
|
113,860 |
|
|
|
98,076 |
|
|
|
112,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share Adjusted weighted-average shares |
|
|
24,576,715 |
|
|
|
24,477,634 |
|
|
|
24,556,910 |
|
|
|
24,459,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
1.14 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
1.13 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
3. Segment Information
The Company has two operating segments: 1) Proppant and 2) Fracture and Reservoir Diagnostics.
Discrete financial information is available for each operating segment. Management of each
operating segment reports to the chief operating decision maker, who regularly evaluates income
before income taxes as the measure to evaluate segment performance and to allocate resources.
Except for the change in Proppant segment inventory accounting method in the second quarter of
2008, the accounting policies of each segment are the same as those described in the summary of
significant accounting policies in Note 1 of the consolidated financial statements included in the
annual report on Form 10-K for the year ended December 31, 2007.
The Companys Proppant segment manufactures and sells ceramic proppants worldwide for use
primarily in the hydraulic fracturing of natural gas and oil wells. All of the Companys ceramic
proppant products have similar production processes and economic characteristics and are marketed
predominantly to pumping service companies that perform hydraulic fracturing for major oil and gas
companies.
The Companys Fracture and Reservoir Diagnostics segment provides fracture mapping and
reservoir diagnostic services, sells fracture simulation software and provides engineering services
to oil and gas companies worldwide. These services and software are provided through the Companys
wholly-owned subsidiary Pinnacle Technologies, Inc. (Pinnacle).
Summarized financial information for the Companys reportable segments is shown in the
following table. The Other column includes net assets not allocated to the operating segments.
Goodwill totaling $21,840 arising from the Companys acquisition of Pinnacle in 2002 is not
assigned to an operating segment because that information is not used by the Companys chief
operating decision maker in allocating resources. An inter-segment note receivable totaling $30,286
at June 30, 2008 and the costs of the Companys corporate offices are reported in the Proppant
segment. Inter-segment sales are not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fracture and |
|
|
|
|
|
|
|
|
|
|
Reservoir |
|
|
|
|
|
|
Proppant |
|
Diagnostics |
|
Other |
|
Total |
Three Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
|
$ |
86,310 |
|
|
$ |
16,727 |
|
|
$ |
|
|
|
$ |
103,037 |
|
Income before income taxes |
|
|
17,169 |
|
|
|
3,334 |
|
|
|
|
|
|
|
20,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
|
$ |
67,265 |
|
|
$ |
10,653 |
|
|
$ |
|
|
|
$ |
77,918 |
|
Income before income taxes |
|
|
18,415 |
|
|
|
1,586 |
|
|
|
|
|
|
|
20,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
|
$ |
172,692 |
|
|
$ |
32,234 |
|
|
$ |
|
|
|
$ |
204,926 |
|
Income before income taxes |
|
|
36,147 |
|
|
|
6,420 |
|
|
|
|
|
|
|
42,567 |
|
Segment assets at June 30, 2008 |
|
|
424,174 |
|
|
|
63,417 |
|
|
|
(8,446 |
) |
|
|
479,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers |
|
$ |
140,872 |
|
|
$ |
21,017 |
|
|
$ |
|
|
|
$ |
161,889 |
|
Income before income taxes |
|
|
37,005 |
|
|
|
2,610 |
|
|
|
|
|
|
|
39,615 |
|
4. Dividends Paid
On April 15, 2008, the Board of Directors declared a cash dividend of $0.14 per common
share payable to shareholders of record on April 30, 2008. The dividend was paid on May 15, 2008.
On July 15, 2008, the Board of Directors declared a cash dividend of $0.17 per common share payable
to shareholders of record on July 31, 2008. This dividend is payable on August 15, 2008.
7
5. Comprehensive Income
The following table sets forth the components of comprehensive income for the three
and six months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Net income |
|
|
$13,530 |
|
|
|
$12,881 |
|
|
|
$27,761 |
|
|
|
$26,180 |
|
Foreign currency translation adjustment |
|
|
497 |
|
|
|
515 |
|
|
|
1,818 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
$14,027 |
|
|
|
$13,396 |
|
|
|
$29,579 |
|
|
|
$26,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The foreign currency translation adjustment for the three months ended June 30, 2008 and 2007
is net of deferred income taxes of $267 and $258, respectively. For the six months ended June 30,
2008 and 2007, the foreign currency translation adjustment is net of deferred income taxes of $979
and $1,151, respectively.
6. Stock Based Compensation
The Company has three stock based compensation plans: a restricted stock plan and two stock
option plans. The restricted stock plan provides for granting shares of Common Stock in the form
of restricted stock awards to employees and non-employee directors of the Company. Under the
restricted stock plan, the Company may issue up to 375,000 shares, plus (i) the number of shares
that are forfeited, and (ii) the number of shares that are withheld from the participants to
satisfy minimum statutory tax withholding obligations. No more than 75,000 shares may be granted
to any single employee. One-third of the shares subject to award vest (i.e., transfer and
forfeiture restrictions on these shares are lifted) on each of the first three anniversaries of the
grant date. All unvested shares granted to an individual vest upon retirement at or after the age
of 62. The stock option plans provided for granting options to purchase shares of the Companys
Common Stock to employees and non-employee directors. Under the terms of the stock option plans
the Companys ability to issue grants of options has expired. However, there are outstanding stock
options that were previously granted under the stock option plans. Under the stock option plans,
the Company was permitted to grant options for up to 2,175,000 shares. The exercise price of each
option generally was equal to the market price on the date of grant. The maximum term of an option
is ten years and options generally become exercisable (i.e., vest) proportionately on each of the
first four anniversaries of the grant date. The Companys policy is to issue new shares upon
exercise of options. As of June 30, 2008, 135,420 shares were available for issuance under the
restricted stock plan and no options were available for issuance under the stock option plans.
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, 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 June 30, 2008, 4,999 shares were reserved for future issuance in payment of $230
of fees and dividends deferred under the Plan by electing directors.
A summary of stock option activity and related information for the six months ended June 30,
2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Intrinsic |
|
|
Options |
|
Exercise Price |
|
Value |
Outstanding at January 1, 2008 |
|
|
171,075 |
|
|
$ |
22.43 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(21,374 |
) |
|
$ |
17.17 |
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
149,701 |
|
|
$ |
23.18 |
|
|
$ |
5,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
149,701 |
|
|
$ |
23.18 |
|
|
$ |
5,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
As of June 30, 2008, all compensation cost related to stock options granted under the plan has
been recognized. The weighted-average remaining contractual term of options outstanding at June
30, 2008 was 3.6 years. The total intrinsic value of options exercised during the six months ended
June 30, 2008 was $470.
A summary of restricted stock activity and related information for the six months ended June
30, 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant-Date |
|
|
Shares |
|
Fair Value |
Nonvested at January 1, 2008 |
|
|
99,721 |
|
|
$ |
45.10 |
|
Granted |
|
|
58,595 |
|
|
$ |
37.07 |
|
Vested |
|
|
(37,984 |
) |
|
$ |
46.34 |
|
Forfeited |
|
|
(742 |
) |
|
$ |
39.80 |
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2008 |
|
|
119,590 |
|
|
$ |
40.81 |
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, there was $3,400 of total unrecognized compensation cost, net of
estimated forfeitures, related to restricted shares granted under the plan. That cost is expected
to be recognized over a weighted-average period of 2.0 years. The total fair value of shares
vested during the six months ended June 30, 2008 was $1,760.
The Company also has an International Long-Term Incentive Plan that provides for granting
units of stock appreciation rights (SARs) or phantom shares to key international employees. One
third of the units subject to award vest and shall cease to be forfeitable on each of the first
three anniversaries of the grant date. Participants awarded units of SARs shall have the right to
receive an amount, in cash, equal to the excess of fair market value of a share of common stock as
of the vesting date, or in some cases on an later exercise date chosen by the participant, over the
exercise price. Participants awarded units of phantom shares shall be entitled 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
June 30, 2008, there were 5,125 units of phantom shares granted under the plan, none of which have
vested, with a total value of $299.
7. Foreign Currencies
As of June 30, 2008, the Companys net investment that is subject to foreign currency
fluctuations totaled $85,530 and the Company has recorded cumulative foreign currency translation
adjustments of $5,447, net of deferred income taxes. These currency translation adjustments are
included in Other Comprehensive Income. Also, the Companys subsidiary in Russia has borrowed
$28,595, as of June 30, 2008, from another subsidiary of the Company to fund construction of a
manufacturing plant in Russia. This indebtedness, while eliminated in consolidation of the
financial statements, is subject to exchange rate fluctuations between the local reporting currency
and the currency in which the debt is denominated. Currency exchange rate fluctuations associated
with this indebtedness result in gains and losses that impact net income. The gains and losses are
presented in Other Income.
8. New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (the FASB) issued SFAS No. 157,
Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value and requires enhanced disclosures about fair value measurements. Effective
January 1, 2008, the Company adopted SFAS 157. The adoption did not have a material impact on the
Companys financial position, results of operations or cash flows.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 provides an option to report selected
financial assets and liabilities at fair value and establishes presentation and disclosure
requirements. The fair value option established by SFAS 159 permits the Company to elect to
measure eligible items at fair value on an instrument-by-instrument basis and then report
unrealized gains and losses for those items in the Companys earnings. Effective January 1, 2008,
the Company adopted SFAS 159. The Company elected to not account for any other assets or
liabilities at fair value and therefore the adoption did not have a material impact on the
Companys financial position, results of operations or cash flows.
9
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets. FSP No. 142-3 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. The Company is currently
evaluating FSP No. 142-3 and has not yet determined the impact of adoption.
In June 2008, the FASB issued FSP No. Emerging Issue Task Force (EITF) 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP
No. EITF 03-6-1 concluded that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and shall be included in the computation of basic earnings per share (EPS) pursuant to the
two-class method. This FSP becomes effective on April 1, 2009 and it will apply retrospectively to
EPS data for all periods presented in the financial statements or in financial data. The Company
does not currently anticipate that adoption will have a material impact on its earnings per share
data.
9. Legal Proceedings
The Company is subject to legal proceedings, claims and litigation arising in the
ordinary course of business. While the outcome of these matters is currently not determinable,
management does not expect that the ultimate cost to resolve these matters will have a material
adverse effect on the Companys consolidated financial position, results of operations, or cash
flows.
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, Georgia facility. Pursuant to the NOV, the Company conducted performance testing of
these emissions and provided updated results in the course of additional dialogue with the relevant
government agencies, including discussions of emissions at the Companys nearby McIntyre, Georgia
manufacturing facility. Following these discussions, a second NOV was issued on May 22, 2007 for
the McIntyre plant for alleged violations similar to those in the January NOV related to the
Toomsboro facility. The Company submitted to the EPD a schedule of responsive activities in
mid-June 2007, submitted additional information to the EPD during the second quarter of 2008 and
continues to respond to EPD inquiries. The EPD has not yet issued a response regarding required
remedial actions or fines, if any, resulting from the NOVs and as such the Company does not at this
time have an estimate of costs associated with compliance.
10
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Business
The Company manufactures ceramic proppant and provides services that are used in the hydraulic
fracturing of natural gas and oil wells. Goods and services are provided through two operating
segments: 1) Proppant and 2) Fracture and Reservoir Diagnostics. The Companys Proppant segment
manufactures and sells ceramic proppants. The Companys Fracture and Reservoir Diagnostics segment
provides fracture mapping and reservoir diagnostic services, sells fracture simulation software and
provides engineering services to oil and gas companies worldwide. These services and software are
provided through the Companys wholly-owned subsidiary, Pinnacle Technologies, Inc.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States, which require the Company to make estimates and
assumptions (see Note 1 to the consolidated financial statements included in the Companys annual
report on Form 10-K for the year ended December 31, 2007). The Company believes that some of its
accounting policies involve a higher degree of judgment and complexity than others. Critical
accounting policies for the Company include revenue recognition, estimating the recoverability of
accounts receivable, inventory valuation, accounting for income taxes, accounting for long-lived
assets and accounting for legal contingencies. Critical accounting policies are discussed more
fully in the Companys annual report on Form 10-K for the year ended December 31, 2007. During the
second quarter of 2008, the Company changed its method of accounting for Proppant segment
inventories from the first-in, first-out (FIFO) method to the weighted average cost method. There
has been no change in the Companys evaluation of its other critical accounting policies since the
preparation of that report.
Results of Operations
Three Months Ended June 30, 2008
Revenues. Consolidated revenues of $103.0 million for the quarter ended June 30, 2008 increased
32% compared to $77.9 million in revenues for the quarter ended June 30, 2007. The improvement was
due to a 28% increase in Proppant segment revenues and a 57% increase in Fracture and Reservoir
Diagnostics segment revenues.
Proppant segment revenues of $86.3 million for the quarter ended June 30, 2008 exceeded revenues of
$67.3 million for the same period in 2007 by 28% due to a 36% increase in proppant sales volume
partially offset by a 5% decrease in the average selling price. Worldwide proppant sales totaled
281 million pounds for the quarter compared to 207 million pounds for the second quarter of 2007.
North American sales volume increased 35% due primarily to increased U.S. sales volume driven by
sales of CARBOHYDROPROP, a lower-priced ceramic proppant introduced in early 2008 to be cost
competitive with resin-coated sand and increases in demand for most of the Companys other products
in key U.S. markets in Texas, Louisiana and North Dakota. Overseas sales volume increased 38%,
with the strongest growth occurring in Russia. The average selling price of proppant in the second
quarter of 2008 was $0.307 per pound compared to the second quarter 2007 average selling price of
$0.325 per pound. The lower average selling price was primarily due to the sales of
CARBOHYDROPROP, higher sales volume in Russia where the average selling price is lower than in
North America, and a change in the mix of other products sold.
Fracture and Reservoir Diagnostics segment revenues for the second quarter of 2008 were
$16.7 million, 57% higher than revenues of $10.6 million for the same period in 2007. The increase
was primarily due to increases in fracture mapping revenue and non-oilfield monitoring sales.
Gross Profit. Consolidated gross profit for the second quarter of 2008 was $32.5 million, or 32%
of revenues, compared to $29.7 million, or 38% of revenues, for the second quarter of 2007. Gross
profit increased by 10% compared to last years second quarter as a result of increased revenues in
both the Proppant and the Fracture and Reservoir Diagnostics segments. Despite the revenue and
gross profit growth, gross profit as a percentage of revenues declined primarily as a result of a
decline in gross profit margin in the Proppant segment.
11
Proppant segment gross profit was $24.9 million for the second quarter of 2008 compared to $24.7
million for the second quarter of 2007. Despite higher gross profit from increased sales volume,
gross profit as a percentage of revenues declined to 29% in 2008 compared to 37% in last years
second quarter. The factors contributing to the decrease in Proppant segment gross profit as a
percentage of revenue are increased sales of lower-margin CARBOHYDROPROP, higher manufacturing
costs in the Companys U.S. plants stemming from increases in the cost of natural gas and raw
materials consumed, and increased freight to transport product to customer locations.
Fracture and Reservoir Diagnostics segment gross profit for the second quarter of 2008 was $7.6
million, or 46% of revenues, compared to $5.0 million, or 47% of revenues, for the second quarter
of 2007. The increase in gross profit is due to the increase in year-over-year revenue relative to
fixed costs.
Selling, General and Administrative (SG&A) and Other Operating Expenses. Consolidated expenses
consisted of $12.0 million of SG&A expenses and $0.1 million of other operating expenses for the
second quarter of 2008 compared to $9.5 million and $0.5 million, respectively, for the second
quarter of 2007. As a percentage of revenues, SG&A expenses decreased to 11.6% compared to 12.2%
for the second quarter of 2007.
Proppant segment expenses consisted of $7.9 million of SG&A expenses and $0.1 million of other
operating expenses for the second quarter of 2008 compared to $6.2 million and $0.5 million,
respectively, for the second quarter of 2007. SG&A expenses increased by $1.7 million due to
increased marketing activity in both domestic and international markets as well as administrative
expenses necessary to support operations in an expanding global market. As a percentage of
revenues, Proppant segment SG&A expenses decreased to 9.1% compared to 9.3% for the second quarter
of 2007. Other operating expenses of $0.1 million for the second quarter of 2008 consisted
primarily of a loss related to equipment disposals, while other operating expenses of $0.5 million
in the second quarter of 2007 consisted primarily of final startup costs for the Companys new
manufacturing facility in Russia.
Fracture and Reservoir Diagnostics segment SG&A expenses totaled $4.1 million, or 25% of revenues,
for the second quarter of 2008 and $3.3 million, or 30% of revenues, for the corresponding period
in 2007. The increase in aggregate expense was primarily due to additional personnel added to
sales and marketing staff, incremental variable compensation based on improved revenue and profit
generation, plus increased technical development and administrative costs to support increased
sales activity.
Income Tax Expense. Income tax expense is not allocated between the two operating segments.
Consolidated income tax expense was $7.0 million, or 34.0% of pretax income, for the second quarter
of 2008 compared to $7.1 million, or 35.6% of pre-tax income, for the same period a year ago. The
effective income tax rate decreased due to a tax refund resulting from the filing of an amended
prior year state tax return in the second quarter of 2008.
Six Months Ended June 30, 2008
Revenues. Consolidated revenues of $204.9 million for the six months ended June 30, 2008 exceeded
revenues of $161.9 million for the same period in 2007 by 27%. The improvement was due to a 23%
increase in Proppant segment revenues and a 53% increase in Fracture and Reservoir Diagnostics
segment revenues.
Proppant segment revenues of $172.7 million for the six months ended June 30, 2008 exceeded
revenues of $140.9 million for the same period in 2007 by 23%. The growth was driven primarily by
a 29% increase in sales volume partially offset by a 5% decrease in the average selling price.
Worldwide proppant sales totaled 563 million pounds in the first half of 2008 compared to 435
million pounds in the first half of 2007. North American sales volume increased 29% over last year
due primarily to higher sales in the U.S. that resulted from the
introduction of CARBOHYDROPROP as well as increased demand for most of the Companys other products. Overseas sales volume
increased 33% led by an increase in Russia. The average selling price per pound of ceramic
proppant in the first half of 2008 was $0.307 versus $0.324 in the first half of 2007. The lower
average selling price was due to the sales of CARBOHYDROPROP, increased sales in Russia where the
average selling price is lower than North America and a change in the mix of other products sold.
Fracture and Reservoir Diagnostics segment revenues of $32.2 million for the six months ended June
30, 2008 exceeded revenues of $21.0 million for the same period in 2007 by 53%. The growth was
driven primarily by an increase in demand for fracture mapping in North America and non-oilfield
monitoring sales.
12
Gross Profit. Consolidated gross profit for the six months ended June 30, 2008 was $64.4 million,
or 31% of revenues, compared to $58.4 million, or 36% of revenues, for the same period in 2007.
The 10% increase in gross profit was the result of increased revenues in both the Proppant segment
and the Fracture and Reservoir Diagnostics segment. Despite the revenue and gross profit growth,
gross profit as a percentage of revenues declined primarily as a result of a decline in gross
profit margin in the Proppant segment.
Proppant segment gross profit for the six months ended June 30, 2008 was $50.0 million, or 29% of
revenues, compared to $49.4 million, or 35% of revenues, for the same period in 2007. Despite
increased sales volume, gross profit decreased as a percentage of revenues because of continued
high production costs during the initial production phases of the Companys new manufacturing
facility in Russia, increased sales of lower-margin CARBOHYDROPROPTM, higher manufacturing costs in
the Companys U.S. plants stemming from increases in the cost of natural gas and raw materials, and
increased freight to transport product to customer locations.
Fracture and Reservoir Diagnostics segment gross profit for the six months ended June 30, 2008 was
$14.4 million, or 45% of revenues, compared to $9.0 million, or 43% of revenues, for the same
period in 2007. The increase in gross profit and gross profit margin was primarily due to
increased utilization of staff and equipment.
Selling, General and Administrative (SG&A) and Other Operating Expenses. Consolidated expenses
consisted of $23.2 million of SG&A expenses and $0.3 million of other operating expenses for the
six months ended June 30, 2008 compared to $19.0 million and $0.9 million, respectively, for the
six months ended June 30, 2007. As a percentage of revenues, SG&A expenses decreased to 11.3% for
the first half of 2008 compared to 11.7% the same period in 2007.
Proppant segment expenses consisted of $15.5 million of SG&A expenses and $0.3 million of other
operating expenses for the six months ended June 30, 2008 compared to $12.7 million and $0.9
million, respectively, for the six months ended June 30, 2007. SG&A expenses increased primarily
because of planned increases in global marketing activity and administrative expenses to support
revenue growth and global expansion. As a percentage of revenues, SG&A expenses remained unchanged
at 9.0% in 2008 and 2007. Other operating expenses of $0.3 million for the six months ended June
30, 2008 consisted of start-up costs relating to the second production line at the Companys
Toomsboro, Georgia facility and a loss related to equipment disposals. Other operating expenses of
$0.9 million for the six months ended June 30, 2007 consisted primarily of the final start-up costs
associated with the Companys new manufacturing facility in Russia.
Fracture and Reservoir Diagnostics segment SG&A expenses totaled $7.7 million, or 24% of revenues,
for the six months ended June 30, 2008 compared to $6.3 million, or 30% of revenues, for the six
months ended June 30, 2007. The increase in aggregate expense was primarily due to greater
technology development spending on the growing reservoir monitoring business as well as increases
in marketing and administrative expenses necessary to support revenue growth.
Income Tax Expense. Income tax expense is not allocated between the two operating segments.
Consolidated income tax expense was $14.8 million, or 34.8% of pretax income, for the six months
ended June 30, 2008 compared to $13.4 million, or 33.9% of pretax income, for the six months ended
June 30, 2007. The increase in the effective tax rate is due to a reduction of deferred state
taxes in the first quarter of 2007 resulting from tax law changes in certain states.
Liquidity and Capital Resources
At June 30, 2008, the Company had cash and cash equivalents of $9.4 million compared to cash and
cash equivalents of $12.3 million at December 31, 2007. For the six months ended June 30, 2008,
the Company generated $15.3 million in cash from operations,
received $0.3 million in net proceeds from
employee exercises of stock options, retained $0.1 million in cash from excess tax benefits
relating to stock based compensation to employees, and accumulated $0.2 million of cash from the
effect of exchange rate changes. Uses of cash included $10.9 million of capital spending, $1.0
million to acquire a 6% ownership in another company, and $6.9 million of cash dividends. In addition, during the six months ended June 30, 2008,
the Company borrowed and fully-repaid a total of $5.5 million on its credit facility.
The Company believes its 2008 results will continue to be influenced by the level of natural gas
drilling in North America. The Company believes the introduction of its new CARBOHYDROPROPTM
product has
13
helped penetrate the market for sand-based proppant resulting in growth in North America that has
exceeded the increase in natural gas drilling activity. As a result, the Company has nearly
reached full capacity utilization at its U.S.-based manufacturing facilities and expects to invest
additional capital to expand production capacity. The Company recently announced plans to
construct a third production line at its Toomsboro, Georgia manufacturing facility that is expected
to add 250 million pounds of capacity in the first half of 2010 at a total cost of approximately
$70 million. The Company believes that stronger than anticipated prices for natural gas should
result in increased drilling activity and increased demand for ceramics proppants in the third and
fourth quarters of 2008; however, North American sales volumes will be limited by production
capacities and the increased inflation pressures the Company has recently experienced for raw
materials and energy may continue to impact operating margins. From an overseas perspective, the
Company believes the outlook for drilling and fracturing activity is optimistic and expects the
recent investments made in fixed assets and human resources necessary to expand its international
presence will continue to show positive results.
Subject to the Companys 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 July 15, 2008, the Companys Board of Directors
approved the payment of a quarterly cash dividend of $0.17 per share to shareholders of the
Companys common stock on July 31, 2008. The Company estimates its total capital expenditures for
the remainder of 2008 will be between $20 million and $25 million.
The Company maintains an unsecured line of credit of $10.0 million. As of June 30, 2008, there was
no outstanding debt under the credit agreement. 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 and capital expenditures for the next 12 months.
The Company also believes that it could acquire additional debt financing, if needed.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of June 30, 2008.
Forward-Looking Information
The statements in this Form 10-Q that are not historical statements, including statements regarding
our future financial and operating performance and liquidity and capital resources, are
forward-looking statements within the meaning of the federal securities laws. All forward-looking
statements are based on managements current expectations and estimates, which involve risks and
uncertainties that could cause actual results to differ materially from those expressed in the
forward-looking statements. Among these factors are:
|
|
|
changes in overall economic conditions, |
|
|
|
|
changes in the cost of raw materials and natural gas used in manufacturing our
products, |
|
|
|
|
changes in demand for our products, |
|
|
|
|
changes in the demand for, or price of, oil and natural gas, |
|
|
|
|
risks of increased competition, |
|
|
|
|
technological, manufacturing and product development risks, |
|
|
|
|
loss of key customers, |
|
|
|
|
changes in foreign and domestic government regulations, |
|
|
|
|
changes in foreign and domestic political and legislative risks, |
|
|
|
|
the risks of war and international and domestic terrorism, |
|
|
|
|
risks associated with foreign operations and foreign currency exchange rates and
controls, and |
|
|
|
|
weather-related risks and other risks and uncertainties. |
Additional factors that could affect our future results or events are described from time to time
in our reports filed with the Securities and Exchange Commission (the SEC). See in particular
our Form 10-K for the fiscal year ended December 31, 2007 under the caption Risk Factors and
similar disclosures in subsequently filed reports with the SEC. We assume no obligation to update
forward-looking statements, except as required by law.
ITEM 3. 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 June 30, 2008, the Companys net investment that is subject
to foreign currency
14
fluctuations totals $85.5 million and the Company has recorded cumulative foreign currency
translation adjustments of $5.4 million, net of deferred income taxes. These currency translation
adjustments are included in Other Comprehensive Income. Also, the Companys subsidiary in Russia
has borrowed $28.6 million, as of June 30, 2008, from another subsidiary of the Company to fund
construction of a manufacturing plant in Russia. This indebtedness, while eliminated in
consolidation of the financial statements, is subject to exchange rate fluctuations between the
local reporting currency and the currency in which the debt is denominated. Currency exchange rate
fluctuations associated with this indebtedness result in gains and losses that impact Net Income.
When necessary, the Company may enter into forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations. There were no such foreign exchange contracts outstanding at
June 30, 2008.
ITEM 4. 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 June 30, 2008, 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) Changes in Internal Control over Financial Reporting
During the second quarter of 2008, the Company implemented a new accounting information system,
SAP, in its North American Proppant segment operations, which includes the Companys corporate
financial reporting functions. The implementation resulted in modifications to internal controls
over the related accounting and operating processes at these locations and for these functions.
The Company intends to implement SAP in its remaining business units, which are the Proppant
segment operations in Russia and China and the Fracture and Reservoir Diagnostics segment
operations, although timing of these implementations has not yet been determined. Other than the
changes mentioned above, no other changes to internal control over financial reporting occurred
during the last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 of the Notes to the Consolidated Financial Statements which is incorporated
herein by reference.
ITEM 1A. RISK FACTORS
Not applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about our repurchases of common stock during the
quarter ended June 30, 2008:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares that |
|
|
Total Number |
|
Average |
|
Purchased as |
|
May Yet be |
|
|
of Shares |
|
Price Paid |
|
Part of Publicly |
|
Purchased |
Period |
|
Purchased |
|
per Share |
|
Announced Plan |
|
Under the Plans |
|
04/01/08 to 06/30/08 (1) |
|
|
1,167 |
|
|
|
$44.79 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
(1) |
|
Represents shares of restricted stock withheld for the payment of withholding taxes
upon the vesting of restricted stock. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
a. |
|
The Annual Meeting of Shareholders of Carbo Ceramics Inc. was held on April 15, 2008. |
|
|
b. |
|
The following matters were submitted to a vote at the meeting: |
(1) The election of the following nominees as directors of CARBO Ceramics Inc.
Votes representing 22,833,947 shares of Common Stock were cast. The vote with
respect to each nominee was as follows:
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
Withheld |
Claude E. Cooke, Jr. |
|
|
22,355,451 |
|
|
|
478,496 |
|
Chad C. Deaton |
|
|
22,549,509 |
|
|
|
284,438 |
|
James B. Jennings |
|
|
22,602,787 |
|
|
|
231,160 |
|
Gary A. Kolstad |
|
|
22,511,145 |
|
|
|
322,802 |
|
H. E. Lentz, Jr. |
|
|
22,549,464 |
|
|
|
284,483 |
|
Randy L. Limbacher |
|
|
22,602,567 |
|
|
|
231,380 |
|
William C. Morris |
|
|
22,491,441 |
|
|
|
342,506 |
|
Robert S. Rubin |
|
|
22,355,416 |
|
|
|
478,531 |
|
16
(2) The ratification of the appointment of Ernst & Young LLP as independent
accountants to audit the consolidated financial statements of CARBO Ceramics Inc.
for the year 2008. Votes representing 22,833,947 shares of Common Stock were cast.
Results of the vote were as follows: 22,288,874 for, 502,749 against, and 42,324
abstained.
ITEM 5. OTHER INFORMATION
Not applicable
17
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this
Quarterly Report on Form 10-Q:
|
18.1 |
|
Letter from Ernst & Young LLP dated August 8, 2008, regarding change in accounting
principle. |
|
|
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 Paul G. Vitek. |
|
|
32 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
CARBO CERAMICS INC.
|
|
|
/s/ Gary A. Kolstad
|
|
|
Gary A. Kolstad |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
/s/ Paul G. Vitek
|
|
|
Paul G. Vitek |
|
|
Sr. Vice President, Finance
and Chief Financial Officer |
|
|
Date: August 11, 2008
19
EXHIBIT INDEX
|
|
|
EXHIBIT |
|
DESCRIPTION |
18.1
|
|
Letter from Ernst & Young LLP dated August 8, 2008, regarding change in accounting principle. |
|
|
|
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 Paul G. Vitek. |
|
|
|
32
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
20