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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1100013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6565 MACARTHUR BOULEVARD
SUITE 1050
IRVING, TEXAS 75039
(Address of principal executive offices)
(972) 401-0090
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] [ ] No
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 registrant's 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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
February 28, 2001, as reported on the New York Stock Exchange, was approximately
$198,488,550. Shares of Common Stock held by each officer and director and by
each person who owns 5% 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 28, 2001, Registrant had outstanding 14,875,850 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held April 10, 2001 are incorporated by reference in Part
III.
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PART I
ITEM 1. BUSINESS
GENERAL
CARBO Ceramics Inc. is the world's largest producer and supplier of ceramic
proppants for use in the hydraulic fracturing of natural gas and oil wells.
Demand for ceramic proppants depends primarily upon the demand for natural gas
and oil and on the number of natural gas and oil wells drilled, completed or
recompleted worldwide. More specifically, the demand for ceramic proppants is
dependent on the number of oil and gas wells that are hydraulically fractured to
stimulate production.
Hydraulic fracturing is the most widely used method of increasing
production from oil and 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
a proppant, is suspended in the fluid and packs the newly created fracture,
keeping the fracture 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
proppants are typically the highest cost. The higher initial cost of ceramic
proppants is justified by the fact that the use of these proppants in certain
well conditions results in increased production of oil and gas and increased
cash flow for the operators of oil and gas wells. The increased production rates
are primarily attributable to the higher strength and more uniform size and
shape of ceramic proppants versus alternative materials.
CARBO Ceramics was formed in 1987 for the purpose of purchasing the assets
of Standard Oil Proppants Company Ltd. (SOPCO). SOPCO was a joint venture formed
to operate the combined proppant businesses of the Carborundum Company and
Dresser Industries. These proppant businesses were started in 1978 and 1984,
respectively. While the Carborundum Company and Dresser Industries had primarily
manufactured high strength, premium priced proppants for use in very deep wells,
CARBO Ceramics has pursued a strategy of introducing new, lower-priced,
lightweight, intermediate strength ceramic proppants to capture a greater
portion of the large market for sand-based proppants.
Based on the Company's internally generated market information and
information contained in the United States Geological Survey Minerals Yearbook,
the Company estimates that it supplies nearly 60% of the ceramic proppants and
8% of all proppants used worldwide. During the year ended December 31, 2000, the
Company generated approximately 63% of its revenues in the U.S. and 37% in
international markets.
PRODUCTS
The Company manufactures four distinct ceramic proppants. CARBOHSP(TM)2000
and CARBOPROP(R) are premium priced, high strength proppants designed primarily
for use in deep gas wells. CARBOHSP(TM)2000 was introduced in January 2000 and
is an improved version of CARBOHSP(TM), which was introduced in 1979 as the
original ceramic proppant. CARBOHSP(TM)2000 has the highest strength of the
ceramic proppants manufactured by CARBO Ceramics and is used primarily in the
fracturing of deep gas wells. CARBOPROP(R), which was introduced by the Company
in 1982, is slightly lower in weight and strength than CARBOHSP(TM)2000 and was
developed for use in deep gas wells that do not require the strength of
CARBOHSP(TM)2000.
The CARBOLITE(R) and CARBOECONOPROP(R) products are lightweight,
intermediate strength proppants designed for use in gas wells of moderate depth
and shallower oil wells. The products are manufactured and sold to compete
directly with sand-based proppants. CARBOLITE(R), introduced in 1984, is used in
medium depth oil and gas wells, where the additional strength of ceramic
proppants may not be essential, but where higher production rates can be
achieved due to the product's roundness and uniform grain size.
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CARBOECONOPROP(R), introduced in 1992 to compete directly with sand-based
proppants, has been the Company's lowest priced and fastest growing product. The
introduction of CARBOECONOPROP(R) has resulted in ceramics being used in many
new markets by end users that had not previously used ceramic proppants. The
Company believes that many of the users of CARBOECONOPROP(R) had previously used
sand or resin-coated sand.
COMPETITION AND MARKET SHARE
The Company's chief worldwide competitor is Norton-Alcoa Proppants
("Norton-Alcoa"). Norton-Alcoa is a joint venture of Compagnie de Saint-Gobain,
a French glass and materials company, and Aluminum Company of America.
Norton-Alcoa manufactures ceramic proppants that directly compete with each of
the Company's products. In addition, Mineraco Curimbaba ("Curimbaba") based in
Brazil, manufactures a sintered bauxite product similar to the Company's
CARBOHSP(TM), which is marketed in the United States under the name
"Sinterball." The Company believes that Curimbaba has not expanded its U.S.
product line to include a full range of ceramic proppants and is unlikely to do
so in light of patents held by the Company and Norton-Alcoa. The Company
believes that it supplies approximately 60% of the ceramic proppants and
approximately 8% of all proppants used by the oilfield services companies that
perform fracturing services worldwide.
Competition for CARBOHSP(TM)2000 and CARBOPROP(R) includes ceramic
proppants manufactured by Norton-Alcoa and Curimbaba. The Company's CARBOLITE(R)
and CARBOECONOPROP(R) products compete with ceramic proppants produced by
Norton-Alcoa and with sand-based proppants 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 Borden
Proppants Corp. and Santrol, a subsidiary of Fairmount Minerals.
The Company believes that the most significant factors that influence a
customer's decision to purchase the Company's products 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 proppants in an increasingly broad range of applications and thus
increased the overall market for the Company's products.
Prior to 1997, the Company had generally maintained sufficient inventory to
satisfy demand for its products. However, beginning in 1997 and continuing
through the first half of 1998, it became obvious to the management of the
Company that previous capacity additions were insufficient to satisfy demand in
an improving market. The Company addressed this issue through the construction
of a new manufacturing facility in McIntyre, Georgia, which was completed and
began limited production in June 1999. During the year 2000, the McIntyre
facility increased production to approximately 60 percent of its design
capacity. In total, the Company's manufacturing facilities operated at
approximately 70 percent of capacity in 2000.
The Company continually conducts testing and development activities with
respect to alternative raw materials to be used in the Company's existing
production methods and alternative production methods. The Company is not aware
of the development of alternative products for use as proppants in the hydraulic
fracturing process. The Company believes that the main barriers to entry for
additional competitors are the patent rights held by the Company and certain of
its current competitors and the capital costs involved in building production
facilities of sufficient size to be operated efficiently.
CUSTOMERS AND MARKETING
The Company's largest customers are, in alphabetical order, BJ Services
Company, Halliburton Company and Schlumberger, the three largest participants in
the worldwide petroleum pressure pumping industry. These companies collectively
accounted for approximately 78 percent of the Company's 2000 revenues and
approximately 85 percent of the Company's 1999 revenues. However, the end users
of the Company's products are the operators of natural gas and oil wells that
hire the pressure pumping service
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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 economic advantages of using ceramic proppants.
The Company generally supplies its customers with products on a just-in-time
basis, with transactions governed by individual purchase orders. Continuing
sales of product depend on the Company's direct customers and the well operators
being satisfied with both product quality and delivery performance.
The Company recognizes the importance of a technical marketing program when
selling a product that offers financial benefits over time but is initially more
costly than alternative products. The Company must market its products both to
its direct customers and to owners and operators of natural gas and oil wells.
The Company's sales and marketing staff regularly calls on and keeps close
contact with the people who are influential in the proppant purchasing decision:
production companies, regional offices of oilfield service companies that offer
pressure pumping services, and various completion engineering consultants.
Beginning in 1999, the Company increased its marketing efforts to production
companies. The Company expanded its technical sales force in 2000 and plans to
continue to increase its efforts to educate end users on the benefits of using
ceramic proppants in the future. The Company currently provides a variety of
technical support services and has developed computer software that models the
return on investment achievable by using the Company's ceramic proppants versus
that of other proppants in the hydraulic fracturing of a natural gas or oil
well.
The Company's Senior Vice President of Marketing and Technology coordinates
worldwide sales and marketing activities. The Company's export marketing efforts
in 2000 were conducted through its sales office in Aberdeen, Scotland and
through commissioned sales agents located in South America, China and Australia.
The Company's ceramic proppants are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 37%, 39% and 35% of the Company's sales for 2000, 1999 and 1998,
respectively. The distribution of the Company's export and domestic revenues is
shown below, based upon the region in which the customer used the proppants:
LOCATION 2000 1999 1998
-------- ----- ----- -----
($ IN MILLIONS)
United States............................................... $58.9 $42.3 $54.3
International............................................... 34.4 27.4 29.8
----- ----- -----
Total............................................. $93.3 $69.7 $84.1
===== ===== =====
DISTRIBUTION
The Company maintains finished goods inventories at its plants in New
Iberia, Louisiana, Eufaula, Alabama, and McIntyre, Georgia, and at eight remote
stocking facilities located in: Rock Springs, Wyoming; Oklahoma City, Oklahoma;
San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada; Rotterdam, The
Netherlands; and Tianjin and Shanghai, China. The North American remote stocking
facilities consist of bulk storage silos with truck trailer loading facilities.
The Company owns the facilities in San Antonio, Rock Springs and Edmonton and
subcontracts the operation of the facilities and transportation to a local
trucking company in each location. The remaining stocking facilities are owned
and operated by local trucking companies under contract with the Company. The
North American sites are supplied by rail, and the sites in the Netherlands and
China are supplied by container ship. In total, the Company leases 149 rail cars
for use in the distribution of its products. The price of the Company's products
sold for delivery in the lower 48 United States and Canada includes just-in-time
delivery of proppants to the operator's well site, which eliminates the need for
customers to maintain an inventory of ceramic proppants.
RAW MATERIALS
Ceramic proppants are made from alumina-bearing ores (commonly referred to
as bauxite, bauxitic clay or kaolin, depending on the alumina content), that are
readily available on the world market. Bauxite is largely
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used in the production of aluminum metal, refractory material and abrasives. The
main deposits of alumina-bearing ores in the United States are in Arkansas,
Alabama and Georgia; other economically mineable deposits are located in
Australia, China, Jamaica, Russia and Surinam.
For the production of CARBOHSP(TM)2000, the Company uses calcined,
abrasive-grade bauxite imported from Australia and typically purchased on the
spot market. The Company has entered into an agreement with a sole supplier to
supply its anticipated need for this ore in 2001. For the production of
CARBOPROP(R), the Company uses bauxitic clay mined in Arkansas. The Company has
entered into a contract for the processing and supply of Arkansas bauxitic clay.
The Company believes that this agreement, which stipulates a fixed price for the
ore, subject to annual upward adjustments in accordance with a producer price
index, will provide a sufficient supply of bauxite and bauxitic clay to meet its
anticipated requirement through 2001. The Company is currently evaluating
alternative sources of supply.
The Company's Eufaula facility exclusively employs locally mined uncalcined
kaolin for the production of CARBOLITE(R) and CARBOECONOPROP(R). The Company has
entered into a contract that requires a supplier to sell to the Company up to
200,000 net tons of kaolin per year and the Company to purchase from the
supplier 80% of the Eufaula facility's annual kaolin requirements, each through
2003. This agreement stipulates a fixed price, subject to annual adjustment in
accordance with fluctuations (within an 8% annual limit) in the producer price
index.
The new production facility in McIntyre, Georgia, uses the imported
calcined bauxite and domestic bauxitic clays discussed above for the production
of CARBOHSP(TM)2000 and CARBOPROP(R) and uses locally mined uncalcined kaolin
for the production of CARBOLITE(R) and CARBOECONOPROP(R). The Company has
entered into a long-term supply agreement for kaolin that stipulates a fixed
price subject to annual adjustments for changes in the producer price index and
fuel costs. The agreement requires the Company to purchase at least 80% of the
McIntyre facility's annual kaolin requirement from the supplier. The supply
contract provides for a twenty-year supply of raw materials.
PRODUCTION PROCESS
Ceramic proppants are made by grinding or dispersing ore to a fine powder,
combining the powder into small, green (i.e., unfired) pellets and sintering the
pellets at 2,500(Degreesf) to 3,000(Degreesf) in a rotary kiln.
The Company uses two different methods to produce ceramic proppants. The
Company's plants in New Iberia, Louisiana, and McIntyre, Georgia, use a dry
process (the "Dry Process") which starts with bauxite, bauxitic clay or kaolin
that has been dried to remove both free water and water which was chemically
bound within the ore. This drying process is referred to as calcining. For the
production of CARBOHSP(TM)2000 and CARBOPROP(R), calcined ores are received at
the plant and ground into a dry powder. For the production of CARBOLITE(R) and
CARBOECONOPROP(R) at the McIntyre plant, ores are calcined at the plant before
being ground into a powder. Pellets are formed by combining the powder with
water and binders and introducing the mixture into high-shear mixers. The
process is completed once the green pellets are sintered in a rotary kiln. The
Company's competitors also use the Dry Process to produce ceramic proppants.
The Company's plant in Eufaula, Alabama, uses a wet process (the "Wet
Process"), which starts with moist, uncalcined kaolin from local mines. The
kaolin is dispersed with chemicals in a water slurry. With an atomizer, the
slurry is sprayed into a dryer that causes the slurry to harden into green
pellets. These green pellets are then sintered in rotary kilns. The Company
believes that the Wet Process is unique to its plant in Eufaula, Alabama.
PATENT PROTECTION
The Company's ceramic proppants are made by processes and techniques that
involve a high degree of proprietary technology, some of which are protected by
patents.
The Company owns outright six issued U.S. patents and seven issued foreign
patents; three of these U.S. patents and four of these foreign patents relate to
the CARBOPROP(R) product produced by the Dry Process.
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The Company jointly owns with A/S NIRO Atomizer ("NIRO"), the Danish
designer and manufacturer of the spray atomizer device used in the Wet Process,
three issued U.S. patents and 17 issued foreign patents. The patents owned
jointly with NIRO generally relate to the Wet Process, and the products produced
thereby (CARBOLITE(R) and CARBOECONOPROP(R)).
The Company's six most important U.S. patents expire at various times in
the years 2002 through 2009 with its two key product patents expiring in 2006
and 2009. The Company believes that these patents have been and will continue to
be important in enabling the Company to compete in the market to supply
proppants to the natural gas and oil industry. The Company intends to enforce
and has in the past vigorously enforced its patents. The Company may be involved
from time to time in the future, as it has been in the past, in litigation to
determine the enforceability, scope and validity of its patent rights. Past
disputes with its main competitor have been resolved in ways that permit the
Company to continue to benefit fully from its patent rights. The Company and
this competitor have cross-licensed certain of their respective patents relating
to intermediate and low density proppants on both a royalty-free and
royalty-bearing basis. (Royalties under these licenses are not material to the
Company's financial results.) The Company and NIRO have not granted any licenses
to third parties relating to the use of the Wet Process. As a result of these
cross licensing arrangements, both the Company and its main competitor are able
to produce a broad range of ceramic proppants, while third parties are unlikely
to be able to enter the ceramic proppants market without infringing on the
patent rights held by the Company, its main competitor or both.
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
proppants. Prior to 1993, the Company's production capacity was substantially in
excess of its sales requirements. Since that time, however, the Company has been
expanding its capacity in order to meet the generally increasing demand for its
products. In October 1993, the Company increased the capacity of the Eufaula
facility from 90 million pounds per year to 170 million pounds per year, in
response to the increasing demand for the Company's CARBOLITE(R) and
CARBOECONOPROP(R) products. In May 1995, the Company completed a 40
million-pound per year capacity expansion at the New Iberia facility, intended
to meet increasing demand for CARBOHSP(TM) and CARBOPROP(R). In February 1996,
the Company commenced operation of its second 80 million-pound per year
expansion of the Eufaula plant. Total annual capacity is currently 100 million
pounds at the New Iberia facility and 250 million pounds at the Eufaula
facility.
In June 1999, the Company substantially completed construction of a new
manufacturing facility in McIntyre, Georgia. Design capacity of the plant is 200
million pounds per year and the total cost of the plant was approximately $60
million. The plant consists of two distinct production lines housed in a single
building. Initial production was generated from the first production line in
June 1999 and full design throughput was achieved on that line in November 1999.
Initial production from the second production line began in December 1999 and
the plant operated at approximately 60 percent of its design capacity in 2000.
The plant is capable of producing all of the Company's product lines and has
been designed to be expandable to a capacity of 400 million pounds per year.
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The following table sets forth the date of construction of and recent
expansion of the Company's manufacturing facilities:
YEAR OF ANNUAL
LOCATION COMPLETION CAPACITY PRODUCTS
-------- ---------- ------------ --------
(MILLIONS OF
POUNDS)
New Iberia, Louisiana
Plant 1.............. 1979 20 CARBOHSP(TM) 2000 and
CARBOPROP(R)
Plant 2.............. 1981 40 CARBOHSP(TM) 2000 and
CARBOPROP(R)
1995 Expansion..... 1995 40 CARBOHSP(TM) 2000 and
CARBOPROP(R)
---
Total......... 100
===
Eufaula, Alabama
1983 90 CARBOLITE(R) and
CARBOECONOPROP(R)
1993 Expansion....... 1993 80 CARBOLITE(R) and
CARBOECONOPROP(R)
1996 Expansion....... 1996 80 CARBOLITE(R) and
CARBOECONOPROP(R)
---
Total......... 250
===
McIntyre, Georgia
1999 200 CARBOLITE(R), CARBOECONOPROP(R)
===
CARBOHSP(TM) 2000 and
CARBOPROP(R)
ORDER BACKLOG
The Company generally supplies its customers with products on a
just-in-time basis and operates without any material backlog.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company believes that its operations are in substantial compliance with
applicable federal, state and local environmental and safety laws and
regulations. The Company does not anticipate any significant expenditures in
order to continue to comply with such laws and regulations.
EMPLOYEES
At December 31, 2000, the Company had 168 full-time employees. In addition
to the services of its employees, the Company employs the services of
consultants as required. The Company's 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 Company's 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 Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from such statements. This document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 concerning, among other things, the Company's
prospects, developments and business strategies for its operations, all of which
are subject to certain risks, uncertainties and assumptions. These risks and
uncertainties include, but are not limited to, changes in the demand for oil and
natural gas, the development of alternative stimulation techniques and the
development of alternative proppants for use in hydraulic fracturing. The words
"believe," "expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are
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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.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters (approximately 5,000
square feet of leased office space) in Irving, Texas, owns its manufacturing
facilities, land and substantially all of the related production equipment in
New Iberia, Louisiana, and Eufaula, Alabama, and leases its McIntyre, Georgia,
facility through 2009 at which time title will be conveyed to the Company.
The facility in New Iberia, Louisiana, located on 24 acres of land owned by
the Company, consists of two production units (approximately 85,000 square
feet), a laboratory (approximately 4,000 square feet) and an office building
(approximately 3,000 square feet). The Company also owns an 80,000 square foot
warehouse on the plant grounds in New Iberia, Louisiana.
The facility in Eufaula, Alabama, located on 14 acres of land owned by the
Company, consists of one production unit (approximately 111,000 square feet), a
laboratory (approximately 2,000 square feet) and an office (approximately 1,700
square feet).
The facility in McIntyre, Georgia includes real property, consisting of
approximately 36 acres, plant and equipment that are leased by the Company from
the Development Authority of Wilkinson County. The term of the lease commenced
on September 1, 1997 and terminates on January 1, 2009. At the termination of
the lease, title to all of the real property, plant and equipment will 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 Company's customer service and distribution operations are located at
the New Iberia facility, while its quality control, testing and development
functions operate at the New Iberia, Eufaula and McIntyre facilities. The
Company owns distribution facilities in San Antonio, Texas, Rock Springs,
Wyoming and Edmonton, Alberta, Canada.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1999, the Company was served with a U.S. federal grand jury
subpoena requesting the production of documents in connection with an
investigation by the Antitrust Division of the U.S. Department of Justice of
possible anti-competitive activity in the proppants industry. The Company has
complied with this request. It is not possible at this time to predict how this
investigation will proceed or the effect, if any, of its ultimate outcome on the
Company.
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 adverse effect on its business or its
results from operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Jesse P. Orsini (age, 60): Mr. Orsini, President and Chief Executive
Officer, has served as President, Chief Executive Officer and a Director of the
Company since its organization in 1987.
Terry P. Keefe (age, 52): Mr. Keefe has been Vice President of
Manufacturing since July 1997. Prior to being elected Vice President of
Manufacturing, Mr. Keefe was Plant Manager of the Company's Eufaula, Alabama
plant since the organization of the Company in 1987.
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Dr. C. Mark Pearson (age, 44): Dr. Pearson has served as Senior Vice
President of Marketing and Technology since January 2000. Dr. Pearson joined the
Company as Vice President of Marketing and Technology in March 1997. Prior to
joining the Company, Dr. Pearson served as Associate Professor of Petroleum
Engineering at the Colorado School of Mines from December 1995 and held various
engineering and management positions with Arco Petroleum Company from 1984
through December 1995.
Paul G. Vitek (age, 41): Mr. Vitek has been the Senior Vice President of
Finance and Administration since January 2000. Prior to serving in his current
capacity, Mr. Vitek served as Vice President of Finance from February 1996 and
has served as Treasurer and Secretary of the Company since 1988.
Dr. C. Mark Pearson has been named to succeed Jesse P. Orsini as President
and Chief Executive Officer of the Company, upon Mr. Orsini's retirement from
the Company on April 10, 2001.
All officers are elected at the Annual Meeting of the Board of Directors
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 Company's directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Common Stock Market Prices and Dividends
The Company's Common Stock is traded on the New York Stock Exchange (ticker
symbol CRR). The approximate number of holders, including both record holders
and individual participants in security position listings, of the Company's
Common Stock at February 28, 2001 was 2,100.
High and low stock prices and dividends for the last two fiscal years were:
2000 1999
----------------------------- -----------------------------
SALES PRICE CASH SALES PRICE CASH
----------------- DIVIDENDS ----------------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
------------- ------- ------- --------- ------- ------- ---------
March 31................... $29.500 $20.000 $0.075 $22.250 $14.000 $0.075
June 30.................... 36.250 25.625 0.075 30.438 17.750 0.075
September 30............... 38.250 25.000 0.075 32.250 20.000 0.075
December 31................ 37.875 25.000 0.075 30.000 19.000 0.075
The Company expects to continue its policy of paying quarterly cash
dividends at the rate of $0.075 per share, although there is no assurance as to
future dividends because they depend on future earnings, capital requirements
and financial condition.
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 Management's Discussion and Analysis of Financial
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Condition and Results of Operations and the financial statements and notes
thereto included elsewhere in this Report.
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Income Data:
Revenues................................. $ 93,324 $ 69,738 $84,095 $85,122 $65,151
Cost of goods sold....................... 57,763 41,718 41,665 42,186 34,517
-------- -------- ------- ------- -------
Gross profit............................. 35,561 28,020 42,430 42,936 30,634
Selling, general and administrative
expenses(1)........................... 12,404 11,761 9,977 8,915 8,126
-------- -------- ------- ------- -------
Operating profit......................... 23,157 16,259 32,453 34,021 22,508
Other, net............................... 268 (288) 974 1,004 175
-------- -------- ------- ------- -------
Income before income taxes............... 23,425 15,971 33,427 35,025 22,683
Income taxes............................. 8,595 5,459 12,719 12,936 5,883
-------- -------- ------- ------- -------
Net income............................... $ 14,830 $ 10,512 $20,708 $22,089 $16,800
======== ======== ======= ======= =======
Earnings per share
Basic................................. $ 1.01 $ 0.72 $ 1.42 $ 1.51
======== ======== ======= =======
Diluted............................... $ 1.00 $ 0.71 $ 1.40 $ 1.50
======== ======== ======= =======
Pro Forma Data (Unaudited)(2):
Income before income taxes............... $22,683
Pro forma income taxes................... 8,393
-------
Pro forma net income..................... $14,290
=======
Pro forma earnings per share(3)
Basic................................. $ 0.98
=======
Diluted............................... $ 0.97
=======
Balance Sheet Data:
Current assets........................... $ 47,415 $ 23,809 $23,783 $46,861 $38,158
Current liabilities excluding bank
borrowings............................ 9,415 5,648 8,638 7,616 5,204
Bank borrowings -- current............... -- 1,809 -- -- --
Property, plant and equipment, net....... 78,007 83,171 75,644 34,093 22,247
Total assets............................. 125,422 106,980 99,427 80,954 60,405
Total shareholders' equity............... 106,140 93,400 87,269 70,942 53,234
Cash dividends per share(4).............. $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.15
---------------
(1) Selling, general and administrative (SG&A) expenses for 2000, 1999 and 1998
include plant start-up costs of $27,000, $1,464,000 and $451,000,
respectively. In 1996, SG&A expenses include an incremental charge of
$877,225 relating to the accelerated recognition of compensation expense for
the vesting of restricted stock in connection with the Company's initial
public offering.
(2) Pro forma data reflects the effects on historical income statement data for
the year ended December 31, 1996 as if the Company had been treated as a C
Corporation for the entire year for income tax purposes, with an estimated
effective income tax rate of 37%. The Company terminated its S Corporation
election on April 23, 1996 prior to its initial public offering.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share.
(4) Cash dividends per share for 1996 is based on cash dividends declared
subsequent to the Company's initial public offering and does not include S
Corporation distributions paid prior to and in conjunction with the initial
public offering.
9
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL BUSINESS CONDITIONS
CARBO Ceramics Inc. manufactures and sells ceramic proppants for use in the
hydraulic fracturing of oil and natural gas wells. Hydraulic fracturing is the
most common technique used to stimulate production from hydrocarbon bearing
formations. The process involves pumping fluids into an oil or gas well at very
high pressure in order to fracture the rock formation that contains the
hydrocarbons. As the fracture is created, the fluids are blended with granular
materials, or proppants, which fill the fracture and prop it open after the
pressure pumping ceases. The proppant filled fracture creates a highly permeable
channel that enables the oil or gas to flow more freely from the formation,
thereby increasing production from the well.
Ceramic proppants are premium products that are sold at higher prices than
sand or resin-coated sand, the two primary alternative proppants. The principal
advantage of ceramic proppants is that they are stronger than sand-based
proppants. The higher strength of ceramic proppants results in higher production
rates in deep wells where sand or resin-coated sand may be crushed under high
closure stress. Consequently, the level of deep drilling activity (generally
defined as wells deeper than 7,500 feet) influences the Company's business.
Ceramic proppants are also more uniform in size and shape than sand-based
proppants. This uniformity can result in higher production rates than sand-based
proppants when used in wells that do not otherwise require ceramics for their
higher strength.
As deep drilling, particularly in North America, is typically focused on
the production of natural gas, the Company's business is significantly impacted
by the number of natural gas wells drilled in North America. In markets outside
North America, sales of the Company's products are less dependent on natural gas
markets but are influenced by the overall level of drilling activity.
Furthermore, because the decision to use ceramic proppants is based on the
present value economics of comparing the higher cost of ceramic proppants to the
future value derived from increased production rates, the Company's business is
influenced by the price of natural gas and oil.
In 1997, demand for ceramic proppants increased to the point that the
availability of all ceramic products was limited. Based on the strong market
demand, the Company raised prices on its products by an average of 5%, effective
in the first quarter 1997. Drilling activity and the demand for ceramic
proppants remained strong throughout 1997 and the Company generated record
earnings for the year. Because management believed that the worldwide demand for
natural gas would continue to increase due to the abundance, relatively low cost
and environmental benefits of natural gas as a source of energy, the Company
initiated construction of a new manufacturing facility in McIntyre, Georgia in
July 1997. The plant cost approximately $60 million and added 200 million pounds
per year of additional capacity (a 60% increase).
The Company raised prices on its products by an average of 5%, effective in
the first quarter of 1998. Strong demand for ceramic proppants continued through
the first half of 1998, with the Company realizing record financial results for
the first three-quarters of the year. However, in the second half of 1998, a
rapid decline in oil prices resulted in a significant reduction in the number of
oil and gas wells drilled and completed. The Company felt the effects of this
decline in the fourth quarter of 1998 as revenues decreased by 29 percent versus
the previous quarter and 33 percent from the fourth quarter of 1997.
Oil and gas prices remained depressed through much of the first half of
1999 and worldwide drilling activity decreased dramatically. In 1999, the
worldwide rig count averaged 1,442, a decline of 22 percent from 1998 and 33
percent from 1997. The Company's financial results for 1999 were adversely
effected by a decrease in its average selling price due to competitive pressures
associated with the depressed industry conditions and by the additional fixed
costs incurred in connection with the start-up of its new production facility in
McIntyre, Georgia.
The price of oil and natural gas and drilling activity improved
significantly in 2000. The recovery was particularly evident in the North
American natural gas activity that is a key driver of the Company's business. As
a result, sales volume, average selling prices, revenues and profitability all
increased versus the previous year. The increase in profitability was tempered
by the impact of high natural gas prices on the Company's
10
12
manufacturing costs and the continued impact of start-up operations at the
McIntyre, Georgia facility early in the year.
NET INCOME
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
Net Income.............................. $14,830 41% $10,512 (49)% $20,708
The Company reported net income for 2000 that was 41% higher than the
previous year. A significant increase in oil and gas drilling activity (and in
oil and natural gas prices) began during the second quarter 2000 and continued
through the remainder of the year. The domestic rig count throughout 2000 was 47
percent higher than 1999, while the average price of natural gas increased by 93
percent over the previous year. Decreased costs at the New Iberia facility (due
to higher production rates resulting from an increase in screening capacity) and
the start-up of the second line at McIntyre contributed to income improvement,
with increased SG&A costs off-setting some of these gains.
The Company reported net income for 1999 that was 49 percent below the
previous year. A significant reduction in oil and gas drilling activity,
combined with higher than expected costs at the Company's manufacturing
facilities, start-up costs at the Company's new facility in McIntyre, Georgia
and price pressure on high-strength products in the South Texas market were the
primary causes of the decline.
Individual components of net income are discussed below.
REVENUES
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
Revenues................................ $93,324 34% $69,738 (17)% $84,095
Carbo Ceramics Inc.'s 2000 revenues of $93.3 million were 34 percent higher
than 1999 revenues. Total sales volumes increased by 34 percent, with domestic
volumes up 39 percent and export volumes up by 25 percent. The increased
domestic volumes were driven by a 70% increase in the South Texas market, while
increased export sales were led by improved sales into Australia, China, Russia,
and Canada. Revenues were also positively impacted by a June 2000 price increase
on our CARBOECONOPROP(R) product. The average selling price for the year was
$0.241 per pound. While this was unchanged versus the previous year, the average
selling price improved in each quarter during 2000 due to a change in the
product mix and a price increase on CARBOECONOPROP(R) that went into effect at
mid-year.
The Company's 1999 revenues of $69.7 million were 17 percent lower than
1998 revenues. Total sales volumes decreased by 12 percent, with domestic
volumes down 15 percent and export volumes down 7 percent from 1998. The decline
in domestic volumes was due in large part to a significant decline in sales of
CARBOECONOPROP(R) into the south Texas market -- the result of a dramatic drop
in rig activity in that area of the country, and a significant decrease in
Alaskan activity -- the direct result of lower oil prices. Revenues were also
negatively impacted by price pressure on high strength products in the South
Texas market. The decline in export volume was due primarily to a decrease in
sales into the Pacific Rim region.
GROSS PROFIT
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
Gross Profit............................ $35,561 27% $28,020 (34)% $42,430
Gross Profit %.......................... 38% 40% 50%
11
13
The Company's cost of goods sold consists of manufacturing costs and
packaging and transportation expenses associated with the delivery of the
Company's products to its customers. Variable manufacturing expenses include raw
materials, labor, utilities and repair and maintenance supplies. Fixed
manufacturing expenses include depreciation, property taxes on production
facilities, insurance and factory overhead.
Gross profit increased by 27 percent from 1999 to 2000. Gross profit as a
percentage of sales was 38 percent for 2000, compared to 40 percent for 1999.
The increase in gross profit was driven primarily by the significant increase in
sales volume. The major contributor to reduced gross profit margins was the
significant increase in the cost of natural gas at all three manufacturing
facilities. Natural gas costs represent approximately 19 percent of the
Company's total manufacturing costs in 2000 compared to 12 percent in 1999. The
negative effects of the gas price increases were mitigated somewhat by increased
production rates at the New Iberia and McIntyre facilities which resulted in
lower costs per pound. At the McIntyre facility, throughput rates have improved
due to increased familiarity with new equipment and employees.
Gross profit for 1999 was $14.4 million lower than 1998. Gross profit as a
percentage of sales was 40 percent for 1999, compared to 50 percent for 1998.
The significant decrease in gross profit was the result of the decrease in
revenues discussed above and an increase in production expenses. The increase in
production expenses resulted from management's decision to start-up the new
production facility in McIntyre, Georgia despite the weak demand experienced
through much of 1999. This decision was made to position the Company for a
recovering market in 2000 but caused all three of the Company's manufacturing
facilities to operate at less than full capacity. In addition, costs at the New
Iberia facility were adversely affected by a six-week maintenance shutdown in
May/June to install a new kiln shell and replace the rotation system. These
increases in cost were partially offset by lower freight costs experienced in
transferring finished goods from the Eufaula manufacturing facility to the
remote storage facility in San Antonio, Texas. High freight costs were incurred
in 1998 due to rail service problems related to the merger of the Union Pacific
and Southern Pacific railway systems.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND PLANT START-UP COSTS
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- ------
($ IN THOUSANDS)
SG&A..................................... $12,404 5% $11,761 18% $9,977
SG&A as a % of Revenues.................. 13% 17% 12%
Selling, general and administrative expenses increased by $643,000 in 2000
over 1999. However, SG&A expenses decreased as a percentage of sales to 13
percent in 2000 from 17 percent in 1999. The single largest item was a drop in
start-up costs related to the new manufacturing facility in McIntyre, Georgia
from $1.5 million in 1999 to $27,000 in 2000. Excluding the start-up costs, SG&A
expenses increased by $2.1 million (or 20%) from 1999 to 2000. Increased costs
in 2000 are those that relate directly to higher activity levels --
distribution, marketing, and management incentive expense, as well as
distribution and marketing expenses related to the development of the China
market, New York Stock Exchange listing fees, and increased legal expenses.
Selling, general and administrative expenses increased by $1.8 million in
1999 over 1998. SG&A expenses also increased as a percentage of sales to 17
percent in 1999 from 12 percent in 1998. The single largest contributor to the
increase was start-up costs related to the new manufacturing facility in
McIntyre, Georgia. These costs totaled $1.5 million in 1999, compared to $0.5
million during 1998. Other significant items include expenses related to
exploring the marketing and manufacturing potentials in China, New Iberia plant
trials to develop products for non-oilfield applications (charged to research
and development), legal fees related to a Department of Justice inquiry, and a
write-off of most of the receivables of one of our customers. That customer was
subsequently acquired by one of our three major customers.
12
14
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of December 31, 2000 were $14.8 million
compared to $0.2 million at the beginning of the year. The Company generated
cash from operations of $21.7 million and realized proceeds from the issuance of
common stock through the exercise of employee stock options of $1.7 million.
Total capital expenditures for the year were $1.6 million, cash dividends paid
totaled $4.4 million, repayment of debt against the Company's line of credit was
$1.8 million, and purchases of investment securities was $1.0 million. There
were no major new capital additions during the year and capital spending for the
maintenance of existing assets was below the historical average. The Company
estimates that normal maintenance capital spending for the existing asset base
should be approximately $3.0 million per year.
The Company's current intention, subject to its financial condition, the
amount of funds generated from operations and the level of capital expenditures
is to continue to pay quarterly dividends to shareholders of its common stock at
the rate of $0.075 per share.
The company maintains an unsecured line of credit of $10.0 million. As of
December 31, 2000, there was no outstanding debt under the credit agreement. The
Company anticipates that 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 through 2001.
See "Forward-Looking Information" under Item 1 hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have operations subject to material risk of foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolio. The Company has a $10.0 million line of
credit with its primary 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. 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-1 through
F-14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant 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
or the Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement. Information
concerning executive officers is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
13
15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements:
The consolidated financial statements of CARBO Ceramics Inc. listed below
are contained in pages F-1 through F-14 of this Report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Income for each of the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 2000, 1999 and 1998
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth quarter of 2000.
(c) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed as part of,
or incorporated by reference into, this Report.
(d) Financial Statement Schedules:
All schedules have been omitted since they are either not required or not
applicable.
14
16
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.
By: /s/ JESSE P. ORSINI
----------------------------------
Jesse P. Orsini
President and Chief Executive
Officer
By: /s/ PAUL G. VITEK
----------------------------------
Paul G. Vitek
Sr. Vice President, Finance and
Chief Financial Officer
Dated: March 7, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jesse P. Orsini and Paul G. Vitek,
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 Chairman of the Board March 7, 2001
-----------------------------------------------------
William C. Morris
/s/ JESSE P. ORSINI President, Chief Executive March 7, 2001
----------------------------------------------------- Officer and Director
Jesse P. Orsini (Principal Executive Officer)
/s/ PAUL G. VITEK Sr. Vice President, Finance and March 7, 2001
----------------------------------------------------- Chief Financial Officer
Paul G. Vitek (Principal Financial and
Accounting Officer)
/s/ CLAUDE E. COOKE, JR. Director March 7, 2001
-----------------------------------------------------
Claude E. Cooke, Jr.
/s/ JOHN J. MURPHY Director March 7, 2001
-----------------------------------------------------
John J. Murphy
/s/ ROBERT S. RUBIN Director March 7, 2001
-----------------------------------------------------
Robert S. Rubin
15
17
REPORT OF INDEPENDENT AUDITORS
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, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
New Orleans, Louisiana
February 5, 2001
F-1
18
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
-------------------
2000 1999
-------- --------
($ IN THOUSANDS)
Current assets:
Cash and cash equivalents................................. $ 14,757 $ 193
Investment securities..................................... 1,000 --
Trade accounts receivable................................. 17,783 10,883
Refundable income taxes................................... -- 288
Inventories:
Finished goods......................................... 8,407 7,123
Raw materials and supplies............................. 4,067 4,154
-------- --------
Total inventories................................. 12,474 11,277
Prepaid expenses and other current assets................. 570 481
Deferred income taxes..................................... 831 687
-------- --------
Total current assets.............................. 47,415 23,809
Property, plant and equipment:
Land and land improvements................................ 944 944
Buildings................................................. 7,442 7,378
Machinery and equipment................................... 92,201 90,092
Construction in progress.................................. 728 1,298
-------- --------
Total............................................. 101,315 99,712
Less accumulated depreciation............................... 23,308 16,541
-------- --------
Net property, plant and equipment...................... 78,007 83,171
-------- --------
Total assets...................................... $125,422 $106,980
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings........................................... $ -- $ 1,809
Accounts payable.......................................... 1,293 1,477
Accrued payroll and benefits.............................. 1,945 1,954
Accrued freight........................................... 1,816 1,545
Accrued utilities......................................... 937 451
Accrued income taxes...................................... 2,581 --
Other accrued expenses.................................... 843 221
-------- --------
Total current liabilities......................... 9,415 7,457
Deferred income taxes....................................... 9,867 6,123
Shareholders' equity:
Preferred stock, par value $0.01 per share, 5,000 shares
authorized: none outstanding........................... -- --
Common stock, par value $0.01 per share, 40,000,000 shares
authorized: 14,699,500 and 14,602,000 shares issued and
outstanding at December 31, 2000 and 1999,
respectively........................................... 147 146
Additional paid-in capital................................ 45,225 42,919
Retained earnings......................................... 60,768 50,335
-------- --------
Total shareholders' equity........................ 106,140 93,400
-------- --------
Total liabilities and shareholders' equity........ $125,422 $106,980
======== ========
The accompanying notes are an integral part of these statements.
F-2
19
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................................... $93,324 $69,738 $84,095
Cost of goods sold.......................................... 57,763 41,718 41,665
------- ------- -------
Gross profit................................................ 35,561 28,020 42,430
Selling, general and administrative expenses................ 12,377 10,297 9,526
Plant start-up costs........................................ 27 1,464 451
------- ------- -------
Operating profit............................................ 23,157 16,259 32,453
Other income (expense):
Interest income........................................... 302 5 800
Interest expense.......................................... (38) (297) --
Other, net................................................ 4 4 174
------- ------- -------
268 (288) 974
------- ------- -------
Income before income taxes.................................. 23,425 15,971 33,427
Income taxes................................................ 8,595 5,459 12,719
------- ------- -------
Net income.................................................. $14,830 $10,512 $20,708
======= ======= =======
Earnings per share:
Basic..................................................... $ 1.01 $ 0.72 $ 1.42
======= ======= =======
Diluted................................................... $ 1.00 $ 0.71 $ 1.40
======= ======= =======
The accompanying notes are an integral part of these statements.
F-3
20
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
($ IN THOUSANDS)
Balances at January 1, 1998.......................... $146 $42,919 $27,877 $ 70,942
Net income......................................... -- -- 20,708 20,708
Cash dividends ($0.30 per share)................... -- -- (4,381) (4,381)
---- ------- ------- --------
Balances at December 31, 1998........................ 146 42,919 44,204 87,269
Net income......................................... -- -- 10,512 10,512
Cash dividends ($0.30 per share)................... -- -- (4,381) (4,381)
---- ------- ------- --------
Balances at December 31, 1999........................ 146 42,919 50,335 93,400
Net income......................................... -- -- 14,830 14,830
Exercise of stock options.......................... 1 1,663 -- 1,664
Income tax benefit from exercise of stock
options......................................... -- 643 -- 643
Cash dividends ($0.30 per share)................... -- -- (4,397) (4,397)
---- ------- ------- --------
Balances at December 31, 2000........................ $147 $45,225 $60,768 $106,140
==== ======= ======= ========
The accompanying notes are an integral part of these statements.
F-4
21
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- -------- --------
($ IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $14,830 $ 10,512 $ 20,708
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 6,767 4,632 2,154
Deferred income taxes..................................... 3,600 2,936 876
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (6,900) 417 2,943
Inventories............................................ (1,197) (1,050) (1,846)
Prepaid expenses and other current assets.............. (89) 133 47
Accounts payable....................................... (184) (289) (365)
Accrued payroll and benefits........................... (9) (655) 161
Accrued freight........................................ 271 753 (59)
Accrued utilities...................................... 486 101 (72)
Income taxes........................................... 3,512 (554) (752)
Other accrued expenses................................. 622 (766) 241
------- -------- --------
Net cash provided by operating activities................... 21,709 16,170 24,036
INVESTING ACTIVITIES
Maturities of investment securities......................... -- -- 13,905
Purchases of investment securities.......................... (1,000) -- --
Purchases of property, plant and equipment.................. (1,603) (14,027) (41,837)
------- -------- --------
Net cash used in investing activities....................... (2,603) (14,027) (27,932)
FINANCING ACTIVITIES
Proceeds from bank borrowings............................... 5,273 18,059 --
Repayments on bank borrowings............................... (7,082) (16,250) --
Proceeds from issuance of common stock...................... 1,664 -- --
Dividends paid.............................................. (4,397) (4,381) (4,381)
------- -------- --------
Net cash used in financing activities....................... (4,542) (2,572) (4,381)
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 14,564 (429) (8,277)
Cash and cash equivalents at beginning of year.............. 193 622 8,899
------- -------- --------
Cash and cash equivalents at end of year.................... $14,757 $ 193 $ 622
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... $ 38 $ 297 $ --
======= ======== ========
Income taxes paid........................................... $ 1,483 $ 3,077 $ 12,595
======= ======== ========
Purchases of property, plant and equipment through accounts
payable................................................... $ -- $ -- $ 1,868
======= ======== ========
The accompanying notes are an integral part of these statements.
F-5
22
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 production plants operating
in New Iberia, Louisiana, Eufaula, Alabama and McIntyre, Georgia. The Company
predominantly markets its proppant products through pumping service companies
that perform hydraulic fracturing for major oil and gas companies. Finished
goods inventories are stored at the three plant sites and eight remote
distribution facilities located in: Rock Springs, Wyoming; Oklahoma City,
Oklahoma; San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada;
Rotterdam, The Netherlands; and Tianjin and Shanghai, China.
Principles of Consolidation
The consolidated financial statements include the accounts of CARBO
Ceramics Inc. and its wholly owned subsidiaries, CARBO Ceramics Sales
Corporation and CARBO Ceramics (UK) Limited. CARBO Ceramics Sales Corporation
was formed on July 31, 1996 under the laws of Barbados. CARBO Ceramics (UK)
Limited was formed on December 19, 1997 under the laws of Scotland. All
significant intercompany transactions have been eliminated.
Concentration of Credit Risk
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 Company's receivables are from
customers in the petroleum pressure pumping industry. Credit losses historically
have been insignificant.
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.
Investment Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
both the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. At December 31,
2000, investment securities consisted of auction-rate preferred stock, which
were classified as held-to-maturity. The fair value of the investments
approximated the carrying value at December 31, 2000. The Company held no
investment securities at December 31, 1999.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Finished goods inventories include costs of materials, plant labor and
overhead incurred in the production of the Company's products.
F-6
23
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Revenue Recognition
Revenue is recognized when title passes to the customer.
Shipping and Handling Costs
Shipping costs, which consist of transportation costs associated with the
delivery of the Company's products to customers, are classified as cost of goods
sold. Handling costs are charged to selling, general and administrative expenses
and include labor and overhead costs related to maintaining finished goods
inventory and operating the Company's remote distribution facilities. Handling
costs incurred in 2000, 1999 and 1998 were $3,175,000, $2,616,000 and
$2,711,000, respectively.
Cost of Start-Up Activities
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This Statement requires that costs
related to start-up activities, including organization costs, be expensed as
incurred. The Company's policy has always been to expense the costs of start-up
operations. Start-up costs for 2000, 1999 and 1998 represent labor, materials
and utilities expended in bringing installed equipment to normal operating
conditions at the Company's new production facility in McIntyre, Georgia. The
Company incurred no start-up costs beyond the first quarter of 2000.
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 2000, 1999 and 1998 were $676,000, $703,000 and $81,000,
respectively.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
F-7
24
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BANK BORROWINGS
Under the terms of an unsecured revolving credit agreement with a bank,
dated December 31, 2000, the Company may borrow up to $10.0 million through
December 31, 2003, with the option of choosing either the bank's fluctuating
Base Rate or LIBOR Fixed Rate (as defined in the credit agreement). At December
31, 2000 the unused portion of the credit facility was $10.0 million. The credit
agreement requires the Company to maintain certain financial ratios. The terms
of the credit agreement further provide for certain affirmative and negative
covenants, including a restriction on capital expenditures. The Company was in
compliance with these covenants at December 31, 2000. Commitment fees are
payable quarterly at the annual rate of three-eighths of one percent of the
unused line of credit.
3. LEASES
The Company leases railroad equipment under operating leases. Minimum
future rental payments due under non-cancelable operating leases with remaining
terms in excess of one year as of December 31, 2000 are as follows ($ in
thousands):
2001....................................................... $ 652
2002....................................................... 451
2003....................................................... 368
2004....................................................... 335
2005....................................................... 52
------
Total............................................ $1,858
======
Leases 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 are generally renewed or replaced by other leases.
Rent expense for all operating leases was $1,560,000 in 2000, $1,168,000 in
1999, and $800,000 in 1998.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
2000 1999
------- -------
($ IN THOUSANDS)
Deferred tax assets:
Employee benefits........................................... $ 152 $ 200
Inventories................................................. 523 457
Other....................................................... 156 30
------ ------
Total deferred tax assets......................... 831 687
------ ------
Deferred tax liabilities:
Depreciation................................................ 9,749 6,007
Other....................................................... 118 116
------ ------
Total deferred tax liabilities.................... 9,867 6,123
------ ------
Net deferred tax liabilities...................... $9,036 $5,436
====== ======
F-8
25
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
2000 1999 1998
------ ------ -------
($ IN THOUSANDS)
Current:
Federal................................................. $4,450 $2,285 $10,596
State................................................... 545 238 1,247
------ ------ -------
Total current................................... 4,995 2,523 11,843
------ ------ -------
Deferred:
Federal................................................. 3,208 2,695 784
State................................................... 392 241 92
------ ------ -------
Total deferred.................................. 3,600 2,936 876
------ ------ -------
$8,595 $5,459 $12,719
====== ====== =======
The reconciliation of income taxes computed at the U.S. statutory tax rate
to the Company's income tax expense is as follows:
2000 1999 1998
---------------- ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------- -------
($ IN THOUSANDS)
U.S. statutory rate............. $8,199 35.0% $5,592 35.0% $11,715 35.0%
State income taxes, net of
federal tax benefit........... 937 4.0 479 3.0 1,339 4.0
Foreign sales corporation
benefit and other............. (541) (2.3) (612) (3.8) (335) (1.0)
------ ---- ------ ---- ------- ----
$8,595 36.7% $5,459 34.2% $12,719 38.0%
====== ==== ====== ==== ======= ====
5. SHAREHOLDERS' EQUITY
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 that may be issued in the future, 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, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, 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 nonassessable.
On January 8, 2001, the Board of Directors declared a cash dividend of
$0.075 per share. The dividend is payable on February 15, 2001 to shareholders
of record on January 31, 2001.
Preferred Stock
The Company's charter authorizes the issuance of 5,000 shares of Preferred
Stock. The Board of Directors has the authority to issue the 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 Company's shareholders. No shares of
F-9
26
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock are currently outstanding, and the Company has no present plans
to issue any shares of Preferred Stock.
6. STOCK OPTION PLAN
The Company's 1996 Stock Option Plan for Key Employees (the "Option Plan")
has authorized the grant of options to purchase an aggregate of 1,000,000 shares
of the Company's Common Stock to certain officers and key employees of the
Company chosen by a committee appointed by the Board of Directors (the
"Compensation Committee") to administer such plan. Under the Option Plan, all
options granted have 10-year terms, and conditions relating to the vesting and
exercise of options are determined by the Compensation Committee for each
option. Options granted under the Option Plan are "non-statutory options"
(options which do not afford income tax benefits to recipients, but the exercise
of which may provide tax deductions for the Company). Each option will have an
exercise price per share equal to the fair market value of a share of Common
Stock on the date of grant and no individual employee may be granted options to
purchase more than an aggregate of 500,000 shares of Common Stock. The options
vest annually over a four-year period.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
5.00%, 6.40% and 4.44%; a dividend yield of 1.0%; volatility factors of the
expected market price of the Company's Common Stock of .509, .464 and .452; and
a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options (net of related expected tax benefits) is amortized to expense over the
options' vesting period. The Company's pro forma information follows:
2000 1999 1998
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income:
As reported......................................... $14,830 $10,512 $20,708
======= ======= =======
Pro forma including the effect of options........... $14,133 $ 9,498 $19,793
======= ======= =======
Basic earnings per share:
As reported......................................... $ 1.01 $ 0.72 $ 1.42
======= ======= =======
Pro forma including the effect of options........... $ 0.96 $ 0.65 $ 1.36
======= ======= =======
Diluted earnings per share:
As reported......................................... $ 1.00 $ 0.71 $ 1.40
======= ======= =======
Pro forma including the effect of options........... $ 0.95 $ 0.65 $ 1.34
======= ======= =======
F-10
27
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
2000 1999 1998
-------------------------- -------------------------- --------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
Outstanding -- beginning
of year................ 925 $20 895 $20 850 $20
Granted.................. 20 23 30 24 45 26
Exercised................ 97 17 -- --
Forfeited................ 30 29 -- --
------ ------ ------
Outstanding -- end of
year................... 818 $21 925 $20 895 $20
====== ====== ======
Exercisable at end of
year................... 704 $20 579 $19 355 $19
Weighted-average fair
value of options
granted during the
year................... $10.63 $10.93 $10.96
Following is a summary of the status of fixed options outstanding at
December 31, 2000:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------------------------- --------------------------
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
RANGE (000) CONTRACTUAL LIFE PRICE (000) PRICE
-------- ------- ---------------- ---------------- ------- ----------------
$17-24 668 6 years $18 596 $17
32-35 150 7 years 33 108 32
--- ---
818 21 704 20
=== ===
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999 1998
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator for basic and diluted earnings per
share:
Net income.................................. $ 14,830 $ 10,512 $ 20,708
Denominator:
Denominator for basic earnings per share --
weighted average shares.................. 14,655,679 14,602,000 14,602,000
Effect of dilutive securities:
Employee stock options (See Note 6)...... 170,624 109,865 168,709
----------- ----------- -----------
Dilutive potential common shares............ 170,624 109,865 168,709
----------- ----------- -----------
Denominator for diluted earnings per share--
adjusted weighted-average shares......... 14,826,303 14,711,865 14,770,709
=========== =========== ===========
Basic earnings per share...................... $ 1.01 $ 0.72 $ 1.42
=========== =========== ===========
Diluted earnings per share.................... $ 1.00 $ 0.71 $ 1.40
=========== =========== ===========
F-11
28
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. QUARTERLY OPERATING RESULTS -- (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2000 and
1999 were as follows:
THREE MONTHS ENDED,
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Revenues................................. $22,101 $21,998 $25,269 $23,956
Gross profit............................. 6,747 9,080 10,302 9,432
Net income............................... 2,462 3,825 4,355 4,188
Earnings per share
Basic.................................. $ 0.17 $ 0.26 $ 0.30 $ 0.28
Diluted................................ $ 0.17 $ 0.26 $ 0.29 $ 0.28
1999
Revenues................................. $20,078 $15,404 $16,888 $17,368
Gross profit............................. 10,002 6,978 6,021 5,019
Net income............................... 4,099 2,528 2,472 1,413
Earnings per share:
Basic.................................. $ 0.28 $ 0.17 $ 0.17 $ 0.10
Diluted................................ $ 0.28 $ 0.17 $ 0.17 $ 0.10
Quarterly data may not sum to the full year data reported in the Company's
consolidated financial statements due to rounding.
9. SALES TO CUSTOMERS
The following schedule presents the percentages of total revenues related
to the Company's three major customers for the three-year period ended December
31, 2000:
MAJOR CUSTOMERS
------------------
A B C OTHERS TOTAL
---- ---- ---- ------ -----
2000............................................... 35.4% 22.4% 20.2% 22.0% 100%
1999............................................... 38.7% 30.0% 16.4% 14.9% 100%
1998............................................... 43.4% 26.1% 18.2% 12.3% 100%
10. INTERNATIONAL SALES
The Company's ceramic proppants are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 37%, 39% and 35% of the Company's revenues for 2000, 1999, and
1998, respectively.
2000 1999 1998
----- ----- -----
($ IN MILLIONS)
Location
United States............................................. $58.9 $42.3 $54.3
International............................................. 34.4 27.4 29.8
----- ----- -----
Total............................................. $93.3 $69.7 $84.1
===== ===== =====
F-12
29
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BENEFIT PLANS
The Company has a defined contribution savings and profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. Employees who have
completed one year of service are eligible to participate. Employees may
contribute up to 15% of their monthly compensation.
For employee contributions up to 5% of monthly compensation, the Company
matches the employee contribution at a rate of 50%. Additional contributions by
the Company are discretionary and are determined annually by the Board of
Directors. These discretionary contributions to the plan are allocated to the
participants pro rata based on their respective salary levels.
Benefit costs recognized as expense under this plan consisted of the
following:
2000 1999 1998
---- ---- ----
($ IN THOUSANDS)
Contributions:
Profit sharing............................................ $325 $275 $207
Savings................................................... 191 151 145
---- ---- ----
$516 $426 $352
==== ==== ====
12. COMMITMENTS
In 1995, the Company entered into an agreement with a supplier to purchase
options to purchase 200,000 tons of green ore for its New Iberia, Louisiana
plant at a specified contract price. All of the green ore purchased by the
Company pursuant to the options will be processed by the supplier at a specified
price. The Company is required to purchase at least 80% of its estimated annual
requirements of processed ore from the supplier until all green ore purchased
pursuant to the options has been processed. The Company anticipates termination
of the agreement by its terms during 2001 and is currently evaluating
alternative sources of supply.
In 1995, the Company entered into an agreement with a supplier to purchase
kaolin for its Eufaula, Alabama plant at a specified contract price. The term of
the agreement is eight years commencing January 1, 1996. Beginning January 1,
1997, the agreement requires the Company to purchase from the supplier at least
80% of the Company's estimated annual requirements of kaolin for its Eufaula
plant.
In 1997, the Company entered into an agreement with a supplier to purchase
kaolin for its McIntyre, Georgia plant at a specified contract price. The term
of the agreement is twenty years commencing on January 1, 1998. The Company has
the right to purchase up to 2.5 million tons of kaolin during the term of the
agreement. The agreement requires the Company to purchase from the supplier at
least 80% of the Company's estimated annual requirements of kaolin for its
McIntyre plant.
The Company was in compliance with the terms of all agreements through
December 31, 2000.
13. EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its current President, which
will expire upon his retirement, scheduled for April 10, 2001. The agreement
provides for an annual base salary and an incentive bonus as defined in the
agreement. In the event the President is terminated without cause prior to April
10, 2001, the Company will be obligated to pay the President two years base
salary and a prorated incentive bonus. In addition, all non-vested stock options
granted to the President will vest immediately and become exercisable. The
agreement also contains a five-year non-competition covenant that would become
effective upon termination for any reason.
The Company has an employment agreement with its Senior Vice President of
Marketing and Technology (President Elect), which becomes effective April 10,
2001. The agreement expires on
F-13
30
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2002. The agreement provides for an annual base salary and an
incentive bonus as defined in the agreement. In the event the President is
terminated without cause prior to December 31, 2002, the Company will be
obligated to pay the President two years base salary and a prorated incentive
bonus. In addition, all non-vested stock options granted to the President will
vest immediately and become exercisable. The agreement also contains a two-year
non-competition covenant that would become effective upon termination for any
reason.
14. 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 costs
to resolve these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations, or cash flows.
F-14
31
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Incorporation of CARBO Ceramics Inc.
(incorporated by reference to exhibit 3.1 to the
registrant's Form S-1 Registration Statement No.
333-1884)
3.2 -- Bylaws of CARBO Ceramics Inc. (incorporated by reference
to exhibit 3.2 to the registrant's Form S-1 Registration
Statement No. 333-1884)
4.1 -- Form of Common Stock Certificate of CARBO Ceramics Inc.
(incorporated by reference to exhibit 4.1 to the
registrant's Form S-1 Registration Statement No.
333-1884)
10.1 -- Second Amended and Restated Credit Agreement dated as of
December 31, 2000, between Brown Brothers Harriman & Co.
and CARBO Ceramics Inc.
10.2 -- Form of Tax Indemnification Agreement between CARBO
Ceramics Inc. and William C. Morris, Robert S. Rubin,
Lewis C. Glucksman, George A. Wiegers, William A.
Griffin, and Jesse P. Orsini (incorporated by reference
to exhibit 10.2 to the registrant's Form S-1 Registration
Statement No. 333-1884)
10.3 -- Form of Employment Agreement between CARBO Ceramics Inc.
and Jesse P. Orsini (incorporated by reference to exhibit
10.4 to the registrant's Form S-1 Registration Statement
No. 333-1884)
10.4 -- Purchase and Sale Agreement dated as of March 31, 1995,
between CARBO Ceramics Inc. and GEO Specialty Chemicals,
Inc., as amended (incorporated by reference to exhibit
10.5 to the registrant's Form S-1 Registration Statement
No. 333-1884)
10.5 -- Raw Material Requirements Agreement dated as of November
21, 1995, between CARBO Ceramics Inc. and C-E Minerals
Inc. (incorporated by reference to exhibit 10.6 to the
registrant's Form S-1 Registration Statement No.
333-1884)
10.6 -- Incentive Compensation Plan (incorporated by reference to
exhibit 10.8 to the registrant's Form S-1 Registration
Statement No. 333-1884)
10.7 -- CARBO Ceramics Inc. 1996 Stock Option Plan for Key
Employees (incorporated by reference to exhibit 10.9 to
the registrant's Form S-1 Registration Statement No.
333-1884)
10.8 -- Form of Stock Option Award Agreement (incorporated by
reference to exhibit 10.10 to the registrant's Form S-1
Registration Statement No. 333-1884)
10.9 -- Raw Material Supply Agreement dated as of November 18,
1997 between CARBO Ceramics Inc. and Arcilla Mining and
Land Co. (incorporated by reference to exhibit 10.9 to
the registrant's Form 10-K Annual Report for the year
ended December 31, 1997)
10.10 -- Amendment to Employment Agreement between CARBO Ceramics
Inc. and Jesse P. Orsini (incorporated by reference to
exhibit 10.10 to the registrant's Form 10-K Annual Report
for the year ended December 31, 1999)
10.11 -- Form of Employment Agreement between CARBO Ceramics Inc.
and C. Mark Pearson
23.1 -- Consent of Ernst & Young LLP