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SECURITIES AND EXCHANGE COMMISSION
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | 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 (State or other jurisdiction of incorporation or organization) | 72-1100013 (I.R.S. Employer Identification Number) |
6565 MacArthur Boulevard
Suite 1050
Irving, Texas 75039
(Address of principal executive offices)
(972) 401-0090
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of April 21, 2004, 15,902,382 shares of the registrant’s Common Stock, par value $.01 per share, were outstanding.
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CARBO CERAMICS INC.
Index to Quarterly Report on Form 10-Q
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
March 31, | December 31, | |||||||
2004 | 2003 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 47,178 | $ | 38,714 | ||||
Trade accounts receivable | 37,409 | 30,395 | ||||||
Inventories: | ||||||||
Finished goods | 13,723 | 14,004 | ||||||
Raw materials and supplies | 6,783 | 6,433 | ||||||
Total inventories | 20,506 | 20,437 | ||||||
Prepaid expenses and other current assets | 1,030 | 1,086 | ||||||
Deferred income taxes | 2,183 | 2,077 | ||||||
Total current assets | 108,306 | 92,709 | ||||||
Property, plant and equipment: | ||||||||
Land and land improvements | 1,958 | 1,958 | ||||||
Land-use and mineral rights | 5,052 | 5,052 | ||||||
Buildings | 12,856 | 12,826 | ||||||
Machinery and equipment | 133,343 | 132,973 | ||||||
Construction in progress | 14,912 | 11,011 | ||||||
Total | 168,121 | 163,820 | ||||||
Less accumulated depreciation | 49,860 | 47,156 | ||||||
Net property, plant and equipment | 118,261 | 116,664 | ||||||
Goodwill | 21,840 | 21,840 | ||||||
Intangible assets, net | 3,977 | 3,911 | ||||||
Total assets | $ | 252,384 | $ | 235,124 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 6,671 | $ | 5,599 | ||||
Accrued payroll and benefits | 3,158 | 4,680 | ||||||
Accrued freight | 1,723 | 1,076 | ||||||
Accrued utilities | 1,630 | 1,645 | ||||||
Accrued income taxes | 2,999 | 38 | ||||||
Retainage related to construction in progress | 384 | 265 | ||||||
Provision for legal judgment | — | 975 | ||||||
Other accrued expenses | 2,214 | 2,154 | ||||||
Total current liabilities | 18,779 | 16,432 | ||||||
Deferred income taxes | 19,289 | 18,553 | ||||||
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; 15,898,882 and 15,733,432 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively | 159 | 157 | ||||||
Additional paid-in capital | 86,660 | 80,534 | ||||||
Unearned stock compensation | (198 | ) | (253 | ) | ||||
Retained earnings | 127,736 | 119,743 | ||||||
Accumulated other comprehensive income (loss) | (41 | ) | (42 | ) | ||||
Total shareholders’ equity | 214,316 | 200,139 | ||||||
Total liabilities and shareholders’ equity | $ | 252,384 | $ | 235,124 | ||||
The accompanying notes are an integral part of these statements.
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CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2004 | 2003 | |||||||
Revenues | $ | 50,011 | $ | 38,538 | ||||
Cost of sales | 29,230 | 24,672 | ||||||
Gross profit | 20,781 | 13,866 | ||||||
Selling, general and administrative expenses | 5,687 | 4,669 | ||||||
Start-up costs | — | 80 | ||||||
Operating profit | 15,094 | 9,117 | ||||||
Other income (expense): | ||||||||
Net interest income | 60 | 37 | ||||||
Other, net | 62 | (45 | ) | |||||
122 | (8 | ) | ||||||
Income before income taxes | 15,216 | 9,109 | ||||||
Income taxes | 5,648 | 3,399 | ||||||
Net income | $ | 9,568 | $ | 5,710 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.60 | $ | 0.37 | ||||
Diluted | $ | 0.60 | $ | 0.37 | ||||
Other information: | ||||||||
Dividends declared per common share | $ | 0.10 | $ | 0.09 | ||||
The accompanying notes are an integral part of these statements.
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CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2004 | 2003 | |||||||
Operating activities | ||||||||
Net income | $ | 9,568 | $ | 5,710 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2,704 | 2,225 | ||||||
Amortization | 149 | 120 | ||||||
Deferred income taxes | 630 | (24 | ) | |||||
Non-cash stock option expense | 55 | 90 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable | (7,014 | ) | (4,350 | ) | ||||
Inventories | (69 | ) | (812 | ) | ||||
Prepaid expenses and other current assets | 56 | (236 | ) | |||||
Accounts payable | 1,072 | 812 | ||||||
Accrued payroll and benefits | (1,522 | ) | (826 | ) | ||||
Accrued freight | 647 | 169 | ||||||
Accrued utilities | (15 | ) | 1,070 | |||||
Accrued income taxes | 4,990 | 418 | ||||||
Provision for legal judgment | (975 | ) | (993 | ) | ||||
Other accrued expenses | 60 | 186 | ||||||
Net cash provided by operating activities | 10,336 | 3,559 | ||||||
Investing activities | ||||||||
Capital expenditures, net | (4,397 | ) | (8,447 | ) | ||||
Net cash used in investing activities | (4,397 | ) | (8,447 | ) | ||||
Financing activities | ||||||||
Proceeds from exercise of stock options | 4,099 | 166 | ||||||
Dividends paid | (1,575 | ) | (1,394 | ) | ||||
Net cash provided by (used in) financing activities | 2,524 | (1,228 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 8,463 | (6,116 | ) | |||||
Effect of exchange rate changes on cash | 1 | (8 | ) | |||||
Cash and cash equivalents at beginning of period | 38,714 | 24,447 | ||||||
Cash and cash equivalents at end of period | $ | 47,178 | $ | 18,323 | ||||
Supplemental cash flow information | ||||||||
Interest paid | $ | — | $ | 11 | ||||
Income taxes paid | $ | 28 | $ | 3,005 | ||||
The accompanying notes are an integral part of these statements.
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CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
(Unaudited)
1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2003 included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its wholly owned subsidiaries (the “Company”): CARBO Ceramics (UK) Limited, CARBO Ceramics (Mauritius) Inc., CARBO Ceramics (China) Company Limited, CARBO Ceramics Cyprus Limited, CARBO Ceramics (Eurasia) LLC and Pinnacle Technologies, Inc. All significant intercompany transactions have been eliminated.
2. | Reclassification of Handling Costs |
Beginning January 1, 2004, the Company has included handling costs in cost of sales. Handling costs, including labor and overhead to maintain finished goods inventory, costs of operating distribution facilities and depreciation of those facilities, were charged to selling, general and administrative expenses prior to January 1, 2004. Because handling costs tend to vary directly with sales activity and can impact shipping costs, the Company decided that handling costs would be better classified as cost of sales. Shipping costs, which consist of transportation costs associated with delivery of the Company’s products to customers, are classified as cost of sales. Handling costs included in the 2003 financial statements have been reclassified as cost of sales to conform to the 2004 presentation. The reclassification had no effect on net income.
3. | Earnings Per Share |
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended | ||||||||
March 31, | ||||||||
2004 | 2003 | |||||||
Numerator for basic and diluted earnings per share: | ||||||||
Net income | $ | 9,568 | $ | 5,710 | ||||
Denominator: | ||||||||
Denominator for basic earnings per share- weighted-average shares | 15,816,450 | 15,486,524 | ||||||
Effect of dilutive securities: | ||||||||
Employee stock options | 121,305 | 90,053 | ||||||
Contingent stock-acquisition | — | 43,640 | ||||||
Dilutive potential common shares | 121,305 | 133,693 | ||||||
Denominator for diluted earnings per share- adjusted weighted-average shares | 15,937,755 | 15,620,217 | ||||||
Basic earnings per share | $ | 0.60 | $ | 0.37 | ||||
Diluted earnings per share | $ | 0.60 | $ | 0.37 | ||||
During the three months ended March 31, 2004, employees exercised stock options to acquire 165,450 common shares at a weighted-average exercise price of $24.77 per share. The Company recognized a related income tax benefit of $2,029, which was credited directly to shareholders’ equity.
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During the three months ended March 31, 2003, employees exercised stock options to acquire 8,400 common shares at a weighted-average exercise price of $19.70 per share. The Company recognized a related income tax benefit of $45, of which $23 was recorded as a reduction of goodwill for exercises of vested stock options assumed in the May 31, 2002 acquisition of Pinnacle Technologies, Inc.
4. | Stock-Based Compensation |
The Company accounts for its employee stock option plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. In general, no stock-based employee compensation cost is reflected in net income, as most options granted under the plans have an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:
Three months ended | ||||||||
March 31, | ||||||||
2004 | 2003 | |||||||
Net income, as reported | $ | 9,568 | $ | 5,710 | ||||
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects | 35 | 57 | ||||||
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects | (265 | ) | (300 | ) | ||||
Pro forma net income | $ | 9,338 | $ | 5,467 | ||||
Earnings per share: | ||||||||
Basic - as reported | $ | 0.60 | $ | 0.37 | ||||
Basic - pro forma | $ | 0.59 | $ | 0.35 | ||||
Diluted - as reported | $ | 0.60 | $ | 0.37 | ||||
Diluted - pro forma | $ | 0.59 | $ | 0.35 | ||||
5. | Dividends Paid |
On January 14, 2004, the Board of Directors declared a cash dividend of $0.10 per common share payable to shareholders of record on January 30, 2004. The dividend was paid on February 16, 2004.
6. | Comprehensive Income |
Comprehensive income was as follows:
Three months ended | ||||||||
March 31, | ||||||||
2004 | 2003 | |||||||
Net income | $ | 9,568 | $ | 5,710 | ||||
Foreign currency translation adjustment | 1 | (8 | ) | |||||
Comprehensive income | $ | 9,569 | $ | 5,702 | ||||
7. | Legal Proceedings |
The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions (see Note 1 to the consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2003). The Company believes that some of its accounting policies involve a higher degree of judgment and complexity. Critical accounting policies for the Company include revenue recognition, estimating the recoverability of accounts receivable, inventory valuation, accounting for income taxes, accounting for long-lived assets, accounting for legal contingencies and accounting for business acquisitions. Critical accounting policies are discussed more fully in the annual report on Form 10-K for the year ended December 31, 2003 and there have been no changes in the Company’s evaluation of its critical accounting policies.
Results of Operations
Three Months Ended March 31, 2004
Revenues.Revenues of $50.0 million for the quarter ended March 31, 2004 represent a 30% increase over the first quarter of 2003. This increase was mainly due to increased volume of proppant sales in Russia, Canada and the U.S. Worldwide proppant sales volume of 172 million pounds in the first quarter of 2004 eclipsed the previous quarterly record of 164 million pounds set in the fourth quarter of 2003 and represents a 31% increase over last year’s first quarter. North American sales volume rose 21% from the first quarter of 2003 due to a 29% increase in the U.S. natural gas rig count. Sales volume in the Rocky Mountain, East Texas and Mid-continent regions of the U.S. increased significantly, while the South Texas and Gulf of Mexico regions declined compared to the previous year. Sales volume in Canada increased 40% with only a 7% increase in the Canadian rig count. Overseas sales volume increased 91% compared to the first quarter of 2003 primarily due to increased market penetration. The increase in overseas sales was led by increased sales in Russia, where the Company also achieved record quarterly sales volume. Overseas sales volume accounted for 21% of total proppant sales volume for the quarter. First quarter 2004 average selling price of $0.270 per pound of proppant declined approximately 1% from the first quarter 2003 average selling price of $0.273 per pound due to a shift in the mix of products sold rather than a change in prices for the Company’s products. Revenues for the first quarter of 2004 and 2003 include $3.6 million and $2.8 million, respectively, from Pinnacle Technologies, Inc.
Reclassification of Handling Costs. Beginning January 1, 2004, the Company has included handling costs in cost of sales. Handling costs, including labor and overhead to maintain finished goods inventory, costs of operating distribution facilities and depreciation of those facilities, were charged to selling, general and administrative expenses prior to January 1, 2004. Because handling costs tend to vary directly with sales activity and can impact shipping costs, the Company decided that handling costs would be better classified as cost of sales. Shipping costs, which consist of transportation costs associated with delivery of the Company’s products to customers, are classified as cost of sales. Handling costs included in the 2003 financial statements have been reclassified as cost of sales to conform to the 2004 presentation. The following discussions of gross profit and selling, general and administrative expenses reflect the reclassification. The reclassification had no effect on net income.
Handling costs for the quarters ended March 31, 2004 and 2003 were $1.5 million and $1.2 million, respectively, and as a percentage of revenues were 2.9% and 3.1%, respectively. Handling costs in the future are expected to be approximately 3.0% of revenues.
Gross Profit.Gross profit for the first quarter of 2004 was $20.8 million, or 42% of sales, compared to $13.9 million, or 36% of sales, for the first quarter of 2003. The increase in gross profit margin was primarily due to improved utilization of manufacturing plants, increased sales of higher-margin ceramic proppants and reduced manufacturing costs resulting from a decrease in the average cost of natural gas from the first quarter of 2003. Our plants operated on average at 94% of manufacturing capacity during the first quarter of 2004, compared to 80% for the first quarter of 2003. Production rates in the first quarter of 2004 also benefited from capacity expansions completed in the first quarter of 2003. Conversely, production rates in last year’s first quarter suffered from scheduled shutdowns at our McIntyre, Georgia and New Iberia, Louisiana facilities in order to bring newly installed equipment online while completing these expansions.
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Selling, General and Administrative Expenses (SG&A) and Other Operating Expenses.Selling, general and administrative expenses totaled $5.7 million for the first quarter of 2004 compared to $4.7 million for the corresponding period of 2003. The increase was due to increased marketing, business development and research activities and additions to administrative functions to support current activity levels and planned future growth. Selling, general and administrative expenses were 11% of sales for the quarter ended March 31, 2004 compared to 12% for the quarter ended March 31, 2003. The decline as a percentage of sales is due to the increase in sales, partially offset by the increase in expenses. Start-up costs of $0.1 million in the first quarter of 2003 were related to expansion of the McIntyre and New Iberia facilities and initial operation of the China facility.
Income Tax Expense. Income tax expense of $5.6 million for the quarter ended March 31, 2004 increased 66% over the first quarter of 2003 primarily due to the increase in taxable income resulting from the Company’s improved performance.
Liquidity and Capital Resources
Cash and cash equivalents totaled $47.2 million as of March 31, 2004, an increase of $8.5 million from December 31, 2003. The Company generated $10.3 million cash from operations and received $4.1 million from employee exercises of stock options. Uses of cash included capital spending of $4.4 million and cash dividends of $1.6 million. Major capital spending includes $2.0 million for expansion of the China facility.
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. The Company has total projected capital expenditures of $20.0 million to $25.0 million for the remainder of 2004, including final spending on the expansion of the China facility, which is expected to be complete by mid 2004, and initial spending on a new manufacturing facility in Wilkinson County, Georgia, which is expected to be complete by the end of 2005.
The Company maintains an unsecured line of credit of $10.0 million. As of March 31, 2004, there was no outstanding debt under the credit agreement. The Company anticipates that cash on hand, cash provided by operating activities and funds available under its line of credit will be sufficient to meet planned operating expenses, tax obligations and capital expenditures through 2004. The Company also believes that it could acquire additional debt financing, if needed. Based on these assumptions, we believe that the Company’s fixed costs could be met even with a moderate decrease in demand for the Company’s products.
Outlook
The Company believes that the relatively high prices for oil and natural gas in the current spot and futures markets will continue to spur drilling and fracturing activity worldwide. Consequently, the Company expects demand for its products to remain strong. However, sales volume in the second quarter of 2004 may decline up to 10% due to the normal seasonal slowdown in fracturing activity that occurs during the spring thaw in Canada. The Company expects to continue operating all of its manufacturing facilities at near full capacity and will build finished goods inventory if demand declines during the second quarter.
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of March 31, 2004:
Payments due in period | ||||||||||||||||||||
Less than | 1 - 3 | 4 - 5 | More than | |||||||||||||||||
($ in thousands) | Total | 1 year | years | years | 5 years | |||||||||||||||
Operating lease obligations: | ||||||||||||||||||||
- Primarily railroad equipment | $ | 5,039 | $ | 1,380 | $ | 2,239 | $ | 1,111 | $ | 309 | ||||||||||
Purchase obligations: | ||||||||||||||||||||
- Natural gas contracts | 6,908 | 6,448 | 460 | — | — | |||||||||||||||
- Raw materials contracts | 11,340 | 6,480 | 4,860 | — | — | |||||||||||||||
Total contractual obligations | $ | 23,287 | $ | 14,308 | $ | 7,559 | $ | 1,111 | $ | 309 | ||||||||||
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Forward-Looking Information
The statements in this Form 10-Q that are not historical statements, including statements regarding our future financial performance, are forward-looking statements within the meaning of the federal securities laws. All forward-looking statements are based on management’s current expectations and estimates, which involve risks and uncertainties that could cause actual results to differ materially from those expressed in forward-looking statements. Among these factors are changes in overall economic conditions, changes in demand for our products, changes in the demand for, or price of, oil and natural gas, risks of increased competition, technological, manufacturing and product development risks, loss of key customers, changes in government regulations, foreign and domestic political and legislative risks, the risks of war and international and domestic terrorism, risks associated with foreign operations and foreign currency exchange rates and controls, weather-related risks and other risks and uncertainties. We assume no obligation to update forward-looking statements, except as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s major market risk exposure is to foreign currency fluctuations that could impact its investment in China. When necessary, the Company may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There were no such foreign exchange contracts outstanding at March 31, 2004. 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. As of March 31, 2004, there was no outstanding debt under the credit agreement. The Company does not believe that it has any material exposure to market risk associated with interest rates.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the quarter ended March 31, 2004, management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the end of the quarter for which this report is made, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.
(b) Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2004 that materially affected, or are reasonably likely to materially affect, those controls.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Reclassification of Handling Costs. Beginning January 1, 2004, the Company has included handling costs in cost of sales. Handling costs, including labor and overhead to maintain finished goods inventory, costs of operating distribution facilities and depreciation of those facilities, were charged to selling, general and administrative expenses prior to January 1, 2004. Because handling costs tend to vary directly with sales activity and can impact shipping costs, the Company decided that handling costs would be better classified as cost of sales. Shipping costs, which consist of transportation costs associated with delivery of the Company’s products to customers, are classified as cost of sales. Handling costs included in prior year financial statements have been reclassified as cost of sales to conform to the 2004 presentation. The reclassification had no effect on net income. Handling costs for each of the years ended December 31, 2003, 2002 and 2001 were $5.3 million, $4.1 million and $3.9 million, respectively, representing 3.1%, 3.2% and 2.9% of revenues, respectively.
The prior year financial statements, as reclassified, are presented below.
Years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
($ in thousands, except per share data) | ||||||||||||
Revenues | $ | 169,936 | $ | 126,308 | $ | 137,226 | ||||||
Cost of sales | 102,316 | 78,753 | 82,919 | |||||||||
Gross profit | 67,620 | 47,555 | 54,307 | |||||||||
Selling, general and administrative expenses | 19,827 | 14,783 | 14,697 | |||||||||
Start-up costs | 80 | 1,099 | 35 | |||||||||
Provision for legal judgment | (18 | ) | 993 | – | ||||||||
Loss on disposal of equipment | 717 | – | – | |||||||||
Operating profit | 47,014 | 30,680 | 39,575 | |||||||||
Other income (expense): | ||||||||||||
Interest income | 204 | 500 | 891 | |||||||||
Interest expense | (13 | ) | (14 | ) | (1 | ) | ||||||
Other, net | (118 | ) | 77 | 216 | ||||||||
73 | 563 | 1,106 | ||||||||||
Income before income taxes | 47,087 | 31,243 | 40,681 | |||||||||
Income taxes | 17,518 | 11,529 | 14,483 | |||||||||
Net income | $ | 29,569 | $ | 19,714 | $ | 26,198 | ||||||
Earnings per share: | ||||||||||||
Basic | $ | 1.90 | $ | 1.29 | $ | 1.76 | ||||||
Diluted | $ | 1.88 | $ | 1.28 | $ | 1.74 | ||||||
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
Exhibits | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification by C. Mark Pearson. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification by Paul G. Vitek. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
b. Reports on Form 8-K
On February 4, 2004, the Company furnished a report on Form 8-K concerning its press release announcing fourth quarter and 2003 earnings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CARBO CERAMICS INC. | ||
/s/ C. Mark Pearson | ||
C. Mark Pearson | ||
President and Chief Executive Officer | ||
/s/ Paul G. Vitek | ||
Paul G. Vitek | ||
Sr. Vice President, Finance and | ||
Chief Financial Officer |
Date: April 23, 2004
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