UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 72-1100013 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
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
As of October 31, 2002, 15,382,436 shares of the registrant's Common Stock, par value $.01 per share, were outstanding.
CARBO CERAMICS INC.
Index to Quarterly Report on Form 10-Q
PART I. FINANCIAL INFORMATION | PAGE |
|
|
Item 1. Financial Statements |
|
|
|
Consolidated Balance Sheets - | 3 |
September 30, 2002 (Unaudited) and December 31, 2001 |
|
|
|
Consolidated Statements of Income (Unaudited) - | 4 |
Three and nine months ended September 30, 2002 and 2001 |
|
|
|
Consolidated Statements of Cash Flows (Unaudited) - | 5 |
Nine months ended September 30, 2002 and 2001 |
|
|
|
Notes to Consolidated Financial Statements (Unaudited) | 6 |
|
|
Item 2. Management's Discussion and Analysis of Financial | 9 |
Condition and Results of Operations |
|
|
|
Item 4. Controls and Procedures | 11 |
|
|
PART II. OTHER INFORMATION |
|
|
|
Item 1. Legal proceedings | 12 |
|
|
Item 2. Changes in securities | 12 |
|
|
Item 3. Defaults upon senior securities | 12 |
|
|
Item 4. Submission of matters to a vote of security-holders | 12 |
|
|
Item 5. Other information | 12 |
|
|
Item 6. Exhibits and reports on Form 8-K | 12 |
|
|
|
|
Signatures | 13 |
|
|
Certifications |
|
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS | ||
| September 30, | December 31, |
| 2002 | 2001 |
| (Unaudited) |
|
| ($ in thousands) | |
Current assets: |
|
|
Cash and cash equivalents | $ 20,829 | $ 31,547 |
Investment securities | 3,000 | 6,000 |
Trade accounts receivable | 24,584 | 22,157 |
Inventories: |
|
|
Finished goods | 9,790 | 9,465 |
Raw materials and supplies | 5,264 | 5,944 |
Total inventories | 15,054 | 15,409 |
Prepaid expenses and other current assets | 937 | 514 |
Deferred income taxes | 949 | 875 |
Total current assets | 65,353 | 76,502 |
Property, plant and equipment: |
|
|
Land and land improvements | 1,285 | 944 |
Buildings | 7,996 | 7,488 |
Machinery and equipment | 99,195 | 92,522 |
Construction in progress | 28,087 | 11,657 |
Total | 136,563 | 112,611 |
Less accumulated depreciation | 35,620 | 30,084 |
Net property, plant and equipment | 100,943 | 82,527 |
Goodwill | 19,561 | - |
Intangible assets, net | 3,307 | - |
Total assets | $ 189,164 | $ 159,029 |
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY | ||
|
|
|
Current liabilities: |
|
|
Accounts payable | $ 2,562 | $ 3,572 |
Accrued payroll and benefits | 2,781 | 2,491 |
Accrued freight | 715 | 1,139 |
Accrued utilities | 854 | 848 |
Accrued income taxes | 3,742 | 2,304 |
Other accrued expenses | 1,945 | 773 |
Total current liabilities | 12,599 | 11,127 |
Deferred income taxes | 12,417 | 10,960 |
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: |
|
|
15,379,836 and 14,949,600 shares issued and outstanding at September 30, |
|
|
2002 and December 31, 2001, respectively | 154 | 149 |
Additional paid-in capital | 71,097 | 54,967 |
Unearned stock compensation | (656) | - |
Retained earnings | 93,568 | 81,834 |
Accumulated other comprehensive (loss) | (15) | (8) |
Total shareholders' equity | 164,148 | 136,942 |
Total liabilities and shareholders' equity | $ 189,164 | $ 159,029 |
The accompanying notes are an integral part of these statements.
3
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
| Three months ended | Nine months ended | ||
| September 30, | September 30, | ||
| 2002 | 2001 | 2002 | 2001 |
|
|
|
| |
Revenues | $ 35,484 | $ 36,627 | $ 94,446 | $ 106,105 |
Cost of sales | 20,484 | 20,190 | 55,798 | 61,182 |
|
|
|
|
|
Gross profit | 15,000 | 16,437 | 38,648 | 44,923 |
Selling, general and administrative expenses | 5,362 | 4,047 | 13,466 | 14,863 |
Start-up costs | 437 | 15 | 548 | 15 |
|
|
|
|
|
Operating profit | 9,201 | 12,375 | 24,634 | 30,045 |
Other income (expense): |
|
|
|
|
Interest income | 77 | 235 | 379 | 723 |
Interest expense | - | - | (10) | (1) |
Other, net | (5) | 48 | 83 | 70 |
| 72 | 283 | 452 | 792 |
|
|
|
|
|
Income before income taxes | 9,273 | 12,658 | 25,086 | 30,837 |
Income taxes | 3,459 | 4,403 | 9,267 | 10,965 |
|
|
|
|
|
Net income | $ 5,814 | $ 8,255 | $ 15,819 | $ 19,872 |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic | $ 0.38 | $ 0.55 | $ 1.05 | $ 1.34 |
Diluted | $ 0.37 | $ 0.55 | $ 1.04 | $ 1.32 |
|
|
|
|
|
Other information: |
|
|
|
|
Dividends declared per common share | $ 0.09 | $ 0.09 | $ 0.27 | $ 0.255 |
The accompanying notes are an integral part of these statements.
4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
| Nine months ended | |
| September 30, | |
| 2002 | 2001 |
Operating activities |
|
|
Net income | $ 15,819 | $ 19,872 |
Adjustments to reconcile net income to net cash |
|
|
provided by operating activities: |
|
|
Depreciation and amortization | 5,685 | 5,047 |
Deferred income taxes | 1,383 | 231 |
Non-cash stock option expense | 133 | 3,504 |
Changes in operating assets and liabilities: |
|
|
Trade accounts receivable | (966) | (6,628) |
Inventories | 355 | (558) |
Prepaid expenses and other current assets | (245) | (54) |
Accounts payable | (2,379) | 2,049 |
Accrued payroll and benefits | (41) | 63 |
Accrued freight | (424) | (203) |
Accrued utilities | 6 | (22) |
Accrued income taxes | 1,723 | 6,526 |
Other accrued expenses | 937 | 15 |
Net cash provided by operating activities | 21,986 | 29,842 |
|
|
|
Investing activities |
|
|
Purchases of property, plant and equipment | (20,031) | (7,540) |
Purchase of Pinnacle Technologies Inc. | (12,134) | - |
Maturities of investment securities | 3,000 | - |
Net cash used in investing activities | (29,165) | (7,540) |
|
|
|
Financing activities |
|
|
Repayments on bank borrowings | (2,198) | - |
Proceeds from exercise of stock options | 2,751 | 4,055 |
Dividends paid | (4,085) | (3,789) |
Net cash provided by (used in) financing activities | (3,532) | 266 |
|
|
|
Net increase (decrease) in cash and cash equivalents | (10,711) | 22,568 |
Effect of exchange rate changes on cash and cash equivalents | (7) | (5) |
Cash and cash equivalents at beginning of period | 31,547 | 14,757 |
Cash and cash equivalents at end of period | $ 20,829 | $ 37,320 |
|
|
|
Supplemental cash flow information |
|
|
Interest paid | $ 10 | $ 1 |
Income taxes paid | $ 6,161 | $ 4,208 |
The accompanying notes are an integral part of these statements.
5
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 footnotes 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 consolidated financial statements and notes thereto for the year ended December 31, 2001 includ ed in the company's Form 10-K Annual Report for the year ended December 31, 2001.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its wholly owned subsidiaries: CARBO Ceramics Sales Corporation, CARBO Ceramics (UK) Limited, CARBO Ceramics (Mauritius) Inc. and Pinnacle Technologies, Inc. The accounts of CARBO Ceramics (Mauritius) Inc. include its wholly owned subsidiary, CARBO Ceramics (China) Company Limited. All significant intercompany transactions and balances have been eliminated in consolidation.
Certain amounts in the 2001 financial statements have been reclassified to conform to the 2002 presentation.
2. Acquisition
On May 31, 2002, the company purchased 100 percent of the outstanding shares of Pinnacle Technologies, Inc. Results of operations for Pinnacle are included in the consolidated financial statements since that date. Pinnacle provides fracture diagnostic and mapping services, sells fracture simulation software and provides fracture design services to oil and gas companies worldwide. The acquisition was made for the purpose of expanding our ability to provide production-enhancing solutions to exploration and production companies worldwide and providing a catalyst for accelerating the growth of ceramic proppant sales in the future.
The aggregate cost of the acquisition was $26.8 million including $12.4 million cash, 324,226 shares of common stock valued at $11.2 million, 158,300 stock options valued at $2.6 million granted in exchange for 79,150 outstanding Pinnacle options and $0.6 million direct costs of the acquisition. Goodwill arises from the transaction because the aggregate cost exceeded the fair value of the assets acquired of $9.0 million and liabilities assumed of $4.1 million. The value of the common shares was determined based on the closing market price of the company's common stock on the date of acquisition. The value of stock options was determined using the Black-Scholes option valuation model based on the closing market price of the company's common stock on the date of acquisition. The fair value of options granted was reduced by $0.8 million allocated to unearned stock compensation, which represents the intrinsic value of options exchanged for unvested Pinnacle options. Unearned stock compensation will be recognized as compensation expense over the remaining vesting period. Under the terms of the acquisition agreement, the company withheld $2.3 million of the aggregate purchase price in the form of $0.8 million cash and 43,640 common shares valued at $1.5 million using the closing market price on the date of acquisition. Subject to the company's rights of indemnity under the agreement, consideration withheld will be paid on the first anniversary of closing and recognized as additional goodwill at that time.
6
Following are pro forma amounts assuming the acquisition was made on January 1, 2001 ($ in thousands):
| Three months ended | Nine months ended | ||
| September 30, | September 30, | ||
| 2002 | 2001 | 2002 | 2001 |
Pro forma revenue | $ 35,484 | $ 39,008 | $ 97,946 | $ 112,684 |
Pro forma net income | $ 5,837 | $ 8,203 | $ 15,328 | $ 19,715 |
Pro forma earnings per share: |
|
|
|
|
Basic | $ 0.38 | $ 0.54 | $ 1.00 | $ 1.30 |
Diluted | $ 0.38 | $ 0.53 | $ 0.99 | $ 1.28 |
3. Dividends Paid
On July 9, 2002, the Board of Directors declared a cash dividend of $0.09 per common share payable to shareholders of record on July 31, 2002. The dividend was paid on August 15, 2002.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share ($ in thousands, except per share data):
| Three months ended | Nine months ended | ||
| September 30, | September 30, | ||
| 2002 | 2001 | 2002 | 2001 |
Numerator for basic and diluted earnings per share: |
|
|
|
|
Net income | $ 5,814 | $ 8,255 | $ 15,819 | $ 19,872 |
Denominator: |
|
|
|
|
Denominator for basic earnings per share-- |
|
|
|
|
weighted-average shares | 15,351,336 | 14,933,250 | 15,077,159 | 14,883,937 |
Effect of dilutive securities: |
|
|
|
|
Employee stock options | 129,599 | 110,867 | 123,668 | 149,049 |
Contingent stock-acquisition | 43,640 | - | 19,662 | - |
Dilutive potential common shares | 173,239 | 110,867 | 143,330 | 149,049 |
Denominator for diluted earnings per share-- |
|
|
|
|
adjusted weighted-average shares | 15,524,575 | 15,044,117 | 15,220,489 | 15,032,986 |
Basic earnings per share | $ 0.38 | $ 0.55 | $ 1.05 | $ 1.34 |
Diluted earnings per share | $ 0.37 | $ 0.55 | $ 1.04 | $ 1.32 |
During the nine months ended September 30, 2002, stock options were exercised for 149,650 common shares at a weighted-average exercise price of $18.38 per share. The company recognized a related income tax benefit of $285,433, which was credited directly to shareholders' equity.
5. Intangible Assets
Following is a summary of intangible assets:
| September 30, | December 31, |
| 2002 | 2001 |
Intangibles subject to amortization: | ($ in thousands) | |
Patents and licenses, net of accumulated amortization of $87 | $ 2,439 | $ - |
Hardware designs, net of accumulated amortization of $40 | 502 | - |
Other intangibles not subject to amortization | 366 | - |
| $ 3,307 | $ - |
7
6. Comprehensive Income
Comprehensive income was as follows ($ in thousands):
| Three months ended | Nine months ended | ||
| September 30, | September 30, | ||
| 2002 | 2001 | 2002 | 2001 |
|
|
|
|
|
Net income | $ 5,814 | $ 8,255 | $ 15,819 | $ 19,872 |
Foreign currency translation adjustment | (3) | (5) | (7) | (5) |
Comprehensive income | $ 5,811 | $ 8,250 | $ 15,812 | $ 19,867 |
7. Commitments
Construction in progress at September 30, 2002 includes $8.5 million related to construction of the company's new manufacturing facility in Luoyang, China. The company achieved mechanical completion of the facility in mid-September 2002 and began the start-up and production testing phase. Initial production from this facility is expected during this year's fourth quarter. The total cost of the plant is expected to be within the original estimated cost of $9.5 million.
Under the agreement to acquire Pinnacle Technologies, Inc., a portion of the aggregate purchase price was withheld from former Pinnacle shareholders. Subject to the company's rights of indemnity under the agreement, the final installment valued at $2.3 million in cash and common stock will be paid on May 31, 2003 (see Note 2).
8. Land Acquisition
During the quarter, the company completed the acquisition of approximately 1,500 acres of land and leasehold interests in Wilkinson County, Georgia, near its plant in McIntyre, Georgia. The land contains approximately 13 million tons of raw material for use in the production of the company's lightweight ceramic proppants. The company intends to contract a third party to mine and haul the reserves and bear the responsibility for subsequent reclamation of mined areas. The company is in the process of allocating the purchase price between land and mineral rights. The total purchase price of $4.9 million is included in construction in progress at September 30, 2002.
9. Legal Proceedings
The company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the company's consolidated financial position, results of operations or cash flows.
On October 28, 2002, a state court jury in Texas found the company liable for tortious interference with a contract between Proppant Technology, Inc. and its supplier. A judgment has not yet been entered in this case and, as a result, the aggregate liability of the company has not yet been determined. Depending on the method used to calculate pre-judgment interest, the company believes that its liability under the verdict will range between $330,000 and $995,000. Judgment is expected to be entered and a final determination of the company's liability is expected to be made prior to December 31, 2002. The company believes that it did not act improperly in this matter but has not yet made a decision regarding the possibility of an appeal.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies
Our acquisition of Pinnacle Technologies, Inc. resulted in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. In assessing the recoverability of our goodwill and other intangibles we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. We are required to analyze goodwill for impairment at least annually.
Results of Operations
Three Months Ended September 30, 2002
Revenues. Revenues of $35.5 million for the quarter ended September 30, 2002 decreased three percent from the third quarter of 2001 due to lower sales volume caused by a decline in North American natural gas drilling activity. Sales volume totaled 120 million pounds for the quarter, a 12 percent decline versus last year's third quarter. The U.S. natural gas rig count was down 31 percent, while the Canadian rig count fell 22 percent compared to the three month period ended September 30, 2001. However the company's sales volume in North America declined by only 21 percent as the impact of lower drilling activity was offset by the success of the company's efforts to displace sand-based proppants. In total, domestic sales volume declined by 23 percent while export sales volume increased 26 percent. Revenues of the third quarter 2002 included $2.5 million from Pinnacle Technologies, Inc. which the company acquired in May 2002.
Gross Profit. Gross profit for the quarter was $15.0 million, or 42 percent of sales, compared to $16.4 million, or 45 percent of sales, for the third quarter of 2001. Lower production rates necessitated by a reduction in sales demand were the primary cause of the decline in the gross profit margin. The company's manufacturing facilities have operated at less than 80 percent of our total manufacturing capacity for most of the year. The Eufaula, Alabama facility, which ran at full capacity in 2001, has operated at an average of 76 percent of capacity in 2002. Unscheduled maintenance shutdowns at the McIntyre, Georgia facility in May, June and July of this year also contributed to lower production rates and resultant higher per unit cost of goods manufactured. The average manufactured cost per pound of proppant sold in the third quarter of 2002 was 10 percent higher than the cost per pound sold in the third quarter of 2001. However, the company's production facilities operated in exce ss of 90 percent of capacity during the third quarter of 2002 and gross profit margins are expected to improve in the fourth quarter of 2002 as those lower cost inventories are sold.
Selling, General and Administrative Expenses and Start-up Costs. Selling, general and administrative expenses of $5.4 million for the third quarter of 2002 increased 32 percent over the $4.1 million incurred in the corresponding period of 2001. The increase in expenses resulted primarily from the addition of expenses of Pinnacle Technologies, whose operating results have been consolidated since the May 31, 2002 acquisition. Other increases in expenses due to additional marketing and business development activities were offset by a reduction in legal expenses from last year's third quarter.
Start-up costs are related to the company's new manufacturing facility in Luoyang, China, which commenced with groundbreaking in September 2001 and achieved mechanical completion in mid-September 2002. Plant start-up and production testing began immediately following mechanical completion, resulting in an increase in spending on start-up activities. Final completion of the plant is expected to occur in the fourth quarter of this year.
Nine Months Ended September 30, 2002
Revenues. Year to date revenues of $94.5 million in 2002 trailed revenues of $106.1 million for the same period in 2001 by 11 percent. The decline was driven largely by a 29 percent drop in the U.S. natural gas rig count. Sales volume fell 17 percent, with domestic sales volume down 22 percent and export volume up one percent.
9
Gross Profit. Gross profit for the nine months ended September 30, 2002 was $38.7 million, or 41 percent of revenues, compared to $44.9 million, or 42 percent of revenues, for the same period in 2001. Lower production rates have offset the benefit of reduced cost of natural gas in our manufacturing operations in 2002 compared to 2001.
Selling, General and Administrative Expenses and Start-up Costs. Selling, general and administrative expenses were $13.5 million for the nine months ended September 30, 2002 compared to $14.9 million for the nine months ended September 30, 2001, a $1.4 million decrease. However, 2001 results include a $3.5 million non-recurring, non-cash stock compensation charge related to the modification of the expiration date of fully vested options in connection with the second quarter 2001 retirement of the company's former President. Excluding that charge, selling, general and administrative expenses increased $2.1 million. The increase was primarily due to the addition of expenses of Pinnacle Technologies whose operating results have been consolidated since the May 31, 2002 acquisition. Expenses were also higher as a result of increased marketing and business development activities in 2002. Start-up costs, which are related to our new manufacturing facility in China, increased in 2002 as we fully staffed the facility and began the start-up and production testing phase in September 2002.
Liquidity and Capital Resources
Cash and cash equivalents totaled $20.8 million as of September 30, 2002, a decrease of $10.7 million from December 31, 2001. The company generated cash from operations of $22.0 million, realized proceeds from the exercise of employee stock options of $2.7 million and proceeds of $3.0 million from maturities of investment securities. Uses of cash included $12.1 million for the purchase of Pinnacle Technologies, $2.2 million repayments of Pinnacle bank borrowings, $4.1 million cash dividends and capital spending of $20.0 million. Major capital spending includes $4.7 million on the China manufacturing facility, $8.2 million on debottlenecking and capacity expansion projects at the McIntyre, Georgia manufacturing facility and $1.9 million on land and leasehold interests in Wilkinson County, Georgia.
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 $0.09 per share.
The company maintains an unsecured line of credit of $10.0 million. As of September 30, 2002, 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 2002. 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.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This Form 10-Q, the company's Form 10-K and Annual Report to Shareholders, any other 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 dema nd 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 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.
10
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.
Within the 90 days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including 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. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure 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 Controls
There were no changes in the Company's internal controls or in other factors that could have significantly affected those controls subsequent to the date of the Company's most recent evaluation.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 28, 2002, a state court jury in Texas found the company liable for tortious interference with a contract between Proppant Technology, Inc. and its supplier. A judgment has not yet been entered in this case and, as a result, the aggregate liability of the company has not yet been determined. Depending on the method used to calculate pre-judgment interest, the company believes that its liability under the verdict will be between $350,000 and $950,000. Judgment is expected to be entered and a final determination of the company's liability is expected to be made prior to December 31, 2002. The company believes that it did not act improperly in this matter but has not yet made a decision regarding the possibility of an appeal.
ITEM 2. CHANGES IN SECURITIES
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
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
99.1 Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
a. Reports on Form 8-K
On October 22, 2002, the company filed a report on Form 8-K concerning its press release announcing third quarter 2002 results.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CARBO CERAMICS INC.
/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: November 13, 2002
13
Quarterly Certification
As required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, C. Mark Pearson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Carbo Ceramics Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls ; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ C. MARK PEARSON
C. Mark Pearson
President & CEO
14
Quarterly Certification
As required by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Paul G. Vitek, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Carbo Ceramics Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls ; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ PAUL G. VITEK
Paul G. Vitek
Chief Financial Officer
15