NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
(Unaudited)
The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with
United States generally accepted accounting principles 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 for complete
financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim period or the full year. The consolidated balance sheet as of December 31, 2013 has been derived from the audited financial statements at that date. These financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the year ended
December 31, 2013.
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its operating subsidiaries
(the Company). All significant intercompany transactions have been eliminated.
The following table sets forth the computation of basic and diluted earnings per share under the two-class method:
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Three months ended
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March 31,
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2014
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2013
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Numerator for basic and diluted earnings per share:
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Net income
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$
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18,427
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$
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17,577
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Effect of reallocating undistributed earnings of participating securities
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(136
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)
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(117
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)
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Net income available under the two-class method
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$
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18,291
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$
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17,460
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Denominator:
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Denominator for basic earnings per shareweighted-average shares
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22,948,109
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22,990,048
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Effect of dilutive potential common shares
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Denominator for diluted earnings per shareadjusted weighted-average shares
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22,948,109
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22,990,048
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Basic earnings per share
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$
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0.80
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$
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0.76
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Diluted earnings per share
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$
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0.80
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$
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0.76
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3.
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Common Stock Repurchase Program
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On August 28, 2008, the Companys Board of Directors authorized the repurchase of up to two million shares of the
Companys common stock. Shares are effectively retired at the time of purchase. During the three months ended March 31, 2014, the Company repurchased and retired 36,969 shares at an aggregate purchase price of $4,062. As of March 31,
2014, the Company has repurchased and retired 1,989,545 shares at an aggregate purchase price of $88,196.
On January 21, 2014, the Board of Directors declared a cash dividend of $0.30 per common share payable to shareholders
of record on February 3, 2014. The dividend was paid on February 18, 2014. On March 18, 2014, the Board of Directors declared a cash dividend of $0.30 per common share payable to shareholders of record on May 1, 2014. The
dividend is payable on May 15, 2014 and is presented in Current Liabilities at March 31, 2014.
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5.
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Stock Based Compensation
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The CARBO Ceramics Inc. Omnibus Incentive Plan (the Omnibus Incentive Plan) provides for granting of cash-based
awards, stock options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated
performance units) to employees and non-employee directors. As of March 31, 2014, 451,226 shares were available for issuance under the Omnibus Incentive Plan.
The Company has made restricted stock awards pursuant to the Omnibus Incentive Plan. A summary of restricted stock activity and related
information for the three months ended March 31, 2014 is presented below:
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Shares
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Weighted-
Average
Grant-Date
Fair Value
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Nonvested at January 1, 2014
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136,195
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$
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90.50
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Granted
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73,785
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$
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112.19
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Vested
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(53,152
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)
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$
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97.08
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Forfeited
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(279
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)
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$
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112.96
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Nonvested at March 31, 2014
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156,549
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$
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98.44
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As of March 31, 2014, there was $12,234 of total unrecognized compensation cost, net of estimated
forfeitures, related to restricted shares granted under the Omnibus Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of shares vested during the three months ended
March 31, 2014 was $5,160.
The Company has made phantom stock awards to key international employees pursuant to the Omnibus
Incentive Plan. The units subject to an award vest and cease to be forfeitable in equal annual installments over a three-year period. Participants awarded units of phantom shares are entitled to a lump sum cash payment equal to the fair market value
of a share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued with regard to outstanding phantom shares. As of March 31, 2014, there were 18,180 units of phantom shares granted under the Omnibus
Incentive Plan, of which 9,397 have vested and 1,570 have been forfeited, with a total value of $995, a portion of which is accrued as a liability within Other Accrued Expenses.
The Company has an unsecured revolving credit agreement with a bank. The credit agreement provides the Company with a
revolving credit facility of $50,000 and expires on July 25, 2018. The Company has the option of choosing either the banks fluctuating Base Rate or LIBOR Fixed Rate, plus an Applicable Margin, all as defined in the credit agreement. The
terms of the credit agreement provide for certain affirmative and negative covenants and require the Company to maintain certain financial ratios. Commitment fees are payable quarterly at an annual rate between 0.375% and 0.50% of the unused line of
credit.
As of March 31, 2014, the Companys net investment that is subject to foreign currency fluctuations totaled
$82,461 and the Company has recorded a cumulative foreign currency translation loss of $6,339, net of deferred income tax benefit. This cumulative translation loss is included in and is the only component of Accumulated Other Comprehensive Loss.
There were no amounts reclassified to net income during the three months ended March 31, 2014.
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 Companys consolidated financial position, results of operations, or
cash flows.
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On February 9, 2012, the Company and two of its officers, Gary A. Kolstad and Ernesto
Bautista III, were named as defendants in a purported class-action lawsuit filed in the United States District Court for the Southern District of New York (the February SDNY Lawsuit), brought on behalf of shareholders who purchased the
Companys Common Stock between October 27, 2011 and January 26, 2012 (the Relevant Time Period). On April 10, 2012, a second purported class-action lawsuit was filed against the same defendants in the United States
District Court for the Southern District of New York, brought on behalf of shareholders who purchased or sold CARBO Ceramics Inc. option contracts during the Relevant Time Period (the April SDNY Lawsuit, and collectively with the
February SDNY Lawsuit, the Federal Securities Lawsuit). In June 2012, the February SNDY Lawsuit and the April SDNY Lawsuit were consolidated. The Federal Securities Lawsuit alleges violations of the federal securities laws arising from
statements concerning the Companys business operations and business prospects that were made during the Relevant Time Period and requests unspecified damages and costs. In September 2012, the Company and Messrs. Kolstad and Bautista filed a
motion to dismiss this lawsuit. The motion to dismiss was granted, and the Federal Securities Lawsuit was dismissed without prejudice in June 2013. In September 2013, the plaintiffs filed a motion requesting leave to file a second amended complaint
and sustain the lawsuit. In January 2014, the Court denied plaintiffs motion, and entered a judgment in favor of the Company and Messrs. Kolstad and Bautista. The plaintiffs did not timely appeal this judgment, and it has become final.
On June 13, 2012, the Directors of the Company and Mr. Bautista were named as defendants in a purported derivative action lawsuit
brought on behalf of the Company by a stockholder in District Court in Harris County, Texas (the Harris County Lawsuit). This lawsuit alleges various breaches of fiduciary duty and other duties by the defendants that generally are
related to the Federal Securities Lawsuit, as well as a breach of duty by certain defendants in connection with stock sales. The lawsuit requests unspecified damages and costs, and had been further stayed, pending final resolution of the Federal
Securities Lawsuit. Given the final judgment in the Federal Securities Lawsuit, the plaintiff in the Harris County Lawsuit agreed to dismiss this case. The lawsuit was dismissed without prejudice in March 2014.
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