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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-03-003746.txt : 20030312
<SEC-HEADER>0000950134-03-003746.hdr.sgml : 20030312
<ACCEPTANCE-DATETIME>20030312142310
ACCESSION NUMBER: 0000950134-03-003746
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030312
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CARBO CERAMICS INC
CENTRAL INDEX KEY: 0001009672
STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290]
IRS NUMBER: 721100013
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15903
FILM NUMBER: 03600672
BUSINESS ADDRESS:
STREET 1: 600 EAST LAS COLINAS BLVD
STREET 2: STE 1520
CITY: IRVING
STATE: TX
ZIP: 75039
BUSINESS PHONE: 2144010090
MAIL ADDRESS:
STREET 1: 600 E LAS COLINAS BLVD
STREET 2: STE 1520
CITY: IRVING
STATE: TX
ZIP: 75039
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d03686e10vk.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<Table>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</Table>
COMMISSION FILE NO. 0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 72-1100013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</Table>
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
PREFERRED STOCK PURCHASE RIGHTS
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
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, 2003, as reported on the New York Stock Exchange, was approximately
$228,702,035. 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, 2003, Registrant had outstanding 15,483,836 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held April 8, 2003 are incorporated by reference in Parts II
and III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
CARBO Ceramics Inc. ("the Company") was formed in 1987 to acquire the
assets of Standard Oil Proppants Company, LP, a joint venture between two
ceramic proppant manufacturers. Since its founding in 1987, CARBO Ceramics has
become the world's largest producer and supplier of ceramic proppant for use in
the hydraulic fracturing of natural gas and oil wells. Demand for ceramic
proppant 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 proppant 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
proppant, is suspended and transported in the fluid and fills the fracture,
"propping" it 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
proppant is typically the highest cost. The higher initial cost of ceramic
proppant 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 proppant versus alternative materials.
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 approximately 56% of the ceramic proppant
and 9% of all proppant used worldwide. During the year ended December 31, 2002,
the Company generated approximately 70% of its revenues in the U.S. and 30% in
international markets.
In May 2002, the Company expanded its business through the acquisition of
Pinnacle Technologies, Inc. ("Pinnacle"). Pinnacle is the world's leading
provider of fracture mapping services, and its fracture simulation software
FracproPT(R) is the most widely used model in the world. For the year ended
December 31, 2002, Pinnacle accounted for less than 5% of the Company's total
revenues.
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 proppant 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 proppants
designed for use in gas wells of moderate depth and shallower oil wells.
CARBOLITE(R), introduced in 1984, is used in medium depth oil and gas wells,
where the additional strength of ceramic proppant may not be essential, but
where higher production rates can be achieved due to the product's roundness and
uniform grain size. CARBOECONOPROP(R), introduced in 1992 to compete directly
with sand-based proppant, has been the Company's lowest priced and fastest
growing product. The introduction of CARBOECONOPROP(R) has resulted in ceramic
proppant being used by operators of oil and gas wells that had not previously
used
1
<PAGE>
ceramics. 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 Proppants ("Norton").
Norton is owned by Compagnie de Saint-Gobain, a large French glass and materials
company. Norton manufactures ceramic proppants that directly compete with each
of the Company's products. In addition, Mineracao 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". Curimbaba has notified the Company that it intends to introduce an
intermediate strength ceramic proppant similar to the Company's CARBOPROP(R)
although the Company believes that it would be difficult for Curimbaba to
introduce such a product that does not infringe patents held by the Company and
Norton. The Company believes that Curimbaba has not expanded its U.S. product
line to include a lightweight ceramic proppant and is unlikely to do so in light
of patents held by the Company. The Company is also aware of Borovichi
Refractories, a manufacturer of ceramic proppant located in Russia about which
the Company has limited information. The Company believes that Borovichi to date
has sold its product solely within Russia.
Competition for CARBOHSP(TM)2000 and CARBOPROP(R) principally includes
ceramic proppant manufactured by Norton and Curimbaba. The Company's
CARBOLITE(R) and CARBOECONOPROP(R) products compete with ceramic proppant
produced by Norton and with sand-based proppant 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 Chemical, Inc. Oilfield Products Group 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 proppant in an increasingly broad range of applications and thus
increased the overall market for the Company's products. Since 1993, the Company
has consistently expanded its manufacturing capacity and plans to continue its
strategy of adding capacity to meet anticipated future increases in sales
demand.
The Company continually conducts testing and development activities with
respect to alternative raw materials to be used in the Company's existing and
alternative production methods. The Company is not aware of the development of
alternative products for use as proppant 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, the "know-how" and trade secrets necessary to manufacture a
competitive product 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 Energy Services, Inc. and Schlumberger, the three largest
participants in the worldwide petroleum pressure pumping industry. These
companies collectively accounted for approximately 79% of the Company's 2002
revenues and approximately 81% of the Company's 2001 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 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
technical and economic advantages of using ceramic proppant. 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.
2
<PAGE>
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 recent years and
plans to continue to increase its efforts to educate end users on the benefits
of using ceramic proppant. While the Company's products have historically been
used in very deep wells that require high-strength proppant, the Company
believes that there is economic benefit to well operators of using ceramic
proppant in shallower wells that do not necessarily require a high-strength
proppant. The Company believes that its education-based technical marketing
efforts will allow it to capture a greater portion of the large market for
sand-based proppant over time. 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 proppant versus
other proppant in the hydraulic fracturing of a natural gas or oil well.
The Company's worldwide sales and marketing activities are coordinated by
its North American and International Marketing Managers. The Company's export
marketing efforts in 2002 were conducted through its sales office in Aberdeen,
Scotland and through commissioned sales agents located in South America, China
and Australia.
The Company's products and services are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 30%, 27% and 37% of the Company's sales for 2002, 2001 and 2000,
respectively. The distribution of the Company's export and domestic revenues is
shown below, based upon the region in which the customer used the products and
services:
<Table>
<Caption>
LOCATION 2002 2001 2000
- -------- ------ ------ -----
($ IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $ 88.0 $100.4 $58.9
International............................................... 38.3 36.8 34.4
------ ------ -----
Total............................................. $126.3 $137.2 $93.3
====== ====== =====
</Table>
DISTRIBUTION
The Company maintains finished goods inventories at its plants in New
Iberia, Louisiana, Eufaula, Alabama, and McIntyre, Georgia, and at eleven remote
stocking facilities located in Rock Springs, Wyoming; Oklahoma City, Oklahoma;
San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada; Grande
Prairie, Alberta, Canada; Rotterdam, The Netherlands; Jebel Ali, United Arab
Emirates; Adelaide, Australia; Shanghai, China; and Singapore. 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, Edmonton and Grande Prairie and subcontracts the operation of the
facilities and transportation to a local trucking company in each location. The
remaining North American stocking facilities are owned and operated by local
companies under contract with the Company. International sites are duty-free
warehouses operated by independent owners. North American sites are typically
supplied by rail and international sites are typically supplied by container
ship. In total, the Company leases 216 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 proppant to the
operator's well site, which eliminates the need for customers to maintain an
inventory of ceramic proppant.
RAW MATERIALS
Ceramic proppant is 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
3
<PAGE>
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, Brazil, China, Jamaica, Russia and Surinam.
For the production of CARBOHSP(TM)2000, the Company uses calcined,
abrasive-grade bauxite imported from Australia, and typically purchases its
annual requirements at the seller's current prices. The Company has entered into
an agreement with a supplier to supply its anticipated need for this ore through
2005. For the production of CARBOPROP(R), the Company uses a variety of
materials that meet specific chemical and mineralogical requirements. Raw
material for the production of CARBOPROP(R) may be either as-mined bauxitic
clays or a blend of bauxite and kaolin, either of which is readily available to
the Company at sellers' current prices or through long-term contracts.
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 through 2003.
This agreement, which had an original term of ten years, stipulates a fixed
price, subject to annual adjustment. A renewal or extension of this agreement is
currently being negotiated.
The Company's production facility in McIntyre, Georgia uses locally mined
uncalcined kaolin for the production of CARBOECONOPROP(R). During 2002, the
Company acquired on both a fee simple and leasehold basis, acreage in Wilkinson
County, Georgia which contains approximately 13 million tons of raw material
suitable for production of CARBOLITE(R) and CARBOECONOPROP(R). At current
production rates, the acquired raw material would supply the needs of the
McIntyre facility for a period in excess of 100 years. The Company is currently
evaluating the suitability of the raw material for the production of
CARBOLITE(R) and CARBOECONOPROP(R) at its Eufaula, Alabama facility. The Company
has entered into a long-term agreement with a third party to mine and transport
this material at a fixed price subject to annual adjustment. The agreement
requires the Company to utilize the third party to mine and transport at least
80% of the McIntyre facility's annual kaolin requirement.
The Company's production facility in Luoyang, China uses locally mined
uncalcined kaolin and bauxite for the production of CARBOPROP(R) and
CARBOLITE(R). Each of these materials is purchased under long term contracts
with a minimum term of five years. The contracts stipulate a fixed price subject
to annual adjustment. Under the terms of the agreements, the Company has an
obligation to purchase, in total, a minimum of 10,000 metric tons per year.
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(LOGO)F to 3,000(LOGO)F in a rotary kiln.
The Company uses two different methods to produce ceramic proppant. The
Company's plants in New Iberia, Louisiana, McIntyre, Georgia, and Luoyang, China
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. The Company has calcining facilities at its McIntyre, Georgia and
Luoyang, China plants. Once the raw material is calcined, the ore is ground to a
very fine powder. Pellets are then formed by combining the powder with water and
binders and introducing the mixture into high-shear mixers. The process is
completed once these pellets are sintered in a rotary kiln. The Company believes
its competitors also use the Dry Process to produce ceramic proppant.
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.
4
<PAGE>
PATENT PROTECTION
The Company makes ceramic proppant by processes and techniques that involve
a high degree of proprietary technology, some of which are protected by patents.
The Company owns six U.S. patents and three foreign patents. Two of these
U.S. patents and two of these foreign patents relate to the CARBOPROP(R)
product. One of these U.S. patents and one of these foreign patents relate to
the CARBOLITE(R) and CARBOECONOPROP(R) products. The Company's U.S. patents
relating to the CARBOPROP(R) product expire in 2006. The Company's U.S. patent
relating to the CARBOLITE(R) and CARBOECONOPROP(R)products expire in 2009. The
three foreign patents cover various products in Canada, Mexico and Argentina and
do not have a significant effect on the Company's business.
The Company believes that its patents have been and will continue to be
important in enabling the Company to compete in the market to supply proppant 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 settlements 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 proppant on both a royalty-free and royalty-bearing
basis. Royalties under these licenses are not material to the Company's
financial results. As a result of these cross licensing arrangements, the
Company is able to produce a broad range of ceramic proppant while third parties
are unlikely to be able to produce certain of these ceramic proppant without
infringing on the patent rights held by the Company, its main competitor or
both.
Pinnacle owns one U.S. patent application (together with a number of
counterparts to that application in numerous foreign jurisdictions) that covers
certain of its proprietary systems. The patent application is in the early
stages of the patent prosecution process, and a patent may not issue on such
application in any jurisdiction for some time, if it issues at all. Pinnacle
also licenses several patents from third parties for use in its business. In
addition to patent rights, Pinnacle uses a significant amount of know-how and
other proprietary technology in the conduct of its business, and a substantial
portion of this know-how and technology is licensed by Pinnacle from third
parties.
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 proppant.
Prior to 1993, the Company's production capacity was substantially in excess of
its sales requirements. Since that time, the Company has been expanding its
capacity in order to meet the generally increasing demand for its products. In
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 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 1996, the Company commenced operation of its second 80
million-pound per year expansion of the Eufaula plant bringing total capacity at
the facility to 250 million pounds per year. In late 2002, the Company installed
additional equipment in its New Iberia facility to increase production and
provide additional capacity for research and development work. Upon completion
of the New Iberia project in early 2003, total annual capacity at the facility
will be 120 million pounds.
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 initial 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 61% of its design
capacity in 2000 and 88% in 2001. During 2002, the Company spent approximately
$15 million to expand the capacity of the McIntyre facility. Total spending for
this project is projected to be approximately $17 million. Upon the anticipated
5
<PAGE>
completion of this expansion project in early 2003, total annual capacity at the
McIntyre facility is expected to be 275 million pounds.
In September 2002, the Company completed construction of a new
manufacturing facility in Luoyang, China. The plant began operation on schedule
in the fourth quarter of 2002. The total cost of the plant was approximately $10
million and the plant is expected to have annual production capacity of 40
million pounds. The first saleable product was produced from the plant in
January 2003.
The following table sets forth the expected capacity of each of the
Company's existing manufacturing facilities following completion of the
expansions described above:
<Table>
<Caption>
ANNUAL
LOCATION CAPACITY PRODUCTS
- -------- ------------ --------
(MILLIONS OF
POUNDS)
<S> <C> <C>
New Iberia, Louisiana......... 120 CARBOHSP(TM)2000 and
CARBOPROP(R)
Eufaula, Alabama.............. 250 CARBOLITE(R) and
CARBOECONOPROP(R)
McIntyre, Georgia............. 275 CARBOLITE(R),
CARBOECONOPROP(R)
CARBOHSP(TM)2000 and
CARBOPROP(R)
Luoyang, China................ 40 CARBOPROP(R) and CARBOLITE(R)
</Table>
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, 2002, the Company had 319 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. 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. The Company's forward-looking statements are based
on assumptions that we believe to be reasonable but that may not prove to be
accurate. All of the Company's forward-looking information is subject to risks
and uncertainties that could cause actual results to differ materially from the
results expected. Although it is not possible to identify all factors, these
risks and uncertainties include the risk factors discussed below.
The Company's results of operations could be adversely affected if its
business assumptions do not prove to be accurate or if adverse changes occur in
the Company's business environment, including but not limited to the potential
declines in the demand for oil and natural gas; potential declines or increased
volatility in oil
6
<PAGE>
and natural gas prices that would adversely affect our customers, the energy
industry or our production costs; potential reductions in spending on
exploration and development drilling in the oil and natural gas industry that
would reduce demand for our products and services; the development of
alternative stimulation techniques; and the development of alternative proppants
for use in hydraulic fracturing. The Company's results of operations could also
be adversely affected if adverse changes occur in general global economic and
business conditions or as a result of worldwide economic, political and military
events, including war, terrorist activity or initiatives by the Organization of
the Petroleum Exporting Countries.
AVAILABLE INFORMATION
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free
of charge on the Company's internet website at http://www.carboceramics.com as
soon as reasonably practicable after it electronically files such material with,
or furnishes it to, the Securities and Exchange Commission.
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
Company owns the buildings and production equipment at its facility in Luoyang,
China and has been granted use of the land on which the facility is located for
fifty years under the terms of a land use agreement with the People's Republic
of China.
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. Under the terms of the
lease, the Company was responsible for all costs incurred in connection with the
premises, including costs of construction of the plant and equipment. As an
inducement to locate the facility in Wilkinson County, Georgia, the Company
received certain ad-valorem property taxes incentives. The "net" lease provides
for annual lease payments in lieu of ad-valorem property taxes. The total of all
lease payments is immaterial in relation to the cost of the facility borne by
the Company. 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 facility in Luoyang, China is located on approximately 9 acres and
consists of various production and support buildings (approximately 106,000
square feet), a laboratory (approximately 6,000 square feet) and an office
building (approximately 6,000 square feet).
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, Edmonton and Grande Prairie, Alberta, Canada.
During the third quarter of 2002, 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
7
<PAGE>
contains approximately 13 million tons of raw material for use in the production
of the Company's lightweight ceramic proppants. The Company has contracted with
a third party to mine and haul the reserves and bear the responsibility for
subsequent reclamation of the mined areas.
The Company's wholly-owned subsidiary, Pinnacle Technologies, Inc., leases
its corporate headquarters in San Francisco, California (approximately 6,800
square feet) and maintains leased offices totaling approximately 23,000 square
feet in Houston, Texas; Centennial, Colorado; Delft, The Netherlands; and
Calgary, Alberta, Canada. Pinnacle also owns an office condominium
(approximately 2,800 square feet) in Bakersfield, California.
ITEM 3. 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. On November 22, 2002, a judgment in the amount of $993,000 was
entered in this case. The Company believes that it did not act improperly in
this matter but has decided to appeal only the amount of the judgment.
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 of 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 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
Dr. C. Mark Pearson (age 47) has served as President and Chief Executive
Officer since April 2001. 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 Atlantic Richfield Company from 1984 through December 1995.
Paul G. Vitek (age 44) has been the Senior Vice President of Finance and
Administration and Chief Financial Officer 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.
Mark L. Edmunds (age 47) has been the Vice President, Operations since
April 2002. From 2000 until joining the Company, Mr. Edmunds served as Business
Unit Manager and Plant Manager for FMC Corporation. Prior to 2000 Mr. Edmunds
served Union Carbide Corporation and The Dow Chemical Company in a variety of
management positions including Director of Operations, Director of Internal
Consulting and Manufacturing Operations Manager.
Christopher A. Wright (age 38) has been a Vice President of the Company
since May 2002. Mr. Wright has been President of Pinnacle Technologies, Inc., a
provider of fracture diagnostic products and services, since its founding in
1992.
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.
8
<PAGE>
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 14, 2003 was 6,981.
High and low stock prices and dividends for the last two fiscal years were:
<Table>
<Caption>
2002 2001
--------------------------- ---------------------------
SALES PRICE CASH SALES PRICE CASH
--------------- DIVIDENDS --------------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
- ------------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
March 31....................... $41.15 $31.00 $0.09 $44.30 $30.75 $0.075
June 30........................ 42.00 32.70 0.09 44.90 31.27 0.090
September 30................... 37.00 29.60 0.09 37.29 25.50 0.090
December 31.................... 36.29 31.30 0.09 40.25 26.68 0.090
</Table>
The Company currently expects to continue its policy of paying quarterly
cash dividends at the rate of $0.09 per share, although there can be 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 Condition and
Results of Operations and the financial statements and notes thereto included
elsewhere in this Report.
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $126,308 $137,226 $93,324 $69,738 $84,095
Cost of sales.................... 74,672 78,975 57,763 41,718 41,665
-------- -------- ------- ------- -------
Gross profit..................... 51,636 58,251 35,561 28,020 42,430
Selling, general and
administrative expenses(1).... 20,956 18,676 12,404 11,761 9,977
-------- -------- ------- ------- -------
Operating profit................. 30,680 39,575 23,157 16,259 32,453
Other, net....................... 563 1,106 268 (288) 974
-------- -------- ------- ------- -------
Income before income taxes....... 31,243 40,681 23,425 15,971 33,427
Income taxes..................... 11,529 14,483 8,595 5,459 12,719
-------- -------- ------- ------- -------
Net income....................... $ 19,714 $ 26,198 $14,830 $10,512 $20,708
======== ======== ======= ======= =======
Earnings per share
Basic......................... $ 1.29 $ 1.76 $ 1.01 $ 0.72 $ 1.42
======== ======== ======= ======= =======
Diluted....................... $ 1.28 $ 1.74 $ 1.00 $ 0.71 $ 1.40
======== ======== ======= ======= =======
</Table>
9
<PAGE>
<Table>
<Caption>
DECEMBER 31,
---------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- -------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $ 64,867 $ 76,502 $ 47,415 $ 23,809 $23,783
Current liabilities excluding
bank borrowings............. 17,940 11,127 9,415 5,648 8,638
Bank borrowings-current........ -- -- -- 1,809 --
Property, plant and equipment,
net......................... 111,797 82,527 78,007 83,171 75,644
Total assets................... 199,610 159,029 125,422 106,980 99,427
Total shareholders' equity..... 168,585 136,942 106,140 93,400 87,269
Cash dividends per share....... $ 0.360 $ 0.345 $ 0.300 $ 0.300 $ 0.300
</Table>
- ---------------
(1) Selling, general and administrative (SG&A) expenses for 2002, 2001, 2000,
1999 and 1998 include costs of start-up activities of $1,099,000, $35,000,
$27,000, $1,464,000 and $451,000, respectively. Start-up costs for 2002 and
2001 are related to the Company's new production facility in China,
including organizational and administrative costs associated with plant
construction plus labor, materials and utilities expended to bring installed
equipment to operating condition. Start-up costs prior to 2001 consist of
labor, materials and utilities expended in bringing installed equipment to
normal operating conditions at the Company's production facility in
McIntyre, Georgia. SG&A expenses in 2002 also include a $993,000 reserve
related to a judgment against the Company in a lawsuit alleging tortious
interference with a contract.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL BUSINESS CONDITIONS
CARBO Ceramics Inc.'s principal business consists of manufacturing and
selling ceramic proppant 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 proppant, 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 proppant 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 10,000 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 proppant is based on the
present value economics of comparing the higher cost of ceramic proppant to the
future value derived from increased production rates, the Company's business is
influenced by the price of natural gas and oil.
The Company's performance is particularly influenced by the level of
natural gas drilling activity in North America, where it typically generates in
excess of 80% of it is revenues. The North American natural gas
10
<PAGE>
market remained very strong through the first half of 2001. In addition, the
Company began to see significant benefit from the success of its technical
marketing program that promotes the economic benefit of using ceramic proppant
in shallower wells. As a result of the strong market conditions in North
America, the Company's marketing success and the increased capacity available
from its McIntyre, Georgia production facility, the Company established new
annual records for sales volume, average selling price, revenues and net income
in 2001 despite a downturn in North American natural gas drilling activity in
the second half of the year.
This decline in North American drilling activity continued through much of
2002. In 2002, the average natural gas rig count declined by 26% in the U.S. and
24% in Canada compared to 2001. Despite the weak market conditions, the company
established a new annual record for sales volume in Canada while sales in the
U.S. declined by 17%. Management believes that these sales figures are evidence
of the success of the Company's technical marketing effort and represent a
further penetration of the total proppant market by ceramic proppant.
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). The Company believes that of its significant accounting policies,
the following may involve a higher degree of judgment and complexity.
Revenue is recognized when title passes to the customer upon delivery. The
Company generates a significant portion of its revenues and corresponding
accounts receivable from sales to the petroleum pressure pumping industry. In
addition, the Company generates a significant portion of its revenues and
corresponding accounts receivable from sales to three major customers, all of
which are in the petroleum pressure pumping industry. As of December 31, 2002,
approximately 67% of the balance in accounts receivable was attributable to
those three customers. As stated in Note 1 to the consolidated financial
statements, credit losses historically have been insignificant. Therefore,
except in circumstances in which management is aware of a specific customer's
inability to meet its financial obligations (e.g. bankruptcy filings), the
Company generally does not record a reserve for bad debts. If a prolonged
economic downturn in the petroleum pressure pumping industry were to occur or,
for some other reason, any of the Company's primary customers were to experience
significant adverse conditions, its estimates of the recoverability of accounts
receivable could be reduced by a material amount.
Inventory is stated at the lower of cost or market. Obsolete or
unmarketable inventory historically has been insignificant and generally written
off when identified. Assessing the ultimate realization of inventories requires
judgments about future demand and market conditions, and management believes
that current inventories are properly valued at cost. Accordingly, no reserve to
write-down inventories has been recorded. If actual market conditions are less
favorable than those projected by management, inventory write-downs may be
required.
Income taxes are provided for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This
standard takes into account the differences between financial statement
treatment and tax treatment of certain transactions. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates is recognized as
income or expense in the period that includes the enactment date. This
calculation requires the Company to make certain estimates about its future
operations. Changes in state, federal and foreign tax laws as well as changes in
the Company's financial condition could affect these estimates.
Long-lived assets, which include property, plant and equipment, goodwill
and other intangibles, and other assets comprise a significant amount of the
Company's total assets. The Company makes judgments and estimates in conjunction
with the carrying value of these assets, including amounts to be capitalized,
11
<PAGE>
depreciation and amortization methods and useful lives. Additionally, the
carrying values of these assets are periodically reviewed for impairment or
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recorded in the period in which it
is determined that the carrying amount is not recoverable. This requires the
Company to make long-term forecasts of its future revenues and costs related to
the assets subject to review. These forecasts require assumptions about demand
for the Company's products and services, future market conditions and
technological developments. Significant and unanticipated changes to these
assumptions could require a provision for impairment in a future period.
The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. Management does not believe the Company is
party to any legal proceedings that will have a material adverse effect on its
consolidated financial position. It is possible, however, that future results of
operations for any particular quarterly or annual period could be materially
affected by changes in assumptions related to those proceedings.
Purchase accounting requires extensive use of estimates and judgments to
allocate the cost of an acquired enterprise to the assets acquired and
liabilities assumed. The cost of an acquired enterprise is allocated to the
assets acquired and liabilities assumed based on their estimated fair values. If
necessary, these estimates can be revised during an allocation period when
information becomes available to further define and quantify the value of assets
acquired and liabilities assumed. The allocation period does not exceed a period
of one-year from the date of acquisition. To the extent additional information
to refine the original allocation becomes available during the allocation
period, the purchase price allocation would be adjusted accordingly. Should
information become available after the allocation period, the effects would be
reflected in operating results.
RESULTS OF OPERATIONS
<Table>
<Caption>
PERCENT PERCENT
2002 CHANGE 2001 CHANGE 2000
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Income.............................. $19,714 (25)% $26,198 77% $14,830
</Table>
The Company reported net income for 2002 that was 25% lower than the
previous year. The primary factor contributing to the reduction in net income
was a significant decrease in North American gas drilling activity that began in
the second half of 2001 and continued into 2002. The average domestic natural
gas rig count for 2002 was 26% lower than 2001, while the average price of
natural gas in the U.S. decreased by 11% from the previous year. The reduction
in revenues, increased manufacturing costs and increased selling, general and
administrative expenses contributed to the decline in net income.
The Company's net income for 2001 was 77% higher than the previous year. A
very strong North American natural gas market was the driving force behind a
significant increase in net income for the year. The number of rigs drilling for
natural gas in the U.S. reached record levels in mid-year before declining
significantly during the second half. Despite this decrease in activity, demand
for the company's products remained strong resulting in improved manufacturing
efficiency from operating manufacturing facilities at or near capacity
throughout the year.
Individual components of operating results are discussed below.
REVENUES
<Table>
<Caption>
PERCENT PERCENT
2002 CHANGE 2001 CHANGE 2000
-------- ------- -------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $126,308 (8)% $137,226 47% $93,324
</Table>
CARBO Ceramics Inc.'s 2002 revenues of $126.3 million were 8% lower than
2001 revenues. Revenues in 2002 included $6.0 million from Pinnacle Technologies
Inc., which was acquired by the Company on May 31, 2002. Total proppant sales
volume decreased by 13%, with domestic volume down 17% and export volume down by
2%, despite a 28% drop in the U.S. rig count and a 20% decline in the worldwide
rig count
12
<PAGE>
compared to 2001. The Company believes that these relatively strong results in a
weak market indicate that the Company's ceramic proppants continue to gain
market share due to the success of the Company's technical marketing program and
expanded distribution network. The decreased domestic volume was due to a 23%
drop in sales in South Texas, while decreased export sales were attributable to
reduced sales into South America, Australia, and Mexico. Increased sales in
Russia and Canada offset some of the export declines. The average selling price
of $0.274 per pound in 2002 improved slightly versus $0.271 per pound in 2001.
The Company's revenues in 2001 of $137.2 million were 47% higher than 2000.
Total sales volume increased 31%, with domestic volume up 49% and export volume
down 4% compared to 2000. The Company believes that this increase was due to
both strong natural gas drilling activity in North America and the success of
its technical marketing program designed to increase the use of ceramic proppant
in wells that have traditionally used sand-based proppants. In both U.S. and
Canada, the Company's sales volume increased by a larger percentage than
industry activity as measured by the number of rigs actively drilling for oil or
gas. The export sales decline was attributable to increased competition,
particularly in Russia, and the Company's decision to supply domestic markets in
a capacity constrained environment during much of the year. The average selling
price for the year was $0.271 per pound, an increase of 12% over the year 2000.
Contributing to this was a January price increase of approximately 9%, and a
slight shift in the product mix toward higher strength products.
GROSS PROFIT
<Table>
<Caption>
PERCENT PERCENT
2002 CHANGE 2001 CHANGE 2000
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross Profit............................ $51,636 (11)% $58,251 64% $35,561
Gross Profit %.......................... 41% 42% 38%
</Table>
The Company's cost of sales 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. Certain handling costs related to
maintaining finished goods inventory and operating the Company's remote stocking
facilities are charged to selling, general and administrative expenses. Those
costs amounted to $3.7 million, $3.6 million and $3.2 million in 2002, 2001 and
2000, respectively.
Gross profit decreased by 11% from 2001 to 2002. Gross profit as a
percentage of sales was 41% for 2002, compared to 42% for 2001. The decrease in
gross profit was due primarily to reduced sales volume. The reduction in gross
profit margins was directly related to the company's manufacturing facilities
operating at approximately 82% of capacity in 2002 versus 95% of capacity in
2001. This was caused by both reduced sales volumes and unscheduled downtime at
the McIntyre production facility due to unanticipated maintenance requirements.
The impact of this was partially offset by the lower cost of natural gas used at
the manufacturing facilities during 2002 and reduced freight costs in
transporting finished goods from the plants to remote storage locations.
Gross profit increased by 64% from 2000 to 2001. Gross profit as a
percentage of sales was 42% for 2001, compared to 38% for 2000. The improvement
in gross profit was the result of both the significant increase in sales volume
and improved pricing. Improved operating efficiency in manufacturing facilities
contributed to increased gross profit margins with manufacturing facilities
running at 95% of capacity in 2001 versus 73% of capacity in 2000. Partially
offsetting this was the effect of higher natural gas costs in our manufacturing
operations and increased freight costs due to lower than desired inventory
levels at remote storage locations.
13
<PAGE>
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND START-UP COSTS
<Table>
<Caption>
PERCENT PERCENT
2002 CHANGE 2001 CHANGE 2000
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SG&A.................................... $20,956 12% $18,676 51% $12,404
SG&A as a % of Revenues................. 17% 14% 13%
</Table>
Selling, general and administrative expenses and start-up costs increased
by $2.3 million in 2002 over 2001. SG&A and start-up expenses increased as a
percentage of sales to 17% in 2002 from 14% in 2001. The most significant items
were start-up costs related to the new manufacturing facility in China and a
$993,000 reserve related to a judgment against the Company in a lawsuit alleging
tortious interference with a contract. Excluding the China start-up expenses and
legal judgment reserve in 2002 and a $3.5 million non-recurring, non-cash
stock-based compensation charge related to the modification of the expiration
date of fully vested stock options in connection with the retirement of the
company's former president in 2001, SG&A expenses increased by $3.7 million in
2002. This increase relates directly to the expansion of the Company's
distribution network, new business development costs, increased costs for
additional personnel in its administrative functions, and expenses of Pinnacle
Technologies.
Selling, general and administrative expenses and start-up costs increased
by $6.3 million in 2001 over 2000. SG&A expenses as a percentage of sales
increased from 13% in 2000 to 14% in 2001. Included in 2001 is a $3.5 million
non-recurring, non-cash stock-based compensation charge related to the
modification of the expiration date of fully vested stock options in connection
with the 2001 retirement of the Company's former President. Excluding this
non-recurring charge, SG&A expenses increased by $2.8 million in 2001 over 2000.
On this basis, SG&A expenses as a percentage of sales actually decreased from
13% in 2000 to 11% in 2001. Increased costs in 2001 are those that relate
directly to higher activity levels -- distribution, marketing and management
incentive expenses; as well as increased legal expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of December 31, 2002 were $24.4 million
compared to $31.5 million at the beginning of the year. The Company generated
cash from operations of $29.5 million, realized proceeds of $4.5 million from
the issuance of common stock for exercises of employee stock options, and
generated $6.0 million from maturing investment securities. Total capital
expenditures for the year were $27.4 million, cash dividends paid totaled $5.5
million, and $2.2 million was expended on the repayment of bank loans extended
to Pinnacle Technologies. In addition, $12.0 million in cash was expended as
part of the Pinnacle acquisition (the total purchase price was $26.7 million).
Major capital spending items during 2002 included spending on a new
manufacturing facility in China, improvements and additions to remote storage
locations, and improvements at the McIntyre manufacturing facility to
debottleneck the current production process and improve equipment reliability in
order to increase production capacity.
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
December 31, 2002, 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 2003. Also, based on
the strength of its balance sheet, the Company believes that it could acquire
additional debt financing. Based on these assumptions, the Company believes that
its fixed costs could be met even with a moderate decrease in demand for the
Company's products.
14
<PAGE>
ITEM 7A. 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 December 31, 2002. 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-18 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.
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.
ITEM 14. 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.
15
<PAGE>
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.
16
<PAGE>
PART IV
ITEM 15. 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-18 of this Report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Income for each of the three years ended
December 31, 2002, 2001, and 2000
Consolidated Statements of Shareholders' Equity for each of the three years
ended December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 2002, 2001, and 2000
(b) Reports on Form 8-K:
On October 23, 2002, the company filed a report on Form 8-K concerning its
press release announcing third quarter 2002 results.
(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.
17
<PAGE>
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/ C. MARK PEARSON
------------------------------------
C. Mark Pearson
President and Chief Executive
Officer
By: /s/ PAUL G. VITEK
------------------------------------
Paul G. Vitek
Sr. Vice President, Finance and
Chief Financial Officer
Dated: March 12, 2003
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Mark Pearson 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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ WILLIAM C. MORRIS Chairman of the Board March 12, 2003
- ---------------------------------------------------
William C. Morris
/s/ C. MARK PEARSON President, Chief Executive March 12, 2003
- --------------------------------------------------- Officer and Director
C. Mark Pearson (Principal Executive Officer)
/s/ PAUL G. VITEK Sr. Vice President, Finance and March 12, 2003
- --------------------------------------------------- Chief Financial Officer
Paul G. Vitek (Principal Financial and
Accounting Officer)
/s/ CLAUDE E. COOKE, JR. Director March 12, 2003
- ---------------------------------------------------
Claude E. Cooke, Jr.
/s/ JOHN J. MURPHY Director March 12, 2003
- ---------------------------------------------------
John J. Murphy
/s/ ROBERT S. RUBIN Director March 12, 2003
- ---------------------------------------------------
Robert S. Rubin
/s/ JESSE P. ORSINI Director March 12, 2003
- ---------------------------------------------------
Jesse P. Orsini
</Table>
18
<PAGE>
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 annual report on Form 10-K of Carbo Ceramics Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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
functions):
(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
annual 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.
/s/ C. MARK PEARSON
--------------------------------------
C. MARK PEARSON
PRESIDENT & CEO
Date: March 12, 2003
19
<PAGE>
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 annual report on Form 10-K of Carbo Ceramics Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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
functions):
(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
annual 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.
/s/ PAUL G. VITEK
--------------------------------------
PAUL G. VITEK
CHIEF FINANCIAL OFFICER
Date: March 12, 2003
20
<PAGE>
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, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2002. 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, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
New Orleans, Louisiana
January 31, 2003
F-1
<PAGE>
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
-------------------
2002 2001
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 24,447 $ 31,547
Investment securities..................................... -- 6,000
Trade accounts receivable................................. 22,967 22,157
Inventories:
Finished goods.......................................... 10,535 9,465
Raw materials and supplies.............................. 5,295 5,944
-------- --------
Total inventories................................... 15,830 15,409
Prepaid expenses and other current assets................. 600 514
Deferred income taxes..................................... 1,023 875
-------- --------
Total current assets................................ 64,867 76,502
Property, plant and equipment:
Land and land improvements................................ 1,866 944
Land-use and mineral rights............................... 5,050 --
Buildings................................................. 12,058 7,488
Machinery and equipment................................... 105,052 92,522
Construction in progress.................................. 25,425 11,657
-------- --------
Total............................................... 149,451 112,611
Less accumulated depreciation............................. 37,654 30,084
-------- --------
Net property, plant and equipment................... 111,797 82,527
-------- --------
Goodwill.................................................... 19,449 --
Intangible assets, net...................................... 3,497 --
-------- --------
Total assets........................................ $199,610 $159,029
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,074 $ 3,572
Accrued payroll and benefits.............................. 2,981 2,491
Accrued freight........................................... 754 1,139
Accrued utilities......................................... 1,061 848
Accrued income taxes...................................... 1,563 2,304
Retainage related to construction in progress............. 1,494 --
Provision for legal judgment.............................. 993 --
Other accrued expenses.................................... 1,020 773
-------- --------
Total current liabilities........................... 17,940 11,127
Deferred income taxes....................................... 13,085 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; 15,482,436 and 14,949,600 shares issued and
outstanding at December 31, 2002 and 2001,
respectively............................................ 155 149
Additional paid-in capital................................ 72,925 54,967
Unearned stock compensation............................... (557) --
Retained earnings......................................... 96,078 81,834
Accumulated other comprehensive income (loss)............. (16) (8)
-------- --------
Total shareholders' equity.......................... 168,585 136,942
-------- --------
Total liabilities and shareholders' equity.......... $199,610 $159,029
======== ========
</Table>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
------------ ------------ -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $126,308 $137,226 $93,324
Cost of sales............................................... 74,672 78,975 57,763
-------- -------- -------
Gross profit................................................ 51,636 58,251 35,561
Selling, general and administrative expenses................ 18,864 18,641 12,377
Start-up costs.............................................. 1,099 35 27
Provision for legal judgment................................ 993 -- --
-------- -------- -------
Operating profit............................................ 30,680 39,575 23,157
Other income (expense):
Interest income........................................... 500 891 302
Interest expense.......................................... (14) (1) (38)
Other, net................................................ 77 216 4
-------- -------- -------
563 1,106 268
-------- -------- -------
Income before income taxes.................................. 31,243 40,681 23,425
Income taxes................................................ 11,529 14,483 8,595
-------- -------- -------
Net income.................................................. $ 19,714 $ 26,198 $14,830
======== ======== =======
Earnings per share:
Basic..................................................... $ 1.29 $ 1.76 $ 1.01
======== ======== =======
Diluted................................................... $ 1.28 $ 1.74 $ 1.00
======== ======== =======
</Table>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
OTHER
ADDITIONAL UNEARNED COMPREHENSIVE
COMMON PAID-IN STOCK RETAINED INCOME
STOCK CAPITAL COMPENSATION EARNINGS (LOSS) TOTAL
------ ---------- ------------ -------- ------------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 2000....... $146 $42,919 $ -- $50,335 $ -- $ 93,400
Net income...................... -- -- -- 14,830 -- 14,830
Exercise of stock options....... 1 1,663 -- -- -- 1,664
Tax benefit from exercise of
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
Net income...................... -- -- -- 26,198 -- 26,198
Foreign currency translation
adjustment................... -- -- -- -- (8) (8)
--------
Comprehensive income............ 26,190
Exercise of stock options....... 2 4,333 -- -- -- 4,335
Tax benefit from exercise of
options...................... -- 1,905 -- -- -- 1,905
Modification of fixed stock
option award................. -- 3,504 -- -- -- 3,504
Cash dividends ($0.345 per
share)....................... -- -- -- (5,132) -- (5,132)
---- ------- ----- ------- ---- --------
Balances at December 31, 2001..... 149 54,967 -- 81,834 (8) 136,942
Net income...................... -- -- -- 19,714 -- 19,714
Foreign currency translation
adjustment................... -- -- -- -- (8) (8)
--------
Comprehensive income............ 19,706
Exercise of stock options....... 3 4,480 -- -- -- 4,483
Tax benefit from exercise of
options...................... -- 382 -- -- -- 382
Shares issued in acquisition.... 3 9,677 -- -- -- 9,680
Vested options assumed in
acquisition.................. -- 2,630 -- -- -- 2,630
Unvested options assumed in
acquisition.................. -- 789 (789) -- -- --
Amortization of unearned
compensation................. -- -- 232 -- -- 232
Cash dividends ($0.36 per
share)....................... -- -- -- (5,470) -- (5,470)
---- ------- ----- ------- ---- --------
Balances at December 31, 2002..... $155 $72,925 $(557) $96,078 $(16) $168,585
==== ======= ===== ======= ==== ========
</Table>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-----------------------------
2002 2001 2000
-------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 19,714 $ 26,198 $14,830
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,592 6,776 6,767
Amortization.............................................. 223 -- --
Deferred income taxes..................................... 1,977 1,049 3,600
Non-cash stock option expense............................. 232 3,504 --
Changes in operating assets and liabilities:
Trade accounts receivable.............................. 651 (4,374) (6,900)
Inventories............................................ (421) (2,935) (1,197)
Prepaid expenses and other current assets.............. 92 56 (89)
Accounts payable....................................... (1,222) 2,279 (184)
Accrued payroll and benefits........................... 159 546 (9)
Accrued freight........................................ (385) (677) 271
Accrued utilities...................................... 213 (89) 486
Accrued income taxes................................... (359) 1,628 3,512
Provision for legal judgment........................... 993 -- --
Other accrued expenses................................. 12 (70) 622
-------- -------- -------
Net cash provided by operating activities................... 29,471 33,891 21,709
INVESTING ACTIVITIES
Maturities of investment securities......................... 6,000 1,000 --
Purchases of investment securities.......................... -- (6,000) (1,000)
Capital expenditures, net................................... (27,356) (11,296) (1,603)
Purchase of Pinnacle Technologies, Inc. .................... (12,022) -- --
-------- -------- -------
Net cash used in investing activities....................... (33,378) (16,296) (2,603)
FINANCING ACTIVITIES
Proceeds from bank borrowings............................... -- -- 5,273
Repayments on bank borrowings............................... (2,198) -- (7,082)
Proceeds from exercise of stock options..................... 4,483 4,335 1,664
Dividends paid.............................................. (5,470) (5,132) (4,397)
-------- -------- -------
Net cash used in financing activities....................... (3,185) (797) (4,542)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (7,092) 16,798 14,564
Effect of exchange rate changes on cash..................... (8) (8) --
Cash and cash equivalents at beginning of year.............. 31,547 14,757 193
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 24,447 $ 31,547 $14,757
======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... $ 14 $ 1 $ 38
======== ======== =======
Income taxes paid........................................... $ 9,764 $ 11,806 $ 1,483
======== ======== =======
Capital expenditures through accounts payable and
retainage................................................. $ 5,849 $ -- $ --
======== ======== =======
</Table>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
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 four production plants
operating in New Iberia, Louisiana; Eufaula, Alabama; McIntyre, Georgia and
Luoyang, China. 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 plant sites and
eleven remote distribution facilities located in: Rock Springs, Wyoming;
Oklahoma City, Oklahoma; San Antonio, Texas; Fairbanks, Alaska; Edmonton,
Alberta, Canada; Grande Prairie, Alberta, Canada; Rotterdam, Netherlands;
Shanghai, China; Adelaide, South Australia; Singapore; and Jebel Ali, United
Arab Emirates. The Company also provides fracture diagnostic and mapping
services, sells fracture simulation software and provides fracture design
services to oil and gas companies worldwide through its wholly-owned subsidiary,
Pinnacle Technologies Inc., which is headquartered in San Francisco, California
(see Note 2).
PRINCIPLES OF CONSOLIDATION
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. CARBO Ceramics Sales Corporation was liquidated in
September 2002. 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,
2001, 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, 2001.
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
<PAGE>
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:
<Table>
<S> <C>
Buildings and improvements.................................. 15 to 30 years
Machinery and equipment..................................... 3 to 30 years
Land-use rights............................................. 50 years
</Table>
Land-use rights represent capitalized costs to acquire rights to the land
where the Company's plant site in China is located. The Company has rights to
use the property from 2001 to 2051.
In 2002, 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 Company estimates the land has 13 million tons of kaolin
reserves for use as raw material in production of its lightweight ceramic
proppant. The Company intends to mine the properties in 2003 through the use of
a third party contractor (see Note 14). The capitalized cost of land and mineral
rights as well as the costs incurred to develop such property will be amortized
when production begins, using the units-of-production method based on the
estimated total tons of kaolin reserves.
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS
When events or circumstances indicate that the carrying amount of
long-lived assets to be held and used or intangible assets might not be
recoverable, the expected future undiscounted cash flows from the assets is
estimated and compared with the carrying amount of the assets. If the sum of the
estimated undiscounted cash flows is less than the carrying amount of the
assets, an impairment loss is recorded. The impairment loss is measured by
comparing the fair value of the assets with their carrying amounts. Fair value
is determined based on discounted cash flow or appraised values, as appropriate.
Long-lived assets that are held for disposal are reported at the lower of the
assets' carrying amount or fair value less costs related to the assets'
disposition.
GOODWILL
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition. Realization of
goodwill is assessed periodically by management based on the expected future
profitability and undiscounted future cash flows of acquired entities and their
contribution to the overall operations of the Company. The Company has performed
a goodwill impairment review at the reporting unit level based on a fair value
concept. Should a review indicate that the carrying value was not recoverable,
the excess of the carrying value over the undiscounted cash flow would be
recognized as an impairment loss.
REVENUE RECOGNITION
Revenue is recognized when title passes to the customer. Title passes to
the customer upon delivery.
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
sales. 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 distribution facilities. Handling
costs incurred in 2002, 2001 and 2000 were $3,676,000, $3,555,000 and
$3,175,000, respectively.
F-7
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COST OF START-UP ACTIVITIES
Start-up activities, including organization costs, are expensed as
incurred. Start-up costs for 2002 and 2001 are related to the Company's new
production facility in China, including organizational and administrative costs
associated with plant construction plus labor, materials and utilities expended
in the fourth quarter of 2002 to bring installed equipment to operating
condition. Start-up costs for 2000 represent labor, materials and utilities
expended to bring installed equipment to operating condition at the Company's
production facility in McIntyre, Georgia.
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 2002, 2001 and 2000 were $2,124,000, $784,000 and $676,000,
respectively.
STOCK BASED COMPENSATION
The Company applies APB 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, generally
no compensation expense is recognized because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant. However, certain transactions involving fixed stock option
awards may result in the recognition of compensation expense under APB 25.
Compensation expense of $232,000 was charged to operations in 2002 for
amortization of unearned stock compensation related to unvested stock options
assumed in a business acquisition (see Note 2). In 2001, $3,504,000 compensation
expense was charged to operations, resulting from the modification of
outstanding options of the Company's former president at the time of his
retirement in April 2001. As of December 31, 2002, those options have been fully
exercised by the former president.
FOREIGN SUBSIDIARIES
Financial statements of the Company's foreign subsidiaries are translated
using current exchange rates for assets and liabilities; average exchange rates
for the period for revenues, expenses, gains and losses; and historical exchange
rates for paid-in capital accounts. Resulting translation adjustments are
included in accumulated other comprehensive income (loss).
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified
to conform to the 2002 presentation.
NEW PRONOUNCEMENT
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- An Amendment of FASB Statement No.
123," (Statement 148) was issued. The statement provides alternative methods of
transition for an entity that voluntarily changes to the fair value based method
F-8
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of accounting for stock-based employee compensation under Statement No. 123 and
amends the disclosure provisions to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Additionally, Statement 148 amends
APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about
those effects in interim financial information. The transition method provisions
of Statement 148 are effective for fiscal years ending after December 15, 2002.
The interim financial reporting requirements are effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002.
2. ACQUISITION OF BUSINESS
On May 31, 2002, the Company purchased 100 percent of the outstanding
shares of Pinnacle Technologies, Inc. (Pinnacle). 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 the
Company's 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 acquisition was accounted
for using the purchase method of accounting provided for under FASB Statement
No. 141, "Business Combinations."
The aggregate cost of the acquisition was approximately $26.7 million,
including $12.4 million cash; 324,226 shares of common stock valued at $11.2
million; 158,300 stock options valued at $2.5 million granted in exchange for
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. Goodwill is fully deductible for tax purposes. 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 is being amortized on a
straight-line basis 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 $1.5 million using the closing market price on the date
of acquisition. Subject to the Company's rights of indemnity under the
agreement, consideration withheld will be paid on the first anniversary of
closing and recognized as additional goodwill at that time.
Following are pro forma amounts assuming the acquisition was made on
January 1, 2001 ($ in thousands, except per share data):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
---------- ----------
<S> <C> <C>
Pro forma revenue........................................... $129,808 $146,580
Pro forma net income........................................ $ 19,213 $ 26,174
Pro forma earnings per share:
Basic..................................................... $ 1.25 $ 1.72
======== ========
Diluted................................................... $ 1.24 $ 1.70
======== ========
</Table>
F-9
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition ($ in thousands):
<Table>
<S> <C>
Current assets.............................................. $ 1,639
Property, plant and equipment............................... 3,942
Intangible assets........................................... 3,434
Goodwill arising in the transaction......................... 21,788
-------
30,803
-------
Current liabilities......................................... (3,212)
Long-term debt.............................................. (921)
-------
Net assets acquired......................................... $26,670
=======
</Table>
Allocation of the purchase price is subject to modification in the future.
Any such modification would likely be allocated to goodwill, including an
increase in goodwill for the final installment of the aggregate purchase price
and reductions in goodwill for certain tax benefits related to exercises of
vested stock options assumed in the acquisition.
3. INTANGIBLE ASSETS
Following is a summary of intangible assets:
<Table>
<Caption>
DECEMBER 31, 2002
---------------------
GROSS ACCUMULATED
AMOUNT AMORTIZATION
------ ------------
($ IN THOUSANDS)
<S> <C> <C>
Intangibles subject to amortization:
Patents and licenses (ten year weighted-average useful
life).................................................. $2,526 $152
Hardware designs (four year weighted-average useful
life).................................................. 545 71
Other intangibles not subject to amortization............... 649 --
------ ----
$3,720 $223
====== ====
</Table>
Amortization expense for 2002 was $223,000. Estimated amortization expense
for each of the ensuing years through December 31, 2007 is, respectively,
$382,000, $382,000, $382,000, $370,000 and $282,000.
4. 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, 2002 the unused portion of the credit facility was $10.0 million. 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 the annual rate of three-eighths of one percent of the
unused line of credit. Commitment fees were $38,000, $38,000 and $39,000 in
2002, 2001 and 2000, respectively.
F-10
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases certain property, plant and equipment under operating
leases, primarily consisting of railroad equipment leases. Minimum future rental
payments due under non-cancelable operating leases with remaining terms in
excess of one year as of December 31, 2002 are as follows ($ in thousands):
<Table>
<S> <C>
2003........................................................ $1,083
2004........................................................ 918
2005........................................................ 619
2006........................................................ 554
2007........................................................ 477
------
Total....................................................... $3,651
======
</Table>
Leases of railroad equipment 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 for railroad
equipment are generally renewed or replaced by other leases. Rent expense for
all operating leases was $1,900,000 in 2002, $1,723,000 in 2001, and $1,560,000
in 2000.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<Table>
<Caption>
2002 2001
------- -------
($ IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits........................................... $ 356 $ 224
Stock-based compensation.................................... -- 1,195
Inventories................................................. 575 580
Other....................................................... 92 71
------- -------
Total deferred tax assets......................... 1,023 2,070
------- -------
DEFERRED TAX LIABILITIES:
Depreciation................................................ 13,085 12,027
Other....................................................... -- 128
------- -------
Total deferred tax liabilities.................... 13,085 12,155
------- -------
Net deferred tax liabilities...................... $12,062 $10,085
======= =======
</Table>
F-11
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<Table>
<Caption>
2002 2001 2000
------- ------- ------
($ IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $ 8,620 $12,302 $4,450
State.................................................. 932 1,132 545
------- ------- ------
Total current.................................. 9,552 13,434 4,995
------- ------- ------
Deferred:
Federal................................................ 1,784 961 3,208
State.................................................. 193 88 392
------- ------- ------
Total deferred................................. 1,977 1,049 3,600
------- ------- ------
$11,529 $14,483 $8,595
======= ======= ======
</Table>
The reconciliation of income taxes computed at the U.S. statutory tax rate
to the Company's income tax expense is as follows ($ in thousands):
<Table>
<Caption>
2002 2001 2000
----------------- ----------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory rate.............. $10,935 35.0% $14,238 35.0% $8,199 35.0%
State income taxes, net of
federal tax benefit............ 1,125 3.6 1,220 3.0 937 4.0
Extraterritorial Income Exclusion
and other...................... (531) (1.7) (975) (2.4) (541) (2.3)
------- ---- ------- ---- ------ ----
$11,529 36.9% $14,483 35.6% $8,595 36.7%
======= ==== ======= ==== ====== ====
</Table>
7. 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, 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, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of any Preferred Stock 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 14, 2003, the Board of Directors declared a cash dividend of
$0.09 per share. The dividend is payable on February 14, 2003 to shareholders of
record on January 31, 2003.
PREFERRED STOCK
The Company's charter authorizes 5,000 shares of Preferred Stock. The Board
of Directors has the authority to issue 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
F-12
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
series, without further vote or action by the Company's shareholders. In
connection with adoption of a shareholder rights plan on February 13, 2002, the
Company created the Series A Preferred Stock and authorized 2,000 shares of the
Series A Preferred Stock.
SHAREHOLDER RIGHTS PLAN
On February 13, 2002, the Company adopted a shareholder rights plan and
declared a dividend of one right for each outstanding share of Common Stock to
shareholders of record on February 25, 2002. With certain exceptions, the rights
become exercisable if a tender offer for the Company is announced or any person
or group acquires beneficial ownership of at least 15 percent of the Company's
Common Stock. If exercisable, each right entitles the holder to purchase one
ten-thousandth of a share of Series A Preferred Stock at an exercise price of
$200 and, if any person or group acquires beneficial ownership of at least 15
percent of the Company's Common Stock, to acquire a number of shares of Common
Stock having a market value of two times the $200 exercise price. The Company
may redeem the rights for $0.01 per right at any time before any person or group
acquires beneficial ownership of at least 15 percent of the Common Stock. The
rights expire on February 13, 2012.
8. STOCK OPTION PLANS
The Company has two fixed stock-based compensation plans: 1996 Stock Option
Plan for Key Employees (Carbo Plan) and 1996 Stock Option Plan of Pinnacle
Technologies, Inc. as Amended and Restated May 31, 2002 (Pinnacle Plan). The
plans provide for granting options to purchase shares of the Company's common
stock primarily to key employees, officers and directors. Under the Carbo Plan,
the Company may grant options for up to 1,250,000 shares of common stock. The
exercise price of each option is equal to the market price of the Company's
common stock on the date of grant, no individual employee may be granted options
to purchase more than an aggregate of 500,000 shares of common stock, options
have maximum terms of ten years and vest annually over four years. Under the
Pinnacle Plan, the Company may grant options for up to 200,000 shares of common
stock. The exercise price of each option may not be less than 85 percent of the
market price of the Company's common stock on the date of grant, options have
maximum terms of ten years and vesting is determined for each grant (generally 3
to 5 years).
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 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 2002, 2001 and 2000, respectively: risk-free interest rates of
4.59%, 4.45% and 5.00%; a dividend yield of 1.0%; volatility factors of the
expected market price of the Company's Common Stock of .498, .507 and .509; 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.
F-13
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
2002 2001 2000
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported......................................... $19,714 $26,198 $14,830
======= ======= =======
Pro forma including the effect of options........... $18,884 $25,821 $14,133
======= ======= =======
Basic earnings per share:
As reported......................................... $ 1.29 $ 1.76 $ 1.01
======= ======= =======
Pro forma including the effect of options........... $ 1.24 $ 1.73 $ 0.96
======= ======= =======
Diluted earnings per share:
As reported......................................... $ 1.28 $ 1.74 $ 1.00
======= ======= =======
Pro forma including the effect of options........... $ 1.23 $ 1.72 $ 0.95
======= ======= =======
</Table>
A summary of stock option activity and related information for the years
ended December 31 follows:
<Table>
<Caption>
2002 2001 2000
-------------------------- -------------------------- --------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year......................... 757 $25 818 $21 925 $20
Granted........................ 279 26 209 34 20 23
Exercised...................... 252 18 250 17 97 17
Forfeited...................... 6 32 20 35 30 29
------ ------ ------
Outstanding-end of year........ 778 $28 757 $25 818 $21
====== ====== ======
Exercisable at end of year..... 443 $24 534 $22 704 $20
Weighted-average fair value of
options granted during the
year......................... $19.30 $15.55 $10.63
</Table>
Following is a summary of the status of fixed options outstanding at
December 31, 2002:
<Table>
<Caption>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- ------------------------------------------ -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
EXERCISE REMAINING AVERAGE AVERAGE
PRICE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE (000) LIFE PRICE (000) PRICE
- -------- ------ ----------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 8 -- 24 303 5 years $18 260 $18
30 -- 42 475 8 years 34 183 33
--- ---
778 28 443 24
=== ===
</Table>
F-14
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<Table>
<Caption>
2002 2001 2000
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per
share:
Net income.................................. $ 19,714 $ 26,198 $ 14,830
Denominator:
Denominator for basic earnings per share --
weighted average shares.................. 15,233,096 14,897,175 14,655,679
Effect of dilutive securities:
Employee stock options (See Note 8)...... 116,454 144,903 170,624
Contingent stock acquisition............. 25,706 -- --
----------- ----------- -----------
Dilutive potential common shares............ 142,160 144,903 170,624
----------- ----------- -----------
Denominator for diluted earnings per share--
adjusted weighted-average shares......... 15,375,256 15,042,078 14,826,303
=========== =========== ===========
Basic earnings per share...................... $ 1.29 $ 1.76 $ 1.01
=========== =========== ===========
Diluted earnings per share.................... $ 1.28 $ 1.74 $ 1.00
=========== =========== ===========
</Table>
10. QUARTERLY OPERATING RESULTS -- (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2002 and
2001 were as follows:
<Table>
<Caption>
THREE MONTHS ENDED,
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2002
Revenues................................. $29,311 $29,651 $35,484 $31,862
Gross profit............................. 11,678 11,970 15,000 12,988
Net income............................... 5,029 4,976 5,814 3,895
Earnings per share:
Basic.................................. $ 0.34 $ 0.33 $ 0.38 $ 0.25
Diluted................................ $ 0.33 $ 0.33 $ 0.37 $ 0.25
2001
Revenues................................. $34,174 $35,304 $36,627 $31,121
Gross profit............................. 13,046 15,440 16,437 13,328
Net income............................... 6,180 5,437 8,255 6,326
Earnings per share:
Basic.................................. $ 0.42 $ 0.36 $ 0.55 $ 0.42
Diluted................................ $ 0.41 $ 0.36 $ 0.55 $ 0.42
</Table>
Quarterly data may not sum to full year data reported in the consolidated
financial statements due to rounding.
F-15
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. 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, 2002:
<Table>
<Caption>
MAJOR CUSTOMERS
------------------
A B C OTHERS TOTAL
---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
2002............................................... 35.0% 20.0% 23.6% 21.4% 100%
2001............................................... 33.8% 22.8% 24.4% 19.0% 100%
2000............................................... 35.4% 22.4% 23.8% 18.4% 100%
</Table>
Certain amounts in 2001 and 2000 customer categories have been restated to
conform to the 2002 categories due to business combinations of customers.
12. GEOGRAPHIC INFORMATION
Long-lived assets, consisting of net property, plant and equipment and
goodwill, as of December 31 in the United States and other countries are as
follows:
<Table>
<Caption>
2002 2001 2000
------ ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Long-lived assets:
United States............................................. $119.4 $76.5 $76.5
International (primarily China)........................... 11.8 6.0 1.5
------ ----- -----
Total............................................. $131.2 $82.5 $78.0
====== ===== =====
</Table>
Revenues outside the United States accounted for 30%, 27% and 37% of the
Company's revenues for 2002, 2001, and 2000, respectively. Revenues for the
years ended December 31 in the United States, Canada and other countries are as
follows:
<Table>
<Caption>
2002 2001 2000
------ ------ -----
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues:
United States............................................. $ 88.0 $100.4 $58.9
Canada.................................................... 13.0 11.1 7.2
Other international....................................... 25.3 25.7 27.2
------ ------ -----
Total............................................. $126.3 $137.2 $93.3
====== ====== =====
</Table>
13. BENEFIT PLANS
The Company has defined contribution savings and profit sharing plans
pursuant to Section 401(k) of the Internal Revenue Code. The increase in savings
contributions in 2002 is due to additional employment related to expansions and
the acquisition of Pinnacle Technologies, Inc. on May 31, 2002. Benefit costs
recognized as expense under these plans consisted of the following for the years
ended December 31:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Contributions:
Profit sharing............................................ $425 $500 $325
Savings................................................... 338 201 191
---- ---- ----
$763 $701 $516
==== ==== ====
</Table>
F-16
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS
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. For the years ended December 31, 2002, 2001 and 2000, the Company
purchased from the supplier $2.2 million, $3.7 million and $2.7 million,
respectively, of kaolin under the agreement.
In 1997, the Company entered into an agreement with a contractor to provide
kaolin for the Company's McIntyre, Georgia plant at a specified contract price,
from lands owned or leased by the contractor. The term of the agreement was
twenty years commencing on January 1, 1998. Under the agreement, the Company had
the right to purchase up to 2.5 million tons of kaolin from the contractor and
was required to purchase at least 80% of the estimated annual requirements of
kaolin for its McIntyre plant. For the years ended December 31, 2002, 2001 and
2000, the Company purchased $478,000, $514,000 and $383,000, respectively, of
kaolin under the agreement. In January 2003, the Company entered into a mining
agreement with the same contractor to provide kaolin for the Company's McIntyre
plant at specified contract prices, from lands owned or leased by either the
Company or the contractor. The new agreement supercedes and replaces the 1997
agreement. The term of the agreement is twenty years commencing on January 1,
2003 and requires the Company to accept delivery from the contractor of at least
80% of the McIntyre plant's annual kaolin requirements. Under the agreement, the
contractor bears responsibility for reclaiming property owned by the Company and
indemnifies the Company from all claims.
In January 2003, the Company entered into a three-year agreement to
purchase bauxite from a supplier. The Company uses the bauxite for production at
its plants in New Iberia, Louisiana and McIntyre, Georgia. The contract term
begins January 1, 2003 and requires the Company to purchase 60,000 metric tons
of material annually at specified contract prices. The contract also has
provisions to allow the Company to commit to purchase up to an additional 45,000
metric tons in any contract year.
In September 2002, the Company entered into a five-year agreement with a
supplier to purchase bauxite for its China plant at a specified contract price.
The agreement requires the Company to purchase a minimum of 10,000 metric tons
of material annually, or 100 percent of its annual requirements for bauxite if
less than 10,000 metric tons.
The Company was in compliance with the terms of all agreements in existence
at December 31, 2002.
15. EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its President through December
31, 2003 that extends automatically for successive one-year periods without
prior written notice. The agreement provides for an annual base salary and
incentive bonus. If the President is terminated early without cause, the Company
will be obligated to pay two years base salary and a prorated incentive bonus,
and all outstanding stock options granted to the President will become fully
exercisable. The agreement also contains a two-year non-competition covenant
that would become effective upon termination for any reason.
The Company has an employment agreement with the President of Pinnacle
Technologies, Inc. through May 31, 2007. The agreement provides for an annual
base salary and incentive bonus. The agreement may be terminated by the Company
or the President of Pinnacle Technologies, Inc. for any reason. The agreement
contains a non-competition covenant that is effective for one year beyond the
term of the agreement.
F-17
<PAGE>
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. LEGAL PROCEEDINGS AND JUDGMENT
In November 2002, a judgment was entered for a lawsuit in which a state
court jury in Texas found the Company liable for tortious interference with a
contract between Proppant Technology, Inc. and its supplier. The Company is
appealing the amount of the judgment but has reserved $993,000, the maximum
amount for which the Company believes it may be held liable on appeal.
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-18
<PAGE>
EXHIBIT INDEX
<Table>
<C> <C> <S>
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)
4.2 -- Certificate of Designations of Series A Preferred Stock
(incorporated by reference to exhibit 2 to registrant's Form
8-A Registration Statement No. 001-15903)
10.1 -- Second Amended and Restated Credit Agreement dated as of
December 31, 2000, between Brown Brothers Harriman & Co. and
CARBO Ceramics Inc. (incorporated by reference to exhibit
10.1 to the registrant's Form 10-K Annual Report for the
year ended December 31, 2000)
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 -- 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)
10.4 -- 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)
10.5 -- Incentive Compensation Plan
10.6 -- 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)
10.7 -- 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)
10.8 -- Mining Agreement dated as of January 1, 2003 between CARBO
Ceramics Inc. and Arcilla Mining and Land Co.
10.9 -- Form of Employment Agreement between CARBO Ceramics Inc. and
C. Mark Pearson (incorporated by reference to exhibit 10.11
to the registrant's Form 10-K Annual Report for the year
ended December 31, 2001)
10.10 -- Form of Employment Agreement between CARBO Ceramics Inc. and
Christopher A. Wright
10.11 -- 1996 Stock Option Plan of Pinnacle Technologies, Inc., as
amended and restated May 31, 2002 (incorporated by reference
to exhibit 4.1 to registrant's Form S-8 Registration
Statement No. 333-91252)
23.1 -- Consent of Ernst & Young LLP
99.1 -- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>d03686exv10w5.txt
<DESCRIPTION>INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.5
CARBO CERAMICS INC.
INCENTIVE COMPENSATION PLAN
(AS AMENDED JANUARY 14, 2003)
TERMS
Purpose: The Carbo Ceramics Inc. Incentive Compensation Plan (the "Plan")
is being adopted by the Board of Directors of the Company to
foster the interest of the executives and other key employees of
the Company in the Company's financial performance.
Duration: The Plan is effective January 1, 2001, and unless earlier
terminated or revoked by the Board, it will terminate on December
31, 2003.
The Pool: Payments to an executive under the Plan will be made out of a
"Total Pool" of which the total size will be determined by the
"Net Income Before Tax" ("NIBT") of the Company as indicated by
the financial statement of the Company.
The Total Pool shall be considered to be comprised of two parts,
the "Current Pool" and the "Deferred Pool."
For each annual Plan period ending December 31st:
If Positive NIBT is: The Total Pool will be:
-------------------- -----------------------
- $0 up to $5,000,000 - An amount equal to 5% of
NIBT.
- $5,000,001 up to $50,000,000 - $250,000 plus an amount
equal to 2.5% of all NIBT
over $5,000,000 and up to
$50,000,000
For purposes of determining the Current Pool and the Deferred
Pool, the Current Pool will be equal to 50% of the Total Pool.
In all cases, the Deferred Pool shall be equal to the Total Pool
less the Current Pool.
Payments: In January of each year in which the Plan is in effect, the
Company shall calculate the Total Pool based on the NIBT for the
prior year and the President shall propose, for approval by the
Compensation Committee of the Company, a list of individual
executives to whom payments from the
<PAGE>
Total Pool shall be made and a schedule of payments to such
individual executives. Any difference in the size of the Total
Pool caused by a variance between the actual audited NIBT and the
January estimate shall be an adjustment to the Total Pool for the
following year.
Actual payment of the amounts awarded from the Deferred Pool will
be made in three equal annual installments beginning in the
January immediately following the year in which the executive is
informed of the Deferred Pool award (e.g., 2002 Deferred Pool
awards would be announced in January, 2003, and paid in equal
installments in January of 2004, 2005 and 2006).
An executive shall forfeit all rights to receive any unpaid
portion of the Deferred Pool if such executive's employment with
the Company terminates for any reasons other than normal
retirement, death, or permanent disability. In the event of normal
retirement, death, or permanent disability, the unpaid portion of
any Deferred Pool can be either paid out in lump sum or per the
terms of the original Plan, at the discretion of the Company.
Notwithstanding any other provision of this Plan, the President
and Chief Executive Officer of the Company shall not be eligible
to receive any payments pursuant to this Plan.
Revocability: The Board of Directors of the Company shall have the absolute
right to interpret the Plan and to modify or terminate the Plan if
there shall be a material change in the nature of the business of
the Company, in the ownership or control of the Company, or if the
Board of Directors in its judgment determines that continuation of
the Plan would not be in the Company's best interests as a result
of a material change in circumstances.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>4
<FILENAME>d03686exv10w8.txt
<DESCRIPTION>MINING AGREEMENT DATED AS OF JANUARY 1, 2003
<TEXT>
<PAGE>
EXHIBIT 10.8*
MINING AGREEMENT
THIS AGREEMENT (herein called "Agreement") made as of January 1, 2003,
between Arcilla Mining & Land Co., a corporation organized and existing under
the laws of the state of Georgia and having an office at P.O. Box 1371,
Milledgeville, Georgia 31061 ("Contractor"), and CARBO Ceramics Inc., a
corporation organized and existing under the laws of the state of Delaware and
having an office at 6565 MacArthur Boulevard, Suite 1050, Irving, Texas 75039
("Owner").
WITNESSETH:
WHEREAS, Contractor and Owner desire to enter into this Agreement which
will (i) supercede and replace the Raw Materials Requirements Agreement entered
into between Contractor and Owner dated November 18, 1997, and (ii) set out the
terms pursuant to which Contractor shall mine (either from lands owned or leased
by Owner (the "Owner's Lands") or from lands owned or leased by Contractor as
described on Exhibits B, C, D and E hereto (the "Contractors' Lands") and
deliver to Owner's Wilkinson County, Georgia manufacturing plant a supply of
kaolin, a naturally occurring mineral more particularly described (and meeting
the specifications set forth) in Exhibit A hereto (the "Product"), and,
WHEREAS, Contractor is able and desires to mine and deliver such
Product to Owner;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. TERM
The term of this Agreement shall be 20 years commencing January 1,
2003, and ending December 31, 2022.
2. CONTRACTOR'S RESPONSIBILITIES
Contractor shall be specifically responsible for the following (herein
called the "Work"):
A. Obtaining and maintaining a valid mining permit from the State of
Georgia and any other governmental body which requires Contractor to have a
license or permit to mine and remove Product from the Subject Properties
pursuant to this Agreement.
* Confidential Information in this Exhibit 10.8 has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
B. Removing overburden from the Subject Properties in a manner so as to
allow Owner unimpeded access to a minimum of 40,000 tons of Product at any given
time.
C. Maintaining roads to, from and across the Subject Properties in a
manner suitable to mine and remove from the Subject Properties the Product
described in this Contract.
D. Reclaiming the Subject Properties in accordance with the permit(s)
Contractor has obtained.
E. Providing to Owner a site of location, size and character upon which
to stockpile approximately 5,000 tons of the Product. Seller shall maintain such
stockpile at all times during this Agreement.
F. Contractor shall mine sufficient quantities of the Product to fill
orders made by Owner on an "as needed" basis.
G. Contractor shall deliver to the Owner's manufacturing plant (the
"Plant") in Wilkinson County, Georgia the quantities of the Product ordered by
Owner. If Owner requests delivery to any location other than the Plant, Owner
shall bear all costs for transportation in excess of the cost to transport the
Product to the Plant.
3. Purchase Commitment
A. In each year during the term of this Agreement, Owner shall be
obligated to accept deliveries of conforming Product from Contractor totaling,
as a minimum, eighty percent (80%) of its actual annual requirements of the
Product during such year for its operations in Wilkinson County, Georgia. In the
event Contractor fails to deliver Product in a timely manner which has been
ordered by Owner and Owner purchases such Product from another source or
contracts with another contractor to mine and deliver such Product, Owner shall
deduct the amount of such purchase or delivery from another source from the
minimum purchase requirements set out in the preceding sentence.
4. PRICE
The price per ton (the "Price Per Ton") for the Product mined and
delivered by Contractor to the Plant shall be the sum of the Haulage Charge, the
Overburden Charge, the Miscellaneous Charge, the Profit/Overhead Charge and, if
applicable, the Royalty Charge.
A. The Haulage Charge per short wet ton shall be determined from the
following chart based on the number of miles the Product is hauled from the
mining site to the Plant:
-2-
<PAGE>
<Table>
<Caption>
Loading/
Distance Haulage Unloading Total
- --------------- ------- --------- -----
<S> <C> <C> <C>
0-5 Miles $[*] $[*] $[*]
5.001-10 Miles $[*] $[*] $[*]
10.001-15 Miles $[*] $[*] $[*]
</Table>
B. The Overburden Charge per short wet ton shall be determined from the
following chart based on the ratio of the number of feet of overburden which was
removed to uncover the Product as compared to the number of feet of Product:
<Table>
<Caption>
Ratio:
Overburden Kaolin/Bauxite Price Per Short Wet Ton
- ---------- -------------- -----------------------
<S> <C> <C>
0.5 1.0 $[*]
0.75 1.0 $[*]
1.0 1.0 $[*]
1.5 1.0 $[*]
2.0 1.0 $[*]
2.5 1.0 $[*]
3.0 1.0 $[*]
</Table>
C. The Miscellaneous Charge is $[*] per short wet ton and is comprised
of the following items per short wet ton:
Water Control $[*]
Quality/Safety Management $[*]
Motor grading/Pit Clean-Up $[*]
Environment $[*]
Survey Work $[*]
---
TOTAL $[*]
D. The Profit/Overhead Charge is $[*] per short wet ton.
E. Owner shall pay to Contractor the Royalty Charge per short wet ton
of Product mined and delivered from Contractor's Lands to Owner which is payable
by Contractor pursuant to the terms of written agreements with the landowners of
the Contractor's Lands in effect on the date hereof. The Royalty Charge per
short wet ton of
* Confidential Information omitted and filed separately with the Securities
and Exchange Commission.
-3-
<PAGE>
Product mined and delivered from Contractor's Lands which are owned (not leased)
by Contractor shall be $[*] per short wet ton. No Royalty Charge shall be
payable to Contractor with respect to Product mined from Owner's Lands.
F. Beginning on January 1, 2003, the amount shown for Haulage Charge in
subpart 4A shall be increased or decreased on each semiannual anniversary date
of this Agreement to reflect any changes in the Producer Price Index ("PPI") for
No. 2 Diesel Fuel (product code 2911-413) that occurred during the preceding
six-month period (for an example of the calculation, see Appendix A). The
adjustment shall be made as soon as the PPI for the applicable period is made
available by the U.S. Department of Labor, Bureau of Labor Statistics or any
other U.S. government organization that may have responsibility for publishing
PPI data in the future. Contractor and Owner hereby recognize that such data is
preliminary as initially published by the Bureau of Labor Statistics and agree
to accept this preliminary data as final for purposes of calculating the
adjustment to the Haulage Charge. Notwithstanding the adjustment determined in
accordance with this subpart 4F, at no time shall the Haulage Charge be less
than the amount shown for each relative distance in subpart 4A.
G. Beginning on July 1, 2003, the amounts shown for Overburden Charge
and Miscellaneous Charge in subparts 4B and 4C shall be adjusted on each
anniversary date of this Agreement to reflect any changes in the Producer Price
Index for kaolin and ball clay (product code 1455) that occurred during the
prior twelve-month period (for an example of the calculation, see Appendix A).
The adjustment shall be made as soon as the PPI for the applicable period is
made available by the U.S. Department of Labor, Bureau of Labor Statistics or
any other U.S. government organization that may have responsibility for
publishing PPI data in the future. Contractor and Owner hereby recognize that
such data is preliminary as initially published by the Bureau of Labor
Statistics and agree to accept this preliminary data as final for purposes of
calculating the adjustment to the Overburden Charge and the Miscellaneous
Charge. Notwithstanding the adjustment determined in accordance with this
subpart 4G, at no time shall the Overburden Charge and Miscellaneous Charge be
less than the amount shown for each charge in subparts 4B and 4C.
H. If the cost of insurance required to be carried by Contractor
pursuant to Section 11 increases in any year by more than ten percent (10%) over
the cost of such insurance for the immediately preceding year, Contractor shall
notify Owner in writing (the Notice of Premium Increase). For a period of thirty
(30) days from the date of Notice of Premium Increase, Contractor and Owner
shall negotiate in good faith to reach a mutually agreeable increase in the
Price Per Ton to compensate Contractor for the increased cost of insurance
applicable to this Agreement. If Owner and Contractor fail to reach a mutually
agreeable increase in the Price Per Ton within such thirty (30) day period, this
Agreement shall terminate one year from the date of the most recent Notice of
Premium Increase.
* Confidential Information omitted and filed separately with the Securities
and Exchange Commission.
-4-
<PAGE>
5. MINING AND DELIVERY
A. Owner shall advise Contractor prior to October 1, 2003 of the
tonnage of its projected 2004 Product requirements, and shall thereafter advise
Contractor on or before October 1 of each year, of the tonnage of the Product it
projects to require during the next calendar year. Such projections should be
estimates only and Owner shall not be committed to accept deliveries of such
amounts. Owner shall use reasonable efforts to advise Contractor promptly in the
event of any change in its annual requirements projections for any year.
B. Owner and Contractor shall communicate regularly, and Contractor
shall ensure the availability of Product for delivery hereunder on an "as
needed" basis. Owner shall use its best efforts (to the extent feasible) to
space evenly its actual orders of the Product, and Contractor shall be obligated
to fill such orders.
C. Owner and Contractor shall jointly prepare and agree on a plan for
the efficient mining of Product from the Owner's Lands and the Contractor's
Lands (the "Mining Plan"). In the event of any dispute regarding the Mining
Plan, the Owner shall make the final determination as to how properties will be
mined.
D. Risk of loss and title for all Product mined from the Contractor's
Lands shall pass to Owner upon delivery to Owner's plant in Wilkinson County,
Georgia.
6. PAYMENT
Invoices for Product mined and delivered hereunder shall be sent to
Owner on a monthly basis. Payment for the Product mined and delivered hereunder
shall be net thirty (30) days from date of invoice.
Owner has advanced to Contractor the sum of $1,000,000 as a prepayment
of Royalty Charge which shall become due for Product mined from the Contractor's
Lands pursuant to this Agreement. Owner shall be entitled to credit such
prepayment against Royalty Charge which would otherwise be due and shall not be
required to pay any Royalty Charge until the full amount of such prepayment has
been applied against the Royalty Charge otherwise payable hereunder.
7. ASCERTAINMENT OF WEIGHT
The weight of the Product delivered shall be determined by weighing on
state-certified scales located at Owner's manufacturing facility in Wilkinson
County, Georgia. Invoices shall include a copy of the weight-ticket covering the
Product being invoiced.
8. WARRANTY
Contractor warrants that the kaolin material when delivered to the
Plant will conform to all chemical and physical properties for the Product
listed in Exhibit A hereto. Contractor warrants that the Product delivered
hereunder shall be free of contaminants and other foreign substances rendering
the Product unsuitable for the economic use of
-5-
<PAGE>
Owner. In the event that kaolin material delivered to Owner does not conform to
all chemical and physical properties listed in Exhibit A hereto, or is
contaminated with foreign substances, all such non-conforming kaolin material
shall be removed by Contractor and there shall be no invoice issued by
Contractor for the non-conforming kaolin material.
9. OWNER'S LANDS; RESERVED ORE & CONTRACTOR'S REPRESENTATION OF TITLE AND
INDUCEMENTS TO OWNER:
A. Contractor's Lands. Contractor hereby represents that it holds title
to or the right to mine crude Product located on the real property listed herein
(herein called the "Contractor's Lands") which will be reserved by Contractor
for sale to Owner:
Property Tons of Product
(a) Approximately 70 acres described 2,000,000+ tons
on Exhibit B
(b) 8 acres described 500,000 tons
on Exhibit C
(c) 101.6 acres described on Exhibit D Back Up Tonnage Only
(d) the Allen Tract described on Exhibit E.
Contractor covenants that it has a good and marketable title, in fee
simple or leasehold estate, to the Contractor's Lands, that there are no liens,
mortgages or encumbrances against the same and Contractor warrants the title to
all Product which Owner, its successors and assigns may remove or receive from
the Contractor's Lands for processing and/or sale as against the lawful claims
of all persons whomsoever. Contractor shall provide to Owner evidence, such as a
current title report or title insurance commitment, of (i) Contractor's good and
marketable title to the portions of the Contractor's Lands which Contractor owns
in fee simple and (ii) Contractor's lessor's good and marketable title to the
portions of the Contractor's Lands as to which Contractor holds a leasehold
estate. Also, Contractor shall provide to Owner a copy of the lease agreement
covering those portions of the Contractor's Lands as to which Contractor holds a
leasehold estate and letter signed by the lessor in the form of Exhibit F
attached hereto. Contractor further covenants that hereafter Contractor will not
create nor permit the existence of any liens or encumbrances against the
minerals or surface which will in any way adversely affect the rights of Owner
hereunder. Upon any default of Contractor with respect to the covenants and
warranties herein contained, it is agreed that the Owner shall have the
privilege of paying-off, discharging and satisfying any such lien or encumbrance
and that the amount of any such payment or payments made by Owner for such
purposes, together with interest thereon at the prime rate (as published in the
Wall Street Journal on the date of default declaration) plus two (2) per cent
per year, may be deducted by Owner from the payments herein provided to be paid
to the Contractor.
-6-
<PAGE>
Contractor further warrants that (a) Contractor has a good and lawful
right, and full power to convey the Product on the Contractor's Lands and to
authorize entry for the purposes(s) herein set forth, that the same are free
from all encumbrances; (b) the Contractor's Lands connect to adjacent public
roads and all present exits and entrances to the Contractor's Lands via adjacent
public roads are without restriction; (c) Contractor is not a party to any
litigation affecting the Contractor's Lands, the Product thereon, or
Contractor's rights to sell the Product on said Contractor's Lands or any
interest therein and the Contractor knows of no litigation or threatened
litigation affecting the said Product and/or the Contractor's Lands; (d)
Contractor has no knowledge or information of any facts or circumstances that
would adversely affect the use of the Contractor's Lands for mining operations
that are not set forth herein; and (e) that Contractor has not committed, except
as otherwise set forth herein, nor will Contractor in the future commit, any act
or acts which will encumber or cause a lien to be placed against said Product
and/or the Contractor's Lands.
B. Owner's Lands
Owner holds title to or the right to mine crude Product
located on the real property which is designated from time to time by Owner
(herein called the "Owner's Lands") which shall be mined by Contractor pursuant
to the terms of this Agreement.
Owner's Lands and Contractor's Lands are herein sometimes collectively
called the "Subject Properties" or a "Property".
10. INDEMNIFICATION
To the fullest extent permitted by law, the Contractor shall indemnify
and hold harmless the Owner, and agents and employees of Owner from and against
claims, damages, losses and expenses, including but not limited to attorneys'
fees, arising out of or resulting from performance of the Work, provided that
such claim, damage, loss or expense is attributable to bodily injury, sickness,
disease or death, or to injury to or destruction of tangible property (other
than the Work itself) including loss of use resulting therefrom, but only to the
extent caused in whole or in part by negligent acts or omissions or breach of
this Agreement by the Contractor or anyone directly or indirectly employed by
Contractor or anyone for whose acts Contractor may be liable, regardless of
whether or not such claim, damage, loss or expense is caused in part by the
negligence of a party indemnified hereunder.
11. INSURANCE
The Contractor shall purchase from and maintain in a company or
companies lawfully authorized to do business in the jurisdiction in which the
Subject Properties are located such insurance as will protect the Contractor and
Owner from claims set forth below which may arise out of or result from the
Contractor's operations under this Agreement and for which the Contractor may be
legally liable, whether such operations
-7-
<PAGE>
be by the Contractor or by a subcontractor or by anyone directly or indirectly
employed by any of them, or by anyone for whose acts any of them may be liable:
A. claims under workers' or workmen's compensation, disability benefits
and other similar employee benefit acts which are applicable to the Work to be
performed;
B. claims for damages because of bodily injury, occupational sickness
or disease, or death of the Contractor's employees;
C. claims for damages because of bodily injury, sickness or disease, or
death of any person other than the Contractor's employees;
D. claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an offense directly
or indirectly related to employment of such person by the Contractor, or (2) by
another person;
E. claims for damages because of injury to or destruction of tangible
property, including loss of use resulting therefrom;
F. claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a motor vehicle;
and
G. claims involving contractual liability insurance applicable to the
Contractor's obligations under Paragraph 10.
The insurance required by this paragraph shall be written for not less
than limits of liability specified herein or required by law, whichever coverage
is greater. Coverages shall be written on an occurrence basis and shall be
maintained without interruption from date of commencement of the Work until date
of termination of this Agreement.
Certificates of Insurance acceptable to the Owner shall be filed with
the Owner prior to commencement of the Work. These Certificates and the
insurance policies required by this Paragraph 11 shall contain a provision that
coverages afforded under the policies will not be canceled or allowed to expire
until at least 30 days' prior written notice has been given to the Owner.
Contractor shall provide evidence of continued insurance on the anniversary date
of each policy of insurance.
Contractor shall maintain worker's compensation in at least the minimum
amount stipulated under the Georgia worker's compensation statutes, including
Employers Liability with a limit of at least:
Statutory - Georgia Benefits
Employer's Liability $100,000 Each Accident
$1,000,000 Disease - Policy Limit
$1,000,000 Disease - Each Employee
-8-
<PAGE>
Contractor shall maintain Commercial General Liability, written on an
occurrence basis, including Contractor's Liability; Independent Contractors
Liability; Contractual Liability; Completed Operations and Products Liability;
Personal Injury Coverage and broad form Property Damage extended to apply to
completed operations; and no property damage liability exclusions pertaining to
loss by explosion, collapse or underground damage.
Bodily Injury and Property Damage Liability:
General Aggregate per Project $2,000,000
Products Completed Operations Aggregate $2,000,000
Personal and Advertising Injury $1,000,000
Each Occurrence $1,000,000
Products Completed Operations shall be maintained for a minimum period
of one (1) year after final payment.
Umbrella/Excess Liability:
Annual Aggregate $5,000,000
Each Occurrence $5,000,000
Automobile Liability including non-ownership and hired car coverage as
well as owned vehicles:
Bodily Injury and Property Damage:
Combined Single Limit $1,000,000
Contractor shall not commence Work at the Subject Properties under this
Agreement until it has obtained all required insurance and until such insurance
has been approved by the Owner. Approval of the insurance by the Owner shall not
relieve or decrease the liability of the Contractor hereunder. Certificates of
Insurance shall be filed with the Contractor prior to commencing Work.
The required insurance shall be written by a Company licensed to do
business in the state in which the Subject Properties are located, at the time
the policy is issued. In addition, the Company shall be acceptable to the Owner.
All liability insurance policies shall name Owner additional insured, IT BEING
THE INTENT THAT SUCH POLICIES AFFORD CONTRACTOR AND OWNER COVERAGE AGAINST THEIR
-9-
<PAGE>
NEGLIGENCE ARISING OUT OF PERFORMANCE OF THE WORK, and shall provide that
coverage of Owner thereunder is primary in the event of overlapping coverage
which may be carried by Owner.
The Contractor shall not cause any insurance to be canceled nor permit
any insurance to lapse. All insurance policies shall include a clause to the
effect that the policy shall not be canceled or reduced, restricted or limited
until thirty (30) days after the Owner has received written notice. Certificates
of insurance shall contain transcripts from the proper office of the insurer,
evidencing in particular those insured, the extent of insurance, the location
and operations in which the insurance applies, the expiration date and the above
mentioned notice of cancellation clause. An acceptable Certificate of Insurance
Form shall be insurance industry standard ACORD Form 27.
All insurance policies supplied by Contractor shall include a waiver of
any right of subrogation of the insurers thereunder against Owner and of any
right of the insurers to any set-off or counterclaim or any other deduction,
whether by attachment of otherwise, in respect of any liability of any person or
entity insured under any such policy.
12. FORCE MAJEURE
A. The term "Force Majeure" as used herein shall mean acts of God,
natural calamities, acts of the public enemy, blockades, insurrections, strikes,
slowdowns, riots, wars, disorders, civil disturbances, fires, explosions,
storms, floods, landslides, washouts, labor or material shortages, boycotts,
breakdowns or damage to plants, equipment or facilities, interruptions to
transport, embargoes, acts of military authorities, acts of local or federal
governmental agencies or regulatory bodies, court actions, arrests and
constraints and, without limitation by enumeration, any other cause or causes
not reasonably within the control and without the fault or negligence of the
party affected which wholly or partly prevents the mining, processing, loading
or transportation of Product by Contractor or the receiving, transporting,
accepting or using of the Product by Owner.
B. If because of Force Majeure, either party hereto is unable to carry
out its obligations under this Agreement and if such party shall promptly give
to the other written notice of such Force Majeure, including a complete
description thereof, then the obligation of the party giving such notice shall
be suspended to the extent made necessary by Force Majeure and during its
continuance; provided, however, that the party giving such notice shall use its
best efforts to eliminate such Force Majeure insofar as possible with a minimum
of delay. No event of Force Majeure shall relieve Owner of its obligation to
make payments due for Product delivered by Contractor under this Agreement.
-10-
<PAGE>
13. EVENTS OF DEFAULT
In the absence of the existence of force majeure as defined in
paragraph 12, if any of the following events ("Events of Default") shall occur
and be continuing:
A. Any amount due hereunder, unless being disputed in good faith, shall
remain unpaid for thirty (30) days after becoming due, and the party adversely
affected shall have delivered a notice to the party owing such amount stating
the amount due and unpaid, and the party owing (and not disputing same in good
faith) shall not have paid such amount within thirty (30) days after the
delivery of such notice; or
B. Contractor shall fail or refuse to provide to Owner the amount of
Product as specified from time to time hereunder by Owner at the time requested
by Owner; or
C. Any deliveries of kaolin materials to Owner hereunder shall fail to
meet the quality specifications provided in Exhibit A; or
D. Any other covenant, obligation or agreement by either party
hereunder shall not be performed or observed within twenty (20) days after
written notice of the nonperformance thereof shall have been delivered to the
nonperforming party by the other party; or
E. Either party shall:
(1) Fail to pay any judgment in an amount which would
materially affect the net worth of such party within sixty (60) days after
issuance of a writ of execution upon such final judgment;
(2) Apply for or consent to the appointment of a receiver,
trustee or liquidator of such party or of all or a substantial part of its
assets;
(3) Make a general assignment for the benefit of its
creditors;
(4) Be adjudicated bankrupt or insolvent, or file a voluntary
petition in bankruptcy;
(5) File a petition or an answer seeking reorganization under
any insolvency law; or
(6) File an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding; or
F. An order, judgment or decree shall be entered by any court of
competent jurisdiction approving a petition seeking reorganization of such party
or appointing a receiver, trustee or liquidator of a party or of all or a
substantial part of its assets and such order, judgment or decree shall continue
unstayed and in effect for a period of thirty (30) consecutive days; or
-11-
<PAGE>
G. Any of the representations or warranties made by a party herein
shall be or become untrue in any material respect; or
H. Contractor shall be in default under any lease of any portion of the
Contractor's Lands after expiration of any cure periods permitted by the lease;
then the party adversely affected by such Event of Default shall, in addition to
other remedies available to such party at law or in equity, have any one (1) or
more of the following remedies:
(1) The party adversely affected by such Event of Default may
by written notice delivered to the other party decline to perform under this
Agreement until such Event of Default shall have been cured or shall no longer
exist, without relieving the defaulting party of any of its obligations
hereunder;
(2) The party adversely affected by such Event of Default may,
effective upon twenty (20) days' written notice to such effect delivered to the
other party, terminate this Agreement without relieving the other party from any
liability which shall have accrued or attached on or prior to the effective date
of such termination; and/or
(3) If Contractor is in default for failure to deliver Product
at the time requested or for delivering kaolin materials failing to meet quality
specifications, Owner may recover all damages caused by such failure or Owner
may purchase such quantities of Product from another source and Contractor shall
reimburse Owner within twenty (20) days from invoice for any additional cost
incurred by Owner above the Price Per Ton determined as provided herein for the
Product which Contractor failed to deliver and for any costs incidental to
obtaining such other supply. Termination of this Contract for any of the causes
herein contained shall be without prejudice to any other right or remedy
provided by this Contract or at law or in equity. Failure of either Owner or
Contractor immediately to exercise its rights in any Event of Default will not
constitute waiver of the injured party's rights. Both parties agree to use their
best efforts to minimize the amount of damages that may be incurred as the
result of an Event of Default.
14. NOTICE
All notices under this Contract required or permitted to be given by
Owner to Contractor and all payments to be made by Owner to Contractor hereunder
shall be delivered personally to Contractor or sent to Contractor at
Contractor's address: Arcilla Mining & Land Co., P.O. Box 1371, Milledgeville,
Georgia 31061, or at such other address as Contractor may hereafter furnish (by
"Notice" as hereinafter described) to Owner.
All notices herein required or permitted to be given by Contractor to
Owner shall be sent by registered or certified United States mail, return
receipt requested, addressed to Owner at CARBO Ceramics Inc., Attn. Paul G.
Vitek, 6565 MacArthur Boulevard, Suite
-12-
<PAGE>
1050, Irving, TX 75039, or at such other address as Owner may hereafter furnish
(by "Notice" as hereinafter described) to Contractor.
15. ENTIRE AGREEMENT
This written instrument contains the entire agreement between the
parties hereto concerning the subject matter hereof, and there are no other
understandings or agreements between said parties or either of them in respect
hereto. No change, addition to or waiver of the terms and provision hereof shall
be binding upon either party unless approved in writing by an authorized
representative of such party, and no modifications shall be effected by the
acknowledgment or acceptance of forms containing other or different terms and
conditions. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
a single instrument.
16. ASSIGNMENT
This Agreement shall be binding on the legal successors of the parties
hereto, but shall not otherwise be assignable by either party without the
written consent of the other.
17. INDEPENDENT CONTRACTOR
Contractor shall be considered an independent contractor and shall not
be considered a partner, employee, agent or servant of Owner.
18. APPLICABLE LAW
This Agreement and the language used herein shall be construed and
enforced in accordance with the laws of the State of Georgia.
19. MEMORANDUM OF THIS AGREEMENT
Contractor and Owner agree to execute and record in the real property
records of the county where the Contractor's Lands are located a memorandum of
this Agreement.
20. REPLACEMENT. This Agreement supercedes and replaces that certain Raw
Materials Requirements Agreement dated November 18, 1997, between Owner and
Contractor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
-13-
<PAGE>
ARCILLA MINING & LAND CO.
By /s/ TED SMITH
-----------------------------------
Ted Smith
President & C.E.O.
CARBO CERAMICS INC.
By /s/ PAUL G. VITEK
-----------------------------------
Paul G. Vitek
Sr. Vice President, Finance & Admin.
-14-
<PAGE>
EXHIBIT A
RAW MATERIAL SPECIFICATION
For
WILKINSON COUNTY PLANT
Chemistry
Calcined Basis
Specification(1) %
Al2O3 [*]
SiO2 [*]
Fe2O3 [*]
TiO2 [*]
CaO [*]
MgO [*]
Na2O [*]
K2O [*]
Moisture [*]
Grit (+325 mesh)2 [*]
Notes:
1. The average properties of blended crude clay delivered must fall within
these parameters such that the target specification can be met for
ongoing plant operations using crude clay storage at the plant site.
2. Grit determined on a dry clay basis, percent of material not passing
through 325 mesh screen is classified as grit. Unblundged clay in the
+325 mesh sample does not count towards the grit level.
* Confidential Information in this Exhibit 10.8 has been omitted and filed
separately with the Securities and Exchange Commission.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>d03686exv10w10.txt
<DESCRIPTION>FORM OF EMPLOYMENT AGREEMENT - CHRISTOPHER WRIGHT
<TEXT>
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), made as of this 21st
day of May, 2002, by and between Christopher Allen Wright (the "Executive") and
CARBO Ceramics Inc., a Delaware corporation (the "Company").
WITNESSETH
WHEREAS, subject and pursuant to the terms of an Agreement and
Plan of Merger, dated as of May 21, 2002 (the "Merger Agreement"), by and among
the Company, Pinnacle Technologies, Inc. ("Pinnacle"), and Ptechnologies
Acquisition Corporation, a direct wholly owned subsidiary of the Company
("Merger Sub"), Merger Sub will be merged with and into Pinnacle, with Pinnacle
as the surviving corporation (the "Merger");
WHEREAS, prior to the Merger, Executive was the President of
Pinnacle;
WHEREAS, effective as of the effective date of the
consummation of the Merger (the "Effective Date"), the Company wishes to employ
the Executive as President of Pinnacle and Vice President of the Company and the
Executive wishes to serve the Company in such capacities;
WHEREAS, CARBO agreed to execute the Merger Agreement in part due to
Wright's agreement to execute this Agreement;
NOW, THEREFORE, in consideration of the conditions and
covenants set forth herein, it is agreed as follows:
1. Employment, Duties and Agreements.
(a) Effective as of, and subject to, the consummation of the
Merger, the Company hereby employs the Executive, and the Executive hereby
agrees to be employed by the Company during the Term, as President of Pinnacle
and Vice President of the Company on the terms and conditions set forth herein.
"Term" shall mean the period commencing on the Effective Date and ending on the
fifth anniversary of the Effective Date (the "Scheduled Termination Date");
provided, that the Term may be terminated prior to the Scheduled Termination
Date in accordance with Section 3 hereof. Upon the expiration of the Term on the
Scheduled Termination Date, the Executive's employment with the Company shall be
at will.
(b) The Executive shall have such responsibilities and duties
as the Chief Executive Officer of the Company or the Board of Directors of the
Company (the "Board") may from time to time reasonably determine consistent with
the Executive's positions set forth herein. In rendering his services hereunder,
the Executive shall be subject to, and shall act in accordance with, all
reasonable instructions and directions of the Board and all applicable policies
and rules thereof. The Executive shall devote the Executive's full working time
to the performance of the Executive's responsibilities and duties hereunder.
During the Term, the Executive will not, without the prior written consent of
the Board, render services, whether or not compensated, to
1
<PAGE>
any other person or entity as an employee, independent contractor, director or
otherwise; provided, however, that nothing herein shall restrict the Executive
from rendering services to not-for-profit organizations or managing the
Executive's personal investments during the Executive's non-working time.
(c) During the Term, the Executive will not engage in any
other business affiliation with respect to any entity, including, without
limitation, the establishment of a proprietorship or the participation in a
partnership or joint venture, or acquire any equity interest in any entity
(other than the Company) if (i) such engagement or ownership would interfere
with the full-time performance of his responsibilities and duties hereunder or
(ii) such entity is engaged in the current business of the Company or Pinnacle
or any affiliates thereof (the "Company Group"). The Executive represents and
warrants that, as of the Effective Date, the Executive will not be engaged in
any such business affiliation and will not own any such equity interests.
2. Compensation. During the Term, the Executive shall be
entitled to the following compensation.
(a) The Company shall pay the Executive a base salary at the
rate of $150,000 per annum, payable in accordance with the Company's normal
payroll practices ("Annual Base Salary"). The Board shall have the right to
review the Executive's performance and compensation from time to time and may,
in its sole discretion, increase his Annual Base Salary based on such factors as
the Board deems appropriate.
(b) The Executive will be eligible to receive an incentive
bonus in cash with respect to each fiscal year during the Term equal to 3% of
Pinnacle's pre-tax earnings up to $5,000,000 ("Earnings") (the "Incentive
Bonus"). Any such Incentive Bonus shall be paid to the Executive as soon as
practicable after the completion of the audited financial statements and
determination of Earnings for such fiscal year by the Board.
(c) The Executive will be eligible to participate in
applicable Company incentive compensation plans and programs (including, without
limitation, the Company's Incentive Bonus Plan and 1996 Stock Option Plan for
Key Employees, as amended (the "Option Plan")) on the same terms as apply
generally to other similarly situated executives of the Company from time to
time.
(d) The Executive shall be entitled to three (3) weeks of paid
vacation during each calendar year of the Term in accordance with the Company's
standard vacation policy and practices. The Executive shall take vacations only
at such times as are consistent with reasonable business needs of the Company.
(e) The Company shall reimburse the Executive for all
reasonable, ordinary and necessary expenses incurred by the Executive in the
performance of the Executive's duties hereunder; provided that the Executive
accounts to the Company for such expenses in a manner reasonably prescribed by
the Company.
(f) The Executive shall be eligible to participate in
applicable Company benefit plans and programs (including without limitation,
retirement, medical and life insurance) on the
2
<PAGE>
same terms as apply generally to other similarly situated executives of the
Company from time to time and shall be entitled to such perquisites as are
generally made available to other similarly situated executives of the Company
from time to time.
(g) Subject to the approval of the Compensation Committee of
the Board, as of the Effective Date, the Executive shall be granted pursuant to
the Option Plan non-qualified stock options to purchase 40,000 shares of common
stock of the Company with terms and conditions applicable generally to other
similarly situated executives of the Company.
3. Early Termination of the Term. The Term and the Executive's
employment hereunder shall terminate prior to the Scheduled Termination Date
upon written notice to the Executive by the Company or to the Company by the
Executive for any reason. In respect of any such termination, the Company shall
pay to the Executive within thirty (30) days after such termination, the
Executive's earned but unpaid Annual Base Salary, earned but unused vacation
(determined in accordance with the Company's standard vacation policy and
practices) and reimbursement for expenses incurred (in accordance with Section
2(e) hereof), all as of the date of such termination.
4. Restrictive Covenants.
(a) The Executive agrees that all information pertaining to
the prior, current or contemplated business of the Company Group, and their
officers, directors, employees, agents, shareholders and customers (excluding
(i) publicly available information (in substantially the form in which it is
publicly available) unless such information is publicly available by reason of
unauthorized disclosure by the Executive or by any person or entity of whose
intention to make such unauthorized disclosure the Executive is aware and (ii)
information of a general nature not pertaining exclusively to the Company Group
that generally would be acquired in similar employment with another company)
constitutes a valuable and confidential asset of the Company Group. Such
information includes, without limitation, information related to trade secrets,
customer lists, production techniques, and financial information of the Company
Group. The Executive agrees that he shall, during the Term and continuing
thereafter, (A) hold all such information in trust and confidence for the
Company Group, and (B) not use or disclose any such information to any person,
firm, corporation or other entity other than under court order or other legal or
regulatory requirement.
(b) During the Term and continuing for a period ending twelve
(12) months after the Executive's employment terminates for any reason
whatsoever, to the extent permitted by applicable law, the Executive agrees that
the Executive will not, directly or indirectly, (i) solicit any supplier or
client of the Company Group, or any prospective supplier or client while
Executive is employed by the Company Group (including, without limitation, in
each case, any supplier or client or any prospective supplier or client of
Pinnacle prior to the Merger) with a view to inducing such supplier or client,
or prospective supplier or client, to enter into an agreement or otherwise do
business with any Competitor with respect to (1) the production or supply of
ceramic, sand, resin-coated sand, or other proppants for use in hydraulic
fracturing of natural gas and oil wells or (2) the provision of fracture
diagnostics, design and other consulting services through development and use of
its products, including, without limitation, tilt meter fracture mapping,
microseismic fracture mapping, reservoir monitoring and fracture simulation
3
<PAGE>
and design software, or attempt to induce any such supplier or client, or
prospective supplier or client, to terminate its relationship with the Company
Group or to not enter into a relationship with the Company Group, as the case
may be or (ii) offer employment to any employee of the Company Group or attempt
to induce any such employee to leave the employ of the Company Group.
(c) For purposes of this Agreement, a "Competitor" is any
corporation, firm, partnership, proprietorship or other entity which engages in
(1) the production or supply of ceramic, sand, resin-coated sand, or other
proppants for use in hydraulic fracturing of natural gas and oil wells or (2)
the provision of fracture diagnostics, design and other consulting services
through development and use of its products, including, without limitation, tilt
meter fracture mapping, microseismic fracture mapping, reservoir monitoring and
fracture simulation and design software, but in any case does not include, for
this purpose, the Company Group or any service entity involved in the resale of
the Company Group's products.
(d) Prior to agreeing to, or commencing to, act as an
employee, officer, director, trustee, principal, agent or other representative
of any type of business other than as an employee of the Company Group during
the period in which the non-solicitation agreement, as described in Section
4(b), applies, the Executive shall (i) disclose such agreement in writing to the
Company and (ii) disclose to the other entity with which he proposes to act in
such capacity, or to the other principal together with whom he proposes to act
as a principal, the existence of this Agreement, including, in particular, the
non-disclosure agreement contained in Section 4(a) and the non-solicitation
agreement contained in Section 4(b).
(e) With respect to the restrictive covenants set forth in
Sections 4(a) and 4(b), the Executive acknowledges and agrees as follows.
(i) The specified duration of a restrictive covenant
shall be extended by and for the term of any period during
which the Executive is in violation of such covenant.
(ii) The restrictive covenants are in addition to any
rights the Company may have in law or at equity.
(iii) It is impossible to measure in money the
damages which will accrue to the Company Group in the event
that the Executive breaches any of the restrictive covenants.
Therefore, if the Executive breaches any restrictive covenant,
the Company Group shall be entitled to an injunction
restraining the Executive from violating such restrictive
covenants. If any member of the Company Group shall institute
any action or proceeding to enforce a restrictive covenant,
the Executive hereby waives the claim or defense that the
Company Group has an adequate remedy at law and the Executive
agrees not to assert in any such action or proceeding the
claim or defense that the Company Group has an adequate remedy
at law. The foregoing shall not prejudice the Company Group's
right to require the Executive to account for and pay over to
the Company Group, and the Executive hereby agrees to account
for and pay over, the compensation, profits, monies, accruals
or other benefits derived or received
4
<PAGE>
by the Executive as a result of any transaction constituting a
breach of the restrictive covenants.
(f) The restrictions in this Section 4 shall be in addition to
any restrictions imposed on the Executive by statute or at common law.
5. Miscellaneous.
(a) Each provision hereof is severable from this Agreement,
and if one or more provisions hereof are declared invalid the remaining
provisions shall nevertheless remain in full force and effect. If any provision
of this Agreement is so broad, in scope or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
(b) Any notice to be given hereunder shall be given in
writing. Notice shall be deemed to be given when delivered by hand to the party
to whom notice is being given, on the first business day after transmission when
sent by facsimile transmission or on the first business day following sending by
overnight delivery via a national courier service. Notices to the Executive
should be addressed to the Executive as follows:
Christopher Allen Wright
c/o Pinnacle Technologies, Inc.
600 Townsend Street, Suite 106W
San Francisco, California 94103
Facsimile: (415) 861-1448
Notices to the Company should be sent as follows:
CARBO Ceramics Inc.
6565 MacArthur Boulevard, Suite 1050
Irving, Texas 75038
Attn: Secretary
Facsimile: (972) 401-0705
with copies sent to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Ann: Mary E. Alcock, Esq.
Facsimile: (212) 225-3999
Either party may change the address or person to whom notices
should be sent to by notifying the other party in accordance with this Section
5(b).
(c) The failure to enforce at any time any of the provisions of
this Agreement or to require at any time performance by the other party of any
of the provisions hereof shall in no way be construed to be a waiver of such
provisions or to affect the validity of this Agreement, or
5
<PAGE>
any part hereof, or the right of either party thereafter to enforce each and
every such provision in accordance with the terms of this Agreement.
(d) This Agreement contains the entire agreement between the
parties with respect to the employment of the Executive by the Company after the
Effective Date and supersedes any and all prior understandings, agreements or
correspondence between the parties regarding such employment. It may not be
amended or extended in any respect except by a writing signed by both parties
hereto.
(e) This Agreement shall be governed by the laws of the State
of Delaware, without giving effect to the conflicts of law principles thereof
All actions and proceedings relating directly or indirectly to this Agreement
shall be commenced and litigated in any state or federal court located in
Delaware, which court shall have proper jurisdiction over such claim. The
parties to this Agreement submit that any such court shall have proper personal
jurisdiction over the parties to this Agreement, and irrevocably waive any
defense to a claim based on the lack thereof, and further waive any defense
based on the principle of forum non conveniens.
(f) This Agreement shall not be assignable by either party
hereto without the written consent of the other; provided, however, that the
Company may, without the written consent of the Executive, assign this Agreement
to (i) any entity with which the Company is merged or consolidated or to which
the Company transfers substantially all of its assets or (ii) any entity
controlling, under common control with or controlled by the Company.
(g) This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
(h) The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof
* * *
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its duly authorized representative and the Executive has hereunto
set his hand as of the day and year first above written.
CARBO CERAMICS INC.
By: /s/ C. MARK PEARSON
----------------------------
C. Mark Pearson
/s/ CHRISTOPHER ALLEN WRIGHT
----------------------------
Christopher Allen Wright
[Signature Page to Employment Agreement]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>d03686exv23w1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of CARBO Ceramics Inc. of our report dated January 31, 2003, with
respect to the consolidated financial statements of CARBO Ceramics Inc. included
in its Annual Report on Form 10-K for the year ended December 31, 2002.
o Form S-8 No. 33-25845 (the CARBO Ceramics Inc. 1996 Stock Option Plan
for Key Employees)
o Form S-8 No. 333-88100 (the CARBO Ceramics Inc. 1996 Stock Option Plan
for Key Employees, As Amended)
o Form S-8 No. 333-91252 (the 1996 Stock Option Plan of Pinnacle
Technologies, Inc., As Amended and Restated)
Ernst & Young LLP
New Orleans, Louisiana
March 11, 2003
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>7
<FILENAME>d03686exv99w1.txt
<DESCRIPTION>CERTIFICATION TO SECTION 906
<TEXT>
<PAGE>
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the
undersigned officers of Carbo Ceramics Inc. (the "Company"), does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-K for the year ended December 31, 2002 of the
company fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and information contained in the Form 10-K
fairly presents, in all material respects, the financial condition and results
of operations of the company.
Dated: March 12, 2003
--------------
/s/ C. MARK PEARSON
- ------------------------------------
Name: C. Mark Pearson
Title: Chief Executive Officer
Date: March 12, 2003
/s/ PAUL G. VITEK
- ------------------------------------
Name: Paul G. Vitek
Title: Chief Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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