®
2 0 1 1 A n n uAl R e p oR
t
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CarBO® is the world’s largest supplier of ceramic proppant for fracturing oil and gas wells, and a major
supplier of resin-coated sand proppant; the provider of the industry’s most widely used fracture simulation
software; and a provider of fracture design and consulting services. the company also provides a broad range
of technologies for spill prevention, containment and countermeasures, along with geotechnical monitoring.
In 2011, CARBO achieved growth in key areas of our operations. We added to our product lines to offer our
clients greater choices. We increased manufacturing capacity to better serve an entire industry. We continued
to provide state-of-the-art software and engineering solutions that boost productivity.
We also moved into new market segments and broadened geographic areas. By year-end the company had
increased sales volume, revenues and net income to record levels.
For CARBO, 2011 truly was a year of expan ding OppOrtu nities.
Financial HigHligHts
Years Ended December 31,
2006
2007
2008
2009
2010
2011
sUMMaRY statEMEnt OF incOME Data (In thousands, except per share amounts)
Revenue
Gross profit
Operating profit
Income before income taxes
Income from continuing operations
$ 283,829
$ 299,996
$ 387,828
$ 341,872
$ 473,082
$ 625,705
103,932
101,926
127,434
120,503
174,671
77,632
80,576
52,245
71,459
74,579
49,641
87,083
88,349
60,405
79,450
79,794
52,810
119,610
119,349
78,716
261,715
197,602
197,450
130,136
Diluted earnings per share
$ 2.14
$ 2.02
$ 2.46
$ 2.27
$ 3.40
$ 5.62
Average shares outstanding – diluted
24,381
24,451
24,418
23,112
22,977
23,012
sUMMaRY BalancE sHEEt Data
Current assets
Total assets
Current liabilities
Shareholders’ equity
OtHER Data
$ 132,466
$ 190,924
$ 293,310
$ 218,870
$ 237,655
$ 302,565
403,753
451,523
546,877
513,412
599,571
33,164
33,264
83,848
32,458
51,247
342,859
389,439
442,534
457,316
521,979
740,865
79,066
630,158
Depreciation and amortization
$ 15,630
$ 19,895
$ 24,638
$ 24,905
$ 27,728
$ 36,015
Capital expenditures
61,013
53,944
23,343
46,127
96,566
90,395
REVENUE
($ in millions)
INCOME FROM CONTINUING OPERATIONS
($ in millions)
SHAREHOLDERS’ EQUITY
($ in millions)
$600
$500
$400
$300
$200
$100
$120
$90
$60
$30
$600
$500
$400
$300
$200
$100
2006 2007 2008
2009
2010
2011
2006 2007 2008 2009
2010
2011
2006 2007 2008
2009
2010
2011
CARBO 20 11 ANNUAL REPORT | 1
tO OUR sHaREHOlDERs, cliEnts anD EMplOYEEs
I am pleased to report that fiscal 2011 was another very
good year for CARBO.
Behind the dedication and expertise of our people, the
company achieved multiple financial and operational
records.
FInAnCIAl oVeRVIeW
For the fiscal year ended December 31, 2011, revenues
were a record $625.7 million, an increase of 32 percent
compared to 2010.
Net income for 2011 reached a record $130.1 million,
representing an increase of 65 percent over the previous
year.
For the eleventh consecutive year, CARBO’s Board of
Directors raised the company’s quarterly dividend.
The 20 percent increase reflects the Board’s continued
confidence in the long-term outlook for our business and
the desire to return value to our shareholders.
line at Toomsboro, adding an incremental 250 million pounds
of manufacturing capacity. At year-end our ceramic proppant
stated manufacturing capacity was approximately 1.7 billion
pounds annually.
CARBOBOND® RCS marked CARBO’s entrance into the
resin-coated sand (RCS) proppant market, generating
a positive response from our clients. By introducing
CARBOBOND RCS, CARBO has added another
complementary business. It allows us to leverage our
distribution network, our manufacturing expertise and our
client-service reputation. For our clients, CARBOBOND RCS
allows us to broaden our product offering range into more
wells, broaden our E&P client contact to capture more of
their spend, and broaden our product price points.
In response to market demand, in early 2012 we added
resin-coating production capacity for our CARBOBOND RCS
proppant with a second line at our New Iberia, Louisiana,
plant capable of providing an additional 300 million pounds
per year.
opeRAtIonAl HIGHlIGHtS
Fracpro® software
CARBO’s business model is to generate value in the oil and
natural gas industry through two complementary approaches:
maximizing oil and gas productivity and economic
performance, and reducing business risk while controlling
costs. Our businesses leverage technology and innovation
to benefit our clients.
proppant
Our worldwide proppant sales volume totaled a record
1.6 billion pounds in 2011, an increase of 19 percent
compared to 2010. The increased volume was due to strong
client demand and to the increased production capacity
provided by the addition of the third line at our Toomsboro,
Georgia, manufacturing facility.
Our technical marketing strategy continued to emphasize the
advantages of Economic Conductivity® provided by CARBO’s
high-quality proppants. Economic Conductivity analysis
can benefit E&P operators by increasing production and
enhancing recovery, thus improving economic returns.
As the industry continued its shift from natural gas plays
to liquids-rich plays, conductivity became even more
important, driving demand for CARBO’s high-conductivity
ceramic proppants.
To allow us to further benefit from periods of strong market
demand, in late 2011 we completed construction of the fourth
The industry’s most widely used fracture design modeling
software had a record year, growing its client base
around the world. Fracpro XCHANGE, designed for onsite
use with frac van displays, accounted for much of the product
line growth.
One of the most exciting developments of 2011 was
Fracpro 3D, which we believe will be the most flexible and
sophisticated 3D fracture software program in the industry.
Fracpro 3D is designed to provide a new standard of
analysis and accuracy.
When Fracpro 3D is introduced to the market in 2012,
the Fracpro line will range from the most widely used
industry standard to one of the most advanced products
on the market, allowing us to meet a wide range of client
software requirements.
stratagen®
Our independent consulting arm has earned a reputation
as one of the foremost firms in unconventional reservoirs,
where the industry’s most promising activity is taking place.
In addition to field and well site expertise, StrataGen
has developed Data and Neural AnalysisSM (DANA) to
provide a high-level look at comprehensive reservoir data
to help clients better understand their reservoirs and make
informed decisions.
CA RB O 2011 ANNUAL RE PO RT | 2
Left to right:
David Gallagher
Vice President, Marketing and Sales
Gary Kolstad
President and Chief Executive Officer
Ellen Smith
Vice President, Human Resources
Sean Elliott
Vice President and General Counsel
Mark Edmunds
Vice President, Operations
Ernesto Bautista, III
Vice President and Chief Financial Officer
Reinforcing our position of thought leadership within the
industry, our engineers and scientists from CARBO and
StrataGen published multiple Society of Petroleum Engineers
(SPE) papers.
Falcon technologies®
The growing emphasis on environmental stewardship across
the oil and natural gas industry continued to drive sales of
Falcon’s technologically advanced systems for spill prevention
and containment. Falcon had a good year in 2011, due in
part to further geographic penetration and its innovative
surface-mounted containment system. This is a competitive
advantage in environmentally sensitive areas such as the
Marcellus Shale in the northeastern U.S.
Falcon’s performance was in line with our forecasted revenue
growth projections for 2011, and we remain upbeat about its
potential growth over the coming years.
CoRneRStoneS oF StRAteGIC GRoWtH
We have identified three key areas that are intended to serve
as our business cornerstones for organic growth:
1) Expand ceramic proppant manufacturing capacity
2) Expand resin-coated proppant products
3) Expand Falcon Technologies
We plan to achieve this growth by continuing the strategies
that produced our record performance this past year:
• Continue to grow the ceramic proppant franchise by:
– Continuing to inform our clients about the benefits of
• Develop new products and services through increased
investment in R&D
• Leverage our consulting services and software business
• Invest in technology that enhances our clients’ well and
reservoir performance and reduces their business risks
• Continue to inform our clients about the benefits of Falcon’s
Engineered to ProtectTM environmental solutions
outlooK
We believe 2012 industry activity levels will be influenced by
many factors. The contraction of North American natural gas
fundamentals should be balanced by the continued strength
of the liquids-rich unconventional plays, which should lead to
volume growth for CARBO in these plays. We are pleased
that we continue to see more clients adopting our high
conductivity ceramic proppant in these liquids-rich plays.
Going forward, with our strong balance sheet and cash
generation capability, we will continue to focus on organic
growth and dividends, as well as share repurchases.
By providing our clients with products and services that are
designed to satisfy market needs, CARBO has been able to
achieve strong growth.
I want to thank our shareholders for their confidence in our
vision for the company. And I give my heartfelt thanks to
our employees, who make it possible for our company to
achieve outstanding productivity, efficiency and safety in all
our operations. The dedicated people of CARBO enable us
to pursue our expanding opportunities.
Economic Conductivity to increase ceramic market share
Sincerely,
– Continuing to produce the highest quality proppants
– Continuing to lead in global capacity and distribution to
maximize efficiency
• Expand resin-coated proppant products to serve a broader
range of wells and clients
Gary Kolstad
President and Chief Executive Officer
CARBO 20 11 ANNUAL REPORT | 3
e x p a n d i n g
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in 2011, caRBO acHiEvED a REcORD-sEtting YEaR BY cOntinUing
tO ExpanD OUR OppORtUnitiEs.
eXpAnDInG oppoRtunItIeS
has technical experts who can help maximize a client’s
In 2011, CARBO achieved a record-setting year by
continuing to expand our opportunities. These opportunities
for growth came from our new business lines and new
products, as well as increased performance from our existing
products in our established businesses. CARBO both created
and benefited from these opportunities by finding new and
better ways to meet our clients’ needs.
Economic Conductivity. The value of conductivity has been
documented in more than 200 papers published by the
Society of Petroleum Engineers (SPE).
eXpAnDInG ouR CApACItY to Meet InDuStRY neeDS
In 2011, industry demand for CARBO’s quality proppants
reached an all-time high. During the year, our proppant
sales increased by 21 percent in North America and
expanding productivity for our clients
12 percent internationally compared to 2010.
A primary example of the way CARBO benefits its clients
A major market driver for proppant sales is the industry’s
is the superior performance of our high-quality ceramic
continued focus on unconventional reservoirs such as
proppant, resulting in improved production and recovery
shale formations. In addition, according to the Energy
rates in oil and natural gas wells. By following CARBO’s
Information Administration’s Annual Energy Outlook 2011,
recommendations for applying Economic Conductivity® in a
the large difference between crude oil and natural gas
reservoir, an oil and gas exploration and production (E&P)
prices has resulted in a shift in drilling toward shale
operator can expect:
• 20 percent or greater increase
in production rates
• 20 percent or greater increase
in estimated ultimate recovery
(EUR)
• Higher return on investment
(ROI) and rapid payout on
initial investment
unique qualifications of CarBO
Us sHalE pla Ys
alberta Bakken/
exshaw
Bakken
niobrara
niobrara
utica
Marcellus
utica
For more than 30 years, CARBO
Monterey
Cleveland/tonkawa/
granite Wash
Mississippi Lime
has offered a blend of products
and services that is unmatched
in the industry. Through a
worldwide distribution network,
CARBO offers a broad range
of highest quality proppants
to suit almost every reservoir
condition. In addition, CARBO
avalon/Bone spring
Wolfcamp/Wolfbone
Wolfcamp
Cana Woodford
Barnett
Wolffork
tuscaloosa
Marine shale
eagle Ford
CARBO is serving most major shale plays across the U.S. with high conductivity
proppants, basin expertise and environmental protection solutions.
CARBO 20 11 ANNUAL REPORT | 5
formations with high concentrations of liquids. As the market
has continued its shift to liquids-rich plays over the last several
years, demand has increased for CARBO’s high conductivity
lightweight ceramic proppants.
Opportunities in unconventional reservoirs:
“Cracking the code”
For decades, the industry has known about the presence
of oil and natural gas in unconventional reservoirs, but the
extraction of these hydrocarbons was not economically
feasible. Only in the last few years have engineers from
CARBO and the rest of the industry “cracked the code” by
accessing reservoirs through two primary technologies:
1) Horizontal drilling, which dramatically increased the
reservoir contact area, and,
2) Increasing the conductivity of fractures, which increased
The fourth manufacturing line at our Toomsboro, Georgia,
productivity and made the low-permeability reservoirs
facility commenced operation in September. The addition
economical.
As CARBO has helped unleash the potential of
of this line increases CARBO’s total ceramic proppant
capacity to approximately 1.7 billion pounds per year.
unconventional reservoirs, the need for Economic
Plans for the future expansion of our ceramic production
Conductivity has made horizontal drilling an excellent
capacity are underway at our future plant site in Millen,
market for CARBO’s proppant.
Georgia. This site is targeted for an initial manufacturing
expanding proppant production capacity
CARBO continues to add production capacity to meet
the demand for all of our lines of proppant.
capacity of up to 500 million pounds annually. Subject
to obtaining permits and approvals, the plant could
commence production before the end of 2013.
CAR B O 2011 ANNUAL REPORT | 6
Toomsboro, Georgia
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tHE iMpact OF
HORizOntal DRilling
Horizontal drilling dramatically
increases the Reservoir Contact Area.
vertical Well
1-3 frac stages
Horizontal Well
10-30+ frac stages
The shift from vertical to horizontal
drilling has significantly increased
the frac intensity associated with well
completions, leading to increases in
proppant demand per well.
10-30+ frac stages
1-3 frac stages
e x p a n d i n g
O u r p rOd uCt
Li n e s
Our resin-coated sand (RCS) proppant facility in New Iberia,
eXpAnDInG ouR pRoDuCt lIneS to GIVe ouR ClIentS
Louisiana, began operating its second production line in
GReAteR optIonS
late January of 2012. With the second line operating at
full capacity, this facility will be able to produce up to
400 million pounds of CARBOBOND annually.
For decades, CARBO’s ceramic proppant has been
recognized as the highest quality, highest performance
product on the market. In 2011, CARBO’s newest products
Additional RCS capacity will be provided by our new plant
made strong inroads in existing and new market segments.
in Marshfield, Wisconsin, with a designed initial capacity
of 600 million pounds annually. Our total RCS capacity is
expected to be approximately 1 billion pounds annually
upon completion.
Back integration
To supply our RCS plants with substrate, we have secured
multiple years of northern white sand reserves, similar to our
raw material strategy for our ceramic proppant business.
These reserves will provide high-quality sand to our
New Iberia and Marshfield resin-coating operations.
emphasizing safety
CARBO has long operated with safety as a top priority.
In 2011, CARBO continued to record incident rates
well below the national average for our industry. Such
Resin-coated sand expands our offering of Economic
Conductivity into a much broader market.
achievements give our safety-conscious clients confidence
Our high strength ceramic proppant has long been known
that CARBO will not compromise workplace safety.
for producing the highest conductivity and, as a result, the
greatest benefit to production. Now, our new CARBOBOND
RCS expands our offering of Economic Conductivity into a
much broader market.
CARBO 20 11 ANNUAL REPORT | 9
HIERARCHY OF CONDUCTIVITY: PROPPANT TYPES AND THEIR CONDUCTIVITY
Engineered, Manufactured Product
High strength (minimizes crush)
Uniform size and shape
(maximizes frac porosity and permeability)
Thermal resistant
(durable, minimizes degradation)
Medium strength
Irregular size and shape
Low strength
Irregular size and shape
Naturally Occurring Product
R
R
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,
N
O
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T
C
U
D
O
R
P
,
R
U
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T
S
E
H
G
H
I
Tier 1
High Conductivity
CERAMIC
Tier 2
Medium Conductivity
RESIN-COATED SAND
Tier 3
Low Conductivity
SAND
Y
T
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U
D
N
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S
E
H
G
H
I
FRactURing, pROppant anD pRODUctiOn Oil and natural gas are typically contained in the pores of sedimentary
rock formations thousands of feet underground. To enable the hydrocarbons to flow through the rock and to the surface,
fluids are pumped down the well bore at pressures sufficient to create fractures in the rock formation—a process called
hydraulic fracturing. A granular material, called proppant, is transported in the fluid to fill the fractures, thus “propping”
them open once the high-pressure pumping stops. The proppant-filled fracture creates a permeable channel through
which the hydrocarbons can flow more freely, thereby increasing both production rates and the total amount of oil or
gas recovered from the well.
the hierarchy of conductivity and CarBOBOND rCs
CARBOBOND LITE utilizes a resin-coating technology
CARBO specializes in higher conductivity proppants (Tier 1
and Tier 2 in the Hierarchy of Conductivity graphic above)
that yield greater productivity. Producers seeking to achieve
formulated to provide enhanced compatibility with
fracturing fluids. It is resin-coated in New Iberia, Louisiana,
where CARBO leveraged an existing facility by converting
optimum productivity can move from Tier 3 to CARBOBOND
it to a resin-coated facility.
RCS high quality resin-coated sand in Tier 2, or to the highest
With CARBOBOND LITE, our clients can be assured of
conductivity of CARBO’s ceramic proppant in Tier 1.
getting CARBO’s quality, reliability and service level,
CARBO has strategically differentiated CARBOBOND RCS
in the marketplace. Our RCS clients can count on CARBO for
the highest quality northern white sand substrate, our proven
manufacturing quality, our dedicated client service, and a
distribution system that delivers proppant all the way to the
well site.
CarBOBOND ® Lite®
CARBOBOND LITE is a resin-coated ceramic proppant that
can offer important benefits:
• Reduces proppant flowback and subsequent equipment
damage
• Reduces embedment and proppant pack rearrangement
due to closure stress, maintaining exceptional pack
conductivity
• Provides increased bonding in the fracture while avoiding
costly wellbore cleanout issues
rather than purchasing from a third-party coater and
reseller. CARBOBOND LITE continued to witness
increased acceptance by our clients in 2011.
CarBONRT ® non-radioactive traceable proppant
CARBONRT, a non-radioactive traceable proppant and a
part of our iPropTM family of detectable proppants, allows
an operator to identify the proppant coverage as well as
the propped frac height. The non-radioactive tracer is a
technological breakthrough that mitigates environmental
risks: It is safe to use, with no special equipment, handling,
permits or licenses required; there are no half-life issues,
so logging can be performed anytime throughout the life
of the well, with standard tools; and it can be shipped
anywhere in the world.
CAR B O 2011 ANNUAL REPORT | 10
e x p a n d i n g
O u r r e s e r vOi r e x p e r t i s e
e x p a n d i n g
O u r sO FtW a r e Ca p aBiLi t i e s
The tracer is incorporated during manufacturing so there
Within CARBO, our technical staff meets regularly to share
is uniform distribution through each grain of proppant, unlike
developments and develop ways for the CARBO companies
separate coatings. It is available with any ceramic proppant
to work together to meet client needs.
in the CARBO product line. With these distinct advantages,
CARBONRT is well positioned to benefit from the increased
global focus on environmental stewardship in the oil and
gas industry.
Acceptance for CARBONRT has continued to grow as the
need for traceable proppant, without the burden of handling
and disposing of radioactive material, has become a game-
changing technology. This product has been successfully
deployed on five continents.
CarBO’s r&d pipeline
We continue to invest in research and development of new
products and services, and are reaping the benefits of our
current lineup of innovative new products. We are confident
that our R&D pipeline will continue to introduce products that
benefit our clients and help shape the industry.
eXpAnDInG ouR ReSeRVoIR eXpeRtISe to
optIMIZe FRACtuRInG
One distinction that has always set CARBO apart is the
expertise and client service of our engineering staff,
which enables clients to get the most out of their reservoirs.
In 2011, CARBO took important steps to further enhance
this position.
CarBO basin expertise
Through experience and comprehensive research, CARBO
engineers have developed particularly beneficial expertise
about basins of considerable activity. Among these are the
Bakken, Eagle Ford, Permian, Utica and Niobrara. Their
thorough understanding of the resource plays includes
specialized knowledge of specific reservoir characteristics.
We transfer this basin expertise into written studies and
best practices for the industry through multiple SPE papers
published by CARBO and StrataGen engineers. In addition,
our engineers regularly make presentations at international,
national and regional SPE conferences.
dana—the highest level view of the reservoir
Data and Neural Analysis (DANA) is a modeling process
that uses geology, reservoir, completion and frac data to
develop a model that explains production for wells in a
field. Uses for this model include determining best practices,
optimizing completion and fracturing designs, identifying
underperforming wells and prospect evaluation.
In 2011, StrataGen was able to commercialize models for
the highly active Bakken and Eagle Ford plays. Additionally,
DANA has been introduced in Russia.
stratagen consultants in the field
An initiative for 2011 was the emphasis on placing
StrataGen’s consultants in the field alongside clients.
StrataGen’s field services serve as CARBO’s eyes and ears
at the point where the work is being done.
international positioning
While North American market activity dominated our
operations in 2011, CARBO continued to strategically
develop its presence in international markets. We have
placed experienced CARBO managers in important markets
throughout the world. We have identified key areas where
unconventional plays are beginning to be developed, and
positioned ourselves in each of these markets so that we can
be a first mover and market driver at this strategic time.
CARBO 20 11 AN NUAL REPORT | 13
eXpAnDInG ouR SoFtWARe CApABIlItIeS
The Falcon Liner is virtually impervious to corrosion or
to IMpRoVe ACCuRACY
Fracpro remains the industry’s most widely used fracture
damage due to chemicals, vibration or weather, reducing the
risk of leaks or other environmental issues.
modeling software. In 2011, product upgrades and
Falcon continues to follow the growth strategy of introducing
increased market penetration led to record sales.
new products and expanding its operations geographically.
We achieved increased adoption by domestic and
A prime example in 2011 is the way Falcon has gained
international E&P and service companies. We also
traction among the various resource plays across North
taught a record number of Fracpro training schools
America, including the Marcellus Shale where its new
in locations around the world.
Fracpro XCHANGE, the specially configured software
surface-mounted containment systems have been successfully
deployed in Pennsylvania, West Virginia and New York.
for fracture van displays, was an important component of
Falcon’s surface-mounted containment is the first professional
2011 sales. XCHANGE brings all the plotting and graphing
engineer certified system of its type. This innovative product
capability of Fracpro to the wellsite, allowing visualization
is ideal for applications where either difficult surface
of real-time fracturing data. During the year, we made
conditions or environmental regulations restrict traditional
upgrades to the XCHANGE program based on client needs.
containment solutions.
Also during 2011, Fracpro 3D was developed to
become one of the most comprehensive and
flexible fracture simulation software products
in the industry. This sophisticated, high-end
product is designed to appeal to a variety of
operators who have the ability to utilize its
powerful capabilities.
With products that will range from the
baseline Fracpro (the industry standard used
by universities, service companies and E&P
operators of every description) to the leading-
edge 3D product, Fracpro is positioned to
remain the industry leader in fracture software.
eXpAnDInG ouR FootpRInt AnD ouR
enGIneeReD to pRoteCttM SolutIonS
Falcon Technologies is a leader in the area of
spill prevention, control and countermeasures
(SPCC) as mandated by the EPA and many state
regulatory agencies. Falcon’s products also significantly
extend asset life, resulting in reduced maintenance and
replacement costs.
Falcon Technologies has engineered a spray-on polymer
coating that adheres to a variety of surfaces, providing a
seamless, durable layer of protection. The Falcon Liner®
provides unmatched protection in a broad range of
applications, including secondary containment systems,
tank liners and tank bases.
CAR B O 2011 ANNUAL REPORT | 14
Falcon has also demonstrated the ability to gain market
share even in plays where drilling activity is not increasing,
by gaining clients who need containment solutions.
Falcon appeals to clients by developing cost-effective
products that help achieve regulatory compliance, protect
our clients’ assets, promote environmental stewardship and
demonstrate corporate responsibility.
e x p a n d i n g
a r d s h i p
e n v i rOnMe n t aL s t eW
ExpanDing OUR OpERatiOns BasED On sOliD cORnERstOnEs
In our ongoing operations, we have identified three areas
• Our current resin-coating capacity is 400 million
that have the strength and continuing potential to serve as the
cornerstones for further organic growth.
pounds per year, and we are in the process of building
approximately one billion pounds of total capacity
1) expand Ceramic proppant Capacity
• Continue to be a leader in worldwide ceramic proppant
capacity and product quality
3) expand Falcon technologies
• Continue to help our clients achieve their goals for
environmental stewardship
• We doubled our capacity from 2005 to 2010, to a total of
1.5 billion pounds annually
• Develop Engineered to Protect product solutions that use
our proprietary polymer technology
• We added another 250 million pounds of capacity in 2011
• Open more operating bases in large resource plays
• We are currently in the planning process for up to
In 2011, the company achieved record sales and profitability
500 million pounds of additional capacity
2) expand resin-Coated proppant Capacity
• Continue to be a leader in the supply of resin-coated
ceramic proppant
• Pursue aggressive growth into the resin-coated sand
proppant market
and operated with exemplary safety. The building blocks
are in place. We are eager to pursue our expanding
opportunities.
CAR B O 2011 ANNUAL REPORT | 16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2011
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No. 001-15903
CARBO Ceramics Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
72-1100013
(I.R.S. Employer
Identification Number)
575 North Dairy Ashford
Suite 300
Houston, Texas 77079
(Address of principal executive offices)
(281) 921-6400
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
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 È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes È 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. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the
‘
Accelerated filer
Smaller reporting company ‘
Common Stock on June 30, 2011, as reported on the New York Stock Exchange, was approximately $2,828,273,613. Shares of Common
Stock held by each executive officer and director and by each person who owns 10% 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 22, 2012, the Registrant had 23,084,660 shares of Common Stock outstanding.
Portions of the Proxy Statement for Registrant’s Annual Meeting of Stockholders to be held May 22, 2012, are incorporated by reference
DOCUMENTS INCORPORATED BY REFERENCE
in Part III.
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
PART IV
1
10
14
14
15
16
17
19
21
28
29
29
29
30
31
31
31
31
31
32
Item 15. Exhibits and Financial Statement Schedules
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Item 1.
Business
General
PART I
CARBO Ceramics Inc. (the “Company”) is the world’s largest supplier of ceramic proppant and, during
2010, commenced the sale of resin-coated sand in order to broaden its proppant suite of products. The Company
is the provider of the industry’s most popular fracture simulation software, and a provider of fracture design and
consulting services, and a broad range of technologies for spill prevention, containment and countermeasures and
geotechnical monitoring. The Company sells the majority of its products and services to operators of oil and
natural gas wells and to oilfield service companies to help increase the production rates and the amount of oil and
natural gas ultimately recoverable from these wells. The Company’s products and services are primarily used in
the hydraulic fracturing of natural gas and oil wells. The Company was incorporated in 1987 in Delaware. As
used herein, “Company”, “we”, “our” and “us” may refer to the Company and/or its consolidated subsidiaries.
Hydraulic fracturing is the most widely used method of increasing production from oil and natural 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 conductive 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 most expensive. The higher initial cost of ceramic proppant is justified by the
fact that the use of these proppants in certain well conditions results in an increase in the production rate of oil
and natural gas, an increase in the total oil or natural gas that can be recovered from the well and, consequently,
an increase in cash flow for the operators of the well. The increased production rates are primarily attributable to
the higher strength and more uniform size and shape of ceramic proppant versus alternative materials.
The Company primarily manufactures five distinct ceramic proppants. CARBOHSP® and CARBOPROP®
are high strength proppants designed primarily for use in deep oil and gas wells. CARBOHSP® has the highest
strength of any of the ceramic proppants manufactured by the Company and is used primarily in the fracturing of
deep oil and gas wells. CARBOPROP® is slightly lower in weight and strength than CARBOHSP® and was
developed for use in deep oil and gas wells that do not require the strength of CARBOHSP®.
CARBOLITE®, CARBOECONOPROP® and CARBOHYDROPROP® are lightweight ceramic proppants.
CARBOLITE® 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 uniform size and
spherical shape. CARBOECONOPROP® was introduced to compete directly with sand-based proppant, and
CARBOHYDROPROP® was introduced in late 2007 to improve performance in “slickwater” fracture treatments.
During 2010, the Company began production of resin-coated ceramic (CARBOBOND® LITE®) and resin-
coated sand (CARBOBOND® RCS) proppants. The introduction of CARBOBOND® LITE® addresses a niche
market in which oil and natural gas wells are subject to the risk of proppant flow-back. In the case of
CARBOBOND® RCS, the Company made the strategic decision to offer a lower cost, lower conductivity
alternative proppant, in addition to its ceramic proppant products thereby broadening its proppant suite of
products.
During the year ended December 31, 2011, the Company generated approximately 79% of its revenues in
the United States and 21% in international markets.
1
The Company also sells fracture simulation software and provides fracture design, engineering and
consulting services to oil and natural gas companies worldwide through its wholly-owned subsidiary, StrataGen,
Inc. The Company provides a suite of stimulation software solutions to the industry that have marked capabilities
for on-site real-time analysis. This has enabled recognition and remediation of potential stimulation problems.
This stimulation software is tightly integrated with reservoir simulators, thus allowing for stimulation treatment
and production optimization. The Company’s specialized engineering team consults and works with operators
around the world to help optimize well placement, fracture treatment design and production stimulation. The
broad range of expertise of the Company’s consultants includes: fracture treatment design; completion
engineering support; on-site treatment supervision, engineering and quality control; post-treatment evaluation
and optimization; reservoir and fracture engineering studies; rock mechanics and software application and
training.
Demand for most of the Company’s products and services depends primarily upon the demand for natural
gas and oil and on the number of natural gas and oil wells drilled, completed or re-completed worldwide. More
specifically, the demand for the Company’s products and services is dependent on the number of oil and natural
gas wells that are hydraulically fractured to stimulate production.
The Company also provides a broad range of technologies and products for geotechnical monitoring through
its wholly owned subsidiary Applied Geomechanics, Inc. (“AGI”). AGI provides monitoring systems and
services for bridges, buildings, tunnels, dams, slopes, embankments, volcanoes, landslides, mines and
construction projects around the world. It serves a wide spectrum of customers in markets ranging from auto
racing teams to surveyors, experimental physicists, radio astronomers and naval architects.
In October 2009, Falcon Technologies and Services, Inc. (“Falcon Technologies”), a wholly-owned
subsidiary of the Company, purchased substantially all of the assets of BBL Falcon Industries, Ltd., a supplier of
spill prevention, containment and countermeasure systems for the oil and gas industry. The acquisition broadened
the Company’s product and service offerings to its existing client base. Falcon Technologies uses proprietary
technology to provide products that are designed to enable its clients to extend the life of their storage assets,
reduce the potential for hydrocarbon spills and provide containment of stored materials.
Competition
As the demand for resin-coated and ceramic proppant continues to be amplified by the large resource plays,
the Company expects more entrants into the market for its products. One of the Company’s largest worldwide
proppant competitors is Saint-Gobain Proppants (“Saint-Gobain”). Saint-Gobain is a division of Compagnie de
Saint-Gobain, a large French glass and materials company. Saint-Gobain manufactures a variety of ceramic
proppants that it markets in competition with each of the Company’s products. Saint-Gobain’s primary
manufacturing facility is located in Fort Smith, Arkansas. Saint-Gobain also manufactures ceramic proppant in
China and Venezuela. Mineracao Curimbaba (“Curimbaba”), based in Brazil, is also a large competitor and
manufactures ceramic proppants that it markets in competition with some of the Company’s products.
There are two major manufacturers of ceramic proppant in Russia. Borovichi Refractory Plant (“Borovichi”)
located in Borovichi, Russia, and FORES Refractory Plant (“FORES”) located in Ekaterinburg, Russia. Although
the Company has limited information about Borovichi and FORES, the Company believes that Borovichi
primarily manufactures intermediate strength ceramic proppants and markets its products principally within
Russia, and that FORES manufactures intermediate strength and lightweight ceramic proppant lines and markets
its products both inside and outside of Russia. The Company further believes that these companies have added
manufacturing capacity in recent years and now provide a majority of the ceramic proppant used in Russia. The
Company is also aware of an increasing number of manufacturers in China. Most of these companies produce
intermediate strength ceramic proppants that are marketed both inside and outside of China. Chinese proppant
imports into the United States increased in 2011 as domestic demand also increased.
2
Competition for CARBOHSP® and CARBOPROP® principally includes ceramic proppant manufactured by
Saint-Gobain, Curimbaba and various producers located in China. The Company’s CARBOLITE®,
CARBOECONOPROP® and CARBOHYDROPROP® products compete primarily with ceramic proppant
produced by Saint-Gobain and Curimbaba 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., U.S. Silica
Company, Badger Mining Corp., Fairmount Minerals Limited, Inc., and Ogelbay-Norton Company. The leading
suppliers of resin-coated sand are Momentive Specialty Chemicals (formerly known as Hexion) 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 ceramic proppant 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 good. 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. Over the past five years, the Company has more than doubled its
manufacturing capacity and plans to continue its strategy of adding capacity, as needed, 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. For information regarding
the Company’s research and development expenditures see Note 1 to the “Notes to Consolidated Financial
Statements.” The Company is actively involved in the development of alternative products for use as proppant in
the hydraulic fracturing process and is aware of others engaged in similar development activities. The Company
believes that while there are potential specialty applications for these products, they will not significantly impact
the use of ceramic proppants. The Company believes that the “know-how” and trade secrets necessary to
efficiently manufacture a product of consistently high quality are difficult barriers to entry to overcome.
Customers and Marketing
The Company’s largest customers are participants in the petroleum pressure pumping industry. Specifically,
Halliburton Energy Services, Inc. and Schlumberger Limited each accounted for more than 10% of the
Company’s 2011 and 2010 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 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, as specified in individual purchase orders.
Continuing sales of product depend on the Company’s direct customers and the well operators being satisfied
with product quality, availability and delivery performance. The Company provides its software simulation
products and consulting services directly to owners and/or operators of oil and gas wells and service companies.
The Company recognizes the importance of a technical marketing program in demonstrating long-term
economic advantages when selling products and services that offer financial benefits over time. The Company
has a broad technical sales force to advise end users on the benefits of using ceramic proppant, resin-coated sand
and performing fracture simulation and consultation services.
Although the Company’s initial products were originally intended for use in 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 new product introductions and education-based technical marketing efforts have allowed it to capture sales in
recent years and will continue to do so in the future.
The Company 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 alternatives in the
3
hydraulic fracturing of a natural gas or oil well. In addition to the increased technical marketing effort, the
Company from time to time engages in field trials to demonstrate the economic benefits of its products and
validate the findings of its computer simulations. Periodically, the Company provides proppant to production
companies for field trials, on a discounted basis, in exchange for a production company’s agreement to provide
production data for direct comparison of the results of fracturing with ceramic proppant as compared to
alternative proppants.
The Company’s international marketing efforts are conducted primarily through its sales offices in Dubai,
United Arab Emirates; Aberdeen, Scotland; Beijing, China; and Moscow, Russia, and through commissioned
sales agents located in South America and China. The Company’s products and services are used worldwide by
U.S. customers operating domestically and abroad, and by foreign customers. Sales outside the United States
accounted for 21%, 23% and 24% of the Company’s sales for 2011, 2010 and 2009, respectively. The decrease in
the proportion of international sales is primarily attributable to increased demand in the U.S. as well as expanded
production capacities in the U.S. The distribution of the Company’s international and domestic revenues is
shown below, based upon the region in which the customer used the products and services:
Location
United States
International
Total
Production Capacity
For the years ended December 31,
2011
2010
2009
($ in millions)
$495.8
129.9
$365.4
107.7
$258.5
83.4
$625.7
$473.1
$341.9
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.
In early 2006, the Company completed construction of a manufacturing facility in Toomsboro, Georgia. A
second production line at this facility was completed in the fourth quarter of 2007 and commenced operations in
January 2008. During the fourth quarter of 2010, the third production line at this facility commenced operations.
During the third quarter of 2011, a fourth production line was completed and commenced operations, bringing
the stated annual production capacity at this facility to 1.0 billion pounds per year.
During 2009, the Company idled ceramic proppant production at its New Iberia facility originally
constructed in 1978. The facility continues to function as a distribution center and the Company has built a resin-
coating plant within the existing manufacturing infrastructure of the facility. The resin-coating plant, which
began production in 2010, is utilized to coat both ceramic proppant manufactured at other Company locations
and raw frac sand. A second resin-coating production line at the facility was completed during the first quarter of
2012.
4
The following table sets forth the current stated capacity of each of the Company’s existing manufacturing
and resin-coating facilities:
Location
Eufaula, Alabama
McIntyre, Georgia
Toomsboro, Georgia
Luoyang, China
Kopeysk, Russia
Total manufacturing capacity
New Iberia, Louisiana – resin-coating
Total current capacity
Annual
Capacity
(millions of pounds)
260
275
1,000
100
100
1,735
400 *
2,135
* Processing activities at the New Iberia facility involve resin-coating of previously manufactured ceramic
proppant substrate and raw frac sand.
In 2011, the Company completed the acquisition of real estate and has submitted environmental permit
applications to construct a ceramic proppant plant in the Millen, Georgia area. The Company believes this site
could support an initial manufacturing capacity of up to 500 million pounds of ceramic proppant annually.
Subject to obtaining permits and other approvals in a timely manner, a manufacturing line that represents a
portion of this initial capacity could commence production before the end of 2013. Additionally, a 600 million
pound per year resin-coating plant is under construction in Marshfield, Wisconsin. Raw sand processing facilities
at this location are expected to be completed during the first half of 2012, and resin-coating facilities are
expected to be completed near the end of 2012. The construction of additional manufacturing capacity beyond
these new facilities will be dependent on the expected future demand for the Company’s products and the ability
to obtain necessary environmental permits.
The Company generally supplies its domestic pumping service customers with products on a just-in-time
basis and operates without any material backlog.
Long-Lived Assets By Geographic Area
Long-lived assets, consisting of net property, plant and equipment, goodwill, intangibles, and other long-
term assets as of December 31 in the United States and other countries are as follows:
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International (primarily China and Russia) . . . . . . . . . . .
$397.5
40.8
$315.5
46.4
$244.1
50.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$438.3
$361.9
$294.5
2011
2010
2009
($ in millions)
Distribution
The Company maintains finished goods inventories at each of its manufacturing facilities and at remote
stocking facilities. The North American remote stocking facilities consist of bulk storage silos with truck trailer
loading facilities, as well as rail yards for direct transloading from rail car to tank trucks. International remote
stocking 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
approximately 2,000 rail cars for use in the distribution of its products and has contracted for the delivery of an
5
additional 650 railcars by the end of 2012. 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. The Company expands its distribution
network as needed to support production capacity additions at the Company’s manufacturing facilities. During
2011, the Company expanded its distribution network. The expansion, which continues into 2012, includes rail
car additions as well as increasing finished goods storage capacity at stocking locations in the key
unconventional plays the Company serves.
Raw Materials
Ceramic proppant is made from alumina-bearing ores (commonly referred to as clay, bauxite, bauxitic clay
or kaolin, depending on the alumina content) that are readily available on the world market. Bauxite is largely
used in the production of aluminum metal, refractory material and abrasives. The main known deposits of
alumina-bearing ores in the United States are in Arkansas, Alabama and Georgia; other economically mineable
known deposits are located in Australia, Brazil, China, Gabon, Guyana, India, Jamaica, Russia and Surinam.
For the production of CARBOHSP® and CARBOPROP® in the United States the Company uses bauxite,
and has historically purchased its annual requirements at the seller’s current prices. The Company maintains a
multi-year agreement with a domestic supplier for a portion of its annual bauxite requirement and the Company
believes that this agreement, its ability to purchase bauxite on the open market and current bauxite inventories
will sufficiently provide for its bauxite needs in the United States during 2012.
The Company’s Eufaula, McIntyre and Toomsboro facilities primarily use locally mined kaolin for the
production of CARBOLITE®, CARBOECONOPROP® and CARBOHYDROPROP®. The Company has entered
into a bi-lateral contract that requires a supplier to sell to the Company, and the Company to purchase from the
supplier, a majority of the Eufaula facility’s annual kaolin requirements through 2013, with options to extend this
agreement for an additional six years. The Company has obtained ownership rights in acreage in Wilkinson
County, Georgia, which contains in excess of a fifteen year supply of kaolin for its Georgia facilities at current
production rates. 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 a majority of the McIntyre facility’s annual kaolin requirement.
The Company’s production facility in Luoyang, China, uses both kaolin and bauxite for the production of
CARBOPROP® and CARBOLITE®. Certain of these materials are purchased under a long-term contract that
stipulates fixed prices subject to periodic adjustment and provides for minimum purchase requirements.
The Company’s production facility in Kopeysk, Russia currently uses bauxite for the production of
CARBOPROP®. Bauxite is purchased under annual agreements that stipulate fixed prices for up to a specified
quantity of material.
The Company continues to explore options for the purchase of high quality raw materials for its resin-coated
sand business. In 2011, the Company secured a five-year contract with a supplier and consummated the purchase
of two parcels of property containing sand reserves, and continues to evaluate additional sources of sand to
supply both the Company’s production lines in Marshfield, Wisconsin, which is currently under construction, and
New Iberia, Louisiana.
Ceramic Production Process
Ceramic proppants are made by grinding or dispersing ore to a fine powder, combining the powder into
small pellets and firing the pellets in a rotary kiln. The Company uses two different methods to produce ceramic
proppant. The Company’s plants in McIntyre, Georgia; Kopeysk, Russia and Luoyang, China use a dry process,
which utilizes clay, bauxite, bauxitic clay or kaolin. The raw material is ground, pelletized and screened. The
manufacturing process is completed by firing the product in a rotary kiln.
6
The Company’s plants in Eufaula, Alabama and Toomsboro, Georgia, use a wet process, which starts with
kaolin that is formed into slurry. The slurry is then pelletized in a dryer and the pellets are then fired in a rotary
kiln.
The Company’s rotary kilns are primarily heated by the use of natural gas.
Patent Protection and Intellectual Property
The Company makes ceramic proppant and ceramic media used in foundry and scouring processes (the
latter two items comprising a minimal volume of overall sales) by processes and techniques that involve a high
degree of proprietary technology, some of which is protected by patents.
The Company owns multiple patents in the United States and various foreign countries that relate to
different types of ceramic proppant and production methods used for ceramic proppant and media; however,
production of products pursuant to these patents does not currently constitute a material portion of the
Company’s output. The Company also owns a U.S. patent that relates to methods for the detection of
subterranean fractures.
The Company owns multiple U.S. patent applications (together with a number of counterpart applications
pending in foreign jurisdictions). Each of the U.S. patent applications cover ceramic proppant, processes for
making ceramic proppant, and detection of subterranean fractures. The applications are in various stages of the
patent prosecution process, and patents may not issue on such applications in any jurisdiction for some time, if
they issue at all.
The Company believes that its patents have historically been important in enabling the Company to compete
in the market to supply proppant to the natural gas and oil industry, although important patents expired in 2006
and 2009. The Company intends to enforce, and has in the past vigorously enforced, its patents. The Company
may from time to time in the future be involved in litigation to determine the enforceability, scope and validity of
its patent rights. In addition to patent rights, and perhaps more notably, the Company uses a significant amount of
trade secrets, or “know-how,” and other proprietary information and technology in the conduct of its business.
None of this “know-how” and technology is licensed from third parties.
Falcon Technologies owns two U.S. patents, which expire in 2026 and 2027 and relate to construction of
secondary containment areas, and multiple U.S patent applications (together with a number of counterpart
applications pending in foreign jurisdictions), each of which relates to tank bases, load bearing products,
anchoring systems, and methods of constructing secondary containment areas.
Environmental and Other Governmental Regulations
The Company believes that its operations are in substantial compliance with applicable domestic and
foreign federal, state and local environmental and safety laws and regulations. In December 2009, the Company
obtained Prevention of Significant Deterioration permits from the State of Georgia Environmental Protection
Division (“EPD”) regarding appropriate permitting for emissions of substances from its Toomsboro and
McIntyre facilities to accommodate expansion at both facilities.
Existing federal Environmental requirements such as the Clean Air Act and the Clean Water Act, as
amended, impose certain restrictions on air and water pollutants from the Company’s operations via permits and
regulations. Those pollutants include volatile organic compounds, nitrogen oxides, sulfur dioxide, particulates,
storm water and wastewater discharges and other by-products. In addition to meeting environmental
requirements for existing operations, the Company must also demonstrate compliance with environmental
regulations in order to obtain permits prior to any future expansion. The Environmental Protection Agency
(“EPA”) and state programs require covered facilities to obtain individual permits or have coverage under an
7
EPA general permit issued to groups of facilities. A number of federal and state agencies, including but not
limited to, the EPA, the Texas Commission of Environmental Quality, the Louisiana Department of Natural
Resources, the Alabama Department of Environmental Management, the Wisconsin Department of Natural
Energy, and the EPD, in states in which we do business, have environmental regulations applicable to our
operations. Historically we have been able to obtain permits, where necessary, to build new facilities and modify
existing facilities that allow us to continue compliant operations and obtaining these permits in a timely manner
will continue to be an important factor in the Company’s ability to do so in the future.
Employees
As of December 31, 2011, the Company had 961 employees worldwide. 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.
Executive Officers of the Registrant
Gary A. Kolstad (age 53) was elected in June 2006, by the Company’s Board of Directors to serve as
President and Chief Executive Officer and a Director of the Company. Mr. Kolstad previously served in a variety
of positions over 21 years with Schlumberger, Ltd. Mr. Kolstad became a Vice President of Schlumberger, Ltd.
in 2001, where he last held the positions of Vice President, Oilfield Services – U.S. Onshore and Vice President,
Global Accounts.
Ernesto Bautista III (age 40) joined the Company as a Vice President and Chief Financial Officer in January
2009. From July 2006 until joining the Company, Mr. Bautista served as Vice President and Chief Financial
Officer of W-H Energy Services, Inc., a Houston, Texas based diversified oilfield services company (“W-H
Energy”). From July 2000 to July 2006, he served as Vice President and Corporate Controller of W-H Energy.
From September 1994 to May 2000, Mr. Bautista served in various positions at Arthur Andersen LLP, most
recently as a manager in the assurance practice, specializing in emerging, high growth companies. Mr. Bautista is
a certified public accountant in the State of Texas.
Mark L. Edmunds (age 56) 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.
David G. Gallagher (age 53) was appointed Vice President, Marketing and Sales in April 2007.
Mr. Gallagher previously held a variety of both domestic and international managerial positions in engineering,
marketing and sales, and technology development over a 26 year period with Schlumberger, Ltd., where from
1999 until 2002 he served as the Director of Marketing for U.S. Land and from 2002 until 2007, he served as
Director of Marketing for Venezuela, Trinidad and the Caribbean.
R. Sean Elliott (age 37) joined the Company in November 2007 as General Counsel, and was appointed as
Corporate Secretary and Chief Compliance Officer in January 2008 and as a Vice President of the Company in
May 2011. Previously, Mr. Elliott served as legal counsel to Aviall, Inc. (an international aviation company)
from 2004 to 2007, where he last held the positions of Assistant General Counsel and Assistant Secretary. From
1999 until 2004, Mr. Elliott practiced law with Haynes and Boone, LLP, a Dallas, Texas-based law firm.
All officers are elected 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
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”, “estimate”, “forecast”, “plan” or “intend”
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
a potential decline in the demand for oil and natural gas;
potential declines or increased volatility in oil 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;
an increase in competition in the proppant market;
logistical and distribution challenges relating to certain resource plays that do not have the type of
infrastructure systems that are needed to efficiently support oilfield services activities;
the development of alternative stimulation techniques, such as extraction of oil or gas without
fracturing;
increased governmental regulation of hydraulic fracturing;
increased regulation of emissions from our manufacturing facilities;
the development of alternative proppants for use in hydraulic fracturing;
general global economic and business conditions;
an increase in raw materials costs;
fluctuations in foreign currency exchange rates; and
the potential expropriation of assets by foreign governments.
The Company’s results of operations could also be adversely affected as a result of worldwide economic,
political and military events, including, but not limited to, war, terrorist activity or initiatives by the Organization
of the Petroleum Exporting Countries (“OPEC”). For further information, see “Item 1A. Risk Factors.”
Available Information
The Company’s annual reports on Form 10-K, proxy statements, 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
Securities Exchange Act of 1934 (“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 such material is filed with, or
furnished to, the Securities and Exchange Commission (“SEC”).
9
The public may read and copy any materials that the Company files with the SEC at the SEC’s Public
Reference Room at 100 F Street, Room 1580, N.E., Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC, at http://www.sec.gov.
Item 1A. Risk Factors
You should consider carefully the trends, risks and uncertainties described below and other information in
this Form 10-K and subsequent reports filed with the SEC before making any investment decision with respect to
our securities. If any of the following trends, risks or uncertainties actually occurs or continues, our business,
financial condition or operating results could be materially adversely affected, the trading prices of our securities
could decline, and you could lose all or part of your investment.
Our business and financial performance depend on the level of activity in the natural gas and oil industries.
Our operations are materially dependent upon the levels of activity in natural gas and oil exploration,
development and production. More specifically, the demand for our products is closely related to the number of
natural gas and oil wells completed in geologic formations where ceramic proppants are used in fracture
treatments. These activity levels are affected by both short-term and long-term trends in natural gas and oil
prices. In recent years, natural gas and oil prices and, therefore, the level of exploration, development and
production activity, have experienced significant fluctuations. Worldwide economic, political and military
events, including war, terrorist activity, events in the Middle East and initiatives by OPEC, have contributed, and
are likely to continue to contribute, to price volatility. Additionally, warmer than normal winters in North
America and other weather patterns may adversely impact the short-term demand for natural gas and, therefore,
demand for our products and services. Natural gas prices experienced a significant decline during 2011, and
some companies have announced their intention to reduce drilling activity for natural gas. A prolonged reduction
in natural gas and oil prices would generally depress the level of natural gas and oil exploration, development,
production and well completions activity and result in a corresponding decline in the demand for our products.
Such a decline could have a material adverse effect on our results of operations and financial condition.
Our business and financial performance could suffer if the levels of hydraulic fracturing decrease or cease
as a result of the development of new processes, increased regulation or a decrease in horizontal drilling
activity.
Substantially all of our products are proppants used in the completion and re-completion of natural gas and
oil wells through the process of hydraulic fracturing. In addition, demand for our proppants is substantially
higher in the case of horizontally drilled wells, which allow for multiple hydraulic fractures within the same well
bore but are more expensive to develop than vertically drilled wells. A reduction in horizontal drilling or the
development of new processes for the completion of natural gas and oil wells leading to a reduction in, or
discontinuation of the use of, hydraulic fracturing could cause a decline in demand for our products.
Additionally, increased regulation or environmental restrictions on hydraulic fracturing or the materials used in
this process could negatively affect our business by increasing the costs of compliance or resulting in operational
delays, which could cause operators to abandon the process due to commercial impracticability. Moreover, it is
possible that future federal, state or foreign laws or regulations could otherwise limit or ban hydraulic fracturing.
Any of these events could have a material adverse effect on our results of operations and financial condition.
We may be adversely affected by decreased demand for our proppant or the development by our competitors
of effective alternative proppants.
Ceramic proppant is a premium product capable of withstanding higher pressure and providing more highly
conductive fractures than mined sand, which is the most commonly used proppant type. Although we believe that
the use of ceramic proppant or resin-coated sand generates higher production rates and more favorable
production economics than mined sand, a significant shift in demand from ceramic proppant or resin-coated sand
10
to mined sand could have a material adverse effect on our results of operations and financial condition. The
development and use of effective alternative proppant could also cause a decline in demand for our products, and
could have a material adverse effect on our results of operations and financial condition.
We rely upon, and receive a significant percentage of our revenues from, a limited number of key
customers.
During 2011, our key customers included several of the largest participants in the worldwide petroleum
pressure pumping industry. Although the end users of our products are numerous operators of natural gas and oil
wells that hire pressure pumping service companies to hydraulically fracture wells, two customers accounted
collectively for approximately 48% of our 2011 revenues. We generally supply our domestic pumping service
customers with products on a just-in-time basis, with transactions governed by individual purchase orders.
Continuing sales of product depend on our direct customers and the end user well operators being satisfied with
product quality, availability and delivery performance. Although we believe our relations with our customers and
the major well operators are satisfactory, a material decline in the level of sales to any one of our major
customers due to unsatisfactory product performance, delivery delays or any other reason could have a material
adverse effect on our results of operations and financial condition.
We face underdeveloped transportation systems in key resource plays we serve
As oil and natural gas prices fluctuate, our customers may shift their focus back and forth between different
resource plays, some of which can be located in geographic areas of the country, that do not have well-developed
transportation and distribution infrastructure systems. Therefore, serving our clients on a just in time basis
presents operational challenges that could affect our sales. Failure to find solutions to these logistical challenges
could adversely affect our ability to respond quickly to the needs of our customers and could negatively impact
our financials.
The operations of our customers are subject to a number of operational risks and interruptions and
seasonal variations, including inclement weather.
As hydraulic fracturing jobs have increased in size and intensity, common issues such as weather,
equipment delays or changes in the location and types of oil and natural gas plays can result in increased
variability in proppant sales volumes. Our business operations and those of our customers involve a high degree
of operational risk. Natural disasters, adverse weather conditions, collisions and operator error could cause
personal injury or loss of life, severe damage to and destruction of property, equipment and the environment, and
suspension of operations. Our customers perform work that is subject to unexpected or arbitrary interruption or
termination. The occurrence of any of these events could result in work stoppage, loss of revenue, casualty loss,
increased costs and significant liability to third parties. We have not historically considered seasonality to be a
significant risk, but with the increase in resource plays in the northern and eastern United States as well as our
operations in Marshfield, Wisconsin, our results of operations are exposed to seasonal variations and inclement
weather. Operations in these regions involve more seasonal risk in the winter months, and work is hindered
during other inclement weather events. The ability of our customers to complete work, as well as our ability to
mine sand from cold climate areas, could be affected during the winter months. Our revenue and profitability
could decrease during these periods and in other severe weather conditions because work is either prevented or
more costly to complete. If a substantial amount of production is interrupted, our cash flow and, in turn, our
results of operations could be materially and adversely affected.
We provide environmental warranties on certain of our containment and spill prevention products.
Falcon Technologies’ tank liners, secondary containments and related products and services are designed to
contain or avoid spills of hydrocarbons and other materials. If a release of these materials occurs, it could be
harmful to the environment. Although we attempt to negotiate appropriate limitations of liability in the applicable
terms of sale, some customers have required expanded warranties, indemnifications or other terms that could
11
hold Falcon Technologies responsible in the event of a spill or release under particular circumstances. If Falcon
Technologies is held responsible for a spill or release of materials from one of its customer’s facilities, it could
have a material adverse effect on our results of operations and financial condition.
Third parties may claim that we are infringing their intellectual property rights.
The Company uses a significant amount of trade secrets, or “know-how,” and other proprietary information
and technology in the conduct of its business. Although the Company does not believe that it is infringing upon
the intellectual property rights of others by using such proprietary information and technology, it is possible that
such a claim will be asserted against the Company in the future. In the event any third party makes a claim
against us for infringement of patents or other intellectual property rights of a third party, such claims, with or
without merit, could be time-consuming and result in costly litigation. In addition, the Company could
experience loss or cancellation of customer orders, experience product shipment delays, or be subject to
significant liabilities to third parties. If our products or services were found to infringe on a third party’s
proprietary rights, the Company could be required to enter into royalty or licensing agreements to continue
selling its products or services. Royalty or licensing agreements, if required, may not be available on acceptable
terms, if at all, which could seriously harm our business. Involvement in any patent dispute or other intellectual
property dispute or action to protect trade secrets and expertise could have a material adverse effect on the
Company’s business.
We operate in an increasingly competitive market.
We compete with other principal suppliers of ceramic proppant, as well as with suppliers of sand and resin-
coated sand for use as proppant, in the hydraulic fracturing of natural gas and oil wells. The proppant market is
highly competitive and no one supplier is dominant. The expiration of key patents owned by the Company in
2006 and 2009 has resulted in additional competition in the market for ceramic proppant. This entry of additional
competitors into the market to supply ceramic proppant could have a material adverse effect on our results of
operations and financial condition.
Significant increases in fuel prices for any extended periods of time will increase our operating expenses.
The price and supply of natural gas are unpredictable, and can fluctuate significantly based on international,
political and economic circumstances, as well as other events outside of our control, such as changes in supply
and demand due to weather conditions, actions by OPEC and other oil and gas producers, regional production
patterns and environmental concerns. Natural gas is a significant component of our direct manufacturing costs
and price escalations will likely increase our operating expenses and can have a negative impact on income from
operations and cash flows. We operate in a competitive marketplace and may not be able to pass through all of
the increased costs that could result from an increase in the cost of natural gas.
Environmental compliance costs and liabilities could reduce our earnings and cash available for operations.
We are subject to increasingly stringent laws and regulations relating to environmental protection, including
laws and regulations governing air emissions, water discharges and waste management. The technical
requirements of complying with these environmental laws and regulations are becoming increasingly expensive
and complex, and may affect the Company’s ability to expand its operations. Our ability to continue the
expansion of our manufacturing capacity to meet market demand is contingent upon obtaining required
environmental permits and compliance with their terms, which continue to be more restrictive and require longer
lead times to obtain in anticipation of any efforts to expand and increase capacity. We incur, and expect to
continue to incur, capital and operating costs to comply with environmental laws and regulations.
In addition, we use some hazardous substances and generate certain industrial wastes in our operations.
Many of our current and former properties are or have been used for industrial purposes. Accordingly, we could
become subject to potentially material liabilities relating to the investigation and cleanup of contaminated
12
properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of,
hazardous substances. These laws also may provide for “strict liability” for damages to natural resources or
threats to public health and safety. Strict liability can render a party liable for environmental damage without
regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict
liability for remediation of spills and releases of hazardous substances.
Stricter enforcement of existing laws and regulations, new laws and regulations, the discovery of previously
unknown contamination or the imposition of new or increased requirements could restrict our expansion efforts,
require us to incur costs, or become the basis of new or increased liabilities. Any of these events could reduce our
earnings and our cash available for operations.
Our international operations subject us to risks inherent in doing business on an international level that
could adversely impact our results of operations.
International revenues accounted for approximately 21%, 23% and 24% of our total revenues in 2011, 2010
and 2009, respectively. We may not succeed in overcoming the risks that relate to or arise from operating in
international markets. Risks inherent in doing business on an international level include, among others, the
following:
•
•
•
•
•
•
•
•
•
economic and political instability (including as a result of the threat or occurrence of armed
international conflict or terrorist attacks);
changes in regulatory requirements, tariffs, customs, duties and other trade barriers;
transportation delays and costs;
power supply shortages and shutdowns;
difficulties in staffing and managing foreign operations and other labor problems;
currency rate fluctuations, convertibility and repatriation;
taxation of our earnings and the earnings of our personnel;
potential expropriation of assets by foreign governments; and
other risks relating to the administration of or changes in, or new interpretations of, the laws,
regulations and policies of the jurisdictions in which we conduct our business.
In particular, we are subject to risks associated with our production facilities in Luoyang, China, and
Kopeysk, Russia. The legal systems in both China and Russia are still developing and are subject to change.
Accordingly, our operations and orders for products in both countries could be adversely impacted by changes to
or interpretation of each country’s law. Further, if manufacturing in either region is disrupted, our overall
capacity could be significantly reduced and sales and/or profitability could be negatively impacted.
The manufacture of resin-coated sand is a new process for us.
Resin-coated sand is an alternative to the Company’s traditional ceramic proppant and involves a different
manufacturing process that utilizes a different raw material. The expansion of our resin-coated sand operations
involves capital expenditures and new operational requirements. If we are unable to secure adequate, cost
effective supply commitments for the raw materials associated with resin-coated sand or if we are unable to
successfully and efficiently construct the needed additional manufacturing capacity and infrastructure to produce
resin-coated sand, our ability to sell this product to the marketplace at profitable margins may be adversely
impacted. A lack of sales of resin-coated sand or the inability to control the costs associated with manufacturing
this product could have a material adverse effect on our results from operations and financial condition.
13
Undetected defects in our fracture simulation software could adversely affect our business.
Despite extensive testing, our software could contain defects, bugs or performance problems. If any of these
problems are not detected, the Company could be required to incur extensive development costs or costs related
to product recalls or replacements. The existence of any defects, errors or failures in our software products may
subject us to liability for damages, delay the development or release of new products and adversely affect market
acceptance or perception of our software products or related services, any one of which could materially and
adversely affect the Company’s business, results of operations and financial condition.
The market price of our common stock will fluctuate, and could fluctuate significantly.
The market price of the Company’s common stock will fluctuate, and could fluctuate significantly, in
response to various factors and events, including the following:
•
•
•
•
•
•
the liquidity of the market for our common stock;
differences between our actual financial or operating results and those expected by investors and
analysts;
changes in analysts’ recommendations or projections;
new statutes or regulations or changes in interpretations of existing statutes and regulations affecting
our business;
changes in general economic or market conditions; and
broad market fluctuations.
Our actual results could differ materially from results anticipated in forward-looking statements we make.
Some of the statements included or incorporated by reference in this Form 10-K are forward-looking
statements. These forward-looking statements include statements relating to trends in the natural gas and oil
industries, the demand for ceramic proppant and our performance in the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and “Business” sections of this Form 10-K. In addition, we
have made and may continue to make forward-looking statements in other filings with the SEC, and in written
material, press releases and oral statements issued by us or on our behalf. Forward-looking statements include
statements regarding the intent, belief or current expectations of the Company or its officers. Our actual results
could differ materially from those anticipated in these forward-looking statements. (See “Business–Forward-
Looking Information.”)
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Properties
The Company maintains its corporate headquarters in leased office space in Houston and also leases space
for its technology center in Houston. The Company owns its manufacturing facilities, land and substantially all of
the related production equipment in New Iberia, Louisiana, Eufaula, Alabama, and Kopeysk, Russia and leases
its McIntyre and Toomsboro, Georgia, facilities. 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 through 2051
under the terms of a land use agreement with the People’s Republic of China.
The facilities in McIntyre and Toomsboro, Georgia, include real property, plant and equipment that are
leased by the Company from the Development Authority of Wilkinson County. The original lease was executed
in 1997 and was last amended in 2008. The term of the current lease, which covers both locations, terminates on
14
November 1, 2013, subject to the Company’s ability to renew the lease through November 2021. Under the terms
of the lease, the Company is responsible for all costs incurred in connection with the premises, including costs of
construction of the plant and equipment. At the termination of the lease, title to all of the real property, plant and
equipment is to 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 Marshfield, Wisconsin resin-coating facility and sand processing plant currently under construction are
located on land owned by the Company. In 2011, the Company purchased land in the Millen, Georgia area for
prospective use as a new ceramic proppant manufacturing facility.
The Company owns or otherwise utilizes distribution facilities in multiple locations around the world. See
“Item 1. Business – Distribution.”
The Company owns approximately 4,000 acres of land and leasehold interests near its plants in Georgia and
Alabama. The land contains raw material for use in the production of the Company’s lightweight ceramic
proppants. The Company also holds approximately 490 acres of land and leasehold interests in Wisconsin near its
resin-coating facility under construction in Marshfield, Wisconsin.
Falcon Technologies owns its service facility located in Decatur, Texas, and leases other regional service
facilities within the United States.
Item 3.
Legal Proceedings
On August 4, 2011, the Company was named as a defendant in a civil lawsuit filed by C-E Minerals, Inc.
(“C-E”) in the United States District Court for the Northern District of Georgia, Atlanta Division (the
“Court”). C-E has alleged that a mutual non-competition provision contained in a Raw Material Requirements
Agreement between C-E and CARBO Ceramics Inc., dated June 1, 2003, is invalid under federal antitrust law
and applicable state law. The covenant generally prohibits C-E from engaging in the manufacture or sale of
ceramic proppant, and prohibits the Company from engaging in the business of selling calcined clay through the
end of 2013 (three years after the termination date of the agreement). C-E is seeking a declaratory judgment that
the covenant is invalid, along with a preliminary and permanent injunction that would prevent the enforcement of
the covenant. C-E is also seeking to recover its attorney’s fees from the Company. C-E subsequently amended its
complaint on September 15, 2011 to further allege that the Company has certain monopoly power and has asked
for declaratory and injunctive relief that would prevent the Company from enforcing certain damages provisions
in its sales contracts. The Company believes that C-E’s allegations are without merit and is vigorously defending
the lawsuit. In addition, the Company has filed a counter-claim against C-E seeking injunctive relief and
damages in connection with sales of ceramic proppant by C-E and its affiliates. C-E has filed a motion for a
preliminary injunction that would prohibit the enforcement of the non-competition provision. The Court held a
hearing on this motion on February 15, 2012 and a decision is pending.
On February 9, 2012, the Company and two of its officers, Gary A. Kolstad and Ernesto Bautista III, were
named as defendants in a purported class-action lawsuit filed in the United States District Court for the Southern
District of New York. The suit alleged violations of the Federal securities laws arising from statements
concerning the Company’s business operations and business prospects that were made between October 27, 2011
and January 26, 2012, and requests unspecified damages and costs. While the lawsuit is in its preliminary stages,
the Company does not believe it has merit, and plans to vigorously contest and defend against it.
Additionally, 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 effect on its
business or its results of operations.
The Company cannot predict the ultimate outcome or duration of any lawsuit described in this report.
15
Item 4.
Mine Safety Disclosure
Several of our U.S. manufacturing facilities process mined minerals, and therefore are viewed as mine
operations subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine
Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters
required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the
recently proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in Exhibit 95 to this annual report.
16
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Common Stock Market Prices, Dividends and Stock Repurchases
The Company’s common stock is traded on the New York Stock Exchange (ticker symbol CRR). The
number of record and beneficial holders of the Company’s common stock as of February 1, 2012 was
approximately 37,195.
The following table sets forth the high and low sales prices of the Company’s common stock on the New
York Stock Exchange and dividends for the last two fiscal years:
Quarter Ended
March 31
June 30
September 30
December 31
2011
2010
Sales Price
High
Low
Cash
Dividends
Declared (1)
Sales Price
High
Low
Cash
Dividends
Declared (2)
$141.12
162.95
180.25
155.94
$ 98.80
127.54
102.53
94.18
$0.40
—
0.48
—
$ 72.08
77.86
83.81
103.81
$59.27
62.09
72.10
77.98
$0.36
—
0.40
—
(1) Represents quarters during which dividends were declared. The payment months for cash dividends were
February 2011 ($0.20), May 2011 ($0.20), August 2011 ($0.24) and November 2011 ($0.24).
(2) Represents quarters during which dividends were declared. The payment months for cash dividends were
February 2010 ($0.18), May 2010 ($0.18), August 2010 ($0.20) and November 2010 ($0.20).
The Company currently expects to continue its policy of paying quarterly cash dividends, although there can
be no assurance as to future dividends because they depend on future earnings, capital requirements and financial
condition.
On August 28, 2008, the Company’s Board of Directors authorized the repurchase of up to two million
shares of the Company’s common stock. Shares are effectively retired at the time of purchase. The Company did
not repurchase any shares under this repurchase plan during the fourth quarter of 2011. As of December 31,
2011, the Company has repurchased and retired 1,817,576 shares at an aggregate price of $72.6 million.
The following table provides information about the Company’s repurchases of common stock during the
quarter ended December 31, 2011, all of which represent shares surrendered to the Company for tax withholding
obligations upon the vesting of restricted stock:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plan (1)
10/01/11 to 10/31/11 . . . . . . . . . . . . . . . .
11/01/11 to 11/30/11 . . . . . . . . . . . . . . . .
12/01/11 to 12/31/11 . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
414 (3)
—
268 (3)
682 (3)
$115.36
$ —
$144.01
—
—
—
—
Maximum
Number of
Shares that May
Yet be Purchased
Under the Plan (2)
182,424
182,424
182,424
(1) On August 28, 2008, the Company announced the authorization by its Board of Directors for the repurchase
of up to two million shares of its Common Stock.
17
(2) Represents the maximum number of shares that may be repurchased under the previously announced
authorization as of period end. As of February 20, 2012, a maximum of 122,424 shares may be repurchased
under the previously announced authorization.
(3) Represents shares of stock withheld for the payment of withholding taxes upon the vesting of restricted
stock.
Stock Performance Graph
The following graph compares the cumulative shareholder return on the Company’s common stock versus
the total cumulative return on the S&P 500 Stock Index and the S&P Small Cap 600, Oil & Gas Equipment &
Services Sub-Industry Group. The comparison assumes $100 was invested as of December 31, 2006 and all
dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CARBO Ceramics, Inc., the S&P 500 Index,
and S&P SmallCap 600 - Oil & Gas Equipment & Services Index
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/06
12/07
12/08
12/09
12/10
12/11
CARBO Ceramics, Inc.
S&P 500
S&P SmallCap 600 - Oil & Gas Equipment & Services Index
*$100 invested on 12/31/06 in stock or index, including reinvestment of dividends. Fiscal year ending
December 31.
Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
18
Item 6.
Selected Financial Data
The following selected financial data are derived from the audited consolidated financial statements of the
Company. The data should be read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements and notes thereto included
elsewhere in this Form 10-K. The Company has determined that its outstanding non-vested restricted stock
awards are participating securities. Accordingly, effective January 1, 2009, earnings per common share are
computed using the two-class method prescribed by ASC Topic 260 “Earnings Per Share.” All previously
reported earnings per common share data were retrospectively adjusted to conform to the new computation
method.
Years ended December 31,
2011
2010
2009
2008
2007
($ in thousands, except per share data)
Statement of Income Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$625,705
363,990
$473,082
298,411
$341,872
221,369
$387,828
260,394
$299,996
198,070
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative
261,715
174,671
120,503
127,434
101,926
expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,113
55,061
. . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit
Other (expense) income, net . . . . . . . . . . . . . . . . .
197,602
(152)
119,610
(261)
41,053
79,450
344
79,794
26,984
52,810
40,351
87,083
1,266
88,349
27,944
60,405
30,467
71,459
3,120
74,579
24,938
49,641
197,450
67,314
130,136
119,349
40,633
78,716
Income before income taxes . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . .
Discontinued operations (2):
. . . . . . . . . . . . . . . .
Income from discontinued operations, net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of discontinued operations, net
of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per basic share:
. . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . .
Income from discontinued operations . . . . .
Gain on disposal of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . .
Earnings per diluted share: . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . .
Income from discontinued operations . . . . .
Gain on disposal of discontinued
$
$
$
—
—
—
—
—
—
5,784
4,229
44,127
—
$
5.62
—
$
3.41
—
—
—
2.27
—
—
5.62
$
3.41
$
2.27
$
5.62
—
$
3.40
—
2.27
—
—
$
$
$
$
$
$
2.47
0.24
1.81
4.52
2.46
0.24
1.81
2.03
0.17
—
2.20
2.02
0.17
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130,136
$ 78,716
$ 52,810
$110,316
$ 53,870
operations . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Diluted earnings per share . . . . . . . . . . . . . .
$
5.62
$
3.40
$
2.27
$
4.51
$
2.19
19
Balance Sheet Data:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
. . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . .
. .
Discontinued operations (included above) (2):
Assets held for sale . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . .
December 31,
2011
2010
2009
2008
2007
($ in thousands, except per share data)
$302,565
79,066
392,659
740,865
630,158
0.88
$
$237,655
51,247
338,483
599,571
521,979
0.76
$
$218,870
32,458
270,722
513,412
457,316
0.70
$
$293,310
83,848
244,902
546,877
442,534
0.62
$
$190,924
33,264
253,261
451,523
389,439
0.52
$
$ — $ — $ — $ — $ 66,191
4,024
—
—
—
—
(1) Selling, general and administrative (SG&A) expenses for 2011, 2010, 2009, 2008 and 2007 include costs of
start-up activities of $184, $977, none, $1,108, and $1,215, respectively. Start-up costs for 2011 relate
primarily to the start-up of the fourth production line at the Company’s Toomsboro, Georgia facility.
Start-up costs for 2010 relate to the start-up of the first resin-coating line within the Company’s existing
manufacturing infrastructure at the New Iberia, Louisiana facility and the start-up of the third production
line at the Company’s Toomsboro, Georgia facility. Start-up costs for 2008 relate to the start-up of the
second production line at the Company’s Toomsboro, Georgia facility and the reopening of the New Iberia,
Louisiana manufacturing facility previously idled earlier during 2008. Start-up costs for 2007 are related
primarily to the new production facility in Kopeysk, Russia. SG&A expenses in 2011, 2010, 2009, 2008 and
2007 also include losses of $1,548, $1,449, $156, $1,599, and $268, respectively, associated with the
write-off of a prepayment for the purchase of ceramic proppant from a China proppant manufacturer in 2008
and disposal of certain equipment, impairment of goodwill and certain software, and a write-down of a cost-
method investment in other years.
(2) On October 10, 2008, the Company completed the sale of its fracture and reservoir diagnostics business, the
Pinnacle name and related trademarks. Consequently, these operations are presented as discontinued
operations and the related assets and liabilities are presented as held for sale. At December 31, 2007, assets
and liabilities held for sale are presented as current assets and current liabilities, respectively.
20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Level Overview
CARBO Ceramics Inc. generates revenue primarily through the sale of products and services to the oil and
gas industry. The Company’s principal business consists of manufacturing and selling ceramic proppant and
resin-coated sand for use primarily in the hydraulic fracturing of oil and natural gas wells. The Company also
provides the industry’s most popular hydraulic fracture simulation software FracPro®, as well as hydraulic
fracture design, consulting and geotechnical monitoring services.
In October 2009, Falcon Technologies, a wholly-owned subsidiary of the Company, purchased substantially
all of the assets of BBL Falcon Industries, Ltd., a supplier of spill prevention, containment and countermeasure
systems for the oil and gas industry. The acquisition was made for the purpose of expanding the Company’s
product and service offerings to its existing client base. Falcon Technologies uses proprietary technology to
provide products that are designed to enable its clients to extend the life of their storage assets, reduce the
potential for hydrocarbon spills and provide containment of stored materials.
During 2010, the Company began production of resin-coated ceramic (CARBOBOND® LITE®) and resin-
coated sand (CARBOBOND® RCS) proppants. The introduction of CARBOBOND® LITE® addresses a market
in which oil and natural gas wells are subject to a high risk of proppant flow-back. The adhesive property of the
resin allows the ceramic proppant pack to adhere in place and therefore reduce the risk of proppant flow-back. In
the case of CARBOBOND® RCS, the Company made the strategic decision to offer a lower cost, lower
conductivity alternative to its ceramic proppants thereby broadening its proppant suite of products. Management
of the Company believes that this is a natural extension of our core business and enhances our highly conductive
proppant offering.
The Company’s products and services help oil and gas producers increase production and recovery rates
from their wells, thereby lowering overall reservoir development costs. As a result, the Company’s business is
dependent to a large extent on the level of drilling activity in the oil and gas industry worldwide. Although the
Company’s ceramic proppants are more expensive than alternative non-ceramic proppants, the Company has
been able to demonstrate the cost-effectiveness of its products to numerous operators of oil and gas wells through
increased technical marketing activity. The Company believes its future prospects benefit from both an increase
in drilling activity worldwide and the desire of industry participants to improve production results and lower their
overall development costs.
The Company believes international sales will continue to represent an important role in its business.
International revenues represented 21%, 23% and 24% of total revenues in 2011, 2010 and 2009, respectively.
Management believes the addition of new manufacturing capacity is critical to the Company’s ability to
continue its long-term growth in sales volume and revenue for ceramic proppant, resin-coated ceramic proppant
and resin-coated sand. In regards to expansion, the Company has recently completed the construction of a fourth
production line at its Toomsboro facility which increases ceramic proppant production capacity by 250 million
pounds annually and brings the Company’s total ceramic proppant stated capacity to 1.7 billion pounds per year.
With respect to resin-coating capacity expansion, the second production line in New Iberia, Louisiana was
completed during the first quarter of 2012 and a 600 million pound per year resin-coating facility is under
construction in Marshfield, Wisconsin. Raw sand processing facilities at this location are expected to be
completed during the first half of 2012, and resin-coating facilities are expected to be completed near the end of
2012. Additionally, the Company has purchased a site and submitted environment permit applications for a new
plant in the Millen, Georgia area. This plant is targeted with initial production capacity of up to 500 million
pounds of ceramic proppant annually and a manufacturing line that represents a portion of this initial capacity
could commence production before the end of 2013. Although the Company has operated near or at full capacity
at times during the previous ten years, the addition of significant new capacity, as well as the addition of resin-
coating capacity, could adversely impact operating profit margins if the timing of this new capacity does not
21
match increases in demand for the Company’s products. In addition, the ability to construct new capacity will be
contingent upon the receipt of all needed environmental emission permits. See “Item 1—Business” and “Item
1A—Risk Factors”
Operating profit margin for the Company’s ceramic proppant business is principally impacted by
manufacturing costs, sales price and the Company’s production levels as a percentage of its capacity. Although
most direct production expenses have been relatively stable or predictable over time, the Company has
experienced volatility in the cost of natural gas, which is used in production by the Company’s domestic
manufacturing facilities, and bauxite, which is the primary raw material for production of the Company’s high
strength ceramic proppant. The cost of natural gas has been a significant component of total monthly domestic
direct production expense over the last four years. In an effort to mitigate volatility in the cost of natural gas
purchases and reduce exposure to short term spikes in the price of this commodity, the Company contracts in
advance for portions of its future natural gas requirements. Despite the efforts to reduce exposure to changes in
natural gas prices, it is possible that, given the significant portion of manufacturing costs represented by this
item, gross margins as a percentage of sales may decline and changes in net income may not directly correlate to
changes in revenue.
With regard to resin-coating and sand operations, the Company recently completed a second resin-coating
line at its New Iberia, Louisiana facility and is adding additional resin-coating capacity as well as raw sand
processing facilities in Marshfield, Wisconsin. The Company also continues to work towards purchasing and
developing its own northern white sand reserves. The production of resin-coated sand is a different process than
the manufacture of ceramic proppant, and profit margins associated with resin-coated sand are not anticipated to
be as high as those historically received for the Company’s manufactured ceramic proppant.
As the Company has expanded its operations in both domestic and international markets, there has been an
increase in activities and expenses related to marketing, distribution, research and development, and finance and
administration. As a result, selling, general and administrative expenses have increased in recent years. In the
future, the Company expects to continue to actively pursue new business opportunities by:
•
•
•
increasing marketing activities globally;
improving and expanding its distribution capabilities; and
focusing on new product development.
The Company expects that these activities will generate increased revenue. Selling, general and
administrative expenses, however, may continue to increase in 2012 from 2011 levels as the Company continues
to expand its operations.
General Business Conditions
The Company’s proppant business is impacted by the number of natural gas and oil wells drilled in North
America, and the need to hydraulically fracture these wells. In markets outside North America, sales of the
Company’s products are also influenced by the overall level of drilling and hydraulic fracturing activity.
Furthermore, because the decision to use ceramic proppant is based on comparing the higher initial costs to the
future value derived from increased production and recovery rates, the Company’s business is influenced by the
current and expected prices of natural gas and oil.
Worldwide oil and natural gas prices and related drilling activity levels remained very strong from 2004
until the second half of 2008. During the second half of 2008, oil and natural gas prices as well as active drilling
rigs in North America declined significantly in connection with declines in many of the world’s economies.
During the second half of 2009, the North American drilling rig count improved and stabilized during 2010. Late
in 2011, a severe decline in natural gas prices led certain customers to reduce drilling activities and capital
22
spending in natural gas basins and increase these items in liquids-rich basins. As a result, the Company
experienced a reduction in sales volumes in natural gas fields, including certain shale plays. However, this
reduction was offset in part by increased sales volumes in liquids-rich areas. The Company remains cautious with
respect to the near-term outlook for natural gas, given the current situation. While natural gas fundamentals
recently weakened, the continued strength in oilfield activity by the Company’s clients in oily, liquids-rich plays
is encouraging and the Company expects demand for ceramic proppant to remain strong during 2012. Since
many of these liquids-rich plays are located in areas of the country that do not have well-developed infrastructure
systems, the Company and others in the industry experienced distribution challenges late in 2011. While the
Company believes these distribution issues will improve during the first half of 2012, they may continue to be a
factor in future operations. Overall, the Company believes its operating results for 2012 will continue to be
influenced by the level of oil and natural gas drilling in North America, but expects its ability to demonstrate the
value of ceramic proppant relative to alternatives will allow it to continue to generate new sales opportunities,
especially in oily, liquids-rich plays.
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 (generally upon delivery of products) or at the time
services are performed. 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 two major customers,
both of which are in the petroleum pressure pumping industry. As of December 31, 2011, approximately 46% of
the balance in trade accounts receivable was attributable to those two customers. The Company records an
allowance for doubtful accounts based on its assessment of collectability risk and periodically evaluates the
allowance based on a review of trade accounts receivable. Trade accounts receivable are periodically reviewed
for collectability based on customers’ past credit history and current financial condition, and the allowance is
adjusted, if necessary. 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, the Company’s estimates of the recoverability of accounts receivable could be reduced by a material
amount and the allowance for doubtful accounts could be increased by a material amount. At December 31,
2011, the allowance for doubtful accounts totaled $1.9 million.
The Company values inventory using the weighted average cost method. Assessing the ultimate realization
of inventories requires judgments about future demand and market conditions. The Company regularly reviews
inventories to determine if the carrying value of the inventory exceeds market value and the Company records an
adjustment to reduce the carrying value to market value, as necessary. Future changes in demand and market
conditions could cause the Company to be exposed to additional obsolescence or slow moving inventory. If
actual market conditions are less favorable than those projected by management, lower of cost or market
adjustments may be required.
Income taxes are provided for in accordance with ASC Topic 740, “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.
23
Long-lived assets, which include net property, plant and equipment, goodwill, intangibles and other long-
term assets, comprise a significant amount of the Company’s total assets. The Company makes judgments and
estimates in conjunction with the carrying values of these assets, including amounts to be capitalized,
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.
Results of Operations
Net Income
($ in thousands)
Net Income
2011
Percent
Change
2010
Percent
Change
2009
$130,136
65% $78,716
49% $52,810
For the year ended December 31, 2011, the Company reported net income of $130.1 million, an increase of
65% compared to the $78.7 million reported in the previous year. During 2011, operations continued to be
favorably impacted by continued acceptance of the Company’s products and service offerings. Further, additional
production capacity from the completion of the third and fourth production lines at the Company’s Toomsboro,
Georgia production facility in 2010 and 2011, respectively, enabled the Company to increase sales volumes. Net
income in 2011 increased primarily as a result of a 19% increase in proppant sales volume, a 12% increase in the
average proppant selling price, and an increase in the gross profit margin as a percentage of sales, partially offset
by higher selling, general and administrative expenses. Income tax expense in 2011 increased due to higher
pretax income.
For the year ended December 31, 2010, the Company reported net income of $78.7 million, an increase of
49% compared to the $52.8 million reported in the previous year. During 2010, operations were favorably
impacted by improving fundamentals in the oil and gas industry and continued acceptance of the Company’s
products and service offerings. Net income in 2010 increased primarily as a result of a 29% increase in proppant
sales volume and an increase in the gross profit margin as a percentage of sales, partially offset by higher selling,
general and administrative expenses and other operating expenses. Income tax expense in 2010 increased due to
higher pretax income.
Individual components of financial results are discussed below.
Revenues
($ in thousands)
Consolidated revenues
2011
Percent
Change
2010
Percent
Change
2009
$625,705
32% $473,082
38% $341,872
Revenues of $625.7 million for the year ended December 31, 2011 increased 32% compared to $473.1
million in 2010. Revenues increased primarily due to a 19% increase in proppant sales volume, a 12% increase in
the average proppant selling price as a result of price increases and an increase in the revenues of Falcon
Technologies. The Company’s worldwide proppant sales volume totaled 1.605 billion pounds during 2011
compared to 1.348 billion pounds in 2010. North American (defined as Canada and the United States) sales
volume increased 21% and International (excluding Canada) sales volume increased 12%. North American
demand was driven primarily by an increase in the drilling rig count in the United States and Canada as well as
24
continued acceptance of the Company’s products in unconventional resource plays, including shale formations.
Additional production capacity from the completion of the third and fourth production lines at the Company’s
Toomsboro, Georgia production facility in 2010 and 2011, respectively, enabled the Company to increase sales
volumes. Completion of the first resin-coating line at the Company’s New Iberia, Louisiana production facility
during the second quarter of 2010, as well as the purchase of ceramic proppant that meets API and ISO standards
and is manufactured on an outsourced basis (collectively, “Other Proppants”), also contributed toward improved
ability to meet customer demand. Other Proppants represented 129 million pounds of the Company’s worldwide
sales volume in 2011, as compared to 66 million pounds in 2010. International sales volume increased primarily
due to increases in Russia, Europe and the Asia-Pacific region (including China), partially offset by decreases in
Africa and the Middle East. The average selling price per pound of all proppant, including both Company-
produced proppant and Other Proppant, was $0.360 per pound in 2011 compared to $0.322 per pound in 2010.
Revenues of $473.1 million for the year ended December 31, 2010 increased 38% compared to $341.9
million in 2009. Revenues increased primarily due to a 29% increase in proppant sales volume, a 2% increase in
the average proppant selling price and a full year of operations of Falcon Technologies. The Company’s
worldwide proppant sales volume totaled 1.348 billion pounds for the year ended December 31, 2010 compared
to 1.043 billion pounds for the same period in 2009. North American (defined as Canada and the U.S.) sales
volume increased 29% primarily due to an increase in the drilling rig count in the U.S. and Canada as well as
continued acceptance of the Company’s products in unconventional resource plays, including shale formations.
International (excluding Canada) sales volume increased 31% primarily due to increases in China, Russia,
Africa, Latin America and the Middle East, partially offset by a decrease in Mexico. The average selling price
per pound of all proppant was $0.322 per pound in 2010 compared to $0.315 per pound in 2009.
Gross Profit
($ in thousands)
Consolidated gross profit
As a % of revenues
2011
Percent
Change
2010
Percent
Change
2009
$261,715
50% $174,671
45% $120,503
42%
37%
35%
The Company’s cost of sales related to proppant manufacturing consists of manufacturing costs, packaging
and transportation expenses associated with the delivery of the Company’s products to its customers and
handling costs related to maintaining finished goods inventory and operating the Company’s remote stocking
facilities. Variable manufacturing costs include raw materials, labor, utilities and repair and maintenance
supplies. Fixed manufacturing costs include depreciation, property taxes on production facilities, insurance and
factory overhead.
Gross profit for the year ended December 31, 2011 was $261.7 million, or 42% of revenues, compared to
$174.7 million, or 37% of revenues, for 2010. The increase in gross profit, as well as gross profit as a percentage
of revenues, were primarily the result of higher proppant sales volume, an increase in the average proppant
selling price, a change in product mix, and greater contribution from some of the Company’s other business
units.
Gross profit for the year ended December 31, 2010 was $174.7 million, or 37% of revenues, compared to
$120.5 million, or 35% of revenues, for 2009. The increase in gross profit was primarily the result of higher
proppant sales volume, an increase in the average proppant selling price and a full year of operations of Falcon
Technologies. Gross profit as a percentage of revenues increased primarily as a result of an increase in the
average proppant selling price, lower natural gas costs in the Company’s U.S. manufacturing facilities, and a
change in the mix of products sold towards lightweight products, partially offset by higher freight costs.
25
Selling, General & Administrative (SG&A) and Other Operating Expenses
($ in thousands)
Consolidated SG&A and other
As a % of revenues
2011
Percent
Change
2010
Percent
Change
2009
$64,113
16% $55,061
34% $41,053
10%
12%
12%
Operating expenses consisted of $62.4 million of SG&A expenses and $1.7 million of other operating
expenses for the year ended December 31, 2011 compared to $52.6 million and $2.4 million, respectively, for
2010. The increase in SG&A expenses primarily resulted from higher marketing, research and development, and
administrative spending associated with supporting revenue growth. Other operating expenses in 2011 consisted
of start-up costs of $0.2 million primarily related to the start-up of the fourth production line at the Company’s
Toomsboro, Georgia facility, an impairment of goodwill of $0.9 million related to the Company’s geotechnical
monitoring business and a write-down of $0.8 million related to a 6% interest in an investment accounted for
under the cost method as a result of the sale of the business by majority shareholders. Other operating expenses
in 2010 consisted of start-up costs of $1.0 million related to the start-up of the first resin-coating line within the
Company’s existing manufacturing infrastructure at the New Iberia, Louisiana facility and the third production
line at the Company’s Toomsboro, Georgia facility, an impairment of goodwill of $0.4 million related to the
Company’s geotechnical monitoring business and a $1.0 million loss on equipment disposals mainly related to
the Company’s U.S. manufacturing facilities. As a percentage of revenues, SG&A and other operating expenses
in 2011 decreased to 10% compared to 12% for the same period in 2010.
Operating expenses consisted of $52.6 million of SG&A expenses and $2.4 million of other operating
expenses for the year ended December 31, 2010 compared to $40.9 million and $0.1 million, respectively, for
2009. The increase in SG&A expenses primarily resulted from a full year of operations of Falcon Technologies
in 2010 and higher marketing, research and development spending. Other operating expenses in 2010 consisted
of start-up costs of $1.0 million related to the start-up of the first resin-coating line within the Company’s
existing manufacturing infrastructure at the New Iberia, Louisiana facility and the third production line at the
Company’s Toomsboro, Georgia facility, an impairment of goodwill of $0.4 million related to the Company’s
geotechnical monitoring business and a $1.0 million loss on equipment disposals mainly related to the
Company’s U.S. manufacturing facilities. As a percentage of revenues, SG&A and other operating expenses for
2010 were essentially flat compared to 2009.
Income Tax Expense
($ in thousands)
Income Tax Expense
Effective Income Tax Rate
2011
Percent
Change
2010
Percent
Change
2009
$67,314
66% $40,633
51% $26,984
34.1%
34.0%
33.8%
Consolidated income tax expense was $67.3 million, or 34.1% of pretax income, for the year ended
December 31, 2011 compared to $40.6 million, or 34.0% of pretax income for 2010. The $26.7 million increase
is primarily due to higher pretax income.
Consolidated income tax expense was $40.6 million, or 34.0% of pretax income, for the year ended
December 31, 2010 compared to $27.0 million, or 33.8% of pretax income for 2009. The $13.6 million increase
is primarily due to higher pretax income.
Liquidity and Capital Resources
At December 31, 2011, the Company had cash and cash equivalents of $41.3 million compared to cash and
cash equivalents of $46.7 million at December 31, 2010. During 2011, the Company generated $111.4 million of
cash from operating activities, retained $1.4 million from excess tax benefits relating to stock based
26
compensation, received $0.1 million proceeds from exercised stock options and retained $0.1 million from the
effect of exchange rate changes on cash. Uses of cash included $90.4 million for capital expenditures, $20.4
million for the payment of cash dividends and $7.6 million for repurchases of the Company’s common stock.
Major capital spending in 2011 included construction costs, engineering and procurement on a fourth production
line at the Toomsboro facility, construction costs, engineering and procurement on a second resin-coating
production line at the New Iberia, Louisiana facility, equipment costs related to a resin-coating facility in
Marshfield, Wisconsin, construction and engineering costs related to a sand processing facility in Marshfield,
Wisconsin, and replacement of various equipment associated with the McIntyre and Eufaula facilities.
The Company believes its operating results for 2012 will continue to be influenced by the level of oil and
natural gas drilling in North America. A severe decline in natural gas prices in the U.S. in late 2011 led
businesses engaged in the exploration and production of oil and natural gas to reduce drilling activity and capital
spending in natural gas basins, including shale plays, and to increase capital spending towards oily, liquids-rich
basins. From the Company’s perspective, the industry’s response to the reallocation of proppant supply and
demand and adjustments to the increased supply and decreased prices for natural gas will take some time to work
out, and the exact timing of this response is not certain. See “General Business Conditions” above.
While natural gas prices remain low, the continuing shift in oilfield activity by the Company’s clients to
oily, liquids-rich plays is encouraging, and the Company believes that demand for high-conductivity ceramic
proppant will continue to increase. The Company expects to support demand increases with additions to its
production capacity. The recently completed fourth production line at its Toomsboro, Georgia facility increases
ceramic proppant production capacity by 250 million pounds annually and brings the Company’s total ceramic
proppant capacity to 1.7 billion pounds per year. With respect to resin-coating capacity expansion, the second
production line in New Iberia, Louisiana was completed during the first quarter of 2012 and increased the
Company’s annual resin-coating capacity to 400 million pounds. A 600 million pound per year resin-coating
facility is under construction in Marshfield, Wisconsin. Raw sand processing facilities at this location are
expected to be completed during the first half of 2012, and resin-coating facilities are expected to be completed
near the end of 2012. Additionally, the Company has completed the due diligence process for a new ceramic
proppant manufacturing site and has moved forward with the purchase of a site in Georgia. This plant is targeted
with initial production capacity of up to 500 million pounds annually and a manufacturing line that represents a
portion of this initial capacity could commence production before the end of 2013. Additionally, during periods
of high demand and typically at the request of its customers, the Company may also continue to engage in the
sale of ceramic proppant that meets API/ISO standards manufactured on an outsourced basis. During the twelve
months ended December 31, 2011, the majority of the increase in finished goods inventory is attributable to this
type of proppant. The Company has currently suspended further purchases of this outsourced material.
Subject to its financial condition, the amount of funds generated from operations and the level of capital
expenditures, the Company’s current intention is to continue to pay quarterly dividends to holders of its common
stock. On January 17, 2012, the Company’s Board of Directors approved the payment of a quarterly cash
dividend of $0.24 per share to shareholders of the Company’s common stock on February 1, 2012. The dividend
is payable on February 15, 2012. The Company estimates its total capital expenditures in 2012 will be between
$120.0 million and $140.0 million, which include costs associated with expansion of the Company’s distribution
infrastructure, the construction of the resin-coating and sand processing facilities in Marshfield, Wisconsin, and
the construction of the new manufacturing facility in the Millen, Georgia area.
The Company has historically maintained an unsecured line of credit of $10.0 million. In January 2010, the
Company obtained a new $10.0 million unsecured line of credit with Wells Fargo Bank, N.A., replacing an
expired line of credit with another bank. As of December 31, 2011, there was no outstanding debt under the new
credit agreement. Subsequent to December 31, 2011, the Company did borrow funds under the line of credit and
as of February 29, 2012 the balance outstanding on the Company’s line of credit was $10.0 million. The
Company anticipates that cash on hand, cash provided by operating activities and funds provided by its line of
credit will be sufficient to meet planned operating expenses, tax obligations, capital expenditures and other cash
needs for the next 12 months. The Company also believes that it could acquire additional debt financing, if
needed. Based on these assumptions, the Company believes that its fixed costs could be met even with a
moderate decrease in demand for the Company’s products.
27
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of December 31, 2011.
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of December 31, 2011:
($ in thousands)
Long-term debt obligations
Capital lease obligations
Operating lease obligations:
Payments due in period
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
$ — $ — $ — $ — $ —
—
—
—
—
—
—Primarily railroad equipment
116,715
17,010
32,563
27,466
39,676
Purchase obligations:
—Natural gas contracts
—Raw materials contracts
Other long-term obligations
Total contractual obligations
91,563
29,655
—
26,003
4,709
—
41,351
11,612
—
24,209
6,667
—
—
6,667
—
$237,933
$47,722
$85,526
$58,342
$46,343
See Note 5 and Note 14 to the Notes to the Consolidated Financial Statements.
Operating lease obligations relate primarily to railroad equipment leases and include leases of other
property, plant and equipment.
The Company uses natural gas to power its domestic manufacturing plants. From time to time, the Company
enters into contracts to purchase a portion of the anticipated natural gas requirements at specified prices. As of
December 31, 2011, the last such contract was due to expire in December 2016.
The Company has entered into contracts to supply raw materials, primarily kaolin and bauxite, to each of its
manufacturing plants. Each of the contracts is described in Note 14 to the Notes to the Consolidated Financial
Statements. Three of the contracts do not require the Company to purchase minimum annual quantities, but do
require the purchase of minimum annual percentages, ranging from 70% to 80% of the respective plants’
requirements for the specified raw materials. Two outstanding contracts require the Company to purchase a
minimum annual quantity of material.
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
investments in China and Russia. As of December 31, 2011, the Company’s net investment that is subject to
foreign currency fluctuations totaled $87.2 million, and the Company has recorded a cumulative foreign currency
translation loss of $3.9 million, net of deferred income tax benefit. This cumulative translation loss is included in
Accumulated Other Comprehensive Loss. From time to time, 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, 2011.
The Company has a $10.0 million revolving credit agreement with a bank. Under the terms of the
agreement, the Company has the option of choosing either the bank’s fluctuating Base Rate or LIBOR Fixed
Rate, plus an Applicable Margin, all as defined in the credit agreement. There were no borrowings outstanding
under the agreement at December 31, 2011. The Company does not believe that it has any material exposure to
market risk associated with interest rates.
28
The Company is subject to the risk of market price fluctuations of certain commodities, such as natural gas,
and utilizes forward purchase contracts to manage or reduce market risks relating to these costs. The Company
does not enter into these transactions for speculative or trading purposes. The Company expects to take delivery
of the underlying natural gas and, as such, does not currently believe the market risk exposure on these
instruments to be material. As of December 31, 2011, $91.6 million of natural gas forward contracts were
outstanding for delivery of gas through 2016.
Item 8.
Financial Statements and Supplementary Data
The information required by this Item is contained in pages F-3 through F-22 of this Report.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. 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 Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
As of December 31, 2011, management carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurances of achieving their control objectives. Based upon
and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that
the Company’s disclosure controls and procedures were effective to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control Over Financial Reporting
For Management’s Report on Internal Control Over Financial Reporting, see page F-1 of this Report.
(c) Report of Independent Registered Public Accounting Firm
For the Report of Independent Registered Public Accounting Firm on the Company’s internal control over
financial reporting, see page F-2 of this Report.
(d) Changes in Internal Control over Financial Reporting
29
There were no changes in the Company’s internal control over financial reporting during the quarter ended
December 31, 2011, that materially affected, or are reasonably likely to materially affect, those controls.
Item 9B. Other Information
Not applicable.
30
PART III
Certain information required by Part III is omitted from this Report. The Company 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 included in the Proxy
Statement.
Item 10.
Directors, Executive Officers and Corporate Governance
Information concerning executive officers under Item 401 of Regulation S-K is set forth in Part I of this
Form 10-K. The other information required by this Item is incorporated by reference to the portions of the
Company’s Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management,”
“Election of Directors,” “Board of Directors, Committees of the Board of Directors and Meeting Attendance,”
“Code of Business Conduct and Ethics,” “Section 16(a) Beneficial Ownership Reporting Compliance” and
“Report of the Audit Committee.”
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference to the portions of the Company’s Proxy
Statement entitled “Compensation of Executive Officers,” “Director Compensation” and “Potential Termination
and Change in Control Payments.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated by reference from the Company’s Proxy Statement
under the captions “Securities Ownership of Certain Beneficial Owners and Management” and “Equity
Compensation Plan Information.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the portion of the Company’s Proxy
Statement entitled “Election of Directors.”
Item 14.
Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the portion of the Company’s Proxy
Statement entitled “Ratification of Appointment of the Company’s Independent Registered Public Accounting
Firm.”
31
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) Exhibits, Financial Statements and Financial Statement Schedules:
1. Consolidated Financial Statements
The Consolidated Financial Statements of CARBO Ceramics Inc. listed below are contained in pages F-3
through F-22 of this Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2011 and 2010
Consolidated Statements of Income for each of the three years ended December 31, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity for each of the three years ended December 31, 2011,
2010 and 2009
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2011, 2010 and
2009
2. Consolidated Financial Statement Schedules
All schedules have been omitted since they are either not required or not applicable.
3.
Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as part of, or incorporated by reference into,
this Report.
32
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.
SIGNATURES
CARBO Ceramics Inc.
By:
/s/ Gary A Kolstad
Gary A. Kolstad
President and Chief Executive Officer
By:
/s/ Ernesto Bautista III
Ernesto Bautista III
Vice President and
Chief Financial Officer
Dated: February 29, 2012
33
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gary A. Kolstad and Ernesto Bautista III, jointly and severally, his attorneys-in-fact,
each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ William C. Morris
William C. Morris
/s/ Gary A. Kolstad
Gary A. Kolstad
/s/ Ernesto Bautista III
Ernesto Bautista III
/s/ Sigmund L. Cornelius
Sigmund L. Cornelius
/s/ James B. Jennings
James B. Jennings
/s/ H.E. Lentz, Jr.
H.E. Lentz, Jr.
/s/ Randy L. Limbacher
Randy L. Limbacher
/s/ Robert S. Rubin
Robert S. Rubin
Chairman of the Board
February 29, 2012
President, Chief Executive Officer and
Director (Principal Executive Officer)
February 29, 2012
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
February 29, 2012
Director
February 29, 2012
Director
February 29, 2012
Director
February 29, 2012
Director
February 29, 2012
Director
February 29, 2012
34
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The
Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control–Integrated Framework. Based on its assessment and those criteria,
management has concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2011.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an
attestation report on the Company’s internal control over financial reporting. That report is included herein.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
CARBO Ceramics Inc.
We have audited CARBO Ceramics Inc.’s internal control over financial reporting as of December 31,
2011, based on criteria established in Internal Control–Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). CARBO Ceramics Inc.’s
management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, CARBO Ceramics Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of CARBO Ceramics Inc. as of December 31, 2011, and 2010,
and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2011 and our report dated February 29, 2012 expressed an unqualified
opinion thereon.
New Orleans, Louisiana
February 29, 2012
/s/ ERNST & YOUNG LLP
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2011. 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 standards of the Public Company Accounting Oversight Board
(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, 2011 and 2010, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), CARBO Ceramics Inc.’s internal control over financial reporting as of December 31, 2011,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified
opinion thereon.
New Orleans, Louisiana
February 29, 2012
/s/ ERNST & YOUNG LLP
F-3
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
December 31,
2011
2010
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories:
Finished goods, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41,270
112,014
$ 46,656
89,531
105,233
26,783
132,016
4,023
3,279
9,963
47,872
43,183
91,055
2,970
—
7,443
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
302,565
237,655
Property, plant and equipment:
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land-use and mineral rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible and other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,512
8,610
67,120
455,563
48,778
594,583
201,924
392,659
12,164
33,477
14,074
8,041
56,442
362,286
67,551
508,394
169,911
338,483
13,053
10,380
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$740,865
$599,571
Current liabilities:
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38,192
17,237
10,911
3,704
—
9,022
$ 22,161
12,755
5,186
3,523
113
7,509
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 23,106,358 and
23,108,082 shares issued and outstanding at December 31, 2011 and 2010, respectively
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,066
31,641
51,247
26,345
—
—
231
56,539
577,253
(3,865)
231
57,475
468,387
(4,114)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
630,158
521,979
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$740,865
$599,571
See accompanying notes to consolidated financial statements.
F-4
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$625,705
363,990
$473,082
298,411
$341,872
221,369
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Start-up costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal or impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261,715
62,381
184
1,548
174,671
52,635
977
1,449
120,503
40,897
—
156
Years ended December 31,
2011
2010
2009
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit
Other income (expense):
Interest income, net
Foreign currency exchange loss, net
Other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197,602
119,610
79,450
197
(135)
(214)
(152)
178
(96)
(343)
(261)
451
(192)
85
344
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197,450
67,314
119,349
40,633
79,794
26,984
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130,136
$ 78,716
$ 52,810
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5.62
5.62
$
$
3.41
3.40
$
$
2.27
2.27
See accompanying notes to consolidated financial statements.
F-5
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($ in thousands, except per share data)
Balances at January 1, 2009 . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
$236
—
$ 73,460
—
$371,602
52,810
$(2,764)
—
Total
$442,534
52,810
tax of $1,454 . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . .
Tax benefit from stock based compensation . . . .
Stock granted under restricted stock plan, net . . .
Stock based compensation . . . . . . . . . . . . . . . . . .
Shares repurchased and retired . . . . . . . . . . . . . .
Shares surrendered by employees to pay
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Cash dividends ($0.70 per share)
Balances at December 31, 2009 . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of
tax benefit of ($599)
. . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . .
Tax benefit from stock based compensation . . . .
Stock granted under restricted stock plan, net . . .
Stock based compensation . . . . . . . . . . . . . . . . . .
Shares repurchased and retired . . . . . . . . . . . . . .
Shares surrendered by employees to pay
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Cash dividends ($0.76 per share)
Balances at December 31, 2010 . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of
tax benefit of ($1,447) . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . .
Tax benefit from stock based compensation . . . .
Stock granted under restricted stock plan, net . . .
Stock based compensation . . . . . . . . . . . . . . . . . .
Shares repurchased and retired . . . . . . . . . . . . . .
Shares surrendered by employees to pay
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Cash dividends ($0.88 per share)
1
—
1
—
(7)
—
—
231
—
—
—
—
—
—
—
—
—
231
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(192)
(16,287)
407,933
78,716
—
—
—
—
—
—
(692)
(17,570)
468,387
130,136
—
—
—
—
—
—
895
261
(1)
2,302
(22,556)
—
—
54,361
—
—
254
801
79
3,192
(1,212)
—
—
57,475
—
—
76
1,412
223
4,002
(6,649)
—
—
(901)
(20,369)
(2,445)
—
—
—
—
—
—
—
(5,209)
—
1,095
—
—
—
—
—
—
—
(4,114)
—
249
—
—
—
—
—
—
—
(2,445)
50,365
896
261
—
2,302
(22,563)
(192)
(16,287)
457,316
78,716
1,095
79,811
254
801
79
3,192
(1,212)
(692)
(17,570)
521,979
130,136
249
130,385
76
1,412
223
4,002
(6,649)
(901)
(20,369)
Balances at December 31, 2011 . . . . . . . . . . . . . . . . .
$231
$ 56,539
$577,253
$(3,865)
$630,158
See accompanying notes to consolidated financial statements.
F-6
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock based compensation . . . . . . . . . . . . . . . . .
Loss on disposal or impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction loss, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Trade accounts and other receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Long-term prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes, net
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of BBL Falcon Industries, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturity of short-term investment
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Net proceeds from stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock based compensation . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2011
2010
2009
$130,136
$ 78,716
$ 52,810
36,015
229
4,223
(1,399)
1,548
135
4,719
(23,101)
(41,704)
(1,142)
(24,083)
15,971
11,846
(1,980)
27,728
40
2,662
(759)
1,449
96
3,812
(29,857)
(10,818)
(174)
(14)
13,439
8,160
(2,695)
24,905
516
573
(225)
156
192
2,571
8,119
(14,639)
(606)
236
(7,971)
(529)
(44,058)
111,413
91,785
22,050
(90,395)
—
—
—
(96,566)
193
(4,989)
4,989
(46,127)
(23,000)
—
—
(90,395)
(96,373)
(69,127)
76
(20,369)
(7,550)
1,399
(26,444)
40
(5,386)
46,656
254
(17,570)
(1,904)
759
(18,461)
148
(22,901)
69,557
896
(16,287)
(22,755)
225
(37,921)
(262)
(85,260)
154,817
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41,270
$ 46,656
$ 69,557
Supplemental cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1
$
2
$
1
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,071
$ 40,667
$ 70,463
See accompanying notes to consolidated financial statements.
F-7
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except per share data)
1.
Significant Accounting Policies
Description of Business
CARBO Ceramics Inc. (the “Company”) was formed in 1987 and is a manufacturer of ceramic proppants.
During 2010, the Company began production of resin-coated ceramic and resin-coated sand proppants. The
Company has six production plants in: New Iberia, Louisiana; Eufaula, Alabama; McIntyre, Georgia;
Toomsboro, Georgia; Luoyang, China; and Kopeysk, Russia. The Company predominantly markets its proppant
products through pumping service companies that perform hydraulic fracturing for oil and gas companies.
Finished goods inventories are stored at the plant sites and various domestic and international remote distribution
facilities. The Company also provides the industry’s most popular fracture simulation software FracPro®, as well
as fracture design and consulting services. In addition, the Company provides a broad range of technologies for
spill prevention, containment and countermeasures, along with geotechnical monitoring.
Principles of Consolidation
The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its operating
subsidiaries. All significant intercompany transactions have been eliminated.
Concentration of Credit Risk, Accounts Receivable and Other Receivables
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. The Company establishes an allowance for
doubtful accounts based on its assessment of collectability risk and periodically evaluates the balance in the
allowance based on a review of trade accounts receivable. Trade accounts receivable are periodically reviewed
for collectability based on customers’ past credit history and current financial condition, and the allowance is
adjusted if necessary. Credit losses historically have been insignificant. The allowance for doubtful accounts at
December 31, 2011 and 2010 was $1,933 and $1,711, respectively. Other receivables were $1,968 and $1,946 as
of December 31, 2011 and 2010, respectively, of which 2011 related mainly to miscellaneous receivables in the
United States and China and value added tax receivables in Russia and China. Other receivables for 2010 related
mainly to miscellaneous receivables in China and value added tax receivables in Russia.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. The carrying amounts reported in the balance sheet for cash equivalents
approximate fair value.
Inventories
Inventories are stated at the lower of cost (weighted average) or market. Finished goods inventories include
costs of materials, plant labor and overhead incurred in the production of the Company’s products and costs to
transfer finished goods to distribution centers.
F-8
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repair and maintenance costs are expensed as incurred.
Depreciation is computed on the straight-line method for financial reporting purposes using the following
estimated useful lives:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . .
Land-use rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 to 30years
3 to 30 years
30years
The Company holds approximately 4,000 acres of land and leasehold interests containing kaolin reserves
near its plants in Georgia and Alabama. The Company also holds approximately 490 acres of land and leasehold
interests near its resin-coating facility currently under construction in Marshfield, Wisconsin containing sand
reserves for use as raw material in the production of its resin-coated sand products. The capitalized costs of land
and mineral rights as well as costs incurred to develop such property are amortized using the units-of-production
method based on estimated total tons of these reserves.
Impairment of Long-Lived Assets and Intangible Assets
Long-lived assets to be held and used and intangible assets that are subject to amortization are reviewed for
impairment whenever events or circumstances indicate their carrying amounts might not be recoverable.
Recoverability is assessed by comparing the undiscounted expected future cash flows from the assets with their
carrying amount. If the carrying amount exceeds the sum of the undiscounted future cash flows an impairment
loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying
amounts. Intangible assets that are not subject to amortization are tested for impairment at least annually by
comparing their fair value with the carrying amount and recording an impairment loss for any excess of carrying
amount over fair value. Fair values are generally determined based on discounted expected future cash flows 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. During 2011, 2010 and 2009, the
Company recognized losses of $1,548, $1,449 and $156, respectively, on disposal or impairment of various
assets. The loss in 2011 consisted of an impairment of goodwill related to the Company’s geotechnical
monitoring business, a write-down of a 6% interest in an investment accounted for under the cost method as a
result of the sale of the business by majority shareholders and certain equipment disposals. The loss in 2010
consisted of an impairment of goodwill related to the Company’s geotechnical monitoring business and
equipment disposals, while the loss in 2009 is mainly related to equipment disposals.
Capitalized Software
The Company capitalizes certain software costs, after technological feasibility has been established, which
are amortized utilizing the straight-line method over the economic lives of the related products, not to exceed five
years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the fair value of their net assets at the
date of acquisition. Realization of goodwill is assessed at least annually by management based on the fair value
F-9
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
of the respective reporting unit. As a result of changes in business conditions in the geotechnical monitoring
business during 2011 and 2010, the Company recorded an impairment charge of $889 and $470, respectively, on
goodwill associated with that reporting unit. The latest impairment review indicated goodwill related to other
reporting units was not impaired.
Revenue Recognition
Revenue from proppant sales is recognized when title passes to the customer, generally upon delivery.
Revenue from consulting and geotechnical services is recognized at the time service is performed. Revenue from
the sale of fracture simulation software is recognized when title passes to the customer at time of shipment.
Revenue from the sale of spill prevention services is recognized at the time service is performed. Revenue from
the sale of containment goods is recognized at the time goods are delivered.
Shipping and Handling Costs
Shipping and handling costs are classified as cost of sales. Shipping costs consist of transportation costs to
deliver products to customers. Handling costs include labor and overhead to maintain finished goods inventory
and operate distribution facilities.
Cost of Start-Up Activities
Start-up activities, including organization costs, are expensed as incurred. Start-up costs for 2011 primarily
related to the start-up of the fourth production line at the Company’s Toomsboro, Georgia facility. Start-up costs
for 2010 related to the start-up of the first resin-coating line within the Company’s New Iberia, Louisiana facility
and the start-up of the third production line at the Company’s Toomsboro, Georgia facility. Start-up costs include
organizational and administrative costs associated with the facilities as well as labor, materials, and utilities to
bring installed equipment to operating condition.
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 2011, 2010 and 2009 were $7,335, $5,279 and
$2,902, respectively.
Foreign Subsidiaries
Financial statements of the Company’s foreign subsidiaries are translated using current exchange rates for
assets and liabilities; average exchange rates for the period for revenues, expenses, gains and losses; and
historical exchange rates for equity accounts. Resulting translation adjustments are included in, and the only
component of, accumulated other comprehensive loss as a separate component of shareholders’ equity.
F-10
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
New Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation
of Comprehensive Income,” (“ASU 2011-05”) which amends current comprehensive income guidance. This
accounting update eliminates the option to present the components of other comprehensive income as part of the
statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single
continuous statement of comprehensive income which contains two sections, net income and other
comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public
companies during the interim and annual periods beginning after December 15, 2011 with early adoption
permitted. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial
position, results of operations or cash flows as it only requires a change in the format of the current presentation.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles — Goodwill and Other (ASC Topic
350),” (“ASU 2011-08”). This accounting update allows entities to perform a qualitative assessment on goodwill
impairment to determine whether it is more likely than not (defined as having a likelihood of more than 50
percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether
it is necessary to perform the two-step goodwill impairment test. This guidance is effective for goodwill
impairment test performed in interim and annual periods for fiscal years beginning after December 15, 2011. The
Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
statements.
2. Acquisition of Business
On October 2, 2009, a wholly-owned subsidiary of the Company purchased substantially all of the assets of
BBL Falcon Industries, Ltd. (“Falcon”), a supplier of spill prevention and containment systems for the oil and
gas industry. The acquisition was made for the purpose of expanding the Company’s product and service
offerings to its existing client base. Falcon uses proprietary technology to provide products that are designed to
enable its clients to extend the life of their storage assets, reduce the potential for hydrocarbon spills and provide
containment of stored materials. The acquisition was accounted for using the purchase method of accounting
under ASC Topic 805, “Business Combinations”. The aggregate purchase price of the acquisition was $22,807 in
cash. Acquisition costs incurred during 2009 of $608 are reported in Selling, General and Administrative
Expenses. The operating results of the acquired company have been included in the consolidated financial
statements from the date of acquisition. Goodwill of $8,664 arising in the transaction is deductible for income tax
purposes.
Unaudited pro forma revenue, earnings and earnings per share were not materially different from reported
results and as such are not presented herein.
F-11
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
3.
Intangible and Other Assets
Following is a summary of intangible assets as of December 31:
2011
2010
Weighted
Average
Life
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Intangibles:
Patents and licenses, software and hardware
designs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . .
Customer relationships and non-compete . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6years
10years
9years
Indefinite
$ 4,225
2,782
2,838
833
$1,661
626
756
—
$ 3,562
2,782
2,838
833
$1,144
348
420
—
$10,678
$3,043
$10,015
$1,912
Amortization expense for 2011, 2010 and 2009 was $1,131, $1,043 and $560, respectively. Estimated
amortization expense for each of the ensuing years through December 31, 2016 is $1,203, $1,136, $1,124, $1,019
and $820, respectively.
Following is a summary of other assets as of December 31:
2011
2010
Other assets:
Bauxite raw materials:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,842
1,174
826
$ —
1,163
1,114
$25,842
$2,277
Bauxite raw materials are used in the production of heavyweight ceramic products. As of December 31,
2011 and 2010, the Company has classified as long-term assets those bauxite raw materials inventories and
prepayments in the United States that are not expected to be consumed in production during the upcoming twelve
month period.
4. Bank Borrowings
The Company has an unsecured revolving credit agreement with a bank. Under the terms of the agreement,
dated January 29, 2010, the Company can borrow up to $10,000. The Company has the option of choosing either
the bank’s fluctuating Base Rate or LIBOR Fixed Rate, plus an Applicable Margin, all as defined in the credit
agreement. The terms of the credit agreement provide for certain affirmative and negative covenants and require
the Company to maintain certain financial ratios. Commitment fees are payable quarterly at the annual rate of
0.50% of the unused line of credit. Commitment fees for 2011 and 2010 were $51 and $47, respectively. Under
the terms of the expired agreement, commitment fees payable quarterly at the annual rate of 0.375% of the
unused line of credit were $38 in 2009.
F-12
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
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, 2011 are as follows:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,010
17,134
15,429
14,350
13,116
39,676
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,715
Leases of railroad equipment generally provide for renewal options 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 $11,590 in 2011, $9,054 in 2010, and $7,693
in 2009.
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:
Deferred tax assets:
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$ 1,501
5,797
2,323
4,747
$ 1,590
3,834
2,805
2,652
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
14,368
10,881
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
35,402
644
36,046
28,274
1,509
29,783
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
$21,678
$18,902
Foreign earnings in the table above are presented net of foreign tax credits of $3,868 and $2,494 as of
December 31, 2011 and 2010, respectively, which are expected to be utilized upon repatriation of the foreign
earnings.
F-13
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
Significant components of the provision for income taxes for the years ended December 31 are as follows:
Current:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$57,429
4,288
1,374
63,091
4,223
$34,061
3,303
607
37,971
2,662
$23,712
2,080
619
26,411
573
$67,314
$40,633
$26,984
In China, the Company benefited from a full income tax holiday from the inception of that business through
2004 and a partial tax holiday from 2005 through 2008. However, provision has been made for deferred U.S.
income taxes on all foreign earnings based on the Company’s intent to repatriate foreign earnings. The
reconciliation of income taxes computed at the U.S. statutory tax rate to the Company’s income tax expense for
the years ended December 31 is as follows:
U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit . . . . . . . .
Mining depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 199 Manufacturing Benefit, ETI Exclusion
2011
2010
2009
Amount
Percent
Amount
Percent
Amount
Percent
$69,107
3,103
(1,162)
35.0% $41,772
2,148
1.6
(1,227)
(0.6)
35.0% $27,928
1,351
1.8
(898)
(1.0)
35.0%
1.7
(1.1)
and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,734)
(1.9)
(2,060)
(1.8)
(1,397)
(1.8)
$67,314
34.1% $40,633
34.0% $26,984
33.8%
The Company had a recorded reserve of $227 associated with uncertain tax positions as of December 31,
2011 and there were no significant changes to the recorded reserve during 2011. If these uncertain tax positions
are recognized, substantially all of this amount would impact the effective tax rate. Related accrued interest and
penalties are recorded in income tax expense and are not material.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates, the
most significant of which are U.S. federal and certain state jurisdictions. The Company does not currently have
material income tax exposure in foreign jurisdictions due to tax holidays, recent commencement of operations or
immaterial operations. The 2005 through 2010 tax years are still subject to examination. Various U.S. state
jurisdiction tax years remain open to examination as well though the Company believes assessments, if any,
would be immaterial to its consolidated financial statements.
7.
Shareholders’ Equity
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters to be voted on by shareholders
and do not have cumulative voting rights. Subject to preferences of any Preferred Stock, the holders of Common
F-14
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
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 non-assessable.
On January 17, 2012, the Board of Directors declared a cash dividend of $0.24 per share. The dividend is
payable on February 15, 2012 to shareholders of record on February 1, 2012.
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 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 fifteen-thousandth of a share of Series A Preferred Stock at an exercise price
of $133 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 $133
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 expired on February 13,
2012.
8.
Stock Based Compensation
The CARBO Ceramics Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”), which replaced the
previously expired restricted stock and stock option plans, provides for granting of cash-based awards, stock
options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights,
phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-
denominated performance units) to employees and non-employee directors. The amount paid under the Omnibus
Incentive Plan to any single participant in any calendar year with respect to any cash-based award shall not
exceed $2,000. Awards may be granted with respect to a number of shares of the Company’s Common Stock that
in the aggregate does not exceed 750,000 shares prior to the fifth anniversary of its effective date, plus (i) the
number of shares that are forfeited, cancelled or returned, and (ii) the number of shares that are withheld from the
participants to satisfy an option exercise price or minimum statutory tax withholding obligations. No more than
50,000 shares may be granted to any single participant in any calendar year. Equity-based awards may be subject
F-15
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
to performance-based and/or service-based conditions. With respect to stock options and stock appreciation
rights granted, the exercise price shall not be less than the market value of the underlying Common Stock on the
date of grant. The maximum term of an option is ten years. Restricted stock awards granted generally vest (i.e.,
transfer and forfeiture restrictions on these shares are lifted) proportionately on each of the first three
anniversaries of the grant date, but subject to certain limitations, awards may specify other vesting periods. As of
December 31, 2011, 616,647 shares were available for issuance under the Omnibus Incentive Plan. Although the
Company’s previous restricted stock and stock option plans have expired, outstanding options and unvested
shares granted under these plans remain outstanding in accordance with their terms.
The Company also had a Director Deferred Fee Plan (the “Plan”), which terminated on January 19, 2010,
that permitted non-employee directors of the Company to defer receipt of cash compensation for service as a
director and to receive those fees in the form of the Company’s Common Stock on a specified later date that was
on or after the director’s retirement from the Board of Directors. In January 2011, a total of 4,058 shares were
issued in full payment of $171 of deferred fees remaining under the Plan to electing directors.
As of December 31, 2011, all compensation cost related to stock options granted under the expired stock
option plans has been recognized. During 2011, a total of 3,475 options, with a weighted-average exercise price
of $21.83 per share, were exercised. The weighted-average remaining contractual term of the 2,425 options
outstanding at December 31, 2011 was less than 12 months. The total intrinsic value of options exercised during
the years ended December 31, 2011, 2010 and 2009 was $346, $250, and $944, respectively.
A summary of restricted stock activity and related information for the year ended December 31, 2011 is
presented below:
Nonvested at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Grant-Date
Fair Value
$ 51.20
$104.07
$ 47.05
$ 77.95
Shares
134,276
54,740
(57,636)
(2,298)
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . .
129,082
$ 75.00
As of December 31, 2011, there was $4,760 of total unrecognized compensation cost, net of estimated
forfeitures, related to restricted shares granted under the restricted stock plans. That cost is expected to be
recognized over a weighted-average period of 1.2 years. The weighted-average grant date fair value of restricted
stock granted during the years ended December 31, 2010 and 2009 was $68.80 and $38.91, respectively. The
total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009 was $2,712, $2,141
and $1,978, respectively.
The Company also had an International Long-Term Incentive Plan that provided for granting units of stock
appreciation rights (“SARs”) or phantom shares to key international employees. This plan was replaced by the
Omnibus Incentive Plan. One-third of the units subject to an award vests and ceases to be forfeitable on each of
the first three anniversaries of the grant date. Participants awarded units of SARs have the right to receive an
amount, in cash, equal to the excess of the fair market value of a share of Common Stock as of the vesting date,
or in some cases on a later exercise date chosen by the participant, over the exercise price. Participants awarded
F-16
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
units of phantom shares are entitled to a lump sum cash payment equal to the fair market value of a share of
Common Stock on the vesting date. In no event will Common Stock of the Company be issued under either plan
with regard to SARs or phantom shares. As of December 31, 2011, there were 21,565 units of phantom shares
granted under the plans, of which 12,487 have vested and 2,844 have been forfeited, with a total value of $769,
the unvested portion of which is recorded as a liability within Accrued Payroll and Benefits.
9. Earnings Per Share
ASC Topic 260, “Earnings Per Share”, provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and shall be included in the computation of earnings per share pursuant to the two-class method. The Company’s
outstanding non-vested restricted stock awards are participating securities. Accordingly, earnings per common
share are computed using the two-class method.
The following table sets forth the computation of basic and diluted earnings per share under the two-class
method:
Numerator for basic and diluted earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of reallocating undistributed earnings of participating
2011
2010
2009
$
130,136
$
78,716
$
52,810
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(749)
(485)
(304)
Net income available under the two-class method . . . . . . .
$
129,387
$
78,231
$
52,506
Denominator:
Denominator for basic earnings per share—weighted-average
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,011,087
22,969,360
23,097,105
Effect of dilutive securities:
Employee stock options (See Note 8) . . . . . . . . . . . . . . . . .
Deferred stock awards (See Note 8) . . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . . . . . . . . . . . . .
Denominator for diluted earnings per share—adjusted
1,332
—
1,332
3,802
4,034
7,836
8,723
5,864
14,587
weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,012,419
22,977,196
23,111,692
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5.62
5.62
$
$
3.41
3.40
$
$
2.27
2.27
F-17
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
10. Quarterly Operating Results––(Unaudited)
Quarterly results for the years ended December 31, 2011 and 2010 were as follows:
2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
Three Months Ended
March 31
June 30
September 30
December 31
$150,830
62,056
30,164
$149,669
62,118
29,944
$167,083
72,693
36,911
$158,123
64,848
33,117
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.30
1.30
$
$
1.29
1.29
$
$
1.59
1.59
$
$
1.43
1.43
2010
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
$123,449
42,565
18,992
$111,532
41,241
18,734
$118,517
44,499
20,175
$119,584
46,366
20,815
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.82
0.82
$
$
0.81
0.81
$
$
0.87
0.87
$
$
0.90
0.90
Quarterly data may not sum to full year data reported in the Consolidated Financial Statements due to
rounding.
11. Sales to Customers
The following schedule presents customers from whom the Company derived 10% or more of total revenues
for the years ended December 31:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.0% 33.3%
15.0% 37.5%
27.5% 34.3% 11.1%
*
*
Major Customers
A
B
C
* Less than 10 percent.
12. Geographic Information
Long-lived assets, consisting of net property, plant and equipment and other long-term assets, as of
December 31 in the United States and other countries are as follows:
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International (primarily China and Russia) . . . . .
$377,667
40,835
$294,368
46,391
$222,572
50,413
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$418,502
$340,759
$272,985
2011
2010
2009
F-18
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
Revenues outside the United States accounted for 21%, 23% and 24% of the Company’s revenues for 2011,
2010 and 2009, respectively. Revenues for the years ended December 31 in the United States, Canada and other
countries are as follows:
2011
2010
2009
Revenues:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other international . . . . . . . . . . . . . . . . . . . . . . . .
$495,777
34,001
95,927
$365,346
28,926
78,810
$258,453
22,062
61,357
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$625,705
$473,082
$341,872
13. Benefit Plans
The Company has defined contribution savings and profit sharing plans pursuant to Section 401(k) of the
Internal Revenue Code. Benefit costs recognized as expense under these plans consisted of the following for the
years ended December 31:
Contributions:
Profit sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,690
1,081
$1,606
847
$1,031
732
2011
2010
2009
$3,771
$2,453
$1,763
All contributions to the plans are 100% participant directed. Participants are allowed to invest up to 20% of
contributions in the Company’s Common Stock.
14. Commitments
In 2003, the Company entered into a new agreement with an existing supplier to purchase kaolin for its
Eufaula, Alabama, plant at a specified contract price. The term of the agreement was seven years commencing
January 1, 2004 and required the Company to purchase from the supplier at least 70 percent of the annual kaolin
requirements for the Eufaula, Alabama plant at specified contract prices. For the years ended December 31, 2010
and 2009, the Company purchased from the supplier $3,603 and $3,646, respectively, of kaolin under the
agreement. This agreement expired December 31, 2010. Effective January 1, 2011, the Company entered into a
new agreement with another one of the Company’s existing suppliers. The term of the agreement is three years,
with options to extend for an additional six years, and requires the Company to purchase from the supplier at
least 70 percent of the annual kaolin requirements for the Eufaula plant at specified contract prices. For the year
ended December 31, 2011, the Company purchased from the supplier $3,205 of kaolin under the agreement.
In January 2003, the Company entered into a mining agreement with a 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 term of the agreement, which commenced on January 1, 2003, and remains in effect until such
time as all Company-owned minerals have been depleted, requires the Company to accept delivery from the
contractor of at least 80 percent of the McIntyre plant’s annual kaolin requirements. For the years ended
December 31, 2011, 2010 and 2009, the Company purchased $2,900, $1,687 and $182, respectively, of kaolin
under the agreement.
F-19
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
In October 2008, the Company entered into a ten-year agreement, with options to extend for an additional
ten years, to purchase a minimum of 40,000 tons of uncalcined bauxite each year during the first three years of
the agreement. Thereafter, the minimum required purchase increases to 70,000 tons annually. The bauxite is
purchased at specified contract prices. For the years ended December 31, 2011, 2010 and 2009, the Company
purchased $1,400, $1,400 and $842, respectively, of bauxite under the agreement.
In 2002, the Company entered into a five-year agreement and a ten-year agreement with two different
suppliers to purchase bauxite and hard clays for its China plant at specified contract prices. The five-year
agreement, which was automatically renewed for an additional three years, expired in 2010. The ten-year
agreement requires the Company to accept delivery from the supplier for at least 80 percent of the plant’s annual
requirements. For the years ended December 31, 2011, 2010 and 2009, the Company purchased $2,918, $2,834
and $2,527, respectively, of material under these agreements.
In July 2011, the Company entered into a new agreement with a supplier to provide hydro sized sand for the
Company’s Marshfield, Wisconsin plant at a specified contract price. The term of the agreement was five years
commencing on July 30, 2011 and required the Company to purchase a minimum of 40,000 tons and 100,000
tons of hydro sized sand during 2011 and 2012, respectively. Effective January 30, 2012, the agreement was
amended and requires the Company to purchase a minimum of 150,000 tons of hydro sized sand annually during
years 2012 and 2013 and a minimum of 350,000 tons of hydro sized sand in 2014, all at a stated contract price.
For the year ended December 31, 2011, the Company purchased $462 of sand under this agreement.
The Company has entered into a lease agreement dated November 1, 2008 with the Development Authority
of Wilkinson County (the “Development Authority”) in the State of Georgia. This 2008 agreement supersedes
and replaces the prior lease agreement dated November 1, 2003. Pursuant to the 2008 agreement, the
Development Authority holds the title to the real and personal property of the Company’s McIntyre and
Toomsboro manufacturing facilities and leases the facilities to the Company for an annual rental fee of $50 per
year through the year 2022. At any time prior to the scheduled termination of the lease, the Company has the
option to terminate the lease and purchase the property for a nominal fee plus the payment of any rent payable
through the balance of the lease term. Furthermore, the Company has a security interest in the title held by the
Development Authority. The Company has also entered into a Memorandum of Understanding (the “MOU”)
with the Development Authority and other local agencies, under which the Company receives tax incentives in
exchange for its commitment to invest in the county and increase employment. The Company is required to
achieve certain employment levels in order to retain its tax incentives. In the event the Company does not meet
the agreed-upon employment targets or the MOU is otherwise terminated, the Company would be subjected to
additional property taxes annually. The property subject to the lease agreement is included in Property, Plant and
Equipment (net book value of $258,346 at December 31, 2011) in the accompanying consolidated financial
statements.
The Company uses natural gas to power its domestic manufacturing plants. From time to time the Company
enters into contracts to purchase a portion of the anticipated natural gas requirements at specified prices. As of
December 31, 2011, the Company had natural gas contracts totaling $26,003, $25,087, $16,264, $16,265 and
$7,944 for years ended 2012, 2013, 2014, 2015 and 2016, respectively.
15. Employment Agreements
The Company has an employment agreement through December 31, 2012 with its President and Chief
Executive Officer. The agreement provides for an annual base salary and incentive bonus. If the President and
F-20
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
Chief Executive Officer is terminated early without cause, the Company will be obligated to pay two years base
salary and a prorated incentive bonus. Under the agreement, the timing of the payment of severance obligations
to the President in the event of the termination of his employment under certain circumstances has been
conformed so that a portion of such obligations will be payable in a lump sum, with the remainder of the
obligations to be paid over an 18 month period. The agreement also contains a two-year non-competition
covenant that would become effective upon termination for any reason. The employment agreement extends
automatically for successive one-year periods without prior written notice.
16. Foreign Currencies
As of December 31, 2011, the Company’s net investment that is subject to foreign currency fluctuations
totaled $87,239 and the Company has recorded a cumulative foreign currency translation loss of $3,865, net of
deferred income tax benefit. This cumulative translation loss is included in Accumulated Other Comprehensive
Loss.
17. Legal Proceedings and Regulatory Matters
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.
On August 4, 2011, CARBO Ceramics Inc. was named as a defendant in a civil lawsuit filed by C-E
Minerals, Inc. (“C-E”) in the United States District Court for the Northern District of Georgia, Atlanta
Division. C-E has alleged that a mutual non-competition provision contained in a Raw Material Requirements
Agreement between C-E and CARBO Ceramics Inc., dated June 1, 2003, is invalid under federal antitrust law
and applicable state law. The covenant generally prohibits C-E from engaging in the manufacture or sale of
ceramic proppant, and prohibits the Company from engaging in the business of selling calcined clay through the
end of 2013 (three years after the termination date of the agreement). C-E is seeking a declaratory judgment that
the covenant is invalid, along with a preliminary and permanent injunction that would prevent the enforcement of
the covenant. C-E is also seeking to recover its attorney’s fees from the Company. C-E subsequently amended its
complaint on September 15, 2011 to further allege that the Company has certain monopoly power and has asked
for declaratory and injunctive relief that would prevent the Company from enforcing certain damages provisions
in its sales contracts. The Company believes that C-E’s allegations are without merit and is vigorously defending
the lawsuit. In addition, the Company has filed a counter-claim against C-E seeking injunctive relief and
damages in connection with sales of ceramic proppant by C-E and its affiliates. C-E has filed a motion for a
preliminary injunction that would prohibit the enforcement of the non-competition provision. The Court held a
hearing on this motion on February 15, 2012 and a decision is pending.
On February 9, 2012, the Company and two of its officers, Gary A. Kolstad and Ernesto Bautista III, were
named as defendants in a purported class-action lawsuit filed in the United States District Court for the Southern
District of New York. The suit alleged violations of the Federal securities laws arising from statements
concerning the Company’s business operations and business prospects that were made between October 27, 2011
and January 26, 2012, and requests unspecified damages and costs. While the lawsuit is in its preliminary stages,
the Company does not believe it has merit, and plans to vigorously contest and defend against it.
F-21
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
($ in thousands, except per share data)
18. Subsequent Events
In January 2012, the Company awarded 54,572 shares of restricted stock to certain employees. The fair
value of the stock award on the date of grant totaled $6,528, which will be recognized as expense, net of
estimated forfeitures, on a straight-line basis over the three-year vesting period.
In January 2012, the Company awarded 2,755 units of phantom shares to certain key international
employees. The fair value of the stock award on the date of grant totaled $330.
Subsequent to December 31, 2011, the Company drew down $10,000 on its existing revolving credit facility
to fund a common share repurchase along with other commitments. As of February 29, 2012, the balance
outstanding on the Company’s revolving credit facility was $10,000.
F-22
3.1
3.2
4.1
4.2
10.1
10.2
10.3
*10.4
*10.5
*10.6
*10.7
*10.8
10.9
10.10
10.11
10.12
Exhibit Index
Amended and Restated Certificate of Incorporation of CARBO Ceramics Inc. (incorporated by
reference to Exhibit 3.1 of the Registrant’s Form S-1 Registration Statement No. 333-1884 filed
July 19,1996)
Second Amended and Restated By-Laws of CARBO Ceramics Inc. (incorporated by reference to
Exhibit 3.1 of the Registrant’s Form 8-K Current Report filed March 20, 2009)
Form of Common Stock Certificate of CARBO Ceramics Inc. (incorporated by reference to
Exhibit 4.1 of the Registrant’s Form S-1 Registration Statement No. 333-1884 filed July 19, 1996)
Certificate of Designations of Series A Preferred Stock (incorporated by reference to Exhibit 2 of the
Registrant’s Form 8-A12B Registration Statement No. 001-15903 filed February 25, 2002)
Raw Material Requirements Agreement dated as of June 1, 2003, between CARBO Ceramics Inc.
and C-E Minerals Inc. (incorporated by reference to exhibit 10.4 of the registrant’s Form 10-K
Annual Report for the year ended December 31, 2003)
Mining Agreement dated as of January 1, 2003 between CARBO Ceramics Inc. and Arcilla Mining
& Land Co. (incorporated by reference to Exhibit 10.8 of the Registrant’s Form 10-K Annual Report
for the year ended December 31, 2002)
Addendum to Mining Agreement dated as of November 10, 2009 between CARBO Ceramics Inc.
and Arcilla Mining & Land Co. (incorporated by reference to Exhibit 10.3 of the Registrant’s
Form 10-K Annual Report for the year ended December 31, 2010)
2004 CARBO Ceramics Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.2 of
the Registrant’s Form 8-K Current Report filed January 24, 2005)
Amendment No. 1 to the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan (incorporated by
reference to Annex A of the Registrant’s Definitive Proxy Statement for the 2006 Annual Meeting of
Stockholders filed March 20, 2006)
Form of Non-Employee Director Restricted Stock Award Agreement under the 2004 CARBO
Ceramics Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 of the
Registrant’s Form 8-K Current Report filed April 24, 2006)
Form of Officer Restricted Stock Award Agreement under the 2004 CARBO Ceramics Inc. Long-
Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q
Quarterly Report filed for the period ending June 30, 2009)
Second Amended and Restated Employment Agreement dated effective as of January 1, 2012, by and
between CARBO Ceramics Inc. and Gary A. Kolstad
Acquisition Agreement dated as of August 28, 2008 between Pinnacle Technologies, Inc., CARBO
Ceramics Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K Current Report filed on September 4, 2008)
Proppant Supply Agreement dated as of August 28, 2008 between CARBO Ceramics Inc. and
Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.3 of the Registrant’s
Form 10-Q Quarterly Report for the quarter ended September 30, 2008)
Amendment No. 1 to Proppant Supply Agreement dated as of February 28, 2011 between CARBO
Ceramics Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2011)
Side Letter to Proppant Supply Agreement dated as of August 26, 2011 between CARBO Ceramics
Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2011)
10.13
10.14
*10.15
*10.16
*10.17
*10.18
*10.19
*10.20
*10.21
10.22
10.23
10.24
21
23
31.1
31.2
32
95
101
Lease Agreement dated as of November 1, 2008 between the Development Authority of Wilkinson
County and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s
Form 8-K Current Report filed December 30, 2008)
Option Agreement dated as of November 1, 2008 between the Development Authority of Wilkinson
County and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.2 of the Registrant’s
Form 8-K Current Report filed December 30, 2008)
CARBO Ceramics Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K Current Report filed May 21, 2009)
Form of Officer Restricted Stock Award Agreement for Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.20 of the Registrant’s Form 10-K Annual Report for the year ended
December 31, 2010)
Form of Non-Employee Director Restricted Stock Award Agreement for Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.21 of the Registrant’s Form 10-K Annual Report for the year
ended December 31, 2010)
Form of Performance-Based Cash Award Agreement for Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.4 of the Registrant’s Form 8-K Current Report filed May 21, 2009)
Description of Annual Non-Employee Director Stock Grants (incorporated by reference to
Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2010)
Description of Modification to Annual Non-Employee Director Stock Grants (incorporated by
reference to Exhibit 10.2 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended
March 31, 2011)
CARBO Ceramics Inc. Omnibus Incentive Plan Annual Incentive Arrangement (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed January 21, 2010)
Office Lease dated as of January 20, 2009 between I-10 EC Corridor #2 Limited Partnership and
CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.27 of the Registrant’s Form 10-K
Annual Report for the year ended December 31, 2009)
First Amendment to Lease dated as of January 15, 2010 between I-10 EC Corridor #2 Limited
Partnership and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.28 of the
Registrant’s Form 10-K Annual Report for the year ended December 31, 2009)
Credit Agreement, dated as of January 29, 2010, among CARBO Ceramics Inc., as borrower, Wells
Fargo Bank, National Association, as administrative agent, issuing lender and swing line lender, and
the lenders named therein (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
Current Report filed February 4, 2010).
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad
Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Mine Safety Disclosure
The following financial information from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2011, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated
Statements of Income; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated
Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.
* Management contract or compensatory plan or arrangement filed as an exhibit pursuant to Item 15(b) of the
requirements for an Annual Report on Form 10-K.
cORpORatE inFORMatiOn
BOaRD OF DiREctORs
William c. Morris
Chairman of the Board
Former Chairman of the Board,
J. & W. Seligman & Co. Incorporated
sigmund l. cornelius
Former Senior Vice President and
Chief Financial Officer,
ConocoPhillips
James B. Jennings
Former Senior Advisor,
Brown Brothers Harriman & Co.
Chairman Emeritus, Hunt Oil Company
gary a. Kolstad
President and Chief Executive Officer,
CARBO Ceramics Inc.
H. E. lentz, Jr.
Former Managing Director
Lazard Frères & Co.
Non-Executive Chairman,
Rowan Companies, Inc.
Randy l. limbacher
Chairman of the Board,
President and Chief Executive Officer,
Rosetta Resources, Inc.
Robert s. Rubin
Senior Vice President,
JPMorgan Chase & Co.
cORpORatE OFFicERs
gary a. Kolstad
President and Chief Executive Officer
Ernesto Bautista, iii
Vice President and Chief Financial Officer
Mark l. Edmunds
Vice President, Operations
David g. gallagher
Vice President, Marketing and Sales
Ellen M. smith
Vice President, Human Resources
R. sean Elliott
Vice President and General Counsel
cORpORatE OFFicEs
Energy Center II
575 N. Dairy Ashford
Suite 300
Houston, Texas 77079
281-921-6400
stOcK ExcHangE listing
The New York Stock Exchange
Symbol: CRR
tRansFER agEnt anD REgistRaR
Computershare Shareowner Services, LLC
480 Washington Boulevard
Jersey City, New Jersey 07310-1900
1-866-683-2970
inDEpEnDEnt aUDitORs
Ernst & Young LLP
New Orleans, Louisiana
FORM 10-K
A copy of the company’s Annual Report to the
Securities and Exchange Commission (Form 10-K) is
available free of charge by contacting:
Ernesto Bautista, III
Chief Financial Officer
CARBO Ceramics Inc.
575 N. Dairy Ashford
Suite 300
Houston, Texas 77079
cERtiFicatiOns
The certifications required by Section 302 of the
Sarbanes-Oxley Act of 2002 were filed as exhibits to
the Form 10-K. In addition, we have submitted to the
New York Stock Exchange the annual certification of
our Chief Executive Officer regarding the Company’s
compliance with the NYSE corporate governance listing
standards.
annUal MEEting
The company’s Annual Meeting of Shareholders will
be held at 9:00 a.m. on May 22, 2012, at:
The St. Regis Hotel
1919 Briar Oaks Lane
Houston, Texas 77027
invEstOR RElatiOns
Additional corporate information is available from
our website at www.carboceramics.com or by
e-mailing the company at IR@carboceramics.com.
MissiOn statEMEnt: Our primary mission is to improve production and
recovery rates in oil and natural gas reservoirs.
cORE valUEs: At CARBO, we achieve our mission within the framework
established by our core values.
We achieve our mission by being the global market leader in providing oil and gas
companies and oilfield service companies with the highest quality proppant, the
industry-leading fracture simulation software, and industry-respected fracture design,
engineering and consulting services. The company also provides a broad range of
technologies for spill prevention, containment and countermeasures, along with
geotechnical monitoring.
• We conduct our business with the highest ethical standards.
• We are truthful and honor our commitments and responsibilities.
• We foster a supportive environment by treating each other
with mutual respect and understanding.
• We set aggressive goals and strive to exceed them.
• We enhance our clients’ profitability by consistently providing products and
services that are leading technology, high quality and cost-effective.
• We value and celebrate a high level of individual achievement and team
performance.
• We focus on improving the hydraulic fracturing process and reservoir optimization.
• We encourage innovation and continuous improvement to ensure future growth.
• We provide a safe working environment that encourages, supports and recognizes
the contribution of each individual employee.
• We strive to generate a superior return to our shareholders through growth and
continuous improvement.
®
Energy Center II
575 N. Dairy Ashford
Suite 300
Houston, TX 77079
Corporate Office: 281-921-6400
www.carboceramics.com