Quarterly Report (10-q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant 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 x No ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 23, 2015, 23,271,763 shares of the registrant’s Common Stock, par value $.01 per share, were outstanding.


		PAGES
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Consolidated Balance Sheets — March 31, 2015 (Unaudited) and December 31, 2014		3

	Consolidated Statements of Operations (Unaudited) — Three months ended March 31, 2015 and 2014		4

	Consolidated Statements of Comprehensive (Loss) Income (Unaudited) — Three months ended March 31, 2015 and 2014		5

	Consolidated Statements of Cash Flows (Unaudited) — Three months ended March 31, 2015 and 2014		6

	Notes to Consolidated Financial Statements (Unaudited)		7-10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11-15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		15

Item 4.	Controls and Procedures		16

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		17

Item 1A.	Risk Factors		17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		17

Item 3.	Defaults Upon Senior Securities		17

Item 4.	Mine Safety Disclosure		17

Item 5.	Other Information		17

Item 6.	Exhibits		18

Signatures			19

Exhibit Index			20

2


	March 31, 2015			December 31, 2014
	(Unaudited)			(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	96,143		$	24,298
Trade accounts and other receivables, net		68,713			132,573
Inventories:
Finished goods		105,632			106,941
Raw materials and supplies		23,664			37,502

Total inventories		129,296			144,443
Prepaid expenses and other current assets		4,530			5,241
Prepaid income taxes		2,632			19,708
Deferred income taxes		26,271			11,348

Total current assets		327,585			337,611

Property, plant and equipment:
Land and land improvements		40,888			40,921
Land-use and mineral rights		19,877			19,877
Buildings		75,263			74,911
Machinery and equipment		625,370			627,517
Construction in progress		128,351			109,378

Total		889,749			872,604

Less accumulated depreciation and amortization		314,271			303,888

Net property, plant and equipment		575,478			568,716

Goodwill		12,164			12,164
Intangible and other assets, net		24,286			15,735

Total assets	$	939,513		$	934,226

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank borrowings	$	75,000		$	25,000
Accounts payable		13,028			22,922
Accrued payroll and benefits		2,766			12,466
Accrued freight		1,155			5,925
Accrued utilities		1,768			3,714
Dividends payable		2,327			—
Derivative instruments		6,759			—
Other accrued expenses		12,155			7,388

Total current liabilities		114,958			77,415

Deferred income taxes		81,631			80,754
Derivative instruments		5,788			—
Shareholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none outstanding		—			—
Common stock, par value $0.01 per share, 80,000,000 shares authorized; 23,271,763 and 23,092,674 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		233			231
Additional paid-in capital		59,937			59,297
Retained earnings		700,337			739,498
Accumulated other comprehensive loss		(23,371	)		(22,969	)

Total shareholders’ equity		737,136			776,057

Total liabilities and shareholders’ equity	$	939,513		$	934,226

The accompanying notes are an integral part of these statements.

3


	Three months ended March 31,
	2015			2014
Revenues	$	73,747		$	148,564
Cost of sales		99,745			104,200

Gross (loss) profit		(25,998	)		44,364
Selling, general, and administrative expenses, and other operating expenses		16,515			16,953

Operating (loss) profit		(42,513	)		27,411

Other (expense) income, net		(131	)		92

(Loss) income before income taxes		(42,644	)		27,503
Income tax (benefit) expense		(14,042	)		9,076

Net (loss) income	$	(28,602	)	$	18,427

(Loss) earnings per share:
Basic	$	(1.24	)	$	0.80

Diluted	$	(1.24	)	$	0.80

Other information:
Dividends declared per common share (See Note 4)	$	0.43		$	0.60

The accompanying notes are an integral part of these statements.

4


	Three months ended March 31,
	2015			2014
Operating activities
Net (loss) income	$	(28,602	)	$	18,427
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		12,994			11,803
Provision for doubtful accounts		91			89
Deferred income taxes		(14,043	)		482
Excess tax benefits from stock based compensation		—			(372	)
Lower of cost or market inventory adjustment		4,372			—
Gain on disposal of assets		(32	)		(8	)
Foreign currency transaction loss, net		48			23
Stock compensation expense		2,242			2,086
Loss on derivative instruments		12,547			—
Changes in operating assets and liabilities:
Trade accounts and other receivables		63,785			17,701
Inventories		1,871			(7,352	)
Prepaid expenses and other current assets		711			680
Long-term prepaid expenses		78			(1,927	)
Accounts payable		(6,778	)		134
Accrued expenses		(11,648	)		(6,235	)
Accrued income taxes, net		15,479			8,578

Net cash provided by operating activities		53,115			44,109

Investing activities
Capital expenditures		(22,887	)		(38,908	)

Net cash used in investing activities		(22,887	)		(38,908	)

Financing activities
Proceeds from bank borrowings		50,000			—
Dividends paid		(7,682	)		(6,945	)
Purchase of common stock		(549	)		(5,779	)
Excess tax benefits from stock based compensation		—			372

Net cash provided by (used in) financing activities		41,769			(12,352	)

Effect of exchange rate changes on cash		(152	)		(1,001	)

Net increase (decrease) in cash and cash equivalents		71,845			(8,152	)
Cash and cash equivalents at beginning of period		24,298			94,250

Cash and cash equivalents at end of period	$	96,143		$	86,098

Supplemental cash flow information

Interest paid	$	164		$	10

Income taxes paid	$	—		$	16

The accompanying notes are an integral part of these statements.

6

The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. The consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the year ended December 31, 2014.

The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its operating subsidiaries (the “Company”). All significant intercompany transactions have been eliminated.

Lower of Cost or Market Inventory Adjustment

During the three-month period ended March 31, 2015, market conditions changed with regard to demand for certain products offered by the Company. The Company evaluated its operations and reviewed the carrying values of long-lived assets and inventories and concluded that certain assets had been impacted by the change in market conditions. The Company concluded that current market prices were below carrying costs for some of its inventories. Consequently, the Company recognized a $4,372 loss in cost of sales to adjust finished goods and raw materials carrying values to the lower market prices.

2.	(Loss) Earnings Per Share

The following table sets forth the computation of basic and diluted (loss) earnings per share under the two-class method:


	Three months ended March 31,
	2015			2014
Numerator for basic and diluted (loss) earnings per share:
Net (loss) income	$	(28,602	)	$	18,427
Effect of reallocating undistributed earnings of participating securities		—			(136	)

Net (loss) income available under the two-class method	$	(28,602	)	$	18,291

Denominator:
Denominator for basic (loss) earnings per share — weighted-average shares		22,974,880			22,948,109
Effect of dilutive potential common shares		—			—

Denominator for diluted (loss) earnings per share — adjusted weighted-average shares		22,974,880			22,948,109

Basic (loss) earnings per share	$	(1.24	)	$	0.80

Diluted (loss) earnings per share	$	(1.24	)	$	0.80

3.	Common Stock Repurchase Program

On January 28, 2015, 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. As of March 31, 2015, the Company had not yet repurchased any shares under the plan.

7

On January 20, 2015, the Board of Directors declared a cash dividend of $0.33 per common share payable to shareholders of record on February 2, 2015. The dividend was paid on February 17, 2015. On March 17, 2015, the Board of Directors declared a cash dividend of $0.10 per common share payable to shareholders of record on May 1, 2015. The dividend is payable on May 15, 2015 and is presented in Current Liabilities at March 31, 2015.

5.	Derivative Instruments

Natural gas is used to fire the kilns at the Company’s domestic manufacturing plants. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of this commodity, from time to time, the Company enters into contracts to purchase a portion of the anticipated monthly natural gas requirements at specified prices. Contracts are geographic by plant location. Historically, the Company has taken delivery of all natural gas quantities under contract, which exempted the Company from accounting for the contracts as derivative instruments. However, due to the severe decline in industry activity during the first quarter of 2015, the Company significantly reduced production levels and consequently did not take delivery of all of the contracted natural gas quantities. As a result, during the three months ended March 31, 2015, the Company began accounting for relevant contracts as derivative instruments, which requires the gas contracts to be recognized as either assets or liabilities at fair value with an offsetting entry in earnings. As a result, during the three months ended March 31, 2015, the Company recognized a loss of $12,547 in cost of sales on the recognition of derivative instruments. The cumulative present value losses on these natural gas derivative contracts as of March 31, 2015 are presented as current and long-term liabilities, as applicable, in the Consolidated Balance Sheet. At March 31, 2015, the Company has contracted for delivery a total of 11,160,000 MMBtu of natural gas at an average price of $4.57 per MMBtu through December 31, 2018. Contracts covering 9,480,000 MMBtu are now subject to accounting as derivative instruments.

6.	Fair Value Measurements

The Company’s derivative instruments are measured at fair value on a recurring basis. U.S. GAAP establishes a fair value hierarchy that has three levels based on the reliability of the inputs used to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company uses the income approach in determining the fair value of its derivative instruments. The model used considers the difference between our contracted prices and the New York Mercantile Exchange forward strip price as of March 31, 2015 for each contracted period. The estimated cash flows from these contracts are discounted using a discount rate that reflects the nature of the contracts as well as the timing and risk of estimated cash flows associated with the contracts. The Company’s gas contract derivatives are included within the Level 2 fair value hierarchy.

The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value:


	Fair value as of March 31, 2015
	Level 1		Level 2			Level 3		Total
Assets	$	—	$	—		$	—	$	—
Liabilities:
Derivative instruments		—		(12,547	)		—		(12,547	)

Total fair value	$	—	$	(12,547	)	$	—	$	(12,547	)

7.	Stock Based Compensation

The 2014 CARBO Ceramics Inc. Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”) provides for granting of cash-based awards, stock options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated performance units) to employees and non-employee directors. As of March 31, 2015, 544,584 shares were available for issuance under the 2014 Omnibus Incentive Plan. Although the 2009 CARBO Ceramics Inc. Omnibus Incentive Plan (the “2009 Omnibus Incentive Plan”) has expired, nonvested restricted shares granted under that plan remain outstanding in accordance with its terms.

8

As of March 31, 2015, there was $11,605 of total unrecognized compensation cost, net of estimated forfeitures, related to restricted shares granted under both the expired 2009 Omnibus Incentive Plan and the 2014 Omnibus Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of shares vested during the three months ended March 31, 2015 was $6,333.

The Company made performance-based cash awards to certain executives of the Company pursuant to the 2014 Omnibus Incentive Plan with a total Target Award of $818. The amount of awards that will ultimately vest can range from 0% to 200% based on the Company’s Relative Total Shareholder Return calculated over a three year period beginning January 1, 2015 through December 31, 2017.

The Company also made phantom stock awards to key international employees pursuant to the expired 2009 Omnibus Incentive Plan prior to its expiration and the 2014 Omnibus Incentive Plan. The units subject to a phantom stock award vest and cease to be forfeitable in equal annual installments over a three-year period. Participants awarded units of phantom stock are entitled to a lump sum cash payment equal to the fair market value of a share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued with regard to outstanding phantom stock awards. As of March 31, 2015, there were 18,180 units of phantom stock granted under the expired 2009 Omnibus Incentive Plan, of which 12,569 have vested and 2,182 have been forfeited. As of March 31, 2015, there were 5,020 units of phantom stock granted under the 2014 Omnibus Incentive Plan, of which none have vested and none have been forfeited. As of March 31, 2015, nonvested units of phantom stock under the 2009 Omnibus Incentive Plan and the 2014 Omnibus Incentive Plan have a total value of $258, a portion of which is accrued as a liability within Accrued Payroll and Benefits.

8.	Bank Borrowings

The Company has an unsecured revolving credit agreement with a bank. On October 31, 2014 the Company entered into a third amendment to this credit agreement that (i) extends the maturity date of the credit agreement from July 25, 2018 to October 31, 2019 and (ii) increases the size of the revolving credit facility from $50,000 to $100,000. 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 an annual rate between 0.375% and 0.50% of the unused line of credit. As of March 31, 2015, the Company’s outstanding debt under the credit agreement was $75,000 and the weighted average interest rate was 2.65% based on LIBOR-based rate borrowings.

9.	Foreign Currencies

As of March 31, 2015, the Company’s net investment that is subject to foreign currency fluctuations totaled $33,011, and the Company has recorded a cumulative foreign currency translation loss of $23,371. This cumulative translation loss is included in, and is the only component of, Accumulated Other Comprehensive Loss. There were no amounts reclassified to net income during the quarter ended March 31, 2015. During 2014 and continuing into 2015, the value of the Russian Ruble significantly declined relative to the U.S. dollar. The financial impact of this decline on the Company’s net assets in Russia is included in Other Comprehensive Income and the cumulative foreign currency translation loss noted above. No income tax benefits have been recorded on these losses as a result of the uncertainty about recoverability of the related deferred income tax benefits.

9

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.

11.

Subsequent Events

Subsequent to March 31, 2015, the Company borrowed $20,000 on its existing revolving credit facility. As of April 30, 2015, the balance outstanding on the Company’s revolving credit facility was $95,000.

10

CARBO Ceramics Inc. (“we,” “us,” “our” or our “Company”) is an oilfield services technology company that generates revenue primarily through the sale of production enhancement products and services to the oil and natural gas industry. Our principal business consists of manufacturing and selling proppant products for use primarily in the hydraulic fracturing of oil and natural gas wells. These proppant products include ceramic, resin-coated sand and raw sand. We also provide the industry’s most widely used hydraulic fracture simulation software, FracPro^®, as well as hydraulic fracture design and consulting services. In addition, we provide a broad range of technologies for spill prevention, containment and countermeasures.

Our products and services help oil and gas producers increase production and recovery rates from their wells, thereby lowering overall finding and development costs. As a result, our business is dependent to a large extent on the level of drilling and hydraulic fracturing activity in the oil and gas industry worldwide. Gross margin for our ceramic proppant business is principally impacted by sales volume, product mix, sales price, distribution costs, manufacturing costs, including natural gas, and our production levels as a percentage of our capacity.

In 2012, we expanded our resin coating operations and also began processing raw sand for use in resin coating operations. In 2013, we began selling raw frac sand. Resin coated sand and raw frac sand products sell at much lower prices and with lower gross margins than our ceramic proppant. While gross (loss) profit is generally not materially impacted by the sale of these products, given the current level of sales volumes of raw frac sand and resin coated sand compared to ceramic proppant, our overall gross margin as a percent of revenues and the overall selling price for our proppants can be impacted. In 2014, our gross margin was also impacted by spending on the development of our new KRYPTOSPHERE^™ proppant technology and preparations for its commercialization.

In late June 2014, we completed the first proppant production line at our new Millen, Georgia facility. In addition, during 2014, we began construction of a second production line in Millen, Georgia. Due to current market conditions, completion of the second line at the manufacturing facility in Millen, Georgia has been temporarily suspended. The retrofit of an existing plant to produce KRYPTOSPHERE is scheduled for completion during the third quarter of 2015.

Industry Conditions

In late 2014 and early 2015, a severe decline in oil prices led to a significant decline in oil and natural gas industry drilling activities and capital spending. These low oil prices are expected to continue for the foreseeable future and will likely negatively impact both pricing and demand for ceramic proppants. In addition, a growing number of exploration and production (“E&P”) operators are using raw frac sand in place of ceramic proppant, and some of our clients’ pad well completions were delayed. These events, along with an oversupplied ceramic proppant market and low oil and natural gas prices, drove lower prices for our proppants. During the first quarter of 2015, we implemented a number of initiatives to preserve cash and lower costs, including: reducing workforce across our organization, lowering our production output levels in order to align with lower demand, limiting capital expenditures and reducing dividends. As a result of these measures, we temporarily idled production and furloughed employees at domestic manufacturing plants and mothballed our manufacturing plant in McIntyre, Georgia. In the event that the market demand for proppants further decreases, we may further reduce operations at our active manufacturing plants.

Furthermore, conditions in the North American oil and natural gas market also negatively impacted the proppant market inside China. Proppant manufacturers in China experienced excess production capacity due to market conditions in North America. As a result, we recognized an impairment charge on our long-lived assets in China and wrote down the value of certain inventories in China down to lower market prices during the second half of 2014, and further wrote down the value of certain of our finished goods and raw materials in China down to lower market prices during the first quarter of 2015. We mothballed our plant in China during the first quarter of 2015 and do not expect to resume operations at this facility in the foreseeable future. Upon substantial liquidation of our China entity, we will recognize a non-cash gain from realizing our China-related cumulative foreign currency translation adjustment (“CTA”). As of March 31, 2015, the China-related CTA had an unrealized gain of $9.4 million.

11

Although most direct manufacturing costs have been relatively stable or predictable over time, the cost of natural gas, which is used in production by our domestic manufacturing facilities, is subject to volatility. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of this commodity, from time to time, we enter into natural gas contracts to purchase a portion of the anticipated monthly natural gas requirements at specified prices. Due to the severe decline in industry activity during the first quarter of 2015, we reduced our level of proppant production and did not take delivery of all of the contracted natural gas quantities. As a result, we began to account for relevant contracts as derivative instruments and recorded a loss on these contracts of $12.5 million.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, which require us to make estimates and assumptions (see Note 1 to the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2014). We believe that some of our accounting policies involve a higher degree of judgment and complexity than others. As of December 31, 2014, our critical accounting policies included revenue recognition, estimating the recoverability of accounts receivable, inventory valuation, accounting for income taxes and accounting for long-lived assets. These critical accounting policies are discussed more fully in our annual report on Form 10-K for the year ended December 31, 2014.

During the quarter ended March 31, 2015, we added a critical accounting policy for accounting for derivative instruments. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of this commodity, from time to time, we enter into natural gas contracts to purchase a portion of the anticipated monthly natural gas requirements at specified prices. Historically, we had taken delivery of all natural gas quantities under contract, which exempted us from accounting for the contracts as derivative instruments. However, due to the severe market decline during the first quarter of 2015, we did not take delivery of all of the contracted natural gas quantities. As a result, we began accounting for relevant contracts as derivative instruments, which requires us to recognize the gas contracts as either assets or liabilities at fair value with an offsetting entry in earnings.

We also revised our critical accounting policy for inventory. We expense fixed production overhead amounts in excess of amounts that would have been allocated to each unit of production at normal production levels. As a result of low production levels and idled facilities, we expensed $8.4 million in production costs during the quarter ended March 31, 2015.

There have been no other changes in our evaluation of our critical accounting policies since December 31, 2014.

12

Revenues. Revenues of $73.7 million for the first quarter of 2015 decreased 50% compared to $148.6 million for the same period in 2014. The decrease was mainly attributable to a decrease in ceramic proppant and resin coated sand sales volumes, partially offset by an increase in Northern White Sand sales volumes. The decline in ceramic sales volume was largely attributable to a depressed commodity price for oil and the resulting negative impact on industry activity levels, combined with a growing number of E&P operators using raw frac sand, which sells at a much lower price and has a lower profit margin than ceramic proppant and is having a negative impact on demand for ceramic proppant. Our worldwide proppant sales volumes and average selling price per pound in the first quarter of 2015 compared to the same period in 2014 were as follows:


Proppant Sales	Three months ended March 31,
(Volumes in million lbs)	2015				2014
	Volumes		Average Price / lb		Volumes		Average Price / lb
Ceramic		177	$	0.29		373	$	0.33
Resin Coated Sand		9		0.22		48		0.22
Northern White Sand		343		0.03		157		0.03

Total		529	$	0.12		578	$	0.24

North American (defined as Canada and U.S.) proppant sales volume decreased 7% in the three months ended March 31, 2015 compared to the same period in 2014, on lower sales of ceramic and resin coated sand offset by higher sales of Northern White Sand. North American ceramic proppant sales volume decreased 59%. International (excluding Canada) sales volumes decreased 26%.

Primarily due to the change in product mix and a 12% decline in the average selling price of ceramic proppant, the average selling price per pound of all proppant was $0.12 during the first quarter of 2015 compared to $0.24 for the same period in 2014. In addition to product mix, average selling prices can be impacted by sales prices, geographic areas of sale, customer requirements and delivery methods.

Gross (Loss) Profit. Gross loss for the first quarter of 2015 was $26.0 million, or 35% of revenues, compared to gross profit of $44.4 million, or 30% of revenues, for the same period in 2014. The decrease in gross (loss) profit was primarily the result of lower ceramic proppant sales volumes and a decrease in the average selling price of ceramic proppant. In addition, we recorded a $12.5 million loss on natural gas derivative instruments, and expensed $8.4 million in production costs as a result of low production levels, and idled facilities. Gross (loss) profit was further reduced by $4.7 million in severance costs incurred as a result of the reductions in workforce during the first quarter of 2015 and a $4.4 million adjustment in cost of sales to reduce the value of certain inventories down to lower market prices.

Selling, General and Administrative (SG&A) and Other Operating Expenses. SG&A and other operating expenses totaled $16.5 million for the first quarter of 2015 compared to $17.0 million for the same period in 2014. As a percentage of revenues, SG&A and other operating expenses increased to 22.4% in the first quarter of 2015 compared to 11.4% for the same period in 2014, primarily due to the decrease in revenues. While we took actions during the first quarter of 2015 to reduce our cost base, these actions were partially offset by $1.3 million in severance costs.

Income Tax (Benefit) Expense. Income tax benefit was $14.0 million, or 32.9% of pretax loss, for the first quarter of 2015 compared to income tax expense of $9.1 million, or 33.0% of pretax income, for the same period last year.

13

During the first quarter of 2015, we took significant steps to reduce future costs and align production levels with lower customer demands resulting from the severe decline in the oil and natural gas industry. The timing and magnitude of an industry recovery is uncertain. The typical cost-cutting reaction by E&P operators is underway, as evidenced by the sharp reduction in industry activity during the first quarter of 2015. We are seeing two cost reduction actions by E&P operators that negatively impact our business. First, some wells are drilled but not completed and second, some wells are completed with low conductivity proppant.

The impact on the entire ceramic proppant industry has been severe, leading other domestic proppant suppliers to make similar decisions to mothball and idle ceramic proppant manufacturing capacity. While imports have declined significantly compared to the fourth quarter of 2014, inventory levels of low quality imported ceramic proppant still remain a factor in causing the intense price competition that we are currently experiencing.

With the industry focus primarily on cost reduction, near term visibility for ceramic proppant demand is limited. We will manage through this down-cycle with a focus on cash preservation and cost reduction to provide financial flexibility. This strategy includes idling capacity to further reduce inventory levels, and thus we expect further under-absorption and idling costs to impact our financials in the second quarter of 2015.

Liquidity and Capital Resources

At March 31, 2015, we had cash and cash equivalents of $96.1 million compared to cash and cash equivalents of $24.3 million at December 31, 2014. During the first quarter of 2015, we generated $53.1 million of cash from operating activities and borrowed $50.0 million on our line of credit. Uses of cash included $22.9 million for capital expenditures, $7.7 million for the payment of cash dividends, and $0.5 million for purchases of our common stock.

Subject to its financial condition, the amount of funds generated from operations and the level of capital expenditures, our current intention is to continue to pay quarterly dividends to holders of our common stock. On March 17, 2015, our Board of Directors approved the payment of a quarterly cash dividend of $0.10 per share to common shareholders as of May 1, 2015. The dividend is payable on May 15, 2015. We estimate that our total capital expenditures for the remainder of 2015 will be between $25.0 million and $35.0 million, which primarily include costs associated with retrofitting an existing plant with the new KRYPTOSPHERE proppant technology.

We maintain a $100.0 million unsecured line of credit with a bank that matures in July 2018. As of March 31, 2015, our outstanding debt under the credit agreement was $75.0 million. As of April 30, 2015, our outstanding debt under the credit agreement was $95.0 million. We anticipate that our cash on hand and cash provided by operating activities will be sufficient to meet planned operating expenses, capital expenditures and other cash needs for the next 12 months. This line of credit is subject to compliance with the covenants in the underlying credit agreement, some of which depend on our future operating performance and cash flow. These factors are in turn subject to prevailing oil and gas prices, economic conditions and other factors, many of which are beyond our control. Specifically, the financial covenants in the credit agreement require us to maintain:

•

a minimum tangible net worth of $370.0 million, plus (1) 50% of consolidated net income from each quarter ending on or after March 31, 2010 and (ii) 100% of any equity issuance proceeds after the effective date of the agreement;

•

a maximum leverage ratio of 2.50 to 1.0; and

•

a fixed charge coverage ratio of 1.50 to 1.0.

Additional information as to the applicable definitions and requirements of these covenants is contained in the credit agreement. While we were in compliance with these covenants for the quarter ended March 31, 2015, there can be no assurance that we will remain in compliance in future quarters.

We have begun conversations with our bank about possible adjustments to the covenants and other terms and conditions of our credit agreement, including potential covenant waivers, to provide additional flexibility during this down-cycle. We could also seek to acquire additional debt financing, if needed, although there can be no assurance that we would be able to attain such financing on favorable terms, or at all.

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The statements in this Quarterly Report on Form 10-Q that are not historical statements, including statements regarding our future financial and operating performance and liquidity and capital resources, are forward-looking statements within the meaning of the federal securities laws. All forward-looking statements are based on management’s current expectations and estimates, which involve risks and uncertainties that could cause actual results to differ materially from those expressed in forward-looking statements. Among these factors are:

•

changes in overall economic conditions;

•

changes in the demand for, or price of, oil and natural gas;

•

changes in the cost of raw materials and natural gas used in manufacturing our products;

•

risks related to our ability to access needed cash and capital;

•

our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;

•

our ability to manage distribution costs effectively;

•

changes in demand and prices charged for our products;

•

risks of increased competition;

•

technological, manufacturing and product development risks;

•

our dependence on and loss of key customers and end users;

•

changes in foreign and domestic government regulations, including environmental restrictions on operations and regulation of hydraulic fracturing;

•

changes in foreign and domestic political and legislative risks;

•

risks of war and international and domestic terrorism;

•

risks associated with foreign operations and foreign currency exchange rates and controls; and

•

weather-related risks and other risks and uncertainties.

Additional factors that could affect our future results or events are described from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”). Please see the discussion set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and similar disclosures in subsequently filed reports with the SEC. We assume no obligation to update forward-looking statements, except as required by law.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk through foreign currency fluctuations that could impact our investments in China and Russia. As of March 31, 2015, our net investments subject to foreign currency fluctuations totaled $33.0 million and we have recorded cumulative foreign currency translation loss of $23.4 million. This cumulative translation loss is included in Accumulated Other Comprehensive Loss. From time to time, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There were no such foreign exchange contracts outstanding at March 31, 2015. During 2014 and continuing into 2015, the value of the Russian Ruble significantly declined relative to the U.S. dollar. The financial impact of this decline on our net assets in Russia is included in Other Comprehensive Income and the cumulative foreign currency translation loss noted above. No income tax benefits have been recorded on these losses as a result of the uncertainty about recoverability of the related deferred income tax benefits.

We are also exposed to market risk in the price of natural gas, which is used in production by our domestic manufacturing facilities and is subject to volatility. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of the commodity, from time to time, we enter into contracts to purchase a portion of our anticipated monthly natural gas requirements at specified prices. At March 31, 2015, we have contracted for delivery a total of 11,160,000 MMBtu of natural gas at an average price of $4.57 per MMBtu through December 31, 2018.

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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 March 31, 2015, 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 our 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 our disclosure controls and procedures were effective to ensure that information required to be disclosed by the reports that we file or submit 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 we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)	Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2015 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

ITEM 1A.

RISK FACTORS

There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about our repurchases of Common Stock during the quarter ended March 31, 2015:

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)		Maximum Number of Shares that May Yet be Purchased Under the Plan(1)
01/01/15 to 01/31/15		—			—		—		2,000,000
02/01/15 to 02/28/15		16,696		$	32.78		—		2,000,000
03/01/15 to 03/31/15		57		$	30.59		—		2,000,000

Total		16,753	(2)				—

(1)	On January 28, 2015, we announced the authorization by our Board of Directors for the repurchase of up to two million shares of our Common Stock.

(2)	Represents shares of stock withheld for the payment of withholding taxes upon the vesting of restricted stock.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

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 quarterly report.

ITEM 5.

OTHER INFORMATION

Not applicable.

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10.1		Form of Performance-Based Cash Award Agreement for 2014 CARBO Ceramics Inc. Omnibus Incentive Plan.

10.2		Second Amendment to Lease, effective as of March 1, 2015, by and between I-10 EC Corridor #2 Limited Partnership and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 16, 2015).

31.1		Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad.

31.2		Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95		Mine Safety Disclosure.

101		The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive (Loss) Income; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

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EXHIBIT		DESCRIPTION

10.1		Form of Performance-Based Cash Award Agreement for 2014 CARBO Ceramics Inc. Omnibus Incentive Plan.

10.2		Second Amendment to Lease, effective as of March 1, 2015, by and between I-10 EC Corridor #2 Limited Partnership and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 16, 2015).

31.1		Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad.

31.2		Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III.

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95		Mine Safety Disclosure.

101		The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive (Loss) Income; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

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Exhibit 10.1

CARBO CERAMICS INC.

2014 OMNIBUS INCENTIVE PLAN

PERFORMANCE-BASED CASH AWARD AGREEMENT

This AGREEMENT between CARBO Ceramics Inc. (together with its Subsidiaries, the “Company”) and [ ] (the “Participant”) sets forth the terms and conditions governing the Award (as defined below) granted pursuant to the 2014 CARBO Ceramics Inc. Omnibus Incentive Plan (the “Plan”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan.

W I T N E S S E T H:

1. Grant of Award. Pursuant to the provisions of the Plan, the Company hereby grants to Participant, subject to the terms and conditions herein set forth, a cash Award with a target value of $[ ] (the “Target Award”). This Award is granted to the Participant as of (the “Grant Date”).

2. Terms and Conditions. This Award is subject to the following terms and conditions:

(a) Performance Period. The Performance Period shall commence on and shall end on .

(b) Performance Measures and Performance Targets. The Performance Measures and Performance Targets shall be:

[insert award details]

(c) Performance Schedule and Performance Percentage. The calculation of the Performance Percentage shall be in accordance with the Performance Schedule for this Award as follows:

[insert award details]

(d) Award Calculation. In the manner required by Section 162(m) of the Code, the Committee shall, promptly after the date on which the necessary financial and other information for the Performance Period becomes available, certify the extent to which Performance Targets have been achieved. Using the Performance Schedule, the Committee shall determine the Performance Percentage and multiply the Target Award by such Performance Percentage in order to arrive at the amount payable under this Award; provided, however, that the Committee may, in its discretion, reduce or eliminate the amount payable under this Award based on such factors as it may deem relevant.

(e) Vesting of Award. Subject to Sections 2(f) and 2(g) hereof, this Award shall vest in the amount determined by the Committee pursuant to Section 2(d) hereof, provided that the Participant shall have remained continuously employed by the Company or a Subsidiary of the Company through the last day of the Performance Period (such date, the “Vesting Date”).

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(f) Termination of Employment.

(i) If the Participant experiences a Separation from Service due to his or her death or Disability at a time when this Award remains unvested, this Award shall vest as of the date of such Separation from Service in an amount equal to the Target Award.

(ii) If the Participant experiences a Separation from Service due to Retirement at a time when this Award remains unvested, this Award shall vest as of the date of such Separation from Service and will then be settled at the time and in the amount determined by the Committee pursuant to Section 2(d) hereof. For purposes of this Agreement, “Retirement” shall mean the Participant’s voluntary termination of employment (with the approval of the Committee) after achieving 62 years of age.

(iii) If the Participant’s employment is terminated for Cause prior to the date on which the Award is settled pursuant to Section 2(h) hereof, the Award (whether or not vested) shall terminate automatically and be forfeited (without any consideration therefor) as of the date of such termination of employment, and the Participant shall have no further rights with respect thereto. For purposes of this Agreement, “Cause” shall have the meaning set forth for such term in any effective employment agreement between the Participant and the Company (or its Subsidiary) or, if none, shall mean shall mean: (A) any material violation by the Participant of any agreement entered into between the Participant and the Company (or its Subsidiary), (B) any failure by the Participant substantially to perform his or her duties to the Company (including without limitation the Participant’s fiduciary duty and duty of loyalty to the Company), other than as a result of physical or mental illness or injury; (C) any act or omission involving dishonesty, fraud, willful misconduct or gross negligence on the part of the Participant that is or may be materially injurious to the Company; (D) any felony or other crime involving moral turpitude committed by the Participant; or (E) a material breach by the Participant of the Company’s written policies or procedures that have been communicated to the Participant, which breach causes material harm to the Company or its business reputation.

(iv) If the Participant experiences a Separation from Service that is not described in Section 2(f)(i), (ii) or (iii) hereof at a time when the Participant’s outstanding Award remains unvested, then as of the date of such Separation from Service, the Award shall terminate automatically and be forfeited (without any consideration therefor) and the Participant shall have no further rights with respect thereto.

(g) Vesting in the Event of a Change in Control. Notwithstanding any provision of this Section 2 to the contrary, if a Change in Control occurs at a time when the Participant’s outstanding Award remains unvested, the Award shall be treated in accordance with Section 19 of the Plan.

(h) Settlement of Award. Subject to the terms and conditions of the Plan (including without limitation Sections 9, 13 and 14 thereof) and this Agreement, including without limitation, Section 6 hereof, the Company shall pay a lump sum cash amount to the Participant in the amount determined pursuant to Section 2(d) or Section 2(f)(i) in settlement of this Award, as applicable, (i) if the Award vests pursuant to Section 2(e) or 2(f)(ii), on the date of Committee certification under Section 2(d) but in no event later than March 15^th of the

2

calendar year following the last day of the Performance Period, (ii) if the Award vests pursuant to Section 2(f)(i), on the date of Separation from Service and (iii) if the Award vests pursuant to Section 2(g) and Section 19 of the Plan, the date on which the Change in Control occurs. Payment of a Cash Award to the Participant pursuant to Section 2(h)(ii) and 2(h)(iii) hereof shall in no event be made to the Participant later than the date that is sixty (60) days following the date specified therein.

(i) Non-Transferability of Award. This Award may not be sold, transferred, pledged, assigned or otherwise alienated at any time other than a transfer in accordance with Section 17 of the Plan. Any attempt to do so contrary to the provisions hereof shall be null and void.

(j) Award Confers No Rights with Respect to Continued Employment. Nothing contained herein or in the Plan shall confer upon the Participant any right with respect to the continuation of his or her employment by or service to the Company or interfere in any way with the right of the Company at any time to terminate such employment or service or to increase or decrease the compensation of the Participant from the rate in existence as of the Grant Date. The Committee’s granting of the Award to the Participant shall neither require the Committee to grant any subsequent Award to the Participant (or any Award to any other person) at any time, nor preclude the Committee from making subsequent grants to the Participant or any other person.

(k) Compliance with Law and Regulations. This Award and any obligation of the Company to pay cash hereunder shall be subject to all applicable federal, state, local and non-U.S. laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company’s obligations in connection with the Award are subject to all terms and conditions of this Agreement and the Plan (including, without limitation, Sections 9, 13 and 14 thereof).

(l) Modification of Award. The Committee may amend, suspend or terminate the Plan at any time in accordance with Section 15(a) of the Plan. The Committee may amend or modify the terms and conditions of the Award to the extent that the Committee determines, in its sole discretion, that the terms and conditions of the Award violate or may violate Section 409A of the Code; provided, however, that (i) no such amendment or modification shall be made without the Participant’s written consent if such amendment or modification would violate the terms and conditions of any other agreement between the Participant and the Company and (ii) unless the Committee determines otherwise, any such amendment or modification made pursuant to this Section 2(l) and Section 15(b) of the Plan shall maintain, to the maximum extent practicable, the original intent of the applicable Award provision without contravening the provisions of Section 409A of the Code. The amendment or modification of the Award pursuant to this Section 2(l) and Section 15(b) of the Plan shall be at the Committee’s sole discretion and the Committee shall not be obligated to amend or modify the Award or the Plan, nor shall the Company be liable for any adverse tax or other consequences to the Participant resulting from such amendments or modifications or the Committee’s failure to make any such amendments or modifications for purposes of complying with Section 409A of the Code or for any other purpose. To the extent the Committee amends or modifies the Award pursuant to this Section 2(l) and Section 15(b) of the Plan, the Participant shall receive notification of any such changes

3

to the Award and, unless the Committee determines otherwise, the changes described in such notification shall be deemed to amend the terms and conditions of the Award and this Agreement.

3. Participant Bound by Plan. The Participant hereby acknowledges that the Company has made a copy of the Plan available to him or her and the Participant agrees to be bound by all the terms and provisions thereof.

4. Payment of Taxes. Participant shall be solely responsible for any applicable taxes (including without limitation income and excise taxes) and penalties, and any interest that accrues thereon, which he or she incurs in connection with the receipt, vesting or settlement of the Award. Notwithstanding any provision of the Plan or this Agreement to the contrary, in no event shall the Company or any Subsidiary be liable to the Participant on account of the Award’s failure to (i) qualify for favorable U.S. or non-U.S. tax treatment or (ii) avoid adverse tax treatment under U.S. or non-U.S. law, including, without limitation, Section 409A of the Code. Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any U.S. or non-U.S. tax withholding obligation, whether national, federal, state, local or otherwise, including any social security tax obligation (the “Tax Withholding Obligation”), the Participant must make arrangements with the Company for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company in accordance with Section 14 of the Plan.

5. Notices. Any notice to the Company in connection with the Award shall be addressed to the Company at its offices at 575 N. Dairy Ashford, Suite 300 Houston, Texas 77079, Attention: Omnibus Incentive Plan Administrator, and any notice to the Participant in connection with the Award shall be addressed to him or her at his or her address as shown on the Company’s records at the time such notice is given, subject to the right of either party to designate a different address in writing at any time hereafter.

6. Section 409A of the Code. This Award is intended to comply with Section 409A of the Code and shall be construed accordingly. If (a) the Participant is a Specified Employee at the time at the time of his or her Separation from Service and (b) the Committee determines that the Award is “non-qualified deferred compensation” within the meaning of Section 409A of the Code, then any payment(s) with respect to the Award that becomes payable to the Participant upon his or her Separation from Service shall in no event be made within six months following Participant’s Separation from Service (or, if earlier, the date of the Participant’s death).

7. Governing Law. The Plan and this Agreement, and the rights of all persons under the Plan and this Agreement, shall be construed and administered in accordance with the laws of the State of Delaware without regard to its conflict of law principles.

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IN WITNESS WHEREOF, CARBO Ceramics Inc. has caused this Agreement to be executed on its behalf by [ ], and the Participant has accepted the terms of this Agreement by signing below, in each case as of the Grant Date.


CARBO CERAMICS INC.



By:

Name:

Title:


ACCEPTED AND AGREED BY:

[Name of Participant]

5

Exhibit 31.1

Quarterly Certification

As required by Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934

I, Gary A. Kolstad, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CARBO Ceramics Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 30, 2015

/s/ Gary A. Kolstad

Gary A. Kolstad

President & CEO

Exhibit 31.2

Quarterly Certification

As required by Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934

I, Ernesto Bautista III, certify that: