CARBO CERAMICS INC, 10-K405, 1999-03-12

CARBO CERAMICS INC
10-K405, 1999-03-12
ABRASIVE, ASBESTOS & MISC NONMETALLIC MINERAL PRODS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.

COMMISSION FILE NO. 0-28178
--------------------
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)

DELAWARE 72-1100013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

600 E. LAS COLINAS BOULEVARD
SUITE 1520
IRVING, TEXAS 75039
(Address of principal executive offices)

(972) 401-0090
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 1,
1999, as reported on the Nasdaq National Market, was approximately
$59,053,450. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of March 1, 1999, Registrant had outstanding 14,602,000 shares of Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant's Annual Meeting of Shareholders
to be held April 13, 1999 are incorporated by reference in Part III.

===============================================================================
<PAGE> 2

PART I

ITEM 1. BUSINESS

GENERAL

CARBO Ceramics Inc. is the world's largest producer and supplier of
ceramic proppants for use in the hydraulic fracturing of natural gas and oil
wells. Demand for ceramic proppants depends generally upon the demand for
natural gas and oil and on the number of natural gas and oil wells drilled,
completed or recompleted worldwide. More specifically, the demand for ceramic
proppants is dependent on the number of oil and gas wells that are
hydraulically fractured to stimulate production.

The hydraulic fracturing process consists of pumping fluids down a natural
gas or oil well at pressures and flow rates sufficient to split the hydrocarbon
bearing formation and create fractures in the formation. A granular material,
such as ceramic proppant or sand-based proppant, is suspended in the fluid and
packs the newly created fracture, keeping the fracture open once high-pressure
pumping stops. The proppant-filled fracture creates a permeable channel
through which the hydrocarbons can flow more freely from the formation to the
well and then to the surface.

CARBO Ceramics was formed in 1987 for the purpose of purchasing the assets
of Standard Oil Proppants Company Ltd. (SOPCO). SOPCO was a joint venture
formed to operate the combined proppant businesses of the Carborundum Company
and Dresser Industries. These proppants businesses were started in 1978 and
1984 respectively. While the Carborundum Company and Dresser Industries had
primarily manufactured high strength, premium priced proppants for use in very
deep wells, CARBO Ceramics has pursued a strategy of introducing new, lower-
priced, lightweight, intermediate strength ceramic proppants to capture a
greater portion of the large market for sand-based proppants.

The Company estimates that it supplies 60% of the ceramic proppants and 5%
of all proppants used worldwide. During the year ended December 31, 1998, the
Company generated approximately 65% of its revenues in the U.S. and 35% in
international markets.

PRODUCTS

The Company manufactures four distinct ceramic proppants. CARBOHSP-TM-
and CARBOPROP-Registered Trademark- are premium priced, high strength proppants
designed primarily for use in deep gas wells. CARBOHSP-TM-, which was
introduced in 1979, is the original ceramic proppant, formerly marketed as
"Sintered Bauxite". CARBOHSP-TM- offers the highest level of strength and
conductivity for use primarily in deep gas wells. CARBOPROP-Registered
Trademark-, which was introduced by the Company in 1982, is slightly lower in
weight and strength than CARBOHSP-TM- and was developed for use in deep gas
wells that do not require the strength of CARBOHSP-TM-.

The CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered
Trademark- products are lightweight, intermediate strength proppants designed
for use in gas wells of moderate depth and shallower oil wells. The products
are manufactured and sold to compete directly with sand-based proppants.
CARBOLITE-Registered Trademark-, introduced in 1984, is used in medium depth
oil and gas wells, where the additional strength of ceramic proppants may not
be essential, but where higher production rates can be achieved due to the
products' roundness and uniform grain size.

CARBOECONOPROP-Registered Trademark-, introduced in 1992 to compete
directly with sand-based proppants, is the Company's lowest priced and fastest
growing product. The introduction of CARBOECONOPROP-Registered Trademark- has
resulted in ceramics being used in many new markets by end users that had not
previously used ceramic proppants. The Company believes that many of the users
of CARBOECONOPROP-Registered Trademark- had previously used sand or
resin-coated sand. The Company further believes that its ability to continue
to penetrate the market for sand-based proppants in 1997 and 1998 was limited
by its production capacity for lightweight ceramic proppants.

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CUSTOMERS AND MARKETING

The Company's largest customers are, in alphabetical order, BJ Services
Company, Dowell and Halliburton Company, the three largest participants in the
worldwide petroleum pressure pumping industry. These companies collectively
accounted for approximately 88% of the Company's 1998 revenues and
approximately 84% of the Company's 1997 revenues. The Company's other
customers include primarily foreign pumping service companies that compete in
the worldwide fracturing business. The end users of the Company's products,
however, are the operators of natural gas and oil wells that engage pumping
service companies to hydraulically fracture wells to improve the recovery of
natural gas or oil wells, thereby enhancing the rate of return on the
investment made in such wells. The Company works with the pressure pumping
service companies to present the advantages of using ceramic proppants to the
operators of natural gas and oil wells. The Company generally supplies its
customers with products on a just-in-time basis, with transactions governed by
individual purchase orders. Continuing sales of product depend on the
Company's direct customers and the well operators being satisfied with both
product and delivery performance.

The Company recognizes the importance of aggressive marketing when
introducing a technically advanced and performance enhancing, but intrinsically
more costly, product. The Company must market its products both to its direct
customers and to owners and operators of the natural gas and oil wells. The
Company's sales and marketing staff regularly calls on and keeps close contact
with the people who are influential in the proppant purchasing decision:
production companies, regional offices of well service companies that offer
pressure pumping services, and various completion engineering consultants. 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 proppants versus that of other proppants in the hydraulic
fracturing of a natural gas or oil well.

The Company's Vice President of Marketing and Technology coordinates
worldwide sales and marketing activities. The Company's export marketing
efforts were conducted in 1998 through its sales office in Aberdeen, Scotland
and through two commissioned sales agents located in South America and
Australia.

The Company's ceramic proppants are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 35%, 37% and 31% of the Company's sales for 1998, 1997 and 1996,
respectively.

The distribution of the Company's export and domestic revenues is shown
below, based upon the region in which the customer used the proppants:

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
LOCATION
United States.......... $54.3 $53.3 $45.3
International.......... 29.8 31.8 19.9
----- ----- -----
Total.......... $84.1 $85.1 $65.2
===== ===== =====
</TABLE>

COMPETITION AND MARKET SHARE

The Company's chief worldwide competitor is Norton-Alcoa Proppants
("Norton-Alcoa"). Norton-Alcoa is a joint venture of Compagnie de
Saint-Gobain, a French glass and materials company, and Aluminum Company of
America. Norton-Alcoa manufactures ceramic proppants that directly compete
with each of the Company's products. In addition, Mineraco Curimbaba
("Curimbaba"), based in Brazil, manufactures a sintered bauxite product similar
to the Company's CARBOHSP-TM-, which is marketed in the United States under the
name "Sinterball". The Company believes that Curimbaba has not expanded its
U.S. product line to include a full range of ceramic proppants and is unlikely
to do so in light of patents held by the Company and Norton-Alcoa. The Company
believes that it supplies approximately 60% of the ceramic proppants and
approximately 5% of all proppants used by the oilfield services companies that
perform fracturing services worldwide.

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Competition for CARBOHSP-TM- and CARBOPROP-Registered Trademark- includes
ceramic proppants manufactured by Norton-Alcoa and Curimbaba. The Company's
CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered Trademark-
products compete with ceramic proppants produced by Norton-Alcoa and with sand-
based proppants for use in the hydraulic fracturing of medium depth natural gas
and oil wells. The leading suppliers of mined sand are Unimin Corp., Badger
Mining Corp., Fairmount Minerals Limited, Inc. and Ogelbay-Norton Company. The
leading suppliers of resin-coated sand are Borden Proppants Corp. and Santrol,
a subsidiary of Fairmount Minerals.

The Company believes that the most significant factors that influence a
customer's decision to purchase the Company's products are: (i)
price/performance ratio, (ii) on-time delivery performance, (iii) technical
support and (iv) proppant availability. The Company believes that its products
are competitively priced and that its delivery performance is excellent. The
Company also believes that its superior technical support has enabled it to
persuade customers to use ceramic proppants in an increasingly broad range of
applications and thus increased the overall market for the Company's products.

Prior to 1997, the Company had generally maintained sufficient inventory
to satisfy demand for its products. However, beginning in 1997 and continuing
through the first half of 1998, it became obvious to the management of the
Company that previous capacity additions were insufficient to satisfy demand in
an improving market. The Company has addressed this issue through the
construction of a new manufacturing facility in McIntyre, Georgia, which is
scheduled for completion in the second quarter of 1999.

The Company continually conducts testing and development activities with
respect to alternative raw materials to be used in the Company's existing
production methods and alternative production methods. The Company is not
aware of the development of alternative products for use as proppants in the
hydraulic fracturing process. The Company believes that the main barriers to
entry for additional competitors are the patent rights held by the Company and
certain of its current competitors and the capital costs involved in building
production facilities of sufficient size to be operated efficiently.

DISTRIBUTION

The Company maintains finished goods inventories at its plants in New
Iberia, Louisiana, and Eufaula, Alabama, and at six remote stocking facilities
located in: Rock Springs, Wyoming; Oklahoma City, Oklahoma; San Antonio,
Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada; and Rotterdam, The
Netherlands. The remote stocking facilities consist of bulk storage silos with
truck trailer loading facilities. The Company owns the facilities in San
Antonio, Rock Springs and Edmonton and subcontracts the operation of the
facilities and transportation to a local trucking company. The remaining
stocking facilities are owned and operated by local trucking companies under
contract with the Company. The North American sites are supplied by rail, and
the site in the Netherlands is supplied by container ship. In total, the
Company leases 99 rail cars for use in the distribution of its products. The
price of the Company's products sold for delivery in the lower 48 United States
and Canada includes just-in-time delivery of proppants to the operator's well
site, which eliminates the need for customers to maintain an inventory of
ceramic proppants.

RAW MATERIALS

Ceramic proppants are made from alumina-bearing ores (commonly referred to
as bauxite, bauxitic clay or kaolin, depending on the alumina content), which
are readily available on the world market. Bauxite is largely used in the
production of aluminum metal, refractory material and abrasives. The main
deposits of alumina-bearing ores in the United States are in Arkansas, Alabama
and Georgia; other economically mineable deposits are located in Australia,
China, Jamaica, Russia and Surinam.

The Company's New Iberia facility currently uses bauxite imported from
Australia and bauxitic clay mined in Arkansas. The Company has decreased its
dependence on imported bauxite and bauxitic clay as it has entered into a
contract for the processing and supply of Arkansas bauxite and bauxitic clay
for use at the New Iberia facility. The Company believes that this agreement,
which stipulates a fixed price, subject to annual upward adjustments in
accordance with a producer price index, will provide a sufficient supply of
bauxite and bauxitic clay to meet the majority of the requirements of the New
Iberia facility through the year

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<PAGE> 5

2000. The Company is actively searching for additional deposits of bauxite and
bauxitic clay to supply the New Iberia plant beyond 2000.

The Company's Eufaula facility exclusively employs locally mined
uncalcined kaolin, and the Company has entered into a contract requiring the
supplier to sell to the Company up to 200,000 net tons of kaolin per year and
the Company to purchase from the supplier 80% of the Eufaula facility's annual
kaolin requirements, each through 2003. This agreement stipulates a fixed
price, subject to annual adjustment in accordance with fluctuations (within an
8% annual limit) in the producer price index. Raw material costs for the
Eufaula facility are substantially below those for the New Iberia plant, due to
the Eufaula facility's proximity to raw material reserves and use of uncalcined
raw materials.

The new production facility in McIntyre, Georgia will also utilize
primarily locally mined uncalcined kaolin. The Company has entered into a
long-term supply agreement for these raw materials which stipulates a fixed
price subject to annual adjustments for changes in the producer price index and
fuel costs. The supply contract provides for a twenty-year supply of raw
materials.

PRODUCTION PROCESS

Ceramic proppants are made by grinding or dispersing ore to a fine powder,
combining the powder into small, green (i.e., unfired) pellets and sintering
the pellets at 2,500 DEG. F to 3,000 DEG. F in a rotary kiln.

The Company uses two different methods to produce ceramic proppants. The
Company's plant in New Iberia, Louisiana, uses a dry process (the "Dry
Process") which starts with bauxite or bauxitic clay which has been dried to
remove both free water and water which was chemically bound within the ore.
This drying process is referred to as calcining. The calcined ores are
received at the plant and ground into a dry powder. Pellets are formed by
combining the powder with water and binders and introducing the mixture into a
high-shear mixer. The process is completed once the green pellets are sintered
in a rotary kiln. The Company's competitors also use the Dry Process to
produce ceramic proppants.

The Company's plant in Eufaula, Alabama, uses a wet process (the "Wet
Process"), which starts with moist, uncalcined kaolin from local mines. The
kaolin is dispersed with chemicals in a water slurry. With an atomizer, the
slurry is sprayed like a mist into a dryer that causes the slurry to harden
into green pellets. Finally, these green pellets are sintered in rotary kilns.
The Company believes that the Wet Process is unique to its plant in Eufaula,
Alabama.

The Company's plant in McIntrye, Georgia will use the Dry Process.
However, the Company expects to maintain lower production costs at this
facility by purchasing locally mined ore and performing the calcining process
itself.

PATENT PROTECTION

The Company's ceramic proppants are made by processes and techniques that
involve a high degree of proprietary technology, some of which are protected by
patents.

The Company owns outright six issued U.S. patents and seven issued foreign
patents; three of these U.S. patents and four of these foreign patents relate
to the CARBOPROP-Registered Trademark- product produced by the Dry Process.

The Company jointly owns with A/S NIRO Atomizer ("NIRO"), the Danish
designer and manufacturer of the spray atomizer device used in the Wet Process,
three issued U.S. patents and 17 issued foreign patents. The patents owned
jointly with NIRO generally relate to the Wet Process, and the products
produced thereby (CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered
Trademark-).

The current versions of the Company's six most important U.S. patents
expire at various times in the years 2002 through 2009 with its two key product
patents expiring in 2006 and 2009. The Company believes that these patents
have been and will continue to be important in enabling the Company to compete
in the market to supply proppants to the natural gas and oil industry.
The Company intends to enforce and has in the past vigorously enforced its
patents. The Company may be involved from time to time in the future, as it

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has been in the past, in litigation to determine the enforceability, scope and
validity of its patent rights. Past disputes with its main competitor have
been resolved in ways that permit the Company to continue to benefit fully from
its patent rights. The Company and this competitor have cross-licensed certain
of their respective patents relating to intermediate and low density proppants
on both a royalty-free and royalty-bearing basis. (Royalties under these
licenses are not material to the Company's financial results.) The Company and
NIRO have not granted any licenses to third parties relating to the use of the
Wet Process. As a result of these cross licensing arrangements, both the
Company and its main competitor are able to produce a broad range of ceramic
proppants, while third parties are unlikely to be able to enter the ceramic
proppants market without infringing on the patent rights held by the Company,
its main competitor or both.

PRODUCTION CAPACITY

The Company believes that constructing adequate capacity ahead of demand
while incorporating new technology to reduce manufacturing costs are important
competitive strategies to increase its overall share of the market for
proppants. Prior to 1993, the Company's production capacity was substantially
in excess of its sales requirements. Since that time, however, the Company has
been expanding its capacity in order to meet the generally increasing demand
for its products. In October 1993, the Company increased the capacity of the
Eufaula facility from 90 million pounds per year to 170 million pounds per
year, in response to the increasing demand for the Company's CARBOLITE
- -Registered Trademark- and CARBOECONOPROP-Registered Trademark- products. In
May 1995, the Company completed a 40 million-pound per year capacity expansion
at the New Iberia facility, intended to meet increasing demand for CARBOHSP-TM-
and CARBOPROP-Registered Trademark-. In February 1996, the Company commenced
operations of its second 80 million-pound per year expansion of the Eufaula
plant. Total annual capacity is currently 100 million pounds at the New Iberia
facility and is 250 million pounds at the Eufaula facility.

In July 1997, the Company began construction of a new manufacturing
facility in McIntyre, Georgia. The plant is expected to cost $56 million, be
completed in the second quarter of 1999 and have initial capacity of 200
million pounds per year. Initial cost estimates for the plant were $40
million. However, the size and complexity of the plant increased during the
completion of engineering, causing completion costs to increase. The plant
will be capable of producing all of the Company's product lines and has been
designed to be expandable to a capacity of 400 million pounds per year.

The following table sets forth the date of construction of and recent
expansion of the Company's manufacturing facilities:

<TABLE>
<CAPTION>
YEAR OF ANNUAL
LOCATION COMPLETION CAPACITY PRODUCTS
-------- ---------- --------- --------
(MILLIONS
OF
POUNDS)
<S> <C> <C> <C>
NEW IBERIA, LOUISIANA
Unit 1.................... 1979 20 CARBOHSP-TM- and CARBOPROP-Registered Trademark-
Unit 2.................... 1981 40 CARBOHSP-TM- and CARBOPROP-Registered Trademark-
1995 Expansion............ 1995 40 CARBOHSP-TM- and CARBOPROP-Registered Trademark-
---
Total.................. 100
===

EUFAULA, ALABAMA
Unit 3.................... 1983 90 CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered Trademark-
1993 Expansion............ 1993 80 CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered Trademark-
1996 Expansion............ 1996 80 CARBOLITE-Registered Trademark- and CARBOECONOPROP-Registered Trademark-
---
Total.................. 250
===

MCINTYRE, GEORGIA (1)
Units 1 and 2............. 1999 200 CARBOLITE-Registered Trademark-, CARBOECONOPROP-Registered Trademark-
CARBOHSP-TM- and CARBOPROP-Registered Trademark-
</TABLE>

- ------------
(1) The McIntyre, Georgia plant is expected to be completed in the second
quarter 1999, and is expected to have an initial installed capacity of 200
million pounds per year.

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<PAGE> 7

ORDER BACKLOG

The Company generally supplies its customers with products on a just-in-
time basis and operates without any material backlog.

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS

The Company believes that its operations are in substantial compliance
with applicable federal, state and local environmental and safety laws and
regulations. The Company does not anticipate any significant expenditures in
order to continue to comply with such laws and regulations.

EMPLOYEES

At December 31, 1998, the Company had 161 full-time employees. In
addition to the services of its employees, the Company employs the services of
consultants as required. The Company's employees are not represented by labor
unions. There have been no work stoppages or strikes during the last three
years that have resulted in the loss of production or production delays. The
Company believes its relations with its employees are satisfactory.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may
include forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from such statements. This document
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning, among other things, the
Company's prospects, developments and business strategies for its operations,
all of which are subject to certain risks, uncertainties and assumptions.
These risks and uncertainties include but are not limited to, changes in the
demand for oil and natural gas, the development of alternative stimulation
techniques and the development of alternative proppants for use in hydraulic
fracturing. The words "believe", "expect", "anticipate", "project" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, each of which speaks
only as of the date the statement was made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

ITEM 2. PROPERTIES

The Company maintains its corporate headquarters (approximately 2,700
square feet of leased office space) in Irving, Texas, and owns its
manufacturing facilities, land and substantially all of the related production
equipment in New Iberia, Louisiana, and Eufaula, Alabama.

The facility in New Iberia, Louisiana, located on 24 acres of land owned
by the Company, consists of two production units (approximately 85,000 square
feet), a laboratory (approximately 4,000 square feet) and an office building
(approximately 3,000 square feet). The Company also owns an 80,000 square foot
warehouse on the plant grounds in New Iberia, Louisiana.

The facility in Eufaula, Alabama, located on 14 acres of land owned by the
Company, consists of one production unit (approximately 111,000 square feet), a
laboratory (approximately 2,000 square feet) and an office (approximately 1,700
square feet).

The facility in McIntyre, Georgia includes real property, consisting of
approximately 36 acres, plant and equipment that will be leased from the
Development Authority of Wilkinson County. The term of the lease commenced on
September 1, 1997 and terminates on January 1, 2009. At the termination of the
lease, title to all of the real property, plant and equipment will be conveyed
to the Company in exchange for nominal

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<PAGE> 8

consideration. The Company has the right to purchase the property, plant and
equipment at any time during the term of the lease for an agreed upon price.

The Company's customer service and distribution operations are located at
the New Iberia facility, while its quality control, testing and development
functions operate out of both the New Iberia and Eufaula facilities. The
Company owns distribution facilities in San Antonio, Texas, Rock Springs,
Wyoming and Edmonton, Alberta, Canada.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently engaged in any material pending legal
proceedings and is not currently aware of any claims that are likely to give
rise to such proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

Jesse P. Orsini (age, 58): Mr. Orsini, President and Chief Executive
Officer, has served as President, Chief Executive Officer and a Director of the
Company since its organization in 1987.

Terry P. Keefe (age, 50): Mr. Keefe has been Vice President of
Manufacturing since July 1997. Prior to being elected Vice President of
Manufacturing, Mr. Keefe was Plant Manager of the Company's Eufaula, Alabama
plant since the organization of the Company in 1987.

Dr. C. Mark Pearson (age, 42): Dr. Pearson joined the Company as Vice
President of Marketing and Technology in March 1997. Prior to joining the
Company, Dr. Pearson served as Associate Professor of Petroleum Engineering at
the Colorado School of Mines from December 1995 and held various engineering
and management positions with Arco Petroleum Company from 1984 through December
1995.

Paul G. Vitek (age, 40): Mr. Vitek has been the Vice President of Finance
since February 1996 and has served as Treasurer and Secretary of the Company
since 1988.

All officers are elected at the Annual Meeting of the Board of Directors
for one-year terms or until their successors are duly elected. There are no
arrangements between any officer and any other person pursuant to which he was
selected as an officer. There is no family relationship between any of the
named executive officers or between any of them and the Company's directors.

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<PAGE> 9

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

(a) Market Information

The Company's Common Stock began trading on the NASDAQ National Market
under the symbol CRBO upon completion of the Company's initial public offering
on April 23, 1996. Per share stock prices for the quarterly periods during
1998 and 1997 as reported by NASDAQ were as follows:

<TABLE>
<CAPTION>
Low High
------- -------
<S> <C> <C>
1998
First quarter............. $26.625 $39
Second quarter............ 32.5 38
Third quarter............. 16.25 36
Fourth quarter............ 16.688 29.25

1997
First quarter............. $18.375 $21.75
Second quarter............ 18.5 28.5
Third quarter............. 26 33.5
Fourth quarter............ 32 38.5
</TABLE>

(b) Holders

As of March 1, 1999, there were 14,602,000 shares of Common Stock
outstanding held by 24 holders of record and approximately 560 beneficial
holders.

The Company paid quarterly cash dividends of $0.075 per share on its
Common Stock in 1998 and 1997. The Company's current intention, subject to its
financial condition, the amount of funds generated from operations and the
level of capital expenditures, is to continue to pay quarterly dividends to
shareholders of its Common Stock at the rate of $0.075 per share.

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<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from the audited
financial statements of the Company. The data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto included elsewhere in
this Report.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................. $84,095 $85,122 $65,151 $58,001 $53,310
Cost of goods sold........................ 41,665 42,186 34,517 29,297 26,630
------- ------- ------- ------- -------
Gross profit.............................. 42,430 42,936 30,634 28,704 26,680
Selling, general and administrative
expenses (1)............................ 9,977 8,915 8,126 7,148 6,194
------- ------- ------- ------- -------
Operating profit.......................... 32,453 34,021 22,508 21,556 20,486
Other income, net......................... 974 1,004 175 157 291
------- ------- ------- ------- -------
Income before income taxes................ 33,427 35,025 22,683 21,713 20,777
Income taxes.............................. 12,719 12,936 5,883 - -
------- ------- ------- ------- -------
Net income................................ $20,708 $22,089 $16,800 $21,713 $20,777
======= ======= ======= ======= =======
Earnings per share
Basic................................... $ 1.42 $ 1.51
======= =======
Diluted................................. $ 1.40 $ 1.50
======= =======

PRO FORMA DATA (UNAUDITED) (2):
Income before income taxes................ $22,683
Pro forma income taxes.................... 8,393
-------
Pro forma net income...................... $14,290
=======
Pro forma earnings per share (3)
Basic................................... $ 0.98
=======
Diluted................................. $ 0.97
=======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................ $23,783 $46,861 $38,158 $17,085 $18,301
Current liabilities excluding bank
borrowings.............................. 8,638 7,616 5,204 4,928 3,788
Bank borrowings-current................... - - - 2,780 -
Property, plant and equipment, net........ 75,644 34,093 22,247 22,004 10,854
Total assets.............................. 99,427 80,954 60,405 39,089 29,154
Total shareholders' equity................ 87,269 70,942 53,234 31,381 25,366
Cash dividends per share (4).............. $ 0.30 $ 0.30 $ 0.15
</TABLE>

- ------------
(1) Selling, general and administrative expenses for the year ended December
31, 1996 include an incremental charge of $877,225 relating to the
accelerated recognition of compensation expense for the vesting of
restricted stock in connection with the Company's initial public offering.

(2) Pro forma data reflects the effects on historical income statement data
for the year ended December 31, 1996 as if the Company had been treated as
a C Corporation for the entire year for income tax purposes, with an
estimated effective income tax rate of 37%. The Company terminated its S
Corporation election on April 23, 1996 prior to its initial public
offering.

(3) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." For further discussion of earnings per share
and the impact of Statement No. 128, see the notes to the consolidated
financial statements beginning on page F-6.

(4) Cash dividends per share for 1996 is based on cash dividends declared
subsequent to the Company's initial public offering and does not include S
Corporation distributions paid prior to and in conjunction with the
initial public offering.

9
<PAGE> 11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL BUSINESS CONDITIONS

CARBO Ceramics Inc. manufactures and sells ceramic proppants for use in
the hydraulic fracturing of oil and natural gas wells. Hydraulic fracturing is
the most common technique used to stimulate production from hydrocarbon bearing
formations. The process involves pumping fluids into an oil or gas well at
very high pressure in order to fracture the rock formation that contains the
hydrocarbons. As the fracture is created, the fluids are blended with granular
materials, or proppants, which fill the fracture and prop it open after the
pressure pumping ceases. The proppant filled fracture creates a highly
permeable channel that enables the oil or gas to flow more freely from the
formation, thereby increasing production from the well.

Ceramic proppants are premium products that are sold at higher prices than
sand or resin-coated sand, the two primary alternative proppants. The
principal advantage of ceramic proppants is that they are stronger than sand-
based proppants. The higher strength of ceramic proppants results in higher
production rates in deep wells where sand or resin-coated sand may crush under
high closure stress. Consequently, the level of deep drilling activity
(generally defined as wells deeper than 7,500 feet) influences the Company's
business. Ceramic proppants are also more uniform in size and shape than sand-
based proppants. This uniformity can result in higher production rates than
sand-based proppants when used in wells that do not otherwise need ceramics for
their higher strength.

As deep drilling, particularly in North America, is typically focused on
the production of natural gas, the Company's business is significantly impacted
by the number of natural gas wells drilled in North America. In markets
outside North America, sales of the Company's products are less dependent on
natural gas markets but are influenced by the overall level of drilling
activity. Furthermore, because the decision to use ceramic proppants is based
on the present value economics of comparing the higher cost of ceramic
proppants to the future value derived from increased production rates, the
Company's business is secondarily influenced by the price of natural gas and
oil.

From 1986 through 1996, the ceramic proppant industry had productive
capacity in excess of demand. The competitive pressure brought on by this
excess capacity made it difficult for the Company to raise prices on its
products. However, the Company continued to grow its revenues through the
introduction of new ceramic proppants aimed at increasing the use of ceramic
proppants in the fracturing of medium depth wells, which had previously been
fractured with sand-based proppants. CARBOLITE-Registered Trademark- was
introduced in 1986 and is the Company's most popular product in the oil-
dominated export market. CARBOECONOPROP-Registered Trademark-, which was
introduced in 1992, has been widely accepted in the industry and has been the
Company's fastest growing product line over the past five years. The Company
expects that CARBOECONOPROP-Registered Trademark- will continue to be the
fastest growing product line in the foreseeable future and, as a result, gross
profit margins will decline slightly.

In the latter half of 1996, the industry began to operate near full
capacity and product availability on certain product lines was limited. In
1997, demand for ceramic proppants continued to increase and availability of
all products was limited. In light of this fact, the Company raised prices on
its products by an average of 5%, effective in the first quarter 1997. This
price increase was the first across-the-board price increase that the Company
had implemented since 1991. With sustained strong drilling activity, the
increasing demand for ceramic proppants continued through the first half of
1998, with the Company realizing record results for the first three quarters of
the year. The Company again raised prices on its products by an average of 5%,
effective in the first quarter of 1998. However, in the second half of 1998, a
rapid decline in oil prices resulted in a significant reduction in the number
of oil and gas wells drilled and completed. The Company felt the effects of
this decline in the fourth quarter of 1998 as revenues decreased by 29 percent
versus the previous quarter and 33 percent from the fourth quarter of 1997.

Future growth in the Company's revenues and net income are dependent on
the future demand for natural gas and oil worldwide and in the Company's
ability to continue to penetrate the market for sand-based proppants.
Management believes that the worldwide demand for natural gas will continue to
increase due to the abundance, relatively low cost and environmental benefits
of natural gas as a source of energy. With this in

10
<PAGE> 12

mind, the Company initiated construction of a new manufacturing facility in
McIntyre, Georgia in July 1997. The plant will cost approximately $56 million
to construct and is expected to be completed in the second quarter of 1999.
Initial capacity of the plant is expected to be 200 million pounds per year, an
increase of approximately 60% over current manufacturing capacity.

NET INCOME

<TABLE>
<CAPTION>
Percent Percent
1998 Change 1997 Change 1996 (pro forma)
------- ------- ------- ------- ----------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Income................................ $20,708 (6%) $22,089 55% $14,290
</TABLE>

Although the Company reported record net income through the first nine
months of 1998, a dramatic reduction in oil prices and related drilling
activity resulted in a significant decline in the Company's sales volume in the
fourth quarter of 1998. As a result, net income for 1998 declined by 6 percent
from 1997.

Net income for 1997 increased by 55 percent versus pro forma net income
for 1996. The significant improvement versus 1996 was largely attributable to
high oil prices and increasing demand for natural gas in the North American
market.

Individual components of net income are discussed below.

REVENUES

<TABLE>
<CAPTION>
Percent Percent
1998 Change 1997 Change 1996
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $84,095 (1%) $85,122 31% $65,151
</TABLE>

CARBO Ceramics Inc's 1998 revenues of $84.1 million were 1% lower than
revenues in 1997. Sales volume decreased 3% from 1997, but the effect of this
was offset by an increase in the average selling price that was the result of a
price increase of approximately 5% which became effective in January 1998.
Domestic sales volumes increased 1% from 1997, while export volumes decreased
10%. The most substantial volume decline occurred in Russia where the Company
experienced a 76% decrease from 1997 to 1998. Despite the overall slow down in
drilling activity in 1998, the volume of CARBOECONOPROP-Registered Trademark-
products sold increased by 20% over 1997. The largest part of this increase
was represented by sales into Mexico.

Revenues were 85.1 million for the year ended December 31, 1997, an
increase of 31% over 1996 revenues of $65.2 million. While sales volume
increased 24% from 1996, revenues grew at a faster pace due to an increase in
the average selling price that was the result of a price increase of
approximately 5% which became effective in January 1997. Domestic volumes
increased 13% from 1996 as strong demand for natural gas resulted in a 30%
increase in drilling activity. Export volumes increased 51% as the Company's
products become more widely accepted in the international oil markets. The
fastest growing product during 1997 was CARBOLITE-Registered Trademark-, which
increased 47% from 1996. The largest part of this increase was in export
sales, to Russia, Australia and the North Sea.

GROSS PROFIT

<TABLE>
<CAPTION>
Percent Percent
1998 Change 1997 Change 1996
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross Profit.............................. $42,430 (1)% $42,936 40% $30,634
Gross Profit %............................ 50% 50% 47%
</TABLE>

The Company's cost of goods sold consists of manufacturing costs and
packaging and transportation expenses associated with the delivery of the
Company's products to its customers. Variable manufacturing expenses include
raw materials, labor, utilities and repair and maintenance supplies. Fixed
manufacturing expenses include depreciation, property taxes on production
facilities, insurance and factory overhead.

11
<PAGE> 13

Gross profit for 1998 decreased by $506,000 from 1997. Gross profit as a
percentage of sales remained unchanged at 50% for 1998 as compared to 1997.
The positive effects of the price increase in January 1998 and lower
manufacturing costs at the New Iberia manufacturing facility were offset by an
increase in the percentage of lower-priced CARBOECONOPROP-Registered Trademark-
sales (52% of 1998 volume compared to 42% of 1997 volume) and an increase in
freight costs incurred in transferring material from the Eufaula, Alabama
manufacturing facility to the remote storage facility in San Antonio, Texas.
The increased freight costs were the result of rail service problems, including
delays in delivery and misrouting of rail cars following the merger of the
Union Pacific and Southern Pacific railway systems. While this situation
persisted through most of 1998, service has improved significantly over the
past few months, and we anticipate a reduction of these costs in 1999.The lower
production costs achieved at New Iberia were the result of improved efficiency
due to increased production and lower maintenance spending as compared to 1997.

Gross profit for 1997 increased $12.3 million or 40% from 1996. Gross
profit as a percentage of revenues increased from 47% to 50% due to the higher
average selling price resulting from the 5% price increase which became
effective in January 1997 and lower manufacturing costs in the New Iberia
manufacturing facility. The lower costs achieved in New Iberia were primarily
the result of improved efficiency due to increased production at the plant
versus the previous year. Production volumes also increased at the Eufaula
manufacturing facility due to a mid-year capacity expansion project but this
was offset by higher raw material prices resulting from a consolidation of
suppliers in the Eufaula area.

SELLING, GENERAL & ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
Percent Percent
1998 Change 1997 Change 1996
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SG&A...................................... $ 9,977 12% $ 8,915 10% $ 8,126
SG&A as a % of Revenues................... 11.9% 10.5% 12.5%
</TABLE>

Selling, general and administrative expenses increased by $1,062,000 in
1998 over 1997. SG&A expenses also increased as a percentage of sales to 11.9%
in 1998 from 10.5% in 1997. The largest increases were in marketing expenses.
Additional sales personnel were employed in anticipation of additional
manufacturing capacity and to explore new markets for our products outside the
oilfield. In addition, the Company has contracted with an outside consultant to
provide assistance to our marketing department in developing technical sales
presentations. An increase in depreciation expense resulted from expansions at
the Company's Edmonton, Canada and Rock Springs, Wyoming remote storage
facilities both of which were completed during the first half of 1998.. The
Company also incurred $450,000 of start-up expenses during 1998 related to the
construction of the new manufacturing facility in McIntyre, Georgia.

Selling, general and administrative expenses increased by $789,000 in 1997
over 1996. While SG&A expenses decreased as a percentage of revenues, there
was a substantial change in the composition of these expenses from 1996 to
1997. In connection with the initial public offering of the Company's Common
Stock in 1996, the vesting of restricted stock previously granted to the
Company's President and Chief Executive Officer was accelerated. This resulted
in non-cash compensation expense of $1,316,000 in 1996, where none was present
in 1997. These reductions in 1997 were partially offset by new costs incurred
in connection with regulatory filing costs, listing expenses and shareholder
communication costs associated with being a publicly traded company. Other
SG&A components that increased were those that vary with sales volume or
profitability including warehouse and shipping expenses, commissions expense
and incentive compensation.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of December 31, 1998 were $0.6 million
compared to $8.9 million at the beginning of the year. The Company generated
cash from operations of $24 million. Cash used in investing and financing
activities, excluding proceeds from the maturities of investment securities,
totaled $46.2 million. As of December 31, 1998 the Company had no investment
securities expected to be held until maturity. These investments, which all
matured in 1998, totaled $13.9 million at December 31,1997.

12
<PAGE> 14

Total capital expenditures for property, plant and equipment during 1998
were $41.8 million. Spending on the new Georgia manufacturing facility,
scheduled to be completed by the second quarter of 1999, was $40.2 million.
The balance of $1.6 million was spent on the expansion of distribution
facilities, the upgrading of computer hardware and software and the normal
replacement of capital equipment.

The Company paid $4.4 million in cash dividends during 1998.

The Company plans to spend approximately $8 million for the completion of
its new manufacturing facility in McIntyre, Georgia in 1999, with funding
expected to be provided by a combination of cash generated from operations and
some borrowing against our line of credit. The Company's current intention,
subject to its financial condition, the amount of funds generated from
operations and the level of capital expenditures, is to continue to pay
quarterly dividends to shareholders of its Common Stock at the rate of $0.075
per share.

The Company maintains an unsecured line of credit in the amount of $10.0
million. As of December 31, 1998, there were no borrowings outstanding under
the credit agreement. As of Febraury 28, 1999 the Company had an outstanding
balance of $5.2 million under this line of credit. The Company anticipates
that cash provided by operating activities and funds available under its line
of credit will be sufficient to meet planned operating expenses, tax
obligations and capital expenditures through 1999.

See "Forward-Looking Information" under Item 1 hereof.

IMPACT OF YEAR 2000

Many currently installed computer systems and software products are coded
to accept, store or report only two digit entries in date code fields.
Beginning in the Year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. This
is the "Year 2000 Issue". As a result, computer systems and software used by
many companies will need to be upgraded to comply with Year 2000 requirements.
The Company could be impacted by year 2000 Issues occurring in its own
infrastructure or faced by its major suppliers, customers, vendors and
financial service organizations. Such Year 2000 Issues could include
information errors, significant information system failures, or failures of
equipment, vendors, suppliers or customers. Any disruption in the Company's
operations as a result of Year 2000 Issues, whether by the Company or a third
party, could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company has determined that it will be required to modify or replace
some of its software and certain hardware so that the Company's systems will
properly recognize dates beyond December 31, 1999. The Company presently
believes that with modifications or replacement of existing software and certain
hardware, the Year 2000 Issue can be mitigated but that if such modifications
and replacements are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.

The Company will utilize both internal and external resources to test and
reprogram, replace, or upgrade its software and operating equipment for the
Year 2000 modifications. The total cost of the Year 2000 project is estimated
at $106,000 and is expected to be funded through operating cash flows. To
date, the Company has incurred approximately $18,000 of these anticipated
expenses, all of which were for new hardware and software systems, which were
capitalized. The remaining project costs are attributable to the purchase of
new software and operating equipment that will be capitalized.

The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date,
the Company has fully completed its assessment of all systems that could be
significantly affected by the Year 2000. The completed assessment indicated
that some of the Company's significant information technology systems could be
affected. However, the major administrative systems (including the general
ledger, billing, and inventory systems) have already been replaced by a Year
2000 compliant system. The assessment also indicated that software and
hardware (embedded chips) used in production and manufacturing systems
(hereafter also referred to as operating equipment) could also be at risk.

13
<PAGE> 15

Based on a review of its product line, the Company has determined that all
of the products it has sold and will continue to sell are inert and do not
require remediation to be Year 2000 compliant. Accordingly, the Company does
not believe that the Year 2000 presents a material exposure as it relates to
the Company's products. The Company is gathering information about the Year
2000 compliance status of its significant suppliers and subcontractors and
will continue to monitor their compliance.

To date, the Company has completed approximately 78 percent of the
remediation phase for its information technology systems and expects to
complete software replacement during the first quarter of 1999. The Company
has completed 72 percent of its testing and has implemented 70 percent of its
Year 2000 compliant systems. Completion of the testing phase for all
significant systems is expected by March 31, 1999, with all remediated systems
expected to be fully tested and implemented by June 30, 1999.

The remediation of operating equipment is significantly less difficult
than the remediation of the information technology systems because there are
minimal automated systems in the manufacturing process. The Company is 20
percent complete in the remediation phase of its operating equipment and
expects to complete its testing and implementation efforts by March 31, 1999.

Currently, the Company has no direct interfaces with third parties. The
Company has surveyed its significant suppliers and subcontractors (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company, although the effect of non-compliance by
external agents is not determinable.

Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, the Company
could be unable to manufacture some products. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.

The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not have operations subject to material risk of foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolio. The Company has a $10.0 million line of
credit with its primary commercial bank. Under the terms of the revolving
credit agreement, the Company may elect to pay interest at either a fluctuating
base rate established by the bank from time to time or at a rate based on the
rate established in the London interbank market. The Company does not believe
that it has any material exposure to market risk associated with interest
rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in pages F-1 through
F-14 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

14
<PAGE> 16

PART III

Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report and certain information included therein
is incorporated herein by reference. Only those sections of the Proxy
Statement that specifically address the items set forth herein are incorporated
by reference. Such incorporation does not include the Compensation Committee
Report or the Performance Graph included in the Proxy Statement.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement. Information
concerning executive officers is set forth in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Consolidated Financial Statements:

The consolidated financial statements of CARBO Ceramics Inc. listed below
are contained in pages F-1 through F-14 of this Report:

Report of Independent Auditors

Consolidated Balance Sheets at December 31, 1998 and 1997

Consolidated Statements of Income for each of the three years ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Shareholders' Equity for each of the three
years ended December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1998, 1997 and 1996

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the fourth quarter of 1998.

The exhibits listed on the accompanying Exhibit Index are filed as part
of, or incorporated by reference into, this Report.

(d) Financial Statement Schedules:

All schedules have been omitted since they are either not required or not
applicable.

15
<PAGE> 17

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

CARBO CERAMICS INC.

By: /s/ JESSE P. ORSINI
-------------------------------------
Jesse P. Orsini
President and Chief Executive Officer

By: /s/ PAUL G. VITEK
-------------------------------------
Paul G. Vitek
Vice President, Finance

Dated: March 12, 1999

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jesse P. Orsini and Paul G. Vitek,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM C. MORRIS Chairman of the Board March 12, 1999
- ------------------------------------------------------
William C. Morris

/s/ JESSE P. ORSINI President, Chief Executive Officer March 12, 1999
- ------------------------------------------------------ and Director (Principal
Jesse P. Orsini Executive Officer)

/s/ PAUL G. VITEK Vice President, Finance (Principal March 12, 1999
- ------------------------------------------------------ Financial and Accounting
Paul G. Vitek Officer)

/s/ CLAUDE E. COOKE, JR. Director March 12, 1999
- ------------------------------------------------------
Claude E. Cooke, Jr.

/s/ WILLIAM A. GRIFFIN, JR. Director March 12, 1999
- ------------------------------------------------------
William A. Griffin, Jr.

/s/ JOHN J. MURPHY Director March 12, 1999
- ------------------------------------------------------
John J. Murphy

/s/ ROBERT S. RUBIN Director March 12, 1999
- ------------------------------------------------------
Robert S. Rubin
</TABLE>
16
<PAGE> 18

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
CARBO Ceramics Inc.

We have audited the accompanying consolidated balance sheets of CARBO
Ceramics Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New Orleans, Louisiana
January 22, 1999

F-1
<PAGE> 19

CARBO CERAMICS INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------- -------
($ IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 622 $ 8,899
Investment securities...................................... - 13,905
Trade accounts receivable.................................. 11,300 14,243
Inventories:
Finished goods........................................... 5,795 4,347
Raw materials and supplies............................... 4,432 4,034
------- -------
Total inventories.................................... 10,227 8,381
Prepaid expenses and other current assets.................. 614 661
Deferred income taxes...................................... 1,020 772
------- -------
Total current assets................................. 23,783 46,861
Property, plant and equipment:
Land and land improvements................................. 459 214
Buildings.................................................. 4,613 4,536
Machinery and equipment.................................... 30,772 27,773
Construction in progress................................... 51,709 11,382
------- -------
Total................................................ 87,553 43,905
Less accumulated depreciation.............................. 11,909 9,812
------- -------
Net property, plant and equipment.................... 75,644 34,093
------- -------
Total assets......................................... $99,427 $80,954
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable........................................... $ 3,634 $ 2,131
Accrued payroll and benefits............................... 2,609 2,448
Accrued freight............................................ 792 851
Accrued utilities.......................................... 350 422
Accrued income taxes....................................... 266 1,018
Other accrued expenses..................................... 987 746
------- -------
Total current liabilities............................ 8,638 7,616
Deferred income taxes........................................ 3,520 2,396
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: 14,602,000 shares issued and outstanding.... 146 146
Additional paid-in capital................................. 42,919 42,919
Retained earnings.......................................... 44,204 27,877
------- -------
Total shareholders' equity........................... 87,269 70,942
------- -------
Total liabilities and shareholders' equity........... $99,427 $80,954
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-2
<PAGE> 20

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
--------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues..................................................... $84,095 $85,122 $65,151
Cost of goods sold........................................... 41,665 42,186 34,517
------- ------- -------
Gross profit................................................. 42,430 42,936 30,634
Selling, general and administrative expenses................. 9,977 8,915 8,126
------- ------- -------
Operating profit............................................. 32,453 34,021 22,508
Other income (expense):
Interest, net.............................................. 800 969 240
Other, net................................................. 174 35 (65)
------- ------- -------
974 1,004 175
------- ------- -------
Income before income taxes................................... 33,427 35,025 22,683
Income taxes................................................. 12,719 12,936 5,883
------- ------- -------
Net income................................................... $20,708 $22,089 $16,800
======= ======= =======
Pro forma data:
Income before income taxes................................. $22,683
Income taxes............................................... 8,393
-------
Net income................................................. $14,290
=======
Earnings per share (pro forma for 1996):
Basic...................................................... $ 1.42 $ 1.51 $ 0.98
======= ======= =======
Diluted.................................................... $ 1.40 $ 1.50 $ 0.97
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.

F-3
<PAGE> 21

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS B ADDITIONAL
COMMON COMMON PAID-IN UNEARNED RETAINED
STOCK STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ------- ---------- ------------ -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996........... $120 $ 3 $ 6,626 $(1,316) $ 25,948 $ 31,381
Net income.......................... - - - - 16,800 16,800
Amortization of unearned
compensation..................... - - - 1,316 - 1,316
Distributions to shareholders paid
prior to and in connection with
initial public offering ($2.67
per share)....................... - - (2,455) - (30,389) (32,844)
Conversion of Class B Common
Stock to Common Stock............ 3 (3) - - - -
Deferred tax asset related to
vesting of restricted stock...... - - 3,486 - - 3,486
Net proceeds from initial
public offering.................. 23 - 35,262 - - 35,285
Cash dividends ($0.15 per share).... - - - - (2,190) (2,190)
---- ---- ------- ------- -------- --------
Balances at December 31, 1996......... 146 - 42,919 - 10,169 53,234
Net income.......................... - - - - 22,089 22,089
Cash dividends ($0.30 per share).... - - - - (4,381) (4,381)
---- ---- ------- ------- -------- --------
Balances at December 31, 1997......... 146 - 42,919 - 27,877 70,942
Net income.......................... - - - - 20,708 20,708
Cash dividends ($0.30 per share).... - - - - (4,381) (4,381)
---- ---- ------- ------- -------- --------
Balances at December 31, 1998......... $146 $ - $42,919 $ - $ 44,204 $ 87,269
==== ==== ======= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 22

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 20,708 $ 22,089 $ 16,800
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.............................................. 2,154 1,953 1,901
Amortization.............................................. - - 1,316
Deferred income taxes..................................... 876 506 4,604
Changes in operating assets and liabilities:
Trade accounts receivable.............................. 2,943 (3,341) (2,119)
Inventories............................................ (1,846) 4 (554)
Prepaid expenses and other current assets.............. 47 (53) (338)
Accounts payable....................................... (365) 708 205
Accrued payroll and benefits........................... 161 611 271
Accrued freight........................................ (59) 192 53
Accrued utilities...................................... (72) 96 44
Accrued income taxes................................... (752) 409 609
Other accrued expenses................................. 241 396 (40)
-------- -------- --------
Net cash provided by operating activities................... 24,036 23,570 22,752

INVESTING ACTIVITIES
Maturities of investment securities......................... 13,905 - -
Purchases of investment securities.......................... - (13,905) -
Purchases of property, plant and equipment.................. (41,837) (13,799) (3,010)
-------- -------- --------
Net cash used in investing activities....................... (27,932) (27,704) (3,010)

FINANCING ACTIVITIES
Proceeds from bank borrowings............................... - - 7,180
Repayments on bank borrowings............................... - - (9,960)
Net proceeds from initial public offering................... - - 35,285
Distributions paid to shareholders.......................... - - (32,844)
Dividends paid.............................................. (4,381) (4,381) (2,190)
-------- -------- --------
Net cash used in financing activities....................... (4,381) (4,381) (2,529)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (8,277) (8,515) 17,213
Cash and cash equivalents at beginning of year.............. 8,899 17,414 201
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 622 $ 8,899 $ 17,414
======== ======== ========

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... $ - $ - $ 92
======== ======== ========
Income taxes paid........................................... $ 12,595 $ 12,021 $ 669
======== ======== ========
Purchases of property, plant and equipment through
accounts payable.......................................... $ 1,868 $ - $ -
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 23

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS
CARBO Ceramics Inc. (the "Company") was formed in 1987 and is a
manufacturer of ceramic proppants. The Company has production plants operating
in New Iberia, Louisiana and Eufaula, Alabama, with a third plant located in
McIntyre, Georgia expected to be completed and begin operating in the second
quarter of 1999. The Company predominantly markets its proppant products
through pumping service companies that perform hydraulic fracturing for major
oil and gas companies.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CARBO
Ceramics Inc. and its wholly owned subsidiaries, CARBO Ceramics Sales
Corporation and CARBO Ceramics (UK) Limited. CARBO Ceramics Sales Corporation
was formed on July 31, 1996 under the laws of Barbados. CARBO Ceramics (UK)
Limited was formed on December 19, 1997 under the laws of Scotland. All
significant intercompany transactions have been eliminated.

CONCENTRATION OF CREDIT RISK
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables are
generally due within 30 days. The majority of the Company's receivables are
from customers in the petroleum pressure pumping industry. Credit losses
historically have been insignificant.

CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amounts reported in the balance sheet for cash equivalents approximate fair
value.

INVESTMENT SECURITIES
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
both the positive intent and ability to hold the securities to maturity. Held-
to-maturity securities are stated at amortized cost, adjusted for amortization
of premiums and accretion of discounts to maturity. At December 31, 1997, all
investment securities were classified as held-to-maturity. The fair value of
the investments approximated the carrying value at December 31, 1997. The
Company held no investment securities at December 31, 1998.

INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Finished goods inventories include costs of materials, plant labor
and overhead incurred in the production of the Company's products.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed on the straight-line method for financial reporting purposes using the
following estimated useful lives:

<TABLE>
<S> <C>
Buildings and improvements....................... 15 years
Machinery and equipment.......................... 3 to 15 years
</TABLE>

F-6
<PAGE> 24

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

REVENUE RECOGNITION
Revenue is recognized when title passes to the customer.

INCOME TAXES
Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, "Accounting for Income Taxes". Prior to April 24,
1996, the shareholders of the Company had elected S Corporation status under
the Internal Revenue Code and certain comparable state tax laws. As a result,
the Company's taxable income for federal and certain state jurisdictions where
the Company had significant operations was reported on the tax returns of its
shareholders.

EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to the
Statement No. 128 requirements.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.

2. BANK BORROWINGS

The Company has a Secured Revolving Credit Agreement (the "Credit
Agreement") with a bank under which it may borrow up to $10.0 million
optionally at either the bank's Base Rate or LIBOR Fixed Rate (as defined in
the Credit Agreement) through December 31, 2000. The weighted-average interest
rate on borrowings against the Credit Agreement was 8.62% for 1998. There were
no borrowings in 1997. Under the terms of the Credit Agreement, the Company is
required to maintain certain bank accounts with the lender, with balances equal
to transactional and investment-related charges. The terms of the Credit
Agreement further provide for certain affirmative and negative covenants,
including a restriction on capital expenditures.

3. LEASES

The Company leases railroad equipment under operating leases. Minimum
future rental payments due under non-cancelable operating leases with remaining
terms in excess of one year as of December 31, 1998 are as follows ($ in
thousands):

Leases generally provide for renewal options for periods from one to five
years at their fair rental value at the time of renewal. In the normal course
of business, operating leases are generally renewed or replaced by

F-7
<PAGE> 25

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

other leases. Rent expense for all operating leases was $800,000 in 1998,
$920,000 in 1997, and $740,000 in 1996.

4. INCOME TAXES

Since its formation through April 24, 1996, the Company elected to be
treated for federal and certain state income tax purposes as an S Corporation.
As a result, earnings of the Company were taxed directly to the shareholders of
the Company rather than to the Company. Prior to the completion of its initial
public offering, the Company terminated its S Corporation election and,
accordingly, became subject to federal and state income taxes. The deferred
tax effects of the change in tax status increased net income for 1996 by
$884,000. The Company also recorded a deferred tax asset of $3.5 million with
a corresponding increase in additional paid-in capital in 1996 related to the
vesting of 800,000 restricted shares of Common Stock held by the Company's
Chief Executive Officer upon the occurrence of the initial public offering.
The Company realized the full benefit of this deferred tax asset during 1996.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31 are as
follows:

<TABLE>
<CAPTION>
1998 1997
------ ------
($ IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits............................... $ 436 $ 271
Inventories..................................... 356 377
Other........................................... 228 124
------ ------
Total deferred tax assets................. 1,020 772
------ ------
DEFERRED TAX LIABILITIES:
Depreciation.................................... 3,359 2,356
Other........................................... 161 40
------ ------
Total deferred tax liabilities............ 3,520 2,396
------ ------
Net deferred tax liabilities.............. $2,500 $1,624
====== ======
</TABLE>

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................. $10,596 $11,082 $ 764
State................................ 1,247 1,348 515
------- ------- -------
Total current.................. 11,843 12,430 1,279
------- ------- -------
Deferred:
Federal.............................. 784 451 4,481
State................................ 92 55 123
------- ------- -------
Total deferred................. 876 506 4,604
------- ------- -------
$12,719 $12,936 $ 5,883
======= ======= =======
</TABLE>

F-8
<PAGE> 26

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to the Company's income tax expense for 1998 and 1997 and pro forma
income tax expense for 1996 is as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
U.S. statutory rate............. $11,715 35.0% $12,259 35.0% $ 7,712 34.0%
State income taxes, net of
federal tax benefit........... 1,339 4.0 1,403 4.0 907 4.0
Foreign sales corporation
benefit and other............. (335) (1.0) (726) (2.1) (226) (1.0)
------- ---- ------- ---- ------- ----
$12,719 38.0% $12,936 36.9% $ 8,393 37.0%
======= ==== ======= ==== ======= ====
</TABLE>

5. 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 that may be issued in the future,
the holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available for that purpose. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable.

Prior to 1996, the Company issued to its President and Chief Executive
Officer shares of Common Stock, pursuant to restricted stock agreements, as
compensation for future services. These shares had dividend rights; however,
sale of the shares was restricted prior to vesting which was subject to the
occurrence of certain events, including the initial public offering of the
Company's Common Stock. The restricted stock vested upon the occurrence of the
initial public offering on April 26, 1996 and the remaining balance of unearned
compensation was recorded as compensation expense. Compensation expense
totaled $1.3 million in 1996.

Prior to April 17, 1996, the Company's authorized capital stock consisted
of 20,000 shares of Common Stock, of which 6,001 shares were issued and
outstanding, and 2,000 shares of Class B Common Stock, of which 150 shares were
issued and outstanding. On April 17, 1996, the Company (i) caused the
conversion of all issued and outstanding shares of its Class B Common Stock
into shares of Common Stock, and (ii) effected a 2,000 for 1 split of the
Common Stock. All capital amounts, share and per share data in the
accompanying financial statements have been retroactively restated, where
appropriate, to reflect the stock split.

On January 13, 1999, the Board of Directors declared a cash dividend of
$0.075 per share. The dividend is payable on February 15, 1999 to shareholders
of record on January 29, 1999.

PREFERRED STOCK
The Company's charter authorizes the issuance of 5,000 shares of Preferred
Stock. The Board of Directors has the authority to issue the 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. No shares of

F-9
<PAGE> 27

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Preferred Stock are currently outstanding, and the Company has no present plans
to issue any shares of Preferred Stock.

6. STOCK OPTION PLAN

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

The Company's 1996 Stock Option Plan for Key Employees (the "Option Plan")
has authorized the grant of options to purchase an aggregate of 1,000,000
shares of the Company's Common Stock to certain officers and key employees of
the Company chosen by a committee appointed by the Board of Directors (the
"Compensation Committee") to administer such plan. Under the Option Plan, all
options granted have 10-year terms, and conditions relating to the vesting and
exercise of options are determined by the Compensation Committee for each
option. Options granted under the Option Plan are "non-statutory options"
(options which do not afford income tax benefits to recipients, but the
exercise of which may provide tax deductions for the Company). Each option
will have an exercise price per share equal to the fair market value of a share
of Common Stock on the date of grant and no individual employee may be granted
options to purchase more than an aggregate of 500,000 shares of Common Stock.
The options vest annually over a four-year period.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
4.44%, 5.34% and 6.19%; dividend yields of 1.0%, 1.0% and 1.5%; volatility
factors of the expected market price of the Company's Common Stock of .452,
.337 and .300; and a weighted average expected life of the option of 5 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

F-10
<PAGE> 28

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options (net of related expected tax benefits) is amortized to expense over the
options' vesting period. Since the Company's options generally vest over a
four-year period, the pro forma disclosures are not indicative of future
amounts until Statement 123 is applied to all outstanding, nonvested options.
The Company's pro forma information follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported (pro forma in 1996)............................ $20,708 $22,089 $14,290
======= ======= =======
Pro forma including the effect of options.................. $19,793 $21,539 $13,870
======= ======= =======
Basic earnings per share:
As reported (pro forma in 1996)............................ $ 1.42 $ 1.51 $ 0.98
======= ======= =======
Pro forma including the effect of options.................. $ 1.36 $ 1.48 $ 0.95
======= ======= =======
Diluted earnings per share:
As reported (pro forma in 1996)............................ $ 1.40 $ 1.50 $ 0.97
======= ======= =======
Pro forma including the effect of options.................. $ 1.34 $ 1.46 $ 0.95
======= ======= =======
</TABLE>

A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year... 850 $20 700 $17 -
Granted......................... 45 $26 260 $27 700 $17
Exercised....................... - - -
Forfeited....................... - (110) $17 -
--- ---- ---
Outstanding-end of year......... 895 $20 850 $20 700 $17
=== ==== ===
Exercisable at end of year...... 355 $19 148 $17 - -

Weighted-average fair value
of options granted during
the year...................... $10.96 $9.38 $5.51
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged
from $17.00 to $34.63. The weighted-average remaining contractual life of
those options is 7.8 years.

F-11
<PAGE> 29

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per
share:
Net income (pro forma for 1996).............. $ 20,708 $ 22,089 $ 14,290
Denominator:
Denominator for basic earnings per share --
weighted-average shares (pro forma
for 1996)................................. 14,602,000 14,602,000 14,602,000
Effect of dilutive securities:
Employee stock options (See Note 6)....... 168,709 169,102 71,368
---------- ---------- ----------
Dilutive potential common shares............. 168,709 169,102 71,368
---------- ---------- ----------
Denominator for diluted earnings per
share -- adjusted weighted-average shares. 14,770,709 14,771,102 14,673,368
========== ========== ==========
Basic earnings per share....................... $ 1.42 $ 1.51 $ 0.98
========== ========== ==========
Diluted earnings per share..................... $ 1.40 $ 1.50 $ 0.97
========== ========== ==========
</TABLE>

For 1996, pro forma weighted-average shares is based on 12,302,000 shares
of Common Stock outstanding during the year increased by the assumed issuance
of 2,300,000 shares of Common Stock to pay S Corporation distributions of $29.1
million.

8. QUARTERLY OPERATING RESULTS--(UNAUDITED)

Quarterly results of operations for the years ended December 31, 1998 and
1997 were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED,
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Revenues............................... $22,617 $23,764 $22,013 $15,701
Gross profit........................... 11,517 11,879 11,238 7,796
Net income............................. 5,792 6,182 5,366 3,368
Earnings per share
Basic................................ $ 0.40 $ 0.42 $ 0.37 $ 0.23
Diluted.............................. $ 0.39 $ 0.42 $ 0.36 $ 0.23
1997
Revenues............................... $17,840 $20,893 $23,062 $23,327
Gross profit........................... 8,993 10,347 11,469 12,127
Net income............................. 4,586 5,449 5,939 6,115
Earnings per share:
Basic................................ $ 0.31 $ 0.37 $ 0.41 $ 0.42
Diluted.............................. $ 0.31 $ 0.37 $ 0.40 $ 0.41
</TABLE>

Quarterly data may not sum to the full year data reported in the Company's
consolidated financial statements due to rounding.

F-12
<PAGE> 30

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. PRO FORMA NET INCOME

Pro forma net income for 1996 reflects a provision for income taxes at an
effective rate of approximately 37% to illustrate how historical net income
might have been affected if the Company had not been an S Corporation for
income tax purposes. The Company elected to be treated as an S Corporation
pursuant to the Internal Revenue Code from June 23, 1987 through April 23,
1996, immediately after which it terminated its S Corporation election in
conjunction with the initial public offering. As a result, the Company was not
subject to federal income taxes during this period. By election of the
shareholders, S Corporation status was also applicable to the state
jurisdictions where the Company had significant operations.

10. SALES TO CUSTOMERS

The following schedule presents the percentages of total revenues related
to the Company's three major customers for the three-year period ended December
31, 1998:

<TABLE>
<CAPTION>
MAJOR CUSTOMERS
-----------------------
A B C OTHERS TOTAL
----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
1998........................................ 43.4% 26.1% 18.2% 12.3% 100%
1997........................................ 35.4% 27.8% 20.5% 16.3% 100%
1996........................................ 34.1% 28.6% 21.7% 15.6% 100%
</TABLE>

11. INTERNATIONAL SALES

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Location ($ IN MILLIONS)
United States.................................................. $54.3 $53.3 $45.3
International.................................................. 29.8 31.8 19.9
----- ----- -----
Total.................................................. $84.1 $85.1 $65.2
===== ===== =====
</TABLE>

12. BENEFIT PLANS

The Company has a defined contribution savings and profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. Employees who have
completed one year of service are eligible to participate. Employees may
contribute up to 15% of their monthly compensation.

For employee contributions up to 5% of monthly compensation, the Company
matches the employee contribution at a rate of 50%. Additional contributions
by the Company are discretionary and are determined annually by the Board of
Directors. These discretionary contributions to the plan are allocated to the
participants pro rata based on their respective salary levels.

F-13
<PAGE> 31

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Benefit costs recognized as expense under this plan consisted of the
following:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Contributions:
Profit sharing.................................................... $207 $209 $189
Savings........................................................... 145 116 107
---- ---- ----
$352 $325 $296
==== ==== ====
</TABLE>

13. COMMITMENTS

In 1995, the Company entered into an agreement with a supplier to purchase
options to purchase 200,000 tons of green ore for its New Iberia, Louisiana
plant at a specified contract price. All of the green ore purchased by the
Company pursuant to the options will be processed by the supplier at a
specified price. The Company is required to purchase at least 80% of its
estimated annual requirements of processed ore from the supplier until all
green ore purchased pursuant to the options has been processed.

In 1995, the Company entered into an agreement with a supplier to purchase
kaolin for its Eufaula, Alabama plant at a specified contract price. The term
of the agreement is eight years commencing January 1, 1996. Beginning January
1, 1997, the agreement requires the Company to purchase from the supplier at
least 80% of the Company's estimated annual requirements of kaolin for its
Eufaula plant.

In 1997, the Company entered into an agreement with a supplier to purchase
kaolin for its McIntyre, Georgia plant at a specified contract price. The term
of the agreement is twenty years commencing on January 1, 1998. The Company
has the right to purchase up to 2.5 million tons of kaolin during the term of
the agreement. The agreement requires the Company to purchase from the supplier
at least 80% of the Company's estimated annual requirements of kaolin for its
McIntyre plant.

The Company was in compliance with the terms of all agreements through
December 31, 1998.

The Company is in the final stages of construction of a new manufacturing
facility in McIntyre, Georgia that began in 1997. The total estimated cost of
construction is $56 million. Construction in progress of $51.7 million at
December 31, 1998 includes $49.9 million related to the new facility. The new
facility is scheduled to be fully operational in the second quarter of 1999.

14. EMPLOYMENT AGREEMENT

The Company has an employment agreement with its President, which expires
June 30, 2000. The agreement provides for an annual base salary and an
incentive bonus as defined in the agreement. In the event the President is
terminated without cause prior to June 30, 2000, the Company will be obligated
to pay the President two years base salary and a prorated incentive bonus. In
addition, all nonvested stock options granted to the President will vest
immediately and become exercisable. The agreement also contains a five-year
non-competition covenant that would become effective upon termination for any
reason.

F-14
<PAGE> 32

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 --Certificate of Incorporation of CARBO Ceramics Inc. (incorporated by reference to
exhibit 3.1 to the registrant's Form S-1 Registration Statement No. 333-1884)

3.2 --Bylaws of CARBO Ceramics Inc. (incorporated by reference to exhibit 3.2 to the
registrant's Form S-1 Registration Statement No. 333-1884)

4.1 --Form of Common Stock Certificate of CARBO Ceramics Inc. (incorporated by
reference to exhibit to the registrant's Form S-1 Registration Statement No. 333-
1884)

10.1 --First Amended and Restated Credit Agreement dated as of February 12, 1998,
between Brown Brothers Harriman & Co. and CARBO Ceramics Inc.
(incorporated by reference to exhibit 10.1 to the registrant's Form 10-K Annual
Report for the year ended December 31, 1997)

10.2 --Form of Tax Indemnification Agreement between CARBO Ceramics Inc. and
William C. Morris, Robert S. Rubin, Lewis C. Glucksman, George A. Wiegers,
William A. Griffin, and Jesse P. Orsini (incorporated by reference to exhibit 10.2 to
the registrant's Form S-1 Registration Statement No. 333-1884)

10.3 --Form of Employment Agreement between CARBO Ceramics Inc. and Jesse P.
Orsini (incorporated by reference to exhibit 10.4 to the registrant's Form S-1
Registration Statement No. 333-1884)

10.4 --Purchase and Sale Agreement dated as of March 31, 1995, between CARBO
Ceramics Inc. and GEO Specialty Chemicals, Inc., as amended (incorporated by
reference to exhibit 10.5 to the registrant's Form S-1 Registration Statement
No. 333-1884)

10.5 --Raw Material Requirements Agreement dated as of November 21, 1995, between
CARBO Ceramics Inc. and C-E Minerals Inc. (incorporated by reference to
exhibit 10.6 to the registrant's Form S-1 Registration Statement No. 333-1884)

10.6 --Incentive Compensation Plan (incorporated by reference to exhibit 10.8 to the
registrant's Form S-1 Registration Statement No. 333-1884)

10.7 --CARBO Ceramics Inc. 1996 Stock Option Plan for Key Employees (incorporated
by reference to exhibit 10.9 to the registrant's Form S-1 Registration Statement
No. 333-1884)

10.8 --Form of Stock Option Award Agreement (incorporated by reference to
exhibit 10.10 to the registrant's Form S-1 Registration Statement No. 333-1884)

10.9 --Raw Material Supply Agreement dated as of November 18, 1997 between CARBO
Ceramics Inc. and Arcilla Mining and Land Co. (incorporated by reference to
exhibit 10.9 to the registrant's Form 10-K Annual Report for the year ended
December 31, 1997)

23.1 --Consent of Ernst & Young LLP

27.1 --Financial Data Schedule
</TABLE>
F-15

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No.33-25845) pertaining to the CARBO Ceramics Inc. 1996 Stock Option
Plan for Key Employees of our report dated January 22, 1999 with respect to the
consolidated financial statements of CARBO Ceramics Inc. included in the Annual
Report on Form 10-K for the year ended December 31, 1998.

ERNST & YOUNG LLP

New Orleans, Louisiana
March 12, 1999

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 622
<SECURITIES> 0
<RECEIVABLES> 11,300
<ALLOWANCES> 0
<INVENTORY> 10,227
<CURRENT-ASSETS> 23,783
<PP&E> 87,553
<DEPRECIATION> 11,909
<TOTAL-ASSETS> 99,427
<CURRENT-LIABILITIES> 8,638
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 87,123
<TOTAL-LIABILITY-AND-EQUITY> 99,427
<SALES> 84,095
<TOTAL-REVENUES> 84,095
<CGS> 41,665
<TOTAL-COSTS> 41,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,427
<INCOME-TAX> 12,719
<INCOME-CONTINUING> 20,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,708
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.40

</TABLE>