CARBO CERAMICS INC - 10-K Annual Report

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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, 2002

[ ] 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)

6565 MACARTHUR BOULEVARD
SUITE 1050
IRVING, TEXAS 75039
(Address of principal executive offices)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
February 28, 2003, as reported on the New York Stock Exchange, was approximately
$228,702,035. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

As of February 28, 2003, Registrant had outstanding 15,483,836 shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held April 8, 2003 are incorporated by reference in Parts II
and III.
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PART I

ITEM 1. BUSINESS

GENERAL

CARBO Ceramics Inc. ("the Company") was formed in 1987 to acquire the
assets of Standard Oil Proppants Company, LP, a joint venture between two
ceramic proppant manufacturers. Since its founding in 1987, CARBO Ceramics has
become the world's largest producer and supplier of ceramic proppant for use in
the hydraulic fracturing of natural gas and oil wells. Demand for ceramic
proppant depends primarily upon the demand for natural gas and oil and on the
number of natural gas and oil wells drilled, completed or recompleted worldwide.
More specifically, the demand for ceramic proppant is dependent on the number of
oil and gas wells that are hydraulically fractured to stimulate production.

Hydraulic fracturing is the most widely used method of increasing
production from oil and gas wells. The hydraulic fracturing process consists of
pumping fluids down a natural gas or oil well at pressures sufficient to create
fractures in the hydrocarbon-bearing rock formation. A granular material, called
proppant, is suspended and transported in the fluid and fills the fracture,
"propping" it open once high-pressure pumping stops. The proppant-filled
fracture creates a permeable channel through which the hydrocarbons can flow
more freely from the formation to the well and then to the surface.

There are three primary types of proppant that can be utilized in the
hydraulic fracturing process: sand, resin-coated sand and ceramic. Sand is the
least expensive proppant, resin-coated sand is more expensive and ceramic
proppant is typically the highest cost. The higher initial cost of ceramic
proppant is justified by the fact that the use of these proppants in certain
well conditions results in increased production of oil and gas and increased
cash flow for the operators of oil and gas wells. The increased production rates
are primarily attributable to the higher strength and more uniform size and
shape of ceramic proppant versus alternative materials.

Based on the Company's internally generated market information and
information contained in the United States Geological Survey Minerals Yearbook,
the Company estimates that it supplies approximately 56% of the ceramic proppant
and 9% of all proppant used worldwide. During the year ended December 31, 2002,
the Company generated approximately 70% of its revenues in the U.S. and 30% in
international markets.

In May 2002, the Company expanded its business through the acquisition of
Pinnacle Technologies, Inc. ("Pinnacle"). Pinnacle is the world's leading
provider of fracture mapping services, and its fracture simulation software
FracproPT(R) is the most widely used model in the world. For the year ended
December 31, 2002, Pinnacle accounted for less than 5% of the Company's total
revenues.

PRODUCTS

The Company manufactures four distinct ceramic proppants. CARBOHSP(TM)2000
and CARBOPROP(R) are premium priced, high strength proppants designed primarily
for use in deep gas wells. CARBOHSP(TM)2000 was introduced in January 2000 and
is an improved version of CARBOHSP(TM), which was introduced in 1979 as the
original ceramic proppant. CARBOHSP(TM)2000 has the highest strength of the
ceramic proppant manufactured by CARBO Ceramics and is used primarily in the
fracturing of deep gas wells. CARBOPROP(R), which was introduced by the Company
in 1982, is slightly lower in weight and strength than CARBOHSP(TM)2000 and was
developed for use in deep gas wells that do not require the strength of
CARBOHSP(TM)2000.

The CARBOLITE(R) and CARBOECONOPROP(R) products are lightweight proppants
designed for use in gas wells of moderate depth and shallower oil wells.
CARBOLITE(R), introduced in 1984, is used in medium depth oil and gas wells,
where the additional strength of ceramic proppant may not be essential, but
where higher production rates can be achieved due to the product's roundness and
uniform grain size. CARBOECONOPROP(R), introduced in 1992 to compete directly
with sand-based proppant, has been the Company's lowest priced and fastest
growing product. The introduction of CARBOECONOPROP(R) has resulted in ceramic
proppant being used by operators of oil and gas wells that had not previously
used

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ceramics. The Company believes that many of the users of CARBOECONOPROP(R) had
previously used sand or resin-coated sand.

COMPETITION AND MARKET SHARE

The Company's chief worldwide competitor is Norton Proppants ("Norton").
Norton is owned by Compagnie de Saint-Gobain, a large French glass and materials
company. Norton manufactures ceramic proppants that directly compete with each
of the Company's products. In addition, Mineracao Curimbaba ("Curimbaba"), based
in Brazil, manufactures a sintered bauxite product similar to the Company's
CARBOHSP(TM), which is marketed in the United States under the name
"Sinterball". Curimbaba has notified the Company that it intends to introduce an
intermediate strength ceramic proppant similar to the Company's CARBOPROP(R)
although the Company believes that it would be difficult for Curimbaba to
introduce such a product that does not infringe patents held by the Company and
Norton. The Company believes that Curimbaba has not expanded its U.S. product
line to include a lightweight ceramic proppant and is unlikely to do so in light
of patents held by the Company. The Company is also aware of Borovichi
Refractories, a manufacturer of ceramic proppant located in Russia about which
the Company has limited information. The Company believes that Borovichi to date
has sold its product solely within Russia.

Competition for CARBOHSP(TM)2000 and CARBOPROP(R) principally includes
ceramic proppant manufactured by Norton and Curimbaba. The Company's
CARBOLITE(R) and CARBOECONOPROP(R) products compete with ceramic proppant
produced by Norton and with sand-based proppant for use in the hydraulic
fracturing of medium depth natural gas and oil wells. The leading suppliers of
mined sand are Unimin Corp., Badger Mining Corp., Fairmount Minerals Limited,
Inc. and Ogelbay-Norton Company. The leading suppliers of resin-coated sand are
Borden Chemical, Inc. Oilfield Products Group and Santrol, a subsidiary of
Fairmount Minerals.

The Company believes that the most significant factors that influence a
customer's decision to purchase the Company's products are (i) price/performance
ratio, (ii) on-time delivery performance, (iii) technical support and (iv)
proppant availability. The Company believes that its products are competitively
priced and that its delivery performance is excellent. The Company also believes
that its superior technical support has enabled it to persuade customers to use
ceramic proppant in an increasingly broad range of applications and thus
increased the overall market for the Company's products. Since 1993, the Company
has consistently expanded its manufacturing capacity and plans to continue its
strategy of adding capacity to meet anticipated future increases in sales
demand.

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

CUSTOMERS AND MARKETING

The Company's largest customers are, in alphabetical order, BJ Services
Company, Halliburton Energy Services, Inc. and Schlumberger, the three largest
participants in the worldwide petroleum pressure pumping industry. These
companies collectively accounted for approximately 79% of the Company's 2002
revenues and approximately 81% of the Company's 2001 revenues. However, the end
users of the Company's products are the operators of natural gas and oil wells
that hire the pressure pumping service companies to hydraulically fracture
wells. The Company works both with the pressure pumping service companies and
directly with the operators of natural gas and oil wells to present the
technical and economic advantages of using ceramic proppant. The Company
generally supplies its customers with products on a just-in-time basis, with
transactions governed by individual purchase orders. Continuing sales of product
depend on the Company's direct customers and the well operators being satisfied
with both product quality and delivery performance.

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The Company recognizes the importance of a technical marketing program when
selling a product that offers financial benefits over time but is initially more
costly than alternative products. The Company must market its products both to
its direct customers and to owners and operators of natural gas and oil wells.
The Company's sales and marketing staff regularly calls on and keeps close
contact with the people who are influential in the proppant purchasing decision:
production companies, regional offices of oilfield service companies that offer
pressure pumping services and various completion engineering consultants.
Beginning in 1999, the Company increased its marketing efforts to production
companies. The Company expanded its technical sales force in recent years and
plans to continue to increase its efforts to educate end users on the benefits
of using ceramic proppant. While the Company's products have historically been
used in very deep wells that require high-strength proppant, the Company
believes that there is economic benefit to well operators of using ceramic
proppant in shallower wells that do not necessarily require a high-strength
proppant. The Company believes that its education-based technical marketing
efforts will allow it to capture a greater portion of the large market for
sand-based proppant over time. The Company currently provides a variety of
technical support services and has developed computer software that models the
return on investment achievable by using the Company's ceramic proppant versus
other proppant in the hydraulic fracturing of a natural gas or oil well.

The Company's worldwide sales and marketing activities are coordinated by
its North American and International Marketing Managers. The Company's export
marketing efforts in 2002 were conducted through its sales office in Aberdeen,
Scotland and through commissioned sales agents located in South America, China
and Australia.

The Company's products and services are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 30%, 27% and 37% of the Company's sales for 2002, 2001 and 2000,
respectively. The distribution of the Company's export and domestic revenues is
shown below, based upon the region in which the customer used the products and
services:

DISTRIBUTION

The Company maintains finished goods inventories at its plants in New
Iberia, Louisiana, Eufaula, Alabama, and McIntyre, Georgia, and at eleven remote
stocking facilities located in Rock Springs, Wyoming; Oklahoma City, Oklahoma;
San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada; Grande
Prairie, Alberta, Canada; Rotterdam, The Netherlands; Jebel Ali, United Arab
Emirates; Adelaide, Australia; Shanghai, China; and Singapore. The North
American remote stocking facilities consist of bulk storage silos with truck
trailer loading facilities. The Company owns the facilities in San Antonio, Rock
Springs, Edmonton and Grande Prairie and subcontracts the operation of the
facilities and transportation to a local trucking company in each location. The
remaining North American stocking facilities are owned and operated by local
companies under contract with the Company. International sites are duty-free
warehouses operated by independent owners. North American sites are typically
supplied by rail and international sites are typically supplied by container
ship. In total, the Company leases 216 rail cars for use in the distribution of
its products. The price of the Company's products sold for delivery in the lower
48 United States and Canada includes just-in-time delivery of proppant to the
operator's well site, which eliminates the need for customers to maintain an
inventory of ceramic proppant.

RAW MATERIALS

Ceramic proppant is made from alumina-bearing ores (commonly referred to as
bauxite, bauxitic clay or kaolin, depending on the alumina content), that are
readily available on the world market. Bauxite is largely

3

used in the production of aluminum metal, refractory material and abrasives. The
main deposits of alumina-bearing ores in the United States are in Arkansas,
Alabama and Georgia; other economically mineable deposits are located in
Australia, Brazil, China, Jamaica, Russia and Surinam.

For the production of CARBOHSP(TM)2000, the Company uses calcined,
abrasive-grade bauxite imported from Australia, and typically purchases its
annual requirements at the seller's current prices. The Company has entered into
an agreement with a supplier to supply its anticipated need for this ore through
2005. For the production of CARBOPROP(R), the Company uses a variety of
materials that meet specific chemical and mineralogical requirements. Raw
material for the production of CARBOPROP(R) may be either as-mined bauxitic
clays or a blend of bauxite and kaolin, either of which is readily available to
the Company at sellers' current prices or through long-term contracts.

The Company's Eufaula facility exclusively employs locally mined uncalcined
kaolin for the production of CARBOLITE(R) and CARBOECONOPROP(R). The Company has
entered into a contract that requires a supplier to sell to the Company up to
200,000 net tons of kaolin per year and the Company to purchase from the
supplier 80% of the Eufaula facility's annual kaolin requirements through 2003.
This agreement, which had an original term of ten years, stipulates a fixed
price, subject to annual adjustment. A renewal or extension of this agreement is
currently being negotiated.

The Company's production facility in McIntyre, Georgia uses locally mined
uncalcined kaolin for the production of CARBOECONOPROP(R). During 2002, the
Company acquired on both a fee simple and leasehold basis, acreage in Wilkinson
County, Georgia which contains approximately 13 million tons of raw material
suitable for production of CARBOLITE(R) and CARBOECONOPROP(R). At current
production rates, the acquired raw material would supply the needs of the
McIntyre facility for a period in excess of 100 years. The Company is currently
evaluating the suitability of the raw material for the production of
CARBOLITE(R) and CARBOECONOPROP(R) at its Eufaula, Alabama facility. The Company
has entered into a long-term agreement with a third party to mine and transport
this material at a fixed price subject to annual adjustment. The agreement
requires the Company to utilize the third party to mine and transport at least
80% of the McIntyre facility's annual kaolin requirement.

The Company's production facility in Luoyang, China uses locally mined
uncalcined kaolin and bauxite for the production of CARBOPROP(R) and
CARBOLITE(R). Each of these materials is purchased under long term contracts
with a minimum term of five years. The contracts stipulate a fixed price subject
to annual adjustment. Under the terms of the agreements, the Company has an
obligation to purchase, in total, a minimum of 10,000 metric tons per year.

PRODUCTION PROCESS

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

The Company uses two different methods to produce ceramic proppant. The
Company's plants in New Iberia, Louisiana, McIntyre, Georgia, and Luoyang, China
use a dry process (the "Dry Process") which starts with bauxite, bauxitic clay
or kaolin that has been dried to remove both free water and water which was
chemically bound within the ore. This drying process is referred to as
calcining. The Company has calcining facilities at its McIntyre, Georgia and
Luoyang, China plants. Once the raw material is calcined, the ore is ground to a
very fine powder. Pellets are then formed by combining the powder with water and
binders and introducing the mixture into high-shear mixers. The process is
completed once these pellets are sintered in a rotary kiln. The Company believes
its competitors also use the Dry Process to produce ceramic proppant.

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

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PATENT PROTECTION

The Company makes ceramic proppant by processes and techniques that involve
a high degree of proprietary technology, some of which are protected by patents.

The Company owns six U.S. patents and three foreign patents. Two of these
U.S. patents and two of these foreign patents relate to the CARBOPROP(R)
product. One of these U.S. patents and one of these foreign patents relate to
the CARBOLITE(R) and CARBOECONOPROP(R) products. The Company's U.S. patents
relating to the CARBOPROP(R) product expire in 2006. The Company's U.S. patent
relating to the CARBOLITE(R) and CARBOECONOPROP(R)products expire in 2009. The
three foreign patents cover various products in Canada, Mexico and Argentina and
do not have a significant effect on the Company's business.

The Company believes that its patents have been and will continue to be
important in enabling the Company to compete in the market to supply proppant to
the natural gas and oil industry. The Company intends to enforce and has in the
past vigorously enforced its patents. The Company may be involved from time to
time in the future, as it has been in the past, in litigation to determine the
enforceability, scope and validity of its patent rights. Past disputes with its
main competitor have been resolved in settlements that permit the Company to
continue to benefit fully from its patent rights. The Company and this
competitor have cross-licensed certain of their respective patents relating to
intermediate and low density proppant on both a royalty-free and royalty-bearing
basis. Royalties under these licenses are not material to the Company's
financial results. As a result of these cross licensing arrangements, the
Company is able to produce a broad range of ceramic proppant while third parties
are unlikely to be able to produce certain of these ceramic proppant without
infringing on the patent rights held by the Company, its main competitor or
both.

Pinnacle owns one U.S. patent application (together with a number of
counterparts to that application in numerous foreign jurisdictions) that covers
certain of its proprietary systems. The patent application is in the early
stages of the patent prosecution process, and a patent may not issue on such
application in any jurisdiction for some time, if it issues at all. Pinnacle
also licenses several patents from third parties for use in its business. In
addition to patent rights, Pinnacle uses a significant amount of know-how and
other proprietary technology in the conduct of its business, and a substantial
portion of this know-how and technology is licensed by Pinnacle from third
parties.

PRODUCTION CAPACITY

The Company believes that constructing adequate capacity ahead of demand
while incorporating new technology to reduce manufacturing costs are important
competitive strategies to increase its overall share of the market for proppant.
Prior to 1993, the Company's production capacity was substantially in excess of
its sales requirements. Since that time, the Company has been expanding its
capacity in order to meet the generally increasing demand for its products. In
1993, the Company increased the capacity of the Eufaula facility from 90 million
pounds per year to 170 million pounds per year, in response to the increasing
demand for the Company's CARBOLITE(R) and CARBOECONOPROP(R) products. In 1995,
the Company completed a 40 million-pound per year capacity expansion at the New
Iberia facility, intended to meet increasing demand for CARBOHSP(TM) and
CARBOPROP(R). In 1996, the Company commenced operation of its second 80
million-pound per year expansion of the Eufaula plant bringing total capacity at
the facility to 250 million pounds per year. In late 2002, the Company installed
additional equipment in its New Iberia facility to increase production and
provide additional capacity for research and development work. Upon completion
of the New Iberia project in early 2003, total annual capacity at the facility
will be 120 million pounds.

In June 1999, the Company substantially completed construction of a new
manufacturing facility in McIntyre, Georgia. Design capacity of the plant is 200
million pounds per year and the total initial cost of the plant was
approximately $60 million. The plant consists of two distinct production lines
housed in a single building. Initial production was generated from the first
production line in June 1999 and full design throughput was achieved on that
line in November 1999. Initial production from the second production line began
in December 1999 and the plant operated at approximately 61% of its design
capacity in 2000 and 88% in 2001. During 2002, the Company spent approximately
$15 million to expand the capacity of the McIntyre facility. Total spending for
this project is projected to be approximately $17 million. Upon the anticipated

5

completion of this expansion project in early 2003, total annual capacity at the
McIntyre facility is expected to be 275 million pounds.

In September 2002, the Company completed construction of a new
manufacturing facility in Luoyang, China. The plant began operation on schedule
in the fourth quarter of 2002. The total cost of the plant was approximately $10
million and the plant is expected to have annual production capacity of 40
million pounds. The first saleable product was produced from the plant in
January 2003.

The following table sets forth the expected capacity of each of the
Company's existing manufacturing facilities following completion of the
expansions described above:

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

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS

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

EMPLOYEES

At December 31, 2002, the Company had 319 full-time employees. In addition
to the services of its employees, the Company employs the services of
consultants as required. The Company's employees are not represented by labor
unions. There have been no work stoppages or strikes during the last three years
that have resulted in the loss of production or production delays. The Company
believes its relations with its employees are satisfactory.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe",
"expect", "anticipate", "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, each of which speaks only as of the date the
statement was made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. The Company's forward-looking statements are based
on assumptions that we believe to be reasonable but that may not prove to be
accurate. All of the Company's forward-looking information is subject to risks
and uncertainties that could cause actual results to differ materially from the
results expected. Although it is not possible to identify all factors, these
risks and uncertainties include the risk factors discussed below.

The Company's results of operations could be adversely affected if its
business assumptions do not prove to be accurate or if adverse changes occur in
the Company's business environment, including but not limited to the potential
declines in the demand for oil and natural gas; potential declines or increased
volatility in oil

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and natural gas prices that would adversely affect our customers, the energy
industry or our production costs; potential reductions in spending on
exploration and development drilling in the oil and natural gas industry that
would reduce demand for our products and services; the development of
alternative stimulation techniques; and the development of alternative proppants
for use in hydraulic fracturing. The Company's results of operations could also
be adversely affected if adverse changes occur in general global economic and
business conditions or as a result of worldwide economic, political and military
events, including war, terrorist activity or initiatives by the Organization of
the Petroleum Exporting Countries.

AVAILABLE INFORMATION

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free
of charge on the Company's internet website at http://www.carboceramics.com as
soon as reasonably practicable after it electronically files such material with,
or furnishes it to, the Securities and Exchange Commission.

ITEM 2. PROPERTIES

The Company maintains its corporate headquarters (approximately 5,000
square feet of leased office space) in Irving, Texas, owns its manufacturing
facilities, land and substantially all of the related production equipment in
New Iberia, Louisiana, and Eufaula, Alabama, and leases its McIntyre, Georgia,
facility through 2009 at which time title will be conveyed to the Company. The
Company owns the buildings and production equipment at its facility in Luoyang,
China and has been granted use of the land on which the facility is located for
fifty years under the terms of a land use agreement with the People's Republic
of China.

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

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

The facility in McIntyre, Georgia includes real property, consisting of
approximately 36 acres, plant and equipment that are leased by the Company from
the Development Authority of Wilkinson County. The term of the lease commenced
on September 1, 1997 and terminates on January 1, 2009. Under the terms of the
lease, the Company was responsible for all costs incurred in connection with the
premises, including costs of construction of the plant and equipment. As an
inducement to locate the facility in Wilkinson County, Georgia, the Company
received certain ad-valorem property taxes incentives. The "net" lease provides
for annual lease payments in lieu of ad-valorem property taxes. The total of all
lease payments is immaterial in relation to the cost of the facility borne by
the Company. At the termination of the lease, title to all of the real property,
plant and equipment will be conveyed to the Company in exchange for nominal
consideration. The Company has the right to purchase the property, plant and
equipment at any time during the term of the lease for a nominal price.

The facility in Luoyang, China is located on approximately 9 acres and
consists of various production and support buildings (approximately 106,000
square feet), a laboratory (approximately 6,000 square feet) and an office
building (approximately 6,000 square feet).

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

During the third quarter of 2002, the Company completed the acquisition of
approximately 1,500 acres of land and leasehold interests in Wilkinson County,
Georgia, near its plant in McIntyre, Georgia. The land

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contains approximately 13 million tons of raw material for use in the production
of the Company's lightweight ceramic proppants. The Company has contracted with
a third party to mine and haul the reserves and bear the responsibility for
subsequent reclamation of the mined areas.

The Company's wholly-owned subsidiary, Pinnacle Technologies, Inc., leases
its corporate headquarters in San Francisco, California (approximately 6,800
square feet) and maintains leased offices totaling approximately 23,000 square
feet in Houston, Texas; Centennial, Colorado; Delft, The Netherlands; and
Calgary, Alberta, Canada. Pinnacle also owns an office condominium
(approximately 2,800 square feet) in Bakersfield, California.

ITEM 3. LEGAL PROCEEDINGS

On October 28, 2002, a state court jury in Texas found the Company liable
for tortious interference with a contract between Proppant Technology, Inc. and
its supplier. On November 22, 2002, a judgment in the amount of $993,000 was
entered in this case. The Company believes that it did not act improperly in
this matter but has decided to appeal only the amount of the judgment.

From time to time, the Company is the subject of legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these proceedings will have a material adverse effect on its business or its
results of operations.

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

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

Dr. C. Mark Pearson (age 47) has served as President and Chief Executive
Officer since April 2001. Dr. Pearson joined the Company as Vice President of
Marketing and Technology in March 1997. Prior to joining the Company, Dr.
Pearson served as Associate Professor of Petroleum Engineering at the Colorado
School of Mines from December 1995 and held various engineering and management
positions with Atlantic Richfield Company from 1984 through December 1995.

Paul G. Vitek (age 44) has been the Senior Vice President of Finance and
Administration and Chief Financial Officer since January 2000. Prior to serving
in his current capacity, Mr. Vitek served as Vice President of Finance from
February 1996 and has served as Treasurer and Secretary of the Company since
1988.

Mark L. Edmunds (age 47) has been the Vice President, Operations since
April 2002. From 2000 until joining the Company, Mr. Edmunds served as Business
Unit Manager and Plant Manager for FMC Corporation. Prior to 2000 Mr. Edmunds
served Union Carbide Corporation and The Dow Chemical Company in a variety of
management positions including Director of Operations, Director of Internal
Consulting and Manufacturing Operations Manager.

Christopher A. Wright (age 38) has been a Vice President of the Company
since May 2002. Mr. Wright has been President of Pinnacle Technologies, Inc., a
provider of fracture diagnostic products and services, since its founding in
1992.

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

8

PART II

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

COMMON STOCK MARKET PRICES AND DIVIDENDS

The Company's Common Stock is traded on the New York Stock Exchange (ticker
symbol CRR). The approximate number of holders, including both record holders
and individual participants in security position listings, of the Company's
Common Stock at February 14, 2003 was 6,981.

High and low stock prices and dividends for the last two fiscal years were:

The Company currently expects to continue its policy of paying quarterly
cash dividends at the rate of $0.09 per share, although there can be no
assurance as to future dividends because they depend on future earnings, capital
requirements and financial condition.

ITEM 6. SELECTED FINANCIAL DATA

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

- ---------------

(1) Selling, general and administrative (SG&A) expenses for 2002, 2001, 2000,
1999 and 1998 include costs of start-up activities of $1,099,000, $35,000,
$27,000, $1,464,000 and $451,000, respectively. Start-up costs for 2002 and
2001 are related to the Company's new production facility in China,
including organizational and administrative costs associated with plant
construction plus labor, materials and utilities expended to bring installed
equipment to operating condition. Start-up costs prior to 2001 consist of
labor, materials and utilities expended in bringing installed equipment to
normal operating conditions at the Company's production facility in
McIntyre, Georgia. SG&A expenses in 2002 also include a $993,000 reserve
related to a judgment against the Company in a lawsuit alleging tortious
interference with a contract.

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

GENERAL BUSINESS CONDITIONS

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

Ceramic proppants are premium products that are sold at higher prices than
sand or resin-coated sand, the two primary alternative proppants. The principal
advantage of ceramic proppants is that they are stronger than sand-based
proppants. The higher strength of ceramic proppant results in higher production
rates in deep wells where sand or resin-coated sand may be crushed under high
closure stress. Consequently, the level of deep drilling activity (generally
defined as wells deeper than 10,000 feet) influences the Company's business.
Ceramic proppants are also more uniform in size and shape than sand-based
proppants. This uniformity can result in higher production rates than sand-based
proppants when used in wells that do not otherwise require ceramics for their
higher strength.

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

The Company's performance is particularly influenced by the level of
natural gas drilling activity in North America, where it typically generates in
excess of 80% of it is revenues. The North American natural gas

10

market remained very strong through the first half of 2001. In addition, the
Company began to see significant benefit from the success of its technical
marketing program that promotes the economic benefit of using ceramic proppant
in shallower wells. As a result of the strong market conditions in North
America, the Company's marketing success and the increased capacity available
from its McIntyre, Georgia production facility, the Company established new
annual records for sales volume, average selling price, revenues and net income
in 2001 despite a downturn in North American natural gas drilling activity in
the second half of the year.

This decline in North American drilling activity continued through much of
2002. In 2002, the average natural gas rig count declined by 26% in the U.S. and
24% in Canada compared to 2001. Despite the weak market conditions, the company
established a new annual record for sales volume in Canada while sales in the
U.S. declined by 17%. Management believes that these sales figures are evidence
of the success of the Company's technical marketing effort and represent a
further penetration of the total proppant market by ceramic proppant.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the U.S., which require the Company
to make estimates and assumptions (see Note 1 to the consolidated financial
statements). The Company believes that of its significant accounting policies,
the following may involve a higher degree of judgment and complexity.

Revenue is recognized when title passes to the customer upon delivery. The
Company generates a significant portion of its revenues and corresponding
accounts receivable from sales to the petroleum pressure pumping industry. In
addition, the Company generates a significant portion of its revenues and
corresponding accounts receivable from sales to three major customers, all of
which are in the petroleum pressure pumping industry. As of December 31, 2002,
approximately 67% of the balance in accounts receivable was attributable to
those three customers. As stated in Note 1 to the consolidated financial
statements, credit losses historically have been insignificant. Therefore,
except in circumstances in which management is aware of a specific customer's
inability to meet its financial obligations (e.g. bankruptcy filings), the
Company generally does not record a reserve for bad debts. If a prolonged
economic downturn in the petroleum pressure pumping industry were to occur or,
for some other reason, any of the Company's primary customers were to experience
significant adverse conditions, its estimates of the recoverability of accounts
receivable could be reduced by a material amount.

Inventory is stated at the lower of cost or market. Obsolete or
unmarketable inventory historically has been insignificant and generally written
off when identified. Assessing the ultimate realization of inventories requires
judgments about future demand and market conditions, and management believes
that current inventories are properly valued at cost. Accordingly, no reserve to
write-down inventories has been recorded. If actual market conditions are less
favorable than those projected by management, inventory write-downs may be
required.

Income taxes are provided for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This
standard takes into account the differences between financial statement
treatment and tax treatment of certain transactions. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates is recognized as
income or expense in the period that includes the enactment date. This
calculation requires the Company to make certain estimates about its future
operations. Changes in state, federal and foreign tax laws as well as changes in
the Company's financial condition could affect these estimates.

Long-lived assets, which include property, plant and equipment, goodwill
and other intangibles, and other assets comprise a significant amount of the
Company's total assets. The Company makes judgments and estimates in conjunction
with the carrying value of these assets, including amounts to be capitalized,

11

depreciation and amortization methods and useful lives. Additionally, the
carrying values of these assets are periodically reviewed for impairment or
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recorded in the period in which it
is determined that the carrying amount is not recoverable. This requires the
Company to make long-term forecasts of its future revenues and costs related to
the assets subject to review. These forecasts require assumptions about demand
for the Company's products and services, future market conditions and
technological developments. Significant and unanticipated changes to these
assumptions could require a provision for impairment in a future period.

The Company is subject to legal proceedings, claims and litigation arising
in the ordinary course of business. Management does not believe the Company is
party to any legal proceedings that will have a material adverse effect on its
consolidated financial position. It is possible, however, that future results of
operations for any particular quarterly or annual period could be materially
affected by changes in assumptions related to those proceedings.

Purchase accounting requires extensive use of estimates and judgments to
allocate the cost of an acquired enterprise to the assets acquired and
liabilities assumed. The cost of an acquired enterprise is allocated to the
assets acquired and liabilities assumed based on their estimated fair values. If
necessary, these estimates can be revised during an allocation period when
information becomes available to further define and quantify the value of assets
acquired and liabilities assumed. The allocation period does not exceed a period
of one-year from the date of acquisition. To the extent additional information
to refine the original allocation becomes available during the allocation
period, the purchase price allocation would be adjusted accordingly. Should
information become available after the allocation period, the effects would be
reflected in operating results.

RESULTS OF OPERATIONS

The Company reported net income for 2002 that was 25% lower than the
previous year. The primary factor contributing to the reduction in net income
was a significant decrease in North American gas drilling activity that began in
the second half of 2001 and continued into 2002. The average domestic natural
gas rig count for 2002 was 26% lower than 2001, while the average price of
natural gas in the U.S. decreased by 11% from the previous year. The reduction
in revenues, increased manufacturing costs and increased selling, general and
administrative expenses contributed to the decline in net income.

The Company's net income for 2001 was 77% higher than the previous year. A
very strong North American natural gas market was the driving force behind a
significant increase in net income for the year. The number of rigs drilling for
natural gas in the U.S. reached record levels in mid-year before declining
significantly during the second half. Despite this decrease in activity, demand
for the company's products remained strong resulting in improved manufacturing
efficiency from operating manufacturing facilities at or near capacity
throughout the year.

Individual components of operating results are discussed below.

REVENUES

CARBO Ceramics Inc.'s 2002 revenues of $126.3 million were 8% lower than
2001 revenues. Revenues in 2002 included $6.0 million from Pinnacle Technologies
Inc., which was acquired by the Company on May 31, 2002. Total proppant sales
volume decreased by 13%, with domestic volume down 17% and export volume down by
2%, despite a 28% drop in the U.S. rig count and a 20% decline in the worldwide
rig count

12

compared to 2001. The Company believes that these relatively strong results in a
weak market indicate that the Company's ceramic proppants continue to gain
market share due to the success of the Company's technical marketing program and
expanded distribution network. The decreased domestic volume was due to a 23%
drop in sales in South Texas, while decreased export sales were attributable to
reduced sales into South America, Australia, and Mexico. Increased sales in
Russia and Canada offset some of the export declines. The average selling price
of $0.274 per pound in 2002 improved slightly versus $0.271 per pound in 2001.

The Company's revenues in 2001 of $137.2 million were 47% higher than 2000.
Total sales volume increased 31%, with domestic volume up 49% and export volume
down 4% compared to 2000. The Company believes that this increase was due to
both strong natural gas drilling activity in North America and the success of
its technical marketing program designed to increase the use of ceramic proppant
in wells that have traditionally used sand-based proppants. In both U.S. and
Canada, the Company's sales volume increased by a larger percentage than
industry activity as measured by the number of rigs actively drilling for oil or
gas. The export sales decline was attributable to increased competition,
particularly in Russia, and the Company's decision to supply domestic markets in
a capacity constrained environment during much of the year. The average selling
price for the year was $0.271 per pound, an increase of 12% over the year 2000.
Contributing to this was a January price increase of approximately 9%, and a
slight shift in the product mix toward higher strength products.

GROSS PROFIT

The Company's cost of sales consists of manufacturing costs and packaging
and transportation expenses associated with the delivery of the Company's
products to its customers. Variable manufacturing expenses include raw
materials, labor, utilities and repair and maintenance supplies. Fixed
manufacturing expenses include depreciation, property taxes on production
facilities, insurance and factory overhead. Certain handling costs related to
maintaining finished goods inventory and operating the Company's remote stocking
facilities are charged to selling, general and administrative expenses. Those
costs amounted to $3.7 million, $3.6 million and $3.2 million in 2002, 2001 and
2000, respectively.

Gross profit decreased by 11% from 2001 to 2002. Gross profit as a
percentage of sales was 41% for 2002, compared to 42% for 2001. The decrease in
gross profit was due primarily to reduced sales volume. The reduction in gross
profit margins was directly related to the company's manufacturing facilities
operating at approximately 82% of capacity in 2002 versus 95% of capacity in
2001. This was caused by both reduced sales volumes and unscheduled downtime at
the McIntyre production facility due to unanticipated maintenance requirements.
The impact of this was partially offset by the lower cost of natural gas used at
the manufacturing facilities during 2002 and reduced freight costs in
transporting finished goods from the plants to remote storage locations.

Gross profit increased by 64% from 2000 to 2001. Gross profit as a
percentage of sales was 42% for 2001, compared to 38% for 2000. The improvement
in gross profit was the result of both the significant increase in sales volume
and improved pricing. Improved operating efficiency in manufacturing facilities
contributed to increased gross profit margins with manufacturing facilities
running at 95% of capacity in 2001 versus 73% of capacity in 2000. Partially
offsetting this was the effect of higher natural gas costs in our manufacturing
operations and increased freight costs due to lower than desired inventory
levels at remote storage locations.

13

SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND START-UP COSTS

Selling, general and administrative expenses and start-up costs increased
by $2.3 million in 2002 over 2001. SG&A and start-up expenses increased as a
percentage of sales to 17% in 2002 from 14% in 2001. The most significant items
were start-up costs related to the new manufacturing facility in China and a
$993,000 reserve related to a judgment against the Company in a lawsuit alleging
tortious interference with a contract. Excluding the China start-up expenses and
legal judgment reserve in 2002 and a $3.5 million non-recurring, non-cash
stock-based compensation charge related to the modification of the expiration
date of fully vested stock options in connection with the retirement of the
company's former president in 2001, SG&A expenses increased by $3.7 million in
2002. This increase relates directly to the expansion of the Company's
distribution network, new business development costs, increased costs for
additional personnel in its administrative functions, and expenses of Pinnacle
Technologies.

Selling, general and administrative expenses and start-up costs increased
by $6.3 million in 2001 over 2000. SG&A expenses as a percentage of sales
increased from 13% in 2000 to 14% in 2001. Included in 2001 is a $3.5 million
non-recurring, non-cash stock-based compensation charge related to the
modification of the expiration date of fully vested stock options in connection
with the 2001 retirement of the Company's former President. Excluding this
non-recurring charge, SG&A expenses increased by $2.8 million in 2001 over 2000.
On this basis, SG&A expenses as a percentage of sales actually decreased from
13% in 2000 to 11% in 2001. Increased costs in 2001 are those that relate
directly to higher activity levels -- distribution, marketing and management
incentive expenses; as well as increased legal expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of December 31, 2002 were $24.4 million
compared to $31.5 million at the beginning of the year. The Company generated
cash from operations of $29.5 million, realized proceeds of $4.5 million from
the issuance of common stock for exercises of employee stock options, and
generated $6.0 million from maturing investment securities. Total capital
expenditures for the year were $27.4 million, cash dividends paid totaled $5.5
million, and $2.2 million was expended on the repayment of bank loans extended
to Pinnacle Technologies. In addition, $12.0 million in cash was expended as
part of the Pinnacle acquisition (the total purchase price was $26.7 million).
Major capital spending items during 2002 included spending on a new
manufacturing facility in China, improvements and additions to remote storage
locations, and improvements at the McIntyre manufacturing facility to
debottleneck the current production process and improve equipment reliability in
order to increase production capacity.

The Company's current intention, subject to its financial condition, the
amount of funds generated from operations and the level of capital expenditures,
is to continue to pay quarterly dividends to shareholders of its Common Stock at
the rate of $0.09 per share.

The Company maintains an unsecured line of credit of $10.0 million. As of
December 31, 2002, there was no outstanding debt under the credit agreement. The
Company anticipates that cash provided by operating activities and funds
available under its line of credit will be sufficient to meet planned operating
expenses, tax obligations and capital expenditures through 2003. Also, based on
the strength of its balance sheet, the Company believes that it could acquire
additional debt financing. Based on these assumptions, the Company believes that
its fixed costs could be met even with a moderate decrease in demand for the
Company's products.

14

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's major market risk exposure is to foreign currency
fluctuations that could impact its investment in China. When necessary, the
Company may enter into forward foreign exchange contracts to hedge the impact of
foreign currency fluctuations. There were no such foreign exchange contracts
outstanding at December 31, 2002. The Company has a $10.0 million line of credit
with its primary commercial bank. Under the terms of the revolving credit
agreement, the Company may elect to pay interest at either a fluctuating base
rate established by the bank from time to time or at a rate based on the rate
established in the London inter-bank market. The Company does not believe that
it has any material exposure to market risk associated with interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in pages F-1 through
F-18 of this Report.

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

Not applicable.

PART III

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

15

Within the 90 days prior to the filing of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon and as of the date of
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.

(b) Changes in Internal Controls

There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.

16

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Consolidated Financial Statements:

The consolidated financial statements of CARBO Ceramics Inc. listed below
are contained in pages F-1 through F-18 of this Report:

Report of Independent Auditors

Consolidated Balance Sheets at December 31, 2002 and 2001

Consolidated Statements of Income for each of the three years ended
December 31, 2002, 2001, and 2000

Consolidated Statements of Shareholders' Equity for each of the three years
ended December 31, 2002, 2001, and 2000

Consolidated Statements of Cash Flows for each of the three years ended
December 31, 2002, 2001, and 2000

(b) Reports on Form 8-K:

On October 23, 2002, the company filed a report on Form 8-K concerning its
press release announcing third quarter 2002 results.

(c) Exhibits:

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

(d) Financial Statement Schedules:

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

17

SIGNATURES

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

CARBO CERAMICS INC.

By: /s/ C. MARK PEARSON
------------------------------------
C. Mark Pearson
President and Chief Executive
Officer

By: /s/ PAUL G. VITEK
------------------------------------
Paul G. Vitek
Sr. Vice President, Finance and
Chief Financial Officer

Dated: March 12, 2003

POWER OF ATTORNEY

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

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

18

CERTIFICATION
AS REQUIRED BY RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, C. Mark Pearson, certify that:

1. I have reviewed this annual report on Form 10-K of Carbo Ceramics Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ C. MARK PEARSON
--------------------------------------
C. MARK PEARSON
PRESIDENT & CEO

Date: March 12, 2003

19

CERTIFICATION
AS REQUIRED BY RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Paul G. Vitek, certify that:

1. I have reviewed this annual report on Form 10-K of Carbo Ceramics Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ PAUL G. VITEK
--------------------------------------
PAUL G. VITEK
CHIEF FINANCIAL OFFICER

Date: March 12, 2003

20

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS
CARBO CERAMICS INC.

We have audited the accompanying consolidated balance sheets of CARBO
Ceramics Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CARBO Ceramics
Inc. at December 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.

ERNST & YOUNG LLP

New Orleans, Louisiana
January 31, 2003

F-1

CARBO CERAMICS INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.
F-2

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these statements.
F-3

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these statements.
F-4

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these statements.
F-5

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

CARBO Ceramics Inc. (the "Company") was formed in 1987 and is a
manufacturer of ceramic proppants. The Company has four production plants
operating in New Iberia, Louisiana; Eufaula, Alabama; McIntyre, Georgia and
Luoyang, China. The Company predominantly markets its proppant products through
pumping service companies that perform hydraulic fracturing for major oil and
gas companies. Finished goods inventories are stored at the plant sites and
eleven remote distribution facilities located in: Rock Springs, Wyoming;
Oklahoma City, Oklahoma; San Antonio, Texas; Fairbanks, Alaska; Edmonton,
Alberta, Canada; Grande Prairie, Alberta, Canada; Rotterdam, Netherlands;
Shanghai, China; Adelaide, South Australia; Singapore; and Jebel Ali, United
Arab Emirates. The Company also provides fracture diagnostic and mapping
services, sells fracture simulation software and provides fracture design
services to oil and gas companies worldwide through its wholly-owned subsidiary,
Pinnacle Technologies Inc., which is headquartered in San Francisco, California
(see Note 2).

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of CARBO
Ceramics Inc. and its wholly owned subsidiaries: CARBO Ceramics Sales
Corporation, CARBO Ceramics (UK) Limited, CARBO Ceramics (Mauritius) Inc. and
Pinnacle Technologies Inc. CARBO Ceramics Sales Corporation was liquidated in
September 2002. All significant intercompany transactions have been eliminated.

CONCENTRATION OF CREDIT RISK

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

CASH EQUIVALENTS

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

INVESTMENT SECURITIES

Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
both the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. At December 31,
2001, investment securities consisted of auction-rate preferred stock, which
were classified as held-to-maturity. The fair value of the investments
approximated the carrying value at December 31, 2001.

INVENTORIES

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

F-6

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Repair and maintenance
costs are expensed as incurred. Depreciation is computed on the straight-line
method for financial reporting purposes using the following estimated useful
lives:

Buildings and improvements.................................. 15 to 30 years
Machinery and equipment..................................... 3 to 30 years
Land-use rights............................................. 50 years

Land-use rights represent capitalized costs to acquire rights to the land
where the Company's plant site in China is located. The Company has rights to
use the property from 2001 to 2051.

In 2002, the Company completed the acquisition of approximately 1,500 acres
of land and leasehold interests in Wilkinson County, Georgia, near its plant in
McIntyre, Georgia. The Company estimates the land has 13 million tons of kaolin
reserves for use as raw material in production of its lightweight ceramic
proppant. The Company intends to mine the properties in 2003 through the use of
a third party contractor (see Note 14). The capitalized cost of land and mineral
rights as well as the costs incurred to develop such property will be amortized
when production begins, using the units-of-production method based on the
estimated total tons of kaolin reserves.

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

When events or circumstances indicate that the carrying amount of
long-lived assets to be held and used or intangible assets might not be
recoverable, the expected future undiscounted cash flows from the assets is
estimated and compared with the carrying amount of the assets. If the sum of the
estimated undiscounted cash flows is less than the carrying amount of the
assets, an impairment loss is recorded. The impairment loss is measured by
comparing the fair value of the assets with their carrying amounts. Fair value
is determined based on discounted cash flow or appraised values, as appropriate.
Long-lived assets that are held for disposal are reported at the lower of the
assets' carrying amount or fair value less costs related to the assets'
disposition.

GOODWILL

Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition. Realization of
goodwill is assessed periodically by management based on the expected future
profitability and undiscounted future cash flows of acquired entities and their
contribution to the overall operations of the Company. The Company has performed
a goodwill impairment review at the reporting unit level based on a fair value
concept. Should a review indicate that the carrying value was not recoverable,
the excess of the carrying value over the undiscounted cash flow would be
recognized as an impairment loss.

REVENUE RECOGNITION

Revenue is recognized when title passes to the customer. Title passes to
the customer upon delivery.

SHIPPING AND HANDLING COSTS

Shipping costs, which consist of transportation costs associated with the
delivery of the Company's products to customers, are classified as cost of
sales. Handling costs are charged to selling, general and administrative
expenses and include labor and overhead costs related to maintaining finished
goods inventory and operating the Company's distribution facilities. Handling
costs incurred in 2002, 2001 and 2000 were $3,676,000, $3,555,000 and
$3,175,000, respectively.

F-7

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COST OF START-UP ACTIVITIES

Start-up activities, including organization costs, are expensed as
incurred. Start-up costs for 2002 and 2001 are related to the Company's new
production facility in China, including organizational and administrative costs
associated with plant construction plus labor, materials and utilities expended
in the fourth quarter of 2002 to bring installed equipment to operating
condition. Start-up costs for 2000 represent labor, materials and utilities
expended to bring installed equipment to operating condition at the Company's
production facility in McIntyre, Georgia.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to operations when incurred and
are included in selling, general and administrative expenses. The amounts
incurred in 2002, 2001 and 2000 were $2,124,000, $784,000 and $676,000,
respectively.

STOCK BASED COMPENSATION

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (Statement 123), requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, generally
no compensation expense is recognized because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant. However, certain transactions involving fixed stock option
awards may result in the recognition of compensation expense under APB 25.
Compensation expense of $232,000 was charged to operations in 2002 for
amortization of unearned stock compensation related to unvested stock options
assumed in a business acquisition (see Note 2). In 2001, $3,504,000 compensation
expense was charged to operations, resulting from the modification of
outstanding options of the Company's former president at the time of his
retirement in April 2001. As of December 31, 2002, those options have been fully
exercised by the former president.

FOREIGN SUBSIDIARIES

Financial statements of the Company's foreign subsidiaries are translated
using current exchange rates for assets and liabilities; average exchange rates
for the period for revenues, expenses, gains and losses; and historical exchange
rates for paid-in capital accounts. Resulting translation adjustments are
included in accumulated other comprehensive income (loss).

RECLASSIFICATIONS

Certain amounts in prior year financial statements have been reclassified
to conform to the 2002 presentation.

NEW PRONOUNCEMENT

In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- An Amendment of FASB Statement No.
123," (Statement 148) was issued. The statement provides alternative methods of
transition for an entity that voluntarily changes to the fair value based method
F-8

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of accounting for stock-based employee compensation under Statement No. 123 and
amends the disclosure provisions to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Additionally, Statement 148 amends
APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about
those effects in interim financial information. The transition method provisions
of Statement 148 are effective for fiscal years ending after December 15, 2002.
The interim financial reporting requirements are effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002.

2. ACQUISITION OF BUSINESS

On May 31, 2002, the Company purchased 100 percent of the outstanding
shares of Pinnacle Technologies, Inc. (Pinnacle). Results of operations for
Pinnacle are included in the consolidated financial statements since that date.
Pinnacle provides fracture diagnostic and mapping services, sells fracture
simulation software and provides fracture design services to oil and gas
companies worldwide. The acquisition was made for the purpose of expanding the
Company's ability to provide production-enhancing solutions to exploration and
production companies worldwide and providing a catalyst for accelerating the
growth of ceramic proppant sales in the future. The acquisition was accounted
for using the purchase method of accounting provided for under FASB Statement
No. 141, "Business Combinations."

The aggregate cost of the acquisition was approximately $26.7 million,
including $12.4 million cash; 324,226 shares of common stock valued at $11.2
million; 158,300 stock options valued at $2.5 million granted in exchange for
outstanding Pinnacle options; and $0.6 million direct costs of the acquisition.
Goodwill arises from the transaction because the aggregate cost exceeded the
fair value of the assets acquired of $9.0 million and liabilities assumed of
$4.1 million. Goodwill is fully deductible for tax purposes. The value of the
common shares was determined based on the closing market price of the Company's
common stock on the date of acquisition. The value of stock options was
determined using the Black-Scholes option valuation model based on the closing
market price of the Company's common stock on the date of acquisition. The fair
value of options granted was reduced by $0.8 million allocated to unearned stock
compensation, which represents the intrinsic value of options exchanged for
unvested Pinnacle options. Unearned stock compensation is being amortized on a
straight-line basis as compensation expense over the remaining vesting period.
Under the terms of the acquisition agreement, the Company withheld $2.3 million
of the aggregate purchase price in the form of $0.8 million cash and 43,640
common shares valued at $1.5 million using the closing market price on the date
of acquisition. Subject to the Company's rights of indemnity under the
agreement, consideration withheld will be paid on the first anniversary of
closing and recognized as additional goodwill at that time.

Following are pro forma amounts assuming the acquisition was made on
January 1, 2001 ($ in thousands, except per share data):

F-9

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition ($ in thousands):

Current assets.............................................. $ 1,639
Property, plant and equipment............................... 3,942
Intangible assets........................................... 3,434
Goodwill arising in the transaction......................... 21,788
-------
30,803
-------
Current liabilities......................................... (3,212)
Long-term debt.............................................. (921)
-------
Net assets acquired......................................... $26,670
=======

Allocation of the purchase price is subject to modification in the future.
Any such modification would likely be allocated to goodwill, including an
increase in goodwill for the final installment of the aggregate purchase price
and reductions in goodwill for certain tax benefits related to exercises of
vested stock options assumed in the acquisition.

3. INTANGIBLE ASSETS

Following is a summary of intangible assets:

Amortization expense for 2002 was $223,000. Estimated amortization expense
for each of the ensuing years through December 31, 2007 is, respectively,
$382,000, $382,000, $382,000, $370,000 and $282,000.

4. BANK BORROWINGS

Under the terms of an unsecured revolving credit agreement with a bank,
dated December 31, 2000, the Company may borrow up to $10.0 million through
December 31, 2003, with the option of choosing either the bank's fluctuating
Base Rate or LIBOR Fixed Rate (as defined in the credit agreement). At December
31, 2002 the unused portion of the credit facility was $10.0 million. The terms
of the credit agreement provide for certain affirmative and negative covenants
and require the Company to maintain certain financial ratios. Commitment fees
are payable quarterly at the annual rate of three-eighths of one percent of the
unused line of credit. Commitment fees were $38,000, $38,000 and $39,000 in
2002, 2001 and 2000, respectively.

F-10

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LEASES

The Company leases certain property, plant and equipment under operating
leases, primarily consisting of railroad equipment leases. Minimum future rental
payments due under non-cancelable operating leases with remaining terms in
excess of one year as of December 31, 2002 are as follows ($ in thousands):

2003........................................................ $1,083
2004........................................................ 918
2005........................................................ 619
2006........................................................ 554
2007........................................................ 477
------
Total....................................................... $3,651
======

Leases of railroad equipment generally provide for renewal options for
periods from one to five years at their fair rental value at the time of
renewal. In the normal course of business, operating leases for railroad
equipment are generally renewed or replaced by other leases. Rent expense for
all operating leases was $1,900,000 in 2002, $1,723,000 in 2001, and $1,560,000
in 2000.

6. INCOME TAXES

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

F-11

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The reconciliation of income taxes computed at the U.S. statutory tax rate
to the Company's income tax expense is as follows ($ in thousands):

7. SHAREHOLDERS' EQUITY

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by shareholders and do not have cumulative voting rights. Subject
to preferences of any Preferred Stock, the holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available for that purpose. In
the event of liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of any Preferred Stock then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.

On January 14, 2003, the Board of Directors declared a cash dividend of
$0.09 per share. The dividend is payable on February 14, 2003 to shareholders of
record on January 31, 2003.

PREFERRED STOCK

The Company's charter authorizes 5,000 shares of Preferred Stock. The Board
of Directors has the authority to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such

F-12

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

series, without further vote or action by the Company's shareholders. In
connection with adoption of a shareholder rights plan on February 13, 2002, the
Company created the Series A Preferred Stock and authorized 2,000 shares of the
Series A Preferred Stock.

SHAREHOLDER RIGHTS PLAN

On February 13, 2002, the Company adopted a shareholder rights plan and
declared a dividend of one right for each outstanding share of Common Stock to
shareholders of record on February 25, 2002. With certain exceptions, the rights
become exercisable if a tender offer for the Company is announced or any person
or group acquires beneficial ownership of at least 15 percent of the Company's
Common Stock. If exercisable, each right entitles the holder to purchase one
ten-thousandth of a share of Series A Preferred Stock at an exercise price of
$200 and, if any person or group acquires beneficial ownership of at least 15
percent of the Company's Common Stock, to acquire a number of shares of Common
Stock having a market value of two times the $200 exercise price. The Company
may redeem the rights for $0.01 per right at any time before any person or group
acquires beneficial ownership of at least 15 percent of the Common Stock. The
rights expire on February 13, 2012.

8. STOCK OPTION PLANS

The Company has two fixed stock-based compensation plans: 1996 Stock Option
Plan for Key Employees (Carbo Plan) and 1996 Stock Option Plan of Pinnacle
Technologies, Inc. as Amended and Restated May 31, 2002 (Pinnacle Plan). The
plans provide for granting options to purchase shares of the Company's common
stock primarily to key employees, officers and directors. Under the Carbo Plan,
the Company may grant options for up to 1,250,000 shares of common stock. The
exercise price of each option is equal to the market price of the Company's
common stock on the date of grant, no individual employee may be granted options
to purchase more than an aggregate of 500,000 shares of common stock, options
have maximum terms of ten years and vest annually over four years. Under the
Pinnacle Plan, the Company may grant options for up to 200,000 shares of common
stock. The exercise price of each option may not be less than 85 percent of the
market price of the Company's common stock on the date of grant, options have
maximum terms of ten years and vesting is determined for each grant (generally 3
to 5 years).

Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2002, 2001 and 2000, respectively: risk-free interest rates of
4.59%, 4.45% and 5.00%; a dividend yield of 1.0%; volatility factors of the
expected market price of the Company's Common Stock of .498, .507 and .509; and
a weighted-average expected life of the option of 5 years.

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

F-13

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options (net of related expected tax benefits) is amortized to expense over the
options' vesting period. The Company's pro forma information follows:

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

Following is a summary of the status of fixed options outstanding at
December 31, 2002:

F-14

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. EARNINGS PER SHARE

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

10. QUARTERLY OPERATING RESULTS -- (UNAUDITED)

Quarterly results of operations for the years ended December 31, 2002 and
2001 were as follows:

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

F-15

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. SALES TO CUSTOMERS

The following schedule presents the percentages of total revenues related
to the Company's three major customers for the three-year period ended December
31, 2002:

Certain amounts in 2001 and 2000 customer categories have been restated to
conform to the 2002 categories due to business combinations of customers.

12. GEOGRAPHIC INFORMATION

Long-lived assets, consisting of net property, plant and equipment and
goodwill, as of December 31 in the United States and other countries are as
follows:

Revenues outside the United States accounted for 30%, 27% and 37% of the
Company's revenues for 2002, 2001, and 2000, respectively. Revenues for the
years ended December 31 in the United States, Canada and other countries are as
follows:

13. BENEFIT PLANS

The Company has defined contribution savings and profit sharing plans
pursuant to Section 401(k) of the Internal Revenue Code. The increase in savings
contributions in 2002 is due to additional employment related to expansions and
the acquisition of Pinnacle Technologies, Inc. on May 31, 2002. Benefit costs
recognized as expense under these plans consisted of the following for the years
ended December 31:

F-16

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. COMMITMENTS

In 1995, the Company entered into an agreement with a supplier to purchase
kaolin for its Eufaula, Alabama plant at a specified contract price. The term of
the agreement is eight years commencing January 1, 1996. Beginning January 1,
1997, the agreement requires the Company to purchase from the supplier at least
80% of the Company's estimated annual requirements of kaolin for its Eufaula
plant. For the years ended December 31, 2002, 2001 and 2000, the Company
purchased from the supplier $2.2 million, $3.7 million and $2.7 million,
respectively, of kaolin under the agreement.

In 1997, the Company entered into an agreement with a contractor to provide
kaolin for the Company's McIntyre, Georgia plant at a specified contract price,
from lands owned or leased by the contractor. The term of the agreement was
twenty years commencing on January 1, 1998. Under the agreement, the Company had
the right to purchase up to 2.5 million tons of kaolin from the contractor and
was required to purchase at least 80% of the estimated annual requirements of
kaolin for its McIntyre plant. For the years ended December 31, 2002, 2001 and
2000, the Company purchased $478,000, $514,000 and $383,000, respectively, of
kaolin under the agreement. In January 2003, the Company entered into a mining
agreement with the same contractor to provide kaolin for the Company's McIntyre
plant at specified contract prices, from lands owned or leased by either the
Company or the contractor. The new agreement supercedes and replaces the 1997
agreement. The term of the agreement is twenty years commencing on January 1,
2003 and requires the Company to accept delivery from the contractor of at least
80% of the McIntyre plant's annual kaolin requirements. Under the agreement, the
contractor bears responsibility for reclaiming property owned by the Company and
indemnifies the Company from all claims.

In January 2003, the Company entered into a three-year agreement to
purchase bauxite from a supplier. The Company uses the bauxite for production at
its plants in New Iberia, Louisiana and McIntyre, Georgia. The contract term
begins January 1, 2003 and requires the Company to purchase 60,000 metric tons
of material annually at specified contract prices. The contract also has
provisions to allow the Company to commit to purchase up to an additional 45,000
metric tons in any contract year.

In September 2002, the Company entered into a five-year agreement with a
supplier to purchase bauxite for its China plant at a specified contract price.
The agreement requires the Company to purchase a minimum of 10,000 metric tons
of material annually, or 100 percent of its annual requirements for bauxite if
less than 10,000 metric tons.

The Company was in compliance with the terms of all agreements in existence
at December 31, 2002.

15. EMPLOYMENT AGREEMENTS

The Company has an employment agreement with its President through December
31, 2003 that extends automatically for successive one-year periods without
prior written notice. The agreement provides for an annual base salary and
incentive bonus. If the President is terminated early without cause, the Company
will be obligated to pay two years base salary and a prorated incentive bonus,
and all outstanding stock options granted to the President will become fully
exercisable. The agreement also contains a two-year non-competition covenant
that would become effective upon termination for any reason.

The Company has an employment agreement with the President of Pinnacle
Technologies, Inc. through May 31, 2007. The agreement provides for an annual
base salary and incentive bonus. The agreement may be terminated by the Company
or the President of Pinnacle Technologies, Inc. for any reason. The agreement
contains a non-competition covenant that is effective for one year beyond the
term of the agreement.

F-17

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. LEGAL PROCEEDINGS AND JUDGMENT

In November 2002, a judgment was entered for a lawsuit in which a state
court jury in Texas found the Company liable for tortious interference with a
contract between Proppant Technology, Inc. and its supplier. The Company is
appealing the amount of the judgment but has reserved $993,000, the maximum
amount for which the Company believes it may be held liable on appeal.

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

F-18

EXHIBIT INDEX

3.1 -- Certificate of Incorporation of CARBO Ceramics Inc.
(incorporated by reference to exhibit 3.1 to the
registrant's Form S-1 Registration Statement No. 333-1884)
3.2 -- Bylaws of CARBO Ceramics Inc. (incorporated by reference to
exhibit 3.2 to the registrant's Form S-1 Registration
Statement No. 333-1884)
4.1 -- Form of Common Stock Certificate of CARBO Ceramics Inc.
(incorporated by reference to exhibit 4.1 to the
registrant's Form S-1 Registration Statement No. 333-1884)
4.2 -- Certificate of Designations of Series A Preferred Stock
(incorporated by reference to exhibit 2 to registrant's Form
8-A Registration Statement No. 001-15903)
10.1 -- Second Amended and Restated Credit Agreement dated as of
December 31, 2000, between Brown Brothers Harriman & Co. and
CARBO Ceramics Inc. (incorporated by reference to exhibit
10.1 to the registrant's Form 10-K Annual Report for the
year ended December 31, 2000)
10.2 -- Form of Tax Indemnification Agreement between CARBO Ceramics
Inc. and William C. Morris, Robert S. Rubin, Lewis C.
Glucksman, George A. Wiegers, William A. Griffin, and Jesse
P. Orsini (incorporated by reference to exhibit 10.2 to the
registrant's Form S-1 Registration Statement No. 333-1884)
10.3 -- Purchase and Sale Agreement dated as of March 31, 1995,
between CARBO Ceramics Inc. and GEO Specialty Chemicals,
Inc., as amended (incorporated by reference to exhibit 10.5
to the registrant's Form S-1 Registration Statement No.
333-1884)
10.4 -- Raw Material Requirements Agreement dated as of November 21,
1995, between CARBO Ceramics Inc. and C-E Minerals Inc.
(incorporated by reference to exhibit 10.6 to the
registrant's Form S-1 Registration Statement No. 333-1884)
10.5 -- Incentive Compensation Plan
10.6 -- CARBO Ceramics Inc. 1996 Stock Option Plan for Key Employees
(incorporated by reference to exhibit 10.9 to the
registrant's Form S-1 Registration Statement No. 333-1884)
10.7 -- Form of Stock Option Award Agreement (incorporated by
reference to exhibit 10.10 to the registrant's Form S-1
Registration Statement No. 333-1884)
10.8 -- Mining Agreement dated as of January 1, 2003 between CARBO
Ceramics Inc. and Arcilla Mining and Land Co.
10.9 -- Form of Employment Agreement between CARBO Ceramics Inc. and
C. Mark Pearson (incorporated by reference to exhibit 10.11
to the registrant's Form 10-K Annual Report for the year
ended December 31, 2001)
10.10 -- Form of Employment Agreement between CARBO Ceramics Inc. and
Christopher A. Wright
10.11 -- 1996 Stock Option Plan of Pinnacle Technologies, Inc., as
amended and restated May 31, 2002 (incorporated by reference
to exhibit 4.1 to registrant's Form S-8 Registration
Statement No. 333-91252)
23.1 -- Consent of Ernst & Young LLP
99.1 -- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002