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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31,
    2003                                             
| 
|o |  | 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
    incorporation or organization) |  | (I.R.S. Employer
    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 þ          No o

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.     þ

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

The aggregate market value of the Common Stock
held by non-affiliates of the Registrant, based upon the closing
sale price of the Common Stock on June 30, 2003, as
reported on the New York Stock Exchange, was approximately
$447,769,473. Shares of Common Stock held by each officer and
director and by each person who owns 10% or more of the
outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.

As of February 26, 2004, Registrant had
outstanding 15,880,407 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for
Registrants Annual Meeting of Shareholders to be held
April 13, 2004 are incorporated by reference in
Parts II and III.



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PART I




Item 1.     Business

General

Since its founding in 1987, CARBO Ceramics Inc.
(the Company) 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 52% of the ceramic
proppant and 11% of all proppant used worldwide. During the year
ended December 31, 2003, the Company generated approximately 64%
of its revenues in the U.S. and 36% in international markets.

In 2002, the Company expanded its business
through the acquisition of Pinnacle Technologies, Inc.
(Pinnacle). 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 to expand the Companys
ability to provide production-enhancing solutions to oil and gas
exploration and production companies worldwide and to provide a
catalyst for accelerating the growth of ceramic proppant sales.
Pinnacle is the worlds leading provider of fracture
mapping services, and its fracture simulation software
FracproPT® is the most widely used model in the world. For
the year ended December 31, 2003, Pinnacle accounted for
less than 10% of the Companys total revenues, net income
and operating assets.

Products

The Company manufactures four distinct ceramic
proppants. CARBOHSPTM and
CARBOPROP® are premium priced, high strength
proppants designed primarily for use in deep gas wells.
CARBOHSPTM was the original ceramic proppant
and was introduced in 1979. The Company continues to manufacture
and sell an improved version of this original product.
CARBOHSPTM has the highest strength of any of
the ceramic proppants manufactured by CARBO Ceramics and is used
primarily in the fracturing of deep gas wells.
CARBOPROP®, which was introduced by the Company in
1982, is slightly lower in weight and strength than
CARBOHSPTM and was developed for use in deep
gas wells that do not require the strength of
CARBOHSPTM.

CARBOLITE® and
CARBOECONOPROP® are lightweight proppants designed
for use in gas wells of moderate depth and shallower oil wells.
CARBOLITE®, 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
uniform size and spherical shape. CARBOECONOPROP®,

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introduced in 1992 to compete directly with
sand-based proppant, is the Companys lowest priced product
and sales volume of this product has grown at a faster rate than
the Companys other ceramic proppants. The introduction of
CARBOECONOPROP® has resulted in ceramic proppant
being used by operators of oil and gas wells that had not
previously used ceramics. The Company believes that many of the
users of CARBOECONOPROP® had previously used sand or
resin-coated sand.*


Competition

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 CARBOHSPTM, 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® although the Company
believes that it would be difficult for Curimbaba to introduce
such a product without infringing 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. Borovichi Refractories (Borovichi) is a
manufacturer of ceramic proppant located in Russia. While the
Company has limited information about Borovichi, the Company
believes that Borovichi currently manufactures only an
intermediate strength ceramic proppant and markets that product
exclusively within Russia.

Competition for CARBOHSPTM and
CARBOPROP® principally includes ceramic proppant
manufactured by Norton, Curimbaba and Borovichi. The
Companys CARBOLITE® and
CARBOECONOPROP® 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 71% of the
Companys 2003 revenues and



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|  |                                                                               
|- | ------------------------------------------------------------------------------
|* | CARBOHSPTM,
    CARBOPROP®, CARBOLITE®, and
    CARBOECONOPROP® are registered

marks of CARBO Ceramics Inc.

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approximately 79% of the Companys 2002
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.


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 markets 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 and has
continued to expand its relationships with production companies.
The Company increased the size of 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 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. In addition to the
increased technical marketing effort, the Company has engaged in
large-scale field trials to demonstrate the economic benefits of
its products and validate the findings of its computer
simulations. Occasionally, the Company will sell its products on
a discounted basis in exchange for a production companys
agreement to provide production data for direct comparison of
the results of fracturing with ceramic proppant as compared to
alternative proppants. During 2003, the Company initiated eight
such field trials, principally in markets that had not
previously used ceramic proppant.

The Companys worldwide sales and marketing
activities are coordinated by its North American and
International Marketing Managers. The Companys
international marketing efforts in 2003 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 domestically and abroad,
and by foreign customers. Sales outside the United States
accounted for 36%, 30% and 27% of the Companys sales for
2003, 2002 and 2001, respectively. The distribution of the
Companys international and domestic revenues is shown
below, based upon the region in which the customer used the
products and services:

|              |       |                 |       |       |  |      |      |       |  |   |       |       | 
|------------- | ----- | --------------- | ----- | ----- |  | ---- | ---- | ----- |  | - | ----- | ----- | 
|Location      |       | 2003            |       | 2002  |  | 2001
|              |       |                 |       |       |  |     
|              |       |                
|              |       | ($ in millions)
|United States |       | $               | 108.0 |       |  | $    | 88.0 |       |  | $ | 100.4 |      
|International |       |                 | 61.9  |       |  |      | 38.3 |       |  |   | 36.8  |      
|              |       |                 |       |       |  |      |      |       |  |   |       |      
|              | Total |                 | $     | 169.9 |  |      | $    | 126.3 |  |   | $     | 137.2 | 
|              |       |                 |       |       |  |      |      |       |  |   |       |      

Distribution

The Company maintains finished goods inventories
at its plants in New Iberia, Louisiana; Eufaula, Alabama;
McIntyre, Georgia; and Luoyang, China; and at 11 remote stocking
facilities located in Rock Springs, Wyoming; Oklahoma City,
Oklahoma; San Antonio, Texas; Fairbanks, Alaska; Edmonton,
Alberta,

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Canada; Grande Prairie, Alberta, Canada;
Rotterdam, The Netherlands; Jebel Ali, United Arab Emirates;
Adelaide, Australia; Tianjin, 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 remote stocking sites are duty-free warehouses
operated by independent owners. North American sites are
typically supplied by rail, and international sites are
typically supplied by container ship. In total, the Company
leases 281 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 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
CARBOHSPTM in the Companys New Iberia,
Louisiana, and McIntyre, Georgia, facilities, 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
foreign supplier to supply its anticipated need for this ore at
a fixed price through 2005. While prices for the material are
fixed through 2005, the Company has seen recent increases in the
cost (which is borne by the Company) of transporting this
material to the U.S. For the production of
CARBOPROP®, also produced in both New Iberia and
McIntyre, the Company uses a variety of materials that meet
specific chemical and mineralogical requirements. Raw material
for the production of CARBOPROP® 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 uses
primarily locally mined kaolin for the production of
CARBOLITE® and CARBOECONOPROP®. 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 70% of the Eufaula
facilitys annual kaolin requirements through 2010.

The Companys production facility in
McIntyre, Georgia, uses locally mined uncalcined kaolin for the
production of CARBOECONOPROP®. During 2002 and 2003,
the Company acquired on both a fee simple and leasehold basis,
acreage in Wilkinson County, Georgia, which contains
approximately 12 million tons of raw material suitable for
production of CARBOLITE® and
CARBOECONOPROP®. At current production rates, the
acquired raw material would supply the needs of the McIntyre
facility for a period in excess of 80 years. Based on
maximum production capacity after the planned construction of a
second plant in the area, these raw material reserves would
supply the needs of both plants for a period in excess of
40 years. 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 kaolin and bauxite for the
production of CARBOPROP® and CARBOLITE®.
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 of bauxite per year or 100% of
its annual requirements for bauxite if it purchases less than
10,000 metric tons per year.

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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 2,500F to 3,000F 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.

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® product.
One of these U.S. patents and one of these foreign patents
relate to the CARBOLITE® and
CARBOECONOPROP® products. The Companys
U.S. patents relating to the CARBOPROP® product
expire in 2006. The Companys U.S. patent relating to
the CARBOLITE® and CARBOECONOPROP®
products expires 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

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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®
and CARBOECONOPROP® 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 and CARBOPROP®. 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 was increased to 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 and 2003, the Company spent approximately
$17.2 million to expand the capacity of the McIntyre
facility. Upon completion of this expansion project in early
2003, total annual capacity at the McIntyre facility was
increased to 275 million pounds.

In late 2002, the Company completed construction
of a new manufacturing facility in Luoyang, China, at a cost of
approximately $10 million. The plant began operation on
schedule in the fourth quarter of 2002 and the first commercial
shipments were made from the plant in January 2003. Since
mid-2003, the plant has consistently demonstrated the ability to
operate at rates in excess of its original design capacity and
the plants annual capacity has been demonstrated to be
45 million pounds instead of the 40 million pounds
initially projected.

The Company has announced plans to add a second
production line to its facility in Luoyang, China, at a
projected cost of $6.6 million. The second line is expected
to double the capacity of the facility and is expected to be
operational in mid-2004. The Company has also announced plans to
construct a new manufacturing facility in Wilkinson County,
Georgia. This facility is expected to cost $62 million,
have annual capacity of 250 million pounds, and be
completed at the end of 2005.

The following table sets forth the current
capacity of each of the Companys existing manufacturing
facilities:

|                      |                        |              |     |          |  |                                                              | 
|--------------------- | ---------------------- | ------------ | --- | -------- |  | ------------------------------------------------------------ | 
|                      |                        | Annual       |     |         
|Location              |                        | Capacity     |     | Products
|                      |                        |              |     |         
|                      |                        | (Millions of |     |         
|                      |                        | pounds)      |     |         
|New Iberia, Louisiana |                        |              | 120 |          |  | CARBOHSPTMand
    CARBOPROP®                                
|Eufaula, Alabama      |                        |              | 250 |          |  | CARBOLITE® and
    CARBOECONOPROP®                          
|McIntyre, Georgia     |                        |              | 275 |          |  | CARBOLITE®,
    CARBOECONOPROP® CARBOHSPTMand
    CARBOPROP®
|Luoyang, China        |                        |              | 45  |          |  | CARBOPROP® and CARBOLITE®                                   
|                      |                        |              |     |          |  |                                                             
|                      | Total current capacity |              |     | 690      |  |                                                              | 

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

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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, 2003, the Company had
360 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:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a potential decline in the demand for oil and
    natural gas;                                                                                                              
|
| |  | potential declines or increased volatility in oil
    and natural gas prices that would adversely affect our
    customers, the energy industry or our production costs;    
|
| |  | potential reductions in spending on exploration
    and development drilling in the oil and natural gas industry
    that would reduce demand for our products and services;
|
| |  | the development of alternative stimulation
    techniques;                                                                                                                  
|
| |  | the development of alternative proppants for use
    in hydraulic fracturing;                                                                                               
|
| |  | general global economic and business conditions;                                                                                                                            
|
| |  | fluctuations in foreign currency exchange rates;
    and                                                                                                                    
|
| |  | the potential expropriation of assets by foreign
    governments.                                                                                                           

The Companys results of operations could
also be adversely affected as a result of worldwide economic,
political and military events, including 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

7



---



##### 



Exchange Act are made available free of charge on
the Companys internet website at
http://www.carboceramics.com as soon as reasonably practicable
after such material is filed with, or furnished to, the
Securities and Exchange Commission.




|        |           
|------- | ----------
|Item 2. | Properties

The Company maintains its corporate headquarters
(approximately 8,000 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 2016, 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 through 2051 under the terms of a land use agreement
with the Peoples Republic of China. The Company maintains
a sales office in Houston, Texas (approximately 2,100 square
feet of leased office space).

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 December 1,
2016. Under the terms of the lease, as amended in 2003, 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 tax incentives. The lease and a related
memorandum of understanding define a negotiated value of the
Companys leasehold interest during the term of the lease.
The lease also calls for annual payments of rent to the
Development Authority of Wilkinson County. The total additional
rent payments are 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 plus payment of any rent due to the Development Authority
of Wilkinson County through the remaining lease term.

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 2002 and 2003, 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 contains approximately
12 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

8



---



##### 



Calgary, Alberta, Canada. Pinnacle also owns its
field office (approximately 2,800 square feet) in Bakersfield,
California.




|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In November 2002, a $993,000 judgment was entered
against the Company in Texas state court in a lawsuit commenced
by Proppant Technology, Inc. In December 2003, the Company
settled the claim for an amount that did not differ materially
from the amount of the judgment. The Company paid the settlement
amount in January 2004.

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 2003.

Executive Officers of the Registrant

Dr. C. Mark Pearson (age 48) has served
as President and Chief Executive Officer since April 2001. Prior
to assuming these positions, Dr. Pearson served as the
Companys Senior Vice President of Marketing &
Technology from March 1997 to 2001. Prior to joining the
Company, Dr. Pearson was an Associate Professor of
Petroleum Engineering at the Colorado School of Mines from 1995
to March 1997. Dr. Pearson held various positions with
Atlantic Richfield Company from 1984 to 1995.

Paul G. Vitek (age 45) 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 48) 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 39) 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, and subsidiary of the
Company, 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.

PART II

Item 5.     Market
for Registrants Common Equity and Related Stockholder
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 13, 2004 was 9,100.

9



---



##### 



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

|              |  |             |       |           |  |             |       |           |  |     |      |          |  |   |       |  |  |   |       |  |  |   |      | 
|------------- |  | ----------- | ----- | --------- |  | ----------- | ----- | --------- |  | --- | ---- | -------- |  | - | ----- |  |  | - | ----- |  |  | - | ---- | 
|              |  |             |       |          
|              |  | 2003        |       | 2002     
|              |  |             |       |          
|              |  |             |       |           |  |             |       |          
|              |  | Sales Price |       | Cash      |  | Sales Price |       | Cash     
|              |  |             |       | Dividends |  |             |       | Dividends
|Quarter Ended |  | High        |       | Low       |  | Declared    |       | High      |  | Low |      | Declared
|              |  |             |       |           |  |             |       |           |  |     |      |         
|March 31      |  | $           | 35.90 |           |  | $           | 30.72 |           |  | $   | 0.09 |          |  | $ | 41.15 |  |  | $ | 31.00 |  |  | $ | 0.09 | 
|June 30       |  |             | 39.97 |           |  |             | 32.65 |           |  |     | 0.09 |          |  |   | 42.00 |  |  |   | 32.70 |  |  |   | 0.09 | 
|September 30  |  |             | 39.25 |           |  |             | 35.29 |           |  |     | 0.10 |          |  |   | 37.00 |  |  |   | 29.60 |  |  |   | 0.09 | 
|December 31   |  |             | 53.65 |           |  |             | 36.14 |           |  |     | 0.10 |          |  |   | 36.29 |  |  |   | 31.30 |  |  |   | 0.09 | 

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

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.

|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |        |      | 
|------------------------- | ----------------------------------------------- | --------------------------------------- | - | ------- | ---- | ---- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                          |                                                 |                                        
|                          |                                                 | Years Ended December 31,               
|                          |                                                 |                                        
|                          |                                                 | 2003                                    |   | 2002    |      | 2001 |   | 2000    |      | 1999
|                          |                                                 |                                         |   |         |      |      |   |         |      |     
|                          |                                                 |                                        
|                          |                                                 | ($ in thousands, except per share data)
|Statement of Income Data: |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Revenues                                        |                                         | $ | 169,936 |      |      | $ | 126,308 |      |      | $ | 137,226 |      |  | $ | 93,324 |      |  | $ | 69,738 |     
|                          | Cost of sales                                   |                                         |   | 97,002  |      |      |   | 74,672  |      |      |   | 78,975  |      |  |   | 57,763 |      |  |   | 41,718 |     
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Gross profit                                    |                                         |   | 72,934  |      |      |   | 51,636  |      |      |   | 58,251  |      |  |   | 35,561 |      |  |   | 28,020 |     
|                          | Selling, general and administrative expenses(1) |                                         |   | 25,920  |      |      |   | 20,956  |      |      |   | 18,676  |      |  |   | 12,404 |      |  |   | 11,761 |     
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Operating profit                                |                                         |   | 47,014  |      |      |   | 30,680  |      |      |   | 39,575  |      |  |   | 23,157 |      |  |   | 16,259 |     
|                          | Other, net                                      |                                         |   | 73      |      |      |   | 563     |      |      |   | 1,106   |      |  |   | 268    |      |  |   | (288   | )   
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Income before income taxes                      |                                         |   | 47,087  |      |      |   | 31,243  |      |      |   | 40,681  |      |  |   | 23,425 |      |  |   | 15,971 |     
|                          | Income taxes                                    |                                         |   | 17,518  |      |      |   | 11,529  |      |      |   | 14,483  |      |  |   | 8,595  |      |  |   | 5,459  |     
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Net income                                      |                                         | $ | 29,569  |      |      | $ | 19,714  |      |      | $ | 26,198  |      |  | $ | 14,830 |      |  | $ | 10,512 |     
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          | Earnings per share                              |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |        |     
|                          |                                                 | Basic                                   |   | $       | 1.90 |      |   | $       | 1.29 |      |   | $       | 1.76 |  |   | $      | 1.01 |  |   | $      | 0.72 | 
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       
|                          |                                                 | Diluted                                 |   | $       | 1.88 |      |   | $       | 1.28 |      |   | $       | 1.74 |  |   | $      | 1.00 |  |   | $      | 0.71 | 
|                          |                                                 |                                         |   |         |      |      |   |         |      |      |   |         |      |  |   |        |      |  |   |       

10



---



##### 



|                    |                                               |                                         |   |         |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |         | 
|------------------- | --------------------------------------------- | --------------------------------------- | - | ------- |  | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                    |                                               |                                        
|                    |                                               | December 31,                           
|                    |                                               |                                        
|                    |                                               | 2003                                    |   | 2002    |  | 2001 |   | 2000    |  | 1999
|                    |                                               |                                         |   |         |  |      |   |         |  |     
|                    |                                               |                                        
|                    |                                               | ($ in thousands, except per share data)
|Balance Sheet Data: |                                               |                                         |   |         |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |        
|                    | Current assets                                |                                         | $ | 92,709  |  |      | $ | 64,867  |  |      | $ | 76,502  |  |  | $ | 47,415  |  |  | $ | 23,809  | 
|                    | Current liabilities excluding bank borrowings |                                         |   | 16,432  |  |      |   | 17,940  |  |      |   | 11,127  |  |  |   | 9,415   |  |  |   | 5,648   | 
|                    | Bank borrowings-current                       |                                         |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   | 1,809   | 
|                    | Property, plant and equipment, net            |                                         |   | 116,664 |  |      |   | 111,797 |  |      |   | 82,527  |  |  |   | 78,007  |  |  |   | 83,171  | 
|                    | Total assets                                  |                                         |   | 235,124 |  |      |   | 199,610 |  |      |   | 159,029 |  |  |   | 125,422 |  |  |   | 106,980 | 
|                    | Total shareholders equity                    |                                         |   | 200,139 |  |      |   | 168,585 |  |      |   | 136,942 |  |  |   | 106,140 |  |  |   | 93,400  | 
|                    | Cash dividends per share                      |                                         | $ | 0.380   |  |      | $ | 0.360   |  |      | $ | 0.345   |  |  | $ | 0.300   |  |  | $ | 0.300   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Selling, general and administrative (SG&A)
    expenses for 2003, 2002, 2001, 2000 and 1999 include costs of
    start-up activities of $80,000, $1,099,000, $35,000, $27,000 and
    $1,464,000, respectively. Start-up costs for 2003 are related to
    expansion of the McIntyre and New Iberia facilities and initial
    operation of the new China facility. Start-up costs for 2002 and
    2001 are related to the 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 plant in McIntyre,
    Georgia. SG&A expenses in 2002 also include the accrual of a
    $993,000 reserve related to a legal judgment against the
    Company. SG&A expenses in 2003 also include a loss of
    $717,000 associated with the disposal of certain equipment.

Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Executive Level Overview

CARBO Ceramics Inc. generates revenue through the
sale of products and services to the oil and gas industry. The
Companys principal business consists of manufacturing and
selling ceramic proppant for use in the hydraulic fracturing of
oil and natural gas wells. The Companys products and
services help oil and gas producers increase production and
recovery rates from their wells, thereby lowering overall
reservoir development costs. As a result, the Companys
business is dependent to a large extent on the level of drilling
activity in the oil and gas industry worldwide. However, the
Company has increased its revenues and income over an extended
period and across various industry business cycles by increasing
its market share of worldwide proppant sales. While the
Companys ceramic proppants are more expensive than
alternative products, the Company has been able to demonstrate
the cost-effectiveness of its products to numerous operators of
oil and gas wells through increased technical marketing activity
in recent years. The Company believes its future prospects will
benefit from both an expected increase in drilling activity
worldwide and the desire of industry participants to lower their
overall development costs.

Recently, the Company has expanded its operations
outside the United States. International revenues represented
36%, 30% and 27% of total revenues, respectively, over the past
three years. In 2002 the Company constructed a manufacturing
plant in China, its first plant located outside the United
States, and currently is constructing a second production line
that will double the capacity of this plant. The Company
recently established a subsidiary company and opened two sales
offices in Russia, and by mid-2004 expects to establish a
warehouse there. The Company believes international operations
will represent an increasingly important role in its future
growth.

Revenue growth in recent years has been driven
primarily by increases in sales volume. Because the
Companys products compete in part against lower-cost
alternatives, price increases for the Companys products
have been minimal in recent years and the Company expects future
growth will continue to be dependent on increasing sales volume.
As a result, the Company has initiated construction of
significant new manufacturing capacity to meet anticipated
future demand.

11



---



##### 



The Companys gross profit margins are
principally impacted by natural gas costs and the Companys
production levels as a percentage of its capacity. While most
direct production expenses have been relatively stable or
predictable over time, natural gas, which is the fuel used to
fire the kilns in which ceramic proppant is made, has varied
from approximately 14% to 24% of total direct production costs
over the last two years due to the price volatility of this fuel
source. The Companys practice had been to purchase its
estimated annual natural gas requirement in the spring of each
year. However, beginning in 2003, the Company has initiated a
program to purchase its natural gas requirement at various times
during the year, in order to average the cost and reduce
exposure to short-term spikes in commodity prices. Despite the
efforts to reduce exposure to changes in natural gas prices, it
is possible that, given the significant portion of manufacturing
costs represented by this fuel, future changes in net income may
not be proportionate to changes in revenue.

Over the past five years, the Company has
expanded its production capacity by 97%. While the Company has
operated near full capacity for much of this period, the
addition of significant new capacity in the future could
adversely impact gross profit and operating margins if the
timing of this new capacity does not match increases in demand
for the Companys products. However, the Company believes
that the addition of this capacity is a key component to
continuing long-term growth in sales volume and revenue.

As the Companys sales volume has increased,
there has also been an increase in activities and expenses
related to marketing, distribution, research and development,
and finance and administration. As a result, selling, general
and administrative expenses have increased as a percentage of
revenue in recent years. In the future, the Company expects to
continue to actively pursue new business opportunities by:



| |   |                                                           
| | - | ----------------------------------------------------------
| |  | increasing marketing activities,                          
|
| |  | improving and expanding its distribution
    capabilities,
|
| |  | focusing on new product development, and                  
|
| |  | increasing international activities.                      

The Company expects that these activities will
generate increased revenue and that selling, general and
administrative expenses as a percentage of revenue will not
change significantly.

General Business Conditions

The Companys business is significantly
impacted by the number of natural gas wells drilled in North
America, where the majority of wells are hydraulically
fractured. 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 and
hydraulic fracturing activity. Furthermore, because the decision
to use ceramic proppant is based on comparing the higher cost of
ceramic proppant to the future value derived from increased
production rates, the Companys business is influenced by
the current and expected prices of natural gas and oil.

Natural gas prices and drilling activity in the
North American market have been highly variable over the past
three years. The North American natural gas market remained very
strong through the first half of 2001. As a result of the strong
market conditions in North America, 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. In 2003, activity levels in North America rebounded and
the Company established new sales volume records in a number of
regions including the U.S. Rocky Mountains, Canada and East
Texas. In addition, the Company experienced significant sales
growth in overseas markets due to an increase in drilling and
fracturing activity in Europe and Asia.

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

12



---



##### 



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, 2003,
approximately 68% 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, 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.

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.

13



---



##### 



Results of Operations

|           |  |                  |        |         |  |      |    |         |  |      |        |  |  |  |     |    |  |   |        | 
|---------- |  | ---------------- | ------ | ------- |  | ---- | -- | ------- |  | ---- | ------ |  |  |  | --- | -- |  | - | ------ | 
|           |  |                  |        | Percent |  |      |    | Percent |  |     
|           |  | 2003             |        | Change  |  | 2002 |    | Change  |  | 2001
|           |  |                  |        |         |  |      |    |         |  |     
|           |  |                 
|           |  | ($ in thousands)
|Net Income |  | $                | 29,569 |         |  |      | 50 | %       |  | $    | 19,714 |  |  |  | (25 | )% |  | $ | 26,198 | 

The Companys net income for 2003 was 50%
higher than the previous year. A strong North American natural
gas market and increased demand for proppants in Russia and
China were the driving forces behind a significant increase in
net income for the year. The U.S. natural gas rig count
increased steadily throughout 2003, ending the year 39% above
the 2002 year-end rig count. While activity in the
traditionally strong ceramic proppant markets in South Texas and
the Gulf of Mexico remained relatively flat compared to 2002,
the Company saw increasing demand in the Rockies, Canada and
East Texas. In addition to increased revenues, improved
operating efficiency in its manufacturing facilities contributed
to the increase in net income.

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.

Individual components of operating results are
discussed below.

Revenues

|         |  |                  |         |         |  |      |    |         |  |      |         |  |  |  |    |    |  |   |         | 
|-------- |  | ---------------- | ------- | ------- |  | ---- | -- | ------- |  | ---- | ------- |  |  |  | -- | -- |  | - | ------- | 
|         |  |                  |         | Percent |  |      |    | Percent |  |     
|         |  | 2003             |         | Change  |  | 2002 |    | Change  |  | 2001
|         |  |                  |         |         |  |      |    |         |  |     
|         |  |                 
|         |  | ($ in thousands)
|Revenues |  | $                | 169,936 |         |  |      | 35 | %       |  | $    | 126,308 |  |  |  | (8 | )% |  | $ | 137,226 | 

Revenues in 2003 of $169.9 million were 35%
higher than 2002. The increase was driven primarily by a 32%
increase in sales volume, with domestic sales volume up 19% and
international sales volume up 64%. Worldwide sales volume of
578 million pounds during 2003 established a new annual
record. Sales volume in Canada increased by 41% and sales volume
outside of North America increased by 100% compared to 2002.
Significant increases in overseas sales volume occurred in
Russia and China. The worldwide sales increase is largely
attributable to a 19% increase in the average worldwide rig
count from 2002 to 2003, the addition of the plant in Luoyang,
China, which commenced operations in January 2003, and continued
success with the Companys technical marketing efforts. The
average selling price per pound of ceramic proppant for 2003 was
$0.270 compared to $0.274 for 2002. The decline in average
selling price was due to an increase in sales of lower-priced,
light-weight ceramic proppant products. Revenues for 2003 also
included a full year of Pinnacle operations compared to only
seven months in 2002. The Company acquired Pinnacle on
May 31, 2002 and has consolidated its results since that
date.

The Companys revenues in 2002 of
$126.3 million were 8% lower than 2001 revenues. Revenues
in 2002 included $6.0 million from Pinnacle. 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 average worldwide
rig count compared to 2001. The Company believes that these
relatively strong results in a weak market indicate that the
Companys ceramic proppants continued 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.

14



---



##### 



Gross Profit

|               |  |                  |        |         |  |      |    |         |  |      |        |   |  |  |     |    |  |   |        |  
|-------------- |  | ---------------- | ------ | ------- |  | ---- | -- | ------- |  | ---- | ------ | - |  |  | --- | -- |  | - | ------ | -
|               |  |                  |        | Percent |  |      |    | Percent |  |     
|               |  | 2003             |        | Change  |  | 2002 |    | Change  |  | 2001
|               |  |                  |        |         |  |      |    |         |  |     
|               |  |                 
|               |  | ($ in thousands)
|Gross Profit   |  | $                | 72,934 |         |  |      | 41 | %       |  | $    | 51,636 |   |  |  | (11 | )% |  | $ | 58,251 |  
|Gross Profit % |  |                  | 43     | %       |  |      |    |         |  |      | 41     | % |  |  |     |    |  |   | 42     | %

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 $4.8 million,
$3.7 million and $3.6 million in 2003, 2002 and 2001,
respectively.

Gross profit increased by 41% from 2002 to 2003.
Gross profit as a percentage of sales was 43% for 2003, compared
to 41% for 2002. The improvement in gross profit was the result
of both the significant increase in sales volume as well as
increases in sales of higher margin products. Improved
efficiency in manufacturing and distribution operations
contributed to increased gross profit margins. Manufacturing
facilities operated at 90% of capacity in 2003 versus 82% of
capacity in 2002. Partially offsetting this improvement was the
effect of higher natural gas costs in manufacturing operations.
Continued improvement in distribution performance resulted in
lower freight cost to transport finished goods from plants to
remote storage locations.

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.

Selling, General & Administrative Expenses
and Other Operating Expenses

|                        |  |                  |        |         |  |      |    |         |  |      |        |   |  |  |    |   |  |   |        |  
|----------------------- |  | ---------------- | ------ | ------- |  | ---- | -- | ------- |  | ---- | ------ | - |  |  | -- | - |  | - | ------ | -
|                        |  |                  |        | Percent |  |      |    | Percent |  |     
|                        |  | 2003             |        | Change  |  | 2002 |    | Change  |  | 2001
|                        |  |                  |        |         |  |      |    |         |  |     
|                        |  |                 
|                        |  | ($ in thousands)
|SG&A                    |  | $                | 25,920 |         |  |      | 24 | %       |  | $    | 20,956 |   |  |  | 12 | % |  | $ | 18,676 |  
|SG&A as a % of Revenues |  |                  | 15     | %       |  |      |    |         |  |      | 17     | % |  |  |    |   |  |   | 14     | %

Selling, general and administrative expenses and
other operating expenses increased by $5.0 million in 2003
over 2002 and, as a percentage of sales, decreased from 17% in
2002 to 15% in 2003. The increase was due to the consolidation
of expenses of Pinnacle Technologies, Inc. for the full year in
2003 and increased spending related to distribution, marketing,
business development and research activities. Other operating
expenses in 2003 also include a $0.7 million write-off for
equipment disposed of during the expansion of the McIntyre
facility and $0.1 million start-up costs related to
production expansions. The decrease in SG&A as a percentage
of revenue is due primarily to start-up costs and a legal
reserve incurred during 2002, which represented 2% of 2002 sales.

Selling, general and administrative expenses and
other operating expenses 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

15



---



##### 



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.


Liquidity and Capital Resources

Cash and cash equivalents as of December 31,
2003 were $38.7 million compared to $24.4 million at
the beginning of the year. The Company generated cash from
operations of $38.3 million and realized proceeds of
$4.8 million from the issuance of common stock for
exercises of employee stock options. Total capital expenditures
for the year were $22.0 million, cash dividends paid
totaled $5.9 million, and $0.9 million was paid to
former Pinnacle shareholders in respect of amounts withheld at
the time of the Pinnacle acquisition pursuant to the Pinnacle
acquisition agreement. Major capital spending items during 2003
included spending on improvements at the McIntyre manufacturing
facility to debottleneck the current production process and
improve equipment reliability in order to increase production
capacity, equipment for Pinnacle operations, partial
construction of a second production line at the manufacturing
plant in China and various improvements and additions to other
manufacturing facilities.

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 holders of its Common Stock.

The Company maintains an unsecured line of credit
of $10.0 million. As of December 31, 2003, 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 2004. Also, based on the strength of its
balance sheet, the Company believes that it could acquire
additional debt financing, if necessary. 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.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements
as of December 31, 2003.

Contractual Obligations

The following table summarizes the Companys
contractual obligations as of December 31, 2003:

|                              |                                |                        |        |           |  |       |        |       |  |           |       |       |  |   |       |       |  |   |     |     | 
|----------------------------- | ------------------------------ | ---------------------- | ------ | --------- |  | ----- | ------ | ----- |  | --------- | ----- | ----- |  | - | ----- | ----- |  | - | --- | --- | 
|                              |                                |                       
|                              |                                | Payments Due in Period
|                              |                                |                       
|                              |                                |                        |        | Less than |  | 1-3   |        | 4-5   |  | More than
|                              |                                | Total                  |        | 1 Year    |  | Years |        | Years |  | 5 Years  
|                              |                                |                        |        |           |  |       |        |       |  |          
|                              |                                |                       
|                              |                                | ($ in thousands)      
|Long-term debt                |                                | $                      |       |           |  | $     |       |       |  | $         |      |       |  | $ |      |       |  | $ |    |    
|Capital lease obligations     |                                |                        |       |           |  |       |       |       |  |           |      |       |  |   |      |       |  |   |    |    
|Operating lease obligations:  |                                |                        |        |           |  |       |        |       |  |           |       |       |  |   |       |       |  |   |     |    
|                              |  Primarily railroad equipment |                        |        | 5,364     |  |       |        | 1,414 |  |           |       | 2,342 |  |   |       | 1,251 |  |   |     | 357 | 
|Purchase obligations:         |                                |                        |        |           |  |       |        |       |  |           |       |       |  |   |       |       |  |   |     |    
|                              |  Natural gas contracts        |                        |        | 3,020     |  |       |        | 3,020 |  |           |       |      |  |   |       |      |  |   |     |    | 
|                              |  Raw materials contracts      |                        |        | 12,960    |  |       |        | 6,480 |  |           |       | 6,480 |  |   |       |      |  |   |     |    | 
|Other long-term obligations   |                                |                        |       |           |  |       |       |       |  |           |      |       |  |   |      |       |  |   |    |    
|                              |                                |                        |        |           |  |       |        |       |  |           |       |       |  |   |       |       |  |   |     |    
|Total contractual obligations |                                | $                      | 21,344 |           |  | $     | 10,914 |       |  | $         | 8,822 |       |  | $ | 1,251 |       |  | $ | 357 |    
|                              |                                |                        |        |           |  |       |        |       |  |           |       |       |  |   |       |       |  |   |     |    

Operating lease obligations relate primarily to
railroad equipment leases and include leases of other property,
plant and equipment. See Note 5 and Note 14 to the
Notes to the Consolidated Financial Statements.

16



---



##### 



The Company uses natural gas to power its
domestic manufacturing plants. From time to time the Company
enters into contracts to purchase a portion of the anticipated
natural gas requirements. The contracts are at specified prices
and are typically short-term in duration. As of
December 31, 2003, the last contract was due to expire
October 1, 2004.

The Company has entered into contracts to supply
raw materials, primarily kaolin and bauxite, to each of its
manufacturing plants. Each of the contracts is described in
Note 14 to the Notes to the Consolidated Financial
Statements. Three of the contracts do not require annual minimum
purchase commitments, but do require the purchase of minimum
percentages of annual raw material requirements, ranging from
70% to 100% of the respective plants total raw materials
purchases. One of the contracts requires annual minimum purchase
commitments, which are included in the above table.



|         |                                                               
|-------- | --------------------------------------------------------------
|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, 2003.

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.



|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures

Disclosure controls and procedures are designed
to ensure that information required to be disclosed in the
reports filed or submitted under the Securities Exchange Act of
1934 (the Exchange Act) is recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in
the reports filed under the Exchange Act is accumulated and
communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.

As of December 31, 2003, management carried
out an evaluation, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. There are
inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of
human error and the circumvention of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving
their control objectives. 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 provide reasonable assurance
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

17



---



##### 



There were no changes in the Companys
internal control over financial reporting during the fiscal year
ended December 31, 2003 that materially affected, or are
reasonably likely to materially affect, those controls.

PART III

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



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information concerning executive officers under
Item 401 of Regulation S-K is set forth in Part I of
this Form 10-K. The other information required by this Item
is incorporated by reference to the Companys Proxy
Statement.



|         |                       
|-------- | ----------------------
|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. | Principal Accounting Fees and
    Services

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

PART IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) Exhibits, Financial Statements and
Financial Statement Schedules:

1. 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,
    2003 and 2002                                                             
| | Consolidated Statements of Income for each of the
    three years ended December 31, 2003, 2002 and 2001                  
| | Consolidated Statements of Shareholders
    Equity for each of the three years ended December 31, 2003,
    2002 and 2001
| | Consolidated Statements of Cash Flows for each of
    the three years ended December 31, 2003, 2002 and 2001              

2. Financial
Statement Schedules

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

18



---



##### 



(b) Reports on Form 8-K:

On October 20, 2003, the company furnished a
report on Form 8-K concerning its press release announcing
third quarter 2003 results.

3. Exhibits

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

19



---



##### 



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 3, 2004


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.

|                                             |  |                                                                                                          |  |               |  | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                             |  |                                                                                                          |  |              
|Signature                                    |  | Title                                                                                                    |  | Date         
|                                             |  |                                                                                                          |  |              
|                                            
|/s/ WILLIAM C. MORRISWilliam C. Morris       |  | Chairman of the Board                                                                                    |  | March 3, 2004
|                                            
|/s/ C. MARK PEARSONC. Mark Pearson           |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                        |  | March 3, 2004
|                                            
|/s/ PAUL G. VITEKPaul G. Vitek               |  | Sr. Vice President, Finance and Chief Financial
    Officer (Principal Financial and Accounting Officer) |  | March 3, 2004
|                                            
|/s/ CLAUDE E. COOKE, JR.Claude E. Cooke, Jr. |  | Director                                                                                                 |  | March 3, 2004
|                                            
|/s/ H.E. LENTZ, JR.H.E. Lentz, Jr.           |  | Director                                                                                                 |  | March 3, 2004
|                                            
|/s/ JOHN J. MURPHYJohn J. Murphy             |  | Director                                                                                                 |  | March 3, 2004
|                                            
|/s/ ROBERT S. RUBINRobert S. Rubin           |  | Director                                                                                                 |  | March 3, 2004

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,
2003 and 2002, and the related consolidated statements of
income, shareholders equity, and cash flows for each of
the three years in the period ended December 31, 2003.
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, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

New Orleans, Louisiana

February 20, 2004


F-1



---



##### 



CARBO CERAMICS INC.

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |         |        |         | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | 
|                                         |                                                                                                                                                                                        |                           
|                                         |                                                                                                                                                                                        | December 31,              
|                                         |                                                                                                                                                                                        |                           
|                                         |                                                                                                                                                                                        | 2003                       |                                            | 2002   
|                                         |                                                                                                                                                                                        |                            |                                            |        
|                                         |                                                                                                                                                                                        |                           
|                                         |                                                                                                                                                                                        | ($ in thousands)          
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         | Cash and cash equivalents                                                                                                                                                              |                            | $                                          | 38,714  |        |         | $      | 24,447  |       
|                                         | Trade accounts receivable                                                                                                                                                              |                            |                                            | 30,395  |        |         |        | 22,967  |       
|                                         | Inventories:                                                                                                                                                                           |                            |                                            |         |        |         |        |         |       
|                                         |                                                                                                                                                                                        | Finished goods             |                                            |         | 14,004 |         |        |         | 10,535 |        
|                                         |                                                                                                                                                                                        | Raw materials and supplies |                                            |         | 6,433  |         |        |         | 5,295  |        
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total inventories                          |         |        | 20,437  |        |         |        | 15,830  | 
|                                         | Prepaid expenses and other current assets                                                                                                                                              |                            |                                            | 1,086   |        |         |        | 600     |       
|                                         | Deferred income taxes                                                                                                                                                                  |                            |                                            | 2,077   |        |         |        | 1,023   |       
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total current assets                       |         |        | 92,709  |        |         |        | 64,867  | 
|Property, plant and equipment:           |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         | Land and land improvements                                                                                                                                                             |                            |                                            | 1,958   |        |         |        | 1,866   |       
|                                         | Land-use and mineral rights                                                                                                                                                            |                            |                                            | 5,052   |        |         |        | 5,050   |       
|                                         | Buildings                                                                                                                                                                              |                            |                                            | 12,826  |        |         |        | 12,058  |       
|                                         | Machinery and equipment                                                                                                                                                                |                            |                                            | 132,973 |        |         |        | 105,052 |       
|                                         | Construction in progress                                                                                                                                                               |                            |                                            | 11,011  |        |         |        | 25,425  |       
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total                                      |         |        | 163,820 |        |         |        | 149,451 | 
|                                         | Less accumulated depreciation                                                                                                                                                          |                            |                                            | 47,156  |        |         |        | 37,654  |       
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Net property, plant and equipment          |         |        | 116,664 |        |         |        | 111,797 | 
|Goodwill                                 |                                                                                                                                                                                        |                            | 21,840                                     |         |        |         | 19,449 |        
|Intangible assets, net                   |                                                                                                                                                                                        |                            | 3,911                                      |         |        |         | 3,497  |        
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total assets                               |         | $      | 235,124 |        |         | $      | 199,610 | 
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         | Accounts payable                                                                                                                                                                       |                            | $                                          | 5,599   |        |         | $      | 8,074   |       
|                                         | Accrued payroll and benefits                                                                                                                                                           |                            |                                            | 4,680   |        |         |        | 2,981   |       
|                                         | Accrued freight                                                                                                                                                                        |                            |                                            | 1,076   |        |         |        | 754     |       
|                                         | Accrued utilities                                                                                                                                                                      |                            |                                            | 1,645   |        |         |        | 1,061   |       
|                                         | Accrued income taxes                                                                                                                                                                   |                            |                                            | 38      |        |         |        | 1,563   |       
|                                         | Retainage related to construction in progress                                                                                                                                          |                            |                                            | 265     |        |         |        | 1,494   |       
|                                         | Provision for legal judgment                                                                                                                                                           |                            |                                            | 975     |        |         |        | 993     |       
|                                         | Other accrued expenses                                                                                                                                                                 |                            |                                            | 2,154   |        |         |        | 1,020   |       
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total current liabilities                  |         |        | 16,432  |        |         |        | 17,940  | 
|Deferred income taxes                    |                                                                                                                                                                                        |                            | 18,553                                     |         |        |         | 13,085 |        
|Shareholders equity:                    |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         | Preferred stock, par value $0.01 per share, 5,000
    shares authorized, none outstanding                                                                                              |                            |                                            |        |        |         |        |        |       
|                                         | Common stock, par value $0.01 per share,
    40,000,000 shares authorized; 15,733,432 and 15,482,436 shares
    issued and outstanding at December 31, 2003 and 2002,
    respectively |                            |                                            | 157     |        |         |        | 155     |       
|                                         | Additional paid-in capital                                                                                                                                                             |                            |                                            | 80,534  |        |         |        | 72,925  |       
|                                         | Unearned stock compensation                                                                                                                                                            |                            |                                            | (253    | )      |         |        | (557    | )     
|                                         | Retained earnings                                                                                                                                                                      |                            |                                            | 119,743 |        |         |        | 96,078  |       
|                                         | Accumulated other comprehensive income (loss)                                                                                                                                          |                            |                                            | (42     | )      |         |        | (16     | )     
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total shareholders equity                 |         |        | 200,139 |        |         |        | 168,585 | 
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        
|                                         |                                                                                                                                                                                        |                            | Total liabilities and shareholders equity |         | $      | 235,124 |        |         | $      | 199,610 | 
|                                         |                                                                                                                                                                                        |                            |                                            |         |        |         |        |        

F-2



---



##### 



CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF INCOME

|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |      |  
|-------------------------------------------- | ---------------- | --------------------------------------- | ------- | ---- | - | ---- | ------- | ---- | - | - | ------- | ---- | -
|                                             |                  |                                        
|                                             |                  | Years Ended December 31,               
|                                             |                  |                                        
|                                             |                  | 2003                                    |         | 2002 |   | 2001
|                                             |                  |                                         |         |      |   |     
|                                             |                  |                                        
|                                             |                  | ($ in thousands, except per share data)
|Revenues                                     |                  | $                                       | 169,936 |      |   | $    | 126,308 |      |   | $ | 137,226 |     
|Cost of sales                                |                  |                                         | 97,002  |      |   |      | 74,672  |      |   |   | 78,975  |     
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|Gross profit                                 |                  |                                         | 72,934  |      |   |      | 51,636  |      |   |   | 58,251  |     
|Selling, general and administrative expenses |                  |                                         | 25,141  |      |   |      | 18,864  |      |   |   | 18,641  |     
|Start-up costs                               |                  |                                         | 80      |      |   |      | 1,099   |      |   |   | 35      |     
|Provision for legal judgment                 |                  |                                         | (18     | )    |   |      | 993     |      |   |   |        |     
|Loss on disposal of equipment                |                  |                                         | 717     |      |   |      |        |      |   |   |        |     
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|Operating profit                             |                  |                                         | 47,014  |      |   |      | 30,680  |      |   |   | 39,575  |     
|Other income (expense):                      |                  |                                         |         |      |   |      |         |      |   |   |         |     
|                                             | Interest income  |                                         |         | 204  |   |      |         | 500  |   |   |         | 891  |  
|                                             | Interest expense |                                         |         | (13  | ) |      |         | (14  | ) |   |         | (1   | )
|                                             | Other, net       |                                         |         | (118 | ) |      |         | 77   |   |   |         | 216  |  
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|                                             |                  |                                         | 73      |      |   |      | 563     |      |   |   | 1,106   |     
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|Income before income taxes                   |                  |                                         | 47,087  |      |   |      | 31,243  |      |   |   | 40,681  |     
|Income taxes                                 |                  |                                         | 17,518  |      |   |      | 11,529  |      |   |   | 14,483  |     
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|Net income                                   |                  | $                                       | 29,569  |      |   | $    | 19,714  |      |   | $ | 26,198  |     
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|Earnings per share:                          |                  |                                         |         |      |   |      |         |      |   |   |         |     
|                                             | Basic            |                                         | $       | 1.90 |   |      | $       | 1.29 |   |   | $       | 1.76 |  
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     
|                                             | Diluted          |                                         | $       | 1.88 |   |      | $       | 1.28 |   |   | $       | 1.74 |  
|                                             |                  |                                         |         |      |   |      |         |      |   |   |         |     

F-3



---



##### 



CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |        |  
|----------------------------- | ---------------------------------------- | ---------------- | --- | ---------- |  | -------- | ------ | -------- |  | ------------- | ---- | ----- | - | - | ------- | ------ | - | - | --- | --- | - | - | ------- | ------ | -
|                              |                                          |                  |     |            |  |          |        |          |  | Accumulated   |      |      
|                              |                                          |                  |     |            |  | Unearned |        |          |  | Other         |      |      
|                              |                                          |                  |     | Additional |  | Stock    |        |          |  | Comprehensive |      |      
|                              |                                          | Common           |     | Paid-In    |  | Compen-  |        | Retained |  | Income        |      |      
|                              |                                          | Stock            |     | Capital    |  | sation   |        | Earnings |  | (Loss)        |      | Total
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |      
|                              |                                          |                 
|                              |                                          | ($ in thousands)
|Balances at January 1, 2001   |                                          | $                | 147 |            |  | $        | 45,225 |          |  | $             |     |       |   | $ | 60,768  |        |   | $ |    |     |   | $ | 106,140 |       
|                              | Net income                               |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | 26,198 |   |   |     |    |   |   |         | 26,198 |  
|                              | Foreign currency translation adjustment  |                  |     |           |  |          |        |         |  |               |      |      |   |   |         |       |   |   |     | (8  | ) |   |         | (8     | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|                              | Comprehensive income                     |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         | 26,190 |  
|                              | Exercise of stock options                |                  |     | 2          |  |          |        | 4,333    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 4,335  |  
|                              | Tax benefit from exercise of options     |                  |     |           |  |          |        | 1,905    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 1,905  |  
|                              | Modification of fixed stock option award |                  |     |           |  |          |        | 3,504    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 3,504  |  
|                              | Cash dividends ($0.345 per share)        |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | (5,132 | ) |   |     |    |   |   |         | (5,132 | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|Balances at December 31, 2001 |                                          |                  | 149 |            |  |          | 54,967 |          |  |               |     |       |   |   | 81,834  |        |   |   | (8  | )   |   |   | 136,942 |       
|                              | Net income                               |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | 19,714 |   |   |     |    |   |   |         | 19,714 |  
|                              | Foreign currency translation adjustment  |                  |     |           |  |          |        |         |  |               |      |      |   |   |         |       |   |   |     | (8  | ) |   |         | (8     | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|                              | Comprehensive income                     |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         | 19,706 |  
|                              | Exercise of stock options                |                  |     | 3          |  |          |        | 4,480    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 4,483  |  
|                              | Tax benefit from exercise of options     |                  |     |           |  |          |        | 382      |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 382    |  
|                              | Shares issued in acquisition             |                  |     | 3          |  |          |        | 9,677    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 9,680  |  
|                              | Vested options assumed in acquisition    |                  |     |           |  |          |        | 2,630    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 2,630  |  
|                              | Unvested options assumed in acquisition  |                  |     |           |  |          |        | 789      |  |               |      | (789  | ) |   |         |       |   |   |     |    |   |   |         |       |  
|                              | Amortization of unearned compensation    |                  |     |           |  |          |        |         |  |               |      | 232   |   |   |         |       |   |   |     |    |   |   |         | 232    |  
|                              | Cash dividends ($0.36 per share)         |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | (5,470 | ) |   |     |    |   |   |         | (5,470 | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|Balances at December 31, 2002 |                                          |                  | 155 |            |  |          | 72,925 |          |  |               | (557 | )     |   |   | 96,078  |        |   |   | (16 | )   |   |   | 168,585 |       
|                              | Net income                               |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | 29,569 |   |   |     |    |   |   |         | 29,569 |  
|                              | Foreign currency translation adjustment  |                  |     |           |  |          |        |         |  |               |      |      |   |   |         |       |   |   |     | (26 | ) |   |         | (26    | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|                              | Comprehensive income                     |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         | 29,543 |  
|                              | Exercise of stock options                |                  |     | 2          |  |          |        | 4,796    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 4,798  |  
|                              | Tax benefit from exercise of options     |                  |     |           |  |          |        | 1,308    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 1,308  |  
|                              | Shares issued in acquisition             |                  |     |           |  |          |        | 1,505    |  |               |      |      |   |   |         |       |   |   |     |    |   |   |         | 1,505  |  
|                              | Amortization of unearned compensation    |                  |     |           |  |          |        |         |  |               |      | 304   |   |   |         |       |   |   |     |    |   |   |         | 304    |  
|                              | Cash dividends ($0.38 per share)         |                  |     |           |  |          |        |         |  |               |      |      |   |   |         | (5,904 | ) |   |     |    |   |   |         | (5,904 | )
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       
|Balances at December 31, 2003 |                                          | $                | 157 |            |  | $        | 80,534 |          |  | $             | (253 | )     |   | $ | 119,743 |        |   | $ | (42 | )   |   | $ | 200,139 |       
|                              |                                          |                  |     |            |  |          |        |          |  |               |      |       |   |   |         |        |   |   |     |     |   |   |         |       

F-4



---



##### 



CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |       |        |  
|------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ------- | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ----- | ------ | -
|                                                                                      |                                              |                                          
|                                                                                      |                                              | Years Ended December 31,                 
|                                                                                      |                                              |                                          
|                                                                                      |                                              | 2003                                      |         | 2002  |        | 2001
|                                                                                      |                                              |                                           |         |       |        |     
|                                                                                      |                                              |                                          
|                                                                                      |                                              | ($ in thousands)                         
|Operating activities                                                                  |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Net income                                                                            |                                              | $                                         | 29,569  |       |        | $    | 19,714  |       |        | $ | 26,198  |      
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|                                                                                      | Depreciation                                 |                                           |         | 9,921 |        |      |         | 7,592 |        |   |         | 6,776 |       
|                                                                                      | Amortization                                 |                                           |         | 472   |        |      |         | 223   |        |   |         |      |       
|                                                                                      | Deferred income taxes                        |                                           |         | 4,414 |        |      |         | 1,977 |        |   |         | 1,049 |       
|                                                                                      | Loss on disposal of equipment                |                                           |         | 717   |        |      |         |      |        |   |         |      |       
|                                                                                      | Non-cash stock option expense                |                                           |         | 304   |        |      |         | 232   |        |   |         | 3,504 |       
|                                                                                      | Changes in operating assets and liabilities: |                                           |         |       |        |      |         |       |        |   |         |       |       
|                                                                                      |                                              | Trade accounts receivable                 |         |       | (7,428 | )    |         |       | 651    |   |         |       | (4,374 | )
|                                                                                      |                                              | Inventories                               |         |       | (4,607 | )    |         |       | (421   | ) |         |       | (2,935 | )
|                                                                                      |                                              | Prepaid expenses and other current assets |         |       | (486   | )    |         |       | 92     |   |         |       | 56     |  
|                                                                                      |                                              | Accounts payable                          |         |       | 1,880  |      |         |       | (1,222 | ) |         |       | 2,279  |  
|                                                                                      |                                              | Accrued payroll and benefits              |         |       | 1,699  |      |         |       | 159    |   |         |       | 546    |  
|                                                                                      |                                              | Accrued freight                           |         |       | 322    |      |         |       | (385   | ) |         |       | (677   | )
|                                                                                      |                                              | Accrued utilities                         |         |       | 584    |      |         |       | 213    |   |         |       | (89    | )
|                                                                                      |                                              | Accrued income taxes                      |         |       | (194   | )    |         |       | (359   | ) |         |       | 1,628  |  
|                                                                                      |                                              | Provision for legal judgment              |         |       | (18    | )    |         |       | 993    |   |         |       |       |  
|                                                                                      |                                              | Other accrued expenses                    |         |       | 1,134  |      |         |       | 12     |   |         |       | (70    | )
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Net cash provided by operating activities                                             |                                              |                                           | 38,283  |       |        |      | 29,471  |       |        |   | 33,891  |      
|Investing activities                                                                  |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Maturities of investment securities                                                   |                                              |                                           |        |       |        |      | 6,000   |       |        |   | 1,000   |      
|Purchases of investment securities                                                    |                                              |                                           |        |       |        |      |        |       |        |   | (6,000  | )    
|Capital expenditures, net                                                             |                                              |                                           | (21,975 | )     |        |      | (27,356 | )     |        |   | (11,296 | )    
|Purchase of Pinnacle Technologies,
    Inc.                                           |                                              |                                           | (909    | )     |        |      | (12,022 | )     |        |   |        |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Net cash used in investing activities                                                 |                                              |                                           | (22,884 | )     |        |      | (33,378 | )     |        |   | (16,296 | )    
|Financing activities                                                                  |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Repayments on bank borrowings                                                         |                                              |                                           |        |       |        |      | (2,198  | )     |        |   |        |      
|Proceeds from exercise of stock options                                               |                                              |                                           | 4,798   |       |        |      | 4,483   |       |        |   | 4,335   |      
|Dividends paid                                                                        |                                              |                                           | (5,904  | )     |        |      | (5,470  | )     |        |   | (5,132  | )    
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Net cash used in financing activities                                                 |                                              |                                           | (1,106  | )     |        |      | (3,185  | )     |        |   | (797    | )    
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Net increase (decrease) in cash and cash
    equivalents                              |                                              |                                           | 14,293  |       |        |      | (7,092  | )     |        |   | 16,798  |      
|Effect of exchange rate changes on cash                                               |                                              |                                           | (26     | )     |        |      | (8      | )     |        |   | (8      | )    
|Cash and cash equivalents at beginning of year                                        |                                              |                                           | 24,447  |       |        |      | 31,547  |       |        |   | 14,757  |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Cash and cash equivalents at end of year                                              |                                              | $                                         | 38,714  |       |        | $    | 24,447  |       |        | $ | 31,547  |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Supplemental cash flow information                                                    |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Interest paid                                                                         |                                              | $                                         | 13      |       |        | $    | 14      |       |        | $ | 1       |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Income taxes paid                                                                     |                                              | $                                         | 13,298  |       |        | $    | 9,764   |       |        | $ | 11,806  |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      
|Capital expenditures through accounts payable and
    retainage                       |                                              | $                                         | 265     |       |        | $    | 5,849   |       |        | $ |        |      
|                                                                                      |                                              |                                           |         |       |        |      |         |       |        |   |         |      

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, The Netherlands; Tianjin, China; Adelaide, 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 (UK) Limited, CARBO Ceramics
(Mauritius) Inc., CARBO Ceramics (China) Company Limited, CARBO
Ceramics Cyprus Limited and Pinnacle Technologies, Inc. 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.



| |            
| | -----------
| | Inventories

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



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost.
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            |  |  | 30 years       | 

F-6



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Land-use rights represent capitalized costs to
acquire rights to the land for the Companys China plant
site. The Companys rights to use of the property are for a
50-year period expiring in 2051. Depreciation in 2002 was based
on a 50-year life. In 2003, the Company decided it was more
appropriate to recover the cost of the land-use rights over the
30-year life of its business license in China, which expires in
2031. The effect of the change in estimated useful life did not
have a material impact on 2003 net income or related per share
amounts.

During 2002 and 2003, 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
12 million tons of kaolin reserves for use as raw material
in production of its lightweight ceramic proppant. The
capitalized costs of land and mineral rights as well as costs
incurred to develop such property are amortized using the
units-of-production method based on estimated total tons of
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.
During 2003, the Company recognized a $717,000 loss on the
disposal of certain equipment during expansion of the McIntyre
plant.



| |         
| | --------
| | 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 2003, 2002 and 2001 were $4,808,000, $3,676,000 and
$3,555,000, respectively.



| |                            
| | ---------------------------
| | Cost of Start-Up Activities

Start-up activities, including organization
costs, are expensed as incurred. Start-up costs for 2003 are
related to expansion of the McIntyre and New Iberia facilities
and initial operation of the China facility. Start-up costs for
2002 and 2001 are related to the China facility, including
organizational and administrative costs

F-7



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

associated with plant construction plus labor,
materials and utilities expended in the fourth quarter of 2002
to bring installed equipment to operating condition.



| |                 
| | ----------------
| | Use of Estimates

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



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development costs are charged to
operations when incurred and are included in selling, general
and administrative expenses. The amounts incurred in 2003, 2002
and 2001 were $2,578,000, $2,124,000 and $784,000, 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 $304,000 and $232,000 was
charged to operations in 2003 and 2002, respectively, 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 had been fully exercised
by the former president.

F-8



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of Statement 123 to
stock-based employee compensation for the years ended December
31:

|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                           |                       | 2003                    |        | 2002 |  | 2001
|                                                                                                                                           |                       |                         |        |      |  |     
|                                                                                                                                           |                       |                        
|                                                                                                                                           |                       | ($ in thousands, except
|                                                                                                                                           |                       | per share data)        
|Net income, as reported                                                                                                                    |                       | $                       | 29,569 |      |  | $    | 19,714 |      |  | $ | 26,198 |     
|Add: stock-based employee compensation expense
    included in reported net income, net of related tax effects                             |                       |                         | 191    |      |  |      | 146    |      |  |   | 2,207  |     
|Deduct: total stock-based compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                       |                         | (1,145 | )    |  |      | (976   | )    |  |   | (2,584 | )   
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                                       |                       | $                       | 28,615 |      |  | $    | 18,884 |      |  | $ | 25,821 |     
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     
|Earnings per share:                                                                                                                        |                       |                         |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                           | Basic  as reported   |                         | $      | 1.90 |  |      | $      | 1.29 |  |   | $      | 1.76 | 
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                           | Basic  pro forma     |                         | $      | 1.84 |  |      | $      | 1.24 |  |   | $      | 1.73 | 
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                           | Diluted  as reported |                         | $      | 1.88 |  |      | $      | 1.28 |  |   | $      | 1.74 | 
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     
|                                                                                                                                           | Diluted  pro forma   |                         | $      | 1.82 |  |      | $      | 1.23 |  |   | $      | 1.72 | 
|                                                                                                                                           |                       |                         |        |      |  |      |        |      |  |   |        |     



| |                     
| | --------------------
| | 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).



| |                  
| | -----------------
| | New Pronouncement

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities, which
clarifies the application of Accounting Research
Bulletin 51 (ARB 51), Consolidated Financial
Statements, to certain entities (called variable interest
entities) in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. The disclosure requirements of this
interpretation are effective for all financial statements issued
after January 31, 2003. The consolidation requirements
apply to all variable interest entities created after
January 31, 2003. In addition, public companies must apply
the consolidation requirements to variable interest entities
that existed prior to February 1, 2003, and remain in
existence as of the beginning of annual or interim periods
beginning after March 15, 2004. The Company adopted
FIN 46 in the fourth quarter 2003. As the Company has no
arrangements that meet the definition of a variable interest
entity, the adoption had no impact on the Companys
consolidated financial statements.

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

F-9



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

was made to expand the Companys ability to
provide production-enhancing solutions to oil and gas
exploration and production companies worldwide and to provide 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; 324,207 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 was
recorded because the aggregate cost of the transaction exceeded
the fair value of the assets acquired of $9.0 million net
of 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 to
expense on a straight-line basis 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
43,621 common shares valued at $1.5 million using the
closing market price on the date of acquisition. The final
installment was paid on June 1, 2003, and recorded as
goodwill.

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

|                              |         |                         |         |      |  |   |         |      | 
|----------------------------- | ------- | ----------------------- | ------- | ---- |  | - | ------- | ---- | 
|                              |         |                        
|                              |         | Year Ended December 31,
|                              |         |                        
|                              |         | 2002                    |         | 2001
|                              |         |                         |         |     
|Pro forma revenue             |         | $                       | 129,808 |      |  | $ | 146,580 |     
|Pro forma net income          |         | $                       | 19,213  |      |  | $ | 26,174  |     
|Pro forma earnings per share: |         |                         |         |      |  |   |         |     
|                              | Basic   |                         | $       | 1.25 |  |   | $       | 1.72 | 
|                              |         |                         |         |      |  |   |         |     
|                              | Diluted |                         | $       | 1.24 |  |   | $       | 1.70 | 
|                              |         |                         |         |      |  |   |         |     

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

|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Current assets                      |  | $ | 1,639  |  
|Property, plant and equipment       |  |   | 3,942  |  
|Intangible assets                   |  |   | 3,434  |  
|Goodwill arising in the transaction |  |   | 21,840 |  
|                                    |  |   |        |  
|                                    |  |   | 30,855 |  
|Current liabilities                 |  |   | (3,212 | )
|Long-term debt                      |  |   | (921   | )
|                                    |  |   |        |  
|Net assets acquired                 |  | $ | 26,722 |  
|                                    |  |   |        |  

F-10



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.     Intangible
Assets

Following is a summary of intangible assets as of
December 31:

|                                              |                      |                  |       |              |  |        |     |              |  |   |       |       |  |   |     |     | 
|--------------------------------------------- | -------------------- | ---------------- | ----- | ------------ |  | ------ | --- | ------------ |  | - | ----- | ----- |  | - | --- | --- | 
|                                              |                      |                  |       |             
|                                              |                      | 2003             |       | 2002        
|                                              |                      |                  |       |             
|                                              |                      | Gross            |       | Accumulated  |  | Gross  |     | Accumulated 
|                                              |                      | Amount           |       | Amortization |  | Amount |     | Amortization
|                                              |                      |                  |       |              |  |        |     |             
|                                              |                      |                 
|                                              |                      | ($ in thousands)
|Intangibles subject to amortization:          |                      |                  |       |              |  |        |     |              |  |   |       |       |  |   |     |    
|                                              | Patents and licenses |                  | $     | 2,547        |  |        | $   | 412          |  |   | $     | 2,526 |  |   | $   | 152 | 
|                                              | Hardware designs     |                  |       | 683          |  |        |     | 193          |  |   |       | 545   |  |   |     | 71  | 
|                                              | Other                |                  |       | 369          |  |        |     | 90           |  |   |       | 132   |  |   |     |    | 
|Other intangibles not subject to amortization |                      |                  | 1,007 |              |  |        |    |              |  |   | 517   |       |  |   |    |    
|                                              |                      |                  |       |              |  |        |     |              |  |   |       |       |  |   |     |    
|                                              |                      | $                | 4,606 |              |  | $      | 695 |              |  | $ | 3,720 |       |  | $ | 223 |    
|                                              |                      |                  |       |              |  |        |     |              |  |   |       |       |  |   |     |    

Certain amounts in the December 31, 2002
summary have been reclassified to conform to the
December 31, 2003 presentation.

Amortization expense for 2003 and 2002 was
$472,000 and $223,000, respectively. Estimated amortization
expense for each of the ensuing years through December 31,
2008 is, respectively, $479,000, $449,000, $393,000, $356,000,
and $264,000.

4.     Bank
Borrowings

Under the terms of an unsecured revolving credit
agreement with a bank, dated December 31, 2000, and amended
December 23, 2003, the Company may borrow up to
$10.0 million through December 31, 2006, 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, 2003 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 in each of the years 2003, 2002 and
2001.

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, 2003 are as follows
($ in thousands):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 1,414 | 
|2005       |  |   | 1,309 | 
|2006       |  |   | 1,033 | 
|2007       |  |   | 751   | 
|2008       |  |   | 500   | 
|Thereafter |  |   | 357   | 
|           |  |   |       | 
|Total      |  | $ | 5,364 | 
|           |  |   |       | 

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 $2,625,000 in 2003, $1,900,000 in 2002
and $1,723,000 in 2001.

F-11



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                          |                                |                  |        |        |  |   |        |        | 
|------------------------- | ------------------------------ | ---------------- | ------ | ------ |  | - | ------ | ------ | 
|                          |                                | 2003             |        | 2002  
|                          |                                |                  |        |       
|                          |                                |                 
|                          |                                | ($ in thousands)
|Deferred tax assets:      |                                |                  |        |        |  |   |        |       
|Employee benefits         |                                | $                | 734    |        |  | $ | 356    |       
|Inventories               |                                |                  | 953    |        |  |   | 575    |       
|Other                     |                                |                  | 390    |        |  |   | 92     |       
|                          |                                |                  |        |        |  |   |        |       
|                          | Total deferred tax assets      |                  |        | 2,077  |  |   |        | 1,023  | 
|                          |                                |                  |        |        |  |   |        |       
|Deferred tax liabilities: |                                |                  |        |        |  |   |        |       
|Depreciation              |                                |                  | 17,087 |        |  |   | 13,085 |       
|Goodwill                  |                                |                  | 815    |        |  |   |       |       
|Foreign earnings          |                                |                  | 651    |        |  |   |       |       
|                          |                                |                  |        |        |  |   |        |       
|                          | Total deferred tax liabilities |                  |        | 18,553 |  |   |        | 13,085 | 
|                          |                                |                  |        |        |  |   |        |       
|                          | Net deferred tax liabilities   |                  | $      | 16,476 |  |   | $      | 12,062 | 
|                          |                                |                  |        |        |  |   |        |       

Significant components of the provision for
income taxes for the years ended December 31 are as follows:

|          |         |                  |        |        |        |      |        |       |       |   |        |        |        | 
|--------- | ------- | ---------------- | ------ | ------ | ------ | ---- | ------ | ----- | ----- | - | ------ | ------ | ------ | 
|          |         | 2003             |        | 2002   |        | 2001
|          |         |                  |        |        |        |     
|          |         |                 
|          |         | ($ in thousands)
|Current:  |         |                  |        |        |        |      |        |       |       |   |        |       
|          | Federal |                  | $      | 11,211 |        |      | $      | 8,620 |       |   | $      | 12,302 |       
|          | State   |                  |        | 1,893  |        |      |        | 932   |       |   |        | 1,132  |       
|          |         |                  |        |        |        |      |        |       |       |   |        |       
|          |         | Total current    |        |        | 13,104 |      |        |       | 9,552 |   |        |        | 13,434 | 
|          |         |                  |        |        |        |      |        |       |       |   |        |       
|Deferred: |         |                  |        |        |        |      |        |       |       |   |        |       
|          | Federal |                  |        | 3,829  |        |      |        | 1,784 |       |   |        | 961    |       
|          | State   |                  |        | 585    |        |      |        | 193   |       |   |        | 88     |       
|          |         |                  |        |        |        |      |        |       |       |   |        |       
|          |         | Total deferred   |        |        | 4,414  |      |        |       | 1,977 |   |        |        | 1,049  | 
|          |         |                  |        |        |        |      |        |       |       |   |        |       
|          |         | $                | 17,518 |        |        | $    | 11,529 |       |       | $ | 14,483 |       
|          |         |                  |        |        |        |      |        |       |       |   |        |       

The reconciliation of income taxes computed at
the U.S. statutory tax rate to the Companys income
tax expense for the years ended December 31 is as follows:

|                                               |  |                  |        |         |  |        |      |         |  |        |        |         |  |  |      |   |  |   |        |   |  |  |      |  
|---------------------------------------------- |  | ---------------- | ------ | ------- |  | ------ | ---- | ------- |  | ------ | ------ | ------- |  |  | ---- | - |  | - | ------ | - |  |  | ---- | -
|                                               |  |                  |        |         |  |       
|                                               |  | 2003             |        | 2002    |  | 2001  
|                                               |  |                  |        |         |  |       
|                                               |  | Amount           |        | Percent |  | Amount |      | Percent |  | Amount |        | Percent
|                                               |  |                  |        |         |  |        |      |         |  |        |        |        
|                                               |  |                 
|                                               |  | ($ in thousands)
|U.S. statutory rate                            |  | $                | 16,480 |         |  |        | 35.0 | %       |  | $      | 10,935 |         |  |  | 35.0 | % |  | $ | 14,238 |   |  |  | 35.0 | %
|State income taxes, net of federal tax benefit |  |                  | 1,611  |         |  |        | 3.4  |         |  |        | 1,125  |         |  |  | 3.6  |   |  |   | 1,220  |   |  |  | 3.0  |  
|Extraterritorial Income Exclusion and other    |  |                  | (573   | )       |  |        | (1.2 | )       |  |        | (531   | )       |  |  | (1.7 | ) |  |   | (975   | ) |  |  | (2.4 | )
|                                               |  |                  |        |         |  |        |      |         |  |        |        |         |  |  |      |   |  |   |        |   |  |  |      |  
|                                               |  | $                | 17,518 |         |  |        | 37.2 | %       |  | $      | 11,529 |         |  |  | 36.9 | % |  | $ | 14,483 |   |  |  | 35.6 | %
|                                               |  |                  |        |         |  |        |      |         |  |        |        |         |  |  |      |   |  |   |        |   |  |  |      |  

F-12



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2004, the Board of Directors
declared a cash dividend of $0.10 per share. The dividend is
payable on February 16, 2004 to shareholders of record on
January 30, 2004.



| |                
| | ---------------
| | Preferred Stock

The Companys charter authorizes 5,000
shares of Preferred Stock. The Board of Directors has the
authority to issue Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or
the designation of such series, without further vote or action
by the Companys shareholders. In connection with adoption
of a shareholder rights plan on February 13, 2002, the
Company created the Series A Preferred Stock and authorized
2,000 shares of the Series A Preferred Stock.



| |                        
| | -----------------------
| | Shareholder Rights Plan

On February 13, 2002, the Company adopted a
shareholder rights plan and declared a dividend of one right for
each outstanding share of Common Stock to shareholders of record
on February 25, 2002. With certain exceptions, the rights
become exercisable if a tender offer for the Company is
announced or any person or group acquires beneficial ownership
of at least 15 percent of the Companys Common Stock.
If exercisable, each right entitles the holder to purchase one
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

F-13



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
(see note 1), 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 2003, 2002 and 2001, respectively: risk-free interest rates
of 3.15%, 4.59% and 4.45%; a dividend yield of 1.0%; volatility
factors of the expected market price of the Companys
Common Stock of .458, .498 and .507; 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.

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

|                                                                   |  |         |       |                  |  |         |    |                  |  |         |       |                  |  |   |    |  |  |   |       |  |  |   |    | 
|------------------------------------------------------------------ |  | ------- | ----- | ---------------- |  | ------- | -- | ---------------- |  | ------- | ----- | ---------------- |  | - | -- |  |  | - | ----- |  |  | - | -- | 
|                                                                   |  |         |       |                  |  |        
|                                                                   |  | 2003    |       | 2002             |  | 2001   
|                                                                   |  |         |       |                  |  |        
|                                                                   |  | Options |       | Weighted-Average |  | Options |    | Weighted-Average |  | Options |       | Weighted-Average
|                                                                   |  | (000)   |       | Exercise Price   |  | (000)   |    | Exercise Price   |  | (000)   |       | Exercise Price  
|                                                                   |  |         |       |                  |  |         |    |                  |  |         |       |                 
|Outstanding-beginning of year                                      |  |         | 778   |                  |  | $       | 28 |                  |  |         | 757   |                  |  | $ | 25 |  |  |   | 818   |  |  | $ | 21 | 
|Granted                                                            |  |         | 34    |                  |  |         | 35 |                  |  |         | 279   |                  |  |   | 26 |  |  |   | 209   |  |  |   | 34 | 
|Exercised                                                          |  |         | 207   |                  |  |         | 23 |                  |  |         | 252   |                  |  |   | 18 |  |  |   | 250   |  |  |   | 17 | 
|Forfeited                                                          |  |         | 12    |                  |  |         | 26 |                  |  |         | 6     |                  |  |   | 32 |  |  |   | 20    |  |  |   | 35 | 
|                                                                   |  |         |       |                  |  |         |    |                  |  |         |       |                  |  |   |    |  |  |   |       |  |  |   |    | 
|Outstanding-end of year                                            |  |         | 593   |                  |  | $       | 30 |                  |  |         | 778   |                  |  | $ | 28 |  |  |   | 757   |  |  | $ | 25 | 
|                                                                   |  |         |       |                  |  |         |    |                  |  |         |       |                  |  |   |    |  |  |   |       |  |  |   |    | 
|Exercisable at end of year                                         |  |         | 341   |                  |  | $       | 27 |                  |  |         | 443   |                  |  | $ | 24 |  |  |   | 534   |  |  | $ | 22 | 
|Weighted-average fair value of options granted
    during the year |  | $       | 14.00 |                  |  |         |    |                  |  | $       | 19.30 |                  |  |   |    |  |  | $ | 15.55 |  |  |   |    | 

Following is a summary of the status of fixed
options outstanding at December 31, 2003:

|                    |         |                     |  |             |     |          |  |          |         |          |  |   |    |  |  |  |     |  |  |   |    | 
|------------------- | ------- | ------------------- |  | ----------- | --- | -------- |  | -------- | ------- | -------- |  | - | -- |  |  |  | --- |  |  | - | -- | 
|                    |         |                    
|Outstanding Options |         | Exercisable Options
|                    |         |                    
|                    |         | Weighted            |  |             |     |         
|                    |         | Average             |  | Weighted    |     |          |  | Weighted
|Exercise            |         | Remaining           |  | Average     |     |          |  | Average 
|Price               |         | Number              |  | Contractual |     | Exercise |  | Number   |         | Exercise
|Range               |         | (000)               |  | Life        |     | Price    |  | (000)    |         | Price   
|                    |         |                     |  |             |     |          |  |          |         |         
|$                   | 8  24  |                     |  |             | 156 |          |  |          | 4 years |          |  | $ | 17 |  |  |  | 141 |  |  | $ | 18 | 
|                    | 30  42 |                     |  |             | 437 |          |  |          | 7 years |          |  |   | 34 |  |  |  | 200 |  |  |   | 33 | 
|                    |         |                     |  |             |     |          |  |          |         |          |  |   |    |  |  |  |     |  |  |   |    | 
|                    |         |                     |  |             | 593 |          |  |          |         |          |  |   | 30 |  |  |  | 341 |  |  |   | 27 | 
|                    |         |                     |  |             |     |          |  |          |         |          |  |   |    |  |  |  |     |  |  |   |    | 

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:

|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |            |         | 
|------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------- | ---- | ---------- | ------- | ---- | ---- | ---------- | ------- | - | ---- | ---------- | ------- | 
|                                                        |                                                                                   | 2003                                    |      | 2002       |         | 2001
|                                                        |                                                                                   |                                         |      |            |         |     
|                                                        |                                                                                   |                                        
|                                                        |                                                                                   | ($ in thousands, except per share data)
|Numerator for basic and diluted earnings per
    share: |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|                                                        | Net income                                                                        |                                         | $    | 29,569     |         |      | $    | 19,714     |         |   | $    | 26,198     |        
|Denominator:                                            |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|                                                        | Denominator for basic earnings per
    share  weighted average shares            |                                         |      | 15,559,785 |         |      |      | 15,233,096 |         |   |      | 14,897,175 |        
|                                                        | Effect of dilutive securities:                                                    |                                         |      |            |         |      |      |            |         |   |      |            |        
|                                                        |                                                                                   | Employee stock options (See Note 8)     |      |            | 111,530 |      |      |            | 116,454 |   |      |            | 144,903 | 
|                                                        |                                                                                   | Contingent stock acquisition            |      |            | 18,046  |      |      |            | 25,706  |   |      |            |        | 
|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|                                                        | Dilutive potential common shares                                                  |                                         |      | 129,576    |         |      |      | 142,160    |         |   |      | 144,903    |        
|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|                                                        | Denominator for diluted earnings per
    share  adjusted weighted-average shares |                                         |      | 15,689,361 |         |      |      | 15,375,256 |         |   |      | 15,042,078 |        
|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|Basic earnings per share                                |                                                                                   | $                                       | 1.90 |            |         | $    | 1.29 |            |         | $ | 1.76 |           
|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           
|Diluted earnings per share                              |                                                                                   | $                                       | 1.88 |            |         | $    | 1.28 |            |         | $ | 1.74 |           
|                                                        |                                                                                   |                                         |      |            |         |      |      |            |         |   |      |           

10.     Quarterly
Operating Results  (Unaudited)

Quarterly results of operations for the years
ended December 31, 2003 and 2002 were as follows:

|                    |         |                                         |        |         |  |              |        |             |  |   |        |      |  |   |        |      | 
|------------------- | ------- | --------------------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                    |         |                                        
|                    |         | Three Months Ended,                    
|                    |         |                                        
|                    |         | March 31                                |        | June 30 |  | September 30 |        | December 31
|                    |         |                                         |        |         |  |              |        |            
|                    |         |                                        
|                    |         | ($ in thousands, except per share data)
|2003                |         |                                         |        |         |  |              |        |             |  |   |        |      |  |   |        |     
|Revenues            |         | $                                       | 38,538 |         |  | $            | 39,423 |             |  | $ | 43,260 |      |  | $ | 48,715 |     
|Gross profit        |         |                                         | 15,079 |         |  |              | 16,938 |             |  |   | 19,075 |      |  |   | 21,842 |     
|Net income          |         |                                         | 5,710  |         |  |              | 6,444  |             |  |   | 8,114  |      |  |   | 9,301  |     
|Earnings per share: |         |                                         |        |         |  |              |        |             |  |   |        |      |  |   |        |     
|                    | Basic   |                                         | $      | 0.37    |  |              | $      | 0.42        |  |   | $      | 0.52 |  |   | $      | 0.59 | 
|                    | Diluted |                                         | $      | 0.37    |  |              | $      | 0.41        |  |   | $      | 0.52 |  |   | $      | 0.59 | 
|2002                |         |                                         |        |         |  |              |        |             |  |   |        |      |  |   |        |     
|Revenues            |         | $                                       | 29,311 |         |  | $            | 29,651 |             |  | $ | 35,484 |      |  | $ | 31,862 |     
|Gross profit        |         |                                         | 11,678 |         |  |              | 11,970 |             |  |   | 15,000 |      |  |   | 12,988 |     
|Net income          |         |                                         | 5,029  |         |  |              | 4,976  |             |  |   | 5,814  |      |  |   | 3,895  |     
|Earnings per share: |         |                                         |        |         |  |              |        |             |  |   |        |      |  |   |        |     
|                    | Basic   |                                         | $      | 0.34    |  |              | $      | 0.33        |  |   | $      | 0.38 |  |   | $      | 0.25 | 
|                    | Diluted |                                         | $      | 0.33    |  |              | $      | 0.33        |  |   | $      | 0.37 |  |   | $      | 0.25 | 

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, 2003:

|     |  |                 |      |   |  |   |      |        |  |       |      |   |  |  |      |   |  |  |     |  
|---- |  | --------------- | ---- | - |  | - | ---- | ------ |  | ----- | ---- | - |  |  | ---- | - |  |  | --- | -
|     |  |                 |      |   |  |  
|     |  | Major Customers |      |   |  |  
|     |  |                 |      |   |  |  
|     |  | A               |      | B |  | C |      | Others |  | Total
|     |  |                 |      |   |  |   |      |        |  |      
|2003 |  |                 | 30.1 | % |  |   | 16.5 | %      |  |       | 24.3 | % |  |  | 29.1 | % |  |  | 100 | %
|2002 |  |                 | 35.0 | % |  |   | 20.0 | %      |  |       | 23.6 | % |  |  | 21.4 | % |  |  | 100 | %
|2001 |  |                 | 33.8 | % |  |   | 22.8 | %      |  |       | 24.4 | % |  |  | 19.0 | % |  |  | 100 | %

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:

|                   |                                 |                 |   |       |       |      |   |       |       |  |   |      |      | 
|------------------ | ------------------------------- | --------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ---- | ---- | 
|                   |                                 | 2003            |   | 2002  |       | 2001
|                   |                                 |                 |   |       |       |     
|                   |                                 |                
|                   |                                 | ($ in millions)
|Long-lived assets: |                                 |                 |   |       |       |      |   |       |       |  |   |     
|                   | United States                   |                 | $ | 124.1 |       |      | $ | 119.4 |       |  | $ | 76.5 |     
|                   | International (primarily China) |                 |   | 14.4  |       |      |   | 11.8  |       |  |   | 6.0  |     
|                   |                                 |                 |   |       |       |      |   |       |       |  |   |     
|                   |                                 | Total           |   | $     | 138.5 |      |   | $     | 131.2 |  |   | $    | 82.5 | 
|                   |                                 |                 |   |       |       |      |   |       |       |  |   |     

Revenues outside the United States accounted for
36%, 30% and 27% of the Companys revenues for 2003, 2002,
and 2001, respectively. Revenues for the years ended
December 31 in the United States, Canada and other
countries are as follows:

|          |                     |                 |   |       |       |      |   |      |       |  |   |       |       | 
|--------- | ------------------- | --------------- | - | ----- | ----- | ---- | - | ---- | ----- |  | - | ----- | ----- | 
|          |                     | 2003            |   | 2002  |       | 2001
|          |                     |                 |   |       |       |     
|          |                     |                
|          |                     | ($ in millions)
|Revenues: |                     |                 |   |       |       |      |   |      |       |  |   |      
|          | United States       |                 | $ | 108.0 |       |      | $ | 88.0 |       |  | $ | 100.4 |      
|          | Canada              |                 |   | 18.1  |       |      |   | 13.0 |       |  |   | 11.1  |      
|          | Other international |                 |   | 43.8  |       |      |   | 25.3 |       |  |   | 25.7  |      
|          |                     |                 |   |       |       |      |   |      |       |  |   |      
|          |                     | Total           |   | $     | 169.9 |      |   | $    | 126.3 |  |   | $     | 137.2 | 
|          |                     |                 |   |       |       |      |   |      |       |  |   |      

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
beginning 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:

|               |                |                  |       |      |  |      |     |     |  |   |     |     | 
|-------------- | -------------- | ---------------- | ----- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|               |                | 2003             |       | 2002 |  | 2001
|               |                |                  |       |      |  |     
|               |                |                 
|               |                | ($ in thousands)
|Contributions: |                |                  |       |      |  |      |     |     |  |   |     |    
|               | Profit sharing |                  | $     | 719  |  |      | $   | 425 |  |   | $   | 500 | 
|               | Savings        |                  |       | 431  |  |      |     | 338 |  |   |     | 201 | 
|               |                |                  |       |      |  |      |     |     |  |   |     |    
|               |                | $                | 1,150 |      |  | $    | 763 |     |  | $ | 701 |    
|               |                |                  |       |      |  |      |     |     |  |   |     |    

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
was eight years commencing January 1, 1996. Beginning
January 1, 1997, the agreement required the Company to
purchase from the supplier at least 80 percent of the
Companys estimated annual requirements of kaolin for its
Eufaula plant. For the years ended December 31, 2003, 2002
and 2001, the Company purchased from the supplier
$2.6 million, $2.2 million and $3.7 million,
respectively, of kaolin under the agreement. In June 2003, the
Company entered into a new agreement with the supplier. The new
agreement supercedes and replaces the 1995 agreement. The term
of the agreement is seven years commencing January 1, 2004
and requires the Company to purchase from the supplier at least
70 percent of its annual kaolin requirements for its
Eufaula, Alabama, plant at specified contract prices.

In January 2003, the Company entered into a
mining agreement with a contractor to provide kaolin for the
Companys McIntyre plant at specified contract prices, from
lands owned or leased by either the Company or the contractor.
The term of the agreement 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. For the
year ended December 31, 2003, the Company purchased
$0.5 million of kaolin under the agreement.

In January 2003, the Company entered into an
agreement with a supplier to purchase bauxite for production at
its plants in New Iberia, Louisiana, and McIntyre, Georgia. The
term of the agreement is three years commencing 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. For
the year ended December 31, 2003, the Company purchased
$7.5 million of bauxite under the agreement.

In 2002, the Company entered into a five-year
agreement and a ten-year agreement with two different suppliers
to purchase bauxite and hard clays for its China plant at
specified contract prices. The agreements require 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. For the year ended
December 31, 2003, the Company purchased approximately
$0.4 million of material under the agreements.

The Company has entered into a lease agreement
with the Development Authority of Wilkinson County (the
Development Authority) in the State of Georgia.
Pursuant to this agreement, the Development Authority holds the
title to the real and personal property of the Companys
McIntyre manufacturing facility and leases the facility to the
Company for an annual rental fee of $35,000 per year through the
year 2016. At any time prior to the scheduled termination of the
lease, the Company has the option to terminate the lease and
purchase the property for a nominal fee plus the payment of any
rent payable through the balance of the lease term. Furthermore,
the Company has a security interest in the title held by the
Development Authority. The Company has also entered into a
Memorandum of Understanding (the MOU) with the
Development Authority and other local agencies, under which the
Company receives tax incentives in exchange for its commitment
to invest in the county and increase employment. The Company is
required to achieve certain employment levels in order to retain
its tax incentive. In the event the Company does not meet the
agreed-upon employment targets or the MOU is otherwise
terminated, the Company would be subjected to additional
property taxes annually. The property subject to the lease
agreement is included in Property, Plant and Equipment (net book
value of $71.4 million at December 31, 2003) in the
accompanying financial statements.

The Company was in compliance with the terms of
all agreements in existence at December 31, 2003.

F-17



---



##### 



CARBO CERAMICS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15.     Employment
Agreements

The Company has an employment agreement with its
President through December 31, 2004 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 term of 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.

16.     Legal
Proceedings and Judgment

In November 2002, a judgment was entered in 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 believes
that it did not act improperly in this matter but appealed only
the amount of the judgment. In December 2003 the Company dropped
its appeal of the amount of the judgment and settled the claim
for an amount that was not significantly different than the
$993,000 reserve established in 2002. The Company paid the
settlement amount in January 2004.

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
    June 1, 2003, between CARBO Ceramics Inc. and C-E Minerals
    Inc.*                                                                                                                                                                                                 
| | 10.5  |  |  | Incentive Compensation Plan (incorporated by
    reference to exhibit 10.8 to the registrants
    Form S-1 Registration Statement No. 333-1884)                                                                                                                                                                         
| | 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.
    (incorporated by reference to exhibit 10.8 to the
    registrants Form 10-K Annual Report for the year
    ended December 31, 2002)                                                                    
| | 10.9  |  |  | Form of Employment Agreement between CARBO
    Ceramics Inc. and C. Mark Pearson                                                                                                                                                                                                                                         
| | 10.10 |  |  | Form of Employment Agreement between CARBO
    Ceramics Inc. and Christopher A. Wright (incorporated by
    reference to the registrants Form 10-K Annual Report
    for the year ended December 31, 2002)                                                                                                              
| | 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)                                                                                                         
| | 10.12 |  |  | Lease Agreement dated as of November 1,
    2003, between the Development Authority of Wilkinson Count and
    CARBO Ceramics Inc.                                                                                                                                                                                       
| | 14    |  |  | Code of ethics                                                                                                                                                                                                                                                                                                           
| | 23.1  |  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                             
| | 31.1  |  |  | Rule 13a-14(a)/15d-14(a) Certification by
    C. Mark Pearson.                                                                                                                                                                                                                                                           
| | 31.2  |  |  | Rule 13a-14(a)/15d-14(a) Certification by
    Paul G. Vitek.                                                                                                                                                                                                                                                             
| | 32    |  |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                           






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|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Certain portions of Exhibit 10.4 have been
    omitted based upon a request for confidential treatment. These
    portions have been filed separately with the Securities and
    Exchange Commission.