CARBO CERAMICS INC (Form: 10-Q, Received: 10/25/2018 11:04:29)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-15903

CARBO CERAMICS INC.

(Exact name of registrant as specified in its charter)

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

575 North Dairy Ashford

Suite 300

Houston, TX 77079

(Address of principal executive offices)

(281) 921-6400

(Registrant's telephone number)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 19, 2018, 27,723,920 shares of the registrant's Common Stock, par value $.01 per share, were outstanding.

CARBO CERAMICS INC.

Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION		PAGES

Item 1.	Financial Statements	3

	Consolidated Balance Sheets - September 30, 2018 (Unaudited) and December 31, 2017	3

	Consolidated Statements of Operations (Unaudited) - Three and nine months ended September 30, 2018 and 2017	4

	Consolidated Statements of Comprehensive Loss (Unaudited) - Three and nine months ended September 30, 2018 and 2017	5

	Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2018 and 2017	6

	Notes to Consolidated Financial Statements (Unaudited)	7-13

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14-19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20

Item 4.	Controls and Procedures	20

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosure	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

Exhibit Index		23

Signatures		24

PART I. FINANCI AL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CARBO CERAMICS INC.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except per share data)

	September 30,		December 31,
	2018		2017
	(Unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	48,872	$	68,169
Restricted cash		5,932		6,935
Trade accounts and other receivables, net		37,669		37,705
Inventories:
Finished goods		48,199		59,519
Raw materials and supplies		25,684		19,480
Total inventories		73,883		78,999
Assets held for sale		17,842		—
Prepaid expenses and other current assets		5,366		3,989
Total current assets		189,564		195,797
Restricted cash		3,780		3,281
Income tax receivable		2,296		2,389
Property, plant and equipment:
Land and land improvements		39,584		41,590
Land-use and mineral rights		19,696		19,696
Buildings		75,814		72,427
Machinery and equipment		432,841		455,863
Construction in progress		29,571		36,138
Total property, plant and equipment		597,506		625,714
Less accumulated depreciation and amortization		316,183		301,528
Net property, plant and equipment		281,323		324,186
Goodwill		3,500		3,500
Intangible and other assets, net		6,280		11,445
Total assets	$	486,743	$	540,598
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,372	$	19,417
Accrued payroll and benefits		6,380		6,056
Accrued freight		1,381		2,292
Accrued utilities		903		1,552
Derivative instruments		563		2,537
Notes payable, related parties		27,040		—
Other current liabilities		10,145		10,577
Total current liabilities		61,784		42,431
Deferred income taxes		63		230
Long-term debt, net		61,211		60,698
Notes payable, related parties		—		27,040
Other long-term liabilities		6,492		4,434
Shareholders' equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none outstanding		—		—
Common stock, par value $0.01 per share, 80,000,000 shares authorized; 27,730,631 and 27,133,614 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		277		271
Additional paid-in capital		131,378		125,715
Retained earnings		225,538		279,779
Total shareholders' equity		357,193		405,765
Total liabilities and shareholders' equity	$	486,743	$	540,598

The accompanying notes are an integral part of these statements .

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share data)

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2018			2017			2018			2017
Revenues	$	53,819		$	50,173		$	161,175		$	128,415
Cost of sales (exclusive of depreciation and amortization shown below)		50,514			53,805			152,303			142,830
Depreciation and amortization		8,058			10,891			24,793			32,999
Gross loss		(4,753	)		(14,523	)		(15,921	)		(47,414	)
Selling, general and administrative expenses (exclusive of depreciation and amortization shown below)		10,121			9,494			30,412			29,272
Depreciation and amortization		625			641			1,859			1,924
Loss on sale of Russian proppant business		—			26,728			350			26,728
Other operating (income) expense		(718	)		125,738			(777	)		125,738
Operating loss		(14,781	)		(177,124	)		(47,765	)		(231,076	)
Other expense:
Interest expense, net		(2,292	)		(1,915	)		(6,393	)		(5,630	)
Other, net		166			258			173			448
		(2,126	)		(1,657	)		(6,220	)		(5,182	)
Loss before income taxes		(16,907	)		(178,781	)		(53,985	)		(236,258	)
Income tax benefit		(171	)		(316	)		(164	)		(527	)
Net loss	$	(16,736	)	$	(178,465	)	$	(53,821	)	$	(235,731	)
Loss per share:
Basic	$	(0.62	)	$	(6.69	)	$	(2.00	)	$	(8.84	)
Diluted	$	(0.62	)	$	(6.69	)	$	(2.00	)	$	(8.84	)
Other information:
Dividends declared per common share	$	—		$	—		$	—		$	—

The accompanying notes are an integral part of these statements.

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

($ in thousands)

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2018			2017			2018			2017
Net loss	$	(16,736	)	$	(178,465	)	$	(53,821	)	$	(235,731	)
Other comprehensive income:
Foreign currency translation adjustment		—			302			—			979
Reclassification of Russia cumulative translation loss to Net Loss upon sale		—			33,347			—			33,347
Comprehensive loss	$	(16,736	)	$	(144,816	)	$	(53,821	)	$	(201,405	)

The accompanying notes are an integral part of these statements.

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)

	Nine months ended
	September 30,
	2018			2017
Operating activities
Net loss	$	(53,821	)	$	(235,731	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		26,652			34,923
Amortization of debt issuance costs and original issue discount		513			882
Provision for doubtful accounts		145			493
Deferred income taxes		(167	)		76
(Gain) loss on disposal or impairment of assets		(1,097	)		125,738
Loss on sale of Russian proppant business		350			25,101
Foreign currency transaction gain, net		—			(35	)
Stock compensation expense		3,027			3,831
PIK accrual on notes payable, related parties		—			997
Change in fair value of derivative instruments		(1,974	)		(575	)
Changes in operating assets and liabilities:
Trade accounts and other receivables		(109	)		(14,538	)
Inventories		5,132			5,567
Prepaid expenses and other current assets		104			(245	)
Accounts payable		(4,044	)		8,795
Accrued expenses		(2,413	)		3,561
Income tax receivable, net		92			(1,069	)
Other, net		2,757			2,123
Net cash used in operating activities		(24,853	)		(40,106	)
Investing activities
Capital expenditures		(1,668	)		(2,095	)
Net proceeds from asset sales		5,233			21,501
Net cash provided by investing activities		3,565			19,406
Financing activities
Proceeds from long-term debt		—			12,349
Repayments on long-term debt		—			(3,250	)
Repayments on insurance financing agreement		(941	)		(923	)
Payments of debt issuance costs		—			(989	)
Proceeds from sale of common stock under ATM program		2,849			—
Purchase of common stock		(421	)		(534	)
Net cash provided by financing activities		1,487			6,653
Effect of exchange rate changes on cash		—			246
Net decrease in cash and cash equivalents and restricted cash		(19,801	)		(13,801	)
Cash and cash equivalents and restricted cash at beginning of period		78,385			91,680
Cash and cash equivalents and restricted cash at end of period	$	58,584		$	77,879
Supplemental cash flow information
Interest paid	$	6,751		$	2,319
Income taxes paid	$	—		$	465

The accompanying notes are an integral part of these statements.

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in thousands, except per share and per square foot data)

(Unaudited)

1.	Basis of Presentation

The accompanying unaudited consolidated financial statements of CARBO Ceramics Inc. have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. The consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the year ended December 31, 2017.

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

As of September 30, 2018, the Company was producing ceramic proppants and technology ceramic products from its Eufaula, Alabama manufacturing facility, and processing sand at its Marshfield, Wisconsin facility. As needed, the Company produces ceramic proppant, ceramic media for the industrial markets, and contract manufacturing at our Toomsboro, Georgia and McIntyre, Georgia facilities. Our Millen, Georgia facility is currently mothballed, and we do not expect to resume production or complete the second line of the facility. As of September 30, 2018 the Company was marketing for sale all of the assets associated with the entire Millen, Georgia facility and expects to complete a sale no later than August 1, 2019. These assets met the criteria for held for sale, and accordingly, their carrying value of $17,842 has been reclassified from net property, plant and equipment (including $6,753 from construction in progress) to assets held for sale within current assets on the consolidated balance sheets. Completion of the second phase of the retrofit of our Eufaula, Alabama plant with our new KRYPTOSPHERE ^® technology is suspended until such time that market conditions improve enough to warrant completion. As of September 30, 2018, the value of the second phase of the retrofit of our Eufaula, Alabama plant totaled approximately 81% of the Company’s total construction in progress and we estimate that the project is over 95% complete.

The Company continues to focus on diversifying its revenue streams to include a variety of oilfield technology products, industrial ceramic products, contract manufacturing, and frac sand. As a result of the steps the Company has taken to enhance its liquidity, the Company currently believes that cash on hand will enable the Company to meet its working capital, capital expenditure, debt service and other funding requirements for at least one year from the date of this Form 10-Q. The Company’s view regarding sufficiency of cash and liquidity is primarily based on our financial forecast for the remainder of 2018 and 2019, which is impacted by various assumptions regarding demand and sales prices for our products. Although the Company has observed certain factors that could be indicative of improving industry conditions, its financial forecasts in recent periods have not always been accurate due to the inability to estimate customer demand, which is highly volatile in the current operating environment. The Company has no committed sales backlog from its customers. As a result, there is no guarantee that its financial forecast, which projects sufficient cash will be available to meet planned operating expenses and other cash needs, will be achieved.

Late in the second quarter of 2018, we settled our dispute with the buyer of our Russian proppant business regarding the additional $4,000 owed to us. Terms of the settlement required the buyer to pay $3,650, and as a result we recorded a loss of $350. In July 2018, we received the settlement proceeds of approximately $3,650.

Deferred Taxes – Valuation Allowance

Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, provides the carrying value of deferred tax assets should be reduced by the amount not expected to be realized. A company should reduce deferred tax assets by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. ASC 740 requires all available evidence, both positive and negative, be considered to determine whether a valuation allowance for deferred tax assets is needed in the financial statements. Additionally there can be statutory limitations on the deferred tax assets should certain conditions arise. As a result of the significant decline in oil and gas activities and net losses incurred over the

past several years, we bel ieve it is more likely than not that a portion of our deferred tax assets will not be realized in the future. Our valuation allowance against a portion of our deferred tax assets as of September 30, 2018 was $67,309. Our assessment of the realizability o f our deferred tax assets is based on the weight of all available evidence, both positive and negative, including future reversals of deferred tax liabilities. As of September 30, 2018, there have been no changes to the provisional amounts recorded as of December 31, 2017 associated with tax reform under the Tax Cuts and Jobs Act.

Restricted Cash

A portion of the Company’s cash balance is restricted to its use in order to provide collateral, primarily relating to letters of credit and corporate credit cards. As of September 30, 2018 and December 31, 2017, total restricted cash was $9,712 and $10,216, respectively.

Lower of Cost and Net Realizable Value Adjustments

As of September 30, 2018, the Company reviewed the carrying values of all inventories and concluded that no adjustments were warranted for finished goods and raw materials intended for use in the Company’s manufacturing process.

Manufacturing Production Levels Below Normal Capacity

As a result of the Company substantially reducing manufacturing production levels, including by idling certain facilities, certain production costs have been expensed instead of being capitalized into inventory. The Company expenses fixed production overhead amounts in excess of amounts that would have been allocated to each unit of production at normal production levels. For the three months ended September 30, 2018 and 2017, the Company expensed $7,231 and $10,890, respectively, in production costs. For the nine months ended September 30, 2018 and 2017, the Company expensed $23,788 and $32,899, respectively, in production costs.

Long-Lived and Other Noncurrent Assets Impairment

The Company has temporarily idled production at various manufacturing facilities. The Company does not assess temporarily idled assets for impairment unless events or circumstances indicate that the carrying amounts of those assets may not be recoverable. Short-term stoppages of production for less than one year do not generally significantly impact the long-term expected cash flows of the idled facility. As of September 30, 2018, the Company concluded that there were no events or circumstances that would indicate that carrying amounts of long-lived and other noncurrent assets might be impaired. In addition, the Company continues to monitor market conditions closely. Further deterioration of market conditions could result in impairment charges being taken on the Company’s long-lived and other noncurrent assets, including the Company’s manufacturing plants, goodwill and intangible assets. The Company will evaluate long-lived and other noncurrent assets for impairment at such time that events or circumstances indicate that carrying amounts might be impaired. During the three months ended September 30, 2017, the Company recognized a $125,759 impairment of long-lived assets, primarily relating to machinery and equipment and construction in progress at the Millen facility. These amounts are included in the line item Other operating (income) expense on the consolidated statement of operations. Also included within this line item is gains and losses relating to asset sales and other operating income and expenses.

Reclassification of Prior Period Amounts

Certain prior period financial information has been reclassified to conform to current period presentation.

2.	Loss Per Share

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2018			2017			2018			2017
Numerator for basic and diluted loss per share:
Net loss	$	(16,736	)	$	(178,465	)	$	(53,821	)	$	(235,731	)
Effect of reallocating undistributed earnings of participating securities		—			—			—			—
Net loss available under the two-class method	$	(16,736	)	$	(178,465	)	$	(53,821	)	$	(235,731	)
Denominator:
Denominator for basic loss per share--weighted-average shares		27,169,301			26,690,799			26,964,330			26,654,728
Effect of dilutive potential common shares		—			—			—			—
Denominator for diluted loss per share--adjusted weighted-average shares		27,169,301			26,690,799			26,964,330			26,654,728
Basic loss per share	$	(0.62	)	$	(6.69	)	$	(2.00	)	$	(8.84	)
Diluted loss per share	$	(0.62	)	$	(6.69	)	$	(2.00	)	$	(8.84	)

3.	Natural Gas Derivative Instruments

Natural gas is used to fire the kilns at the Company’s domestic manufacturing plants. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of this commodity, from time to time, the Company enters into contracts to purchase a portion of the anticipated monthly natural gas requirements at specified prices. Contracts are geographic by plant location. As a result of the Company’s significantly reducing production levels and not taking delivery of all of the contracted natural gas quantities, the Company accounts for relevant contracts as derivative instruments.

Derivative accounting requires the natural gas contracts to be recognized as either assets or liabilities at fair value with an offsetting entry in earnings. The Company uses the income approach in determining the fair value of these derivative instruments. The model used considers the difference, as of each balance sheet date, between the contracted prices and the New York Mercantile Exchange (“NYMEX”) forward strip price for each contracted period. The estimated cash flows from these contracts are discounted using a discount rate of 8.0%, which reflects the nature of the contracts as well as the timing and risk of estimated cash flows associated with the contracts. The discount rate had an immaterial impact on the fair value of the contracts for the nine months ended September 30, 2018. The last of these natural gas contracts will expire in December 2018. During the three months ended September 30, 2018 and 2017, the Company recognized a $217 gain and $285 gain, respectively, in cost of sales on derivative instruments. During the nine months ended September 30, 2018 and 2017, the Company recognized an $847, gain and $916 loss, respectively, in cost of sales on derivative instruments. The cumulative present value of these natural gas derivative contracts as of September 30, 2018 are presented as current liabilities in the Consolidated Balance Sheet.

At September 30, 2018, the Company had contracted for delivery a total of 480,000 MMBtu of natural gas at an average price of $4.31 per MMBtu through December 31, 2018. Contracts covering 450,000 MMBtu are subject to accounting as derivative instruments. Future decreases in the NYMEX forward strip prices will result in additional derivative losses while future increases in the NYMEX forward strip prices will result in derivative gains. Future gains or losses will approximate the change in NYMEX natural gas prices relative to the total quantity of natural gas under contracts now subject to accounting as derivatives. The historical average NYMEX natural gas contract settlement prices for the three months ended September 30, 2018 and 2017 were $2.90 per MMBtu and $3.00 per MMBtu, respectively.

4.	Fair Value Measurements

The Company’s derivative instruments are measured at fair value on a recurring basis. U.S. GAAP establishes a fair value hierarchy that has three levels based on the reliability of the inputs used to determine the fair value. These levels include: (1) Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; (2) Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and (3) Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s natural gas derivative instruments are included within Level 2 of the fair value hierarchy (see Note 3 herein for additional information on the derivative instruments). The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value:

	Fair value as of September 30, 2018
	Level 1		Level 2			Level 3		Total
Liabilities:
Derivative instruments		—		(563	)		—		(563	)
Total fair value	$	—	$	(563	)	$	—	$	(563	)

	Fair value as of December 31, 2017
	Level 1		Level 2			Level 3		Total
Liabilities:
Derivative instruments		—		(2,537	)		—		(2,537	)
Total fair value	$	—	$	(2,537	)	$	—	$	(2,537	)

At September 30, 2018, the fair value of the Company’s long-term debt approximated the carrying value.

5.	Stock Based Compensation

T he Amended and Restated 2014 CARBO Ceramics Inc. Omnibus Incentive Plan (the “Amended and Restated 2014 Omnibus Incentive Plan”) provides for granting of cash-based awards, stock options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated performance units) to employees and non-employee directors. As of September 30, 2018, 462,113 shares were available for issuance under the Amended and Restated 2014 Omnibus Incentive Plan.

A summary of restricted stock activity and related information for the nine months ended September 30, 2018 is presented below:

	Shares			Weighted-Average Grant-Date Fair Value Per Share
Nonvested at January 1, 2018		441,119		$	14.87
Granted		334,638		$	12.16
Vested		(200,394	)	$	18.20
Forfeited		(14,033	)	$	12.00
Nonvested at September 30, 2018		561,330		$	12.14

As of September 30, 2018, there was $4,583 of total unrecognized compensation cost related to restricted shares granted under the Amended and Restated 2014 Omnibus Incentive Plan. That cost is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of shares vested during the nine months ended September 30, 2018 was $1,567.

The Company made market-based cash awards to certain executives of the Company pursuant to the Amended and Restated 2014 Omnibus Incentive Plan. As of September 30, 2018, the total target award outstanding was $3,210. The payout of awards can range from 0% to 200% based on the Company’s Relative Total Shareholder Return calculated over a three year period beginning January 1 of the year each grant was made. During the nine months ended September 30, 2018, a total of $526 was paid relating to the 2015 grant, which was approximately 76% of the total target award.

The Company also granted phantom stock and cash-settled restricted stock units (collectively discussed as “phantom stock”) to certain key employees pursuant to the Amended and Restated 2014 Omnibus Incentive Plan. The units subject to a phantom stock

award vest and cease to be forfeitable in equal annual installments over a three-year period. Participants awarded units of phantom stock are entitled to a lump sum cash payment equal to the fair mar ket value of a share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued with regard to outstanding phantom stock awards. As of September 30, 2018, there were 214,616 units of phantom stock granted under the Amende d and Restated 2014 Omnibus Incentive Plan, of which 54,020 have vested and 23,511 have been forfeited. As of September 30, 2018, nonvested units of phantom stock under the Amended and Restated 2014 Omnibus Incentive Plan had a total value of $994, a port ion of which is accrued as a liability within Accrued Payroll and Benefits. Compensation expense for these units of phantom stock will be recognized over the three-year vesting period. The amount of compensation expense recognized each period will be bas ed on the fair value of the Company’s common stock at the end of each period.

6.	Long-Term Debt and Notes Payable

On March 2, 2017, the Company entered into an Amended and Restated Credit Agreement (the “New Credit Agreement”), as last amended on June 7, 2018, with Wilks Brothers, LLC (“Wilks”) to replace its term loan with Wells Fargo Bank, National Association (“Wells Fargo”) and provide the Company with additional liquidity for a longer term. The New Credit Agreement is a $65,000 facility maturing on December 31, 2022. The Company’s obligations bear interest at 9.00% and are guaranteed by its two domestic operating subsidiaries. No principal repayments are required until maturity (except in unusual circumstances), and there are no financial covenants. In lieu of making cash interest payments, the Company has the option during the first two years of the loan to make interest payments as payment-in-kind, or PIK, by applying an 11.00% rate to the interest payment due (instead of the 9.00% cash interest rate) and capitalizing the resulting amount to the outstanding principal balance of the loan. The Company is required to provide Wilks 30 day notice of its intent to exercise this option for an interest payment. The Company does not anticipate utilizing this option and has therefore accrued interest expense using the 9.00% cash interest rate.

As of September 30, 2018, the Company’s outstanding debt under its New Credit Agreement was $65,000. As of September 30, 2018, the Company had $725 of unamortized debt issuance costs relating to the New Credit Agreement that are presented as a direct reduction from the carrying amount of the long-term debt obligation. The Company had $7,775 and $9,230 in standby letters of credit issued through its banks as of September 30, 2018 and December 31, 2017, respectively, primarily as collateral relating to our natural gas commitments and railcar leases.

On March 2, 2017, in connection with entry into the New Credit Agreement, the Company issued a Warrant (the “Warrant”) to Wilks. Subject to the terms of the Warrant, the Warrant entitles the holder thereof to purchase up to 523,022 shares of the Common Stock, at an exercise price of $14.91 per share, payable in cash. The Warrant expires on December 31, 2022. Based on a Form 4 filing with the SEC on December 29, 2017, as of September 30, 2018, Wilks owned approximately 11.1% of the Company’s outstanding common stock, and should Wilks fully exercise the Warrant to purchase an additional 523,022 shares, it would hold approximately 12.8% of the Company’s outstanding common stock. Upon issuance of the Warrant, the Company recorded an increase to additional paid-in capital of $3,871. As of September 30, 2018, the unamortized original issue discount was $3,064.

In May 2016, the Company received proceeds of $25,000 from the issuance of separate unsecured Promissory Notes (the “Notes”) to two of the Company’s Directors. Each Note matures on April 1, 2019 and bears interest at 7.00%. On March 2, 2017, in connection with the New Credit Agreement, the Notes were amended to provide for payment-in-kind, or PIK, interest payments at 8.00% until the lenders under the New Credit Agreement receive two consecutive semi-annual cash interest payments. During 2017, the Company made $2,040 interest payments as PIK, and capitalized the resulting amount to the outstanding principal balance. As of October 25, 2018, the outstanding principal balance of the Notes was $27,040.

Interest expense for the nine months ended September 30, 2018 and 2017 was $6,482 and $5,966, respectively. Interest expense primarily relates to interest on our debts as well as amortization of debt issuance costs and amortization of the original issue discount associated with the New Credit Agreement and Warrant.

7.	Equity Offering

On July 28, 2016, the Company filed a prospectus supplement and associated sales agreement related to an at-the-market (“ATM”) equity offering program pursuant to which the Company may sell, from time to time, common stock having an aggregate offering price of up to $75,000 through Cowen and Company LLC, as sales agent, for general corporate purposes. No sales occurred during the third quarter 2018. During the nine months ended September 30, 2018, the Company sold a total of 300,227 shares of its common stock under the ATM program for $2,914, or an average of $9.71 per share, and received proceeds of $2,849, net of commissions of $65. As of September 30, 2018, the Company had sold a total of 3,705,936 shares of its common stock under the ATM program for $49,527, or an average of $13.36 per share, and received proceeds of $48,412, net of commissions of $1,114.

8.	Disaggregated Revenue

The following table disaggregates our revenue by product line for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Technology products and services	$	12,922	$	10,813	$	35,578	$	28,543
Industrial products and services		4,153		2,955		10,714		7,372
Base ceramic and sand proppants		27,520		31,079		90,558		75,754
Oilfield and Industrial technologies and services segment		44,595		44,847		136,850		111,669
Environmental technologies and services segment		9,224		5,326		24,325		16,746
	$	53,819	$	50,173	$	161,175	$	128,415

9.	New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “ Leases (Topic 842) ,” which amends current lease guidance. This guidance requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” , which simplifies the implementation by allowing entities the option to instead apply the provisions of the new guidance at the effective date, without adjusting the comparative periods presented. The new lease guidance will be effective for the interim and annual periods beginning after December 15, 2018 with early adoption permitted. Upon initial evaluation, the Company expects an impact to our consolidated balance sheets and related disclosures, as our operating leases will require adjustments to record a right to use asset and related lease liability. The balance of the right of use asset and lease liability has not yet been quantified. We have selected a lease accounting system, and our implementation of it is substantially complete. The Company is in the process of evaluating the potential impact to the consolidated statement of operations and consolidated statement of cash flows. We are finalizing our internal controls over financial reporting related to the adoption of this new accounting pronouncement.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting” . The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU will be effective for the interim and annual periods beginning after December 15, 2018, with early adopting permitted. The Company does not expect a material impact to our consolidated financial statements or related disclosures.

10.	Segment Information

The Company has two operating segments: 1) oilfield and industrial technologies and services and 2) environmental technologies and services. Discrete financial information is available for each operating segment. Management of each operating segment reports to our Chief Executive Officer, the Company’s chief operating decision maker, who regularly evaluates income before income taxes as the measure to evaluate segment performance and to allocate resources. The accounting policies of each segment are the same as those described in the summary of significant accounting policies in Note 1 of the consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2017.

The Company’s oilfield and industrial technologies and services segment manufactures and sells technology ceramic products and services, base ceramic proppant and frac sand for both the oilfield and industrial sectors. These products have different technology features and product characteristics, which vary based on the application for which they are intended to be used. The various ceramic products’ manufacturing processes are similar.

Oilfield ceramic technology products, base ceramic proppant and frac sand proppant are manufactured and sold to pressure pumping companies and oil and gas operators for use in the hydraulic fracturing of natural gas and oil wells. This segment also promotes increased production and Estimated Ultimate Recovery (“EUR”) of oil and natural gas by providing industry-leading technology to Design, Build, and Optimize the Frac ^TM . Through our wholly-owned subsidiary StrataGen, Inc., we sell one of the most widely used fracture stimulation software under the brand FracPro ^® and provide fracture design and consulting services to oil and natural gas E&P companies under the brand StrataGen.

Our industrial ceramic technology products are manufactured and sold to industrial companies. These products are designed for use in various industrial technology applications, including, but not limited to, casting and milling.

Our environmental technologies and services segment designs, manufactures and sells products and services intended to protect operators’ assets, minimize environmental risks, and lower lease operating expense (“LOE”). AGPI, a wholly-owned subsidiary of ours, provides spill prevention, containment and countermeasure systems for the oil and gas industry. AGPI uses proprietary technology designed to enable its clients to extend the life of their storage assets, reduce the potential for hydrocarbon spills and provide containment of stored materials.

Summarized financial information for the Company’s operating segments for the three and nine months ended September 30, 2018 and 2017 is shown in the following tables. Intersegment sales are not material.

	Oilfield and Industrial Technologies and Services			Environmental Technologies and Services			Total
Three Months Ended September 30, 2018
Revenue from external customers	$	44,595		$	9,224		$	53,819
(Loss) income before income taxes		(17,904	)		997			(16,907	)
Depreciation and amortization		8,372			311			8,683
Three Months Ended September 30, 2017
Revenue from external customers	$	44,847		$	5,326		$	50,173
Loss before income taxes		(178,603	)		(178	)		(178,781	)
Depreciation and amortization		11,223			309			11,532
Nine Months Ended September 30, 2018
Revenue from external customers	$	136,850		$	24,325		$	161,175
(Loss) income before income taxes		(56,217	)		2,232			(53,985	)
Depreciation and amortization		25,755			897			26,652
Nine Months Ended September 30, 2017
Revenue from external customers	$	111,669		$	16,746		$	128,415
Loss before income taxes		(235,803	)		(455	)		(236,258	)
Depreciation and amortization		33,947			976			34,923

11.	Legal Proceedings

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.

12.	Subsequent Events

In October 2018, the Company signed a non-binding Letter of Intent to sell its Millen, Georgia plant for $26,000. The transaction is expected to close before year-end.

In October 2018, the Company signed a non-binding Letter of Intent to contribute certain idled assets for a minority ownership in PicOnyx, Inc., developer of M-Tone ^T ^M , a new family of functional pigments for the plastics, paints, ink, coatings and adhesives markets. The transaction is expected to close before year-end.

Also in October 2018, the CEO temporarily and voluntarily reduced his base pay to $750 effective November 1, 2018. Future adjustments to the CEO’s base pay may occur as revenues and financial metrics continue to improve. The CEO’s employment contract has not been amended in connection with this voluntary change.

ITEM 2.

MANAGEMENT’S D ISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

CARBO Ceramics Inc. (“we,” “us,” “our” or our “Company”) is a global technology company that provides products and services to the oil and gas, industrial, and environmental markets to enhance value for its clients. The Company conducts its business within two operating segments: 1) oilfield and industrial technologies and services and 2) environmental technologies and services.

The Company’s oilfield and industrial technologies and services segment manufactures and sells technology ceramic products and services, base ceramic proppant and frac sand for both the oilfield and industrial sectors. The products have different technology features and product characteristics, which vary based on the application for which they are intended to be used. The various ceramic products’ manufacturing processes are similar.

Oilfield ceramic technology products, base ceramic proppant and frac sand proppant are manufactured and sold to pressure pumping companies and oil and gas operators for use in the hydraulic fracturing of natural gas and oil wells. Hydraulic fracturing is the most widely used method of increasing production from oil and natural gas wells. The hydraulic fracturing process consists of pumping fluids down a natural gas or oil well at pressures sufficient to create fractures in the hydrocarbon-bearing rock formation. A granular material, called proppant, is suspended and transported in the fluid and fills the fracture, “propping” it open once high-pressure pumping stops. The proppant filled fracture creates a conductive channel through which the hydrocarbons can flow more freely from the formation to the well and then to the surface.

There are three primary types of proppant that can be utilized in the hydraulic fracturing process: sand, resin coated sand and ceramic. Sand is the least expensive proppant, resin-coated sand is more expensive and ceramic proppant is typically the most expensive. The higher initial cost of ceramic proppant is justified by the fact that its use in certain well conditions results in an increase in the production rate of oil and natural gas, an increase in the total oil or natural gas that can be recovered from the well and, consequently, an increase in cash flow for the operators of the well. The increased production rates are primarily attributable to the higher strength and more uniform size and shape of ceramic proppant versus alternative materials. We are one of the world’s largest suppliers of ceramic proppant.

Through our wholly-owned subsidiary StrataGen, Inc., we promote increased production and EUR of oil and natural gas by selling a widely used fracture stimulation software under the brand FracPro®, and providing fracture design and consulting services to oil and natural gas E&P companies under the brand StrataGen.

FracPro® provides a suite of stimulation software solutions used for designing fracture treatments and for on-site real-time analysis. Use of FracPro has enabled our clients to recognize and remedy potential stimulation problems. FracPro has been integrated with third-party reservoir simulation software, furthering its reach and utility.

The StrataGen consulting team works with operators around the world to help optimize well placement, fracture treatment design and production enhancement. The broad range of expertise of the StrataGen consultants includes: fracture treatment design; completion support; on-site treatment supervision; quality control; post-treatment evaluation and optimization; reservoir and fracture studies; rock mechanics and software application and training.

We also produce industrial products at our manufacturing facilities for third parties under tolling arrangements. These products so far have been primarily used in industrial, or agricultural applications. Contract manufacturing has led to increased revenue generation. We continue to develop additional opportunities within the industrial, agricultural and oil and gas industries to grow revenue, and reduce our slowing and idling costs.

Our environmental technologies and services segment is intended to protect operators’ assets, minimize environmental risks, and lower lease operating expense (“LOE”). Asset Guard Products Inc. (“AGPI”), the only subsidiary of ours to operate in this segment, provides spill prevention, containment and countermeasure systems for the oil and gas industry. AGPI uses proprietary technology to make products designed to enable its clients to extend the life of their storage assets, reduce the potential for hydrocarbon spills and provide containment of stored materials. AGPI was formerly known as Falcon Technologies and Services, Inc.

Late in the second quarter of 2018, we settled our dispute with the buyer of our Russian proppant business regarding the additional $4.0 million owed to us. Terms of the settlement required the buyer to pay us $3.65 million, and as a result we recorded a loss of $0.35 million during the second quarter of 2018. In July 2018, we received the settlement proceeds of $3.65 million.

Industry Conditions

During the three months ended September 30, 2018, the average price of West Texas Intermediate (“WTI”) crude oil increased 45% to $69.76 per barrel compared to $48.16 per barrel during the same period in 2017. The average North American rig count increased 9% during the three months ended September 30, 2018 to 1,259 rigs compared to 1,155 rigs during the same period in 2017. Although

commodity prices have increased in the last year, they remain at significantly lower levels than pr ior to the severe industry downturn that began in late 2014, which has not encouraged a broad move away from low-cost completions. E&P operators that are existing or target customers of ours continued to use more frac sand than ceramic or resin-coated pro ppants as a percentage of overall proppant consumption during the three months ended September 30, 2018. In addition, customers’ shift to less expensive sand from the recent expansion of competitor regional sand supply has negatively impacted our frac san d revenue. We expect this trend to continue in the current commodity price environment as our customers are under increasing pressure to consider lower up-front cost alternatives, notwithstanding the superior performance results of our ceramic products.

Generally, demand for most of our products and services depends primarily upon the supply of and demand for natural gas and oil and on the number of natural gas and oil wells drilled, completed or re-completed worldwide. More specifically, the demand for most of our products and services is dependent on the number of oil and natural gas wells that are hydraulically fractured to stimulate production. Because the demand for these products and services is also dependent on the commodity price of oil and natural gas, lower commodity prices result in fewer of our premium products being purchased. In addition to rig counts and commodity prices, our results of operations are also significantly affected by a host of other factors, including but not limited to (a) well completions activity, which is not necessarily correlated with rig count, (b) customer preferences, (c) new product and technology adoption (including of our KRYPTOSPHERE, CARBOAIR and SCALEGUARD technologies), (d) imports and competition, (e) changes in the product mix of what we sell, (f) costs of developing our products and services and running our business, and (g) changes in our strategy and execution. Current demand for proppant is extremely dynamic, but even if rig count and commodity prices remain constant, our business results are also highly dependent on these additional factors.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with U.S. GAAP, which require us to make estimates and assumptions (see Note 1 to the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2017). We believe that some of our accounting policies involve a higher degree of judgment and complexity than others. As of December 31, 2017, our critical accounting policies included revenue recognition, estimating the recoverability of accounts receivable, inventory valuation, accounting for income taxes, accounting for long-lived assets, accounting for derivative instruments, and accounting for abnormally low production levels. These critical accounting policies are discussed more fully in our annual report on Form 10-K for the year ended December 31, 2017.

There have been no changes in our evaluation of our critical accounting policies since December 31, 2017.

Results of Operations

Three Months Ended September 30, 2018

Revenues . Oilfield and industrial technologies and services segment revenues of $44.6 million for the three months ended September 30, 2018 decreased 1% compared to $44.8 million for the same period in 2017. The decrease was mainly attributable to a 5% decrease in base ceramic revenue and an 18% decrease in frac sand related revenue, which in turn was attributable to customers’ shift from Northern White Sand to lower cost regional sand alternatives, partially offset by a 41% increase in industrial products and services revenue and a 20% increase in technology products and services revenue.

Environmental technologies and services segment revenues of $9.2 million for the three months ended September 30, 2018 increased 73% compared to $5.3 million in the same period in 2017. The increase was mainly attributable to improved product sales and new client growth combined with an increase in oil and natural gas industry activity.

Gross Loss. Oilfield and industrial technologies and services segment gross loss for the three months ended September 30, 2018 was $6.6 million, or 15% of revenues, compared to gross loss of $15.1 million, or 34% of revenues, for the same period in 2017. Gross loss improved primarily due to a shift in sales mix to more profitable technology and industrial products and lower slowing and idling production costs.

Environmental technologies and services segment gross profit for the three months ended September 30, 2018 was $1.8 million compared to gross profit of $0.6 million for the same period in 2017. This increase in gross profit was primarily the result of the increase in sales.

Depreciation and amortization expense was $8.1 million for the three months ended September 30, 2018 compared to $10.9 million for the same period in 2017. This decrease was largely due to the impairment recorded on our Millen facility during the third quarter of 2017. As of September 30, 2018, the Millen facility carrying value was reclassified to assets held for sale.

Selling, General and Administrative (SG&A) and Other Operating Expenses. Oilfield and industrial technologies and services segment SG&A (exclusive of depreciation and amortization) totaled $9.4 million for the three months ended September 30, 2018

compared to $8.9 million for the same period in 2017, primarily due to increased sales and marketing expenses resulting from growing industria l sales. Other operating income of $0.7 million for the three months ended September 30, 2018 was primarily related to the sale of one of the Company’s distribution centers, offset by $0.3 million in other operating expenses. Other operating expense of $ 125.8 million for the three months ended September 30, 2017 was primarily related to the impairment on our Millen, Georgia proppant manufacturing facility.

Environmental technologies and services segment SG&A (exclusive of depreciation and amortization) was $0.7 million for the three months ended September 30, 2018 compared to $0.6 million for the three months ended September 30, 2017. This increase was primarily due to increase sales and marketing expenses associated with the increased sales.

Income Taxes. Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, provides the carrying value of deferred tax assets should be reduced by the amount not expected to be realized. A company should reduce deferred tax assets by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. ASC 740 requires all available evidence, both positive and negative, be considered to determine whether a valuation allowance for deferred tax assets is needed in the financial statements. Additionally there can be statutory limitations on the deferred tax assets should certain conditions arise. As a result of the significant decline in oil and gas activities and net losses incurred over the past several years, we believe it is more likely than not that a portion of our deferred tax assets will not be realized in the future. Our valuation allowance against a portion of our deferred tax assets as of September 30, 2018 was $67.3 million. Our assessment of the realizability of our deferred tax assets is based on the weight of all available evidence, both positive and negative, including future reversals of deferred tax liabilities. As a result, income tax benefit was $0.2 million, or 1.0% of pretax loss, for the three months ended September 30, 2018 compared to $0.3 million, or 0.2% of pretax loss, for the same period in 2017.

Nine Months Ended September 30, 2018

Revenues . Oilfield and industrial technologies and services segment revenues of $136.9 million for the nine months ended September 30, 2018 increased 23% compared to $111.7 million for the same period in 2017. The increase was mainly attributable to a 63% increase in frac sand related revenue, a 25% increase in technology products and services revenue, and a 45% increase in industrial products and services revenue. These increases were partially offset by a 15% decrease in base ceramic revenue.

Environmental technologies and services segment revenues of $24.3 million for the nine months ended September 30, 2018 increased 45% compared to $16.7 million in the same period in 2017. The increase was mainly attributable to improved product sales and new client growth combined with an increase in oil and natural gas industry activity.

Gross Loss. Oilfield and industrial technologies and services segment gross loss for the nine months ended September 30, 2018 was $20.5 million, or 15% of revenues, compared to gross loss of $49.4 million, or 44% of revenues, for the same period in 2017. Gross loss improved primarily due to a shift in sales mix to more profitable technology and industrial products and lower slowing and idling production costs and derivative gains in the year due to changes in the NYMEX forward strip prices.

Environmental technologies and services segment gross profit for the nine months ended September 30, 2018 was $4.6 million compared to gross profit of $2.0 million for the same period in 2017. This increase in gross profit was primarily the result of the increase in sales.

Depreciation and amortization expense was $24.8 million for the nine months ended September 30, 2018 compared to $33.0 million for the same period in 2017. This decrease was largely due to the impairment recorded on our Millen facility during the third quarter of 2017. As of September 30, 2018, the Millen facility carrying value was reclassified to assets held for sale.

Selling, General and Administrative and Other Operating Expenses. Oilfield and industrial technologies and services segment SG&A (exclusive of depreciation and amortization) totaled $28.4 million for the nine months ended September 30, 2018 compared to $27.3 million for the same period in 2017, primarily due to increased sales and marketing expenses associated with growing industrial sales. The $0.35 million loss on sale of Russian proppant business was related to settling the receivable owed to us from the buyer of our Russian proppant business for $0.35 million less than was owed to us in order to limit additional legal expenses resulting from the disagreement. Other operating income of $0.8 million for the nine months ended September 30, 2018 was primarily related to the sale of one of the Company’s distribution centers, offset by $0.3 million in other operating expense. Other operating expense of $125.8 million for the nine months ended September 30, 2017 was primarily related to the impairment on our Millen, Georgia proppant manufacturing facility.

Environmental technologies and services segment SG&A (exclusive of depreciation and amortization) was flat at $2.0 million for the nine months ended September 30, 2018 and 2017.

Income Taxes. Accounting Standards Codification Topic 740, Income Taxes, provides the carrying value of deferred tax assets should be reduced b y the amount not expected to be realized. A company should reduce deferred tax assets by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be re alized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. ASC 740 requires all available evidence, both positive and negative, be considered to determine whether a val uation allowance for deferred tax assets is needed in the financial statements. Additionally there can be statutory limitations on the deferred tax assets should certain conditions arise. As a result of the significant decline in oil and gas activities a nd net losses incurred over the past several years, we believe it is more likely than not that a portion of our deferred tax assets will not be realized in the future. Our valuation allowance against a portion of our deferred tax assets as of September 30 , 2018 was $67.3 million. Our assessment of the realizability of our deferred tax assets is based on the weight of all available evidence, both positive and negative, including future reversals of deferred tax liabilities. As a result, income tax expen se was $0.2 million, or 0.3% of pretax loss, for the nine months ended September 30, 2018 compared to $0.5 million, or 0.2% of pretax loss, for the same period in 2017.

Outlook

In North America, the combination of lower completion activity, customers’ budget exhaustion, and additional regional sand capacity coming online, leads us to estimate our full year 2018 consolidated revenue will approximate $210 million. The main driver for the reduced revenue forecast for the full year 2018, is softening industry demand for both our base ceramic and frac sand proppants.

We continue to be very encouraged by customer interest in our three sectors’ technology products, increasing international activity, and the expected recovery in the North American oilfield in 2019. We expect our efforts to reduce working capital levels and the sale of the Millen plant to strengthen cash levels and maintain a strong balance sheet.

We expect our ceramic technology sales to finish the year strong relative to the third quarter of 2018 driven by sales of KRYPTOSPHERE, the Guard family, NRT and CARBOAIR products.

Demand for STRATAGEN’s consulting services is expected to stay healthy during the fourth quarter of 2018. We have seen our client list expand as operators rely on STRATAGEN to provide consulting services to optimize their well completions and enhance production.

Our software business is expected to be steady during the fourth quarter of 2018, following the modest growth pattern we have seen in Fracpro sales throughout the year. We continue to look for new opportunities to grow our software business.

Due to the well-publicized lower completion activity in the industry, we now believe our full year revenues for base ceramic and sand proppants to be down 20% to 25% from where we anticipated as we exited the second quarter of 2018. In base ceramic proppants, one of our strategies to reduce working capital is to change the traditional business model from manufacturing and stocking of inventory, to one which incorporates production on demand along with upfront cash commitments. For frac sand, we are pleased to have signed a contract for an estimated 550,000 tons of annual capacity during the third quarter of 2018, which will offset some of the softening demand we encountered during the quarter. The benefits of the contract include the use of our sand facility, rail cars and distribution center.

We anticipate our industrial revenues to increase year-on-year during the fourth quarter driven by increased industrial ceramic media sales along with continued contract manufacturing revenue.

The client gains we have made in industrial ceramic and contract manufacturing is building a growing base of business for 2019. The Industrial sector outlook through 2019 is positive and we should continue to see double digit revenue growth along with strong margins.

ASSETGUARD continues to perform well and its profitability has significantly improved year-on-year. Given the recent slowdown in oil and gas activity, we believe the fourth quarter will result in more modest growth year-on-year than what we witnessed in the third quarter of 2018. We expect continued growth in industrial applications for ASSETGUARD’s products.

As demonstrated by our evolving revenue mix, our long term growth strategy to diversify our revenue streams across multiple industries is proving to be successful. Swings in oilfield activity have a significant impact on us today but successful execution of our transformation strategy will help lessen the negative impact of those swings and improve our profitability. Maintaining healthy cash levels during this transformation is key and we continue to take actions to maintain a strong balance sheet.

Liquidity and Capital Resources

At September 30, 2018, we had cash and cash equivalents and restricted cash of $58.6 million compared to cash and cash equivalents and restricted cash of $78.4 million at December 31, 2017. During the nine months ended September 30, 2018, we received proceeds of $5.2 million relating to the asset sales and $2.8 million relating to sales of common stock under our ATM program. Uses of cash included $24.9 million used in operating activities, $1.7 million for capital expenditures, $0.4 million for purchases of our common stock, and $0.9 million in repayments on an insurance financing agreement.

We estimate that capital expenditures for the remainder of 2018 will be less than $1.0 million. Due to market conditions, the completion of the second phase of a plant retrofit with KRYPTOSPHERE® technology has been suspended until such time that market conditions warrant completion. In addition, we are marketing our Millen, Georgia facility for sale.

We anticipate that cash on hand will be sufficient to meet planned operating expenses and other cash needs for at least one year from the date of this Form 10-Q. Our view regarding sufficiency of cash and liquidity is primarily based on our financial forecast for 2018 and 2019, which is impacted by various assumptions regarding demand and sales prices for our products. Generally, we expect demand for our products and the sales prices to increase. Although we have observed certain factors that could be indicative of improving industry conditions, our financial forecasts are based on estimates of customer demand, which is highly volatile in the current operating environment, and we have no committed sales backlog with our customers. As a result, there is inherent uncertainty in our forecasts.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of September 30, 2018.

Forward-Looking Information

The statements in this Quarterly Report on Form 10-Q that are not historical statements, including statements regarding our future financial and operating performance and liquidity and capital resources, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may”, “will”, “estimate”, “intend”, “continue”, “believe”, “expect”, “anticipate”, “should”, “could”, “potential”, “opportunity”, or other similar terminology. All forward-looking statements are based on management's current expectations and estimates, which involve risks and uncertainties that could cause actual results to differ materially from those expressed in forward-looking statements. Among these factors are:

•

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

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

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

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our ability to manage distribution costs effectively;

•

our ability to successfully implement strategic changes in our business;

•

changes in demand and prices charged for our products;

•

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

•

changes in overall economic conditions;

•

technological, manufacturing and product development risks;

•

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

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potential declines or increased volatility in oil and natural gas prices that adversely affect our customers, the energy industry or our production costs;

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potential reductions in spending on exploration and development drilling in the oil and natural gas industry that could reduce demand for our products and services;

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seasonal sales fluctuations;

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an increase in competition in the proppant market, including imports from foreign countries;

•

logistical and distribution challenges relating to certain resource plays that do not have the type of infrastructure systems that are needed to efficiently support oilfield services activities;

•

the development of alternative stimulation techniques that would not benefit from the use of our existing products and services, such as extraction of oil or gas without fracturing;

•

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

•

increased regulation of emissions from our manufacturing facilities;

•

the development and utilization of alternative proppants for use in hydraulic fracturing;

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general global economic and business conditions;

•

weather-related risks;

•

changes in foreign and domestic political and legislative risks;

•

risks of war and international and domestic terrorism;

•

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

•

the potential expropriation of assets by foreign governments; and

•

other risks and uncertainties.

Additional factors that could affect our future results or events are described from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”). Please see the discussion set forth under the caption “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2017, under the caption “Risk Factors” in this rep ort, and similar disclosures in subsequently filed reports with the SEC. We assume no obligation to update forward-looking statements, except as required by law.

ITEM 3.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the price of natural gas, which is used in production by our domestic manufacturing facilities and is subject to volatility. In an effort to mitigate potential volatility in the cost of natural gas purchases and reduce exposure to short-term spikes in the price of the commodity, from time to time, we enter into contracts to purchase a portion of our anticipated monthly natural gas requirements at specified prices. At September 30, 2018, we had contracted for a total of 480,000 MMBtu of natural gas at an average price of $4.31 per MMBtu through December 31, 2018.

ITEM 4.

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 September 30, 2018, management had carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurances of achieving their control objectives. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)	Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2018 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHE R INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2017.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about our repurchases of Common Stock during the quarter ended September 30, 2018:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan ⁽¹⁾		Maximum Number of Shares that May be Purchased Under the Plan ⁽¹⁾
07/01/18 to 07/31/18		—		—		—		2,000,000
08/01/18 to 08/31/18		—		—		—		2,000,000
09/01/18 to 09/30/18		—		—		—		2,000,000
Total		—				—

(1)

On January 28, 2015, we announced the authorization by our Board of Directors for the repurchase of up to two million shares of our Common Stock. The Plan is effective until all shares have been purchased under the Plan, or until such date that our Board of Directors cancels the Plan. No shares have been purchased under the Plan.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURE

Our U.S. manufacturing facilities process mined minerals, and therefore are viewed as mine operations subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the recently proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in Exhibit 95 to this quarterly report.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

E XHIBITS

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:

*10.1		Letter Agreement, executed September 26, 2018, by and between Carbo Ceramics Inc. and Buyer.

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

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

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

95		Mine Safety Disclosure

101		The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

*Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

EXHIBIT INDEX


EXHIBIT		DESCRIPTION

*10.1		Letter Agreement, executed September 26, 2018, by and between Carbo Ceramics Inc. and Buyer.

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

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

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

95		Mine Safety Disclosure.

101		The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements 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.

		/s/ G ary A. Kolstad
		Gary A. Kolstad
		President and Chief Executive Officer

		/s/ Ernesto Bautista III
		Ernesto Bautista III
		Chief Financial Officer

	Date: October 25, 2018

Exhibit 10.1

Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission under a confidential treatment request. The redacted terms have been marked in this exhibit at the appropriate place with “XXX” .

September 17, 2018

XXX

Re: Purchase of Sand from CARBO Ceramics Inc.

Ladies and Gentlemen:

The purpose of this letter agreement (this “ Agreement ”) is to set forth the terms and conditions governing the sale of sand for hydraulic fracturing (“ Sand ”) by CARBO Ceramics Inc. (“ Seller ”) to XXX (“ Buyer ”). The Buyer and Seller may be referred to herein collectively as the “ Parties ” and each individually, as a “ Party ”.

Available Sand . During the term of this Agreement, Seller agrees to make available for purchase by Buyer the types of Sand, and quantities of each, specified on Exhibit A attached hereto.

Purchase and Sale . Buyer will provide Seller with a forward looking sixty (60) day estimated volume forecast within five (5) Business Days of the first day of each calendar month (each a “ Volume Forecast ”). Each Volume Forecast will include the type(s) and quantity of Sand requested by Buyer and the estimated delivery date(s) for such Sand. Following the Parties review of each Volume Forecast, the Parties will work in good faith to revise, if necessary, any purchase orders and sales order confirmations, so that such documents conform to the most recent Volume Forecast delivered by Buyer. Buyer will provide Seller with an initial Volume Forecast on the Effective Date (as defined herein). If, at any time, Seller does not reasonably believe it will be able to meet the then current Volume Forecast, Seller will provide immediate written notice to Buyer.

Price and Payment .

(a)

The initial price per ton for each type of Sand sold hereunder is set forth on Exhibit A . The prices set forth on Exhibit A will be valid through October 31, 2020. The prices set forth on Exhibit A , as may be modified by other provisions in this Agreement, will continue for each Renewal Term (as defined herein) unless the Seller provides Buyer with new proposed pricing at least ninety (90) days prior to the expiration of the Initial Term (as defined herein) or Renewal Term, as applicable. The Parties must agree in writing to any modifications to Exhibit A .

(b)

The prices set forth on Exhibit A do not include sales or use taxes now or hereafter imposed, directly or indirectly, by any governmental authority or agency with respect to the sale, delivery, consumption or use of Sand. Buyer shall pay such taxes directly or reimburse Seller for any such taxes which it may be required to pay.

(c)

In accordance with Section 6 , all prices for Sand are F.O.B. from Seller’s transload facility in XXX (the “ Primary Facility ”).

(d)

Contracted rail freight rates and/or associated fuel surcharges (FSC) incurred by Seller in connection with the delivery of Sand to the Primary Facility may vary during the life of

Exhibit 10.1

this Agreement due to market conditi ons beyond Seller’s control. The Parties agree to review, negotiate and revise (if necessary) the prices set forth on Exhibit A every May 1st and November 1st to capture any increases or decreases to contracted rail freight rates and/or associated fuel su rcharges (FSC) incurred by Seller in connection with the delivery of Sand to the Primary Facility.

(e)

All undisputed amounts for Sand purchased from Seller pursuant to this Agreement are due and payable, and shall be paid by Buyer, within (i) in the case of payments made using the Account (as defined herein), fifteen (15) days of receipt of an invoice from Seller setting forth the amount due and a description of Sand delivered to Buyer (including quantity, sieve size, delivery date(s) and price of the Sand; each an “ Invoice ”); or (ii) in the case of payments made using any other payment method, thirty (30) days of receipt of an Invoice. Invoices must be received by 12:00pm (noon) Central Standard Time to be effectively received on a Business Day (as defined herein). Invoices received after 12:00pm (noon) Central Standard Time are deemed received the following Business Day. If the day on which any payment on an Invoice is due is not a Business Day, the relevant payment shall be due upon the Business Day immediately prior to the due date. “ Business Day ” means any day except a Saturday, Sunday, or a Federal Reserve Bank holiday. A Business Day shall open at 8:00 a.m. and close at 5:00 p.m. Central Standard Time. All Prices hereunder are in U.S. Dollars, and all payments shall be made in such currency.

(f)

In addition to other payment methods, the Parties may mutually agree, in writing, that Seller will accept payments from Buyer’s proposed electronic payment account or card (the “ Account ”) with XXX (the “ Bank ”). For each payment from the Account, the Bank will either, at the election of Seller, (i) withhold a portion of each payment as a transaction cost in accordance with the Banks in accordance with the Banks CPA rates which can be located at any time on https://www.mastercard.us/content/dam/mccom/en-us/documents/merchant-interchange-rates.pdf under the heading “Large Ticket MPG/Commercial Payments Account” (the “ Fee ”); or (ii) invoice Seller monthly for all Fees related to the payments during the preceding month. If Seller elects to have the Fee withheld pursuant to (d)(i) above, Buyer will pay the face value of each Invoice from the Account, and Seller agrees to accept, in full satisfaction of each Invoice, the amount deposited into Seller’s account by Bank. If Seller elects to have the Bank bill the Seller monthly for the Fee, Seller agrees to pay the Fee to Bank in full each month. The Parties agree to review, negotiate and revise (if necessary) the prices set forth on Exhibit A every May 1st and November 1st to capture any increases in the Fee charged by the Bank.

(g)

If Buyer, in good faith, disputes the amount of any Invoice, or any part thereof, Buyer will pay Seller such amount, if any, which is not in dispute in accordance with this Section 3 and will provide Seller written notice of the disputed amount, accompanied by supporting documentation to support the disputed amount, on or before the Invoice due date. Upon ultimate resolution of the disputed portion of the Invoice, Buyer will pay Seller the amount owed, if any. If the Parties are unable to resolve such dispute within thirty (30) days of notice provide hereunder, either Buyer or Seller may pursue any remedy available at law or in equity to enforce its rights under this Agreement.

General Terms of Sale . The sale of all Sand pursuant to this Agreement shall be governed by those general terms of sale as set forth on Exhibit C attached to this Agreement; provided, in the event

Exhibit 10.1

of a conflict or inconsistency between the terms set forth on Exhibit C and the terms of this Agreement, the terms of this Agreement shall govern and control.

Working Capital Prepayment . Upon the Parties execution of the first Purchase Order for Sand from the Primary Facility, Buyer will make an initial payment to Seller equal to (a) 50,000, multiplied by (b) the price set forth on Exhibit A for the type of Sand initially requested by Buyer, in writing, for delivery at the Primary Facility (the “ Prepayment Amount ”). Seller will use the Prepayment Amount for the acquisition of Sand for the Primary Facility. Seller will provide Buyer with accurate Invoices for all Sand purchased pursuant to this Agreement, however, Buyer will not be obligated to pay Seller (in accordance with Section 3 ) for any Sand delivered to Buyer until such time as the U.S. Dollar value of Buyer’s Sand purchases exceed the Prepayment Amount.

Delivery . Unless otherwise agreed to in writing by the Parties, delivery of Sand to Buyer shall be F.O.B. from the Primary Facility. Title and risk of loss for Sand shall pass from Seller to Buyer upon loading the Sand into the truck or other mode of transportation designated by Buyer for delivery at the Primary Facility.

Exclusivity .

(a)

Seller . Except as otherwise set forth in Section 10 , during the term of this Agreement the Primary Facility will be solely dedicated to the delivery of Sand to Buyer and Seller will not, without the express written consent of the Buyer, utilize the Primary Facility to sell or otherwise distribute Sand or any similar products to third-parties.

(b)

Buyer . Seller hereby acknowledges that nothing in this agreement will limit or restrict, in any way, Buyer or its affiliate’s ability to purchase or sell Sand, including the negotiation, execution and performance of definitive transaction documents related thereto.

Term of Agreement . The term of this Agreement shall become effective upon the earlier of (i) November 1, 2018; or (ii) the date the first Purchase Order for Sand from the Primary Facility is executed by the Parties (the “ Effective Date ”) and, unless earlier terminated as provided elsewhere in this Agreement or by the mutual written agreement of the Parties, continue until 11:59pm Central Standard Time on October 31, 2020 (the “ Initial Term ”). On each anniversary of the Effective date, this Agreement will automatically be extended for an additional twelve (12) month period (each a “ Renewal Term ”); provided however, either Party may terminate this Agreement in its sole discretion at the end of the Initial Term or Renewal Term, if applicable, by providing the other Party with at least sixty (60) days written notice prior to the end of the applicable term. In the event Seller is holding funds on account for Buyer at the time this Agreement is terminated, Seller will return all such funds (less any amounts owed to Seller hereunder) to Buyer within three (3) Business Days.

Volume .

(a)

XXX worth of Sand from Seller during the Initial Term. XXX Buyer will purchase all Sand required by its frac crew(s) operating in XXX from Seller in accordance with the terms of this Agreement.

(b)

In the event Buyer purchases less Sand from Seller than reflected on the then applicable

Exhibit 10.1

Volume Forecast, and such failure to purchase directly results in demurrage charges at the Primary Facility associat ed with the delivery of Sand to the Primary Facility, the Buyer agrees to pay demurrage charges of $55/day/railcar. Upon Buyer’s written request, Seller agrees to use reasonable efforts to find an alternative buyer for any Sand delivered to the Primary Fa cility in accordance with the then applicable Volume Forecast but not ultimately purchased by Buyer (“ Excess Sand ”). Seller will receive a 5% commission from Buyer on the sale of Excess Sand.

(c)

Seller will use its best efforts to source all Sand delivered to Buyer at the Primary Facility from Seller’s existing facility in Marshfield, Wisconsin. In the event Seller is unable to deliver enough Sand from Marshfield, Wisconsin to the Primary Facility to meet the applicable Volume Forecast, Seller has the right to:

XXX (the “ Secondary Facility ”) at the prices set forth on Exhibit A . In order to offset increased final mile delivery charges related to Buyer taking delivery of Sand at the Secondary Facility, Seller will subtract from the prices set forth on Exhibit A the applicable trucking freight differential (per ton) set forth on Exhibit B based upon Buyer’s final delivery location. Trucking freight rates may vary during the life of this Agreement due to market conditions beyond the Parties control. The Parties agree to review, negotiate and revise (if necessary) the trucking freight differentials set forth on Exhibit B every May 1st and November 1st to capture any increases or decreases in trucking freight rates.

ii.

Supply Buyer with Sand (commonly known as “Northern White” and which meets the specifications requested by Buyer in the applicable Volume Forecast) acquired by Seller in region to cover any shortfall, if, in the good faith belief of Seller, it better meets the needs of the Parties. Seller will be responsible for all transportation charges to the Primary Facility for Sand acquired by Seller pursuant to this Section 9(c)(ii) . The prices for Sand pursuant to this Section 9(c)(ii) will be the prices (per sieve size) for Sand at the Primary Facility as set forth on Exhibit A .

10.

Seller Shortfall Remedies.

(a)

For a period of ten (10) days after any sixty (60) day period in which Buyer fails to take delivery of a quantity of Sand sufficient, in the good faith estimate of the Parties, XXX sixty (60) day time period, Seller shall have the right to do one or more of the following: (1) begin selling Sand to third parties, which sales will not violate Section 7(a) ; (2) immediately terminate this Agreement upon written notice to Buyer; or (3) proceed with invoicing any fees due to Seller under Section 9(b) .

(b)

In the event Buyer fails to take delivery of a quantity of Sand sufficient, in the good faith estimate of the Parties, XXX, then either Party will have the right to terminate this contract immediately upon written notice to the other Party.

11.

Buyer Shortfall Remedies.

(a)

If Buyer is running XXX, then for a period of ten (10) days after any sixty (60) day period that Seller fails to supply Buyer with the type, quality and quantity of Sand required, in

Exhibit 10.1

the good faith estimate of the Buyer, XXX, Buyer shall have the righ t to immediately terminate this Agreement upon written notice to Seller.

(b)

If Buyer is running XXX, then for a period of ten (10) days after any sixty (60) day period that Seller fails to supply Buyer with the type, quality and quantity of Sand required, in the good faith estimate of the Buyer, to run all of Buyers frac crews during such period, Buyer shall have the right to immediately terminate this Agreement upon written notice to Seller.

(c)

In the event Seller fails to supply Buyer with the type, quality and quantity of Sand required, in the good faith estimate of the Buyer, XXX, if Buyer is XXX or (ii) all of Buyers frac crews, if Buyer is running fewer XXX, each for a period of one hundred and twenty (120) consecutive days, then either Party will have the right to terminate this contract immediately upon written notice to the other Party.

12.

Miscellaneous .

(a)

Force Majeure . Either Party may suspend performance under this Agreement (other than Buyer’s payment obligations for Sand actually delivered) due to acts of God or of the public enemy; natural disasters, including, but not limited to, fires, floods, and other weather related incidents; riots; strikes; freight embargoes; any existing or future laws, or acts of the Federal or of any State Government (including any orders, rules or regulations issued by any official or agency of any such government) affecting the conduct of the Party’s business; and any cause beyond the reasonable control of a Party. If a force majeure event occurs and prevails for a continuous period in excess of thirty (30) days, then the Parties shall enter into good faith discussions with a view to alleviating its effects, or agreeing upon alternative arrangements. If the Parties are unable to agree upon alternative arrangements within thirty (30) days of entering discussions, either Party may terminate this Agreement by providing written notice to the other Party.

(b)

Assignment . This Agreement shall inure for the benefit of and be binding on the respective heirs, successors and permitted assigns of each Party, provided that no Party shall assign or transfer or purport to assign or transfer any of its rights or obligations hereunder except with the written consent of the other Party.

(c)

Entire Agreement; Amendment . This Agreement, which includes all exhibits and schedules, constitutes the entire agreement between the Parties with regard to the purchase and sale of Sand, superseding all prior agreements or provisions agreed to by the Parties, whether written or oral. Notwithstanding the foregoing, nothing in this Agreement will supersede the confidentiality obligations contained in that certain Confidentiality Agreement, dated September 12, 2018, by and between Seller and Buyer. This Agreement may not be amended, changed, modified, waived or discharged, and no change, modification, waiver or amendment of any provision will be effective, except by written instrument executed by an authorized officer of each Party hereto.

(d)

Governing Law; Waiver of Jury Trial . This Agreement shall be interpreted, construed and governed by the laws of the State of Texas, without reference to choice of law principles thereof that might apply the laws of another jurisdiction. Each Party irrevocably consents

Exhibit 10.1

to the exclusive jurisdiction to the state and federal courts sitting in Harris County, Texas in any proceeding arising out of or in connection with this Agreement. THE PARTIES HEREBY WAIVE, TO THE MAXIMUM EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL RIGHTS TO A TRIAL BY JURY FOR ANY CLAIM OR CONTROVERSY ARISING FROM OR RELATING TO THIS AGREEMENT.

(e)

Waiver of Damages . NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREIN, NEITHER PARTY SHALL BE LIABLE IN AN ACTION INITIATED BY ONE AGAINST THE OTHER FOR PUNITIVE, EXEMPLARY, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RESULTING FROM OR ARISING OUT OF THIS AGREEMENT, OR DEFAULT IN THE PERFORMANCE HEREOF, WHETHER BASED UPON CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY), WARRANTY OR ANY OTHER LEGAL THEORY, REGARDLESS OF WHETHER ANY SUCH DAMAGES WERE FORESEEABLE, WHETHER SUCH PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES.

(f)

Attorney’s Fees . If any dispute arises between the Parties with respect to the matters covered by this Agreement which leads to a proceeding to resolve such dispute, the prevailing party in such proceeding will be entitled to receive its reasonable attorneys’ fees, expert witness fees and out-of-pocket costs incurred in connection with such proceeding, in addition to any other relief it may be awarded.

(g)

Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, and such counterparts together shall constitute one instrument. The execution and delivery of this Agreement by each party hereto may be evidenced by facsimile or other electronic transmission (including scanned documents delivered by email in pdf format), which will be binding upon all parties hereto.

(h)

Headings . The headings of the sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any of the terms or provisions hereof.

(i)

Notices . All notices, requests, consents, waivers and other communications given or made pursuant to this Agreement will be in writing and will be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the Party to be notified; (b) when sent, if sent by electronic mail to the recipient’s electronic mail address during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next Business Day (provided any notice sent by electronic mail shall be confirmed promptly by U.S. mail); (c) three (3) Business Days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) Business Day after the Business Day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next Business Day delivery, with written verification of receipt. All communications will be sent to the respective Parties at their address as set forth below:

If to Buyer, addressed to:

XXX

With a copy (which shall not constitute notice) to:

Exhibit 10.1

XXX

If to Seller, addressed to:

CARBO Ceramics Inc.

575 North Dairy Ashford, Suite 300

Houston, Texas 77079

Attn: Tim Kriegshauser

Email: Tim.Kriegshauser@carboceramics.com

Fax: ______________________

With a copy (which shall not constitute notice) to:

CARBO Ceramics Inc.

575 North Dairy Ashford, Suite 300

Houston, Texas 77079

Attn: General Counsel

Email: Robert.Willette@carboceramics.com

Fax: 281-921-6491

Very truly yours,

CARBO CERAMICS INC.

By: /s/ Don P Conkle

Name: Don P Conkle

Title: Vice President

ACKNOWLEDGED and AGREED this 26 day of September, 2018.

XXX

By: XXX

Name: XXX

Title: XXX

Exhibit 10.1

EXHIBIT A

Sand Types, Pricing and Quantity

Primary Facility; XXX


Sieve Size	Pricing (per ton)	Estimated Monthly Quantity (tons)	Estimated Contract Quantity (tons)
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX

Secondary Facility; XXX


Sieve Size	Pricing (per ton)	Estimated Monthly Quantity (tons)	Estimated Contract Quantity (tons)
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX

Exhibit 10.1

EXHIBIT B

Trucking Rate Differentials


Miles
Terminal	XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX	XXX
XXX	XXX	XXX	XXX	XXX

Rate/Mile - 42,000 lbs
Terminal	XXX	XXX	XXX	XXX
XXX	$ XXX	$ XXX	$ XXX	$ XXX
XXX	$ XXX	$ XXX	$ XXX	$ XXX

Differential	$ XXX	$ XXX	$ XXX	$ XXX

XXX	2 Year Term
XXX	$ XXX
XXX	$ XXX
XXX	$ XXX
XXX	$ XXX
XXX	$ XXX
XXX	$ XXX

Exhibit 10.1

EXHIBIT C

General Terms and Conditions

CARBO CERAMICS INC.

TERMS AND CONDITIONS OF SALE

Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the letter agreement between CARBO Ceramics Inc. and XXX, dated September 17, 2018.

AGREEMENT OF SALE, ACCEPTANCE : Any acceptance contained herein is expressly made conditional on Buyer's assent to any terms contained herein that are additional to or different from those proposed by Buyer in its purchase order and, hence, any terms and provisions Buyer's purchase order which are inconsistent with the terms and conditions hereof shall not be binding on the Seller. Terms contained herein that are additional to or different from those in the Agreement will be interpreted in accordance with Section 4 of the Agreement to which these General Terms and Conditions are attached as Exhibit C . Unless Buyer shall notify Seller in writing to the contrary as soon as practicable after receipt hereof, acceptance of the terms and conditions hereof by Buyer shall be deemed made and, in the absence of such notification, the sale and shipment by the Seller of the goods covered hereby shall be conclusively deemed to be subject to the terms and conditions hereof.

WARRANTY : Seller warrants that Sand supplied by the Seller are free from defects in materials and workmanship, provided, however, Seller shall have no obligation or liability under this warranty unless it shall have received prompt written notice specifying any such defect no later than five (5) business days from the date of delivery to Buyer. Buyer’s sole and exclusive remedy shall be for Seller to replace such portion of nonconforming goods, at no charge to Buyer, at the Primary Facility by such reasonable date as Buyer may request and to reimburse Buyer for any transportation, transloading or other costs incurred with respect to such Sand excluding charges for non-productive time on the well site. No Sand shall be returned to Seller without Seller's prior written consent and will be returned at Seller’s expense. THE WARRANTY SPECIFIED IN THIS PARAGRAPH IS THE SOLE AND EXCLUSIVE WARRANTY RELATING TO THE SAND AND IS IN SUBSTITUTION FOR AND IN LIEU OF ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED OR STATUTORY, INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AS WELL AS ANY WARRANTY ARISING FROM COURSE OF DEALING, PERFORMANCE OR USAGE OF TRADE.

LAWS, CODES, REGULATIONS, SAFETY DEVICES : Compliance with laws, codes and regulations relating to Sand and its use is the sole responsibility of Buyer, and Seller makes no additional warranty or representation with respect thereto. Buyer assumes the responsibility for providing and installing any and all devices at the well site for protection, of safety, health and the environment and shall indemnify and hold harmless Seller against any portion of expense, loss, or damage which Seller may incur or sustain as a result of Buyer's failure to do so, including reasonable legal costs and expenses. Buyer will not export or re-export the goods from the country of destination listed on Buyer’s initial order form without Seller’s express prior and express written permission.

WARNING FOR SALES INVOLVING SAND. For sales of goods that involve Sand or Sand-based products, the following statement shall apply:

WARNING: This product contains crystalline silica - quartz, which can cause silicosis (an occupational lung disease) and lung cancer if inhaled. Avoid breathing dust from this product. FOR FURTHER INFORMATION, SEE PRODUCT SAFETY DATA SHEET.

Exhibit 31.1

Quarterly Certification

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

I, Gary A. Kolstad, certify that:

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

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date: October 25, 2018

/s/ Gary A. Kolstad

Gary A. Kolstad

President & CEO

Exhibit 31.2

Quarterly Certification

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

I, Ernesto Bautista III, certify that:

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

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

Date: October 25, 2018

/s/ Ernesto Bautista III

Ernesto Bautista III

Chief Financial Officer

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of CARBO Ceramics Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Dated: October 25, 2018


/s/ Gary A. Kolstad
Name:	Gary A. Kolstad
Title:	Chief Executive Officer

Dated: October 25, 2018


/s/ Ernesto Bautista III
Name:	Ernesto Bautista III
Title:	Chief Financial Officer

Exhibit 95

MINE SAFETY DISCLOSURE

For the three months ended September 30, 2018, the Company has the following mine safety information to report in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in connection with the Eufaula, Alabama processing facility, the McIntyre, Georgia processing facility, the Toomsboro, Georgia processing facility, the Marshfield, Wisconsin processing facility, and the Millen, Georgia processing facility.

Mine or Operating Name/MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($) (1)		Total Number of Mining Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(e) (yes/no)	Received Notice of Potential to Have Pattern Under Section 104(e) (yes/no)	Legal Actions Pending as of Last Day of Period (#)	Aggregate Legal Actions Initiated During Period (#)	Aggregate Legal Actions Resolved During Period (#)
Eufaula Facility MSHA ID 0102687 Eufaula, Alabama	2	0	0	0	0	$	1,211	0	No	No	0	0	0
McIntyre Facility MSHA ID 0901108 McIntyre, Georgia	0	0	0	0	0	$	0	0	No	No	0	0	0
Toomsboro Facility MSHA ID 0901164 Toomsboro, Georgia	0	0	0	0	0	$	295	0	No	No	0	0	0
Marshfield Facility MSHA ID 4703636 Marshfield, Wisconsin	0	0	0	0	0	$	0	0	No	No	0	0	0
Millen Facility MSHA ID 0901232 Millen, Georgia	0	0	0	0	0	$	0	0	No	No	0	0	0
Totals	2	0	0	0	0	$	1,506	0			0	0	0

(1)

Amounts represent the total dollar value of proposed assessments received and/or outstanding as of September 30, 2018.