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, 2014 has been derived from the audited financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the annual report on Form 10-K of CARBO Ceramics Inc. for the year ended December 31, 2014.

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

In late 2014 and early 2015, a severe decline in oil prices led to a significant decline in oil and natural gas industry drilling activities and capital spending. During the three month period ended March 31, 2015, the Company implemented a number of initiatives to preserve cash and lower costs, including: reducing workforce across the organization, lowering production output levels in order to align with lower demand, limiting capital expenditures and reducing dividends. As a result of these measures, the Company temporarily idled production and furloughed employees at the Toomsboro and Millen, Georgia manufacturing plants and mothballed the manufacturing plants in McIntyre, Georgia and Luoyang, China. Temporarily idled facilities are expected to remain closed for a short period of time, generally less than one year. Mothballed facilities are expected to remain closed for one year or longer. The accounting treatment is the same for both temporarily idled and mothballed facilities, except that mothballed assets are evaluated for possible impairment while temporarily idled assets are not necessarily assessed for impairment. The Company continues to depreciate both temporarily idled and mothballed assets.

Prior to June 30, 2015, production resumed at both of the temporarily idled facilities. The facility in Toomsboro, Georgia is the Company’s largest manufacturing facility. Currently, one of its four manufacturing lines is producing products and, as such, production levels are running at approximately 25% of the stated capacity of this facility. Production levels at the Millen, Georgia and Eufaula, Alabama facilities are currently running near stated capacities of those facilities. Mothballed plants remained closed.

Lower of Cost or Market and Other Inventory Adjustments

During the three-month period ended March 31, 2015, the Company reviewed the carrying values of all inventories and concluded that certain inventories in China had been impacted by changes in market conditions. Current market prices had fallen below carrying costs for certain inventories. Consequently, the Company recognized a $3,887 loss in cost of sales, to adjust finished goods and raw materials carrying values to the lower market prices on inventories inside China. The adjustments were based on current market prices for these or similar products, as determined by actual sales, bids, and/or quotes from third parties. The Company again reviewed the carrying values of all inventories as of June 30, 2015 and concluded that no further adjustments were warranted as of that time. In addition, during the three month period ended March 31, 2015, the Company recognized a $485 loss in cost of sales as a result of other inventory adjustments unrelated to lower of cost or market issues.

Production Levels Below Normal Capacity

As a result of the Company substantially reducing manufacturing production levels, including by idling and mothballing certain facilities, the component of the Company’s accounting policy for inventory relating to operating at production levels below normal capacity was triggered and resulted in certain production costs being 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. The Company expensed $19,629 in production costs during the six month period ended June 30, 2015. There were no such costs in the prior year period.

Long-lived assets impairment considerations

At the time the manufacturing facility in McIntyre, Georgia was mothballed, the Company conducted an interim impairment analysis of the related long-lived assets. Pursuant to that analysis, the Company determined that the projected gross cash flows attributable to the facility substantially exceed the carrying value of the assets; therefore, the Company concluded that there was no impairment and further that impairment would not be reasonably possible in the near term. At the time the manufacturing facility was mothballed in Luoyang, China, the Company did not conduct an interim impairment analysis because an impairment charge was recorded in 2014 that reduced the value of the related long-lived assets to net salvage value. The Company does not necessarily assess temporarily idled assets for impairment unless events or circumstances indicate their carrying amounts might not be recoverable.

The Company tests goodwill on an annual basis as of December 31 of each year. The 2014 impairment analysis considered industry conditions that were developing into early 2015 as a result of the severe decline in oil prices. The Company concluded that there was no impairment to goodwill as of December 31, 2014. The Company will also test goodwill for impairment in interim periods in which events occur or circumstances arise that could indicate that the carrying amounts of goodwill may not be recoverable. During 2015, no new events or circumstances were noted that would suggest the need to retest goodwill for impairment.