**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-Q**





**(** Mark
      One)


x Quarterly
      report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
      for the quarterly period ended September 30, 2008 or


o Transition
      report pursuant to section 13 or 15(d) of the Securities Exchange act of 1934
      for the transition period


from
      _______ to _______





Commission
      file number 1-10776





CALGON
      CARBON CORPORATION


(Exact
      name of registrant as specified in its charter)





Delaware
            
            25-0530110(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





P.O.
      Box 717, Pittsburgh, PA 15230-0717


(Address
      of principal executive offices)


(Zip
      Code)





**(412)
      787-6700**


**(Registrant’s
      telephone number, including area code)**









**(Former
      name, former address and former fiscal year**


**if
      changed since last report)**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes x   No o





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





Large
      accelerated filer  o  Accelerated
      filer  x  Non-accelerated
      filer  o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act of 1934).





Yes o  No x





**Applicable
      only to corporate issuers:**


**Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.**





Class
            
            Outstanding
                at November 7, 2008Common
                Stock, $.01 par value
            
            54,059,659
                shares








CALGON
      CARBON CORPORATION


FORM
      10-Q


QUARTER
      ENDED September 30, 2008





The
      Quarterly Report on Form 10-Q contains historical information and
      forward-looking statements. Statements looking forward in time are included
      in
      this Form 10-Q pursuant to the “safe harbor” provisions of the Private
      Securities Litigation Reform Act of 1995. They involve known and unknown risks
      and uncertainties that may cause the Company’s actual results in the future to
      differ from performance suggested herein. In the context of forward-looking
      information provided in this Form 10-Q and in other reports, please refer to
      the
      discussion of risk factors detailed in, as well as the other information
      contained in the Company’s filings with the Securities and Exchange Commission.




I
      N D
      E X





PagePART
                1–CONDENSED
                CONSOLIDATED FINANCIAL INFORMATIONItem
                1.
            Condensed
                Consolidated Financial StatementsIntroduction
                to the Condensed Consolidated Financial Statements
            2Condensed
                Consolidated Statements of Operations (unaudited)
            3Condensed
                Consolidated Balance Sheets (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            6Item
                2.
            Management's
                Discussion and Analysis of Results of Operations and Financial
                Condition
            30Item
                3.
            Quantitative
                and Qualitative Disclosures aboutMarket
                Risk
            40Item
                4.
            Controls
                and Procedures
            41PART
                II-OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            42Item
                1a.
            Risk
                Factors
            42Item
                2c.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            42Item
                6.
            Exhibits
            42SIGNATURES
            43CERTIFICATIONS
            47


1


PART
      I – CONDENSED CONSOLIDATED FINANCIAL INFORMATION





Item
      1.  Condensed
      Consolidated Financial Statements





INTRODUCTION
      TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The
      unaudited interim condensed consolidated financial statements included herein
      have been prepared by Calgon Carbon Corporation and subsidiaries (the
“Company”), without audit, pursuant to the rules and regulations of the
      Securities and Exchange Commission. Certain information and footnote disclosures
      normally included in annual financial statements prepared in accordance with
      accounting principles generally accepted in the United States of America have
      been condensed or omitted pursuant to such rules and regulations. Management
      of
      the Company believes that the disclosures are adequate to make the information
      presented not misleading when read in conjunction with the Company's audited
      consolidated financial statements and the notes included therein for the year
      ended December 31, 2007, as filed with the Securities and Exchange Commission
      by
      the Company in Form 10-K.





In
      management’s opinion, the unaudited interim condensed consolidated financial
      statements reflect all adjustments, which are of a normal and recurring nature,
      which are necessary for a fair presentation, in all material respects, of
      financial results for the interim periods presented. Operating results for
      the
      first nine months of 2008 are not necessarily indicative of the results that
      may
      be expected for the year ending December 31, 2008.


2


CALGON
      CARBON CORPORATION


CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars
      in Thousands Except Per Share Data)


(Unaudited)





Three Months Ended
            
            Nine Months EndedSeptember 30,
            
            September 30,2008
            
            2007
            
            2008
            
            2007Net
                sales
            
            $
            96,737
            
            $
            81,912
            
            $
            290,492
            
            $
            249,579Net
                sales to related parties
            
            
            2,332
            
            
            2,949
            
            
            7,384
            
            
            6,740Total
            
            
            99,069
            
            
            84,861
            
            
            297,876
            
            
            256,319Cost
                of products sold (excluding depreciation and amortization)
            
            
            65,461
            
            
            57,642
            
            
            198,247
            
            
            175,622Depreciation
                and amortization
            
            
            4,036
            
            
            4,427
            
            
            12,161
            
            
            13,019Selling,
                general and administrative expenses
            
            
            16,286
            
            
            15,306
            
            
            47,637
            
            
            44,921Research
                and development expenses
            
            
            1,025
            
            
            966
            
            
            3,119
            
            
            2,701Gain
                on AST settlement (See Note 8)
            
            
            -
            
            
            -
            
            
            (9,250
            )
            
            -86,808
            
            
            78,341
            
            
            251,914
            
            
            236,263Income
                from operations
            
            
            12,261
            
            
            6,520
            
            
            45,962
            
            
            20,056Interest
                income
            
            
            399
            
            
            455
            
            
            1,256
            
            
            1,157Interest
                expense
            
            
            (981
            )
            
            (1,363
            )
            
            (3,456
            )
            
            (4,223
            )Other
                expense—net
            
            
            (1,157
            )
            
            (482
            )
            
            (1,727
            )
            
            (1,293
            )Income
                from continuing operations before income tax and equity in income
                from
                equity investments
            
            
            10,522
            
            
            5,130
            
            
            42,035
            
            
            15,697Income
                tax provision
            
            
            4,024
            
            
            396
            
            
            15,145
            
            
            5,923Income
                from continuing operations before equity in income from equity
                investments
            
            
            6,498
            
            
            4,734
            
            
            26,890
            
            
            9,774Equity
                in income from equity investments
            
            
            38
            
            
            310
            
            
            337
            
            
            1,766Income
                from continuing operations
            
            
            6,536
            
            
            5,044
            
            
            27,227
            
            
            11,540Income
                (loss) from discontinued operations, net (See Note 1)
            
            
            (211
            )
            
            (96
            )
            
            3,236
            
            
            (96
            )Net
                income
            
            $
            6,325
            
            $
            4,948
            
            $
            30,463
            
            $
            11,444Net
                income per common shareBasic:Income
                from continuing operations
            
            $
            .15
            
            $
            .12
            
            $
            .65
            
            $
            .28Income
                (loss) from discontinued operations
            
            
            -
            
            
            -
            
            
            .08
            
            
            -Total
            
            $
            .15
            
            $
            .12
            
            $
            .73
            
            $
            .28Diluted:Income
                from continuing operations
            
            $
            .12
            
            $
            .10
            
            $
            .52
            
            $
            .24Income
                (loss) from discontinued operations
            
            
            -
            
            
            -
            
            
            .06
            
            
            -Total
            
            $
            .12
            
            $
            .10
            
            $
            .58
            
            $
            .24Weighted
                average shares outstandingBasic
            
            
            44,624,502
            
            
            40,357,325
            
            
            41,818,152
            
            
            40,289,260Diluted
            
            
            53,797,735
            
            
            50,358,179
            
            
            52,536,083
            
            
            47,324,443





The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.


3




CALGON
      CARBON CORPORATION


CONDENSED
      CONSOLIDATED BALANCE SHEETS


(Dollars
      in Thousands except share data)


(Unaudited)




September 30,
            
            December 31,2008
            
            2007ASSETSCurrent assets:Cash
                and cash equivalents
            
            $
            37,263
            
            $
            30,304Receivables
                (net of allowance of $2,472 and $2,834)
            
            
            61,352
            
            
            55,195Receivables
                from related parties
            
            
            1,784
            
            
            2,353Revenue
                recognized in excess of billings on uncompletedcontracts
            
            
            7,452
            
            
            7,698Inventories
            
            
            88,384
            
            
            81,280Deferred
                income taxes
            
            
            8,890
            
            
            9,246Other
                current assets
            
            
            8,739
            
            
            3,602Total
                current assets
            
            
            213,864
            
            
            189,678Property,
                plant and equipment, net
            
            
            114,340
            
            
            105,512Equity
                investments
            
            
            8,888
            
            
            8,593Intangibles
            
            
            6,437
            
            
            7,760Goodwill
            
            
            27,274
            
            
            27,845Deferred
                income taxes
            
            
            3,366
            
            
            6,419Other
                assets
            
            
            6,027
            
            
            2,333Total
                assets
            
            $
            380,196
            
            $
            348,140LIABILITIES
                AND SHAREHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            38,592
            
            $
            39,436Billings
                in excess of revenue recognized on uncompletedcontracts
            
            
            4,821
            
            
            3,727Accrued
                interest
            
            
            240
            
            
            1,461Payroll
                and benefits payable
            
            
            9,486
            
            
            9,182Accrued
                income taxes
            
            
            1,170
            
            
            1,944Short-term
                debt
            
            
            1,606
            
            
            1,504Current
                portion of long-term debt
            
            
            32,919
            
            
            62,507Total
                current liabilities
            
            
            88,834
            
            
            119,761Long-term
                debt
            
            
            -
            
            
            12,925Deferred
                income taxes
            
            
            402
            
            
            1,361Accrued
                pension and other liabilities
            
            
            39,023
            
            
            41,844Total
                liabilities
            
            
            128,259
            
            
            175,891Commitments
                and contingencies (Note 8)Shareholders'
                equity:Common
                shares, $.01 par value, 100,000,000 shares authorized, 52,586,356
                and
                43,044,318 shares issued
            
            
            526
            
            
            430Additional
                paid-in capital
            
            
            129,336
            
            
            77,299Retained
                earnings
            
            
            135,399
            
            
            104,936Accumulated
                other comprehensive income
            
            
            14,923
            
            
            17,008280,184
            
            
            199,673Treasury
                stock, at cost, 2,877,913 and 2,827,301 shares
            
            
            (28,247
            )
            
            (27,424
            )Total
                shareholders' equity
            
            
            251,937
            
            
            172,249Total
                liabilities and shareholders' equity
            
            $
            380,196
            
            $
            348,140





The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.


4


CALGON
      CARBON CORPORATION


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars
      in Thousands)


(Unaudited)




Nine
                Months EndedSeptember
                30,2008
            
            2007Cash
                flows from operating activitiesNet
                income
            
            $
            30,463
            
            $
            11,444Adjustments
                to reconcile net income to net cash provided by operating
                activities:Gain
                from divestiture (See Note 1)
            
            
            (4,353
            )
            
            -Depreciation
                and amortization
            
            
            12,161
            
            
            13,019Equity
                in (income) loss from equity investments - net
            
            
            63
            
            
            (1,027
            )Employee
                benefit plan provisions
            
            
            1,824
            
            
            947Stock-based
                compensation
            
            
            2,247
            
            
            2,286Excess
                tax benefit from stock-based compensation
            
            
            (1,958
            )
            
            -Non-cash
                pension curtailment gain
            
            
            (480
            )
            
            (265
            )Deferred
                income tax
            
            
            2,576
            
            
            5,648Changes
                in assets and liabilities:Increase
                in receivables
            
            
            (6,685
            )
            
            (1,890
            )Increase
                in inventories
            
            
            (8,079
            )
            
            (6,513
            )(Increase)
                decrease in revenue in excess of billings on uncompleted contracts
                and
                other current assets
            
            
            (5,180
            )
            
            1,920Increase
                (decrease) in accounts payable and accrued liabilities
            
            
            309
            
            
            (1,191
            )Increase
                (decrease) in accrued income taxes
            
            
            3,095
            
            
            (1,375
            )Pension
                contributions
            
            
            (5,597
            )
            
            (6,914
            )Other
                items – net
            
            
            3,498
            
            
            800Net
                cash provided by operating activities
            
            
            23,904
            
            
            16,889Cash
                flows from investing activitiesProperty,
                plant and equipment expenditures
            
            
            (20,641
            )
            
            (7,639
            )Proceeds
                from disposals of property, plant and equipment
            
            
            580
            
            
            187Net
                cash used in investing activities
            
            
            (20,061
            )
            
            (7,452
            )Cash
                flows from financing activitiesProceeds
                from borrowings
            
            
            -
            
            
            6,233Repayments
                of borrowings
            
            
            -
            
            
            (4,326
            )Treasury
                stock purchases
            
            
            (823
            )
            
            (157
            )Common
                stock issued through exercise of stock options
            
            
            5,121
            
            
            1,213Excess
                tax benefit from stock-based compensation
            
            
            1,958
            
            
            -Other
            
            
            (456
            )
            
            -Net
                cash provided by financing activities
            
            
            5,800
            
            
            2,963Effect
                of exchange rate changes on cash
            
            
            (2,684
            )
            
            1,340Increase
                in cash and cash equivalents
            
            
            6,959
            
            
            13,740Cash
                and cash equivalents, beginning of period
            
            
            30,304
            
            
            5,631Cash
                and cash equivalents, end of period
            
            $
            37,263
            
            $
            19,371


The
      accompanying notes are an integral part of these unaudited condensed
      consolidated financial statements.


5


CALGON
      CARBON CORPORATION


NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
      in Thousands)


(Unaudited)





1.
            Discontinued
                Operations





On
      February 17, 2006, the Company, through its wholly owned subsidiary Chemviron
      Carbon GmbH, executed an agreement (the “Charcoal Sale Agreement”) with proFagus
      GmbH, proFagus Grundstuecksverwaltungs GmbH and proFagus Beteiligungen GmbH
      (as
      Guarantor) to sell, and sold, substantially all the assets, real estate, and
      specified liabilities of the Bodenfelde, Germany facility (the “Charcoal/Liquid
      business”). The aggregate sales price, based on an exchange rate of 1.19 Dollars
      per Euro, consisted of $20.4 million of cash, which included a final working
      capital adjustment of $1.3 million. The Company provided guarantees to the
      buyer
      related to pre-divestiture tax liabilities, future environmental remediation
      costs related to pre-divestiture activities and other contingencies. Management
      believes the ultimate cost of such guarantees is not material. An additional
      4.25 million Euro could have been received dependent upon the business meeting
      certain earnings targets over the next three years. In May 2008, the Company
      reached a final agreement with proFagus GmbH, proFagus Grundstuecksverwaltungs
      GmbH and proFagus Beteiligungen GmbH (as Guarantor) regarding the aforementioned
      additional 4.25 million Euro contingent consideration fixing the amount to
      be
      paid to the Company at 2.8 million Euro. The Company expects to receive this
      payment in December 2011. The unpaid balance earns interest at 7% which is
      paid
      annually. The Company had presented the Charcoal/Liquid business as a
      discontinued operation for the periods that were impacted and has recorded
      the
      additional consideration as an additional pre-tax gain on sale of $4.4 million
      or $3.2 million, net of tax, within discontinued operations for the nine
      months ended September 30, 2008.





2.
            Inventories:




September 30, 2008
            
            December 31, 2007Raw
                materials
            
            $
            24,345
            
            $
            22,321Finished
                goods
            
            
            64,039
            
            
            58,959$
            88,384
            
            $
            81,280





3.
            Supplemental
                Cash Flow Information:





Cash
      paid
      for interest during the nine months ended September 30, 2008 and 2007 was $4.5
      million and $5.1 million, respectively. Income taxes paid, net of refunds,
      for
      the nine months ended September 30, 2008 and 2007 was $12.8 million and $0.8
      million, respectively.





The
      Company exchanged shares of its common stock for approximately $44.2 million
      of
      its 5.00% Convertible Senior Notes. Refer to Note 10.





The
      non-cash impact of the January 1, 2007 adoption of FASB Interpretation No.
      48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109,” (“FIN 48”) was $4.3 million for the nine months ended September 30,
      2007.





4.
            Dividends:





The
      Company’s Board of Directors did not declare or pay a dividend for the three or
      nine month periods ended September 30, 2008 and 2007.


6





5.
            Comprehensive
                income (loss):




Three Months Ended September 30,
            
            Nine Months Ended September 30,2008
            
            2007
            
            2008
            
            2007Net
                income
            
            $
            6,325
            
            $
            4,948
            
            $
            30,463
            
            $
            11,444Other
                comprehensive income(loss),
                net of taxes
            
            
            (8,207
            )
            
            (333
            )
            
            (2,085
            )
            
            2,345Comprehensive
                income (loss)
            
            $
            (1,882
            )
            $
            4,615
            
            $
            28,378
            
            $
            13,789





The
      only
      matters contributing to the other comprehensive income (loss) during the three
      and nine months ended September 30, 2008 was the foreign currency translation
      adjustment of $(7.1) million and $(3.0) million, respectively; the changes
      in
      employee benefit accounts of $0.2 million and $0.4 million, respectively; and
      the change in the fair value of the derivative instruments of $(1.3) million
      and
      $0.5 million, respectively, as described in Note 7. The only matters
      contributing to the other comprehensive income (loss) during the three and
      nine
      months ended September 30, 2007 was the foreign currency translation adjustment
      of $0.1 million and $2.2 million, respectively, the changes in employee benefit
      accounts of $(0.3) million and $(0.3) million, respectively, and the change
      in
      the fair value of the derivative instruments of $(0.1) million and $0.4 million,
      respectively, as described in Note 7.


7


6.
            Segment
                Information:





The
      Company’s management has identified three segments based on product line and
      associated services. Those segments include Activated Carbon and Service,
      Equipment, and Consumer. The Company’s chief operating decision maker, its chief
      executive officer, receives and reviews financial information in this format.
      The Activated Carbon and Service segment manufactures granular activated carbon
      for use in applications to remove organic compounds from liquids, gases, water,
      and air. This segment also consists of services related to activated carbon
      including reactivation of spent carbon and the leasing, monitoring, and
      maintenance of carbon fills at customer sites. The service portion of this
      segment also includes services related to the Company’s ion exchange
      technologies for treatment of groundwater and process streams. The Equipment
      segment provides solutions to customers’ air and liquid process problems through
      the design, fabrication, and operation of systems that utilize the Company’s
      enabling technologies: carbon adsorption, ultraviolet light, and advanced ion
      exchange separation. The Consumer segment brings the Company’s purification
      technologies directly to the consumer in the form of products and services
      including carbon cloth and activated carbon for household odors. The following
      segment information represents the results of the Company’s continuing
      operations:





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,2008
            
            2007
            
            2008
            
            2007Net
                SalesActivated
                Carbon and Service
            
            $
            85,219
            
            $
            72,322
            
            $
            257,401
            
            $
            215,728Equipment
            
            
            11,662
            
            
            9,255
            
            
            32,101
            
            
            30,879Consumer
            
            
            2,188
            
            
            3,284
            
            
            8,374
            
            
            9,712$
            99,069
            
            $
            84,861
            
            $
            297,876
            
            $
            256,319Income
                (loss) from continuing operations before depreciation and amortizationActivated
                Carbon and Service
            
            $
            15,941
            
            $
            10,705
            
            $
            53,083
            
            $
            32,197Equipment
            
            
            588
            
            
            (215
            )
            
            4,550
            
            
            (955
            )Consumer
            
            
            (232
            )
            
            457
            
            
            490
            
            
            1,83316,297
            
            
            10,947
            
            
            58,123
            
            
            33,075Depreciation
                and amortizationActivated
                Carbon and Service
            
            
            3,590
            
            
            4,040
            
            
            10,866
            
            
            11,887Equipment
            
            
            322
            
            
            254
            
            
            920
            
            
            737Consumer
            
            
            124
            
            
            133
            
            
            375
            
            
            3954,036
            
            
            4,427
            
            
            12,161
            
            
            13,019Income
                from operations
            
            
            12,261
            
            
            6,520
            
            
            45,962
            
            
            20,056Reconciling
                items:Interest
                income
            
            
            399
            
            
            455
            
            
            1,256
            
            
            1,157Interest
                expense
            
            
            (981
            )
            
            (1,363
            )
            
            (3,456
            )
            
            (4,223
            )Other
                expense – net
            
            
            (1,157
            )
            
            (482
            )
            
            (1,727
            )
            
            (1,293
            )Consolidated
                income from continuing operations before income tax and equity in
                income
                from equity investments
            
            $
            10,522
            
            $
            5,130
            
            $
            42,035
            
            $
            15,697




September 30, 2008
            
            December 31, 2007Total AssetsActivated
                Carbon and Service
            
            $
            324,183
            
            $
            302,432Equipment
            
            
            40,692
            
            
            32,046Consumer
            
            
            15,321
            
            
            13,662Consolidated
                total assets
            
            $
            380,196
            
            $
            348,140


8





7.
            Derivative
                Instruments





The
      Company accounts for its derivative instruments under Statement of Financial
      Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” as amended (“SFAS No. 133”). This standard requires recognition of
      all derivatives as either assets or liabilities at fair value and may result
      in
      additional volatility in both current period earnings and other comprehensive
      income as a result of recording recognized and unrecognized gains and losses
      from changes in the fair value of derivative instruments.





The
      Company’s corporate and foreign subsidiaries use foreign currency forward
      exchange contracts and foreign currency option contracts to limit the exposure
      of exchange rate fluctuations on certain foreign currency receivables, payables,
      and other known and forecasted transactional exposures for periods consistent
      with the expected cash flow of the underlying transactions. The contracts
      generally mature within eighteen months and are designed to limit exposure
      to
      exchange rate fluctuations. The Company uses cash flow hedges to limit the
      exposure to changes in natural gas prices. The contracts generally mature within
      one to thirty-six months.





At
      September 30, 2008, the Company had eighty-six derivative instruments
      outstanding of which one was a foreign currency swap, sixty-one were hedges
      utilizing foreign currency forward exchange contracts, sixteen were cash flow
      hedges utilizing foreign currency option contracts for forecasted inventory
      purchases, and eight were cash flow hedges utilizing forward contracts for
      forecasted purchases of natural gas. The Company applied hedge accounting
      treatment for fifty-eight of the foreign currency forward exchange contracts,
      the sixteen foreign currency option contracts, the foreign currency swap, and
      the eight cash flow hedges for forecasted natural gas purchases. The
      aforementioned fifty-eight foreign currency forward exchange contracts and
      sixteen option contracts were treated as foreign cash flow hedges regarding
      payment for inventory purchases and will be released into operations during
      the
      year based on the timing of the sales of the underlying inventory. Accordingly,
      the change in fair value of these contracts of $1.0 million and $0.7 million,
      net of tax, respectively, for the three and nine month periods ended September
      30, 2008 was recorded in other comprehensive income (loss). The Company did
      not
      apply hedge accounting treatment for the remaining three foreign currency
      forward exchange contracts and recorded an immaterial loss in other income.
      The
      change in fair value of the effective hedge portion of the cash flow hedges
      for
      the forecasted natural gas purchases recorded in other comprehensive income
      (loss) was $(2.1) million and $(0.1) million, net of tax, respectively, for
      the
      three and nine month periods ended September 30, 2008 and $(0.1) million and
      $0.2 million, net of tax, respectively, for the three and nine month periods
      ended September 30, 2007. The balance of the cash flow hedges for forecasted
      natural gas purchases recorded in other assets, accounts payable and accrued
      liabilities, and other long-term liabilities was $33 thousand, $0.2 million,
      and
      $0.2 million, respectively, as of September 30, 2008 and $0.6 million recorded
      in other long-term liabilities as of September 30, 2007.





The
      Company had fourteen derivative instruments outstanding at September 30, 2007
      of
      which one was a foreign currency swap, six were foreign currency forward
      exchange contracts, and seven were cash flow hedges for forecasted purchases
      of
      natural gas. The Company applied hedge accounting treatment to the foreign
      currency swap and six of the cash flow hedges for forecasted natural gas. During
      the period ended September 30, 2007, the Company recorded, in other expense,
      an
      immaterial gain related to the foreign currency forward exchange contracts
      and
      an immaterial loss for the one cash flow hedge for forecasted natural gas that
      did not qualify for hedge accounting treatment.





On
      April
      26, 2004, the Company entered into a ten-year foreign currency swap agreement
      to
      fix the foreign exchange rate on a $6.5 million intercompany loan between the
      Company and its foreign subsidiary, Chemviron Carbon Ltd. Since its inception,
      the foreign currency swap has been treated as a foreign exchange cash flow
      hedge. Accordingly, the changes in the fair value of the effective hedge portion
      of the foreign currency swap of $(0.2) million and $(0.1) million, respectively,
      for the three and nine month periods ended September 30, 2008 and $27 thousand
      and $0.2 million, respectively, for the three and nine month periods ended
      September 30, 2007 was recorded in other comprehensive income. The balance
      of
      the foreign currency swap recorded in other long-term liabilities was $0.2
      million and $1.0 million, respectively, as of September 30, 2008 and 2007.


9





No
      component of the derivative gains or losses has been excluded from the
      assessment of hedge effectiveness. For the three and nine month periods ended
      September 30, 2008 and 2007, the net gain or loss recognized due to the amount
      of hedge ineffectiveness was not material.





Management’s
      policy for managing foreign currency risk is to use derivatives to hedge up
      to
      75% of the forecasted intercompany sales to its European subsidiaries. The
      hedges involving foreign currency derivative instruments do not span a period
      greater than eighteen months from the contract inception date. Management uses
      various hedging instruments including, but not limited to foreign currency
      forward contracts, foreign currency option contracts and foreign currency swaps.
      Management’s policy for managing natural gas exposure is to use derivatives to
      hedge from 25% to 100% of the forecasted natural gas requirements. These cash
      flow hedges span up to thirty-six months from the contract inception date.
      Hedge
      effectiveness is measured on a quarterly basis and any portion of
      ineffectiveness is recorded directly to the Company’s earnings.


10


8.
            Contingencies





The
      Company purchased the common stock of Advanced Separation Technologies
      Incorporated (“AST”) from Progress Capital Holdings, Inc. and Potomac Capital
      Investment Corporation on December 31, 1996. On January 12, 1998, the Company
      filed a claim for unspecified damages in the United States District Court for
      the Western District of Pennsylvania alleging among other things that Progress
      Capital Holdings and Potomac Capital Investment Corporation materially breached
      various AST financial and operational representations and warranties included
      in
      the Stock Purchase Agreement and had defrauded the Company. A jury returned
      a
      verdict in favor of the Company and against the defendants in the amount of
      $10.0 million on January 26, 2007. After the Court denied all post-trial
      motions, including the defendants’ motion for a new trial and the Company’s
      motion for the award of prejudgment interest, all parties appealed to the United
      States Circuit Court of Appeals for the Third Circuit. The parties settled
      the
      case in January 2008 when the defendants agreed to pay the Company $9.25
      million. This sum was received and recorded into operations during February
      2008. Of the settlement amount recorded into operations, approximately $5.3
      million was recorded in the Activated Carbon and Service segment and $4.0
      million was recorded in the Equipment segment.





In
      conjunction with the February 2004 purchase of substantially all of Waterlink’s
      operating assets and the stock of Waterlink’s U.K. subsidiary, several
      environmental studies were performed on Waterlink’s Columbus, Ohio property by
      environmental consulting firms which identified and characterized areas of
      contamination. In addition, these firms identified alternative methods of
      remediating the property, identified feasible alternatives and prepared cost
      evaluations of the various alternatives. The Company concluded from the
      information in the studies that a loss at this property is probable and recorded
      the liability as a component of noncurrent other liabilities in the Company’s
      consolidated balance sheet. At December 31, 2007, the balance recorded was
      $4.0
      million. Liability estimates are based on an evaluation of, among other factors,
      currently available facts, existing technology, presently enacted laws and
      regulations, and the remediation experience of other companies. The Company
      has
      not incurred any environmental remediation expense during the periods ended
      September 30, 2008 and 2007. It is reasonably possible that a change in the
      estimate of this obligation will occur as remediation preparation and
      remediation activity commences in the future. The ultimate remediation costs
      are
      dependent upon, among other things, the requirements of any state or federal
      environmental agencies, the remediation methods employed, the final scope of
      work being determined, and the extent and types of contamination which will
      not
      be fully determined until experience is gained through remediation and related
      activities. The accrued amounts are expected to be paid out over the course
      of
      several years once work has commenced. The Company has yet to make a
      determination as to when it will proceed with remediation
      efforts.





Following
      protracted litigation in multiple jurisdictions, the U.S. Court of Appeals
      for
      the Federal Circuit held that the Company’s process patents for the use of
      ultraviolet light to prevent infection from Cryptosporidium and Giardia in
      drinking water (the “UV patents”) are invalid in the United States concluding
      the U.S. litigation relating to the UV patents.




On
      March
      3, 2008, the Supreme Court of Canada held that the Company’s Canadian UV patents
      are invalid concluding the Canadian UV patent litigation. In March 2007, the
      Company and Trojan Technologies, Inc. entered into a settlement whereby in
      exchange for a nominal cash payment and relief from legal fees, the Company
      granted Trojan Technologies, Inc. worldwide immunity from all current and future
      legal action related to the Company’s UV patents.




In
      2007,
      a German trial court found that a competitor infringed the Company’s UV patents
      with respect to medium pressure ultraviolet light, but did not infringe with
      respect to low pressure ultraviolet light. The Company appealed the decision
      relating to low pressure light. The competitor did not appeal. By order dated
      September 29, 2008, each party is to nominate an expert to provide opinions
      as
      to questions posed by the Court. The nominations are due on or about November
      13, 2008. The Court will then choose one of the experts nominated. The validity
      of the German UV patents, as distinguished from issues of infringement which
      were decided in the trial court, is the subject of pending administrative
      proceedings in Germany. The outcome of these cases has impaired the Company’s
      ability to capitalize on substantial future revenues from the licensing of
      its
      UV patents.


11


In
      January 2007, the Company received a Notice of Violation (“NOV”) from the United
      States Environmental Protection Agency, Region 4 (“EPA”) alleging multiple
      violations of the Federal Resource Conservation and Recovery Act (“RCRA’) and
      corresponding EPA and Kentucky Department of Environmental Protection (“KYDEP”)
      hazardous waste management rules and regulations. The alleged violations are
      based on findings and information provided by the Company during and after
      a
      Multi Media Compliance Evaluation inspection of the Company’s Big Sandy Plant,
      located in Catlettsburg, Kentucky, conducted by the EPA and the KYDEP in
      September 2005, and concern the hazardous waste spent activated carbon
      regeneration facility located at the Big Sandy Plant. The Company submitted
      its
      initial written response to the NOV in June 2007. In August 2007, the EPA
      notified the Company that it believes there were significant RCRA violations
      that are unresolved by the information in the Company’s submittals. The Company
      met with EPA in December 2007 to discuss the alleged violations. Since that
      time
      it has had numerous telephone conferences and exchanges of correspondence in
      an
      attempt to resolve the issues as to alleged continuing violations raised by
      the
      January 2007 NOV. The Company has also taken action to remediate certain of
      the
      alleged violations and believes that the number of unresolved issues as to
      alleged continuing violations has been reduced substantially. The EPA can take
      formal enforcement action to require the Company to remediate any or all of
      the
      unresolved alleged continuing violations which could require the Company to
      incur substantial additional costs. The EPA can also take formal enforcement
      action to impose substantial civil penalties with respect to violations cited
      in
      the NOV, including those which have been resolved. The Company is awaiting
      further response from the EPA and cannot predict with any certainty the probable
      outcome of this matter or range of potential loss, if any.





On
      July
      3, 2008, the EPA verbally informed the Company that there are a number of
      unresolved RCRA violations at the Big Sandy Plant which may render the facility
      unacceptable to receive spent carbon for reactivation from sites regulated
      under
      the Comprehensive Environmental Response, Compensation and Liability ACT
      (“CERCLA”) pursuant to the CERCLA Off-Site Rule. The CERCLA Off-Site Rule
      unacceptability determination applies only to materials from CERCLA regulated
      response actions, and if it goes into effect, it would not prohibit the Big
      Sandy Plant from receiving hazardous waste spent carbons from other sources.
      The
      Company received written notice of the unacceptability determination on July
      14,
      2008 (the “Notice”). The Notice alleges multiple violations of RCRA and four
      releases of hazardous waste. The alleged violations and releases stem from
      the
      September 2005 multi-media compliance inspections, and are the same as alleged
      in the January 2007 NOV described in the preceding paragraph. The Company
      originally had until September 1, 2008 to demonstrate to the EPA that the
      alleged violations and releases were not continuing, or else the Big Sandy
      Plant
      would not have been able to receive spent carbon from CERCLA sites until the
      EPA
      determines that the facility is again acceptable to receive such CERCLA wastes.
      The Company met with the EPA on August 25, 2008 and submitted a written response
      to the Notice prior to the meeting. Following this meeting, the EPA extended
      the
      September 1 deadline to November 3, 2008 and then extended the deadline to
      January 9, 2009 before the unacceptability determination goes into effect,
      due
      to the late delivery of the Notice and the late date of the conference with
      the
      EPA. The Company believes that the indefinite suspension or termination of
      its
      ability to receive and reactivate spent carbon from CERCLA sites would not
      have
      a material adverse effect on its financial position or results of
      operations.





The
      August 25, 2008 EPA meeting was attended by representatives of the EPA’s
      Suspension and Debarment Division (“SDD”). On August 28, 2008, the Company
      received a letter from the Division requesting additional information from
      the
      Company in connection with the SDD’s evaluation of the Company’s potential
“business risk to the Federal Government,” noting that the Company engages in
      procurement transactions with the Federal Government, with respect to activities
      authorized pursuant to, or funded by, CERCLA. The Company has provided the
      SDD
      with all information requested by the letter. The SDD can suspend or debar
      a
      company from sales to the Federal Government directly or indirectly through
      government contractors or with respect to projects funded by the Federal
      Government. The SDD has not indicated whether or not it intends to take further
      action in this matter. The Company believes that there is no basis for
      suspension or debarment on the basis of the matters asserted by the EPA in
      the
      Notice or otherwise.


12


In
      June
      2007, the Company received a Notice Letter from the New York State Department
      of
      Environmental Conservation (“NYSDEC”) stating that the NYSDEC has determined
      that the Company is a Potentially Responsible Party (“PRP”) at the Frontier
      Chemical Processing Royal Avenue Site in Niagara Falls, New York (the “Site”).
      The Notice Letter requests that the Company and other PRPs develop, implement
      and finance a remedial program for Operable Unit #1 at the Site. Operable Unit
      #1 consists of overburden soils and overburden and upper bedrock groundwater.
      The selected remedy is removal of above grade structures and contaminated soil
      source areas, installation of a cover system, and ground water control and
      treatment, estimated to cost between approximately $11 million and $14 million,
      which would be shared among the PRPs. The Company has not determined what
      portion of the costs associated with the remedial program it would be obligated
      to bear and the Company cannot predict with any certainty the outcome of this
      matter or range of potential loss. The Company has joined a PRP group formed
      to
      address this issue and the group is currently seeking a Consent Order with
      the
      NYSDEC on the clean up activity and approach. The Notice Letter also demands
      payment of all monies that the NYSDEC has already expended for investigation
      and
      remediation of the Site, but does not specify the amount that the NYSDEC has
      expended. The Company, as part of the PRP group, is negotiating a consent order
      with the NYSDEC for a supplemental investigation at the Site to collect data
      for
      the design of the soil remediation and to further characterize ground water
      conditions at the Site.





In
      July
      2007, the Company received an NOV from the KYDEP alleging that the Company
      has
      violated the KYDEP’s hazardous waste management regulations in connection with
      the Company’s hazardous waste spent activated carbon regeneration facility
      located at the Big Sandy Plant in Catlettsburg, Kentucky. The NOV alleges that
      the Company has failed to correct deficiencies identified by the KYDEP in the
      Company’s Part B hazardous waste management facility permit application and
      related documents and directs the Company to submit a complete and accurate
      Part
      B application and related documents and to respond to the KYDEP’s comments which
      are appended to the NOV. The Company submitted a response to the NOV and the
      KYDEP’s comments in December 2007. The KYDEP has not indicated whether or not it
      will take formal enforcement action, and has not specified a monetary amount
      of
      civil penalties it might pursue in any such action, if any. On October 18,
      2007,
      the Company received an NOV from the EPA related to this permit application
      and
      submitted a revised application to both the KYDEP and the EPA within the
      mandated timeframe. At this time the Company cannot predict with any certainty
      the outcome of this matter or range of loss, if any.





On
      March
      20, 2007, the Company and ADA-ES entered into a Memorandum of Understanding
      (“MOU”) providing for cooperation between the companies to attempt to jointly
      market powdered activated carbon (“PAC”) to the electric power industry for the
      removal of mercury from coal fired power plant flue gas. The MOU provided for
      commissions to be paid to ADA-ES in respect of product sales. The Company
      terminated the MOU effective as of August 24, 2007 for convenience. Neither
      party had entered into sales or supply agreements with prospective customers
      as
      of that date. On March 3, 2008, the Company entered into a supply agreement
      with
      a major U.S. power generator for the sale of powdered activated carbon products
      with a minimum purchase obligation of approximately $55 million over a 5 year
      period. ADA-ES claimed that it is entitled to commissions of all product sales
      under this contract, which the Company denies. On September 29, 2008, the
      Company filed suit in the United States District Court for the Western District
      of Pennsylvania for a declaratory judgment from the Court that the Company
      has
      no obligation to pay ADA-ES commissions related to the aforementioned contract
      or for any future sales made after August 24, 2007. On November 4, 2008, ADA-ES
      filed its answer and counterclaim denying the Company’s entitlement to a
      declaratory judgment and claiming a commission of $8.25 million.





The
      Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical
      Corporation, which was formed on October 1, 2002. At September 30, 2008, Calgon
      Mitsubishi Chemical Corporation had $11.0 million in borrowings from an
      affiliate of the majority owner of the joint venture. The Company has agreed
      with the joint venture and the lender that, upon request by the lender, the
      Company will execute a guarantee for up to 49% of such borrowings. At September
      30, 2008, the lender had not requested, and the Company has not provided, such
      guarantee.





In
      addition to the matters described above, the Company is involved in various
      other legal proceedings, lawsuits and claims, including employment, product
      warranty and environmental matters of a nature considered normal to its
      business. It is the Company’s policy to accrue for amounts related to these
      legal matters when it is probable that a liability has been incurred and the
      loss amount is reasonably estimable. Management believes that the ultimate
      liabilities, if any, resulting from such lawsuits and claims will not materially
      affect the consolidated financial position or liquidity of the Company, but
      an
      adverse outcome could be material to the results of operations in a particular
      period in which a liability is recognized.


13




9.
            Goodwill
                & Intangible Assets





The
      Company has elected to do the annual impairment test of its goodwill, as
      required by SFAS No. 142, on December 31 of each year or earlier if a potential
      impairment indicator occurs. For purposes of the test, the Company has
      identified reporting units, as defined within SFAS No. 142, at a regional level
      for the Activated Carbon and Service segment and at the technology level for
      the
      Equipment segment and has allocated goodwill to these reporting units
      accordingly. The goodwill associated with the Consumer segment is not material
      and has not been allocated below the segment level.





The
      changes in the carrying amounts of goodwill by segment for the nine month period
      ended September 30, 2008 are as follows:




ActivatedCarbon
                &Service
            
            Equipment
            
            ConsumerSegment
            
            Segment
            
            Segment
            
            TotalBalance
                as of December 31, 2007
            
            $
            21,112
            
            $
            6,673
            
            $
            60
            
            $
            27,845Foreign
                exchange
            
            
            (445
            )
            
            (126
            )
            
            -
            
            
            (571
            )Balance
                as of September 30, 2008
            
            $
            20,667
            
            $
            6,547
            
            $
            60
            
            $
            27,274





The
      following is a summary of the Company’s identifiable intangible assets as of
      September 30, 2008 and December 31, 2007 respectively:





September 30, 2008Weighted Average
            
            Gross Carrying
            
            Foreign
            
            Accumulated
            
            Net CarryingAmortization Period
            
            Amount
            
            Exchange
            
            Amortization
            
            AmountAmortized
                Intangible Assets:Patents
            
            
            15.4
                Years
            
            $
            1,369
            
            $
            -
            
            $
            (940
            )
            $
            429Customer
                Relationships
            
            
            17.0
                Years
            
            
            9,323
            
            
            (80
            )
            
            (5,489
            )
            
            3,754License
                Agreement
            
            
            5.0
                Years
            
            
            500
            
            
            -
            
            
            (491
            )
            
            9Product
                Certification
            
            
            7.9
                Years
            
            
            1,682
            
            
            -
            
            
            (831
            )
            
            851Unpatented
                Technology
            
            
            20.0
                Years
            
            
            2,875
            
            
            -
            
            
            (1,481
            )
            
            1,394Total
            
            
            16.0
                Years
            
            $
            15,749
            
            $
            (80
            )
            $
            (9,232
            )
            $
            6,437






December
                31, 2007Weighted Average
            
            Gross Carrying
            
            Foreign
            
            Accumulated
            
            Net CarryingAmortization Period
            
            Amount
            
            Exchange
            
            Amortization
            
            AmountAmortized
                Intangible Assets:Patents
            
            
            15.4
                Years
            
            $
            1,369
            
            $
            -
            
            $
            (877
            )
            $
            492Customer
                Relationships
            
            
            17.0
                Years
            
            
            9,323
            
            
            30
            
            
            (4,743
            )
            
            4,610License
                Agreement
            
            
            5.0
                Years
            
            
            500
            
            
            -
            
            
            (416
            )
            
            84Product
                Certification
            
            
            7.9
                Years
            
            
            1,682
            
            
            -
            
            
            (625
            )
            
            1,057Unpatented
                Technology
            
            
            20.0
                Years
            
            
            2,875
            
            
            -
            
            
            (1,358
            )
            
            1,517Total
            
            
            16.0
                Years
            
            $
            15,749
            
            $
            30
            
            $
            (8,019
            )
            $
            7,760





For
      the
      three and nine months ended September 30, 2008, the Company recognized $0.4
      million and $1.2 million, respectively, of amortization expense related to
      intangible assets. For the three and nine months ended September 30, 2007,
      the
      Company recognized $0.5 million and $1.4 million, respectively, of amortization
      expense related to intangible assets. The Company estimates amortization expense
      to be recognized during the next five years as follows:





*(Thousands)*For
                the year ending December 31:2008
            
            $
            1,5712009
            
            
            1,2992010
            
            
            1,1552011
            
            
            8472012
            
            
            257




14





10.
            Borrowing
                Arrangements





**5.00%
      Convertible Senior Notes due in 2036**





On
      August
      18, 2006, the Company issued $75.0 million in aggregate principal amount of
      5.00% Notes due in 2036 (the “Notes”). The Notes accrue interest at the rate of
      5.00% per annum which is payable in cash semi-annually in arrears on each
      February 15 and August 15, which commenced February 15, 2007. The Notes will
      mature on August 15, 2036.





The
      Notes
      can be converted under the following circumstances: (1) during any calendar
      quarter (and only during such calendar quarter) commencing after September
      30,
      2006, if the last reported sale price of the Company’s common stock is greater
      than or equal to 120% of the conversion price of the Notes for at least 20
      trading days in the period of 30 consecutive trading days ending on the last
      trading day of the preceding calendar quarter; (2) during the five business
      day
      period after any 10 consecutive trading-day period (the “measurement period”) in
      which the trading price per Note for each day in the measurement period was
      less
      than 103% of the product of the last reported sale price of the Company’s common
      stock and the conversion rate on such day; or (3) upon the occurrence of
      specified corporate transactions described in the Offering Memorandum. On or
      after June 15, 2011, holders may convert their Notes at any time prior to the
      maturity date. Upon conversion, the Company will pay cash and shares of its
      common stock, if any, based on a daily conversion value (as described herein)
      calculated on a proportionate basis for each day of the 25 trading-day
      observation period.





For
      the
      period ended December 31, 2007 and for the quarterly periods ended March 31,
      June 30, and September 30, 2008, respectively, the last reported sale price
      of
      the Company’s common stock was greater than 120% of the conversion price of the
      Notes for at least 20 trading days in the period of 30 consecutive trading
      days
      ending on the last trading day of each of the aforementioned quarterly periods.
      As a result, the holders of the Notes have had the right to convert the Notes
      into cash and shares of common stock throughout 2008. The following table
      represents the conversion and exchange activity that has occurred as of the
      period ended September 30, 2008 and through October 31, 2008:


15





**Date**
            
            **Aggregate**
              **Principal**
              **Amount**
              **Outstanding**
              **Prior to**
              **Transaction**
            
            **Aggregate**
              **Principal**
              **Amount of**
              **Notes**
              **Involved in**
              **Transaction**
            
            **Shares**
              **Issued**
            
            **Cash Paid****1**
            
            **Aggregate**
              **Principal**
              **Amount**
              **Outstanding**
              **after**
              **Transaction**August 20,2008
            
            $
            75,000,000
            
            $
            37,175,000
            
            
            7,289,215
            
            $
            —
            
            $
            37,825,000September
                2, 2008
            
            
            37,825,000
            
            
            7,000,000
            
            
            1,372,549
            
            
            —
            
            
            30,825,000October
                1, 2008
            
            
            30,825,000
            
            
            7,950,000
            
            
            1,151,750
            
            
            7,950,014
            
            
            22,875,000October
                2, 2008
            
            
            22,875,000
            
            
            1,300,000
            
            
            188,320
            
            
            1,300,011
            
            
            21,575,000October
                3, 2008
            
            
            21,575,000
            
            
            1,750,000
            
            
            253,673
            
            
            1,750,007
            
            
            19,825,000October
                22, 2008
            
            
            19,825,000
            
            
            1,000,000
            
            
            196,078
            
            
            —
            
            
            18,825,000October
                23, 2008
            
            
            18,825,000
            
            
            10,625,000
            
            
            2,083,333
            
            
            —
            
            
            8,200,000$
            66,800,000
            
            
            12,534,918**2**
            
            $
            11,000,032





1 Excluding
      any accrued interest paid to an exchanging holder.


2  Includes
      approximately 3 million shares exchanged for principal amount of Notes (in
      lieu
      of cash) due to exchanges. These shares were not previously included in
      the
      Company’s diluted shares for previous quarters.




Due
      to
      the conversion rights of the holders of the Notes, the Company has classified
      the remaining principal amount of outstanding Notes as a current liability
      for
      the period ended September 30, 2008.





The
      initial conversion rate is 196.0784 shares of the Company’s common stock per
      $1,000 principal amount of Notes, equivalent to an initial conversion price
      of
      approximately $5.10 per share of common stock. The conversion rate is subject
      to
      adjustment in some events, including the payment of a dividend on the Company’s
      common stock, but will not be adjusted for accrued interest, including any
      additional interest. In addition, following certain fundamental changes
      (principally related to changes in control) that occur prior to August 15,
      2011,
      the Company will increase the conversion rate for holders who elect to convert
      Notes in connection with such fundamental changes in certain circumstances.
      The
      Company considered EITF 00-27 issue 7 which indicates that if a reset of the
      conversion rate due to a contingent event occurs, the Company would need to
      calculate if there is a beneficial conversion and record if applicable. Through
      September 30, 2008, no contingent events have occurred.





The
      Company may not redeem the Notes before August 20, 2011. On or after that date,
      the Company may redeem all or a portion of the Notes at any time. Any redemption
      of the Notes will be for cash at 100% of the principal amount of the Notes
      to be
      redeemed, plus accrued and unpaid interest, including any additional interest,
      to, but excluding, the redemption date.





Holders
      may require the Company to purchase all or a portion of their Notes on each
      of
      August 15, 2011, August 15, 2016, and August 15, 2026. In addition, if the
      Company experiences specified types of fundamental changes, holders may require
      it to purchase the Notes. Any repurchase of the Notes pursuant to these
      provisions will be for cash at a price equal to 100% of the principal amount
      of
      the Notes to be purchased plus any accrued and unpaid interest, including any
      additional interest, to, but excluding, the purchase date.


16


The
      Notes
      are the Company’s senior unsecured obligations, and rank equally in right of
      payment with all of its other existing and future senior indebtedness. The
      Notes
      are guaranteed by certain of the Company’s domestic subsidiaries on a senior
      unsecured basis. The subsidiary guarantees are general unsecured senior
      obligations of the subsidiary guarantors and rank equally in right of payment
      with all of the existing and future senior indebtedness of the subsidiary
      guarantors. If the Company fails to make payment on the Notes, the subsidiary
      guarantors must make them instead. The Notes are effectively subordinated to
      any
      indebtedness of the Company’s non-guarantor subsidiaries. The Notes are
      effectively junior to all of the Company’s existing and future secured
      indebtedness to the extent of the value of the assets securing such
      indebtedness.





The
      Company sold the Notes to the original purchaser at a discount of $3.3 million
      that is being amortized over a period of five years. The Company also incurred
      original issuance costs of $1.5 million which have been deferred and are being
      amortized over a five year period. The Company reclassified $1.2 million of
      the
      discount and $0.2 million of issuance costs to additional paid in capital as
      a
      result of the aforementioned conversions and exchanges of Notes that occurred
      during the three and nine month periods ended September 30, 2008. The Company
      will continue to amortize the respective remaining balances over the remaining
      five year period or the date of conversion/exchange, if sooner. As of the nine
      month period ended September 30, 2008, the Company recorded interest expense
      of
      $3.0 million related to the Notes, of which $0.4 million related to the
      amortization of the discount.





**Credit
      Facility**





On
      August
      14, 2008, the Company entered into a third amendment to its Credit Facility
      (the
“Third Amendment”). The Third Amendment permits borrowings in an amount up to
      $60.0 million and includes a separate U.K. sub-facility and a separate Belgian
      sub-facility. The Credit Facility permits the total revolving credit commitment
      to be increased up to $75.0 million. The facility matures on May 15, 2011.
      Availability for domestic borrowings under the Credit Facility is based upon
      the
      value of eligible inventory, accounts receivable and property, plant and
      equipment, with separate borrowing bases to be established for foreign
      borrowings under a separate U.K. sub-facility and a separate Belgian
      sub-facility. Availability under the Credit Facility is conditioned upon various
      customary conditions.





The
      Credit Facility is secured by a first perfected security interest in
      substantially all of the Company’s assets, with limitations under certain
      circumstances in the case of capital stock of foreign subsidiaries. Certain
      of
      the Company’s domestic subsidiaries unconditionally guarantee all indebtedness
      and obligations related to domestic borrowings under the Credit Facility. The
      Company and certain of its domestic subsidiaries also unconditionally guarantee
      all indebtedness and obligations under the U.K. sub-facility.




As
      of
      September 30, 2008, the collateral value of assets pledged was
      $57.6 million. The collateral value as of September 30, 2008 for
      domestic, U.K., and Belgian borrowers were $48.4 million,
      $4.8 million, and $4.4 million, respectively. The Credit Facility
      contains a fixed charge coverage ratio covenant which becomes effective when
      total domestic availability falls below $11.0 million. As of
      September 30, 2008, total availability was $41.8 million. Availability
      as of September 30, 2008 for domestic, U.K., and Belgian borrowers was
      $38.7 million, $3.1 million, and zero, respectively. The Company can
      issue letters of credit up to $20 million of the available commitment
      amount under the Credit Facility. Sub-limits for letters of credit under the
      U.K. sub-facility and the Belgian sub-facility are $2.0 million and
      $6.0 million, respectively. Letters of credit outstanding at
      September 30, 2008 totaled $15.8 million.





The
      Credit Facility interest rate is based upon Euro-based (“LIBOR”) rates with
      other interest rate options available. The applicable Euro Dollar margin in
      effect when the Company is in compliance with the terms of the facility ranges
      from 1.50% to 2.50% and is based upon the Company’s overall availability under
      the Credit Facility. The unused commitment fee is equal to 0.375% per annum,
      which can increase to 0.50%, and is based upon the unused portion of the
      revolving commitment.





The
      Credit Facility contains a number of affirmative and negative covenants. For
      the
      period ended September 30, 2008, the last reported sale price of the Company’s
      common stock was greater than 120% of the conversion price of the Notes for
      at
      least 20 trading days in the period of 30 consecutive trading days ended
      September 30, 2008. As a result, as of September 30, 2008, the holders of the
      Notes have the right to convert the Notes into cash and shares of common stock.
      Included in the Credit Facility, is a provision which permits the conversion
      of
      all $75.0 million of the Company’s Notes. The Credit Facility also includes a
      provision for up to $3.0 million of letters of credit under the Company’s U.S.,
      Belgium, and UK sub-limits that can be issued having expiration dates that
      are
      more than one year but not more than three years after the date of issuance.


17


The
      negative covenants provide for certain restrictions on possible acts by the
      Company related to matters such as additional indebtedness, certain liens,
      fundamental changes in the business, certain investments or loans, asset sales
      and other customary requirements. The Company was in compliance with all such
      negative covenants as of September 30, 2008.





**Belgian
      Credit Facility**


The
      Company maintains a Belgian credit facility totaling 4.0 million Euros
      which is secured by a U.S. letter of credit. There are no financial covenants
      and the Company had no outstanding borrowings under the Belgian credit facility
      as of September 30, 2008. Bank guarantees of 0.9 million Euros were
      issued as of September 30, 2008. The maturity date of this facility is
      December 15, 2008. Availability under this facility was 3.1 million
      Euros at September 30, 2008.





**United
      Kingdom Credit Facility**


The
      Company maintains a United Kingdom unsecured bonds, guarantees, and indemnities
      facility totaling 616,000 British Pound Sterling. The bank, in its sole
      discretion, may cancel at any time its commitment to provide this facility.
      Bank
      guarantees of 611,924 British Pound Sterling were issued as of September 30,
      2008.





**Chinese
      Credit Facility**


The
      Company maintains a Chinese credit facility totaling 11.0 million RMB or $1.6
      million which is secured by a U.S. letter of credit provided under the Credit
      Facility. There are no financial covenants. The maturity date of this facility
      is December 26, 2008. The facility was fully utilized at September 30,
      2008.





**Fair
      Value of Debt**


At
      September 30, 2008, the Company had $30.8 million of fixed rate Senior
      Convertible Notes outstanding. The fair value of these Notes at September 30,
      2008 was $123.0 million. The increase in value is mainly due to the increase
      in
      the Company’s common stock price and its impact on the conversion features of
      the Notes. The remaining $2.9 million of current portion of long-term debt
      is
      based on the prime rates, and accordingly, the carrying value of this obligation
      approximates its fair value.





**Maturities
      of Debt**


The
      Company is obligated to make principal payments on debt outstanding at
      September 30, 2008 of $1.6 million in 2008, $2.9 million in 2009, and
      $30.8 million in 2011. See also the section entitled 5.00% Convertible
      Senior Notes due 2036 related to the holders’ optional conversion as of
      September 30, 2008 and December 31, 2007.





11.
            Pensions





U.S.
      Plans :





For
      U.S.
      plans, the following table provides the components of net periodic pension
      costs
      of the plans for the three and nine months ended September 30, 2008 and
      2007:







Three Months Ended September 30
            
            Nine Months Ended September 30Pension Benefits (in thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
                cost
            
            $
            251
            
            $
            247
            
            $
            768
            
            $
            803Interest
                cost
            
            
            1,146
            
            
            1,146
            
            
            3,544
            
            
            3,498Expected
                return on plan assets
            
            
            (1,345
            )
            
            (1,288
            )
            
            (4,041
            )
            
            (3,746
            )Amortization
                of prior service cost
            
            
            13
            
            
            63
            
            
            134
            
            
            186Net
                amortization
            
            
            93
            
            
            75
            
            
            285
            
            
            263Curtailment
                gain
            
            
            (480
            )
            
            -
            
            
            (480
            )
            
            (265
            )Net
                periodic pension cost (benefit)
            
            $
            (322
            )
            $
            243
            
            $
            210
            
            $
            739





The
      expected long-term rate of return on plan assets is 8.00% in 2008.


18


Employer
      Contributions





In
      its
      2007 financial statements, the Company disclosed that it expected to contribute
      $3.7 million to its U.S. pension plans in 2008. As of September 30, 2008, the
      Company has contributed $4.1 million.





Employee
      Relations





On
      July
      21, 2008, the Company settled its disagreements with bargaining unit employees
      at its Neville Island facility located in Pittsburgh, Pennsylvania. The new
      agreement, which expires on July 1, 2011, includes the freezing of the defined
      benefit pension plan for these employees effective January 1, 2009. As a result,
      the Company recorded a curtailment gain of $0.5 million for the three and nine
      months ended September 30, 2008.





European
      Plans :





For
      European plans, the following table provides the components of net periodic
      pension costs of the plans for the three and nine months ended September 30,
      2008 and 2007:





Three Months Ended September 30
            
            Nine Months Ended September 30Pension
                Benefits (in thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
                cost
            
            $
            203
            
            $
            185
            
            $
            609
            
            $
            555Interest
                cost
            
            
            514
            
            
            434
            
            
            1,542
            
            
            1,302Expected
                return on plan assets
            
            
            (387
            )
            
            (324
            )
            
            (1,161
            )
            
            (972
            )Amortization
                of prior service cost
            
            
            12
            
            
            11
            
            
            36
            
            
            33Net
                amortization
            
            
            8
            
            
            25
            
            
            24
            
            
            76Net
                periodic pension cost
            
            $
            350
            
            $
            331
            
            $
            1,050
            
            $
            994





The
      expected long-term rate of return on plan assets ranges from 5.00% to 6.90%
      in
      2008.





Employer
      Contributions





In
      its
      2007 financial statements, the Company disclosed that it expected to contribute
      $2.5 million to its European pension plans in 2008. As of September 30, 2008,
      the Company contributed $1.5 million. The Company expects to contribute the
      remaining $0.7 million over the remainder of the year.





Defined
      Contribution Plans





The
      Company also sponsors a defined contribution pension plan for certain U.S.
      employees that permits employee contributions of up to 50% of eligible
      compensation in accordance with Internal Revenue Service guidance. Under this
      defined contribution plan, the Company makes a fixed contribution of 2% of
      eligible employee compensation on a quarterly basis and matches contributions
      made by each participant in an amount equal to 100% of the employee contribution
      up to a maximum of 2% of employee compensation. In addition, each of these
      employees is eligible for an additional discretionary Company contribution
      of up
      to 4% of employee compensation based upon annual Company performance at the
      discretion of the Company’s Board of Directors. Employer matching contributions
      for non-represented employees vest after two years of service. For bargaining
      unit employees at the Catlettsburg, Kentucky facility, the Company contributes
      a
      maximum of $25.00 per month to the plan. For bargaining unit employees at the
      Columbus, Ohio facility, the Company began making contributions to the USW
      401(k) Plan of $1.15 per actual hour worked for eligible employees when their
      former Barnebey Sutcliffe Employee USWA Local 23.08 401(k) Plan was discontinued
      and their defined benefit pension plan was frozen effective April 30, 2007.
      The
      Company realized a $0.3 million curtailment gain as a result of freezing the
      aforementioned plan. For bargaining unit employees at the Neville Island
      facility, the Company, effective January 1, 2009, will begin making
      contributions of $1.40 per actual hour worked to the defined contribution
      pension plan (Thrift/Savings Plan) for eligible employees when their defined
      benefit pension plan is frozen. Employer matching contributions for bargaining
      unit employees vest immediately. Total expenses related to the defined
      contribution plans were $0.5 million and $0.6 million for the three months
      ended
      September 30, 2008 and 2007, respectively and $1.6 million and $1.4 million
      for
      the nine months ended September 30, 2008 and 2007,
      respectively.


19





12. Earnings
      Per Share





Computation
      of basic and diluted net income per common share from continuing operations
      is
      performed as follows:


Three Months Ended September 30,
              
              Nine Months Ended September 30,*(Dollars
                  in thousands, except per share amounts)*
              
              2008
              
              2007
              
              2008
              
              2007Income
                  from continuing operations available to common
                  shareholders
              
              $
              6,536
              
              $
              5,044
              
              $
              27,227
              
              $
              11,540Income
                  (loss) from discontinued operations available to common
                  shareholders
              
              
              (211
              )
              
              (96
              )
              
              3,236
              
              
              (96
              )Net
                  income available to common shareholders
              
              $
              6,325
              
              $
              4,948
              
              $
              30,463
              
              $
              11,444Weighted
                  Average Shares OutstandingBasic
              
              
              44,624,502
              
              
              40,357,325
              
              
              41,818,152
              
              
              40,289,260Effect
                  of Dilutive Securities
              
              
              9,173,233
              
              
              10,000,854
              
              
              10,717,931
              
              
              7,035,183Diluted
              
              
              53,797,735
              
              
              50,358,179
              
              
              52,536,083
              
              
              47,324,443Net
                  income per common shareBasic:Income
                  from continuing operations
              
              $
              .15
              
              $
              .12
              
              $
              .65
              
              $
              .28Income
                  (loss) from discontinued operations
              
              
              -
              
              
              -
              
              
              .08
              
              
              -Total
              
              $
              .15
              
              $
              .12
              
              $
              .73
              
              $
              .28Diluted:Income
                  from continuing operations
              
              $
              .12
              
              $
              .10
              
              $
              .52
              
              $
              .24Income
                  (loss) from discontinued operations
              
              
              -
              
              
              -
              
              
              .06
              
              
              -Total
              
              $
              .12
              
              $
              .10
              
              $
              .58
              
              $
              .24





The
      stock
      options that were excluded from the dilutive calculations as the effect would
      have been antidilutive were zero and 6,100 for the three months ended September
      30, 2008 and 2007, respectively, and 80,625 and 6,100 for the nine months ended
      September 30, 2008 and 2007, respectively.





The
      Company’s obligation under its Notes is to settle the par value of the Notes in
      cash and to settle the amount in excess of par value in its common shares.
      Therefore, the Company is not required to include any shares underlying the
      Notes in its diluted weighted average shares outstanding until the average
      stock
      price per share for the quarter exceeds the $5.10 conversion price. At such
      time, only the number of shares that would be issuable (under the “treasury
      stock” method of accounting for share dilution) will be included, which is based
      upon the amount by which the average stock price exceeds the conversion price.
      For the first $0.50 per share that the Company’s average stock price exceeds the
      $5.10 conversion price of the Notes, it will include approximately 1,300,000
      additional shares in its diluted share count. For the second $0.50 per share
      that the Company’s average stock price exceeds the $5.10 conversion price, it
      will include approximately 1,100,000 additional shares, for a total of
      approximately 2,400,000 shares in its diluted share count, and so on, with
      the
      additional shares’ dilution decreasing for each $1 per share that the Company’s
      average stock price exceeds $5.10 if the stock price rises further above $5.10
      (see table below). As of September 30, 2008, the average stock price for the
      90-day trading period was $18.15, which was higher than the conversion price
      of
      $5.10, therefore, 7,948,865 shares were included in the dilutive share
      calculation for the period of time the Notes were outstanding for the period
      ended September 30, 2008.


20


**"Treasury
      Stock" Method of Accounting for Share Dilution**


**Conversion
                Price:**
            
            $
            5.10**Number
                of underlying shares:**
            
            
            6,044,117**Principal
                Amount:**
            
            $
            30,825,000





**Formula:**
            Number
                of extra dilutive shares created=((Stock
                Price * Underlying Shares) - Principal)/Stock Price**Condition:**
            Only
                applies when share price exceeds $5.10





Share DilutionIncluded
                in
            
            Per $1.00
              ShareStock
              Price
            
            Conversion
              Price
            
            Price
              Difference
            
            Share
              Count
            
            Price
              Difference$      5.10
            
            $
            5.10
            
            $
            0.00
            
            
            -
            
            
            -$      5.60
            
            $
            5.10
            
            $
            0.50
            
            
            539,653
            
            
            1,079,306$      6.10
            
            $
            5.10
            
            $
            1.00
            
            
            990,838
            
            
            990,838$      7.10
            
            $
            5.10
            
            $
            2.00
            
            
            1,702,568
            
            
            851,284$      8.10
            
            $
            5.10
            
            $
            3.00
            
            
            2,238,561
            
            
            746,187$      9.10
            
            $
            5.10
            
            $
            4.00
            
            
            2,656,754
            
            
            664,189$    10.10
            
            $
            5.10
            
            $
            5.00
            
            
            2,992,137
            
            
            598,427$    11.10
            
            $
            5.10
            
            $
            6.00
            
            
            3,267,090
            
            
            544,515$    12.10
            
            $
            5.10
            
            $
            7.00
            
            
            3,496,596
            
            
            499,514$    13.10
            
            $
            5.10
            
            $
            8.00
            
            
            3,691,064
            
            
            461,383$    14.10
            
            $
            5.10
            
            $
            9.00
            
            
            3,857,947
            
            
            428,661$    15.10
            
            $
            5.10
            
            $
            10.00
            
            
            4,002,726
            
            
            400,273$    16.10
            
            $
            5.10
            
            $
            11.00
            
            
            4,129,521
            
            
            375,411$    17.10
            
            $
            5.10
            
            $
            12.00
            
            
            4,241,485
            
            
            353,457$    18.10
            
            $
            5.10
            
            $
            13.00
            
            
            4,341,078
            
            
            333,929$    19.10
            
            $
            5.10
            
            $
            14.00
            
            
            4,430,243
            
            
            316,446$    20.10
            
            $
            5.10
            
            $
            15.00
            
            
            4,510,535
            
            
            300,702


21


13.
            Other
                Financial Information





As
      described in Note 10, the Company had issued $75.0 million in aggregate
      principal amount of 5.00% Convertible Senior Notes due in 2036. The Notes are
      fully and unconditionally guaranteed by certain of our domestic subsidiaries
      on
      a senior unsecured basis. All of the subsidiary guarantors are 100% owned by
      the
      parent company and the guarantees are joint and several. The Subsidiary
      Guarantees are general unsecured senior obligations of the Subsidiary Guarantors
      and rank equally in right of payment with all of the existing and future senior
      indebtedness of the Subsidiary Guarantors. If the Company fails to make payment
      on the Notes, the Subsidiary Guarantors must make them instead. The Notes are
      effectively subordinated to any indebtedness of the Company’s non-guarantor
      subsidiaries. The Notes are effectively junior to all of the Company’s existing
      and future secured indebtedness to the extent of the value of the assets
      securing such indebtedness.





Condensed
      consolidating unaudited financial information for Calgon Carbon Corporation
      (issuer); Calgon Carbon Investments Inc., Chemviron Carbon Ltd., Waterlink
      (UK)
      Holdings Ltd., Sutcliffe Speakman Ltd., Lakeland Processing Ltd., Charcoal
      Cloth
      (International) Ltd., BSC Columbus LLC, and CCC Columbus LLC (guarantor
      subsidiaries); and the non-guarantor subsidiaries are as follows:


Condensed Consolidating Statements of Operations
              Three months ended September 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            94,802
            
            $
            11,686
            
            $
            15,483
            
            $
            (22,902
            )
            $
            99,069Cost
                of products sold
            
            
            66,681
            
            
            9,834
            
            
            11,848
            
            
            (22,902
            )
            
            65,641Depreciation
                and amortization
            
            
            3,455
            
            
            400
            
            
            181
            
            
            -
            
            
            4,036Selling,
                general and administrative expenses
            
            
            14,010
            
            
            1,255
            
            
            1,021
            
            
            -
            
            
            16,286Research
                and development expense
            
            
            940
            
            
            85
            
            
            -
            
            
            -
            
            
            1,025Interest
                (income) expense – net
            
            
            4,133
            
            
            (3,333
            )
            
            (218
            )
            
            -
            
            
            582Other
                expense – net
            
            
            860
            
            
            (19
            )
            
            316
            
            
            -
            
            
            1,157Provision
                for income taxes
            
            
            3,386
            
            
            10
            
            
            628
            
            
            -
            
            
            4,024Results
                of affiliates’ operations
            
            
            4,988
            
            
            (543
            )
            
            -
            
            
            (4,445
            )
            
            -Equity
                in income from equity investments
            
            
            -
            
            
            -
            
            
            38
            
            
            -
            
            
            38Income
                (loss) from continuing operations
            
            
            6,325
            
            
            2,911
            
            
            1,745
            
            
            (4,445
            )
            
            6,536Loss
                from discontinued operations
            
            
            -
            
            
            -
            
            
            (211
            )
            
            -
            
            
            (211
            )Net
                income (loss)
            
            $
            6,325
            
            $
            2,911
            
            $
            1,534
            
            $
            (4,445
            )
            $
            6,325





Condensed
                Consolidating Statements of Operations
              Nine
                months ended September 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            278,257
            
            $
            35,575
            
            $
            40,471
            
            $
            (56,717
            )
            $
            297,876Cost
                of products sold
            
            
            194,365
            
            
            27,681
            
            
            32,918
            
            
            (56,717
            )
            
            198,247Depreciation
                and amortization
            
            
            10,378
            
            
            1,232
            
            
            551
            
            
            -
            
            
            12,161Selling,
                general and administrative expenses
            
            
            40,639
            
            
            3,865
            
            
            3,133
            
            
            -
            
            
            47,637Research
                and development expense
            
            
            2,815
            
            
            304
            
            
            -
            
            
            -
            
            
            3,119Gain
                on AST Settlement
            
            
            (9,250
            )
            
            -
            
            
            -
            
            
            -
            
            
            (9,250
            )Interest
                (income) expense – net
            
            
            13,021
            
            
            (10,171
            )
            
            (650
            )
            
            -
            
            
            2,200Other
                expense – net
            
            
            787
            
            
            424
            
            
            516
            
            
            -
            
            
            1,727Provision
                for income taxes
            
            
            13,593
            
            
            475
            
            
            1,077
            
            
            -
            
            
            15,145Results
                of affiliates’ operations
            
            
            18,554
            
            
            921
            
            
            -
            
            
            (19,475
            )
            
            -Equity
                in income from equity investments
            
            
            -
            
            
            -
            
            
            337
            
            
            -
            
            
            337Income
                (loss) from continuing operations
            
            
            30,463
            
            
            12,686
            
            
            3,553
            
            
            (19,475
            )
            
            30,463Income
                from discontinued operations
            
            
            -
            
            
            -
            
            
            3,236
            
            
            -
            
            
            3,236Net
                income (loss)
            
            $
            30,463
            
            $
            12,686
            
            $
            6,789
            
            $
            (19,475
            )
            $
            30,463


22




Condensed
                Consolidating Statements of Operations
              Three
                months ended September 30, 2007Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            73,534
            
            $
            11,731
            
            $
            8,805
            
            $
            (9,209
            )
            $
            84,861Cost
                of products sold
            
            
            52,776
            
            
            8,486
            
            
            5,589
            
            
            (9,209
            )
            
            57,642Depreciation
                and amortization
            
            
            3,561
            
            
            276
            
            
            590
            
            
            -
            
            
            4,427Selling,
                general and administrative expenses
            
            
            12,839
            
            
            1,388
            
            
            1,079
            
            
            -
            
            
            15,306Research
                and development expense
            
            
            873
            
            
            92
            
            
            1
            
            
            -
            
            
            966Interest
                (income) expense – net
            
            
            5,277
            
            
            (4,052
            )
            
            (317
            )
            
            -
            
            
            908Other
                expense – net
            
            
            161
            
            
            515
            
            
            (194
            )
            
            -
            
            
            482Provision
                (benefit) for income taxes
            
            
            (1,075
            )
            
            211
            
            
            1,260
            
            
            -
            
            
            396Results
                of affiliates’ operations
            
            
            5,781
            
            
            (163
            )
            
            -
            
            
            (5,618
            )
            
            -Equity
                income (loss) from equity investments
            
            
            -
            
            
            -
            
            
            311
            
            
            (1
            )
            
            310Income
                (loss) from continuing operations
            
            
            4,903
            
            
            4,652
            
            
            1,108
            
            
            (5,619
            )
            
            5,044Income
                (loss) from discontinued operations
            
            
            45
            
            
            (141
            )
            
            -
            
            
            -
            
            
            (96
            )Net
                income (loss)
            
            $
            4,948
            
            $
            4,511
            
            $
            1,108
            
            $
            (5,619
            )
            $
            4,948





Condensed
                Consolidating Statements of Operations
              Nine
                months ended September 30, 2007Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            220,765
            
            $
            34,822
            
            $
            36,576
            
            $
            (35,844
            )
            $
            256,319Cost
                of products sold
            
            
            158,338
            
            
            26,330
            
            
            26,798
            
            
            (35,844
            )
            
            175,622Depreciation
                and amortization
            
            
            10,475
            
            
            821
            
            
            1,723
            
            
            -
            
            
            13,019Selling,
                general and administrative expenses
            
            
            38,046
            
            
            4,012
            
            
            2,863
            
            
            -
            
            
            44,921Research
                and development expense
            
            
            2,424
            
            
            277
            
            
            -
            
            
            -
            
            
            2,701Interest
                (income) expense – net
            
            
            15,783
            
            
            (11,932
            )
            
            (785
            )
            
            -
            
            
            3,066Other
                expense – net
            
            
            859
            
            
            1,008
            
            
            (574
            )
            
            -
            
            
            1,293Provision
                for income taxes
            
            
            3,300
            
            
            889
            
            
            1,734
            
            
            -
            
            
            5,923Results
                of affiliates’ operations
            
            
            19,859
            
            
            2,017
            
            
            -
            
            
            (21,876
            )
            
            -Equity
                in income from equity investments
            
            
            -
            
            
            -
            
            
            1,766
            
            
            -
            
            
            1,766Income
                (loss) from continuing operations
            
            
            11,399
            
            
            15,434
            
            
            6,583
            
            
            (21,876
            )
            
            11,540Income
                from (loss) discontinued operations
            
            
            45
            
            
            (141
            )
            
            -
            
            
            -
            
            
            (96
            )Net
                income (loss)
            
            $
            11,444
            
            $
            15,293
            
            $
            6,583
            
            $
            (21,876
            )
            $
            11,444


23





Condensed
      Consolidating Balance Sheets


September
      30, 2008





Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedCash
                and cash equivalents
            
            $
            23,774
            
            $
            3,059
            
            $
            21,570
            
            $
            (11,140
            )
            $
            37,263Receivables
            
            
            52,732
            
            
            13,227
            
            
            4,706
            
            
            (7,529
            )
            
            63,136Inventories
            
            
            72,909
            
            
            7,778
            
            
            7,636
            
            
            61
            
            
            88,384Other
                current assets
            
            
            19,564
            
            
            1,721
            
            
            3,796
            
            
            -
            
            
            25,081Total
                current assets
            
            
            168,979
            
            
            25,785
            
            
            37,708
            
            
            (18,608
            )
            
            213,864Intercompany
                accounts receivable
            
            
            55,580
            
            
            189,122
            
            
            4,732
            
            
            (249,434
            )
            
            -Property,
                plant, and equipment, net
            
            
            99,398
            
            
            6,920
            
            
            8,022
            
            
            -
            
            
            114,340Intangibles
            
            
            3,742
            
            
            2,695
            
            
            -
            
            
            -
            
            
            6,437Goodwill
            
            
            16,674
            
            
            7,892
            
            
            2,708
            
            
            -
            
            
            27,274Equity
                investments
            
            
            262,957
            
            
            101,975
            
            
            9,845
            
            
            (365,889
            )
            
            8,888Other
                assets
            
            
            3,650
            
            
            1,125
            
            
            4,618
            
            
            -
            
            
            9,393Total
                assets
            
            $
            610,980
            
            $
            335,514
            
            $
            67,633
            
            $
            (633,931
            )
            $
            380,196Short-term
                debt
            
            $
            -
            
            $
            -
            
            $
            1,606
            
            $
            -
            
            $
            1,606Current
                portion of long-term debt
            
            
            32,919
            
            
            -
            
            
            -
            
            
            -
            
            
            32,919Accounts
                payable
            
            
            35,023
            
            
            17,434
            
            
            3,072
            
            
            (12,116
            )
            
            43,413Other
                current liabilities
            
            
            21,886
            
            
            690
            
            
            1,154
            
            
            (12,834
            )
            
            10,896Total
                current liabilities
            
            
            89,828
            
            
            18,124
            
            
            5,832
            
            
            (24,950
            )
            
            88,834Intercompany
                accounts payable
            
            
            179,575
            
            
            50,317
            
            
            13,247
            
            
            (243,139
            )
            
            -Other
                non-current liabilities
            
            
            89,640
            
            
            7,989
            
            
            10,017
            
            
            (68,221
            )
            
            39,425Shareholders'
                equity
            
            
            251,937
            
            
            259,084
            
            
            38,537
            
            
            (297,621
            )
            
            251,937Total
                liabilities and shareholders' equity
            
            $
            610,980
            
            $
            335,514
            
            $
            67,633
            
            $
            (633,931
            )
            $
            380,196


24





Condensed
      Consolidating Balance Sheets


December
      31, 2007





Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedCash
                and cash equivalents
            
            $
            20,802
            
            $
            3,683
            
            $
            25,930
            
            $
            (20,111
            )
            $
            30,304Receivables
            
            
            47,184
            
            
            15,259
            
            
            5,004
            
            
            (9,899
            )
            
            57,548Inventories
            
            
            67,501
            
            
            8,221
            
            
            5,525
            
            
            33
            
            
            81,280Other
                current assets
            
            
            18,015
            
            
            1,334
            
            
            1,197
            
            
            -
            
            
            20,546Total
                current assets
            
            
            153,502
            
            
            28,497
            
            
            37,656
            
            
            (29,977
            )
            
            189,678Intercompany
                accounts receivable
            
            
            57,071
            
            
            175,462
            
            
            2,138
            
            
            (234,671
            )
            
            -Property,
                plant, and equipment, net
            
            
            90,435
            
            
            7,263
            
            
            7,814
            
            
            -
            
            
            105,512Intangibles
            
            
            4,586
            
            
            3,174
            
            
            -
            
            
            -
            
            
            7,760Goodwill
            
            
            16,674
            
            
            8,337
            
            
            2,834
            
            
            -
            
            
            27,845Equity
                investments
            
            
            246,633
            
            
            102,187
            
            
            9,151
            
            
            (349,378
            )
            
            8,593Other
                assets
            
            
            4,908
            
            
            1,313
            
            
            2,531
            
            
            -
            
            
            8,752Total
                assets
            
            $
            573,809
            
            $
            326,233
            
            $
            62,124
            
            $
            (614,026
            )
            $
            348,140Short-term
                debt
            
            $
            -
            
            $
            -
            
            $
            1,504
            
            $
            -
            
            $
            1,504Current
                portion of long-term debt
            
            
            62,507
            
            
            -
            
            
            -
            
            
            -
            
            
            62,507Accounts
                payable
            
            
            33,424
            
            
            19,914
            
            
            3,417
            
            
            (13,592
            )
            
            43,163Other
                current liabilities
            
            
            33,219
            
            
            299
            
            
            2,592
            
            
            (23,523
            )
            
            12,587Total
                current liabilities
            
            
            129,150
            
            
            20,213
            
            
            7,513
            
            
            (37,115
            )
            
            119,761Intercompany
                accounts payable
            
            
            168,342
            
            
            48,144
            
            
            11,079
            
            
            (227,565
            )
            
            -Long-term
                debt
            
            
            12,925
            
            
            -
            
            
            -
            
            
            -
            
            
            12,925Other
                non-current liabilities
            
            
            91,143
            
            
            8,782
            
            
            11,350
            
            
            (68,070
            )
            
            43,205Shareholders'
                equity
            
            
            172,249
            
            
            249,094
            
            
            32,182
            
            
            (281,276
            )
            
            172,249Total
                liabilities and shareholders' equity
            
            $
            573,809
            
            $
            326,233
            
            $
            62,124
            
            $
            (614,026
            )
            $
            348,140


25





Condensed
      Consolidating Statements of Cash Flows


Nine
      months ended September 30, 2008





Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                cash provided by (used in) operating activities
            
            $
            11,203
            
            $
            13,177
            
            $
            (2,004
            )
            $
            1,528
            
            $
            23,904Investing
                activities:Property,
                plant and equipment expenditures
            
            
            (19,248
            )
            
            (1,036
            )
            
            (357
            )
            
            -
            
            
            (20,641
            )Investment
                (in) from affiliates
            
            
            -
            
            
            1,092
            
            
            (1,092
            )
            
            -
            
            
            -Other
            
            
            404
            
            
            176
            
            
            -
            
            
            -
            
            
            580Net
                cash (used in) provided by investing activities
            
            
            (18,844
            )
            
            232
            
            
            (1,449
            )
            
            -
            
            
            (20,061
            )Financing
                activities:Net
                borrowings (repayments)
            
            
            (8,971
            )
            
            -
            
            
            -
            
            
            8,971
            
            
            -Intercompany
                and equity transactions
            
            
            12,705
            
            
            (11,484
            )
            
            (1,221
            )
            
            -
            
            
            -Other
            
            
            3,842
            
            
            -
            
            
            -
            
            
            -
            
            
            3,842Excess
                tax benefit for stock-based compensation
            
            
            1,958
            
            
            -
            
            
            -
            
            
            -
            
            
            1,958Net
                cash provided by (used in) financing activities
            
            
            9,534
            
            
            (11,484
            )
            
            (1,221
            )
            
            8,971
            
            
            5,800Effect
                of exchange rate changes on cash and cash equivalents
            
            
            1,079
            
            
            (2,549
            )
            
            314
            
            
            (1,528
            )
            
            (2,684
            )Increase
                (decrease) in cash and cash equivalents
            
            
            2,972
            
            
            (624
            )
            
            (4,360
            )
            
            8,971
            
            
            6,959Cash
                and cash equivalents, beginning of period
            
            
            20,802
            
            
            3,683
            
            
            25,930
            
            
            (20,111
            )
            
            30,304Cash
                and cash equivalents, end of period
            
            $
            23,774
            
            $
            3,059
            
            $
            21,570
            
            $
            (11,140
            )
            $
            37,263





Condensed
      Consolidating Statements of Cash Flows


Nine
      months ended September 30, 2007





Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                cash (used in) provided by operating activities
            
            $
            (6,724
            )
            $
            14,754
            
            $
            7,632
            
            $
            1,227
            
            $
            16,889Investing
                activities:Property,
                plant and equipment expenditures
            
            
            (6,584
            )
            
            (750
            )
            
            (305
            )
            
            -
            
            
            (7,639
            )Investment
                (in) from affiliates
            
            
            -
            
            
            (450
            )
            
            450
            
            
            -
            
            
            -Other
            
            
            187
            
            
            -
            
            
            -
            
            
            -
            
            
            187Net
                cash (used in) provided by investing activities
            
            
            (6,397
            )
            
            (1,200
            )
            
            145
            
            
            -
            
            
            (7,452
            )Financing
                activities:Net
                borrowings (repayments)
            
            
            5,576
            
            
            -
            
            
            1,458
            
            
            (5,127
            )
            
            1,907Intercompany
                and equity transactions
            
            
            18,191
            
            
            (13,573
            )
            
            (5,512
            )
            
            894
            
            
            -Other
            
            
            1,056
            
            
            -
            
            
            -
            
            
            -
            
            
            1,056Net
                cash provided by (used in) financing activities
            
            
            24,823
            
            
            (13,573
            )
            
            (4,054
            )
            
            (4,233
            )
            
            2,963Effect
                of exchange rate changes on cash and cash equivalents
            
            
            1,281
            
            
            372
            
            
            914
            
            
            (1,227
            )
            
            1,340Increase
                (decrease) in cash and cash equivalents
            
            
            12,982
            
            
            354
            
            
            4,637
            
            
            (4,233
            )
            
            13,740Cash
                and cash equivalents, beginning of period
            
            
            -
            
            
            2,507
            
            
            19,556
            
            
            (16,432
            )
            
            5,631Cash
                and cash equivalents, end of period
            
            $
            12,982
            
            $
            2,861
            
            $
            24,193
            
            $
            (20,665
            )
            $
            19,371


26





14.
            Related
                Party Transactions





Net
      sales
      to related parties and receivables from related parties primarily reflect sales
      of activated carbon products to equity investees. Generally, transactions are
      conducted under long-term contractual arrangements. Related party sales
      transactions were $2.3 million and $2.9 million for the three months ended
      September 30, 2008 and 2007, respectively, and $7.4 million and $6.7 million
      for
      the nine months ended September 30, 2008 and 2007, respectively. Receivables
      from equity investees amounted to $1.8 million and $2.4 million at September
      30,
      2008 and December 31, 2007, respectively. The Company’s equity investees are
      included in the Activated Carbon and Service segment.





15.
            Income
                Taxes





On
      January 1, 2007, the Company adopted the provisions of Financial Accounting
      Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes". FIN 48 clarifies the accounting for uncertainty
      in
      income taxes recognized in an enterprise’s financial statements and prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. As a result of the adoption of FIN 48 and recognition of the
      cumulative effect of adoption of a new accounting principle, the Company
      recorded a $5.7 million increase in the gross unrecognized income tax benefits
      and a decrease in retained earnings of $4.3 million. In conjunction with the
      adoption of FIN 48, the Company has classified uncertain tax positions as
      non-current income tax liabilities unless the amount is expected to be paid
      within one year.





As
      of
      September 30, 2008 and December 31, 2007, the Company’s gross unrecognized
      income tax benefits were $11.0 million and $12.0 million, respectively. If
      recognized, $10.0 million of the gross unrecognized tax benefits would
      have affected the effective tax rate at September 30, 2008 and December 31,
      2007, respectively.





The
      Company estimates that approximately $4.3 million of unrecognized tax benefits
      will be realized in the next twelve months. The reversals would result from
      the
      lapse of the statute of limitations in various tax jurisdictions in which the
      Company operates.


27





16.
            Fair
                Value Measurements





Effective
      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,”
for all financial instruments accounted for at fair value on a recurring and
      non-recurring basis. In February 2008, the FASB issued FASB Staff Position
      No.
      157-2 providing for a one year deferral of the provisions of SFAS No. 157 for
      non-financial assets and liabilities which are recognized or disclosed at fair
      value in the consolidated financial statements on a non-recurring basis. The
      Company is currently evaluating the impact of the provisions of SFAS No. 157
      on
      its non-financial assets and liabilities. SFAS No.157 defines fair value,
      establishes a framework for measuring fair value, and expands disclosures about
      fair value measurements. The fair value hierarchy for disclosure of fair value
      measurements under SFAS No. 157 is as follows:





·
            **Level
                1 -**Quoted
                prices (unadjusted) in active markets for identical assets or
                liabilities;


·
            **Level
                2**-Inputs,
                other than the quoted prices in active markets, that are observable
                either
                directly or indirectly; and


·
            **Level
                3**-Unobservable
                inputs that reflect the reporting entity’s own
                assumptions.





The
      following table summarizes assets and liabilities measured at fair value on
      a
      recurring basis at September 30, 2008, as required by SFAS No. 157:





(Thousands)
            
            Level
                1
            
            Level
                2
            
            Level
                3**Assets**Natural
                gas derivatives
            
            $
            -
            
            $
            33
            
            $
            -Financial
                derivatives
            
            
            -
            
            
            993
            
            
            -**Liabilities**Natural
                gas derivatives
            
            $
            -
            
            $
            430
            
            $
            -Financial
                derivatives
            
            
            -
            
            
            167
            
            
            -





The
      Company’s corporate and foreign subsidiaries use foreign currency forward
      exchange contracts, foreign currency option contracts, and a foreign currency
      swap to limit the exposure of exchange rate fluctuations on certain foreign
      currency receivables, payables, and other known and forecasted transactional
      exposures for periods consistent with the expected cash flow of the underlying
      transactions. The contracts generally mature within eighteen months and are
      designed to limit exposure to exchange rate fluctuations. The Company uses
      cash
      flow hedges to limit the exposure to changes in natural gas prices. The
      contracts generally mature within one to thirty-six months.





17.
            New
                Accounting Pronouncements





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS No.141(R)”), which replaces SFAS No. 141, “Business
      Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS
      No. 141 in that all business combinations are still required to be
      accounted for at fair value under the acquisition method of accounting, but
      SFAS
      No. 141(R) changes the method of applying the acquisition method in a
      number of significant aspects. Acquisition costs will generally be expensed
      as
      incurred; noncontrolling interests will be valued at fair value at the
      acquisition date; in-process research and development will be recorded at fair
      value as an indefinite-lived intangible asset at the acquisition date;
      restructuring costs associated with a business combination will generally be
      expensed subsequent to the acquisition date; and changes in deferred tax asset
      valuation allowances and income tax uncertainties after the acquisition date
      generally will affect income tax expense. SFAS No. 141(R) is effective on a
      prospective basis for all business combinations for which the acquisition date
      is on or after the beginning of the first annual period subsequent to
      December 15, 2008, with an exception related to the accounting for
      valuation allowances on deferred taxes and acquired tax contingencies related
      to
      acquisitions completed before the effective date. SFAS No. 141(R) amends
      SFAS No. 109 to require adjustments, made after the effective date of this
      statement, to valuation allowances for acquired deferred tax assets and income
      tax positions to be recognized as income tax expense. Beginning January 1,
      2009,
      the Company will apply the provisions of SFAS No. 141(R) to its accounting
      for
      applicable business combinations.


28





In
      December 2007, the FASB issued SFAS No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160
      changes the classification of noncontrolling (minority) interests on the
      balance sheet and the accounting for and reporting of transactions between
      the
      reporting entity and holders of such noncontrolling interests. Under the new
      standard, noncontrolling interests are considered equity and are to be reported
      as an element of stockholders’ equity rather than outside of equity in the
      balance sheet. In addition, the current practice of reporting minority interest
      expense or benefit also will change. Under the new standard, net income will
      encompass the total income before minority interest expense. The statement
      of
      operations will include separate disclosure of the attribution of income between
      the controlling and noncontrolling interests. Increases and decreases in the
      noncontrolling ownership interest amount are accounted for as equity
      transactions. SFAS No. 160 is effective for fiscal years beginning after
      December 15, 2008 and earlier application is prohibited. Upon adoption, the
      balance sheet and the statement of operations should be recast retrospectively
      for the presentation of noncontrolling interests. The other accounting
      provisions of the statement are required to be adopted prospectively. The
      Company will adopt SFAS No. 160 as required and expects that the adoption will
      not have a material impact on its financial position or results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities,” which changes the disclosure requirements for
      derivative instruments and hedging activities. SFAS No. 161 requires enhanced
      disclosures about (a) how and why an entity uses derivative instruments, (b)
      how
      derivative instruments and related hedging items are accounted for under SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its
      related interpretations, and (c) how derivative instruments and related hedged
      items affect an entity’s financial position, financial performance, and cash
      flows. This statement’s disclosure requirements are effective for fiscal years
      and interim periods beginning after November 15, 2008. The Company is currently
      evaluating the effects that SFAS No. 161 may have on its consolidated financial
      statement disclosures.





In
      May
      2008, the FASB issued Financial Accounting Standard SFAS No. 162, “The
      Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). Under
      SFAS No. 162, the GAAP hierarchy will now reside in the accounting literature
      established by the FASB. SFAS No. 162 identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of financial statements in conformity with GAAP. SFAS No. 162 is
      effective 60 days following the SEC’s approval of the Public Company Accounting
      Oversight Board Auditing amendments to AU Section 411, “The Meaning of
      Present Fairly in Conformity with Generally Accepted Accounting Principles.” The
      adoption of SFAS No. 162 is not expected to have a material impact on the
      Company’s consolidated financial position and results of operations.





In
      May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for
      Convertible Debt Instruments That May Be Settled in Cash upon Conversion
      (Including Partial Cash Settlement).” APB 14-1 requires the issuer to separately
      account for the liability and equity components of convertible debt instruments
      in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The
      guidance will result in companies recognizing higher interest expense in the
      statement of operations due to amortization of the discount that results from
      separating the liability and equity components. APB 14-1 is effective for
      financial statements issued for fiscal years beginning after December 15,
      2008, and interim periods within those fiscal years. The Company is currently
      evaluating the impact of adopting APB 14-1 on its consolidated financial
      statements.


29


Item
      2 .  Management’s
      Discussion and Analysis of Results of Operations and Financial
      Condition





This
      discussion should be read in connection with the information contained in the
      Unaudited Condensed Consolidated Financial Statements and Notes to the Unaudited
      Condensed Financial Statements.





Results
      of Operations





**Continuing
      Operations**





Consolidated
      net sales increased by $14.2 million or 16.7% and $41.6 million or 16.2% for
      the
      quarter and year-to-date periods ended September 30, 2008, respectively, versus
      the quarter and year-to-date periods ended September 30, 2007. Net sales for
      the
      Activated Carbon and Service segment for the quarter and year-to-date periods
      ended September 30, 2008 increased $12.9 million or 17.8% and $41.7 million
      or
      19.3%, respectively, versus the comparable 2007 periods. The increase for the
      quarter and year-to-date periods ended September 30, 2008 was primarily due
      to
      higher demand and higher average pricing in the environmental water treatment,
      potable water treatment, and food markets. Also contributing to the year-to-date
      September 30, 2008 increase was higher average pricing in the environmental
      air treatment, specialty carbon, and industrial process markets. Foreign
      currency translation also had a positive impact of $0.9 million and $6.7
      million, respectively, for the quarter and year-to-date periods ended September
      30, 2008. Net sales for the Equipment segment for the quarter and year-to-date
      periods ended September 30, 2008 increased $2.4 million or 26.0% and $1.2
      million or 4.0%, respectively, versus the similar 2007 periods. The increase
      for
      both periods ended September 30, 2008 resulted from higher demand for carbon
      adsorption systems and ultraviolet light systems that used ultraviolet
      light for disinfection of drinking water. The increase for the year-to-date
      period ended September 30, 2008 was partially offset by decline in demand for
      ion exchange systems as well as a decline for odor control equipment during
      the
      first half of 2008. Foreign currency translation also had a positive impact
      of
      $0.1 million and $0.4 million, respectively, for the quarter and year-to-date
      periods ended September 30, 2008. Net sales for the Consumer segment decreased
      $1.1 million or 33.4% and $1.3 million or 13.8%, respectively, for the quarter
      and year-date periods ended September 30, 2008 versus the comparable 2007
      periods. The decrease for both periods was primarily due to delays in shipments
      for activated carbon cloth products as a result of performance issues with
      production equipment that was replaced during the quarter ended September 30,
      2008. Also contributing to the decrease for both periods was lower demand for
      PreZerve® products. Foreign currency translation was comparable for the quarter
      and year-to-date periods ended September 30, 2008. The total positive impact
      of
      foreign currency translation on consolidated net sales for the quarter and
      year-to-date periods ended September 30, 2008 was $1.0 million and $7.1 million,
      respectively.





Net
      sales
      less cost of products sold, as a percentage of net sales, was 33.9% for the
      quarter ended September 30, 2008 compared to 32.1% for the similar 2007 period,
      a 1.8% increase or $6.4 million, and 33.4% for the year-to-date period ended
      September 30, 2008 compared to 31.5% for the similar 2007 period, a 1.9%
      increase or $18.9 million. The increase for both periods was primarily in the
      Activated Carbon and Service segment which was principally driven by 
higher prices as well as volume for certain carbon and service products.
      The increase for the quarter ended September 30, 2008 also included a $0.5
      million curtailment benefit associated with the freezing of the Company’s
      Neville Island defined benefit pension plan and an approximate $1.0 million
      benefit for the reduction of an accrual related to costs for Company imports
      related to a favorable ruling by U.S. Customs in September 2008. The Equipment
      segment also contributed to the increase for the quarter ended September 30,
      2008 versus the similar 2007 period due to higher volume for both carbon
      adsorption and ultraviolet light systems. The Equipment segment was comparable
      for the year-to-date period ended September 30, 2008 versus the similar 2007
      period. The Consumer segment declined in both the quarter and year-to-date
      periods ended September 30, 2008 primarily due to the lower demand for activated
      carbon cloth as compared to the similar 2007 periods. The Company’s cost of
      products sold excludes depreciation and amortization; therefore it may not
      be
      comparable to that of other companies.





The
      depreciation and amortization decrease of $0.4 million and $0.9 million during
      the quarter and year-to-date periods ended September 30, 2008 versus the
      comparable 2007 periods was primarily due to an increase in fully depreciated
      fixed assets.


30





Selling,
      general and administrative expenses for the quarter and year-to-date periods
      ended September 30, 2008 increased by $1.0 million and $2.7 million,
      respectively, versus the comparable 2007 periods. The increase for the quarter
      and year-to-date periods ended September 30, 2008 was primarily due to
      higher legal expenses related to the administrative review of the Department
      of
      Commerce’s April 2007 anti-dumping order on certain activated carbon products
      from China. The year-to-date period ended September 30, 2008 also increased
      due
      to an increase in employee related expenses partially offset by a recovery
      of
      receivables previously considered uncollectible. The year-to-date 2007 period
      included the positive effect of the settlement with Trojan Technologies
      regarding the Company’s Canadian UV patent.




Research
      and development expense was comparable for the quarter ended September 30,
      2008
      and increased $0.4 million for the year-to-date period ended September 30,
      2008
      versus the comparable 2007 period primarily due to increased employee related
      expenses and laboratory testing services.





The
      $9.3
      million gain on AST settlement for the year-to-date period ended September
      30,
      2008 relates to the resolution of a lawsuit involving the Company’s purchase of
      the common stock of Advanced Separation Technologies Inc. (“AST”) in 1996 (See
      Note 8).





Other
      expense for the quarter and year-to-date periods ended September 30, 2008
      increased $0.7 million and $0.4 million, respectively, compared to the similar
      2007 periods primarily due to non-recurring costs associated with the conversion
      of a portion of the Company’s Senior Convertible Notes (“Notes”) as well as the
      negative impact of foreign exchange on the quarter.




Interest
      expense, net of interest income, for the quarter and year-to-date periods ended
      September 30, 2008 decreased $0.3 million and $0.9 million, respectively, versus
      the comparable 2007 periods. The decrease for both periods is primarily a result
      of the effect of capitalized interest due to increased capital spending in
      2008
      as well as the aforementioned conversions of Notes that occurred during the
      quarter ended September 30, 2008. Also contributing to the year-to-date decline
      is the penalty interest related to the Notes that occurred in the 2007 similar
      period.





The
      income tax provision increased $3.6 million for the quarter ended September
      30,
      2008 versus the quarter ended September 30, 2007. The increase was primarily
      due
      to an increase in income from continuing operations before income tax and equity
      in income from equity investments of $5.4 million. In addition, during the
      quarter ended September 30, 2007, the Company recognized $1.4 million of
      uncertain tax positions for which expiration of the statute of limitations
      occurred.





The
      effective tax rate for the year-to-date period ended September 30, 2008 was
      36.0% compared to 37.7% for the similar 2007 period. The year-to-date period
      ended September 30, 2008 tax rate was higher than the statutory Federal income
      tax rate mainly due to permanent items and state income taxes partially offset
      by various tax credits. The effective tax rate for the year-to-date period
      ended
      September 30, 2007 was adversely impacted by several factors including income
      in
      certain foreign jurisdictions whose statutory tax rates exceeded the United
      States statutory rate, the absence of a full benefit from foreign tax credits
      in
      the United States due to an overall foreign loss, and permanent non-deductible
      expenses. The year-to-date September 30, 2007 tax rate was reduced by FIN 48
      reserves reversed due to the expiration of the statute of limitations in taxing
      jurisdictions.





During
      the preparation of its effective tax rate, the Company uses an annualized
      estimate of pre-tax earnings. Throughout the year, this annualized estimate
      may
      change based on actual results and annual earnings estimate revisions. Because
      the Company’s permanent tax differences are relatively constant, changes in the
      annualized estimate may have a significant impact on the effective tax rate
      in
      future periods.





The
      Company provides an estimate for income taxes based on an evaluation of the
      underlying accounts, its tax filing positions and interpretations of existing
      law. Changes in estimates are reflected in the year of settlement or expiration
      of the statute of limitations. Under FIN 48, the Company must recognize the
      tax
      benefit from an uncertain tax position only if it is more likely than not that
      the tax position will be sustained on examination by the taxing authorities,
      based on the technical merits of the position. The tax benefits recognized
      in
      the financial statements from such a position are measured based on the largest
      benefit that has a greater than fifty percent likelihood of being realized
      upon
      ultimate resolution.


31





Equity
      in
      income from equity investments for the quarter and year-to-date periods ended
      September 30, 2008 decreased $0.3 million and $1.4 million, respectively, versus
      the similar 2007 periods. The decrease was primarily due to higher product
      costs
      realized in 2008.





**Discontinued
      Operations**





Income
      (loss) from discontinued operations was $(0.2) million and $3.2 million,
      respectively, for the quarter and year-to-date periods ended September 30,
      2008
      and was primarily due to the final adjustment to the sale price of the Company’s
      Charcoal/Liquid business that was sold in the first quarter of 2006.





**Financial
      Condition**





Working
      Capital and Liquidity





Cash
      flows provided by operating activities were $23.9 million for the period ended
      September 30, 2008 compared to $16.9 million for the similar 2007 period. The
      $7.0 million increase is primarily due to improved earnings. The 2008 earnings
      include $3.2 million of non-cash earnings resulting from the determination
      of
      the final sale price of the Company’s Charcoal/Liquid business as discussed in
      Note 1. Partially offsetting the cash effects of increased earnings were
      unfavorable working capital changes of $7.5 million.





Common
      stock dividends were not declared or paid during the periods ended September
      30,
      2008 and 2007, respectively.





Total
      debt at September 30, 2008 was $34.5 million, a decrease of $42.4 million from
      December 31, 2007. The decrease was primarily the result of the conversion
      of a
      substantial portion of the Company’s Senior Convertible Notes as described
      below.





**5.00%
      Convertible Senior Notes due in 2036**





On
      August
      18, 2006, the Company issued $75.0 million in aggregate principal amount of
      5.00% Notes due in 2036 (the “Notes”). The Notes accrue interest at the rate of
      5.00% per annum which is payable in cash semi-annually in arrears on each
      February 15 and August 15, which commenced February 15, 2007. The Notes will
      mature on August 15, 2036.





The
      Notes
      can be converted under the following circumstances: (1) during any calendar
      quarter (and only during such calendar quarter) commencing after September
      30,
      2006, if the last reported sale price of the Company’s common stock is greater
      than or equal to 120% of the conversion price of the Notes for at least 20
      trading days in the period of 30 consecutive trading days ending on the last
      trading day of the preceding calendar quarter; (2) during the five business
      day
      period after any 10 consecutive trading-day period (the “measurement period”) in
      which the trading price per Note for each day in the measurement period was
      less
      than 103% of the product of the last reported sale price of the Company’s common
      stock and the conversion rate on such day; or (3) upon the occurrence of
      specified corporate transactions described in the Offering Memorandum. On or
      after June 15, 2011, holders may convert their Notes at any time prior to the
      maturity date. Upon conversion, the Company will pay cash and shares of its
      common stock, if any, based on a daily conversion value (as described herein)
      calculated on a proportionate basis for each day of the 25 trading-day
      observation period.





For
      the
      period ended December 31, 2007 and for the quarterly periods ended March 31,
      June 30, and September 30, 2008, respectively, the last reported sale price
      of
      the Company’s common stock was greater than 120% of the conversion price of the
      Notes for at least 20 trading days in the period of 30 consecutive trading
      days
      ending on the last trading day of each of the aforementioned quarterly periods.
      As a result, the holders of the Notes have had the right to convert the Notes
      into cash and shares of common stock throughout 2008. The following table
      represents the conversion and exchange activity that has occurred as of the
      period ended September 30, 2008 and through October 31, 2008:


32





**Date**
            
            **Aggregate**
              **Principal**
              **Amount**
              **Outstanding**
              **Prior to**
              **Transaction**
            
            **Aggregate**
              **Principal**
              **Amount of**
              **Notes**
              **Involved in**
              **Transaction**
            
            **Shares**
              **Issued**
            
            **Cash Paid**1
            
            **Aggregate**
              **Principal**
              **Amount**
              **Outstanding**
              **after**
              **Transaction**August
                20, 2008
            
            $
            75,000,000
            
            $
            37,175,000
            
            
            7,289,215
            
            $
            —
            
            $
            37,825,000September
                2, 2008
            
            
            37,825,000
            
            
            7,000,000
            
            
            1,372,549
            
            
            —
            
            
            30,825,000October
                1, 2008
            
            
            30,825,000
            
            
            7,950,000
            
            
            1,151,750
            
            
            7,950,014
            
            
            22,875,000October
                2, 2008
            
            
            22,875,000
            
            
            1,300,000
            
            
            188,320
            
            
            1,300,011
            
            
            21,575,000October
                3, 2008
            
            
            21,575,000
            
            
            1,750,000
            
            
            253,673
            
            
            1,750,007
            
            
            19,825,000October
                22, 2008
            
            
            19,825,000
            
            
            1,000,000
            
            
            196,078
            
            
            —
            
            
            18,825,000October
                23, 2008
            
            
            18,825,000
            
            
            10,625,000
            
            
            2,083,333
            
            
            —
            
            
            8,200,000$
            66,800,000
            
            
            12,534,9182
            
            $
            11,000,032


1 Excluding any accrued interest paid to an exchanging holder.


2  Includes
      approximately 3 million shares exchanged for principal amount of Notes (in
      lieu
      of cash) due to exchanges. These shares were not previously included in
      the
      Company’s diluted shares for previous quarters.





Due
      to
      the conversion rights of the holders of the Notes, the Company has classified
      the remaining principal amount of outstanding Notes as a current liability
      for
      the period ended September 30, 2008.





The
      initial conversion rate is 196.0784 shares of the Company’s common stock per
      $1,000 principal amount of Notes, equivalent to an initial conversion price
      of
      approximately $5.10 per share of common stock. The conversion rate is subject
      to
      adjustment in some events, including the payment of a dividend on the Company’s
      common stock, but will not be adjusted for accrued interest, including any
      additional interest. In addition, following certain fundamental changes
      (principally related to changes in control) that occur prior to August 15,
      2011,
      the Company will increase the conversion rate for holders who elect to convert
      Notes in connection with such fundamental changes in certain circumstances.
      The
      Company considered EITF 00-27 issue 7 which indicates that if a reset of the
      conversion rate due to a contingent event occurs, the Company would need to
      calculate if there is a beneficial conversion and record if applicable. Through
      September 30, 2008, no contingent events have occurred.


33





The
      Company may not redeem the Notes before August 20, 2011. On or after that date,
      the Company may redeem all or a portion of the Notes at any time. Any redemption
      of the Notes will be for cash at 100% of the principal amount of the Notes
      to be
      redeemed, plus accrued and unpaid interest, including any additional interest,
      to, but excluding, the redemption date.





Holders
      may require the Company to purchase all or a portion of their Notes on each
      of
      August 15, 2011, August 15, 2016, and August 15, 2026. In addition, if the
      Company experiences specified types of fundamental changes, holders may require
      it to purchase the Notes. Any repurchase of the Notes pursuant to these
      provisions will be for cash at a price equal to 100% of the principal amount
      of
      the Notes to be purchased plus any accrued and unpaid interest, including any
      additional interest, to, but excluding, the purchase date.





The
      Notes
      are the Company’s senior unsecured obligations, and rank equally in right of
      payment with all of its other existing and future senior indebtedness. The
      Notes
      are guaranteed by certain of the Company’s domestic subsidiaries on a senior
      unsecured basis. The subsidiary guarantees are general unsecured senior
      obligations of the subsidiary guarantors and rank equally in right of payment
      with all of the existing and future senior indebtedness of the subsidiary
      guarantors. If the Company fails to make payment on the Notes, the subsidiary
      guarantors must make them instead. The Notes are effectively subordinated to
      any
      indebtedness of the Company’s non-guarantor subsidiaries. The Notes are
      effectively junior to all of the Company’s existing and future secured
      indebtedness to the extent of the value of the assets securing such
      indebtedness.





The
      Company sold the Notes to the original purchaser at a discount of $3.3 million
      that is being amortized over a period of five years. The Company incurred
      original issuance costs of $1.5 million which have been deferred and are being
      amortized over a five year period. The Company reclassified $1.2 million of
      the
      discount and $0.2 million of issuance costs to additional paid in capital as
      a
      result of the aforementioned conversions and exchanges of Notes that occurred
      during the three and nine month periods ended September 30, 2008. The Company
      will continue to amortize the respective remaining balances over the remaining
      five year period or the date of conversion/exchange, if sooner. As of the nine
      month period ended September 30, 2008, the Company recorded interest expense
      of
      $3.0 million related to the Notes, of which $0.4 million related to the
      amortization of the discount.





**Credit
      Facility**





On
      August
      14, 2008, the Company entered into a third amendment to its Credit Facility
      (the
“Third Amendment”). The Third Amendment permits borrowings in an amount up to
      $60.0 million and includes a separate U.K. sub-facility and a separate Belgian
      sub-facility. The Credit Facility permits the total revolving credit commitment
      to be increased up to $75.0 million. The facility matures on May 15, 2011.
      Availability for domestic borrowings under the Credit Facility is based upon
      the
      value of eligible inventory, accounts receivable and property, plant and
      equipment, with separate borrowing bases to be established for foreign
      borrowings under a separate U.K. sub-facility and a separate Belgian
      sub-facility. Availability under the Credit Facility is conditioned upon various
      customary conditions.





The
      Credit Facility is secured by a first perfected security interest in
      substantially all of the Company’s assets, with limitations under certain
      circumstances in the case of capital stock of foreign subsidiaries. Certain
      of
      the Company’s domestic subsidiaries unconditionally guarantee all indebtedness
      and obligations related to domestic borrowings under the Credit Facility. The
      Company and certain of its domestic subsidiaries also unconditionally guarantee
      all indebtedness and obligations under the U.K. sub-facility.





As
      of
      September 30, 2008, the collateral value of assets pledged was
      $57.6 million. The collateral value as of September 30, 2008 for
      domestic, U.K., and Belgian borrowers were $48.4 million,
      $4.8 million, and $4.4 million, respectively. The Credit Facility
      contains a fixed charge coverage ratio covenant which becomes effective when
      total domestic availability falls below $11.0 million. As of
      September 30, 2008, total availability was $41.8 million. Availability
      as of September 30, 2008 for domestic, U.K., and Belgian borrowers was
      $38.7 million, $3.1 million, and zero, respectively. The Company can
      issue letters of credit up to $20 million of the available commitment
      amount under the Credit Facility. Sub-limits for letters of credit under the
      U.K. sub-facility and the Belgian sub-facility are $2.0 million and
      $6.0 million, respectively. Letters of credit outstanding at
      September 30, 2008 totaled $15.8 million.


34





The
      Credit Facility interest rate is based upon Euro-based (“LIBOR”) rates with
      other interest rate options available. The applicable Euro Dollar margin in
      effect when the Company is in compliance with the terms of the facility ranges
      from 1.50% to 2.50% and is based upon the Company’s overall availability under
      the Credit Facility. The unused commitment fee is equal to 0.375% per annum,
      which can increase to 0.50%, and is based upon the unused portion of the
      revolving commitment.





The
      Credit Facility contains a number of affirmative and negative covenants. For
      the
      period ended September 30, 2008, the last reported sale price of the Company’s
      common stock was greater than 120% of the conversion price of the Notes for
      at
      least 20 trading days in the period of 30 consecutive trading days ended
      September 30, 2008. As a result, as of September 30, 2008, the holders of the
      Notes have the right to convert the Notes into cash and shares of common stock.
      Included in the Credit Facility, is a provision which permits the conversion
      of
      all $75.0 million of the Company’s Notes. The Credit Facility also includes a
      provision for up to $3.0 million of letters of credit under the Company’s U.S.,
      Belgium, and UK sub-limits that can be issued having expiration dates that
      are
      more than one year but not more than three years after the date of issuance.





The
      negative covenants provide for certain restrictions on possible acts by the
      Company related to matters such as additional indebtedness, certain liens,
      fundamental changes in the business, certain investments or loans, asset sales
      and other customary requirements. The Company was in compliance with all such
      negative covenants as of September 30, 2008.





**Contractual
      Obligations**





The
      Company is obligated to make future payments under various contracts such as
      debt agreements, lease agreements, and unconditional purchase obligations.
      At
      September 30, 2008, the changes in the Company’s contractual obligations that
      occurred since December 31, 2007 include a change in one of its purchase
      obligations, a reclassification of long-term debt to current portion of
      long-term debt, conversion of a portion of the Notes, and the related change
      in
      interest. There have been no other changes in the Company’s contractual
      obligations since December 31, 2007. The following table represents the
      significant cash contractual obligations and other commercial commitments as
      of
      September 30, 2008.





Due
                in(Thousands)
            
            2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            TotalShort-term
                debt
            
            $
            1,606
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            1,606Current
                    portion of Long-term debt*
            
            
            -
            
            
            2,925
            
            
            -
            
            
            29,994
            
            
            -
            
            
            -
            
            
            32,919Interest
                on Notes
            
            
            2,825
            
            
            991
            
            
            991
            
            
            626
            
            
            -
            
            
            -
            
            
            5,433Operating
                leases
            
            
            3,733
            
            
            3,009
            
            
            2,409
            
            
            1,921
            
            
            1,798
            
            
            4,711
            
            
            17,581Unconditional
                purchaseobligations**
            
            
            24,112
            
            
            23,776
            
            
            22,253
            
            
            19,710
            
            
            1,575
            
            
            1,838
            
            
            93,264Total
                contractual cashObligations
            
            $
            32,276
            
            $
            30,701
            
            $
            25,653
            
            $
            52,251
            
            $
            3,373
            
            $
            6,549
            
            $
            150,803





**The
      2011 maturity excludes debt discount of $0.8 million. During October 2008,
      the
      Company completed exchanges and conversions for approximately $22.6 million
      of
      the notes-see additional discussion in Note 10.*


***Primarily
      for the purchase of raw materials, transportation, and information systems
      services.*




The
      long-term tax payable of $11.9 million related to FIN 48 has been excluded
      from
      the above table due to the fact that the Company is unable to determine the
      period in which the liability will be resolved.





The
      cash
      needs of each of the Company’s reporting segments are principally covered by the
      segment’s operating cash flow on a stand alone basis. Any additional needs will
      be funded by cash on hand or borrowings under the Company’s credit facility.
      Specifically, the Equipment and Consumer segments historically have not required
      extensive capital expenditures; therefore, the Company believes that cash on
      hand and borrowings will adequately support each of the segments cash
      needs.


35





Capital
      Expenditures and Investments





The
      Company currently estimates that it will spend approximately $130 million on
      capital expenditures for property, plant and equipment during the period 2009
      through 2011. Capital
      expenditures for property, plant and equipment totaled $20.6 million for the
      nine months ended September 30, 2008 compared to expenditures of $7.6 million
      for the same period in 2007. The expenditures for the period ended September
      30,
      2008 consisted primarily of improvements to the Company’s manufacturing
      facilities of $16.7 million, of which $8.8 million was directly related to
      the
      planned re-start of a previously idled production line at the Company’s
      Catlettsburg, Kentucky facility, $1.5 million related to improvements to
      information systems, and customer capital of $1.9 million. The expenditures
      for
      the period ended September 30, 2007 consisted primarily of improvements to
      the
      Company’s manufacturing facilities of $6.5 million and customer capital of $0.3
      million. Capital expenditures for 2008 are projected to be approximately $34.5
      million. The Company expects to fund capital expenditures from operating cash
      flows, cash on hand, and borrowings.





In
      January 2006, the Company announced the temporary idling of its reactivation
      facility in Blue Lake, California in an effort to reduce operating costs and
      to
      more efficiently utilize the capacity at its other existing locations. It is
      management’s intention to resume operation of the plant in November
      2008.





Regulatory
      and Legal Matters





Each
      of
      the Company’s U.S. production facilities has permits and licenses regulating air
      emissions and water discharges. All of the Company’s U.S. production facilities
      are controlled under permits issued by local, state and federal air pollution
      control entities. The Company is presently in compliance with these permits.
      Continued compliance will require administrative control and will be subject
      to
      any new or additional standards. In May 2003, the Company partially discontinued
      operation of one of its three activated carbon lines at its Catlettsburg,
      Kentucky facility known as B-line. The Company will need to install pollution
      abatement equipment in order to remain in compliance with state requirements
      regulating air emissions before resuming full operation of this line. On January
      25, 2008, the Company announced its intention to re-start B-line. The Company
      estimates it will invest approximately $20.2 million in this line and that
      the
      project is estimated to be completed in early 2009.





In
      conjunction with the February 2004 purchase of substantially all of Waterlink’s
      operating assets and the stock of Waterlink’s U.K. subsidiary, several
      environmental studies were performed on the Columbus, Ohio property by
      environmental consulting firms which identified and characterized areas of
      contamination. In addition, these firms identified alternative methods of
      remediating the property, identified feasible alternatives and prepared cost
      evaluations of the various alternatives. The Company concluded from the
      information in the studies that a loss at this property is probable and recorded
      the liability as a component of noncurrent other liabilities in the Company’s
      consolidated balance sheet. At December 31, 2007, the balance recorded was
      $4.0
      million. Liability estimates are based on an evaluation of, among other factors,
      currently available facts, existing technology, presently enacted laws and
      regulations, and the remediation experience of other companies. The Company
      has
      not incurred any environmental remediation expense during the periods ended
      September 30, 2008 and 2007. It is reasonably possible that a change in the
      estimate of this obligation will occur as remediation preparation and
      remediation activity commences. The ultimate remediation costs are dependent
      upon among other things, the requirements of any state or federal environmental
      agencies, the remediation methods employed, the final scope of work being
      determined, and the extent and types of contamination which will not be fully
      determined until experience is gained through remediation and related
      activities. The accrued amounts are expected to be paid out over the course
      of
      several years once work has commenced. The Company has yet to make a
      determination as to when it will proceed with remediation
      efforts.


36





In
      January 2007, the Company received a Notice of Violation (“NOV”) from the United
      States Environmental Protection Agency, Region 4 (“EPA”) alleging multiple
      violations of the Federal Resource Conservation and Recovery Act (“RCRA’) and
      corresponding EPA and Kentucky Department of Environmental Protection (“KYDEP”)
      hazardous waste management rules and regulations. The alleged violations are
      based on findings and information provided by the Company during and after
      a
      Multi Media Compliance Evaluation inspection of the Company’s Big Sandy Plant,
      located in Catlettsburg, Kentucky, conducted by the EPA and the KYDEP in
      September 2005, and concern the hazardous waste spent activated carbon
      regeneration facility located at the Big Sandy Plant. The Company submitted
      its
      initial written response to the NOV in June 2007. In August 2007, the EPA
      notified the Company that it believes there were significant RCRA violations
      that are unresolved by the information in the Company’s submittals. The Company
      met with EPA in December 2007 to discuss the alleged violations. Since that
      time
      it has had numerous telephone conferences and exchanges of correspondence in
      an
      attempt to resolve the issues as to alleged continuing violations raised by
      the
      January 2007 NOV. The Company has also taken action to remediate certain of
      the
      alleged violations and believes that the number of unresolved issues as to
      alleged continuing violations has been reduced substantially. The EPA can take
      formal enforcement action to require the Company to remediate any or all of
      the
      unresolved alleged continuing violations which could require the Company to
      incur substantial additional costs. The EPA can also take formal enforcement
      action to impose substantial civil penalties with respect to violations cited
      in
      the NOV, including those which have been resolved. The Company is awaiting
      further response from the EPA and cannot predict with any certainty the probable
      outcome of this matter or range of potential loss, if any.





On
      July
      3, 2008, the EPA verbally informed the Company that there are a number of
      unresolved RCRA violations at the Big Sandy Plant which may render the facility
      unacceptable to receive spent carbon for reactivation from sites regulated
      under
      the Comprehensive Environmental Response, Compensation and Liability ACT
      (“CERCLA”) pursuant to the CERCLA Off-Site Rule. The CERCLA Off-Site Rule
      unacceptability determination applies only to materials from CERCLA regulated
      response actions, and if it goes into effect, it would not prohibit the Big
      Sandy Plant from receiving hazardous waste spent carbons from other sources.
      The
      Company received written notice of the unacceptability determination on July
      14,
      2008 (the “Notice”). The Notice alleges multiple violations of RCRA and four
      releases of hazardous waste. The alleged violations and releases stem from
      the
      September 2005 multi-media compliance inspections, and are the same as alleged
      in the January 2007 NOV described in the preceding paragraph. The Company
      originally had until September 1, 2008 to demonstrate to the EPA that the
      alleged violations and releases were not continuing, or else the Big Sandy
      Plant
      would not have been able to receive spent carbon from CERCLA sites until the
      EPA
      determines that the facility is again acceptable to receive such CERCLA wastes.
      The Company met with the EPA on August 25, 2008 and the Company submitted a
      written response to the Notice prior to the meeting. Following this meeting,
      the
      EPA extended the September 1 deadline to November 3, 2008 and then extended
      the
      deadline to January 9, 2009 before the unacceptability determination goes into
      effect, due to the late delivery of the Notice and the late date of the
      conference with the EPA. The Company believes that the indefinite suspension
      or
      termination of its ability to receive and reactivate spent carbon from CERCLA
      sites would not have a material adverse effect on its financial position or
      results of operations.





The
      August 25, 2008 EPA meeting was attended by representatives of the EPA’s
      Suspension and Debarment Division (“SDD”). On August 28, 2008, the Company
      received a letter from the SDD requesting additional information from the
      Company in connection with the SDD’s evaluation of the Company’s potential
“business risk to the Federal Government,” noting that the Company engages in
      procurement transactions with the Federal Government, with respect to activities
      authorized pursuant to, or funded by, CERCLA. The Company has provided the
      SDD
      with all information requested by the letter. The SDD can suspend or debar
      a
      company from sales to the Federal Government directly or indirectly through
      government contractors or with respect to projects funded by the Federal
      Government. The SDD has not indicated whether or not it intends to take further
      action in this matter. The Company believes that there is no basis for
      suspension or debarment on the basis of the matters asserted by the EPA in
      the
      Notice or otherwise.





In
      June
      2007, the Company received a Notice Letter from the New York State Department
      of
      Environmental Conservation (“NYSDEC”) stating that the NYSDEC has determined
      that the Company is a Potentially Responsible Party (“PRP”) at the Frontier
      Chemical Processing Royal Avenue Site in Niagara Falls, New York (the “Site”).
      The Notice Letter requests that the Company and other PRPs develop, implement
      and finance a remedial program for Operable Unit #1 at the Site. Operable Unit
      #1 consists of overburden soils and overburden and upper bedrock groundwater.
      The selected remedy is removal of above grade structures and contaminated soil
      source areas, installation of a cover system, and ground water control and
      treatment, estimated to cost between approximately $11 million and $14 million,
      which would be shared among the PRPs. The Company has not determined what
      portion of the costs associated with the remedial program it would be obligated
      to bear and the Company cannot predict with any certainty the outcome of this
      matter or range of potential loss. The Company has joined a PRP group formed
      to
      address this issue and the group is currently seeking a Consent Order with
      the
      NYSDEC on the clean up activity and approach. The Notice Letter also demands
      payment of all monies that the NYSDEC has already expended for investigation
      and
      remediation of the Site, but does not specify the amount that the NYSDEC has
      expended. The Company, as part of the PRP group, is negotiating a consent order
      with the NYSDEC for a supplemental investigation at the Site to collect data
      for
      the design of the soil remediation and to further characterize ground water
      conditions at the Site.


37





In
      July
      2007, the Company received an NOV from the KYDEP alleging that the Company
      has
      violated the KYDEP’s hazardous waste management regulations in connection with
      the Company’s hazardous waste spent activated carbon regeneration facility
      located at the Big Sandy Plant in Catlettsburg, Kentucky. The NOV alleges that
      the Company has failed to correct deficiencies identified by the KYDEP in the
      Company’s Part B hazardous waste management facility permit application and
      related documents and directs the Company to submit a complete and accurate
      Part
      B application and related documents and to respond to the KYDEP’s comments which
      are appended to the NOV. The Company submitted a response to the NOV and the
      KYDEP’s comments in December 2007. The KYDEP has not indicated whether or not it
      will take formal enforcement action, and has not specified a monetary amount
      of
      civil penalties it might pursue in any such action, if any. On October 18,
      2007,
      the Company received an NOV from the EPA related to this permit application
      and
      submitted a revised application to both the KYDEP and the EPA within the
      mandated timeframe. At this time the Company cannot predict with any certainty
      the outcome of this matter or range of loss, if any.





The
      Company is also subject to various environmental health and safety laws and
      regulations at its facilities in Belgium, China, and the United Kingdom. These
      laws and regulations address substantially the same issues as those applicable
      to the Company in the United States. The Company believes it is presently in
      substantial compliance with these laws and regulations.





On
      March
      20, 2007, the Company and ADA-ES entered into a Memorandum of Understanding
      ("MOU") providing for cooperation between the companies to attempt to
      jointly market powdered activated carbon (“PAC”) to the electric power industry
      for the removal of mercury from coal fired power plant flue gas. The MOU
      provided for commissions to be paid to ADA-ES in respect of product sales.
      The
      Company terminated the MOU effective as of August 24, 2007 for convenience.
      Neither party had entered into sales or supply agreements with prospective
      customers as of that date. On March 3, 2008, the Company entered into a supply
      agreement with a major U.S. power generator for the sale of powdered activated
      carbon products with a minimum purchase obligation of approximately $55 million
      over a 5 year period. ADA-ES claimed that it is entitled to commissions of
      all
      product sales under this contract, which the Company denies. On September 29,
      2008, the Company filed suit in the United States District Court for the Western
      District of Pennsylvania for a declaratory judgment from the Court that the
      Company has no obligation to pay ADA-ES commissions related to the
      aforementioned contract or for any future sales made after August 24, 2007.
      On
      November 4, 2008, ADA-ES filed its answer and counterclaim denying the Company’s
      entitlement to a declaratory judgment and claiming a commission of $8.25
      million.





New
      Accounting Pronouncements





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS No.141(R)”), which replaces SFAS No. 141, “Business
      Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS
      No. 141 in that all business combinations are still required to be
      accounted for at fair value under the acquisition method of accounting, but
      SFAS
      No. 141(R) changes the method of applying the acquisition method in a
      number of significant aspects. Acquisition costs will generally be expensed
      as
      incurred; noncontrolling interests will be valued at fair value at the
      acquisition date; in-process research and development will be recorded at fair
      value as an indefinite-lived intangible asset at the acquisition date;
      restructuring costs associated with a business combination will generally be
      expensed subsequent to the acquisition date; and changes in deferred tax asset
      valuation allowances and income tax uncertainties after the acquisition date
      generally will affect income tax expense. SFAS No. 141(R) is effective on a
      prospective basis for all business combinations for which the acquisition date
      is on or after the beginning of the first annual period subsequent to
      December 15, 2008, with an exception related to the accounting for
      valuation allowances on deferred taxes and acquired tax contingencies related
      to
      acquisitions completed before the effective date. SFAS No. 141(R) amends
      SFAS No. 109 to require adjustments, made after the effective date of this
      statement, to valuation allowances for acquired deferred tax assets and income
      tax positions to be recognized as income tax expense. Beginning January 1,
      2009,
      the Company will apply the provisions of SFAS No. 141(R) to its accounting
      for
      applicable business combinations.


38





In
      December 2007, the FASB issued SFAS No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160
      changes the classification of noncontrolling (minority) interests on the
      balance sheet and the accounting for and reporting of transactions between
      the
      reporting entity and holders of such noncontrolling interests. Under the new
      standard, noncontrolling interests are considered equity and are to be reported
      as an element of stockholders’ equity rather than outside of equity in the
      balance sheet. In addition, the current practice of reporting minority interest
      expense or benefit also will change. Under the new standard, net income will
      encompass the total income before minority interest expense. The statement
      of
      operations will include separate disclosure of the attribution of income between
      the controlling and noncontrolling interests. Increases and decreases in the
      noncontrolling ownership interest amount are accounted for as equity
      transactions. SFAS No. 160 is effective for fiscal years beginning after
      December 15, 2008 and earlier application is prohibited. Upon adoption, the
      balance sheet and the statement of operations should be recast retrospectively
      for the presentation of noncontrolling interests. The other accounting
      provisions of the statement are required to be adopted prospectively. The
      Company will adopt SFAS No. 160 as required and expects that the adoption will
      not have a material impact on its financial position or results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities,” which changes the disclosure requirements for
      derivative instruments and hedging activities. SFAS No. 161 requires enhanced
      disclosures about (a) how and why an entity uses derivative instruments, (b)
      how
      derivative instruments and related hedging items are accounted for under SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its
      related interpretations, and (c) how derivative instruments and related hedged
      items affect an entity’s financial position, financial performance, and cash
      flows. This statement’s disclosure requirements are effective for fiscal years
      and interim periods beginning after November 15, 2008. The Company is currently
      evaluating the effects that SFAS No. 161 may have on its consolidated financial
      statement disclosures.





In
      May
      2008, the FASB issued Financial Accounting Standard SFAS No. 162, “The
      Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). Under
      SFAS No. 162, the GAAP hierarchy will now reside in the accounting literature
      established by the FASB. SFAS 162 identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of financial statements in conformity with GAAP. SFAS No. 162 is
      effective 60 days following the SEC’s approval of the Public Company Accounting
      Oversight Board Auditing amendments to AU Section 411, “The Meaning of
      Present Fairly in Conformity with Generally Accepted Accounting Principles.” The
      adoption of SFAS No. 162 is not expected to have a material impact on the
      Company’s consolidated financial position and results of operations.





In
      May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for
      Convertible Debt Instruments That May Be Settled in Cash upon Conversion
      (Including Partial Cash Settlement).” APB 14-1 requires the issuer to separately
      account for the liability and equity components of convertible debt instruments
      in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The
      guidance will result in companies recognizing higher interest expense in the
      statement of operations due to amortization of the discount that results from
      separating the liability and equity components. APB 14-1 is effective for
      financial statements issued for fiscal years beginning after December 15,
      2008, and interim periods within those fiscal years. The Company is currently
      evaluating the impact of adopting APB 14-1 on its consolidated financial
      statements.


39


Item
      3 .  Quantitative
      and Qualitative Disclosures about Market Risk





**Commodity
      Price Risk**


In
      the
      normal course of its business, the Company is exposed to market risk or price
      fluctuations related to the production of activated carbon products. Coal and
      natural gas, which are significant to the manufacturing of activated carbon,
      have market prices that fluctuate regularly. Based on the estimated 2008 usage
      of coal and natural gas, a hypothetical 10% increase (or decrease) in the price
      of coal and natural gas, would result in an incremental pre-tax loss (or gain)
      of $1.9 million and $0.7 million, respectively.





To
      mitigate the risk of fluctuating prices, the Company has entered into long-term
      contracts to hedge the purchase of a percentage of the estimated need of coal
      and natural gas at fixed prices.





**Interest
      Rate Risk**


The
      Company’s current and long-term debt is based on fixed rates, rates that float
      with the Euro Dollar, or prime, and the carrying value approximates fair value.
      The Company’s senior convertible notes, which represent the majority of the
      Company’s outstanding debt balance at September 30, 2008 and December 31, 2007,
      are based on a fixed rate and therefore would not be subject to interest rate
      risk. A hypothetical change of 10% in the Company’s effective interest rate from
      September 30, 2008 and December 31, 2007 would not result in a material change
      to interest expense.





**Foreign
      Currency Exchange Risk**


The
      Company is subject to risk of price fluctuations related to anticipated revenues
      and operating costs, firm commitments for capital expenditures, and existing
      assets and liabilities denominated in currencies other than U.S. dollars. The
      Company enters into foreign currency forward exchange contracts and purchases
      options to manage these exposures. At September 30, 2008, the Company had
      seventy-eight derivative instruments outstanding of which sixty-one were hedges
      utilizing foreign currency forward exchange contracts and sixteen were cash
      flow
      hedges utilizing foreign currency option contracts for forecasted inventory
      purchases. A hypothetical 10% strengthening (or weakening) of the U.S. dollar
      against the British Pound Sterling, Canadian Dollar, and Euro at September
      30, 2008 would result in an incremental pre-tax loss (or gain) of approximately
      $3.5 million. The foreign currency forward exchange contracts purchased during
      2008 have been accounted for according to SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities” (“SFAS No. 133”).





The
      Company had also entered into a ten-year foreign currency swap agreement to
      fix
      the foreign exchange rate on a $6.5 million intercompany loan between the
      Company and its subsidiary, Chemviron Carbon Ltd. The swap agreement provides
      the offset for the foreign currency fluctuation and neutralizes its effect
      on
      loan payments and valuation. This swap transaction has been accounted for in
      accordance with SFAS No. 133.


40





Item
      4.  Controls
      and Procedures





Disclosure
      Controls and Procedures:





The
      Company’s principal executive officer and principal financial officer have
      evaluated the effectiveness of the Company’s “disclosure controls and
      procedures,” as such term is defined in Rule 13a-15(e) of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), at the end of the period
      covered by this Quarterly Report on Form 10-Q. Based upon their evaluation,
      the
      principal executive officer and principal financial officer concluded that
      the
      Company’s disclosure controls and procedures are effective to ensure that
      information required to be disclosed by the Company in the reports filed or
      submitted by it under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms, and
      include controls and procedures designed to provide reasonable assurance that
      information required to be disclosed by the Company in such reports is
      accumulated and communicated to the Company’s management, including its
      principal executive officer and principal financial officer, as appropriate
      to
      allow timely decisions regarding required disclosure.





Changes
      in Internal Control:





There
      have not been any changes in the Company’s internal controls over financial
      reporting that occurred during the period ended September 30, 2008, that have
      significantly affected, or are reasonably likely to significantly affect, the
      Company’s internal controls over financial reporting.


41





PART
      II – OTHER INFORMATION





Item
      1 .  Legal
      Proceedings





See
      Note
      8 to the unaudited interim Condensed Consolidated Financial Statements contained
      herein.





Item
      1a .  Risk
      Factors





There
      were no material changes in the Company’s risk factors from the risks disclosed
      in the Company’s Form 10-K for the year ended December 31, 2007.




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





**Period**
            
            **Total**
              **Number**
              **of Shares**
              **Purchased (a)**
            
            **Average**
              **Price Paid**
              **Per Share (b)**
            
            **Total Number of**
              **Shares Purchased**
              **as Part of Publicly**
              **Announced**
              **Repurchase Plans**
              **or Programs (c)**
            
            **Maximum Number**
              **(or Approximate**
              **Dollar Value)**
              **of Shares that May**
              **Yet be Purchased**
              **Under the Plans or**
              **Programs (d)**July
                1 – July 31, 2008
            
            
            1,479
            
            $
            15.47
            
            
            —
            
            
            —August
                1 – August 31, 2008
            
            
            -
            
            
            —
            
            
            —
            
            
            —September
                1 – September 30, 2008
            
            
            -
            
            
            —
            
            
            —
            
            
            —


(a)
      This
      column includes purchases under Calgon Carbon’s Stock Option Plan which
      represented withholding taxes due from employees relating to the restricted
      share awards issued. Future purchases under this plan will be dependent upon
      employee elections and forfeitures.





Item
      6 .  Exhibits





Exhibit
      10.6 Calgon Carbon Corporation Senior Credit Facility, as amended





Exhibit
      31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to
      Section 302 of the Sarbanes-Oxley Act of 2002.





Exhibit
      31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to
      Section 302 of the Sarbanes-Oxley Act of 2002.





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





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




42





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.




CALGON
                CARBON CORPORATION(REGISTRANT)Date:
                November 10, 2008
            /s/Leroy
                M. BallLeroy
                M. BallSenior
                Vice President,Chief
                Financial Officer


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EXHIBIT
      INDEX





Exhibit
              No.
            
            Description
            
            Method of
                Filing10.6
            
            Calgon
              Carbon Corporation Senior Credit Facility, as amended.
            
            Filed
                herewith31.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith31.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith


44