**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 June 30, 2008 or





 ̈  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  ̈





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 ̈
            Accelerated
                filerx
            Non-accelerated
                filer ̈





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  ̈  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 July 29, 2008Common
                Stock, $.01 par value
            
            41,194,677
                shares







CALGON
      CARBON CORPORATION


FORM
      10-Q


QUARTER
      ENDED June 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
            28Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            36Item
                4. Controls and Procedures
            36PART
                II - OTHER INFORMATIONItem
                1. Legal Proceedings
            38Item
                1a. Risk Factors
            38Item
                2c. Unregistered Sales of Equity Securities and Use of
                Proceeds
            38Item
                4. Submission of Matters to a Vote of Security Holders
            38Item
                6. Exhibits
            39SIGNATURES
            40CERTIFICATIONS
            41




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 six 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
            
            Six
                Months EndedJune
                30,
            
            June
                30,2008
            
            2007
            
            2008
            
            2007Net
                sales
            
            $
            106,335
            
            $
            86,621
            
            $
            193,755
            
            $
            167,667Net
                sales to related parties
            
            
            2,141
            
            
            1,807
            
            
            5,052
            
            
            3,791Total
            
            
            108,476
            
            
            88,428
            
            
            198,807
            
            
            171,458Cost
                of products sold
              (excluding
                depreciation and amortization)
            
            
            71,021
            
            
            59,556
            
            
            132,786
            
            
            117,980Depreciation
                and amortization
            
            
            4,199
            
            
            4,331
            
            
            8,125
            
            
            8,592Selling,
                general and administrative expenses
            
            
            16,151
            
            
            15,009
            
            
            31,351
            
            
            29,615Research
                and development expenses
            
            
            1,003
            
            
            907
            
            
            2,094
            
            
            1,735Gain
                on AST settlement (See Note 8)
            
            
            -
            
            
            -
            
            
            (9,250
            )
            
            -92,374
            
            
            79,803
            
            
            165,106
            
            
            157,922Income
                from operations
            
            
            16,102
            
            
            8,625
            
            
            33,701
            
            
            13,536Interest
                income
            
            
            425
            
            
            400
            
            
            857
            
            
            702Interest
                expense
            
            
            (1,204
            )
            
            (1,410
            )
            
            (2,475
            )
            
            (2,860
            )Other
                expense—net
            
            
            (480
            )
            
            (408
            )
            
            (570
            )
            
            (811
            )Income
                from continuing operations before income tax and equity in income
                (loss)
                from equity investments
            
            
            14,843
            
            
            7,207
            
            
            31,513
            
            
            10,567Income
                tax provision
            
            
            4,887
            
            
            3,147
            
            
            11,121
            
            
            5,527Income
                from continuing operations before equity in income (loss) from equity
                investments...
            
            
            9,956
            
            
            4,060
            
            
            20,392
            
            
            5,040Equity
                in income (loss) from equity investments
            
            
            (139
            )
            
            402
            
            
            299
            
            
            1,456Income
                from continuing operations
            
            
            9,817
            
            
            4,462
            
            
            20,691
            
            
            6,496Income
                from discontinued operations, net (See Note 1)
            
            
            3,447
            
            
            -
            
            
            3,447
            
            
            -Net
                income
            
            $
            13,264
            
            $
            4,462
            
            $
            24,138
            
            $
            6,496Net
                income per common shareBasic:Income
                from continuing operations
            
            $
            .24
            
            $
            .11
            
            $
            .51
            
            $
            .16Income
                from discontinued operations
            
            
            .09
            
            
            -
            
            
            .09
            
            
            -Total
            
            $
            .33
            
            $
            .11
            
            $
            .60
            
            $
            .16Diluted:Income
                from continuing operations
            
            $
            .19
            
            $
            .09
            
            $
            .40
            
            $
            .14Income
                from discontinued operations
            
            
            .06
            
            
            -
            
            
            .07
            
            
            -Total
            
            $
            .25
            
            $
            .09
            
            $
            .47
            
            $
            .14Weighted
                average shares outstandingBasic
            
            
            40,558,818
            
            
            40,291,372
            
            
            40,399,608
            
            
            40,258,163Diluted
            
            
            52,024,889
            
            
            47,745,066
            
            
            51,890,504
            
            
            45,807,253





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)





June 30,
            
            December 31,2008
            
            2007ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            38,549
            
            $
            30,304Receivables
                (net of allowance of $2,483 and $2,834)
            
            
            64,556
            
            
            55,195Receivables
                from related parties
            
            
            1,874
            
            
            2,353Revenue
                recognized in excess of billings on uncompleted contracts
            
            
            6,549
            
            
            7,698Inventories
            
            
            86,729
            
            
            81,280Deferred
                income taxes - current
            
            
            8,684
            
            
            9,246Other
                current assets
            
            
            7,994
            
            
            3,602Total
                current assets
            
            
            214,935
            
            
            189,678Property,
                plant and equipment, net
            
            
            112,260
            
            
            105,512Equity
                investments
            
            
            8,459
            
            
            8,593Intangibles
            
            
            6,961
            
            
            7,760Goodwill
            
            
            27,812
            
            
            27,845Deferred
                income taxes - long-term
            
            
            3,192
            
            
            6,419Other
                assets
            
            
            7,443
            
            
            2,333Total
                assets
            
            $
            381,062
            
            $
            348,140LIABILITIES
                AND SHAREHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            39,837
            
            $
            39,436Billings
                in excess of revenue recognized on uncompleted contracts
            
            
            4,576
            
            
            3,727Accrued
                interest
            
            
            1,444
            
            
            1,461Payroll
                and benefits payable
            
            
            8,484
            
            
            9,182Accrued
                income taxes
            
            
            976
            
            
            1,944Short-term
                debt
            
            
            1,600
            
            
            1,504Current
                portion of long-term debt
            
            
            65,744
            
            
            62,507Total
                current liabilities
            
            
            122,661
            
            
            119,761Long-term
                debt
            
            
            10,000
            
            
            12,925Deferred
                income taxes - long-term
            
            
            1,072
            
            
            1,361Accrued
                pension and other liabilities
            
            
            40,596
            
            
            41,844Total
                liabilities
            
            
            174,329
            
            
            175,891Commitments
                and contingencies (Note 8)Shareholders'
                equity:Common
                shares, $.01 par value, 100,000,000 shares authorized, 43,582,678
                and
                43,044,318 shares issued
            
            
            436
            
            
            430Additional
                paid-in capital
            
            
            82,340
            
            
            77,299Retained
                earnings
            
            
            129,074
            
            
            104,936Accumulated
                other comprehensive income
            
            
            23,130
            
            
            17,008234,980
            
            
            199,673Treasury
                stock, at cost, 2,877,913 and 2,827,301 shares
            
            
            (28,247
            )
            
            (27,424
            )Total
                shareholders' equity
            
            
            206,733
            
            
            172,249Total
                liabilities and shareholders’ equity
            
            $
            381,062
            
            $
            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)




Six Months EndedJune 30,2008
            
            2007Cash
                flows from operating activitiesNet
                income
            
            $
            24,138
            
            $
            6,496Adjustments
                to reconcile net income to net cash provided by operating
                activities:Gain
                from divestiture (See Note 1)
            
            
            (4,353
            )
            
            -Depreciation
                and amortization
            
            
            8,125
            
            
            8,592Equity
                in (income) loss from equity investments - net
            
            
            101
            
            
            (1,053
            )Employee
                benefit plan provisions
            
            
            1,277
            
            
            745Stock-based
                compensation
            
            
            1,534
            
            
            1,890Non-cash
                pension curtailment gain
            
            
            -
            
            
            (265
            )Deferred
                income tax
            
            
            3,483
            
            
            4,429Changes
                in assets and liabilities:Increase
                in receivables
            
            
            (7,654
            )
            
            (6,010
            )Increase
                in inventories
            
            
            (3,741
            )
            
            (651
            )(Increase)
                decrease in revenue in excess of billings on uncompleted contracts
                and
                other current assets
            
            
            (760
            )
            
            1,131(Decrease)
                increase in accounts payable and accrued liabilities
            
            
            (551
            )
            
            2,128Increase
                (decrease) in accrued income taxes
            
            
            648
            
            
            (1,762
            )Pension
                contributions
            
            
            (4,673
            )
            
            (1,890
            )Other
                items - net
            
            
            558
            
            
            (1,306
            )Net
                cash provided by operating activities
            
            
            18,132
            
            
            12,474Cash
                flows from investing activitiesProperty,
                plant and equipment expenditures
            
            
            (11,802
            )
            
            (4,451
            )Proceeds
                from disposals of property, plant and equipment
            
            
            331
            
            
            162Net
                cash used in investing activities
            
            
            (11,471
            )
            
            (4,289
            )Cash
                flows from financing activitiesProceeds
                from borrowings
            
            
            -
            
            
            5,933Repayments
                of borrowings
            
            
            -
            
            
            (4,195
            )Treasury
                stock purchases
            
            
            (823
            )
            
            (157
            )Common
                stock issued through exercise of stock options
            
            
            2,543
            
            
            708Excess
                tax benefit from stock-based compensation
            
            
            970
            
            
            -Net
                cash provided by financing activities
            
            
            2,690
            
            
            2,289Effect
                of exchange rate changes on cash
            
            
            (1,106
            )
            
            523Increase
                in cash and cash equivalents
            
            
            8,245
            
            
            10,997Cash
                and cash equivalents, beginning of period
            
            
            30,304
            
            
            5,631Cash
                and cash equivalents, end of period
            
            $
            38,549
            
            $
            16,628





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, Calgon Carbon Corporation, 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 $3.5 million, net of tax,
      within discontinued operations for the period ended June 30,
      2008.





2.
            Inventories:





June 30, 2008
            
            December 31, 2007Raw materials
            
            $
            23,235
            
            $
            22,321Finished
                goods
            
            
            63,494
            
            
            58,959$
            86,729
            
            $
            81,280





3.
            Supplemental
                Cash Flow Information:





Cash
      paid
      for interest during the six months ended June 30, 2008 and 2007 was $2.3 million
      and $2.7 million, respectively. Income taxes paid, net of refunds, was $7.6
      million and $0.7 million, for the six months ended June 30, 2008 and 2007,
      respectively.





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 six months ended June 30,
      2007.





4.
            Dividends:





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




5.
            Comprehensive
                income:





Three Months Ended June 30,
            
            Six Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Net
                income
            
            $
            13,264
            
            $
            4,462
            
            $
            24,138
            
            $
            6,496Other
                comprehensive income,net
                of taxes
            
            
            2,222
            
            
            916
            
            
            6,122
            
            
            2,678Comprehensive
                income
            
            $
            15,486
            
            $
            5,378
            
            $
            30,260
            
            $
            9,174


6





The
      only
      matters contributing to the other comprehensive income during the three and
      six
      months ended June
      30,
      2008 was the foreign currency translation adjustment of $0.7 million and $4.1
      million, respectively; the changes in employee benefit accounts of $0.1 million
      and $0.2 million, respectively; and the change in the fair value of the
      derivative instruments of $1.4 million and $1.8 million, respectively, as
      described in Note 7. The only matters contributing to the other comprehensive
      income during the three and six months ended June
      30,
      2007 was the foreign currency translation adjustment of $0.9 million and $2.1
      million, respectively, and the change in the fair value of the derivative
      instruments of $(14) thousand and $0.5 million, respectively, as described
      in
      Note 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
            
            Six Months EndedJune 30,
            
            June 30,2008
            
            2007
            
            2008
            
            2007Net
                SalesActivated
                Carbon and Service
            
            $
            95,284
            
            $
            74,723
            
            $
            172,182
            
            $
            143,406Equipment
            
            
            10,742
            
            
            10,658
            
            
            20,439
            
            
            21,624Consumer
            
            
            2,450
            
            
            3,047
            
            
            6,186
            
            
            6,428$
            108,476
            
            $
            88,428
            
            $
            198,807
            
            $
            171,458Income
                (loss) from continuing operations before depreciation and
                amortizationActivated
                Carbon and Service
            
            $
            19,766
            
            $
            13,015
            
            $
            37,142
            
            $
            21,488Equipment
            
            
            519
            
            
            (607
            )
            
            3,962
            
            
            (736
            )Consumer
            
            
            16
            
            
            548
            
            
            722
            
            
            1,37620,301
            
            
            12,956
            
            
            41,826
            
            
            22,128Depreciation
                and amortizationActivated
                Carbon and Service
            
            
            3,793
            
            
            3,959
            
            
            7,276
            
            
            7,847Equipment
            
            
            280
            
            
            243
            
            
            598
            
            
            483Consumer
            
            
            126
            
            
            129
            
            
            251
            
            
            2624,199
            
            
            4,331
            
            
            8,125
            
            
            8,592Income
                from operations
            
            
            16,102
            
            
            8,625
            
            
            33,701
            
            
            13,536Reconciling
                items:Interest
                income
            
            
            425
            
            
            400
            
            
            857
            
            
            702Interest
                expense
            
            
            (1,204
            )
            
            (1,410
            )
            
            (2,475
            )
            
            (2,860
            )Other
                expense - net
            
            
            (480
            )
            
            (408
            )
            
            (570
            )
            
            (811
            )Consolidated
                income from continuing operations beforeincome
                tax and equity in income(loss)
                from equity investments
            
            $
            14,843
            
            $
            7,207
            
            $
            31,513
            
            $
            10,567




7





June 30, 2008
            
            December 31, 2007Total
                AssetsActivated
                Carbon and Service
            
            $
            324,699
            
            $
            302,432Equipment
            
            
            40,345
            
            
            32,046Consumer
            
            
            16,018
            
            
            13,662Consolidated
                total assets
            
            $
            381,062
            
            $
            348,140





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
      June
      30, 2008, the Company had eighty-nine derivative instruments outstanding of
      which one was a foreign currency swap, fifty-two were hedges utilizing foreign
      currency forward exchange contracts, twenty-eight 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
      forty-seven of the foreign currency forward exchange contracts, the twenty-eight
      foreign currency option contracts, the foreign currency swap, and the eight
      cash
      flow hedges for forecasted natural gas purchases. The aforementioned forty-seven
      foreign currency forward exchange contracts and twenty-eight 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 $(0.3) million was recorded in other comprehensive
      income (loss). The Company did not apply hedge accounting treatment for the
      remaining five foreign currency forward exchange contracts and recorded an
      immaterial gain 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 $1.1 million and $2.0 million,
      net of tax, respectively, for the three and six month periods ended June 30,
      2008 and $(0.1) million and $0.4 million, net of tax, respectively, for the
      three and six month periods ended June 30, 2007. The balance of the cash flow
      hedges for forecasted natural gas purchases recorded in other current assets,
      other assets, and other long-term liabilities was $2.2 million, $0.8 million,
      and $12 thousand, respectively, as of June 30, 2008 and $0.3 million recorded
      in
      other long-term liabilities as of June 30, 2007.





The
      Company had sixteen derivative instruments outstanding at June 30, 2007 of
      which
      one was a foreign currency swap, eight 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 the seven cash flow hedges for forecasted natural gas. During the period
      ended June 30, 2007, the Company recorded an immaterial loss in other expense
      related to the foreign currency forward exchange contracts 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 $4 thousand and $0.1 million, respectively,
      for
      the three and sixth month periods ended June 30, 2008 and $0.1 million and
      $0.2
      million, respectively, for the three and six month periods ended June 30, 2007
      was recorded in other comprehensive income. The balance of the foreign currency
      swap recorded in other long-term liabilities was $0.6 million and $0.9 million,
      respectively, as of June 30, 2008 and 2007.


8


No
      component of the derivative gains or losses has been excluded from the
      assessment of hedge effectiveness. For the three and six month periods ended
      June 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.





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
      June
      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 that it will proceed with remediation efforts in
      2008.


9


Following
      litigation with Trojan Technologies, Inc. (“Trojan”) 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 entered into a settlement whereby in exchange
      for a
      nominal cash payment and relief from legal fees, the Company granted Trojan
      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. Oral argument is scheduled in this case for September 2008. 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.





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 and
      corresponding EPA and Kentucky Department of Environmental Protection (“KYDEP”)
      hazardous waste management rules and regulations. The alleged violations are
      based on findings during a Multi Media Compliance inspection of the Company’s
      Big Sandy Plant, located in Catlettsburg, Kentucky, conducted by the EPA and
      the
      KYDEP in September 2005. The alleged violations mostly concerned the hazardous
      waste spent activated carbon reactivation 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 are
      significant violations of the Resource Conservation and Recovery Act (“RCRA”)
      that are unresolved by the information in the Company’s submittals. The Company
      met with the EPA in December 2007 to discuss alleged violations. The EPA
      requested additional information which the Company provided. The EPA can take
      formal enforcement action to require the Company to remediate alleged
      violations, which could involve the assessment of substantial civil penalties
      as
      well. 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 inspection, and are the same as alleged
      in
      the January 2007 NOV described in the preceding paragraph. The Notice is dated
      July 3, 2008 and the Company has 60 days from that date to demonstrate to the
      EPA that the alleged violations and releases are not continuing, or else the
      Big
      Sandy Plant will not be able to receive spent carbon from CERCLA sites until
      the
      EPA determines that the facility is again acceptable to receive such CERCLA
      wastes. The EPA has scheduled a conference with the Company on August 25, 2008.
      The Company will be submitting a written response to the Notice prior to the
      conference. The Company has also requested an extension of the 60 day period
      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
      EPA
      has not yet responded to this request. The Company believes that the indefinite
      suspension or termination of its ability to receive and reactivate spent carbon
      from CERCLA sites will not have a material adverse effect on its financial
      position or results of operations.


10


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, therefore 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 revised Part B application
      and
      responded to the KYDEP’s comments in December 2007 as required by the NOV. 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 specific sections of this permit application and submitted
      a
      revised application to 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 owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical
      Corporation, which was formed on October 1, 2002. At June 30, 2008, Calgon
      Mitsubishi Chemical Corporation had $7.7 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 June 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.





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.


11


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




ActivatedCarbon &Service
            
            Equipment
            
            ConsumerSegment
            
            Segment
            
            Segment
            
            TotalBalance as of January 1, 2008
            
            $
            21,112
            
            $
            6,673
            
            $
            60
            
            $
            27,845Foreign exchange
            
            
            18
            
            
            (51
            )
            
            -
            
            
            (33
            )Balance
                as of June 30, 2008
            
            $
            21,130
            
            $
            6,622
            
            $
            60
            
            $
            27,812





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





June 30, 2008Weighted Average
            
            Gross Carrying
            
            Foreign
            
            Accumulated
            
            Net CarryingAmortization Period
            
            Amount
            
            Exchange
            
            Amortization
            
            AmountAmortized Intangible Assets:Patents
            
            
            15.4
                Years
            
            $
            1,369
            
            $
            -
            
            $
            (918
            )
            $
            451Customer
                Relationships
            
            
            17.0
                Years
            
            
            9,323
            
            
            37
            
            
            (5,242
            )
            
            4,118License
                Agreement
            
            
            5.0
                Years
            
            
            500
            
            
            -
            
            
            (466
            )
            
            34Product
                Certification
            
            
            7.9
                Years
            
            
            1,682
            
            
            -
            
            
            (759
            )
            
            923Unpatented
                Technology
            
            
            20.0
                Years
            
            
            2,875
            
            
            -
            
            
            (1,440
            )
            
            1,435Total
            
            
            16.0
                Years
            
            $
            15,749
            
            $
            37
            
            $
            (8,825
            )
            $
            6,961








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 six months ended June 30, 2008, the Company recognized $0.4 million
      and $0.8 million, respectively, of amortization expense related to intangible
      assets. For the three and six months ended June 30, 2007, the Company recognized
      $0.5 million and $0.9 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





12


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 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
      periods ended June 30, 2008 and December 31, 2007, 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 June 30, 2008 and December 31, 2007. As a result, as of June 30,
      2008
      and December 31, 2007, the holders of the Notes have the right to convert the
      Notes into cash and shares of common stock. The Company is required to
      reclassify as a current liability, that portion of the Notes that can not be
      refinanced on a long-term basis under the Company’s Credit Facility as provided
      for by SFAS No. 6, “Classification of Short-Term Obligations Expected to be
      Refinanced,” which was $65.0 million at June 30, 2008 and December 31,
      2007.





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
      June 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.


13


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. As of the six
      month period ended June 30, 2008, the Company recorded interest expense of
      $2.2 million, of which $1.9 million related to the Notes and $0.3 million
      related to the amortization of the discount. The Company incurred issuance
      costs
      of $1.5 million which have been deferred and are being amortized over a five
      year period.





**Credit
      Facility**





The
      Credit Facility permits borrowings in an amount up to $55.0 million and includes
      a separate U.K. sub-facility and a separate Belgian sub-facility. The 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
      June 30, 2008, the collateral value of assets pledged was $57.1 million.
      The collateral value as of June 30, 2008 for domestic, U.K., and Belgian
      borrowers were $45.7 million, $5.9 million, and $5.5 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 June 30, 2008, total availability was
      $38.6 million. Availability as of June 30, 2008 for domestic, U.K.,
      and Belgian borrowers was $34.6 million, $4.0 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 June 30, 2008 totaled $16.4 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 1.25% to 2.25% and is based upon the Company’s overall availability under
      the Credit Facility. The unused commitment fee is equal to 0.375% per annum
      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 June 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 June 30, 2008.
      As a result, as of June 30, 2008, the holders of the Notes have the right to
      convert the Notes into cash and shares of common stock. The conversion of the
      Notes by the holders in excess of $10.0 million would be an event of default
      of
      the Credit Facility. Included in the Credit Facility, is a provision for up
      to
      $10.0 million where Notes can be converted up to that amount and classified
      as
      long-term debt as the Company has the ability and intent to refinance it under
      the Credit Facility. 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.


14


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 June 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 June 30, 2008. Bank guarantees of 0.9 million Euros were issued
      as of June 30, 2008. The maturity date of this facility is December 15,
      2008. Availability under this facility was 3.1 million Euros at June 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 June 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 June 30,
      2008.





**Fair
      Value of Debt**


At
      June
      30, 2008, the Company had $75.0 million of fixed rate Senior Convertible Notes
      outstanding ($65.0 million classified as current). The fair value of these
      Notes
      at June 30, 2008 was $227.5 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
      June 30, 2008 of $1.6 million in 2008, $2.9 million in 2009, and
      $75.0 million in 2011. See also the section entitled 5.00% Convertible
      Senior Notes due 2036 related to the holders’ optional conversion as of June 30,
      2008 and December 31, 2007.


15


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 six months ended June 30, 2008 and
      2007:





Three
                Months Ended June 30
            
            Six
                Months Ended June 30Pension
                Benefits (in thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
                cost
            
            $
            261
            
            $
            234
            
            $
            517
            
            $
            556Interest
                cost
            
            
            1,226
            
            
            1,178
            
            
            2,398
            
            
            2,352Expected
                return on plan assets
            
            
            (1,342
            )
            
            (1,229
            )
            
            (2,696
            )
            
            (2,458
            )Amortization
                of prior service cost
            
            
            60
            
            
            62
            
            
            121
            
            
            123Net
                amortization
            
            
            118
            
            
            119
            
            
            192
            
            
            188Curtailment
                credit
            
            
            -
            
            
            (265
            )
            
            -
            
            
            (265
            )Net
                periodic pension cost
            
            $
            323
            
            $
            99
            
            $
            532
            
            $
            496





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





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 June 30, 2008, the Company
      has contributed $3.6 million and expects to contribute $0.4 million over the
      remainder of the year.





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. The Company
      expects to record a curtailment loss of approximately $0.3 million in the third
      quarter of 2008.





European
      Plans :





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





Three
                Months Ended June 30
            
            Six
                Months Ended June 30Pension
                Benefits (in thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
                cost
            
            $
            203
            
            $
            189
            
            $
            406
            
            $
            370Interest
                cost
            
            
            514
            
            
            442
            
            
            1,028
            
            
            868Expected
                return on plan assets
            
            
            (387
            )
            
            (328
            )
            
            (774
            )
            
            (648
            )Amortization
                of prior service cost
            
            
            12
            
            
            11
            
            
            24
            
            
            22Net
                amortization
            
            
            8
            
            
            26
            
            
            16
            
            
            51Net
                periodic pension cost
            
            $
            350
            
            $
            340
            
            $
            700
            
            $
            663





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 June 30, 2008, the
      Company contributed $1.1 million. The Company expects to contribute the
      remaining $1.4 million over the remainder of the year.


16


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 $0.3 million for the three months
      ended
      June 30, 2008 and 2007, respectively and $1.1 million and $0.8 million for
      the
      six months ended June 30, 2008 and 2007, respectively.


17


12. Earnings
      Per Share





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





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,*(Dollars
                in thousands, except per share amounts)*
            
            2008
            
            2007
            
            2008
            
            2007Income
                from continuing operations available to common
                shareholders
            
            $
            9,817
            
            $
            4,462
            
            $
            20,691
            
            $
            6,496Income
                from discontinued operations available to common
                shareholders
            
            
            3,447
            
            
            -
            
            
            3,447
            
            
            -Net
                income available to common shareholders
            
            $
            13,264
            
            $
            4,462
            
            $
            24,138
            
            $
            6,496Weighted
                Average Shares OutstandingBasic
            
            
            40,558,818
            
            
            40,291,372
            
            
            40,399,608
            
            
            40,258,163Effect
                of Dilutive Securities
            
            
            11,466,071
            
            
            7,453,694
            
            
            11,490,896
            
            
            5,549,090Diluted
            
            
            52,024,889
            
            
            47,745,066
            
            
            51,890,504
            
            
            45,807,253Net
                income per common shareBasic:Income
                from continuing operations
            
            $
            .24
            
            $
            .11
            
            $
            .51
            
            $
            .16Income
                from discontinued operations
            
            
            .09
            
            
            -
            
            
            .09
            
            
            -Total
            
            $
            .33
            
            $
            .11
            
            $
            .60
            
            $
            .16Diluted:Income
                from continuing operations
            
            $
            .19
            
            $
            .09
            
            $
            .40
            
            $
            .14Income
                from discontinued operations
            
            
            .06
            
            
            -
            
            
            .07
            
            
            -Total
            
            $
            .25
            
            $
            .09
            
            $
            .47
            
            $
            .14





The
      stock
      options that were excluded from the dilutive calculations as the effect would
      have been antidilutive were 80,625 and 6,100 for the three months ended June
      30,
      2008 and 2007, respectively, and 80,625 and 166,684 for the six months ended
      June 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 June 30, 2008, the average stock price for the 90-day
      trading period was $16.57, which was higher than the


conversion
      price of $5.10 therefore 10,083,943 shares were included in the dilutive share
      calculation for the period of time the Notes were outstanding for the period
      ended June 30, 2008.


18





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





**Conversion
                Price:**
            
            $
            5.10**Number
                of underlying shares:**
            
            
            14,705,880**Principal
                Amount:**
            
            $
            75,000,000





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





Included
                in
            
            Share
                DilutionStock
            
            Conversion
            
            Price
            
            Share
            
            Per
                $1.00 SharePrice
            
            Price
            
            Difference
            
            Count
            
            Price
                Difference$
            5.10
            
            $
            5.10
            
            $
            0.00
            
            
            -
            
            
            -$
            5.60
            
            $
            5.10
            
            $
            0.50
            
            
            1,313,023
            
            
            2,626,046$
            6.10
            
            $
            5.10
            
            $
            1.00
            
            
            2,410,798
            
            
            2,410,798$
            7.10
            
            $
            5.10
            
            $
            2.00
            
            
            4,142,500
            
            
            2,071,250$
            8.10
            
            $
            5.10
            
            $
            3.00
            
            
            5,446,621
            
            
            1,815,540$
            9.10
            
            $
            5.10
            
            $
            4.00
            
            
            6,464,122
            
            
            1,616,031$
            10.10
            
            $
            5.10
            
            $
            5.00
            
            
            7,280,137
            
            
            1,456,027$
            11.10
            
            $
            5.10
            
            $
            6.00
            
            
            7,949,123
            
            
            1,324,854$
            12.10
            
            $
            5.10
            
            $
            7.00
            
            
            8,507,533
            
            
            1,215,362$
            13.10
            
            $
            5.10
            
            $
            8.00
            
            
            8,980,689
            
            
            1,122,586$
            14.10
            
            $
            5.10
            
            $
            9.00
            
            
            9,386,731
            
            
            1,042,970$
            15.10
            
            $
            5.10
            
            $
            10.00
            
            
            9,738,993
            
            
            973,899$
            16.10
            
            $
            5.10
            
            $
            11.00
            
            
            10,047,495
            
            
            913,409$
            17.10
            
            $
            5.10
            
            $
            12.00
            
            
            10,319,915
            
            
            859,993$
            18.10
            
            $
            5.10
            
            $
            13.00
            
            
            10,562,234
            
            
            812,480$
            19.10
            
            $
            5.10
            
            $
            14.00
            
            
            10,779,178
            
            
            769,941$
            20.10
            
            $
            5.10
            
            $
            15.00
            
            
            10,974,537
            
            
            731,636




19




13.
            Other
                Financial Information





As
      described in Note 10, the Company has 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 June 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            102,896
            
            $
            12,595
            
            $
            14,310
            
            $
            (21,325
            )
            $
            108,476Cost
                of products sold
            
            
            71,227
            
            
            9,510
            
            
            11,609
            
            
            (21,325
            )
            
            71,021Depreciation
                and amortization
            
            
            3,519
            
            
            491
            
            
            189
            
            
            -
            
            
            4,199Selling,
                general and administrative expenses
            
            
            13,709
            
            
            1,372
            
            
            1,070
            
            
            -
            
            
            16,151Research
                and development expense
            
            
            883
            
            
            120
            
            
            -
            
            
            -
            
            
            1,003Interest
                (income) expense - net
            
            
            4,351
            
            
            (3,333
            )
            
            (239
            )
            
            -
            
            
            779Other
                expense - net
            
            
            41
            
            
            248
            
            
            191
            
            
            -
            
            
            480Provision
                for income taxes
            
            
            4,322
            
            
            189
            
            
            376
            
            
            -
            
            
            4,887Results
                of affiliates’ operations
            
            
            8,420
            
            
            910
            
            
            -
            
            
            (9,330
            )
            
            -Equity
                loss from equity investments
            
            
            -
            
            
            -
            
            
            (137
            )
            
            (2
            )
            
            (139
            )Income
                (loss) from continuing operations
            
            
            13,264
            
            
            4,908
            
            
            977
            
            
            (9,332
            )
            
            9,817Income
                from discontinued operations
            
            
            -
            
            
            -
            
            
            3,447
            
            
            -
            
            
            3,447Net
                income (loss)
            
            $
            13,264
            
            $
            4,908
            
            $
            4,424
            
            $
            (9,332
            )
            $
            13,264


20





Condensed Consolidating Statements of Operations
              Six months ended June 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            183,456
            
            $
            23,889
            
            $
            25,277
            
            $
            (33,815
            )
            $
            198,807Cost
                of products sold
            
            
            127,685
            
            
            17,847
            
            
            21,069
            
            
            (33,815
            )
            
            132,786Depreciation
                and amortization
            
            
            6,923
            
            
            832
            
            
            370
            
            
            -
            
            
            8,125Selling,
                general and administrative expenses
            
            
            26,629
            
            
            2,610
            
            
            2,112
            
            
            -
            
            
            31,351Research
                and development expense
            
            
            1,875
            
            
            219
            
            
            -
            
            
            -
            
            
            2,094Gain
                on AST Settlement
            
            
            (9,250
            )
            
            -
            
            
            -
            
            
            -
            
            
            (9,250
            )Interest
                (income) expense - net
            
            
            8,888
            
            
            (6,838
            )
            
            (432
            )
            
            -
            
            
            1,618Other
                (income) expense - net
            
            
            (73
            )
            
            443
            
            
            200
            
            
            -
            
            
            570Provision
                for income taxes
            
            
            10,207
            
            
            465
            
            
            449
            
            
            -
            
            
            11,121Results
                of affiliates’ operations
            
            
            13,566
            
            
            1,465
            
            
            -
            
            
            (15,031
            )
            
            -Equity
                in income from equity investments
            
            
            -
            
            
            -
            
            
            299
            
            
            -
            
            
            299Income
                (loss) from continuing operations
            
            
            24,138
            
            
            9,776
            
            
            1,808
            
            
            (15,031
            )
            
            20,691Income
                from discontinued operations
            
            
            -
            
            
            -
            
            
            3,447
            
            
            -
            
            
            3,447Net
                income (loss)
            
            $
            24,138
            
            $
            9,776
            
            $
            5,255
            
            $
            (15,031
            )
            $
            24,138





Condensed Consolidating Statements of Operations
              Three months ended June 30, 2007Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            78,340
            
            $
            11,205
            
            $
            7,239
            
            $
            (8,356
            )
            $
            88,428Cost
                of products sold
            
            
            55,818
            
            
            8,148
            
            
            3,946
            
            
            (8,356
            )
            
            59,556Depreciation
                and amortization
            
            
            3,487
            
            
            269
            
            
            575
            
            
            -
            
            
            4,331Selling,
                general and administrative expenses
            
            
            12,616
            
            
            1,318
            
            
            1,075
            
            
            -
            
            
            15,009Research
                and development expense
            
            
            815
            
            
            93
            
            
            (1
            )
            
            -
            
            
            907Interest
                (income) expense - net
            
            
            5,231
            
            
            (3,984
            )
            
            (237
            )
            
            -
            
            
            1,010Other
                (income) expense - net
            
            
            368
            
            
            257
            
            
            (217
            )
            
            -
            
            
            408Provision
                (benefit) for income taxes
            
            
            2,766
            
            
            609
            
            
            (228
            )
            
            -
            
            
            3,147Results
                of affiliates’ operations
            
            
            7,223
            
            
            1,278
            
            
            -
            
            
            (8,501
            )
            
            -Equity
                in income (loss) from equity investments
            
            
            -
            
            
            -
            
            
            406
            
            
            (4
            )
            
            402Net
                income (loss)
            
            $
            4,462
            
            $
            5,773
            
            $
            2,732
            
            $
            (8,505
            )
            $
            4,462





Condensed Consolidating Statements of Operations
              Six months ended June 30, 2007Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedNet
                sales
            
            $
            151,053
            
            $
            23,091
            
            $
            16,971
            
            $
            (19,657
            )
            $
            171,458Cost
                of products sold
            
            
            109,384
            
            
            17,843
            
            
            10,410
            
            
            (19,657
            )
            
            117,980Depreciation
                and amortization
            
            
            6,914
            
            
            546
            
            
            1,132
            
            
            -
            
            
            8,592Selling,
                general and administrative expenses
            
            
            25,207
            
            
            2,623
            
            
            1,785
            
            
            -
            
            
            29,615Research
                and development expense
            
            
            1,551
            
            
            184
            
            
            -
            
            
            -
            
            
            1,735Interest
                (income) expense - net
            
            
            10,507
            
            
            (7,879
            )
            
            (470
            )
            
            -
            
            
            2,158Other
                (income) expense - net
            
            
            698
            
            
            492
            
            
            (379
            )
            
            -
            
            
            811Provision
                for income taxes
            
            
            4,375
            
            
            678
            
            
            474
            
            
            -
            
            
            5,527Results
                of affiliates’ operations
            
            
            14,079
            
            
            2,181
            
            
            -
            
            
            (16,260
            )
            
            -Equity
                in income from equity investments
            
            
            -
            
            
            -
            
            
            1,455
            
            
            1
            
            
            1,456Net
                income (loss)
            
            $
            6,496
            
            $
            10,785
            
            $
            5,474
            
            $
            (16,259
            )
            $
            6,496


21





Condensed Consolidating Balance SheetsJune 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating
              and Eliminating
              Entries
            
            ConsolidatedCash
                & Cash Equivalents
            
            $
            26,301
            
            $
            3,059
            
            $
            23,978
            
            $
            (14,789
            )
            $
            38,549Receivables
            
            
            55,008
            
            
            15,986
            
            
            5,240
            
            
            (9,804
            )
            
            66,430Inventories
            
            
            68,503
            
            
            8,418
            
            
            9,747
            
            
            61
            
            
            86,729Other
                current assets
            
            
            18,952
            
            
            2,146
            
            
            2,129
            
            
            -
            
            
            23,227Total
                current assets
            
            
            168,764
            
            
            29,609
            
            
            41,094
            
            
            (24,532
            )
            
            214,935Intercompany
                accounts receivable
            
            
            56,168
            
            
            183,962
            
            
            1,657
            
            
            (241,787
            )
            
            -Property,
                plant, and equipment, net
            
            
            97,195
            
            
            6,991
            
            
            8,074
            
            
            -
            
            
            112,260Intangibles
            
            
            4,027
            
            
            2,934
            
            
            -
            
            
            -
            
            
            6,961Goodwill
            
            
            16,674
            
            
            8,354
            
            
            2,784
            
            
            -
            
            
            27,812Equity
                investments
            
            
            261,371
            
            
            103,656
            
            
            9,412
            
            
            (365,980
            )
            
            8,459Other
                assets
            
            
            4,182
            
            
            1,353
            
            
            5,100
            
            
            -
            
            
            10,635Total
                assets
            
            $
            608,381
            
            $
            336,859
            
            $
            68,121
            
            $
            (632,299
            )
            $
            381,062Short-term
                debt
            
            $
            -
            
            $
            -
            
            $
            1,600
            
            $
            -
            
            $
            1,600Current
                portion of long-term debt
            
            
            65,744
            
            
            -
            
            
            -
            
            
            -
            
            
            65,744Accounts
                payable
            
            
            34,139
            
            
            19,411
            
            
            4,312
            
            
            (13,449
            )
            
            44,413Other
                current liabilities
            
            
            27,608
            
            
            773
            
            
            1,024
            
            
            (18,501
            )
            
            10,904Total
                current liabilities
            
            
            127,491
            
            
            20,184
            
            
            6,936
            
            
            (31,950
            )
            
            122,661Intercompany
                accounts payable
            
            
            173,758
            
            
            49,137
            
            
            11,834
            
            
            (234,729
            )
            
            -Long-term
                debt
            
            
            10,000
            
            
            -
            
            
            -
            
            
            -
            
            
            10,000Other
                non-current liabilities
            
            
            90,399
            
            
            8,560
            
            
            10,929
            
            
            (68,220
            )
            
            41,668Shareholders'
                equity
            
            
            206,733
            
            
            258,978
            
            
            38,422
            
            
            (297,400
            )
            
            206,733Total
                liabilities and shareholders' equity
            
            $
            608,381
            
            $
            336,859
            
            $
            68,121
            
            $
            (632,299
            )
            $
            381,062


22





Condensed Consolidating Balance SheetsDecember 31, 2007Issuer
            
            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


23





Condensed Consolidating Statements of Cash FlowsSix months ended June 30, 2008Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                cash provided by (used in) operating activities
            
            $
            14,584
            
            $
            7,876
            
            $
            (4,150
            )
            $
            (178
            )
            $
            18,132Investing
                activities:Property,
                plant and equipment expenditures
            
            
            (11,276
            )
            
            (268
            )
            
            (258
            )
            
            -
            
            
            (11,802
            )Investment
                (in) from affiliates
            
            
            -
            
            
            (45
            )
            
            45
            
            
            -
            
            
            -Other
            
            
            331
            
            
            -
            
            
            -
            
            
            -
            
            
            331Net
                cash used in investing activities
            
            
            (10,945
            )
            
            (313
            )
            
            (213
            )
            
            -
            
            
            (11,471
            )Financing
                activities:Net
                borrowings (repayments)
            
            
            (5,322
            )
            
            -
            
            
            -
            
            
            5,322
            
            
            -Intercompany
                and equity transactions
            
            
            6,300
            
            
            (7,506
            )
            
            1,206
            
            
            -
            
            
            -Other
            
            
            1,720
            
            
            -
            
            
            -
            
            
            -
            
            
            1,720Excess
                tax benefit for stock-based compensation
            
            
            970
            
            
            -
            
            
            -
            
            
            -
            
            
            970Net
                cash provided by (used in) financing activities
            
            
            3,668
            
            
            (7,506
            )
            
            1,206
            
            
            5,322
            
            
            2,690Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (1,808
            )
            
            (681
            )
            
            1,205
            
            
            178
            
            
            (1,106
            )Increase
                (decrease) in cash and cash equivalents
            
            
            5,499
            
            
            (624
            )
            
            (1,952
            )
            
            5,322
            
            
            8,245Cash
                and cash equivalents, beginning of period
            
            
            20,802
            
            
            3,683
            
            
            25,930
            
            
            (20,111
            )
            
            30,304Cash
                and cash equivalents, end of period
            
            $
            26,301
            
            $
            3,059
            
            $
            23,978
            
            $
            (14,789
            )
            $
            38,549





Condensed Consolidating Statements of Cash FlowsSix months ended June 30, 2007Issuer
            
            Guarantor
              Subsidiaries
            
            Non-Guarantor
              Subsidiaries
            
            Consolidating and
              Eliminating
              Entries
            
            ConsolidatedNet
                cash provided by (used in) operating activities
            
            $
            1,183
            
            $
            7,391
            
            $
            4,378
            
            $
            (478
            )
            $
            12,474Investing
                activities:Property,
                plant and equipment expenditures
            
            
            (3,967
            )
            
            (272
            )
            
            (212
            )
            
            -
            
            
            (4,451
            )Investment
                (in) from affiliates
            
            
            -
            
            
            (263
            )
            
            263
            
            
            -
            
            
            -Other
            
            
            162
            
            
            1
            
            
            -
            
            
            (1
            )
            
            162Net
                cash used in investing activities
            
            
            (3,805
            )
            
            (534
            )
            
            51
            
            
            (1
            )
            
            (4,289
            )Financing
                activities:Net
                borrowings (repayments)
            
            
            3,969
            
            
            -
            
            
            1,438
            
            
            (3,669
            )
            
            1,738Intercompany
                and equity transactions
            
            
            10,903
            
            
            (7,395
            )
            
            (4,402
            )
            
            894
            
            
            -Other
            
            
            551
            
            
            (1
            )
            
            -
            
            
            1
            
            
            551Net
                cash provided by (used in) financing activities
            
            
            15,423
            
            
            (7,396
            )
            
            (2,964
            )
            
            (2,774
            )
            
            2,289Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (334
            )
            
            226
            
            
            152
            
            
            479
            
            
            523Increase
                (decrease) in cash and cash equivalents
            
            
            12,467
            
            
            (313
            )
            
            1,617
            
            
            (2,774
            )
            
            10,997Cash
                and cash equivalents, beginning of period
            
            
            -
            
            
            2,507
            
            
            19,556
            
            
            (16,432
            )
            
            5,631Cash
                and cash equivalents, end of period
            
            $
            12,467
            
            $
            2,194
            
            $
            21,173
            
            $
            (19,206
            )
            $
            16,628


24


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 $2.1 million and $1.8 million for the three months ended
      June
      30, 2008 and 2007, respectively, and $5.0 million and $3.8 million for the
      six
      months ended June 30, 2008 and 2007, respectively. Receivables from equity
      investees amounted to $1.9 million and $2.4 million at June 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
      June 30, 2008 and December 31, 2007, the Company’s gross unrecognized income tax
      benefits were $10.6 million and $12.0 million, respectively. If recognized,
      $10.1 million and $10.0 million of the gross unrecognized tax benefits would
      affect the effective tax rate at June 30, 2008 and December 31, 2007,
      respectively.





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 June 30, 2008, as required by SFAS No. 157:





(Thousands)
            
            Level
                1
            
            Level
                2
            
            Level
                3**Assets**Natural
                gas derivatives
            
            $
            -
            
            $
            3,007
            
            $
            -Derivatives
            
            
            -
            
            
            47
            
            
            -**Liabilities**Natural
                gas derivatives
            
            $
            -
            
            $
            12
            
            $
            -Derivatives
            
            
            -
            
            
            1,277
            
            
            -


25


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 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.





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 income
      statement 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 income statement 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.


26


In
      May
      2008, the FASB issued Financial Accounting Standard SFAS No. 162, “The
      Hierarchy of Generally Accepted Accounting Principles” (SFAS 162). Under SFAS
      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 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 FASB 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.


27


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 $20.0 million or 22.7% and $27.3 million or 16.0% for
      the
      quarter and year-to-date periods ended June 30, 2008, respectively, versus
      the
      quarter and year-to-date periods ended June 30, 2007. Net sales for the
      Activated Carbon and Service segment for the quarter and year-to-date periods
      ended June 30, 2008 increased $20.6 million or 27.5% and $28.8 million or 20.1%,
      respectively, versus the comparable 2007 periods. The increase for the quarter
      and year-to-date periods ended June 30, 2008 versus the similar 2007 periods
      was
      primarily due to higher demand and pricing in the environmental air treatment,
      food, potable water, and specialty carbon markets. Also contributing to the
      increase was higher pricing in the environmental water treatment and industrial
      process markets. Foreign currency translation had a positive impact of $3.3
      million and $5.8 million, respectively, for the quarter and year-to-date periods
      ended June 30, 2008. Net sales for the Equipment segment was comparable for
      the
      quarter ended June 30, 2008 versus the similar 2007 period and decreased $1.2
      million or 5.5% for the year-to-date period ended June 30, 2008 versus the
      comparable 2007 period. Stronger sales of traditional carbon adsorption and
      ultra-violet light (UV) equipment offset lower sales of municipal odor control
      systems. The decrease for the year-to-date period ended June 30, 2008 was
      primarily due to lower demand for municipal odor and ion exchange systems
      partially offset by increased demand for UV equipment. Foreign currency
      translation had a positive impact of $0.2 million and $0.3 million,
      respectively, for the quarter and year-to-date periods ended June 30, 2008.
      Net
      sales for the Consumer segment decreased $0.6 million or 19.6% and $0.2 million
      or 3.8%, respectively, for the quarter and year-date periods ended June 30,
      2008
      versus the comparable 2007 periods. The decrease was attributable to lower
      demand for PreZerve® products. The total positive impact of foreign currency
      translation on consolidated net sales for the quarter and year-to-date periods
      ended June 30, 2008 was $3.5 million and $6.1 million,
      respectively.





Net
      sales
      less cost of products sold, as a percentage of net sales, was 34.5% for the
      quarter ended June 30, 2008 compared to 32.7% for the similar 2007 period,
      a
      1.8% increase or $8.6 million, and 33.2% for the year-to-date period ended
      June
      30, 2008 compared to 31.2% for the similar 2007 period, a 2.0% increase or
      $12.5
      million. The increase for both periods was in the Activated Carbon and Service
      segment which was principally driven by volume as well as higher prices for
      certain carbon and service products. The Equipment and Consumer segments were
      comparable for the quarter and year-to-date periods ended June 30, 2008 versus
      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 $0.1 million and $0.5 million during
      the quarter and year-to-date periods ended June 30, 2008 versus the comparable
      2007 periods was primarily due to an increase in fully depreciated fixed
      assets.




Selling,
      general and administrative expenses for the quarter and year-to-date periods
      ended June 30, 2008 increased by $1.1 million and $1.7 million, respectively,
      versus the comparable 2007 periods. The increase in both periods was primarily
      due to increased employee related expenses partially offset by a recovery of
      receivables previously considered uncollectible. The year-to-date 2007 period
      also included the positive effect of the settlement with Trojan Technologies
      regarding the Company’s Canadian UV patent.




Research
      and development expenses for the quarter and year-to-date periods ended June
      30,
      2008 increased $0.1 million and $0.4 million, respectively, versus the
      comparable 2007 periods 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 June 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).


28


Other
      expense for the quarter ended June 30, 2008 was comparable to the similar 2007
      period and decreased $0.2 million for the year-to-date period ended June 30,
      2008 versus the similar 2007 period. The decrease for the year-to-date period
      is
      primarily due to the favorable impact of foreign exchange.




Interest
      expense, net of interest income, for the quarter and year-to-date periods ended
      June 30, 2008 decreased $0.2 million and $0.5 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. Also
      contributing to the year-to-date decline is the penalty interest related to
      the
      Company’s Senior Convertible Notes that occurred in the 2007 similar
      period.





The
      income tax provision increased $1.7 million for the quarter ended June 30,
      2008
      versus the quarter ended June 30, 2007. The increase was primarily due to an
      increase in income from operations before income tax and equity in income (loss)
      from equity investments of $7.6 million.





The
      effective tax rate for the year-to-date period ended June, 2008 was 35.3%
      compared to 52.3% for the similar 2007 period. The year-to-date period ended
      June 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 June
      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 as well as income generated by
      the
      Company’s Japanese joint venture.





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 benefits 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.





Equity
      in
      income from equity investments for the quarter and year-to-date periods ended
      June 30, 2008 decreased $0.5 million and $1.2 million, respectively, versus
      the
      similar 2007 periods. The decrease was primarily due to higher product costs
      realized in 2008.





**Discontinued
      Operations**





Income
      from discontinued operations was $3.5 million for the quarter and year-to-date
      periods ended June 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 $18.1 million for the period ended
      June 30, 2008 compared to $12.5 million for the similar 2007 period. The $5.6
      million increase is primarily due to improved earnings of $17.6 million. The
      2008 earnings include $3.5 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. Offsetting the cash effects of increased earnings were
      unfavorable working capital changes of $6.9 million as well as increased pension
      contributions of $2.8 million.


29


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





Total
      debt at June 30, 2008 was $77.3 million, an increase of $0.4 million from
      December 31, 2007. The increase was primarily the result of the effect of
      foreign exchange related to the Company’s short-term debt offset by a decrease
      in the debt discount related to the Senior Convertible Notes.





On
      August
      18, 2006, the Company issued $75.0 million in aggregate principal amount of
      5.00% Notes due in 2036. 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
      periods ended June 30, 2008 and December 31, 2007, 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 June 30, 2008 and December 31, 2007. As a result, as of June 30,
      2008
      and December 31, 2007, the holders of the Notes have the right to convert the
      Notes into cash and shares of common stock. The Company is required to
      reclassify as a current liability, that portion of the Notes that cannot be
      refinanced on a long-term basis under the Company’s Credit Facility as provided
      for by SFAS No. 6, “Classification of Short-Term Obligations Expected to be
      Refinanced,” which was $65.0 million at June 30, 2008 and December 31, 2007. A
      conversion of a significant portion of the Notes in the near future would
      require the Company to obtain additional financing in order to satisfy its
      cash
      payment requirements of $75.0 million under the terms of the Notes and complete
      its capital expenditure program discussed above. The Company believes it would
      be able to obtain the necessary financing in a timely manner. Such additional
      financing might be secured via a combination of a new term loan, an expansion
      or
      replacement of its Credit Facility or the issuance of common stock of the
      Company.





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
      June 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.


30


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. As of the six
      month period ended June 30, 2008, the Company recorded interest expense of
      $2.2 million, of which $1.9 million related to the Notes and $0.3 million
      related to the amortization of the discount. The Company incurred issuance
      costs
      of $1.5 million which have been deferred and are being amortized over a five
      year period. A
      conversion of some or all of the Notes would require the Company to write-off
      a
      proportionate amount of both the discount and issuance costs discussed
      above.





**Credit
      Facility**





The
      Credit Facility permits borrowings in an amount up to $55.0 million and includes
      a separate U.K. sub-facility and a separate Belgian sub-facility. The 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
      June 30, 2008, the collateral value of assets pledged was $57.1 million.
      The collateral value as of June 30, 2008 for domestic, U.K., and Belgian
      borrowers were $45.7 million, $5.9 million, and $5.5 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 June 30, 2008, total availability was
      $38.6 million. Availability as of June 30, 2008 for domestic, U.K.,
      and Belgian borrowers was $34.6 million, $4.0 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 June 30, 2008 totaled $16.4 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 1.25% to 2.25% and is based upon the Company’s overall availability under
      the Credit Facility. The unused commitment fee is equal to 0.375% per annum
      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 June 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 June 30, 2008.
      As a result, as of June 30, 2008, the holders of the Notes have the right to
      convert the Notes into cash and shares of common stock. The conversion of
      the Notes by the holders in excess of $10.0 million would be an event
      of default of the Credit Facility. Included in the Credit Facility, is a
      provision for up to $10.0 million where Notes can be converted up to that amount
      and classified as long-term debt as the Company has the ability and intent
      to
      refinance it under the Credit Facility. 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.


31


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 June 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.
      As of
      June 30, 2008, with the exception of the reclassification of a portion of the
      Company’s long-term debt to current portion of long-term and a change in one of
      the Company’s purchase obligations, there have been no further 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 June 30, 2008.





Due
                in(Thousands)
            
            2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            Thereafter
            
            TotalShort-term
                debt
            
            $
            1,600
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            1,600Current
                  portion of Long-term
                  debt*
            
            
            -
            
            
            2,925
            
            
            -
            
            
            65,000
            
            
            -
            
            
            -
            
            
            67,925Long-term
                debt
            
            
            -
            
            
            -
            
            
            -
            
            
            10,000
            
            
            -
            
            
            -
            
            
            10,000Interest
                on Notes
            
            
            3,750
            
            
            3,750
            
            
            3,750
            
            
            2,369
            
            
            -
            
            
            -
            
            
            13,619Operating
                leases
            
            
            3,733
            
            
            3,009
            
            
            2,409
            
            
            1,921
            
            
            1,798
            
            
            4,711
            
            
            17,581Unconditional
                purchase obligations**
            
            
            24,112
            
            
            23,776
            
            
            22,253
            
            
            19,710
            
            
            1,575
            
            
            1,838
            
            
            93,264Total
                contractual cash Obligations
            
            $
            33,195
            
            $
            33,460
            
            $
            28,412
            
            $
            99,000
            
            $
            3,373
            
            $
            6,549
            
            $
            203,989





**The
      2011 maturity excludes debt discount of $2,180. See additional discussion in
      Note 10.*


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




The
      long-term tax payable of $11.4 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.





Capital
      Expenditures and Investments





The
      Company currently estimates that it will spend approximately $125 million on
      capital expenditures for property, plant and equipment during the period 2008
      through 2011. Capital
      expenditures for property, plant and equipment totaled $11.8 million for the
      six
      months ended June 30, 2008 compared to expenditures of $4.5 million for the
      same
      period in 2007. The expenditures for the period ended June 30, 2008 consisted
      primarily of improvements to the Company’s manufacturing facilities of $9.1
      million, of which $5.3 million was directly related to the planned re-start
      of a
      previously idled a production line at the Company’s Catlettsburg, Kentucky
      facility, $0.9 million related to improvements to information systems, and
      customer capital of $1.3 million. The comparable 2007 expenditures consisted
      primarily of $4.0 million for improvements to manufacturing facilities and
      $0.2
      million for customer capital. Capital expenditures for 2008 are projected to
      be
      approximately $42.0 million which includes approximately $20.0 million related
      to the aforementioned production line at the Catlettsburg, Kentucky facility.
      The Company expects to fund capital expenditures from operating cash flows,
      cash
      on hand, and borrowings.


32


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. The
      Company conducted an impairment review, in accordance with SFAS No. 144, of
      the
      plant’s assets having a net book value of $1.4 million in connection with the
      temporary idling of the facility and concluded that the assets were not
      impaired. It is management’s intention to resume operation of the plant in the
      future as market conditions warrant it. Management is currently in the process
      of analyzing a possible near-term restart of this plant. If management should
      determine not to re-start the plant, operating results would be adversely
      affected by impairment charges.





Regulatory
      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 $20.0 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
      June
      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 not yet determined when it will proceed with
      remediation efforts.





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 and
      corresponding EPA and Kentucky Department of Environmental Protection (“KYDEP”)
      hazardous waste management rules and regulations. The alleged violations are
      based on findings during a Multi Media Compliance inspection of the Company’s
      Big Sandy Plant, located in Catlettsburg, Kentucky, conducted by the EPA and
      the
      KYDEP in September 2005. The alleged violations mostly concerned the hazardous
      waste spent activated carbon reactivation 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 are
      significant violations of the Resource Conservation and Recovery Act (“RCRA”)
      that are unresolved by the information in the Company’s submittals. The Company
      met with the EPA in December 2007 to discuss alleged violations. The EPA
      requested additional information which the Company provided. The EPA can take
      formal enforcement action to require the Company to remediate alleged
      violations, which could involve the assessment of substantial civil penalties
      as
      well. 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.


33


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 inspection, and are the same as alleged
      in
      the January 2007 NOV described in the preceding paragraph. The Notice is dated
      July 3, 2008 and the Company has 60 days from that date to demonstrate to the
      EPA that the alleged violations and releases are not continuing, or else the
      Big
      Sandy Plant will not be able to receive spent carbon from CERCLA sites until
      the
      EPA determines that the facility is again acceptable to receive such CERCLA
      wastes. The EPA has scheduled a conference with the Company on August 25, 2008.
      The Company will be submitting a written response to the Notice prior to the
      conference. The Company has also requested an extension of the 60 day period
      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
      EPA
      has not yet responded to this request. The Company believes that the indefinite
      suspension or termination of its ability to receive and reactivate spent carbon
      from CERCLA sites will not have a material adverse effect on its financial
      position or results of operations.





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, therefore 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 revised Part B application
      and
      responded to the KYDEP’s comments in December 2007 as required by the NOV. 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 specific sections of this permit application and submitted
      a
      revised application to 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.


34


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 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.





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 income
      statement 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 income statement 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 162). Under SFAS
      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 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 FASB 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.


35


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 $0.9 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 June 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 June
      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 June 30, 2008, the Company had eighty
      derivative instruments outstanding of which fifty-two were hedges utilizing
      foreign currency forward exchange contracts and twenty-eight were cash flow
      hedges utilizing foreign currency option contracts for forecasted inventory
      purchases. A hypothetical 10% strengthening (or weakening) of the U.S. dollar,
      British Pound Sterling, Canadian Dollar, and Euro at June 30, 2008 would result
      in an incremental pre-tax loss (or gain) of approximately $2.0 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.





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.


36


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 June 30, 2008, that have
      significantly affected, or are reasonably likely to significantly affect, the
      Company’s internal controls over financial reporting.


37


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)**April
                1 – April 30, 2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —May
                1 – May 31, 2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —June
                1 – June 30, 2008
            
            
            1,167
            
            $
            18.86
            
            
            —
            
            
            —




(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
              4.
            Submission
                of Matters to a Vote of Security
                Holders





The
      annual meeting of stockholders was held May 1, 2008. In connection with the
      meeting, proxies were solicited pursuant to the Securities Exchange Act. The
      following are the voting results on the proposals considered and voted upon
      at
      the meeting and described in the proxy statement.





Election
      of directors:





Class
                of 2011
            
            Votes For
            
            Votes WithheldRandall
                S. Dearth
            
            
            36,063,890
            
            
            560,957Timothy
                G. Rupert
            
            
            31,604,977
            
            
            5,019,870Seth
                E. Schofield
            
            
            31,217,191
            
            
            5,407,656





To
      approve the Adoption of the Company’s 2008 Equity Incentive Plan:





Votes
                For
            
            Votes Against
            
            Votes Withheld25,508,269
            
            
            1,573,032
            
            
            414,818





Ratification
      of Deloitte & Touche LLP as Independent Registered Public Accounting Firm
      for 2008:





Votes
                For
            
            Votes Against
            
            Votes Withheld35,926,140
            
            
            540,946
            
            
            157,762


38


Item
              6.
            Exhibits





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.


39


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:
                August 11, 2008
            /s/Leroy
                M. BallLeroy
                M. BallSenior
                Vice President,Chief
                Financial Officer


40





EXHIBIT
      INDEX





Exhibit
              No.
            
            Description
            
            Method
                of Filing31.1
            
            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


41