UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended June 30,
      2009OR ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      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)





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


Yes x                 No  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes  ̈                 No  o





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





Large
      accelerated filer o
            Accelerated
      filer  xNon-accelerated
      filer   ̈  (Do
      not check if a smaller reporting company)
            Smaller
      reporting company   ̈





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


Yes o                 No  x





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, 2009Common
      Stock, $.01 par value per share
              
              54,750,451  shares





CALGON
CARBON CORPORATION


FORM
10-Q


QUARTER
ENDED June 30, 2009





The
Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Forward-looking
statements typically contain words such as “expect,” “believe,” “estimate,”
“anticipate,” or similar words indicating that future outcomes are
uncertain.  Statements looking forward in time, including statements
regarding future growth and profitability, price increases, cost savings,
broader product lines, enhanced competitive posture and acquisitions, are
included in this Form 10-Q and the Company’s most recent Annual
Report  pursuant to the “safe harbor” provision 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 future periods
to be materially different from any future performance suggested herein.
Further, the Company operates in an industry sector where securities values may
be volatile and may be influenced by economic and other factors beyond the
Company’s control. Some of the factors that could affect future performance of
the Company are higher energy and raw material costs, costs of imports and
related tariffs, labor relations, capital and environmental requirements,
changes in foreign currency exchange rates, borrowing restrictions, validity of
patents and other intellectual property, and pension costs.  In the
context of the forward-looking information provided in this Form 10-Q and in
other reports, please refer to the discussions of risk factors and other
information detailed in, as well as the other information contained in the
Company’s most recent Annual Report.


INDEX





PagePART 1–CONDENSED CONSOLIDATED FINANCIAL
      INFORMATION
                  2Item 1.
                  Condensed Consolidated Financial
      Statements
                  2Introduction
      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
                  35Item 3.
                  Quantitative and Qualitative Disclosures about
      Market Risk
                  47Item 4.
                  Controls and Procedures
                  47PART II-OTHER INFORMATION
                  47Item 1.
                  Legal Proceedings
                  47Item 1a.
                  Risk Factors
                  47Item 4.
                  Submission of Matters to a Vote of Security
      Holders
                  47Item 6.
                  Exhibits
                  48SIGNATURES
                  48CERTIFICATIONS




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, 2008, 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,
and 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 2009 are not necessarily indicative of the
results that may be expected for the year ending December 31,
2009.


2





CALGON
CARBON CORPORATION


CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS


(Dollars
in Thousands Except Per Share Data)


(Unaudited)




ThreeMonthsEnded
                    
                    
                    SixMonthsEndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008*
                    
                    
                    2009
                    
                    
                    2008*Net
      sales
                    
                    $
                    98,649
                    
                    
                    $
                    106,335
                    
                    
                    $
                    184,601
                    
                    
                    $
                    193,755Net
      sales to related parties
                    
                    
                    4,441
                    
                    
                    
                    2,141
                    
                    
                    
                    9,122
                    
                    
                    
                    5,052Total
                    
                    
                    103,090
                    
                    
                    
                    108,476
                    
                    
                    
                    193,723
                    
                    
                    
                    198,807Cost
      of products sold (excluding depreciation and amortization)
                    
                    
                    70,319
                    
                    
                    
                    71,021
                    
                    
                    
                    131,533
                    
                    
                    
                    132,786Depreciation
      and amortization
                    
                    
                    3,972
                    
                    
                    
                    4,199
                    
                    
                    
                    7,748
                    
                    
                    
                    8,125Selling,
      general and administrative expenses
                    
                    
                    17,380
                    
                    
                    
                    16,151
                    
                    
                    
                    33,125
                    
                    
                    
                    31,351Research
      and development expenses
                    
                    
                    1,246
                    
                    
                    
                    1,003
                    
                    
                    
                    2,208
                    
                    
                    
                    2,094Gain
      on AST settlement (See Note 7)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (9,250
                    )92,917
                    
                    
                    
                    92,374
                    
                    
                    
                    174,614
                    
                    
                    
                    165,106Income
      from operations
                    
                    
                    10,173
                    
                    
                    
                    16,102
                    
                    
                    
                    19,109
                    
                    
                    
                    33,701Interest
      income
                    
                    
                    77
                    
                    
                    
                    425
                    
                    
                    
                    204
                    
                    
                    
                    857Interest
      expense
                    
                    
                    (186
                    )
                    
                    
                    (2,069
                    )
                    
                    
                    (207
                    )
                    
                    
                    (4,156
                    )Other
      expense—net (See Note 9)
                    
                    
                    (1,500
                    )
                    
                    
                    (480
                    )
                    
                    
                    (1,928
                    )
                    
                    
                    (570
                    )Income
      from continuing operations before income tax and equity in income (loss)
      from equity investments
                    
                    
                    8,564
                    
                    
                    
                    13,978
                    
                    
                    
                    17,178
                    
                    
                    
                    29,832Income
      tax provision
                    
                    
                    2,893
                    
                    
                    
                    4,555
                    
                    
                    
                    5,974
                    
                    
                    
                    10,474Income
      from continuing operations before equity in income (loss) from equity
      investments
                    
                    
                    5,671
                    
                    
                    
                    9,423
                    
                    
                    
                    11,204
                    
                    
                    
                    19,358Equity
      in income (loss) from equity investments
                    
                    
                    427
                    
                    
                    
                    (139
                    )
                    
                    
                    868
                    
                    
                    
                    299Income
      from continuing operations
                    
                    
                    6,098
                    
                    
                    
                    9,284
                    
                    
                    
                    12,072
                    
                    
                    
                    19,657Income
      from discontinued operations, net
                    
                    
                    —
                    
                    
                    
                    3,447
                    
                    
                    
                    —
                    
                    
                    
                    3,447Net
      income
                    
                    $
                    6,098
                    
                    
                    $
                    12,731
                    
                    
                    $
                    12,072
                    
                    
                    $
                    23,104Net
      income per common shareBasic:Income
      from continuing operations
                    
                    $
                    .11
                    
                    
                    $
                    .23
                    
                    
                    $
                    .22
                    
                    
                    $
                    .49Income
      from discontinued operations
                    
                    
                    —
                    
                    
                    
                    .09
                    
                    
                    
                    —
                    
                    
                    
                    .08Total
                    
                    $
                    .11
                    
                    
                    $
                    .32
                    
                    
                    $
                    .22
                    
                    
                    $
                    .57Diluted:Income
      from continuing operations
                    
                    $
                    .11
                    
                    
                    $
                    .18
                    
                    
                    $
                    .21
                    
                    
                    $
                    38Income
      from discontinued operations
                    
                    
                    —
                    
                    
                    
                    .06
                    
                    
                    
                    —
                    
                    
                    
                    .07Total
                    
                    $
                    .11
                    
                    
                    $
                    .24
                    
                    
                    $
                    .21
                    
                    
                    $
                    .45Weighted
      average shares outstandingBasic
                    
                    
                    54,331,467
                    
                    
                    
                    40,558,818
                    
                    
                    
                    54,224,885
                    
                    
                    
                    40,399,608Diluted
                    
                    
                    56,285,314
                    
                    
                    
                    52,024,889
                    
                    
                    
                    56,182,738
                    
                    
                    
                    51,890,504





* Results
have been retrospectively adjusted to incorporate the adoption of FASB Staff
Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)”
(See Note
9).





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
      31,2009
                  
                  
                  2008*ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  7,501
                  
                  
                  $
                  16,750Restricted
      cash
                  
                  
                  11,019
                  
                  
                  
                  —Receivables
      (net of allowance of $2,152 and $1,596)
                  
                  
                  60,948
                  
                  
                  
                  62,300Receivables
      from related parties
                  
                  
                  4,600
                  
                  
                  
                  2,215Revenue
      recognized in excess of billings on uncompleted contracts
                  
                  
                  7,048
                  
                  
                  
                  8,870Inventories
                  
                  
                  94,441
                  
                  
                  
                  93,725Deferred
      income taxes – current
                  
                  
                  10,280
                  
                  
                  
                  8,911Other
      current assets
                  
                  
                  5,964
                  
                  
                  
                  7,817Total
      current assets
                  
                  
                  201,801
                  
                  
                  
                  200,588Property,
      plant and equipment, net
                  
                  
                  143,774
                  
                  
                  
                  122,960Equity
      investments
                  
                  
                  11,036
                  
                  
                  
                  11,747Intangibles
                  
                  
                  5,373
                  
                  
                  
                  5,930Goodwill
                  
                  
                  26,813
                  
                  
                  
                  26,340Deferred
      income taxes – long-term
                  
                  
                  10,356
                  
                  
                  
                  13,129Other
      assets
                  
                  
                  6,203
                  
                  
                  
                  6,568Total
      assets
                  
                  $
                  405,356
                  
                  
                  $
                  387,262LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
                  
                  $
                  39,232
                  
                  
                  $
                  39,647Billings
      in excess of revenue recognized on uncompleted contracts
                  
                  
                  6,160
                  
                  
                  
                  4,639Accrued
      interest
                  
                  
                  182
                  
                  
                  
                  140Payroll
      and benefits payable
                  
                  
                  7,731
                  
                  
                  
                  10,522Accrued
      income taxes
                  
                  
                  1,272
                  
                  
                  
                  1,088Short-term
      debt
                  
                  
                  —
                  
                  
                  
                  1,605Current
      portion of long-term debt
                  
                  
                  5,163
                  
                  
                  
                  7,903Total
      current liabilities
                  
                  
                  59,740
                  
                  
                  
                  65,544Long-term
      debt
                  
                  
                  7,600
                  
                  
                  
                  —Deferred
      income taxes – long-term
                  
                  
                  44
                  
                  
                  
                  242Accrued
      pension and other liabilities
                  
                  
                  69,639
                  
                  
                  
                  68,199Total
      liabilities
                  
                  
                  137,023
                  
                  
                  
                  133,985Commitments
      and contingencies (Note 7)Shareholders'
      equity:Common
      shares, $.01 par value, 100,000,000 shares authorized, 57,229,545 and
      56,961,297 shares issued
                  
                  
                  572
                  
                  
                  
                  570Additional
      paid-in capital
                  
                  
                  156,137
                  
                  
                  
                  153,766Retained
      earnings
                  
                  
                  146,078
                  
                  
                  
                  134,006Accumulated
      other comprehensive loss
                  
                  
                  (4,960
                  )
                  
                  
                  (6,450
                  )297,827
                  
                  
                  
                  281,892Treasury
      stock, at cost, 3,017,776 and 2,902,264 shares
                  
                  
                  (29,494
                  )
                  
                  
                  (28,615
                  )Total
      shareholders’ equity
                  
                  
                  268,333
                  
                  
                  
                  253,277Total
      liabilities and shareholders’ equity
                  
                  $
                  405,356
                  
                  
                  $
                  387,262





* Results
have been retrospectively adjusted to incorporate the adoption of FASB Staff
Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)” (See Note
9).




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 30,2009
                        
                        
                        2008*Cash flows from operating
      activitiesNet
      income
                        
                        $
                        12,072
                        
                        
                        $
                        23,104Adjustments
      to reconcile net income to  net cash provided by operating
      activities:Gain
      from divestiture
                        
                        
                        —
                        
                        
                        
                        (4,353
                        )Depreciation
      and amortization
                        
                        
                        7,748
                        
                        
                        
                        8,125Equity
      in (income) loss from equity investments - net
                        
                        
                        (418
                        )
                        
                        
                        101Employee
      benefit plan provisions
                        
                        
                        2,690
                        
                        
                        
                        1,277Write-off
      of prior credit facility fees (Note 9)
                        
                        
                        827
                        
                        
                        
                        —Amortization
      of convertible notes discount
                        
                        
                        185
                        
                        
                        
                        2,005Stock-based
      compensation
                        
                        
                        1,239
                        
                        
                        
                        1,534Deferred
      income tax
                        
                        
                        1,863
                        
                        
                        
                        2,836Changes
      in assets and liabilities:Decrease
      (increase) in receivables
                        
                        
                        288
                        
                        
                        
                        (7,654
                        )Decrease
      (increase) in inventories
                        
                        
                        706
                        
                        
                        
                        (3,741
                        )Decrease
      (increase) in revenue in excess of billings on uncompleted contracts and
      other current assets
                        
                        
                        4,088
                        
                        
                        
                        (760
                        )Decrease
      in accounts payable and accrued liabilities
                        
                        
                        (2,550
                        )
                        
                        
                        (551
                        )Increase
      in accrued income taxes
                        
                        
                        433
                        
                        
                        
                        648Pension
      contributions
                        
                        
                        (733
                        )
                        
                        
                        (4,673
                        )Other
      items – net
                        
                        
                        1,167
                        
                        
                        
                        234Net
      cash provided by operating activities
                        
                        
                        29,605
                        
                        
                        
                        18,132Cash flows from investing
      activitiesProperty,
      plant and equipment expenditures
                        
                        
                        (28,196
                        )
                        
                        
                        (11,802
                        )Proceeds
      from disposals of property, plant and equipment
                        
                        
                        —
                        
                        
                        
                        331Cash
      pledged for collateral
                        
                        
                        (11,019
                        )
                        
                        
                        —Net
      cash used in investing activities
                        
                        
                        (39,215
                        )
                        
                        
                        (11,471
                        )Cash flows from financing
      activitiesRevolving
      credit facility borrowings (repayments), net
                        
                        
                        7,600
                        
                        
                        
                        —Reductions
      of debt obligations (See Note 9)
                        
                        
                        (4,530
                        )
                        
                        
                        —Treasury
      stock purchases
                        
                        
                        (879
                        )
                        
                        
                        (823
                        )Common
      stock issued through exercise of stock options
                        
                        
                        448
                        
                        
                        
                        2,543Excess
      tax benefit from stock-based compensation
                        
                        
                        362
                        
                        
                        
                        970Other
      (See Note 9)
                        
                        
                        (1,028
                        )
                        
                        
                        —Net
      cash provided by financing activities
                        
                        
                        1,973
                        
                        
                        
                        2,690Effect
      of exchange rate changes on cash
                        
                        
                        (1,612
                        )
                        
                        
                        (1,106
                        )(Decrease)
      increase in cash and cash equivalents
                        
                        
                        (9,249
                        )
                        
                        
                        8,245Cash
      and cash equivalents, beginning of period
                        
                        
                        16,750
                        
                        
                        
                        30,304Cash
      and cash equivalents, end of period
                        
                        $
                        7,501
                        
                        
                        $
                        38,549





* Results
have been retrospectively adjusted to incorporate the adoption of FASB Staff
Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)” (See Note
9).





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.
              Inventories:


June 30, 2009
                
                
                December 31, 2008Raw
      materials
                
                $
                25,553
                
                
                $
                27,241Finished
      goods
                
                
                68,888
                
                
                
                66,484$
                94,441
                
                
                $
                93,725





2.
              Supplemental
      Cash Flow Information:




Cash paid
for interest during the six months ended June 30, 2009 and 2008 was $0.2 million
and $2.3 million, respectively.  Income taxes paid, net of refunds,
were $2.7 million and $7.6 million, for the six months ended June 30, 2009 and
2008, respectively.




3.
              Dividends:




The
      Company’s Board of Directors did not declare or pay a dividend for the
      three or six month periods ended June 30, 2009 and
  2008.




4.
            Comprehensive
      income:


ThreeMonthsEndedJune30,
                  
                  
                  SixMonthsEndedJune30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income
                  
                  $
                  6,098
                  
                  
                  $
                  12,731
                  
                  
                  $
                  12,072
                  
                  
                  $
                  23,104Other
      comprehensive income, net of taxes
                  
                  
                  5,121
                  
                  
                  
                  2,222
                  
                  
                  
                  1,490
                  
                  
                  
                  6,122Comprehensive
      income
                  
                  $
                  11,219
                  
                  
                  $
                  14,953
                  
                  
                  $
                  13,562
                  
                  
                  $
                  29,226





The only
matters contributing to the other comprehensive income during the three and six
months ended June 30,
2009 was the foreign currency translation adjustment of $5.2 million and $1.8
million, respectively; the changes in employee benefit accounts of $(47)
thousand and $0.5 million, respectively; and the change in the fair value of the
derivative instruments of $(0.1) million and $(0.8) million,
respectively.  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.


6





5.
            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 MonthsEnded
                
                
                Six MonthsEndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      SalesActivated
      Carbon and Service
                
                $
                89,383
                
                
                $
                95,284
                
                
                $
                167,146
                
                
                $
                172,182Equipment
                
                
                11,327
                
                
                
                10,742
                
                
                
                22,226
                
                
                
                20,439Consumer
                
                
                2,380
                
                
                
                2,450
                
                
                
                4,351
                
                
                
                6,186$
                103,090
                
                
                $
                108,476
                
                
                $
                193,723
                
                
                $
                198,807Income
      (loss) from continuing operations before depreciation and
      amortizationActivated
      Carbon and Service
                
                $
                13,200
                
                
                $
                19,766
                
                
                $
                25,082
                
                
                $
                37,142Equipment
                
                
                962
                
                
                
                519
                
                
                
                1,937
                
                
                
                3,962Consumer
                
                
                (17
                )
                
                
                16
                
                
                
                (162
                )
                
                
                72214,145
                
                
                
                20,301
                
                
                
                26,857
                
                
                
                41,826Depreciation
      and amortizationActivated
      Carbon and Service
                
                
                3,549
                
                
                
                3,793
                
                
                
                6,909
                
                
                
                7,276Equipment
                
                
                304
                
                
                
                280
                
                
                
                606
                
                
                
                598Consumer
                
                
                119
                
                
                
                126
                
                
                
                233
                
                
                
                2513,972
                
                
                
                4,199
                
                
                
                7,748
                
                
                
                8,125Income
      from operations
                
                
                10,173
                
                
                
                16,102
                
                
                
                19,109
                
                
                
                33,701Reconciling
      items:Interest
      income
                
                
                77
                
                
                
                425
                
                
                
                204
                
                
                
                857Interest
      expense
                
                
                (186
                )
                
                
                (2,069
                )
                
                
                (207
                )
                
                
                (4,156
                )Other
      expense – net
                
                
                (1,500
                )
                
                
                (480
                )
                
                
                (1,928
                )
                
                
                (570
                )Consolidated
      income from continuing operations before income tax and equity in
      income (loss) from equity investments
                
                $
                8,564
                
                
                $
                13,978
                
                
                $
                17,178
                
                
                $
                29,832




7





June 30, 2009
                
                
                December 31, 2008Total
      AssetsActivated
      Carbon and Service
                
                $
                351,341
                
                
                $
                334,675Equipment
                
                
                40,202
                
                
                
                38,867Consumer
                
                
                13,813
                
                
                
                13,720Consolidated
      total assets
                
                $
                405,356
                
                
                $
                387,262




8





6.
              Derivative
      Instruments




The
Company’s corporate and foreign subsidiaries use foreign currency forward
exchange contracts and foreign exchange 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
foreign currency forward exchange and foreign exchange option 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 natural gas
forward contracts generally mature within one to thirty-six
months.  The Company also has 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.




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.




In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities – an amendment
of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133 to provide qualitative
and quantitative information on how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. The Company adopted SFAS No. 161 on
January 1, 2009, as required.




The fair
value of outstanding derivative contracts recorded as assets in the accompanying
Consolidated Balance Sheets were as follows:




Balance Sheet
                        
                        June
      30,
                        
                        
                        December
      31,Asset Derivatives
                        
                        Locations
                        
                        2009
                        
                        
                        2008Derivatives
      designated as hedging instruments under SFAS No. 133:Foreign
      exchange contracts
                        
                        Other
      current assets
                        
                        $
                        833
                        
                        
                        $
                        1,153Currency
      swap
                        
                        Other
      assets
                        
                        
                        141
                        
                        
                        
                        662Natural
      gas contracts
                        
                        Other
      assets
                        
                        
                        6
                        
                        
                        
                        0Total
      derivatives designated as hedging instruments under SFAS No.
      133
                        
                        
                        
                        
                        980
                        
                        
                        
                        1,815Derivatives
      not designated as hedging instruments under SFAS No. 133:Foreign
      exchange contracts
                        
                        Other
      current assets
                        
                        
                        36
                        
                        
                        
                        14Total
      asset derivatives
                        
                        
                        
                        $
                        1,016
                        
                        
                        $
                        1,829





9





The fair
value of outstanding derivative contracts recorded as liabilities in the
accompanying Consolidated Balance Sheets were as follows:





Balance Sheet
                                    
                                    June
      30,
                                    
                                    
                                    December
      31,Liability Derivatives
                                    
                                    Locations
                                    
                                    2009
                                    
                                    
                                    2008Derivatives
      designated as hedging instruments under SFAS No. 133:Foreign
      exchange contracts
                                    
                                    Accounts
      payable and accrued liabilities
                                    
                                    $
                                    642
                                    
                                    
                                    $
                                    63Natural
      gas contracts
                                    
                                    Accounts
      payable and accrued liabilities
                                    
                                    
                                    1,667
                                    
                                    
                                    
                                    1,323Natural
      gas contracts
                                    
                                    Accrued
      pension and other liabilities
                                    
                                    
                                    1,067
                                    
                                    
                                    
                                    1,048Total
      derivatives designated as hedging instruments under SFAS No.
      133
                                    
                                    
                                    
                                    
                                    3,376
                                    
                                    
                                    
                                    2,434Derivatives
      not designated as hedging instruments under SFAS No. 133:Foreign
      exchange contracts
                                    
                                    Accounts
      payable and accrued liabilities
                                    
                                    
                                    20
                                    
                                    
                                    
                                    39Total
      liability derivatives
                                    
                                    
                                    
                                    $
                                    3,396
                                    
                                    
                                    $
                                    2,473




Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.  The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs).  The fair value
hierarchy consists of three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level
3).  The three levels of the fair value hierarchy are described
below:




·
            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.




In
accordance with SFAS No. 157, “Fair Value Measurements,” the fair value of the
Company’s foreign exchange forward contracts, foreign exchange option contracts,
currency swap, and natural gas forward contracts is determined using Level 2
inputs, which are defined as observable inputs.  The inputs used are
from market sources that aggregate data based upon market
transactions.


10


Cash Flow
Hedges




For
derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (OCI) and reclassified into earnings in
the same period or periods during which the hedged transaction affects
earnings.  Gains and losses on the derivative representing either
hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings and were not material for the
three and six month periods ended June 30, 2009 and 2008,
respectively




The
following table provides details on the changes in accumulated OCI relating to
derivative assets and liabilities that qualified for cash flow hedge
accounting.





Three Months Ended
                    
                    
                    Six Month EndedJune 30, 2009
                    
                    
                    June 30, 2009Accumulated
      OCI derivative loss at April 1, 2009 and January 1, 2009,
      respectively
                    
                    $
                    2,132
                    
                    
                    $
                    1,296Effective
      portion of changes in fair value
                    
                    
                    337
                    
                    
                    
                    1,011Reclassifications
      from accumulated OCI derivative gain (loss) to earnings
                    
                    
                    (32
                    )
                    
                    
                    130Accumulated
      OCI derivative loss at June 30, 2009
                    
                    $
                    2,437
                    
                    
                    $
                    2,437





Amount of Gain or (Loss)Recognized in OCI on Derivatives(Effective Portion)Three Months EndedJune 30,Derivatives in SFAS No. 133 Cash Flow Hedging Relationships:
                
                2009
                
                
                2008Foreign
      Exchange Contracts
                
                $
                1,299
                
                
                $
                425Currency
      Swap
                
                
                (527
                )
                
                
                18Natural
      Gas Contracts
                
                
                (435
                )
                
                
                (1,799
                )Total
                
                $
                337
                
                
                $
                (1,356
                )





Amount of Gain or (Loss)Recognized in OCI on Derivatives(Effective Portion)Six Months EndedJune 30,Derivatives in SFAS No. 133 Cash Flow Hedging Relationships:
                
                2009
                
                
                2008Foreign
      Exchange Contracts
                
                $
                478
                
                
                $
                (462
                )Currency
      Swap
                
                
                (521
                )
                
                
                175Natural
      Gas Contracts
                
                
                1,054
                
                
                
                (3,291
                )Total
                
                $
                1,011
                
                
                $
                (3,578
                )





Amount of Gain or (Loss)Reclassified from AccumulatedOCI in Income (Effective Portion) *Location of Gain or
                      
                      Three Months EndedDerivatives
      in SFAS No. 133 Cash Flow
                      
                      (Loss) Recognized in
                      
                      June 30,Hedging Relationships:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts
                      
                      Cost
      of products sold
                      
                      $
                      367
                      
                      
                      $
                      (87
                      )Currency
      Swap
                      
                      Interest
      expense
                      
                      
                      —
                      
                      
                      
                      (36
                      )Natural
      Gas Contracts
                      
                      Cost
      of products sold
                      
                      
                      (399
                      )
                      
                      
                      46Total
                      
                      
                      
                      $
                      (32
                      )
                      
                      $
                      (77
                      )


11





Amount of Gain or (Loss)Reclassified from AccumulatedOCI in Income (Effective Portion) *Location of Gain or
                      
                      Six Months EndedDerivatives
      in SFAS No. 133 Cash Flow
                      
                      (Loss) Recognized in
                      
                      June 30,Hedging Relationships:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts
                      
                      Cost
      of products sold
                      
                      $
                      691
                      
                      
                      $
                      (87
                      )Currency
      Swap
                      
                      Interest
      expense
                      
                      
                      —
                      
                      
                      
                      (86
                      )Natural
      Gas Contracts
                      
                      Cost
      of products sold
                      
                      
                      (561
                      )
                      
                      
                      (116
                      )Total
                      
                      
                      
                      $
                      130
                      
                      
                      $
                      (289
                      )





Amount of Gain or (Loss)Recognized in Income onDerivatives (IneffectivePortion and AmountExcluded fromEffectiveness Testing) **Location of Gain or
                      
                      Three Months EndedDerivatives
      in SFAS No. 133 Cash Flow
                      
                      (Loss) Recognized in
                      
                      June 30,Hedging Relationships:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts
                      
                      Other
      expense – net
                      
                      $
                      (13
                      )
                      
                      $
                      (11
                      )Currency
      Swap
                      
                      Other
      expense – net
                      
                      
                      —
                      
                      
                      
                      —Natural
      Gas Contracts
                      
                      Other
      expense – net
                      
                      
                      —
                      
                      
                      
                      —Total
                      
                      
                      
                      $
                      (13
                      )
                      
                      $
                      (11
                      )





Amount of Gain or (Loss)Recognized in Income onDerivatives (IneffectivePortion and AmountExcluded fromEffectiveness Testing) ***Location of Gain or
                        
                        Six Months EndedDerivatives
      in SFAS No. 133 Cash Flow
                        
                        (Loss) Recognized in
                        
                        June 30,Hedging Relationships:
                        
                        Income on Derivatives
                        
                        2009
                        
                        
                        2008Foreign
      Exchange Contracts
                        
                        Other
      expense – net
                        
                        $
                        (17
                        )
                        
                        $
                        (11
                        )Currency
      Swap
                        
                        Other
      expense – net
                        
                        
                        —
                        
                        
                        
                        —Natural
      Gas Contracts
                        
                        Other
      expense – net
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        
                        
                        $
                        (17
                        )
                        
                        $
                        (11
                        )





*Assuming
market rates remain constant with the rates at June 30, 2009, a loss of $1.1
million is expected to be recognized in earnings over the next 12
months.


**For the
three months ended June 30, 2009 and 2008, the amount of loss recognized in
income represents $13 thousand and $11 thousand, respectively, related to the
ineffective portion of the hedging relationships.


***For
the six months ended June 30, 2009 and 2008, the amount of loss recognized in
income represents $17 thousand and $11 thousand, respectively, related to the
ineffective portion of the hedging relationships.


12




The
Company had the following outstanding derivative contracts that were entered
into to hedge forecasted transactions:





June
      30,
                  
                  
                  December
      31,(in thousands except for
    mmbtu)
                  
                  2009
                  
                  
                  2008Natural
      gas contracts (mmbtu)
                  
                  
                  1,100,000
                  
                  
                  
                  1,290,000Foreign
      exchange contracts
                  
                  $
                  24,050
                  
                  
                  $
                  21,386Currency
      swap
                  
                  $
                  3,976
                  
                  
                  $
                  4,293





Other




The
Company has also entered into certain derivatives to minimize its exposure of
exchange rate fluctuations on certain foreign currency receivables, payables,
and other known and forecasted transactional exposures.  The Company
has not qualified these contracts for hedge accounting treatment and therefore,
the fair value gains and losses on these contracts are recorded in earnings as
follows:





Amount of Gain or (Loss)Recognized in Income onDerivativesLocation of Gain or
                      
                      Three Months EndedDerivatives
      Not Designated as
                      
                      (Loss) Recognized in
                      
                      June 30,Hedging Instruments Under SFAS No.
      133:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts *
                      
                      Other
      expense - net
                      
                      $
                      (12
                      )
                      
                      $
                      (78
                      )Total
                      
                      
                      
                      $
                      (12
                      )
                      
                      $
                      (78
                      )





Amount
of Gain or (Loss)





Recognized in Income onDerivativesLocation of Gain or
                      
                      Six Months EndedDerivatives
      Not Designated as
                      
                      (Loss) Recognized in
                      
                      June 30,Hedging Instruments Under SFAS No.
      133:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts *
                      
                      Other
      expense - net
                      
                      $
                      (169
                      )
                      
                      $
                      (107
                      )Total
                      
                      
                      
                      $
                      (169
                      )
                      
                      $
                      (107
                      )


13





*As of
June 30, 2009 and 2008, these foreign exchange contracts were entered into and
settled during the respective periods.





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.





7.
            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 June 30,
2009 and December 31, 2008, 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 for the six month periods ended June 30, 2009 and 2008. It is reasonably
possible that a change in the estimate of this obligation will occur as
remediation preparation and remediation activity commences in the
future.  The ultimate remediation costs are dependent upon, among
other things, the requirements of any state or federal environmental agencies,
the remediation methods employed, the final scope of work being determined, and
the extent and types of contamination which will not be fully determined until
experience is gained through remediation and related activities.  The
accrued amounts are expected to be paid out over the course of several years
once work has commenced.  The Company has yet to make a determination
as to when it will proceed with remediation efforts.


14


On March
8, 2006, the Company and another U.S. producer of activated carbon formally
requested that the United States Department of Commerce investigate unfair
pricing of certain activated carbon imported from the People’s Republic of
China.  The Commerce Department investigated imports of activated
carbon from China that is thermally activated using a combination of heat, steam
and/or carbon dioxide.  Certain types of activated carbon from China,
most notably chemically-activated carbon, were not investigated.




On March
2, 2007, the Commerce Department published its final determination (subsequently
amended) that all of the subject merchandise from China was being unfairly
priced, or dumped, and thus that special additional duties should be imposed to
offset the amount of the unfair pricing.  The final tariff rates
ranged from 61.95% ad valorem (i.e., of the entered value of the goods) to
228.11% ad valorem.  A formal order imposing final tariffs was
published on April 27, 2007.  All imports from China remain subject to
the order and antidumping tariffs.  Importers of subject activated
carbon from China are required to make cash deposits of estimated antidumping
tariffs at the time the goods are entered into the United States customs
territory.  Deposits of tariffs are subject to future revision based
on retrospective reviews conducted by the Commerce Department.  With
one limited exception, the amount of tariffs owed for the period of review can
decrease or increase retroactively based on the government’s subsequent review
of the actual prices at which the entries were sold.




The
Company is both a domestic producer and one of the largest U.S. importers (from
our wholly-owned subsidiary Calgon Carbon (Tianjin) Co., Ltd.) of the activated
carbon that is subject to this proceeding.  As such, the Company is
involved in the Commerce Department’s proceedings both as a domestic producer (a
“petitioner”) and as a foreign exporter (a “respondent”).




As one of
two U.S. producers involved as petitioners in the case, the Company is actively
involved in ensuring the Commerce Department obtains the most accurate
information from the foreign producers and exporters involved in the review, in
order to calculate the most accurate results and margins of dumping for the
sales at issue.




As an
importer of activated carbon from China and in light of the successful
antidumping tariff case, the Company was required to pay deposits of estimated
antidumping tariffs at the rate of 84.45% ad valorem to the Bureau of Customs
and Border Protection (“Customs”) on entries made on or after October 11, 2006
through April 9, 2007.   Thereafter, deposits have been paid at
69.54%.  Because of limits on the government’s legal authority to
impose provisional tariffs prior to issuance of a final determination, entries
made between April 9, 2007 and April 19, 2007 were not subject to
tariffs.




The
Company’s role as an importer that is required to pay tariffs results in a
contingent liability related to the final amount of tariffs that will be
paid.  The Company has made deposits of estimated tariffs in two
ways.  First, estimated tariffs on entries in the period from October
11, 2006 through April 9, 2007 were covered by a bond.  The total
amount of tariffs that can be paid on entries in this period is capped as a
matter of law, though the Company may receive a refund with interest of any
difference due to a reduction in the actual margin of dumping found in the first
review.  The Company’s estimated liability for tariffs during this
period of $0.6 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheet at June 30, 2009.  Second, the
Company has been required to post cash deposits of estimated tariffs owed on
entries of subject merchandise since April 19, 2007.  The final amount
of tariffs owed on these entries may change, and can either increase or decrease
depending on the final results of relevant administrative
inquiries.  This process is briefly described below.




The
amount of estimated antidumping tariffs payable on goods imported into the
United States is subject to review and retroactive adjustment based on the
actual amount of dumping that is found.  To do this, the Commerce
Department conducts periodic reviews of sales made to the first unaffiliated
U.S. customer, typically over the prior 12 month period.  These
reviews will be possible for at least five years, and can result in changes to
the antidumping tariff rate (either increasing or reducing the rate) applicable
to any given foreign exporter.  Revision of tariff rates has two
effects.  First, it will alter the actual amount of tariffs that
Customs will seek to collect for the period reviewed, by either increasing or
decreasing the amount to reflect the actual amount of dumping that was
found.  Where the actual amount of tariffs owed increases, the
government will require payment of the difference plus
interest.  Conversely, when the tariff rate decreases, any difference
is refunded with interest.  Second, the revised rate becomes the cash
deposit rate applied to future entries, and can either increase or decrease the
amount of deposits an importer will be required to pay.


15


The
Company currently is in the midst of the first such review.  Because
it is the first review conducted under the antidumping duty order, the review
covers the period from October 11, 2006 through March 31, 2008 instead of the
typical 12 month period.   The preliminary results of the review
were announced on May 1, 2009 and indicated that Calgon Carbon (Tianjin) Co.,
Ltd.’s tariff rate could increase from 69.54% to 188.57%.  However,
other respondents’ preliminary review results indicated a decline to their
tariff rates for the review period.  The announced preliminary review
results are based on information provided by respondents that has not yet been
verified.  Errors may have been made in the review and the important
decisions that affect the tariff are subject to reconsideration before the final
results of the review are announced.  The respondents, including
Calgon Carbon (Tianjin) Co., Ltd., are subject to additional requests for
information and on-site verification by the Commerce Department of the accuracy
of the information that has been presented.  The review must be
completed no later than early November 2009.  The Company believes
that its preliminary rate of 188.57% will be lowered when the final results are
announced in November.  In addition, until the tariff rate is
finalized in early November 2009, the tariff deposit rate will not
change.  For the first six months of 2009, the Company has made
tariff deposits on goods imported to the United States totaling $1.0
million.  For the period beginning October 11, 2006 through June 30,
2009, the Company estimates that a hypothetical 10% increase or decrease in the
final tariff rate would result in an additional payment or refund of
approximately $0.5 million.




The
contingent liability relating to tariffs paid on imports is somewhat mitigated
by two factors.  First and foremost, the antidumping tariff order’s
disciplinary effect on the market encourages the elimination of dumping through
fair pricing.  Separately, pursuant to the Continued Dumping and
Subsidy Offset Act of 2000 (repealed effective Feb. 8, 2006), as an affected
domestic producer, the Company is eligible to apply for a distribution of a
share of certain tariffs collected on entries of subject merchandise from China
from October 11, 2006 to September 30, 2007.  In July 2008, the
Company applied for such a distribution.  In December 2008, the
Company received a distribution of approximately $0.2 million, which reflected
59.57% of the total amount available.  The Company anticipates
receiving additional amounts in 2009 and future years related to tariffs paid
for the period October 11, 2006 through September 30, 2007, though the exact
amount is impossible to determine.




On April
1, 2009, the Commerce Department published a formal notice allowing parties to
request a second annual administrative review of the antidumping tariff order
covering the period April 1, 2008 through March 31, 2009.  Requests
for review were due no later than April 30, 2009.  In its capacity as
a U.S. producer, the Company requested reviews of multiple Chinese
exporters.  In its capacity as a Chinese exporter, Calgon Carbon
(Tianjin) Co., Ltd. requested its own review.  A notice formally
initiating the review will be published in the Federal Register in the near
future.




By letter
dated January 22, 2007, the Company received from the United States
Environmental Protection Agency, Region 4 (“EPA”) a report of a hazardous waste
facility inspection performed by the EPA and the Kentucky Department of
Environmental Protection (“KYDEP”) as part of a Multi Media Compliance
Evaluation of the Company’s Big Sandy Plant in Catlettsburg, Kentucky that was
conducted on September 20 and 21, 2005.  Accompanying the report was a
Notice of Violation (“NOV”) alleging multiple violations of the Federal Resource
Conservation and Recovery Act (“RCRA”) and corresponding EPA and KYDEP hazardous
waste regulations.  The alleged violations mainly concern the
hazardous waste spent activated carbon regeneration facility.  The
Company met with the EPA on April 17, 2007 to discuss the inspection report and
alleged violations, and submitted written responses in May and June
2007.  In August 2007, the EPA notified the Company that it believes
there were still significant violations of RCRA that are unresolved by the
information in the Company’s responses, without specifying the particular
violations.  During a meeting with the EPA on December 10, 2007, the
EPA indicated that the agency would not pursue certain other alleged violations.
Based on discussions during the December 10, 2007 meeting, subsequent
communications with EPA, and in connection with the Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA”) Notice referred to below,
the Company has taken actions to address and remediate a number of the
unresolved alleged violations.  The Company believes that the number
of unresolved issues as to alleged continuing violations cited in the January
22, 2007 NOV has been reduced substantially.  The EPA can take formal
enforcement action to require the Company to remediate any or all of the
unresolved alleged continuing violations which could require the Company to
incur substantial additional costs. The EPA can also take formal enforcement
action to impose substantial civil penalties with respect to violations cited in
the NOV, including those which have been admitted or resolved. The Company is
awaiting further response from the EPA and cannot predict with any certainty the
probable outcome of this matter or range of potential loss, if
any.


16


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 CERCLA pursuant to the CERCLA Off-Site Rule.  The Company received
written notice of the unacceptability determination on July 14, 2008 (the
“CERCLA Notice”).  The CERCLA Notice alleged multiple violations of
RCRA and four releases of hazardous waste.  The alleged violations and
releases were cited in the September 2005 multi-media compliance inspections,
and were among those cited in the January 2007 NOV described in the preceding
paragraph as well.  The CERCLA Notice gave the Company until September
1, 2008 to demonstrate to the EPA that the alleged violations and releases are
not continuing, or else the Big Sandy Plant would not be able to receive spent
carbon from CERCLA sites until the EPA determined that the facility is again
acceptable to receive such CERCLA wastes. This deadline subsequently was
extended several times. The Company met with the EPA in August 2008 regarding
the CERCLA Notice and submitted a written response to the CERCLA Notice prior to
the meeting.  By letter dated February 13, 2009, the EPA informed the
Company that based on information submitted by the Company indicating that the
Big Sandy Plant has returned to physical compliance for the alleged violations
and releases, the EPA had made an affirmative determination of acceptability for
receipt of CERCLA wastes at the Big Sandy Plant.  The EPA’s
determination is conditioned upon the Company treating certain residues
resulting from the treatment of the carbon reactivation furnace off-gas as
hazardous waste and not sending material dredged from the onsite wastewater
treatment lagoons offsite other than to a permitted hazardous waste treatment,
storage or disposal facility.  The Company has requested clarification
from the EPA regarding these two conditions.  The Company is also in
discussions with the EPA and the KYDEP regarding the classification of these
materials.  If the Company is required to treat and/or dispose of the
material dredged from the lagoon as hazardous waste, the costs for doing so
could be substantial.




By letter
dated August 18, 2008, the Company was notified by the EPA Suspension and
Debarment Division (“SDD”) that because of the alleged violations described in
the CERCLA Notice, the SDD was making an assessment of the Company’s present
responsibility to conduct business with Federal Executive
Agencies.  Representatives of the SDD attended the August 2008 EPA
meeting.  On August 28, 2008, the Company received a letter from the
Division requesting additional information from the Company in connection with
the SDD’s evaluation of the Company’s potential “business risk to the Federal
Government,” noting that the Company engages in procurement transactions with or
funded by the Federal Government.  The Company provided the SDD with
all information requested by the letter in September 2008.  The SDD
can suspend or debar a Company from sales to the federal government directly or
indirectly through government contractors or with respect to projects funded by
the federal government.  In October 2008, the SDD indicated that it
was still reviewing the matter but that another meeting with the Company was not
warranted at that time.  The Company believes that there is no basis
for suspension or debarment on the basis of the matters asserted by the EPA in
the CERCLA Notice or otherwise.  The Company has had no further
communication with the SDD since October 2008 and believes the likelihood of any
action being taken by the SDD is remote.




In June
2007, the Company received a Notice Letter from the New York State Department of
Environmental Conservation (“NYSDEC”) stating that the NYSDEC had 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 PRP’s
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
PRP’s.  The Company has not determined what portion of the costs
associated with the remedial program it would be obligated to bear and the
Company cannot predict with any certainty the outcome of this matter or range of
potential loss.  The Company has joined a PRP group and has executed a
Joint Defense Agreement with the group members.  In August 2008, the
Company and over 100 PRP’s entered into a Consent Order with NYSDEC for
additional site investigation directed toward characterization of the Site to
better define the scope of the remedial project.  The Company
contributed monies to the PRP group to help fund the work required under the
Consent Order.  The additional site investigation required under the
Consent Order was initiated in 2008 and completed in the spring of
2009.  A final report of the site investigation is scheduled for
submittal to NYSDEC in September 2009.


17


By letter
dated July 3, 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 directed the
Company to submit a complete and accurate Part B application and related
documents and to respond to the KYDEP’s comments which were appended to the
NOV.  The Company submitted a response to the NOV and the KYDEP’s
comments in December 2007 by providing a complete revised permit
application.  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.  The KYDEP can
also deny the Part B operating permit.  On October 18, 2007, the
Company received an NOV from the EPA related to this permit application and
submitted a revised application to both the KYDEP and the EPA within the
mandated timeframe. The EPA 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.  The EPA can also deny the Part B
operating permit.  At this time the Company cannot predict with any
certainty the outcome of this matter or range of loss, if any.




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




The
Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical
Corporation, which was formed on October 1, 2002.  At June 30, 2009,
Calgon Mitsubishi Chemical Corporation had $13.7 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, 2009, 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.


18




8.
            Goodwill
      & Intangible Assets




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




The
changes in the carrying amounts of goodwill by segment for the six month period
ended June 30, 2009 are as follows:





ActivatedCarbon
      &Service
                  
                  
                  Equipment
                  
                  
                  ConsumerSegment
                  
                  
                  Segment
                  
                  
                  Segment
                  
                  
                  TotalBalance
      as of January 1, 2009
                  
                  $
                  19,963
                  
                  
                  $
                  6,317
                  
                  
                  $
                  60
                  
                  
                  $
                  26,340Foreign
      exchange
                  
                  
                  406
                  
                  
                  
                  67
                  
                  
                  
                  —
                  
                  
                  
                  473Balance
      as of June 30, 2009
                  
                  $
                  20,369
                  
                  
                  $
                  6,384
                  
                  
                  $
                  60
                  
                  
                  $
                  26,813


19





The
following is a summary of the Company’s identifiable intangible assets as of
June 30, 2009 and December 31, 2008 respectively:




June
      30, 2009Weighted Average
                    
                    Gross Carrying
                    
                    
                    Foreign
                    
                    
                    Accumulated
                    
                    
                    Net CarryingAmortization Period
                    
                    Amount
                    
                    
                    Exchange
                    
                    
                    Amortization
                    
                    
                    AmountAmortized
      Intangible Assets:Patents
                    15.4
      Years
                    
                    $
                    1,369
                    
                    
                    $
                    —
                    
                    
                    $
                    (1,005
                    )
                    
                    $
                    364Customer
      Relationships
                    17.0
      Years
                    
                    
                    9,323
                    
                    
                    
                    (165
                    )
                    
                    
                    (6,055
                    )
                    
                    
                    3,103Product
      Certification
                    7.9
      Years
                    
                    
                    1,682
                    
                    
                    
                    —
                    
                    
                    
                    (1,048
                    )
                    
                    
                    634Unpatented
      Technology
                    20.0
      Years
                    
                    
                    2,875
                    
                    
                    
                    —
                    
                    
                    
                    (1,603
                    )
                    
                    
                    1,272Total
                    16.0
      Years
                    
                    $
                    15,249
                    
                    
                    $
                    (165
                    )
                    
                    $
                    (9,711
                    )
                    
                    $
                    5,373





December
      31, 2008Weighted Average
                  
                  Gross Carrying
                  
                  
                  Foreign
                  
                  
                  Accumulated
                  
                  
                  Net CarryingAmortization Period
                  
                  Amount
                  
                  
                  Exchange
                  
                  
                  Amortization
                  
                  
                  AmountAmortized
      Intangible Assets:Patents
                  15.4
      Years
                  
                  $
                  1,369
                  
                  
                  $
                  —
                  
                  
                  $
                  (961
                  )
                  
                  $
                  408Customer
      Relationships
                  17.0
      Years
                  
                  
                  9,323
                  
                  
                  
                  (256
                  )
                  
                  
                  (5,678
                  )
                  
                  
                  3,389Product
      Certification
                  7.9
      Years
                  
                  
                  1,682
                  
                  
                  
                  —
                  
                  
                  
                  (903
                  )
                  
                  
                  779Unpatented
      Technology
                  20.0
      Years
                  
                  
                  2,875
                  
                  
                  
                  —
                  
                  
                  
                  (1,521
                  )
                  
                  
                  1,354Total
                  16.0
      Years
                  
                  $
                  15,249
                  
                  
                  $
                  (256
                  )
                  
                  $
                  (9,063
                  )
                  
                  $
                  5,930





For the
three and six months ended June 30, 2009, the Company recognized $0.3 million
and $0.6 million, respectively, of amortization expense related to intangible
assets.    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.    The
Company estimates amortization expense to be recognized during the next five
years as follows:





(Thousands)For
      the year ending December 31:2009
                    
                    $
                    1,2992010
                    
                    
                    1,1552011
                    
                    
                    8472012
                    
                    
                    6572013
                    
                    
                    582


20





9.
            Borrowing
      Arrangements





June 30,
                  
                  
                  December
      31,Long-Term
      Debt
                  
                  2009
                  
                  
                  2008Convertible
      Senior Notes
                  
                  $
                  6,000
                  
                  
                  $
                  6,000Borrowings
      under revolving Credit Facility
                  
                  
                  7,600
                  
                  
                  
                  —Industrial
      revenue bonds
                  
                  
                  —
                  
                  
                  
                  2,925Total
                  
                  
                  13,600
                  
                  
                  
                  8,925Less
      current portion of long-term debt (net of debt discount)
                  
                  
                  (5,163
                  )
                  
                  
                  (7,903
                  )Less
      discount on Senior Convertible Notes
                  
                  
                  (837
                  )
                  
                  
                  (1,022
                  )Net
                  
                  $
                  7,600
                  
                  
                  $
                  —





5.00%
Convertible Senior Notes due 2036




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


21




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, 2009 and December 31, 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 ending on the last trading day of each of the aforementioned quarterly
periods.   As a result, the holders of the Notes have had the
right to convert the Notes into cash and shares of common stock.




During
the period of August 20, 2008 through November 10, 2008, the Company converted
and exchanged $69.0 million of the Notes for cash of $11.0 million and
approximately 13.0 million shares of its common stock.




Due to
the conversion rights of the holders of the Notes, the Company has classified
the remaining principal amount of outstanding Notes as a current liability as of
June 30, 2009 and December 31, 2008.




The
initial conversion rate is 196.0784 shares of the Company’s common stock per
$1,000 principal amount of Notes, equivalent to an initial conversion price of
approximately $5.10 per share of common stock.  The conversion rate is
subject to adjustment in some events, including the payment of a dividend on the
Company’s common stock, but will not be adjusted for accrued interest, including
any additional interest.  In addition, following certain fundamental
changes (principally related to changes in control) that occur prior to August
15, 2011, the Company will increase the conversion rate for holders who elect to
convert Notes in connection with such fundamental changes in certain
circumstances. The Company considered EITF 00-27 issue 7 which indicates that if
a reset of the conversion rate due to a contingent event occurs, the Company
would need to calculate if there is a beneficial conversion and record if
applicable. Through June 30, 2009, no contingent events 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.




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.




22


Effective
January 1, 2009, the Company implemented FASB Staff Position APB 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”).  FSP
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.   This new
accounting method has been applied retrospectively to all periods presented with
an impact to retained earnings of $9.2 million as of January 1,
2009.  Under FSP APB 14-1, the Company’s $75.0 million principal
amount of Notes has an initial measurement that consists of a liability
component of $53.1 million and an equity component of $18.6 million ($11.5
million after the associated deferred tax liability).  The carrying
amount of the equity component is $0.4 million and $0.6 million (after tax) at
June 30, 2009 and December 31, 2008, respectively.  At June 30, 2009,
the if-converted value of the Notes exceeded its principal amount by
approximately $10.3 million.




In
accordance with FSP APB 14-1, the debt discount of $21.9 million is being
amortized over the period from August 18, 2006 (the issuance date) to June 15,
2011 (the first put date on the Notes).  The effective interest rate
for all periods on the liability component is approximately
13.8%.   The Company also incurred original issuance costs of
$0.4 million which have been deferred and are being amortized over the same
period as the discount.  For the three and six months ended June 30,
2009, the Company recorded interest expense of $0.2 million and $0.3 million
related to the Notes, of which $0.1 million and $0.2 million related to the
amortization of the discount and $0.1 million and $0.1 million related to
contractual coupon interest, respectively.  Similarly, for the three
and six months ended June 30, 2008, the Company recorded interest expense of
$2.0 million and $3.9 million related to the Notes, of which $1.0 million and
$2.0 million related to the amortization of the discount and $1.0 million and
$1.9 million related to contractual coupon interest,
respectively.  The effect of the retrospective adjustment for the
adoption of FSP APB 14-1 for the three and six month periods ended June 30, 2008
was to decrease previously reported net income from continuing operations by
$0.5 million and $1.0 million or $0.01 and $0.02 per diluted common share,
respectively.




Credit
Facility




On August
14, 2008, the Company entered into a third amendment (the “Third Amendment”) to
its Credit Facility (the “Prior Credit Facility”).  The Third
Amendment permitted borrowings in an amount up to $60.0 million and included a
separate U.K. sub-facility and a separate Belgian sub-facility. The Prior Credit
Facility permitted the total revolving credit commitment to be increased up to
$75.0 million. The facility was scheduled to mature on May 15, 2011.
Availability for domestic borrowings under the Prior Credit Facility was 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 Prior Credit Facility was conditioned upon
various customary conditions.




The Prior
Credit Facility was 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 guaranteed all indebtedness
and obligations related to domestic borrowings under the Prior Credit Facility.
The Company and certain of its domestic subsidiaries also unconditionally
guaranteed all indebtedness and obligations under the U.K.
sub-facility.




On May 8,
2009, the Company and certain of its domestic subsidiaries entered into a Credit
Agreement (the “Credit Agreement”).  The Credit Agreement replaces the
Company’s Prior Credit Facility, dated as of August 18,
2006.  Concurrent with the closing under the Credit Agreement, the
Company terminated and paid in full its obligations under the Prior Credit
Facility. The Company provided cash collateral to the former agent bank for the
remaining exposure related to outstanding letters of credit and certain
derivative obligations.  The cash collateral is shown as restricted
cash within the condensed consolidated balance sheet as of June 30,
2009.  The Company was in compliance with all applicable financial
covenants and other restrictions under the Prior Credit Facility as of the
effective date of its termination and wrote off deferred costs of approximately
$0.8 million, pre-tax, related to the Prior Credit Facility.




The
Credit Agreement provides for an initial $95 million revolving credit facility
(the “Revolving Credit Facility”) which expires on May 8, 2014.  So
long as no event of default has occurred and is continuing, the Company from
time to time may request one or more increases in the total revolving credit
commitment under the Revolving Credit Facility of up to $30.0 million in the
aggregate.  No assurance can be given, however, that the total
revolving credit commitment will be increased above $95.0
million.  Availability under the Revolving Credit Facility is
conditioned upon various customary conditions.  A quarterly
nonrefundable commitment fee is payable by the Company based on the unused
availability under the Revolving Credit Facility and is currently equal to
0.5%.  Any outstanding borrowings under the Revolving Credit Facility
on July 2, 2012, up to $50.0 million, automatically convert to a term loan
maturing on May 8, 2014 (the “Term Loan”), with the total revolving credit
commitment under the Revolving Credit Facility being reduced at that time by the
amount of the Term Loan. Total
availability under the Revolving Credit Facility at June 30, 2009 was $85
million, after considering current borrowings and outstanding letters of
credit.




23




The
interest rate on amounts owed under the Term Loan and the Revolving Credit
Facility will be, at the Company’s option, either (i) a fluctuating base rate
based on the highest of (A) the prime rate announced from time to time by the
lenders, (B) the rate announced by the Federal Reserve Bank of New York on that
day as being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day plus
3.00% or (C) a daily LIBOR rate plus 2.75%, or (ii) a rate based on the
average published LIBOR rates for comparable borrowings and reserve requirements
prescribed by the Board of Governors of the Federal Reserve System of the United
States.  A margin may be added to the applicable interest rate based
on the Company’s leverage ratio as set forth in the Credit
Agreement.  The interest rate as of June 30, 2009 was
3.50%.




The
Company incurred debt issuance costs of $1.0 million which were deferred and are
being amortized over the term of the debt.  As of June 30, 2009,
outstanding borrowings under the Revolving Credit Facility are $7.6 million and
are classified as long term within the condensed consolidated balance
sheet.




Certain
of the Company’s domestic subsidiaries unconditionally guarantee all
indebtedness and obligations related to borrowings under the Revolving Credit
Facility.  The Company’s obligations under the Revolving Credit
Facility are secured by a first perfected security interest in certain of the
domestic assets of the Company and the subsidiary guarantors, including certain
real property, inventory, accounts receivable, equipment and capital stock of
the Company’s domestic subsidiaries.




The
Credit Agreement contains customary affirmative and negative covenants for
credit facilities of this type, including limitations on the Company and its
subsidiaries with respect to indebtedness, liens, investments, capital
expenditures, mergers and acquisitions, dispositions of assets and transactions
with affiliates.  The Credit Agreement also provides for customary
events of default, including failure to pay principal or interest when due,
failure to comply with covenants, the fact that any representation or warranty
made by the Company is false or misleading in any material respect, certain
insolvency or receivership events affecting the Company and its subsidiaries and
a change in control of the Company.  If an event of default occurs,
the lenders will be under no further obligation to make loans or issue letters
of credit.  Upon the occurrence of certain events of default, all
outstanding obligations of the Company automatically become immediately due and
payable, and other events of default will allow the lenders to declare all or
any portion of the outstanding obligations of the Company to be immediately due
and payable.  The
Credit Agreement also contains a covenant which includes limitations on its
ability to declare or pay cash dividends, subject to certain exceptions, such as
dividends declared and paid by its subsidiaries and cash dividends paid by the
Company in an amount not to exceed 50% of cumulative net after tax earnings
following the closing date of the Agreement if certain conditions are met.Including the extension of time granted by the lenders related to certain
administrative post-closing items surrounding the transition to the new Credit
Agreement, the Company was in compliance with all such covenants as of June 30,
2009.




Industrial
Revenue Bonds




The
Mississippi Industrial Revenue Bonds totaling $2.9 million at December 31, 2008,
bore interest at a variable rate, matured in April 2009, and were
retired.  These bonds were issued to finance certain equipment
acquisitions at the Company’s Pearlington, Mississippi plant.




Belgian
Credit Facility




The
Company maintains a Belgian credit facility totaling 1.5 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, 2009 and December 31, 2008.  Bank guarantees of 0.9
million euros were issued as of June 30, 2009.  The maturity date of
this facility is September 30, 2009. Availability under this facility was 0.6
million euros at June 30, 2009.




Chinese
Credit Facility




The
Company previously maintained a Chinese credit facility totaling
11.0 million RMB or $1.6 million which was secured by a U.S. letter of
credit.  The maturity date of this facility was December 25,
2009.  The credit facility was fully repaid in June 2009 and was
effectively closed.




24




Fair
Value of Debt




At June
30, 2009, the Company had $6.0 million of fixed rate Senior Convertible Notes
outstanding.  The fair value of these Notes at June 30, 2009 was $16.3
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 $7.6 million of long-term debt related to borrowings under
the Credit Agreement is based on the prime rate, 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, 2009 of $6.0 million in 2011 and $7.6 million in 2014. See
also the section entitled “5.00% Convertible
Senior Notes due in 2036” related to the
holders’ optional conversion right as of June 30, 2009 and December 31,
2008.




Interest
Expense




The
Company’s interest expense for the three months ended June 30, 2009 and 2008
totaled $0.2 million and $2.1 million, respectively, and for the six months
ended June 30, 2009 and 2008 totaled $0.2 million and $4.2 million,
respectively.  These amounts are net of interest costs capitalized of
$0.2 million and $0.1 million for the three months ended June 30, 2009 and 2008,
respectively, and $0.3 million and $0.2 million for the six months ended June
30, 2009 and 2008, respectively.


25




10. 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, 2009 and
2008:




Three Months Ended June 30
                      
                      
                      Six Months Ended June 30Pension Benefits (in
    thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Service
      cost
                      
                      $
                      187
                      
                      
                      $
                      261
                      
                      
                      $
                      384
                      
                      
                      $
                      517Interest
      cost
                      
                      
                      1,157
                      
                      
                      
                      1,226
                      
                      
                      
                      2,370
                      
                      
                      
                      2,398Expected
      return on plan assets
                      
                      
                      (872
                      )
                      
                      
                      (1,342
                      )
                      
                      
                      (1,785
                      )
                      
                      
                      (2,696
                      )Amortization
      of prior service cost
                      
                      
                      27
                      
                      
                      
                      60
                      
                      
                      
                      78
                      
                      
                      
                      121Net amortization
                      
                      
                      457
                      
                      
                      
                      118
                      
                      
                      
                      969
                      
                      
                      
                      192Net periodic pension cost
                      
                      $
                      956
                      
                      
                      $
                      323
                      
                      
                      $
                      2,016
                      
                      
                      $
                      532





The
expected long-term rate of return on plan assets is 8.00% in 2009.




Employer
Contributions




In its
2008 financial statements, the Company disclosed that it expected to contribute
$1.1 million to its U.S. pension plans in 2009.  As of June 30, 2009,
the Company has not made any contributions.  The Company currently
expects to contribute $10.4 million over the remainder of the year.




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, 2009 and
2008:




Three Months Ended June 30
                        
                        
                        Six Months Ended June 30Pension Benefits (in
    thousands)
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Service
      cost
                        
                        $
                        122
                        
                        
                        $
                        203
                        
                        
                        $
                        244
                        
                        
                        $
                        406Interest
      cost
                        
                        
                        407
                        
                        
                        
                        514
                        
                        
                        
                        814
                        
                        
                        
                        1,028Expected
      return on plan assets
                        
                        
                        (269
                        )
                        
                        
                        (387
                        )
                        
                        
                        (538
                        )
                        
                        
                        (774
                        )Amortization
      of prior service cost
                        
                        
                        10
                        
                        
                        
                        12
                        
                        
                        
                        20
                        
                        
                        
                        24Net amortization
                        
                        
                        27
                        
                        
                        
                        8
                        
                        
                        
                        54
                        
                        
                        
                        16Net periodic pension cost
                        
                        $
                        297
                        
                        
                        $
                        350
                        
                        
                        $
                        594
                        
                        
                        $
                        700




The
expected long-term rate of return on plan assets ranges from 5.00% to 6.90% in
2009.




26




Employer
Contributions




In its
2008 financial statements, the Company disclosed that it expected to contribute
$1.7 million to its European pension plans in 2009.  As of June 30,
2009, the Company contributed $0.7 million.  The Company expects to
contribute the remaining $1.0 million over the remainder of the
year.




Defined Contribution
Plans




The
Company also sponsors a defined contribution pension plan for certain U.S.
employees that permits employee contributions of up to 50% of eligible
compensation in accordance with Internal Revenue Service
guidance.  Under this defined contribution plan, the Company makes a
fixed contribution of 2% of eligible employee compensation on a quarterly basis
and matches contributions made by each participant in an amount equal to 100% of
the employee contribution up to a maximum of 2% of employee
compensation.  In addition, each of these employees is eligible for an
additional discretionary Company contribution of up to 4% of employee
compensation based upon annual Company performance at the discretion of the
Company’s Board of Directors.  Employer matching contributions for
non-represented employees vest after two years of service. For bargaining unit
employees at the Catlettsburg, Kentucky facility, the Company contributes a
maximum of $25.00 per month to the plan.  For bargaining unit
employees at the Columbus, Ohio facility, the Company makes contributions to the
USW 401(k) Plan of $1.15 per actual hour worked for eligible
employees.  For bargaining unit employees at the Neville Island
facility, the Company, effective January 1, 2009, began 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 was frozen.  Employer matching contributions for bargaining unit
employees vest immediately.  The Company realized a $0.5 million
curtailment gain during the third quarter of 2008 as a result of freezing the
aforementioned plan.  Total expenses related to the defined
contribution plans were $0.2 million and $0.8 million for the three and six
months ended June 30, 2009, respectively, and $0.5 million and $1.1 million for
the three and six months ended June 30, 2008, respectively.


27




11. 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)
                                              
                                              2009
                                              
                                              
                                              2008
                                              
                                              
                                              2009
                                              
                                              
                                              2008Income
      from continuing operations availableto
      common shareholders
                                              
                                              $
                                              6,098
                                              
                                              
                                              $
                                              9,284
                                              
                                              
                                              $
                                              12,072
                                              
                                              
                                              $
                                              19,657Income
      from discontinued operations availableto
      common shareholders
                                              
                                              
                                              —
                                              
                                              
                                              
                                              3,447
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              3,447Net
      income available to common shareholders
                                              
                                              $
                                              6,098
                                              
                                              
                                              $
                                              12,731
                                              
                                              
                                              $
                                              12,072
                                              
                                              
                                              $
                                              23,104Weighted
      Average Shares OutstandingBasic
                                              
                                              
                                              54,331,467
                                              
                                              
                                              
                                              40,558,818
                                              
                                              
                                              
                                              54,224,885
                                              
                                              
                                              
                                              40,399,608Effect of Dilutive
    Securities
                                              
                                              
                                              1,953,847
                                              
                                              
                                              
                                              11,466,071
                                              
                                              
                                              
                                              1,957,853
                                              
                                              
                                              
                                              11,490,896Diluted
                                              
                                              
                                              56,285,314
                                              
                                              
                                              
                                              52,024,889
                                              
                                              
                                              
                                              56,182,738
                                              
                                              
                                              
                                              51,890,504Net
      income per common shareBasic:Income
      from continuing operations
                                              
                                              $
                                              .11
                                              
                                              
                                              $
                                              .23
                                              
                                              
                                              $
                                              .22
                                              
                                              
                                              $
                                              .49Income from discontinued
      operations
                                              
                                              
                                              —
                                              
                                              
                                              
                                              .09
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              .08Total
                                              
                                              $
                                              .11
                                              
                                              
                                              $
                                              .32
                                              
                                              
                                              $
                                              .22
                                              
                                              
                                              $
                                              .57Diluted:Income
      from continuing operations
                                              
                                              $
                                              .11
                                              
                                              
                                              $
                                              .18
                                              
                                              
                                              $
                                              .21
                                              
                                              
                                              $
                                              .38Income from discontinued
      operations
                                              
                                              
                                              —
                                              
                                              
                                              
                                              .06
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              .07Total
                                              
                                              $
                                              .11
                                              
                                              
                                              $
                                              .24
                                              
                                              
                                              $
                                              .21
                                              
                                              
                                              $
                                              .45





The stock
options that were excluded from the dilutive calculations as the effect would
have been antidilutive were 169,425 and 80,625 for the three months ended June
30, 2009 and 2008, respectively, and 169,425 and 80,625 for the six months ended
June 30, 2009 and 2008, 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 with 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.  The dilutive effect of the Notes was calculated
based on the weighted average number of incremental shares included in each
quarterly diluted earnings per share computation.  During the last
half of 2008, all but $6.0 million of the Notes was either exchanged or
converted (See Note 9).  The potential dilution at various stock
prices for the remaining $6.0 million of principal Notes outstanding is not
material.




12. Other
Financial Information




As
described in Note 9, 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.




28




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,
      2009Issuer
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Consolidating
                and Eliminating
                Entries
              
              
              ConsolidatedNet
      sales
              
              $
              92,836
              
              
              $
              10,132
              
              
              $
              13,942
              
              
              $
              (13,820
              )
              
              $
              103,090Cost
      of products sold
              
              
              63,336
              
              
              
              8,299
              
              
              
              12,504
              
              
              
              (13,820
              )
              
              
              70,319Depreciation
      and amortization
              
              
              3,487
              
              
              
              263
              
              
              
              222
              
              
              
              —
              
              
              
              3,972Selling,
      general and administrative expenses
              
              
              14,942
              
              
              
              1,043
              
              
              
              1,395
              
              
              
              —
              
              
              
              17,380Research
      and development expense
              
              
              1,156
              
              
              
              90
              
              
              
              —
              
              
              
              —
              
              
              
              1,246Interest
      (income) expense – net
              
              
              3,016
              
              
              
              (2,819
              )
              
              
              (88
              )
              
              
              —
              
              
              
              109Other
      expense
              
              
              917
              
              
              
              502
              
              
              
              81
              
              
              
              —
              
              
              
              1,500Provision  (benefit)
      for income taxes
              
              
              3,714
              
              
              
              (49
              )
              
              
              (772
              )
              
              
              —
              
              
              
              2,893Results
      of affiliates’ operations
              
              
              3,830
              
              
              
              1,138
              
              
              
              —
              
              
              
              (4,968
              )
              
              
              —Equity
      in income from equity investments
              
              
              —
              
              
              
              —
              
              
              
              427
              
              
              
              —
              
              
              
              427Net
      income (loss)
              
              $
              6,098
              
              
              $
              3,941
              
              
              $
              1,027
              
              
              $
              (4,968
              )
              
              $
              6,098





29




Condensed Consolidating Statements of
      Operations
                Six months ended June 30,
    2009Issuer
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Consolidating
                and Eliminating
                Entries
              
              
              ConsolidatedNet
      sales
              
              $
              177,584
              
              
              $
              17,679
              
              
              $
              28,189
              
              
              $
              (29,729
              )
              
              $
              193,723Cost
      of products sold
              
              
              123,328
              
              
              
              14,227
              
              
              
              23,707
              
              
              
              (29,729
              )
              
              
              131,533Depreciation
      and amortization
              
              
              6,807
              
              
              
              513
              
              
              
              428
              
              
              
              —
              
              
              
              7,748Selling,
      general and administrative expenses
              
              
              28,714
              
              
              
              2,067
              
              
              
              2,344
              
              
              
              —
              
              
              
              33,125Research
      and development expense
              
              
              2,040
              
              
              
              168
              
              
              
              —
              
              
              
              —
              
              
              
              2,208Interest
      (income) expense – net
              
              
              5,796
              
              
              
              (5,626
              )
              
              
              (167
              )
              
              
              —
              
              
              
              3Other
      expense
              
              
              1,146
              
              
              
              648
              
              
              
              134
              
              
              
              —
              
              
              
              1,928Provision  (benefit)
      for income taxes
              
              
              6,146
              
              
              
              (30
              )
              
              
              (142
              )
              
              
              —
              
              
              
              5,974Results
      of affiliates’ operations
              
              
              8,465
              
              
              
              1,245
              
              
              
              —
              
              
              
              (9,710
              )
              
              
              —Equity
      in income from equity investments
              
              
              —
              
              
              
              —
              
              
              
              868
              
              
              
              —
              
              
              
              868Net
      income (loss)
              
              $
              12,072
              
              
              $
              6,957
              
              
              $
              2,753
              
              
              $
              (9,710
              )
              
              $
              12,072




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
              
              
              5,216
              
              
              
              (3,333
              )
              
              
              (239
              )
              
              
              —
              
              
              
              1,644Other
      expense
              
              
              41
              
              
              
              248
              
              
              
              191
              
              
              
              —
              
              
              
              480Provision
      for income taxes
              
              
              3,990
              
              
              
              189
              
              
              
              376
              
              
              
              —
              
              
              
              4,555Results
      of affiliates’ operations
              
              
              8,420
              
              
              
              910
              
              
              
              —
              
              
              
              (9,330
              )
              
              
              —Equity
      in loss from equity investments
              
              
              —
              
              
              
              —
              
              
              
              (137
              )
              
              
              (2
              )
              
              
              (139
              )Income
      (loss) from continuing operations
              
              
              12,731
              
              
              
              4,908
              
              
              
              977
              
              
              
              (9,332
              )
              
              
              9,284Income
      from discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              3,447
              
              
              
              —
              
              
              
              3,447Net
      income (loss)
              
              $
              12,731
              
              
              $
              4,908
              
              
              $
              4,424
              
              
              $
              (9,332
              )
              
              $
              12,731





30




Condensed Consolidating Statements of
      Operations
                      Six months ended June 30,
    2008Issuer
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
                      Subsidiaries
                    
                    
                    Consolidating
                      andEliminating
                      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
                    
                    
                    10,569
                    
                    
                    
                    (6,838
                    )
                    
                    
                    (432
                    )
                    
                    
                    —
                    
                    
                    
                    3,299Other
      (income) expense – net
                    
                    
                    (73
                    )
                    
                    
                    443
                    
                    
                    
                    200
                    
                    
                    
                    —
                    
                    
                    
                    570Provision  for
      income taxes
                    
                    
                    9,560
                    
                    
                    
                    465
                    
                    
                    
                    449
                    
                    
                    
                    —
                    
                    
                    
                    10,474Results
      of affiliates’ operations
                    
                    
                    13,566
                    
                    
                    
                    1,465
                    
                    
                    
                    —
                    
                    
                    
                    (15,031
                    )
                    
                    
                    —Equity
      in income from equity investments
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    299
                    
                    
                    
                    —
                    
                    
                    
                    299Income
      (loss) from continuing operations
                    
                    
                    23,104
                    
                    
                    
                    9,776
                    
                    
                    
                    1,808
                    
                    
                    
                    (15,031
                    )
                    
                    
                    19,657Income
      from discontinued operations
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,447
                    
                    
                    
                    —
                    
                    
                    
                    3,447Net
      income (loss)
                    
                    $
                    23,104
                    
                    
                    $
                    9,776
                    
                    
                    $
                    5,255
                    
                    
                    $
                    (15,031
                    )
                    
                    $
                    23,104





Condensed
      Consolidating Balance SheetsJune 30, 2009Issuer
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-Guarantor
                    Subsidiaries
                  
                  
                  Consolidatingand
                    Eliminating
                    Entries
                  
                  
                  ConsolidatedCash
      & Cash Equivalents
                  
                  $
                  12,288
                  
                  
                  $
                  2,228
                  
                  
                  $
                  19,912
                  
                  
                  $
                  (15,908
                  )
                  
                  $
                  18,520Receivables
                  
                  
                  52,885
                  
                  
                  
                  14,348
                  
                  
                  
                  7,004
                  
                  
                  
                  (8,689
                  )
                  
                  
                  65,548Inventories
                  
                  
                  79,424
                  
                  
                  
                  8,593
                  
                  
                  
                  6,363
                  
                  
                  
                  61
                  
                  
                  
                  94,441Other
      current assets
                  
                  
                  18,822
                  
                  
                  
                  954
                  
                  
                  
                  3,516
                  
                  
                  
                  —
                  
                  
                  
                  23,292Total
      current assets
                  
                  
                  163,419
                  
                  
                  
                  26,123
                  
                  
                  
                  36,795
                  
                  
                  
                  (24,536
                  )
                  
                  
                  201,801Intercompany
      accounts receivable
                  
                  
                  54,688
                  
                  
                  
                  193,101
                  
                  
                  
                  10,037
                  
                  
                  
                  (257,826
                  )
                  
                  
                  —Property,
      plant, and equipment, net
                  
                  
                  129,449
                  
                  
                  
                  6,507
                  
                  
                  
                  7,818
                  
                  
                  
                  —
                  
                  
                  
                  143,774Intangibles
                  
                  
                  3,051
                  
                  
                  
                  2,322
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  5,373Goodwill
                  
                  
                  16,674
                  
                  
                  
                  7,595
                  
                  
                  
                  2,544
                  
                  
                  
                  —
                  
                  
                  
                  26,813Equity
      investments
                  
                  
                  276,680
                  
                  
                  
                  100,835
                  
                  
                  
                  10,846
                  
                  
                  
                  (377,325
                  )
                  
                  
                  11,036Other
      assets
                  
                  
                  9,814
                  
                  
                  
                  2,319
                  
                  
                  
                  4,426
                  
                  
                  
                  —
                  
                  
                  
                  16,559Total
      assets
                  
                  $
                  653,775
                  
                  
                  $
                  338,802
                  
                  
                  $
                  72,466
                  
                  
                  $
                  (659,687
                  )
                  
                  $
                  405,356Current
      portion of long-term debt
                  
                  $
                  5,163
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  5,163Accounts
      payable
                  
                  
                  37,496
                  
                  
                  
                  16,310
                  
                  
                  
                  2,851
                  
                  
                  
                  (11,265
                  )
                  
                  
                  45,392Other
      current liabilities
                  
                  
                  26,847
                  
                  
                  
                  351
                  
                  
                  
                  1,258
                  
                  
                  
                  (19,271
                  )
                  
                  
                  9,185Total
      current liabilities
                  
                  
                  69,506
                  
                  
                  
                  16,661
                  
                  
                  
                  4,109
                  
                  
                  
                  (30,536
                  )
                  
                  
                  59,740Intercompany
      accounts payable
                  
                  
                  189,336
                  
                  
                  
                  47,001
                  
                  
                  
                  15,499
                  
                  
                  
                  (251,836
                  )
                  
                  
                  —Long-term
      debt
                  
                  
                  7,600
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,600Other
      non-current liabilities
                  
                  
                  119,000
                  
                  
                  
                  10,118
                  
                  
                  
                  8,786
                  
                  
                  
                  (68,221
                  )
                  
                  
                  69,683Shareholders'
      equity
                  
                  
                  268,333
                  
                  
                  
                  265,022
                  
                  
                  
                  44,072
                  
                  
                  
                  (309,094
                  )
                  
                  
                  268,333Total
      liabilities and shareholders' equity
                  
                  $
                  653,775
                  
                  
                  $
                  338,802
                  
                  
                  $
                  72,466
                  
                  
                  $
                  (659,687
                  )
                  
                  $
                  405,356




31




Condensed
      Consolidating Balance SheetsDecember 31, 2008Issuer
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-Guarantor
                    Subsidiaries
                  
                  
                  Consolidatingand
                    Eliminating
                    Entries
                  
                  
                  ConsolidatedCash
      and Cash Equivalents
                  
                  $
                  1,598
                  
                  
                  $
                  3,067
                  
                  
                  $
                  23,351
                  
                  
                  $
                  (11,266
                  )
                  
                  $
                  16,750Receivables
                  
                  
                  53,709
                  
                  
                  
                  13,443
                  
                  
                  
                  5,547
                  
                  
                  
                  (8,184
                  )
                  
                  
                  64,515Inventories
                  
                  
                  78,517
                  
                  
                  
                  6,509
                  
                  
                  
                  8,638
                  
                  
                  
                  61
                  
                  
                  
                  93,725Other
      current assets
                  
                  
                  21,948
                  
                  
                  
                  921
                  
                  
                  
                  2,729
                  
                  
                  
                  —
                  
                  
                  
                  25,598Total
      current assets
                  
                  
                  155,772
                  
                  
                  
                  23,940
                  
                  
                  
                  40,265
                  
                  
                  
                  (19,389
                  )
                  
                  
                  200,588Intercompany
      accounts receivable
                  
                  
                  53,704
                  
                  
                  
                  185,535
                  
                  
                  
                  4,526
                  
                  
                  
                  (243,765
                  )
                  
                  
                  —Property,
      plant, and equipment, net
                  
                  
                  109,348
                  
                  
                  
                  5,872
                  
                  
                  
                  7,740
                  
                  
                  
                  —
                  
                  
                  
                  122,960Intangibles
                  
                  
                  3,506
                  
                  
                  
                  2,424
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  5,930Goodwill
                  
                  
                  16,674
                  
                  
                  
                  7,189
                  
                  
                  
                  2,477
                  
                  
                  
                  —
                  
                  
                  
                  26,340Equity
      investments
                  
                  
                  267,730
                  
                  
                  
                  100,202
                  
                  
                  
                  11,566
                  
                  
                  
                  (367,751
                  )
                  
                  
                  11,747Other
      assets
                  
                  
                  13,081
                  
                  
                  
                  1,928
                  
                  
                  
                  4,688
                  
                  
                  
                  —
                  
                  
                  
                  19,697Total
      assets
                  
                  $
                  619,815
                  
                  
                  $
                  327,090
                  
                  
                  $
                  71,262
                  
                  
                  $
                  (630,905
                  )
                  
                  $
                  387,262Short-term
      debt
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  1,605
                  
                  
                  $
                  —
                  
                  
                  $
                  1,605Current
      portion of long-term debt
                  
                  
                  7,903
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,903Accounts
      payable
                  
                  
                  36,081
                  
                  
                  
                  15,317
                  
                  
                  
                  2,887
                  
                  
                  
                  (9,999
                  )
                  
                  
                  44,286Other
      current liabilities
                  
                  
                  24,529
                  
                  
                  
                  278
                  
                  
                  
                  1,621
                  
                  
                  
                  (14,678
                  )
                  
                  
                  11,750Total
      current liabilities
                  
                  
                  68,513
                  
                  
                  
                  15,595
                  
                  
                  
                  6,113
                  
                  
                  
                  (24,677
                  )
                  
                  
                  65,544Intercompany
      accounts payable
                  
                  
                  180,197
                  
                  
                  
                  44,717
                  
                  
                  
                  13,623
                  
                  
                  
                  (238,537
                  )
                  
                  
                  —Long-term
      debt
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Other
      non-current liabilities
                  
                  
                  117,828
                  
                  
                  
                  9,559
                  
                  
                  
                  9,274
                  
                  
                  
                  (68,220
                  )
                  
                  
                  68,441Shareholders'
      equity
                  
                  
                  253,277
                  
                  
                  
                  257,219
                  
                  
                  
                  42,252
                  
                  
                  
                  (299,471
                  )
                  
                  
                  253,277Total
      liabilities and shareholders' equity
                  
                  $
                  619,815
                  
                  
                  $
                  327,090
                  
                  
                  $
                  71,262
                  
                  
                  $
                  (630,905
                  )
                  
                  $
                  387,262




32


Condensed
      Consolidating Statements of Cash FlowsSix months ended June 30,
    2009Issuer
                          
                          
                          Guarantor
                            Subsidiaries
                          
                          
                          Non-Guarantor
                            Subsidiaries
                          
                          
                          Consolidating
      and
                            Eliminating
                            Entries
                          
                          
                          ConsolidatedNet
      cash provided by operating activities
                          
                          $
                          22,348
                          
                          
                          $
                          4,020
                          
                          
                          $
                          3,237
                          
                          
                          $
                          —
                          
                          
                          $
                          29,605Investing
      activities:Property,
      plant and equipment expenditures
                          
                          
                          (27,814
                          )
                          
                          
                          39
                          
                          
                          
                          (421
                          )
                          
                          
                          —
                          
                          
                          
                          (28,196
                          )Investment
      (in) from affiliates
                          
                          
                          —
                          
                          
                          
                          (997
                          )
                          
                          
                          997
                          
                          
                          
                          —
                          
                          
                          
                          —Cash
      pledged for collateral
                          
                          
                          (11,019
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (11,019
                          )Net
      cash (used in) provided by investing activities
                          
                          
                          (38,833
                          )
                          
                          
                          (958
                          )
                          
                          
                          576
                          
                          
                          
                          —
                          
                          
                          
                          (39,215
                          )Financing
      activities:Net
      borrowings (repayments)
                          
                          
                          9,320
                          
                          
                          
                          —
                          
                          
                          
                          (1,608
                          )
                          
                          
                          (4,642
                          )
                          
                          
                          3,070Intercompany
      and equity transactions
                          
                          
                          8,189
                          
                          
                          
                          (5,314
                          )
                          
                          
                          (2,875
                          )
                          
                          
                          —
                          
                          
                          
                          —Other
                          
                          
                          (1,459
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (1,459
                          )Excess
      tax benefit for stock-based compensation
                          
                          
                          362
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          362Net
      cash provided by (used in) financing activities
                          
                          
                          16,412
                          
                          
                          
                          (5,314
                          )
                          
                          
                          (4,483
                          )
                          
                          
                          (4,642
                          )
                          
                          
                          1,973Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          (256
                          )
                          
                          
                          1,413
                          
                          
                          
                          (2,769
                          )
                          
                          
                          —
                          
                          
                          
                          (1,612
                          )Decrease
      in cash and cash equivalents
                          
                          
                          (329
                          )
                          
                          
                          (839
                          )
                          
                          
                          (3,439
                          )
                          
                          
                          (4,642
                          )
                          
                          
                          (9,249
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          1,598
                          
                          
                          
                          3,067
                          
                          
                          
                          23,351
                          
                          
                          
                          (11,266
                          )
                          
                          
                          16,750Cash
      and cash equivalents, end of  period
                          
                          $
                          1,269
                          
                          
                          $
                          2,228
                          
                          
                          $
                          19,912
                          
                          
                          $
                          (15,908
                          )
                          
                          $
                          7,501





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


33





13.
            Related
      Party Transactions




Net sales
to related parties and receivables from related parties primarily reflect sales
of activated carbon products to equity investees.  Related party sales
transactions were $4.4 million and $2.1 million for the three months ended June
30, 2009 and 2008, respectively, and $9.1 million and $5.0 million for the six
months ended June 30, 2009 and 2008, respectively.  Receivables from
equity investees amounted to $4.6 million and $2.2 million at June 30, 2009 and
December 31, 2008, respectively.  The Company’s equity investees are
included in the Activated Carbon and Service segment.




14.
            Income
      Taxes




Unrecognized Income Tax
Benefits




As of
June 30, 2009 and December 31, 2008, the Company’s gross unrecognized income tax
benefits were $11.8 million and $12.2 million, respectively.  If
recognized, $9.7 million and $10.0 million of the gross unrecognized tax
benefits would affect the effective tax rate at June 30, 2009 and December 31,
2008, respectively.  The Company estimates that approximately $0.5
million of unrecognized tax benefits will be realized in the next twelve months
as a result of the expiration of statute limitations in various tax
jurisdictions.




15.
            New
      Accounting Pronouncements




In
December 2008, the FASB issued FSP No. 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets,” (FSP No. 132(R)-1). FSP
No. 132(R)-1 amends FAS No. 132 to provide guidance on an employer’s
disclosures about plan assets of a defined benefit pension or other
postretirement plan. The additional required disclosures focus on fair value by
category of plan assets. This FSP is effective for fiscal years ending after
December 15, 2009. The Company will adopt the disclosure provisions in the
December 31, 2009 financial statements.




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or available to be issued. SFAS 165 is effective for interim and annual
periods ending after June 15, 2009 and should be applied prospectively. The
disclosures required by SFAS 165 are reflected in Note 16.




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162,” which identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this standard will change how the
Company references various elements of GAAP when preparing its
financial statement disclosures, but will have no impact on the Company’s
financial position, results of operations or cash flows.




16.
            Other




The
Company has evaluated subsequent events through August 7, 2009, the date it
filed its report on Form 10-Q for the quarter ended June 30, 2009 with the
SEC, and has no material subsequent events to report.


34





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 decreased by $5.4 million or 5.0% and $5.1 million or 2.6% for the
quarter and year-to-date periods ended June 30, 2009, respectively, versus the
quarter and year to date periods ended June 30, 2008.  Net sales for
the quarter and year-to-date periods ended June 30, 2009 for the Activated
Carbon and Service segment decreased $5.9 million or 6.2% and $5.0 million or
2.9%, respectively, versus the similar 2008 periods.  The decline in
sales for the quarter and year-to-date periods ended June 30, 2009 was primarily
the result of reduced sales volume and foreign currency translation partially
offset by favorable carbon product pricing.  The sales volume decline
experienced during the quarter and year-to-date periods ended June 30, 2009, was
17.6% and 15.4%, respectively, as compared to the similar 2008 periods as a
result of the global economic slowdown.  The volume descreases were
primarily in the potable water, environmental water treatment, industrial
process, and food markets.  Foreign currency translation had a
negative impact of $5.1 million and $9.8 million, respectively, for the quarter
and year-to-date periods ended June 30, 2009 due to the stronger U.S.
dollar.  Partially offsetting the negative effects of volume and
foreign currency translation was favorable pricing of  approximately
21%, respectively, for the quarter and year-to-date periods ended June 30, 2009
as compared to the similar 2008 periods.  Net sales for the Equipment
segment increased $0.6 million or 5.4% and $1.8 million or 8.7%, respectively,
for the quarter and year-to-date periods ended June 30, 2009 versus the
comparable 2008 periods.  The increase for both periods was primarily
due to higher revenue for ultra violet light (UV) systems used in the
disinfection of drinking water related to major contracts for installations that
were awarded in 2008.  Also contributing to the year-to-date increase
was an increase in demand for ion exchange systems in Asia.  Foreign
currency translation had a negative impact of $0.3 million and $0.5 million,
respectively, for the quarter and year-to-date periods ended June 30,
2009.  Net sales for the Consumer segment for the quarter ended June
30, 2009 were comparable to the similar 2008 period.   However,
net sales for the year-to-date period ended June 30, 2009 decreased by $1.8
million or 29.7% versus the similar 2008 period primarily due to the negative
impact of foreign currency translation of $1.1 million. Also contributing to the
decline, was the lower demand for activated carbon cloth that occurred in the
first three months of 2009 of approximately $0.3 million as well as the
continued decline in demand for the Company’s PreZerve® products of $0.4
million.  The total negative impact of foreign currency translation on
consolidated net sales for the quarter and year-to-date periods ended June 30,
2009 was $6.0 million and $11.3 million, respectively.




Net sales
less cost of products sold, as a percentage of net sales, was 31.8% for the
quarter ended June 30, 2009 as compared to 34.5% for the similar 2008 period, a
decline of 2.7% or $5.4 million.   Net sales less cost of
products sold, as a percentage of net sales, was 32.1% for the year-to-date
period ended June 30, 2009 as compared to 33.2%, a decline of 1.1% or $4.8
million for the similar 2008 period.  The Activated Carbon and Service
segment decreased by 3.2% or $5.4 million and 1.4% or $4.8 million,
respectively, for the quarter and year-to-date periods ended June 30, 2009 which
was related to a shift in sales mix from company-produced carbons to more costly
outsourced carbons.  Also contributing to the decline were increased
plant maintenance costs at certain of the Company’s production facilities which
had been delayed in 2008 in order to meet demand of $1.4 million and $3.0
million for the quarter and year-to-date periods ended June 30, 2009,
respectively, versus the similar 2008 periods.  With the April 2009
re-start of B-Line at the Company’s Cattletsburg, Kentucky facility, which added
increased capacity, the Company has focused on executing these maintenance
activities which are expected to continue, to a lesser extent, possibly
throughout the remainder of the year.  The Equipment segment increased
0.5% or $0.9 million and 0.6% and $2.1 million, respectively, for the quarter
and year-to-date periods ended June 30, 2009 which was principally related to
stronger pricing.  The Consumer segment was comparable for the quarter
ended June 30, 2009, but decreased by 0.3% or $1.1 million, for the year-to-date
period ended June 30, 2009 as compared to the 2008 period due to higher costs
associated with plant production issues and carbon cloth raw material. The
Company’s cost of products sold excludes depreciation therefore it may not be
comparable to that of other companies.


35


The
depreciation and amortization decrease of $0.2 million and $0.3 million during
the quarter and year-to-date periods ended June 30, 2009, respectively, versus
the similar 2008 periods was primarily due to decreased depreciation resulting
from an increase in fully depreciated fixed assets.  The Company
expects that future depreciation will be higher due to the significant capital
improvements at its Catlettsburg, Kentucky plant including the April 2009
re-start of a previously idled production line.




Selling,
general and administrative expenses increased $1.2 million and $1.8 million for
the quarter and year-to-date periods ended June 30, 2009, respectively, versus
the comparable 2008 periods.  The increase for both periods was due to
increased employee-related benefit costs of $1.0 million and $1.7 million,
respectively. Bad debt expense also increased by $0.5 million and $0.7 million,
respectively, for both periods in part due to a 2008 recovery of $0.4 million
related to receivables previously considered uncollectible.  Partially
offsetting the increase for the year-to-date period ended June 30, 2009 was a
decrease in legal expense of $0.6 million.




Research
and development expenses for the quarter and year-to-date periods ended June 30,
2009 were comparable to the similar 2008 periods.




The $9.3
million gain on AST settlement for the quarter and year-to-date periods 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.  Of the settlement amount, approximately $5.3 million was
recorded in the Activated Carbon and Service segment and $4.0 million was
recorded in the Equipment segment (See Note 7).




Other
expense for the quarter and year-to-date periods ended June 30, 2009 increased
$1.0 million and $1.4 million as compared to the similar 2008
periods.  The increase is primarily due to the write-off of $0.8
million of financing fees related to the Company’s Prior Credit Facility which
occurred during the quarter ended June 30, 2009 (See Note
9).   Also contributing to the increase in both periods was the
negative impact of foreign exchange on unhedged positions.




Interest
income for the quarter and year-to-date periods ended June 30, 2009 decreased
$0.3 million and $0.7 million, respectively, primarily due to the lower average
cash balances carried in 2009 as compared to 2008.




Interest
expense for the quarter and year-to-date periods ended June 30, 2009 decreased
$1.9 million and $3.9 million, respectively, versus the similar 2008
periods.  The decrease is primarily a result of the conversion of a
substantial portion of the Company’s Senior Convertible Notes (“Notes”) that
occurred in the last half of 2008 as well as the adoption of FSP APB 14-1 which
had a retrospective increase of $0.9 million and $1.7 million, respectively, on
the quarter and year-to-date periods ended June 30, 2008 (See Note
9).




The
income tax provision decreased $1.7 million and $4.5 million, respectively, for
the quarter and year-to-date periods ended June 30, 2009 versus similar 2008
periods.  The decrease for both periods was primarily due to the
decrease in income from operations before income tax and equity in income from
equity investments of $5.4 million and $12.7 million, respectively.




The
effective tax rate for the year-to-date period ended June 30, 2009 was 34.8%
compared to 35.3% for the year-to-date period ended June 30,
2008.  The year-to-date period ended June 30, 2009 tax rate was lower
than the federal statutory income tax rate due to the effective settlement of
uncertain tax positions upon completion of a tax audit which lowered the tax
rate by 2.8%.  The decrease more than offset increases in the
effective tax rate resulting from permanent items, state income taxes, and
revisions to the Company’s annualized estimate of pre-tax earnings by
jurisdiction.  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.




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 in various tax jurisdictions.  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.


36


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 increased $0.6 million for both the quarter and
year-to-date periods ended June 30, 2009 as compared to the similar 2008 periods
primarily due to increased sales volume of carbon products as a result of a
large municipal fill in 2009.




Discontinued
Operations


Income
from discontinued operations was $3.4 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 $29.6 million for the period ended
June 30, 2009 compared to $18.1 million for the comparable 2008
period.  The $11.5 million increase is primarily due to improved
working capital changes of $10.2 million which were primarily driven by
decreases of $7.9 million in receivables and $4.4 million in
inventory.




Common
stock dividends were not paid during the quarter and year-to-date periods ended
June 30, 2009 and 2008, respectively.




Total
debt at June 30, 2009 was $12.8 million, a $3.3 million increase from December
31, 2008.  The increase was solely attributed to the required cash
collateral pursuant to the Company’s transition to its new credit
facility.  Absent this, the Company’s debt would have decreased by
$4.5 million as a result of the repayment of the China credit facility and the
Mississippi Industrial Revenue bonds of $1.6 million and $2.9 million,
respectively, which occurred during the period ended June 30,
2009.  Refer to Note 9 for additional information.




5.00%
Convertible Senior Notes due 2036




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




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




For the
periods ended June 30, 2009 and December 31, 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 ending on the last trading day of each of the aforementioned quarterly
periods.   As a result, the holders of the Notes have had the
right to convert the Notes into cash and shares of common
stock.


37


During
the period of August 20, 2008 through November 10, 2008, the Company converted
and exchanged $69.0 million of the Notes for cash of $11.0 million and
approximately 13.0 million shares of its common stock.




Due to
the conversion rights of the holders of the Notes, the Company has classified
the remaining principal amount of outstanding Notes as a current liability as of
June 30, 2009 and December 31, 2008.




The
initial conversion rate is 196.0784 shares of the Company’s common stock per
$1,000 principal amount of Notes, equivalent to an initial conversion price of
approximately $5.10 per share of common stock.  The conversion rate is
subject to adjustment in some events, including the payment of a dividend on the
Company’s common stock, but will not be adjusted for accrued interest, including
any additional interest.  In addition, following certain fundamental
changes (principally related to changes in control) that occur prior to August
15, 2011, the Company will increase the conversion rate for holders who elect to
convert Notes in connection with such fundamental changes in certain
circumstances. The Company considered EITF 00-27 issue 7 which indicates that if
a reset of the conversion rate due to a contingent event occurs, the Company
would need to calculate if there is a beneficial conversion and record if
applicable. Through June 30, 2009, no contingent events 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.




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.




Effective
January 1, 2009, the Company implemented FASB Staff Position APB 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”).  FSP
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.   This new
accounting method has been applied retrospectively to all periods presented with
an impact to retained earnings of $9.2 million as of January 1,
2009.  Under FSP APB 14-1, the Company’s $75.0 million principal
amount of Notes has an initial measurement that consists of a liability
component of $53.1 million and an equity component of $18.6 million ($11.5
million after the associated deferred tax liability).  The carrying
amount of the equity component is $0.4 million (after tax) at June 30, 2009 and
December 31, 2008, respectively.  At June 30, 2009, the if-converted
value of the Notes exceeded its principal amount by approximately $10.3
million.




In
accordance with FSP APB 14-1, the debt discount of $21.9 million is being
amortized over the period from August 18, 2006 (the issuance date) to June 15,
2011 (the first put date on the Notes).  The effective interest rate
for all periods on the liability component is approximately
13.8%.   The Company also incurred original issuance costs of
$0.4 million which have been deferred and are being amortized over the same
period as the discount.  For the three and six months ended June 30,
2009, the Company recorded interest expense of $0.2 million and $0.3 million
related to the Notes, of which $0.1 million and $0.2 million related to the
amortization of the discount and $0.1 million and $0.1 million related to
contractual coupon interest, respectively.  Similarly, for the three
and six months ended June 30, 2008, the Company recorded interest expense of
$2.0 million and $3.9 million related to the Notes, of which $1.0 million and
$2.0 million related to the amortization of the discount and $1.0 million and
$1.9 million related to contractual coupon interest,
respectively.  The effect of the retrospective adjustment for the
adoption of FSP APB 14-1 for the three and six month periods ended June 30, 2008
was to decrease previously reported net income from continuing operations by
$0.5 million and $1.0 million or $0.01 and $0.02 per diluted common share,
respectively.


38


Credit
Facility




On August
14, 2008, the Company entered into a third amendment (the “Third Amendment”) to
its Credit Facility (the “Prior Credit Facility”).  The Third
Amendment permitted borrowings in an amount up to $60.0 million and included a
separate U.K. sub-facility and a separate Belgian sub-facility. The Prior Credit
Facility permitted the total revolving credit commitment to be increased up to
$75.0 million. The facility was scheduled to mature on May 15, 2011.
Availability for domestic borrowings under the Prior Credit Facility was 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 Prior Credit Facility was conditioned upon
various customary conditions.




The Prior
Credit Facility was 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 guaranteed all indebtedness
and obligations related to domestic borrowings under the Prior Credit Facility.
The Company and certain of its domestic subsidiaries also unconditionally
guaranteed all indebtedness and obligations under the U.K.
sub-facility.




On May 8,
2009, the Company and certain of its domestic subsidiaries entered into a Credit
Agreement (the “Credit Agreement”).  The Credit Agreement replaces the
Company’s Prior Credit Facility, dated as of August 18,
2006.  Concurrent with the closing under the Credit Agreement, the
Company terminated and paid in full its obligations under the Prior Credit
Facility. The Company provided cash collateral to the former agent bank for the
remaining exposure related to outstanding letters of credit and certain
derivative obligations.  The cash collateral is shown as restricted
cash within the condensed consolidated balance sheet as of June 30,
2009.  The Company was in compliance with all applicable financial
covenants and other restrictions under the Prior Credit Facility as of the
effective date of its termination and wrote off deferred costs of approximately
$0.8 million, pre-tax, related to the Prior Credit Facility.




The
Credit Agreement provides for an initial $95 million revolving credit facility
(the “Revolving Credit Facility”) which expires on May 8, 2014.  So
long as no event of default has occurred and is continuing, the Company from
time to time may request one or more increases in the total revolving credit
commitment under the Revolving Credit Facility of up to $30.0 million in the
aggregate.  No assurance can be given, however, that the total
revolving credit commitment will be increased above $95.0
million.  Availability under the Revolving Credit Facility is
conditioned upon various customary conditions.  A quarterly
nonrefundable commitment fee is payable by the Company based on the unused
availability under the Revolving Credit Facility and is currently equal to
0.5%.  Any outstanding borrowings under the Revolving Credit Facility
on July 2, 2012, up to $50.0 million, automatically convert to a term loan
maturing on May 8, 2014 (the “Term Loan”), with the total revolving credit
commitment under the Revolving Credit Facility being reduced at that time by the
amount of the Term Loan.  Total
availability under the Revolving Credit Facility at June 30, 2009 was $85
million, after considering current borrowings and outstanding letters of
credit.




The
interest rate on amounts owed under the Term Loan and the Revolving Credit
Facility will be, at the Company’s option, either (i) a fluctuating base rate
based on the highest of (A) the prime rate announced from time to time by the
lenders, (B) the rate announced by the Federal Reserve Bank of New York on that
day as being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day plus
3.00% or (C) a daily LIBOR rate plus 2.75%, or (ii) a rate based on the
average published LIBOR rates for comparable borrowings and reserve requirements
prescribed by the Board of Governors of the Federal Reserve System of the United
States.  A margin may be added to the applicable interest rate based
on the Company’s leverage ratio as set forth in the Credit
Agreement.  The interest rate as of June 30, 2009 was
3.50%.




The
Company incurred debt issuance costs of $1.0 million which were deferred and are
being amortized over the term of the debt.  As of June 30, 2009,
outstanding borrowings under the Revolving Credit Facility are $7.6 million and
are classified as long term within the condensed consolidated balance
sheet.


39


Certain
of the Company’s domestic subsidiaries unconditionally guarantee all
indebtedness and obligations related to borrowings under the Revolving Credit
Facility.  The Company’s obligations under the Revolving Credit
Facility are secured by a first perfected security interest in certain of the
domestic assets of the Company and the subsidiary guarantors, including certain
real property, inventory, accounts receivable, equipment and capital stock of
the Company’s domestic subsidiaries.




The
Credit Agreement contains customary affirmative and negative covenants for
credit facilities of this type, including limitations on the Company and its
subsidiaries with respect to indebtedness, liens, investments, capital
expenditures, mergers and acquisitions, dispositions of assets and transactions
with affiliates.  The Credit Agreement also provides for customary
events of default, including failure to pay principal or interest when due,
failure to comply with covenants, the fact that any representation or warranty
made by the Company is false or misleading in any material respect, certain
insolvency or receivership events affecting the Company and its subsidiaries and
a change in control of the Company.  If an event of default occurs,
the lenders will be under no further obligation to make loans or issue letters
of credit.  Upon the occurrence of certain events of default, all
outstanding obligations of the Company automatically become immediately due and
payable, and other events of default will allow the lenders to declare all or
any portion of the outstanding obligations of the Company to be immediately due
and payable.  The
Credit Agreement also contains a covenant which includes limitations on its
ability to declare or pay cash dividends, subject to certain exceptions, such as
dividends declared and paid by its subsidiaries and cash dividends paid by the
Company in an amount not to exceed 50% of cumulative net after tax earnings
following the closing date of the Agreement if certain conditions are met.Including the extension of time granted by the lenders related to certain
administrative post-closing items surrounding the transition to the new Credit
Agreement, the Company was in compliance with all such covenants as of June 30,
2009.




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, 2009, there have been no significant
changes in the payment terms of debt, lease agreements, and unconditional
purchase obligations since December 31, 2008, other than the addition of long
term debt amounts under the new Credit Agreement entered into in May
2009.  Although there have not been any changes in the Company’s
required minimum funding contributions to its pension plans, due to the
underfunded status of its U.S. pension plans, the Company is currently planning
$10.4 million of discretionary cash contributions on or before September 15,
2009.    The following table represents the significant
contractual cash obligations and other commercial commitments of the Company as
of December 31, 2008, as adjusted for the changes attributable to the new Credit
Agreement, as well as the impact of FSP APB 14-1.





Due in(Thousands)
                        
                        2009(1)
                        
                        
                        2010
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        Thereafter
                        
                        
                        TotalShort-term
      debt
                        
                        $
                        1,605
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        1,605Current
      portion of Long-term debt(2)
                        
                        
                        2,925
                        
                        
                        
                        —
                        
                        
                        
                        4,978
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        7,903Long-term
      debt
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        7,600
                        
                        
                        
                        7,600Operating
      leases
                        
                        
                        5,727
                        
                        
                        
                        5,097
                        
                        
                        
                        4,515
                        
                        
                        
                        4,247
                        
                        
                        
                        3,765
                        
                        
                        
                        7,783
                        
                        
                        
                        31,134Unconditional
      purchase obligations(3)
                        
                        
                        26,175
                        
                        
                        
                        25,600
                        
                        
                        
                        23,318
                        
                        
                        
                        1,575
                        
                        
                        
                        1,575
                        
                        
                        
                        263
                        
                        
                        
                        78,506Total
      contractual cash Obligations(4)
                        
                        $
                        36,432
                        
                        
                        $
                        30,697
                        
                        
                        $
                        32,811
                        
                        
                        $
                        5,822
                        
                        
                        $
                        5,340
                        
                        
                        $
                        15,646
                        
                        
                        $
                        126,748




(1)The 2009 amounts include
payments of $1.6 million and $2.9 million for short-term and current portion of long-term
debt, respectively, that were made during the six months ended June 30,
2009.


(2)The 2011 maturity includes
debt discount of $1,022.  This amount is classified as currently
payable at December 31, 2008.  See Note
9.


(3)Primarily for the purchase
of raw materials, transportation, and information systems services.


(4)Interest on debt obligations
Notes was excluded as it is not material.




40




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 over the next twelve months.




Capital Expenditures and
Investments




Capital
expenditures for property, plant and equipment totaled $28.2 million for the six
months ended June 30, 2009 (with $0.5 million of this amount reflected as a
non-cash decrease in accounts payable and accrued liabilities) compared to
expenditures of $11.8 million for the same period in 2008.  The
expenditures for the period ended June 30, 2009 consisted primarily of
improvements to the Company’s manufacturing facilities of $23.1 million, of
which $7.9 million was directly related to the April 2009 re-start of a
previously idled production line at the Company’s Catlettsburg, Kentucky
facility and $7.8 million related to a new pulverization facility at the same
location, and $2.2 million for customer capital.  The comparable 2008
period consisted primarily of expenditures 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.    Capital expenditures for 2009 are projected to
be approximately $55.0 million to $60.0 million.  The aforementioned
expenditures are expected to be funded by operating cash flows, cash on hand,
and borrowings.




Labor
Agreements




The labor
agreement for the Company’s workforce at its Catlettsburg, Kentucky facility
expired on April 2, 2009.  The parties are working under an extension
of the expired agreement as they continue to negotiate the terms and conditions
of a multi-year replacement agreement.




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 needed to install pollution abatement equipment in order to remain in
compliance with state requirements regulating air emissions before resuming full
operation of this line.  During 2008, the Company installed state of
the art wet scrubbers and made process improvements to B-line.  The
Company invested approximately $21 million to upgrade and abate B-line which was
put into production in April 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 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 June 30,
2009 and December 31, 2008, 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 for the six month periods ended June 30, 2009 and 2008. It is reasonably
possible that a change in the estimate of this obligation will occur as
remediation preparation and remediation activity commences in the
future.  The ultimate remediation costs are dependent upon, among
other things, the requirements of any state or federal environmental agencies,
the remediation methods employed, the final scope of work being determined, and
the extent and types of contamination which will not be fully determined until
experience is gained through remediation and related activities.  The
accrued amounts are expected to be paid out over the course of several years
once work has commenced.  The Company has yet to make a determination
as to when it will proceed with remediation efforts.


41


By letter
dated January 22, 2007, the Company received from the United States
Environmental Protection Agency, Region 4 (“EPA”) a report of a hazardous waste
facility inspection performed by the EPA and the Kentucky Department of
Environmental Protection (“KYDEP”) as part of a Multi Media Compliance
Evaluation of the Company’s Big Sandy Plant in Catlettsburg, Kentucky that was
conducted on September 20 and 21, 2005.  Accompanying the report was a
Notice of Violation (“NOV”) alleging multiple violations of the Federal Resource
Conservation and Recovery Act (“RCRA”) and corresponding EPA and KYDEP hazardous
waste regulations.  The alleged violations mainly concern the
hazardous waste spent activated carbon regeneration facility.  The
Company met with the EPA on April 17, 2007 to discuss the inspection report and
alleged violations, and submitted written responses in May and June
2007.  In August 2007, the EPA notified the Company that it believes
there were still significant violations of RCRA that are unresolved by the
information in the Company’s responses, without specifying the particular
violations.  During a meeting with the EPA on December 10, 2007, the
EPA indicated that the agency would not pursue certain other alleged violations.
Based on discussions during the December 10, 2007 meeting, subsequent
communications with the EPA, and in connection with the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) Notice
referred to below, the Company has taken actions to address and remediate a
number of the unresolved alleged violations.  The Company believes
that the number of unresolved issues as to alleged continuing violations cited
in the January 22, 2007 NOV has been reduced substantially.  The EPA
can take formal enforcement action to require the Company to remediate any or
all of the unresolved alleged continuing violations which could require the
Company to incur substantial additional costs. The EPA can also take formal
enforcement action to impose substantial civil penalties with respect to
violations cited in the NOV, including those which have been admitted or
resolved. The Company is awaiting further response from the EPA and cannot
predict with any certainty the probable outcome of this matter or range of
potential loss, if any.




On July
3, 2008, the EPA verbally informed the Company that there are a number of
unresolved RCRA violations at the Big Sandy Plant which may render the facility
unacceptable to receive spent carbon for reactivation from sites regulated under
the CERCLA pursuant to the CERCLA Off-Site Rule.  The Company received
written notice of the unacceptability determination on July 14, 2008 (the
“CERCLA Notice”).  The CERCLA Notice alleged multiple violations of
RCRA and four releases of hazardous waste.  The alleged violations and
releases were cited in the September 2005 multi-media compliance inspections,
and were among those cited in the January 2007 NOV described in the preceding
paragraph as well.  The CERCLA Notice gave the Company until September
1, 2008 to demonstrate to the EPA that the alleged violations and releases are
not continuing, or else the Big Sandy Plant would not be able to receive spent
carbon from CERCLA sites until the EPA determined that the facility is again
acceptable to receive such CERCLA wastes. This deadline subsequently was
extended several times. The Company met with the EPA in August 2008 regarding
the CERCLA Notice and submitted a written response to the CERCLA Notice prior to
the meeting.  By letter dated February 13, 2009, the EPA informed the
Company that based on information submitted by the Company indicating that the
Big Sandy Plant has returned to physical compliance for the alleged violations
and releases, the EPA had made an affirmative determination of acceptability for
receipt of CERCLA wastes at the Big Sandy Plant.  The EPA’s
determination is conditioned upon the Company treating certain residues
resulting from the treatment of the carbon reactivation furnace off-gas as
hazardous waste and not sending material dredged from the onsite wastewater
treatment lagoons offsite other than to a permitted hazardous waste treatment,
storage or disposal facility.  The Company has requested clarification
from the EPA regarding these two conditions.  The Company is also in
discussions with the EPA and the KYDEP regarding the classification of these
materials.  If the Company is required to treat and/or dispose of the
material dredged from the lagoon as hazardous waste, the costs for doing so
could be substantial.




By letter
dated August 18, 2008, the Company was notified by the EPA Suspension and
Debarment Division (“SDD”) that because of the alleged violations described in
the CERCLA Notice, the SDD was making an assessment of the Company’s present
responsibility to conduct business with Federal Executive
Agencies.  Representatives of the SDD attended the August 2008 EPA
meeting.  On August 28, 2008, the Company received a letter from the
Division requesting additional information from the Company in connection with
the SDD’s evaluation of the Company’s potential “business risk to the Federal
Government,” noting that the Company engages in procurement transactions with or
funded by the Federal Government.  The Company provided the SDD with
all information requested by the letter in September 2008.  The SDD
can suspend or debar a Company from sales to the federal government directly or
indirectly through government contractors or with respect to projects funded by
the federal government.   The Company estimates that revenue from
sales made directly to the federal government or indirectly through government
contractors comprised less than 3% of its total revenue for the six month period
ended June 30, 2009. The Company is unable to estimate sales made directly or
indirectly to customers and or projects that receive federal
funding.  In October 2008, the SDD indicated that it was still
reviewing the matter but that another meeting with the Company was not warranted
at that time.  The Company believes that there is no basis for
suspension or debarment on the basis of the matters asserted by the EPA in the
CERCLA Notice or otherwise.  The Company has had no further
communication with the SDD since October 2008 and believes the likelihood of any
action being taken by the SDD is remote.


42


In June
2007, the Company received a Notice Letter from the New York State Department of
Environmental Conservation (“NYSDEC”) stating that the NYSDEC had 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 PRP’s
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
PRP’s.  The Company has not determined what portion of the costs
associated with the remedial program it would be obligated to bear and the
Company cannot predict with any certainty the outcome of this matter or range of
potential loss.  The Company has joined a PRP group and has executed a
Joint Defense Agreement with the group members.  In August 2008, the
Company and over 100 PRP’s entered into a Consent Order with NYSDEC for
additional site investigation directed toward characterization of the Site to
better define the scope of the remedial project.  The Company
contributed monies to the PRP group to help fund the work required under the
Consent Order.  The additional site investigation required under the
Consent Order was initiated in 2008 and completed in the spring of
2009.  A final report of the site investigation is scheduled for
submittal to NYSDEC in September 2009.




By letter
dated July 3, 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 directed the
Company to submit a complete and accurate Part B application and related
documents and to respond to the KYDEP’s comments which were appended to the
NOV.  The Company submitted a response to the NOV and the KYDEP’s
comments in December 2007 by providing a complete revised permit
application.  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.  The KYDEP can
also deny the Part B operating permit.  On October 18, 2007, the
Company received an NOV from the EPA related to this permit application and
submitted a revised application to both the KYDEP and the EPA within the
mandated timeframe. The EPA 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.  The EPA can also deny the Part B
operating permit.  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, Germany, 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.




Other




On March
8, 2006, the Company and another U.S. producer of activated carbon formally
requested that the United States Department of Commerce investigate unfair
pricing of certain activated carbon imported from the People’s Republic of
China.  The Commerce Department investigated imports of activated
carbon from China that is thermally activated using a combination of heat, steam
and/or carbon dioxide.  Certain types of activated carbon from China,
most notably chemically-activated carbon, were not investigated.




43


On March
2, 2007, the Commerce Department published its final determination (subsequently
amended) that all of the subject merchandise from China was being unfairly
priced, or dumped, and thus that special additional tariffs should be imposed to
offset the amount of the unfair pricing.  The final tariff rates
ranged from 61.95% ad valorem (i.e., of the entered value of the goods) to
228.11% ad valorem.  A formal order imposing final tariffs was
published on April 27, 2007.  All imports from China remain subject to
the order and antidumping tariffs.  Importers of subject activated
carbon from China are required to make cash deposits of estimated antidumping
tariffs at the time the goods are entered into the United States customs
territory.  Deposits of tariffs are subject to future revision based
on retrospective reviews conducted by the Commerce Department.  With
one limited exception, the amount of duties owed for the period of review can
decrease or increase retroactively based on the government’s subsequent review
of the actual prices at which the entries were sold.




The
Company is both a domestic producer and one of the largest U.S. importers (from
our wholly-owned subsidiary Calgon Carbon (Tianjin) Co., Ltd.) of the activated
carbon that is subject to this proceeding.  As such, the Company is
involved in the Commerce Department’s proceedings both as a domestic producer (a
“petitioner”) and as a foreign exporter (a “respondent”).




As one of
two U.S. producers involved as petitioners in the case, the Company is actively
involved in ensuring the Commerce Department obtains the most accurate
information from the foreign producers and exporters involved in the review, in
order to calculate the most accurate results and margins of dumping for the
sales at issue.




As an
importer of activated carbon from China and in light of the successful
antidumping tariff case, the Company was required to pay deposits of estimated
antidumping tariffs at the rate of 84.45% ad valorem to the Bureau of Customs
and Border Protection (“Customs”) on entries made on or after October 11, 2006
through April 9, 2007.   Thereafter, deposits have been paid at
69.54%.  Because of limits on the government’s legal authority to
impose provisional tariffs prior to issuance of a final determination, entries
made between April 9, 2007 and April 19, 2007 were not subject to
tariffs.




The
Company’s role as an importer that is required to pay tariffs results in a
contingent liability related to the final amount of tariffs that will be
paid.  The Company has made deposits of estimated tariffs in two
ways.  First, estimated tariffs on entries in the period from October
11, 2006 through April 9, 2007 were covered by a bond.  The total
amount of tariffs that can be paid on entries in this period is capped as a
matter of law, though the Company may receive a refund with interest of any
difference due to a reduction in the actual margin of dumping found in the first
review.  The Company’s estimated liability for tariffs during this
period of $0.6 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheet at June 30, 2009.  Second, the
Company has been required to post cash deposits of estimated tariffs owed on
entries of subject merchandise since April 19, 2007.  The final amount
of tariffs owed on these entries may change, and can either increase or decrease
depending on the final results of relevant administrative
inquiries.  This process is briefly described below.




The
amount of estimated antidumping tariffs payable on goods imported into the
United States is subject to review and retroactive adjustment based on the
actual amount of dumping that is found.  To do this, the Commerce
Department conducts periodic reviews of sales made to the first unaffiliated
U.S. customer, typically over the prior 12 month period.  These
reviews will be possible for at least five years, and can result in changes to
the antidumping tariff rate (either increasing or reducing the rate) applicable
to any given foreign exporter.  Revision of tariff rates has two
effects.  First, it will alter the actual amount of duties that
Customs will seek to collect for the period reviewed, by either increasing or
decreasing the amount to reflect the actual amount of dumping that was
found.  Where the actual amount of tariffs owed increases, the
government will require payment of the difference plus
interest.  Conversely, when the tariff rate decreases, any difference
is refunded with interest.  Second, the revised rate becomes the cash
deposit rate applied to future entries, and can either increase or decrease the
amount of deposits an importer will be required to pay.




The
Company currently is in the midst of the first such review.  Because
it is the first review conducted under the antidumping duty order, the review
covers the period from October 11, 2006 through March 31, 2008 instead of the
typical 12 month period.  The preliminary results of the review were
announced on May 1, 2009 and indicated that Calgon Carbon (Tianjin) Co., Ltd.’s
tariff rate could increase from 69.54% to 188.57%.  However, other
respondents’ preliminary review results indicated a decline to their tariff
rates for the review period.  The announced preliminary review results
are based on information provided by respondents that has not yet been
verified.  Errors may have been made in the review and the important
decisions that affect the tariff are subject to reconsideration before the final
results of the review are announced.  The respondents, including
Calgon Carbon (Tianjin) Co., Ltd., are subject to additional requests for
information and on-site verification by the Commerce Department of the accuracy
of the information that has been presented.  The review must be
completed no later than early November 2009.  The Company believes
that its preliminary rate of 188.57% will be lowered when the final results are
announced in November.   In addition, until the tariff rate is
finalized in early November 2009, the tariff deposit rate will not
change.  For the first six months of 2009, the Company has made tariff
deposits on goods imported to the United States totaling $1.0
million.  For the period beginning October 11, 2006 through June 30,
2009, the Company estimates that a hypothetical 10% increase or decrease in the
final tariff rate would result in an additional payment or refund of
approximately $0.5 million.


44


The
contingent liability relating to duties paid on imports is somewhat mitigated by
two factors.  First and foremost, the antidumping tariff order’s
disciplinary effect on the market encourages the elimination of dumping through
fair pricing.  Separately, pursuant to the Continued Dumping and
Subsidy Offset Act of 2000 (repealed effective Feb. 8, 2006), as an affected
domestic producer, the Company is eligible to apply for a distribution of a
share of certain tariffs collected on entries of subject merchandise from China
from October 11, 2006 to September 30, 2007.  In July 2008, the
Company applied for such a distribution.  In December 2008, the
Company received a distribution of approximately $0.2 million, which reflected
59.57% of the total amount available.  The Company anticipates
receiving additional amounts in 2009 and future years related to tariffs paid
for the period October 11, 2006 through September 30, 2007, though the exact
amount is impossible to determine.




On April
1, 2009, the Commerce Department published a formal notice allowing parties to
request a second annual administrative review of the antidumping tariff order
covering the period April 1, 2008 through March 31, 2009.  Requests
for review were due no later than April 30, 2009.  In its capacity as
a U.S. producer, the Company requested reviews of multiple Chinese
exporters.  In its capacity as a Chinese exporter, Calgon Carbon
(Tianjin) Co., Ltd. requested its own review.  A notice formally
initiating the review will be published in the Federal Register in the near
future.




Outlook




Sales
growth in 2009 remains extremely challenging for the Company due to lower demand
primarily in the industrial, home water filter, and specialty carbon markets
brought about by the continuing worldwide economic slowdown.




In 2009,
the Company began to experience the impact of the decline of overall global
economic conditions that most companies began to experience during the latter
part of 2008.    In the first six months of 2009, the
Company began to see a sales volume decline in all geographic regions from its
industrial customer base as many manufacturers were scaling back or shutting
down operations. Just prior to that decline, the Company initiated a price
increase to most customers in order to pass on the higher costs of production
realized since its previous price increase earlier in 2008. In some areas of the
world, such as Europe, lower demand led to more aggressive pricing from smaller
competitors. By the end of the first quarter of 2009, the Company began to see
its volume decline spread to its municipal water market as a result of the
flexibility some municipalities have in delaying the replacement of activated
carbon used for taste and odor control. The market slowdown has also resulted in
lower demand requirements for treated water from its industrial customers. The
Company believes that any improvement in the current demand situation will trail
the improvement of the general economic recovery by three to six months. In response, the Company’s
Datong, China plant was temporarily idled in May 2009.  It will
continue to remain idle until global demand requires its operation which
management believes could occur as early as the fourth quarter of 2009.The Company anticipates that its cash and existing borrowing capacity
will provide the Company the liquidity needed to finance its operations and
capital investments even in the face of today’s weak global economy and the
possibility that the recovery does not begin until 2010.




Domestically,
the Company continues to produce virgin activated carbon at capacity, and as of
April 2009, has re-started a production line (“B-line”) at its Catlettsburg,
Kentucky facility which is expected to add up to 70 million pounds of powdered
activated carbon (PAC) capacity. B-line could also be converted to produce up to
30 million pounds of granular activated carbon capacity in place of PAC if
demand so warranted.  Work continues at the Catlettsburg facility for
a new pulverization facility which is expected to be capable of converting 90
million pounds of feedstock to PAC.  PAC is recognized today by the
U.S. Environmental Protection Agency as the leading abatement technology for
mercury removal from coal-fired power plant flue gas.  The Company
believes that this could become the largest U.S. market for activated carbon and
has made great strides in establishing itself as a market leader. Mercury
emission standards that begin to take effect in more than a dozen states,
primarily in 2010, are driving the current PAC market, but U.S. regulatory or
congressional action will determine the national standards in the
long-term.  The Company currently estimates that annual demand could
be as high as 750 million pounds within the next ten years.  In
addition, more than 140 countries have indicated interest in a multi-nation
mercury removal pact that could be agreed upon on as early as
2013.


45


The
Company’s equipment business is somewhat cyclical in nature and depends on both
current regulations as well as the general health of the overall
economy.  U.S demand for the Company’s ultraviolet light (UV) systems
is expected to hold as the Company moves closer to the deadline of
2012 for affected municipalities to treat for Cryptosporidium in drinking
water.  The Company secured four major installations in 2008 for its
Sentinel® UV Disinfection systems which are valued at more that $15 million. The
unrecognized amount of these four projects made up approximately 30% of the
Company’s equipment backlog of $23.3 as of June 30, 2009.  Although
contract awards have slowed during 2009, bid activity continues to be
strong.




In the
latter part of 2008 and the early part of 2009, the Company experienced
production and raw material related issues in its Consumer segment related to
its activated carbon cloth business.  The Company believes that it has
come to final resolution of the production and raw material issues. Demand for
the Company’s activated carbon cloth during the first three months of 2009 also
declined. The Company believes the resolution of the aforementioned production
and raw material issues will result in its ability to increase sales of its
activated carbon cloth.    For 2009, the Company expects
sales levels to track closely to those of 2008.  The slowing economy
also contributed to decreased demand for the Company’s PreZerve® products which
is expected to continue throughout 2009.




Pension
costs have increased in 2009 due largely to the significant declines in plan
assets based upon 2008 investment performance. Based on current estimates, the
Company expects its pension costs will approximate $5.4 million in 2009. Future
actual pension expense will depend on future investment performance, funding
levels, changes in discount rates and various other factors related to the
participant populations.




New Accounting
Pronouncements




In
December 2008, the FASB issued FSP No. 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets,” (FSP No. 132(R)-1). FSP
No. 132(R)-1 amends FAS No. 132 to provide guidance on an employer’s
disclosures about plan assets of a defined benefit pension or other
postretirement plan. The additional required disclosures focus on fair value by
category of plan assets. This FSP is effective for fiscal years ending after
December 15, 2009. The Company will adopt the disclosure provisions in the
December 31, 2009 financial statements.




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162,” which identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this standard will change how the
Company references various elements of GAAP when preparing its
financial statement disclosures, but will have no impact on the Company’s
financial position, results of operations or cash flows.




There
were no material changes to the Company’s critical accounting policies from
those disclosed in the Company’s Form 10-K for the year ended December 31,
2008.


46




Item
3.    Quantitative and Qualitative
Disclosures about Market Risk





There
were no material changes in the Company’s exposure to market risk from
December 31, 2008.




Item 4.Controls and
Procedures




Disclosure Controls and
Procedures:




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




Changes in Internal
Control:




There
have not been any changes in the Company’s internal controls over financial
reporting that occurred during the period ended June 30, 2009, that have
significantly affected, or are reasonably likely to significantly affect, the
Company’s internal controls over financial reporting.




PART II – OTHER
INFORMATION




Item
1.      Legal
Proceedings




See Note
7 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,
2008.




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




The
annual meeting of stockholders was held April 30, 2009.  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.




47




Election
of directors:





Class of 2012
                      
                      Votes For
                      
                      Votes WithheldWilliam
      J. Lyons
                      
                      47,726,095
                      
                      1,423,011William
      R. Newlin
                      
                      47,718,668
                      
                      1,430,438John
      S. Stanik
                      
                      46,141,120
                      
                      3,007,985





Ratification
of Deloitte & Touche LLP as Independent Registered Public Accounting Firm
for 2009:





Votes For
                          
                          Votes Against
                          
                          Votes Withheld45,506,257
                          
                          3,497,125
                          
                          145,720




Item
6.       Exhibits




Exhibit
3.1 Certificate of Incorporation




Exhibit
10.6 Calgon Carbon Corporation Credit Facility




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.








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 7, 2009
                      
                      /s/Leroy
      M. BallLeroy
      M. BallSenior
      Vice President, Chief
      Financial Officer


48


EXHIBIT
INDEX





Exhibit
                        No.
                      
                      Description
                      
                      Method of
                        Filing3.1
                      
                      Certificate
      of Incorporation
                      
                      Filed
      herewith10.6
                      
                      Calgon
      Carbon Corporation Credit Facility
                      
                      Filed
      herewith31.1
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith31.2
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith32.1
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith32.2
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith


49