UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended March 31,
      2009ORo
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      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)





[None]


(Former
name, former address and former fiscal year, if changed since last
report)





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


Yes x                                           No  o





Indicate
by check mark whether the registrant 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 o                                           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  o  (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  o





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


Yes oNo  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 April 30, 2009[Common
      Stock, $.01 par value per share]
            
            54,723,573  shares










CALGON
CARBON CORPORATION


FORM
10-Q
 QUARTER
ENDED March 31, 2009
 
 The
Quarterly Report on Form 10-Q contains historical information and
forward-looking statements.  Statements looking forward in time are
included in this Form 10-Q pursuant to the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995.  They involve known
and unknown risks and uncertainties that may cause the Company’s actual results
in the future to differ from performance suggested herein.  In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in the Company’s filings with the Securities and
Exchange Commission.
 
 I N D E
X
 
 PagePART
      1 – CONDENSED CONSOLIDATED FINANCIAL INFORMATIONItem
      1.
                      Condensed
      Consolidated Financial StatementsIntroduction
      to the Condensed Consolidated Financial Statements
                      
                      2Condensed
      Consolidated Statements of Income (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
                      
                      36Item
      3.
                      Qualitative
      and Quantitative Disclosures about Market Risk
                      
                      48Item
      4.
                      Controls
      and Procedures
                      
                      48PART
      II - OTHER INFORMATIONItem
      1.
                      Legal
      Proceedings
                      
                      49Item
      1a.
                      Risk
      Factors
                      
                      49Item 2c.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      49Item
      6.
                      Exhibits
                      
                      49SIGNATURES
                      
                      50CERTIFICATIONS
  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 three 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 INCOME
 (Dollars
in Thousands Except Share and Per Share Data)
 (Unaudited)
 
 Three
      Months EndedMarch 31,2009
                            
                            
                            2008*Net
      sales
                            
                            $
                            85,952
                            
                            
                            $
                            87,420Net
      sales to related parties
                            
                            
                            4,681
                            
                            
                            
                            2,911Total
                            
                            
                            90,633
                            
                            
                            
                            90,331Cost
      of products sold (excluding depreciation)
                            
                            
                            61,214
                            
                            
                            
                            61,765Depreciation
      and amortization
                            
                            
                            3,776
                            
                            
                            
                            3,926Selling,
      general and administrative expenses
                            
                            
                            15,745
                            
                            
                            
                            15,200Research
      and development expenses
                            
                            
                            962
                            
                            
                            
                            1,091Gain
      on AST Settlement (See Note 7)
                            
                            
                            -
                            
                            
                            
                            (9,250
                            )81,697
                            
                            
                            
                            72,732Income
      from operations
                            
                            
                            8,936
                            
                            
                            
                            17,599Interest
      income
                            
                            
                            127
                            
                            
                            
                            432Interest
      expense
                            
                            
                            (21
                            )
                            
                            
                            (2,087
                            )Other
      expense – net
                            
                            
                            (428
                            )
                            
                            
                            (90
                            )Income
      from operations before income tax and equity in income from equity
      investments
                            
                            
                            8,614
                            
                            
                            
                            15,854Income
      tax provision
                            
                            
                            3,081
                            
                            
                            
                            5,919Income
      from operations before equity in income from equity
      investments
                            
                            
                            5,533
                            
                            
                            
                            9,935Equity
      in income from equity investments
                            
                            
                            441
                            
                            
                            
                            438Net
      income
                            
                            $
                            5,974
                            
                            
                            $
                            10,373Net
      income per common shareBasic
                            
                            $
                            0.11
                            
                            
                            $
                            .26Diluted
                            
                            
                            0.11
                            
                            
                            
                            .20Weighted
      average shares outstandingBasic
                            
                            
                            54,117,118
                            
                            
                            
                            40,240,397Diluted
                            
                            
                            56,079,039
                            
                            
                            
                            51,756,120
  *
                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)
 (Unaudited)
 
 March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008*ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  13,874
                  
                  
                  $
                  16,750Receivables
      (net of allowance of $1,803 and $1,596)
                  
                  
                  61,209
                  
                  
                  
                  62,300Receivables
      from related parties
                  
                  
                  3,809
                  
                  
                  
                  2,215Revenue
      recognized in excess of billings on uncompleted contracts
                  
                  
                  5,454
                  
                  
                  
                  8,870Inventories
                  
                  
                  98,731
                  
                  
                  
                  93,725Deferred
      income taxes – current
                  
                  
                  9,252
                  
                  
                  
                  8,911Other
      current assets
                  
                  
                  5,717
                  
                  
                  
                  7,817Total
      current assets
                  
                  
                  198,046
                  
                  
                  
                  200,588Property,
      plant and equipment, net
                  
                  
                  130,575
                  
                  
                  
                  122,960Equity
      investments
                  
                  
                  11,087
                  
                  
                  
                  11,747Intangibles
                  
                  
                  5,594
                  
                  
                  
                  5,930Goodwill
                  
                  
                  26,220
                  
                  
                  
                  26,340Deferred
      income taxes – long-term
                  
                  
                  13,846
                  
                  
                  
                  13,129Other
      assets
                  
                  
                  6,033
                  
                  
                  
                  6,568Total
      assets
                  
                  $
                  391,401
                  
                  
                  $
                  387,262LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
                  
                  $
                  43,544
                  
                  
                  $
                  39,647Billings
      in excess of revenue recognized on uncompleted contracts
                  
                  
                  4,483
                  
                  
                  
                  4,639Accrued
      interest
                  
                  
                  43
                  
                  
                  
                  140Payroll
      and benefits payable
                  
                  
                  7,404
                  
                  
                  
                  10,522Accrued
      income taxes
                  
                  
                  1,890
                  
                  
                  
                  1,088Short-term
      debt
                  
                  
                  1,608
                  
                  
                  
                  1,605Current
      portion of long-term debt
                  
                  
                  7,994
                  
                  
                  
                  7,903Total
      current liabilities
                  
                  
                  66,966
                  
                  
                  
                  65,544Deferred
      income taxes – long-term
                  
                  
                  167
                  
                  
                  
                  242Accrued
      pension and other liabilities
                  
                  
                  68,146
                  
                  
                  
                  68,199Total
      liabilities
                  
                  
                  135,279
                  
                  
                  
                  133,985Commitments
      and contingencies (Note 7)Shareholders’
      equity:Common
      shares, $.01 par value, 100,000,000 shares authorized, 57,157,108 and
      56,961,297 shares issued
                  
                  
                  572
                  
                  
                  
                  570Additional
      paid-in capital
                  
                  
                  154,833
                  
                  
                  
                  153,766Retained
      earnings
                  
                  
                  139,980
                  
                  
                  
                  134,006Accumulated
      other comprehensive loss
                  
                  
                  (10,081
                  )
                  
                  
                  (6,450
                  )285,304
                  
                  
                  
                  281,892Treasury
      stock, at cost, 2,945,158 and 2,902,264 shares
                  
                  
                  (29,182
                  )
                  
                  
                  (28,615
                  )Total
      shareholders’ equity
                  
                  
                  256,122
                  
                  
                  
                  253,277Total
      liabilities and shareholders’ equity
                  
                  $
                  391,401
                  
                  
                  $
                  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)
 
 Three Months EndedMarch 31,2009
                        
                        
                        2008*Cash flows from operating
      activitiesNet
      income
                        
                        $
                        5,974
                        
                        
                        $
                        10,373Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        3,776
                        
                        
                        
                        3,926Equity
      in income from equity investments
                        
                        
                        (441
                        )
                        
                        
                        (438
                        )Employee
      benefit plan provisions
                        
                        
                        1,363
                        
                        
                        
                        515Stock-based
      compensation
                        
                        
                        536
                        
                        
                        
                        823Deferred
      income tax
                        
                        
                        (859
                        )
                        
                        
                        917Changes
      in assets and liabilities:(Increase)
      decrease in receivables
                        
                        
                        (1,223
                        )
                        
                        
                        29Increase
      in inventories
                        
                        
                        (6,004
                        )
                        
                        
                        (1,314
                        )Decrease
      in revenue in excess of billings on uncompleted contracts and other
      current assets
                        
                        
                        5,796
                        
                        
                        
                        1,321Decrease
      in accounts payable, accrued liabilities, and accrued
    interest
                        
                        
                        (1,452
                        )
                        
                        
                        (5,523
                        )Increase
      in accrued income taxes
                        
                        
                        894
                        
                        
                        
                        2,117Pension
      contributions
                        
                        
                        (509
                        )
                        
                        
                        (4,133
                        )Other
      items – net
                        
                        
                        853
                        
                        
                        
                        1,195Net
      cash provided by operating activities
                        
                        
                        8,704
                        
                        
                        
                        9,808Cash flows from investing
      activitiesProperty,
      plant and equipment expenditures
                        
                        
                        (11,132
                        )
                        
                        
                        (6,617
                        )Net
      cash used in investing activities
                        
                        
                        (11,132
                        )
                        
                        
                        (6,617
                        )Cash flows from financing
      activitiesTreasury
      stock purchased
                        
                        
                        (567
                        )
                        
                        
                        -Common
      stock issued
                        
                        
                        430
                        
                        
                        
                        1,103Excess
      tax benefit from stock-based compensation
                        
                        
                        490
                        
                        
                        
                        742Net
      cash provided by financing activities
                        
                        
                        353
                        
                        
                        
                        1,845Effect
      of exchange rate changes on cash
                        
                        
                        (801
                        )
                        
                        
                        (205
                        )(Decrease)
      increase in cash and cash equivalents
                        
                        
                        (2,876
                        )
                        
                        
                        4,831Cash
      and cash equivalents, beginning of period
                        
                        
                        16,750
                        
                        
                        
                        30,304Cash
      and cash equivalents, end of period
                        
                        $
                        13,874
                        
                        
                        $
                        35,135
 *
                  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
consolidatedfinancial
statements.
  5
  CALGON
CARBON CORPORATION
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in Thousands)
 (Unaudited)
  1.
              Inventories
 
 March 31, 2009
                        
                        
                        December 31, 2008Raw
      materials
                        
                        $
                        26,971
                        
                        
                        $
                        27,241Finished
      goods
                        
                        
                        71,760
                        
                        
                        
                        66,484$
                        98,731
                        
                        
                        $
                        93,725
 
 2.
              Supplemental
      Cash Flow Information
 
 Cash paid
for interest during the three months ended March 31, 2009 and 2008 was $0.3
million and $2.1 million, respectively.  Income taxes paid, net of
refunds, were $ 0.7 million and $2.7 million, for the three months ended March
31, 2009 and 2008, respectively.
 
 The
Company has reflected $1.8 million of its capital expenditures as a non-cash
increase in accounts payable and accrued liabilities for the three months ended
March 31, 2009.
 
 3.
              Dividends
 
 The
Company’s Board of Directors did not declare or pay a dividend for the quarters
ended March 31, 2009 and 2008.
 
 4.
              Comprehensive
      Income
 Three Months Ended March
31,2009
                      
                      
                      2008Net
      income
                      
                      $
                      5,974
                      
                      
                      $
                      10,373Other
      comprehensive income (loss), net of taxes
                      
                      
                      (3,631
                      )
                      
                      
                      3,900Comprehensive
      income
                      
                      $
                      2,343
                      
                      
                      $
                      14,273
 
 The only
matters contributing to the other comprehensive (loss) during the three
months ended March 31, 2009 was the foreign currency translation adjustment of
$(3.4) million, the changes in employee benefit accounts of $0.4 million, and
the change in the fair value of the derivative instruments of $(0.6)
million.  The only matters contributing to the other comprehensive
income during the three months ended March 31, 2008 was the foreign currency
translation adjustment of $3.4 million, the changes in employee benefit accounts
of $0.1 million, and the change in the fair value of the derivative instruments
of $0.4 million.
  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
      Months EndedMarch 31,2009
                          
                          
                          2008Net
      salesActivated
      Carbon and Service
                          
                          $
                          77,763
                          
                          
                          $
                          76,898Equipment
                          
                          
                          10,899
                          
                          
                          
                          9,697Consumer
                          
                          
                          1,971
                          
                          
                          
                          3,736$
                          90,633
                          
                          
                          $
                          90,331Income
      (loss) from operations before depreciation and
amortizationActivated
      Carbon and Service
                          
                          $
                          11,882
                          
                          
                          $
                          17,376Equipment
                          
                          
                          975
                          
                          
                          
                          3,443Consumer
                          
                          
                          (145
                          )
                          
                          
                          70612,712
                          
                          
                          
                          21,525Depreciation
      and amortizationActivated
      Carbon and Service
                          
                          
                          3,360
                          
                          
                          
                          3,483Equipment
                          
                          
                          302
                          
                          
                          
                          318Consumer
                          
                          
                          114
                          
                          
                          
                          1253,776
                          
                          
                          
                          3,926Income
      from operations
                          
                          
                          8,936
                          
                          
                          
                          17,599Reconciling
      items:Interest
      income
                          
                          
                          127
                          
                          
                          
                          432Interest
      expense
                          
                          
                          (21
                          )
                          
                          
                          (2,087
                          )Other
      expense – net
                          
                          
                          (428
                          )
                          
                          
                          (90
                          )Income
      from operations before income tax and equity in income from equity
      investments
                          
                          $
                          8,614
                          
                          
                          $
                          15,854
 7
  March 31, 2009
                    
                    
                    December 31, 2008Total
      AssetsActivated
      Carbon and Service
                    
                    $
                    334,281
                    
                    
                    $
                    334,675Equipment
                    
                    
                    43,326
                    
                    
                    
                    38,867Consumer
                    
                    
                    13,794
                    
                    
                    
                    13,720Consolidated
      total assets
                    
                    $
                    391,401
                    
                    
                    $
                    387,262
 
 6.   Derivative
Instruments
 
 The
Company’s corporate and foreign subsidiaries use foreign currency forward
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 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.
  8
 
 The fair
value of outstanding derivative contracts recorded as assets in the accompanying
Consolidated Balance Sheets were as follows:
 
 March 31,
                                      
                                      
                                      December 31,Asset Derivatives
                                      
                                      Balance Sheet Locations
                                      
                                      2009
                                      
                                      
                                      2008Derivatives
      designated as hedging instruments under SFAS No. 133:Foreign
      Exchange Contracts
                                      
                                      Other
      current assets
                                      
                                      $
                                      2,154
                                      
                                      
                                      $
                                      1,153Currency
      Swap
                                      
                                      Other
      assets
                                      
                                      
                                      667
                                      
                                      
                                      
                                      662Natural
      Gas Contracts
                                      
                                      Other
      assets
                                      
                                      
                                      2
                                      
                                      
                                      
                                      0Total
      derivatives designated as hedging instruments under SFAS
      No. 133
                                      
                                      
                                      
                                      
                                      2,823
                                      
                                      
                                      
                                      1,815Derivatives
      not designated as hedging instruments under SFAS
    No. 133:Foreign
      Exchange Contracts
                                      
                                      Other
      current assets
                                      
                                      $
                                      10
                                      
                                      
                                      $
                                      14Total
      derivatives not designated as hedging instruments under SFAS
      No. 133
                                      
                                      
                                      
                                      
                                      10
                                      
                                      
                                      
                                      14Total
      Asset derivatives
                                      
                                      
                                      
                                      $
                                      2,833
                                      
                                      
                                      $
                                      1,829
 
 The fair
value of outstanding derivative contracts recorded as liabilities in the
accompanying Consolidated Balance Sheets were as follows:
 
 March 31,
                          
                          
                          December 31,Liability Derivatives
                          
                          Balance Sheet Locations
                          
                          2009
                          
                          
                          2008Derivatives
      designated as hedging instruments under SFAS No. 133:Foreign
      Exchange Contracts
                          
                          Accounts
      payable and accrued liabilities
                          
                          $
                          186
                          
                          
                          $
                          63Natural
      Gas Contracts
                          
                          Accounts
      payable and accrued liabilities
                          
                          
                          2,312
                          
                          
                          
                          1,323Natural
      Gas Contracts
                          
                          Accrued
      Pension and other liabilities
                          
                          
                          1,552
                          
                          
                          
                          1,048Total
      derivatives designated as hedging instruments under SFAS No.
      133
                          
                          
                          
                          
                          4,050
                          
                          
                          
                          2,434Derivatives
      not designated as hedging instruments under SFAS No. 133:Foreign
      Exchange Contracts
                          
                          Accounts
      payable and accrued liabilities
                          
                          $
                          8
                          
                          
                          $
                          39Total
      derivatives not designated as hedging instruments under SFAS No.
      133
                          
                          
                          
                          
                          8
                          
                          
                          
                          39Total
      Liability derivatives
                          
                          
                          
                          $
                          4,058
                          
                          
                          $
                          2,473
  9
  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.
 
 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 month periods ended March 31, 2009 and 2008, respectively.
 
 Amount of Gain or (Loss)Recognized in OCI on Derivatives(Effective Portion)Three Months EndedMarch 31,Derivatives in SFAS No. 133 Cash Flow Hedging Relationships:
                    
                    2009
                    
                    
                    2008Foreign
      Exchange Contracts
                    
                    $
                    1,968
                    
                    
                    $
                    (948
                    )Currency
      Swap
                    
                    
                    667
                    
                    
                    
                    (615
                    )Natural
      Gas Contracts
                    
                    
                    (3,863
                    )
                    
                    
                    1,159Total
                    
                    $
                    (1,228
                    )
                    
                    $
                    (404
                    )
  10
  
 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
                      
                      March 31,Hedging Relationships:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts
                      
                      Cost
      of products sold
                      
                      $
                      301
                      
                      
                      $
                      -Currency
      Swap
                      
                      Interest
      expense
                      
                      
                      10
                      
                      
                      
                      (50
                      )Natural
      Gas Contracts
                      
                      Cost
      of products sold
                      
                      
                      (162
                      )
                      
                      
                      (162
                      )Total
                      
                      
                      
                      $
                      149
                      
                      
                      $
                      (212
                      )
 
 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
                            
                            March 31,Hedging Relationships:
                            
                            Income on Derivatives
                            
                            2009
                            
                            
                            2008Foreign
      Exchange Contracts
                            
                            Other
      expense – net
                            
                            $
                            (4
                            )
                            
                            $
                            -Currency
      Swap
                            
                            Other
      expense – net
                            
                            
                            -
                            
                            
                            
                            -Natural
      Gas Contracts
                            
                            Other
      expense – net
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            
                            
                            $
                            (4
                            )
                            
                            $
                            -
 
 *
              Assuming
      market rates remain constant with the rates at March 31, 2009, a loss of
      $0.6 million is expected to be recognized in earnings over the next 12
      months.
 **
              For
      the three months ended March 31, 2009 and 2008, the amount of
      loss recognized in income represents $4 thousand and zero, respectively,
      related to the ineffective portion of the hedging
      relationships.
  The
Company had the following outstanding derivative contracts that were entered
into to hedge forecasted transactions:
  (in thousands except for mmbtu)
                      
                      March 31,
                        2009
                      
                      
                      December 31,
                        2008Natural
      gas contracts (mmbtu)
                      
                      
                      1,270,000
                      
                      
                      
                      1,290,000Foreign
      exchange contracts
                      
                      $
                      23,428
                      
                      
                      $
                      21,386Currency
      swap
                      
                      $
                      4,136
                      
                      
                      $
                      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
                        
                        March 31,Hedging Instruments Under SFAS No. 133:
                        
                        Income on Derivatives
                        
                        2009
                        
                        
                        2008Foreign
      Exchange Contracts *
                        
                        Other
      expense – net
                        
                        $
                        (157
                        )
                        
                        $
                        (29
                        )Total
                        
                        
                        
                        $
                        (157
                        )
                        
                        $
                        (29
                        )
 
 *
              As
      of March 31, 2009 and 2008, these foreign exchange contracts were entered
      into and settled during the respective
periods.
  11
  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.
  12
 
 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 March 31,
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 periods ended March 31, 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.
 
 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.
  13
  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 percent ad valorem (i.e., of the entered value of the goods)
to 228.11 percent 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 percent 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 percent.  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 $0.8 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheets at March 31, 2009 and  December 31,
2008, respectively.  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.
  14
  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.
 
 The
Company currently is in the midst of the first such review.  Because
it is the first review conducted under the antidumping tariff 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.  Any increase in the tariff assessment rate for this
review period would not likely result in an additional payment until 2010,
if at all.  In addition, until the tariff rate is finalized in early
November 2009, the tariff deposit rate will not change. Should the final tariff
rate for Calgon Carbon (Tianjin) Co., Ltd. be at 188.57% for the period October
11, 2006 through March 31, 2008, the Company estimates that additional amounts
it could owe, net of amounts it may receive under the Continued Dumping and
Subsidy Offset Act of 2000 (see discussion below) could be
substantial.  Because there are multiple factors that will influence
the final results of the review, the Company is unable to reasonably estimate
the amount of any adjustment that may be made to the current tariff deposit rate
or the amount of additional deposits or refunds that the Company may owe or
receive, respectively.
 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 coming weeks.
 
 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 percent 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.
  15
  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.
 
 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.
  16
  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 Notice or otherwise.  The Company has had no further communication
with the SDD since October 2008.
 
 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 field work was initiated in 2008 but suspended due
to the onset of winter.  The group plans to complete the work in
the spring of 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 March 31, 2009,
Calgon Mitsubishi Chemical Corporation had $22.5 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 March 31, 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
& Other Identifiable 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 three months
ended March 31, 2009 are as follows:





ActivatedCarbon
      &Service
                  
                  
                  Equipment
                  
                  
                  ConsumerSegment
                  
                  
                  Segment
                  
                  
                  Segment
                  
                  
                  TotalBalance
      as of January 1, 2009
                  
                  $
                  19,963
                  
                  
                  $
                  6,317
                  
                  
                  $
                  60
                  
                  
                  $
                  26,340Foreign
      exchange
                  
                  
                  (61
                  )
                  
                  
                  (59
                  )
                  
                  
                  -
                  
                  
                  
                  (120
                  )Balance
      as of March 31, 2009
                  
                  $
                  19,902
                  
                  
                  $
                  6,258
                  
                  
                  $
                  60
                  
                  
                  $
                  26,220





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





March
      31, 2009Weighted
      Average
                                                      Amortization
      Period
                                                    
                                                    
                                                    Gross
      Carrying
                                                      Amount
                                                    
                                                    
                                                    Foreign
                                                      Exchange
                                                    
                                                    
                                                    Accumulated
                                                      Amortization
                                                    
                                                    
                                                    Net
      Carrying
                                                      AmountAmortized
      Intangible Assets:Patents
                                                    
                                                    15.4
      Years
                                                    
                                                    
                                                    $
                                                    1,369
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    (982
                                                    )
                                                    
                                                    $
                                                    387Customer
      Relationships
                                                    
                                                    17.0
      Years
                                                    
                                                    
                                                    
                                                    9,323
                                                    
                                                    
                                                    
                                                    (272
                                                    )
                                                    
                                                    
                                                    (5,864
                                                    )
                                                    
                                                    
                                                    3,187Product
      Certification
                                                    
                                                    7.9
      Years
                                                    
                                                    
                                                    
                                                    1,682
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (975
                                                    )
                                                    
                                                    
                                                    707Unpatented
      Technology
                                                    
                                                    20.0
      Years
                                                    
                                                    
                                                    
                                                    2,875
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (1,562
                                                    )
                                                    
                                                    
                                                    1,313Total
                                                    
                                                    16.0
      Years
                                                    
                                                    
                                                    $
                                                    15,249
                                                    
                                                    
                                                    $
                                                    (272
                                                    )
                                                    
                                                    $
                                                    (9,383
                                                    )
                                                    
                                                    $
                                                    5,594








December
      31, 2008Weighted
      Average
                              Amortization
      Period
                            
                            
                            Gross
      Carrying
                              Amount
                            
                            
                            Foreign
                              Exchange
                            
                            
                            Accumulated
                              Amortization
                            
                            
                            Net
      Carrying
                              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


19





For the
three months ended March 31, 2009 and 2008, the Company recognized $0.3 million
and $0.4 million, respectively, of amortization expense related to intangible
assets.  The Company estimates amortization expense to be recognized
during the next five years as follows:





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


20





9.      Borrowing
Arrangements





March
      31,
                
                
                December
      31,Long-Term Debt
                
                2009
                
                
                2008Convertible
      Senior Notes
                
                $
                6,000
                
                
                $
                6,000Industrial
      revenue bonds
                
                
                2,925
                
                
                
                2,925Total
                
                
                8,925
                
                
                
                8,925Less
      current portion of long-term debt (net of debt discount)
                
                
                (7,994
                )
                
                
                (7,903
                )Less discount
      on Senior Convertible
      Notes
                
                
                (931
                )
                
                
                (1,022
                )Net
                
                $
                -
                
                
                $
                -





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 March 31, 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
March 31, 2009 and December 31, 2008.


21





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 March 31, 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 $0.6 million (after tax) at March 31, 2009 and December 31,
2008, respectively.  At March 31, 2009, the if-converted value of the
Notes exceeded its principal amount by approximately $10.6
million.


22


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 months ended March 31, 2009,
the Company recorded interest expense of $0.2 million related to the Notes, of
which $0.1 million related to the amortization of the discount and $0.1 million
related to contractual coupon interest. Similarly, for the three months ended
March 31, 2008, the Company recorded interest expense of $1.9 million related to
the Notes, of which $1.0 million related to the amortization of the discount and
$0.9 million related to contractual coupon interest. The
effect of the retrospective adjustment for the adoption of FSP APB
14-1 for the three month period ended March 31, 2008 was to decrease
previously reported net income by $0.5million or $0.01 per diluted common
share.





Credit
Facility





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





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





As of
March 31, 2009, the collateral value of assets pledged was $56.5 million.
The collateral value as of March 31, 2009 for domestic, U.K., and Belgian
borrowers were $47.5 million, $5.3 million, and $3.7 million,
respectively. The Credit Facility contains a fixed charge coverage ratio
covenant which becomes effective when total domestic availability falls below
$11.0 million. As of March 31, 2009, total availability was
$44.9 million. Availability as of March 31, 2009 for domestic, U.K.,
and Belgian borrowers was $38.9 million, $4.2 million, and $1.8
million, respectively. The Company can issue letters of credit up to
$20 million of the available commitment amount under the Credit Facility.
Sub-limits for letters of credit under the U.K. sub-facility and the Belgian
sub-facility are $2.0 million and $6.0 million, respectively. Letters
of credit outstanding at March 31, 2009 totaled
$11.6 million.


23








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





The
Credit Facility contains a number of affirmative and negative covenants. The
negative covenants provide for certain restrictions on possible acts by the
Company related to matters such as additional indebtedness, certain liens,
fundamental changes in the business, certain investments or loans, asset sales
and other customary requirements. The Company was in compliance with all such
negative covenants as of March 31, 2009. The Credit Facility also includes a
provision for up to $3.0 million of letters of credit in aggregate under the
Company’s U.S., Belgium, and UK sub-limits that can be issued having expiration
dates that are more than one year but not more than three years after the date
of issuance.





Industrial
Revenue Bonds


The
Mississippi Industrial Revenue Bonds totaling $2.9 million at March 31, 2009 and
December 31, 2008, respectively, bear interest at a variable rate and matured in
April 2009.  The interest rate as of March 31, 2009 was
1.33%.  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 March 31, 2009 and 2008.  Bank guarantees of 0.9 million euros
were issued as of March 31, 2009.  The maturity date of this facility
is September 30, 2009. Availability under this facility was 0.6 million euros at
March 31, 2009.





Chinese
Credit Facility


The
Company maintains a Chinese credit facility totaling 11.0 million RMB or
$1.6 million which is secured by a U.S. letter of credit provided under the
Credit Facility. There are no financial covenants.   The maturity
date of this facility is December 25, 2009.  The facility was
fully utilized at March 31, 2009.





Fair
Value of Debt


At March
31, 2009, the Company had $6.0 million of fixed rate Senior Convertible Notes
outstanding.  The fair value of these Notes at March 31, 2009 was
$16.6 million.  The increase in value is mainly due to the increase in
the Company’s common stock price and its impact on the conversion features of
the Notes.  The remaining $2.9 million of current portion of long-term
debt is based on the prime rates, and accordingly, the carrying value of this
obligation approximates its fair value.


24


Maturities
of Debt


The
Company is obligated to make principal payments on debt outstanding at
March 31, 2009 of $4.5 million in 2009 and $6.0 million in 2011. See
also the section entitled 5.00% Convertible Senior Notes due in 2036 related to
the holders’ optional conversion as of March 31, 2009 and December 31,
2008.





Interest
Expense


The
Company’s interest expense for the quarters ended March 31, 2009 and 2008
totaled $21 thousand and $2.1 million, respectively.  These amounts
are net of interest costs capitalized of $0.2 million and $0.1 million for the
periods ended March 31, 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 periods ended March 31, 2009 and 2008:





Three Months Ended March 31Pension Benefits
                    
                    2009
                    
                    
                    2008Service
      cost
                    
                    $
                    197
                    
                    
                    $
                    256Interest
      cost
                    
                    
                    1,213
                    
                    
                    
                    1,172Expected
      return on plan assets
                    
                    
                    (913
                    )
                    
                    
                    (1,354
                    )Amortization
      of prior service cost
                    
                    
                    51
                    
                    
                    
                    61Net
      actuarial loss amortization
                    
                    
                    512
                    
                    
                    
                    74Net
      periodic pension cost
                    
                    $
                    1,060
                    
                    
                    $
                    209





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 March 31, 2009,
the Company has not made any contributions.  The Company expects to
contribute the $1.1 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 periods ended March 31, 2009 and
2008:





Three Months Ended March 31Pension Benefits
                          
                          2009
                          
                          
                          2008Service
      cost
                          
                          $
                          122
                          
                          
                          $
                          203Interest
      cost
                          
                          
                          407
                          
                          
                          
                          514Expected
      return on plan assets
                          
                          
                          (269
                          )
                          
                          
                          (387
                          )Amortization
      of net transition amount
                          
                          
                          10
                          
                          
                          
                          12Net
      actuarial loss amortization
                          
                          
                          27
                          
                          
                          
                          8Net
      periodic pension cost
                          
                          $
                          297
                          
                          
                          $
                          350





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





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 March 31,
2009, the Company contributed $0.5 million.  The Company expects to
contribute the remaining $1.2 million over the remainder of the
year.


26





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 in 2008 as a result of freezing the aforementioned
plan.  Total expenses related to the defined contribution plans were
$0.6 million and $0.6 million for the periods ended March 31, 2009 and 2008,
respectively.


27




11.
Earnings Per Share





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





Three Months Ended March 31,(Dollars in thousands, except per share
      amounts)
                  
                  2009
                  
                  
                  2008Income
      from operations available to common shareholders
                  
                  $
                  5,974
                  
                  
                  $
                  10,373Weighted
      Average Shares OutstandingBasic
                  
                  
                  54,117,118
                  
                  
                  
                  40,240,397Effect
      of Dilutive Securities
                  
                  
                  1,961,921
                  
                  
                  
                  11,515,723Diluted
                  
                  
                  56,079,039
                  
                  
                  
                  51,756,120Net
      incomeBasic
                  
                  $
                  0.11
                  
                  
                  $
                  0.26Diluted
                  
                  $
                  0.11
                  
                  
                  $
                  0.20





For the
three months ended March 31, 2009 and 2008, there were 162,850 and 80,625 of
stock options that were excluded from the dilutive calculations as the effect
would have been antidilutive.





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.


28





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.





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 March 31, 2009Issuer
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
                      Subsidiaries
                    
                    
                    Consolidating
                      and Eliminating
                      Entries
                    
                    
                    ConsolidatedNet
      sales
                    
                    $
                    84,748
                    
                    
                    $
                    7,547
                    
                    
                    $
                    14,247
                    
                    
                    $
                    (15,909
                    )
                    
                    $
                    90,633Cost
      of products sold
                    
                    
                    59,992
                    
                    
                    
                    5,928
                    
                    
                    
                    11,203
                    
                    
                    
                    (15,909
                    )
                    
                    
                    61,214Depreciation
      and amortization
                    
                    
                    3,320
                    
                    
                    
                    250
                    
                    
                    
                    206
                    
                    
                    
                    -
                    
                    
                    
                    3,776Selling,
      general and administrative expenses
                    
                    
                    13,772
                    
                    
                    
                    1,024
                    
                    
                    
                    949
                    
                    
                    
                    -
                    
                    
                    
                    15,745Research
      and development expense
                    
                    
                    884
                    
                    
                    
                    78
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    962Results
      of affiliates’ operations
                    
                    
                    4,635
                    
                    
                    
                    349
                    
                    
                    
                    -
                    
                    
                    
                    (4,984
                    )
                    
                    
                    -Interest
      (income) expense -net
                    
                    
                    2,780
                    
                    
                    
                    (2,807
                    )
                    
                    
                    (79
                    )
                    
                    
                    -
                    
                    
                    
                    (106
                    )Other
      expense - net
                    
                    
                    229
                    
                    
                    
                    146
                    
                    
                    
                    53
                    
                    
                    
                    -
                    
                    
                    
                    428Provision
      for income taxes
                    
                    
                    2,432
                    
                    
                    
                    19
                    
                    
                    
                    630
                    
                    
                    
                    -
                    
                    
                    
                    3,081Equity
      in income from equity investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    441
                    
                    
                    
                    -
                    
                    
                    
                    441Net
      income (loss)
                    
                    $
                    5,974
                    
                    
                    $
                    3,258
                    
                    
                    $
                    1,726
                    
                    
                    $
                    ( 4,984
                    )
                    
                    $
                    5,974


29





Condensed Consolidating Statements of Operations
                      Three months ended March 31, 2008Issuer
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
                      Subsidiaries
                    
                    
                    Consolidating
                      and Eliminating
                      Entries
                    
                    
                    ConsolidatedNet
      sales
                    
                    $
                    80,559
                    
                    
                    $
                    11,294
                    
                    
                    $
                    10,968
                    
                    
                    $
                    (12,490
                    )
                    
                    $
                    90,331Cost
      of products sold
                    
                    
                    56,457
                    
                    
                    
                    8,337
                    
                    
                    
                    9,461
                    
                    
                    
                    (12,490
                    )
                    
                    
                    61,765Depreciation
      and amortization
                    
                    
                    3,404
                    
                    
                    
                    341
                    
                    
                    
                    181
                    
                    
                    
                    -
                    
                    
                    
                    3,926Selling,
      general and administrative expenses
                    
                    
                    12,920
                    
                    
                    
                    1,238
                    
                    
                    
                    1,042
                    
                    
                    
                    -
                    
                    
                    
                    15,200Research
      and development expense
                    
                    
                    992
                    
                    
                    
                    99
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,091Gain
      on AST Settlement
                    
                    
                    (9,250
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (9,250
                    )Results
      of affiliates’ operations
                    
                    
                    5,146
                    
                    
                    
                    555
                    
                    
                    
                    -
                    
                    
                    
                    (5,701
                    )
                    
                    
                    -Interest
      (income) expense -net
                    
                    
                    5,353
                    
                    
                    
                    (3,505
                    )
                    
                    
                    (193
                    )
                    
                    
                    -
                    
                    
                    
                    1,655Other
      (income) expense - net
                    
                    
                    (114
                    )
                    
                    
                    195
                    
                    
                    
                    9
                    
                    
                    
                    -
                    
                    
                    
                    90Provision
      for income taxes
                    
                    
                    5,570
                    
                    
                    
                    276
                    
                    
                    
                    73
                    
                    
                    
                    -
                    
                    
                    
                    5,919Equity
      in income from equity investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    436
                    
                    
                    
                    2
                    
                    
                    
                    438Net
      income (loss)
                    
                    $
                    10,373
                    
                    
                    $
                    4,868
                    
                    
                    $
                    831
                    
                    
                    $
                    ( 5,699
                    )
                    
                    $
                    10,373





30





Condensed
      Consolidating Balance SheetsMarch 31, 2009Issuer
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-Guarantor
                    Subsidiaries
                  
                  
                  Consolidatingand
                    Eliminating
                    Entries
                  
                  
                  ConsolidatedCash
      and cash equivalents
                  
                  $
                  1,847
                  
                  
                  $
                  3,787
                  
                  
                  $
                  22,405
                  
                  
                  $
                  (14,165
                  )
                  
                  $
                  13,874Receivables
                  
                  
                  56,433
                  
                  
                  
                  11,033
                  
                  
                  
                  3,850
                  
                  
                  
                  (6,298
                  )
                  
                  
                  65,018Inventories
                  
                  
                  83,326
                  
                  
                  
                  7,463
                  
                  
                  
                  7,881
                  
                  
                  
                  61
                  
                  
                  
                  98,731Other
      current assets
                  
                  
                  17,039
                  
                  
                  
                  931
                  
                  
                  
                  2,453
                  
                  
                  
                  -
                  
                  
                  
                  20,423Total
      current assets
                  
                  
                  158,645
                  
                  
                  
                  23,214
                  
                  
                  
                  36,589
                  
                  
                  
                  (20,402
                  )
                  
                  
                  198,046Intercompany
      accounts receivable
                  
                  
                  52,922
                  
                  
                  
                  190,032
                  
                  
                  
                  10,484
                  
                  
                  
                  (253,438
                  )
                  
                  
                  -Property,
      plant and equipment, net
                  
                  
                  117,212
                  
                  
                  
                  5,642
                  
                  
                  
                  7,721
                  
                  
                  
                  -
                  
                  
                  
                  130,575Intangibles
                  
                  
                  3,279
                  
                  
                  
                  2,315
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,594Goodwill
                  
                  
                  16,674
                  
                  
                  
                  7,127
                  
                  
                  
                  2,419
                  
                  
                  
                  -
                  
                  
                  
                  26,220Equity
      investments
                  
                  
                  270,057
                  
                  
                  
                  99,524
                  
                  
                  
                  10,897
                  
                  
                  
                  (369,391
                  )
                  
                  
                  11,087Other
      assets
                  
                  
                  13,717
                  
                  
                  
                  1,908
                  
                  
                  
                  4,254
                  
                  
                  
                  -
                  
                  
                  
                  19,879Total
      assets
                  
                  $
                  632,506
                  
                  
                  $
                  329,762
                  
                  
                  $
                  72,364
                  
                  
                  $
                  (643,231
                  )
                  
                  $
                  391,401Short-term
      debt
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,608
                  
                  
                  $
                  -
                  
                  
                  $
                  1,608Current
      portion of long-term debt
                  
                  
                  7,994
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,994Accounts
      payable
                  
                  
                  38,151
                  
                  
                  
                  14,775
                  
                  
                  
                  4,860
                  
                  
                  
                  (9,759
                  )
                  
                  
                  48,027Other
      current liabilities
                  
                  
                  23,148
                  
                  
                  
                  298
                  
                  
                  
                  1,663
                  
                  
                  
                  (15,772
                  )
                  
                  
                  9,337Total
      current liabilities
                  
                  
                  69,293
                  
                  
                  
                  15,073
                  
                  
                  
                  8,131
                  
                  
                  
                  (25,531
                  )
                  
                  
                  66,966Intercompany
      accounts payable
                  
                  
                  188,931
                  
                  
                  
                  46,064
                  
                  
                  
                  13,275
                  
                  
                  
                  (248,270
                  )
                  
                  
                  -Other
      non-current liabilities
                  
                  
                  118,160
                  
                  
                  
                  9,355
                  
                  
                  
                  9,018
                  
                  
                  
                  (68,220
                  )
                  
                  
                  68,313Shareholders'
      equity
                  
                  
                  256,122
                  
                  
                  
                  259,270
                  
                  
                  
                  41,940
                  
                  
                  
                  (301,210
                  )
                  
                  
                  256,122Total
      liabilities and shareholders' equity
                  
                  $
                  632,506
                  
                  
                  $
                  329,762
                  
                  
                  $
                  72,364
                  
                  
                  $
                  (643,231
                  )
                  
                  $
                  391,401


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 FlowsThree months ended March 31,
      2009Issuer
                        
                        
                        Guarantor
                          Subsidiaries
                        
                        
                        Non-Guarantor
                          Subsidiaries
                        
                        
                        Consolidatingand
                          Eliminating
                          Entries
                        
                        
                        ConsolidatedNet
      cash provided by (used in) operating activities
                        
                        $
                        (4,637
                        )
                        
                        $
                        2,652
                        
                        
                        $
                        8,983
                        
                        
                        $
                        1,706
                        
                        
                        $
                        8,704Investing
      activities:Property,
      plant and equipment expenditures
                        
                        
                        (10,924
                        )
                        
                        
                        (14
                        )
                        
                        
                        (194
                        )
                        
                        
                        -
                        
                        
                        
                        (11,132
                        )Investment
      from (in) affiliates
                        
                        
                        -
                        
                        
                        
                        167
                        
                        
                        
                        (151
                        )
                        
                        
                        (16
                        )
                        
                        
                        -Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      cash (used in) provided by investing activities
                        
                        
                        (10,924
                        )
                        
                        
                        153
                        
                        
                        
                        (345
                        )
                        
                        
                        (16
                        )
                        
                        
                        (11,132
                        )Financing
      activities:Net
      borrowings (repayments)
                        
                        
                        2,899
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,899
                        )
                        
                        
                        -Intercompany
      and equity transactions
                        
                        
                        9,517
                        
                        
                        
                        (3,152
                        )
                        
                        
                        (6,365
                        )
                        
                        
                        -
                        
                        
                        
                        -Other
                        
                        
                        (137
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (137
                        )Excess
      tax benefit for stock-based compensation
                        
                        
                        490
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        490Net
      cash provided by (used in) financing activities
                        
                        
                        12,769
                        
                        
                        
                        (3,152
                        )
                        
                        
                        (6,365
                        )
                        
                        
                        (2,899
                        )
                        
                        
                        353Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        3,041
                        
                        
                        
                        1,067
                        
                        
                        
                        (3,203
                        )
                        
                        
                        (1,706
                        )
                        
                        
                        (801
                        )Increase
      (decrease) in cash and cash equivalents
                        
                        
                        248
                        
                        
                        
                        721
                        
                        
                        
                        (946
                        )
                        
                        
                        (2,899
                        )
                        
                        
                        (2,876
                        )Cash
      and cash equivalents, beginning of period
                        
                        
                        1,598
                        
                        
                        
                        3,067
                        
                        
                        
                        23,351
                        
                        
                        
                        (11,266
                        )
                        
                        
                        16,750Cash
      and cash equivalents, end of  period
                        
                        $
                        1,846
                        
                        
                        $
                        3,788
                        
                        
                        $
                        22,405
                        
                        
                        $
                        (14,165
                        )
                        
                        $
                        13,874





Condensed
      Consolidating Statements of Cash FlowsThree months ended March 31,
      2008Issuer
                        
                        
                        Guarantor
                          Subsidiaries
                        
                        
                        Non-Guarantor
                          Subsidiaries
                        
                        
                        Consolidating and
                          Eliminating
                          Entries
                        
                        
                        ConsolidatedNet
      cash provided by (used in) operating activities
                        
                        $
                        4,561
                        
                        
                        $
                        5,578
                        
                        
                        $
                        (1,859
                        )
                        
                        $
                        1,528
                        
                        
                        $
                        9,808Investing
      activities:Property,
      plant and equipment expenditures
                        
                        
                        (6,400
                        )
                        
                        
                        (163
                        )
                        
                        
                        (54
                        )
                        
                        
                        -
                        
                        
                        
                        (6,617
                        )Investment
      from (in) affiliates
                        
                        
                        -
                        
                        
                        
                        (22
                        )
                        
                        
                        22
                        
                        
                        
                        -
                        
                        
                        
                        -Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      cash used in investing activities
                        
                        
                        (6,400
                        )
                        
                        
                        (185
                        )
                        
                        
                        (32
                        )
                        
                        
                        -
                        
                        
                        
                        (6,617
                        )Financing
      activities:Net
      borrowings (repayments)
                        
                        
                        (5,602
                        )
                        
                        
                        -
                        
                        
                        
                        (14,509
                        )
                        
                        
                        20,111
                        
                        
                        
                        -Intercompany
      and equity transactions
                        
                        
                        7,506
                        
                        
                        
                        (4,675
                        )
                        
                        
                        (2,831
                        )
                        
                        
                        -
                        
                        
                        
                        -Other
                        
                        
                        1,103
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,103Excess
      tax benefit for stock-based compensation
                        
                        
                        742
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        742Net
      cash provided by (used in) financing activities
                        
                        
                        3,749
                        
                        
                        
                        (4,675
                        )
                        
                        
                        (17,340
                        )
                        
                        
                        20,111
                        
                        
                        
                        1,845Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        28
                        
                        
                        
                        (259
                        )
                        
                        
                        1,554
                        
                        
                        
                        (1,528
                        )
                        
                        
                        (205
                        )Increase
      (decrease) in cash and cash equivalents
                        
                        
                        1,939
                        
                        
                        
                        458
                        
                        
                        
                        (17,677
                        )
                        
                        
                        20,111
                        
                        
                        
                        4,831Cash
      and cash equivalents, beginning of period
                        
                        
                        20,802
                        
                        
                        
                        3,683
                        
                        
                        
                        25,930
                        
                        
                        
                        (20,111
                        )
                        
                        
                        30,304Cash
      and cash equivalents, end of  period
                        
                        $
                        22,741
                        
                        
                        $
                        4,141
                        
                        
                        $
                        8,253
                        
                        
                        $
                        -
                        
                        
                        $
                        35,135


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.  Generally,
transactions are conducted under long-term contractual
arrangements.  Related party sales transactions were $4.7 million and
$2.9 million for the three months ended March 31, 2009 and 2008,
respectively.  Receivables from equity investees amounted to $3.8
million and $2.2 million at March 31, 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
March 31, 2009 and December 31, 2008, the Company’s gross unrecognized income
tax benefits were $12.1 million and $12.2 million, respectively.  If
recognized, $9.8 million and $10.0 million of the gross unrecognized tax
benefits would affect the effective tax rate at March 31, 2009 and December 31,
2008, respectively.  The Company estimates that approximately $1.3
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 as well as the settlement of tax audits.





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
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 applies to other
accounting pronouncements that require or permit fair value measurements and,
accordingly, does not require any new fair value measurements. SFAS No. 157 was
initially effective as of January 1, 2008, but in February 2008, the FASB
delayed the effective date for applying this standard to nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis until periods beginning after
November 15, 2008. The Company adopted SFAS No. 157 as of January 1,
2008 for assets and liabilities within its scope and the impact was immaterial
to our financial statements. As of January 1, 2009, nonfinancial assets and
nonfinancial liabilities were also required to be measured at fair value. The
adoption of these additional provisions did not have a material impact on our
financial statements. On October 10, 2008, the FASB issued FSP
No. 157-3 (FSP No. 157-3), “Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active.” FSP No. 157-3
clarifies the application of SFAS No. 157 in a market that is not active and
provides factors to take into consideration when determining the fair value of
an asset in an inactive market. FSP No. 157-3 was effective upon issuance,
including prior periods for which financial statements have not been issued.
This FSP did not have a material impact on our financial statements. On
April 9, 2009 the FASB issued FSP FAS No. 157-4 (FSP No. 157-4),
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly.” This FSP relates to determining fair values when there is no active
market or where the price inputs being used represent distressed sales.
Specifically, it reaffirms the need to use judgment to ascertain if a formerly
active market has become inactive and in determining fair values when markets
have become inactive. This FSP is effective for interim and annual periods
ending after June 15, 2009 and should be applied prospectively. The Company
does not expect any material financial statement implications relating to the
adoption of this FSP.


34




16.
Subsequent Events








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.




On April
1, 2009, the Company paid $2.9 million to retire its Mississippi Industrial
Revenue Bonds. See Note 9.


35





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





Consolidated
net sales increased by $0.3 million or 0.3% for the quarter ended March 31, 2009
versus the quarter ended March 31, 2008.  Net sales for the quarter
ended March 31, 2009 for the Activated Carbon and Service segment increased $0.9
million or 1.1% versus the similar 2008 period.  The increase was
primarily due to higher pricing for certain carbon products and services in the
food and municipal drinking water markets which was partially offset by lower
demand in the home water filter and specialty carbon markets and foreign
currency translation which had a negative impact of $4.7 million due to the
stronger U.S. dollar.  Net sales for the Equipment segment increased
$1.2 million or 12.4% in the first quarter 2009 versus the comparable 2008
period.  The increase was primarily due to higher revenue for ultra
violet light and ion exchange systems, which was partially offset by a decrease
in revenue for carbon adsorption and odor control systems. Foreign currency
translation had a negative impact of $0.1 million.  Net sales for the
quarter ended March 31, 2009 for the Consumer segment decreased by $1.8 million
or 47.2% versus the quarter ended March 31, 2008.  The decrease was
primarily attributable to the lower demand for PreZerve® products and activated
carbon cloth as well as the negative impact of foreign currency translation of
$0.5 million.  The total negative impact of foreign currency
translation on consolidated net sales for the quarter ended March 31, 2009 was
$5.3 million.





Net sales
less cost of products sold, as a percentage of net sales, was 32.5% for the
quarter ended March 31, 2009 compared to 31.6% for the similar 2008 period, a
0.8% increase or $0.8 million.  The Activated Carbon and Service
segment increased by 0.6% or $0.6 million which was primarily related to higher
pricing for certain carbon and service products which more than offset increased
activated carbon product costs that the Company experienced.  The
Equipment segment increased 1.1% or $1.1 million principally related to the
favorable mix of equipment revenue recognized as higher margin ultra violet
light and ion exchange systems made up a larger proportion of 2009
sales.  The Consumer segment decreased by 0.9% or $0.9 million due to
higher costs associated with production issues with carbon cloth raw material
quality. The Company’s cost of products sold excludes depreciation; therefore it
may not be comparable to that of other companies.





The
depreciation and amortization decrease of $0.2 million during the quarter ended
March 31, 2009 versus the quarter ended March 31, 2008 was primarily due to
decreased depreciation due to an increase in fully depreciated fixed
assets.  The Company expects that future depreciation will be higher
due to the significant capital improvements related to the April 2009 re-start
of the Company’s previously idled production line at its Catlettsburg, Kentucky
plant.





Selling,
general and administrative expenses increased $0.5 million for the quarter ended
March 31, 2009 versus the comparable 2008 quarter.  The increase was
primarily due to increased pension expense as well as increased legal expense
related to the first period of review for the Commerce Department’s April
2007 anti-dumping order on certain activated carbon products from China
partially offset by positive foreign exchange translation.


36




Research
and development expenses for the quarter ended March 31, 2009 were comparable to
the similar 2008 period.
 
 The $9.3
million gain on AST settlement for the quarter ended March 31, 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 ended March 31, 2009 increased $0.3 million as compared
to March 31, 2008.  The increase is primarily due to the negative
impact of foreign exchange on unhedged positions.
 
 Interest
income for the quarter ended March 31, 2009 decreased $0.3 million primarily due
to the lower average cash balances carried in 2009 as compared to
2008.
 
 Interest
expense for the quarter ended March 31, 2009 decreased $2.1 million versus the
quarter ended March 31, 2008.  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 $0.8 million on the
quarter ended March 31, 2008.
 
 The
income tax provision decreased $2.8 million for the quarter ended March 31, 2009
versus the quarter ended March 31, 2008.  The decrease was primarily
due to a decrease in income from operations before income tax and equity in
income from equity investments of $8.1 million primarily as a result of the 2008
AST settlement gain (See Note 7).
 
 The
effective tax rate for the quarter ended March 31, 2009 was 35.8% compared to
37.4% for the quarter ended March 31, 2008.  The quarters ended March
31, 2009 and 2008 tax rates were 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.
 
 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.
  37
 
 Equity in
income from equity investments for the quarter ended March 31, 2009 was
comparable to the similar 2008 period.
 
 Financial
Condition
 
 Working Capital and
Liquidity
 
 Cash
flows provided by operating activities were $8.7 million for the period ended
March 31, 2009 compared to $9.8 million for the comparable 2008 period. 
The $1.1 million decrease is primarily due to the decline in earnings due to the
AST settlement gain partially offset by decreased pension
contributions.
 
 Common
stock dividends were not paid during the quarters ended March 31, 2009 and 2008,
respectively.
 
 Total
debt at March 31, 2009 was $9.6 million which was comparable to December 31,
2008.
 
 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 March 31, 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.
  38
  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
March 31, 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 March 31, 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.
  39


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 $0.6 million (after tax) at March 31, 2009 and December 31,
2008, respectively.  At March 31, 2009, the if-converted value of the
Notes exceeded its principal amount by approximately $10.6 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 months ended March 31, 2009,
the Company recorded interest expense of $0.2 million related to the Notes, of
which $0.1 million related to the amortization of the discount and $0.1 million
related to contractual coupon interest.  The
effect on net income and earnings per share was not material for the three month
period ended March 31, 2009.Similarly, for the three months ended
March 31, 2008, the Company recorded interest expense of $1.9 million related to
the Notes, of which $1.0 million related to the amortization of the discount and
$0.9 million related to contractual coupon interest.  The effect of
the retrospective adjustment for the adoption of FSP APB 14-1 for the three
month period ended March 31, 2008 was to decrease previously reported net income
by $0.5million or $0.01 per diluted common share.





Credit
Facility





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





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





As of
March 31, 2009, the collateral value of assets pledged was $56.5 million.
The collateral value as of March 31, 2009 for domestic, U.K., and Belgian
borrowers were $47.5 million, $5.3 million, and $3.7 million,
respectively. The Credit Facility contains a fixed charge coverage ratio
covenant which becomes effective when total domestic availability falls below
$11.0 million. As of March 31, 2009, total availability was
$44.9 million. Availability as of March 31, 2009 for domestic, U.K.,
and Belgian borrowers was $38.9 million, $4.2 million, and $1.8
million, respectively. The Company can issue letters of credit up to $20 million
of the available commitment amount under the Credit Facility. Sub-limits for
letters of credit under the U.K. sub-facility and the Belgian sub-facility are
$2.0 million and $6.0 million, respectively. Letters of credit
outstanding at March 31, 2009 totaled $11.6 million.


40





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





The
Credit Facility contains a number of affirmative and negative covenants. The
negative covenants provide for certain restrictions on possible acts by the
Company related to matters such as additional indebtedness, certain liens,
fundamental changes in the business, certain investments or loans, asset sales
and other customary requirements. The Company was in compliance with all such
negative covenants as of March 31, 2009. The Credit Facility also includes a
provision for up to $3.0 million of letters of credit in aggregate under the
Company’s U.S., Belgium, and UK sub-limits that can be issued having expiration
dates that are more than one year but not more than three years after the date
of issuance.





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 March 31, 2009, there have been no changes in the payment terms of debt,
lease agreements, and unconditional purchase obligations since December 31,
2008.





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





Capital Expenditures and
Investments





Capital
expenditures for property, plant and equipment totaled $12.9 million for the
three months ended March 31, 2009 (with $1.8 million of this amount reflected as
a non-cash increase in accounts payable and accrued liabilities) compared to
expenditures of $6.6 million for the same period in 2008.  The
expenditures for the period ended March 31, 2009 consisted primarily of
improvements to the Company’s manufacturing facilities of $10.4 million, of
which $5.4 million was directly related to the April 2009 re-start of a
previously idled production line at the Company’s Catlettsburg, Kentucky
facility, and $1.3 million for customer capital.  The comparable 2008
period consisted primarily of improvements to the Company’s manufacturing
facilities of $5.0 million, of which $3.5 million was directly related to the
aforementioned production line, $0.7 million related to improvements of
information systems, and $0.8 million for customer capital.  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.


41





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 $20 million to upgrade and abate B-line. B-line
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 March 31,
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 periods ended March 31, 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.


42


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.


43





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 Notice or otherwise.  The Company has had no further communication
with the SDD since October 2008.





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 field work was initiated in 2008 but suspended due
to the onset of winter.  The group plans to complete the work in the
spring of 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.


44




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.





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 percent ad valorem (i.e., of the entered value of the goods)
to 228.11 percent 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.


45


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 percent 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 percent.  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 $0.8 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheets at March 31, 2009 and  December 31,
2008, respectively.  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 tariff 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 tariff 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.  Any increase in the tariff assessment rate for
this review period would not likely result in an additional payment until
2010, if at all.  In addition, until the tariff rate is finalized in
early November 2009, the tariff deposit rate will not change. Should the final
tariff rate for Calgon Carbon (Tianjin) Co., Ltd. be at 188.57% for the period
October 11, 2006 through March 31, 2008, the Company estimates that additional
amounts it could owe, net of amounts it may receive under the Continued Dumping
and Subsidy Offset Act of 2000 (see discussion below) could be
substantial.  Because there are multiple factors that will influence
the final results of the review, the Company is unable to reasonably estimate
the amount of any adjustment that may be made to the current tariff deposit rate
or the amount of additional deposits or refunds that the Company may owe or
receive, respectively.




46





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 coming
weeks.





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 percent 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.





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
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 applies to other
accounting pronouncements that require or permit fair value measurements and,
accordingly, does not require any new fair value measurements. SFAS No. 157 was
initially effective as of January 1, 2008, but in February 2008, the FASB
delayed the effective date for applying this standard to nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis until periods beginning after
November 15, 2008. The Company adopted SFAS No. 157 as of January 1,
2008 for assets and liabilities within its scope and the impact was immaterial
to our financial statements. As of January 1, 2009, nonfinancial assets and
nonfinancial liabilities were also required to be measured at fair value. The
adoption of these additional provisions did not have a material impact on our
financial statements. On October 10, 2008, the FASB issued FSP
No. 157-3 (FSP No. 157-3), “Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active.” FSP No. 157-3
clarifies the application of SFAS No. 157 in a market that is not active and
provides factors to take into consideration when determining the fair value of
an asset in an inactive market. FSP No. 157-3 was effective upon issuance,
including prior periods for which financial statements have not been issued.
This FSP did not have a material impact on our financial statements. On
April 9, 2009 the FASB issued FSP FAS No. 157-4 (FSP No. 157-4),
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly.” This FSP relates to determining fair values when there is no active
market or where the price inputs being used represent distressed sales.
Specifically, it reaffirms the need to use judgment to ascertain if a formerly
active market has become inactive and in determining fair values when markets
have become inactive. This FSP is effective for interim and annual periods
ending after June 15, 2009 and should be applied prospectively. The Company
does not expect any material financial statement implications relating to the
adoption of this FSP.





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.


47





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 March 31, 2009, that have
significantly affected, or are reasonably likely to significantly affect, the
Company’s internal controls over financial reporting.


48


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





Period
                  
                  Total
                    Number
                    of Shares
                    Purchased (a)
                  
                  
                  Average
                    Price Paid
                    Per Share (b)
                  
                  
                  Total Number of
                    Shares Purchased
                    as Part of Publicly
                    Announced
                    Repurchase Plans
                    or Programs (c)
                  
                  
                  Maximum Number
                    (or Approximate
                    Dollar Value)
                    of Shares that May
                    Yet be Purchased
                    Under the Plans or
                    Programs (d)January
      1 – January 31, 2009
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —February
      1 – February 28, 2009
                  
                  
                  42,894
                  
                  
                  $
                  13.23
                  
                  
                  
                  —
                  
                  
                  
                  —March
      1 – March 31, 2009
                  
                  
                  21,995
                  
                  
                  $
                  14.18
                  
                  
                  
                  —
                  
                  
                  
                  —





(a) This
column includes purchases under Calgon Carbon’s Equity Incentive Plan
which represented withholding taxes due from employees relating to the
restricted share awards issued on February 26, 2009; February 28, 2009; March
27, 2009; and March 31, 2009.  Future purchases under this plan will
be dependent upon employee elections and forfeitures.





Item
6.     
Exhibits





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





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





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





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


49





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:  May
      6, 2009
                    /s/Leroy
      M. BallLeroy
      M. BallSenior
      Vice President,Chief
      Financial Officer


50




EXHIBIT
INDEX





Exhibit
                        No.
                      
                      Description
                      
                      Method of Filing31.1
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith31.2
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith32.1
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith32.2
                      
                      Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                      
                      Filed
      herewith