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 September 30,
      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)





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


Yes x                                           No   ̈





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


Yes  ̈                                           No   ̈





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


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈                                           No  x





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





Class
            
            Outstanding
      at October 30, 2009Common
      Stock, $.01 par value per share
            
            55,968,542  shares









CALGON
CARBON CORPORATION


FORM
10-Q


QUARTER
ENDED September 30, 2009





The
Quarterly Report on Form 10-Q contains historical information and
forward-looking statements.  Forward-looking statements typically
contain words such as “expect,” “believe,” “estimate,” “anticipate,” or similar
words indicating that future outcomes are uncertain.  Statements
looking forward in time, including statements regarding future growth and
profitability, price increases, cost savings, broader product lines, enhanced
competitive posture and acquisitions, are included this Form 10-Q and in the
Company’s most recent Annual Report  pursuant to the “safe harbor”
provision of the Private Securities Litigation Reform Act of 1995. They involve
known and unknown risks and uncertainties that may cause the company’s actual
results in future periods to be materially different from any future performance
suggested herein. Further, the company operates in an industry sector where
securities values may be volatile and may be influenced by economic and other
factors beyond the Company’s control. Some of the factors that could affect
future performance of the Company are higher energy and raw material costs,
costs of imports and related tariffs, labor relations, availability of capital,
environmental requirements as they relate both to our operations and to our
customers, changes in foreign currency exchange rates, borrowing restrictions,
validity of patents and other intellectual property, and pension
costs.  In the context of the forward-looking information provided in
this Form 10-Q and in other reports, please refer to the discussions of risk
factors and other information detailed in, as well as the other information
contained in the Company’s most recent Annual Report.





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
      Resultsof Operations and Financial
      Condition
              31Item 3.
              Quantitative and Qualitative Disclosures
      aboutMarket 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 nine 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 Per Share Data)


(Unaudited)


Three
      Months Ended
                                
                                
                                Nine
      Months EndedSeptember 30,
                                
                                
                                September 30,2009
                                
                                
                                
                                2008*
                                
                                
                                2009
                                
                                
                                
                                2008*Net
      sales
                                
                                $
                                105,668
                                
                                
                                $
                                96,737
                                
                                
                                $
                                290,269
                                
                                
                                $
                                290,492Net
      sales to related parties
                                
                                
                                1,827
                                
                                
                                
                                2,332
                                
                                
                                
                                10,949
                                
                                
                                
                                7,384Total
                                
                                
                                107,495
                                
                                
                                
                                99,069
                                
                                
                                
                                301,218
                                
                                
                                
                                297,876Cost
      of products sold(excluding
      depreciation and amortization)
                                
                                
                                71,089
                                
                                
                                
                                65,461
                                
                                
                                
                                202,622
                                
                                
                                
                                198,247Depreciation
      and amortization
                                
                                
                                4,690
                                
                                
                                
                                4,036
                                
                                
                                
                                12,438
                                
                                
                                
                                12,161Selling,
      general andadministrative
      expenses
                                
                                
                                16,301
                                
                                
                                
                                16,286
                                
                                
                                
                                49,426
                                
                                
                                
                                47,637Research
      and developmentexpenses
                                
                                
                                1,295
                                
                                
                                
                                1,025
                                
                                
                                
                                3,503
                                
                                
                                
                                3,119Gain
      on AST settlement (See Note 7)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (9,250
                                )93,375
                                
                                
                                
                                86,808
                                
                                
                                
                                267,989
                                
                                
                                
                                251,914Income
      from operations
                                
                                
                                14,120
                                
                                
                                
                                12,261
                                
                                
                                
                                33,229
                                
                                
                                
                                45,962Interest
      income
                                
                                
                                119
                                
                                
                                
                                399
                                
                                
                                
                                323
                                
                                
                                
                                1,256Interest
      expense
                                
                                
                                (92
                                )
                                
                                
                                (1,657
                                )
                                
                                
                                (299
                                )
                                
                                
                                (5,815
                                )Loss
      on debt extinguishment (See Note 9)
                                
                                
                                (899
                                )
                                
                                
                                (6,313
                                )
                                
                                
                                (899
                                )
                                
                                
                                (6,313
                                )Other
      expense—net
                                
                                
                                (646
                                )
                                
                                
                                (701
                                )
                                
                                
                                (2,574
                                )
                                
                                
                                (1,269
                                )Income
      from continuing operations before income tax andequity
      in income from equity investments
                                
                                
                                12,602
                                
                                
                                
                                3,989
                                
                                
                                
                                29,780
                                
                                
                                
                                33,821Income
      tax (benefit) provision
                                
                                
                                (787
                                )
                                
                                
                                1,593
                                
                                
                                
                                5,187
                                
                                
                                
                                12,067Income
      from continuing operations before equity in incomefrom
      equity investments
                                
                                
                                13,389
                                
                                
                                
                                2,396
                                
                                
                                
                                24,593
                                
                                
                                
                                21,754Equity
      in income from equity investments
                                
                                
                                470
                                
                                
                                
                                38
                                
                                
                                
                                1,338
                                
                                
                                
                                337Income
      from continuing operations
                                
                                
                                13,859
                                
                                
                                
                                2,434
                                
                                
                                
                                25,931
                                
                                
                                
                                22,091Income
      (loss) from discontinued operations, net
                                
                                
                                -
                                
                                
                                
                                (211
                                )
                                
                                
                                -
                                
                                
                                
                                3,236Net
      income
                                
                                $
                                13,859
                                
                                
                                $
                                2,223
                                
                                
                                $
                                25,931
                                
                                
                                $
                                25,327Net
      income per common shareBasic:Income
      from continuing operations
                                
                                $
                                .25
                                
                                
                                $
                                .05
                                
                                
                                $
                                .48
                                
                                
                                $
                                .53Income
      (loss) from discontinued operations
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                .08Total
                                
                                $
                                .25
                                
                                
                                $
                                .05
                                
                                
                                $
                                .48
                                
                                
                                $
                                .61Diluted:Income
      from continuing operations
                                
                                $
                                .25
                                
                                
                                $
                                .04
                                
                                
                                $
                                .46
                                
                                
                                $
                                .42Income
      (loss) from discontinued operations
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                .06Total
                                
                                $
                                .25
                                
                                
                                $
                                .04
                                
                                
                                $
                                .46
                                
                                
                                $
                                .48Weighted
      average shares outstandingBasic
                                
                                
                                54,940,359
                                
                                
                                
                                44,624,502
                                
                                
                                
                                54,465,997
                                
                                
                                
                                41,818,152Diluted
                                
                                
                                56,448,228
                                
                                
                                
                                53,797,735
                                
                                
                                
                                56,273,617
                                
                                
                                
                                52,536,083





* Results
have been retrospectively adjusted to incorporate the adoption of guidance
within Accounting Standards Codification (ASC) 470-20 “Debt with Conversion and
Other Options.” (See Note 9).





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




3




CALGON
CARBON CORPORATION


CONDENSED CONSOLIDATED
BALANCE SHEETS


(Dollars
in Thousands except share data)


(Unaudited)


September 30,
                          
                          
                          December 31,2009
                          
                          
                          
                          2008*ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          15,529
                          
                          
                          $
                          16,750Restricted
      cash
                          
                          
                          5,266
                          
                          
                          
                          -Receivables
      (net of allowance of $2,673 and $1,596)
                          
                          
                          60,401
                          
                          
                          
                          62,300Receivables
      from related parties
                          
                          
                          1,895
                          
                          
                          
                          2,215Revenue
      recognized in excess of billings on uncompletedcontracts
                          
                          
                          7,062
                          
                          
                          
                          8,870Inventories
                          
                          
                          88,186
                          
                          
                          
                          93,725Deferred
      income taxes – current
                          
                          
                          14,782
                          
                          
                          
                          8,911Other
      current assets
                          
                          
                          4,727
                          
                          
                          
                          7,817Total
      current assets
                          
                          
                          197,848
                          
                          
                          
                          200,588Property,
      plant and equipment, net
                          
                          
                          151,073
                          
                          
                          
                          122,960Equity
      investments
                          
                          
                          12,500
                          
                          
                          
                          11,747Intangibles
                          
                          
                          5,027
                          
                          
                          
                          5,930Goodwill
                          
                          
                          26,844
                          
                          
                          
                          26,340Deferred
      income taxes – long-term
                          
                          
                          7,188
                          
                          
                          
                          13,129Other
      assets
                          
                          
                          6,125
                          
                          
                          
                          6,568Total
      assets
                          
                          $
                          406,605
                          
                          
                          $
                          387,262LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
                          
                          $
                          40,723
                          
                          
                          $
                          39,647Billings
      in excess of revenue recognized on uncompletedcontracts
                          
                          
                          4,735
                          
                          
                          
                          4,639Accrued
      interest
                          
                          
                          35
                          
                          
                          
                          140Payroll
      and benefits payable
                          
                          
                          9,113
                          
                          
                          
                          10,522Accrued
      income taxes
                          
                          
                          840
                          
                          
                          
                          1,088Short-term
      debt
                          
                          
                          -
                          
                          
                          
                          1,605Current
      portion of long-term debt
                          
                          
                          -
                          
                          
                          
                          7,903Total
      current liabilities
                          
                          
                          55,446
                          
                          
                          
                          65,544Deferred
      income taxes – long-term
                          
                          
                          20
                          
                          
                          
                          242Accrued
      pension and other liabilities
                          
                          
                          60,052
                          
                          
                          
                          68,199Total
      liabilities
                          
                          
                          115,518
                          
                          
                          
                          133,985Commitments
      and contingencies (Note 7)Shareholders'
      equity:Common
      shares, $.01 par value, 100,000,000 sharesauthorized,
      58,451,601 and 56,961,297 shares issued
                          
                          
                          585
                          
                          
                          
                          570Additional
      paid-in capital
                          
                          
                          162,859
                          
                          
                          
                          153,766Retained
      earnings
                          
                          
                          159,937
                          
                          
                          
                          134,006Accumulated
      other comprehensive loss
                          
                          
                          (2,783
                          )
                          
                          
                          (6,450
                          )320,598
                          
                          
                          
                          281,892Treasury
      stock, at cost, 3,019,013 and 2,902,264 shares
                          
                          
                          (29,511
                          )
                          
                          
                          (28,615
                          )Total
      shareholders’ equity
                          
                          
                          291,087
                          
                          
                          
                          253,277Total
      liabilities and shareholders’ equity
                          
                          $
                          406,605
                          
                          
                          $
                          387,262





* Results
have been retrospectively adjusted to incorporate the adoption of guidance
within ASC 470-20 “Debt with Conversion and Other Options.” (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)


Nine Months EndedSeptember 30,2009
                        
                        
                        
                        2008*Cash flows from operating
      activitiesNet
      income
                        
                        $
                        25,931
                        
                        
                        $
                        25,327Adjustments
      to reconcile net income to net cash provided by operating
      activities:Gain
      from divestiture
                        
                        
                        -
                        
                        
                        
                        (4,353
                        )Depreciation
      and amortization
                        
                        
                        12,438
                        
                        
                        
                        12,161Equity
      in income from equity investments - net
                        
                        
                        (888
                        )
                        
                        
                        63Employee
      benefit plan provisions
                        
                        
                        3,874
                        
                        
                        
                        1,824Write-off
      of prior credit facility fees (Note 9)
                        
                        
                        827
                        
                        
                        
                        -Amortization
      of convertible notes discount
                        
                        
                        218
                        
                        
                        
                        2,802Loss
      on extinguishment of convertible notes
                        
                        
                        719
                        
                        
                        
                        5,857Stock-based
      compensation
                        
                        
                        1,751
                        
                        
                        
                        2,247Deferred
      income tax
                        
                        
                        318
                        
                        
                        
                        (502
                        )Changes
      in assets and liabilities:Decrease
      (increase) in receivables
                        
                        
                        3,794
                        
                        
                        
                        (6,685
                        )Decrease
      (increase) in inventories
                        
                        
                        7,392
                        
                        
                        
                        (8,079
                        )Decrease
      (increase) in revenue in excess of billings onuncompleted
      contracts and other current assets
                        
                        
                        5,042
                        
                        
                        
                        (5,180
                        )Decrease
      (increase) in accounts payable and accrued liabilities
                        
                        
                        (2,606
                        )
                        
                        
                        309Decrease
      in accrued income taxes
                        
                        
                        483
                        
                        
                        
                        3,095Pension
      contributions
                        
                        
                        (11,526
                        )
                        
                        
                        (5,597
                        )Other
      items – net
                        
                        
                        1,369
                        
                        
                        
                        615Net
      cash provided by operating activities
                        
                        
                        49,136
                        
                        
                        
                        23,904Cash flows from investing
      activitiesProperty,
      plant and equipment expenditures
                        
                        
                        (38,068
                        )
                        
                        
                        (20,641
                        )Proceeds
      from disposals of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        580Cash
      pledged for collateral
                        
                        
                        (11,019
                        )
                        
                        
                        -Cash
      released from collateral
                        
                        
                        5,753
                        
                        
                        
                        -Net
      cash used in investing activities
                        
                        
                        (43,334
                        )
                        
                        
                        (20,061
                        )Cash flows from financing
      activitiesReductions
      of debt obligations (See Note 9)
                        
                        
                        (4,530
                        )
                        
                        
                        -Treasury
      stock purchases
                        
                        
                        (896
                        )
                        
                        
                        (823
                        )Common
      stock issued through exercise of stock options
                        
                        
                        710
                        
                        
                        
                        5,121Excess
      tax benefit from stock-based compensation
                        
                        
                        470
                        
                        
                        
                        1,958Other
      (See Note 9)
                        
                        
                        (1,208
                        )
                        
                        
                        (456
                        )Net
      cash (used in) provided by financing activities
                        
                        
                        (5,454
                        )
                        
                        
                        5,800Effect
      of exchange rate changes on cash
                        
                        
                        (1,569
                        )
                        
                        
                        (2,684
                        )(Decrease)
      increase in cash and cash equivalents
                        
                        
                        (1,221
                        )
                        
                        
                        6,959Cash
      and cash equivalents, beginning of period
                        
                        
                        16,750
                        
                        
                        
                        30,304Cash
      and cash equivalents, end of period
                        
                        $
                        15,529
                        
                        
                        $
                        37,263




* Results
have been retrospectively adjusted to incorporate the adoption of guidance
within ASC 470-20 “Debt with Conversion and Other Options.” (See Note
9).





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


5


CALGON
CARBON CORPORATION


NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in Thousands)


(Unaudited)





1.
            Inventories:


September 30, 2009
                    
                    
                    December 31, 2008Raw
      materials
                    
                    $
                    22,666
                    
                    
                    $
                    27,241Finished
      goods
                    
                    
                    65,520
                    
                    
                    
                    66,484$
                    88,186
                    
                    
                    $
                    93,725





2.
            Supplemental
      Cash Flow Information:





Cash paid
for interest during the nine months ended September 30, 2009 and 2008 was $0.4
million and $4.5 million, respectively.  Income taxes paid, net of
refunds, were $3.8 million and $12.8 million, for the nine months ended
September 30, 2009 and 2008, respectively.





During
the nine months ended September 30, 2009 and 2008, the Company exchanged shares
of its common stock for approximately $6.0 million and $44.2 million,
respectively, of its 5.00% Convertible Senior Notes.  Refer to Note
9.





3.
            Dividends:





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





4.
            Comprehensive
      income (loss):


Three Months Ended September 30,
                  
                  
                  Nine Months Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      income
                  
                  $
                  13,859
                  
                  
                  $
                  2,223
                  
                  
                  $
                  25,931
                  
                  
                  $
                  25,327Other
      comprehensive income (loss), net of taxes
                  
                  
                  2,177
                  
                  
                  
                  (8,207
                  )
                  
                  
                  3,667
                  
                  
                  
                  (2,085
                  )Comprehensive
      income (loss)
                  
                  $
                  16,036
                  
                  
                  $
                  (5,984
                  )
                  
                  $
                  29,598
                  
                  
                  $
                  23,242





The only
matters contributing to the other comprehensive income during the three and nine
months ended September
30, 2009 were the foreign currency translation adjustment of $2.5 million and
$4.3 million, respectively; the changes in employee benefit accounts of $0.4
million and $0.9 million, respectively; and the change in the fair value of the
derivative instruments of $(0.8) million and $(1.5) million,
respectively.  The only matters contributing to the other
comprehensive income (loss) during the three and nine months ended September 30,
2008 were the foreign currency translation adjustment of $(7.1) million and
$(3.0) million, respectively; the changes in employee benefit accounts of $0.2
million and $0.4 million, respectively; and the change in the fair value of the
derivative instruments of $(1.3) million and $0.5 million,
respectively.


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 Ended
                
                
                Nine Months EndedSeptember 30,
                
                
                September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      SalesActivated
      Carbon and Service
                
                $
                94,230
                
                
                $
                85,219
                
                
                $
                261,376
                
                
                $
                257,401Equipment
                
                
                10,558
                
                
                
                11,662
                
                
                
                32,784
                
                
                
                32,101Consumer
                
                
                2,707
                
                
                
                2,188
                
                
                
                7,058
                
                
                
                8,374$
                107,495
                
                
                $
                99,069
                
                
                $
                301,218
                
                
                $
                297,876Income
      (loss) from continuing operations before depreciation and
      amortizationActivated
      Carbon and Service
                
                $
                18,647
                
                
                $
                15,941
                
                
                $
                43,729
                
                
                $
                53,083Equipment
                
                
                (60
                )
                
                
                588
                
                
                
                1,877
                
                
                
                4,550Consumer
                
                
                223
                
                
                
                (232
                )
                
                
                61
                
                
                
                49018,810
                
                
                
                16,297
                
                
                
                45,667
                
                
                
                58,123Depreciation
      and amortizationActivated
      Carbon and Service
                
                
                4,247
                
                
                
                3,590
                
                
                
                11,156
                
                
                
                10,866Equipment
                
                
                320
                
                
                
                322
                
                
                
                926
                
                
                
                920Consumer
                
                
                123
                
                
                
                124
                
                
                
                356
                
                
                
                3754,690
                
                
                
                4,036
                
                
                
                12,438
                
                
                
                12,161Income
      from operations
                
                
                14,120
                
                
                
                12,261
                
                
                
                33,229
                
                
                
                45,962Reconciling
      items:Interest
      income
                
                
                119
                
                
                
                399
                
                
                
                323
                
                
                
                1,256Interest
      expense
                
                
                (92
                )
                
                
                (1,657
                )
                
                
                (299
                )
                
                
                (5,815
                )Loss
      on debt extinguishment
                
                
                (899
                )
                
                
                (6,313
                )
                
                
                (899
                )
                
                
                (6,313
                )Other
      expense – net
                
                
                (646
                )
                
                
                (701
                )
                
                
                (2,574
                )
                
                
                (1,269
                )Consolidated
      income from continuing operations before income tax and equity in income
      from equity investments
                
                $
                12,602
                
                
                $
                3,989
                
                
                $
                29,780
                
                
                $
                33,821


7





September 30, 2009
                  
                  
                  December 31, 2008Total
      AssetsActivated
      Carbon and Service
                  
                  $
                  349,721
                  
                  
                  $
                  334,675Equipment
                  
                  
                  41,745
                  
                  
                  
                  38,867Consumer
                  
                  
                  15,139
                  
                  
                  
                  13,720Consolidated
      total assets
                  
                  $
                  406,605
                  
                  
                  $
                  387,262


8





6.
            Derivative
      Instruments





The
Company’s corporate and foreign subsidiaries use foreign currency forward
exchange contracts and foreign exchange option contracts to limit the exposure
of exchange rate fluctuations on certain foreign currency receivables, payables,
and other known and forecasted transactional exposures for periods consistent
with the expected cash flow of the underlying transactions.  The
foreign currency forward exchange and foreign exchange option contracts
generally mature within eighteen months and are designed to limit exposure to
exchange rate fluctuations.  The Company uses cash flow hedges to
limit the exposure to changes in natural gas prices.  The natural gas
forward contracts generally mature within one to thirty-six
months.  The Company also has a ten-year foreign currency swap
agreement to fix the foreign exchange rate on a $6.5 million intercompany loan
between the Company and its foreign subsidiary, Chemviron Carbon
Ltd.  Since its inception, the foreign currency swap has been treated
as a foreign exchange cash flow hedge. The Company accounts for its derivative
instruments under Accounting Standards Codification (ASC) 815 “Derivatives and
Hedging.”





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


September 30,
                    
                    
                    December 31,Asset Derivatives
                    
                    Balance Sheet Locations
                    
                    2009
                    
                    
                    2008Derivatives
      designated as hedging instruments under ASC 815:Foreign
      exchange contracts
                    
                    Other
      current assets
                    
                    $
                    90
                    
                    
                    $
                    1,153Natural
      gas contracts
                    
                    Other
      current assets
                    
                    
                    13
                    
                    
                    
                    -Currency
      swap
                    
                    Other
      assets
                    
                    
                    257
                    
                    
                    
                    662Natural
      gas contracts
                    
                    Other
      assets
                    
                    
                    10
                    
                    
                    
                    -Total
      derivatives designated as hedging instruments under ASC
815
                    
                    
                    
                    
                    370
                    
                    
                    
                    1,815Derivatives
      not designated as hedging instruments under ASC 815:Foreign
      exchange contracts
                    
                    Other
      current assets
                    
                    $
                    6
                    
                    
                    $
                    14Total
      asset derivatives
                    
                    
                    
                    $
                    376
                    
                    
                    $
                    1,829


9


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




September 30,
                      
                      
                      December 31,Liability Derivatives
                      
                      Balance Sheet Locations
                      
                      2009
                      
                      
                      2008Derivatives
      designated as hedging instruments under ASC 815:Foreign
      exchange contracts
                      
                      Accounts
      payable and accrued liabilities
                      
                      $
                      1,201
                      
                      
                      $
                      63Natural
      gas contracts
                      
                      Accounts
      payable and accrued liabilities
                      
                      
                      1,126
                      
                      
                      
                      1,323Natural
      gas contracts
                      
                      Accrued
      pension and other liabilities
                      
                      
                      864
                      
                      
                      
                      1,048Total
      derivatives designated as hedging instruments under ASC
815
                      
                      
                      
                      
                      3,191
                      
                      
                      
                      2,434Derivatives
      not designated as hedging instruments under ASC 815:Foreign
      exchange contracts
                      
                      Accounts
      payable and accrued liabilities
                      
                      $
                      53
                      
                      
                      $
                      39Total
      liability derivatives
                      
                      
                      
                      $
                      3,244
                      
                      
                      $
                      2,473





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





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


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


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





In
accordance with ASC 820, “Fair Value Measurements and Disclosures,” the fair
value of the Company’s foreign exchange forward contracts, foreign exchange
option contracts, currency swap, and natural gas forward contracts is determined
using Level 2 inputs, which are defined as observable inputs.  The inputs
used are from market sources that aggregate data based upon market
transactions.


10





Cash Flow
Hedges





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





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





Three Months Ended
                
                
                Nine Month EndedSeptember 30, 2009
                
                
                September 30, 2009Accumulated
      OCI derivative loss at July 1, 2009 and January 1, 2009,
      respectively
                
                $
                2,437
                
                
                $
                1,296Effective
      portion of changes in fair value
                
                
                1,855
                
                
                
                2,866Reclassifications
      from accumulated OCI derivative gain to earnings
                
                
                (586
                )
                
                
                (456
                )Foreign
      currency translation
                
                
                (97
                )
                
                
                (97
                )Accumulated
      OCI derivative loss at September 30, 2009
                
                $
                3,609
                
                
                $
                3,609





Amount of (Gain) or LossRecognized in OCI on Derivatives(Effective Portion)Three Months EndedSeptember 30,Derivatives in ASC 815 Cash Flow Hedging Relationships:
                
                2009
                
                
                2008Foreign
      Exchange Contracts
                
                $
                1,118
                
                
                $
                (482
                )Currency
      Swap
                
                
                (1
                )
                
                
                445Natural
      Gas Contracts
                
                
                738
                
                
                
                3,148Total
                
                $
                1,855
                
                
                $
                3,111





Amount of (Gain) or LossRecognized in OCI on Derivatives(Effective Portion)Nine Months EndedSeptember 30,Derivatives in ASC 815 
      Cash Flow Hedging Relationships:
                
                2009
                
                
                2008Foreign
      Exchange Contracts
                
                $
                1,596
                
                
                $
                (944
                )Currency
      Swap
                
                
                (522
                )
                
                
                620Natural
      Gas Contracts
                
                
                1,792
                
                
                
                (143
                )Total
                
                $
                2,866
                
                
                $
                (467
                )


11





Amount of Gain or (Loss)Reclassified from AccumulatedOCI in Income (Effective Portion) *Location of Gain or
                          
                          Three Months EndedDerivatives in ASC 815 Cash Flow
                          
                          (Loss) Recognized in
                          
                          September 30,Hedging Relationships:
                          
                          Income on Derivatives
                          
                          2009
                          
                          
                          2008Foreign
      Exchange Contracts
                          
                          Cost
      of products sold
                          
                          $
                          297
                          
                          
                          $
                          (81
                          )Currency
      Swap
                          
                          Interest
      expense
                          
                          
                          (21
                          )
                          
                          
                          (26
                          )Natural
      Gas Contracts
                          
                          Cost
      of products sold
                          
                          
                          (862
                          )
                          
                          
                          229Total
                          
                          
                          
                          $
                          (586
                          )
                          
                          $
                          122





Amount of Gain or (Loss)Reclassified from AccumulatedOCI in Income (Effective Portion) *Location of Gain or
                      
                      Nine Months EndedDerivatives in ASC 815 Cash Flow
                      
                      (Loss) Recognized in
                      
                      September 30,Hedging Relationships:
                      
                      Income on Derivatives
                      
                      2009
                      
                      
                      2008Foreign
      Exchange Contracts
                      
                      Cost
      of products sold
                      
                      $
                      988
                      
                      
                      $
                      (168
                      )Currency
      Swap
                      
                      Interest
      expense
                      
                      
                      (21
                      )
                      
                      
                      (112
                      )Natural
      Gas Contracts
                      
                      Cost
      of products sold
                      
                      
                      (1,423
                      )
                      
                      
                      113Total
                      
                      
                      
                      $
                      (456
                      )
                      
                      $
                      (167
                      )





Amount of LossRecognized in Income onDerivatives (IneffectivePortion and AmountExcluded fromEffectiveness Testing)Location of
                    
                    Three Months EndedDerivatives in ASC 815 Cash Flow
                    
                    Loss Recognized in
                    
                    September 30,Hedging Relationships:
                    
                    Income on Derivatives
                    
                    2009
                    
                    
                    2008Foreign
      Exchange Contracts
                    
                    Other
      expense – net
                    
                    $
                    (1
                    )
                    
                    $
                    (7
                    )Currency
      Swap
                    
                    Other
      expense – net
                    
                    
                    -
                    
                    
                    
                    -Natural
      Gas Contracts
                    
                    Other
      expense – net
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    
                    $
                    (1
                    )
                    
                    $
                    (7
                    )





Amount of LossRecognized in Income onDerivatives (IneffectivePortion and AmountExcluded fromEffectiveness Testing)Location of
                    
                    Nine Months EndedDerivatives in ASC 815 Cash Flow
                    
                    Loss Recognized in
                    
                    September 30,Hedging Relationships:
                    
                    Income on Derivatives
                    
                    2009
                    
                    
                    2008Foreign
      Exchange Contracts
                    
                    Other
      expense – net
                    
                    $
                    (19
                    )
                    
                    $
                    (18
                    )Currency
      Swap
                    
                    Other
      expense – net
                    
                    
                    -
                    
                    
                    
                    -Natural
      Gas Contracts
                    
                    Other
      expense – net
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    
                    $
                    (19
                    )
                    
                    $
                    (18
                    )





*Assuming
market rates remain constant with the rates at September 30, 2009, a loss of
$2.4 million is expected to be recognized in earnings over the next 12
months.


12





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





September 30,
                  
                  
                  December 31,(in thousands except for mmbtu)
                  
                  2009
                  
                  
                  2008Natural
      gas contracts (mmbtu)
                  
                  
                  980,000
                  
                  
                  
                  1,290,000Foreign
      exchange contracts
                  
                  $
                  20,026
                  
                  
                  $
                  21,386Currency
      swap
                  
                  $
                  3,812
                  
                  
                  $
                  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 LossRecognized in Income onDerivativesLocation of
                    
                    Three Months EndedDerivatives Not Designated as
                    
                    Loss Recognized in
                    
                    September 30,Hedging Instruments Under ASC 815:
                    
                    Income on Derivatives
                    
                    2009
                    
                    
                    2008Foreign
      Exchange Contracts *
                    
                    Other
      expense - net
                    
                    $
                    (33
                    )
                    
                    $
                    (261
                    )Total
                    
                    
                    
                    $
                    (33
                    )
                    
                    $
                    (261
                    )





Amount of LossRecognized in Income onDerivativesLocation of
                    
                    Nine Months EndedDerivatives Not Designated as
                    
                    Loss Recognized in
                    
                    September 30,Hedging Instruments Under ASC 815:
                    
                    Income on Derivatives
                    
                    2009
                    
                    
                    2008Foreign
      Exchange Contracts *
                    
                    Other
      expense - net
                    
                    $
                    (202
                    )
                    
                    $
                    (368
                    )Total
                    
                    
                    
                    $
                    (202
                    )
                    
                    $
                    (368
                    )





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





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


13





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 September 30, 2009 and December 31, 2008,
the balance recorded was $4.0 million.  Liability estimates are based on an
evaluation of, among other factors, currently available facts, existing
technology, presently enacted laws and regulations, and the remediation
experience of other companies.  The Company has not incurred any
environmental remediation expense for the nine month periods ended September 30,
2009 and 2008. It is reasonably possible that a change in the estimate of this
obligation will occur as remediation preparation and remediation activity
commences in the future.  The ultimate remediation costs are dependent
upon, among other things, the requirements of any state or federal environmental
agencies, the remediation methods employed, the final scope of work being
determined, and the extent and types of contamination which will not be fully
determined until experience is gained through remediation and related
activities.  The accrued amounts are expected to be paid out over the
course of several years once work has commenced.  The Company has yet to
make a determination as to when it will proceed with remediation
efforts.





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.


14





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





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





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





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





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


15





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 duty order, the review covers
the period from October 11, 2006 through March 31, 2008 instead of the typical
12 month period.   The preliminary results of the review were
announced on May 1, 2009 and indicated that Calgon Carbon (Tianjin) Co., Ltd.’s
tariff rate could increase from 69.54% to 188.57%.  However, other
respondents’ preliminary review results indicated a decline to their tariff
rates for the review period.  The announced preliminary review results are
based on information provided by respondents that has not been verified. 
Errors may have been made in the review and the important decisions that affect
the tariff are subject to reconsideration before the final results of the review
are announced.  The respondents, including Calgon Carbon (Tianjin) Co.,
Ltd., are subject to additional requests for information and on-site
verification by the Commerce Department of the accuracy of the information that
has been presented.  The review must be completed no later than early
November 2009.  The Company believes that its preliminary rate of 188.57%
will be lowered when the final results are announced in November.  In
addition, until the tariff rate is finalized in early November 2009, the tariff
deposit rate will not change.  For the first nine months of 2009, the
Company has made tariff deposits on goods imported to the United States
totaling $1.4 million.  For the period beginning October 11, 2006
through September 30, 2009, the Company estimates that a hypothetical 10%
increase or decrease in the final tariff rate would result in an additional
payment or refund of approximately $0.4 million.





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


16





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.  The Company, in its capacity
as a U.S. producer and separately as a Chinese exporter, elected not to
participate in this administrative review.  By not participating in the
review, the Company’s tariff deposits made during the period April 1, 2008
through March 31, 2009 are final and not subject to further
adjustment.





By letter
dated January 22, 2007, the Company received from the United States
Environmental Protection Agency (“EPA”), Region 4 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, and the EPA has indicated, 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.


17


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 has also met with Headquarters of the
EPA Solid Waste Division (“Headquarters”) on March 6, 2009 and presented its
classification argument, with the understanding that Headquarters would advise
Region 4 of the EPA.  The Company has not received any additional
information from the Region 4 of the EPA since the March 6, 2009 meeting. 
If the Company is required to treat and/or dispose of the material dredged from
the lagoons as hazardous waste, the costs for doing so could be
substantial.





By letter
dated August 18, 2008, the Company was notified by the EPA Suspension and
Debarment Division (“SDD”) that because of the alleged violations described in
the CERCLA Notice, the SDD was making an assessment of the Company’s present
responsibility to conduct business with Federal Executive Agencies. 
Representatives of the SDD attended the August 2008 EPA meeting.  On August
28, 2008, the Company received a letter from the Division requesting additional
information from the Company in connection with the SDD’s evaluation of the
Company’s potential “business risk to the Federal Government,” noting that the
Company engages in procurement transactions with or funded by the Federal
Government.  The Company provided the SDD with all information requested by
the letter in September 2008.  The SDD can suspend or debar a Company from
sales to the Federal Government directly or indirectly through government
contractors or with respect to projects funded by the Federal Government. 
 The Company estimates that revenue from sales made directly to the Federal
Government or indirectly through government contractors comprised less than 8%
of its total revenue for the nine month period ended September 30, 2009. 
The Company is unable to estimate sales made directly or indirectly to customers
and or projects that receive federal funding.  In October 2008, the SDD
indicated that it was still reviewing the matter but that another meeting with
the Company was not warranted at that time.  The Company believes that
there is no basis for suspension or debarment on the basis of the matters
asserted by the EPA in the CERCLA Notice or otherwise.  The Company has had
no further communication with the SDD since October 2008 and believes the
likelihood of any action being taken by the SDD is remote.


18


In June
2007, the Company received a Notice Letter from the New York State Department of
Environmental Conservation (“NYSDEC”) stating that the NYSDEC had determined
that the Company is a Potentially Responsible Party (“PRP”) at the Frontier
Chemical Processing Royal Avenue Site in Niagara Falls, New York (the
“Site”).  The Notice Letter requests that the Company and other PRP’s
develop, implement and finance a remedial program for Operable Unit #1 at the
Site.  Operable Unit #1 consists of overburden soils and overburden and
upper bedrock groundwater.  The selected remedy is removal of above grade
structures and contaminated soil source areas, installation of a cover system,
and ground water control and treatment, estimated to cost between approximately
$11 million and $14 million, which would be shared among the PRP’s.  The
Company has not determined what portion of the costs associated with the
remedial program it would be obligated to bear and the Company cannot predict
with any certainty the outcome of this matter or range of potential loss. 
The Company has joined a PRP group and has executed a Joint Defense Agreement
with the group members.  In August 2008, the Company and over 100 PRP’s
entered into a Consent Order with NYSDEC for additional site investigation
directed toward characterization of the Site to better define the scope of the
remedial project.  The Company contributed monies to the PRP group to help
fund the work required under the Consent Order.  The additional site
investigation required under the Consent Order was initiated in 2008 and
completed in the spring of 2009.  A final report of the site investigation
is scheduled for submittal to NYSDEC before the end 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
Company met with the KYDEP on July 27, 2009 concerning the permit, and the KYDEP
indicated that it, and Region 4 of the EPA, would like to see specific
additional information or clarifications in the permit application. 
Accordingly, the Company submitted a new application on October 15, 2009. 
The KYDEP indicated that it had no intention to deny the permit as long as
the Company worked with the state to resolve issues.  The Region 4 of the
EPA has not indicated any stance on the permit and can deny the
application.  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 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 has been countersued alleging breach of
contract.  Discovery is on-going and the Company intends to vigorously
defend the countersuit and pursue the declaratory judgment.


19




In 2002,
the Company was sued by For Your Ease Only (“FYEO”).  The case has
been stayed since 2003.  The case arises out of the Company's
patent covering anti-tarnish jewelry boxes, U.S. Patent No. 6,412,628 (“the ‘628
Patent").  FYEO and the Company are competitors in the sale of jewelry
boxes through a common retailer.  In 2002, the Company asserted to the
retailer that FYEO's jewelry box infringed the '628 Patent.  FYEO
filed suit in the U.S. District Court for the Northern District of Illinois for
a declaration that the patent was invalid and not infringed, and claiming that
the Company had tortiously interfered with its relationship with the
retailer.  The Company defended the suit until December 2003, when the
case was stayed pending a re-examination of the '628 Patent in the Patent and
Trademark Office.  That patent was re-examined and certain claims of
that patent were rejected by order dated February 25, 2008.  The
Company appealed, but the re-examination was affirmed by the Court of Appeals
for the Federal Circuit.  The Patent Trademark Office issued a
re-examination certificate on August 25, 2009.  Consequently, the stay
on litigation is likely to be lifted in the next few months.  The
Company will assert that, notwithstanding the rejection of certain claims in the
'628 Patent, the Company had a good-faith belief that its patent was valid and
that FYEO's product infringed, and that such belief insulates the Company from
liability for publicizing its patent.  At this time the Company cannot
predict with any certainty the outcome of this matter or range of loss, if
any.





The
Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical
Corporation (CMCC), which was formed on October 1, 2002.  At September
30, 2009, CMCC had $21.6 million in borrowings from an affiliate of the majority
owner of the joint venture.   The Company has agreed with the
joint venture and the lender that, upon request by the lender, the Company will
execute a guarantee for up to 49% of such borrowings.  At September
30, 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.


20





8.
            Goodwill
      & Intangible Assets





The
Company has elected to perform the annual impairment test of its goodwill on
December 31 of each year.  For purposes of the test, the Company has
identified reporting units at a regional level for the Activated Carbon and
Service segment and at the technology level for the Equipment segment and has
allocated goodwill to these reporting units accordingly.  The goodwill
associated with the Consumer segment is not material and has not been allocated
below the segment level.





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





ActivatedCarbon &Service
                          
                          
                          Equipment
                          
                          
                          ConsumerSegment
                          
                          
                          Segment
                          
                          
                          Segment
                          
                          
                          TotalBalance
      as of January 1, 2009
                          
                          $
                          19,963
                          
                          
                          $
                          6,317
                          
                          
                          $
                          60
                          
                          
                          $
                          26,340Foreign
      exchange
                          
                          
                          310
                          
                          
                          
                          194
                          
                          
                          
                          -
                          
                          
                          
                          504Balance
      as of September 30, 2009
                          
                          $
                          20,273
                          
                          
                          $
                          6,511
                          
                          
                          $
                          60
                          
                          
                          $
                          26,844





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





September 30, 2009Weighted Average
                        
                        Gross Carrying
                        
                        
                        Foreign
                        
                        
                        Accumulated
                        
                        
                        Net CarryingAmortization Period
                        
                        Amount
                        
                        
                        Exchange
                        
                        
                        Amortization
                        
                        
                        AmountAmortized
      Intangible Assets:Patents
                        
                        15.4
      Years
                        
                        $
                        1,369
                        
                        
                        $
                        -
                        
                        
                        $
                        (1,025
                        )
                        
                        $
                        344Customer
      Relationships
                        
                        17.0
      Years
                        
                        
                        9,323
                        
                        
                        
                        (184
                        )
                        
                        
                        (6,249
                        )
                        
                        
                        2,890Product
      Certification
                        
                        7.9
      Years
                        
                        
                        1,682
                        
                        
                        
                        -
                        
                        
                        
                        (1,120
                        )
                        
                        
                        562Unpatented
      Technology
                        
                        20.0 Years
                        
                        
                        2,875
                        
                        
                        
                        -
                        
                        
                        
                        (1,644
                        )
                        
                        
                        1,231Total
                        
                        16.0
      Years
                        
                        $
                        15,249
                        
                        
                        $
                        (184
                        )
                        
                        $
                        (10,038
                        )
                        
                        $
                        5,027





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


21





For the
three and nine months ended September 30, 2009, the Company recognized $0.3
million and $1.0 million, respectively, of amortization expense related to
intangible assets.    For the three and nine months ended
September 30, 2008, the Company recognized $0.4 million and $1.2 million,
respectively, of amortization expense related to intangible
assets.    The Company estimates amortization expense to be
recognized during the next five years as follows:





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


22





9.
            Borrowing
      Arrangements





September
      30,
                      
                      
                      December
      31,Long-Term Debt
                      
                      2009
                      
                      
                      2008Convertible
      Senior Notes
                      
                      $
                      -
                      
                      
                      $
                      6,000Borrowings
      under revolving Credit Facility
                      
                      
                      -
                      
                      
                      
                      -Industrial revenue bonds
                      
                      
                      -
                      
                      
                      
                      2,925Total
                      
                      
                      -
                      
                      
                      
                      8,925Less
      current portion of long-term debt (net of debt discount)
                      
                      
                      -
                      
                      
                      
                      (7,903
                      )Less discount on Senior Convertible
      Notes
                      
                      
                      -
                      
                      
                      
                      (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 accrued interest at the rate of
5.00% per annum which was payable in cash semi-annually in arrears on each
February 15 and August 15, which commenced February 15, 2007.  The
Notes were eligible to be converted under certain circumstances.





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.  A pre-tax loss
of $6.3 million was recorded on extinguishment related primarily to the
outstanding discount and deferred financing fees for the conversion of $44.2
million of the Notes during the quarter ended September 30, 2008. During
the quarter ended September 30, 2009, the Company exchanged for approximately
1.2 million shares of its common stock for the remaining $6.0 million of
Notes.  A pre-tax loss of $0.9 million was recorded on extinguishment
related primarily to the outstanding discount and deferred financing fees of the
Notes upon conversion.  Due to the conversion rights of the holders of
the Notes, the Company classified the remaining principal amount of outstanding
Notes as a current liability as of December 31, 2008.





Effective
January 1, 2009, the Company implemented guidance within Accounting Standards
Codification (ASC) 470-20 “Debt with Conversion and Other Options.” This new
guidance required 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.  The Company’s $75.0 million principal amount of Notes had
an initial measurement that consisted 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
was zero and $0.6 million (after tax) at September 30, 2009 and December 31,
2008, respectively.


23





In
accordance with guidance within ASC 470-20, the debt discount of $21.9 million
was 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 was approximately
13.8%.   The Company also incurred original issuance costs of
$0.4 million which had been deferred and were being amortized over the same
period as the discount.  For the three and nine months ended September
30, 2009, the Company recorded interest expense of $0.1 million and $0.4 million
related to the Notes, of which $47 thousand and $0.2 million related to the
amortization of the discount and $38 thousand and $0.2 million related to
contractual coupon interest, respectively.  Similarly, for the three
and nine months ended September 30, 2008, the Company recorded interest expense
of $1.5 million and $5.4 million related to the Notes, of which $0.8 million and
$2.8 million related to the amortization of the discount and $0.7 million and
$2.6 million related to contractual coupon interest,
respectively.  The effect of the retrospective adjustment for the
three and nine month periods ended September 30, 2008 was to decrease previously
reported net income from continuing operations by $4.1 million and $5.1 million
or $0.08 and $0.10 per diluted common share, respectively.





Credit
Facility





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





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





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


24





The
Credit Agreement provides for an initial $95 million revolving credit facility
(the “Revolving Credit Facility”) which expires on May 8, 2014.  So
long as no event of default has occurred and is continuing, the Company from
time to time may request one or more increases in the total revolving credit
commitment under the Revolving Credit Facility of up to $30.0 million in the
aggregate.  No assurance can be given, however, that the total
revolving credit commitment will be increased above $95.0
million.  Availability under the Revolving Credit Facility is
conditioned upon various customary conditions.  A quarterly
nonrefundable commitment fee is payable by the Company based on the unused
availability under the Revolving Credit Facility and is currently equal to
0.5%.  Any outstanding borrowings under the Revolving Credit Facility
on July 2, 2012, up to $50.0 million, automatically convert to a term loan
maturing on May 8, 2014 (the “Term Loan”), with the total revolving credit
commitment under the Revolving Credit Facility being reduced at that time by the
amount of the Term Loan.  Total availability under the Revolving
Credit Facility at September 30, 2009 was $91.9 million, after considering
outstanding letters of credit.





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





The
Company incurred debt issuance costs of $1.0 million which were deferred and are
being amortized over the term of the debt.  As of September 30, 2009,
there are no outstanding borrowings under the Revolving Credit
Facility.





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


25


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





Industrial
Revenue Bonds


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





Belgian
Credit Facility


The
Company maintains a Belgian credit facility totaling 1.5 million euro which is
secured by a U.S. letter of credit.  There are no financial covenants,
and the Company had no outstanding borrowings under the Belgian credit facility
as of September 30, 2009 and December 31, 2008.  Bank guarantees of
0.9 million euro were issued as of September 30, 2009.  The maturity
date of this facility is January 15, 2010.





United
Kingdom Credit Facility


The
Company maintains a United Kingdom credit facility for the issuance of various
letters of credit and guarantees totaling 0.6 million British Pounds
Sterling.  This credit facility is secured with a U.S. bank
guarantee.  Bank guarantees of 0.4 million British Pounds Sterling
were issued as of September 30, 2009.





Chinese
Credit Facility


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





Interest
Expense


The
Company’s interest expense for the three months ended September 30, 2009 and
2008 totaled $0.1 million and $1.7 million, respectively, and for the nine
months ended September 30, 2009 and 2008 totaled $0.3 million and $5.8 million,
respectively.  These amounts are net of interest costs capitalized of
$48 thousand and $29 thousand for the three months ended September 30, 2009 and
2008, respectively, and $0.4 million and $0.2 million for the nine months ended
September 30, 2009 and 2008, respectively.


26





10.
            Pensions





U.S.
Plans:





For U.S.
plans, the following table provides the components of net periodic pension costs
of the plans for the three and nine months ended September 30, 2009 and
2008:





Three Months Ended September 30
                        
                        
                        Nine Months Ended September 30Pension Benefits (in
    thousands)
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Service
      cost
                        
                        $
                        192
                        
                        
                        $
                        251
                        
                        
                        $
                        576
                        
                        
                        $
                        768Interest
      cost
                        
                        
                        1,186
                        
                        
                        
                        1,146
                        
                        
                        
                        3,556
                        
                        
                        
                        3,544Expected
      return on plan assets
                        
                        
                        (1,082
                        )
                        
                        
                        (1,345
                        )
                        
                        
                        (2,867
                        )
                        
                        
                        (4,041
                        )Amortization
      of prior service cost
                        
                        
                        38
                        
                        
                        
                        13
                        
                        
                        
                        116
                        
                        
                        
                        134Net
      amortization
                        
                        
                        484
                        
                        
                        
                        93
                        
                        
                        
                        1,453
                        
                        
                        
                        285Curtailment gain
                        
                        
                        -
                        
                        
                        
                        (480
                        )
                        
                        
                        -
                        
                        
                        
                        (480
                        )Net periodic pension cost
                        
                        $
                        818
                        
                        
                        $
                        (322
                        )
                        
                        $
                        2,834
                        
                        
                        $
                        210





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.  During the quarter
ended September 30, 2009, the Company made discretionary cash contributions to
its U.S. pension plans totaling $10.4 million.  The Company will not
make any further cash contributions for the remainder of 2009.





European
Plans:





For
European plans, the following table provides the components of net periodic
pension costs of the plans for the three and nine months ended September 30,
2009 and 2008:





Three Months Ended September 30
                        
                        
                        Nine Months Ended September 30Pension Benefits (in
    thousands)
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Service
      cost
                        
                        $
                        122
                        
                        
                        $
                        203
                        
                        
                        $
                        366
                        
                        
                        $
                        609Interest
      cost
                        
                        
                        407
                        
                        
                        
                        514
                        
                        
                        
                        1,221
                        
                        
                        
                        1,542Expected
      return on plan assets
                        
                        
                        (269
                        )
                        
                        
                        (387
                        )
                        
                        
                        (807
                        )
                        
                        
                        (1,161
                        )Amortization
      of prior service cost
                        
                        
                        10
                        
                        
                        
                        12
                        
                        
                        
                        30
                        
                        
                        
                        36Net amortization
                        
                        
                        27
                        
                        
                        
                        8
                        
                        
                        
                        81
                        
                        
                        
                        24Net periodic pension cost
                        
                        $
                        297
                        
                        
                        $
                        350
                        
                        
                        $
                        891
                        
                        
                        $
                        1,050





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 September
30, 2009, the Company contributed $1.1 million.  The Company expects
to contribute the remaining $0.6 million over the remainder of the
year.


27





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 immediately.  Employer fixed and
discretionary contributions vest after two years of service.  For
bargaining unit employees at the Catlettsburg, Kentucky facility, the Company
contributes a maximum of $25.00 per month to the plan.  For bargaining
unit employees at the Columbus, Ohio facility, the Company makes contributions
to the USW 401(k) Plan of $1.15 per actual hour worked for eligible
employees.  For bargaining unit employees at the Neville Island
facility, the Company, effective January 1, 2009, began making contributions of
$1.40 per actual hour worked to the defined contribution pension plan
(Thrift/Savings Plan) for eligible employees when their defined benefit pension
plan was frozen.  Employer matching contributions for bargaining unit
employees vest immediately.  The Company realized a $0.5 million
curtailment gain during the third quarter of 2008 as a result of freezing the
Neville Island defined benefit plan.  Total expenses related to the
defined contribution plans were $0.3 million and $0.5 million for the three
months ended September 30, 2009 and 2008, respectively, and $1.1 million and
$1.6 million for the nine months ended September 30, 2009 and 2008,
respectively.


28


11. Earnings Per
Share





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





Three Months Ended September 30,
                              
                              
                              Nine Months Ended September 30,(Dollars in thousands, except per shareamounts)
                              
                              2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Income
      from continuing operations available  to common
      shareholders
                              
                              $
                              13,859
                              
                              
                              $
                              2,434
                              
                              
                              $
                              25,931
                              
                              
                              $
                              22,091Income
      (loss) from discontinued operations available to common
      shareholders
                              
                              
                              -
                              
                              
                              
                              (211
                              )
                              
                              
                              -
                              
                              
                              
                              3,236Net
      income available to common shareholders
                              
                              $
                              13,859
                              
                              
                              $
                              2,223
                              
                              
                              $
                              25,931
                              
                              
                              $
                              25,327Weighted
      Average Shares OutstandingBasic
                              
                              
                              54,940,359
                              
                              
                              
                              44,624,502
                              
                              
                              
                              54,465,997
                              
                              
                              
                              41,818,152Effect of Dilutive
    Securities
                              
                              
                              1,507,869
                              
                              
                              
                              9,173,233
                              
                              
                              
                              1,807,620
                              
                              
                              
                              10,717,931Diluted
                              
                              
                              56,448,228
                              
                              
                              
                              53,797,735
                              
                              
                              
                              56,273,617
                              
                              
                              
                              52,536,083Net
      income per common shareBasic:Income
      from continuing operations
                              
                              $
                              .25
                              
                              
                              $
                              .05
                              
                              
                              $
                              .48
                              
                              
                              $
                              .53Income from discontinued
      operations
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              .08Total
                              
                              $
                              .25
                              
                              
                              $
                              .05
                              
                              
                              $
                              .48
                              
                              
                              $
                              .61Diluted:Income
      from continuing operations
                              
                              $
                              .25
                              
                              
                              $
                              .04
                              
                              
                              $
                              .46
                              
                              
                              $
                              .42Income from discontinued
      operations
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              .06Total
                              
                              $
                              .25
                              
                              
                              $
                              .04
                              
                              
                              $
                              .46
                              
                              
                              $
                              .48





The stock
options that were excluded from the dilutive calculations as the effect would
have been antidilutive were 160,975 and zero for the three months ended
September 30, 2009 and 2008, respectively, and 160,975 and 80,625 for the nine
months ended September 30, 2009 and 2008, respectively.


29


12.
            Related
      Party Transactions





Net sales
to related parties and receivables from related parties primarily reflect sales
of activated carbon products to equity investees.  Related party sales
transactions were $1.8 million and $2.3 million for the three months ended
September 30, 2009 and 2008, respectively, and $10.9 million and $7.4 million
for the nine months ended September 30, 2009 and 2008,
respectively.  Receivables from equity investees amounted to $1.9
million and $2.2 million at September 30, 2009 and December 31, 2008,
respectively.  The Company’s equity investees are included in the
Activated Carbon and Service segment.





13.
            Income
      Taxes





As of
December 31, 2008, the Company had U.S. foreign tax credit carryforwards of
$12.2 million for which a valuation allowance of $7.9 million had been
established. During the third quarter of 2009, the Company determined that an
overall foreign loss position no longer exists and that sufficient foreign
source income will be generated to reverse $5.0 million of the established
valuation allowance.  A $2.9 million valuation allowance remains
recorded on the foreign tax credit carryforwards as the Company has determined
that it is currently more likely than not that a portion of the U.S. foreign tax
credit carryforwards will not be realized.  During the third quarter
of 2009, the Company also reduced its deferred tax liability related to
unremitted earnings from its CMCC joint venture by $0.8 million as a result of
the determination that an overall foreign loss position no longer
exists.


As of
September 30, 2009 and December 31, 2008, the Company’s gross unrecognized
income tax benefits were $12.0 million and $12.2 million, respectively. If
recognized, $7.0 million and $10.0 million of the gross unrecognized tax
benefits would affect the effective tax rate at September 30, 2009 and December
31, 2008, respectively. The Company estimates that approximately $0.9 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.





14.
            New
      Accounting Pronouncements





In
December 2008, guidance within ASC 715-20-65-2, “Transition related to FSP FAS
132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets” was
issued. ASC 715-20-65-2 amends ASC 715 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 is effective for fiscal years ending after
December 15, 2009. The Company will adopt the disclosure provisions in the
December 31, 2009 financial statements.





15.
            Other





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


30





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





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





Results of
Operations





Continuing
Operations





Consolidated
net sales increased by $8.4 million or 8.5% and $3.3 million or 1.1% for the
quarter and year-to-date periods ended September 30, 2009, respectively, versus
the quarter and year to date periods ended September
30, 2008.  The total negative impact of foreign currency translation
on consolidated net sales for the quarter and year-to-date periods ended
September 30, 2009 was $2.3 million and $13.6 million,
respectively.





Net sales
for the quarter and year-to-date periods ended September 30, 2009 for the
Activated Carbon and Service segment increased $9.0 million or 10.6% and $4.0
million or 1.5%, respectively, versus the similar 2008 periods.  The
increase in sales for the quarter and year-to-date periods ended September 30,
2009 was primarily a result of increased volume related to sales of activated
carbon products used to remove mercury from flue gas of coal-fired power plants
in the U.S. of $5.8 million and $7.0 million, respectively, versus the similar
2008 periods. A major shipment of granular activated carbon in the Asia potable
water market of $3.1 million related to a contract awarded in the second quarter
of 2009 also contributed to the increase for both periods. In addition, the
Company continued to experience favorable pricing of approximately 23% for both
the quarter and year-to-date periods ended September 30, 2009 versus the similar
2008 periods. Partially offsetting the increase was the negative impact of
foreign currency translation of $2.0 million and $11.7 million, respectively,
for the quarter and year-to-date periods ended September 30, 2009 due to the
stronger U.S. dollar versus 2008. The Company also continued to experience a
decline in volume of 8% and 13%, respectively, for the quarter and year-to-date
periods ended September 30, 2009 as compared to the similar 2008 periods as a
result of the economic slowdown. Net sales for the Equipment segment decreased
$1.1 million or 9.5% and increased $0.7 million or 2.1%, respectively, for the
quarter and year-to-date periods ended September 30, 2009 versus the comparable
2008 periods. The decrease for the quarter ended September 30, 2009 was
primarily due to decreased sales of traditional carbon and odor control
equipment of $2.0 million versus the comparable 2008 period. Partially
offsetting this decrease was higher revenue for ultra violet light (UV) systems
used in the disinfection of drinking water related to major contracts for
installations that were awarded in 2008 of $1.0 million. The increase for the
year-to-date period
ended September 30, 2009 was due to an increase in demand for ion exchange and
UV systems of $1.7 million and $2.9 million, respectively. Partially offsetting
this increase was a decrease in sales of the aforementioned traditional carbon
and odor control equipment of $3.9 million versus the similar 2008 period. Foreign
currency translation did not affect the Equipment segment sales comparison for
the quarter ended September 30, 2009 as compared to 2008, but it did have a
negative impact of $0.5 million for the year-to-date period ended September 30,
2009 versus the similar 2008 period. Net sales for the Consumer segment
increased $0.5 million or 23.7% for the quarter ended September 30, 2009 versus
the similar 2008 period. The increase was primarily due to higher demand for
activated carbon cloth and was partially offset by the negative impact for
foreign currency translation of $0.3 million. However, net sales for the
year-to-date period ended September 30, 2009 decreased by $1.3 million or 15.7%
versus the similar 2008 period primarily due to the negative impact of foreign
currency translation of $1.4 million and the continued decline in demand for
PreZerve®
products of $0.3 million. Partially offsetting this decrease was an increase in
demand of $0.4 million for activated carbon cloth that began to occur in the
third quarter.


31





Net sales
less cost of products sold, as a percentage of net sales, was 33.9% for both the
quarter ended September 30, 2009 as well as the similar 2008
period.   Net sales less cost of products sold, as a percentage
of net sales, was 32.7% for the year-to-date period ended September 30, 2009 as
compared to 33.4%, a decline of 0.7% or $1.0 million for the similar 2008
period.  The Activated Carbon and Service segment was comparable for
the quarter ended September 30, 2009 and decreased by 1.1% or $1.6 million for
the year-to-date period ended September 30, 2009.  The decrease for
the year-to-date period was primarily related to increased plant maintenance
costs of $4.3 million at certain of the Company’s production facilities primarily
as a result of delays experiencedin 2008 in order to meet
demand.  With the April 2009 re-start of B-Line at the Company’s
Cattletsburg, Kentucky facility, which added increased capacity, the Company has
focused on executing these maintenance activities which are expected to
continue, to a lesser extent, throughout the remainder of the
year.  Partially offsetting this decline was the aforementioned
favorable pricing for certain activated carbon and service products. The
Equipment segment was comparable for the quarter ended September 30, 2009 versus
2008 and increased 0.9% or $1.3 million for the year-to-date period ended
September 30, 2009 which was principally related to stronger
pricing.  The Consumer segment was comparable for the quarter ended
September 30, 2009, but decreased by 0.5% or $0.7 million, for the year-to-date
period ended September 30, 2009 as compared to the 2008 period due to higher
costs associated with plant production issues and carbon cloth raw material. The
Company’s cost of products sold excludes depreciation therefore it may not be
comparable to that of other companies.





The
depreciation and amortization increase of $0.7 million and $0.3 million during
the quarter and year-to-date periods ended September 30, 2009, respectively,
versus the similar 2008 periods was primarily due to increased depreciation due
to the significant capital improvements at its Catlettsburg, Kentucky plant
including the April 2009 re-start of a previously idled production
line.





Selling,
general and administrative expenses was comparable for the quarter ended
September 30, 2009 versus 2008 and increased $1.8 million for the year-to-date
period ended September 30, 2009 versus the similar 2008 period. The increase for
the year-to-date period ended was primarily caused by higher employee-related
costs of $2.1 million and increased selling related expenses of $0.5 million.
Bad debt expense also increased by $0.8 million in part due to the recovery of
$0.4 million that occurred in 2008 related to receivables previously considered
uncollectible thereby reducing the 2008 expense. Offsetting these increases was
the favorable impact of foreign exchange translation of $1.9
million.





Research
and development expenses for the quarter and year-to-date periods ended
September 30, 2009 increased $0.3 million and $0.4 million versus the similar
2008 periods primarily as a result of increased laboratory testing costs related
to mercury removal from flue gas.


32





The $9.3
million gain on AST settlement for the year-to-date period ended September 30,
2008 relates to the resolution of a lawsuit involving the Company’s purchase of
the common stock of Advanced Separation Technologies Inc. (“AST”) in
1996.  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 September 30, 2009 was comparable for the quarter
ended September 30, 2008 and increased $1.3 million for the year-to-date period
ended September 30, 2009 versus the similar 2008 period.  The increase
for the year-to-date period includes the write-off of $0.8 million of financing
fees related to the Company’s Prior Credit Facility which occurred during the
quarter ended June 30, 2009 (See Note 9).   Also contributing to
the increase was the negative impact of foreign exchange on unhedged positions
of $0.9 million.   Partially offsetting this increase was $0.3
million of non-recurring income related to the Company’s Equipment segment
technology.





The loss
on extinguishment of debt of $0.9 million for the quarter and year-to-date
periods ended September 30, 2009 was due to the final conversion of the
remaining $6.0 million of Notes. The loss on extinguishment of debt of $6.3
million for the quarter and year-to-date periods ended September 30, 2008 was as
a result of the conversion of $44.2 million of Notes. These losses were recorded
pursuant to the required January 1, 2009 adoption of new accounting guidance
within Accounting Standards Codification (ASC) 470-20. Such guidance was
retrospectively applied (See additional discussion in Note 9).





Interest
income for the quarter and year-to-date periods ended September 30, 2009
decreased $0.3 million and $0.9 million, respectively, primarily due to the
lower average cash balances carried in 2009 as compared to 2008.





Interest
expense for the quarter and year-to-date periods ended September 30, 2009
decreased $1.6 million and $5.5 million, respectively, versus the similar 2008
periods. The decrease is primarily a result of the conversion of a substantial
portion of the Company’s Notes that occurred in the last half of 2008 (See Note
9).





The
Company recorded an income tax benefit of $(0.8) million and a provision of $5.2
million for the three and nine month periods ended September 30, 2009,
respectively. Income tax expense decreased $2.4 million and $6.9 million,
respectively, for the three and nine month periods ended September 30, 2009
versus similar 2008 periods. These decreases primarily relate to the Company’s determination that an
overall foreign loss position no longer exists and that sufficient foreign
source income will be generated to reverse $5.0 million of an established
valuation allowance for U.S. foreign tax credit carryforwards and to reduce the
Company’s deferred tax liability related to unremitted earnings from its CMCC
joint venture by $0.8 million.





The
effective tax rate for the year-to-date period ended September 30, 2009 was
17.4% compared to 35.7% for the year-to-date period ended September 30, 2008.
The year-to-date period ended September 30, 2009 tax rate was lower than the
federal statutory income tax rate primarily due to the valuation allowance
release, which lowered the rate by 16.7%. The Company also benefited from a
reversal of the deferred tax liability related to the CMCC joint venture’s
unremitted earnings by 2.5% as a result of sufficient foreign source income
that the Company determined will be generated (See Note 13). Absent the
deferred income tax releases and other less significant discrete items, the
year-to-date period ended September 30, 2009 effective tax rate of 38.4% was
higher than the statutory U.S. federal income tax rate mainly due to permanent
items and state income taxes.


33





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 ASC 740, the Company
must recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the
position.  The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
resolution.





Equity in
income from equity investments increased $0.4 million and $1.0 million,
respectively, for the quarter and year-to-date periods ended September 30, 2009
as compared to the similar 2008 periods primarily due to increased pricing on
carbon products.  Also contributing to the year-to-date increase was a
large volume municipal carbon fill that occurred early in 2009.





Discontinued
Operations


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





Financial
Condition





Working Capital and
Liquidity





Cash
flows provided by operating activities were $49.1 million for the period ended
September 30, 2009 compared to $23.9 million for the comparable 2008
period.  The $25.2 million increase is primarily due to improved
working capital changes of $30.6 million which were primarily driven by
decreases of $10.5 million in receivables, $15.5 million in inventory, and $10.2
million of revenue in excess of billings on uncompleted contracts and other
current assets.  Partially offsetting this increase was an increase in
pension contributions of $5.9 million.





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


34





The
Company did not have outstanding debt at September 30, 2009 as compared to $9.5
million outstanding at December 31, 2008.  The repayment of the
Mississippi Industrial Revenue bonds and China credit facility of $2.9 million
and $1.6 million, respectively, occurred on Apri1 1 and June 10, 2009,
respectively.   The non-cash exchange of the remaining $6.0
million of Notes, primarily for the Company’s common stock, occurred during the
quarter ended September 30, 2009.  Refer to Note 9 for additional
information.





5.00%
Convertible Senior Notes due 2036





On August
18, 2006, the Company issued $75.0 million in aggregate principal amount of
5.00% Notes due in 2036 (the “Notes”). The Notes accrued interest at the rate of
5.00% per annum which was payable in cash semi-annually in arrears on each
February 15 and August 15, which commenced February 15, 2007.  The
Notes were eligible to be converted under certain circumstances.





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.  A pre-tax loss
of $6.3 million was recorded on extinguishment related primarily to the
outstanding discount and deferred financing fees for the conversion of $44.2
million of the Notes during the quarter ended September 30, 2008. During
the quarter ended September 30, 2009, the Company exchanged for approximately
1.2 million shares of its common stock for the remaining $6.0 million of
Notes.  A pre-tax loss of $0.9 million was recorded on extinguishment
related primarily to the outstanding discount and deferred financing fees of the
Notes upon conversion.  Due to the conversion rights of the holders of
the Notes, the Company classified the remaining principal amount of outstanding
Notes as a current liability as of December 31, 2008.





Effective
January 1, 2009, the Company implemented guidance within Accounting Standards
Codification (ASC) 470-20 “Debt with Conversion and Other Options.” This new
guidance required 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.  The Company’s $75.0 million principal amount of Notes had
an initial measurement that consisted 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
was zero and $0.6 million (after tax) at September 30, 2009 and December 31,
2008, respectively.





In
accordance with guidance within ASC 470-20, the debt discount of $21.9 million
was 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 was approximately
13.8%.   The Company also incurred original issuance costs of
$0.4 million which had been deferred and were being amortized over the same
period as the discount.  For the three and nine months ended September
30, 2009, the Company recorded interest expense of $0.1 million and $0.4 million
related to the Notes, of which $47 thousand and $0.2 million related to the
amortization of the discount and $38 thousand and $0.2 million related to
contractual coupon interest, respectively.  Similarly, for the three
and nine months ended September 30, 2008, the Company recorded interest expense
of $1.5 million and $5.4 million related to the Notes, of which $0.8 million and
$2.8 million related to the amortization of the discount and $0.7 million and
$2.6 million related to contractual coupon interest,
respectively.  The effect of the retrospective adjustment for the
three and nine month periods ended September 30, 2008 was to decrease previously
reported net income from continuing operations by $4.1 million and $5.1 million
or $0.08 and $0.10 per diluted common share, respectively.


35





Credit
Facility


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





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





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





The
Credit Agreement provides for an initial $95 million revolving credit facility
(the “Revolving Credit Facility”) which expires on May 8, 2014.  So
long as no event of default has occurred and is continuing, the Company from
time to time may request one or more increases in the total revolving credit
commitment under the Revolving Credit Facility of up to $30.0 million in the
aggregate.  No assurance can be given, however, that the total
revolving credit commitment will be increased above $95.0
million.  Availability under the Revolving Credit Facility is
conditioned upon various customary conditions.  A quarterly
nonrefundable commitment fee is payable by the Company based on the unused
availability under the Revolving Credit Facility and is currently equal to
0.5%.  Any outstanding borrowings under the Revolving Credit Facility
on July 2, 2012, up to $50.0 million, automatically convert to a term loan
maturing on May 8, 2014 (the “Term Loan”), with the total revolving credit
commitment under the Revolving Credit Facility being reduced at that time by the
amount of the Term Loan.  Total availability under the Revolving
Credit Facility at September 30, 2009 was $91.9 million, after considering
outstanding letters of credit.


36





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





The
Company incurred debt issuance costs of $1.0 million which were deferred and are
being amortized over the term of the debt.  As of September 30, 2009,
there are no outstanding borrowings under the Revolving Credit
Facility.





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





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


37


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 September 30, 2009, there have been no significant
changes in the payment terms of lease agreements and unconditional purchase
obligations since December 31, 2008.  However, the exchange of the
remaining $6.0 million Notes and repayment of both short-term debt and the
remaining current portion of long-term debt occurred as of the period ended
September 30, 2009.  Although there have not been any changes in the
Company’s required minimum funding contributions to its pension plans, due to
the funded status of its U.S. pension plans, the Company has contributed $10.4
million of discretionary cash contributions during the quarter ended September
30, 2009.    The following table represents the significant
contractual cash obligations and other commercial commitments of the Company as
of December 31, 2008, as adjusted.





Due in(Thousands)
                            
                            2009(1)
                            
                            
                            2010
                            
                            
                            2011
                            
                            
                            2012
                            
                            
                            2013
                            
                            
                            Thereafter
                            
                            
                            TotalShort-term
      debt
                            
                            $
                            1,605
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            1,605Current
      portionof
      Long-term debt(2)
                            
                            
                            2,925
                            
                            
                            
                            -
                            
                            
                            
                            4,978
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            7,903Operating
      leases
                            
                            
                            5,727
                            
                            
                            
                            5,097
                            
                            
                            
                            4,515
                            
                            
                            
                            4,247
                            
                            
                            
                            3,765
                            
                            
                            
                            7,783
                            
                            
                            
                            23,534Unconditional
      purchaseobligations(3)
                            
                            
                            26,175
                            
                            
                            
                            25,600
                            
                            
                            
                            23,318
                            
                            
                            
                            1,575
                            
                            
                            
                            1,575
                            
                            
                            
                            263
                            
                            
                            
                            78,506Total
      contractual cashObligations(4)
                            
                            $
                            36,432
                            
                            
                            $
                            30,697
                            
                            
                            $
                            32,811
                            
                            
                            $
                            5,822
                            
                            
                            $
                            5,340
                            
                            
                            $
                            8,046
                            
                            
                            $
                            119,148





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


(2)
            The
      2011 maturity includes a payment of $6.0 million and debt discount of $1.0
      million.  This amount is classified as currently payable at
      December 31, 2008.  This debt obligation was retired during the
      nine months ended September 30, 2009.  See Note 9.


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


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





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


38





Capital Expenditures and
Investments





Capital
expenditures for property, plant and equipment totaled $38.3 million for the
nine months ended  September 30, 2009 (with $0.2 million of this
amount reflected as a non-cash increase in accounts payable and accrued
liabilities) compared to expenditures of $20.6 million for the same period in
2008.  The expenditures for the period ended September 30, 2009
consisted primarily of improvements to the Company’s manufacturing facilities of
$32.2 million, of which $8.4 million was directly related to the April 2009
re-start of a previously idled production line at the Company’s Catlettsburg,
Kentucky facility and $12.0 million related to a new pulverization facility at
the same location, and $2.8 million for customer capital.  The
comparable 2008 period consisted primarily of expenditures to the Company’s
manufacturing facilities of $16.7 million, of which $8.8 million was directly
related to the planned re-start of a previously idled production line at the
Company’s Catlettsburg, Kentucky facility, $1.5 million related to improvements
to information systems, and customer capital of $1.9
million.    Capital expenditures for 2009 are projected to
be approximately $50- $55 million.  The aforementioned expenditures
are expected to be funded by operating cash flows, cash on hand, and
borrowings.





Labor
Agreements





Labor
agreements for the Company’s workforce at its Catlettsburg, Kentucky and Feluy,
Belgium facilities expired on April 2, 2009 and July 31, 2009,
respectively.  The parties are working under an extension of the
expired agreements as they continue to negotiate the terms and conditions of
multi-year replacement agreements.





Regulatory
Matters:





Each of
the Company’s U.S. production facilities has permits and licenses regulating air
emissions and water discharges.  All of the Company’s U.S. production
facilities are controlled under permits issued by local, state and federal air
pollution control entities.  The Company is presently in compliance
with these permits. Continued compliance will require administrative control and
will be subject to any new or additional standards.  In May 2003, the
Company partially discontinued operation of one of its three activated carbon
lines at its Catlettsburg, Kentucky facility known as B-line.  The
Company needed to install pollution abatement equipment in order to remain in
compliance with state requirements regulating air emissions before resuming full
operation of this line.  During 2008, the Company installed state of
the art wet scrubbers and made process improvements to B-line.  The
Company invested approximately $21 million to upgrade and abate B-line which was
put into production in


April
2009.


39





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 September 30, 2009 and December 31, 2008, the
balance recorded was $4.0 million. Liability estimates are based on an
evaluation of, among other factors, currently available facts, existing
technology, presently enacted laws and regulations, and the remediation
experience of other companies. The Company has not incurred any environmental
remediation expense for the nine month periods ended September 30, 2009 and
2008. It is reasonably possible that a change in the estimate of this obligation
will occur as remediation preparation and remediation activity commences in the
future. The ultimate remediation costs are dependent upon, among other things,
the requirements of any state or federal environmental agencies, the remediation
methods employed, the final scope of work being determined, and the extent and
types of contamination which will not be fully determined until experience is
gained through remediation and related activities. The accrued amounts are
expected to be paid out over the course of several years once work has
commenced. The Company has yet to make a determination as to when it will
proceed with remediation efforts.





By letter
dated January 22, 2007, the Company received from the United States
Environmental Protection Agency (“EPA”), Region 4 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, and the EPA
has indicated, 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.


40





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 has also met with Headquarters
of the EPA Solid Waste Division (“Headquarters”) on March 6, 2009 and presented
its classification argument, with the understanding that Headquarters would
advise Region 4 of the EPA. The Company has not received any additional
information from Region 4 of the EPA since the March 6, 2009 meeting. If the
Company is required to treat and/or dispose of the material dredged from the
lagoons as hazardous waste, the costs for doing so could be
substantial.





By letter
dated August 18, 2008, the Company was notified by the EPA Suspension and
Debarment Division (“SDD”) that because of the alleged violations described in
the CERCLA Notice, the SDD was making an assessment of the Company’s present
responsibility to conduct business with Federal Executive Agencies.
Representatives of the SDD attended the August 2008 EPA meeting. On August 28,
2008, the Company received a letter from the Division requesting additional
information from the Company in connection with the SDD’s evaluation of the
Company’s potential “business risk to the Federal Government,” noting that the
Company engages in procurement transactions with or funded by the Federal
Government. The Company provided the SDD with all information requested by the
letter in September 2008. The SDD can suspend or debar a Company from sales to
the Federal Government directly or indirectly through government contractors or
with respect to projects funded by the Federal Government. The Company estimates
that revenue from sales made directly to the Federal Government or indirectly
through government contractors comprised less than 8% of its total revenue for
the nine month period ended September 30, 2009. The Company is unable to
estimate sales made directly or indirectly to customers and or projects that
receive federal funding. In October 2008, the SDD indicated that it was still
reviewing the matter but that another meeting with the Company was not warranted
at that time. The Company believes that there is no basis for suspension or
debarment on the basis of the matters asserted by the EPA in the CERCLA Notice
or otherwise. The Company has had no further communication with the SDD since
October 2008 and believes the likelihood of any action being taken by the SDD is
remote.


41





In June
2007, the Company received a Notice Letter from the New York State Department of
Environmental Conservation (“NYSDEC”) stating that the NYSDEC had determined
that the Company is a Potentially Responsible Party (“PRP”) at the Frontier
Chemical Processing Royal Avenue Site in Niagara Falls, New York (the “Site”).
The Notice Letter requests that the Company and other PRP’s develop, implement
and finance a remedial program for Operable Unit #1 at the Site. Operable Unit
#1 consists of overburden soils and overburden and upper bedrock groundwater.
The selected remedy is removal of above grade structures and contaminated soil
source areas, installation of a cover system, and ground water control and
treatment, estimated to cost between approximately $11 million and $14 million,
which would be shared among the PRP’s. The Company has not determined what
portion of the costs associated with the remedial program it would be obligated
to bear and the Company cannot predict with any certainty the outcome of this
matter or range of potential loss. The Company has joined a PRP group and has
executed a Joint Defense Agreement with the group members. In August 2008, the
Company and over 100 PRP’s entered into a Consent Order with NYSDEC for
additional site investigation directed toward characterization of the Site to
better define the scope of the remedial project. The Company contributed monies
to the PRP group to help fund the work required under the Consent Order. The
additional site investigation required under the Consent Order was initiated in
2008 and completed in the spring of 2009. A final report of the site
investigation is scheduled for submittal to NYSDEC before the end 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 Company met with the KYDEP on July 27, 2009 concerning the permit,
and the KYDEP indicated that it, and Region 4 of the EPA, would like to see
specific additional information or clarifications in the permit application.
Accordingly, the Company submitted a new application on October 15, 2009. The
KYDEP indicated that it had no intention to deny the permit as long as the
Company worked with the state to resolve issues. The Region 4 of the EPA has not
indicated any stance on the permit and can deny the application. At this time
the Company cannot predict with any certainty the outcome of this matter or
range of loss, if any.





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


42





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





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





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





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





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


43





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 duty order, the review covers the
period from October 11, 2006 through March 31, 2008 instead of the typical 12
month period. The preliminary results of the review were announced on May 1,
2009 and indicated that Calgon Carbon (Tianjin) Co., Ltd.’s tariff rate could
increase from 69.54% to 188.57%. However, other respondents’ preliminary review
results indicated a decline to their tariff rates for the review period. The
announced preliminary review results are based on information provided by
respondents that has not been verified. Errors may have been made in the review
and the important decisions that affect the tariff are subject to
reconsideration before the final results of the review are announced. The
respondents, including Calgon Carbon (Tianjin) Co., Ltd., are subject to
additional requests for information and on-site verification by the Commerce
Department of the accuracy of the information that has been presented. The
review must be completed no later than early November 2009. The Company believes
that its preliminary rate of 188.57% will be lowered when the final results are
announced in November. In addition, until the tariff rate is finalized in early
November 2009, the tariff deposit rate will not change. For the first nine
months of 2009, the Company has made tariff deposits on goods imported to the
United States totaling $1.4 million. For the period beginning October 11, 2006
through September 30, 2009, the Company estimates that a hypothetical 10%
increase or decrease in the final tariff rate would result in an additional
payment or refund of approximately $0.4 million.





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


44





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. The Company, in its capacity as a U.S.
producer and separately as a Chinese exporter, elected not to participate in
this administrative review. By not participating in the review, the Company’s
tariff deposits made during the period April 1, 2008 through March 31, 2009 are
final and not subject to further adjustment.





Outlook


Sales
volume for the remainder of 2009 remains challenging for the Company due to
lower demand primarily in the industrial, home water filter, and specialty
carbon markets brought about by the continuing worldwide economic slowdown.
Helping to offset that decline, however, will be higher sales volumes for carbon
products used to remove mercury from flue gas of coal-fired power plants in the
U.S. due to contracts already awarded to the Company and legislation going into
effect in certain U.S. states as of January 1, 2010.





In 2009,
the Company began to experience the impact of the decline of overall global
economic conditions that most companies began to experience during the latter
part of 2008. In early 2009, the Company saw a sales volume decline in all
geographic regions from its industrial customer base as many manufacturers were
scaling back or shutting down operations. Just prior to that decline, the
Company initiated a price increase to most customers in order to pass on the
higher costs of production realized since its previous price increase earlier in
2008. In some areas of the world, such as Europe, the lower demand led to more
aggressive pricing from smaller competitors. By the end of the first quarter of
2009, the Company began to see its volume decline spread to its municipal water
market as a result of the flexibility some municipalities have in delaying the
replacement of activated carbon used for taste and odor control. The market
slowdown has also resulted in lower demand requirements for treated water from
its industrial customers. The Company believes that improvement in the current
demand situation will trail the improvement of the general economic recovery by
three to six months. In response, the Company’s Datong, China plant was
temporarily idled in May 2009. It will continue to remain idle until global
demand requires its operation which management believes could occur during 2010.
The Company anticipates that its cash and existing borrowing capacity will
provide the Company the liquidity needed to finance its operations and capital
investments even in the face of today’s weak global economy.


45





Domestically,
the Company continues to produce virgin activated carbon at capacity, and as of
April 2009, has re-started a production line (“B-line”) at its Catlettsburg,
Kentucky facility which is expected to add up to 70 million pounds of powdered
activated carbon (PAC) capacity. B-line could also be converted to produce up to
30 million pounds of granular activated carbon capacity in place of PAC if
demand so warranted. Work continues at the Catlettsburg facility for a new
pulverization facility which is expected to be capable of converting 90 million
pounds of feedstock to PAC. PAC is recognized today by the U.S. Environmental
Protection Agency as the leading abatement technology for mercury removal from
coal-fired power plant flue gas. The Company believes that this could become the
largest U.S. market for activated carbon and has made great strides in
establishing itself as a market leader. Mercury emission standards that begin to
take effect in more than a dozen states, primarily in 2010, are driving the
current PAC market, but U.S. regulatory or congressional action will determine
the national standards in the long-term. Currently,
the EPA plans to issue proposed mercury emission standards by March 2011 that
would then be finalized by November 2011.The Company currently estimates
that annual demand could be as high as 750 million pounds within the next ten
years. In addition, more than 140 countries have indicated interest in a
multi-nation mercury removal pact that could be agreed upon on as early as
2013.





The
Company’s equipment business is somewhat cyclical in nature and depends on both
current regulations as well as the general health of the overall economy. U.S
demand for the Company’s ultraviolet light (UV) systems is expected to hold as
the Company moves closer to the deadline of 2012 for affected municipalities to
treat for Cryptosporidium in drinking water. The Company secured four major
installations in 2008 for its Sentinel® UV Disinfection systems which are valued
at more that $15 million. The unrecognized amount of these four projects made up
approximately 26% of the Company’s equipment backlog of $18.5 as of September
30, 2009. Although contract awards have slowed during 2009, bid activity
continues to be strong.





In the
latter part of 2008 and the early part of 2009, the Company experienced
production and raw material related issues in its Consumer segment related to
its activated carbon cloth business. The Company believes that it has come to
final resolution of the production and raw material issues. Demand for the
Company’s activated carbon cloth during the first three months of 2009 also
declined. During the third quarter of 2009, sales of activated carbon cloth
increased approximately 43%. Therefore the Company believes the resolution of
the aforementioned production and raw material issues has resulted in its
ability to increase sales of its activated carbon cloth. For the remainder of
2009, the Company expects sales levels to track closely to those of 2008. The
slowing economy also contributed to decreased demand for the Company’s PreZerve®
products which is expected to continue for the remainder of 2009.





Pension
costs have increased in 2009 due largely to the significant declines in plan
assets based upon 2008 investment performance. Based on current estimates, the
Company expects its pension costs will approximate $4.7 million in 2009. Future
actual pension expense will depend on future investment performance, funding
levels, changes in discount rates and various other factors related to the
participant populations.





New Accounting
Pronouncements


In
December 2008, guidance within ASC 715-20-65-2, “Transition related to FSP FAS
132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets” was
issued. ASC 715-20-65-2 amends ASC 715 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 is effective for fiscal years ending after
December 15, 2009. The Company will adopt the disclosure provisions in the
December 31, 2009 financial statements.


46





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 September 30, 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.





Item1a.
            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)July
      1 – July 31, 2009
                        
                        
                        621
                        
                        
                        $
                        15.47
                        
                        
                        
                        —
                        
                        
                        
                        —August 1 – August 31, 2009
                        
                        
                        615
                        
                        
                        $
                        13.04
                        
                        
                        
                        —
                        
                        
                        
                        —September
      1 – September 30, 2009
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —





(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 July 1, 2009 and August 1, 2009.  Future
purchases under this plan will be dependent upon employee elections and
forfeitures.





Item6.
            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:  October
      30, 2009
                    /s/ Leroy M. BallLeroy
      M. BallSenior
      Vice President,Chief
      Financial Officer


50


EXHIBIT
INDEX
 
 Exhibit
                        No.
                      
                      Description
                      
                      Method ofFiling31.1
                      
                      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
 
  51