UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
One)


x
              Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934.


For the
fiscal year ended December 31, 2008 or


o Transition
Report Pursuant to Section 12 or 15(d) of the Securities Exchange Act of
1934.


For the
transition period
from           to          .





Commission
file number 1-10776





Calgon
Carbon Corporation


(Exact
name of registrant as specified in its charter)





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





400 Calgon Carbon DrivePittsburgh, Pennsylvania
                      
                      15205(Address of principal executive offices)
                      
                      (Zip Code)





Registrant's telephone
number, including area code:   (412) 787-6700





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
                        
                        Name of each exchange on which registeredCommon Stock, par value $0.01 per share
                        
                        New York Stock Exchange


Securities registered
pursuant to Section 12(g) of the Act:


None


(Title
of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes x                      No     ̈





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.


Yes    ̈         No   x





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.





Yes   ̈          No   x


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





Large
      accelerated filer  ̈
            Accelerated
      filer          x
            Non-accelerated
      filer  ̈





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


Yes   ̈          No   x





As of
March 10, 2009, there were outstanding 54,469,234 shares of Common Stock, par
value of $0.01 per share.





The
aggregate market value of the voting stock held by non-affiliates as of June 30,
2008 was $609,531,907.








The
following documents have been incorporated by reference:





Form
      10-KDocument
                      
                      Part NumberProxy
      Statement filed pursuant to Regulation 14A in connection with registrant's
      Annual Meeting of Shareholders to be held on  April 30,
      2009.
                      
                      III


2





INDEX





PART
      IItem
      1.
                                              
                                              Business
                                              
                                              5Item
      1A.
                                              
                                              Risk
      Factors
                                              
                                              19Item
      1B.
                                              
                                              Unresolved
      Staff Comments
                                              
                                              29Item
      2.
                                              
                                              Properties
                                              
                                              30Item
      3.
                                              
                                              Legal
      Proceedings
                                              
                                              33Item
      4.
                                              
                                              Submission
      of Matters to a Vote of Security Holders
                                              
                                              35PART
      IIItem
      5.
                                              
                                              Market
      for Registrant’s Common Equity, Related Shareholder Matters and Issuer
      Repurchases of Equity Securities
                                              
                                              35Item
      6.
                                              
                                              Selected
      Financial Data
                                              
                                              37Item
      7.
                                              
                                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                              
                                              38Item
      7A.
                                              
                                              Quantitative
      and Qualitative Disclosures about Market Risk
                                              
                                              59Item
      8.
                                              
                                              Financial
      Statements and Supplementary Data
                                              
                                              60Item
      9.
                                              
                                              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                              
                                              137Item
      9A.
                                              
                                              Controls
      and Procedures
                                              
                                              137Item
      9B.
                                              
                                              Other
      Information
                                              
                                              138PART
      IIIItem
      10.
                                              
                                              Directors,
      Executive Officers, and Corporate Governance of the
    Registrant
                                              
                                              138Item
      11.
                                              
                                              Executive
      Compensation
                                              
                                              138Item
      12.
                                              
                                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                                              
                                              139Item
      13.
                                              
                                              Certain
      Relationships, Related Transactions, and Director
    Independence
                                              
                                              140Item
      14.
                                              
                                              Principal
      Accounting Fees and Services
                                              
                                              141PART
      IVItem
      15.
                                              
                                              Exhibits
      and Financial Statement Schedules
                                              
                                              142SIGNATURES
                                              
                                              147CERTIFICATIONS


3





Forward-Looking
Information Safe Harbor




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


4


PART
I


Item
1.   Business:





The
Company:





The
Company is a global leader in services, products, and solutions for purifying
water and air.  The Company has three reportable
segments:  Activated Carbon and Service, Equipment, and
Consumer.  These reportable segments are composed of global profit
centers that make and sell different products and services.





The
Activated Carbon and Service segment manufactures granular and powdered
activated carbon for use in applications to remove organic compounds from water,
air, and other liquids and gases.  The service aspect of the segment
consists of the leasing, monitoring and maintenance of carbon adsorption
equipment (explained below).  The Equipment segment provides solutions
to customers’ air and water purification problems through the design,
fabrication, and operation of systems that utilize a combination of the
Company’s enabling technologies:  carbon adsorption, ultraviolet light
(“UV”) and advanced ion exchange separation (“ISEP®”) among
others.  The Consumer segment primarily consists of the manufacture
and sale of carbon cloth and new consumer products based on the Company’s
technologies already proven in large-scale industrial applications.





Discontinued
Operations:





On
February 17, 2006, the Company, through its wholly owned subsidiary Chemviron
Carbon GmbH, executed an agreement (the “Charcoal Sale Agreement”) with proFagus
GmbH, proFagus Grundstuecksverwaltungs GmbH and proFagus Beteiligungen GmbH (as
Guarantor) to sell, and sold, substantially all the assets, real estate, and
specified liabilities of the Bodenfelde, Germany facility (the “Charcoal/Liquid
business”).  The aggregate sales price, based on an exchange rate of
1.19 Dollars per Euro, consisted of $20.4 million of cash, which included a
final working capital adjustment of $1.3 million.  The Company
provided guarantees to the buyer related to pre-divestiture tax liabilities,
future environmental remediation costs related to pre-divestiture activities and
other contingencies.  Management believes the ultimate cost of such
guarantees is not material.  An additional 4.25 million Euro could
have been received dependent upon the business meeting certain earnings targets
over the next three years.  In May 2008, the Company reached a final
agreement with proFagus GmbH, proFagus Grundstuecksverwaltungs GmbH and proFagus
Beteiligungen GmbH (as Guarantor) regarding the aforementioned additional 4.25
million Euro contingent consideration, fixing the amount to be paid to the
Company at 2.8 million Euro.  The Company expects to receive this
payment in December 2011.  The unpaid balance earns interest at 7%
which is paid annually. The Company had presented the Charcoal/Liquid business
as a discontinued operation for the periods that were impacted and has recorded
a pre-tax gain of $4.8 million or $1.7 million, net of tax, on the sale during
the year ended December 31, 2006.  The Company recorded the additional
contingent consideration as an additional pre-tax gain on sale of $4.4 million
or $2.8 million, net of tax, within discontinued operations during the period
ended December 31, 2008.


5





On April
24, 2006, the Company completed the sale of the assets of its Solvent Recovery
business to MEGTEC Systems, Inc. ("MEGTEC”), a subsidiary of Sequa
Corporation.  The Solvent Recovery unit provided turnkey on-site
regenerable solvent recovery systems, distillation systems, on-site regenerable
volatile organic compound concentrators, vapor-phase biological oxidation
systems, and related services on a worldwide basis.  The sale price of
$1.8 million included cash proceeds of approximately $0.8 million and $0.7
million of assumed liabilities, primarily accounts payable.  The
transaction was also subject to a pre-tax working capital adjustment of $0.4
million, which management finalized and recorded in the fourth quarter of
2006.  For the year ended December 31, 2007, the Company recorded a
loss of $0.2 million, net of tax, related to an indemnity
claim.  During the year ended December 31, 2006, the Company recorded
a pre-tax gain of $63 thousand or $41 thousand, net of tax, on the sale of the
Solvent Recovery business.





For
further information, see Note 3 to the Financial Statements.





Products
and Services:





The
Company offers a diverse range of products, services, and equipment specifically
developed for the purification, separation and concentration of liquids, gases
and other media through its three business segments. The Activated Carbon and
Service segment primarily consists of activated carbon products, field services,
and reactivation. The Equipment segment designs and builds systems that include
multiple technologies. The Consumer segment supplies carbon products, including
activated carbon cloth, for everyday use by consumers.  Activated
carbon cloth is used in many filtration, adsorption, and separation applications
for use in such markets such as industrial and medical.





Activated Carbon and Service.The sale of activated carbon is the principle component of the Activated
Carbon and Service business segment. Activated carbon is a porous material that
removes organic compounds from liquids and gases by a process known as
“adsorption.” In adsorption, organic molecules contained in a liquid or gas are
attracted and bound to the surface of the pores of the activated carbon as the
liquid or gas is passed through.





The
primary raw material used in the production of the Company’s activated carbons
is bituminous coal which is crushed, sized and then processed in low temperature
bakers followed by high temperature furnaces. This heating process is known as
“activation” and develops the pore structure of the carbon. Through adjustments
in the activation process, pores of the required size for a particular
purification application are developed. The Company’s technological expertise in
adjusting the pore structure in the activation process has been one of a number
of factors enabling the Company to develop many special types of activated
carbon available in several particles sizes. The Company also markets activated
carbons from other raw materials, including coconut and wood.


6





The
Company produces and sells a broad range of activated, impregnated or acid
washed carbons in granular, powdered or pellet form. Granular Activated Carbon
(GAC) particles are irregular in shape and generally used in fixed filter beds
for continuous flow purification processes.  Powdered Activated Carbon
(PAC) is carbon which has been pulverized into powder and often used in batch
purification processes, in municipal water applications and for flue gas
emissions control. Pelletized activated carbons are extruded particles,
cylindrical in shape, and typically used for gas phase applications due to the
low pressure drop, high mechanical strength and low dust content of the
product.





Another
important component of the Activated Carbon and Service business segment are the
optional services associated with supplying the Company’s products and systems
required for purification, separation, concentration, taste and odor control.
The Company offers a variety of treatment services at customer facilities
including carbon supply, equipment leasing, installation and demobilization,
transportation, and spent carbon reactivation. Other services include
feasibility testing, process design, performance monitoring, and major
maintenance of Company-owned equipment. The central component of the Company’s
service business is reactivation of spent carbon and re-supply. In the
reactivation process, the spent carbon is subjected to high temperature
re-manufacturing conditions that destroy the adsorbed organics and assure the
activated carbon is returned to usable quality. The Company is fully permitted
to handle spent carbons containing hazardous and non-hazardous organic compounds
(see related discussion in Regulatory Matters). This recycling is conducted at
several locations throughout the world. Granular activated carbon is reactivated
for environmental and economic reasons to destroy hazardous adsorbed organic
compounds and also to conserve natural resources. The Company provides
reactivation/recycling services in packages ranging from a fifty-five gallon
drum to truckload quantities.





Transportation
services are offered via bulk activated carbon deliveries and spent carbon
returns through the Company’s private fleet of trailers, capable of transporting
both RCRA hazardous and non-hazardous material. The Company will
arrange transportation for smaller volumes of activated carbon in DOT approved
containers and small returnable equipment through a network of
less-than-truckload carriers.





Purification
services provided by the Company are used to improve the quality of water, food,
chemical, pharmaceutical and petrochemical products. These services may be
utilized in permanent installations or in temporary applications, such as pilot
studies for new manufacturing processes or recovery of off-specification
products.


7





Sales from continuing operations for
the Activated Carbon and Service segment were $342.3 million, $295.6 million,
and $265.3 million for the years ended December 31, 2008, 2007, and 2006,
respectively.





Equipment.  Along
with providing activated carbons, the Company has developed a complete
line of standardized, pre-engineered, adsorption systems – capable of treating
liquid flows from 1 gpm to 1,400 gpm – which can be quickly delivered and easily
installed at treatment sites. These self-contained adsorption systems are used
for vapor phase applications such as volatile organic compound (VOC) control,
air stripper off-gases, and landfill gas emissions. Liquid phase equipment
systems are used for applications of process purification, wastewater treatment,
groundwater remediation and de-chlorination. The Company also custom designs
systems to solve unique treatment challenges, providing equipment for activated
carbon, ion exchange resins or ultraviolet (UV) technologies each of which can
be used for the purification, separation and concentration of liquids or
gases.





More than
20 years ago, the Company introduced an advanced UV oxidation process to
remediate contaminated groundwater. In 1998, the Company’s scientists invented a
UV disinfection process that could be used to inactivate Cryptosporidium,
Giardia and other similar pathogens in surface water, rendering them harmless to
humans (refer to Note 17). The UV light alters the DNA of pathogens, killing
them or making it impossible for the pathogens to reproduce and infect humans.
In combination with hydrogen peroxide, UV light is effective in destroying many
contaminants common in groundwater remediation applications. The
Company is a leader in the marketplace for innovative UV technologies
with the Sentinel® line designed to protect municipal drinking water supplies
from pathogens, the C3 SeriesTM open-channel wastewater disinfection product line
for municipal wastewater disinfection, and Rayox® UV advanced oxidation
equipment for treatment of contaminants such as 1,4-Dioxane, MTBE, and Vinyl
Chloride in groundwater, process water and industrial wastewater.





The
Company also produces a wide range of odor control equipment which typically
utilizes catalytic, activated carbon to control odors at municipal wastewater
treatment facilities and pumping stations.





UV
oxidation equipment can also be combined with activated carbon to provide
effective solutions for taste and odor removal in municipal drinking water.
Backed by years of experience and extensive research and development, the
Company can recommend the best solution for taste and odor problems, whether
it’s using activated carbon, UV oxidation, or both. The Company also offers a
low cost, non-chemical solution for quenching excess peroxide after our advanced
oxidation processes.


8





The
proprietary ISEP® (Ionic Separator) continuous ion exchange units are used for
the purification and recovery of many products in the food, pharmaceutical, and
biotechnology industries. These ISEP® Continuous Separator units perform ion
exchange separations using countercurrent processing. The ISEP® and CSEP®
(chromatographic separator) systems are currently used at over 300 installations
worldwide in more than 40 applications in industrial settings, as well as in
selected environmental applications including perchlorate and nitrate removal
from drinking water.





Sales from continuing operations for
the Equipment segment were $47.3 million, $41.3 million, and $37.9 million for
the years ended December 31, 2008, 2007, and 2006,
respectively.





Consumer.  The
primary product offered in the Consumer segment is carbon
cloth.  Carbon cloth, which is activated carbon in cloth form, is
manufactured in the United Kingdom and sold to the medical and specialty
markets.





Activated
carbon and carbon cloth are used as the primary raw material in the Company’s
consumer home products group.  The Company currently has two primary
product lines that it markets to the retail channel.  The first
product line, PreZerve® storage products, uses carbon cloth to protect and
preserve jewelry and keepsakes from deterioration.  The PreZerve® line
currently offers over 40 different items.  The second product line,
AllGone®, is an odor elimination system that utilizes activated carbon discs to
adsorb odors and impurities from the air safely and naturally.





Sales
from continuing operations for the Consumer segment were $10.7 million, $14.2
million, and $13.0 million for the years ended December 31, 2008, 2007, and
2006, respectively.





For
further information, see Note 19 to the Financial Statements.





Markets:





The
Company participates in six primary areas: Potable Water, Industrial
Process,  Environmental Water, Environmental Air, Food, and Specialty
Markets. Potable Water applications include municipal drinking water
purification as well as point of entry and point of use devices. Applications in
the Industrial Process Market includes catalysis, product recovery and
purification of chemicals, and pharmaceuticals as well as process water
treatment. Remediation of water and VOC removal from vapor are the major sub
segments for the two Environmental markets.  Food applications include
brewing, bottling and sweetener purification.  Medical, personal
protection, cigarette, automotive, consumer and precious metals applications
comprise the Specialty Market.


9


Potable Water
Market.  The Company sells activated carbons, equipment,
services, ion exchange technology, and UV technologies to municipalities for the
treatment of potable water to remove pesticides and other dissolved organic and
inorganic material to meet or exceed current state or federal regulations and to
remove tastes and odors to make the water acceptable to the public. The Company
also sells to OEM manufacturers of home water purification systems. Granular and
powdered activated carbon products are sold in this market and in many cases the
granular carbon functions both as the primary filtration media as well as an
adsorption media to remove the contaminants from the water. Ion exchange resins
are sold in both fixed beds and continuous counter-current operations to meet
strict regulatory guidelines for perchlorate in water.  UV oxidation
and disinfection systems are sold for the destruction or inactivation of
waterborne contaminants and organisms.





Industrial Process
Market.  The Company’s products used in industrial processing
are used either for purification, separation or concentration of customers’
products in the manufacturing process or for direct incorporation into the
customers’ products. The Company sells a wide range of activated carbons and
reactivation services to the chemical, petroleum refining, and process
industries for the purification of organic and inorganic chemicals, amine, soda
ash, antibiotics and vitamins. Activated carbon products and services are also
used to decolorize chemicals such as hydrochloric acid and remove pollutants
from wastewater. Further, activated carbon is used in treatment of natural gas,
flue gas and other vapor streams for removal of carbon dioxide, acetylene,
hydrogen, sulfur and mercury compounds. The liquefied natural gas industry uses
activated carbons to remove mercury compounds which would otherwise corrode
process equipment. Activated carbons are also sold for gasoline vapor recovery
equipment.





Environmental Water and Air
Markets.  Providing products used for the cleanup of
contaminated groundwater, surface impoundments and accidental spills comprises
the significant need in this market. The Company provides carbon, services and
carbon equipment for these applications as well as emergency and temporary
cleanup services for public and private entities, utilizing both activated
carbon adsorption and UV oxidation technologies.





The
Company offers its products and services to private industry to meet stringent
environmental requirements imposed by various government entities. The Company’s
reactivation/recycle service is an especially important element if the customer
has contaminants which are hazardous organic chemicals. The hazardous organic
chemicals which are adsorbed by the activated carbons are decomposed at the high
temperatures of the reactivation furnace and thereby removed from the
environment. Reactivation saves the environment as well as eliminating the
customers’ expense and difficulty in securing long-term containment (such as
landfills) for hazardous organic chemicals.





Activated
carbon is also used in the chemical, pharmaceutical and refining industries for
purification of air discharge to remove contaminants such as benzene, toluene
and other volatile organics. Reduction of mercury emissions from coal-fired
power plants is a growing market for the Company. The re-start of B-line at its
Catlettsburg, Kentucky plant to produce up to 70 million pounds of FLUEPAC®
powdered activated carbon represents major progress in a multi-step program that
would enable the Company to provide a substantial amount of powdered activated
carbon to coal-fired power plants.


10





Municipal
sewage treatment plants purchase the Company’s odor control systems and
activated carbon products to remove objectionable odors emanating from
operational facilities and to treat the wastewater to meet discharge
requirements. Granular activated carbon is used as a filtration/adsorption
medium and the powdered activated carbons are used to enhance the performance of
existing biological waste treatment processes.





The
Company’s UV oxidation systems offer an ideal solution for groundwater
remediation and the treatment of process water and industrial wastewater. The
Company’s Rayox® System is an industry staple for the destruction of organic
compounds in groundwater. Rayox® is also used as a process water and wastewater
treatment option for the removal of alcohol, phenol, acetone, TOC and
COD/BOD.





Food
Market.  Sweetener manufacturers are the principal purchasers
of the Company’s products in the food industry. As a major supplier, the
Company’s specialty acid-washed activated carbon products are used in the
purification of dextrose and high fructose corn syrup. Activated carbons are
also sold for use in the purification of cane sugar. Other food processing
applications include de-colorization and purification of many different foods
and beverages and for purifying water, liquids and gases prior to usage in
brewing and bottling. Continuous ion exchange systems are also used in this
market for the production of lysine and vitamin E as well as purification of
dextrose and high fructose corn syrup.





Specialty
Market.  The Company is a major supplier of activated carbon to
manufacturers of gas masks supplied to the United States and European military
as well as protective respirators and collective filters for first responders
and private industry. The markets for collective filters for military equipment,
indoor air quality and air containment in incineration and nuclear applications
are also serviced.





Other
specialty applications using activated carbons include precious metals producers
to recover gold and silver from low-grade ore, and cigarette manufacturers in
charcoal filters. The Company’s activated carbon cloth product is used in
medical and other specialty applications.





Sales
and Marketing:





The
Company has a direct sales force in the United States with offices located in
Pittsburgh, Pennsylvania; Santa Fe Springs, California; and Marlton, New
Jersey.  The Company conducts activated carbon related sales in Canada
and in Latin America through agent/distributor relationships and maintains
offices in Sao Paulo, Brazil and Mexico City, Mexico. In the Asia Pacific
Region, the Company maintains offices in Singapore; Beijing and Shanghai, China;
Taipei, Taiwan; and Tokyo, Japan (a joint venture relationship) through agents
and distributors to manage sales.





In
Europe, the Company has sales offices in Feluy, Belgium; Ashton-in-Makerfield,
United Kingdom; Houghton le-Spring, United Kingdom; and Beverungen,
Germany.  The Company also has a network of agents and distributors
that conduct sales in certain countries in Europe, the Middle East and
Africa.


11





All
offices can play a role in sales of products or services from any of the
Company’s segments.





Geographic
sales information can be found in Note 19 to the Financial Statements. Over the
past three years, no single customer accounted for more than 10% of the total
sales of the Company in any year.





Backlog:





The
Company had a sales backlog from continuing operations of $22.3 million and
$11.8 million as of January 31, 2009 and 2008, respectively, in the Equipment
segment.  The Company expects to carry less than one-third of the 2009
balance into 2010.





Competition:





The
Company is a major global presence with several competitors in the worldwide
market with respect to the production and sale of activated carbon-related
products: Norit, N.V., a Dutch company, Mead/Westvaco Corporation, a United
States company and Siemens Water Technologies, a division of Siemens AG,
Erlangen, Germany, are the primary competitors. Chinese producers of coal-based
activated carbon and certain East Asian producers of coconut-based activated
carbon participate in the market on a worldwide basis and sell principally
through numerous resellers. Competition in activated carbons, carbon equipment
and services is based on quality, performance and price. Other sources of
competition for the Company’s activated carbon services and systems are
alternative technologies for purification, filtration and extraction processes
that do not employ activated carbons.





A number
of other smaller competitors engage in the production and sale of activated
carbons in local markets, but do not compete with the Company on a global basis.
These companies compete with the Company in the sale of specific types of
activated carbons, but do not generally compete with a broad range of products
in the worldwide activated carbon business.





In the
United States and Europe, the Company competes with several small regional
companies for the sale of its reactivation services and carbon
equipment.





The
Company’s UV technologies product line has primary competition from Trojan
Technologies, Inc., a Canadian company owned by Danaher Corporation, a United
States company, and Wedeco Ideal Horizons, a German company owned by ITT
Industries, a United States company.




12




Raw
Materials:





The
principal raw material purchased by the Company for its Activated Carbon and
Service segment is bituminous coal from mines in the Appalachian Region as well
as mines outside the United States, usually purchased under both long-term and
annual supply contracts.





The
Company purchases natural gas from various suppliers for use in its Activated
Carbon and Service segment production facilities.  In both the United
States and Europe, substantially all natural gas is purchased pursuant to
various annual and multi-year contracts with natural gas companies.





The
Company purchases hydrogen peroxide via an annual supply contract for its UV
technologies business.





The only
other raw material that is purchased by the Company in significant quantities is
pitch, which is used as a binder in the carbon manufacturing process. The
Company purchases pitch from various suppliers in the United States and China
under annual supply contracts and spot purchases.





The
purchase of key equipment components is coordinated through agreements with
various suppliers.





The
Company does not presently anticipate any problems in obtaining adequate
supplies of its raw materials or equipment components.





Research
and Development:





The
Company's primary research and development activities are conducted at a
research center in Pittsburgh, Pennsylvania.  This facility is used
for the evaluation of experimental activated carbon and equipment and
application development.  Experimental systems are also designed and
evaluated at this location.  Facilities in Ashton-in-Makerfield,
United Kingdom supplement the work performed in Pittsburgh.





The
principal goals of the Company's research program are to improve the Company's
position as a technological leader in solving customers' problems with its
products, services and equipment; develop new products and services; and provide
technical support to customers and operations of the Company.


13


The
Company's research programs include new and improved methods for manufacturing
and utilizing new and enhanced activated carbons.  The Company has
commercial sales of four new products for mercury removal from flue
gas.  Other carbons with improved performance for high sulfur oxide
applications are under development. The Company continues to expand its UV
product line with innovative products targeted at emerging
markets.  Designs of two new Sentinel® reactors were completed in
2008.  Both reactors are designed to disinfect drinking water as well
as to oxidize organic contaminants.  The Company also completed the
engineering and manufacture of its new C3 SeriesTM water reuse
system.  The system utilizes cutting edge flow distribution technology
to improve the efficiency of water treatment.





Research
and development expenses were $4.1 million, $3.7 million, and $4.2 million in
2008, 2007 and 2006, respectively.





Patents
and Trade Secrets:





The
Company possesses a substantial body of technical knowledge and trade secrets
and owns 72 United States patent applications and/or patents as well as 267
patent applications and/or patents in other countries.  The issued
United States and foreign patents expire in various years from 2009 through
2031.





The
technology embodied in these patents, trade secrets, and technical knowledge
applies to all phases of the Company's business including production processes,
product formulations, and application engineering. The Company considers this
body of technology important to the conduct of its business.





Regulatory
Matters:





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


14





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
“Notice”).  The Notice alleges multiple violations of RCRA and four
releases of hazardous waste.  The alleged violations and releases stem
from the September 2005 multi-media compliance inspections, and are among those
alleged in the January 2007 NOV described in the preceding
paragraph.  The Company originally had until September 1, 2008 to
demonstrate to the EPA that the alleged violations and releases are not
continuing, or else the Big Sandy Plant will not be able to receive spent carbon
from CERCLA sites until the EPA determines that the facility is again acceptable
to receive such CERCLA wastes.  The Company met with the EPA on August
25, 2008 and the Company submitted a written response to the Notice prior to the
meeting.





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 25, 2008 EPA
meeting.  On August 28, 2008, the Company received a letter from the
Division requesting additional information from the Company in connection with
the SDD’s evaluation of the Company’s potential “business risk to the Federal
Government,” noting that the Company engages in procurement transactions with or
funded by the Federal Government.  The Company provided the SDD with
all information requested by the letter in September 2008.  The SDD
can suspend or debar a Company from sales to the federal government directly or
indirectly through government contractors or with respect to projects funded by
the federal government.  In October 2008, the SDD indicated that it
was still reviewing the matter but that another meeting with the Company was not
warranted at the time.  The Company believes that there is no basis
for suspension or debarment on the basis of the matters asserted by the EPA in
the Notice or otherwise.


15





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 has 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 the
conditions.  The Company is also in discussions with the EPA and KYDEP
regarding the classification of these materials.  If the Company is
required to treat and/or dispose of the material dredged from the lagoon as
hazardous waste, the costs for doing so could be substantial.





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 PRPs
develop, implement and finance a remedial program for Operable Unit #1 at the
Site.  Operable Unit #1 consists of overburden soils and overburden
and upper bedrock groundwater.  The selected remedy is removal of
above grade structures and contaminated soil source areas, installation of a
cover system, and ground water control and treatment, estimated to cost between
approximately $11 million and $14 million, which would be shared among the
PRPs.  The Company has not determined what portion of the costs
associated with the remedial program it would be obligated to bear and the
Company cannot predict with any certainty the outcome of this matter or range of
potential loss.  The Company has joined a PRP group 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 the NYSDEC for
additional site investigation directed toward characterization of the Site to
better define the scope of the remedial project.  The Company
contributed monies to the PRP group to help fund the work required under the
Consent Order.  The field work was initiated in 2008 but suspended due
the onset of winter.  The group plans to complete the work in the
spring of 2009.


16


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.  KYDEP can also
deny the Part B operating permit.  On October 18, 2007, the Company
received an NOV from the EPA related to this permit application and submitted a
revised application to both the KYDEP and the EPA within the mandated timeframe.
The EPA has not indicated whether or not it will take formal enforcement action,
and has not specified a monetary amount of civil penalties it might pursue in
any such action.  The EPA can also deny the Part B operating
permit.  At this time the Company cannot predict with any certainty
the outcome of this matter or range of loss, if any.





In
conjunction with the February 2004 purchase of substantially all of Waterlink’s
operating assets and the stock of Waterlink’s U.K. subsidiary, several
environmental studies were performed on Waterlink’s Columbus, Ohio property by
environmental consulting firms which identified and characterized areas of
contamination.  In addition, these firms identified alternative
methods of remediating the property, identified feasible alternatives and
prepared cost evaluations of the various alternatives.  The Company
concluded from the information in the studies that a loss at this property is
probable and recorded the liability as a component of noncurrent other
liabilities in the Company’s consolidated balance sheet.  At December
31, 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 years ended December 31, 2008 and
2007, but incurred $0.1 million of expense in 2006.  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.





Europe.  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.


17


Indemnification.The Company has a limited
indemnification agreement with the previous owner of the Company which will fund
certain environmental costs if they are incurred at the Company's Catlettsburg,
Kentucky plant. The Company believes that the amount of the indemnification is
sufficient to fund these liabilities if they arise.





Employee
Relations:





As of
December 31, 2008, the Company employed 943 persons on a full-time basis, 684 of
whom were salaried and non-union hourly production, office, supervisory and
sales personnel. The United Steelworkers represent 227 hourly personnel in the
United States. The current contracts with the United Steelworkers expire on
April 1, 2009 at the Catlettsburg, Kentucky facility, February 15, 2010 at the
Columbus, Ohio facility and July 1, 2011 at the Pittsburgh, PA location. The 32
hourly personnel at the Company's Belgian facility are represented by two
national labor organizations with contracts expiring on July 31,
2009.  The Company also has hourly employees at three non-union United
Kingdom facilities, two non-union United States facility one each located in
California and Mississippi, and at two non-union China facilities.





Copies
of Reports:





The
periodic and current reports of the Company filed with the SEC pursuant to
Section 13(a) of the Securities Exchange Act of 1934 are available free of
charge, as soon as reasonably practicable after the same are filed with or
furnished to the SEC, at the Company’s website at
www.calgoncarbon.com.  All other filings with the SEC are available on
the SEC’s website at www.sec.gov.





Copies
of Corporate Governance Documents:





The
following Company corporate governance documents are available free of charge at
the Company’s website at www.calgoncarbon.com and such information is available
in print to any shareholder who requests it by contacting the Secretary of the
Company at 400 Calgon Carbon Drive, Pittsburgh,
PA  15205.





·
            Corporate
      Governance Guidelines


·
            Audit
      Committee Charter


·
            Compensation
      Committee Charter


·
            Corporate
      Governance Committee Charter


·
            Code
      of Business Conduct and Ethics


·
            Code
      of Ethical Business Conduct Supplement for Chief Executive and Senior
      Financial Officers


·
            Director
      Orientation and Continuing Education
Policy


18





·
            Executive
      Committee Charter





Item
1A. Risk
Factors:





Risks
relating to our business





Our
pension plans are currently underfunded, and we expect to be subject to
significant increases in pension contributions to our defined benefit pension
plans, thereby restricting our cash flow.





We
sponsor various pension plans in the United States and Europe that are
underfunded and require significant cash payments. We contributed $4.1 million
and $5.4 million to our U.S. Pension plans and $2.1 million and $2.4 million to
our European pension plans in 2008 and 2007, respectively. We currently expect
to contribute approximately $1.1 million to our U.S. pension plans to meet
minimum funding requirements and $1.7 million to our European pension plans in
2009. The current economic environment is negatively impacting the fair value of
our pension assets which could result in increased funding requirements of our
pension plans.  If our cash flow from operations is insufficient to
fund our worldwide pension liability, we may be forced to reduce or delay
capital expenditures or seek additional capital.





The funding status of our pension plans
is determined using many assumptions, such as inflation, investment rates,
mortality, turnover and interest rates, any of which could prove to be different
than projected. If the performance of the assets in our pension plans does not
meet our expectations, or if other actuarial assumptions are modified, or not
realized, we may be required to contribute more to our pension plans than we
currently expect. For example, an approximate 25-basis point decline in the
funding target interest rate under Section 730 of the Internal Revenue Code, as
added by the Pension Protection Act of 2006 for minimum funding requirements,
would increase our minimum required contributions to our U.S. pension plans by
approximately $1.5 million to $2.1 million over the next three
years.





Our
pension plans in the aggregate are underfunded by approximately $48 million as
of December 31, 2008 (based on the actuarial assumptions used for SFAS No. 87,
“Employers’ Accounting for Pensions,” purposes and comparing our projected
benefit obligation to the fair value of plan assets) and required a certain
level of mandatory contributions as prescribed by law. Our U.S. pension plans,
which were underfunded by approximately $34 million as of December 31, 2008, are
subject to ERISA. In the event our U.S. pension plans are terminated for any
reason while the plans are less than fully funded, we will incur a liability to
the Pension Benefit Guaranty Corporation that may be equal to the entire amount
of the underfunding at the time of the termination. In addition, changes in
required pension funding rules that were affected by the enactment of the
Pension Protection Act of 2006 have significantly increased our funding
requirements, which could have an adverse effect on our cash flow and require us
to reduce or delay our capital expenditures or seek additional capital. See Note
12 to our consolidated financial statements contained in Item 8 of this Annual
Report.


19


Our
financial results could be adversely affected by an interruption of supply or an
increase in coal prices.





We use
bituminous coal as the main raw material in our granular activated carbon
production process. We estimate that coal will represent approximately 60% of
our carbon product costs in 2009. We have various annual and multi-year
contracts in place for the supply of coal that expire at various intervals from
2008 to 2011.  Interruptions in coal supply caused by mine accidents,
labor disputes, transportation delays, breach of supplier contractual
obligations, or other events for other than a temporary period could have an
adverse effect on our ability to meet customer demand. In addition, increases in
the prices we pay for coal under our supply contracts could adversely affect our
financial results by significantly increasing production costs. During 2008, our
aggregate costs for coal increased by $2.6 million, or 16.2%, compared to 2007.
Based upon the estimated usage of coal in 2009, a hypothetical 10% increase in
the price of coal would result in $1.9 million of additional pre-tax expenses to
us. We may not be able to pass through raw material price increases to our
customers.





Our
financial results could be adversely affected by shortages in energy supply or
increases in energy costs.





The price
for and availability of energy resources could be volatile as it is affected by
political and economic conditions that are outside our control. We utilize
natural gas as a key component in our activated carbon manufacturing process and
have annual and multi-year contracts for the supply of natural gas at each of
our major facilities. If shortages of, or restrictions on the delivery of
natural gas occur, production at our activated carbon facilities would be
reduced, which could result in missed deliveries or lost sales. We also have
exposure to fluctuations in energy costs as they relate to the transportation
and distribution of our products. For example, natural gas prices have increased
significantly in recent years. We may not be able to pass through natural gas
and other fuel price increases to our customers.




20




Increases
in U.S. and European imports of Chinese or other foreign manufactured activated
carbon could have an adverse effect on our financial results.





We face pressure and competition in our
U.S. and European markets from brokers of low cost imported activated carbon
products, primarily from China. We believe we offer the market technically
superior products and related customer support.However, in
some applications, low cost imports have become accepted as viable alternatives
to our products because they have been frequently sold at less than fair value
in the market.  If the markets in which we compete experience an
increase in these imported low cost carbons, especially if sold at less than
fair value, we could see declines in net sales.  In addition, the
sales of these low cost activated carbons may make it more difficult for us to
pass through raw material price increases to our customers.





In
response to a petition from the U.S. activated carbon industry filed in March
2006, the United States Department of Commerce (the “DOC”) announced the
imposition of anti-dumping duties starting in October 2006.  The DOC
announcement was based on extensive economic analysis of the operations and
pricing practices of the Chinese producers and exporters.  The DOC
announcement required U.S. Customs and Border Protection to require importers of
steam activated carbon from China to post a provisional bond or cash deposit in
the amount of the duties.  The anti-dumping duties are intended to
offset the amount by which the steam activated carbon from China is sold at less
than fair value in the U.S.





In March
2007, the International Trade Commission (the “ITC”) determined that these
unfairly priced steam activated carbon imports from China caused material injury
to the U.S. activated carbon industry.  This affirmative decision by
the ITC triggered the imposition of significant anti-dumping duties in the form
of cash deposits, ranging from 62% to 228%.  The anti-dumping duties
will be imposed for at least five years but are subject to periodic review
within that time frame.  The first review period began April 2008 with
subsequent opportunities for review every April with respect to the twelve
months then completed.  A preliminary determination is due no later
than March 31, 2009.  The significant anti-dumping duties imposed by
the DOC and the affirmative decision by the ITC has had an adverse impact on the
cost of Chinese manufactured activated carbon imported into the U.S. However,
the anti-dumping duties could be reduced or eliminated in the future, which
could adversely affect demand or pricing for our product.





Our
inability to successfully negotiate new collective bargaining agreements upon
expiration of the existing agreements could have an adverse effect on our
financial results.





We have
collective bargaining agreements in place at four of our production facilities
covering approximately 27% of our full-time workforce as of December 31, 2008.
Those collective bargaining agreements expire from 2009 through 2011. Any work
stoppages as a result of disagreements with any of the labor unions or our
failure to renegotiate any of the contracts as they expire could disrupt
production and significantly increase product costs as a result of less
efficient operations caused by the resulting need to rely on temporary
labor.




Our
business is subject to a number of global economic risks
 
 As widely
reported, financial markets in the United States, Europe and Asia have been
experiencing extreme disruption, including, among other things, extreme
volatility in security prices, severely diminished liquidity and credit
availability, rating downgrades of certain investments and declining valuations
of others.  Governments have taken unprecedented actions intending to
address extreme market conditions that include severely restricted credit and
declines in values of certain assets.
 
 An
economic downturn in the businesses or geographic areas in which we sell our
products could reduce demand for our products and result in a decrease in sales
volume that could have a negative impact on our results of
operations.  Continued volatility and disruption of financial markets
in the United States, Europe and Asia could limit our customers’ ability to
obtain adequate financing or credit to purchase our products or to maintain
operations, and result in a decrease in sales volumes that could have a negative
impact on our results of operations.


21





We
have operations in multiple foreign countries and, as a result, are subject to
foreign exchange translation risk, which could have an adverse effect on our
financial results.





We
conduct significant business operations in several foreign countries. Of our
2008 net sales, approximately 45% were sales to countries other than the United
States, and 2008 net sales denominated in non-U.S. dollars represented
approximately 34% of our overall net sales. We conduct business in the local
currencies of each of our foreign subsidiaries or affiliates. Those local
currencies are then translated into U.S. dollars at the applicable exchange
rates for inclusion in our consolidated financial statements. The exchange rates
between some of these currencies and the U.S. dollar in recent years have
fluctuated significantly and may continue to do so in the future. Changes in
exchange rates, particularly the strengthening of the U.S. dollar, could
significantly reduce our sales and profitability from foreign subsidiaries or
affiliates from one period to the next as local currency amounts are translated
into fewer U.S. dollars.





Our
European and Japanese activated carbon businesses are sourced from both the
United States and China, which subjects these businesses to foreign exchange
transaction risk.





Our only
production facilities for virgin granular activated carbon are in the United
States and China. Those production facilities are used in supplying our global
demand for virgin granular activated carbon. All of our foreign operations
purchase from the U.S. and China operations in U.S. dollars yet sell in local
currency, resulting in foreign exchange transaction risk. We generally execute
foreign currency derivative contracts of not more than eighteen months in
duration to cover a portion of our known or projected foreign currency exposure.
However, those contracts do not protect us from longer-term trends of a
strengthening U.S. dollar, which could significantly increase our cost of
activated carbon delivered to our European and Japanese markets, and we may not
be able to offset these costs by increasing our prices.





Our
business includes capital equipment sales which could have extreme fluctuations
due to the cyclical nature of that type of business.





Our
Equipment segment represented approximately 12% of our 2008 net sales. This
business generally has a long project life cycle from bid solicitation to
project completion and often requires customers to make large capital
commitments well in advance of project execution. In addition, this business is
usually affected by the general health of the overall economy. As a result,
sales and earnings from the Equipment segment could be
volatile.


22





We
could find it difficult to fund the capital needed to complete our growth
strategy due to borrowing restrictions under our current credit
facility.





Our
current credit facility requires compliance with various affirmative and
negative covenants, including limitations with respect to our ability to pay
dividends, make loans, incur indebtedness, grant liens on our property, engage
in certain mergers and acquisitions, dispose of assets and engage in certain
transactions with our affiliates. Borrowing availability under our current
credit facility is based on the value, from time to time, of certain of our
accounts receivable, inventory, and equipment. As a result, these restrictions
may prevent us from being able to borrow sufficient funds under our current
credit facility to meet our future capital needs, and alternate financing on
terms acceptable to us may not be available.





If our
liquidity would remain constrained for more than a temporary period, we may need
to either delay certain strategic growth projects or access higher cost capital
markets in order to fund our projects, which may adversely affect our financial
results.





Our
required capital expenditures may exceed our estimates.





Our
capital expenditures were $34.9 million in 2008, including approximately $13.0
million related to the planned re-start of a currently idled production line.
Future capital expenditures may be significantly higher and may vary
substantially if we are required to undertake certain actions to comply with new
regulatory requirements or compete with new technologies.  We may not
have the capital to undertake these capital investments. If we are unable to do
so, we may not be able to effectively compete.




Declines
in the operating performance of one of our business segments could result in an
impairment of the segment’s goodwill.


As of
December 31, 2008, we had consolidated goodwill of approximately $26.3 million
recorded in our business segments, primarily from our Activated Carbon and
Service and Equipment segments. We test our goodwill on an annual basis or when
an indication of possible impairment exists in order to determine whether the
carrying value of our assets is still supported by the fair value of the
underlying business. To the extent that it is not, we are required to record an
impairment charge to reduce the asset to fair value. For the year ended December
31, 2006, we recorded a $6.9 million impairment charge associated with our UV
equipment reporting unit, principally as a result of the fourth quarter decision
by the Federal Court of Canada, which found that our patent for the use of UV
light to prevent infection from Cryptosporidium in drinking water is
invalid.  As a result, our estimate of future royalty income used in
determining the fair value of the reporting unit declined substantially from the
prior year.  A decline in the operating performance of any of our
business segments could result in a goodwill impairment charge which could have
a material effect on our financial results.





23




Delays
in enactment of new state or federal regulations could restrict our ability to
reach our strategic growth targets and lower our return on invested
capital.





Our
strategic growth initiatives are reliant upon more restrictive environmental
regulations being enacted for the purpose of making water and air cleaner and
safer. If stricter regulations are delayed or are not enacted or enacted but
subsequently repealed or amended to be less strict, or enacted with prolonged
phase-in periods, our sales growth targets could be adversely affected and our
return on invested capital could be reduced.





For
example, stricter regulations surrounding the treatment of Cryptosporidium and
other disease causing microorganisms in drinking water, as addressed by the
EPA’s promulgation of the Long Term 2 Enhanced Surface Water Treatment Rule
(“LT2”), were expected to be effective as of the fourth quarter of 2004. LT2 was
not ultimately published in the Federal Register until January 2006, thus
delaying municipalities’ requirements for testing and any subsequent need to
fund a plan for remediation by over a year. The effect has been a delay in the
timing of the expected growth for our UV equipment business.





The
Company had expected increased demand for powdered activated carbon products
beginning in 2009 largely driven by the EPA's Clean Air Mercury Rule, which
established an emissions trading system to reduce mercury emissions from
coal-fired power plants by approximately 70% over a 10 year period. On February
8, 2008, the United States Circuit Court of Appeals for the District of Columbia
vacated the Clean Air Mercury Rule.  Additional appeals, litigation,
and regulatory proceedings could defer implementation of another EPA mercury
reduction regulation for years or indefinitely. Even if adoption of a
new Clean Air Mercury Rule is delayed indefinitely by the legal legislative and
regulatory process, existing federal and state laws and regulations, as well as
state or federal legislation introduced in response to the Court of
Appeals decision and new litigation, could result in substantially more
stringent regulation, resulting in higher-than expected demand for the Company's
products.  The Company is unable to predict with certainty when and
how the outcome of these complex legal, regulatory and legislative proceedings
will affect demand for its products.


24





Our
industry is highly competitive. If we are unable to compete effectively with
competitors having greater resources than we do, our financial results could be
adversely affected.





Our
activated carbon business faces significant competition principally
from Norit N.V., Mead/Westvaco Corporation and Siemens Water Technologies, as
well as European and Chinese activated
carbon producers and East Asian producers of coconut-based activated
carbon. Our UV technology products face significant competition from principally
Trojan Technologies, Inc., which is owned by Danaher Corporation, and Wedeco
Ideal Horizons, which is owned by ITT Industries. Our competitors include major
manufacturers and diversified companies, a number of which have revenues and
capital resources exceeding ours, which they may use to develop more advanced or
more cost-effective technologies, increase market share or leverage their
distribution networks. We could experience reduced net sales as a result of having fewer resources than these
competitors.





Encroachment
into our markets by competitive technologies could adversely affect our
financial results.





Activated
carbon is utilized in various applications as a cost-effective solution to solve
customer problems. If other competitive technologies, such as membranes, ozone
and UV, are advanced to the stage in which such technologies could cost
effectively compete with activated carbon technologies, we could experience a
decline in net sales, which could adversely affect our financial
results.





Failure
to innovate new products or applications could adversely affect our ability to
meet our strategic growth targets.





Part of our strategic growth and
profitability plans involve the development of new products or new applications
for our current products in order to replace more mature products or markets
that have seen increased competition. If we are unable to develop new products
or applications, our financial results could be adversely affected.




A
planned or unplanned shutdown at one of our production facilities could have an
adverse effect on our financial results.





We
operate multiple facilities and source product from strategic partners who
operate facilities which are close to water or in areas susceptible to
hurricanes and earthquakes. An unplanned shutdown at any of our or our strategic
partners’ facilities for more than a temporary period as a result of a
hurricane, typhoon, earthquake or other natural disaster, or as a result of
fire, explosions, war, terrorist activities, political conflict or other
hostilities, could significantly affect our ability to meet our demand
requirements, thereby resulting in lost sales and profitability in the
short-term or eventual loss of customers in the long-term. In addition, a
prolonged planned shutdown of any of our production facilities due to a change
in business conditions could result in impairment charges that could have an
adverse impact on our financial results.





25




An
example of an unplanned shutdown of one of our production facilities was the
shutdown of our Pearl River facility in Pearlington, Mississippi due to damage
caused by Hurricane Katrina in August 2005. The plant did not become operational
again until November 2005 and was not operating again at full capacity until
January 2006. Certain customer shipments were either delayed or cancelled during
the plant outage, the consequences of which adversely affected us during 2006.
We estimated our pre-tax business interruption losses during 2005 and 2006 to be
approximately $4.4 million in the aggregate due to the effect of the unplanned
shutdown of the Pearl River facility.





We
hold a variety of patents that give us a competitive advantage in certain
markets. An inability to defend those patents from competitive attack could have
an adverse effect on both current results and future growth
targets.





From time
to time in the course of our business, we have to address competitive challenges
to our patented technology. Following protracted litigation in multiple
jurisdictions, the U.S. Court of Appeals for the Federal Circuit held that our
process patents for the use of ultraviolet light to prevent infection from
Cryptosporidium and Giardia in drinking water (the “UV patents”) are invalid in
the United States.  On March 3, 2008, the Supreme Court of Canada held
that our Canadian UV patents are invalid, thereby concluding this
case.  We did not appeal the ruling in the United States.  A
German trial court has found that a competitor infringed our UV patents with
respect to medium pressure ultraviolet light, but did not infringe with respect
to low pressure ultraviolet light.  The Company appealed the decision
relating to low pressure ultraviolet light.  The competitor did not
appeal.  The validity of the German UV patents, as distinguished from
issues of infringement which were decided in the trial court, is the subject of
administrative proceedings in Germany.  The outcome of these cases has
impaired the Company’s ability to capitalize on substantial future revenues from
the licensing of its UV patents.





With the
exception of 2008 and 2007, we have incurred significant legal fees and expenses
in recent years litigating these matters. For example, legal expenses related to
these patent litigation matters totaled approximately $4.7 million in 2006. We
may be required to incur additional significant legal expenses to defend our
intellectual property in the future.


26





Furthermore,
these legal disputes over our UV patents may adversely affect our business and
growth prospects because they may suppress overall demand for UV equipment as
municipalities may decide to wait for the completion of the litigation to
resolve the resulting uncertainties before making investment
decisions.





Our
products could
infringe the intellectual property rights of others, which may cause us to pay
unexpected litigation costs or damages or prevent us from selling our
products.





Although
it is our intention to avoid infringing or otherwise violating the intellectual
property rights of others, our products may infringe or otherwise violate the
intellectual property rights of others.  We may be subject to legal
proceedings and claims, including claims of alleged infringement by us of the
patents and other intellectual property rights of third
parties.  Intellectual property litigation is expensive and
time-consuming, regardless of the merits of any claim.





If we
were to discover or be notified that our products potentially infringe or
otherwise violate the intellectual property rights of others, we may need to
obtain licenses from these parties or substantially re-engineer our products in
order to avoid infringement.  We might not be able to obtain the
necessary licenses on acceptable terms, or at all, or be able to re-engineer our
products successfully.  Moreover, if we are sued for infringement and
lose the suit, we could be required to pay substantial damages and/or be
enjoined from using or selling the infringing products.  Any of the
foregoing could cause us to incur significant costs and prevent us from selling
our products.





Environmental
compliance and remediation could result in substantially increased capital
requirements and operating costs.





Our
production facilities are subject to environmental laws and regulations in the
jurisdictions in which they operate or maintain properties.  Costs may
be incurred in complying with such laws and regulations.  Each of our
domestic production facilities require permits and licenses issued by local,
state and federal regulators which regulate air emissions, water discharges, and
solid waste handling.  These permits are subject to renewal and, in
some circumstances, revocation.  International environmental
requirements vary and could have substantially lesser requirements that may give
competitors a competitive advantage.  Additional costs may be incurred
if environmental remediation measures are required.  In addition, the
discovery of contamination at any of our current or former sites or at locations
at which we dispose of waste may expose us to cleanup obligations and other
damages.  For example, the Company received Notices of Violations
(“NOVs”) from the U.S. EPA in January 2007, October 2007, and June 2008 and from
the Kentucky Department of Environmental Protection in July
2007.  While the Company is attempting to resolve these matters, an
unfavorable result could have a significant adverse impact on its results of
operations and cash flows.  If we receive similar demands in the
future, we may incur significant costs in connection with the resolution of
those matters. Refer to Regulatory Matters within Item 1, Business for a more
detailed discussion.


27





Our
international operations expose us to political and economic uncertainties and
risks from abroad, which could negatively affect our results of
operations.





We have
manufacturing facilities and sales offices in Europe, China, Japan, Taiwan,
Singapore, Brazil, Mexico, Canada, and the United Kingdom which are subject to
economic conditions and political factors within the respective countries which,
if changed in a manner adverse to us, could negatively affect our results of
operations and cash flow.  Political risk factors include, but
are not limited to, taxation, nationalization, inflation, currency fluctuations,
foreign exchange restrictions, increased regulation and quotas, tariffs and
other protectionist measures.  Approximately 88% of our sales in 2008
were generated by products sold in the U.S., Canada, and Western Europe while
the remaining sales were generated in other areas of the world, such as Asia,
Eastern Europe, and Latin America.




Our
international operations are subject to political and economic risks for
conducting business in corrupt environments.
 
 Although
a portion of our international business is currently in regions where the risk
level and established legal systems in many cases are similar to that in the
United States, we also conduct business in developing countries, and we are
focusing on increasing our sales in regions such as South America, Southeast
Asia, India and the Middle East, which are less developed, have less stability
in legal systems and financial markets, and are generally recognized as
potentially more corrupt business environments than the United States and
therefore, present greater political, economic and operational
risks.  We emphasize compliance with the law and have policies in
place, procedures and certain ongoing training of employees with regard to
business ethics and key legal requirements such as the U.S. Foreign Corrupt
Practices Act (“FCPA”); however, there can be no assurances that our employees
will adhere to our code of business conduct, other Company policies or the
FCPA.  If we fail to enforce our policies and procedures properly or
maintain internal accounting practices to accurately record our international
transactions, we may be subject to regulatory sanctions.  We could
incur significant costs for investigation, litigation, fees, settlements and
judgments for potential violations of the FCPA or other laws or regulations
which, in turn, could negatively affect our results of operations.


Our
ability to utilize our foreign tax credits and net operating losses may be
limited.





As of
December 31, 2008, we had net operating loss carryforwards (“NOLs”) of
approximately $52.5 million for state income tax purposes.  Under
Section 382 of the Internal Revenue Code, if a corporation undergoes an
“ownership change,” the corporation’s ability to use its pre-change NOLs and
other pre-change tax attributes to offset its post-change income may be
limited.  An ownership change is generally defined as a greater than
50% change in its equity ownership by value over a three-year
period.  We could experience an ownership change in the future as a
result of changes in our stock ownership.  If we were to trigger an
ownership change in the future, our ability to use any NOLs existing at that
time could be limited.





At
December 31, 2008, we had $12.2 million of foreign tax credit carryforwards for
which we have established a valuation reserve of $7.9 million.  If
some or all of these tax credits expire, they will not be available to offset
our tax liability.





Our
stockholder rights plan and our certificate of incorporation and bylaws and
Delaware law contain provisions that may delay or prevent an otherwise
beneficial takeover attempt of our company.





Our
stockholder rights plan and certain provisions of our certificate of
incorporation and bylaws and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. These include provisions:


28





·
            providing
      for a board of directors with staggered, three-year
  terms;


·
            requiring
      super-majority voting to affect certain amendments to our certificate of
      incorporation and bylaws;


·
            limiting
      the persons who may call special stockholders’
  meetings;


·
            limiting
      stockholder action by written
consent;


·
            establishing
      advance notice requirements for nominations for election to the board of
      directors or for proposing matters that can be acted upon at stockholders’
      meetings; and


·
            allowing
      our board of directors to issue shares of preferred stock without
      stockholder approval.





These
provisions, alone or in combination with each other, may discourage transactions
involving actual or potential changes of control, including transactions that
otherwise could involve payment of a premium over prevailing market prices to
holders of our common stock, or could limit the ability of our stockholders to
approve transactions that they may deem to be in their best
interest.





Item
1b. Unresolved Staff
Comments:





None.


29





Item
2.   Properties:





The
Company owns nine production facilities, two of which are located in Pittsburgh,
Pennsylvania; and one each in the following locations: Catlettsburg, Kentucky;
Pearlington, Mississippi; Blue Lake, California; Columbus, Ohio; Feluy, Belgium;
Grays, United Kingdom; and Datong, China.  The Company leases one
production facility in each of the following locations:  Coraopolis,
Pennsylvania; Houghton le-Spring, United Kingdom; Ashton-in-Makerfield, United
Kingdom; and Tianjin, China.   The Company’s 49% owned joint
venture, Calgon Mitsubishi Chemical Corporation, owns one facility in Fukui,
Fukui Prefecture, Japan. The Company owns two warehouses, one of which is in
Pittsburgh, Pennsylvania and the other is in La Louviere,
Belgium.  The Company also leases thirty-two warehouses, service
centers, and sales office facilities.  Of these, twenty-three are
located in the United States, four in China, and one each in the United Kingdom,
Germany, Canada, Singapore, and Taiwan.  Four of the United States
facilities are located in Pittsburgh, Pennsylvania and one each in the following
locations:  Downingtown, Pennsylvania; Johnston, Rhode Island;
Rockdale, Illinois; Santa Fe Springs, California; Marlton, New Jersey; Stockton,
California; Tempe, Arizona; Torrance, California; Ontario, California; Schenley,
Pennsylvania; South Point, Ohio; Muncy, Pennsylvania; Steubenville, Ohio;
Ironton, Ohio; and Sulphur, Louisiana as well as two each in Houston, Texas and
Huntington, West Virginia.  The United Kingdom facility is located in
Ashton-in-Makerfield.  The facility in Germany is located in
Beverungen.  Two of the China facilities are located in Shanghai and
one each in Beijing and Tianjin. The Taiwan facility is located in Taipei. The
Canadian facility is located in Richmond Hill, Ontario.  The Company’s
49% owned joint venture, Calgon Mitsubishi Chemical Corporation, leases four
offices, one in each Tokyo and Osaka, and two in Fukuoka
Prefecture.  The Company’s 20% owned joint venture, Calgon Carbon
(Thailand) Company Ltd., leases one facility in Nakornrachasima,
Thailand.





The
Catlettsburg, Kentucky plant is the Company's largest facility, with plant
operations occupying approximately 50 acres of a 226-acre site. This plant,
which serves the Activated Carbon and Service segment, produces granular and
powdered activated carbons and acid washed granular activated carbons and
reactivates spent granular activated carbons.





The
Pittsburgh, Pennsylvania carbon production plant occupies a four-acre site and
serves the Activated Carbon and Service segment. Operations at the plant include
the reactivation of spent granular activated carbons, the impregnation of
granular activated carbons and the grinding of granular activated carbons into
powdered activated carbons. The plant also has the capacity to produce
coal-based or coconut-based specialty activated carbons.


30





The
Pearlington, Mississippi plant occupies a site of approximately 100 acres. The
plant has one production line that produces granular and powdered activated
carbons for the Activated Carbon and Service segment.


The
Columbus plant occupies approximately 27 acres in Columbus,
Ohio.  Operations at the plant include the reactivation of spent
granular activated carbons, impregnation of activated carbon, crushing activated
carbon to fine mesh, acid and water washing, filter-filling, and various other
value added processes to granular activated carbon for the Activated Carbon and
Service segment.





The Blue
Lake plant, located near the city of Eureka, California, occupies approximately
two acres. The plant was previously idled and start-up began in November
2008.  The primary operation at the plant includes the reactivation of
spent granular activated carbons for the Activated Carbon and Service
segment.





The
Pittsburgh, Pennsylvania Equipment and Assembly plant is located on Neville
Island and is situated within a 16-acre site that includes a 300,000 square foot
building.  The Equipment and Assembly plant occupies 85,000 square
feet with the remaining space used as a centralized warehouse for carbon
inventory.  The plant, which serves the Equipment and Activated Carbon
and Service segments, manufactures and assembles fully engineered carbon
equipment for purification, concentration and separation
systems.  This plant also serves as the east coast staging and
refurbishment point for carbon service equipment.





The
Coraopolis, Pennsylvania Engineered Solutions plant is a 44,000 square foot
production facility located near Pittsburgh, Pennsylvania.  The
primary focus of this facility is the manufacture of UV and Ion Exchange (ISEP®)
equipment, including mechanical and electrical assembly, controls systems
integration and validation testing of equipment.  This location also
serves as the Pilot Testing facility for Process Development, as well as the
spare parts distribution center for UV and ISEP® systems.





The Feluy
plant occupies a site of approximately 21 acres located 30 miles south of
Brussels, Belgium.  Operations at the plant include both the
reactivation of spent granular activated carbons and the grinding of granular
activated carbons into powdered activated carbons for the Activated Carbon and
Service segment.





The Grays
plant occupies a three-acre site near London, United Kingdom. Operations at the
plant include the reactivation of spent granular activated carbons for the
Activated Carbon and Service segment.


31





The
Ashton-in-Makerfield plant occupies a 1.6 acre site, 20 miles west of
Manchester, United Kingdom.  Operations at the plant include the
impregnation of granular activated carbons for the Activated Carbon and Service
segment.  The plant also has the capacity to finish coal-based or
coconut-based activated carbons.





The
Houghton le-Spring plant, located near the city of Newcastle, United Kingdom,
occupies approximately two acres. Operations at the plant include the
manufacture of woven and knitted activated carbon textiles and their
impregnation and lamination for the Consumer segment.





The
Fukui, Fukui Prefecture, Japan plant is 49% owned by Calgon Carbon as part of a
joint venture with Mitsubishi Chemical Company.  The joint venture is
Calgon Mitsubishi Chemical Corporation.  The plant, which serves the
Activated Carbon and Service segment, occupies a site of approximately six acres
and has one production line for carbon reactivation.





The
Datong, China plant occupies 15,000 square meters.  This plant
produces agglomerated activated carbon intermediate product for the Activated
Carbon and Service segment for use in both the potable and industrial
markets.





The
Tianjin, China plant is licensed to export activated carbon
products.  It occupies approximately 35,000 square
meters.  This plant finishes, sizes, tests, and packages activated
carbon products for the Activated Carbon and Service segment for distribution
both inside China and for export.





The
Company believes that the plants and leased facilities are adequate and suitable
for its current operating needs.


32





Item
3.Legal
Proceedings:





On March
20, 2007, the Company and ADA-ES entered into a Memorandum of Understanding
(“MOU”) providing for cooperation between the companies to attempt to jointly
market powdered activated carbon (“PAC”) to the electric power industry for the
removal of mercury from coal fired power plant flue gas.  The MOU
provided for commissions to be paid to ADA-ES in respect of product
sales.  The Company terminated the MOU effective as of August 24, 2007
for convenience.  Neither party had entered into sales or supply
agreements with prospective customers as of that date.  On March 3,
2008, the Company entered into a supply agreement with a major U.S. power
generator for the sale of powdered activated carbon products with a minimum
purchase obligation of approximately $55 million over a 5 year
period.  ADA-ES claimed that it is entitled to commissions of an
amount of at least $8.25 million over the course of the


5 year
contract, which the Company denies.  On September 29, 2008, the
Company filed suit in the United States District Court for the Western District
of Pennsylvania for a declaratory judgment from the Court that the Company has
no obligation to pay ADA-ES commissions related to this contract or for any
future sales made after August 24, 2007.





Following
protracted litigation in multiple jurisdictions, the U.S. Court of Appeals for
the Federal Circuit held that the Company’s process patents for the use of
ultraviolet light to prevent infection from Cryptosporidium and Giardia in
drinking water (the “UV patents”) are invalid in the United States concluding
the U.S. litigation relating to the UV patents.  On March 3, 2008, the
Supreme Court of Canada held that the Company’s Canadian UV patents are invalid
concluding the Canadian UV patent litigation.  In March 2007, the
Company and Trojan entered into a settlement whereby in exchange for a nominal
cash payment and relief from legal fees, the Company granted Trojan
Technologies, Inc. worldwide immunity from all current and future legal action
related to the Company’s UV patents.  In 2007, a German trial court
found that a competitor infringed the Company’s UV patents with respect to
medium pressure ultraviolet light, but did not infringe with respect to low
pressure ultraviolet light.  The Company appealed the decision
relating to low pressure light.   The competitor did not
appeal.  By order dated September 29, 2008, each party nominated an
expert to provide opinions as to questions posed by the Court.  The
Court will then choose one of the experts nominated or choose another
expert.  The validity of the German UV patents, as distinguished from
issues of infringement which were decided in the trial court, is the subject of
pending administrative proceedings in Germany.  The outcome of these
cases has impaired the Company’s ability to capitalize on substantial future
revenues from the licensing of its UV patents.


33





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.


34





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





No
matters were submitted to a vote of security holders during the fourth quarter
of 2008.





PART
II




Item
5.   Market for
Registrant's Common Equity, Related Shareholder Matters, and Issuer Repurchases
of Equity Securities:





COMMON
SHARES AND MARKET INFORMATION





Common
shares are traded on the New York Stock Exchange under the trading symbol CCC.
There were 1,325 registered shareholders at December 31, 2008.





Quarterly
Common Stock Price Ranges and Dividends





2008
                                                                                    
                                                                                    
                                                                                    2007Fiscal Quarter
                                                                                    
                                                                                    High
                                                                                    
                                                                                    
                                                                                    Low
                                                                                    
                                                                                    
                                                                                    Dividend
                                                                                    
                                                                                    
                                                                                    High
                                                                                    
                                                                                    
                                                                                    Low
                                                                                    
                                                                                    
                                                                                    DividendFirst
                                                                                    
                                                                                    
                                                                                    18.92
                                                                                    
                                                                                    
                                                                                    
                                                                                    13.19
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    9.52
                                                                                    
                                                                                    
                                                                                    
                                                                                    5.43
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Second
                                                                                    
                                                                                    
                                                                                    20.23
                                                                                    
                                                                                    
                                                                                    
                                                                                    12.63
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    12.20
                                                                                    
                                                                                    
                                                                                    
                                                                                    7.37
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Third
                                                                                    
                                                                                    
                                                                                    23.03
                                                                                    
                                                                                    
                                                                                    
                                                                                    14.04
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    14.74
                                                                                    
                                                                                    
                                                                                    
                                                                                    10.30
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Fourth
                                                                                    
                                                                                    
                                                                                    21.64
                                                                                    
                                                                                    
                                                                                    
                                                                                    9.11
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    16.96
                                                                                    
                                                                                    
                                                                                    
                                                                                    11.64
                                                                                    
                                                                                    
                                                                                    
                                                                                    -





The
Company did not declare or pay any dividends in 2008 and
2007.  Dividend declaration and payout are at the discretion of the
Board of Directors.  Future dividends will depend on the Company’s
earnings, cash flows, and capital investment plans to pursue long-term growth
opportunities.  The Company’s Credit Facility contains covenants which
include limitation on the ability to declare or pay cash dividends or make other
restricted payments, 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 $6.0 million in the aggregate during any fiscal year if certain
conditions are met.





The
information appearing in Item 12 of Part III below regarding common stock
issuable under the Company’s equity compensation plan is incorporated herein by
reference.


35





Shareholder
Return Performance Graph





The
following performance graph and related information shall not be deemed “filed”
with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933 or Securities Exchange Act of 1934, each as amended, except to the extent
that the Company specifically incorporates it by reference into such
filing.




The graph
below compares the yearly change in cumulative total shareholder return of the
Company’s common stock with the cumulative total return of the Standard &
Poor’s (S&P’s) 500 Stock Composite Index and a Peer
Group.   The Company believes that its core business consists of
purifying air, water and other products.  As such, the Company uses a
comparative peer group benchmark.  The companies included in the group
are BHA Group Holdings Inc. (2004), Cuno, Inc.(2004-2005), Ionics, Inc.
(2004-2005), Clarcor, Inc., Donaldson Co. Inc., Esco Technologies Inc., Flanders
Corp., Lydall, Inc., Millipore Corp., and Pall Corp.  BHA Group
Holdings Inc., Cuno, Inc., and Ionics, Inc. were acquired during the time period
between 2004 and 2005.  The data for these companies is included from
the year 2004 until the point at which they were acquired and their common stock
ceased to be publicly traded.










*Assumes
that the value of the investment in Calgon Carbon Common Stock and the index and
Peer Group was $100 on December 31, 2003 and that all dividends are
reinvested.


36





Issuer
Repurchases of Equity Securities




Period
                  
                  Total
                    Number
                    of Shares
                    Purchased (a)
                  
                  
                  Average
                    Price Paid
                    Per Share
                  
                  
                  Total Number of
                    Shares Purchased
                    as Part of Publicly
                    Announced
                    Repurchase Plans
                    or Programs
                  
                  
                  Maximum
                    Number
                    (or Approximate
                    Dollar Value)
                    of Shares that
                    May
                    Yet be Purchased
                    Under the Plans
                    or
                    ProgramsOctober
      1 – October 31, 2008
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —November
      1 – November 30, 2008
                  
                  
                  23,730
                  
                  
                  $
                  15.11
                  
                  
                  
                  —
                  
                  
                  
                  —December
      1 – December 31, 2008
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —





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





Item
6.   Selected
Financial Data:




FIVE-YEAR
SUMMARY OF SELECTED FINANCIAL DATA


Calgon
Carbon Corporation





(Dollars in thousands, except per share data)
                                                                                                                                
                                                                                                                                2008(5)
                                                                                                                                
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                
                                                                                                                                2006(4)
                                                                                                                                
                                                                                                                                
                                                                                                                                2005
                                                                                                                                
                                                                                                                                
                                                                                                                                2004(3)Income
      Statement Data:Net
      sales
                                                                                                                                
                                                                                                                                $
                                                                                                                                400,270
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                351,124
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                316,122
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                290,835
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                295,877Income
      (loss) from continuing operations
                                                                                                                                
                                                                                                                                $
                                                                                                                                35,564
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                15,453
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (9,012
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (10,507
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                3,968Income
      (loss) from continuing operations per common share, basic
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.80
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.39
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (0.23
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (0.27
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.10Income
      (loss) from continuing operations per common share,
diluted
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.67
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.31
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (0.23
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (0.27
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.10Cash dividends declared per common
      share
                                                                                                                                
                                                                                                                                $
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.09
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                0.12Balance
      Sheet Data (at year end):Total
      assets
                                                                                                                                
                                                                                                                                $
                                                                                                                                387,596
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                348,140
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                322,364
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                347,868
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                363,898Long-term debt
                                                                                                                                
                                                                                                                                $
                                                                                                                                -
                                                                                                                                (1)
                                                                                                                                
                                                                                                                                $
                                                                                                                                12,925
                                                                                                                                (2)
                                                                                                                                
                                                                                                                                $
                                                                                                                                74,836
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                83,925
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                84,600


(1)
              Excludes
      $8.7 million of debt which is classified as current.  See Note 8
      to the Consolidated Financial Statements for further
      information.


(2)
              Excludes
      $62.5 million of debt which is classified as current.  See Note
      8 to the Consolidated Financial Statements for further
      information.


(3)
              Includes
      the February 2004 acquisition of Waterlink Specialty
    Products.


(4)
              Includes
      the gain from insurance settlement and the goodwill impairment charge of
      $8.1 million and $6.9 million, respectively.  See Notes 2 and 6
      to the Consolidated Financial Statements for further
      information.


(5)
              Includes
      the gain on AST Settlement of $9.3 million. See Note 17 to the
      Consolidated Financial Statements for further
  information.


37


Item 7.Management's
Discussion and Analysis of Financial Condition and Results of
Operations:





Overview


Although
overall economic conditions declined throughout the world in 2008, demand for
the Company’s activated carbon products and services continued to remain
strong.  Going forward, this is an area of uncertainty for the
Company.  The Company will continue to monitor the markets it serves
and take appropriate actions in order to attempt to minimize the effect of any
slowdown.





The
Company reported net income of $38.4 million or $0.72 per diluted share, as
compared to a net income of $15.3 million, or $0.31 per diluted share for
2007.  Net sales increased 14.0% to $400.3 million for 2008 from
$351.1 million for 2007. Selling, general and administrative expenses increased
4.6% as compared to 2007, primarily due to higher legal expenses related to the
administrative review of the Department of Commerce’s April 2007 anti-dumping
order on certain activated carbon products from China. Also in 2008, the Company
successfully concluded the AST litigation which began in 1998 and settled for
the receipt of $9.3 million, pre-tax, which was recorded as a gain from
operations in 2008.  The Company was also able to reduce debt by $66.6
million to its lowest level since 1995, primarily as a result of the conversion,
into common stock, of a substantial portion of the Company’s Senior Convertible
Notes (“Notes”).





The
Company also recorded income of $2.8 million, net of tax, for the final
adjustment related to the 2006 sale of its Charcoal/Liquid business and has
presented it as income from discontinued operations within its financial
statements for the year ended December 31, 2008.





Results
of Operations





2008
Versus 2007





Continuing
Operations:


Consolidated
net sales increased in 2008 compared to 2007 by $49.1 million or
14.0%.  Sales increased in the Activated Carbon and Service segment by
$46.7 million or 15.8%.  The increase was primarily due to higher
pricing in all markets as well as increased demand in the food, environmental
air treatment, and potable water markets.  Foreign currency
translation had a positive impact of $2.2 million.  Sales in the
Equipment segment increased approximately $6.0 million or 14.4%.  The
increase was principally due to higher demand for ultraviolet light systems used
for the disinfection of drinking water and carbon adsorption systems of
approximately $6.3 million collectively.  Partially offsetting this
increase was a decrease in demand for ISEP® systems of $0.7
million.  Foreign currency translation had a positive impact of $0.2
million.  Sales for the Consumer segment decreased by $3.5 million or
24.9% due to shipment delays related to performance issues with new production
equipment that limited the output of activated carbon cloth, decreased demand
for activated carbon cloth and PreZerve® products, and the negative impact of
foreign currency translation of $0.5 million. The total sales increase for all
segments attributable to the effect of foreign currency translation was $1.9
million.


38


Net sales
less cost of products sold, as a percent of net sales, was 33.3% in 2008
compared to 31.0% in 2007, an increase of 2.3%.  The increase was
primarily from the Activated Carbon and Service segment which was 33.8% in 2008
versus 31.0% in 2007, an increase of 2.8%.  The increase was
principally due to higher selling prices of certain activated carbon products
and service.  The Equipment segment was 30.6% in 2008 versus 27.7% in
2007, an increase of 2.9%.  The increase was primarily due to the
Company’s movement to standardized product offerings and a more selective bid
process.  The Consumer segment reported 30.1% in 2008 versus 39.8% in
2007, a decline of 9.7% primarily due to competitive pricing pressure and
manufacturing inefficiencies at its activated carbon cloth facility. The
Company’s cost of products sold excludes depreciation; therefore it may not be
comparable to that of other companies.





Depreciation
and amortization decreased by $0.5 million or 3.3% in 2008 as compared to 2007
primarily due to an increase in fully depreciated fixed assets.





Selling,
general and administrative expenses increased by $2.8 million or 4.6% in
2008.  The increase was principally due to higher legal expenses which
were primarily related to the administrative review of the Department of
Commerce’s April 2007 anti-dumping order on certain activated carbon products
from China as well as increased employee related expense.  On a
segment basis, selling, general and administrative expenses increased in 2008 by
approximately $3.8 million in the Activated Carbon and Service segment which was
primarily related to the aforementioned legal expenses and employee related
expenses.  Selling, general and administrative expenses for the
Equipment segment decreased by approximately $0.9 million primarily due to
decreased litigation expense related to the completion of the AST litigation and
such expenses were comparable for the Consumer segment year over
year.





Research
and development expenses increased by $0.4 million or 11.6%.  The
increase was primarily due to an increase in both employee related expenses and
laboratory testing services related to mercury removal from flue
gas.





The $9.3
million gain on AST settlement for 2008 relates to the resolution of a lawsuit
involving the Company’s purchase of the common stock of Advanced Separation
Technologies Inc. (“AST”) in 1996 (See Note 17).





Other
expense – net increased in 2008 versus 2007 by $1.3 million or 87.6% primarily
due to  non-recurring costs associated with the conversion of a
portion of the Notes as well as the negative impact of foreign
exchange.





Interest
income was comparable in 2008 versus 2007.





Interest
expense decreased $1.8 million or 33.3% as a result of the conversion of a
substantial portion of the aforementioned Notes and the effect of capitalized
interest due to increased capital spending in 2008.




39




Income
tax expense from continuing operations for 2008 was $18.1 million as compared to
$7.8 million in 2007.  The effective tax rate for 2008 was 34.3%
compared to 36.7% in 2007.  In 2008, the Company was able to use a
portion of its 2008 foreign tax credits which eliminated the need for a
corresponding valuation allowance; as compared to 2007, in which all foreign tax
credits were subject to a valuation allowance of 65%.  This caused the
Company’s effective tax rate to be 4.4% lower than the 2007 effective tax
rate.  The 2008 effective tax rate also decreased 3.3% versus 2007 due
to increased income in foreign jurisdictions where the tax rate was lower than
the U.S. rate.  In 2007, the Company benefited from deferred tax
related adjustments for changes in tax rates which lowered the 2007 effective
tax rate 5.2%.  The 2008 effective tax rate also increased compared to
2007 by 0.4% due to a change in the mix of states in which the Company
operated.





Equity in
income of equity investments decreased in 2008 versus 2007 by $1.1
million.  The decrease was principally due to higher product costs
realized in 2008 by the Company’s joint venture with Calgon Mitsubishi Chemical
Corporation in Japan.





Discontinued
Operations:


Income
from discontinued operations was $2.8 million as compared to a loss from
discontinued operations of $0.2 million in 2007.  The 2008 results
include the final adjustment to the contingent consideration received from the
sale of the Company’s Charcoal/Liquid business that was sold in the first
quarter of 2006 (See Note 3).





2007
Versus 2006





Consolidated
net sales increased in 2007 compared to 2006 by $35.0 million or
11.1%.  Sales increased in the Activated Carbon and Service segment by
$30.3 million or 11.4%.  The increase was primarily due to higher
pricing for certain activated carbon products and services.  Increased
demand as well as higher pricing in the industrial process and environmental air
treatment markets of $3.9 million and $15.5 million, respectively, also
contributed to the increase.  Foreign currency translation had a
positive impact of $8.3 million.  Sales in the Equipment segment
increased approximately $3.4 million or 9.1%.  The increase was
principally due to higher demand for the Company’s UV and municipal odor
equipment of approximately $5.0 million collectively.  Partially
offsetting this increase was a decrease in demand for traditional carbon
adsorption equipment of $1.2 million.  Foreign currency translation
had a positive impact of $0.2 million.  Sales for the Consumer segment
increased by $1.2 million or 9.5% due to higher demand for activated carbon
cloth and the positive impact of foreign currency translation of $0.8 million.
The total sales increase for all segments attributable to the effect of foreign
currency translation was $9.3 million.





Net sales
less cost of products sold, as a percent of net sales, was 31.0% in 2007
compared to 25.1% in 2006, an increase of 5.9%.  The increase was
primarily from the Activated Carbon and Service segment which was 31.0% in 2007
versus 23.8% in 2006, an increase of 7.2%.  The increase was
principally due to higher pricing of certain activated carbon products and
service.  The Equipment segment was 27.7% in 2007 versus 29.9% in
2006, a 2.2% decline which was primarily related to an increase in manufacturing
related costs. The Consumer segment reported 39.8% in 2007 versus 38.0% in 2006,
an increase of 1.8% primarily due to volume for higher value activated carbon
cloth. The Company’s cost of products sold excludes depreciation; therefore it
may not be comparable to that of other companies.





40




Depreciation
and amortization decreased by $1.7 million or 8.9% in 2007 as compared to 2006
primarily due to an increase in fully depreciated fixed assets.





Selling,
general and administrative expenses decreased by $0.7 million or 1.1% in
2007.  The decline was primarily due to a decrease in litigation
expense of $6.9 million which was principally related to the substantial
completion of the Company’s UV patent cases and anti-dumpingpetition
for steam activated carbon imports from China.  Partially offsetting
this decrease was an increase in employee related expenses of $1.1 million, $0.6
million of bad debt expense, and $3.3 million of professional service fees
principally related to accounting, tax, and Sarbanes-Oxley compliance and
planning projects.  The 2006 period included a $1.3 million reduction
related to the change in estimate of the Company’s environmental liabilities
assumed in the 2004 Waterlink acquisition.  On a segment basis,
selling, general and administrative expenses increased in 2007 by approximately
$2.9 million in the Activated Carbon and Service segment which was primarily
related to higher employee related expenses.  The 2006 period included
the aforementioned $1.3 million reduction in the Company’s environmental
liabilities. Selling, general and administrative expenses for the Equipment
segment decreased by approximately $3.6 million primarily due to decreased
litigation expense related to the substantial completion of the UV patent cases
and were comparable for the Consumer segment year over year.





Research
and development expenses decreased by $0.5 million or 12.9%.  The
decrease was primarily due to a reduction in employee related
expenses.





The gain
from insurance settlement of $8.1 million in 2006 related to the claim for
damage to the Company’s Pearlington, Mississippi plant which was caused by
Hurricane Katrina in 2005.





The
Company recorded a $6.9 million impairment charge in 2006 related to the
goodwill associated with the Company’s UV reporting unit of its Equipment
segment which is more fully described in Note 6 to the financial
statements.





Interest
income increased in 2007 versus 2006 by $0.9 million or 106.2% primarily as a
result of the Company’s higher cash balance carried throughout
2007.





Interest
expense decreased in 2007 versus 2006 by $0.5 million or 7.8% as a result of
lower average borrowing levels and lower average interest rates paid on the
Company’s borrowings in 2007 versus 2006.





Other
expense – net decreased in 2007 versus 2006 by $0.8 million or 34.8% primarily
due to the write-off of deferred financing fees associated with the Company’s
former credit facility that occurred in 2006.




41




Income
tax expense from continuing operations for 2007 was $7.8 million as compared to
a tax benefit of $2.7 million for 2006.  The effective tax rate for
2007 was 36.7% compared to a rate of 22.4% for 2006.   The
overall increase in tax expense was caused by pre-tax earnings in 2007 compared
to the pre-tax loss incurred in 2006.  The effective tax rate in 2006
was significantly impacted by a non-deductible goodwill charge which caused the
Company’s 2006 effective tax rate to differ from the U.S. Federal statutory rate
of 35% by 17.1%.   During 2007, the overall tax rate did not
differ significantly from the Federal statutory rate.





In part
due to an overall foreign loss, the Company was unable to use its foreign tax
credits and has recorded a valuation allowance related to them which, on a net
basis, caused the overall tax rate to increase by 4.9% in
2007.   In addition, the Company received a dividend from its
Japanese joint venture which increased the tax rate by 3.5%.  The
Company’s 2007 rate was favorably impacted by lower statutory tax rates in its
foreign jurisdictions as well as  other deferred tax rate
adjustments.





Equity in
income of equity investments increased in 2007 versus 2006 by $1.7
million.  The increase was principally due to lower cost of products
sold and a favorable mix for products sold by the Company’s joint venture with
Calgon Mitsubishi Chemical Corporation in Japan.





Discontinued
Operations:


Loss from
discontinued operations was $0.2 million as compared to income from discontinued
operations of $1.2 million in 2006.  The 2006 results include a $1.7
million gain, net of tax, related to the 2006 sales of the Company’s
Charcoal/Liquid and Solvent Recovery businesses.





Working
Capital and Liquidity


Cash
flows provided by operating activities were $25.6 million for the year ended
December 31, 2008 as compared to $29.4 million for the year ended December 31,
2007.  The $3.8 million decrease was primarily due to unfavorable
working capital changes of $24.4 million (exclusive of debt) partially offset by
improved operating results of $23.1 million, including the net $5.7 million
impact of the AST settlement (See Note 17).


Total
debt at December 31, 2008 was $10.4 million, a decrease of $66.6 million from
December 31, 2007.  The decrease was primarily the result of the
conversion of a substantial portion of the Company’s Senior Convertible Notes as
described below.





5.00%
Convertible Senior Notes due 2036





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





42




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





For all
of the quarterly periods during the years ended December 31, 2008 and 2007, the
last reported sale price of the Company’s common stock was greater than 120% of
the conversion price of the Notes for at least 20 trading days in the period of
30 consecutive trading days ending on the last trading day of each of the
aforementioned quarterly periods.   As a result, the holders of
the Notes have had the right to convert the Notes into cash and shares of common
stock throughout 2008. 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.  Three million of the shares exchanged for principal amount of
the Notes (in lieu of cash) were not previously included in the Company’s
diluted shares.





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


The
initial conversion rate is 196.0784 shares of the Company’s common stock per
$1,000 principal amount of Notes, equivalent to an initial conversion price of
approximately $5.10 per share of common stock.  The conversion rate is
subject to adjustment in some events, including the payment of a dividend on the
Company’s common stock, but will not be adjusted for accrued interest, including
any additional interest.  In addition, following certain fundamental
changes (principally related to changes in control) that occur prior to August
15, 2011, the Company will increase the conversion rate for holders who elect to
convert Notes in connection with such fundamental changes in certain
circumstances. The Company considered EITF 00-27 issue 7 which indicates that if
a reset of the conversion rate due to a contingent event occurs, the Company
would need to calculate if there is a beneficial conversion and record if
applicable. Through December 31, 2008, no contingent events
occurred.




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





43




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





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





The
Company sold the Notes to the original purchaser at a discount of $3.3 million
that is being amortized over a period of five years.  The Company
incurred original issuance costs of $0.5 million which have been deferred and
are being amortized over a five year period.The Company reclassified
$1.9 million of the discount and $0.3 million of issuance costs to additional
paid in capital as a result of the aforementioned conversions and exchanges of
Notes that occurred during the year ended December 31, 2008.  The
Company will continue to amortize the respective remaining balances over the
remainder of the five year period or the date of conversion/exchange, if
sooner.For
the year ended December 31, 2008, the Company recorded interest expense of $3.2
million related to the Notes, of which $0.5 million related to the amortization
of the discount.





Credit
Facility





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


44





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





As of
December 31, 2008, the collateral value of assets pledged was
$57.2 million. The collateral value as of December 31, 2008 for
domestic, U.K., and Belgian borrowers were $46.9 million,
$4.8 million, and $5.5 million, respectively. The Credit Facility
contains a fixed charge coverage ratio covenant which becomes effective when
total domestic availability falls below $11.0 million. As of
December 31, 2008, total availability was $45.6 million. Availability
as of December 31, 2008 for domestic, U.K., and Belgian borrowers was
$38.3 million, $3.7 million, and $3.6 million, respectively. The
Company can issue letters of credit up to $20 million of the available
commitment amount under the Credit Facility. Sub-limits for letters of credit
under the U.K. sub-facility and the Belgian sub-facility are $2.0 million
and $6.0 million, respectively. Letters of credit outstanding at
December 31, 2008 totaled$11.6 million.





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





The
Credit Facility contains a number of affirmative and negative covenants. As of December
31, 2008, the last reported sale price of the Company’s common stock was greater
than 120% of the conversion price of the Notes for at least 20 trading days in
the period of 30 consecutive trading days ended December 31, 2008.  As
a result, as of December 31, 2008, the holders of the Notes have the right to
convert the Notes into cash and shares of common stock.  Included in
the Credit Facility is a provision which permits the conversion of the
outstanding amount of the Company’s Notes. The Credit Facility also includes a
provision for up to $3.0 million of letters of credit in aggregate under the
Company’s U.S., Belgium, and UK sub-limits that can be issued having expiration
dates that are more than one year but not more than three years after the date
of issuance.





The
negative covenants provide for certain restrictions on possible acts by the
Company related to matters such as additional indebtedness, certain liens,
fundamental changes in the business, certain investments or loans, asset sales
and other customary requirements. The Company was in compliance with all such
negative covenants as of December 31, 2008.


45





Contractual
Obligations





The
Company is obligated to make future payments under various contracts such as
debt agreements, lease agreements, and unconditional purchase
obligations.  The Company is contractually obligated to make monthly,
quarterly, and semi-annual interest payments on its outstanding debt
agreements.  At December 31, 2008, the weighted average effective
interest rate was 4.48% and current portion of long-term borrowings totaled $8.8
million.  The Company is also required to make minimum funding
contributions to its pension plans which are estimated at $2.8 million for the
year ended December 31, 2009.  The following table represents the
significant contractual cash obligations and other commercial commitments of the
Company as of December 31, 2008.





Due
      in(Thousands)
                          
                          2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          Thereafter
                          
                          
                          TotalShort-term
      debt
                          
                          $
                          1,605
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,605Current
      portion of long-term debt*
                          
                          
                          2,925
                          
                          
                          
                          -
                          
                          
                          
                          5,851
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,776Interest
      on Notes
                          
                          
                          325
                          
                          
                          
                          325
                          
                          
                          
                          190
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          840Operating
      leases
                          
                          
                          5,727
                          
                          
                          
                          5,097
                          
                          
                          
                          4,515
                          
                          
                          
                          4,247
                          
                          
                          
                          3,765
                          
                          
                          
                          7,783
                          
                          
                          
                          31,134Unconditional
      purchaseobligations**
                          
                          
                          26,175
                          
                          
                          
                          25,600
                          
                          
                          
                          23,318
                          
                          
                          
                          1,575
                          
                          
                          
                          1,575
                          
                          
                          
                          263
                          
                          
                          
                          78,506Total contractual
      cashobligations
                          
                          $
                          36,757
                          
                          
                          $
                          31,022
                          
                          
                          $
                          33,874
                          
                          
                          $
                          5,822
                          
                          
                          $
                          5,340
                          
                          
                          $
                          8,046
                          
                          
                          $
                          120,861


*The 2011
maturity excludes debt discount of $149.  This amount is classified as
currently payable at December 31, 2008.  See Note 8.


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





The
long-term tax payable of $13.1 million, pertaining to the tax liability related
to FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109” (“FIN No. 48”), has been excluded from
the above table due to the fact that the Company is unable to determine the
period in which the liability will be resolved.





The
Company does not have any special-purpose entities or off-balance sheet
financing arrangements except for the operating leases disclosed above as well
as the indemnities and guarantees disclosed in Note 17.





46




The
Company maintains qualified defined benefit pension plans (the “Qualified
Plans”), which cover substantially all non-union and certain union employees in
the United States and Europe. The
Company’s pension expense for all pension plans approximated $2.0 million and
$2.4 million for the years ended December 31, 2008 and 2007,
respectively.  The Company expects its 2009 pension expense to be $5.4
million.  The increase from 2008 is primarily as a result of
investment losses realized in 2008.




The fair
value of the Company’s Qualified Plan assets has decreased from $88.9 million at
December 31, 2007 to $64.5 million at December 31, 2008. The
Pension Protection Act, passed into law in August 2006, prescribes a new
methodology for determining the minimum amount that must be contributed to
defined benefit pension plans in 2008. During the year ended
December 31, 2008, the Company funded its Qualified Plans with $6.2 million in
contributions of which $3.1 million was made voluntarily by the
Company.  The Company expects that it will be required to fund the
Qualified Plans with approximately $2.8 million in contributions for the year
ending December 31, 2009. Due
primarily as a result of negative investment returns in 2008, the
Company may make additional contributions to its Qualified Plans in 2009 beyond
the required funding.  Additional voluntary contributions would
be dependent upon, among other things, the Company’s ongoing operating results
and liquidity.





The
Company did not declare or pay any dividends in 2008.  Dividend
declaration and payout are at the discretion of the Board of
Directors.  Future dividends will depend on the Company’s earnings,
cash flow and capital investment plans to pursue long-term growth
opportunities.  The Company’s Credit Facility contains covenants which
include limitations on its ability to declare or pay cash dividends or make
other restricted payments, 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 $6.0 million in the aggregate during any fiscal year if
certain conditions are met.





Capital
Expenditures and Investments


Capital
expenditures were $34.9 million in 2008 (with $1.9 million of this amount
reflected as a non-cash increase in accounts payable and accrued liabilities),
$11.8 million in 2007, and $12.9 million in 2006.  Expenditures for
2008 primarily included $29.3 million for improvements to manufacturing
facilities including approximately $13.0 million related to the planned 2009
re-start of a previously idled production line, $3.0 million for customer
capital, and $1.8 million related to improvements to information
systems.  Expenditures for 2007 primarily included $8.4 million for
improvements to manufacturing facilities and $3.3 million for customer
capital.  Expenditures for 2006 primarily included $9.3 million for
improvements to manufacturing facilities, $2.2 million related to the repair of
the Company’s Pearl River plant as a result of Hurricane Katrina, and $1.0
million for customer capital. Capital expenditures for 2009 are projected to be
approximately $55.0 million to $60.0
million.  The aforementioned expenditures are expected to be funded by
operating cash flows, cash on hand, and borrowings.





Other
cash flows from investing activities include the receipt of $21.3 million in
2006 for the sale of the Charcoal/Liquid and Solvent Recovery businesses and the
2006 receipt of $4.6 million in connection with the insurance settlement for
damage caused to the Company’s Pearlington, Mississippi plant by Hurricane
Katrina.  Proceeds for sales of property, plant and equipment totaled
$0.9 million in 2008 compared to $0.5 million in 2007, and $1.2 million in
2006.





47




The
Company expects that cash from operating activities plus cash balances and
available external financing will be sufficient to meet its cash requirements.
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 operating cash flows, cash on
hand, and borrowings will adequately support each of the segments cash
needs.





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 margins of dumping
ranged from 61.95 percent ad valorem (i.e., of the entered value of the goods)
to 228.11 percent ad valorem.  A formal order imposing final duties
was published on April 27, 2007.  All imports from China remain
subject to the order and antidumping duties.  Importers of subject
activated carbon from China are required to make cash deposits of estimated
antidumping duties at the time the goods are entered into the United States
customs territory.  Deposits of duties are subject to future revision
based on retrospective reviews conducted by the Commerce
Department.  With one limited exception, the amount of duties owed can
decrease or increase 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
active both as a domestic producer (a “petitioner”) and as a foreign exporter (a
“respondent”) before the Commerce Department.  The Company is
represented by separate counsel in each of these roles and has actively
participated throughout the proceeding.





48




As one of
two U.S. producers involved 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 duty case, the Company was required to pay deposits of estimated
antidumping duties in the amount of 84.45 percent ad valorem to the Bureau of
Customs and Border Protection (“Customs”) on entries made on or after October
11, 2006 through April 9, 2007.   Thereafter, deposits have been
paid at 69.54 percent.  Because of limits on the government’s legal
authority to impose provisional duties prior to issuance of a final
determination, entries made between April 9, 2007 and April 19, 2007 were not
subject to duties.




The
Company’s role as an importer that is required to pay duties results in a
contingent liability related to the final amount of duties that will be
paid.  The Company has made deposits of estimated duties in two
ways.  First, estimated duties on entries in the period from October
11, 2006 through April 9, 2007 were covered by a bond.  The total
amount of duties 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 duties during this
period of $0.8 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheets at December 31, 2008 and
2007.  Second, the Company has been required to post cash deposits of
estimated duties owed on entries of subject merchandise since April 19,
2007.  The final amount of duties 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.





As noted
above, following the entry of merchandise, the amount of estimated antidumping
duties paid is subject to later review and adjustment based on the actual amount
of dumping that is found.  To do this, the Commerce Department
conducts annual 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
duty rate (either increasing or reducing the rate) applicable to any given
foreign exporter.  Revision of the
margin of dumping has two effects.  First, it will alter the actual
amount of duties that Customs will seek to collect, by either increasing or
decreasing the amount to reflect the actual amount of dumping that was
found.  Where the actual amount of duties owed increases, the
government will require payment of the difference plus
interest.  Conversely, when the duty rate decreases, any difference is
refunded with interest.  Second, the revised rate becomes the cash
deposit rate applied to future entries, and as such can either increase or
decrease the amount of deposits an importer will be required to
pay.





49




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 are
due no later than March 31, 2009, and the review must be completed no later than
November 3, 2009.   At this time, data submitted by the Company
as well as others is continuing to be reviewed by Customs. Because there are
multiple factors that will influence the final results, the Company is unable to
estimate what, if any, adjustments to the current deposit rate will occur or the
amount of additional deposits or refunds the Company may owe or receive,
respectively.





Related
to this, in early April 2009, the Commerce Department will publish a formal
notice allowing parties to request the second annual administrative review of
the antidumping duty order.  Requests for review will be due no later
than April 30, 2009.  The Company currently anticipates participating
in the second review.





The
contingent liability resulting from duties paid on imports is somewhat mitigated
by two factors.  First and foremost, the antidumping duty order’s
disciplinary effect on the market encourages the elimination of dumping through
fair pricing, and thus tends to provide the Company the ability to obtain an
improved return on its investment and operations.  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 duties collected on
entries of subject merchandise from China from April 27, 2007 to September 30,
2007.  In July 2008, the Company applied for such a
distribution.  In December 2008, the Company received a distribution
of approximately $0.2 million, which reflected 59.57 percent of the total amount
available.  The Company anticipates receiving additional amounts in
2009 and future years, though the exact amount is impossible to
determine.





Critical
Accounting Policies


Management
of the Company has evaluated the accounting policies used in the preparation of
the financial statements and related footnotes and believes the policies to be
reasonable and appropriate.  The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States requires management to make judgments,
estimates, and assumptions regarding uncertainties that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities, and the reported amounts of revenues and
expenses.  Management uses historical experience and all available
information to make
these judgments and estimates, and actual results will inevitably differ from
those estimates and assumptions that are used to prepare the Company’s financial
statements at any given time.  Despite these inherent limitations,
management believes that Management’s Discussion
and Analysis (“MD&A”) and the financial statements and related footnotes
provide a meaningful
and fair perspective of the Company.





50




The
following are the Company’s critical accounting policies impacted by
management’s judgments, assumptions, and estimates.  Management
believes that the application of these policies on a consistent basis enables
the Company to provide the users of the financial statements with useful and
reliable information about the Company’s operating results and financial
condition.





Revenue
Recognition


The
Company recognizes revenue and related costs when goods are shipped or services
are rendered to customers provided that ownership and risk of loss have passed
to the customer.





Revenue
for major equipment projects is recognized under the percentage of completion
method. The Company’s major equipment projects generally have a long project
life cycle from bid solicitation to project completion.  The nature of
the contracts are generally fixed price with milestone billings.  The
Company recognizes revenue for these projects based on the fixed sales prices
multiplied by the percentage of completion.  In applying the
percentage-of-completion method, a project’s percent complete as of any balance
sheet date is computed as the ratio of total costs incurred to date divided by
the total estimated costs at completion. As
changes in the estimates of total costs at completion and/or estimated total
losses on projects are identified, appropriate earnings adjustments are recorded
during the period that the change or loss is identified.  The Company
has a history of making reasonably dependable estimates of costs at completion
on our contracts that follow the percentage-of-completion method; however, due
to uncertainties inherent in the estimation process, it is possible that
estimated project costs at completion could vary from our
estimates.  The principal components of costs include material, direct
labor, subcontracts, and allocated indirect costs.  Indirect costs
primarily consist of administrative labor and associated operating expenses,
which are allocated to the respective projects on actual hours charged to the
project utilizing a standard hourly rate.





Allowance
for Doubtful Accounts


The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.  The amount of allowance recorded is primarily based upon a
quarterly review of specific customer receivables that remain outstanding at
least three months beyond their respective due dates.  The Company’s
provision for doubtful accounts and loss experience have not varied materially
from period to period.  However, if the financial condition of the
Company’s customers were to deteriorate resulting in an
impairment of their ability to make payments, additional allowances may be
required.





Inventories


The
Company’s inventories are carried at the lower of cost or market.  The
Company provides for inventory obsolescence based upon a review of specific
products that have remained unsold for a prescribed period of
time.  If the market demand for various products softens, additional
allowances may be required.


51
  Goodwill
and Other Intangible Assets
 Goodwill
represents the excess of the cost of an acquired business over the fair value of
the identifiable tangible and intangible assets acquired and liabilities assumed
in a business combination.  Identifiable intangible assets acquired in
business combinations are recorded based on their fair values at the date of
acquisition.  In accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets,” goodwill and identifiable intangible assets with indefinite
lives are not subject to amortization but must be evaluated for
impairment.  None of the Company’s identifiable intangible assets
other than goodwill have indefinite lives.




The
Company tests goodwill for impairment at least annually by initially comparing
the fair value of each of the Company’s reporting units to their related
carrying values.  If the fair value of the reporting unit is less than
its carrying value, the Company performs an additional step to determine the
implied fair value of the goodwill.  The implied fair value of
goodwill is determined by first allocating the fair value of the reporting unit
to all of the assets and liabilities of the unit and then computing the excess
of the unit’s fair value over the amounts assigned to the assets and
liabilities.  If the carrying value of goodwill exceeds the implied
fair value of goodwill, such excess represents the amount of goodwill
impairment, and the Company recognizes such impairment
accordingly.  Fair values are estimated using discounted cash flow and
other valuation methodologies that are based on projections of the amounts and
timing of future revenues and cash flows, assumed discount rates and other
assumptions as deemed appropriate.  The Company also considers such
factors as historical performance, anticipated market conditions, operating
expense trends and capital expenditure requirements.





On
November 14, 2006, the Federal Court of Canada found that the Company’s patent
for the use of UV light to prevent infection from Cryptosporidium in drinking
water was invalid.  As a result, the Company’s estimate of future
royalties used in determining the fair value of the UV
reporting unit as of December 31, 2006 declined substantially from the prior
year resulting in goodwill impairment of $6.9 million.  This
impairment represents the difference between the implied fair value of goodwill
for the UV reporting unit and the carrying value of the


goodwill
before recognition of the impairment.





The
Company’s identifiable intangible assets other than goodwill have finite
lives.  Certain of these intangible assets, such as customer
relationships, are amortized using an accelerated methodology while others, such
as patents, are amortized on a straight-line basis over their estimated
useful lives.  In addition, intangible assets with finite lives are
evaluated for impairment whenever events or circumstances indicate that their
carrying amount may not be recoverable, as prescribed by Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” (“SFAS No. 144”).




52




Pensions


The
Company maintains Qualified Plans which cover substantially all non-union and
certain union employees in the United States and Europe.  Pension
expense, which totaled $2.0 million in 2008 and $2.4 million in 2007, is
calculated based upon a number of actuarial assumptions, including expected
long-term rates of return on our Qualified Plans’ assets, which range from 5.00% to
8.00%.  In developing the expected long-term rate of return
assumption, the Company evaluated input from its actuaries, including their
review of asset class return expectations as well as long-term inflation
assumptions.  The Company also considered historical returns on asset
classes, investment mix, and investment manager performance.  The
expected long-term return on the U.S. Qualified Plans’ assets is based on an
asset allocation assumption of 68.0% with equity managers, 30.0% with
fixed-income managers, and 2% with other investments.  The European
Qualified Plans’ assets are based on an asset allocation assumption of 36.7%
with equity managers, 48.3% with fixed-income managers, and 15.0% with other
investments.  Because of market fluctuation, the Company’s actual U.S.
asset allocation as of December 31, 2008 was 69.9% with equity managers and
30.1% with fixed-income managers.  The Company’s actual European asset
allocation as of December 31, 2008 was 33.5% with equity managers, 50.7% with
fixed-income managers, and 15.8% with other investments.  The Company
regularly reviews its asset allocation and periodically rebalances its
investments to the targeted allocation when considered
appropriate.  The Company continues to believe that the range of 6.25%
to 8.00% is a reasonable long-term rate of return on its Qualified Plans
assets.  The Company will continue to evaluate its actuarial
assumptions, including its expected rate of return, at least annually, and will
adjust as necessary.


The
discount rates that the Company utilizes for its Qualified Plans to determine
pension obligations is based on a review of long-term bonds that receive one of
the two highest ratings given by a recognized rating agency.  The
discount rate determined on this basis has increased from a range of 4.89% to
5.93% at December 31, 2007 to a range of 5.63% to 6.23% at December 31,
2008.  The Company estimates that its pension expense for the
Qualified Plans will approximate $5.4 million in 2009.  Future actual
pension expense will depend on future investment performance, funding levels,
changes in discount rates and various other factors related to the populations
participating in its Qualified Plans.





A
sensitivity analysis of the projected incremental effect of a hypothetical 1
percent change in the significant assumptions used in the pension calculations
is provided in the following table:




Hypothetical
      RateIncrease
      (Decrease)U.S.
      Plans
                      
                      
                      European
      Plans(Thousands)
                      
                      (1%)
                      
                      
                      1%
                      
                      
                      (1%)
                      
                      
                      1%Discount
      ratePension
      liabilities at December 31, 2008
                      
                      $
                      11,622
                      
                      
                      $
                      (10,136
                      )
                      
                      $
                      5,429
                      
                      
                      $
                      (4,350
                      )Pension
      Costs for the year ended December 31, 2008
                      
                      $
                      401
                      
                      
                      $
                      (788
                      )
                      
                      $
                      370
                      
                      
                      $
                      (289
                      )IndexationPension
      liabilities at December 31, 2008
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (690
                      )
                      
                      $
                      759Pension
      Costs for the year ended December 31, 2008
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (54
                      )
                      
                      $
                      78Expected
      return on plan assetsPension
      costs for the year ended December 31, 2008
                      
                      $
                      674
                      
                      
                      $
                      (674
                      )
                      
                      $
                      246
                      
                      
                      $
                      (246
                      )CompensationPension liabilities at December 31, 2008
                      
                      $
                      (847
                      )
                      
                      $
                      866
                      
                      
                      $
                      (1,524
                      )
                      
                      $
                      1,718Pension
      costs for the year ended December 31, 2008
                      
                      $
                      (188
                      )
                      
                      $
                      196
                      
                      
                      $
                      (256
                      )
                      
                      $
                      320




53




Income
Taxes


During
the ordinary course of business, there are many transactions and calculations
for which the ultimate tax determination is uncertain.  Significant
judgment is required in determining the Company’s annual effective tax rate and
in evaluating tax positions.  As described in Note 13, on January 1,
2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,
Accounting for Income Taxes” (“FIN 48”).  FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS No. 109, “Accounting for Income Taxes.”  The
first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or
litigation processes, if any.  The second step is to measure the tax
benefit as the largest amount that is more than 50% likely of being realized
upon settlement.


Although
we believe we have adequately reserved for our uncertain tax positions, no
assurance can be given that the final tax outcome of these matters will not be
different.  We adjust these
reserves in light of changing facts and circumstances, such as the closing of a
tax audit, the refinement of an estimate, or a lapse of a tax
statute.  To the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will impact the provision
for income taxes in the period in which such determination is
made.  The provision for income taxes includes the impact of reserve
provisions and changes to reserves that are considered appropriate, as well as
the related net interest.





The
Company is subject to varying statutory tax rates in the countries where it
conducts business.  Fluctuations in the mix of the Company’s income
between countries result in changes to the
Company’s overall effective tax rate.





The
Company recognizes benefits associated with foreign and domestic net operating
loss and credit carryforwards when the Company believes that it is more likely
than not that its future taxable income in the relevant tax jurisdictions will
be sufficient to enable the realization of the tax benefits.  As of
December 31, 2008, the Company had recorded total deferred tax assets of $35.9
million, of which $15.0 million (before consideration of a $8.0 million
valuation allowance) represents tax benefits resulting from unused foreign tax
credits as well as state NOLs and state tax credits.  The foreign tax
credits of $4.3 million, net, can be carried forward 10 years and expire from
2009 through 2018.  The Company recorded a valuation allowance of 65%
against its foreign tax credits which represents the portion that does not meet
the more likely than not threshold of being utilized.  State operating
loss carryforwards of $2.4 million, net, expire from 2010 to 2027 of which over
90% will not expire before 2019.




54




The
Company based its conclusions on normalized historical performance and on
projections of future taxable income in the relevant tax
jurisdictions.  Normalized historical performance for purposes of this
assessment includes adjustments for those income and expense items that are
unusual and non-recurring in nature and are not expected to affect results in
future periods.  Such unusual and non-recurring items include the
effects of discontinued operations, legal fees or settlements associated with
specific litigation matters, pension curtailment costs,
and restructuring costs.  For the three-year period ended December 31,
2008, the Company’s normalized historical performance on a cumulative basis,
indicated a profit, which supports the likelihood of future federal taxable
income.  The Company’s projections of future taxable income for state
purposes consider known events, such as the passage of legislation or expected
occurrences, and do not reflect a general growth assumption.  Certain
major assumptions affecting the income projections relate to government
standards, which impact the entire industry.  Government regulations
are expected to expand market opportunities in both the UV market and the
mercury removal market.  Also, effective in 2007, the Department of
Commerce notified the Company that tariffs ranging from 62% to 228% were imposed
on all steam activated carbon products imported from China.  The
imposition of duties has favorably affected its
markets.  Incorporation of these known or pending events into the
projections of future taxable income results in potentially significant growth
in the near term.  While management believes the risks associated with
these events not occurring may be low, the ultimate impact of the events on the
Company’s taxable income remains uncertain.  For example, if the
Company is unable to achieve its projected share of the expanded markets
resulting from government regulations or anti-dumping duties, the Company’s
projected future taxable income may not be realized.  For the 15-year
period beginning in 2012, which generally represents the period after the impact
of the known or pending events has stabilized, the compound annual growth rate
of projected taxable income is less than 5%.  The Company believes
that its assumptions and the resulting projections are reasonable and fully
support the recognized deferred tax assets associated with state net operating
loss and credit carryforwards.


Approximately
80% of the Company’s deferred tax assets, or $28.8 million, represent temporary
differences associated with pensions, accruals, goodwill, and other
assets.  Over 85% of the Company’s
deferred tax liabilities of $13.7 million at December 31, 2008 relate to
property, plant and equipment.  These temporary differences will
reverse in the future due to the natural realization of temporary differences
between annual book and tax reporting.  The Company believes that the
deferred tax liabilities generally will impact taxable income of the same
character (ordinary income), timing, and jurisdiction as the deferred tax
assets.





Litigation


The
Company is involved in various asserted and unasserted legal
claims.  An estimate is made to accrue for a loss contingency relating
to any of these legal claims if it is probable that a liability was incurred at
the date of the financial statements and the amount of loss can be reasonably
estimated.  Because of the subjective nature inherent in assessing the
outcome of legal
claims and because the potential that an adverse outcome in a legal claim could
have a material
impact on the Company’s legal position or results of operations, such estimates
are considered
to be critical accounting estimates.  The Company will continue to
evaluate all legal matters as additional information becomes
available.  Reference is made to Note 17 of the financial statements
for a discussion of litigation and contingencies.




55




Long-Lived
Assets


The
Company evaluates long-lived assets under the provisions of Statement of
Financial Accounting
Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 144”), which addresses financial accounting and reporting for
the impairment of long-lived assets, and for long-lived assets to be disposed
of.  For assets to be held and used, the Company groups a long-lived
asset or assets with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other
assets and liabilities.  An impairment loss for an asset group reduces
only the carrying amounts of a long-lived asset or assets of the group being
evaluated.  The loss is allocated to the long-lived assets of the
group on a pro-rata basis using the relative carrying amounts of those assets,
except that the loss allocated to an individual long-lived asset of the group
does not reduce the carrying amount of that asset below its fair value whenever
that fair value is determinable without undue cost and
effort.  Estimates of future cash flows used to test the
recoverability of a long-lived asset group include only the future cash flows
that are
associated with and that are expected to arise as a direct result of the use and
eventual disposition of the asset group.  The future cash flow
estimates used by the Company exclude interest charges.


New
Accounting Pronouncements




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




56




In
December 2007, the FASB issued SFAS No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160
changes the classification of noncontrolling (minority) interests on the
balance sheet and the accounting for and reporting of transactions between the
reporting entity and holders of such noncontrolling interests. Under the new
standard, noncontrolling interests are considered equity and are to be reported
as an element of stockholders’ equity rather than outside of equity in the
balance sheet. In addition, the current practice of reporting minority interest
expense or benefit also will change. Under the new standard, net income will
encompass the total income before minority interest expense. The statement of
operations will include separate disclosure of the attribution of income between
the controlling and noncontrolling interests. Increases and decreases in the
noncontrolling ownership interest amount are accounted for as equity
transactions. SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008 and earlier application is prohibited. Upon adoption, the
balance sheet and the statement of operations should be recast retrospectively
for the presentation of noncontrolling interests. The other accounting
provisions of the statement are required to be adopted prospectively. The
Company adopted SFAS No. 160 as required on January 1, 2009 and the adoption did
not have a material impact on its financial position or results of
operations.


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





In April
2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP SFAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets.” Previously, under the provisions of SFAS No. 142, an entity
was precluded from using its own assumptions about renewal or extension of an
arrangement where there was likely to be substantial cost or material
modifications. FSP SFAS 142-3 removes the requirement of SFAS No. 142 for an
entity to consider whether an intangible asset can be renewed without
substantial cost or material modification to the existing terms and conditions
and requires an entity to consider its own experience in renewing similar
arrangements. FSP SFAS 142-3 also increases the disclosure requirements for a
recognized intangible asset to enable a user of financial statements to assess
the extent to which the expected future cash flows associated with the asset are
affected by the entity’s intent or ability to renew or extend the arrangement.
FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years. Early adoption is prohibited. The
guidance for determining the useful life of a recognized intangible asset is
applied prospectively to intangible assets acquired after the effective date.
Accordingly, the Company does not anticipate that the initial application of FSP
SFAS No. 142-3 will have an impact on the Company. The disclosure requirements
must be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date.




57




In
May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (FSP ABP 14-1”).  FSP APB 14-1
requires the issuer to separately account for the liability and equity
components of convertible debt instruments in a manner that reflects the
issuer’s nonconvertible debt borrowing rate. The guidance will result in
companies recognizing higher interest expense in the statement of operations due
to amortization of the discount that results from separating the liability and
equity components. FSP APB 14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years and requires retroactive application to prior financial
statements. The Company is still in the process of evaluating the impact that
the adoption of FSP APB 14-1 will have on its financial
statements.  The application of APB 14-1 is not expected to have a
material prospective impact on our financial statements.


58


Item
7A.  Quantitative
and Qualitative Disclosures About Market Risk:





Commodity
Price Risk


In the
normal course of its business, the Company is exposed to market risk or price
fluctuations related to the production of activated carbon
products.  Coal and natural gas, which are significant to the
manufacturing of activated carbon, have market prices that fluctuate
regularly.  Based on the estimated 2009 usage of coal and natural gas,
a hypothetical 10% increase (or decrease) in the price of coal and natural gas,
would result in a pre-tax loss (or gain) of $1.9 million and $0.9 million,
respectively.





To
mitigate the risk of fluctuating prices, the Company has entered into long-term
contracts to hedge the purchase of a percentage of the estimated need of coal
and natural gas at fixed prices.  The future commitments under these
long-term contracts, which provide economic hedges, are disclosed within Note 9
to the Financial Statements.  The value of the cash-flow hedges for
natural gas is disclosed in Note 16 to the Financial Statements.





Interest
Rate Risk


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




59




Foreign
Currency Exchange Risk


The
Company is subject to risk of price fluctuations related to anticipated revenues
and operating costs, firm commitments for capital expenditures, and existing
assets and liabilities
denominated in currencies other than U.S. dollars.  The Company enters
into foreign currency forward exchange contracts and purchases options to manage
these exposures.  At December 31, 2008, seventy-four foreign currency
forward exchange contracts were outstanding.  A hypothetical 10%
strengthening (or weakening) of the U.S. dollar against the British Pound
Sterling, Canadian Dollar, Chinese Yuan, Japanese Yen, and Euro at December 31,
2008 would result in a pre-tax loss (or gain) of approximately $3.9
million.  The foreign currency forward exchange contracts purchased
during 2008 have been accounted for according to SFAS No. 133, “Accounting for
Derivative Instruments and HedgingActivities”
(“SFAS No. 133”).





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


Item
8.   Financial
Statements and Supplementary Data:





REPORT
OF MANAGEMENT


Responsibility
for Preparation of the Financial Statements and Establishing and Maintaining
Adequate Internal Control Over Financial Reporting





Responsibility
for Financial Statements


Management
is responsible for the preparation of the financial statements included in this
Annual Report. The Consolidated Financial Statements were prepared in accordance
with accounting principles generally accepted in the United States of America
and include amounts that are based on the best estimates and judgments of
management.




Management’s
Annual Report on Internal Control over Financial Reporting


Management
is responsible for establishing and maintaining adequate internal controls over
financial reporting. The Company’s internal control system is designed to
provide reasonable assurance concerning the reliability of the financial data
used in the preparation of the Company’s financial statements, as well as
reasonable assurance with respect to safeguarding the Company’s assets from
unauthorized use or disposition.  However, no matter how well designed
and operated, an internal control system can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met.





Management
conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008. In making this evaluation,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework.  Management’s evaluation included reviewing the
documentation of our controls, evaluating the design effectiveness of controls,
and testing their operating effectiveness. Based on this evaluation, management
believes that, as of December 31, 2008, the Company’s internal controls over
financial reporting were effective and provide reasonable assurance that the
accompanying financial statements do not contain any material
misstatement.




60




The
effectiveness of internal control over financial reporting as of
December 31, 2008, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, who also audited our consolidated
financial statements. Deloitte & Touche LLP’s attestation report on the
effectiveness of our internal control over financial reporting appears
below.





Changes
in Internal Control


There
have been no changes to our internal control over financial reporting that
occurred that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




61


INTERNAL
CONTROLS – REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Shareholders of
 Calgon
Carbon Corporation
 Pittsburgh,
Pennsylvania
 
 We have
audited the internal control over financial reporting of Calgon Carbon
Corporation and subsidiaries (the "Company") as of December 31, 2008, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting, included in the accompanying
Report of
Management.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We believe
that our audit provides a reasonable basis for our opinion.


A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of the Company and our report dated March
13, 2009 expressed an unqualified opinion on those financial
statements.





DELOITTE
& TOUCHE LLP





Pittsburgh,
Pennsylvania


March 13,
2009




62




FINANCIAL
STATEMENTS – REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




To the
Board of Directors and Shareholders of


Calgon
Carbon Corporation


Pittsburgh,
Pennsylvania





We have
audited the accompanying consolidated balance sheets of Calgon Carbon
Corporation and subsidiaries (the "Company") as of December 31, 2008 and 2007,
and the related consolidated statements of income (loss) and comprehensive
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2008.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.





In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Calgon Carbon Corporation and subsidiaries
as of December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.





As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes,on January 1, 2007 and the provisions of
Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, on December 31, 2006.


63


We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 13, 2009 expressed an unqualified
opinion on the Company's internal control over financial reporting.





DELOITTE
& TOUCHE LLP


Pittsburgh,
Pennsylvania


March 13,
2009


64


CONSOLIDATED
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME


Calgon
Carbon Corporation





Year Ended December 31(Dollars in thousands except per share
      data)
                
                2008
                
                
                2007
                
                
                2006Net
      sales
                
                $
                390,066
                
                
                $
                341,508
                
                
                $
                306,770Net
      sales to related parties
                
                
                10,204
                
                
                
                9,616
                
                
                
                9,352Total
                
                
                400,270
                
                
                
                351,124
                
                
                
                316,122Cost
      of products sold (excluding depreciation)
                
                
                266,885
                
                
                
                242,273
                
                
                
                236,673Depreciation
      and amortization
                
                
                16,674
                
                
                
                17,248
                
                
                
                18,933Selling,
      general and administrative expenses
                
                
                64,149
                
                
                
                61,348
                
                
                
                62,010Research
      and development expenses
                
                
                4,129
                
                
                
                3,699
                
                
                
                4,248Gain
      on AST settlement (Note 17)
                
                
                (9,250
                )
                
                
                -
                
                
                
                -Gain
      from insurance settlement (Note 2)
                
                
                -
                
                
                
                -
                
                
                
                (8,072
                )Goodwill
      impairment charge (Note 6)
                
                
                -
                
                
                
                -
                
                
                
                6,940342,587
                
                
                
                324,568
                
                
                
                320,732Income
      (loss) from operations
                
                
                57,683
                
                
                
                26,556
                
                
                
                (4,610
                )Interest
      income
                
                
                1,504
                
                
                
                1,695
                
                
                
                822Interest
      expense
                
                
                (3,673
                )
                
                
                (5,508
                )
                
                
                (5,977
                )Other
      expense – net
                
                
                (2,703
                )
                
                
                (1,441
                )
                
                
                (2,209
                )Income
      (loss) from continuing operations before income taxes and equity in income
      of equity investments
                
                
                52,811
                
                
                
                21,302
                
                
                
                (11,974
                )Income
      tax provision (benefit) (Note 13)
                
                
                18,101
                
                
                
                7,826
                
                
                
                (2,676
                )Income
      (loss) from continuing operations before equity in income of equity
      investments
                
                
                34,710
                
                
                
                13,476
                
                
                
                (9,298
                )Equity
      in income of equity investments, net
                
                
                854
                
                
                
                1,977
                
                
                
                286Income
      (loss) from continuing operations
                
                
                35,564
                
                
                
                15,453
                
                
                
                (9,012
                )Income
      (loss) from discontinued operations, net (Note 3)
                
                
                2,793
                
                
                
                (166
                )
                
                
                1,214Net
      income (loss)
                
                
                38,357
                
                
                
                15,287
                
                
                
                (7,798
                )Other
      comprehensive (loss) income, net of tax (benefit)provision of
      $(9,507),$3,449, and $2,752, respectively
                
                
                (23,458
                )
                
                
                6,703
                
                
                
                9,238Comprehensive
      income
                
                $
                14,899
                
                
                $
                21,990
                
                
                $
                1,440Basic
      income (loss) from continuing operations per common share
                
                $
                .80
                
                
                $
                .39
                
                
                $
                (.23
                )Income
      from discontinued operations per common share
                
                $
                .06
                
                
                $
                -
                
                
                $
                .03Basic
      net income (loss) per common share
                
                $
                .86
                
                
                $
                .39
                
                
                $
                (.20
                )Diluted
      income (loss) from continuing operations per common share
                
                $
                .67
                
                
                $
                .31
                
                
                $
                (.23
                )Income
      from discontinued operations per common share
                
                $
                .05
                
                
                $
                -
                
                
                $
                .03Diluted
      net income (loss) per common share
                
                $
                .72
                
                
                $
                .31
                
                
                $
                (.20
                )Weighted
      average shares outstanding, in thousandsBasic
                
                
                44,679
                
                
                
                39,788
                
                
                
                39,927Diluted
                
                
                53,385
                
                
                
                50,557
                
                
                
                39,927




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


65


CONSOLIDATED
BALANCE SHEETS


Calgon
Carbon Corporation





December 31(Dollars in thousands)
                
                2008
                
                
                2007AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                16,750
                
                
                $
                30,304Receivables,
      net of allowance for losses of $1,596 and $2,834
                
                
                62,300
                
                
                
                55,195Receivables
      from related parties
                
                
                2,215
                
                
                
                2,353Revenue
      recognized in excess of billings on uncompleted contracts
                
                
                8,870
                
                
                
                7,698Inventories
                
                
                93,725
                
                
                
                81,280Deferred
      income taxes – current
                
                
                9,241
                
                
                
                9,246Other
      current assets
                
                
                7,821
                
                
                
                3,602Total
      current assets
                
                
                200,922
                
                
                
                189,678Property,
      plant and equipment, net
                
                
                122,960
                
                
                
                105,512Equity
      investments
                
                
                11,747
                
                
                
                8,593Intangibles,
      net
                
                
                5,930
                
                
                
                7,760Goodwill
                
                
                26,340
                
                
                
                27,845Deferred
      income taxes – long-term
                
                
                13,129
                
                
                
                6,419Other
      assets
                
                
                6,568
                
                
                
                2,333Total
      assets
                
                $
                387,596
                
                
                $
                348,140Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
                
                $
                39,647
                
                
                $
                39,436Billings
      in excess of revenue recognized on uncompleted contracts
                
                
                4,639
                
                
                
                3,727Accrued
      interest
                
                
                140
                
                
                
                1,461Payroll
      and benefits payable
                
                
                10,522
                
                
                
                9,182Accrued
      income taxes
                
                
                1,088
                
                
                
                1,944Short-term
      debt
                
                
                1,605
                
                
                
                1,504Current
      portion of long-term debt
                
                
                8,776
                
                
                
                62,507Total
      current liabilities
                
                
                66,417
                
                
                
                119,761Long-term
      debt
                
                
                -
                
                
                
                12,925Deferred
      income taxes – long-term
                
                
                242
                
                
                
                1,361Accrued
      pension and other liabilities
                
                
                68,199
                
                
                
                41,844Total
      liabilities
                
                
                134,858
                
                
                
                175,891Commitments
      and contingencies (Notes 9 and 17)Shareholders’
      equity:Common
      shares, $.01 par value, 100,000,000 shares authorized, 56,961,297 and
      43,044,318 shares issued
                
                
                570
                
                
                
                430Additional
      paid-in capital
                
                
                144,040
                
                
                
                77,299Retained
      earnings
                
                
                143,193
                
                
                
                104,936Accumulated
      other comprehensive (loss) income
                
                
                (6,450
                )
                
                
                17,008281,353
                
                
                
                199,673Treasury
      stock, at cost, 2,902,264 and 2,827,301 shares
                
                
                (28,615
                )
                
                
                (27,424
                )Total
      shareholders’ equity
                
                
                252,738
                
                
                
                172,249Total
      liabilities and shareholders’ equity
                
                $
                387,596
                
                
                $
                348,140




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


66


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Calgon
Carbon Corporation





Year Ended December 31(Dollars in thousands)
                
                2008
                
                
                2007
                
                
                2006Cash
      flows from operating activitiesNet
      income (loss)
                
                $
                38,357
                
                
                $
                15,287
                
                
                $
                (7,798
                )Adjustments
      to reconcile net income (loss) to  net cash provided by (used
      in) operating activities:Gain
      on insurance settlement
                
                
                -
                
                
                
                -
                
                
                
                (8,072
                )Gain
      from divestiture
                
                
                (4,353
                )
                
                
                -
                
                
                
                (6,719
                )Depreciation
      and amortization
                
                
                16,674
                
                
                
                17,248
                
                
                
                18,935Non-cash
      impairment and restructuring charges
                
                
                -
                
                
                
                -
                
                
                
                7,728Equity
      in income from equity investments
                
                
                (854
                )
                
                
                (1,977
                )
                
                
                (286
                )Distributions
      received from equity investments
                
                
                526
                
                
                
                739
                
                
                
                -Employee
      benefit plan provisions
                
                
                2,063
                
                
                
                3,076
                
                
                
                3,285Stock-based
      compensation
                
                
                2,884
                
                
                
                2,887
                
                
                
                1,309Excess
      tax benefit from stock-based compensation
                
                
                (2,578
                )
                
                
                -
                
                
                
                -Deferred
      income tax expense (benefit)
                
                
                3,347
                
                
                
                3,196
                
                
                
                (973
                )Changes
      in assets and liabilities—net of effects from foreign
      exchange:(Increase)
      decrease in receivables
                
                
                (9,975
                )
                
                
                (1,098
                )
                
                
                3,232Increase
      in inventories
                
                
                (14,931
                )
                
                
                (9,559
                )
                
                
                (1,508
                )(Increase)
      decrease in revenue in excess of billings on uncompleted contracts and
      other current assets
                
                
                (2,074
                )
                
                
                287
                
                
                
                2,800Decrease
      in restructuring reserve
                
                
                -
                
                
                
                -
                
                
                
                (293
                )Increase
      (decrease) in accounts payable and
      accrued  liabilities
                
                
                2,610
                
                
                
                5,390
                
                
                
                (6,631
                )Pension
      contributions
                
                
                (6,215
                )
                
                
                (7,787
                )
                
                
                (11,395
                )Other
      items—net
                
                
                89
                
                
                
                1,724
                
                
                
                601Net
      cash provided by (used in) operating activities
                
                
                25,570
                
                
                
                29,413
                
                
                
                (5,785
                )Cash
      flows from investing activitiesProceeds
      from divestitures
                
                
                -
                
                
                
                -
                
                
                
                21,265Property,
      plant and equipment expenditures
                
                
                (33,006
                )
                
                
                (11,789
                )
                
                
                (12,855
                )Proceeds
      from insurance settlement for property and equipment
                
                
                -
                
                
                
                -
                
                
                
                4,595Proceeds
      from disposals of property, plant and equipment
                
                
                910
                
                
                
                513
                
                
                
                1,205Net
      cash (used in) provided by investing activities
                
                
                (32,096
                )
                
                
                (11,276
                )
                
                
                14,210Cash
      flows from financing activitiesIssuance
      of debt obligations
                
                
                -
                
                
                
                1,504
                
                
                
                71,911Reductions
      of debt obligations
                
                
                (11,000
                )
                
                
                -
                
                
                
                -Revolving
      credit facility borrowings (repayments),net
                
                
                -
                
                
                
                -
                
                
                
                (81,000
                )Treasury
      stock purchased
                
                
                (1,191
                )
                
                
                (187
                )
                
                
                (108
                )Common
      stock issued
                
                
                5,120
                
                
                
                3,090
                
                
                
                464Excess
      tax benefit from stock-based compensation
                
                
                2,578
                
                
                
                942
                
                
                
                -Other
                
                
                (456
                )
                
                
                -
                
                
                
                -Net
      cash (used in) provided by financing activities
                
                
                (4,949
                )
                
                
                5,349
                
                
                
                (8,733
                )Effect
      of exchange rate changes on cash
                
                
                (2,079
                )
                
                
                1,187
                
                
                
                493(Decrease)
      increase in cash and cash equivalents
                
                
                (13,554
                )
                
                
                24,673
                
                
                
                185Cash
      and cash equivalents, beginning of year
                
                
                30,304
                
                
                
                5,631
                
                
                
                5,446Cash
      and cash equivalents, end of year
                
                $
                16,750
                
                
                $
                30,304
                
                
                $
                5,631




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


67


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


Calgon
Carbon Corporation





AccumulatedCommon
                              
                              
                              
                              
                              
                              Additional
                              
                              
                              
                              
                              
                              OtherShares
                              
                              
                              Common
                              
                              
                              Paid-In
                              
                              
                              Retained
                              
                              
                              Comprehensive
                              
                              
                              
                              
                              
                              Treasury
      Stock(Dollars
      in thousands)
                              
                              Issued
                              
                              
                              Shares
                              
                              
                              Capital
                              
                              
                              Earnings
                              
                              
                              Income
      (Loss)
                              
                              
                              Sub-Total
                              
                              
                              Shares
                              
                              
                              Amount
                              
                              
                              TotalBalance,
      December 31, 2005
                              
                              
                              42,459,733
                              
                              
                              $
                              425
                              
                              
                              $
                              68,989
                              
                              
                              $
                              101,833
                              
                              
                              $
                              6,442
                              
                              
                              $
                              177,689
                              
                              
                              
                              2,787,258
                              
                              
                              $
                              (27,129
                              )
                              
                              $
                              150,5602006Net
      loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (7,798
                              )
                              
                              
                              -
                              
                              
                              
                              (7,798
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (7,798
                              )Cumulative
      effect adjustment due to the adoption of SFAS No. 158, net of
      tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (5,375
                              )
                              
                              
                              (5,375
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (5,375
                              )Employee
      and director stock plans
                              
                              
                              90,557
                              
                              
                              
                              -
                              
                              
                              
                              1,356
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,356
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,356Translation
      adjustments, net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,644
                              
                              
                              
                              4,644
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,644Additional
      minimum pensionliability,
      net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,790
                              
                              
                              
                              4,790
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,790Unrecognized
      loss onderivatives,
      net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (196
                              )
                              
                              
                              (196
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (196
                              )Treasury
      stock purchased
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              15,190
                              
                              
                              
                              (108
                              )
                              
                              
                              (108
                              )Balance,
      December 31, 2006
                              
                              
                              42,550,290
                              
                              
                              $
                              425
                              
                              
                              $
                              70,345
                              
                              
                              $
                              94,035
                              
                              
                              $
                              10,305
                              
                              
                              $
                              175,110
                              
                              
                              
                              2,802,448
                              
                              
                              $
                              (27,237
                              )
                              
                              $
                              147,8732007Net
      income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              15,287
                              
                              
                              
                              -
                              
                              
                              
                              15,287
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              15,287Translation
      adjustments, net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,557
                              
                              
                              
                              2,557
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,557Unrecognized
      gain on derivatives, net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              498
                              
                              
                              
                              498
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              498Employee
      benefit plans, net of tax(See
      Note 12)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,648
                              
                              
                              
                              3,648
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,648Cumulative
      effect adjustment due to the adoption of FIN 48, (See Note
    13)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (4,386
                              )
                              
                              
                              -
                              
                              
                              
                              (4,386
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (4,386
                              )Employee
      and director stock plans
                              
                              
                              494,028
                              
                              
                              
                              5
                              
                              
                              
                              6,954
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,959
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,959Treasury
      stock purchased
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              24,853
                              
                              
                              
                              (187
                              )
                              
                              
                              (187
                              )Balance,
      December 31, 2007
                              
                              
                              43,044,318
                              
                              
                              $
                              430
                              
                              
                              $
                              77,299
                              
                              
                              $
                              104,936
                              
                              
                              $
                              17,008
                              
                              
                              $
                              199,673
                              
                              
                              
                              2,827,301
                              
                              
                              $
                              (27,424
                              )
                              
                              $
                              172,2492008Net
      income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              38,357
                              
                              
                              
                              -
                              
                              
                              
                              38,357
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              38,357Translation
      adjustments, net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (4,744
                              )
                              
                              
                              (4,744
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (4,744
                              )Unrecognized
      loss on derivatives, net of tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (755
                              )
                              
                              
                              (755
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (755
                              )Employee
      benefit plans, net of tax(See
      Note 12)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (17,959
                              )
                              
                              
                              (17,959
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (17,959
                              )Employee
      and director stock plans
                              
                              
                              950,689
                              
                              
                              
                              10
                              
                              
                              
                              10,794
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,804
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,804Conversion
      of Notes (See Note 8)
                              
                              
                              12,966,290
                              
                              
                              
                              130
                              
                              
                              
                              55,947
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              56,077
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              56,077Treasury
      stock purchased
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              74,963
                              
                              
                              
                              (1,191
                              )
                              
                              
                              (1,191)Other
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (100
                              )
                              
                              
                              -
                              
                              
                              
                              (100
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (100
                              )Balance,
      December 31, 2008
                              
                              
                              56,961,297
                              
                              
                              $
                              570
                              
                              
                              $
                              144,040
                              
                              
                              $
                              143,193
                              
                              
                              $
                              (6,450
                              )
                              
                              $
                              281,353
                              
                              
                              
                              2,902,264
                              
                              
                              $
                              (28,615
                              )
                              
                              $
                              252,738




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


68


1.
Summary of Accounting Policies





Operations


Calgon
Carbon Corporation (the “Company”) is a global leader in services and solutions
for purifying water and air, food, beverage, and industrial process
streams.  The Company’s operations are principally conducted in three
business segments: Activated Carbon and Service, Equipment, and
Consumer.  Each of these segments includes the production, design and
marketing of products and services specifically developed for the purification,
separation and concentration of liquids and gases.  The Activated
Carbon and Service segment relies on activated carbon as a base material, while
the Equipment segment relies on a variety of methods and materials which involve
other products in addition to activated carbon.  The Consumer segment
brings the Company’s purification technologies directly to the consumer in the
form of products and services.  The Company’s largest markets are in
the United States, Europe, and Japan.  The Company also markets in
Africa, Canada, India, Latin America, and Asia.





Principles
of Consolidation


The
consolidated financial statements include the accounts of Calgon Carbon
Corporation and its wholly owned subsidiaries, Chemviron Carbon GmbH, Calgon
Carbon Canada, Inc., Chemviron Carbon Ltd., Calgon Carbon Investments, Inc.,
Solarchem Environmental Systems, Inc., Charcoal Cloth (International) Ltd.,
Charcoal Cloth Ltd., Advanced Separation Technologies, Inc., Calgon Carbon
(Tianjin) Co. Ltd., Datong Carbon Corporation, Calgon Carbon Asia PTE Ltd.,
Waterlink (UK) Holdings Ltd., Sutcliffe Croftshaw Ltd., Sutcliffe Speakman Ltd.,
Sutcliffe Speakman Carbons Ltd., Lakeland Processing Ltd., Sutcliffe Speakmanco
5 Ltd., BSC Columbus, LLC, CCC Columbus, LLC, and CCC Distribution,
LLC.  The Company has a 49% ownership stake in a joint venture with
Mitsubishi Chemical Corporation named Calgon Mitsubishi Chemical Corporation
(CMCC).  CMCC is accounted for in the Company’s financial statements
under the equity method.  The Company also has a 20% joint venture
company with C. Gigantic Carbon Company named Calgon Carbon (Thailand) Company
Ltd. which is accounted for in the Company’s financial statements under the
equity method. Intercompany accounts and transactions have been eliminated.
Certain of the Company’s international operations in Europe are owned directly
by the Company and are operated as branches.





Foreign
Currency


Substantially
all assets and liabilities of the Company’s international operations are translated
at year-end exchange rates; income and expenses are translated at average
exchange rates prevailing during the year. Translation adjustments represent
other comprehensive income  or loss and are accumulated in a separate
component of shareholders’ equity, net of tax
effects.   Transaction gains and losses are included in other
expense-net.


69


Revenue
Recognition


Revenue and related costs
are recognized when goods are shipped or services are rendered to customers
provided that ownership and risk of loss have passed to the customer, the price
to the customer is fixed or determinable and collection is reasonably
assured.  Revenue for major equipment projects is recognized under the
percentage of completion method.The Company’s major equipment
projects generally have a long project life cycle from bid solicitation to
project completion.  The nature of the contracts are generally fixed
price with milestone billings.  The Company recognizes revenue for
these projects based on the fixed sales prices multiplied by the percentage of
completion.  In applying the percentage-of-completion method, a
project’s percent complete as of any balance sheet date is computed as the ratio
of total costs incurred to date divided by the total estimated costs at
completion.  As changes in the estimates of total costs at completion
and/or estimated total losses on projects are identified, appropriate earnings
adjustments are recorded during the period that the change or loss is
identified.  The Company has a history of making reasonably dependable
estimates of costs at completion on contracts that follow the
percentage-of-completion method; however, due to uncertainties inherent in the
estimation process, it is possible that estimated project costs at completion
could vary from estimates.  The principal components of costs include
material, direct labor, subcontracts, and allocated indirect
costs.  Indirect costs primarily consist of administrative labor and
associated operating expenses, which are allocated to the respective projects on
actual hours charged to the project utilizing a standard hourly
rate.





Allowance
for Doubtful Accounts


The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.  The amount of allowance recorded is primarily based upon a
quarterly review of specific customer transactions that remain outstanding at
least three months beyond their respective due dates.





Inventories


Inventories
are carried at the lower of cost or market. Inventory costs are primarily
determined using the first-in, first-out (FIFO) method.





Property,
Plant and Equipment


Property,
plant and equipment are recorded at cost. Repair and maintenance costs are
expensed as incurred. Depreciation for financial reporting purposes is computed
on the straight-line method over the estimated service lives of the assets,
which are from 15 to 30 years for land improvements and buildings, 5 to 15 years
for furniture, and machinery and equipment, 5 to 10 years for customer capital,
5 years for transportation equipment, and 5 to 10 years for computer hardware
and software.


70


Goodwill
and Other Intangible Assets


Goodwill
represents the excess of the cost of an acquired business over the fair value of
the identifiable tangible and intangible assets acquired and liabilities assumed
in a business combination.  Identifiable intangible assets acquired in
business combinations are recorded based on their fair values at the date of
acquisition.  In accordance with Statement of Financial Accounting
Standard No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142”),
goodwill and identifiable intangible assets with indefinite lives are not
subject to amortization but must be evaluated for impairment.  None of
the Company’s identifiable intangible assets other than goodwill have indefinite
lives.





The
Company tests goodwill for impairment at least annually by initially comparing
the fair value of each of the Company’s reporting units to their related
carrying values.  If the fair value of the reporting unit is less than
its carrying value, the Company performs an additional step to determine the
implied fair value of the goodwill.  The implied fair value of
goodwill is determined by first allocating the fair value of the reporting unit
to all of the assets and liabilities of the unit and then computing the excess
of the unit’s fair value over the amounts assigned to the assets and
liabilities.  If the carrying value of goodwill exceeds the implied
fair value of goodwill, such excess represents the amount of goodwill
impairment, and the Company recognizes such impairment
accordingly.  Fair values are estimated using discounted cash flow and
other valuation methodologies that are based on projections of the amounts and
timing of future revenues and cash flows, assumed discount rates and other
assumptions as deemed appropriate.  The Company considers such factors
as historical performance, anticipated market conditions, operating expense
trends and capital expenditure requirements.





The
Company’s identifiable intangible assets other than goodwill have finite
lives.  Certain of these intangible assets, such as customer
relationships, are amortized using an accelerated methodology while others, such
as patents, are amortized on a straight-line basis over their estimated useful
lives.  In addition, intangible assets with finite lives are evaluated
for impairment whenever events or circumstances indicate that their carrying
amount may not be recoverable, as prescribed by SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”).





Long-Lived
Assets


The
Company evaluates long-lived assets under the provisions of SFAS No. 144, which
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of.  For assets to be
held and used, the Company groups a long-lived asset or assets with other assets
and liabilities at the lowest level for which identifiable cash flows are
largely independent of the cash flows of other assets and
liabilities.  An impairment loss for an asset group reduces only the
carrying amounts of a long-lived asset or assets of the group being
evaluated.  The loss is allocated to the long-lived assets of the
group on a pro-rata basis using the relative carrying amounts of those assets,
except that the loss allocated to an individual long-lived asset of the group
does not reduce the carrying amount of that asset below its fair value whenever
that fair value is determinable without undue cost and
effort.  Estimates of future cash flows used to test the
recoverability of a long-lived asset group include only the future cash flows
that are directly associated with and that are expected to arise as a direct
result of the use and eventual disposition of the asset group.  The
future cash flow estimates used by the Company exclude interest
charges.


71


Income
Taxes


As
described in Note 13, on January 1, 2007, the Company adopted FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN
48”).  FIN 48 prescribes recognition and measurement standards for a
tax position taken or expected to be taken in a tax return.  The
evaluation of a tax position in accordance with FIN 48 is a two step
process.  The first step is the determination of whether a tax
position should be recognized in the financial statements.  Under FIN
48, the benefit of a tax position taken or expected to be taken in a tax return
is to be recognized only if the Company determines that it is
more-likely-than-not that the tax position will be sustained upon examination by
the tax authorities based upon the technical merits of the
position.  In step two, for those tax positions which should be
recognized, the measurement of a tax position is determined as being the largest
amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement.  As a result of the adoption of FIN 48 and
recognition of the cumulative effect of adoption of a new accounting principle,
the Company recorded a $5.7 million increase in the gross unrecognized income
tax benefits and a decrease in retained earnings of $4.3 million.  The
Company recognizes interest and penalties related to uncertain tax positions in
the income tax provision (benefit).





Deferred
tax assets and liabilities are recognized for the future tax consequences of
temporary differences between the book and tax basis of assets and
liabilities.  If it is more likely than not that some portion or all
of a deferred tax asset will not be realized, a valuation allowance is
recognized.  The Company assesses its ability to realize deferred tax
assets based on normalized historical performance and on projections of future
taxable income in the relevant tax jurisdictions.  Normalized
historical performance for purposes of this assessment includes adjustments for
those income and expense items that are unusual and non-recurring in nature and
are not expected to affect results in future periods.  Such unusual
and non-recurring items include the effects of discontinued operations, legal
fees or settlements associated with specific litigation matters, pension
curtailment costs, and restructuring costs.  The Company’s projections
of future taxable income considers known events, such as the passage of
legislation or expected occurrences, and do not reflect a general growth
assumption.  The Company’s estimates of future taxable income are
reviewed annually or whenever events or changes in circumstances indicate that
such projections should be modified.


72


No
provision is made for U.S. income taxes on the undistributed earnings of
non-U.S. subsidiaries because these earnings are deemed permanently invested or
otherwise indefinitely retained for continuing international
operations.  These earnings would become subject to income tax if they
were remitted as dividends, were loaned to the Company or a U.S. affiliate, or
if the Company were to sell its ownership interest in the
subsidiaries.  Determination of the amount of unrecognized deferred
U.S. income tax liability on these unremitted earnings is not
practicable.





Pensions


Accounting
for pensions involves estimating the cost of benefits to be provided well into
the future and attributing that cost over the time period each employee
works.  To accomplish this,
extensive use is made of assumptions about inflation, investment returns,
mortality, turnover
and discount rates.  These assumptions are reviewed
annually.  In determining the expected return on plan assets, the
Company evaluates long-term actual return information, the mix of investments
that comprise plan assets and future estimates of long-term investment
returns.





On
December 31, 2006, the Company adopted Statement of Financial Accounting
Standard No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans” (“SFAS
No. 158”).  SFAS No. 158 requires recognition of the funded status of
a benefit plan on the balance sheet; the recognition in other comprehensive
income of gains or losses and prior service costs or credits arising during the
period but which are not included as components of periodic benefit cost; the
measurement of defined benefit plan assets and obligations as of the balance
sheet date; and disclosure of additional information about the effects on
periodic benefit cost for the following fiscal year arising from gains and
losses in the current period.





Net
Income (Loss) per Common Share


Basic net
income (loss) per common share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding plus all potential
dilutive common shares outstanding during the period. Potential dilutive common
shares are determined using the treasury stock method. Under the treasury stock
method, exercise of options is assumed at the beginning of the period when the
average stock price during the period exceeds the exercise price of outstanding
options and common shares are assumed issued. The proceeds from exercise are
assumed to be used to purchase common stock at the average market price during
the period. The incremental shares to be issued are considered to be the
potential dilutive common shares outstanding.  The treasury stock
method is also used for the Company’s convertible senior notes when the average
stock price exceeds the conversion price.


73


Cash
and Cash Equivalents


The
Company considers all highly liquid, short-term investments made with an
original maturity of three months or less to be cash equivalents.





Derivative
Instruments


The
Company applies SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS No. 133”).  SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities.  Derivative financial instruments are occasionally
utilized by the Company to manage risk exposure to movements in foreign exchange
rates,  interest rates, or the price of natural gas. Changes in the
value of derivative financial instruments are measured at the balance sheet date
and recognized in current earnings or other comprehensive income depending on
whether the derivative is designated as part of a hedge transaction and meets
certain other criteria. The Company does not hold derivative financial
instruments for trading purposes or any fair value hedges.





Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





Labor
Agreements


Collective
bargaining agreements cover approximately 27% of the Company’s labor force at
December 31, 2008 under agreements which expire in 2009, 2010, and
2011.  Approximately 160 hourly personnel are covered under the
collective bargaining agreements that expire on


April 1,
2009 and July 31, 2009.





Stock-Based
Compensation


The
Company adopted SFAS No. 123(R), “Share-based Payments” (“SFAS No. 123(R)”), on
January 1, 2006 using the modified prospective application
method.  Under this transaction method, compensation cost recognized
for the years ended December 31, 2008, 2007, and 2006 includes the applicable
amounts of compensation cost of all stock-based payments granted prior to, but
not yet vested, as of January 1, 2006 (based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123(R)).  In
accordance with SFAS No. 123(R), compensation expense for stock options is now
recorded over the vesting period using the fair value on the date of grant, as
calculated by the Company using the Black-Scholes model.  The
nonvested restricted stock grant date fair value, which is the market price of
the underlying common stock, is expensed over the vesting period.  The
Company’s stock-based compensation plan is more fully described in Note
11.


74





Concentration
of Credit Risk


Financial
instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and customer
receivables.  The Company places its cash with high credit quality
financial institutions and invests in low-risk, highly liquid
instruments.  With respect to customer receivables, the Company
believes that it has no significant concentration of credit risk with its
largest customer receivable comprising approximately 3% of total receivables as
of December 31, 2008.





Fair
Value of Financial Instruments Excluding Derivative Instruments


The
Company’s financial instruments, excluding derivative instruments, consist
primarily of cash and cash equivalents and current portion of long-term debt as
well as accounts receivable and accounts payable.  The fair value of
the cash and cash equivalents, accounts receivable, and accounts payable
approximates their carrying value because of the short-term maturity of the
instruments.  See Note 8 for a discussion of the fair value of the
Company’s debt.





New
Accounting Pronouncements


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


75


In
December 2007, the FASB issued SFAS No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160
changes the classification of noncontrolling (minority) interests on the
balance sheet and the accounting for and reporting of transactions between the
reporting entity and holders of such noncontrolling interests. Under the new
standard, noncontrolling interests are considered equity and are to be reported
as an element of stockholders’ equity rather than outside of equity in the
balance sheet. In addition, the current practice of reporting minority interest
expense or benefit also will change. Under the new standard, net income will
encompass the total income before minority interest expense. The statement of
operations will include separate disclosure of the attribution of income between
the controlling and noncontrolling interests. Increases and decreases in the
noncontrolling ownership interest amount are accounted for as equity
transactions. SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008 and earlier application is prohibited. Upon adoption, the
balance sheet and the statement of operations should be recast retrospectively
for the presentation of noncontrolling interests. The other accounting
provisions of the statement are required to be adopted prospectively. The
Company adopted SFAS No. 160 as required on January 1, 2009 and the adoption did
not have a material impact on its financial position or results of
operations.





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





In April
2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP SFAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets.” Previously, under the provisions of SFAS No. 142, an entity
was precluded from using its own assumptions about renewal or extension of an
arrangement where there was likely to be substantial cost or material
modifications. FSP SFAS 142-3 removes the requirement of SFAS No. 142 for an
entity to consider whether an intangible asset can be renewed without
substantial cost or material modification to the existing terms and conditions
and requires an entity to consider its own experience in renewing similar
arrangements. FSP SFAS 142-3 also increases the disclosure requirements for a
recognized intangible asset to enable a user of financial statements to assess
the extent to which the expected future cash flows associated with the asset are
affected by the entity’s intent or ability to renew or extend the arrangement.
FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years. Early adoption is prohibited. The
guidance for determining the useful life of a recognized intangible asset is
applied prospectively to intangible assets acquired after the effective date.
Accordingly, the Company does not anticipate that the initial application of FSP
SFAS No. 142-3 will have an impact on the Company. The disclosure requirements
must be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date.


76





In
May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”).  FSP APB 14-1
requires the issuer to separately account for the liability and equity
components of convertible debt instruments in a manner that reflects the
issuer’s nonconvertible debt borrowing rate. The guidance will result in
companies recognizing higher interest expense in the statement of operations due
to amortization of the discount that results from separating the liability and
equity components. FSP APB 14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years and requires retrospective application to prior year
financial statements. The Company is still in the process of evaluating the
impact that the adoption of FSP APB 14-1 will have on its financial
statements.  The application of APB 14-1 is not expected to have a
material prospective impact on our financial statements.





Reclassification


Certain
prior year amounts have been reclassified to conform to the 2008
presentation.


77





2.
Gain or Loss on Insurance Settlement





In August
2005, the Company’s plant located in Pearlington, Mississippi was damaged by
Hurricane Katrina, and the Company recorded $1.0 million of non-reimbursable
expense in the year ended December 31, 2005.  In accordance with FIN
No. 30, “Accounting for Involuntary Conversions of Non-Monetary Assets to
Monetary Assets,” the Company wrote off the net book value of the destroyed
inventory and property totaling $1.8 million. The replacement value of the
inventory and property exceeded its net book value by approximately $4.9
million, which was recorded as a gain on insurance settlement in the year ended
December 31, 2006. The Company also settled its business interruption insurance
claim with its insurance company for $3.8 million.  This amount, net
of costs related to business interruption of $0.6 million, was recorded as a
gain on insurance settlement in the year ended December 31, 2006.




3.  Discontinued
Operations





On
February 17, 2006, the Company, through its wholly owned subsidiary Chemviron
Carbon GmbH, executed an agreement (the “Charcoal Sale Agreement”) with proFagus
GmbH, proFagus Grundstuecksverwaltungs GmbH and proFagus Beteiligungen GmbH (as
Guarantor) to sell, and sold, substantially all the assets, real estate, and
specified liabilities of the Bodenfelde, Germany facility (the “Charcoal/Liquid
business”).  The aggregate sales price, based on an exchange rate of
1.19 Dollars per Euro, consisted of $20.4 million of cash, which included a
final working capital adjustment of $1.3 million.  The Company
provided guarantees to the buyer related to pre-divestiture tax liabilities,
future environmental remediation costs related to pre-divestiture activities and
other contingencies.  Management believes the ultimate cost of such
guarantees is not material.  An additional 4.25 million Euro could
have been received dependent upon the business meeting certain earnings targets
over the next three years.  In May 2008, the Company reached a final
agreement with proFagus GmbH, proFagus Grundstuecksverwaltungs GmbH and proFagus
Beteiligungen GmbH (as Guarantor) regarding the aforementioned additional 4.25
million Euro contingent consideration, fixing the amount to be paid to the
Company at 2.8 million Euro.  The Company expects to receive this
payment in December 2011.  The unpaid balance earns interest at 7%
which is paid annually. The Company had presented the Charcoal/Liquid business
as a discontinued operation for the periods that were impacted and has recorded
a pre-tax gain of $4.8 million or $1.7 million, net of tax, on the sale during
the year ended December 31, 2006.  The Company recorded the resolution
of the additional contingent consideration as an additional pre-tax gain on sale
of $4.4 million or $2.8 million, net of tax, within discontinued operations
during the year ended December 31, 2008.


78





On April
24, 2006, the Company completed the sale of the assets of its Solvent Recovery
business to MEGTEC Systems, Inc. ("MEGTEC”), a subsidiary of Sequa
Corporation.  The Solvent Recovery unit provided turnkey on-site
regenerable solvent recovery systems, distillation systems, on-site regenerable
volatile organic compound concentrators, vapor-phase biological oxidation
systems, and related services on a worldwide basis.  The sale price of
$1.8 million included cash proceeds of approximately $0.8 million and $0.7
million of assumed liabilities, primarily accounts payable.  The
transaction was also subject to a pre-tax working capital adjustment of $0.4
million, which management finalized and recorded in the fourth quarter of
2006.  For the year ended December 31, 2007, the Company recorded a
loss of $0.2 million, net of tax, related to an indemnity
claim.  During the year ended December 31, 2006, the Company recorded
a pre-tax gain of $63 thousand or $41 thousand, net of tax, on the sale of the
Solvent Recovery business.





The
following table details selected financial information for the businesses
included within the discontinued operations in the Consolidated Statements of
Income (Loss) and Comprehensive Income:





Charcoal/Liquid
                        
                        
                        Solvent RecoveryYear Ended December 31
                        
                        
                        Year Ended December 31(Dollars in thousands)
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Net
      sales
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,375
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,775Income
      (loss) from operations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (589
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (161
                        )Other
      income (expense)-net
                        
                        
                        4,353
                        
                        
                        
                        -
                        
                        
                        
                        4,715
                        
                        
                        
                        -
                        
                        
                        
                        (302
                        )
                        
                        
                        63Income
      (loss) before income taxes
                        
                        
                        4,353
                        
                        
                        
                        -
                        
                        
                        
                        4,126
                        
                        
                        
                        -
                        
                        
                        
                        (302
                        )
                        
                        
                        (98
                        )Provision
      (benefit) for incometaxes
                        
                        
                        1,560
                        
                        
                        
                        45
                        
                        
                        
                        2,848
                        
                        
                        
                        -
                        
                        
                        
                        (91
                        )
                        
                        
                        (34
                        )Income
      (loss) from discontinued operations
                        
                        $
                        2,793
                        
                        
                        $
                        45
                        
                        
                        $
                        1,278
                        
                        
                        $
                        -
                        
                        
                        $
                        (211
                        )
                        
                        $
                        (64
                        )


79


4.
Inventories


December 31(Thousands)
                  
                  2008
                  
                  
                  2007Raw
      materials
                  
                  $
                  27,241
                  
                  
                  $
                  22,321Finished
      goods
                  
                  
                  66,484
                  
                  
                  
                  58,959Total
                  
                  $
                  93,725
                  
                  
                  $
                  81,280





Inventories
at December 31, 2008 and 2007 are recorded net of reserves of $1.5 million and
$1.6 million, respectively, for obsolete and slow-moving items.


80


5. Property, Plant
and Equipment


December 31(Thousands)
                      
                      2008
                      
                      
                      2007Land
      and improvements
                      
                      $
                      12,837
                      
                      
                      $
                      13,381Buildings
                      
                      
                      29,789
                      
                      
                      
                      29,361Machinery,
      equipment and customer capital
                      
                      
                      314,014
                      
                      
                      
                      314,453Computer
      hardware and software
                      
                      
                      17,057
                      
                      
                      
                      18,897Furniture
      and vehicles
                      
                      
                      7,737
                      
                      
                      
                      8,274Construction-in-progress
                      
                      
                      25,699
                      
                      
                      
                      10,045407,133
                      
                      
                      
                      394,411Less accumulated
    depreciation
                      
                      
                      (284,173
                      )
                      
                      
                      (288,899
                      )Net
                      
                      $
                      122,960
                      
                      
                      $
                      105,512





Depreciation
expense for the years ended December 31, 2008, 2007, and 2006 totaled $15.1
million, $15.5 million, and $17.2 million, respectively.





Repair
and maintenance expenses were $8.3 million, $7.9 million, and $7.8 million for
the years ended December 31, 2008, 2007, and 2006,
respectively.


81





6. Goodwill and
Other Identifiable Intangible Assets





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





On
November 14, 2006, the Federal Court of Canada found that the Company’s patent
for the use of ultraviolet light to prevent infection from Cryptosporidium in
drinking water was invalid.  As a result, the Company’s estimate of
future royalties used in determining the fair value of the UV reporting unit as
of December 31, 2006 declined substantially from the prior year resulting in
goodwill impairment of $6.9 million.  This impairment represents the
difference between the implied fair value of goodwill for the UV reporting unit
and the carrying value of the goodwill before recognition of the
impairment.





The
changes in the carrying amount of goodwill by segment for the years ended
December 31, 2008 and 2007 are as follows:





(Dollars in Thousands)
                          
                          Activated
                            Carbon and
                            Service Segment
                          
                          
                          Equipment
                            Segment
                          
                          
                          Consumer
                            Segment
                          
                          
                          TotalBalance
      as of January 1, 2007
                          
                          $
                          21,056
                          
                          
                          $
                          6,381
                          
                          
                          $
                          60
                          
                          
                          $
                          27,497Foreign
      currency translation
                          
                          
                          56
                          
                          
                          
                          292
                          
                          
                          
                          -
                          
                          
                          
                          348Balance
      as of December 31, 2007
                          
                          
                          21,112
                          
                          
                          
                          6,673
                          
                          
                          
                          60
                          
                          
                          
                          27,845Foreign
      currency translation
                          
                          
                          (1,149
                          )
                          
                          
                          (356
                          )
                          
                          
                          -
                          
                          
                          
                          (1,505
                          )Balance
      as of December 31, 2008
                          
                          $
                          19,963
                          
                          
                          $
                          6,317
                          
                          
                          $
                          60
                          
                          
                          $
                          26,340




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




December 31, 2008WeightedAverage
                                
                                
                                Gross
                                
                                
                                
                                
                                
                                
                                
                                
                                NetAmortization
                                
                                
                                Carrying
                                
                                
                                Foreign
                                
                                
                                Accumulated
                                
                                
                                CarryingPeriod
                                
                                
                                Amount
                                
                                
                                Exchange
                                
                                
                                Amortization
                                
                                
                                AmountAmortized
      Intangible Assets:Patents
                                
                                15.4 Years
                                
                                
                                $
                                1,369
                                
                                
                                $
                                -
                                
                                
                                $
                                (961
                                )
                                
                                $
                                408Customer Relationships
                                
                                17.0 Years
                                
                                
                                
                                9,323
                                
                                
                                
                                (256
                                )
                                
                                
                                (5,678
                                )
                                
                                
                                3,389License Agreement
                                
                                5.0 Years
                                
                                
                                
                                500
                                
                                
                                
                                -
                                
                                
                                
                                (500
                                )
                                
                                
                                -Product Certification
                                
                                7.9 Years
                                
                                
                                
                                1,682
                                
                                
                                
                                -
                                
                                
                                
                                (903
                                )
                                
                                
                                779Unpatented Technology
                                
                                20.0 Years
                                
                                
                                
                                2,875
                                
                                
                                
                                -
                                
                                
                                
                                (1,521
                                )
                                
                                
                                1,354Total
                                
                                16.0 Years
                                
                                
                                $
                                15,749
                                
                                
                                $
                                (256
                                )
                                
                                $
                                (9,563
                                )
                                
                                $
                                5,930


82





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





For the
years ended December 31, 2008, 2007, and 2006, the Company recognized $1.5
million, $1.8 million, and $1.7 million, respectively, of amortization expense
related to intangible assets for continuing operations.  The Company
estimates amortization expense to be recognized during the next five years as
follows:




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


83





7.
Product Warranties





The
Company establishes a warranty reserve for equipment project sales and estimates
the warranty accrual based on the history of warranty claims to total sales,
adjusted for significant known claims in excess of established
reserves.





Warranty
terms are based on the negotiated equipment project contract and typically are
either 18 months from shipment date or 12 months from project startup
date.   The change in the warranty reserve, which is included in
accounts payable and accrued liabilities in the consolidated balance sheets, is
as follows:





December 31,2008
                      
                      
                      2007
                      
                      
                      2006Beginning
      Balance
                      
                      $
                      1,123
                      
                      
                      $
                      1,133
                      
                      
                      $
                      1,028Payments
      and replacement product
                      
                      
                      (471
                      )
                      
                      
                      (293
                      )
                      
                      
                      (184
                      )Additions
      to warranty reserve forwarranties issued
      during the period
                      
                      
                      524
                      
                      
                      
                      366
                      
                      
                      
                      476Change
      in the warranty reserve for pre-existing
      warranties
                      
                      
                      (81
                      )
                      
                      
                      (83
                      )
                      
                      
                      (187
                      )Ending
      Balance
                      
                      $
                      1,095
                      
                      
                      $
                      1,123
                      
                      
                      $
                      1,133


84




8. Borrowing
Arrangements





Long-Term
      Debt
                  
                  December 31(Thousands)
                  
                  2008
                  
                  
                  2007Convertible
      Senior Notes
                  
                  $
                  6,000
                  
                  
                  $
                  75,000Industrial
      revenue bonds
                  
                  
                  2,925
                  
                  
                  
                  2,925Total
                  
                  
                  8,925
                  
                  
                  
                  77,925Less
      current portion of long-term debt (net of debt discount)
                  
                  
                  (8,776
                  )
                  
                  
                  (62,507
                  )Less
      debt discount
                  
                  
                  (149
                  )
                  
                  
                  (2,493
                  )Net
                  
                  $
                  -
                  
                  
                  $
                  12,925





5.00%
Convertible Senior Notes due 2036





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





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





For all
of the quarterly periods during the years ended December 31, 2008 and 2007, the
last reported sale price of the Company’s common stock was greater than 120% of
the conversion price of the Notes for at least 20 trading days in the period of
30 consecutive trading days ending on the last trading day of each of the
aforementioned quarterly periods.   As a result, the holders of
the Notes have had the right to convert the Notes into cash and shares of common
stock throughout 2008. 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.  Three million of the shares exchanged for principal amount of
the Notes (in lieu of cash) were not previously included in the Company’s
diluted shares.


85





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





The
initial conversion rate is 196.0784 shares of the Company’s common stock per
$1,000 principal amount of Notes, equivalent to an initial conversion price of
approximately $5.10 per share of common stock.  The conversion rate is
subject to adjustment in some events, including the payment of a dividend on the
Company’s common stock, but will not be adjusted for accrued interest, including
any additional interest.  In addition, following certain fundamental
changes (principally related to changes in control) that occur prior to August
15, 2011, the Company will increase the conversion rate for holders who elect to
convert Notes in connection with such fundamental changes in certain
circumstances. The Company considered EITF 00-27 issue 7 which indicates that if
a reset of the conversion rate due to a contingent event occurs, the Company
would need to calculate if there is a beneficial conversion and record if
applicable. Through December 31, 2008, no contingent events
occurred.





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





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





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


86





The
Company sold the Notes to the original purchaser at a discount of $3.3 million
that is being amortized over a period of five years.  The Company
incurred original issuance costs of $0.5 million which have been deferred and
are being amortized over a five year period.The Company reclassified
$1.9 million of the discount and $0.3 million of issuance costs to additional
paid in capital as a result of the aforementioned conversions and exchanges of
Notes that occurred during the year ended December 31, 2008.  The
Company will continue to amortize the respective remaining balances over the
remainder of the five year period or the date of conversion/exchange, if
sooner.For
the year ended December 31, 2008, the Company recorded interest expense of $3.2
million related to the Notes, of which $0.5 million related to the amortization
of the discount.





Credit
Facility





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





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





As of
December 31, 2008, the collateral value of assets pledged was
$57.2 million. The collateral value as of December 31, 2008 for
domestic, U.K., and Belgian borrowers were $46.9 million,
$4.8 million, and $5.5 million, respectively. The Credit Facility
contains a fixed charge coverage ratio covenant which becomes effective when
total domestic availability falls below $11.0 million. As of
December 31, 2008, total availability was $45.6 million. Availability
as of December 31, 2008 for domestic, U.K., and Belgian borrowers was
$38.3 million, $3.7 million, and $3.6 million, respectively. The
Company can issue letters of credit up to $20 million of the available
commitment amount under the Credit Facility. Sub-limits for letters of credit
under the U.K. sub-facility and the Belgian sub-facility are $2.0 million
and $6.0 million, respectively. Letters of credit outstanding at
December 31, 2008 totaled$11.6 million.





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


87





The
Credit Facility contains a number of affirmative and negative covenants. As of
December 31, 2008, the last reported sale price of the Company’s common stock
was greater than 120% of the conversion price of the Notes for at least 20
trading days in the period of 30 consecutive trading days ended December 31,
2008.  As a result, as of December 31, 2008, the holders of the Notes
have the right to convert the Notes into cash and shares of common
stock.  Included in the Credit Facility is a provision which permits
the conversion of the outstanding amount of the Company’s Notes. The Credit
Facility also includes a provision for up to $3.0 million of letters of credit
in aggregate under the Company’s U.S., Belgium, and UK sub-limits that can be
issued having expiration dates that are more than one year but not more than
three years after the date of issuance.





The
negative covenants provide for certain restrictions on possible acts by the
Company related to matters such as additional indebtedness, certain liens,
fundamental changes in the business, certain investments or loans, asset sales
and other customary requirements. The Company was in compliance with all such
negative covenants as of December 31, 2008.





Industrial
Revenue Bonds


The
Mississippi Industrial Revenue Bonds totaling $2.9 million at December 31, 2008
and 2007, respectively, bear interest at a variable rate and mature in April
2009.  The interest rate as of December 31, 2008 was
1.33%.  These bonds were issued to finance certain equipment
acquisitions at the Company’s Pearlington, Mississippi plant.





Belgian
Credit Facility


The
Company maintains a Belgian credit facility totaling 1.5 million euros which is
secured by a U.S. letter of credit.  There are no financial covenants,
and the Company had no outstanding borrowings under the Belgian credit facility
as of December 31, 2008 and 2007.  Bank guarantees of 0.8 million
euros were issued as of December 31, 2008.  The maturity date of this
facility is September 30, 2009. Availability under this facility was 0.7 million
euros at December 31, 2008.





Chinese
Credit Facility


The
Company maintains a Chinese credit facility totaling 11.0 million RMB or
$1.6 million which is secured by a U.S. letter of credit provided under the
Credit Facility. There are no financial covenants.   The maturity
date of this facility is December 25, 2009.  The facility was
fully utilized at December 31, 2008.


88





Fair
Value of Debt


At
December 31, 2008, the Company had $6.0 million of fixed rate Senior Convertible
Notes outstanding.  The fair value of these Notes at December 31, 2008
was $18.0 million.  The increase in value is mainly due to the
increase in the Company’s common stock price and its impact on the conversion
features of the Notes.  The remaining $2.9 million of current portion
of long-term debt is based on the prime rates, and accordingly, the carrying
value of this obligation approximates its fair value.





Maturities
of Debt


The
Company is obligated to make principal payments on debt outstanding at
December 31, 2008 of $4.5 million in 2009 and $6.0 million in 2011.
See also the section entitled 5.00% Convertible Senior Notes due in 2036 related
to the holders’ optional conversion as of December 31, 2008 and
2007.





Interest
Expense


The
Company’s interest expense for the years ended December 31, 2008, 2007, and 2006
totaled $3.7 million, $5.5 million, and $6.0 million,
respectively.  These amounts are net of interest costs capitalized of
$0.4 million, $0.2 million, and zero for the years ended December 31, 2008,
2007, and 2006, respectively.





9.
Commitments





The
Company has entered into leases covering principally office, research and
warehouse space, office equipment and vehicles.  Future minimum rental
payments required under all operating leases that have remaining noncancelable
lease terms in excess of one year are $5.7 million in 2009, $5.1 million in
2010, $4.5 million in 2011, $4.2 million in 2012, $3.8 million in 2013 and $7.8
million thereafter.  Total rental expense on all operating leases was
$7.3 million, $5.7 million, and $6.6 million for the years ended December 31,
2008, 2007, and 2006, respectively.


89





The
Company has in place long-term supply contracts for the purchase of raw
materials, transportation, and information systems and services.  The
following table represents the total payments made for the purchases under the
aforementioned supply contracts:





December 31(Thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Raw
      and other materials
                    
                    $
                    31,837
                    
                    
                    $
                    22,145
                    
                    
                    $
                    28,519Transportation
                    
                    
                    5,733
                    
                    
                    
                    4,840
                    
                    
                    
                    4,494Information
      systems and services
                    
                    
                    2,663
                    
                    
                    
                    2,386
                    
                    
                    
                    2,503Total
      payments
                    
                    $
                    40,233
                    
                    
                    $
                    29,371
                    
                    
                    $
                    35,516





Future
minimum purchase requirements under the terms of the aforementioned contracts
are as follows:





Due in(Thousands)
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  ThereafterRaw
      and other materials
                  
                  $
                  22,558
                  
                  
                  $
                  21,983
                  
                  
                  $
                  21,743
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Transportation
                  
                  
                  1,575
                  
                  
                  
                  1,575
                  
                  
                  
                  1,575
                  
                  
                  
                  1,575
                  
                  
                  
                  1,575
                  
                  
                  
                  263Information
      systems and services
                  
                  
                  2,042
                  
                  
                  
                  2,042
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      contractual cash obligations
                  
                  $
                  26,175
                  
                  
                  $
                  25,600
                  
                  
                  $
                  23,318
                  
                  
                  $
                  1,575
                  
                  
                  $
                  1,575
                  
                  
                  $
                  263





10.
Shareholders’ Equity





The
Company’s Board of Directors in 2000 authorized the purchase of up to 500,000
shares of the Company’s stock.  As of December 31, 2008, 11,300 shares
have been purchased under this stock buy back program.


90





The Board
of Directors adopted a new Stockholder Rights Plan in February 2005 designed to
guard against (1) coercive and abusive tactics that might be used in an attempt
to gain control of the Company without paying all stockholders a fair price for
their share or (2) the accumulation of a substantial block of stock without
offering to pay stockholders a fair control premium. The Rights Plan will not
prevent takeovers, but is designed to preserve the Board’s bargaining power and
flexibility to deal with third-party acquirers and to otherwise seek to maximize
value for all stockholders.  The Plan awards one right for each
outstanding share of common stock held by stockholders of record on February 3,
2005 and thereafter. Each right entitles the holder to purchase from the Company
one unit of one ten-thousandth of a share of a newly created series of preferred
stock at a purchase price of $35 per unit. The rights will be exercisable only
if a person or group acquires beneficial ownership of 10% or more of the
Company’s outstanding common stock (15% or more in the case of certain
institutional investors) or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 10% or more of
the Company’s common stock (“Acquiring Person”).  If one of those
events occurs, each holder of a right (with the exception of the acquiring
person or group) will thereafter have the right to receive, upon exercise,
common stock (or, in certain circumstances, cash, property or other of the
Company’s securities) having a value equal to two times the exercise price of
the right.  The Rights can be redeemed by the Board of Directors under
certain circumstances, in which case the Rights will not be exchangeable for
shares.





11.
Stock Compensation Plans





At
December 31, 2008, the Company had one stock-based compensation plan that was
adopted in 2008 and is described below.  The Employee and Non-Employee
Directors’ Stock Option Plans were terminated and superceded by the 2008 Equity
Incentive Plan.


91





2008
Equity Incentive Plan





In 2008,
the Company adopted an equity incentive plan for eligible employees, service
providers, and non-employee directors of the Company and its
subsidiaries.  The maximum number of shares available for grants and
awards is an aggregate of 2,000,000 shares and the plan also includes a fixed
sub-limit for the granting of incentive stock options which is 1,500,000
shares.  The awards may be stock options, restricted stock units,
performance units or other stock-based awards.  Stock options may be
“nonstatutory” or “incentive.”  The exercise price for options and
stock appreciation rights shall not be less than the fair market value on the
date of grant, except if an incentive stock option is granted to a “10%
employee,” as defined by the plan, then the option price may not be less than
110% of such fair market value.  Options and stock appreciation rights
may be exercisable commencing with the grant date.





At
December 31, 2007, the Company had two stock-based compensation plans of which
both had stock-based awards outstanding as of December 31, 2008.  The
plans are described below.





Employee
Stock Option Plan




The
Employee Stock Option Plan for officers and other key employees of the Company
permitted grants of stock options, restricted shares or restricted performance
shares for up to 8,238,640 shares of the Company’s common stock. Stock options
may be “nonstatutory” or “incentive” with a purchase price of not less than 100%
of the fair market value on the date of grant. Stock appreciation rights may be
granted at date of option grant or at any later date during the term of the
option.  “Incentive” stock options granted since 1986 become
exercisable no less than six months after the date of grant and are no longer
exercisable after the expiration of four to ten years from the date of
grant.





Non-Employee
Directors’ Stock Option Plan




The 1993
Non-Employee Directors’ Stock Option Plan, as last amended in 2005, provided for
an annual grant on the day following the Annual Meeting of Stockholders of stock
options equal to a Black-Scholes calculated value of $25,000 per Director on the
date of grant. The options vest and become exercisable six months after the date
of grant and, in general, expire ten years after the date of grant.





Stock-Based
Compensation Expense




In
accordance with SFAS No. 123(R), compensation expense for stock options and
stock appreciation rights (“SARs”) is recorded over the vesting period based on
the fair value on the date of grant, as calculated by the Company using the
Black-Scholes model and the assumptions listed below:


92





Years Ended December 312008
                
                
                2007
                
                
                2006Average
      grant date exercise price per share of stock appreciation
      rights
                
                
                -
                
                
                
                -
                
                
                $
                6.19Average
      grant date exercise price per share of unvested awards –
      options
                
                $
                14.41
                
                
                $
                7.89
                
                
                $
                7.55Dividend
      yield
                
                
                .00
                %
                
                
                .00
                %
                
                
                .00
                %Expected
      volatility
                
                
                35
                %
                
                
                33-34
                %
                
                
                34-37
                %Risk-free
      interest rates
                
                
                2.76
                %
                
                
                3.99-4.54
                %
                
                
                3.62-5.20
                %Expected
      lives of options
                
                6 years
                
                
                3-6 years
                
                
                3-6 yearsAverage
      grant date fair value per share of stock appreciation
    rights
                
                
                -
                
                
                
                -
                
                
                $
                1.85Average
      grant date fair value per share of unvested option awards
                
                $
                5.64
                
                
                $
                3.25
                
                
                $
                3.03





The Dividend yield is based on
the latest annualized dividend rate and the current market price of the
underlying common stock at the date of grant.





Expected volatility is based
on the historical volatility of the Company’s stock and the implied volatility
calculated from traded options on the Company’s stock.





The Risk-free interest rates are
based on the U.S. Treasury strip rate for the expected life of the
option.





The Expected lives of options are
determined from primarily historical stock option exercise data.




93




Stock
Option Activity


The
following tables show a summary of the status and activity of stock options for
the year ended December 31, 2008:





Employee:





Weighted-AverageWeighted-
                                                  
                                                  
                                                  Remaining
                                                  
                                                  
                                                  AggregateAverage
                                                  
                                                  
                                                  Contractual
                                                  
                                                  
                                                  IntrinsicExercise
                                                  
                                                  
                                                  Term
                                                  
                                                  
                                                  ValueShares
                                                  
                                                  
                                                  Price
                                                  
                                                  
                                                  (in years)
                                                  
                                                  
                                                  (in thousands)Outstanding
      at beginning of year
                                                  
                                                  
                                                  1,574,525
                                                  
                                                  
                                                  $
                                                  6.69Granted
                                                  
                                                  
                                                  80,625
                                                  
                                                  
                                                  
                                                  17.45Exercised
                                                  
                                                  
                                                  (420,761
                                                  )
                                                  
                                                  
                                                  6.71Canceled
                                                  
                                                  
                                                  (900
                                                  )
                                                  
                                                  
                                                  7.81Outstanding
      at December 31, 2008
                                                  
                                                  
                                                  1,233,489
                                                  
                                                  
                                                  $
                                                  7.38
                                                  
                                                  
                                                  4.91
                                                  
                                                  $
                                                  9,466Exercisable
      at December 31, 2008
                                                  
                                                  
                                                  1,112,300
                                                  
                                                  
                                                  $
                                                  6.62
                                                  
                                                  
                                                  4.48
                                                  
                                                  $
                                                  8,944





The
weighted-average grant date fair value of employee stock options granted during
the year ended December 31, 2008, 2007, and 2006 was $6.76 per share, $3.39 per
share, and $2.99 per share or $0.5 million, $0.3 million, and $0.4 million,
respectively.  The total fair value of options vested during the year
ended December 31, 2008, 2007, and 2006 was $3.15 per share, $3.08 per share,
and $2.70 per share, or $0.3 million, $0.3 million, and $0.7 million,
respectively.





Non-Employee
Directors:





Weighted-AverageWeighted-
                                                              
                                                              
                                                              Remaining
                                                              
                                                              
                                                              AggregateAverage
                                                              
                                                              
                                                              Contractual
                                                              
                                                              
                                                              IntrinsicExercise
                                                              
                                                              
                                                              Term
                                                              
                                                              
                                                              ValueShares
                                                              
                                                              
                                                              Price
                                                              
                                                              
                                                              (in years)
                                                              
                                                              
                                                              (in thousands)Outstanding at
      beginning of year
                                                              
                                                              
                                                              464,867
                                                              
                                                              
                                                              $
                                                              7.35Granted
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Exercised
                                                              
                                                              
                                                              (331,175
                                                              )
                                                              
                                                              
                                                              7.30Canceled
                                                              
                                                              
                                                              (6,100
                                                              )
                                                              
                                                              
                                                              15.50Outstanding
      at December 31, 2008
                                                              
                                                              
                                                              127,592
                                                              
                                                              
                                                              $
                                                              7.09
                                                              
                                                              
                                                              6.39
                                                              
                                                              $
                                                              965Exercisable
      at December 31, 2008
                                                              
                                                              
                                                              127,592
                                                              
                                                              
                                                              $
                                                              7.09
                                                              
                                                              
                                                              6.39
                                                              
                                                              $
                                                              965





The
weighted-average grant date fair value of non-employee director stock options
granted during the years ended December 31, 2007 and 2006 was $3.64 per share
and $3.15 per share, or $0.2 million and $0.2 million, respectively. The total
fair value of options vested during the year ended December 31, 2008, 2007, and
2006 was $5.31 per share, $3.42 per share, and $3.06 per share, or $11 thousand,
$0.1 million and $0.2 million, respectively.


During
the year ended December 31, 2008, 2007, and 2006 the total intrinsic value of
stock options exercised (i.e., the difference between the market price at
exercise and the price paid by the employee or non-employee directors to
exercise the option) was $8.8 million, $3.0 million, and $11 thousand,
respectively.  The total amount of cash received from the exercise of
options was $5.1 million, $3.1 million, and $27 thousand,
respectively.





Stock
Awards


In
accordance with SFAS No. 123(R), compensation expense for nonvested stock awards
is recorded over the vesting period based on the fair value at the date of
grant.


94





Nonvested
restricted and performance restricted stock granted under the Company’s Equity
Incentive Plan is valued at the grant date fair value, which is the market price
of the underlying common stock, and vest over service or performance periods
that range from one to three years.  Outstanding performance
restricted stock awards, a type of award granted in 2005, vest in three
tranches, subject to the Company’s satisfaction of certain performance criteria
during 2005, 2006, and 2007. All of the 64,400 shares vested in March
2008.





Additionally, performance stock awards,
based on Total Shareholder Performance (“TSR”), vest subject to the satisfaction
of performance goals, at the end of a three-year performance
period.  The number of performance stock awards that are scheduled to
vest is a function of TSR. Under the terms of the TSR performance stock award,
the Company’s actual TSR for the performance period is compared to the results
of its peer companies for the same period with the Company’s relative position
in the group determined by percentile rank.  The actual award payout
is determined by multiplying the target award by the performance factor
percentage based upon the Company’s percentile ranking and can vest at between
zero and 200 percent of the target award.  The initial grant date fair
value of the TSR performance stock is determined using a Monte Carlo simulation
model.  The grant date fair value is expensed on a straight-line basis
over the three-year performance period.  The following
significant assumptions were used:





Years Ended December 312008
                
                
                2007
                
                
                2006Dividend
      yield
                
                
                .00
                %
                
                
                .00
                %
                
                
                .00
                %Expected
      volatility
                
                
                35-37
                %
                
                
                49-53
                %
                
                
                45.6
                %Risk-free
      interest rates
                
                
                2.10-3.52
                %
                
                
                4.54-5.13
                %
                
                
                4.69
                %Performance
      period
                
                3 years
                
                
                3 years
                
                
                3 years





The
following table shows a summary of the employee TSR performance stock awards
outstanding as of December 31, 2008:





TSRPerformance
                      
                      Fair
      Value
                      
                      
                      Minimum
                      
                      
                      Target
                      
                      
                      MaximumPeriod
                      
                      (in thousands)
                      
                      
                      Shares
                      
                      
                      Shares
                      
                      
                      Shares2006-2008
                      
                      $
                      784
                      
                      
                      
                      -
                      
                      
                      
                      64,400
                      
                      
                      
                      128,8002007-2009
                      
                      
                      825
                      
                      
                      
                      -
                      
                      
                      
                      60,150
                      
                      
                      
                      120,3002008-2010
                      
                      
                      612
                      
                      
                      
                      -
                      
                      
                      
                      22,700
                      
                      
                      
                      45,400





The
following table shows a summary of the status and activity of nonvested stock
awards for the year ended December 31, 2008:


95





Employee
Non-vested Restricted Stock:





Performance
                Restricted
                Stock Awards
              
              
              Restricted
                Stock Awards
              
              
              TSR
                Performance
                Stock Awards
                (a)
              
              
              Total
              
              
              Weighted-
                Average
                Grant Date
                Fair Value
                (per share)Nonvested
      at January 1, 2008
              
              
              69,600
              
              
              
              435,766
              
              
              
              124,550
              
              
              
              629,916
              
              
              $
              6.10Granted
              
              
              -
              
              
              
              72,825
              
              
              
              22,700
              
              
              
              95,525
              
              
              
              16.07Vested
              
              
              (69,600
              )
              
              
              (204,116
              )
              
              
              -
              
              
              
              (273,716
              )
              
              
              6.14Forfeited
      or Expired
              
              
              -
              
              
              
              (19,424
              )
              
              
              -
              
              
              
              (19,424
              )
              
              
              5.44Nonvested
      at December 31, 2008
              
              
              -
              
              
              
              285,051
              
              
              
              147,250
              
              
              
              432,301
              
              
              $
              8.31





(a) The
number of shares shown for the performance stock awards is based on the target
number of share awards.





The
following table presents information on performance restricted stock awards,
restricted stock awards, and performance stock awards granted:





2008
                    
                    
                    2007
                    
                    
                    2006Number
      of shares granted
                    
                    
                    95,525
                    
                    
                    
                    412,180
                    
                    
                    
                    257,200Weighted-average
      grant date fair value per share
                    
                    $
                    16.07
                    
                    
                    $
                    5.80
                    
                    
                    $
                    5.91





Non-Employee
Directors’ Non-vested Restricted Stock:





Performance
                Restricted
                Stock Awards
              
              
              Restricted
                Stock Awards
              
              
              TSR
                Performance
                Stock Awards
              
              
              Total
              
              
              Weighted-
                Average
                Grant Date
                Fair Value
                (per share)Nonvested
      at January 1, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              -Granted
              
              
              -
              
              
              
              21,143
              
              
              
              -
              
              
              
              21,143
              
              
              
              14.87Vested
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
      or Expired
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Nonvested
      at December 31, 2008
              
              
              -
              
              
              
              21,143
              
              
              
              -
              
              
              
              21,143
              
              
              $
              14.87


96


Compensation
expense related to all stock-based compensation totaled $2.9 million, $2.9
million, and $1.3 million for the years ended December 31, 2008, 2007, and
2006.





As of
December 31, 2008, there was $3.0 million of total future compensation cost
related to nonvested share-based compensation arrangements and the
weighted-average period over which this cost is expected to be recognized is
approximately three years.





12.
Pensions


The
Company sponsors defined benefit plans covering substantially all employees. The
Company uses a measurement date of December 31 for all of its pension
plans.





For all
U.S. plans, at December 31, 2008 and 2007 the projected benefit obligation and
accumulated benefit obligation each exceed plan assets.





For U.S.
plans, the following table provides a reconciliation of changes in the plans’
benefit obligations and fair value of assets over the two-year period ended
December 31, 2008 and the funded status as of December 31 for both
years:


97





(Thousands)
                      
                      2008
                      
                      
                      2007Change
      in Projected Benefit ObligationsProjected
      benefit obligations at January 1
                      
                      $
                      76,773
                      
                      
                      $
                      79,888Service
      cost
                      
                      
                      1,024
                      
                      
                      
                      1,070Interest
      cost
                      
                      
                      4,777
                      
                      
                      
                      4,664Actuarial
      loss (gain)
                      
                      
                      2,884
                      
                      
                      
                      (4,623
                      )Benefits
      paid
                      
                      
                      (3,096
                      )
                      
                      
                      (2,207
                      )Settlement
                      
                      
                      -
                      
                      
                      
                      (1,754
                      )Curtailment
                      
                      
                      (1,039
                      )
                      
                      
                      (265
                      )Projected
      benefit obligations at December 31
                      
                      
                      81,323
                      
                      
                      
                      76,773Change
      in Plan AssetsFair
      value of plan assets at January 1
                      
                      
                      65,752
                      
                      
                      
                      61,784Actual
      return on plan assets
                      
                      
                      (19,522
                      )
                      
                      
                      2,516Employer
      contributions
                      
                      
                      4,085
                      
                      
                      
                      5,413Settlement
                      
                      
                      -
                      
                      
                      
                      (1,754
                      )Benefits
      paid
                      
                      
                      (3,096
                      )
                      
                      
                      (2,207
                      )Fair
      value of plan assets at December 31
                      
                      
                      47,219
                      
                      
                      
                      65,752Funded
      status at December 31
                      
                      $
                      (34,104
                      )
                      
                      $
                      (11,021
                      )Amounts
      recognized in the Balance sheetCurrent
      liability – Accrued benefit cost
                      
                      $
                      (82
                      )
                      
                      $
                      (82
                      )Noncurrent
      liability – Accrued benefit cost
                      
                      
                      (34,022
                      )
                      
                      
                      (10,939
                      )Net
      amount recognized
                      
                      $
                      (34,104
                      )
                      
                      $
                      (11,021
                      )





Amounts
recognized in Accumulated Other Comprehensive
Income consist of:





(Thousands)
                  
                  2008
                  
                  
                  2007Accumulated
      prior service cost
                  
                  $
                  634
                  
                  
                  $
                  1,142Accumulated net actuarial loss
                  
                  
                  31,340
                  
                  
                  
                  4,208Net
      amount recognized, before tax effect
                  
                  $
                  31,974
                  
                  
                  $
                  5,350





The 2007
settlement was the result of participants in the U.S. salaried plan receiving
lump sums.  The 2008 and 2007 curtailments were a result of the
Company freezing the benefits under two of its bargaining unit plans as of
January 1, 2009 and April 30, 2007, respectively.





The
accumulated benefit obligation at the end of 2008 and 2007 was $77.2 million and
$72.0 million, respectively.





For U.S.
plans, the assumptions used to determine benefit obligations are shown in the
following table:


98





2008
                  
                  
                  2007Weighted
      average actuarial assumptions at December 31:Discount
      rate
                  
                  
                  6.06
                  %
                  
                  
                  6.15
                  %Rate
      of increase in compensation levels
                  
                  
                  4.00
                  %
                  
                  
                  4.00
                  %





The asset
allocation for the Company’s pension plans at the end of 2008 and 2007, and the
target allocation for 2009, by asset category, is as follows:





Target
                      
                      
                      Percentage of Plan AssetsAllocation
                      
                      
                      at Year EndAsset
      Category
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007Equity
      securities
                      
                      
                      68.0
                      %
                      
                      
                      69.9
                      %
                      
                      
                      74.3
                      %Debt
      securities
                      
                      
                      30.0
                      
                      
                      
                      30.1
                      
                      
                      
                      25.1Other
                      
                      
                      2.0
                      
                      
                      
                      -
                      
                      
                      
                      0.6Total
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %





The
Company’s investment strategy is to earn the highest possible long-term total
rate of return while minimizing the associated risk to ensure the preservation
of the plan assets for the provision of benefits to participants and their
beneficiaries.  This is accomplished by active management of a
diversified portfolio by fund managers, fund styles, asset types, risk
characteristics and investment holdings.





Information
about the expected cash flows for the U.S. pension plans follows:





Year
                      
                      Pension
      Benefits (Thousand)Employer
      contributions2009
                      
                      $
                      1,070Benefit
      Payments2009
                      
                      $
                      4,2972010
                      
                      
                      4,7782011
                      
                      
                      4,8982012
                      
                      
                      5,0822013
                      
                      
                      4,9612014
      – 2018
                      
                      
                      30,728





For U.S.
plans, the following table provides the components of net periodic pension costs
of the plans for the years ended December 31, 2008, 2007 and
2006:


99





Year Ended December 31(Thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Service
      cost
                  
                  $
                  1,024
                  
                  
                  $
                  1,070
                  
                  
                  $
                  2,459Interest
      cost
                  
                  
                  4,777
                  
                  
                  
                  4,664
                  
                  
                  
                  4,884Expected
      return on assets
                  
                  
                  (5,388
                  )
                  
                  
                  (4,994
                  )
                  
                  
                  (4,375
                  )Prior
      service cost
                  
                  
                  227
                  
                  
                  
                  248
                  
                  
                  
                  303Net
      amortization
                  
                  
                  384
                  
                  
                  
                  351
                  
                  
                  
                  842Settlement
                  
                  
                  -
                  
                  
                  
                  (122
                  )
                  
                  
                  -Curtailment
                  
                  
                  (480
                  )
                  
                  
                  (265
                  )
                  
                  
                  788Net
      periodic pension cost
                  
                  $
                  544
                  
                  
                  $
                  952
                  
                  
                  $
                  4,901





Other
Changes in Plan Assets and Benefit Obligations Recognized
in Other Comprehensive Income





Year Ended December 31(Thousands)
                            
                            2008
                            
                            
                            2007Curtailment
      effect
                            
                            $
                            (558
                            )
                            
                            $
                            265Settlements
                            
                            
                            -
                            
                            
                            
                            122Current
      year actuarial loss (gain)
                            
                            
                            27,793
                            
                            
                            
                            (2,410
                            )Amortization
      of actuarial loss
                            
                            
                            (384
                            )
                            
                            
                            (351
                            )Amortization
      of prior service cost
                            
                            
                            (227
                            )
                            
                            
                            (248
                            )Total
      recognized in other comprehensive income
                            
                            $
                            26,624
                            
                            
                            $
                            (2,622
                            )Total
      recognized in net periodic pension cost andother comprehensive
      income
                            
                            $
                            27,168
                            
                            
                            $
                            (1,670
                            )





The
estimated amounts that will be amortized from accumulated other comprehensive income
into net periodic pension cost in 2009 are as follows:





Prior
      service cost
                  
                  $
                  203Net
      actuarial loss
                  
                  
                  2,048Total
      at December 31
                  
                  $
                  2,251





For U.S.
plans, the assumptions used in the measurement of net periodic pension cost are
shown in the following table:





2008
                  
                  
                  2007
                  
                  
                  2006Weighted
      average actuarial assumptions at December 31:Discount
      rate
                  
                  
                  6.23
                  %
                  
                  
                  5.93
                  %
                  
                  
                  5.60
                  %Expected
      annual return on plan assets
                  
                  
                  8.00
                  %
                  
                  
                  8.00
                  %
                  
                  
                  8.25
                  %Rate
      of increase in compensation levels
                  
                  
                  4.00
                  %
                  
                  
                  4.00
                  %
                  
                  
                  4.00
                  %




100




The
discount rates that the Company utilizes for its Qualified Plans to determine
pension obligations are based on a review of long-term bonds that receive one of
the two highest ratings given by a recognized rating agency.  The
expected rate of return on plan assets was determined by evaluating input from
the Company’s actuaries, including their review of asset class return
expectations as well as long-term inflation assumptions.  Projected
returns are based on broad equity and bond indices that the Company uses to
benchmark its actual asset portfolio performance based on its portfolio mix of
approximately 68% equity securities, 30% debt securities, and 2% with other
investments.  The Company also takes into account the effect on its
projected returns from any reasonably likely changes in its asset portfolio when
applicable.  Including the 2008 return of (28.74)%, the Company’s
20-25 year return ranged from 7.45% to 9.41% on its benchmark
portfolio.





For
European plans, the following tables provide a reconciliation of changes in the
plans’ benefit obligations and fair value of assets over the two-year period
ended December 31, 2008 and the funded status as of December 31 of both
years:





(Thousands)
                                
                                2008
                                
                                
                                2007Change in Projected Benefit
      ObligationsProjected
      benefit obligations at January 1
                                
                                $
                                36,363
                                
                                
                                $
                                36,822Service
      cost
                                
                                
                                765
                                
                                
                                
                                783Interest
      cost
                                
                                
                                2,140
                                
                                
                                
                                1,885Employee
      contributions
                                
                                
                                188
                                
                                
                                
                                192Actuarial
      gain
                                
                                
                                (293
                                )
                                
                                
                                (4,312
                                )Benefits
      paid
                                
                                
                                (1,311
                                )
                                
                                
                                (1,519
                                )Foreign currency exchange rate
      changes
                                
                                
                                (6,920
                                )
                                
                                
                                2,512Projected benefit obligations at December
      31
                                
                                
                                30,932
                                
                                
                                
                                36,363Change in Plan
    AssetsFair
      value of plan assets at January 1
                                
                                
                                23,143
                                
                                
                                
                                19,842Actual
      return on plan assets
                                
                                
                                (2,198
                                )
                                
                                
                                840Employer
      contributions
                                
                                
                                2,130
                                
                                
                                
                                2,374Employee
      contributions
                                
                                
                                188
                                
                                
                                
                                192Benefits
      paid
                                
                                
                                (1,311
                                )
                                
                                
                                (1,519
                                )Foreign currency exchange rate
      changes
                                
                                
                                (4,702
                                )
                                
                                
                                1,414Fair value of plan assets at December
      31
                                
                                
                                17,250
                                
                                
                                
                                23,143Funded Status at December
31
                                
                                $
                                (13,682
                                )
                                
                                $
                                (13,220
                                )Amounts
      recognized in the Balance sheetCurrent
      liability – Accrued benefit cost
                                
                                $
                                (521
                                )
                                
                                $
                                (541
                                )Noncurrent liability – Accrued benefit
      cost
                                
                                
                                (13,161
                                )
                                
                                
                                (12,679
                                )Net amount recognized
                                
                                $
                                (13,682
                                )
                                
                                $
                                (13,220
                                )




101




Amounts
recognized in Accumulated Other


Comprehensive
Income as of December 31 consist of:





(Thousands)
                      
                      2008
                      
                      
                      2007Accumulated
      net actuarial loss
                      
                      $
                      3,584
                      
                      
                      $
                      1,073Accumulated transition
      obligation
                      
                      
                      74
                      
                      
                      
                      139Net amount recognized, before tax
      effect
                      
                      $
                      3,658
                      
                      
                      $
                      1,212





The
accumulated benefit obligation at the end of 2008 and 2007 was $28.3 million and
$32.5 million, respectively.




For
European plans, the assumptions used to determine end of year benefit
obligations are shown in the following table:




2008
                  
                  
                  2007Weighted
      average actuarial assumptions at December 31:Discount
      rate
                  
                  
                  5.69
                  %
                  
                  
                  5.68
                  %Rate of increase in compensation
      levels
                  
                  
                  4.03
                  %
                  
                  
                  4.29
                  %





The asset
allocation for the Company’s European pension plans at the end of 2008 and 2007,
and the target allocation for 2009, by asset category, follows:





Percent
      of Plan AssetsTarget Allocation
                        
                        
                        at Year-EndAsset Category
                        
                        2009
                        
                        
                        2008
                        
                        
                        2007Equity
      Securities
                        
                        
                        36.7
                        %
                        
                        
                        33.5
                        %
                        
                        
                        41.7
                        %Debt
      Securities
                        
                        
                        48.3
                        
                        
                        
                        50.7
                        
                        
                        
                        42.2Other
                        
                        
                        15.0
                        
                        
                        
                        15.8
                        
                        
                        
                        16.1Total
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %




102




At the
end of 2008 and 2007, the projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for European pension plans with a
projected benefit obligation in excess of plan assets, and for pension plans
with an accumulated benefit obligation in excess of plan assets, were as
follows:





Projected
      Benefit Obligation
                  
                  
                  Accumulated
      BenefitExceeds
      the Fair Value of
                  
                  
                  Obligation
      Exceeds the FairPlan’s Assets
                  
                  
                  Value of Plan’s Assets(Thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Projected
      benefit obligation
                  
                  $
                  30,932
                  
                  
                  $
                  36,363
                  
                  
                  $
                  24,169
                  
                  
                  $
                  30,393Accumulated
      benefit obligation
                  
                  $
                  28,272
                  
                  
                  $
                  32,524
                  
                  
                  $
                  22,706
                  
                  
                  $
                  27,611Fair value of plan assets
                  
                  $
                  17,250
                  
                  
                  $
                  23,143
                  
                  
                  $
                  11,658
                  
                  
                  $
                  17,562




Information
about the expected cash flows for the European pension plans
follows:





Year
                    
                    Pension Benefits (Thousands)Employer
      contributions2009
                    
                    $
                    1,690Benefit
      Payments2009
                    
                    $
                    1,3812010
                    
                    
                    1,3552011
                    
                    
                    1,6582012
                    
                    
                    1,7442013
                    
                    
                    1,3872014 – 2018
                    
                    
                    7,354




103




Total
benefits expected to be paid include both the Company’s share of the benefit
cost and the participants’ share of the cost, which is funded by participant
contributions to the plan.





For
European plans, the following table provides the components of net periodic
pension costs of the plans for the years ended December 31, 2008, 2007 and
2006:




Year Ended December 31(Thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Service
      cost
                    
                    $
                    765
                    
                    
                    $
                    783
                    
                    
                    $
                    871Interest
      cost
                    
                    
                    2,140
                    
                    
                    
                    1,885
                    
                    
                    
                    1,560Expected
      return on assets
                    
                    
                    (1,529
                    )
                    
                    
                    (1,405
                    )
                    
                    
                    (1,128
                    )Net amortization
                    
                    
                    83
                    
                    
                    
                    157
                    
                    
                    
                    226Net periodic pension cost
                    
                    $
                    1,459
                    
                    
                    $
                    1,420
                    
                    
                    $
                    1,529





Other
Changes in Plan Assets and Benefit Obligations


Recognized
in Other Comprehensive Income





Year Ended December 31(Thousands)
                            
                            2008
                            
                            
                            2007Current
      year actuarial loss (gain)
                            
                            $
                            3,435
                            
                            
                            $
                            (3,746
                            )Amortization
      of actuarial loss
                            
                            
                            (29
                            )
                            
                            
                            (109
                            )Amortization
      of transition obligation
                            
                            
                            (54
                            )
                            
                            
                            (48
                            )Foreign currency exchange
                            
                            
                            (906
                            )
                            
                            
                            196Total recognized in other comprehensive
      income
                            
                            $
                            2,446
                            
                            
                            $
                            (3,707
                            )Total
      recognized in net periodic pension cost andother comprehensive
      income
                            
                            $
                            3,905
                            
                            
                            $
                            (2,287
                            )




The
estimated amounts that will be amortized from accumulated other comprehensive income
into net periodic pension cost in 2009 are as follows:





Net
      transition obligation
                        
                        $
                        45Net actuarial loss
                        
                        
                        108Total at December 31
                        
                        $
                        153





For
European plans, the assumptions used in the measurement of the net periodic
pension cost are shown in the following table:


2008
                  
                  
                  2007
                  
                  
                  2006Weighted
      average actuarial assumptions at December 31:Discount
      rate
                  
                  
                  5.63
                  %
                  
                  
                  4.89
                  %
                  
                  
                  4.45
                  %Expected
      annual return on plan assets
                  
                  
                  6.25
                  %
                  
                  
                  6.45
                  %
                  
                  
                  6.71
                  %Rate of increase in compensation
      levels
                  
                  
                  4.08
                  %
                  
                  
                  3.90
                  %
                  
                  
                  3.80
                  %




104




The
expected rate of return on plan assets was determined by evaluating input from
the Company’s actuaries, including their review of asset class return
expectations as well as long-term inflation assumptions.  Projected
returns are based on broad equity and bond indices that the Company uses to
benchmark its actual asset portfolio performance.  The Company also
takes into account the effect on its projected returns from any reasonably
likely changes in its asset portfolio when applicable.  At December 31, 2008, the Company’s
European portfolio contained approximately 8.2% less in equity securities
compared to December 31, 2007 due primarily to a decline in the value of the
equity securities. The portfolio’s historical 10-year compounded rate
of return is 5.04%.





The
non-current portion of $47.2 million and $23.6 million at December 31, 2008 and
2007, respectively, for the U.S. and European pension liabilities is included in
accrued pension and other liabilities.





The
Company also sponsors a defined contribution pension plan for certain U.S.
employees that permits employee contributions of up to 50% of eligible
compensation in accordance with Internal Revenue Service
guidance.  Under this defined contribution plan, the Company makes a
fixed contribution of 2% of eligible employee compensation on a quarterly basis
and matches contributions made by each participant in an amount equal to 100% of
the employee contribution up to a maximum of 2% of employee
compensation.  In addition, each of these employees is eligible for an
additional discretionary Company contribution of up to 4% of employee
compensation based upon annual Company performance at the discretion of the
Company’s Board of Directors.  Employer matching contributions for
non-represented employees vest after two years of service. For bargaining unit
employees at the Catlettsburg, Kentucky facility, the Company contributes a
maximum of $25.00 per month to the plan.  For bargaining unit
employees at the Columbus, Ohio facility, the Company began making contributions
to the USW 401(k) Plan of $1.15 per actual hour worked for eligible employees
when their former Barnebey Sutcliffe Employee USWA Local 23.08 401(k) Plan was
discontinued and their defined benefit pension plan was frozen effective April
30, 2007.  The Company realized a $0.3 million curtailment gain as a
result of freezing the aforementioned plan.  For bargaining unit
employees at the Neville Island facility, the Company, effective January 1,
2009, will begin making contributions of $1.40 per actual hour worked to the
defined contribution pension plan (Thrift/Savings Plan) for eligible employees
when their defined benefit pension plan is frozen.  Employer matching
contributions for bargaining unit employees vest immediately.The Company realized a
$0.5 million curtailment gain in 2008 as a result of freezing the aforementioned
plan.  Total expenses related to the defined contribution plans for
years ended December 31, 2008, 2007, and 2006 were $2.0 million, $1.9 million,
and $0.4 million, respectively.


105


13.
Provision (Benefit) for Income Taxes





The
components of the provision (benefit) for income taxes for continuing operations
were as follows:




Year Ended December 31(Thousands)
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006CurrentFederal
                      
                      $
                      11,765
                      
                      
                      $
                      1,138
                      
                      
                      $
                      (1,090
                      )State
      and local
                      
                      
                      829
                      
                      
                      
                      (17
                      )
                      
                      
                      19Foreign
                      
                      
                      3,720
                      
                      
                      
                      3,418
                      
                      
                      
                      80116,314
                      
                      
                      
                      4,539
                      
                      
                      
                      (270
                      )DeferredFederal
                      
                      
                      1,740
                      
                      
                      
                      706
                      
                      
                      
                      (1,762
                      )State
      and local
                      
                      
                      398
                      
                      
                      
                      292
                      
                      
                      
                      (978
                      )Foreign
                      
                      
                      (351
                      )
                      
                      
                      2,289
                      
                      
                      
                      3341,787
                      
                      
                      
                      3,287
                      
                      
                      
                      (2,406
                      )Provision (benefit) for income taxes for
      continuing operations
                      
                      $
                      18,101
                      
                      
                      $
                      7,826
                      
                      
                      $
                      (2,676
                      )





Income
from continuing operations before income taxes and equity in income of equity
investments includes income of $16.9 million for 2008, income of $12.1 million
for 2007, and a loss of $1.1 million for 2006 generated by operations outside
the United States.





The
difference between the U.S. federal statutory tax rate and the Company’s
effective income tax rate for continuing operations is as follows:




Year Ended December 312008
                    
                    
                    2007
                    
                    
                    2006U.S.
      federal statutory rate
                    
                    
                    35.0
                    %
                    
                    
                    35.0
                    %
                    
                    
                    35.0
                    %State
      income taxes, net of federal income tax benefit
                    
                    
                    1.6
                    
                    
                    
                    1.2
                    
                    
                    
                    5.2Non-deductible
      goodwill impairment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (17.1
                    )Tax
      rate differential on foreign income
                    
                    
                    (3.2
                    )
                    
                    
                    0.1
                    
                    
                    
                    (5.9
                    )Extraterritorial
      income exclusion
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4.8Net
      foreign tax credits
                    
                    
                    0.5
                    
                    
                    
                    4.9
                    
                    
                    
                    (1.0
                    )Tax
      statute expiration
                    
                    
                    (0.4
                    )
                    
                    
                    (6.7
                    )
                    
                    
                    3.8Change
      in uncertain tax positions
                    
                    
                    1.6
                    
                    
                    
                    7.6
                    
                    
                    
                    -Change
      in tax rates
                    
                    
                    -
                    
                    
                    
                    (5.2
                    )
                    
                    
                    -Other – net
                    
                    
                    (0.8
                    )
                    
                    
                    (0.2
                    )
                    
                    
                    (2.4
                    )Effective income tax rate for continuing
      operations
                    
                    
                    34.3
                    %
                    
                    
                    36.7
                    %
                    
                    
                    22.4
                    %





106




The
Company’s total provision for income taxes is shown below:





Year Ended December 31(Thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Continuing
      operations
                    
                    $
                    18,101
                    
                    
                    $
                    7,826
                    
                    
                    $
                    (2,676
                    )Discontinued
      operations
                    
                    
                    1,560
                    
                    
                    
                    (91
                    )
                    
                    
                    2,814Other
      comprehensive income
                    
                    
                    (9,507
                    )
                    
                    
                    3,449
                    
                    
                    
                    2,752Cumulative
      effect of change in accounting principle
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,739
                    )Total
      provision for income taxes
                    
                    $
                    10,154
                    
                    
                    $
                    11,184
                    
                    
                    $
                    151





The
Company has the following gross operating loss carryforwards and domestic tax
credit carryforwards as of December 31, 2008:





Type (Thousands)
                  
                  Amount
                  
                  
                  Expiration DateForeign
      tax credits
                  
                  $
                  12,177
                  
                  
                  
                  2009-2018State
      tax credits
                  
                  
                  766
                  
                  
                  2027Operating
      loss carryforwards – state*
                  
                  
                  52,492
                  
                  
                  
                  2010-2027Operating loss carryforwards -
      foreign
                  
                  
                  213
                  
                  
                  None


*Of the
total state operating loss carryforwards, approximately 90% expire in 2019 or
later.





107




The
components of deferred taxes consist of the following:




December 31(Thousands)
                                
                                2008
                                
                                
                                2007Deferred
      tax assets**State
      net operating loss and credit carryforwards***
                                
                                $
                                15,037
                                
                                
                                $
                                13,090Accruals
                                
                                
                                6,932
                                
                                
                                
                                9,340Inventories
                                
                                
                                5,764
                                
                                
                                
                                4,119Pensions
                                
                                
                                15,849
                                
                                
                                
                                6,888Goodwill
      and other intangible assets
                                
                                
                                268
                                
                                
                                
                                2,770Valuation allowance
                                
                                
                                (7,977
                                )
                                
                                
                                (6,218
                                )Total deferred tax assets
                                
                                
                                35,873
                                
                                
                                
                                29,989Deferred
      tax liabilitiesProperty,
      plant and equipment
                                
                                $
                                11,797
                                
                                
                                $
                                10,136U.S.
      liability on Belgian net deferred tax assets
                                
                                
                                42
                                
                                
                                
                                1,224U.S.
      liability on German net deferred tax assets
                                
                                
                                -
                                
                                
                                
                                2,575U.S.
      liability on deferred foreign income
                                
                                
                                733
                                
                                
                                
                                1,572Cumulative translation adjustment on undistributed
      earnings
                                
                                
                                1,174
                                
                                
                                
                                178Total deferred tax
    liabilities
                                
                                
                                13,746
                                
                                
                                
                                15,685Net deferred tax asset
                                
                                $
                                22,127
                                
                                
                                $
                                14,304


**FIN 48
liabilities of approximately $60 thousand and $2.3 million fully offset the
foreign net operating losses and credit carryforwards in 2008 and 2007,
respectively.


*** FIN
48 net indirect benefits of approximately $2.4 million are included in the U.S.
net operating loss and credit carryforwards in 2008.  FIN 48
liabilities of approximately $1.1 million offset the U.S. net operating loss and
credit carryforwards in 2007.


108




A
valuation allowance is established when it is more likely than not that a
portion of the deferred tax assets will not be realized.  The
valuation allowance is adjusted based on the changing facts and circumstances,
such as the expected expiration of an operating loss carryforward.


The
Company’s valuation allowance consists of the following:





Thousands
                      
                      U.S. Foreign
                        Tax Credits
                      
                      
                      State
                        Operating Loss
                        Carryforwards
                      
                      
                      Foreign
                        Operating Loss
                        Carryforwards
                      
                      
                      Total
                        Valuation
                        AllowanceBalance
      as of January 1, 2007
                      
                      $
                      3,477
                      
                      
                      $
                      608
                      
                      
                      $
                      1,657
                      
                      
                      $
                      5,742Increase
      due to uncertainty in realization of tax benefits
                      
                      
                      2,441
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,441Decrease
      due to expired net operating loss carryforwards
                      
                      
                      -
                      
                      
                      
                      (37
                      )
                      
                      
                      (1,657
                      )
                      
                      
                      (1,694
                      )Decrease
      due to utilization of state net operating loss
    carryforwards
                      
                      
                      -
                      
                      
                      
                      (271
                      )
                      
                      
                      -
                      
                      
                      
                      (271
                      )Balance
      as of December 31, 2007
                      
                      
                      5,918
                      
                      
                      
                      300
                      
                      
                      
                      -
                      
                      
                      
                      6,218Increase
      due to uncertainty of realization of tax benefit
                      
                      
                      3,943
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,943Decrease
      due to a reduction of tax benefits in current year
                      
                      
                      (1,946
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,946
                      )Decrease
      due to utilization of state net operating loss
    carryforwards
                      
                      
                      -
                      
                      
                      
                      (238
                      )
                      
                      
                      -
                      
                      
                      
                      (238
                      )Balance
      as of December 31, 2008
                      
                      $
                      7,915
                      
                      
                      $
                      62
                      
                      
                      $
                      -
                      
                      
                      $
                      7,977




The
Company adopted FIN 48, effective January 1, 2007.  FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in tax returns.  Upon adoption,
the Company recorded a $5.7 million increase in the gross unrecognized income
tax benefits and a decrease in retained earnings of $4.3 million.  In
conjunction with the adoption of FIN 48, the Company has classified uncertain
tax positions as non-current income tax liabilities unless the amount is
expected to be paid within one year.  The following is a
reconciliation of the unrecognized income tax benefits:


109





Thousands
                      
                      2008
                      
                      
                      2007Balance
      at January 1
                      
                      $
                      11,953
                      
                      
                      $
                      9,477Gross
      increases for tax positions of prior years
                      
                      
                      1,919
                      
                      
                      
                      124Gross
      decreases for tax positions of prior years
                      
                      
                      (2,100
                      )
                      
                      
                      (1,187
                      )Gross
      increases for tax positions of current year
                      
                      
                      809
                      
                      
                      
                      4,476Lapse
      of statute of limitations
                      
                      
                      (332
                      )
                      
                      
                      (937
                      )Balance
      at December 31
                      
                      $
                      12,249
                      
                      
                      $
                      11,953





As of
December 31, 2008 and 2007, approximately $10.0 million of the $12.2 million and
$12.0 million, respectively, of unrecognized tax benefits would reduce the
Company’s effective tax rate if recognized.  Total uncertain tax
positions recorded in accrued pension and other liabilities were approximately
$12.4 million and $9.2 million for the year ended December 31, 2008 and 2007,
respectively.





The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits in income tax expense.  In its initial adoption of FIN 48,
the Company recognized approximately $0.5 million of interest and
penalties.  During 2008 and 2007, the Company recognized approximately
$0.2 million and $0.1 million, respectively, of interest and
penalties.  As of December 31, 2008 and 2007, the amount accrued for
the payment of interest and penalties is approximately $0.8 million and $0.6
million, respectively.





At this
time, the Company believes that it is reasonably possible that approximately
$5.2 million of the estimated unrecognized tax benefits as of December 31, 2008
will be recognized within the next twelve months based on the expiration of
statutory review periods and the settlement of tax audits.




As of
December 31, 2008, the following tax years remain subject to examination for the
major jurisdictions where the Company conducts business:





Jurisdiction
                      
                      YearsUnited
      States
                      
                      2000, 2003, 2005 – 2008Kentucky
                      
                      2004 – 2008Canada
                      
                      2004 – 2008Pennsylvania
                      
                      2003 – 2008Germany
                      
                      2003 – 2008UK
                      
                      2002 – 2008Belgium
                      
                      1999 – 2008


110





14.
Accumulated Other Comprehensive Income (Loss)





AccumulatedCurrency
                
                
                Pension
                
                
                
                
                
                OtherTranslation
                
                
                Benefit
                
                
                
                
                
                ComprehensiveAdjustment
                
                
                Adjustments
                
                
                Other
                
                
                Income (Loss)Balance,
      January 1, 2006
                
                $
                14,635
                
                
                $
                (7,821
                )
                
                $
                (372
                )
                
                $
                6,442Net
      Change
                
                
                4,644
                
                
                
                (585
                )
                
                
                (196
                )
                
                
                3,863Balance,
      December 31, 2006
                
                
                19,279
                
                
                
                (8,406
                )
                
                
                (568
                )
                
                
                10,305Net
      Change
                
                
                2,557
                
                
                
                3,648
                
                
                
                498
                
                
                
                6,703Balance,
      December 31, 2007
                
                
                21,836
                
                
                
                (4,758
                )
                
                
                (70
                )
                
                
                17,008Net
      Change
                
                
                (4,744
                )
                
                
                (17,959
                )
                
                
                (755
                )
                
                
                (23,458
                )Balance,
      December 31, 2008
                
                $
                17,092
                
                
                $
                (22,717
                )
                
                $
                (825
                )
                
                $
                (6,450
                )





Foreign
currency translation adjustments exclude income tax expense (benefit) for the
earnings of the Company’s non-U.S. subsidiaries as management believes these
earnings will be reinvested for an indefinite period of
time.  Determination of the amount of unrecognized deferred U.S.
income tax liability on these unremitted earnings is not
practicable.





The
income tax effect included in accumulated other comprehensive income (loss) for
other non-U.S. subsidiaries was $1.2 million at December 31, 2008 and $0.2
million at December 2007 and 2006, respectively.  The income tax
benefit associated with SFAS No. 158 “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans” included in accumulated other
comprehensive income was $ 13.6 million, $2.7 million, and $4.5 million at
December 31, 2008, 2007, and 2006, respectively.




111




15.
Supplemental Cash Flow Information





Cash paid
for interest for the years ended December 31, 2008, 2007, and 2006 was $4.8
million, $5.3 million, and $4.6 million, respectively.  Income taxes
paid, net of refunds, for the years ended December 31, 2008, 2007, and 2006 was
$15.3 million, $1.8 million, and $0.7 million, respectively.





During
the year ended December 31, 2008, the Company exchanged shares of its common
stock for approximately $58.0 million of its 5.00% Convertible Senior
Notes.  Refer to Note 8.





The
Company has reflected $1.9 million of its capital expenditures as a non-cash
increase in accounts payable and accrued liabilities for the year ended December
31, 2008.


112


16.
Derivative Instruments





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





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





At
December 31, 2008, the Company had eighty-six derivative instruments outstanding
of which one was a foreign currency swap, seventy-four were hedges utilizing
foreign currency forward exchange contracts, and eleven were cash flow hedges
utilizing forward contracts for the forecasted purchases of natural
gas.  The Company applied hedge accounting treatment for the foreign
currency swap, sixty-six of the foreign currency forward exchange contracts, and
the eleven cash flow hedges for forecasted purchases of natural
gas.  The aforementioned sixty-six foreign currency forward exchange
contracts were treated as foreign cash flow hedges regarding payment for
inventory purchases and will be released into operations based on the timing of
the sales of the underlying inventory.  Accordingly, the change in the
fair value of these contracts of $0.8 million, net of tax, as of December 31,
2008, was recorded in other comprehensive income (loss).  The Company
did not apply hedge accounting treatment for the remaining eight foreign
currency forward exchange contracts and recorded an immaterial loss in other
income.  The change in fair value of the cash flow hedges for
forecasted purchases of natural gas recorded in other comprehensive income
(loss) was $(1.2) million, net of tax, at December 31, 2008.  The
balance of the cash flow hedges for forecasted natural gas purchases recorded in
accounts payable and accrued liabilities and accrued pension and other
liabilities was $1.2 million and $1.0 million, respectively, as of December 31,
2008.





At
December 31, 2007, the Company had sixteen derivative instruments outstanding of
which one was a foreign currency swap, nine were foreign currency forward
exchange contracts, and six were cash flow hedges for forecasted purchases of
natural gas.  The Company applied hedge accounting treatment for the
foreign currency swap and the six cash flow hedges for forecasted natural gas
purchases.  The change in fair value of the cash flow hedges for the
forecasted natural gas purchases recorded in other comprehensive income (loss)
was $(0.4) million, net of tax, as of December 31, 2007.  The balance
of the cash flow hedges for forecasted natural gas purchases recorded in accrued
pension and other liabilities was $0.3 million as of December 31,
2007.


113





On April
26, 2004, the Company entered into a ten-year foreign currency swap agreement to
fix the foreign exchange rate on a $6.5 million intercompany loan between the
Company and its foreign subsidiary, Chemviron Carbon Ltd.  Since its
inception, the foreign currency swap has been treated as a foreign exchange cash
flow hedge.  Accordingly, the change in the fair value of the foreign
currency swap of $(0.4) million and $(0.1) million, respectively, for the years
ended December 31, 2008 and 2007, was recorded in other comprehensive income
(loss).  The balance of the foreign currency swap recorded in other
assets as of December 31, 2008 was $0.7 million and $0.8 million in accrued
pension and other liabilities as of December 31, 2007.





No
component of the derivative gains or losses has been excluded from the
assessment of hedge effectiveness.  For the years ended December 31,
2008 and 2007, the net gain or loss recognized due to the amount of hedge
ineffectiveness was not material.





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


114


17.  Contingencies





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





In
conjunction with the February 2004 purchase of substantially all of Waterlink’s
operating assets and the stock of Waterlink’s U.K. subsidiary, several
environmental studies were performed on Waterlink’s Columbus, Ohio property by
environmental consulting firms which identified and characterized areas of
contamination.  In addition, these firms identified alternative
methods of remediating the property, identified feasible alternatives and
prepared cost evaluations of the various alternatives.  The Company
concluded from the information in the studies that a loss at this property is
probable and recorded the liability as a component of noncurrent other
liabilities in the Company’s consolidated balance sheet.  At December
31, 2008 and 2007, the balance recorded was $4.0 million.  Liability
estimates are based on an evaluation of, among other factors, currently
available facts, existing technology, presently enacted laws and regulations,
and the remediation experience of other companies.  The Company has
not incurred any environmental remediation expense for the years ended December
31, 2008 and 2007, but incurred $0.1 million of expense in 2006.  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.


115





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 margins of dumping
ranged from 61.95 percent ad valorem (i.e., of the entered value of the goods)
to 228.11 percent ad valorem.  A formal order imposing final duties
was published on April 27, 2007.  All imports from China remain
subject to the order and antidumping duties.  Importers of subject
activated carbon from China are required to make cash deposits of estimated
antidumping duties at the time the goods are entered into the United States
customs territory.  Deposits of duties are subject to future revision
based on retrospective reviews conducted by the Commerce
Department.  With one limited exception, the amount of duties owed can
decrease or increase 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 duty case, the Company was required to pay deposits of estimated
antidumping duties in the amount of 84.45 percent ad valorem to the Bureau of
Customs and Border Protection (“Customs”) on entries made on or after October
11, 2006 through April 9, 2007.   Thereafter, deposits have been
paid at 69.54 percent.  Because of limits on the government’s legal
authority to impose provisional duties prior to issuance of a final
determination, entries made between April 9, 2007 and April 19, 2007 were not
subject to duties.


116


The
Company’s role as an importer that is required to pay duties results in a
contingent liability related to the final amount of duties that will be
paid.  The Company has made deposits of estimated duties in two
ways.  First, estimated duties on entries in the period from October
11, 2006 through April 9, 2007 were covered by a bond.  The total
amount of duties 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 duties during this
period of $0.8 million is reflected in accounts payable and accrued liabilities
on the consolidated balance sheets at December 31, 2008 and
2007.  Second, the Company has been required to post cash deposits of
estimated duties owed on entries of subject merchandise since April 19,
2007.  The final amount of duties 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.





As noted
above, following the entry of merchandise, the amount of estimated antidumping
duties paid is subject to later review and adjustment based on the actual amount
of dumping that is found.  To do this, the Commerce Department
conducts annual 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
duty rate (either increasing or reducing the rate) applicable to any given
foreign exporter.  Revision of the margin of dumping has two
effects.  First, it will alter the actual amount of duties that
Customs will seek to collect, by either increasing or decreasing the amount to
reflect the actual amount of dumping that was found.  Where the actual
amount of duties owed increases, the government will require payment of the
difference plus interest.  Conversely, when the duty rate decreases,
any difference is refunded with interest.  Second, the revised rate
becomes the cash deposit rate applied to future entries, and as such 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 are
due no later than March 31, 2009, and the review must be completed no later than
November 3, 2009.   At this time, data submitted by the Company
as well as others is continuing to be reviewed by Customs. Because there are
multiple factors that will influence the final results, the Company is unable to
estimate what, if any, adjustments to the current deposit rate will occur or the
amount of additional deposits or refunds the Company may owe or receive,
respectively.


117


Related
to this, in early April 2009, the Commerce Department will publish a formal
notice allowing parties to request the second annual administrative review of
the antidumping duty order.  Requests for review will be due no later
than April 30, 2009.





The contingent liability resulting from
duties paid on imports is somewhat mitigated by two factors.  First
and foremost, the antidumping duty order’s disciplinary effect on the market
encourages the elimination of dumping through fair pricing, and thus tends to
provide the Company the ability to obtain an improved return on its investment
and operations.  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 duties collected on entries of subject merchandise from China
from April 27, 2007 to September 30, 2007.  In July 2008, the Company
applied for such a distribution.  In December 2008, the Company
received a distribution of approximately $0.2 million, which reflected 59.57
percent of the total amount available.  The Company anticipates
receiving additional amounts in 2009 and future years, though the exact amount
is impossible to determine.





Following
protracted litigation in multiple jurisdictions, the U.S. Court of Appeals for
the Federal Circuit held that the Company’s process patents for the use of
ultraviolet light to prevent infection from Cryptosporidium and Giardia in
drinking water (the “UV patents”) are invalid in the United States concluding
the U.S. litigation relating to the UV patents.  On March 3, 2008, the
Supreme Court of Canada held that the Company’s Canadian UV patents are invalid
concluding the Canadian UV patent litigation.  In March 2007, the
Company and Trojan entered into a settlement whereby in exchange for a nominal
cash payment and relief from legal fees, the Company granted Trojan
Technologies, Inc. worldwide immunity from all current and future legal action
related to the Company’s UV patents.  In 2007, a German trial court
found that a competitor infringed the Company’s UV patents with respect to
medium pressure ultraviolet light, but did not infringe with respect to low
pressure ultraviolet light.  The Company appealed the decision
relating to low pressure light.   The competitor did not
appeal.  By order dated September 29, 2008, each party nominated an
expert to provide opinions as to questions posed by the Court.  The
Court will then choose one of the experts nominated or choose another
expert.  The validity of the German UV patents, as distinguished from
issues of infringement which were decided in the trial court, is the subject of
pending administrative proceedings in Germany.  The outcome of these
cases has impaired the Company’s ability to capitalize on substantial future
revenues from the licensing of its UV patents.


118





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





On July
3, 2008, the EPA verbally informed the Company that there are a number of
unresolved RCRA violations at the Big Sandy Plant which may render the facility
unacceptable to receive spent carbon for reactivation from sites regulated under
the CERCLA pursuant to the CERCLA Off-Site Rule.  The Company received
written notice of the unacceptability determination on July 14, 2008 (the
“Notice”).  The Notice alleges multiple violations of RCRA and four
releases of hazardous waste.  The alleged violations and releases stem
from the September 2005 multi-media compliance inspections, and are among those
alleged in the January 2007 NOV described in the preceding
paragraph.  The Company originally had until September 1, 2008 to
demonstrate to the EPA that the alleged violations and releases are not
continuing, or else the Big Sandy Plant will not be able to receive spent carbon
from CERCLA sites until the EPA determines that the facility is again acceptable
to receive such CERCLA wastes.  The Company met with the EPA on August
25, 2008 and the Company submitted a written response to the Notice prior to the
meeting.


119





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 25, 2008 EPA
meeting.  On August 28, 2008, the Company received a letter from the
Division requesting additional information from the Company in connection with
the SDD’s evaluation of the Company’s potential “business risk to the Federal
Government,” noting that the Company engages in procurement transactions with or
funded by the Federal Government.  The Company provided the SDD with
all information requested by the letter in September 2008.  The SDD
can suspend or debar a Company from sales to the federal government directly or
indirectly through government contractors or with respect to projects funded by
the federal government.  In October 2008, the SDD indicated that it
was still reviewing the matter but that another meeting with the Company was not
warranted at the time.  The Company believes that there is no basis
for suspension or debarment on the basis of the matters asserted by the EPA in
the Notice or otherwise.





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 has 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 the
conditions.  The Company is also in discussions with the EPA and KYDEP
regarding the classification of these materials.  If the Company is
required to treat and/or dispose of the material dredged from the lagoon as
hazardous waste, the costs for doing so could be substantial.





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 PRPs
develop, implement and finance a remedial program for Operable Unit #1 at the
Site.  Operable Unit #1 consists of overburden soils and overburden
and upper bedrock groundwater.  The selected remedy is removal of
above grade structures and contaminated soil source areas, installation of a
cover system, and ground water control and treatment, estimated to cost between
approximately $11 million and $14 million, which would be shared among the
PRPs.  The Company has not determined what portion of the costs
associated with the remedial program it would be obligated to bear and the
Company cannot predict with any certainty the outcome of this matter or range of
potential loss.  The Company has joined a PRP group and has executed a
Joint Defense Agreement with the group members.  In August 2008, the
Company and over 100 PRP’s entered into a Consent Order with NYSDEC for
additional site investigation directed toward characterization of the Site to
better define the scope of the remedial project.  The Company
contributed monies to the PRP group to help fund the work required under the
Consent Order.  The field work was initiated in 2008 but suspended due
the onset of winter.  The group plans to complete the work in the
spring of 2009.


120





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.  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.  EPA can also deny the Part B operating
permit.  At this time the Company cannot predict with any certainty
the outcome of this matter or range of loss, if any.





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


121




The
Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical
Corporation, which was formed on October 1, 2002.  At December 31,
2008, Calgon Mitsubishi Chemical Corporation had $25.1 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 December 31, 2008, the lender
had not requested, and the Company has not provided, such
guarantee.





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


122


18.
Basic and Diluted Net Income (Loss) from Continuing Operations Per Common
Share





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





For the Year Ended(Dollars in thousands, except per share
      amounts)
                                      
                                      2008
                                      
                                      
                                      2007
                                      
                                      
                                      2006Income
      (loss) from continuing operations available to common
      shareholders
                                      
                                      $
                                      35,564
                                      
                                      
                                      $
                                      15,453
                                      
                                      
                                      $
                                      (9,012
                                      )Weighted
      Average Shares OutstandingBasic
                                      
                                      
                                      44,679,169
                                      
                                      
                                      
                                      39,788,063
                                      
                                      
                                      
                                      39,926,572Effect
      of Dilutive Securities
                                      
                                      
                                      8,706,256
                                      
                                      
                                      
                                      10,769,218
                                      
                                      
                                      
                                      -Diluted
                                      
                                      
                                      53,385,425
                                      
                                      
                                      
                                      50,557,281
                                      
                                      
                                      
                                      39,926,572Basic
      net income (loss) from continuing operations per common
    share
                                      
                                      $
                                      .80
                                      
                                      
                                      $
                                      .39
                                      
                                      
                                      $
                                      (.23
                                      )Diluted
      net income (loss) from continuing operations per common
    share
                                      
                                      $
                                      .67
                                      
                                      
                                      $
                                      .31
                                      
                                      
                                      $
                                      (.23
                                      )





For the
years ended December 31, 2008, 2007 and 2006, there were 80,625, 8,100, and
1,832,513 options, respectively, that were excluded from the dilutive
calculations as the effect would have been antidilutive.





The
Company’s obligation under its Notes is to settle the par value of the Notes in
cash and to settle the amount in excess of par value with its common
shares.  Therefore, the Company is not required to include any shares
underlying the Notes in its diluted weighted average shares outstanding until
the average stock price per share for the quarter exceeds the $5.10 conversion
price. At such time, only the number of shares that would be issuable (under the
“treasury stock” method of accounting for share dilution) will be included,
which is based upon the amount by which the average stock price exceeds the
conversion price.  The dilutive effect of the Notes was calculated
based on the weighted average number of incremental shares included in each
quarterly diluted earnings per share computation.  During the last
half of 2008, all but $6.0 million of the Notes was either exchanged or
converted (See Note 8).  The potential dilution at various stock
prices for the remaining $6.0 million of principal Notes outstanding is not
material.


123


19. 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 water 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 continuing
operations:





Year Ended December 31(Thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Net
      salesActivated
      Carbon and Service
                    
                    $
                    342,326
                    
                    
                    $
                    295,608
                    
                    
                    $
                    265,279Equipment
                    
                    
                    47,288
                    
                    
                    
                    41,328
                    
                    
                    
                    37,884Consumer
                    
                    
                    10,656
                    
                    
                    
                    14,188
                    
                    
                    
                    12,959Consolidated net sales
                    
                    $
                    400,270
                    
                    
                    $
                    351,124
                    
                    
                    $
                    316,122





Year Ended December 31(Thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Income
      (loss) from continuing operations before amortization and goodwill
      impairment chargeActivated
      Carbon and Service
                  
                  $
                  53,368
                  
                  
                  $
                  28,038
                  
                  
                  $
                  8,475Equipment
                  
                  
                  6,018
                  
                  
                  
                  (
      1,715
                  )
                  
                  
                  (5,748
                  )Consumer
                  
                  
                  (159
                  )
                  
                  
                  2,029
                  
                  
                  
                  1,347$
                  59,227
                  
                  
                  $
                  28,352
                  
                  
                  $
                  4,074




124




Reconciling
items:
 
 Goodwill
      impairment charge
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,940
                      )Amortization
                      
                      
                      (1,544
                      )
                      
                      
                      (1,796
                      )
                      
                      
                      (1,744
                      )Interest
      income
                      
                      
                      1,504
                      
                      
                      
                      1,695
                      
                      
                      
                      822Interest
      expense
                      
                      
                      (3,673
                      )
                      
                      
                      (5,508
                      )
                      
                      
                      (5,977
                      )Other expense—net
                      
                      
                      (2,703
                      )
                      
                      
                      (1,441
                      )
                      
                      
                      (2,209
                      )Consolidated
      income (loss) from continuing operations before income taxes and equity in income of equity
      investments
                      
                      $
                      52,811
                      
                      
                      $
                      21,302
                      
                      
                      $
                      (11,974
                      )


Year Ended December 31(Thousands)
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006DepreciationActivated
      Carbon and Service
                          
                          $
                          13,854
                          
                          
                          $
                          14,542
                          
                          
                          $
                          16,220Equipment
                          
                          
                          997
                          
                          
                          
                          628
                          
                          
                          
                          687Consumer
                          
                          
                          279
                          
                          
                          
                          282
                          
                          
                          
                          282$
                          15,130
                          
                          
                          $
                          15,452
                          
                          
                          $
                          17,189Amortization
                          
                          
                          1,544
                          
                          
                          
                          1,796
                          
                          
                          
                          1,744Consolidated depreciation and
      amortization
                          
                          $
                          16,674
                          
                          
                          $
                          17,248
                          
                          
                          $
                          18,933





December 31(Thousands)
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Total
      assetsActivated
      Carbon and Service
                        
                        $
                        334,952
                        
                        
                        $
                        302,432
                        
                        
                        $
                        277,134Equipment
                        
                        
                        38,914
                        
                        
                        
                        32,046
                        
                        
                        
                        34,031Consumer
                        
                        
                        13,730
                        
                        
                        
                        13,662
                        
                        
                        
                        11,199Consolidated total assets
                        
                        $
                        387,596
                        
                        
                        $
                        348,140
                        
                        
                        $
                        322,364





Year Ended December 31(Thousands)
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Property,
      plant and equipment expendituresActivated
      Carbon and Service
                        
                        $
                        33,033
                        
                        
                        $
                        10,947
                        
                        
                        $
                        11,728Equipment
                        
                        
                        1,294
                        
                        
                        
                        684
                        
                        
                        
                        1,127Consumer
                        
                        
                        615
                        
                        
                        
                        158
                        
                        
                        
                        -Consolidated property, plant and equipment
      expenditures (1)
                        
                        $
                        34,942
                        
                        
                        $
                        11,789
                        
                        
                        $
                        12,855


(1) Includes $1.9 million which is included in accounts
payable and accrued liabilities at December 31, 2008.


125





Net
Sales by Product:





Year Ended December 31(Thousands)
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Carbon
      products
                        
                        $
                        317,940
                        
                        
                        $
                        267,934
                        
                        
                        $
                        241,974Capital
      equipment
                        
                        
                        35,155
                        
                        
                        
                        31,601
                        
                        
                        
                        28,119Equipment
      leasing
                        
                        
                        16,020
                        
                        
                        
                        13,943
                        
                        
                        
                        14,789Carbon
      cloth products
                        
                        
                        12,133
                        
                        
                        
                        11,262
                        
                        
                        
                        8,639Spare
      parts
                        
                        
                        8,581
                        
                        
                        
                        9,727
                        
                        
                        
                        9,765Home
      consumer products
                        
                        
                        2,074
                        
                        
                        
                        2,926
                        
                        
                        
                        4,320Other services
                        
                        
                        8,367
                        
                        
                        
                        13,731
                        
                        
                        
                        8,516Total sales
                        
                        $
                        400,270
                        
                        
                        $
                        351,124
                        
                        
                        $
                        316,122


126





GEOGRAPHIC
INFORMATION





Year Ended December 31(Thousands)
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Net
      salesUnited
      States
                        
                        $
                        218,864
                        
                        
                        $
                        192,843
                        
                        
                        $
                        175,649United
      Kingdom
                        
                        
                        25,913
                        
                        
                        
                        28,569
                        
                        
                        
                        26,121Canada
                        
                        
                        17,721
                        
                        
                        
                        13,312
                        
                        
                        
                        10,439Germany
                        
                        
                        17,111
                        
                        
                        
                        17,056
                        
                        
                        
                        16,039France
                        
                        
                        16,562
                        
                        
                        
                        13,953
                        
                        
                        
                        11,249Belgium
                        
                        
                        10,888
                        
                        
                        
                        8,738
                        
                        
                        
                        7,860Japan
                        
                        
                        10,656
                        
                        
                        
                        10,304
                        
                        
                        
                        9,689China
                        
                        
                        9,127
                        
                        
                        
                        3,954
                        
                        
                        
                        2,179Netherlands
                        
                        
                        7,336
                        
                        
                        
                        5,192
                        
                        
                        
                        3,813Spain
                        
                        
                        6,702
                        
                        
                        
                        5,565
                        
                        
                        
                        5,600Mexico
                        
                        
                        5,317
                        
                        
                        
                        4,285
                        
                        
                        
                        5,047Switzerland
                        
                        
                        5,286
                        
                        
                        
                        4,492
                        
                        
                        
                        3,985Finland
                        
                        
                        3,427
                        
                        
                        
                        2,534
                        
                        
                        
                        2,184Italy
                        
                        
                        3,272
                        
                        
                        
                        2,807
                        
                        
                        
                        3,184Other
                        
                        
                        42,088
                        
                        
                        
                        37,520
                        
                        
                        
                        33,084Consolidated net sales
                        
                        $
                        400,270
                        
                        
                        $
                        351,124
                        
                        
                        $
                        316,122





Net sales
are attributable to countries based on location of customer.





December 31(Thousands)
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Long-lived
      assetsUnited
      States
                      
                      $
                      113,528
                      
                      
                      $
                      95,142
                      
                      
                      $
                      103,256Belgium
                      
                      
                      25,455
                      
                      
                      
                      25,343
                      
                      
                      
                      21,216Japan
                      
                      
                      11,566
                      
                      
                      
                      9,148
                      
                      
                      
                      6,783United
      Kingdom
                      
                      
                      8,620
                      
                      
                      
                      11,684
                      
                      
                      
                      12,096China
                      
                      
                      7,382
                      
                      
                      
                      7,209
                      
                      
                      
                      7,129Germany
                      
                      
                      3,963
                      
                      
                      
                      61
                      
                      
                      
                      59Canada
                      
                      
                      3,029
                      
                      
                      
                      3,454
                      
                      
                      
                      2,873France
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      15173,545
                      
                      
                      
                      152,043
                      
                      
                      
                      153,427Deferred taxes
                      
                      
                      13,129
                      
                      
                      
                      6,419
                      
                      
                      
                      20,225Consolidated long-lived
    assets
                      
                      $
                      186,674
                      
                      
                      $
                      158,462
                      
                      
                      $
                      173,652


127





20.  Related
Party Transactions





Net sales
to related parties and receivables from related parties primarily reflect sales
of activated carbon products to equity investees.  Generally,
transactions are conducted under long-term contractual
arrangements.  Related party sales transactions were $10.2 million,
$9.6 million, and $9.4 million for the years ended December 31, 2008, 2007, and
2006, respectively.  Receivables from equity investees amounted to
$2.2 million and $2.4 million at December 31, 2008 and 2007,
respectively.  The Company’s equity investees are included in the
Activated Carbon and Service segment.


128


21.
Other Financial Information





As
described in Note 8, the Company has issued $75.0 million in aggregate principal
amount of 5.00% Convertible Senior Notes due in 2036.  The Notes are
fully and unconditionally guaranteed by certain of our domestic subsidiaries on
a senior unsecured basis.   All of the subsidiary guarantors are
100% owned by the Company and the guarantees are joint and
several.  The subsidiary guarantees are general unsecured senior
obligations of the subsidiary guarantors and rank equally in right of payment
with all of the existing and future senior indebtedness of the subsidiary
guarantors.  If the Company fails to make payment on the Notes, the
subsidiary guarantors must make them instead.  The Notes are
effectively subordinated to any indebtedness of the Company’s non-guarantor
subsidiaries.  The Notes are effectively junior to all of the
Company’s existing and future secured indebtedness to the extent of the value of
the assets securing such indebtedness.





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





Condensed Consolidating Statements of Income
      (Loss)Year ended December 31,
2008Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating
      and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      379,369
                      
                      
                      $
                      46,414
                      
                      
                      $
                      57,096
                      
                      
                      $
                      (82,609
                      )
                      
                      $
                      400,270Cost
      of products sold
                      
                      
                      266,970
                      
                      
                      
                      36,553
                      
                      
                      
                      45,971
                      
                      
                      
                      (82,609
                      )
                      
                      
                      266,885Depreciation
      and amortization
                      
                      
                      14,347
                      
                      
                      
                      1,577
                      
                      
                      
                      750
                      
                      
                      
                      -
                      
                      
                      
                      16,674Selling,
      general and administrative expenses
                      
                      
                      55,249
                      
                      
                      
                      4,701
                      
                      
                      
                      4,199
                      
                      
                      
                      -
                      
                      
                      
                      64,149Research
      and development expense
                      
                      
                      3,747
                      
                      
                      
                      382
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,129Gain
      on AST Settlement
                      
                      
                      (9,250
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (9,250
                      )Interest
      (income) expense - net
                      
                      
                      16,138
                      
                      
                      
                      (13,139
                      )
                      
                      
                      (830
                      )
                      
                      
                      -
                      
                      
                      
                      2,169Other
      expense – net
                      
                      
                      2,172
                      
                      
                      
                      374
                      
                      
                      
                      157
                      
                      
                      
                      -
                      
                      
                      
                      2,703Provision
      for income taxes
                      
                      
                      17,114
                      
                      
                      
                      285
                      
                      
                      
                      702
                      
                      
                      
                      -
                      
                      
                      
                      18,101Results
      of affiliates’ operations
                      
                      
                      25,475
                      
                      
                      
                      876
                      
                      
                      
                      -
                      
                      
                      
                      (26,351
                      )
                      
                      
                      -Equity
      in income of equity investments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      854
                      
                      
                      
                      -
                      
                      
                      
                      854Income
      from continuing operations
                      
                      
                      38,357
                      
                      
                      
                      16,557
                      
                      
                      
                      7,001
                      
                      
                      
                      (26,351
                      )
                      
                      
                      35,564Income
      from discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,793
                      
                      
                      
                      -
                      
                      
                      
                      2,793Net
      income
                      
                      $
                      38,357
                      
                      
                      $
                      16,557
                      
                      
                      $
                      9,794
                      
                      
                      $
                      (26,351
                      )
                      
                      $
                      38,357




129





Condensed Consolidating Statements of Income
      (Loss)Year ended December 31,
2007Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating
      and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      306,866
                      
                      
                      $
                      46,782
                      
                      
                      $
                      49,069
                      
                      
                      $
                      (51,593
                      )
                      
                      $
                      351,124Cost
      of products sold
                      
                      
                      219,088
                      
                      
                      
                      35,439
                      
                      
                      
                      39,339
                      
                      
                      
                      (51,593
                      )
                      
                      
                      242,273Depreciation
      and amortization
                      
                      
                      13,885
                      
                      
                      
                      1,098
                      
                      
                      
                      2,265
                      
                      
                      
                      -
                      
                      
                      
                      17,248Selling,
      general and administrative expenses
                      
                      
                      52,792
                      
                      
                      
                      4,925
                      
                      
                      
                      3,631
                      
                      
                      
                      -
                      
                      
                      
                      61,348Research
      and development expense
                      
                      
                      3,317
                      
                      
                      
                      382
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,699Interest
      (income) expense - net
                      
                      
                      20,723
                      
                      
                      
                      (15,985
                      )
                      
                      
                      (925
                      )
                      
                      
                      -
                      
                      
                      
                      3,813Other
      (income) expense – net
                      
                      
                      1,298
                      
                      
                      
                      1,351
                      
                      
                      
                      (1,208
                      )
                      
                      
                      -
                      
                      
                      
                      1,441Provision
      for income taxes
                      
                      
                      4,216
                      
                      
                      
                      1,184
                      
                      
                      
                      2,426
                      
                      
                      
                      -
                      
                      
                      
                      7,826Results
      of affiliates’ operations
                      
                      
                      23,695
                      
                      
                      
                      41
                      
                      
                      
                      -
                      
                      
                      
                      (23,736
                      )
                      
                      
                      -Equity
      in income (loss) of equity investments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,980
                      
                      
                      
                      (3
                      )
                      
                      
                      1,977Income
      (loss) from continuing operations
                      
                      
                      15,242
                      
                      
                      
                      18,429
                      
                      
                      
                      5,521
                      
                      
                      
                      (23,739
                      )
                      
                      
                      15,453Income
      (loss) from discontinued operations
                      
                      
                      45
                      
                      
                      
                      (211
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (166
                      )Net
      income (loss)
                      
                      $
                      15,287
                      
                      
                      $
                      18,218
                      
                      
                      $
                      5,521
                      
                      
                      $
                      (23,739
                      )
                      
                      $
                      15,287





Condensed Consolidating Statements of Income
      (Loss)Year ended December 31,
2006Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating
      and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      278,914
                      
                      
                      $
                      43,106
                      
                      
                      $
                      41,986
                      
                      
                      $
                      (47,884
                      )
                      
                      $
                      316,122Cost
      of products sold
                      
                      
                      214,570
                      
                      
                      
                      35,711
                      
                      
                      
                      34,276
                      
                      
                      
                      (47,884
                      )
                      
                      
                      236,673Depreciation
      and amortization
                      
                      
                      15,708
                      
                      
                      
                      1,123
                      
                      
                      
                      2,102
                      
                      
                      
                      -
                      
                      
                      
                      18,933Selling,
      general and administrative expenses
                      
                      
                      46,754
                      
                      
                      
                      3,558
                      
                      
                      
                      3,619
                      
                      
                      
                      -
                      
                      
                      
                      53,931Research
      and development expense
                      
                      
                      3,890
                      
                      
                      
                      358
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,248Restructuring/impairment
      charges
                      
                      
                      1,097
                      
                      
                      
                      -
                      
                      
                      
                      5,850
                      
                      
                      
                      -
                      
                      
                      
                      6,947Interest
      (income) expense - net
                      
                      
                      20,579
                      
                      
                      
                      (14,684
                      )
                      
                      
                      (740
                      )
                      
                      
                      -
                      
                      
                      
                      5,155Other
      (income) expense – net
                      
                      
                      1,707
                      
                      
                      
                      1,254
                      
                      
                      
                      (752
                      )
                      
                      
                      -
                      
                      
                      
                      2,209Benefit
      for income taxes
                      
                      
                      (2,271
                      )
                      
                      
                      (191
                      )
                      
                      
                      (214
                      )
                      
                      
                      -
                      
                      
                      
                      (2,676
                      )Results
      of affiliates’ operations
                      
                      
                      15,306
                      
                      
                      
                      (635
                      )
                      
                      
                      -
                      
                      
                      
                      (14,671
                      )
                      
                      
                      -Equity
      in income of equity investments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      283
                      
                      
                      
                      3
                      
                      
                      
                      286Income
      (loss) from continuing operations
                      
                      
                      (7,814
                      )
                      
                      
                      15,342
                      
                      
                      
                      (1,872
                      )
                      
                      
                      (14,668
                      )
                      
                      
                      (9,012
                      )Income
      (loss) from discontinued operations
                      
                      
                      16
                      
                      
                      
                      (79
                      )
                      
                      
                      2,265
                      
                      
                      
                      (988
                      )
                      
                      
                      1,214Net
      income (loss)
                      
                      $
                      (7,798
                      )
                      
                      $
                      15,263
                      
                      
                      $
                      393
                      
                      
                      $
                      (15,656
                      )
                      
                      $
                      (7,798
                      )




130





Condensed Consolidating Balance SheetsDecember 31, 2008Issuer
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
                      Subsidiaries
                    
                    
                    Consolidating and
                      Eliminating
                      Entries
                    
                    
                    ConsolidatedCash
      and Cash Equivalents
                    
                    $
                    1,598
                    
                    
                    $
                    3,067
                    
                    
                    $
                    23,351
                    
                    
                    $
                    (11,266
                    )
                    
                    $
                    16,750Receivables
                    
                    
                    53,709
                    
                    
                    
                    13,443
                    
                    
                    
                    5,547
                    
                    
                    
                    (8,184
                    )
                    
                    
                    64,515Inventories
                    
                    
                    78,517
                    
                    
                    
                    6,509
                    
                    
                    
                    8,638
                    
                    
                    
                    61
                    
                    
                    
                    93,725Other
      current assets
                    
                    
                    22,282
                    
                    
                    
                    921
                    
                    
                    
                    2,729
                    
                    
                    
                    -
                    
                    
                    
                    25,932Total
      current assets
                    
                    
                    156,106
                    
                    
                    
                    23,940
                    
                    
                    
                    40,265
                    
                    
                    
                    (19,389
                    )
                    
                    
                    200,922Intercompany
      accounts receivable
                    
                    
                    53,704
                    
                    
                    
                    185,535
                    
                    
                    
                    4,526
                    
                    
                    
                    (243,765
                    )
                    
                    
                    -Property,
      plant, and equipment, net
                    
                    
                    109,348
                    
                    
                    
                    5,872
                    
                    
                    
                    7,740
                    
                    
                    
                    -
                    
                    
                    
                    122,960Intangibles
                    
                    
                    3,506
                    
                    
                    
                    2,424
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,930Goodwill
                    
                    
                    16,674
                    
                    
                    
                    7,189
                    
                    
                    
                    2,477
                    
                    
                    
                    -
                    
                    
                    
                    26,340Equity
      investments
                    
                    
                    267,730
                    
                    
                    
                    100,202
                    
                    
                    
                    11,566
                    
                    
                    
                    (367,751
                    )
                    
                    
                    11,747Other
      assets
                    
                    
                    13,081
                    
                    
                    
                    1,928
                    
                    
                    
                    4,688
                    
                    
                    
                    -
                    
                    
                    
                    19,697Total
      assets
                    
                    $
                    620,149
                    
                    
                    $
                    327,090
                    
                    
                    $
                    71,262
                    
                    
                    $
                    (630,905
                    )
                    
                    $
                    387,596Short-term
      debt
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,605
                    
                    
                    $
                    -
                    
                    
                    $
                    1,605Current
      portion of long-term debt
                    
                    
                    8,776
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,776Accounts
      payable
                    
                    
                    36,081
                    
                    
                    
                    15,317
                    
                    
                    
                    2,887
                    
                    
                    
                    (9,999
                    )
                    
                    
                    44,286Other
      current liabilities
                    
                    
                    24,529
                    
                    
                    
                    278
                    
                    
                    
                    1,621
                    
                    
                    
                    (14,678
                    )
                    
                    
                    11,750Total
      current liabilities
                    
                    
                    69,386
                    
                    
                    
                    15,595
                    
                    
                    
                    6,113
                    
                    
                    
                    (24,677
                    )
                    
                    
                    66,417Intercompany
      accounts payable
                    
                    
                    180,197
                    
                    
                    
                    44,717
                    
                    
                    
                    13,623
                    
                    
                    
                    (238,537
                    )
                    
                    
                    -Long-term
      debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      non-current liabilities
                    
                    
                    117,828
                    
                    
                    
                    9,559
                    
                    
                    
                    9,274
                    
                    
                    
                    (68,220
                    )
                    
                    
                    68,441Shareholders'
      equity
                    
                    
                    252,738
                    
                    
                    
                    257,219
                    
                    
                    
                    42,252
                    
                    
                    
                    (299,471
                    )
                    
                    
                    252,738Total
      liabilities and shareholders' equity
                    
                    $
                    620,149
                    
                    
                    $
                    327,090
                    
                    
                    $
                    71,262
                    
                    
                    $
                    (630,905
                    )
                    
                    $
                    387,596




131





Condensed
      Consolidating Balance SheetsDecember 31, 2007Issuer
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
                      Subsidiaries
                    
                    
                    Consolidating
      and
                      Eliminating
                      Entries
                    
                    
                    ConsolidatedCash
      and Cash Equivalents
                    
                    $
                    20,802
                    
                    
                    $
                    3,683
                    
                    
                    $
                    25,930
                    
                    
                    $
                    (20,111
                    )
                    
                    $
                    30,304Receivables
                    
                    
                    47,184
                    
                    
                    
                    15,259
                    
                    
                    
                    5,004
                    
                    
                    
                    (9,899
                    )
                    
                    
                    57,548Inventories
                    
                    
                    67,501
                    
                    
                    
                    8,221
                    
                    
                    
                    5,525
                    
                    
                    
                    33
                    
                    
                    
                    81,280Other
      current assets
                    
                    
                    18,015
                    
                    
                    
                    1,334
                    
                    
                    
                    1,197
                    
                    
                    
                    -
                    
                    
                    
                    20,546Total
      current assets
                    
                    
                    153,502
                    
                    
                    
                    28,497
                    
                    
                    
                    37,656
                    
                    
                    
                    (29,977
                    )
                    
                    
                    189,678Intercompany
      accounts receivable
                    
                    
                    57,071
                    
                    
                    
                    175,462
                    
                    
                    
                    2,138
                    
                    
                    
                    (234,671
                    )
                    
                    
                    -Property,
      plant, and equipment, net
                    
                    
                    90,435
                    
                    
                    
                    7,263
                    
                    
                    
                    7,814
                    
                    
                    
                    -
                    
                    
                    
                    105,512Intangibles
                    
                    
                    4,586
                    
                    
                    
                    3,174
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,760Goodwill
                    
                    
                    16,674
                    
                    
                    
                    8,337
                    
                    
                    
                    2,834
                    
                    
                    
                    -
                    
                    
                    
                    27,845Equity
      investments
                    
                    
                    246,633
                    
                    
                    
                    102,187
                    
                    
                    
                    9,151
                    
                    
                    
                    (349,378
                    )
                    
                    
                    8,593Other
      assets
                    
                    
                    4,908
                    
                    
                    
                    1,313
                    
                    
                    
                    2,531
                    
                    
                    
                    -
                    
                    
                    
                    8,752Total
      assets
                    
                    $
                    573,809
                    
                    
                    $
                    326,233
                    
                    
                    $
                    62,124
                    
                    
                    $
                    (614,026
                    )
                    
                    $
                    348,140Short-term
      debt
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,504
                    
                    
                    $
                    -
                    
                    
                    $
                    1,504Current
      portion of long-term debt
                    
                    
                    62,507
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,507Accounts
      payable
                    
                    
                    33,424
                    
                    
                    
                    19,914
                    
                    
                    
                    3,417
                    
                    
                    
                    (13,592
                    )
                    
                    
                    43,163Other
      current liabilities
                    
                    
                    33,219
                    
                    
                    
                    299
                    
                    
                    
                    2,592
                    
                    
                    
                    (23,523
                    )
                    
                    
                    12,587Total
      current liabilities
                    
                    
                    129,150
                    
                    
                    
                    20,213
                    
                    
                    
                    7,513
                    
                    
                    
                    (37,115
                    )
                    
                    
                    119,761Intercompany
      accounts payable
                    
                    
                    168,342
                    
                    
                    
                    48,144
                    
                    
                    
                    11,079
                    
                    
                    
                    (227,565
                    )
                    
                    
                    -Long-term
      debt
                    
                    
                    12,925
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    12,925Other
      non-current liabilities
                    
                    
                    91,143
                    
                    
                    
                    8,782
                    
                    
                    
                    11,350
                    
                    
                    
                    (68,070
                    )
                    
                    
                    43,205Shareholders'
      equity
                    
                    
                    172,249
                    
                    
                    
                    249,094
                    
                    
                    
                    32,182
                    
                    
                    
                    (281,276
                    )
                    
                    
                    172,249Total
      liabilities and shareholders' equity
                    
                    $
                    573,809
                    
                    
                    $
                    326,233
                    
                    
                    $
                    62,124
                    
                    
                    $
                    (614,026
                    )
                    
                    $
                    348,140




132





Condensed Consolidating Statements of Cash FlowsYear ended December 31, 2008Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      cash provided by  operating activities
                      
                      $
                      12,729
                      
                      
                      $
                      12,988
                      
                      
                      $
                      31
                      
                      
                      $
                      (178
                      )
                      
                      $
                      25,570Investing
      activities:Property,
      plant and equipment expenditures
                      
                      
                      (31,577
                      )
                      
                      
                      (1,045
                      )
                      
                      
                      (384
                      )
                      
                      
                      -
                      
                      
                      
                      (33,006
                      )Investment
      from (in) affiliates
                      
                      
                      -
                      
                      
                      
                      1,092
                      
                      
                      
                      (1,092
                      )
                      
                      
                      -
                      
                      
                      
                      -Other
                      
                      
                      547
                      
                      
                      
                      363
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      910Net
      cash (used in) provided by investing activities
                      
                      
                      (31,030
                      )
                      
                      
                      410
                      
                      
                      
                      (1,476
                      )
                      
                      
                      -
                      
                      
                      
                      (32,096
                      )Financing
      activities:Reductions
      of debt obligations
                      
                      
                      (19,845
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,845
                      
                      
                      
                      (11,000
                      )Intercompany
      and equity transactions
                      
                      
                      15,201
                      
                      
                      
                      (11,770
                      )
                      
                      
                      (3,431
                      )
                      
                      
                      -
                      
                      
                      
                      -Excess
      Tax benefit for stock-based compensation
                      
                      
                      2,578
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,578Other
                      
                      
                      3,473
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,473Net
      cash provided by (used in) financing activities
                      
                      
                      1,407
                      
                      
                      
                      (11,770
                      )
                      
                      
                      (3,431
                      )
                      
                      
                      8,845
                      
                      
                      
                      (4,949
                      )Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      (2,311
                      )
                      
                      
                      (2,243
                      )
                      
                      
                      2,297
                      
                      
                      
                      178
                      
                      
                      
                      (2,079
                      )(Decrease)
      increase  in cash and cash equivalents
                      
                      
                      (19,205
                      )
                      
                      
                      (615
                      )
                      
                      
                      (2,579
                      )
                      
                      
                      8,845
                      
                      
                      
                      (13,554
                      )Cash
      and cash equivalents, beginning of year
                      
                      
                      20,802
                      
                      
                      
                      3,683
                      
                      
                      
                      25,930
                      
                      
                      
                      (20,111
                      )
                      
                      
                      30,304Cash
      and cash equivalents, end of  year
                      
                      $
                      1,597
                      
                      
                      $
                      3,068
                      
                      
                      $
                      23,351
                      
                      
                      $
                      (11,266
                      )
                      
                      $
                      16,750





Condensed Consolidating Statements of Cash FlowsYear ended December 31, 2007Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      cash provided by  operating activities
                      
                      $
                      7,511
                      
                      
                      $
                      18,090
                      
                      
                      $
                      4,116
                      
                      
                      $
                      (304
                      )
                      
                      $
                      29,413Investing
      activities:Property,
      plant and equipment expenditures
                      
                      
                      (10,408
                      )
                      
                      
                      (1,045
                      )
                      
                      
                      (336
                      )
                      
                      
                      -
                      
                      
                      
                      (11,789
                      )Investment
      from (in) affiliates
                      
                      
                      -
                      
                      
                      
                      (136
                      )
                      
                      
                      136
                      
                      
                      
                      -
                      
                      
                      
                      -Other
                      
                      
                      318
                      
                      
                      
                      -
                      
                      
                      
                      195
                      
                      
                      
                      -
                      
                      
                      
                      513Net
      cash used in investing activities
                      
                      
                      (10,090
                      )
                      
                      
                      (1,181
                      )
                      
                      
                      (5
                      )
                      
                      
                      -
                      
                      
                      
                      (11,276
                      )Financing
      activities:Net
      borrowings (repayments)
                      
                      
                      4,579
                      
                      
                      
                      -
                      
                      
                      
                      1,498
                      
                      
                      
                      (4,573
                      )
                      
                      
                      1,504Intercompany
      and equity transactions
                      
                      
                      19,135
                      
                      
                      
                      (18,493
                      )
                      
                      
                      (1,536
                      )
                      
                      
                      894
                      
                      
                      
                      -Other
                      
                      
                      3,845
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,845Net
      cash provided by (used in) financing activities
                      
                      
                      27,559
                      
                      
                      
                      (18,493
                      )
                      
                      
                      (38
                      )
                      
                      
                      (3,679
                      )
                      
                      
                      5,349Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      (4,178
                      )
                      
                      
                      2,760
                      
                      
                      
                      2,301
                      
                      
                      
                      304
                      
                      
                      
                      1,187Increase
      (decrease) in cash and cash equivalents
                      
                      
                      20,802
                      
                      
                      
                      1,176
                      
                      
                      
                      6,374
                      
                      
                      
                      (3,679
                      )
                      
                      
                      24,673Cash
      and cash equivalents, beginning of year
                      
                      
                      -
                      
                      
                      
                      2,507
                      
                      
                      
                      19,556
                      
                      
                      
                      (16,432
                      )
                      
                      
                      5,631Cash
      and cash equivalents, end of  year
                      
                      $
                      20,802
                      
                      
                      $
                      3,683
                      
                      
                      $
                      25,930
                      
                      
                      $
                      (20,111
                      )
                      
                      $
                      30,304




133





Condensed
      Consolidating Statements of Cash FlowsYear ended December 31,
2006Issuer
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
                        Subsidiaries
                      
                      
                      Consolidating
      and
                        Eliminating
                        Entries
                      
                      
                      ConsolidatedNet
      cash (used in) provided by operating activities
                      
                      $
                      (19,366
                      )
                      
                      $
                      16,235
                      
                      
                      $
                      (1,865
                      )
                      
                      $
                      (789
                      )
                      
                      $
                      (5,785
                      )Investing
      activities:Proceeds
      from insurance settlement for property and equipment
                      
                      
                      4,595
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,595Proceeds
      from divestitures
                      
                      
                      830
                      
                      
                      
                      -
                      
                      
                      
                      20,435
                      
                      
                      
                      -
                      
                      
                      
                      21,265Property,
      plant and equipment expenditures
                      
                      
                      (12,005
                      )
                      
                      
                      (223
                      )
                      
                      
                      (627
                      )
                      
                      
                      -
                      
                      
                      
                      (12,855
                      )Investment
      from (in) affiliates
                      
                      
                      11,217
                      
                      
                      
                      (1,284
                      )
                      
                      
                      (9,933
                      )
                      
                      
                      -
                      
                      
                      
                      -Other
                      
                      
                      1,203
                      
                      
                      
                      -
                      
                      
                      
                      2
                      
                      
                      
                      -
                      
                      
                      
                      1,205Net
      cash provided by (used in) investing activities
                      
                      
                      5,840
                      
                      
                      
                      (1,507
                      )
                      
                      
                      9,877
                      
                      
                      
                      -
                      
                      
                      
                      14,210Financing
      activities:Net
      borrowings (repayments)
                      
                      
                      (4,069
                      )
                      
                      
                      (607
                      )
                      
                      
                      5
                      
                      
                      
                      (4,418
                      )
                      
                      
                      (9,089
                      )Intercompany
      and equity transactions
                      
                      
                      13,588
                      
                      
                      
                      (16,719
                      )
                      
                      
                      4,025
                      
                      
                      
                      (894
                      )
                      
                      
                      -Other
                      
                      
                      356
                      
                      
                      
                      30
                      
                      
                      
                      -
                      
                      
                      
                      (30
                      )
                      
                      
                      356Net
      cash provided by (used in) financing activities
                      
                      
                      9,875
                      
                      
                      
                      (17,296
                      )
                      
                      
                      4,030
                      
                      
                      
                      (5,342
                      )
                      
                      
                      (8,733
                      )Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      602
                      
                      
                      
                      1,394
                      
                      
                      
                      (2,322
                      )
                      
                      
                      819
                      
                      
                      
                      493(Decrease)
      increase in cash and cash equivalents
                      
                      
                      (3,049
                      )
                      
                      
                      (1,174
                      )
                      
                      
                      9,720
                      
                      
                      
                      (5,312
                      )
                      
                      
                      185Cash
      and cash equivalents, beginning of year
                      
                      
                      3,049
                      
                      
                      
                      3,681
                      
                      
                      
                      9,836
                      
                      
                      
                      (11,120
                      )
                      
                      
                      5,446Cash
      and cash equivalents, end of  year
                      
                      $
                      -
                      
                      
                      $
                      2,507
                      
                      
                      $
                      19,556
                      
                      
                      $
                      (16,432
                      )
                      
                      $
                      5,631




134





22.
Fair Value Measurements





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





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


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


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





The
following table summarizes assets and liabilities measured at fair value on a
recurring basis at December 31, 2008, as required by SFAS No. 157:





(Thousands)
                                
                                Level
      1
                                
                                
                                Level
      2
                                
                                
                                Level
      3AssetsNatural
      gas derivatives
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Financial
      derivatives
                                
                                
                                -
                                
                                
                                
                                1,617
                                
                                
                                
                                -LiabilitiesNatural
      gas derivatives
                                
                                $
                                -
                                
                                
                                $
                                2,234
                                
                                
                                $
                                -Financial
      derivatives
                                
                                
                                -
                                
                                
                                
                                73
                                
                                
                                
                                -





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


135





QUARTERLY
FINANCIAL DATA—UNAUDITED





2008
                                      
                                      
                                      20071st
                                      
                                      
                                      2nd
                                      
                                      
                                      3rd
                                      
                                      
                                      4th
                                      
                                      
                                      1st
                                      
                                      
                                      2nd
                                      
                                      
                                      3rd
                                      
                                      
                                      4th(Thousands except per share data)
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      QuarterNet
      sales
                                      
                                      $
                                      90,331
                                      
                                      
                                      $
                                      108,476
                                      
                                      
                                      $
                                      99,069
                                      
                                      
                                      $
                                      102,394
                                      
                                      
                                      $
                                      83,030
                                      
                                      
                                      $
                                      88,428
                                      
                                      
                                      $
                                      84,861
                                      
                                      
                                      $
                                      94,805Gross
      profit from continuing operations
                                      
                                      $
                                      28,566
                                      
                                      
                                      $
                                      37,455
                                      
                                      
                                      $
                                      33,608
                                      
                                      
                                      $
                                      33,756
                                      
                                      
                                      $
                                      24,606
                                      
                                      
                                      $
                                      28,872
                                      
                                      
                                      $
                                      27,219
                                      
                                      
                                      $
                                      28,154Net
      income from continuingoperations
                                      
                                      $
                                      10,874
                                      
                                      
                                      $
                                      9,817
                                      
                                      
                                      $
                                      6,536
                                      
                                      
                                      $
                                      8,337
                                      
                                      
                                      $
                                      2,034
                                      
                                      
                                      $
                                      4,462
                                      
                                      
                                      $
                                      5,044
                                      
                                      
                                      $
                                      3,913Income
      (loss) from discontinued operations
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      3,447
                                      
                                      
                                      $
                                      (211
                                      )
                                      
                                      $
                                      (443
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (96
                                      )
                                      
                                      $
                                      (70
                                      )Net
      income
                                      
                                      $
                                      10,874
                                      
                                      
                                      $
                                      13,264
                                      
                                      
                                      $
                                      6,325
                                      
                                      
                                      $
                                      7,894
                                      
                                      
                                      $
                                      2,034
                                      
                                      
                                      $
                                      4,462
                                      
                                      
                                      $
                                      4,948
                                      
                                      
                                      $
                                      3,843Common
      Stock Data:Basic:Income
      from continuingoperations
      per common share
                                      
                                      $
                                      0.27
                                      
                                      
                                      $
                                      0.24
                                      
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.16
                                      
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.11
                                      
                                      
                                      $
                                      0.12
                                      
                                      
                                      $
                                      0.10Income
      (loss) from discontinuedoperations
      per common share
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      0.09
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (0.01
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Net
      income per commonshare
                                      
                                      $
                                      0.27
                                      
                                      
                                      $
                                      0.33
                                      
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.11
                                      
                                      
                                      $
                                      0.12
                                      
                                      
                                      $
                                      0.10Diluted:Income
      from continuingoperations
      per common share
                                      
                                      $
                                      0.21
                                      
                                      
                                      $
                                      0.19
                                      
                                      
                                      $
                                      0.12
                                      
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.09
                                      
                                      
                                      $
                                      0.10
                                      
                                      
                                      $
                                      0.08Income
      (loss) from discontinuedoperations
      per common share
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (0.01
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Net
      income per commonshare
                                      
                                      $
                                      0.21
                                      
                                      
                                      $
                                      0.25
                                      
                                      
                                      $
                                      0.12
                                      
                                      
                                      $
                                      0.14
                                      
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.09
                                      
                                      
                                      $
                                      0.10
                                      
                                      
                                      $
                                      0.08Average
      common shares outstandingBasic
                                      
                                      
                                      40,240
                                      
                                      
                                      
                                      40,558
                                      
                                      
                                      
                                      44,625
                                      
                                      
                                      
                                      53,247
                                      
                                      
                                      
                                      40,225
                                      
                                      
                                      
                                      40,291
                                      
                                      
                                      
                                      40,357
                                      
                                      
                                      
                                      39,959Diluted
                                      
                                      
                                      51,756
                                      
                                      
                                      
                                      52,025
                                      
                                      
                                      
                                      53,798
                                      
                                      
                                      
                                      55,662
                                      
                                      
                                      
                                      42,661
                                      
                                      
                                      
                                      47,745
                                      
                                      
                                      
                                      50,358
                                      
                                      
                                      
                                      51,102




136





Item
9.   Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure:





Not
Applicable.





Item
9A.     Controls and
Procedures:





Evaluation
of Disclosure Controls and Procedures


The
Company maintains controls and procedures designed to ensure that it is able to
collect the information it is required to disclose in the reports it files with
the SEC, and to process, summarize, and disclose this information within the
time periods specified in the rules of the SEC. Our management, under the
supervision and with the participation of the Company’s Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the design and
operation of the Company’s “disclosure controls and procedures”, as such term is
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as of the end of the period covered by this annual
report.





Based on
this evaluation, the Company’s management has concluded that the Company’s
disclosure controls and procedures were effective as of the end of the period
covered by this annual report.





Management’s
Annual Report on Internal Control over Financial Reporting


Management’s
Annual Report on Internal Control over Financial Reporting is contained in “Item
8. Financial Statements and Supplementary Data – Report of Management -
Responsibility for Preparation of the Financial Statements and Establishing and
Maintaining Adequate Internal Control Over Financial Reporting.”





Attestation
Report of the Independent Registered Public Accounting Firm


The
attestation report of the Independent Registered Public Accounting Firm is
contained in “Item 8. Financial Statements and Supplementary Data Report of
Independent Registered Public Accounting Firm.”





Changes
in Internal Control


There
have been no changes to our internal control over financial reporting that
occurred that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


137





Item
9B.  Other
Information:





None.





PART III





Item
10.   Directors,  Executive
Officers, and Corporate Governance of the Registrant:





Information
concerning the directors and executive officers of the Corporation required by
this item is incorporated by reference to the material appearing under the
headings “Board of Directors and Committees of the Board,” “Election of
Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Company's Proxy Statement for the 2009 Annual
Meeting of its Shareholders.





The
Company adopted Amended and Restated By-laws through January 7, 2008 which are
set forth in Exhibit 3.2 hereto.  The Company’s Code of Business
Conduct and Ethics was revised in the last quarter of 2008 and is set forth in
Exhibit 14.1 hereto.





Item
11.   Executive
Compensation:





Information
required by this item is incorporated by reference to the material appearing
under the headings “Executive and Director Compensation” in the Company's Proxy
Statement for the 2009 Annual Meeting of its Shareholders.  The
information contained in the “Compensation Committee Report” is specifically not
incorporated herein by reference.


138


Item
12.   Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters:





The
following table sets forth information as of December 31, 2008 concerning common
stock issuable under the Company’s equity compensation plans.





Equity Compensation Plan
Information





Plan
      category
                            
                            Number
      of
                              securities
      to be
                              issued
      upon
                              exercise
      of
                              outstanding
                              options,
      warrants
                              and
      rights
                              (a)
                            
                            
                            Weighted-average
                              exercise
      price of
                              outstanding
                              options,
      warrants
                              and
      rights
                              (b)
                            
                            
                            Number
      of
                              securities
                              remaining
                              available
      for future
                              issuance
      under
                              equity
                              compensation
                              plans
      (excluding
                              securities
      reflected
                              in
      column (a))
                              (c)Equity
                              compensation
      plans
                              approved
      by
                              security
      holders
                            
                            
                            1,361,081
                            
                            
                            $
                            7.35
                            
                            
                            
                            1,978,857Equity
                              compensation
      plans not
                              approved
      by
                              security
      holders
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            49,490
                            (1)Total
                            
                            
                            1,361,081
                            
                            
                            $
                            7.35
                            
                            
                            
                            2,028,347





(1)  On
December 31, 2008 there were 49,490 shares available for issuance under the
Company’s 1997 Directors’ Fee Plan, as last amended in 2005.  The Plan
provides non-employee directors of the Company with payment alternatives for
retainer fees by being able to elect to receive Common Stock of the Company
instead of cash for such fees.  Under the plan, directors have the
alternative to elect their retainer fees in a current payment of shares of
Common Stock of the Company, or to defer payment of such fees into a Common
Stock account.  Shares which are deferred are credited to a deferred
stock compensation other liability account maintained by the
Company.  On each date when director fees are otherwise payable to a
director who has made a stock deferral election, his or her stock deferral
account will be credited with a number of shares equal to the cash amount of the
director’s fees payable divided by the fair market value of one share of the
Common Stock on the date on which the fees are payable.  Dividends or
other distributions payable on Common Stock are similarly credited to the
deferred stock account of a director on the date when such dividends or
distributions are payable.  The deferred stock compensation accounts
are payable to the directors in accordance with their stock deferral elections
and are typically paid either in a lump sum or in annual installments after the
retirement or other termination of service of the director from the Company’s
Board of Directors.





The additional information required by
this item is incorporated by reference to the material appearing under the
heading “Security Ownership of Management and Certain Beneficial Owners” in the
Company's Proxy Statement for the 2009 Annual Meeting of its
Shareholders.


139





Item
13.   Certain
Relationships, Related Transactions, and Director
Independence:





Information
required by this item is incorporated by reference to the material appearing
under the headings “Election of Directors” and “Corporate Governance” in the
Company's Proxy Statement for the 2009 Annual Meeting of its
Shareholders.


140


Item
14.   Principal
Accounting Fees and Services:





Information
required by this item is incorporated by reference to the material appearing
under the heading “Independent Auditors – Certain Fees” in the Company’s Proxy
Statement for the 2009 Annual Meeting of its Shareholders.


141





PART IV


Item
15.   Exhibits
and Financial Statement Schedules:





A.  Financial
Statements and Reports of Independent Registered Public Accounting Firm (see
Part II, Item 8 of this Form 10-K).





The
following information is filed as part of this Form 10-K:





PageReport
      of Management
                        60Internal
      Controls– Report of Independent Registered Public Accounting
      Firm
                        62Financial
      Statements – Report of Independent Registered Public Accounting
      Firms
                        63Consolidated
      Statements of Income (Loss) and Comprehensive Income for the
      YearsEnded
      December 31, 2008, 2007 and 2006
                        65Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                        66Consolidated
      Statements of Cash Flows for the Years EndedDecember
      31, 2008, 2007 and 2006
                        67Consolidated
      Statements of Shareholders’ Equity for Years EndedDecember
      31, 2008, 2007 and 2006
                        68Notes
      to the Consolidated Financial Statements
                        69




142





B.
            Financial
      Statements Schedule for the years ended December 31, 2008, 2007 and
      2006.




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of


Calgon
Carbon Corporation


Pittsburgh,
Pennsylvania





We have
audited the consolidated financial statements of Calgon Carbon Corporation and
subsidiaries (the "Company") as of December 31, 2008 and 2007, and for each of
the three years in the period ended December 31, 2008, and the Company's
internal control over financial reporting as of December 31, 2008, and have
issued our reports thereon dated March 13, 2009 (which report on the financial
statements expresses an unqualified opinion and includes an explanatory
paragraph regarding the Company’s adoption of new accounting standards); such
consolidated financial statements and reports are included elsewhere in this
Form 10-K.  Our audits also included the consolidated financial statement
schedule of the Company listed in Item 15.  This consolidated financial
statement schedule is the responsibility of the Company's management.  Our
responsibility is to express an opinion based on our audits.  In our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.





Deloitte
& Touche LLP


Pittsburgh,
Pennsylvania


March 13,
2009


143





The
following should be read in conjunction with the previously referenced financial
statements:





Schedule
II


Valuation
and Qualifying Accounts





Balance
      at
                        
                        
                        Additions
                        
                        
                        Deductions
                        
                        
                        BalanceBeginning
                        
                        
                        Charged
      to Costs
                        
                        
                        Returns
      and
                        
                        
                        at
      EndDescription
                        
                        of Year
                        
                        
                        and Expenses
                        
                        
                        Write-Offs
                        
                        
                        of YearYear
      ended December 31, 2008Allowance
      for doubtful accounts
                        
                        $
                        2,834
                        
                        
                        $
                        199
                        
                        
                        $
                        (1,437
                        )
                        
                        $
                        1,596Year
      ended December 31, 2007Allowance
      for doubtful accounts
                        
                        
                        1,981
                        
                        
                        
                        1,239
                        
                        
                        
                        (386
                        )
                        
                        
                        2,834Year
      ended December 31, 2006Allowance
      for doubtful accounts
                        
                        
                        2,172
                        
                        
                        
                        902
                        
                        
                        
                        (1,093
                        )
                        
                        
                        1,981





Balance
      at
                        
                        
                        Additions
                        
                        
                        
                        
                        
                        BalanceBeginning
                        
                        
                        Charged
      to Costs
                        
                        
                        
                        
                        
                        at
      EndDescription
                        
                        of Year
                        
                        
                        and Expenses
                        
                        
                        Reductions
                        
                        
                        of YearYear
      ended December 31, 2008Income
      tax valuation allowance
                        
                        $
                        6,218
                        
                        
                        $
                        3,943
                        
                        
                        $
                        (2,184
                        )
                        
                        $
                        7,977Year
      ended December 31, 2007Income
      tax valuation allowance
                        
                        
                        5,742
                        
                        
                        
                        2,441
                        
                        
                        
                        (1,965
                        )
                        
                        
                        6,218Year
      ended December 31, 2006Income
      tax valuation allowance
                        
                        
                        3,382
                        
                        
                        
                        2,360
                        
                        
                        
                        -
                        
                        
                        
                        5,742




144




C.           Exhibits





Page3.1
                                                                Amended
      Certificate of Incorporation
                                                                (a)3.2
                                                                Amended
      and Restated By-laws of the Company
                                                                Filed  herewith4.1
                                                                Amended
      Rights Agreement, dated as of January 27, 2005
                                                                (b)4.2
                                                                Indenture,
      dated August 18, 2006
                                                                (c)4.3
                                                                Registration
      Rights Agreement, dated August 18, 2006
                                                                (d)10.1*
                                                                Calgon
      Carbon Corporation 2008 Equity Incentive Plan
                                                                (e)10.4*
                                                                1997
      Directors’ Fee Plan
                                                                (f)10.5*
                                                                Employment
      agreement between Calgon Carbon Corporation and executive officers. The
      form of employment agreement has been entered into with the following
      executive officer, C. H. S. (Kees) Majoor
                                                                (g)10.6
                                                                Calgon
      Carbon Corporation Senior Credit Facility
                                                                (h)10.7
                                                                Amendment
      No. 1 to Calgon Carbon Corporation Senior Credit Facility
                                                                (i)10.8
                                                                Purchase
      Agreement among Waterlink, Inc. and Barnebey Sutcliffe Corporation
      and
                                                                  Calgon
      Carbon Corporation
                                                                (j)10.9*
                                                                Employment
      agreement between Calgon Carbon Corporation and executive officers. The
      form of employment agreement has been entered into with the following
      executive officers, Leroy M. Ball,  Gail A. Gerono, Robert P.
      O’Brien, and Dennis M. Sheedy
                                                                (k)10.10*
                                                                Employment
      agreement between Calgon Carbon Corporation and John S.
    Stanik
                                                                (l)10.11
                                                                First
      Amendment to Credit Agreement, as amended on February 5,
    2007
                                                                (m)10.12
                                                                Second
      Amendment to Credit Agreement, as amended on May 29, 2007
                                                                (n)10.13
                                                                Third
      Amendment to Credit Agreement, as amended on August 14,
    2008
                                                                (o)10.14
                                                                Fourth
      Amendment to Credit Agreement, as amended on September 30,
      2008
                                                                (p)14.1
                                                                Code
      of Business Conduct and Ethics
                                                                Filed
      herewith21.0
                                                                The
      wholly owned subsidiaries of the Company at December 31, 2008 are
      Chemviron Carbon GmbH, a German corporation; Calgon Carbon Canada, Inc., a
      Canadian corporation; Chemviron Carbon Ltd., a United Kingdom corporation;
      Calgon Carbon Investments, Inc., a Delaware corporation; Solarchem
      Environmental Systems, Inc., a Nevada corporation; Charcoal Cloth
      (International) Limited, a United Kingdom corporation; Charcoal Cloth
      Limited, a United Kingdom corporation;  Waterlink (UK) Holdings
      Ltd., a United Kingdom corporation, Sutcliffe Croftshaw Ltd., a United
      Kingdom corporation; Sutcliffe Speakman Ltd., a United Kingdom
      corporation; Sutcliffe Speakman Carbons Ltd., a United Kingdom
      corporation; Lakeland Processing Ltd., a United Kingdom corporation;
      Sutcliffe Speakmanco 5 Ltd., a United Kingdom corporation; Advanced
      Separation Technologies Incorporated, a Florida corporation; Calgon Carbon
      (Tianjin) Co., Ltd., a Chinese corporation; Datong Carbon Corporation, a
      Chinese corporation; Calgon Carbon Asia PTE Ltd., a Singapore corporation;
      BSC Columbus, LLC, a Delaware limited liability company; CCC Columbus,
      LLC, a Delaware limited liability company; and CCC Distribution, a
      Delaware limited liability company.  In addition, the Company
      owns 49% of Calgon Mitsubishi Chemical Corporation, a Japanese corporation
      and 20% of Calgon Carbon (Thailand) Company Ltd., a Thailand
      corporation
                                                                Filed
      herewith23.1
                                                                Consent
      of Independent Registered Public Accounting Firm
                                                                Filed
      herewith31.1
                                                                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                                                                Filed
      herewith31.2
                                                                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                                                                Filed
      herewith32.1
                                                                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                                                                Filed
      herewith32.2
                                                                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                                                                Filed
      herewith




Note:
            The
      Registrant hereby undertakes to furnish, upon request of the Commission,
      copies of all instruments defining the rights of holders of long-term debt
      of the Registrant and its consolidated subsidiaries. The total amount of
      securities authorized thereunder does not exceed 10% of the total assets
      of the Registrant and its subsidiaries on a consolidated
      basis.




145





(a)
            Incorporated
      herein by reference to Exhibit 3.1 to the Company's report on Form 10-K
      filed for the fiscal year ended December 31, 1990.(b)
            Incorporated
      herein by reference to Exhibit 4.1 of the Company’s report on Form 8-K
      dated January 28, 2005.(c)
            Incorporated
      herein by reference to Exhibit 4.1 to the Company’s report on Form 8-K
      dated August 18, 2006.(d)
            Incorporated
      herein by reference to Exhibit 4.2 to the Company’s report on Form 8-K
      dated August 18, 2006.(e)
            Incorporated
      herein by reference to Exhibit A to the Company’s definitive proxy
      statement filed on April 3, 2008.(f)
            Incorporated
      herein by reference to Exhibit 10.4 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2005.(g)
            Incorporated
      herein by reference to Exhibit 10.2 to the Company’s report on Form 10-Q
      filed for the fiscal quarter ended March 31, 2005(h)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K
      dated January 31, 2006.(i)
            Incorporated
      herein by reference to Exhibit 10.7 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2005.(j)
            Incorporated
      herein by reference to Exhibit 10.9 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2003.(k)
            Incorporated
      herein by reference to Exhibit 10.9 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2006.(l)
            Incorporated
      herein by reference to Exhibit 10.9 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2006.(m)
            Incorporated
      herein by reference to Exhibit 10.9 to the Company’s report on Form 10-K
      filed for the fiscal year ended December 31, 2006.(n)
            Incorporated
      herein by reference to Exhibit 99.1 to the Company’s report on Form 10-Q
      filed for the fiscal quarter ended March 31, 2007.(o)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K
      dated August 14, 2008.(p)
            Incorporated
      herein by reference to Exhibit 10.6 to the Company’s report on Form 10-Q
      filed for the fiscal quarter ended September 30,
  2008.





*
Management contract or compensatory plan, contract or arrangement required to be
filed by Item 601(b)(10)(iii) of Regulation S-K.


146





Signatures




Pursuant
to the requirements of Section 13 or 15(d) 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 CorporationBy
              /s/ JOHN S. STANIKJohn
      S. StanikChairman,
      President and Chief Executive OfficerMarch
      13, 2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities on the dates indicated.




Signature
                                                                                        
                                                                                        Title
                                                                                        
                                                                                        Date/s/ JOHN S. STANIK
                                                                                        
                                                                                        Chairman,
      President and Chief

                                                                                            Executive
      Officer
                                                                                        
                                                                                        March
      13, 2009John
      S. Stanik/s/   LEROY M.
      BALL
                                                                                        
                                                                                        Chief
      Financial Officer (and Principal

                                                                                            Accounting
      Officer)
                                                                                        
                                                                                        March
      13, 2009Leroy
      M. Ball/s/  ROBERT W.
      CRUICKSHANK
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Robert
      W. Cruickshank/s/ RANDALL S. DEARTH
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Randall
      S. Dearth/s/ WILLIAM J. LYONS
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009William
      J. Lyons/s/ WILLIAM R. NEWLIN
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009William
      R. Newlin/s/ JULIE S. ROBERTS
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Julie
      S. Roberts/s/ TIMOTHY G. RUPERT
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Timothy
      G. Rupert/s/SETH E. SCHOFIELD
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Seth
      E. Schofield/s/ ROBERT L. YOHE
                                                                                        
                                                                                        Director
                                                                                        
                                                                                        March
      13, 2009Robert
      L. Yohe




147