Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)
x Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2007 or
o Transition report pursuant to section 13 or 15(d) of the Securities Exchange act of 1934 for the transition period from _______ to _______

Commission file number 1-10776

CALGON CARBON CORPORATION  

(Exact name of registrant as specified in its charter)
 
Delaware
 
25-0530110
(State or other jurisdiction of incorporation or organization)
 
 (I.R.S. Employer Identification No.)
    
P.O. Box 717, Pittsburgh, PA 15230-0717

(Address of principal executive offices)
(Zip Code)
 
 
(412) 787-6700 

 (Registrant’s telephone number, including area code)

 

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

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

Yes x  No o

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 o
Accelerated filer x
Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes o  No x
 
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
Outstanding at June 1, 2007
Common Stock, $.01 par value   
40,361,590 shares


 
CALGON CARBON CORPORATION
FORM 10-Q
QUARTER ENDED March 31, 2007

The Quarterly Report on Form 10-Q contains historical information and forward-looking statements. Statements looking forward in time are included in this Form 10-Q pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. They involve known and unknown risks and uncertainties that may cause the Company’s actual results in the future to differ from performance suggested herein. In the context of forward-looking information provided in this Form 10-Q and in other reports, please refer to the discussion of risk factors detailed in, as well as the other information contained in the Company’s filings with the Securities and Exchange Commission.

INDEX

 
 
Page
PART 1 - CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
Item 1.
Condensed Consolidated Financial Statements
     
 
Introduction to the Condensed Consolidated Financial Statements
2
     
 
Condensed Consolidated Statements of Operations (unaudited)
3
     
 
Condensed Consolidated Balance Sheets (unaudited)
4
     
 
Condensed Consolidated Statements of Cash Flows (unaudited)
5
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
6
     
Item 2.
Management's Discussion and Analysis of Results of Operations and Financial Condition
24
     
Item 4.
Controls and Procedures
30
   
 
PART II - OTHER INFORMATION
     
Item 1.
Legal Proceedings
31
     
Item 1a.
Risk Factors
31
     
Item 2c.
Unregistered Sales of Equity Securities and Use of Proceeds
31
     
Item 3.
Defaults Upon Senior Securities
31
     
Item 6.
Exhibits
32
     
SIGNATURES
 
33
     
CERTIFICATIONS
   
 
1

 
PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements
 
INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The unaudited interim condensed consolidated financial statements included herein have been prepared by Calgon Carbon Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Management of the Company believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the Company's audited consolidated financial statements and the notes included therein for the year ended December 31, 2006, as filed with the Securities and Exchange Commission by the Company in Form 10-K.

In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, which are necessary for a fair presentation, in all material respects, of financial results for the interim periods presented. Operating results for the first three months of 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
 
2

 
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
 
   
Three Months Ended
March 31,
 
   
2007
 
2006 
 
           
Net sales
 
$
83,030
 
$
76,579
 
               
Cost of products sold (excluding depreciation)
   
58,424
   
57,411
 
Depreciation and amortization
   
4,261
   
4,798
 
Selling, general and administrative expenses
   
14,606
   
14,372
 
Research and development expenses
   
828
   
1,197
 
Restructuring charge
   
-
   
6
 
 
   
78,119
   
77,784
 
Income (loss) from operations
   
4,911
   
(1,205
)
               
Interest income
   
302
   
86
 
Interest expense
   
(1,450
)
 
(1,574
)
Other expense—net
   
(403
)
 
(844
)
               
Income (loss) from continuing operations before income taxes and equity in income from equity investments
   
3,360
   
(3,537
)
               
Income tax provision (benefit)
   
2,380
   
(345
)
               
Income (loss) from continuing operations before equity in income from equity investments
   
980
   
(3,192
)
               
Equity in income from equity investments
   
1,054
   
203
 
               
Income (loss) from continuing operations
   
2,034
   
(2,989
)
Income from discontinued operations - net of tax
   
-
   
1,575
 
Net income (loss)
 
$
2,034
 
$
(1,414
)
               
Basic and diluted income (loss) from continuing operations per common share
 
$
.05
 
$
(.08
)
Income from discontinued operations per common share
 
$
.00
 
$
.04
 
Basic and diluted income (loss) per common share
 
$
.05
 
$
(.04
)
               
Weighted average shares outstanding
             
 Basic
   
40,224,585
   
39,854,726
 
 Diluted
   
42,660,625
   
39,854,726
 
 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
3

 
  CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except share data)
(Unaudited)

   
March 31,
 
 December 31,
 
   
2007
 
 2006
 
           
ASSETS
          
           
Current assets:
          
Cash and cash equivalents
 
$
8,898
 
$
5,631
 
Receivables (net of allowance of $2,198 and $1,981)
   
59,792
   
55,036
 
Revenue recognized in excess of billings on uncompleted contracts
   
7,103
   
7,576
 
Inventories
   
73,368
   
70,339
 
Deferred income taxes - current
   
7,173
   
5,761
 
Other current assets
   
4,323
   
4,369
 
Total current assets
   
160,657
   
148,712
 
               
Property, plant and equipment, net
   
103,479
   
106,101
 
Equity investments
   
8,332
   
6,971
 
Intangibles
   
9,087
   
8,521
 
Goodwill
   
27,540
   
27,497
 
Deferred income taxes - long-term
   
11,094
   
20,225
 
Other assets
   
3,332
   
4,337
 
               
Total assets
 
$
323,521
 
$
322,364
 
               
LIABILITIES AND SHAREHOLDERS' EQUITY
             
               
Current liabilities:
             
Short-term debt
 
$
62,960
 
$
-
 
Accounts payable and accrued liabilities
   
38,656
   
36,614
 
Billings in excess of revenue recognized on uncompleted contracts
   
2,716
   
2,516
 
Accrued interest
   
653
   
1,440
 
Payroll and benefits payable
   
7,189
   
6,533
 
Accrued income taxes
   
4,883
   
8,423
 
Total current liabilities
   
117,057
   
55,526
 
               
Long-term debt
   
12,925
   
74,836
 
Deferred income taxes - long-term
   
1,694
   
1,679
 
Accrued pension and other liabilities
   
43,659
   
42,450
 
               
Total liabilities
   
175,335
   
174,491
 
               
Commitments and contingencies
             
Shareholders' equity:
             
Common shares, $.01 par value, 100,000,000 shares authorized, 42,550,290 and 42,550,290 shares issued
   
425
   
425
 
Additional paid-in capital
   
71,274
   
70,345
 
Retained earnings
   
91,731
   
94,035
 
Accumulated other comprehensive income
   
12,067
   
10,305
 
     
175,497
   
175,110
 
Treasury stock, at cost, 2,842,390 and 2,819,690 shares
   
(27,311
)
 
(27,237
)
Total shareholders' equity
   
148,186
   
147,873
 
Total liabilities and shareholders’ equity
 
$
323,521
 
$
322,364
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
4


CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

   
 Three Months Ended
 
   
 March 31,
 
   
 2007
 
 2006
 
Cash flows from operating activities
           
Net income (loss)
 
$
2,034
 
$
(1,414
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
             
Gain from sale of assets, pre-tax
   
-
   
(6,078
)
Depreciation and amortization
   
4,261
   
4,800
 
Equity in income from equity investments
   
(1,054
)
 
(203
)
Employee benefit plan provisions
   
520
   
1,154
 
Changes in assets and liabilities:
             
Increase in receivables
   
(4,528
)
 
(1,803
)
Increase in inventories
   
(2,818
)
 
(2,683
)
Decrease in revenue in excess of billings on uncompleted contracts and other current assets
   
548
   
(1,036
)
Increase (decrease) in accounts payable, accrued liabilities, and billings in excess of revenue
   
1,901
   
(1,228
)
Increase (decrease) in accrued income taxes
   
743
   
725
 
Increase in deferred income taxes
   
301
   
1,270
 
Other items - net
   
1,515
   
2,367
 
Net cash provided by (used in) operating activities
   
3,423
   
(4,129
)
               
Cash flows from investing activities
             
Proceeds from the sale of assets
   
-
   
19,120
 
Property, plant and equipment expenditures
   
(1,965
)
 
(3,093
)
Proceeds from disposals of property, plant and equipment
   
147
   
52
 
Net cash (used in) provided by investing activities
   
(1,818
)
 
16,079
 
 
             
Cash flows from financing activities
             
Proceeds from borrowings
   
5,144
   
32,300
 
Repayments of borrowings
   
(4,095
)
 
(44,726
)
Treasury stock purchased
   
(74
)
 
-
 
Common stock issued through exercise of stock options
   
-
   
27
 
Net cash provided by (used in) financing activities
   
975
   
(12,399
)
               
Effect of exchange rate changes on cash
   
687
   
(614
)
               
Increase (decrease) in cash and cash equivalents
   
3,267
   
(1,063
)
Cash and cash equivalents, beginning of period
   
5,631
   
5,446
 
Cash and cash equivalents, end of period
 
$
8,898
 
$
4,383
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5

 
CALGON CARBON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
 
1.
Inventories:
 
   
March 31,
2007
 
December 31,
2006
 
Raw materials
 
$
19,054
 
$
16,587
 
Finished goods
   
54,314
   
53,752
 
   
$
73,368
 
$
70,339
 

2.
Supplemental Cash Flow Information:

Cash paid for interest during the three months ended March 31, 2007 and 2006 was $2.2 million and $1.6 million, respectively. Income taxes paid, net of refunds, were $200 thousand and $2 thousand, for the three months ended March 31, 2007 and 2006, respectively.

The non-cash vesting of restricted stock-based compensation was $0.2 million and $0.3 million for the three months ended March 31, 2007 and 2006, respectively. The non-cash impact of the January 1, 2007 adoption FIN 48 was $4.3 million for the three months ended March 31, 2007.

3.  
Dividends: 

The Company’s Board of Directors did not declare or pay a dividend for the quarters ended March 31, 2007 and 2006.

4.  
Comprehensive income (loss): 
 
 
 
 Three Months Ended March 31,
 
   
 2007
 
2006
 
Net income (loss)
 
$
2,034
 
$
(1,414
)
Other comprehensive income, net of taxes
   
1,762
   
858
 
Comprehensive income (loss)
 
$
3,796
 
$
(556
)
 
The only matters contributing to the other comprehensive income during the three months ended March 31, 2007 was the foreign currency translation adjustment of $1.2 million and the change in the fair value of the derivative instruments of $0.6 million as described in Note 6. The only matters contributing to the other comprehensive income during the three months ended March 31, 2006 was the foreign currency translation adjustment of $1.0 million and the change in the fair value of the derivative instruments of ($0.1) million as described in Note 6.

5.         Segment Information:

The Company’s management has identified three segments based on product line and associated services. Those segments included Activated Carbon and Service, Equipment, and Consumer. The Company’s chief operating decision maker, its chief executive officer, John S. Stanik, 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 the Company’s continuing operations.
 
6

 
   
 Three Months Ended
 
   
March 31,  
 
   
2007
 
 2006
 
Net Sales
          
Carbon and Service
 
$
68,683
 
$
65,185
 
Equipment
   
10,966
   
8,441
 
Consumer
   
3,381
   
2,953
 
   
$
83,030
 
$
76,579
 
Income (loss) from continuing operations
             
before depreciation, amortization,
             
restructuring, and income taxes
             
Carbon and Service
 
$
8,473
 
$
5,048
 
Equipment
   
(129
)
 
(1,659
)
Consumer
   
828
   
210
 
     
9,172
   
3,599
 
Depreciation and amortization
             
Carbon and Service
   
3,888
   
4,449
 
Equipment
   
240
   
210
 
Consumer
   
133
   
139
 
     
4,261
   
4,798
 
Income (loss) from continuing operations before
             
restructuring and income taxes
 
$
4,911
 
$
(1,199
)
               
Reconciling items:
             
Restructuring charges
   
-
   
(6
)
Interest income
   
302
   
86
 
Interest expense
   
(1,450
)
 
(1,574
)
Other expense - net
   
(403
)
 
(844
)
Consolidated income (loss) from continuing operations
             
before income taxes and equity in income from equity
             
investments
 
$
3,360
 
$
(3,537
)

   
March 31, 2007
 
December 31, 2006
 
Total Assets
         
Carbon and Service
 
$
277,046
 
$
277,134
 
Equipment
   
33,520
   
34,031
 
Consumer
   
12,955
   
11,199
 
Consolidated total assets
 
$
323,521
 
$
322,364
 

7

 
Net Sales by Product:

   
Three months ended March 31
 
(Thousands)
 
2007
 
2006
 
Carbon products
 
$
62,728
 
$
59,589
 
Capital equipment
   
8,091
   
6,224
 
Equipment leasing
   
3,252
   
3,515
 
Spare parts
   
2,875
   
2,217
 
Carbon cloth products
   
2,863
   
1,995
 
Home consumer products
   
518
   
958
 
Other services
   
2,703
   
2,081
 
Total sales
 
$
83,030
 
$
76,579
 
 
8


6.
Derivative Instruments

The Company accounts for its foreign exchange derivative instruments under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” 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 had thirty derivative instruments outstanding at March 31, 2007 of which one was a foreign currency swap, twenty-six were foreign currency forward exchange contracts, and three were cash flow hedges for forecasted purchases of natural gas. The Company applied hedge accounting treatment to the foreign currency swap and the three cash flow hedges for forecasted natural gas. The Company held sixteen foreign currency forward exchange contracts at March 31, 2006 and none qualified for hedge accounting treatment. During the periods ended March 31, 2007 and 2006, the Company recorded an immaterial gain in other income for the twenty-six and sixteen foreign currency forward exchange contracts.

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 effective hedge portion of the foreign currency swap of $0.1 million and ($0.1) million, respectively, for the periods ended March 31, 2007 and 2006 was recorded in other comprehensive income (loss). The balance of the effective hedge portion of the foreign currency swap recorded in other long-term liabilities was $0.9 million and $0.3 million, respectively, as of March 31, 2007 and 2006.

The change in fair value and the balance of the effective hedge portion of the cash flow hedges for the forecasted purchase of natural gas recorded in other long-term liabilities was $0.5 million and $0.2 million, net of tax, respectively, for the period ended March 31, 2007.

No component of the derivatives gains or losses has been excluded from the assessment of hedge effectiveness. For the periods ended March
31, 2007 and 2006, the net gain or loss recognized due to the amount of hedge ineffectiveness was insignificant.

7.
Contingencies

The Company purchased the common stock of Advanced Separation Technologies Incorporated (AST) from Progress Capital Holdings, Inc. and Potomac Capital Investment Corporation on December 31, 1996. On January 12, 1998, the Company filed a claim for unspecified damages in the United States District Court in 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. On January 26, 2007, a jury returned a verdict in favor of the Company and against the defendants in the amount of $10.0 million, which has not been recorded in operations as of March 31, 2007. The defendants have filed post trial motions seeking to overturn the verdict. The Company has filed a motion for an award of prejudgment interest, which may be awarded at the discretion of the trial judge at the rate of 6% per annum (simple) from the date the complaint was filed. If the post trial motions of the defendants are denied, the defendants will be entitled to appeal to the United States Circuit Court of Appeals for the Third Circuit.

The Company is a party in three cases involving alleged infringement of its U.S. Patent No. 6,129,893 and U.S. Patent No. 6,565,803 B1 (“U.S. Patents”) and its Canadian Patent No. 2,331,525 (“525 Patent”) for the method of preventing infection from cryptosporidium found in drinking water. In the first case, Wedeco Ideal Horizons, Inc. filed suit against the Company in the United States District Court for the District of New Jersey seeking a declaratory judgment that it does not infringe the Company’s U.S. Patents on the grounds that the U.S. Patents are invalid and alleging unfair competition by the Company. On June 30, 2006, the District Court granted Wedeco’s motion for summary judgment on the issue of validity of the U.S. Patents, denied the Company’s motion for summary judgment on the infringement claim on the ground that there can be no infringement where there is no valid patent and granted the Company’s motion for summary judgment on Wedeco’s claim of unfair competition. The Company appealed the Court’s decision against it to the United States Circuit Court of Appeals for the Federal Circuit. On April 24, 2007, the Court affirmed the lower Court’s judgment. The Company does not intend to appeal this decision. In the second case, the Company filed suit against the Town of Ontario, New York, Trojan Technologies, Inc. (“Trojan”) and Robert Wykle, et al. in the United States District Court for the Western District of New York alleging that the defendants are practicing the method claimed within the U.S. Patents without a license. In the third case, the Company filed suit against the City of North Bay, Ontario, Canada (“North Bay”) and Trojan in the Federal Court of Canada alleging infringement of the Canadian Patent by North Bay and inducement of infringement by Trojan. On November 14, 2006, after a bench trial, the Court dismissed the Company’s claim for a declaration that the defendants infringed the Canadian Patent and the Company’s claims for an injunction, compensation, damages, interest, and costs and declared that the Canadian Patent is invalid. In March 2007, the Company and Trojan entered into a settlement whereby in exchange for a nominal cash payment and relief from legal fees, the Company granted Trojan worldwide immunity from all current and future legal action related to Calgon Carbon’s UV patents.
 
9

 
The Pennsylvania Department of Environmental Protection (“PADEP”) demanded that the Company reimburse the PADEP for response costs of that agency in respect of a site owned by a third party and located in Allegheny County, Pennsylvania (“Site”). On August 31, 2006, the Company and the PADEP entered into a Consent Order and Settlement in which the Company agreed to pay $515,000 in three installments to resolve the matter. This amount was charged to earnings for the second quarter ended June 30, 2006. On January 11, 2007, the PADEP notified the Company that the Consent Order and Agreement is final.

In conjunction with the February 2004 purchase of substantially all of Waterlink’s operating assets and the stock of Waterlink’s U.K. subsidiary, several environmental studies were performed on the Columbus, Ohio property by environmental consulting firms which identified and characterized areas of contamination. In addition, these firms identified alternative methods of remediating the property, identified feasible alternatives and prepared cost evaluations of the various alternatives. The Company concluded from the information in the studies that a loss at this property is probable and recorded the liability as a component of noncurrent other liabilities in the Company’s consolidated balance sheet. At December 31, 2005, the balance recorded was $5.3 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. During the first four months of 2006, the Company undertook a process of evaluating contractors and securing bids to perform the remediation work on the Columbus, Ohio property. As a result of the evaluation of the additional information gathered during that process, the Company reduced its estimate of its liability by $1.3 million to $4.0 million as of March 31, 2006. The reduction of the liability was recorded as a reduction of selling, general and administrative expenses on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2006. The Company has not incurred any environmental remediation expense for the three months ended March 31, 2007 and has incurred a total of $0.2 million of environmental remediation expense to date. It is reasonably possible that a change in the estimate of this obligation will occur as remediation preparation and remediation activity commences over the upcoming months. The ultimate remediation costs are dependent upon among other things, the requirements of any state or federal environmental agencies, the remediation methods employed, the final scope of work being determined, and the extent and types of contamination which will not be fully determined until experience is gained through remediation and related activities. The accrued amounts are expected to be paid out over the course of several years once work has commenced. The Company has yet to make a determination that it will proceed with remediation efforts in 2007.

In January, 2007, the Company received a Notice of Violation (“NOV”) from the Environmental Protection Agency, Region 4 (“EPA”), alleging multiple violations of the Federal Resource Conservation and Recovery Act and corresponding EPA and Kentucky Department of hazardous waste management (“KYDEP”) rules and regulations. The alleged violations are based on information provided by the Company during and after a Multi Media Compliance Evaluation inspection of the Company’s Catlettsburg, Kentucky plant (the “Plant”), conducted by the EPA and KYDEP in September 2005, and concern the hazardous waste spent activated carbon regeneration facility located at the Plant. The Company is preparing a response to the NOV. The EPA has not indicated whether or not it will take formal enforcement action, or whether such action would involve the assessment of civil penalties, and has not yet specified a monetary amount of any such civil penalties it might pursue in connection with this matter. At this time the Company cannot predict with any certainty the outcome of this matter.
 
10

 
The Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical Corporation, which was formed on October 1, 2002. At March 31, 2007, Calgon Mitsubishi Chemical Corporation had $9.0 million in borrowings from an affiliate of the majority owner of the joint venture. The Company has agreed with the joint venture and the lender that, upon request by the lender, the Company will execute a guarantee for up to 49% of such borrowings. At March 31, 2007, 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 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, after consulting with counsel, that the ultimate liabilities, if any, resulting from such lawsuits and claims will not materially affect the consolidated liquidity or financial position 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

8.
Goodwill & Intangible Assets
 
The Company has elected to do the annual impairment test of its goodwill, as required by SFAS No. 142, on December 31 of each year. 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 following is a table showing the results of the annual impairment test at December 31, 2006:

(Thousands)
             
   
At December 31, 2006
 
       
Carrying
 
Carrying
 
   
Fair Value of
 
Value of
 
Value of
 
Reporting Unit
 
Unit
 
Unit
 
Goodwill
 
Activated Carbon and Service Segment:
             
Americas/Asia
 
$
187,000
 
$
141,740
 
$
16,768
 
Europe
   
56,800
   
43,306
   
4,288
 
Equipment Segment:
                   
ISEP equipment
                   
(ISEP)
   
22,900
   
4,668
   
4,419
 
Ultraviolet light
                   
equipment (UV)
   
14,445
   
9,222
   
1,962
 
Consumer Segment
   
N/A
   
N/A
   
60
 
Total
             
$
27,497
 
 
11

The changes in the carrying amounts of goodwill by segment for the three months ended March 31, 2007 are as follows:

   
Carbon &
 
 
 
 
 
 
 
 
 
Service
 
Equipment
 
Consumer
 
 
 
 
 
Segment
 
Segment
 
Segment
 
Total
 
Balance as of January 1, 2007
 
$
21,056
 
$
6,381
 
$
60
 
$
27,497
 
Foreign exchange
   
25
   
18
   
-
   
43
 
                           
Balance as of March 31, 2007
 
$
21,081
 
$
6,399
 
$
60
 
$
27,540
 

The following is a summary of the Company’s identifiable intangible assets as of March 31, 2007 and December 31, 2006 respectively:

       
March 31, 2007
 
   
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Foreign Exchange
 
Accumulated Amortization
 
Net Carrying Amount
 
Amortized Intangible Assets:
                     
Patents
   
15.4 Years
 
$
1,369
 
$
-
 
$
(814
)
$
555
 
Customer Relationships
   
17.0 Years
   
9,323
   
17
   
(3,893
)
 
5,447
 
Customer Contracts
   
2.8 Years
   
664
   
(20
)
 
(644
)
 
-
 
License Agreement
   
5.0 Years
   
500
   
-
   
(342
)
 
158
 
Product Certification
   
7.9 Years
   
1,682
   
-
   
(394
)
 
1,288
 
Unpatented Technology
   
20.0 Years
   
2,875
   
-
   
(1.236
)
 
1,639
 
Total
   
16.0 Years
 
$
16,413
 
$
(3
)
$
(7,323
)
$
9,087
 

       
December 31, 2006
 
   
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Foreign Exchange
 
Accumulated Amortization
 
Net Carrying Amount
 
Amortized Intangible Assets:
                     
Patents
   
15.4 Years
 
$
1,369
 
$
-
 
$
(793
)
$
576
 
Customer Relationships
   
17.0 Years
   
9,323
   
11
   
(3,596
)
 
5,738
 
Customer Contracts
   
2.8 Years
   
664
   
(20
)
 
(644
)
 
-
 
License Agreement
   
5.0 Years
   
500
   
-
   
(317
)
 
183
 
Product Certification
   
7.9 Years
   
665
   
-
   
(321
)
 
344
 
Unpatented Technology
   
20.0 Years
   
2,875
   
-
   
(1.195
)
 
1,680
 
Total
   
16.0 Years
 
$
15,396
 
$
(9
)
$
(6,866
)
$
8,521
 

For the three months ended March 31, 2007 and 2006, the Company recognized $0.5 million and $0.5 million, respectively, of amortization expense related to intangible assets. The Company estimates amortization expense to be recognized during the next five years as follows:

(Thousands)
     
For the year ending December 31:
     
2007
 
$
1,785
 
2008
 
$
1,585
 
2009
 
$
1,312
 
2010
 
$
1,168
 
2011
 
$
824
 
 
12

 
9.
Borrowing Arrangements

On August 18, 2006, the Company issued $75.0 million in aggregate principal amount of 5.00% Convertible Senior Notes due in 2036 (the “Notes”) and entered into a new revolving credit facility (the “Credit Facility”). The Company used $68.4 million of the net proceeds from its offering of the Notes to fully repay indebtedness under the Company’s prior revolving credit facility. Accordingly, all parties completed their obligations under the Amended and Restated Credit Agreement, dated as of January 30, 2006 (the “Old Credit Facility”). The material terms of the Notes and the Credit Facility are described below.

5.00% Convertible Senior Notes due 2036

The Company initially issued $65.0 million in aggregate principal amount of 5.00% Notes due in 2036 and granted the initial purchaser a 30-day option to purchase up to an additional $10.0 million principal amount of Notes solely to cover over-allotments, if any. The initial purchaser exercised this option in full. Accordingly, $75.0 million in aggregate principal amount of Notes were issued and sold on August 18, 2006. The Notes accrue interest at the rate of 5.00% per annum and are 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 on the business day immediately preceding the maturity date. Upon conversion, the Company will pay cash for the principal amount of the Notes and shares of its common stock, if any, based on a daily conversion value (as described herein) calculated on a proportionate basis for each day of the 25 trading-day observation period.

For the quarter ended March 31, 2007, the last reported sale price of the Company’s common stock was greater than 120% of the conversion price of the Notes for at least 20 trading days in the period of 30 consecutive trading days ended March 31, 2007. As a result, as of March 31, 2007, the holders of the Notes have the right to convert the Notes into cash and shares of common stock. Although the Company does not anticipate that a significant amount of these Notes will be converted, if any, as of March 31, 2007 the Company was required to reclassify as a current liability that portion of the Notes that cannot be refinanced on a long-term basis as provided by SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced.”

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 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, “Application of Issue No. 98-5 to Certain Convertible Instruments,” Issue 7, which indicates that if a reset of the conversion rate due to a contingent event occurs the Company would need to calculate if there is a beneficial conversion and record if applicable. Through March 31, 2007, no contingent events have occurred.

The Company may not redeem the Notes before August 20, 2011. On or after that date, the Company may redeem all or a portion of the Notes at any time. Any redemption of the Notes will be for cash at 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, including any additional interest to, but excluding, the redemption date.
 
13

 
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 (“Subsidiary Guarantees”). The Subsidiary Guarantees are general unsecured senior obligations of the subsidiary guarantors (“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 will be amortized over a period of five years. The discount is reflected as a deduction from the face amount of the debt. As of March 31, 2007, the Company recorded interest expense of $1.8 million, of which $0.2 million related to the amortization of the discount and $1.6 million related to the Notes. The Company incurred issuance costs of $1.5 million which were deferred and are being amortized over a five year period.

The Notes and the Subsidiary Guarantees were sold only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Notes, the Subsidiary Guarantees, and the common stock issuable upon conversion of the Notes have not been registered. The offering was conducted in reliance upon an exemption from registration under the Securities Act and applicable state securities laws. The Company and the Subsidiary Guarantors have agreed, however, to use reasonable best efforts to file a shelf registration statement with the SEC within 90 days of the issue date, and to use reasonable efforts to cause such registration statement to become effective within 240 days from the issue date, in order to register resales of the Notes, the Subsidiary Guarantees and common stock issuable upon conversion of the Notes under the Securities Act. The 90-day period expired on November 16, 2006. The Company did not file a registration statement within the time period and, as a result, is obligated to pay predetermined additional interest to holders of the Notes as described in the registration rights agreement. The Company implemented Financial Statement of Position (FSP) EITF 00-19-2, “Accounting for Registration Payment Arrangements” and accrued the probable liability of $0.2 million for penalty interest under SFAS No. 5, “Accounting for Contingencies,” with an adoption date of January 1, 2007.

Credit Facility

The Credit Facility was initially a $50.0 million facility and included a separate U.K. sub-facility and a separate Belgian sub-facility. On February 5, 2007, the Credit Facility was amended to increase the commitment amount to $55.0 million and was syndicated to include one additional lender. The Credit Facility permits the total revolving credit commitment to be increased up to $75.0 million. The facility matures on May 15, 2011. The terms of the syndicated Credit Facility were not materially different than the original facility prior to the February 5, 2007 syndication. 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.
 
14

 
As of March 31, 2007, the carrying amount of assets pledged as collateral was $55.9 million. The carrying amount as of March 31, 2007 for domestic, U.K., and Belgian borrowers were $42.5 million, $7.9 million, and $5.5 million, respectively. The Credit Facility contains a fixed charge coverage ratio covenant which becomes effective when total domestic availability falls below $11.0 million. As of March 31, 2007, total availability was $38.2 million. Availability as of March 31, 2007 for domestic, U.K., and Belgian borrowers were $31.6 million, $6.6 million, and zero, respectively. The Company can issue letters of credit up to $20 million of the available commitment amount under the Credit Facility. Sub-limits for letters of credit under the U.K. sub-facility and the Belgian sub-facility are $2.0 million and $6.0 million, respectively. Letters of credit outstanding at March 31, 2007 totaled $17.8 million.

The Credit Facility interest rate is based upon Euro-based (“LIBOR”) rates with other interest rate options available. The applicable Euro Dollar margin in effect when the Company is in compliance with the terms of the facility ranges from 1.25% to 2.25% and is based upon the Company’s overall availability under the Credit Facility. The unused commitment fee is equal to 0.375% per annum and is based upon the unused portion of the revolving commitment.

The Company incurred debt issuance costs of $0.5 million which were deferred and are being amortized over a five year period. The Company had no borrowings under the Credit Facility as of March 31, 2007.

The Credit Facility contains a number of affirmative and negative covenants. Because of delays in filing its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, the Company was in violation of the affirmative covenant requiring unaudited financial statements to be provided to the lender within 45 days after the end of the Company’s fiscal quarter. On May 29, 2007, the Company amended its credit agreement prior to the filing of this Form 10- Q which included a waiver to extend the due date for delivery of unaudited financial statements until June 8, 2007. For the quarter ended March 31, 2007, the last reported sale price of the Company's common stock was greater than 120% of the conversion price of the Notes for at least 20 trading days in the period of 30 consecutive trading days ended March 31, 2007. As a result, as of March 31, 2007, the holders of the Notes have the right to convert the Notes into cash and shares of common stock. Although currently not anticipated by the Company, the ability of holders of the Notes to convert is an event of default. Included in the aforementioned amendment, is a provision for up to $10.0 million where Notes converted up to that amount will not be considered an event of default and the Company was able to classify up to that amount of the Notes as long-term debt as it has the ability and intent to refinance it under the amended agreement. The amendment also includes a provision for up to $3.0 million of letters of credit under the Company’s U.S., Belgium, and UK sub-limits that can be issued having expiration dates that are more than one year but not more than three years after the date of issuance.

The negative covenants provide for certain restrictions on possible acts by the Company related to matters such as additional indebtedness, certain liens, fundamental changes in the business, certain investments or loans, asset sales and other customary requirements. The Company was in compliance with all such negative covenants as of March 31, 2007 and is currently in compliance with such covenants.

Management cannot be assured that, after the March 31, 2007 financial statements have been provided to the lenders, there will not be any violation in future periods of the covenants contained in the Credit Facility. Although not currently anticipated by the Company, the conversion by holders of Notes above the $10.0 million provision, as described above, would be an event of default.

Belgian Credit Facility
The Company maintains a Belgian credit facility totaling 4.0 million Euros which is secured by a U.S. letter of credit provided under the Credit Facility. There are no financial covenants, and the Company had no outstanding borrowings under the Belgian credit facility as of March 31, 2007. Bank guarantees of 2.8 million Euros were issued as of March 31, 2007. The maturity date of this facility is December 15, 2007. Availability under this facility was 1.2 million Euros at March 31, 2007.

United Kingdom Credit Facilities
The Company maintains a United Kingdom unsecured overdraft facility totaling 200,000 British Pounds Sterling. There are no financial covenants and the Company had no outstanding borrowings under this overdraft facility as of March 31, 2007. This facility is reviewed annually. The bank, in its sole discretion, may cancel at any time its commitment to provide this facility.
 
The Company also maintains a United Kingdom unsecured bonds, guarantees and indemnities facility totaling 662,000 British Pounds Sterling. The bank, in its sole discretion, may cancel at any time its commitment to provide this facility. This facility was fully utilized at March 31, 2007.

15

 
Fair Value of  Debt
At March 31, 2007, the Company had $12.9 million of long-term debt which primarily consisted of $10.0 million of fixed rate senior convertible notes that were entered into in August 2006. The fair value of these notes at March 31, 2007 was $16.9 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 long-term debt is based on prime rates, and accordingly, the carrying value of this obligation approximates its fair value.

At March 31, 2007, the Company had $63.0 million of outstanding short-term debt. Substantially all of the Company’s outstanding long-term debt at March 31, 2007 consisted of $65.0 million, excluding debt discount of $2.9 million, of fixed rate senior convertible notes that were entered into in August 2006. The fair value of these notes at March 31, 2007 was $109.9 million. The increase in value is primarily due to the increase in the Company’s common stock price and its impact on the conversion features of the notes. The Company also maintains a Chinese credit facility totaling 11.0 million RMB which is secured by a U.S. letter of credit provided under the Credit Facility. There are no financial covenants, and the Company had 7.0 million RMB or $0.9 million of outstanding borrowings under this credit facility as of March 31, 2007. Availability under this facility was 4.0 million RMB at March 31, 2007. The maturity date of this facility is December 31, 2007.

Maturities of Debt
The Company is obligated to make principal payments on debt outstanding at March 31, 2007 of $2.9 million in 2009 and $75.0 million in 2011. See also the 5.00% Convertible Senior Notes due 2036 section related to the holders’ optional conversion as of March 31, 2007.

10.
Pensions
 
U.S. Plans:

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

   
Three Months Ended March 31
 
Pension Benefits (in thousands)
 
2007
 
2006
 
Service cost
 
$
322
 
$
647
 
Interest cost
   
1,174
   
1,252
 
Expected return on plan assets
   
(1,229
)
 
(1,063
)
Amortization of prior service cost
   
61
   
81
 
Net actuarial loss amortization
   
69
   
253
 
Net periodic pension cost
 
$
397
 
$
1,170
 

The expected long-term rate of return on plan assets is 8.00% in 2007.

Employer Contributions

In its 2006 financial statements, the Company disclosed that it expected to contribute $3.2 million to its U.S. pension plans in 2007. As of March 31, 2007, no contributions have been made. The Company expects to contribute the $3.2 million over the remainder of the year.

16


European Plans:

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

   
Three Months Ended March 31
 
Pension Benefits (in thousands)
 
2007
 
2006
 
Service cost
 
$
181
 
$
253
 
Interest cost
   
426
   
422
 
Expected return on plan assets
   
(320
)
 
(272
)
Amortization of net transition amount
   
11
   
13
 
Net actuarial loss amortization
   
25
   
48
 
Net periodic pension cost
 
$
323
 
$
464
 

The expected long-term rate of return on plan assets ranges from 5.00% to 6.90% in 2007.

Employer Contributions

In its 2006 financial statements, the Company disclosed that it expected to contribute $2.3 million to its European pension plans in 2007. As of March 31, 2007, the Company contributed $0.5 million. The Company expects to contribute the remaining $1.8 million over the remainder of the year.

Defined Contribution Plans

The Company also sponsors a defined contribution pension plan for certain U.S. employees that permits employee contributions of up to 50% of eligible compensation in accordance with Internal Revenue Service guidance. In September 2006, the Company announced the freezing of its defined benefit pension plans for all U.S. salaried employees replacing it with a defined contribution plan. Under this defined contribution plan, the Company makes a fixed contribution of 2% of eligible employee compensation 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 Company contribution of up to 4% of employee compensation based upon annual Company performance at the discretion of the Company’s Board of Directors. For all other U.S. employees, the Company makes matching contributions on behalf of each participant in an amount equal to 25% of the employee contribution up to a maximum of 4% of eligible employee compensation. Employer matching contributions vest immediately. Total expenses related to this defined contribution plan were $0.5 million and $0.1 million, respectively, for the periods ended March 31, 2007 and 2006, respectively.

11.
Earnings Per Share

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

   
Three Months Ended March 31,
 
(Dollars in thousands, except per share amounts)
 
2007
 
2006
 
Income (loss) from continuing operations available to
         
common shareholders
 
$
2,034
 
$
(2,989
)
Weighted Average Shares Outstanding
             
Basic
   
40,224,585
   
39,854,726
 
Effect of Dilutive Securities
   
2,436,040
   
-
 
Diluted
   
42,660,625
   
39,854,726
 
Basic and diluted net income (loss) from continuing
             
operations per common share
 
$
.05
 
$
(.08
)
 
17

 
For the three months ended March 31, 2007 and 2006, there were 1,457,468 and 254,369 of stock options that were excluded from the dilutive calculations as the effect would have been antidilutive.

The Company’s obligation under its Senior Convertible Notes is to settle the par value of the Notes in cash and to settle the amount in excess of par value in its common shares. Therefore, the Company is not required to include any shares underlying the Notes in its diluted weighted average shares outstanding until the average stock price per share for the quarter exceeds the $5.10 conversion price. At such time, only the number of shares that would be issuable (under the “treasury stock” method of accounting for share dilution) will be included, which is based upon the amount by which the average stock price exceeds the conversion price. For the first $0.50 per share that the Company’s average stock price exceeds the $5.10 conversion price of the Notes, it will include approximately 1,300,000 additional shares in its diluted share count. For the second $0.50 per share that the Company’s average stock price exceeds the $5.10 conversion price, it will include approximately 1,100,000 additional shares, for a total of approximately 2,400,000 shares, in its diluted share count, and so on, with the additional shares’ dilution decreasing for each $1 per share that the Company’s average stock price exceeds $5.10 if the stock price rises further above $5.10 (see table below). As of March 31, 2007, the average stock price for the 90-day trading period was $6.64, which was higher than the conversion price of $5.10 therefore 2,213,155 shares were included in the dilutive share calculation for the period of time the Notes were outstanding for the quarter ended March 31, 2007.

"Treasury Stock" Method of Accounting for Share Dilution

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

Formula:
Number of extra dilutive shares
 
=((Stock Price * Underlying Shares) - Principal)/Stock Price
   
Condition:
Only applies when share price exceeds $5.10
 
Stock Price
 
Conversion Price
 
Price Difference
 
Included in
Share
Count
 
Share Dilution Per Price Difference
 
$ 5.10
 
 
$5.10
 
 
$0.00
   
-
   
-
 
$ 5.60
 
 
$5.10
 
 
$0.50
   
1,313,023
   
2,626,046
 
$ 6.10
 
 
$5.10
 
 
$1.00
   
2,410,798
   
2,410,798
 
$ 7.10
 
 
$5.10
 
 
$2.00
   
4,142,500
   
2,071,250
 
$ 8.10
 
 
$5.10
 
 
$3.00
   
5,446,621
   
1,815,540
 
$ 9.10
 
 
$5.10
 
 
$4.00
   
6,464,122
   
1,616,031
 
$ 10.10
 
 
$5.10
 
 
$5.00
   
7,280,137
   
1,456,027
 
$ 11.10
 
 
$5.10
 
 
$6.00
   
7,949,123
   
1,324,854
 
$ 12.10
 
 
$5.10
 
 
$7.00
   
8,507,533
   
1,215,362
 
 
18

 
12.
Other Financial Information

As described in Note 9, the Company has issued $75.0 million in aggregate principal amount of 5.00% Convertible Senior Notes due in 2036. The Notes are fully and unconditionally guaranteed by certain of our domestic subsidiaries on a senior unsecured basis. All of the subsidiary guarantors are 100% owned by the parent company and the guarantees are joint and several. The Subsidiary Guarantees are general unsecured senior obligations of the Subsidiary Guarantors and rank equally in right of payment with all of the existing and future senior indebtedness of the Subsidiary Guarantors. If the Company fails to make payment on the Notes, the Subsidiary Guarantors must make them instead. The Notes are effectively subordinated to any indebtedness of the Company’s non-guarantor subsidiaries. The Notes are effectively junior to all of the Company’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

Condensed consolidating unaudited financial information for Calgon Carbon Corporation (issuer); Calgon Carbon Investments Inc., Chemviron Carbon Ltd., Waterlink (UK) Holdings Ltd., Sutcliffe Speakman Ltd., Lakeland Processing Ltd., Charcoal Cloth (International) Ltd., BSC Columbus LLC, and CCC Columbus LLC (guarantor subsidiaries); and the non-guarantor subsidiaries are as follows:
 
   
Condensed Consolidating Statements of Operations
Three months ended March 31, 2007
 
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Net sales
 
$
71,860
 
$
11,887
 
$
12,313
 
$
(13,030
)
$
83,030
 
Cost of products sold
   
52,715
   
9,695
   
9,044
   
(13,030
)
 
58,424
 
Depreciation and amortization
   
3,427
   
277
   
557
   
-
   
4,261
 
Selling, general and administrative expenses
   
12,592
   
1,305
   
709
   
-
   
14,606
 
Research and development expense
   
736
   
92
   
-
   
-
   
828
 
Interest (income) expense - net
   
5,276
   
(3,896
)
 
(232
)
 
-
   
1,148
 
Other expense - net
   
330
   
235
   
(162
)
 
-
   
403
 
Provision for income taxes
   
1,609
   
69
 
 
702
   
-
   
2,380
 
Results of affiliates’ operations
   
6,859
   
903
   
-
   
(7,762
)
 
-
 
Equity in income from equity investments
   
-
   
-
   
1,049
   
5
   
1,054
 
                                 
Net income (loss)
 
$
2,034
 
$
5,013
 
$
2,744
 
$
(7,757
)
$
2,034
 
 
   
 Condensed Consolidating Statements of Operations
Three months ended March 31, 2006
 
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Net sales
 
$
68,431
 
$
9,959
 
$
10,568
 
$
(12,379
)
$
76,579
 
Cost of products sold
   
52,257
   
8,720
   
8,813
   
(12,379
)
 
57,411
 
Depreciation and amortization
   
4,309
   
398
   
91
   
-
   
4,798
 
Selling, general and administrative expenses
   
13,623
   
(70
)
 
819
   
-
   
14,372
 
Research and development expense
   
1,111
   
86
   
-
   
-
   
1,197
 
Restructuring
   
6
   
-
   
-
   
-
   
6
 
Interest (income) expense - net
   
4,999
   
(3,444
)
 
(67
)
 
-
   
1,488
 
Other expense - net
   
463
   
125
   
256
   
-
   
844
 
Provision (benefit) for income taxes
   
2,272
   
96
   
(2,713
)
 
-
   
(345
)
Results of affiliates’ operations
   
9,004
   
5,382
   
-
   
(14,386
)
 
-
 
Equity in income from equity investments
   
-
   
-
   
203
   
-
   
203
 
Income (loss) from continuing operations
   
(1,605
)
 
9,430
   
3,572
   
(14,386
)
 
(2,989
)
Income (loss) from discontinued operations
   
191
   
(178
)
 
1,562
   
-
   
1,575
 
                                 
Net income (loss)
 
$
(1,414
)
$
9,252
 
$
5,134
 
$
(14,386
)
$
(1,414
)

19


   
Condensed Consolidating Balance Sheets
 
   
March 31, 2007
 
                       
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Cash & Cash Equivalents
 
$
5,396
 
$
2,114
 
$
21,679
 
$
(20,291
)
$
8,898
 
Receivables
   
46,425
   
16,240
   
5,446
   
(8,319
)
 
59,792
 
Inventories
   
60,529
   
7,347
   
5,459
   
33
   
73,368
 
Other current assets
   
15,372
   
1,596
   
1,631
   
-
   
18,599
 
Total current assets
   
127,722
   
27,297
   
34,215
   
(28,577
)
 
160,657
 
                                 
Intercompany accounts receivable
   
56,271
   
164,358
   
1,602
   
(222,231
)
 
-
 
Property, plant, and equipment, net
   
89,033
   
6,933
   
7,513
   
-
   
103,479
 
Intangibles
   
5,528
   
3,559
   
-
   
-
   
9,087
 
Goodwill
   
16,674
   
8,306
   
2,560
   
-
   
27,540
 
Equity investments
   
226,123
   
102,975
   
8,142
   
(328,908
)
 
8,332
 
Other assets
   
7,113
   
3,580
   
3,733
   
-
   
14,426
 
Total assets
 
$
528,464
 
$
317,008
 
$
57,765
 
$
(579,716
)
$
323,521
 
                                 
Short-term debt
 
$
62,056
 
$
-
 
$
904
 
$
-
 
$
62,960
 
Accounts payable
   
31,012
   
18,824
   
5,221
   
(13,685
)
 
41,372
 
Other current liabilities
   
30,043
   
805
   
3,874
   
(21,997
)
 
12,725
 
Total current liabilities
   
123,111
   
19,629
   
9,999
   
(35,682
)
 
117,057
 
                                 
Intercompany accounts payable
   
153,114
   
51,791
   
10,253
   
(215,158
)
 
-
 
Long-term debt
   
12,925
   
-
   
-
   
-
   
12,925
 
Other non-current liabilities
   
91,128
   
12,196
   
10,457
   
(68,428
)
 
45,353
 
Shareholders' equity
   
148,186
   
233,392
   
27,056
   
(260,448
)
 
148,186
 
Total liabilities and shareholders' equity
 
$
528,464
 
$
317,008
 
$
57,765
 
$
(579,716
)
$
323,521
 

20


   
Condensed Consolidating Balance Sheets
 
   
December 31, 2006
 
                       
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Cash & Cash Equivalents
 
$
-
 
$
2,507
 
$
19,556
 
$
(16,432
)
$
5,631
 
Receivables
   
44,741
   
15,014
   
5,187
   
(9,906
)
 
55,036
 
Inventories
   
57,143
   
7,323
   
5,840
   
33
   
70,339
 
Other current assets
   
14,927
   
1,549
   
1,230
   
-
   
17,706
 
Total current assets
   
116,811
   
26,393
   
31,813
   
(26,305
)
 
148,712
 
                                 
Intercompany accounts receivable
   
54,887
   
157,438
   
384
   
(212,709
)
 
-
 
Property, plant, and equipment, net
   
91,670
   
6,986
   
7,445
   
-
   
106,101
 
Intangibles
   
4,835
   
3,686
   
-
   
-
   
8,521
 
Goodwill
   
16,674
   
8,281
   
2,542
   
-
   
27,497
 
Equity investments
   
218,957
   
101,376
   
6,786
   
(320,148
)
 
6,971
 
Other assets
   
17,156
   
3,870
   
3,536
   
-
   
24,562
 
Total assets
 
$
520,990
 
$
308,030
 
$
52,506
 
$
(559,162
)
$
322,364
 
                                 
Accounts payable
 
$
30,807
 
$
18,626
 
$
4,164
 
$
(14,467
)
$
39,130
 
Other current liabilities
   
31,256
   
666
   
3,424
   
(18,950
)
 
16,396
 
Total current liabilities
   
62,063
   
19,292
   
7,588
   
(33,417
)
 
55,526
 
                                 
Intercompany accounts payable
   
146,151
   
48,611
   
10,867
   
(205,629
)
 
-
 
Long-term debt
   
74,836
   
-
   
-
   
-
   
74,836
 
Other non-current liabilities
   
90,067
   
12,292
   
9,539
   
(67,769
)
 
44,129
 
Shareholders' equity
   
147,873
   
227,835
   
24,512
   
(252,347
)
 
147,873
 
Total liabilities and shareholders' equity
 
$
520,990
 
$
308,030
 
$
52,506
 
$
(559,162
)
$
322,364
 
                                 

21

 
 
   
Condensed Consolidating Statements of Cash Flows
 
   
Three months ended March 31, 2007
 
                       
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Net cash (used in) provided by operating activities
 
$
(4,087
)
$
3,491
 
$
2,967
 
$
1,052
 
$
3,423
 
Investing activities:
                               
Property, plant and equipment expenditures
   
(1,656
)
 
(128
)
 
(181
)
 
-
   
(1,965
)
Investment from (in) affiliates
   
-
   
(60
)
 
61
   
(1
)
 
-
 
Other
   
147
   
-
   
-
   
-
   
147
 
Net cash (used in) provided by investing activities
   
(1,509
)
 
(188
)
 
(120
)
 
(1
)
 
(1,818
)
Financing activities:
                               
Net borrowings (repayments)
   
4,871
   
-
   
931
   
(4,753
)
 
1,049
 
Intercompany and equity transactions
   
4,687
   
(3,739
)
 
(1,837
)
 
889
   
-
 
Other
   
(74
)
 
(1
)
 
-
   
1
   
(74
)
Net cash provided by (used in) financing activities
   
9,484
   
(3,740
)
 
(906
)
 
(3,863
)
 
975
 
Effect of exchange rate changes on cash and cash equivalents
   
1,508
   
44
   
182
   
(1,047
)
 
687
 
Increase (decrease) in cash and cash equivalents
   
5,396
   
(393
)
 
2,123
   
(3,859
)
 
3,267
 
Cash and cash equivalents, beginning of period
   
-
   
2,507
   
19,556
   
(16,432
)
 
5,631
 
Cash and cash equivalents, end of period
 
$
5,396
 
$
2,114
 
$
21,679
 
$
(20,291
)
$
8,898
 


   
Condensed Consolidating Statements of Cash Flows
 
   
Three months ended March 31, 2006
 
                       
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
                       
Net cash (used in) provided by operating activities
 
$
(6,056
)
$
4,033
 
$
(1,559
)
$
(547
)
$
(4,129
)
Investing activities:
                               
Proceeds from divestitures
   
-
   
-
   
19,120
   
-
   
19,120
 
Property, plant and equipment expenditures
   
(2,801
)
 
(48
)
 
(244
)
 
-
   
(3,093
)
Investment from (in) affiliates
   
-
   
(98
)
 
98
   
-
   
-
 
Other
   
52
   
-
   
-
   
-
   
52
 
Net cash (used in) provided by investing activities
   
(2,749
)
 
(146
)
 
18,974
   
-
   
16,079
 
Financing activities:
                               
Net repayments
   
(10,654
)
 
(607
)
 
(80
)
 
(1,085
)
 
(12,426
)
Intercompany and equity transactions
   
5,168
   
(5,048
)
 
(120
)
 
-
   
-
 
Other