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 June 30, 2008 or

¨ 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
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)

P.O. Box 717, Pittsburgh, PA 15230-0717
 (Address of principal executive offices)
(Zip Code)

(412) 787-6700 
(Registrant’s telephone number, including area code)
 
 
 (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 ¨

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 Securities Exchange Act of 1934).

Yes ¨ 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 July 29, 2008
Common Stock, $.01 par value
  
41,194,677 shares
 

CALGON CARBON CORPORATION
FORM 10-Q
QUARTER ENDED June 30, 2008

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

 
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
28
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk
  36
   
Item 4. Controls and Procedures
36
   
PART II - OTHER INFORMATION
  
   
Item 1. Legal Proceedings
38
   
Item 1a. Risk Factors
38
   
Item 2c. Unregistered Sales of Equity Securities and Use of Proceeds
38
   
Item 4. Submission of Matters to a Vote of Security Holders
38
   
Item 6. Exhibits
39
   
SIGNATURES
40
   
CERTIFICATIONS
41
 
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, 2007, 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 six months of 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

2

CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)

   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Net sales
  
$
106,335
  
$
86,621
  
$
193,755
  
$
167,667
  
Net sales to related parties
    
2,141
    
1,807
    
5,052
    
3,791
  
Total
   
108,476
    
88,428
    
198,807
    
171,458
  
Cost of products sold
(excluding depreciation and amortization)
    
71,021
    
59,556
    
132,786
    
117,980
  
Depreciation and amortization
    
4,199
    
4,331
    
8,125
    
8,592
  
Selling, general and administrative expenses
    
16,151
    
15,009
    
31,351
    
29,615
  
Research and development expenses
    
1,003
    
907
    
2,094
    
1,735
  
Gain on AST settlement (See Note 8)
    
-
    
-
    
(9,250
)
  
-
  
     
92,374
    
79,803
    
165,106
    
157,922
  
Income from operations
    
16,102
    
8,625
    
33,701
    
13,536
  
Interest income
    
425
    
400
    
857
    
702
  
Interest expense
    
(1,204
)
  
(1,410
)
  
(2,475
)
  
(2,860
)
Other expense—net
    
(480
)
  
(408
)
  
(570
)
  
(811
)
Income from continuing operations before income tax and equity in income (loss) from equity investments
    
14,843
    
7,207
    
31,513
    
10,567
  
Income tax provision
    
4,887
    
3,147
    
11,121
    
5,527
  
Income from continuing operations before equity in income (loss) from equity investments…
    
9,956
    
4,060
    
20,392
    
5,040
  
Equity in income (loss) from equity investments
    
(139
)
  
402
    
299
    
1,456
  
Income from continuing operations
    
9,817
    
4,462
    
20,691
    
6,496
  
Income from discontinued operations, net (See Note 1)
    
3,447
    
-
    
3,447
    
-
  
Net income
  
$
13,264
  
$
4,462
  
$
24,138
  
$
6,496
  
Net income per common share
                          
Basic:
                          
Income from continuing operations
  
$
.24
  
$
.11
  
$
.51
  
$
.16
  
Income from discontinued operations
    
.09
    
-
    
.09
    
-
  
Total
  
$
.33
  
$
.11
  
$
.60
  
$
.16
  
Diluted:
                          
Income from continuing operations
  
$
.19
  
$
.09
  
$
.40
  
$
.14
  
Income from discontinued operations
    
.06
    
-
    
.07
    
-
  
Total
  
$
.25
  
$
.09
  
$
.47
  
$
.14
  
Weighted average shares outstanding
                         
Basic
    
40,558,818
    
40,291,372
    
40,399,608
    
40,258,163
  
Diluted
    
52,024,889
    
47,745,066
    
51,890,504
    
45,807,253
  

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

3

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

   
June 30,
  
December 31,
  
   
2008
  
2007
  
ASSETS
              
Current assets:
              
Cash and cash equivalents
  
$
38,549
  
$
30,304
  
Receivables (net of allowance of $2,483 and $2,834)
    
64,556
    
55,195
  
Receivables from related parties
    
1,874
    
2,353
  
Revenue recognized in excess of billings on uncompleted contracts
    
6,549
    
7,698
  
Inventories
    
86,729
    
81,280
  
Deferred income taxes - current
    
8,684
    
9,246
  
Other current assets
    
7,994
    
3,602
  
Total current assets
    
214,935
    
189,678
  
Property, plant and equipment, net
    
112,260
    
105,512
  
Equity investments
    
8,459
    
8,593
  
Intangibles
    
6,961
    
7,760
  
Goodwill
    
27,812
    
27,845
  
Deferred income taxes - long-term
    
3,192
    
6,419
  
Other assets
    
7,443
    
2,333
  
Total assets
  
$
381,062
  
$
348,140
  
LIABILITIES AND SHAREHOLDERS' EQUITY
              
Current liabilities:
              
Accounts payable and accrued liabilities
  
$
39,837
  
$
39,436
  
Billings in excess of revenue recognized on uncompleted contracts
    
4,576
    
3,727
  
Accrued interest
    
1,444
    
1,461
  
Payroll and benefits payable
    
8,484
    
9,182
  
Accrued income taxes
    
976
    
1,944
  
Short-term debt
    
1,600
    
1,504
  
Current portion of long-term debt
    
65,744
    
62,507
  
Total current liabilities
    
122,661
    
119,761
  
Long-term debt
    
10,000
    
12,925
  
Deferred income taxes - long-term
    
1,072
    
1,361
  
Accrued pension and other liabilities
    
40,596
    
41,844
  
Total liabilities
    
174,329
    
175,891
  
Commitments and contingencies (Note 8)
              
Shareholders' equity:
              
Common shares, $.01 par value, 100,000,000 shares authorized, 43,582,678 and 43,044,318 shares issued
    
436
    
430
  
Additional paid-in capital
    
82,340
    
77,299
  
Retained earnings
    
129,074
    
104,936
  
Accumulated other comprehensive income
    
23,130
    
17,008
  
     
234,980
    
199,673
  
Treasury stock, at cost, 2,877,913 and 2,827,301 shares
    
(28,247
)
  
(27,424
)
Total shareholders' equity
    
206,733
    
172,249
  
Total liabilities and shareholders’ equity
  
$
381,062
  
$
348,140
  

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

4

CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
   
Six Months Ended
  
   
June 30,
  
   
2008
  
2007
  
Cash flows from operating activities
              
Net income
 
$
24,138
  
$
6,496
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Gain from divestiture (See Note 1)
    
(4,353
)
  
-
  
Depreciation and amortization
    
8,125
    
8,592
  
Equity in (income) loss from equity investments - net
    
101
    
(1,053
)
Employee benefit plan provisions
    
1,277
    
745
  
Stock-based compensation
    
1,534
    
1,890
  
Non-cash pension curtailment gain
    
-
    
(265
)
Deferred income tax
    
3,483
    
4,429
  
Changes in assets and liabilities:
              
Increase in receivables
    
(7,654
)
  
(6,010
)
Increase in inventories
    
(3,741
)
  
(651
)
(Increase) decrease in revenue in excess of billings on uncompleted contracts and other current assets
    
(760
)
  
1,131
  
(Decrease) increase in accounts payable and accrued liabilities
    
(551
)
  
2,128
  
Increase (decrease) in accrued income taxes
    
648
    
(1,762
)
Pension contributions
   
(4,673
)
  
(1,890
)
Other items - net
    
558
    
(1,306
)
Net cash provided by operating activities
    
18,132
    
12,474
  
Cash flows from investing activities
              
Property, plant and equipment expenditures
    
(11,802
)
  
(4,451
)
Proceeds from disposals of property, plant and equipment
    
331
    
162
  
Net cash used in investing activities
    
(11,471
)
  
(4,289
)
Cash flows from financing activities
              
Proceeds from borrowings
    
-
    
5,933
  
Repayments of borrowings
    
-
    
(4,195
)
Treasury stock purchases
    
(823
)
  
(157
)
Common stock issued through exercise of stock options
    
2,543
    
708
  
Excess tax benefit from stock-based compensation
    
970
    
-
  
Net cash provided by financing activities
    
2,690
    
2,289
  
Effect of exchange rate changes on cash
    
(1,106
)
  
523
  
Increase in cash and cash equivalents
    
8,245
    
10,997
  
Cash and cash equivalents, beginning of period
    
30,304
    
5,631
  
Cash and cash equivalents, end of period
  
$
38,549
  
$
16,628
  

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.
Discontinued Operations

On February 17, 2006, Calgon Carbon Corporation, 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 the additional consideration as an additional pre-tax gain on sale of $4.4 million or $3.5 million, net of tax, within discontinued operations for the period ended June 30, 2008.

2.
Inventories:

   
June 30, 2008
  
December 31, 2007
  
Raw materials
  
$
23,235
  
$
22,321
  
Finished goods
    
63,494
    
58,959
  
   
$
86,729
  
$
81,280
  

3.
Supplemental Cash Flow Information:

Cash paid for interest during the six months ended June 30, 2008 and 2007 was $2.3 million and $2.7 million, respectively. Income taxes paid, net of refunds, was $7.6 million and $0.7 million, for the six months ended June 30, 2008 and 2007, respectively.

The non-cash impact of the January 1, 2007 adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” (“FIN 48”) was $4.3 million for the six months ended June 30, 2007.

4.
Dividends:

The Company’s Board of Directors did not declare or pay a dividend for the three or six month periods ended June 30, 2008 and 2007.
 
5.
Comprehensive income:

   
Three Months Ended June 30,
  
Six Months Ended June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Net income
  
$
13,264
  
$
4,462
  
$
24,138
  
$
6,496
  
Other comprehensive income, net of taxes
   
2,222
    
916
    
6,122
    
2,678
  
Comprehensive income
  
$
15,486
  
$
5,378
  
$
30,260
  
$
9,174
  

6

The only matters contributing to the other comprehensive income during the three and six months ended  June 30, 2008 was the foreign currency translation adjustment of $0.7 million and $4.1 million, respectively; the changes in employee benefit accounts of $0.1 million and $0.2 million, respectively; and the change in the fair value of the derivative instruments of $1.4 million and $1.8 million, respectively, as described in Note 7. The only matters contributing to the other comprehensive income during the three and six months ended  June 30, 2007 was the foreign currency translation adjustment of $0.9 million and $2.1 million, respectively, and the change in the fair value of the derivative instruments of $(14) thousand and $0.5 million, respectively, as described in Note 7.

6.
Segment Information:

The Company’s management has identified three segments based on product line and associated services. Those segments include Activated Carbon and Service, Equipment, and Consumer. The Company’s chief operating decision maker, its chief executive officer, receives and reviews financial information in this format. The Activated Carbon and Service segment manufactures granular activated carbon for use in applications to remove organic compounds from liquids, gases, water, and air. This segment also consists of services related to activated carbon including reactivation of spent carbon and the leasing, monitoring, and maintenance of carbon fills at customer sites. The service portion of this segment also includes services related to the Company’s ion exchange technologies for treatment of groundwater and process streams. The Equipment segment provides solutions to customers’ air and liquid process problems through the design, fabrication, and operation of systems that utilize the Company’s enabling technologies: carbon adsorption, ultraviolet light, and advanced ion exchange separation. The Consumer segment brings the Company’s purification technologies directly to the consumer in the form of products and services including carbon cloth and activated carbon for household odors. The following segment information represents the results of the Company’s continuing operations:

   
Three Months Ended
  
Six Months Ended
  
   
June 30,
  
June 30,
  
   
2008
  
2007
  
2008
  
2007
  
Net Sales
                          
Activated Carbon and Service
  
$
95,284
  
$
74,723
  
$
172,182
  
$
143,406
  
Equipment
    
10,742
    
10,658
    
20,439
    
21,624
  
Consumer
   
2,450
    
3,047
    
6,186
    
6,428
  
   
$
108,476
  
$
88,428
  
$
198,807
  
$
171,458
  
Income (loss) from continuing operations before depreciation and amortization
                          
Activated Carbon and Service
  
$
19,766
  
$
13,015
  
$
37,142
  
$
21,488
  
Equipment
    
519
    
(607
)
  
3,962
    
(736
)
Consumer
   
16
    
548
    
722
    
1,376
  
     
20,301
    
12,956
    
41,826
    
22,128
  
Depreciation and amortization
                          
Activated Carbon and Service
    
3,793
    
3,959
    
7,276
    
7,847
  
Equipment
    
280
    
243
    
598
    
483
  
Consumer
   
126
    
129
    
251
    
262
  
     
4,199
    
4,331
    
8,125
    
8,592
  
                           
Income from operations
    
16,102
    
8,625
    
33,701
    
13,536
  
                           
Reconciling items:
                          
Interest income
    
425
    
400
    
857
    
702
  
Interest expense
    
(1,204
)
  
(1,410
)
  
(2,475
)
  
(2,860
)
Other expense - net
    
(480
)
  
(408
)
  
(570
)
  
(811
)
Consolidated income from continuing operations before income tax and equity in income (loss) from equity investments
  
$
14,843
  
$
7,207
  
$
31,513
  
$
10,567
  
 
7

   
June 30, 2008
 
December 31, 2007
  
Total Assets
              
Activated Carbon and Service
  
$
324,699
  
$
302,432
  
Equipment
    
40,345
   
32,046
  
Consumer
   
16,018
    
13,662
  
Consolidated total assets
  
$
381,062
  
$
348,140
  

7.
Derivative Instruments

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

The Company’s corporate and foreign subsidiaries use foreign currency 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 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 June 30, 2008, the Company had eighty-nine derivative instruments outstanding of which one was a foreign currency swap, fifty-two were hedges utilizing foreign currency forward exchange contracts, twenty-eight were cash flow hedges utilizing foreign currency option contracts for forecasted inventory purchases, and eight were cash flow hedges utilizing forward contracts for forecasted purchases of natural gas. The Company applied hedge accounting treatment for forty-seven of the foreign currency forward exchange contracts, the twenty-eight foreign currency option contracts, the foreign currency swap, and the eight cash flow hedges for forecasted natural gas purchases. The aforementioned forty-seven foreign currency forward exchange contracts and twenty-eight option contracts were treated as foreign cash flow hedges regarding payment for inventory purchases and will be released into operations during the year based on the timing of the sales of the underlying inventory. Accordingly, the change in fair value of these contracts of $(0.3) million was recorded in other comprehensive income (loss). The Company did not apply hedge accounting treatment for the remaining five foreign currency forward exchange contracts and recorded an immaterial gain in other income. The change in fair value of the effective hedge portion of the cash flow hedges for the forecasted natural gas purchases recorded in other comprehensive income (loss) was $1.1 million and $2.0 million, net of tax, respectively, for the three and six month periods ended June 30, 2008 and $(0.1) million and $0.4 million, net of tax, respectively, for the three and six month periods ended June 30, 2007. The balance of the cash flow hedges for forecasted natural gas purchases recorded in other current assets, other assets, and other long-term liabilities was $2.2 million, $0.8 million, and $12 thousand, respectively, as of June 30, 2008 and $0.3 million recorded in other long-term liabilities as of June 30, 2007.

The Company had sixteen derivative instruments outstanding at June 30, 2007 of which one was a foreign currency swap, eight were foreign currency forward exchange contracts, and seven were cash flow hedges for forecasted purchases of natural gas. The Company applied hedge accounting treatment to the foreign currency swap and the seven cash flow hedges for forecasted natural gas. During the period ended June 30, 2007, the Company recorded an immaterial loss in other expense related to the foreign currency forward exchange contracts that did not qualify for hedge accounting treatment.

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 changes in the fair value of the effective hedge portion of the foreign currency swap of $4 thousand and $0.1 million, respectively, for the three and sixth month periods ended June 30, 2008 and $0.1 million and $0.2 million, respectively, for the three and six month periods ended June 30, 2007 was recorded in other comprehensive income. The balance of the foreign currency swap recorded in other long-term liabilities was $0.6 million and $0.9 million, respectively, as of June 30, 2008 and 2007.

8

No component of the derivative gains or losses has been excluded from the assessment of hedge effectiveness. For the three and six month periods ended June 30, 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.

8.
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, 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 during the periods ended June 30, 2008 and 2007. 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 that it will proceed with remediation efforts in 2008.

9

Following litigation with Trojan Technologies, Inc. (“Trojan”) 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 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. Oral argument is scheduled in this case for September 2008. 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.

In January 2007, the Company received a Notice of Violation (“NOV”) from the United States Environmental Protection Agency, Region 4 (“EPA”) alleging multiple violations of the Federal Resource Conservation and Recovery Act and corresponding EPA and Kentucky Department of Environmental Protection (“KYDEP”) hazardous waste management rules and regulations. The alleged violations are based on findings during a Multi Media Compliance inspection of the Company’s Big Sandy Plant, located in Catlettsburg, Kentucky, conducted by the EPA and the KYDEP in September 2005. The alleged violations mostly concerned the hazardous waste spent activated carbon reactivation facility located at the Big Sandy Plant. The Company submitted its initial written response to the NOV in June 2007. In August 2007, the EPA notified the Company that it believes there are significant violations of the Resource Conservation and Recovery Act (“RCRA”) that are unresolved by the information in the Company’s submittals. The Company met with the EPA in December 2007 to discuss alleged violations. The EPA requested additional information which the Company provided. The EPA can take formal enforcement action to require the Company to remediate alleged violations, which could involve the assessment of substantial civil penalties as well. 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 Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) pursuant to the CERCLA Off-Site Rule. The CERCLA Off-Site Rule unacceptability determination applies only to materials from CERCLA regulated response actions, and if it goes into effect, it would not prohibit the Big Sandy Plant from receiving hazardous waste spent carbons from other sources. 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 inspection, and are the same as alleged in the January 2007 NOV described in the preceding paragraph. The Notice is dated July 3, 2008 and the Company has 60 days from that date 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 EPA has scheduled a conference with the Company on August 25, 2008. The Company will be submitting a written response to the Notice prior to the conference. The Company has also requested an extension of the 60 day period before the unacceptability determination goes into effect due to the late delivery of the Notice and the late date of the conference with the EPA. The EPA has not yet responded to this request. The Company believes that the indefinite suspension or termination of its ability to receive and reactivate spent carbon from CERCLA sites will not have a material adverse effect on its financial position or results of operations.

10

In June 2007, the Company received a Notice Letter from the New York State Department of Environmental Conservation (“NYSDEC”) stating that the NYSDEC has 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, therefore the Company cannot predict with any certainty the outcome of this matter or range of potential loss. The Company has joined a PRP group formed to address this issue and the group is currently seeking a Consent Order with the NYSDEC on the clean up activity and approach. The Notice Letter also demands payment of all monies that the NYSDEC has already expended for investigation and remediation of the Site, but does not specify the amount that the NYSDEC has expended. The Company, as part of the PRP group, is negotiating a consent order with the NYSDEC for a supplemental investigation at the Site to collect data for the design of the soil remediation and to further characterize ground water conditions at the Site.

In July 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 directs the Company to submit a complete and accurate Part B application and related documents and to respond to the KYDEP’s comments which are appended to the NOV. The Company submitted a revised Part B application and responded to the KYDEP’s comments in December 2007 as required by the NOV. 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. On October 18, 2007, the Company received an NOV from the EPA related to specific sections of this permit application and submitted a revised application to the EPA within the mandated timeframe. At this time the Company cannot predict with any certainty the outcome of this matter or range of loss, if any.

The Company owns a 49% interest in a joint venture, Calgon Mitsubishi Chemical Corporation, which was formed on October 1, 2002. At June 30, 2008, Calgon Mitsubishi Chemical Corporation had $7.7 million in borrowings from an affiliate of the majority owner of the joint venture. The Company has agreed with the joint venture and the lender that, upon request by the lender, the Company will execute a guarantee for up to 49% of such borrowings. At June 30, 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.

9.
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 or earlier if a potential impairment indicator occurs. 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.

11

The changes in the carrying amounts of goodwill by segment for the six month period ended June 30, 2008 are as follows:
 
   
Activated
 
 
 
 
 
 
 
 
 
Carbon &
 
 
 
 
 
 
 
 
 
Service
 
Equipment
 
Consumer
 
 
 
 
 
Segment
 
Segment 
 
Segment
 
Total
 
Balance as of January 1, 2008
  
$
21,112
  
$
6,673
  
$
60
  
$
27,845
  
Foreign exchange
    
18
    
(51
)
  
-
   
(33
)
Balance as of June 30, 2008
  
$
21,130
  
$
6,622
  
$
60
  
$
27,812
  

The following is a summary of the Company’s identifiable intangible assets as of June 30, 2008 and December 31, 2007 respectively:
  
   
June 30, 2008
  
   
Weighted Average
  
Gross Carrying
  
Foreign
  
Accumulated
  
Net Carrying
  
   
Amortization Period
  
Amount
  
Exchange
  
Amortization
  
Amount
  
Amortized Intangible Assets:
                                
Patents
  
 
15.4 Years
  
$
1,369
  
$
-
 
$
(918
)
$ 
451
Customer Relationships
    
17.0 Years
    
9,323
    
37
    
(5,242
)
  
4,118
  
License Agreement
    
5.0 Years
    
500
    
-
    
(466
)
  
34
  
Product Certification
    
7.9 Years
    
1,682
    
-
    
(759
)
  
923
  
Unpatented Technology
    
20.0 Years
    
2,875
    
-
    
(1,440
)
  
1,435
  
Total
    
16.0 Years
  
$
15,749
  
$
37
  
$
(8,825
)
$
6,961
  


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

For the three and six months ended June 30, 2008, the Company recognized $0.4 million and $0.8 million, respectively, of amortization expense related to intangible assets. For the three and six months ended June 30, 2007, the Company recognized $0.5 million and $0.9 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:
        
2008
  
$
1,571
  
2009
    
1,299
  
2010
    
1,155
  
2011
    
847
  
2012
      
257
  


12

10.
Borrowing Arrangements

5.00% Convertible Senior Notes due in 2036

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

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

For the periods ended June 30, 2008 and December 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 June 30, 2008 and December 31, 2007. As a result, as of June 30, 2008 and December 31, 2007, the holders of the Notes have the right to convert the Notes into cash and shares of common stock. The Company is required to reclassify as a current liability, that portion of the Notes that can not be refinanced on a long-term basis under the Company’s Credit Facility as provided for by SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced,” which was $65.0 million at June 30, 2008 and December 31, 2007.

The initial conversion rate is 196.0784 shares of the Company’s common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $5.10 per share of common stock. The conversion rate is subject to adjustment in some events, including the payment of a dividend on the Company’s common stock, but will not be adjusted for accrued interest, including any additional interest. In addition, following certain fundamental changes (principally related to changes in control) that occur prior to August 15, 2011, the Company will increase the conversion rate for holders who elect to convert Notes in connection with such fundamental changes in certain circumstances. The Company considered EITF 00-27 issue 7 which indicates that if a reset of the conversion rate due to a contingent event occurs the Company would need to calculate if there is a beneficial conversion and record if applicable. Through June 30, 2008, 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.

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.

13

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. As of the six month period ended June 30, 2008, the Company recorded interest expense of $2.2 million, of which $1.9 million related to the Notes and $0.3 million related to the amortization of the discount. The Company incurred issuance costs of $1.5 million which have been deferred and are being amortized over a five year period.

Credit Facility

The Credit Facility permits borrowings in an amount up to $55.0 million and includes a separate U.K. sub-facility and a separate Belgian sub-facility. The 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 June 30, 2008, the collateral value of assets pledged was $57.1 million. The collateral value as of June 30, 2008 for domestic, U.K., and Belgian borrowers were $45.7 million, $5.9 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 June 30, 2008, total availability was $38.6 million. Availability as of June 30, 2008 for domestic, U.K., and Belgian borrowers was $34.6 million, $4.0 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 June 30, 2008 totaled $16.4 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 Credit Facility contains a number of affirmative and negative covenants. For the period ended June 30, 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 June 30, 2008. As a result, as of June 30, 2008, the holders of the Notes have the right to convert the Notes into cash and shares of common stock. The conversion of the Notes by the holders in excess of $10.0 million would be an event of default of the Credit Facility. Included in the Credit Facility, is a provision for up to $10.0 million where Notes can be converted up to that amount and classified as long-term debt as the Company has the ability and intent to refinance it under the Credit Facility. The Credit Facility 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.

14

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 June 30, 2008.

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. There are no financial covenants, and the Company had no outstanding borrowings under the Belgian credit facility as of June 30, 2008. Bank guarantees of 0.9 million Euros were issued as of June 30, 2008. The maturity date of this facility is December 15, 2008. Availability under this facility was 3.1 million Euros at June 30, 2008.

United Kingdom Credit Facility
The Company maintains a United Kingdom unsecured bonds, guarantees, and indemnities facility totaling 616,000 British Pound Sterling. The bank, in its sole discretion, may cancel at any time its commitment to provide this facility. Bank guarantees of 611,924 British Pound Sterling were issued as of June 30, 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 26, 2008. The facility was fully utilized at June 30, 2008.

Fair Value of Debt
At June 30, 2008, the Company had $75.0 million of fixed rate Senior Convertible Notes outstanding ($65.0 million classified as current). The fair value of these Notes at June 30, 2008 was $227.5 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 June 30, 2008 of $1.6 million in 2008, $2.9 million in 2009, and $75.0 million in 2011. See also the section entitled 5.00% Convertible Senior Notes due 2036 related to the holders’ optional conversion as of June 30, 2008 and December 31, 2007.

15

11.
Pensions

U.S. Plans:

For U.S. plans, the following table provides the components of net periodic pension costs of the plans for the three and six months ended June 30, 2008 and 2007:

   
Three Months Ended June 30
  
Six Months Ended June 30
  
Pension Benefits (in thousands)
  
2008
  
2007
  
2008
  
2007
  
Service cost
  
$
261
  
$
234
  
$
517
  
$
556
  
Interest cost
    
1,226
    
1,178
    
2,398
    
2,352
  
Expected return on plan assets
    
(1,342
)
  
(1,229
)
  
(2,696
)
  
(2,458
)
Amortization of prior service cost
    
60
    
62
    
121
    
123
  
Net amortization
    
118
    
119
    
192
    
188
  
Curtailment credit
    
-
    
(265
)
  
-
    
(265
)
Net periodic pension cost
  
$
323
  
$
99
  
$
532
  
$
496
  

The expected long-term rate of return on plan assets is 8.00% in 2008.

Employer Contributions

In its 2007 financial statements, the Company disclosed that it expected to contribute $3.7 million to its U.S. pension plans in 2008. As of June 30, 2008, the Company has contributed $3.6 million and expects to contribute $0.4 million over the remainder of the year.

Employee Relations

On July 21, 2008, the Company settled its disagreements with bargaining unit employees at its Neville Island facility located in Pittsburgh, Pennsylvania. The new agreement, which expires on July 1, 2011, includes the freezing of the defined benefit pension plan for these employees effective January 1, 2009. The Company expects to record a curtailment loss of approximately $0.3 million in the third quarter of 2008.

European Plans:

For European plans, the following table provides the components of net periodic pension costs of the plans for the three and six months ended June 30, 2008 and 2007:

   
Three Months Ended June 30
  
Six Months Ended June 30
  
Pension Benefits (in thousands)
  
2008
  
2007
  
2008
  
2007
  
Service cost
  
$
203
  
$
189
  
$
406
  
$
370
  
Interest cost
    
514
    
442
    
1,028
    
868
  
Expected return on plan assets
    
(387
)
  
(328
)
  
(774
)
  
(648
)
Amortization of prior service cost
    
12
    
11
    
24
    
22
  
Net amortization
    
8
    
26
    
16
    
51
  
Net periodic pension cost
  
$
350
  
$
340
  
$
700
  
$
663
  

The expected long-term rate of return on plan assets ranges from 5.00% to 6.90% in 2008.

Employer Contributions

In its 2007 financial statements, the Company disclosed that it expected to contribute $2.5 million to its European pension plans in 2008. As of June 30, 2008, the Company contributed $1.1 million. The Company expects to contribute the remaining $1.4 million over the remainder of the year.

16

Defined Contribution Plans

The Company also sponsors a defined contribution pension plan for certain U.S. employees that permits employee contributions of up to 50% of eligible compensation in accordance with Internal Revenue Service guidance. Under this defined contribution plan, the Company makes a fixed contribution of 2% of eligible employee compensation on a quarterly basis and matches contributions made by each participant in an amount equal to 100% of the employee contribution up to a maximum of 2% of employee compensation. In addition, each of these employees is eligible for an additional discretionary Company contribution of up to 4% of employee compensation based upon annual Company performance at the discretion of the Company’s Board of Directors. Employer matching contributions for non-represented employees vest after two years of service. For bargaining unit employees at the Catlettsburg, Kentucky facility, the Company contributes a maximum of $25.00 per month to the plan. For bargaining unit employees at the Columbus, Ohio facility, the Company 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. Total expenses related to the defined contribution plans were $0.5 million and $0.3 million for the three months ended June 30, 2008 and 2007, respectively and $1.1 million and $0.8 million for the six months ended June 30, 2008 and 2007, respectively.

17

12. Earnings Per Share

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

   
Three Months Ended June 30,
  
Six Months Ended June 30,
  
(Dollars in thousands, except per share amounts)
  
2008
  
2007
  
2008
  
2007
  
Income from continuing operations available to common shareholders
  
$
9,817
  
$
4,462
  
$
20,691
  
$
6,496
  
Income from discontinued operations available to common shareholders
    
3,447
    
-
    
3,447
    
-
  
Net income available to common shareholders
  
$
13,264
  
$
4,462
  
$
24,138
  
$
6,496
  
Weighted Average Shares Outstanding
                          
Basic
   
40,558,818
    
40,291,372
    
40,399,608
    
40,258,163
  
Effect of Dilutive Securities
    
11,466,071
    
7,453,694
    
11,490,896
    
5,549,090
  
Diluted
    
52,024,889
    
47,745,066
    
51,890,504
    
45,807,253
  
Net income per common share
                          
Basic:
                          
Income from continuing operations
  
$
.24
  
$
.11
  
$
.51
  
$
.16
  
Income from discontinued operations
    
.09
    
-
    
.09
    
-
  
Total
  
$
.33
  
$
.11
  
$
.60
  
$
.16
  
                           
Diluted:
                          
Income from continuing operations
  
$
.19
  
$
.09
  
$
.40
  
$
.14
  
   
.06
    
-
    
.07
    
-
  
Total
  
$
.25
  
$
.09
  
$
.47
  
$
.14
  

The stock options that were excluded from the dilutive calculations as the effect would have been antidilutive were 80,625 and 6,100 for the three months ended June 30, 2008 and 2007, respectively, and 80,625 and 166,684 for the six months ended June 30, 2008 and 2007, respectively.

The Company’s obligation under its Notes is to settle the par value of the Notes in cash and to settle the amount in excess of par value 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 June 30, 2008, the average stock price for the 90-day trading period was $16.57, which was higher than the
conversion price of $5.10 therefore 10,083,943 shares were included in the dilutive share calculation for the period of time the Notes were outstanding for the period ended June 30, 2008.

18

"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 created
 
=((Stock Price * Underlying Shares) - Principal)/Stock Price
   
Condition:
Only applies when share price exceeds $5.10

           
Included in
  
Share Dilution
 
Stock
  
Conversion
  
Price
  
Share
  
Per $1.00 Share
 
Price
  
Price
  
Difference
  
Count
  
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
 
$
13.10
  
$
5.10
  
$
8.00
    
8,980,689
   
1,122,586
 
$
14.10
  
$
5.10
  
$
9.00
    
9,386,731
   
1,042,970
 
$
15.10
  
$
5.10
  
$
10.00
    
9,738,993
   
973,899
 
$
16.10
  
$
5.10
  
$
11.00
    
10,047,495
   
913,409
 
$
17.10
  
$
5.10
  
$
12.00
    
10,319,915
   
859,993
 
$
18.10
  
$
5.10
  
$
13.00
    
10,562,234
   
812,480
 
$
19.10
  
$
5.10
  
$
14.00
    
10,779,178
   
769,941
 
$
20.10
  
$
5.10
  
$
15.00
    
10,974,537
   
731,636
 
 
19
 
13.
Other Financial Information

As described in Note 10, 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 June 30, 2008
  
   
Issuer 
  
Guarantor
Subsidiaries 
  
Non-Guarantor
Subsidiaries 
  
Consolidating
and Eliminating
Entries 
  
Consolidated 
  
                                 
Net sales
  
$
102,896
  
$
12,595
  
$
14,310
  
$
(21,325
)
$
108,476
  
Cost of products sold
    
71,227
   
9,510
   
11,609
    
(21,325
)
  
71,021
 
Depreciation and amortization
    
3,519
   
491
    
189
   
-
   
4,199
 
Selling, general and administrative expenses
    
13,709
   
1,372
    
1,070
   
-
   
16,151
 
Research and development expense
    
883
   
120
   
-
   
-
   
1,003
 
Interest (income) expense - net
   
4,351
   
(3,333
)
  
(239
)
  
-
    
779
  
Other expense - net
   
41
    
248
    
191
    
-
    
480
 
Provision for income taxes
    
4,322
    
189
    
376
    
-
    
4,887
  
Results of affiliates’ operations
    
8,420
    
910
    
-
    
(9,330
)
  
-
  
Equity loss from equity investments
    
-
    
-
   
(137
)
  
(2
)
  
(139
)
Income (loss) from continuing operations
    
13,264
    
4,908
    
977
    
(9,332
)
  
9,817
  
Income from discontinued operations
    
-
    
-
    
3,447
    
-
    
3,447
  
                                 
Net income (loss)
  
$
13,264
  
$
4,908
  
$
4,424
  
$
(9,332
)
$
13,264
  

20

   
Condensed Consolidating Statements of Operations
Six months ended June 30, 2008
  
   
Issuer 
  
Guarantor
Subsidiaries 
  
Non-Guarantor
Subsidiaries 
  
Consolidating
and Eliminating
Entries 
  
Consolidated 
  
                                 
Net sales
  
$
183,456
  
$
23,889
  
$
25,277
  
$
(33,815
)
$
198,807
  
Cost of products sold
    
127,685
   
17,847
   
21,069
   
(33,815
)
  
132,786
 
Depreciation and amortization
    
6,923
   
832
    
370
    
-
   
8,125
 
Selling, general and administrative expenses
    
26,629
   
2,610
   
2,112
   
-
   
31,351
 
Research and development expense
    
1,875
   
219
   
-
   
-
   
2,094
 
Gain on AST Settlement
    
(9,250
)
  
-
    
-
    
-
    
(9,250
)
Interest (income) expense - net
   
8,888
   
(6,838
)
  
(432
)
  
-
    
1,618
 
Other (income) expense - net
   
(73
)
  
443
    
200
    
-
    
570
 
Provision for income taxes
    
10,207
    
465
    
449
    
-
    
11,121
  
Results of affiliates’ operations
    
13,566
    
1,465
    
-
    
(15,031
)
  
-
  
Equity in income from equity investments
    
-
    
-
   
299
    
-
    
299
  
Income (loss) from continuing operations
    
24,138
    
9,776
    
1,808
    
(15,031
)
  
20,691
  
Income from discontinued operations
    
-
    
-
    
3,447
    
-
    
3,447
  
                                 
Net income (loss)
  
$
24,138
  
$
9,776
  
$
5,255
  
$
(15,031
)
$
24,138
  

   
Condensed Consolidating Statements of Operations
Three months ended June 30, 2007
  
   
Issuer 
  
Guarantor
Subsidiaries 
  
Non-Guarantor
Subsidiaries 
  
Consolidating
and Eliminating
Entries 
  
Consolidated 
  
                                 
Net sales
  
$
78,340
  
$
11,205
  
$
7,239
  
$
(8,356
)
$
88,428
  
Cost of products sold
    
55,818
   
8,148
   
3,946
   
(8,356
)
  
59,556
 
Depreciation and amortization
    
3,487
   
269
    
575
   
-
   
4,331
 
Selling, general and administrative expenses
    
12,616
   
1,318
   
1,075
   
-
   
15,009
 
Research and development expense
    
815
   
93
   
(1
)
  
-
   
907
 
Interest (income) expense - net
   
5,231
   
(3,984
)
  
(237
)
  
-
    
1,010
 
Other (income) expense - net
   
368
    
257
    
(217
)
  
-
    
408
 
Provision (benefit) for income taxes
    
2,766
    
609
    
(228
)
  
-
    
3,147
  
Results of affiliates’ operations
    
7,223
    
1,278
    
-
    
(8,501
)
  
-
  
Equity in income (loss) from equity investments
    
-
    
-
   
406
    
(4
)
  
402
  
                                 
Net income (loss)
  
$
4,462
  
$
5,773
  
$
2,732
  
$
(8,505
)
$
4,462
  

   
Condensed Consolidating Statements of Operations
Six months ended June 30, 2007
  
   
Issuer 
  
Guarantor
Subsidiaries 
  
Non-Guarantor
Subsidiaries 
  
Consolidating
and Eliminating
Entries 
  
Consolidated 
  
                                 
Net sales
  
$
151,053
  
$
23,091
  
$
16,971
  
$
(19,657
)
$
171,458
  
Cost of products sold
    
109,384
   
17,843
   
10,410
   
(19,657
)
  
117,980
 
Depreciation and amortization
    
6,914
   
546
    
1,132
   
-
   
8,592
 
Selling, general and administrative expenses
    
25,207
   
2,623
   
1,785
   
-
   
29,615
 
Research and development expense
    
1,551
   
184
   
-
   
-
   
1,735
 
Interest (income) expense - net
   
10,507
   
(7,879
)
  
(470
)
  
-
    
2,158
 
Other (income) expense - net
   
698
    
492
    
(379
)
  
-
    
811
 
Provision for income taxes
    
4,375
    
678
    
474
    
-
    
5,527
  
Results of affiliates’ operations
    
14,079
    
2,181
    
-
    
(16,260
)
  
-
  
Equity in income from equity investments
    
-
    
-
   
1,455
    
1
    
1,456
  
                                 
Net income (loss)
  
$
6,496
  
$
10,785
  
$
5,474
  
$
(16,259
)
$
6,496
  

21

   
Condensed Consolidating Balance Sheets 
  
   
June 30, 2008 
  
                       
   
Issuer 
  
Guarantor
Subsidiaries 
  
Non-Guarantor
Subsidiaries 
  
Consolidating
and Eliminating
Entries 
  
Consolidated 
  
                                 
Cash & Cash Equivalents
  
$
26,301
  
$
3,059
  
$
23,978
  
$
(14,789
)
$
38,549
  
Receivables
    
55,008
   
15,986
   
5,240
   
(9,804
)
  
66,430
 
Inventories
    
68,503
   
8,418
   
9,747
   
61
    
86,729
 
Other current assets
    
18,952
   
2,146
   
2,129
   
-
   
23,227
 
Total current assets
    
168,764
   
29,609
   
41,094
   
(24,532
)
  
214,935
 
                                 
Intercompany accounts receivable
    
56,168
   
183,962
    
1,657
   
(241,787
)
  
-
 
Property, plant, and equipment, net
    
97,195
   
6,991
   
8,074
   
-
   
112,260
 
Intangibles
    
4,027
   
2,934
   
-
   
-
   
6,961
 
Goodwill
    
16,674
   
8,354
   
2,784
   
-
   
27,812
 
Equity investments
    
261,371
   
103,656
   
9,412
   
(365,980
)
  
8,459
 
Other assets
    
4,182
   
1,353
   
5,100
   
-
    
10,635
 
Total assets
  
$
608,381
  
$
336,859
  
$
68,121
  
$
(632,299
)
$
381,062
  
                                 
Short-term debt
  
$
-
  
$
-
  
$
1,600
  
$
-
  
$
1,600
  
Current portion of long-term debt
    
65,744
    
-
    
-
    
-
    
65,744
  
Accounts payable
    
34,139
    
19,411
    
4,312
    
(13,449
)
  
44,413
  
Other current liabilities