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 September 30, 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
(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 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 November 7, 2007
Common Stock, $.01 par value
  
40,472,992 shares
 
 
CALGON CARBON CORPORATION
FORM 10-Q
QUARTER ENDED September 30, 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.
 
I N D E X
 
   
Page
     
PART 1 - CONDENSED CONSOLIDATED FINANCIAL INFORMATION
    
         
Item I.
  
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
  
25
       
 
Item 3.   Quantitative and Qualitative Disclosures about Market Risk  
32
         
Item 4.
  
Controls and Procedures
  
32
       
 
PART II - OTHER INFORMATION
  
 
       
 
Item 1.
  
Legal Proceedings
  
33
       
 
Item 1a.
  
Risk Factors
  
33
       
 
Item 2c.
  
Unregistered Sales of Equity Securities and Use of Proceeds
  
33
       
 
Item 6.
  
Exhibits
  
33
       
 
SIGNATURES
  
34
       
 
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 (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 filed with the Securities and Exchange Commission by the Company in Form
10-K.

In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, and are necessary for a fair presentation, in all material respects, of financial results for the interim periods presented. Operating results for the first nine months of 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
    
Nine Months Ended
  
     
September 30, 
 
 
September 30, 
 
 
 
 
2007 
 
 
2006 
 
 
2007 
 
 
2006 
  
Net sales
  
$
81,912
  
$
77,840
  
$
249,579
  
$
229,110
  
Net sales to related parties
    
2,949
    
1,840
    
6,740
    
7,659
  
Total
    
84,861
    
79,680
    
256,319
    
236,769
  
                           
Cost of products sold
                          
(excluding depreciation and amortization)
    
57,642
    
58,897
    
175,622
    
176,270
  
Depreciation and amortization
    
4,427
    
4,719
    
13,019
    
14,311
  
Selling, general and
                          
administrative expenses
    
15,306
    
16,547
    
44,921
    
47,489
  
Research and development
                          
expenses
    
966
    
1,146
    
2,701
    
3,384
  
Gain on insurance settlement
    
-
    
(3,173
)
  
-
    
(8,072
)
Restructuring charge
    
-
    
-
    
-
    
7
  
                           
     
78,341
    
78,136
    
236,263
    
233,389
  
                           
Income from operations
    
6,520
    
1,544
    
20,056
    
3,380
  
                           
Interest income
    
455
    
233
    
1,157
    
553
  
Interest expense
    
(1,363
)
  
(1,530
)
  
(4,223
)
  
(4,628
)
Other expense—net
    
(482
)
  
(660
)
  
(1,293
)
  
(2,018
)
                           
Income (loss) from continuing operations before income taxes and equity income
    
5,130
    
(413
)
  
15,697
    
(2,713
)
                           
Provision (benefit) for income taxes
    
396
    
114
    
5,923
    
(1,156
)
                           
Income (loss) from continuing operations before equity income
    
4,734
    
(527
)
  
9,774
    
(1,557
)
                           
Equity in income from equity investments
    
310
    
31
    
1,766
    
211
  
                           
Income (loss) from continuing operations
    
5,044
    
(496
)
  
11,540
    
(1,346
)
                           
Income (loss) from discontinued operations
    
(96
)
  
38
    
(96
)
  
1,910
  
                           
Net income (loss)
  
$
4,948
  
$
(458
)
$
11,444
  
$
564
  
                           
                           
Net income (loss) per common share
                          
Basic:
                          
Income (loss) from continuing operations
  
$
.12
  
$
(.01
)
$
.28
  
$
(.03
)
Income (loss) from discontinued operations
    
-
    
-
    
-
    
.05
  
Net income (loss)
  
$
.12
  
$
(.01
)
$
.28
  
$
.01
  
                           
Diluted:
                          
Income (loss) from continuing operations
  
$
.10
  
$
(.01
)
$
.24
  
$
(.03
)
Income (loss) from discontinued operations
    
-
    
-
    
-
    
.05
  
Net income (loss)
  
$
.10
  
$
(.01
)
$
.24
  
$
.01
  
                           
Weighted average shares outstanding
                          
Basic
    
40,357,325
    
39,881,805
    
40,289,260
    
39,870,778
  
 
                          
Diluted
    
50,358,179
    
39,881,805
    
47,324,443
    
39,870,778
  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3
 
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except share data)
(Unaudited)

   
September 30,
 
December 31,
 
 
 
2007
 
2006
  
ASSETS
          
Current assets:
          
Cash and cash equivalents
  
$
19,371
  
$
5,631
  
Receivables (net of allowance of $3,113 and $1,981)
    
55,806
    
53,239
  
Receivables from related parties
    
2,351
    
1,797
  
Revenue recognized in excess of billings on uncompleted
              
contracts
    
6,454
    
7,576
  
Inventories
    
78,227
    
70,339
  
Deferred income taxes - current
    
9,902
    
5,761
  
Other current assets
    
3,713
    
4,369
  
Total current assets
    
175,824
    
148,712
  
Property, plant and equipment, net
    
103,187
    
106,101
  
Equity investments
    
9,006
    
6,971
  
Intangibles
    
8,212
    
8,521
  
Goodwill
    
27,965
    
27,497
  
Deferred income taxes - long-term
    
5,326
    
20,225
  
Other assets
    
4,401
    
4,337
  
               
Total assets
  
$
333,921
  
$
322,364
  
LIABILITIES AND SHAREHOLDERS' EQUITY
              
Current liabilities:
              
Short-term debt
  
$
63,818
  
$
-
  
Accounts payable and accrued liabilities
    
33,711
    
36,446
  
Accounts payable to related parties
    
-
    
168
  
Billings in excess of revenue recognized on uncompleted
              
contracts
    
3,961
    
2,516
  
Accrued interest
    
542
    
1,440
  
Payroll and benefits payable
    
8,704
    
6,533
  
Accrued income taxes
    
2,765
    
8,423
  
Total current liabilities
    
113,501
    
55,526
  
Long-term debt
    
12,925
    
74,836
  
Deferred income taxes - long-term
    
-
    
1,679
  
Accrued pension and other liabilities
    
46,073
    
42,450
  
               
Total liabilities
    
172,499
    
174,491
  
Commitments and contingencies (Note 7)
              
               
Shareholders' equity:
              
Common shares, $.01 par value, 100,000,000 shares
              
authorized, 42,726,577 and 42,550,290 shares issued
    
427
    
425
  
Additional paid-in capital
    
73,861
    
70,345
  
Retained earnings
    
101,878
    
94,035
  
Accumulated other comprehensive income
    
12,650
    
10,305
  
     
188,816
    
175,110
  
Treasury stock, at cost, 2,845,012 and 2,819,690 shares
    
(27,394
)
  
(27,237
)
Total shareholders' equity
    
161,422
    
147,873
  
Total liabilities and shareholders’ equity
  
$
333,921
  
$
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)

 
   
Nine Months Ended
 
 
 
September 30,
 
 
 
2007
 
2006
  
Cash flows from operating activities
          
Net income
  
$
11,444
  
$
564
  
Adjustments to reconcile net income to
              
net cash provided by (used in) operating activities:
              
Gain on insurance settlement
    
-
    
(8,072
)
Gain from divestitures
    
-
    
(6,719
)
Depreciation and amortization
    
13,019
    
14,313
  
Equity income from equity investments
    
(1,766
)
  
(211
)
Distributions received from equity investments
    
739
    
-
  
Employee benefit plan provisions
    
947
    
2,283
  
Non-cash pension curtailment (gain) loss
    
(265
)
  
788
  
Decrease in deferred income taxes
    
5,648
    
835
  
Changes in assets and liabilities:
              
Increase in receivables
    
(1,890
)
  
(81
)
Increase in inventories
    
(6,513
)
  
(3,024
)
Increase in revenue in excess of billings on
              
uncompleted contracts and other current assets
    
1,920
    
(1,772
)
Decrease in accounts payable, accrued liabilities,
              
and billings in excess of revenue
    
(2,566
)
  
(4,724
)
Decrease in accrued pension
    
(6,914
)
  
(10,588
)
Other items - net
    
3,086
    
1,327
  
Net cash provided by (used in) operating activities
    
16,889
    
(15,081
)
Cash flows from investing activities
              
Proceeds from divestitures
    
-
    
21,213
  
Property, plant and equipment expenditures
    
(7,639
)
  
(9,989
)
Proceeds from insurance settlement for plant
              
and equipment
    
-
    
4,595
  
Proceeds from disposals of property, plant and equipment
    
187
    
676
  
Net cash (used in) provided by investing activities
    
(7,452
)
  
16,495
  
               
Cash flows from financing activities
              
Proceeds from borrowings
    
6,233
    
147,105
  
Repayments of borrowings
    
(4,326
)
  
(149,337
)
Treasury stock purchases
    
(157
)
  
(108
)
Common stock issued through exercise of stock options
    
1,213
    
464
  
Net cash provided by (used in) financing activities
    
2,963
    
(1,876
)
               
Effect of exchange rate changes on cash
    
1,340
    
87
  
               
Increase (decrease) in cash and cash equivalents
    
13,740
    
(375
)
Cash and cash equivalents, beginning of period
    
5,631
    
5,446
  
Cash and cash equivalents, end of period
  
$
19,371
  
$
5,071
  
               

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

5
 
CALGON CARBON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
 
1. Inventories:
 
   
September 30, 2007
 
December 31, 2006
  
           
Raw materials
  
$
17,847
  
$
16,587
  
Finished goods
    
60,380
    
53,752
  
   
$
78,227
  
$
70,339
  

2. Supplemental Cash Flow Information:

Cash paid for interest during the nine months ended September 30, 2007 and 2006 was $5.1 million and $4.2 million, respectively. Income taxes paid, net of refunds, were $0.8 million and $0.7 million, for the nine months ended September 30, 2007 and 2006, respectively.

The non-cash vesting of restricted stock-based compensation was $0.6 million and $0.4 million for the nine months ended September 30, 2007 and 2006, respectively. The non-cash impact of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” (“FIN 48”), which was adopted January 1, 2007, was $4.3 million for the nine months ended September 30, 2007.

3. Dividends: 

The Company’s Board of Directors did not declare or pay a dividend for the three or nine month periods ended September 30, 2007 and 2006.
 
4. Comprehensive income (loss):
  
 
 
 
 
 
   
Three Months Ended    
  
Nine Months Ended    
  
   
September 30,    
  
September 30,    
  
   
 2007 
  
 2006 
  
 2007 
  
 2006 
  
Net income (loss)
  
$
4,948
  
$
(458
)
$
11,444
  
$
564
  
Other comprehensive income
                          
(loss), net of taxes
    
(333
)
  
(209
)
  
2,345
    
3,534
  
Comprehensive income (loss)
  
$
4,615
  
$
(667
)
$
13,789
  
$
4,098
  

The only matters contributing to the other comprehensive income (loss) during the three and nine months ended September 30, 2007 were the foreign currency translation adjustment of $0.1 million and $2.2 million, respectively, the changes in employee benefit accounts of $(0.3) million and $(0.3) million, respectively, and the change in the fair value of the derivative instruments of $(0.1) million and $0.4 million as described in Note 6. The only matters contributing to the other comprehensive income during the three and nine months ended September 30, 2006 were the foreign currency translation adjustment of $(0.3) million and $3.6 million, respectively, and the change in the fair value of the derivative instruments of $0.1 million and $(27) thousand, respectively.

6
 
5. Segment Information:

The Company’s management has identified three segments based on product line and associated services. Those segments include Activated Carbon and Service, Equipment, and Consumer. The Company’s chief operating decision maker, its chief executive officer, receives and reviews financial information in this format. The Activated Carbon and Service segment manufactures granular activated carbon for use in applications to remove organic compounds from liquids, gases, water, and air. This segment also consists of services related to activated carbon including reactivation of spent carbon and the leasing, monitoring, and maintenance of carbon fills at customer sites. The service portion of this segment also includes services related to the Company’s ion exchange technologies for treatment of groundwater and process streams. The Equipment segment provides solutions to customers’ gaseous and liquid process problems through the design, fabrication, and operation of systems that utilize the Company’s enabling technologies: carbon adsorption, ultraviolet light, and advanced ion exchange separation. The Consumer segment brings the Company’s purification technologies directly to the consumer in the form of products and services including carbon cloth and activated carbon for household odors. The following segment information represents the results of the Company’s continuing operations.
 
   
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2007
 
2006
 
2007
 
2006
  
Net Sales
                  
Activated Carbon and Service
  
$
72,322
  
$
67,869
  
$
215,728
  
$
200,489
  
Equipment
   
9,255
    
8,740
    
30,879
    
26,627
  
Consumer
    
3,284
    
3,071
    
9,712
    
9,653
  
   
$
84,861
  
$
79,680
  
$
256,319
  
$
236,769
  
Income (loss) from continuing operations
                          
before depreciation, amortization,
                          
restructuring, and income taxes
                          
                           
Activated Carbon and Service
  
$
10,705
  
$
6,776
  
$
32,197
  
$
20,885
  
Equipment
    
(215
)
  
(848
)
  
(955
)
  
(4,520
)
Consumer
    
457
    
335
    
1,833
    
1,333
  
     
10,947
    
6,263
    
33,075
    
17,698
  
Depreciation and amortization
                          
Activated Carbon and Service
    
4,040
    
4,409
    
11,887
    
13,309
  
Equipment
    
254
    
180
    
737
    
598
  
Consumer
    
133
    
130
    
395
    
404
  
     
4,427
    
4,719
    
13,019
    
14,311
  
Income from continuing operations
                          
before restructuring, equity in income
                          
from equity investments, and income
                          
taxes
    
6,520
    
1,544
    
20,056
    
3,387
  
                           
Reconciling items:
                          
Restructuring charge
    
-
    
-
    
-
    
(7
)
Interest income
    
455
    
233
    
1,157
    
553
  
Interest expense
    
(1,363
)
  
(1,530
)
  
(4,223
)
  
(4,628
)
Other expense - net
    
(482
)
  
(660
)
  
(1,293
)
  
(2,018
)
Consolidated income (loss) from
                          
continuing operations before
                          
income taxes and equity in income
                          
from equity investments
  
$
5,130
  
$
(413
)
$
15,697
  
$
(2,713
)
 
7

 
           
   
September 30, 2007
 
December 31, 2006
  
Total Assets
          
Activated Carbon and Service
  
$
287,906
  
$
277,134
  
Equipment
    
32,874
    
34,031
  
Consumer
    
13,141
    
11,199
  
Consolidated total assets
  
$
333,921
  
$
322,364
  
 
 
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 fourteen derivative instruments outstanding at September 30, 2007 of which one was a foreign currency swap, six 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 six of the cash flow hedges for forecasted natural gas. During the period ended September 30, 2007, the Company recorded, in other expense, an immaterial gain related to the foreign currency forward exchange contracts and an immaterial loss for the one cash flow hedge for forecasted natural gas that did not qualify for hedge accounting treatment. The Company had thirteen derivative instruments outstanding at September 30, 2006 of which one was a foreign currency swap, nine 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 the forecasted purchases of natural gas. During the period ended September 30, 2006, the Company recorded an immaterial gain in other income for the nine 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 change in the fair value of the effective hedge portion of the foreign currency swap was $27 thousand and $0.2 million, respectively, for the three and nine month periods ended September 30, 2007 and $0.4 million and $0.3 million, respectively, for the three and nine month periods ended September 30, 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 $1.0 million and $0.7 million, respectively, as of September 30, 2007 and 2006.

The change in fair value of the cash flow hedges for the forecasted purchase of natural gas recorded in other long-term liabilities was $(0.1) million and $0.2 million, net of tax, respectively, for the three and nine month periods ended September 30, 2007 and $0.5 million and $0.5 million, respectively, for the similar 2006 periods. The balance of the cash flow hedges for the forecasted purchase of natural gas recorded in other long-term liabilities was $0.6 million and $0.5 million as of September 30, 2007 and 2006, respectively.

No component of the derivatives gains or losses has been excluded from the assessment of hedge effectiveness. For the three and nine month periods ended September 30, 2007 and 2006, the net gain or loss recognized due to the amount of hedge ineffectiveness was insignificant.
 
8
 
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 September 30, 2007. On September 29, 2007, the Court denied all post-trial motions, including the defendants’ motion for a new trial and the Company’s award of prejudgment interest, which could have been awarded at the discretion of the trial judge at the rate of 6% per annum (simple) from the date the complaint was filed. The Company and the defendants have appealed 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. On April 24, 2007, the United States Circuit Court of Appeals for the Federal Circuit Court affirmed the District Court’s judgment. The Company did not 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.

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 September 30, 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 nine months ended September 30, 2006. The Company has not incurred any environmental remediation expense for the three and nine months ended September 30, 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. 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 not yet determined when it will proceed with remediation efforts.
 
9

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 information provided by the Company during and after a Multi Media Compliance Evaluation inspection of the Company’s Big Sandy Plant, located in Catlettsburg, Kentucky, conducted by the EPA and the KYDEP in September 2005, and concern the hazardous waste spent activated carbon regeneration 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 RCRA violations that are unresolved by the information in the Company’s submittals. The EPA notice indicated that the EPA is in the process of evaluating its enforcement options and hopes to contact the Company within the next several months to explore a settlement. 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 specified a monetary amount of any civil penalties it might pursue in connection with this matter. The Company is awaiting further clarification from the EPA and cannot predict with any certainty the outcome of this matter or range of potential loss, if any.

In June 2007, the Company received a Notice Letter from the New York State Department of Environmental Conservation (“NYSDEC”) stating that NYSDEC has determined that “Calgon Corporation” 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 “Calgon Corporation” (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, which is estimated to cost between approximately $11 million and $14 million. The Company has not determined what portion of the costs associated with the remedial program, if any, it would be obligated to bear and as such the Company cannot predict with any certainty the outcome of this matter or range of potential loss, if any. The Notice Letter also demands payment of all monies that NYSDEC has already expended for investigation and remediation of the Site, but does not specify the amount that NYSDEC has expended.

In July 2007, the Company received a Notice of Violation (“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 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 KYDEP’s comments which are appended to the NOV. The Company is preparing a response to the NOV and KYDEP’s comments. 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 this permit application and has until December 3, 2007 to completely respond to all deficiencies noted and to file a revised permit application. 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 September 30, 2007, Calgon Mitsubishi Chemical Corporation had $4.8 million in borrowings from an affiliate of the majority owner of the joint venture. The Company has agreed with the joint venture and the lender that, upon request by the lender, the Company will execute a guarantee for up to 49% of such borrowings. At September 30, 2007, the lender had not requested, and the Company has not provided, such guarantee.
 
10

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 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.

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 or earlier if certain indicators exist. 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 changes in the carrying amounts of goodwill by segment for the nine month period ended September 30, 2007 are as follows:
 
     
Activated 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carbon & 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service 
 
 
Equipment 
 
 
Consumer 
 
 
 
 
 
 
 
Segment 
 
 
Segment 
 
 
Segment 
 
 
Total 
  
Balance as of January 1, 2007
  
$
21,056
  
$
6,381
  
$
60
  
$
27,497
  
Foreign exchange
    
184
    
284
    
-
    
468
  
                           
Balance as of September 30, 2007
  
$
21,240
  
$
6,665
  
$
60
  
$
27,965
  
 
The following is a summary of the Company’s identifiable intangible assets as of September 30, 2007 and December 31, 2006 respectively:
 
   
 Weighted
  
September 30, 2007
  
   
 Average
  
 Gross
          
 Net
  
   
 Amortization
 
 Carrying
  
Foreign
  
Accumulated
  
 Carrying
  
   
Period
  
Amount
  
Exchange
  
Amortization
  
Amount
  
Amortized Intangible Assets:
      
 
              
Patents
    
15.4 Years
  
$
1,369
  
$
-
  
$
(856
)
$
513
  
Customer Relationships
    
17.0 Years
    
9,323
    
67
    
(4,492
)
  
4,898
  
License Agreement
    
5.0 Years
    
500
    
-
    
(391
)
  
109
  
Product Certification
    
7.9 Years
    
1,682
    
-
    
(548
)
  
1,134
  
Unpatented Technology
    
20.0 Years
    
2,875
    
-
    
(1,317
)
  
1,558
  
Total
    
16.6 Years
  
$
15,749
  
$
67
  
$
(7,604
)
$
8,212
  

11
   
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
  
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
    
16.6 Years
  
$
14,732
  
$
11
  
$
(6,222
)
$
8,521
  
 
For the three and nine months ended September 30, 2007, the Company recognized $0.5 million and $1.4 million, respectively, of amortization expense related to intangible assets. For the three and nine months ended September 30, 2006, the Company recognized $0.4 million and $1.3 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
  
 
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 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.

12
 
For the period ended September 30, 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 September 30, 2007. As a result, as of September 30, 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 September 30, 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” which was $62.4 million at September 30, 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 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 September 30, 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.

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 the period ended September 30, 2007, the Company recorded interest expense of $3.3 million, of which $0.4 million related to the amortization of the discount and $2.9 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.

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.

13
 
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 September 30, 2007, the carrying amount of assets pledged as collateral was $51.6 million. The carrying amount as of September 30, 2007 for domestic, U.K., and Belgian borrowers were $40.9 million, $6.3 million, and $4.4 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 September 30, 2007, total availability was $35.2 million. Availability as of September 30, 2007 for domestic, U.K., and Belgian borrowers was $30.1 million, $5.1 million, and zero, respectively. The Company can issue letters of credit up to $20.0 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 September 30, 2007 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 negative and affirmative covenants. For the period ended September 30, 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 September 30, 2007. As a result, as of September 30, 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 could 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 converted up to that amount will not be considered an event of default and the Company was able to classify up to that amount as long-term debt as it 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.

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 September 30, 2007 and is currently in compliance with such covenants.

Management cannot be assured that, after the September 30, 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.

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 September 30, 2007. Bank guarantees of 0.8 million Euros were issued as of September 30, 2007. The maturity date of this facility is December 15, 2007. Availability under this facility was 3.2 million Euros at September 30, 2007.

United Kingdom Credit Facility
 
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 September 30, 2007. This facility is reviewed annually. The bank, in its sole discretion, may cancel at any time its commitment to provide this facility.
 
14

Chinese Credit Facility
 
The Company 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. The maturity date of this facility is December 31, 2007. The facility was fully utilized at September 30, 2007.

Fair Value of Debt
 
At September 30, 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 September 30, 2007 was $27.6 million. The increase in value is mainly due to the increase in the Company’s common stock price and its impact on the conversion features of the Notes. The remaining $2.9 million of long-term debt is based on prime rates, and accordingly, the carrying value of this obligation approximates its fair value.

At September 30, 2007, the Company had $63.8 million of outstanding short-term debt. Substantially all of the Company’s outstanding short-term debt at September 30, 2007 consists of $65.0 million, excluding debt discount of $2.7 million, of fixed rate Senior Convertible Notes that were entered into in August 2006. The fair value of these Notes at September 30, 2007 was $179.5 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.

Maturities of Debt
 
The Company is obligated to make principal payments on debt outstanding at September 30, 2007 of $1.5 million in 2007, $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 September 30, 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 three and nine months ended September 30, 2007 and 2006:

   
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
Pension Benefits (in thousands)
 
2007
 
2006
 
2007
 
2006
  
Service cost
  
$
247
  
$
617
  
$
803
  
$
1,873
  
Interest cost
    
1,146
    
1,237
    
3,498
    
3,690
  
Expected return on plan assets
    
(1,288
)
  
(1,152
)
  
(3,746
)
  
(3,281
)
Amortization of prior service cost
    
63
    
88
    
186
    
225
  
Net amortization
    
75
    
188
    
263
    
644
  
Settlement
    
-
    
509
    
-
    
509
  
Curtailment
    
-
    
279
    
(265
)
  
279
  
Net periodic pension cost
  
$
243
  
$
1,766
  
$
739
  
$
3,939
  

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 September 30, 2007, the Company has contributed $5.4 million and does not anticipate any further contributions for the remainder of 2007.

15
 
European Plans:

For European plans, the following table provides the components of net periodic pension costs of the plans for the three and nine months ended September 30, 2007 and 2006:

   
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
Pension Benefits (in thousands)
 
2007
 
2006
 
2007
 
2006
  
Service cost
  
$
185
  
$
249
  
$
555
  
$
747
  
Interest cost
    
434
    
389
    
1,302
    
1,167
  
Expected return on plan assets
    
(324
)
  
(272
)
  
(972
)
  
(816
)
Amortization of prior service cost
    
11
    
12
    
33
    
36
  
Net amortization
    
25
    
44
    
76
    
132
  
Net periodic pension cost
  
$
331
  
$
422
  
$
994
  
$
1,266
  
 
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 September 30, 2007, the Company contributed $1.5 million. The Company expects to contribute the remaining $0.8 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 plan 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 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 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. Employer matching contributions for bargaining unit employees vest immediately. Total expenses related to the defined contribution plans for the three months ended September 30, 2007 and 2006 were $0.6 million and $0.1 million, respectively, and for the nine months ended September 30, 2007 and 2006 were $1.4 million and $0.3 million, respectively.

Effective December 31, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106 and 132[R] (“SFAS 158”). SFAS 158 required the Company to record a transition adjustment to recognize the funded status of postretirement defined benefit plans, measured as the difference between the fair value of plan assets and the benefit obligations, in its balance sheet after adjusting for derecognition of the Company’s minimum pension liability as of December 31, 2006. Although the Company adopted the provisions of SFAS 158; it incorrectly presented the effect of this transition adjustment of $5,375,000 as a reduction to 2006 comprehensive income on its Consolidated Statements of Income and Comprehensive Income (Loss) included in Item 8 of its Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 Form 10-K”). The impact of removing the SFAS 158 transition adjustment from the 2006 Consolidated Statements of Income and Comprehensive Income (Loss) changes the reported comprehensive income (loss) from $(3,935,000) to $1,440,000. The reported net loss of $(7,798,000) for 2006 and the related loss per share of $(0.20) are unaffected by this change. The Company will report the impact of removing the transition adjustment in its 2007 Form 10-K.

16
 
11. Earnings Per Share

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

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
(Dollars in thousands, except per share amounts)
 
2007
 
2006
 
2007
 
2006
  
Income (loss) from continuing operations available to common shareholders
  
$
5,044
  
$
(496
)
$
11,540
  
$
(1,346
)
Income (loss) from discontinued operations available to common shareholders
    
(96
)
  
38
    
(96
)
  
1,910
  
Net income (loss) available to common shareholders
  
$
4,948
  
$
(458
)
$
11,444
  
$
564
  
Weighted Average Shares Outstanding
                          
Basic
    
40,357,325
    
39,881,805
    
40,289,260
    
39,870,778
  
Effect of Dilutive Securities
    
10,000,854
    
-
    
7,035,183
    
-
  
Diluted
    
50,358,179
    
39,881,805
    
47,324,443
    
39,870,778
  
Net income (loss) per common share
                          
Basic:
                          
Income (loss) from continuing operations
  
$
.12
  
$
(.01
)
$
.28
  
$
(.03
)
Income (loss) from discontinued operations
    
-
    
-
    
-
    
.05
  
Net income (loss)
  
$
.12
  
$
(.01
)
$
.28
  
$
.01
  
                           
Diluted:
                          
Income (loss) from continuing operations
  
$
.10
  
$
(.01
)
$
.24
  
$
(.03
)
Income (loss) from discontinued operations
    
-
    
-
    
-
    
.05
  
Net income (loss)
  
$
.10
  
$
(.01
)
$
.24
  
$
.01
  
 
The stock options that were excluded from the dilutive calculations as the effect would have been antidilutive were 6,100 and 3,938 for the three months ended September 30, 2007 and 2006, respectively, and 6,100 and 152,318 for the nine months ended September 30, 2007 and 2006, respectively.

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 September 30, 2007, the average stock price for the 90-day trading period was $12.98 which was higher than the conversion price of $5.10 therefore 8,928,396 shares were included in the dilutive share calculation for the period of time the Notes were outstanding for the three month period ended September 30, 2007. The year-to-date dilutive effect of the Notes was calculated based on the weighted average number of incremental shares included in each quarterly diluted earnings per share computation.
 
17

 "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

Stock Price
  
Conversion Price
  
Price Difference
  
Included in
Share
Count
  
Share Dilution Per $1.00 Share 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
  
 
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.
 
18
 
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 September 30, 2007
  
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
Net sales
  
$
73,534
  
$
11,731
  
$
8,805
  
$
(9,209
)
$
84,861
  
Cost of products sold
    
52,776
   
8,486
   
5,589
   
(9,209
)
  
57,642
 
Depreciation and amortization
    
3,561
   
276
   
590
   
-
   
4,427
 
Selling, general and administrative expenses
    
12,839
   
1,388
   
1,079
    
-
   
15,306
 
Research and development expense
    
873
   
92
   
1
   
-
   
966
  
Interest (income) expense - net
    
5,277
    
(4,052
)
  
(317
)
  
-
   
908
  
Other expense - net
    
161
   
515
   
(194
)
  
-
   
482
  
Provision (benefit) for income taxes
    
(1,075
)
  
211
    
1,260
   
-
   
396
  
Results of affiliates’ operations
    
5,781
    
(163
)
  
-
    
(5,618
)
  
-
  
Equity income (loss) from equity investments
    
-
   
-
   
311
   
(1
)
  
310
 
Income (loss) from continuing operations
    
4,903
    
4,652
    
1,108
    
(5,619
)
  
5,044
  
Income (loss) from discontinued operations
    
45
   
(141
)
  
-
    
-
   
(96
)
                                 
Net income (loss)
  
$
4,948
  
$
4,511
  
$
1,108
  
$
(5,619
)
$
4,948
  

 
   
Condensed Consolidating Statements of Operations
Nine months ended September 30, 2007
  
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
Net sales
  
$
220,765
  
$
34,822
  
$
36,576
  
$
(35,844
)
$
256,319
  
Cost of products sold
    
158,338
   
26,330
   
26,798
   
(35,844
)
  
175,622
 
Depreciation and amortization
    
10,475
   
821
   
1,723
   
-
   
13,019
 
Selling, general and administrative expenses
    
38,046
   
4,012
    
2,863
    
-
   
44,921
 
Research and development expense
    
2,424
   
277
   
-
   
-
   
2,701
 
Interest (income) expense - net
    
15,783
    
(11,932
)
  
(785
)
  
-
   
3,066
 
Other expense - net
    
859
   
1,008
   
(574
)
  
-
   
1,293
  
Provision for income taxes
    
3,300
    
889
   
1,734
   
-
   
5,923
  
Results of affiliates’ operations
    
19,859
    
2,017
    
-
    
(21,876
)
  
-
  
Equity in income from equity investments
    
-
   
-
   
1,766
   
-
   
1,766
 
Income (loss) from continuing operations
    
11,399
    
15,434
    
6,583
    
(21,876
)
  
11,540
  
Income from (loss) discontinued operations
    
45
    
(141
)
  
-
    
-
    
(96
)
                                 
Net income (loss)
  
$
11,444
  
$
15,293
  
$
6,583
  
$
(21,876
)
$
11,444
  
 
19
 
   
Condensed Consolidating Statements of Operations
Three months ended September 30, 2006
  
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
Net sales
  
$
68,788
  
$
12,287
  
$
8,569
  
$
(9,964
)
$
79,680
  
Cost of products sold
    
51,297
   
10,356
   
7,208
   
(9,964
)
  
58,897
 
Depreciation and amortization
    
4,279
   
357
   
83
   
-
   
4,719
 
Selling, general and administrative expenses
    
11,254
   
1,269
   
851
   
-
   
13,374
 
Research and development expense
    
1,055
   
91
   
-
   
-
   
1,146
 
Restructuring
    
-
   
-
   
-
   
-
   
-
  
Interest (income) expense - net
    
5,260
    
(3,774
)
  
(189
)
  
-
   
1,297
 
Other expense - net
    
209
   
130
   
321
   
-
   
660
  
Provision (benefit) for income taxes
    
(733
)
  
4
   
843
   
-
   
114
  
Results of affiliates’ operations
    
(3,381
)
  
117
    
-
    
3,264
    
-
  
Equity income (loss) from equity investments
    
-
   
-
   
39
   
(8
)
  
31
 
Income (loss) from continuing operations
    
(452
)
  
3,737
    
(509
)
  
(3,272
)
  
(496
)
Income (loss) from discontinued operations
    
(6
)
  
(7
)
  
51
    
-
   
38
  
                                 
Net income (loss)
  
$
(458
)
$
3,730
  
$
(458
)
$
(3,272
)
$
(458
)
 
   
Condensed Consolidating Statements of Operations
Nine months ended September 30, 2006
  
   
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Entries
 
Consolidated
 
Net sales
  
$
208,518
  
$
33,052
  
$
32,399
  
$
(37,200
)
$
236,769
  
Cost of products sold
    
158,874
   
27,734
   
26,862
   
(37,200
)
  
176,270
 
Depreciation and amortization
    
12,928
   
1,147
   
236
   
-
   
14,311
 
Selling, general and administrative expenses
    
34,212
   
2,575
    
2,630
    
-
   
39,417
 
Research and development expense
    
3,119
   
265
   
-
   
-
   
3,384
 
Restructuring
    
7
   
-
   
-
   
-
   
7
  
Interest (income) expense - net
    
15,444
   
(10,845
)
  
(524
)
  
-
   
4,075
 
Other expense - net
    
941
   
358
   
719
   
-
   
2,018
  
Benefit for income taxes
    
(209
)
  
(35