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

Results of Operations

Continuing Operations

Consolidated net sales decreased by $5.4 million or 5.0% and $5.1 million or 2.6% for the quarter and year-to-date periods ended June 30, 2009, respectively, versus the quarter and year to date periods ended June 30, 2008. Net sales for the quarter and year-to-date periods ended June 30, 2009 for the Activated Carbon and Service segment decreased $5.9 million or 6.2% and $5.0 million or 2.9%, respectively, versus the similar 2008 periods. The decline in sales for the quarter and year-to-date periods ended June 30, 2009 was primarily the result of reduced sales volume and foreign currency translation partially offset by favorable carbon product pricing. The sales volume decline experienced during the quarter and year-to-date periods ended June 30, 2009, was 17.6% and 15.4%, respectively, as compared to the similar 2008 periods as a result of the global economic slowdown. The volume descreases were primarily in the potable water, environmental water treatment, industrial process, and food markets. Foreign currency translation had a negative impact of $5.1 million and $9.8 million, respectively, for the quarter and year-to-date periods ended June 30, 2009 due to the stronger U.S. dollar. Partially offsetting the negative effects of volume and foreign currency translation was favorable pricing of approximately 21%, respectively, for the quarter and year-to-date periods ended June 30, 2009 as compared to the similar 2008 periods. Net sales for the Equipment segment increased $0.6 million or 5.4% and $1.8 million or 8.7%, respectively, for the quarter and year-to-date periods ended June 30, 2009 versus the comparable 2008 periods. The increase for both periods was primarily due to higher revenue for ultra violet light (UV) systems used in the disinfection of drinking water related to major contracts for installations that were awarded in 2008. Also contributing to the year-to-date increase was an increase in demand for ion exchange systems in Asia. Foreign currency translation had a negative impact of $0.3 million and $0.5 million, respectively, for the quarter and year-to-date periods ended June 30, 2009. Net sales for the Consumer segment for the quarter ended June 30, 2009 were comparable to the similar 2008 period. However, net sales for the year-to-date period ended June 30, 2009 decreased by $1.8 million or 29.7% versus the similar 2008 period primarily due to the negative impact of foreign currency translation of $1.1 million. Also contributing to the decline, was the lower demand for activated carbon cloth that occurred in the first three months of 2009 of approximately $0.3 million as well as the continued decline in demand for the Company's PreZerveŽ products of $0.4 million. The total negative impact of foreign currency translation on consolidated net sales for the quarter and year-to-date periods ended June 30, 2009 was $6.0 million and $11.3 million, respectively.

Net sales less cost of products sold, as a percentage of net sales, was 31.8% for the quarter ended June 30, 2009 as compared to 34.5% for the similar 2008 period, a decline of 2.7% or $5.4 million. Net sales less cost of products sold, as a percentage of net sales, was 32.1% for the year-to-date period ended June 30, 2009 as compared to 33.2%, a decline of 1.1% or $4.8 million for the similar 2008 period. The Activated Carbon and Service segment decreased by 3.2% or $5.4 million and 1.4% or $4.8 million, respectively, for the quarter and year-to-date periods ended June 30, 2009 which was related to a shift in sales mix from company-produced carbons to more costly outsourced carbons. Also contributing to the decline were increased plant maintenance costs at certain of the Company's production facilities which had been delayed in 2008 in order to meet demand of $1.4 million and $3.0 million for the quarter and year-to-date periods ended June 30, 2009, respectively, versus the similar 2008 periods. With the April 2009 re-start of B-Line at the Company's Cattletsburg, Kentucky facility, which added increased capacity, the Company has focused on executing these maintenance activities which are expected to continue, to a lesser extent, possibly throughout the remainder of the year. The Equipment segment increased 0.5% or $0.9 million and 0.6% and $2.1 million, respectively, for the quarter and year-to-date periods ended June 30, 2009 which was principally related to stronger pricing. The Consumer segment was comparable for the quarter ended June 30, 2009, but decreased by 0.3% or $1.1 million, for the year-to-date period ended June 30, 2009 as compared to the 2008 period due to higher costs associated with plant production issues and carbon cloth raw material. The Company's cost of products sold excludes depreciation therefore it may not be comparable to that of other companies.

The depreciation and amortization decrease of $0.2 million and $0.3 million during the quarter and year-to-date periods ended June 30, 2009, respectively, versus the similar 2008 periods was primarily due to decreased depreciation resulting from an increase in fully depreciated fixed assets. The Company expects that future depreciation will be higher due to the significant capital improvements at its Catlettsburg, Kentucky plant including the April 2009 re-start of a previously idled production line.

Selling, general and administrative expenses increased $1.2 million and $1.8 million for the quarter and year-to-date periods ended June 30, 2009, respectively, versus the comparable 2008 periods. The increase for both periods was due to increased employee-related benefit costs of $1.0 million and $1.7 million, respectively. Bad debt expense also increased by $0.5 million and $0.7 million, respectively, for both periods in part due to a 2008 recovery of $0.4 million related to receivables previously considered uncollectible. Partially offsetting the increase for the year-to-date period ended June 30, 2009 was a decrease in legal expense of $0.6 million.

Research and development expenses for the quarter and year-to-date periods ended June 30, 2009 were comparable to the similar 2008 periods.

The $9.3 million gain on AST settlement for the quarter and year-to-date periods ended June 30, 2008 relates to the resolution of a lawsuit involving the Company's purchase of the common stock of Advanced Separation Technologies Inc. ("AST") in 1996. Of the settlement amount, approximately $5.3 million was recorded in the Activated Carbon and Service segment and $4.0 million was recorded in the Equipment segment (See Note 7).

Other expense for the quarter and year-to-date periods ended June 30, 2009 increased $1.0 million and $1.4 million as compared to the similar 2008 periods. The increase is primarily due to the write-off of $0.8 million of financing fees related to the Company's Prior Credit Facility which occurred during the quarter ended June 30, 2009 (See Note 9). Also contributing to the increase in both periods was the negative impact of foreign exchange on unhedged positions.

Interest income for the quarter and year-to-date periods ended June 30, 2009 decreased $0.3 million and $0.7 million, respectively, primarily due to the lower average cash balances carried in 2009 as compared to 2008.

Interest expense for the quarter and year-to-date periods ended June 30, 2009 decreased $1.9 million and $3.9 million, respectively, versus the similar 2008 periods. The decrease is primarily a result of the conversion of a substantial portion of the Company's Senior Convertible Notes ("Notes") that occurred in the last half of 2008 as well as the adoption of FSP APB 14-1 which had a retrospective increase of $0.9 million and $1.7 million, respectively, on the quarter and year-to-date periods ended June 30, 2008 (See Note 9).

The income tax provision decreased $1.7 million and $4.5 million, respectively, for the quarter and year-to-date periods ended June 30, 2009 versus similar 2008 periods. The decrease for both periods was primarily due to the decrease in income from operations before income tax and equity in income from equity investments of $5.4 million and $12.7 million, respectively.

The effective tax rate for the year-to-date period ended June 30, 2009 was 34.8% compared to 35.3% for the year-to-date period ended June 30, 2008. The year-to-date period ended June 30, 2009 tax rate was lower than the federal statutory income tax rate due to the effective settlement of uncertain tax positions upon completion of a tax audit which lowered the tax rate by 2.8%. The decrease more than offset increases in the effective tax rate resulting from permanent items, state income taxes, and revisions to the Company's annualized estimate of pre-tax earnings by jurisdiction. The year-to-date period ended June 30, 2008 tax rate was higher than the statutory federal income tax rate mainly due to permanent items and state income taxes.

During the preparation of its effective tax rate, the Company uses an annualized estimate of pre-tax earnings. Throughout the year this annualized estimate may change based on actual results and annual earnings estimate revisions in various tax jurisdictions. Because the Company's permanent tax benefits are relatively constant, changes in the annualized estimate may have a significant impact on the effective tax rate in future periods.

The Company provides an estimate for income taxes based on an evaluation of the underlying accounts, its tax filing positions and interpretations of existing law. Changes in estimates are reflected in the year of settlement or expiration of the statute of limitations. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

Equity in income from equity investments increased $0.6 million for both the quarter and year-to-date periods ended June 30, 2009 as compared to the similar 2008 periods primarily due to increased sales volume of carbon products as a result of a large municipal fill in 2009.

Discontinued Operations
Income from discontinued operations was $3.4 million for the quarter and year-to-date periods ended June 30, 2008 and was primarily due to the final adjustment to the sale price of the Company's Charcoal/Liquid business that was sold in the first quarter of 2006.

Financial Condition

Working Capital and Liquidity

Cash flows provided by operating activities were $29.6 million for the period ended June 30, 2009 compared to $18.1 million for the comparable 2008 period. The $11.5 million increase is primarily due to improved working capital changes of $10.2 million which were primarily driven by decreases of $7.9 million in receivables and $4.4 million in inventory.

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

Total debt at June 30, 2009 was $12.8 million, a $3.3 million increase from December 31, 2008. The increase was solely attributed to the required cash collateral pursuant to the Company's transition to its new credit facility. Absent this, the Company's debt would have decreased by $4.5 million as a result of the repayment of the China credit facility and the Mississippi Industrial Revenue bonds of $1.6 million and $2.9 million, respectively, which occurred during the period ended June 30, 2009. Refer to Note 9 for additional information.

5.00% Convertible Senior Notes due 2036

On August 18, 2006, the Company issued $75.0 million in aggregate principal amount of 5.00% Notes due in 2036 (the "Notes"). The Notes 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, 2009 and December 31, 2008, the last reported sale price of the Company's common stock was greater than 120% of the conversion price of the Notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of each of the aforementioned quarterly periods. As a result, the holders of the Notes have had the right to convert the Notes into cash and shares of common stock.

During the period of August 20, 2008 through November 10, 2008, the Company converted and exchanged $69.0 million of the Notes for cash of $11.0 million and approximately 13.0 million shares of its common stock.

Due to the conversion rights of the holders of the Notes, the Company has classified the remaining principal amount of outstanding Notes as a current liability as of June 30, 2009 and December 31, 2008.

The initial conversion rate is 196.0784 shares of the Company's common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $5.10 per share of common stock. The conversion rate is subject to adjustment in some events, including the payment of a dividend on the Company's common stock, but will not be adjusted for accrued interest, including any additional interest. In addition, following certain fundamental changes (principally related to changes in control) that occur prior to August 15, 2011, the Company will increase the conversion rate for holders who elect to convert Notes in connection with such fundamental changes in certain circumstances. The Company considered EITF 00-27 issue 7 which indicates that if a reset of the conversion rate due to a contingent event occurs, the Company would need to calculate if there is a beneficial conversion and record if applicable. Through June 30, 2009, no contingent events occurred.

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

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

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

Effective January 1, 2009, the Company implemented FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer's nonconvertible debt borrowing rate. This new accounting method has been applied retrospectively to all periods presented with an impact to retained earnings of $9.2 million as of January 1, 2009. Under FSP APB 14-1, the Company's $75.0 million principal amount of Notes has an initial measurement that consists of a liability component of $53.1 million and an equity component of $18.6 million ($11.5 million after the associated deferred tax liability). The carrying amount of the equity component is $0.4 million (after tax) at June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, the if-converted value of the Notes exceeded its principal amount by approximately $10.3 million.

In accordance with FSP APB 14-1, the debt discount of $21.9 million is being amortized over the period from August 18, 2006 (the issuance date) to June 15, 2011 (the first put date on the Notes). The effective interest rate for all periods on the liability component is approximately 13.8%. The Company also incurred original issuance costs of $0.4 million which have been deferred and are being amortized over the same period as the discount. For the three and six months ended June 30, 2009, the Company recorded interest expense of $0.2 million and $0.3 million related to the Notes, of which $0.1 million and $0.2 million related to the amortization of the discount and $0.1 million and $0.1 million related to contractual coupon interest, respectively. Similarly, for the three and six months ended June 30, 2008, the Company recorded interest expense of $2.0 million and $3.9 million related to the Notes, of which $1.0 million and $2.0 million related to the amortization of the discount and $1.0 million and $1.9 million related to contractual coupon interest, respectively. The effect of the retrospective adjustment for the adoption of FSP APB 14-1 for the three and six month periods ended June 30, 2008 was to decrease previously reported net income from continuing operations by $0.5 million and $1.0 million or $0.01 and $0.02 per diluted common share, respectively.

Credit Facility

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

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

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

The Credit Agreement provides for an initial $95 million revolving credit facility (the "Revolving Credit Facility") which expires on May 8, 2014. So long as no event of default has occurred and is continuing, the Company from time to time may request one or more increases in the total revolving credit commitment under the Revolving Credit Facility of up to $30.0 million in the aggregate. No assurance can be given, however, that the total revolving credit commitment will be increased above $95.0 million. Availability under the Revolving Credit Facility is conditioned upon various customary conditions. A quarterly nonrefundable commitment fee is payable by the Company based on the unused availability under the Revolving Credit Facility and is currently equal to 0.5%. Any outstanding borrowings under the Revolving Credit Facility on July 2, 2012, up to $50.0 million, automatically convert to a term loan maturing on May 8, 2014 (the "Term Loan"), with the total revolving credit commitment under the Revolving Credit Facility being reduced at that time by the amount of the Term Loan. Total availability under the Revolving Credit Facility at June 30, 2009 was $85 million, after considering current borrowings and outstanding letters of credit.

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

The Company incurred debt issuance costs of $1.0 million which were deferred and are being amortized over the term of the debt. As of June 30, 2009, outstanding borrowings under the Revolving Credit Facility are $7.6 million and are classified as long term within the condensed consolidated balance sheet.

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

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

Contractual Obligations

The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements, and unconditional purchase obligations. As of June 30, 2009, there have been no significant changes in the payment terms of debt, lease agreements, and unconditional purchase obligations since December 31, 2008, other than the addition of long term debt amounts under the new Credit Agreement entered into in May 2009. Although there have not been any changes in the Company's required minimum funding contributions to its pension plans, due to the underfunded status of its U.S. pension plans, the Company is currently planning $10.4 million of discretionary cash contributions on or before September 15, 2009. The following table represents the significant contractual cash obligations and other commercial commitments of the Company as of December 31, 2008, as adjusted for the changes attributable to the new Credit Agreement, as well as the impact of FSP APB 14-1.

                                               Due in
(Thousands)                2009(1)        2010         2011        2012        2013        Thereafter        Total
Short-term debt            $  1,605     $      -     $      -     $     -     $     -     $          -     $   1,605
Current portion of
. . .