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 increased by $8.4 million or 8.5% and $3.3 million or 1.1% for the quarter and year-to-date periods ended September 30, 2009, respectively, versus the quarter and year to date periods ended September 30, 2008. The total negative impact of foreign currency translation on consolidated net sales for the quarter and year-to-date periods ended September 30, 2009 was $2.3 million and $13.6 million, respectively.

Net sales for the quarter and year-to-date periods ended September 30, 2009 for the Activated Carbon and Service segment increased $9.0 million or 10.6% and $4.0 million or 1.5%, respectively, versus the similar 2008 periods. The increase in sales for the quarter and year-to-date periods ended September 30, 2009 was primarily a result of increased volume related to sales of activated carbon products used to remove mercury from flue gas of coal-fired power plants in the U.S. of $5.8 million and $7.0 million, respectively, versus the similar 2008 periods. A major shipment of granular activated carbon in the Asia potable water market of $3.1 million related to a contract awarded in the second quarter of 2009 also contributed to the increase for both periods. In addition, the Company continued to experience favorable pricing of approximately 23% for both the quarter and year-to-date periods ended September 30, 2009 versus the similar 2008 periods. Partially offsetting the increase was the negative impact of foreign currency translation of $2.0 million and $11.7 million, respectively, for the quarter and year-to-date periods ended September 30, 2009 due to the stronger U.S. dollar versus 2008. The Company also continued to experience a decline in volume of 8% and 13%, respectively, for the quarter and year-to-date periods ended September 30, 2009 as compared to the similar 2008 periods as a result of the economic slowdown. Net sales for the Equipment segment decreased $1.1 million or 9.5% and increased $0.7 million or 2.1%, respectively, for the quarter and year-to-date periods ended September 30, 2009 versus the comparable 2008 periods. The decrease for the quarter ended September 30, 2009 was primarily due to decreased sales of traditional carbon and odor control equipment of $2.0 million versus the comparable 2008 period. Partially offsetting this decrease was 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 of $1.0 million. The increase for the year-to-date period ended September 30, 2009 was due to an increase in demand for ion exchange and UV systems of $1.7 million and $2.9 million, respectively. Partially offsetting this increase was a decrease in sales of the aforementioned traditional carbon and odor control equipment of $3.9 million versus the similar 2008 period. Foreign currency translation did not affect the Equipment segment sales comparison for the quarter ended September 30, 2009 as compared to 2008, but it did have a negative impact of $0.5 million for the year-to-date period ended September 30, 2009 versus the similar 2008 period. Net sales for the Consumer segment increased $0.5 million or 23.7% for the quarter ended September 30, 2009 versus the similar 2008 period. The increase was primarily due to higher demand for activated carbon cloth and was partially offset by the negative impact for foreign currency translation of $0.3 million. However, net sales for the year-to-date period ended September 30, 2009 decreased by $1.3 million or 15.7% versus the similar 2008 period primarily due to the negative impact of foreign currency translation of $1.4 million and the continued decline in demand for PreZerveŽ products of $0.3 million. Partially offsetting this decrease was an increase in demand of $0.4 million for activated carbon cloth that began to occur in the third quarter.

Net sales less cost of products sold, as a percentage of net sales, was 33.9% for both the quarter ended September 30, 2009 as well as the similar 2008 period. Net sales less cost of products sold, as a percentage of net sales, was 32.7% for the year-to-date period ended September 30, 2009 as compared to 33.4%, a decline of 0.7% or $1.0 million for the similar 2008 period. The Activated Carbon and Service segment was comparable for the quarter ended September 30, 2009 and decreased by 1.1% or $1.6 million for the year-to-date period ended September 30, 2009. The decrease for the year-to-date period was primarily related to increased plant maintenance costs of $4.3 million at certain of the Company's production facilities primarily as a result of delays experienced in 2008 in order to meet demand. 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, throughout the remainder of the year. Partially offsetting this decline was the aforementioned favorable pricing for certain activated carbon and service products. The Equipment segment was comparable for the quarter ended September 30, 2009 versus 2008 and increased 0.9% or $1.3 million for the year-to-date period ended September 30, 2009 which was principally related to stronger pricing. The Consumer segment was comparable for the quarter ended September 30, 2009, but decreased by 0.5% or $0.7 million, for the year-to-date period ended September 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 increase of $0.7 million and $0.3 million during the quarter and year-to-date periods ended September 30, 2009, respectively, versus the similar 2008 periods was primarily due to increased depreciation 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 was comparable for the quarter ended September 30, 2009 versus 2008 and increased $1.8 million for the year-to-date period ended September 30, 2009 versus the similar 2008 period. The increase for the year-to-date period ended was primarily caused by higher employee-related costs of $2.1 million and increased selling related expenses of $0.5 million. Bad debt expense also increased by $0.8 million in part due to the recovery of $0.4 million that occurred in 2008 related to receivables previously considered uncollectible thereby reducing the 2008 expense. Offsetting these increases was the favorable impact of foreign exchange translation of $1.9 million.

Research and development expenses for the quarter and year-to-date periods ended September 30, 2009 increased $0.3 million and $0.4 million versus the similar 2008 periods primarily as a result of increased laboratory testing costs related to mercury removal from flue gas.

The $9.3 million gain on AST settlement for the year-to-date period ended September 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 ended September 30, 2009 was comparable for the quarter ended September 30, 2008 and increased $1.3 million for the year-to-date period ended September 30, 2009 versus the similar 2008 period. The increase for the year-to-date period includes 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 was the negative impact of foreign exchange on unhedged positions of $0.9 million. Partially offsetting this increase was $0.3 million of non-recurring income related to the Company's Equipment segment technology.

The loss on extinguishment of debt of $0.9 million for the quarter and year-to-date periods ended September 30, 2009 was due to the final conversion of the remaining $6.0 million of Notes. The loss on extinguishment of debt of $6.3 million for the quarter and year-to-date periods ended September 30, 2008 was as a result of the conversion of $44.2 million of Notes. These losses were recorded pursuant to the required January 1, 2009 adoption of new accounting guidance within Accounting Standards Codification (ASC) 470-20. Such guidance was retrospectively applied (See additional discussion in Note 9).

Interest income for the quarter and year-to-date periods ended September 30, 2009 decreased $0.3 million and $0.9 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 September 30, 2009 decreased $1.6 million and $5.5 million, respectively, versus the similar 2008 periods. The decrease is primarily a result of the conversion of a substantial portion of the Company's Notes that occurred in the last half of 2008 (See Note 9).

The Company recorded an income tax benefit of $(0.8) million and a provision of $5.2 million for the three and nine month periods ended September 30, 2009, respectively. Income tax expense decreased $2.4 million and $6.9 million, respectively, for the three and nine month periods ended September 30, 2009 versus similar 2008 periods. These decreases primarily relate to the Company's determination that an overall foreign loss position no longer exists and that sufficient foreign source income will be generated to reverse $5.0 million of an established valuation allowance for U.S. foreign tax credit carryforwards and to reduce the Company's deferred tax liability related to unremitted earnings from its CMCC joint venture by $0.8 million.

The effective tax rate for the year-to-date period ended September 30, 2009 was 17.4% compared to 35.7% for the year-to-date period ended September 30, 2008. The year-to-date period ended September 30, 2009 tax rate was lower than the federal statutory income tax rate primarily due to the valuation allowance release, which lowered the rate by 16.7%. The Company also benefited from a reversal of the deferred tax liability related to the CMCC joint venture's unremitted earnings by 2.5% as a result of sufficient foreign source income that the Company determined will be generated (See Note 13). Absent the deferred income tax releases and other less significant discrete items, the year-to-date period ended September 30, 2009 effective tax rate of 38.4% was higher than the statutory U.S. 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 ASC 740, 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 $0.4 million and $1.0 million, respectively, for the quarter and year-to-date periods ended September 30, 2009 as compared to the similar 2008 periods primarily due to increased pricing on carbon products. Also contributing to the year-to-date increase was a large volume municipal carbon fill that occurred early in 2009.

Discontinued Operations
Income (loss) from discontinued operations was $(0.2) million and $3.2 million, respectively, for the quarter and year-to-date periods ended September 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 $49.1 million for the period ended September 30, 2009 compared to $23.9 million for the comparable 2008 period. The $25.2 million increase is primarily due to improved working capital changes of $30.6 million which were primarily driven by decreases of $10.5 million in receivables, $15.5 million in inventory, and $10.2 million of revenue in excess of billings on uncompleted contracts and other current assets. Partially offsetting this increase was an increase in pension contributions of $5.9 million.

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

The Company did not have outstanding debt at September 30, 2009 as compared to $9.5 million outstanding at December 31, 2008. The repayment of the Mississippi Industrial Revenue bonds and China credit facility of $2.9 million and $1.6 million, respectively, occurred on Apri1 1 and June 10, 2009, respectively. The non-cash exchange of the remaining $6.0 million of Notes, primarily for the Company's common stock, occurred during the quarter ended September 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 accrued interest at the rate of 5.00% per annum which was payable in cash semi-annually in arrears on each February 15 and August 15, which commenced February 15, 2007. The Notes were eligible to be converted under certain circumstances.

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. A pre-tax loss of $6.3 million was recorded on extinguishment related primarily to the outstanding discount and deferred financing fees for the conversion of $44.2 million of the Notes during the quarter ended September 30, 2008. During the quarter ended September 30, 2009, the Company exchanged for approximately 1.2 million shares of its common stock for the remaining $6.0 million of Notes. A pre-tax loss of $0.9 million was recorded on extinguishment related primarily to the outstanding discount and deferred financing fees of the Notes upon conversion. Due to the conversion rights of the holders of the Notes, the Company classified the remaining principal amount of outstanding Notes as a current liability as of December 31, 2008.

Effective January 1, 2009, the Company implemented guidance within Accounting Standards Codification (ASC) 470-20 "Debt with Conversion and Other Options." This new guidance required 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. The Company's $75.0 million principal amount of Notes had an initial measurement that consisted 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 was zero and $0.6 million (after tax) at September 30, 2009 and December 31, 2008, respectively.

In accordance with guidance within ASC 470-20, the debt discount of $21.9 million was 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 was approximately 13.8%. The Company also incurred original issuance costs of $0.4 million which had been deferred and were being amortized over the same period as the discount. For the three and nine months ended September 30, 2009, the Company recorded interest expense of $0.1 million and $0.4 million related to the Notes, of which $47 thousand and $0.2 million related to the amortization of the discount and $38 thousand and $0.2 million related to contractual coupon interest, respectively. Similarly, for the three and nine months ended September 30, 2008, the Company recorded interest expense of $1.5 million and $5.4 million related to the Notes, of which $0.8 million and $2.8 million related to the amortization of the discount and $0.7 million and $2.6 million related to contractual coupon interest, respectively. The effect of the retrospective adjustment for the three and nine month periods ended September 30, 2008 was to decrease previously reported net income from continuing operations by $4.1 million and $5.1 million or $0.08 and $0.10 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 September 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 in May 2009, 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 September 30, 2009 was $91.9 million, after considering 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 September 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 September 30, 2009, there are no outstanding borrowings under the Revolving Credit Facility.

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. The Company was in compliance with all such covenants as of September 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 September 30, 2009, there have been no significant changes in the payment terms of lease agreements and unconditional purchase obligations since December 31, 2008. However, the exchange of the remaining $6.0 million Notes and repayment of both short-term debt and the remaining current portion of long-term debt occurred as of the period ended September 30, 2009. Although there have not been any changes in the Company's required minimum funding contributions to its pension plans, due to the funded status of its U.S. pension plans, the Company has contributed $10.4 million of discretionary cash contributions during the quarter ended September 30, 2009. The following table represents the significant contractual cash obligations and other commercial commitments of the Company as of December 31, 2008, as adjusted.

                                                     Due in
(Thousands)                2009(1)        2010         2011        2012        2013        Thereafter        Total

Short-term debt            $  1,605     $      -     $      -     $     -     $     -     $          -     $   1,605

Current portion
of Long-term debt(2)          2,925            -        4,978           -           -                -         7,903

Operating leases              5,727        5,097        4,515       4,247       3,765            7,783        23,534

Unconditional purchase
obligations(3)               26,175       25,600       23,318       1,575       1,575              263        78,506

Total contractual cash
Obligations(4)             $ 36,432     $ 30,697     $ 32,811     $ 5,822     $ 5,340     $      8,046     $ 119,148

(1) The 2009 amounts include payments of $1.6 million and $2.9 million for short-term and current portion of long-term debt, respectively, that were made during the six months ended June 30, 2009.

(2) The 2011 maturity includes a payment of $6.0 million and debt discount of $1.0 million. This amount is classified as currently payable at December 31, 2008. This debt obligation was retired during the nine months ended September 30, 2009. See Note 9.

(3) Primarily for the purchase of raw materials, transportation, and information systems services.

(4) Interest on debt obligations was excluded as it is not material.

The cash needs of each of the Company's reporting segments are principally covered by the segment's operating cash flow on a stand alone basis. Any additional needs will be funded by cash on hand or borrowings under the Company's credit facility. Specifically, the Equipment and Consumer segments historically have not required extensive capital expenditures; therefore, the Company believes that cash on hand and borrowings will adequately support each of the segments cash needs over the next twelve months.

. . .