Calgon Carbon's CEO Hosts Analyst and Investor Day Conference (Transcript)

Nov. 9.13 | About: Calgon Carbon (CCC)

Calgon Carbon Corporation (NYSE:CCC)

Analyst and Investor Day Conference Call

November 7, 2013 10:00 AM ET


Randall S. Dearth – President and Chief Executive Officer

Robert P. O'Brien – Executive Vice President and Chief Operating Officer

Stevan R. Schott – Senior Vice President, Chief Financial Officer

John Platz – Head-UV Division


Christopher Butler – Sidoti & Company

Randall S. Dearth

Okay, let’s get started. Well, good morning, everybody, and welcome to the 2013, Calgon Carbon Investor Day. For those who have not had the pleasure of meeting, my name is Randy Dearth, and I’m the President and CEO of Calgon Carbon Corporation. Now, behalf of the Board of Management and Management team at here Calgon, we really appreciate everybody taking the time today out of the busy schedules to here the Calgon story, because we always do before we do an investor presentation. I’d like to point out the Safe Harbor statement.

For those of you who are in the room, you’ll find that statement in your presentation deck. And for those on the webcast, you’ll find the presentation on our Investor page at I also want to point out to those in webcast that if you would like to ask a question, you will do so through Gail Gerono, and you will also find Gail’s e-mail address on our Investor page.

Well, let’s get started. I would also like to introduce others members who are in the stage with me here today. To my left Steve Schott, Steve is our Chief Financial Officer; next to Steve is Bob O'Brien, Bob is our Chief Operating Officer; and next to Bob is one of our Business unit heads, the Head of our UV Division, John Platz.

There is also few other people here in the room that I’d like to recognize, Gail Gerono, who is our Head of Investor Relations and Corporate Communications, I think you all Gail. Sitting in the back row Jim Coccagno, Jim is our Global Head of Procurement and Strategic Initiatives. Next to Jim is Allan Singleton, Allan Heads up our Asian Operations for Calgon Carbon. We also have Reinier Keijzer, in the back row, Reinier is the Head of our European Operations.

Next to Reinier, we have Bob Mclaughlin, Bob is our business unit Head for the Americas for Municipal business, which we hear about today. Bob, Head of our Industrial and Food business unit. And Bill Zinsser, over here to my left, Bill is our business unit Head for Specialty Carbon Applications, which includes mercury which is also a key topic that we’ll talk about today.

We’re going to start today’s presentation by giving you an overview of where we are today. What makes Calgon Carbon’s strong? What are the attributes that make us a good investment for shareholders? We don’t want to take a few minutes and talk about the track record, in particularly say, you’re going to hear a lot of information about our reactivation strategy. For those who can’t, later today, we’re actually going to take you out to our newest state-of-the-art facility here in [indiscernible] so you get to see we’re going to talk about in action. From there we’re going to spend a lot of time today talking about value creation, from where we’re at today with our roadmap for the future.

What are those actions, what are those initiatives we’re putting in place to make sure that we continue to build a stronger Calgon Carbon. With the variance today Steve Schott will come up kind of give you a financial perspective of where we are at, where things are going. And then we’ll close today with a Q&A section with folks here in the room, as well as we hope some questions from those on the web, and we’ll follow that up with a tour of one of our key customers the Scottsdale Water Facility. And as I said, we’re going to take you up for those who can’t to see our Gila Bend Reactivation facility. You’ve heard us talk many times with now see in action, I think we’ll put a greater perspective perhaps you’ve ever seen before.

So, let’s get started. The kind of frame today’s presentation, I want to look at it from the perspective if nobody knew anything about Calgon Carbon, you’re thinking about investing. What are those attributes to make us a good investment? We truly are global manufacturer. As I mentioned here, I have representatives from Europe and Asia. We’re a global company, and we’re leader in activated carbon and innovative treatment systems.

When you look at regulation-driven markets as we’re leader in this aspect as well, especially when you talk about Ballast Water Treatment, Mercury Removal from coal-fired power plants and Disinfection Byproducts you’ll hear about.

Reactivation, we’re truly a leader when it comes to reactivation services. And what about making the company better?.

Since I’ve been the CEO of Calgon Carbon, which has been now about 15 months; a lot of emphasis on cost reduction and operational improvements and more to come. We are company with a strong balance sheet. We know this, you know this, let’s talk a little bit about what could be done with that. We are also company really well positioned to benefit from this global activated carbon market. In a few slides, I’ll show you what we think that carbon market, as it’s really attractive. And last but not least, in the 15 months I’ve been at Calgon Carbon, I’ve been very impressed with our global team of experts. We have people in our carbon and UV equipment far better than anybody else in the industry.

So this global team of experts complement everything that we do and hopefully again [indiscernible] you will see some of those folks in action. Our foundation, let’s take a look from it at what we believe the global market for activated carbon is. If you look at the blue pie that’s in the middle, you’ll see here demand for activated carbon in 2012 of about 2.7 billion pounds, with the global capacity, we believe of about 3.5 billion pounds. When you look at our piece of the pie, when you include also not only what we manufacture and sell, but also what we resell, we estimate the Calgon Carbon market share in 2012 to be about 10%, lot of opportunity for growth.

If you go out to 2017, and look at what the experts are saying and look at what our people are telling us, we are estimating the market for activated carbon in 2017 to grow to 4.5 billion pounds, some of that growth you will hear about today and where we believe it’s coming from. This is a 1.8 billion pound increase or about 10.8% when you look at on a compound annual growth rate. Lot of people out there that are selling products would love to have a compound annual growth rate of 10.8%. We are very fortunate to be in a market that has that.

So this sets the stage really for what we believe the market is. For where do we serve our customers, what are the markets in which we participate, and over the last few weeks, we’ve actually spend a lot of time revisiting where we are strong and why we are strong. And if you look at the segments that we believe that are really key to Calgon Carbon today, you will see that on the left hand side about 24% of our business is in drinking water. This is a market that’s always been very, very good for Calgon Carbon and will continue to be.

Going to Scottsdale, again, another example how to use our carbon, see there. To the right is the Environmental Water Treatment, so combined it’s about 50% of our business, which is in water treatment. You also see our breakdown of Food & Beverage, a market that Calgon Carbon has been in for decades and we are strong in; our Industrial Processes, we’ll talk a little bit about that today, on top Environmental Air Treatment, again, with regulations driving the segment, we believe this is going to be more and more bigger segment for Calgon Carbon in the future. And last but not least, our Specialty Carbon market, which is about 11%, which includes our carbon FLAC business, which as well I will talk about.

Let’s dive down into the next level and look at each one of these segments in just a little bit more detail. When you look at the drinking water market, the biggest ply for us is in the municipal space, which is about 87% of what we do. Why is this an interesting market and why are we pleased to be in this? When you look at the granular activated carbon market for this area, taste and odor is always a problem for the municipalities. Activated carbon when used in the granular form can take out the taste and odor problem and now added to that the disinfection byproduct market that you hear about later.

When you look at regulations, regulations just like in the airspace, I just mentioned, are driving more and more consciousness about safe and clean drinking water. So it’s a great, great space to be in terms of regulation to use activated carbon. And then reactivation, more and more of our customers in the United States are expressing interest; what is reactivation, how does it work, why is it economically viable. So we’re seeing more and more interest, we’re seeing a growing market for reactivation. We have great products well suited for this market.

Again this has been a long traditional market for us, we’ve well prepared with our portfolio. And again as you know we’re leader in reactivation, so when customers ask those questions we can very easily believe sold it on the granular product and powder product, but also sold in our services.

If you look at environments of water treatment, which is the biggest part of tie for us is in wastewater treatment, and ballast water currently about 22% of that in growing. Why is this attractive to this? When you look at integrating your products and services, we felt we can get higher sales. There is a definite need in this in this market segment for the type of approach to selling.

The steady revenue stream, again here regulations are to our benefit and more and more regulations are being placed on wastewater treatment over there most of which is $28 billion ballast water treatment market which really makes this a segment that interests us.

We’re there, we have an established market position and really we have the platform to deal with these regulations as they come down to pipe. Then as it relates to UV, we’re leader there as well. We’ve been there now 20 years or so and when it comes to ballast water, it comes to UV for treating waste water, we have a good presence.

Talking about the environmental air treatment, most of that as you see here is the fluegas, which we’re going to talk about extensively today, but also there are other areas within the aerospace that Calgon Carbon participates, whether it be the other fluegas applications, we are taking out the VOC and industrial applications. When you consider mercury in and out of itself, this is perhaps the largest single market for activated carbon that’s ever come down the pipe and it’s really going to be an industry change in the market. There is also more and more of interest removing socks and knocks. You will hear, see the acronym, hear the acronym DSDN [indiscernible]. Activated carbon provides a solution for that.

Again regulation is only going to get more and more stringent as it comes to quality air and activated carbon as I said is a technology that does solve many of the problems. Why are we good? Lot of good products especially it comes to our advanced Bluetrack technology which you will hear about. Well positioned to take full advantage this is the fluegas market develops.

Again our global services reactivation capabilities, this is another application that reactivation could be used and it is being used. There are flexibility in the emerging carbon manufacturing now you are getting some applications where they require specific carbon, specific qualities, specific specifications we can do it we know carbon best, we can meet the need.

Food and beverage, the big part of that as you see this pie of sweetness. And we have been doing sugar purification, we still probably for since the 50s from that 30, 40 years. There is a large diverse customer base and they purchase different volumes. So again we are out there the small customer, we have a solution for a big customer come talk to us. The stable business food is something that is stable to daily life.

So we don’t believe that it will be too many downturns in the coming years in the food and beverage sector. Why are we good? We have an established market position, as I said we’ve been there a long time and we are really provides a good platform for growth in new applications.

The last two pie charts, industrial processes, this would be a chemical company that comes to us and further their processing requires activated carbon at various stages in their process, but 41% you see here is on the liquid chemical side, but also they also treat their process water and it is about 25% of our business in this segment that goes into that.

Why is it attractive? It is again a stable market there’s a lot of chemical companies out there and they’re growing, expanding so we are there knocking on doors making sure that they understand we are leader in activated carbon is to serve their needs.

On the economy, when they do well, they need more carbon, is there a way to supply the product and meet their needs. What makes us good, again, this global capability the fact that we are global company and there is a lot of chemical companies that are global. We can service their needs in Europe, in Asia and the U.S. We can work on in making sure that the products are the same, same qualities they get everywhere, its an advantage for us compared to some of our competitors.

Our technical support, I said earlier the expertise within Calgon Carbon is in my opinion far best in the industry. This is one area without expertise is used to make sure that the chemical company or the processor understands how to use that active the carbon. And then our strong reputation for quality and reliability make us the right partner with this industry. And last but not least, let me describe our specialty segment, primarily driven by our respirator business, which perhaps is one of the first applications for Calgon Carbon over 70 years ago.

As I said, we are also in cloth business for carbon cloth. Activated carbon is also used in the metal recovery segment, but it’s a really interesting specialized market this is what we are good at with our expertise, with our marketing distribution channels, we can get to the customers and provide them with whatever solution they may need.

You add to that our R&D capabilities and we like to be challenged with our customers. You are activated Carbon do this we can do that. We have the best when it comes to R&D to allow us to be able to meet those needs. And by forming earlier this year, our business unit structure by having a business unit structure led by those in to so we are focused on the specialty carbon market. Is able to put a team around these specialty applications, which are high margin applications to be able to serve their needs to their customers.

So hopefully that gives you a better perspective of the diversity of the markets, the diversity of the type of products and where we see our business today. With that I’m going to turn it over to Bob O'Brien. I’m want to spend a few minutes sharing with you a little bit about where we’ve come and like you said focused on our reactivation strategy which I truly believe is one of our success stories. So Bob?

Robert P. O'Brien

Thank you, Randy. Good morning. On a first as I want to mention about our Gila Bend plant which many of you are going to visit today. It’s a plan to be started up in April, we are able to bring it in on time and on budget for the capacity of around 25 million pounds a year, three reactivate potable water carbon, speed brake carbons the base of which will be phoenix earlier, but also enable us to sort of the western united states and its an environmentally sustainable facility. So we put a lot of heat recovery and designs and many into the plant. So I think you will enjoy getting a chance to see it today.

Randy mentioned the reactivation is a key to our growth strategy and key to our success and many of you may know what we do in reactivation, but I’ll just take a momentum here. You see some tanks where carbon is held and we can work with our customers provide those tanks, but if you’re assume their fill with activated carbon liquid has been processed through them. At some point in time there become exhausted the activated carbon is filed with organic material that has been removed from the water for air, so it has to be changed. And the customers have a choice they can dispose a it and buy a new version carbon where they can reactivate it through companies such as ourselves.

So we would be able to provide a complete service where you see a truck that sort is making a circle its coming to the customer site that has spent carbon, its removing the spent carbon form the absorbers, putting it in the truck and the same time that truck has either has reactivated carbon that pits goes back in to the thanks allows a customer go back on into the tanks, larger customer go back online, light truck comes back to one of our reactivation facilities where we repossess that carbon at very high temperature about 1800 degrees Fahrenheit destroy the organic chemicals that are on it making a carbon available for reuse.

So we basically have a four circle in our ability to provide not only treatment for our customers but also full disposal of the organic chemicals, so summarizing the benefits that our customer would get from reactivation, first it’s actually much lower cost than using, so they have a financial incentive to use that reactivation.

So they can be assured that whatever is being absorbed on the carbon is being destroyed and we send in a certification of distraction so they know that they are not going to have any long-term liabilities such as if they dispose the carbon in landfill and this is going to be much as expensive formulated say send the carbon to incineration, so activated carbon and itself is a technology, it does not destroy your organic material it actually absorbs contaminates from liquids, gases or water, gets them into a concentrated form so when we they can be reactivated and disposed of cost effectively.

Reactivation is also sustainable many companies are really concerned about their CO2 footprint, reactivation generates only 20% of the CO2 compared to the production of a like amount virgin carbon so it’s a way to help our customers meet their environmental sustainability goals, because we have facilities around the world we can assure supply of reactivated carbon and we bundle our reactivation technology with our field services and logistics support.

What markets that we serve with reactivation, Randy went through a number of the overall markets that we serve basically any customer that uses activated carbon in a large of amount that makes the transportation, recycling financially attractive is a candidate for reactivation.

We separate our reactivation facilities into two groups one is dedicated to food and portable reactivation, so carbon to used in and drinking water treatment or other food applications, we process through facilities that are dedicated to those markets and we are facilities that are industrial that we target industrial customers that might be is as listed coming from waste water manufacturing – chemical manufacturing facilities treating waste water, ground water remediation other control like variety of applications with potentially some events some has it chemicals.

In the food grade certainly we reactivate municipal drinking water carbon, but also carbons that are used in sugar purification, power chemical production purification, glycerin in the like.

So we served many, many of the markets that Randy talked about we are able to serve with reactivation. We have 10 reactivation sites across the globe in five different countries we are in Belgium, we are in the U.K. numerous facilities in the U.S., we are in Japan and we are in China. So certainly it’s a key part of our strategy to be able to grow our business is providing reactivation services across the world.

And this is an area where we have been investing in, so since 2010 we’ve continued to increase our capability to reactivate carbon both in the industrial area and in the food area.

So we’ve increased our capacity to approximately 250 million pounds a year, which mean we can actually now reactive more carbon than we product as a virgin state almost 50% more we can reactive and we produce as a virgin carbon. So it’s a key part of our strategy.

And one think I point out is in reactivation, competition is local, not global. In virgin carbon, we compete in markets against producers that can make carbon all across the world. In reactivation, transportation is a key cost component of the overall service.

So providing reactivation services, again it’s a local business. If we’re in first with reactivation, it makes a difficult for competition to come in and take our business. And that’s one of the reasons we invested in a facility [indiscernible] we’re going to see, enables us to have a good position in the Southwestern United States for municipal drinking water reactivation and allows us to growth and get that foot hold making it difficult for competition to come in.

And we’ve had some major success in the drinking water areas, recently specifically, again [indiscernible] we put the plant into serve the drinking water markets in the Phoenix area, we were able to achieve long-term contracts with the City of Phoenix, City of Scottsdale, just recently we announced a long-term 10 year contract with the City of Glendale. So we’ve been reactivating their carbon for a long time. And few months ago we’ve announced a long-term contract for the reactivation of carbon for Thames Water, which is largest water treatment company in the UK.

Our strategy in the last five years has been to convert customer in the drinking water areas to reactivation and we’ve actually added 70 water treatment facilities in U.S. as to our customer base put reactivation. So by Bob [indiscernible] and we’re making good progress and getting our municipal drinking water customers to appreciate the benefits of the custom reactivation. And with that…

Stevan R. Schott

So let’s start talking about some of those things that were implementing into really create the value that we want to create for our shareholders I’m going to start with the cost improvement program that many of you have you heard me talk about over the 15 months, I’ve been in Calgon.

And if you recall the program it was really to identify those key areas within our organization, they can either remove costs permanently or really provide efficiencies are going to make us run our operation better to save money. This is actually started in Q2 of 2012. So when I start at Calgon, there was a roadmap in my desk to look.

We wanted just to be a global program and indeed it is global program. We set the target to say anything we do, we want to have the done by the end of 2014. So that the full benefit could be realized in 2015 and the target we set for ourselves at that time was $30 cost improvement, a target which would have the full year effect as I said in2015.

To recall, we phase this into three phases, each phase being $10 million. The first phase focused on organization and staffing, making sure we have right people in the right place, not too people in the wrong place. We are focused on our Pearl River side at that time. We were expanding the site. We want to make sure that we were able to get good quality material that we could sell to improve our efficiency we did. We made a decision very quickly after I came to close our China production facility, that’s Datong. We also at the time looked at our R&D spend and determine to reduce the R&D spend by about a $0.5 million going forward than we have.

Phase II, we undertook a program to take our product portfolio and rationalize it down to reduce 50% of the SKUs, that we are producing at the time, that projects done has been successful, we continue looking at our organization and our staffing requirements. My experience, my 23 year so years in the chemical industry before joining Calgon, I learned when you turn that procurement rock over and keep turning it over, you keep finding things but Jim [indiscernible] is introduced earlier is our Global Head of Procurement and his functions since he has been with Calgon Carbon, it’s truly been to look at our global organization for procurement.

How we procure, what we procure, how we can do better. So that was a key part of Phase II. And last but not least we looked at transportation warehousing, my experience has been that when you build warehouses around the world, you’re transporting product and react, version product. But when you look at that as you usually say these we found, we found that. So that made up the second $10 million of Phase II. And I said before Phase III was stretching a little bit up to three, the low hanging fruit is found in Phase I and II. With Phase III essentially looking at our Virgin plans.

My experience has been we haven’t brought in experts for while to look at how you make your product and how you run your operations. There is also sometimes money is to be found. So we engaged a consultant to comment, they came at earlier this year, and started looking just those two plans. And looking at how we make product, how we move product, how we run our maintenance shop, how we outsource our maintenance work. And it’s a project that will continue into next year. And I am very pleased with the result so far in what they doing.

And they do, it’s not just a cost savings initiative as you will hear as say probably many times today. Every pound of Virgin product we are making their two plants here in United States, Big Sandy and Pearl River. Every pound we produce I can sell, we are selling. So if I have some of the comment to be able to look our operations and this able to tell me. If you push that button with this button, or if you changed your blend of coal, you will get more product, it is indeed a good cost improvement initiative for us.

Our new investment projects have challenged the global teams that come to us with ideas. What type of investment projects you believe it can provide shareholder value going forward. We announced I believe in the last quarter, $60 million, which are for two improvement projects were Big Sandy site, which will provide some savings and efficiency improvements going forward, I want more, and I am challenging the team to do so.

And last but not least as many of you know, coal is kind of the life blood of what we do. Coal is our raw material, we buy lots of it. So I challenge the team under Jim Coccagno’s leadership to look at our coal strategy. For many years we relied on a couple of coals it served our purposes and provide the product we wanted. But with all the challenges in the industry for a lot of risk around that. So I will talk a little bit later about what that coal strategy is and what we believe that’s going to bring to us.

So three phases that we laid out, Phase I will first let me show you this, I want to give you perspective on kind of the projects and the intensity, that we’re attacking this program. Some of these programs as I said were low hanging fruit, we took here but early. So it’s checked off a list. Some of these really little bit more difficult, but little bit more time consuming.

So these programs are going to be extending into 2014. Phase I and II I am happy to say both complete. So we have our $10 million for each program that we can put into our bucket. In terms of modeling for 2014 the $10 million for Phase I will be – should be in your modeling, this is our forecast, Phase II $10 million is in that, we are estimating at this point that our Phase III we should benefit up to the tune of about $5 million in 2014.

Okay, so for 2014 we’re planning in $25 million through these programs. So by 2015 that we should be at the $30 million run rate for all three programs. With that being said again we’ve been looking at this very intently, and taking and pushing our people even further to find opportunities. There were some areas that we believe could even further exceed our expectations and provide more savings. These are around our program with the Virgin plant optimization sites, our new investment projects, we believe there is more out there that could bring in some good return. Jim and his team they are being challenged more and more to find different ways of procuring, so we can get more savings for beyond what we had expected.

And last but not least this call, which we buy as I said it’s makes amount of call and anything we can do here in terms of taking cost out would have a good effect on our bottom line, let’s talk about that for a second.

So, Jim and his team is undertaking a long-term co project with the goal being identifying secured coal but overall it’s going to have the lowest cost of ownership with Calgon Carbon better than anything we’ve done in the past.

To that end, we’ve test it over 40 different coals and coal blends. We’ve involved with folks in our manufacturing facilities as well as our R&D team who again no coal, no activated carbon extremely well.

The trials really were focused, we wanted a long-term supply, the piece meal is not the way to go, we want to identify the best coals that are in our workforce, perhaps different coals in anything we have used before, something that we could get a long-term contract on.

So, I am happy to say we’re in the negotiation phase, we have several suppliers who we have identified that their coals in deed are the coals that we want going forward. And the goal is 70% of our coals supplied by 2014 will be under contract.

Today it’s about 20%, but our goals to get that to 70%, we hope to report to you and shortly results of these negotiations. So, with that we are happy to announce today that we believe with these extra efforts with these extra programs we’ve initiated, I am pleased we can take our $30 million cost improvement program and submitting to a $40 million, which would $10 million expansion.

It’s going to go into 2015 some of these again the high hanging fruit we are going to take a little bit more time requires the higher consultants and to work with outside vendors. But nonetheless we believe that 2015 will be first year we see some impact from that, it’s really an expansion of Phase III as I pointed out earlier.

So with that you can add on we estimate another $10 million by the end of 2015 going into 2016 we will achieve the total $40 million.

So, we hope to finish with that, but we’re not done I challenge your team and I want more will continually look for more. We will continually challenge our organizations, challenge our faking, challenge how we do business to extend that even more. So, hopefully I can report to you in the future with that numbers even bigger.

Okay, I am going to turn it back over to Bob or Brian. As I said at the onset, we are proud of our R&D team, we believe we have the best in the industry. So, Bob is going take a few minutes in terms of talking about what some of these innovation, products are innovation applications that we are finding, what they are going to do to take our company forward. Bob?

Robert P. O'Brien

So, you heard from us in the past about some of our key initiatives with Mercury control [indiscernible] products and UV which we are going to talk about later in today. We are going to give you some insight into some of the other things we’re working on we think that have a big impact for our company.

The first are ultra capacitors, these are devices maybe similar to the battery and concept where they can store energy, don’t store as much as battery, but they store energy, the difference is they can be charged and discharged very rapidly for almost an infinite amount of time, number of times.

So it’s a market that’s starting to grow, it’s still relatively small, there are manufacturers around the world that it’s market is growing and amazingly enough that’s an ultra capacitor is activated carbon.

So we’ve normally talked about our activated carbon absorbs materials, removes them from water, air and other chemicals. But here is an application where activated carbon actually stores electricity and it’s a very purified product. Ultracapacitors for the carbon, ultracapacitors can be used in things like automobile stop and start and buses that stop and start to improve gasoline efficiency. That’s a developing market in Europe. And in China, when your car comes to a stop sign, it shuts off and then when you press the gas it turns back on. And rather than use the battery as the impetuous to generate this electricity for the spark cards often it’s coming from an ultracapacitor, which has stored that material. So it can cycle back and forth and be recharged if the car continues to go and then when it comes to a stop, the ultra capacitor provides the energy to get it started again.

It also has the ability to be used potentially in storage of electricity on the grid. One of the big concerns in the electric on the street today is not only the ability to generate electricity but the ability to transport it to where the users are, it’s very difficult now to be able to put in new power line. So one concept that’s being explored was to actually have ultracapacitors located near the point where the users are. So that the electricity can be transported at various times during the day when peak demand as well getting the most out of the existing transportation systems for electricity. So this is a market that’s growing about 20% to 30% a year, we are still in our infancy of getting into it, but we think we’re well positioned and this is an area that we’re – we’ve turned our R&D folks lose to come up with products that will satisfy the manufacturers in this area.

Randy mentioned SOx and NOx control, removing these materials from emissions of power plants and steel mills, these are the things that cause acid rain and smog and the like – and normally when you would think about what technology would be used to treat these chemicals, remove them from the fluegas, it would be reflect scrubbers. But a couple of companies in Japan a number of years ago actually developed technology to remove SOx and NOx based on the use of activated carbon and its had a fair amount of success in Asia and in Japan, Korea, China and Australia.

There are systems that are now operating to remove SOx and NOx using an activated carbon pallet and relatively big products. And we are a significant supplier to that activity in Asia. And that technology is starting to move out of Asia into the U.S. and into Europe, they just saw under first contract with an electric generating company in Wisconsin to excel this technology.

And these are big opportunities. Power plants, if it chooses this technology could install as much as 10 million of pounds of carbon or 15 million pounds of carbon in the initial fill. And the estimate is the make up requirements were about 50% of the initial fill every year. So this is an area that we’ve had success in and we’re looking at carefully for the future. Another area that we’re paying attention to is bio based chemicals with again sustainability being on the forefront and in the minds of many companies being able to make chemical products from removable feedstocks is becoming more important. And companies used renewable feedstocks and fermentation as a way to produce various chemicals such as citric acid and lactic acid.

When they use fermentation, they generate the product they want, but they usually by products associated with it, so many of them were starting using activated carbon is a means to remove the byproducts to purify the product that they want and will involve in the number of projects, it also provides the opportunity for reactivation service, because they would be in our sweet spot for reactivation, many of them food grade application. So that’s a growing trend, and we see that occurring not just in the U.S. but also on a global basis.

Fourth being able to expand our service concept into the emerging markets and these are markets that are starting to deal with pollution and starting to enforce the environmental laws, frankly that many of them already have on the books. So we are looking at Brazil as an opportunity for us to take our reactivation services that we have successful, had operating in the U.S. and Europe and move that into Brazil.

China we do have the reactivation facility, and we are starting to bring more and more business into that facility, but we haven’t fully integrated the service concept with providing absorption equipment, to customers on a service basis. So we are seeing in all opportunity there really many of you may know we make an activated carbon cloth in the U.K. that used in military and medical applications. And in the medical applications, its usually used for odour control and its used in wound dressings for control odours for rather sever wounds, what has been recently found out, the activate carbon cloth is actually a pad directed to the wound, that it seems it really promotes healing.

And so that’s a property that we are looking now to see how we can develop and further turn out into viable product. So its really unique and really interesting application and then sixth is taking our products that we have successfully developed the mercury market in the U.S. and being able to tie them, in other countries, the removal of mercury is going to become more important over time, certainly that’s the case in Japan, where they are starting to deal their mercury issue and eventually China will also install regulation for mercury removal, its in discussion there, and few obviously within the China, where you see pictures on the news that’s something that they need to control they generate more mercury than any country on the Europe.

And that is a good seaway into being able to talk about our current mercury business. And one thing I found out today is we are actually sitting on the site of the first mercury mine in the State of Nevada. So I don’t think we picked out on purpose but it certainly goes with our activity for removing mercury. Right now we estimate that the mercury market full gas treatment for power plants is around a 130 million pounds a year, it stopped a little bit from prior years due to some changes and how utilities we are using activated carbon mainly in the State of Illinois.

We expect that will be over 900 units generating units that will be required to comply with the EPA naturally, that will acquire mercury treatment by April 2015, some units will be able to granted extensions; the states have the ability to grant up to a one-year extension on the Federal Regulation, there has been about 140 of these 900 plus generating units that have received extensions, and there probably would be some more, but the market is still going to be very strong starting in April 2015, and powdered activated carbon injection technology has certainly emerged as the treatment of choice in this industry.

So, power companies that need to comply with mercury regulation are going to choose activated carbon technology, to solve their problem and certainly that creates the opportunity for us.

Just a little bit of scale. This is our power plant in Smederevo. How big their treatment system is for flue gas, where they are going after SOx and NOx in particular, pretty large portion of the plant. If you look that little tank it’s in the circle that’s about the size that they need to install for tank to store activated carbon for their injection. So relatively speaking for capital investment for power plant to use powdered activated carbon not very expensive from a capital standpoint, they can easily put it in, to estimate probably is less than $1 million for a power plant to install storage and blowers to put in a injection system.

Now, one thing we’ve learned as being in this mercury control market, is that NO2 power plants are the same, there are number of factors that effect, how activated carbon will perform in a given plant, and what the cost of treatment for that plant will be, and some of those factors are what’s the coal that they are burning?

With the contact time that actually when the carbon is injected, how long does it actually spend in contact in the flue gas before it’s removed. And what’s the temperature of that flue gas. Is there SO3 in the flue gas frame? Did the coal they were burning contained sulfur which puts SO3 in the flue gas.

What is the particular capture device the carbon has been injected into the flue gas stream, it contains a lot of other particular matter? How is that particular matter being removed? Is it a bag house? Is it a electrostatic precipitator. Are they adding oxidants in their system? The mercury that comes from the coal, it’s often in the form that is not readily absorbed on activated carbon, so an oxidant needs to be added to convert it to a form that’s readily, readily absorbable.

We provide products which contain an oxidant, such as bromine that will make that occur when our product is injected into the duct. Or some power plants have decided that they’re going to add bromine to the coal. And so, they will oxidize the mercury as the coal is burned, thus the carbon would not have to contain an oxidant. Some power companies would not want to do that, because bromine in the boiler creates potential corrosion problem for them.

So, many power plants are decided that let’s not the way they are going to go. And also has does the plant or has the plant already installed technology to remove Sox and NOx scrubber, which will effect the amount of carbon that might be necessary to further polish and remove mercury. So, there is a lot of things that go into an effect the use of product at a plant. And what we spend time in over the last number of years with R&D is planning to develop products, which work best knowing that those – there are those variables present, how can we tailor products that we work best under various types of conditions in a power plant. So we started with our first generation of products full pack both in non-brominated product and a brominated product. And those work well, but didn’t fully address the needs of the market again considering all those conditions in the power plant.

So we continue to work. We came out with our first generation of new products both, again, brominated and non-brominated. Some of them work best when bromine was added with the coal, one of them work very well when there is SO3 present in the full gas stream. SO3 is a – makes absorption of mercury and activated carbon very difficult.

So that was a challenge that we faced and we’ve been able to develop products that have been able to overcome those. Continuing to develop then our next generation of products continued to work well with the chemical addition in the boilers, but also work particularly well when a power plant is using a bag house to capture the particular matter.

Again, we continue to develop product which even bio for removal itself, working particularly well when a bag house is being used. Now, we have the lot of good products, we think we have products that are better in competition, but we really can’t demonstrate that to our customer base and must still willing to conduct trials.

We have to – we want to be able to demonstrate the performance. We can show them data that shows our products have performed better in a number of systems, but because of all those variables, usually they want to see how the carbon actually going to perform in my system, which I think is unique and different from all the rest.

So we’ve been aggressively promoting our products and full scale testing and we’ve performed, been involved with 22 full scale trials up to-date. And I can say to the best of our knowledge and all of those trials, our products are performing the best. And we have a number of other trials planned in the upcoming months.

So I’m going to take you through the results with a few of those trials. First case study I want to share with you is that power unit that was using in ESP for a particular control and they were burning a bituminous coal and PRB coal. And they had a target 90% removal mercury and because they were burning bituminous coal, we had SO3 presence in the full gas.

The competitor product was tested one of the first generations was not able to achieve 90% removal even at relatively high injection rates. We tested our Fluepac product and although it was very close to meeting their 90% removal rates is objective, it was still relatively high feed rates Fluepac. When they tested our Fluepac ST, we were able to achieve 90% removal at significantly less usage of activated carbon, significantly less. Customers are very impressed with these results.

Second case study was a 600 megawatt plant burning PRB coal with a bag house to control, collect the particular matter. Their goal also was 90% mercury removal, but also they wanted to preserve the quality of their fly ash.

Many of the power plants sold their fly ash to cement manufacturers, so they can eliminate the cost of disposing the fly ash and then also be able to get some money for. In order to sell it to cement manufacturers it has to pass certain tests and one of the things that can make the ash unacceptable to cement manufacturer of is if it contains too much activated carbon. This activated carbon than actually absorbs some of the additives put in the cement.

So it can show up the ability to sell those fly ash to the cement manufacturer. In this case it tested our FLUEPAC product, it was able to make the 90% removal at a given feed rate at 0.81 pounds per million ACF. They tested advanced product, to form about similar to our standard MC plus. And then they tried one of our second-generation products combined with bromine addition on the core and that dramatically reduced the amount of activated carbon that would be required in fact, except their usage rates are about 93%. So it shows that in this case. our product combined with bromine really provided a significant cost benefit to the customer.

We are continuing to work to develop better products, here is a graph that shows our latest product FLUEPAC STF compared to FLUEPAC ST and you can see in this trial which was a 380 megawatt plant within ASP our FLUEPAC ST product actually performed better than ST. If we go back to the slide our FLUEPAC ST was the best case study one and now we have a better product. So we are continuing to divest in R&D, we're continuing to seek improvements that hopefully our customers will also see the benefit in.

We think we're in the position that our new products have protection, so that we will be able to get the benefit of our R&D for the long-term. We have been able to obtain patents that are bromine impregnation techniques. Our product composition of improvements that used in those fluegas systems that contain sulfur and again using our products in conjunction with bromine being added to the core.

One thing I know that is on your mind is how big this mark is going to be. We standard given a lot of different, consistent I should say projections. And we probably think the market is going to be in the same range, but it is a large range somewhere between 300,000,000 pounds and 750,000,000 pounds and it is a very big range, but again every power plant is unique, so it is difficult to predict exactly how much eight power plant is getting used from an activated carbon standpoint. It also, there are some unknowns that the 900 plus generating systems, there are going to continue to operate considering the price of natural gas and the like.

So this is our best estimate was that it be a successful in being able to convince the customer base that of advanced products gives them the best overall value, than that amount, good size in terms of pound is going to decrease and drop more through the 400 to 300 million pound level, but the actual value of the market will certainly not decrease that much, because our products frankly will be more expensive. So if we reduce the customers’ use of carbon by factor three, our products maybe twice as expensive, but overall, the customer will see a general overall decrease in their cost of treatment for mercury removal.

So we estimate about 600 to 800 power generation units will need to comply with MATS in 2015 and again those that received a one-year extension will need to be treating in April of 2016. We know the market is moving because, although we don’t provide the injection equipment ourselves, we are involved with companies that do and we know that they are getting all the requests for equipment, answering RFQs, so we know that there are power companies starting to put in Activated Carbon Injection systems to meet that 2015 goal.

And we are starting to see our bidding activity pick up, power companies coming to us to start to contract for their activated carbon for meeting the regulations. We expect the heaviest time for this activity to be late in this quarter of 2013 and extending through the first half of 2014. And again, we believe that we’ve developed the products. They are going to be tailored to the needs of the industry.

Now, I move on to disinfection byproducts. Many of you many know that this is a market that’s driven by regulation, the US EPA established regulations in 2005 to limit the amount of disinfection byproducts that can be in drinking water in the U.S. and it provides an opportunity for us, because we do provide GAC, which is a viable technology for this application and I will talk about later, and also it’s an opportunity for reactivation. In our portable reactivation facilities, we are – we have NSF certification, so we are able to again provide reactivation services for the municipal market.

Well, our disinfection byproducts, that is naturally occurring matter that’s in drinking water and in a treatment plant when they add chlorine to make sure they kill bacteria and viruses, it reacts with a natural organic matter to form disinfection byproducts. The amount of disinfection byproducts that are formed are dependent on how much that organic material is in the water, also time and temperature and pH of the water are important and the measurement for disinfection byproducts is not as it leaves the plant, the water treatment level, it’s what’s the level of disinfection byproducts for the household that’s farthest away from the plant that gets the water, where it maybe in the distribution just for a day or two.

So time, temperature, effect, those reactions create more disinfection byproducts, which is one reason why in this area of Phoenix, disinfection byproducts are an issue. They have high level – relatively high levels of organic matter in the water, but also in the distribution system, the temperature can be very high. So that further drives the creation of disinfection byproducts.

The two prominent technologies that were recognized for the EPA with the proposed regulations to treat disinfection byproducts for the use of activated carbon, but also using a different disinfectant to oppose the chorine so that different disinfectant is chloramines which tend not to produce the regulated disinfection byproducts that were set by the EPA.

They do produce a whole bunch of other disinfection byproducts. But at this point in time this is not regulated. Many studies have shown that some of the disinfection byproducts produced by chloramines actually can do worse that those that are regulated that are formed through the use of chlorine.

The regulatory timeframe for this regulation is ongoing many of the large systems such as Phoenix and Scottsdale we’ve already installed activated some part of the smaller systems now, they can fine schedule that they have to meet and that is on going and we are working with them.

These utilities have to make a decision if they need to treat manganese, granular carbon or manganese forming and as part of our work with them of course we are trying to persuade them that the granular carbon is the best solution for them. One thing we do recognize granular carbon is going to cost them more than usual chloramines, but relatively speaking relatively the benefits provides the cost is actually pretty low, so in the large water treatment system, the household that using that is getting a bill from a water plant that is installed granular carbon is going to see an increase of about $0.25 to $0.50 a month in the water bill.

Not very much we considered the benefit as you can get out using activated carbon and they are listed on the screen. Not activated carbon won’t not only prevent the formation of disinfection byproducts of the regulated but also help prevent those that are not yet regulated. It also removes endocrine disruptors and pharmaceuticals it can be in the water. They are currently not regulated. But if the plant is taking their water source and deliver, they are pharmaceuticals that are in that water strain. We don’t know, but they are there that being consumed everyday by all of us.

So who are on the system that’s using activated carbon. So activated carbon provides that benefit, and also provides good tasting water. So for the amount of money that has to be invested by water facility to use the activated carbon relatively small compared to the benefits it provides.

Against chloramines they are cheaper but they produce other disinfection byproducts, so a community that’s using chloramines most likely it’s complying with the letter of the law, but not necessarily complying with the spirit of the law, because they are other byproducts being formed. And there are some other adversity consequences for the use of chloramines.

Our objective from a sales and marketing standpoint is to increase the amount of activated carbon that is online or being used in the U.S. and in North America. More people that are using activated carbon more facilities using activated carbon, the more opportunity we have to provide reactivation services. So this shows our belief of, how the amount of activated carbon that’s been installed in North America has been growing over the years, in part because of the disinfection byproduct regulation.

So that currently in 2013, there is about 140 million pounds of activated carbon installed and it has been growing because of DBP and about 2016, we will get to about 160 million pounds of activated carbon installed.

We kind of seen that the blue bars are for basically customers that are using carbon for testing other control and the green, it is for those customers who have installed and activated carbon controlled byproducts.

We had estimate that if the carbon is being used for replacement or their control, it needs to be reactivated about every 3.5 years and if its been used for dysfunction byproducts, it needs to be reactivated about every year and half. So we file those statistics to 2016, it creates a demand of about 76 million pounds a year for reactivation.

Now the future holds what we think are fairly large opportunity continuing. We know the EPA is working on new regulations for this disinfection wise product control that they have been announced and expect to come out in the timeframe of 2016-2017 and these new regulations are going to target the byproducts that are formed when other objects are used, in particular by products that contain nitrogen.

Coramine is a mixture of chlorine and ammonia, it has nitrogen when it reacts with organic chemicals. It forms compounds that contain nitrogen that can be bad news, so the EPA is going to be promoting regulations and breaking it all that will restrict the amount of disinfection byproducts that contain nitrogen.

Many large cities in the United States continue to use coramines and we would believe that a number of them will be impacted in this future regulation amount. So a list of some the cities and how much activated carbon would need to be installed to other sites to control these disinfection byproducts, so the number is very large. Again, it’s coming in future, perhaps not all of them will actually install activated carbon. The opportunity is huge.

We think we have the right products for this market. It’s a market that’s based on reactivation and in order to do that, you have to have a good quality, granular requirement, one that can withstand the rigors of that transportation reactivation. So we have that and we have been successful and since we have introduced our reactivation program, which I have mentioned earlier, converting about 70 facilities in the U.S. to customer reactivation and our projects continue to grow.

We do have a variable capacity for reactivation, so that’s one way that we are going to grow. We put the money into build facilities and now as Randy talks about challenges, our challenge though, our team particularly in the U.S. that they have good job is to flow those up and future regulations continue to make their market better.

Now to give you a break, we kind of talk about 10 minutes. So 10 minutes. Thank you.

Randall S. Dearth

Find your seats. We will get started again. Once you’re outside it’s hard to come back in, beautiful day out there.

So around the room we’re passing a representation of all three of the products we’ve talked about today. In the middle is our granular activated carbon. That’s our bread and butter depending on which side I saw and you can see the power activated carbon in the form that we sell it in and the far side is the DSCM pellet. You heard Bob talk a little bit about that. So when we talk pellets that’s essentially what they look like. So that will be finding its way around the room to look at those. So hopefully you enjoy the first half of the presentation today. We are now going to go into our second phase of the program and we are now going to take a deep dive, no fun intended into the marine market and talk about ballast water treatment with John Platz. John?

John Platz

Yes, we turn our attention now to the ballast water treatment opportunity. Ballast water treatment is required to prevent the spread of invasive species from one port to another when ocean going vessels carry ballast water as part of their activities. Ships need to remain stable during transit and they are running absent cargo they replace that way with ballast water. So in effect they end up transporting water from one port to another and along with that water they are transporting unfortunately organisms, bacteria, virus, protozoa, phytoplankton, zooplankton, a whole assemblage of different organisms. And the result is often an invasive species is carried from one port to another and causes difficult.

Zebra muscles are certainly the poster child if you will for this phenomenon. Now proliferation of zebra muscles in the Great Lakes and other inland U.S. waterways is hundreds of millions of dollars of economic damage on an annual basis. Back in 2004 the International Maritime Organization or the IMO came up with a convention, water convention to control the spread of invasive species that requires ships to treat their ballast water. I should say it will require ships to treat their ballast water because this convention is not yet ratified. Though it was written in 2004, it is not yet ratified. I’ll get to some more details on that in a moment.

The US Coast Guard however has in fact promulgated a regulation that came into effect in 2012 and it has compliance states that phase in starting in late 2013 and 2014 and onward to about 2020. I’ll also get into the details of that timing.

Traditionally and in many jurisdictions currently, ballast water exchange was required to private control the spread of the invasive species. What this means is before a ship can enter a port where it will de-ballast, it was obligated to rinse its ballast tanks mid-ocean to try to remove as many of the potential invasive species as possible.

Ballast water treatment now going forward in the U.S. and in the future globally when the IMO regulation is ratified will replace exchange. Ballast water treatment will be required around the world. So as far as these pending regulations are concerned there is really two components, first the IMO, as I mentioned not yet ratified. 30 flag states were require to sign this before it will be ratified, and today 38 have signed. This is the good news. But also there is a percent of the world’s shipping gross tonnage threshold that has to be crossed before the convention is ratified. 35% is the target and we currently sit at 30.38% of the world’s tonnage was signed on to the convention.

You see a list there starting with Panama at 21%, Hong Kong, Greece, Bahamas, Singapore with 4.82%. Any one of these flag states when they sign the convention, it will push over the threshold and ratification will be achieved. Next you see a list starting with Malta at 4.4% and then dropping down to India with 1.1% of the world’s shipping gross tonnage in combination. Clearly, a couple of these will be able to surmount the 35% threshold required for ratification. Once this threshold is achieved compliance will begin 12 months later. So there is ratification date one year later where the IMO convention will come into force and compliance dates will begin and will stretch to about 2021, very much the same way that the U.S. regulations phase-in between now and 2020.

The U.S. Coast Guard did in fact pass – came into law in June of 2012. And you see below the phase-in dates that are required. Starting with December 1, 2013, any vessel that has it’s keel laid December 1, 2013 or later, any new built will be obligated to treat their ballast water comply with the regulation, the very first time they come to U.S. waters. Then there is two phase-in periods for existing vessels, what I’ll be referring to as the retrofit opportunity. And if your ballast water capacity on a ship is between 1500 and 5000 cubic meters, then starting in January of 2014 you will be obligated to comply with the regulation after your first dry docking after that day.

Dry dockings are on a five-year cycle. So this first ship size category will be phasing in starting January of 2014, roughly 160 per month over the five years. And then as you see starting in January 1 of 2016, the small capacity and the large capacity vessels will be obligated to install or to comply with the regulation over the 16 months beginning at that time.

There is a couple of meetings that are coming up in the near future, one later this month. There is a MEPC Maritime Environment Protection Committee meeting in 2014 March, and then in early October 2014. The reason I mentioned these in this context is that there is the possibility and call it a suspicion that this threshold and tonnage and therefore the ratification of the IMO convention will be timed to coincide someone, some country will make an announcement to push over the threshold and it's not a requirement.

Any time a flag state presents document signed to the IMO, it would become official, but again I list these year just as part of the speculation and perhaps coincident with one of these dates. We may finally achieve ratification of the IMO. It's been since 2004, people have been anxiously awaiting it for quite some time now, and this is just a prospect. I will indicate later that for our purposes of forecasting the market, we are using a working date at end of the second quarter next year for IMO ratification.

Now, the Hyde GUARDIAN, which is the product that Hyde Marine, wholly owned subsidiary of Calgon Carbon sells into this market. This combination of filtration and UV, and UV reactor. You see here a list of some of the important certifications that we received. The first one to date has been the most important. Our IMO type approval, this is an approval that acquired for worldwide ship-owners to be able to own and operate the equipment and satisfies the IMO regulation granted to us by Lloyds register on behalf of the United kingdom coastguard if you will. There are roughly 35 companies that have IMO type approval systems to sell into this market space, 14 of this 35 use UV.

You see there are additional certification, the class type approvals that are referenced, this is the Maritime equivalent or something like underwriters laboratories. These are organization that unless if you will they use a certain equipment on certain classes of vessels. And important one that’s indicated here is the U.S. coastguard AMS approval, AMS stand for Alternative Management System.

When the US put together their regulation they have recognized that it would take a lot of time for companies to achieve the full and permanent U.S. type approval on their equipment. So they implemented this AMS interim certification to more speedily give people the approvals, to give customer confidence that they can purchase and use the equipment and with the AMS certification that we have achieved. Owners can use the equipment for five years whether or not type approval on that equipment has been achieved.

It gives people like us time if you will to achieve the type approval, but it gives the owners of the vessels the confidence that they can implement and comply with the U.S. regulation. At this time 19 companies have achieved this AMS status and as you see seven of which use UV. We also have achieved a hazardous area certification that's been added to our international type approval. Interestingly enough you can take 36 or 72 high powered UV lamps and put them in the exclusive area on a gas tanker or in oil tanker. It's been a available certification for us. So as regards the U.S. coastguard type approval, we are currently coordinating with the two independent labs that the coastguard as thus far named a suitable testing locations for U.S. type approval. One takes equipment to type approval testing, there is two components, there is a land-based testing, session and then their ship board requirements.

We’re also working very closely right now with the EPA and their technical panel, in conjunction with the Coast Guard that are working to develop and validate a UV appropriate test method. When the Coast Guard promulgated their regulation, they listed only one test method as being acceptable and it doesn’t worked for UV.

However, Coast Guard being aware of this issue, you see reference the code section 5.4.A allows for the development of alternative test methods that effort is underway and we’re working with the EPA and the Coast Guard and other manufacturers and academic and so on to cross this threshold. We anticipate resolution on that end of the year and first quarter of next year. It’s an ongoing process. We are scheduled for Coast Guard testing in the second quarter of 2014, not will be the land based component and then will be following that after shipboard testing subsequently.

To-date, we estimate that there have been about 2,300 – 2,285 ballast water treatment system sold into the world market. The overwhelming percentage of them as you can see from this pie chart, our UV systems. You may recall earlier that that number of manufacturers, number of type approved systems is less than half or around half of all those and yes, 17% of the system, 67% of the systems purchased thus far our UV systems.

You see some of the other technologies listed there, electrochemical, chemical, ozone, deoxygenation, there is a number of other technologies that have been brought to bear. But the lion’s share purchase thus far have been UV filtration, it has been the technology of choice, very easily used, very safe, easy to maintain, easy to install. These are some of the reasons why UV systems have been so successful in the marketplace compared to some of the chemical or other technologies. These 2,285 systems, our estimate of the market to-date, we’ve sold approximately 12% of this.

Here is a view of our sales, Hyde Marine sales by the balance for the capacity of the ships that are using and important distinction here and it’s confusing there are couple of different numbers that I’ll be referring. One is the capacity of a ship to whole ballast water. That’s the metric by which the phasing time is driven. As you recall the mid size systems for January of 2014, the small and large capacity, ships are obligated into 2016.

Here you’ll see our sales data broken down by that metric, ships ballast water capacity. The green bar in the center of each of these is the first regulated retrofit size class for the Coast Guard. And you can see as we move left to right from the early years, 11%, 12%, 13% of ships of that size that we sold to is increasing nicely.

Another point that I’d like to make on this chart, everyone of the sales bias and everyone of the 2,300 sales bias players have been effectively early adoption of three bias if you will. There has been no regulation that’s required compliance yet, and yet through the years, there’s been like growing market if you will for ballast water treatment. At this point, I will come back to in a couple of slides. Another view of our sales is orders received by year. And you can see that as we move through from 2010, 2011, 2012 to 2013 year-to-date October, actually year-to-date September in this graph, we've been very successful at receiving orders.

Approximately $63 million is represented by these orders that you see here. And the second and third quarter of this year, represent combined the most orders we’ve received in a two year period.

I’ll pace them to point out that the orders we are receiving lately are of the smaller size as you saw that middle capacity frame that first would comply has been growing in our experience and as such these latest orders, don't represent perhaps the same dollar value, but a number of orders the approaching regulation is clear to us that this opportunity is on the way.

So before I share with you that was in front of you, our projection for the market I want to go through some of the reasons why the arrow bars are so great or what the challenges are to accurately forecasting how this market is going to come upon us on a month by month, year by year basis, the first and foremost is when will I am ratified clearly as we go into 2015, 2016 and 2017 the timing of the ratification is going to affect when the market evolves.

I mentioned earlier that in our numbers which we’ll be getting through shortly, we are working with end of the second quarter 2014, you have to pick some time it could be before that at this upcoming meeting, it could very well be subsequent but our assumptions and our forecasts has based on end of the second quarter. Another source of arrow bars if you will on a forecast is this prospect of U.S. Coast Guard extensions the regulation allows the Coast Guard to grant and own or an extension though the owner of our vessel is obligated to ask 12 months ahead of time if they want to seek an extension.

As recently as two months ago, we talked with the Coast Guard and at that time they had received five requests for extension, so we don't anticipate that this is going to be a big factor but it's just something that adds uncertainty to market projections. There is another issue of fleet segregation many ship owners own many vessels, and they appreciate having the flexibility of being able to send their ships any of them, anywhere.

But in the current environment where the U.S. regulation is promulgated and the international regulation hasn’t we consider it possible that some ship owners, will segregate their fleet and only outfit ships when they have to and if they opted them with balance quarter they were able to go to the U.S. and if they choose not to then they won’t. This is a manner of segregation of a fleet that they don’t find appetizing but again in this difficult economic environment that is the maritime trades to some extent there maybe some of that.

I mentioned earlier the fact that the 2300 purchases thus far have represented early adoption to what extent will that effect continue is one thing to track when vessels by number we’ll have to comply year-to-year, but on top of that one would be able to add some level of ongoing early adoption I will have to make assumptions estimates that will be as we put forward our market forecasts. How many shifts will be retired rather than installed. And upcoming slides you will see a couple of different assumptions that perhaps people made.

I have to imagine if I had a 35-year-old vessel and I was facing a decision to spend hundreds of thousands of dollars, implementing balance quarter, it may push me over the edge and decide to retire that vessel. To what extent that happens, will affect the numbers. New build ships every year, how many of what type and really generalizing, there is a lack of available information on the 100,000 ships that are currently navigating the world to waters. What’s their balanced water capacity, the flow rate of the valve systems. These issues were not well documented and well known.

Here I listed three people's approach to estimating the retrofit, the existing ship market for balanced water treatment. You see Lloyd’s Register, Visiongain a consulting firm Hyde Marine’s internal numbers. And you start with something like a 140,000 worldwide vessels, then you start to reduce that number either based on the tonnage of the ship or the age you see Visiongain lopped off more than 18 year old vessels, we think it’s going to be a cut point more or like 20 years old. Bottom line is you see the numbers on the right, Lloyd’s at 50,000, we are at 47,000, and Visiongain has working number of retrofits of 33,000.

You put all that together and all the assumptions of new builds 1600, 1700, 1800 a year and you come up with this, if you are Hyde Marine. This is our working estimate of the market size for balanced water treatment equipment moving forward. You can see we also include what we believe happened in 2010, 2011, 2012, and 2013 those numbers conveniently add up to the roughly 2300 that I have been talking about is our estimate of the market today.

But then moving forward, you see our estimation of 64,000 total vessels over this time period implementing balanced water treatment. The dark colored band at the bottom is new build vessels being constructed year-by-year as we go forward and then the lighter colored section is this existing for retrofit market.

Very exciting prospects here, this is our estimate. The air bars are large, for the aforementioned reasons, but generally speaking over this period, some number on this order are going to have to implement balanced water treatment. The numbers get pretty impressive, I see numbers over 12000 units a year for a three year period in the middle. This is over 30 ships a day that will have to be implementing balanced water treatment to comply. It’s going to be certainly interesting times. We put the overall dollar estimate of this market at $28 billion for equipment provision alone, not counting engineering and installation that sort of thing.

Here is another glance at the 64,000 vessels. We are now shifting away from balanced water capacity, to balanced water flow rate. Even though the numbers of 1500 and 5000 are the same you will note the units or cubic meters per hour. And the reason that we present this information this way is that different technologies have sweet spots related to flow rate, the systems are designed and sold based on flow rate.

But here is the same 64,000 vessels. As you can see in the lower flow from 60 cubic meters to 1500 cubic meters an hour, there is many, many more of this systems than the very high greater than 6000 cubic meter an hour. Typically very large oil carriers, very, very large tankers will be in the far right component and there is just fewer of these vessels worldwide by the significant margin. And so coming slides will compare what types of ships are in these different floor rate categories and which technologies perform better on a cost basis and ease of use basis.

Here is a first – and education on different types of ships and the type of Dallas Water System that they use, what we have here is slow rate of the ballast water system increasing left to right and on the very low flows, you see what you might expect tug boats, offshore service vessels usually physically smaller but not always vessels, crew ships as we start to move into the 150, 200, 250 cubic meter an hour sized and then on up to bulk carriers and large tankers, exceptions are noted there is we try to cover the range here but there are small tankers then there are large crew ships but generally speaking this will serve to give you a sense of where different types of vessels fit into the floor rate range and then here we have to illustrate where this different technologies for ballast water treatment fits in best, UV Systems from essentially zero to as much as cubic meters an hour, Hyde Marine has sold several systems in the 6000 cubic meter an hour range, Electrolysis, electro chlorination, deoxygenation really don’t come into their own until the higher flow rates.

So I’m painting a picture here that UV is all but on its own in the low floor rates it is part of the reason why 70% approximately of systems sold today that has been UV, there has been a lot of sales, there has been a lot of shifts in this size range and yes they are lower priced for sure.

Our customer base thus far everything from yards to container ships, tankers, offshore service vessels, crew ships we have good success in all of this, we are on a whole lot of yards on that are required to comply with ballast water in particular the number was 8 but literally big enough to be required to carry enough in a ballast water to treat, the number has increased we have done three or four sales to new build mega yards, there are still people out there creating these – and we are very proud to sell to them.

I would like to finish the discussion on ballast water with an expression of our value proposition, when we are selling it to the business we really sort of compute against two different types of entity, UV and then the others.

So against competitors what we emphasize with the customers in the prospects is that we have the largest installed base, we do not claim to have the most sales today but we have been at this longer through Hyde Marine and as far as installed commission systems, we lead the way and as such we have learned a way and we are developing in the marketplace a reputation for superior reliability and for ease of commissioning and installation. The learning curve is quite significant, we have been at this longer, we have commissioned over 100 total systems and exceed of any of our competition is done.

We have specifically the most retrofit experience, our first 2300 sales perhaps 4% or 5% of them are retrofit installed them to an existing vessel. The absolute lion share have been newbuild. For Hyde Marine our numbers are about 17% of our sales thus far are into the retrofit into the existing ship business. This is a learning, this is a capability that is valued by the marketplace.

We have close relationships with the U.S. regulators. This effort towards Type Approval this is going to be critically important, physical location as well as corporate involvement through the decade through the EPA put is in good step to communicate well with these regulators.

We are backed by a solid parent, Hyde Marine has a parent with decades of UV and certainly water treatment experience many of the companies with whom we are competing are brand new start-ups certainly less meat on the bones, less reputation and momentum than Calgon Carbon is, and this is starting to be more and more important to our customers.

And then finally, we’ve had a running head start on establishing a worldwide service network for aftersales service. This is going very well and its valued by the customers, you can imagine who are global in their pursuit of commerce we need to be able to pick there wherever they are.

Now when we compete against non-UV system all the preceding items prevail, all this experience and backing, but also the fundamental difference in the other reason why 70% or so of the system sold have been UV just because we don’t have chemicals and we don’t have to carry neutralizing chemicals. For chemical base system in order to be able to discharge their balance quarter they have to quench every bit of the treatment chemical prior to discharge, so they have to physically carry neutralizing chemicals.

UV is simple to operate, simple to maintain there is no measurement, no dilution of chemicals, you can’t get easier than pushing the button and turning on the system. There is no potential in UV systems for damage to shift systems be it seals or the ballast water tanks or their piping we don’t have chemicals that can oxidize and cost trouble.

Safety for personnel and ship systems just from a standpoint of having a chemical system production plant on board, it’s less safe put it that way than a UV system which is effectively lights in a plant.

So that’s the GUARDIAN story, the Hyde Marine story. I look forward to answering your questions when we’re finished with the presentations. Thank you.

Randall S. Dearth

Thanks John. We will hopefully after a very in-depth discussion on mercury removal disinfection byproducts and now the ballast water market. Everybody here in the room and on the webcast are now experts in these technologies, and hopefully you see how excited we are about and how we truly believe they are drivers taking us forward.

So with that, we heard about our markets, we’ve talked about a few other things happening in terms of our cost improvement. Just kind of put the puzzle together, and what I graphed on this slide essentially of the initiatives, which we truly believe that are happening now, that will be happening in the year and next few years. It really going to transform this company into a different company with tremendous value creation.

On up top I highlighted our $30 million cost improvement program and I have added our $10 million cost improvement program, which is I said before would be running into 2015, when you are looking at our three emerging markets; disinfection byproduct as Bob pointed out is already started. We are already participating that and the facility you see today is a great example of our customer who is using our product with is market.

Our ballast water as John pointed out we are looking at that’s going to really be maybe mid 2014 and beyond market for us, but that’s really when we are going to value the benefits from systems John is able to sell. And then the MATA ruling you see, we are now based on the current regulation looking at 2015 is the time by which we should see the benefit of that very large, and very interesting market.

The one bullet point now, here I wanted to address now is the fact that we are well aware that we have a very good balance sheet. Steve Schwartz on our call on Tuesday indeed mentioned that and where that year-to-date come in and talk about that. And I could say is the management team and I also say board of directors, this is something we are spending a tremendous amount of time on. We have these markets ahead of us. We have a lot of things happening out there with a global Calgon Carbon market and we really now looking at balancing our activities to truly put the time and effort and determine which one of these boxes is the best way to go, or which combination of boxes.

Yes, I’ll start with the upper right M&A and I talked with many of you either one on one or in groups. And we are interested in M&A, but we are not interested in buying for the sake of buying. We’ve done expensive work amongst ourselves talking to experts out in the field and come to conclusion if M&A candidate would have come our way fitting our core compliancy, we will consider it.

I’m not going to announce there is anything in M&A, because there is not, but we are very open to that. We have our wish list and we’ll continue to monitor that as things happened in the market. So M&A is indeed a possibility for us to deploy our balance sheet. Go to the left hand side, investing in our existing plans and looking at new production facilities. As I said earlier in the presentation, we recently expanded our Pro Rubber and Virgin Carbon plant. We expanded it by 20% giving us roughly £8 million of additional product which immediately we could sell.

That’s something we can continue to do. We have another Virgin plant as you know and also Pro we think it stand further. So it’s an option for us to consider that we could get more products through these existing plants. But I can also look at what would a new plant do for Calgon Carbon going forward. I think it’s really our responsibility to think about that, what would it look like, where it would have been, what would be the type of raw materials, the products we produced. So there is very active discussions internally, do we want to produce a new route to Calgon plant, okay.

Keep in mind what I said, every pound of carbon, virgin carbon we produced today in our two virgin plants dissolved. We sell more carbon that we could make, so we supplement what we sell in the market by buying outsourced material primarily from Asia. We also sell the coconut base, we also sell the pellets that you see in the [indiscernible] in front of you.

So would you consider that we have a growth rate in activated carbon market globally of 10.8%, a huge number? We considered that we have two very large carbon based emerging markets that we presented to you today. When you consider that we have these innovative applications as Bob mentioned. The more continually going to come these are applications like in the biochemical space and in the – for DSTN.

So two or three years ago it didn’t exist and all of a sudden they are looking at this age old product the activated Carbon helps all their needs. So you add that to the mix, add also into the fact that we don’t have a totally global presence as we like we’re global Europe, we have a Japanese presence, or China presence, but what about India, Bob mentioned it. What about Brazil. I’m very bullish on both. And I believe that there are opportunities to use our products, granular powder and some point or the other outsourced products and so to be able to get a presence in these emerging markets.

So if we go down that path and if the markets and they will continue the way we presented them to you today. I have the supplement everything I sell with outsourced material. And I could tell you the margin of outsourced material is not as good as when we make the product ourselves. We eventually will become a trader of activated carbon and not a key producer. Therefore for us not to spend time internally. And really discussed the fact that perhaps we need to do something on the left hand side of these quadrants, I think we’d be foolish, we’d be prudent of the management team of Calgon Carbon.

So there is a lot of effort right now, looking at that to see where we could go, and the last portfolio returning value to shareholders. Many of you know that a year ago, I think it was just about a year ago, November of 2012, we did a $50 million share repurchase. The Board is authorizes to do another $50 million which we can do.

There was an ASR program that concluded in September. We had the ability to do so. We think that’s great and there is other within that box of returning capital shareholders that there is other things, we are looking at. And in discussion with the Board and in discussion amongst ourselves as a management team, we’re going to continually challenging ourselves to find the best solution.

I’m looking for the balance. I’m looking for the balance here, which is going to take us forward. And later I’ll have a chance to respond to some comments and suggestions that are out there so I’ll readdress this and we get to Q&A but just to give you a sense of what we’re thinking about?

We turn over to Steve. He’s got another announcement to make and somewhat tied to the topic I just addressed so, Steve?

Stevan R. Schott

Thank you, Randy. Certainly for us to be able to capitalize on our strategic opportunities. We will be required to have additional liquidity. And I’m extremely pleased to announce that today we in fact have a new credit facility in place. Closed on yesterday, press release after the meeting today.

That new facility replaces our former $125 million credit facility. It’s being replaced with a new $300 million credit facility. That facility has two key components for us, a $225 million revolver and a $75 million delayed draw term loan.

The revolver will have a five year tender and be available to us through November of 2018, while the term loan will have a 7 year maturity and be available until November 2020.

This facility, different from our last lap of multi-currency feature till they allow us to borrowing foreign currencies and our financial covenants have been improved. There are two that are notable. The first is leverage, and you’ll see the expansion in our availability to borrow to now 3.25 times our EBITDA. Interest coverage remains at 2.5.

Pricing is better under our new facility, under our former, it was LIBOR plus 125 in the first pricing tier; under our new facility it’s LIBOR plus 100. And our first tier has been expanded to 1.25 times EBITDA. Our unused fees also declined from amongst the tiers 25 basis points to 37.5 basis points under our former facility to 15 basis points to 20 basis points under our new facility.

As I indicated very pleased to have this completed, now I just to like offer a financial perspective you’ve heard a lot about the cost improvement programs and what our team at Calgon Carbon has done over this past year to really, significantly improve the performance of this company.

And I’m very grateful to have the opportunity to show you what that’s translated into through September of this year. First let’s start with our net sales, plus cost of products sold before depreciation and amortization. A year ago in September 2012 that metric was 27.3%. Very pleased to say that we have improved that by 64 percentage points and as of the third quarter of this year, we had 33.3% that’s a significant improvement; it didn’t come easily.

The team has done an outstanding job around the world to really focus on cost improvement and make this better and we’re doing it. And as we go forward, we look at our ongoing cost improvements Randy today announced $110 million under the program.

This year in our results we have $15 million from our improvement programs that are resonant in our results for the full year. That leaves $25 million more to allow for improvement and most of that $25 million going forward is focused on this particular metric.

So we expect ongoing improvement, coupled that with the fact that our growth markets should allow us to more fully fill our reactivation fleet, allowing for better overhead absorption and although we are as Randy indicated selling all the products we can currently manufacture. The availability of end markets to sell into will allow us to be more selective and perhaps improve our margins by where we sell our home made products engine.

Operating expense; a significant driver to this year’s improvement; this has also exceeded our expectations when we set forth to improve this metric. To highlight first the two lines on the graph. The first is the green and that represents the 2012 performance by quarter and the blue underneath it represents 2013 performance year-to-date through the third quarter and you will notice a significant gap, 200 basis points and that is our improvement this year.

In realty, it has been four years of improvements, so if you look at the upper right hand side of the slide, you will see that in 2009, we were at 17.9% and as we move forward through the first nine months of this year, we are at 14.6% average. This has significantly improved our bottom line results, we are proud of this accomplishment and we will look to continue to improve this metric.

There will be challenges as we go forward. Certainly as the Hyde Marine business grows, it will require a higher level of operating expense when compared to our carbon and service business, but we will manage that and we will be happy to have that growth.

Those two outcomes rest in our EBITDA margin and the improvements that are shown within it. Again I will focus your attention on the prior year, in the third quarter of 2012, we had some restructuring charges and some other what I would call one time charges, so if we for the moment take that out of play, we were around 14.5% for the full year, again ignoring the third quarter.

As you can see, year-to-date this year, three quarters of improved performance over every quarter of last year and an average of 17.6%, a significant movement. As we go forward, again factoring in the cost of improvement initiatives with $25 million more to go, growth markets as I discussed and ongoing OpEx management, this is a metric that we currently expect will continue to improve. All of that resulted in improved earnings per share for our shareholders.

If we go back and look over the last five years, we have been in the range of $0.61 to $0.69 per share, certainly last year is adjusted for the charges would be in that bandwidth as well.

Through nine months, only nine months of this year, we are already at $0.64 per share and so you can clearly see that we are going to break through the historical range and our cost improvement initiatives and our price increases had a lot to do with our improvement.

Inventory; Randy mentioned earlier, there are three phases of cost improvements; the second phase contain product rationalization where we decreased our SKUs by 45%, that’s at a fairly profound impact on our inventory levels. At the beginning of last year, we were at $123.5 million. We currently received [ph] $107.8 million and as I mentioned on Tuesday’s call, we have chosen to put $6 million more of high quality coal on the ground in the current period. We will do that until we complete our coal strategy and that metric will be even better.

On an ongoing basis, we believe the product rationalization efforts will continue to have a positive impact. Randy talked about the plant optimization and the third party study has been conducted. We think that will further improve this and then well, I won’t call it a completion, the next steps in our coal sourcing strategy should also helps us to lower these numbers as we go forward.

Looking further at our balance sheet as mentioned by Randy, our debt to EBITDA ratio reflecting our borrowings and our earnings, of course, remains very modest. If we look back overtime, 0.41, 0.34 in 2011, we reached a high last year of 1, that was at a time when we had just borrowed $50 million to complete our first share repurchase and we currently sit at 0.52 clearly significant opportunities remains for our strategic investment opportunities.

And finally, cash flow, the powder blue oval line and flat points on this graph reflect our capital spend and so in 2010, we spent $47 million that grew to a high of $72 million in 2011 million, declined to $60 million in 2012 and is only $22 million year-to-date with a forecasted spend for this year of $30 million to $35 million. So you can see the decline in our spending has also coincided with an increase in our operating cash flow and that’s represented by the dark blue boxes, where in 2010, it was only $33.8 million growing to a high last year of $72.7 million. To-date through nine months is $39.2 and I would expect that once we move through the fourth quarter, we should be at least at the 2011 level. What that has done effectively is allowed us to borrow in 2012, as we did to undertake our first share repurchase. So we effectively used what has now become our free cash profile to being able to return value to shareholders by repurchasing shares.

Thank you. I’ll turn it back to Randy.

Randall S. Dearth

Thanks, Steve. Just a few more slides and then we’ll get to our discussion, but I do want to take the opportunity to again highlight some of the challenges we see. You’ve heard about these, so I may repeat one or two of the comments, but in the environment we are in today, I think it’s worth mentioning, the regulatory approval delays, that’s the nature of the [indiscernible], I have been in the industry, chemical industry about 25 years, I have seen it many times. But all that being said, the fact that we have three of these [indiscernible] in a very strong traditional business that I presented to you earlier on, we are not totally reliant on anyone today.

One of the macro economic additions, again, it’ a risk, I think everybody is aware of that. What could happen in any given time, but it’s still there is a challenge. Foreign exchange rates Steve mentioned on our call on Tuesday the effect of Japanese Yen what that had on year-to-year basis for us. So that’s always an issue we have to deal with. Improvement project cost. I talked to you when I talked about our cost improvement initiative about the fact that we are now at a level for us to get further savings and further efficiency improvements. We need some help.

We need folks who can come into the and help us benchmark and can help drive the success of the program, unfortunately [indiscernible] and so going forward as we identify additional savings opportunities, that may require us to go out into higher consultants, higher experts that can bring in that will allow us to achieve the saving. So the challenge we have, let me give you a good example, our ERP system, we are currently looking at because there are certain things that we want to do e-business is a great example that our current ERP system will not allow us to go. I am big fan of e-business. I have mentioned it many of you, but we have to fix the house and that’s going to cost millions to do, but millions were spent in doing ERP system that would need to be updated.

Our competitive landscape is always out there as a challenge in terms of who is coming in with new technologies. We monitor that very closely. We believe we have strong position is still challenge that we continually monitor. Coal price availability, we I hink have done a pretty good job as I outlined to you in focusing on core and what we need to do going forward and we are happy with that, but there is a lot change in the industry, bankruptcies, closures, you name it, we are constantly monitoring that to make sure that we are not part of that that we keep ourselves outside of it, but nonetheless, it’s a challenge – list.

And I want to summarize two assumptions, you heard this throughout the presentations today, but just to get it clear as to how wea are looking now at the short-term, in terms of mercury compliance indeed 2015 to the compliance day of April 15. From what we're hearing from talking to customers and talking to experts in the power generating industry.

The don't expect silo fillers to occur at the earliest, probably Q4 of next year. Just in light of voluntary compliance out there to make sure that they are doing it early. As Bob said we have a lot of negotiations going on very positive and I think builders will continue through early part of 2014, that are happening now. But from an assumption perspective this is how we're basing our future.

John mentioned, I have no ratification against our belief based on talking with folks in a trade shows and talking to some of our customers that the mid-2014 is that date as Ron said with the year later mid 2015 for compliance start. New ship builds are going to remain slow in the short-term and the early voluntary compliance is going to be slow. Again those folks would say, yeah I know I have few years to comply but I am a good citizen, I want to go ahead and comply now. We are not seeing a lot of that happening, so its really going to be when they are forced to do it, they will have to do it. So those are some of our assumptions.

Let’s summarize, what you’ve learned today and we found a lot out here. But we believe we are still a leader in the global activated carbon market, the market as I said before that is growing quite well at 10.8% in the next five years. We're very proud of the reactivation strategy, hopefully you are able to see that from the presentation that Bob gave you earlier and we truly believe this is a great way to broaden our customer base. Not only here in North America, but our colleagues in Europe and our colleagues in Asia as well are actively pushing that strategy.

We are very proud of our innovation, we truly believe as I’ve said at least two or three times that we're the best in the industry. I believe it, I know it and we're going to continue where it makes sense and where we see opportunities to grow our business to do innovation. I mean we look at these emerging regulated markets, a lot of today's topics were around this and we really are well-positioned and we believe that we are ready to go at any time now.

On bottom line efforts, Steve talked about it and I talked about it that’s been a big objective and we're seeing success there. And I’ve expanded our cost improvement program by $10 million, the projects to use the balance sheet to return capital to shareholders use the balance sheet to expand our plants, build a new plant or M&A we talked about that, I will talk about that in a minute again. But I want to assure you that we are very active in these discussions, this isn't something that we put off for a year and say let's worry about that in a year. We are very active with our board in dealing with that to make sure that we can create value that is available through that balance sheet.

So with that gentleman if you want to join me we will start the Q&A process. I am going to bring them a little bit closer, so hopefully don't fall off the stage to increase our safety statistics. We don't want any…

Question-and-Answer Session

Unidentified Analyst

And I am going to start with the first question. Guess what's that question? Many of you have called me this week or e-mail and I talk to a few of you here. Okay Randy you received a letter from one of your large shareholders, with some suggestions. What are your thoughts?

Randall S. Dearth

Let’s start here, so let me through some of these. I will start with the master limited partnership, the MLP structure. This was presented to us about a year ago and quite honestly we were intrigued. I think I have been with the company at the time two months and I didn't quite understand it. Steve was able to shed some light, so we brought in an expert. We used our banks to Morgan Stanley, who has done probably more MLP deals I think anybody out there. And helping – are we MLP candidate, because why this sounds interesting. We are intrigued by this and we can create value.

Maybe a in thorough analysis looking at the finances, looking at the company, it came back with the conclusion it really doesn’t – isn’t going to make the financial sense perhaps. Others may think we don’t believe it’s going to create value therefore we don’t.

And that was earlier this year I would say and that was concluded. We thinking about it, thinking about it other people suggested. So we actually went to our board and I requested that we have a subcommittee form, this was in August. I said we’re still hearing MLP we’re so interested. We have one opinion. The Morgan Stanley opinion that says it’s not going to create the value. Why do we form the sub-committee that can go out, pick their own banker, pick their own advisor, do it with members of the board, some of which who have MLP experience by the way and allow them to investigate this.

So this was August and they’ve been working hard ever since. The goal is within the next couple of months that they come back with a second recommendation. If it makes financial sense, if it creates value, we’re not against it. I think we said that I was against it and management against it; I’ll set the record straight. I’m not against it if it makes sense, so more to come on that. Once we have an evaluation from that third party perhaps in a future call, we will have the information that we can share with you on that. So that’s the MLP.

The question around margins, you don’t have good margins and quite honestly went back in 2012; I would have been the first one in the line to say I agree. Those would remember my second day at Calgon Carbon, I had my first conference call with you and I made a very clear that I am not happy with margins, I believe there is opportunity that will improve margins and we will put the programs in place to do so and that was August of last year. We’ll seizure the numbers. Our gross margin a year ago this quarter, third quarter, 27.3, Tuesday we announced 33.3. We’ve got four consecutive quarters of quarter-over-quarter growth in margin.

EBITDA, our EBITDA last year, Steve showed the slide was 11.3% for the year, year-to-date Steve shared with you 17.6%. I wanted to be higher. We’re not stopping with that. As I said, when we talked about these savings program, I think there is more and with EBITDA as well. We’re going to focus on that. I think selling products smarter, collaborate then we’ve ever say product before in terms of selecting what markets and what customers. We’ve got a rid of a lot of products. We’re doing a lot of good things. So was I unhappy with the margin in 2012, absolutely. Am I happy it’s moving in the right direction, yes, but there is more to do and we will a challenge a team to do that. So that’s the issue of margins.

Increasing borrowing capability I think it was suggested in our letter from our shareholder that you should increase your borrowing capability, market conditions are correct. We couldn’t agree more and the fact that we announce today an increase in our credit facility is evidence of the fact that we feel now it was the right time to do that, so totally an agreement. Returning capital to shareholder, we talked a lot about that. Share buyback program were not against it, we’ve done and we’d be do it again and we may doing it again.

Looking at investment plans again is something I believe that we can’t ignore given the market situation and in the huge opportunities that are ahead of us. So it’s up to us as management, working with our board and truly looking at the various options we have and finding the right balance. It is indeed a balance. It could be variations thereof. I don’t see one thing and that’s it. We’re looking to say how best and what’s the best combination that’s going to provide the greater shareholder value. So returning capital shareholders we’re not against that whatsoever. We just need to do some homework to better understand that. Am I forget anything?

Robert P. O'Brien

No, I think so.

Stevan R. Schott

Okay. With that we’re all open for question. The folks online, I think I said at the beginning of the presentation, Gail’s email is on the investor page. So if you would like to email a question, please feel free to do so.

Unidentified Analyst

You mentioned you’re looking at additional capacity. Would that be virgin powdered capacity and you mentioned you’re looking at India and Brazil would it be there.

Randall S. Dearth

Bob, do you want to address that?

Robert P. O'Brien

We will probably not be looking at something right now in India or Brazil but one of the things we have to consider is virgin capacity increase, all right. My own feeling is we benefited greatly by having facilitates our existing facilities that have flexibility and the products that we manufactured. So whatever we would consider for the future I think we’d have the same flexibility built in. So we would not necessarily look to construct the plan that will be targeted at a single market. We would try to have facilities that could obviously serve certain growing markets that would have flexibility to provide products other places. So that we better be able to withstand any ebbs and flows of one given market. So that’s something we’re considering but certainly we haven’t made any decisions at this stage.

Unidentified Analyst

Thanks. Randy going way back to the beginning and even at the end, you’ve referenced this 10.8 CAGR that you’ve seen for the industry, I think that’s an industry forecast, that’s not just a Calgon Carbon forecast, but I’m wondering what are the reasons that Calgon might not be on that trajectory is in fact you believe that that’s the trajectory the industry will be on. Because we see forecasts like this from time to time for a lot of reasons, sometimes they don’t play out we haven’t seen growth of that magnitude at all in the last couple of years for a bunch of very good reasons. But I’m just wondering is that a Calgon Carbon forecast as well, something we might expect there?

Stevan R. Schott

Well as we’ve referenced on the slide is actually looking in odd numbers and talking to our global folks and then going out to the market reports and several out there, some way off, some are way we don’t think are good market reports that look at. We’ve averaged that out and come to that 10.8 CAGR that we believe the market is growing at. Where it’s growing? Obviously the global markets are a big part of that China.

Bob mentioned the need for market removal in China water purification in China’s huge Pacific part. But the mercury piece is a big part of that number as well which we talked extensive about. So when we look at the 10.8, looking to next five years, I think we outlined in the presentation today, some of those areas where we believe that’s happening. Some of that will probably take like Mercury another two years 2015 before they really have their full effect. Next question.

Unidentified Analyst

First of all thanks for bringing this on this has been very helpful. Can I go back to the same question you did mention that China’s emerging markets will be a big part of that growth. Can you address your ability to get into loose markets right now, as well as what you see being the various headwinds and tailwinds with regulations? Could be specifically around the area mercury and how do you see those kind of play out in the next five years.

Stevan R. Schott

Bob will start and I will give my perspective

Robert P. O’Brien

Well again we’re in China now summing products certainly a part of our – a big part of this strategy is reactivation because there is a lot of existing carbon that’s installed in China now, both in portable water treatment but also in industrial application, right. So being in early in China as I mentioned is a reactivation strategy. We think this report we built our facility there to be able to expand it radiably easily use we’re able to grow our business. So that’s part of it.

We currently sell products in China we sell products in China that we make in the U.S. We sell product in China that we purchase and distribute from actual other Chinese manufacturer, right. Our ability to be successful doing that, we have to build on our application strategy lot of customers are looking to us to help themselves problems right as much as not only the product is it applied, the interpret the problems that we have in proposed activated solution.

So we sell some lot of virgin product in China, we act as distributor, part of our ongoing investigation for how we can actually serve the growing markets or what relationships that we want to have with Chinese manufacturers, there is whole host opportunities and things that we have to consider we have a good reputation in China, all of the manufacturers in China frankly express interest to work with us in some fashion right.

Whatever that could be and we are going through the process of trying to understand, what’s the best way, in fact that we can compete long-term in China, could be anything from an enrollment within existing manufacturer to more of a growth in a distributor position, that’s something that’s part of our overall out going discussions on the strategy how we continue to supply this growing at the very carbon market.

Unidentified Analyst

(Question Inaudible).

Randall S. Dearth

Would you say, you have seen any kind of tangible increases in interest based on some of the very public issues they have been having with the air quality over the last couple of quarters?

Robert P. O'Brien

I think we know that Mercury control is certainly on the agenda in China, its difficult to for me to say exactly when its going to come but know that it have programs where they are starting to test activated carbon for Mercury control certainly we want to be a part of that test program right, whether it comes in the next two years, five years that for even with a bit longer, that certainly up to the Chinese government, one thing we know as when they want to move, they can move right away, [indiscernible] control in big China.

And so some of the [indiscernible] control technology is based on carbon are being applied in China as well, and that is a growing opportunity, certainly water treatment and waste water treatment are big opportunities there and we think we have a role to play there, reactivation would be a key part, and then our applications no that you can will be a key part that services that we can provide are big, our biggest remaining point that we have to clarify is how do we work best with the existing manufacturing base that’s China.

Randall S. Dearth

We have our expert from China here today [indiscernible] I pointed out earlier is our head of the Asian operations, do you want to comment.

Robert P. O'Brien

Yeah, we are seeing we are seeing a lot of very good enquires in all of the areas that you talk about, our reactivation facility again we are moving forward, with that, we are finding that we can get our permission a lot easier that we could when we first started up, I think it’s a very positive step forward, and recently we have seen a lot more VLC type applications coming up which again is straight forward for [indiscernible] quality.

So I think in over the areas that Bob says we are seeing positive growth and we are seeing some very strong enquires, we also see in Chinese Government officials going looking overseas best available technologies, what are the people are doing and again, that will come back to China and they will bring the regulations in.

Stevan R. Schott

Thanks, Al [ph]. Next question. Yes.

Unidentified Analyst

A couple of questions for you guys. With respect to types of capacity expansions if I mean, just pick a number, let’s say you are at exactly at 50 million pounds of Virgin AC capacity in the Greenfield, what are the economics some like that in terms of plant cost and which you would expect and how do we think of that?

Stevan R. Schott

There is a lot of homework to do. Obviously, we are getting faces looking at that and it has been way to early that we can comment, but we are looking at all the types of scenarios as Bob said, we are looking at which products and various products and how the economics of that works. So more to come and this is way too early.

Unidentified Analyst


Stevan R. Schott


Unidentified Analyst

No that’s fine.

Stevan R. Schott

We traditionally said to add had virgin capacity will be approximately $2 per pound in installed capacity depending on the type of plant that we might consider that could vary, that’s been a historical benchmark that we provided to investors as a point of reference.

Unidentified Analyst

Okay. There isn’t really no discussions so far today on pricing in the various end markets and there is a whole bunch of data out there, let’s say hovers, in terms of more pricing is when you do break it down by market. Specifically, the mercury side, seems to be lots of over capacity right now before the growth comes. Its hard to get a picture just to what one should expect for pricing in that market specifically and then for your entire activated carbon product lines, what’s you view of pricing?

Stevan R. Schott

I think pricing in the mercury market has probably bottomed out. There is over capacity in the marketplace and that’s one of the reasons what we again we recognized that to be the more successful we can be in that particular application. We want to target for higher value products, so that we can in fact use our capacity that we have at Big Sandy, however, to the optimum, right. So we have the ability to compete at the lower levels what some competitors do have an over capacity situation right now. But we think our stronger strategy and best strategy is to well promote our best products and again, they sell pricing at least doubled with the lower levels of selling.

Selling pricing in the market, we’ve instituted price increases this year for both virgin carbon and reactivated carbon and that’s been successful. We got the most success in the U.S., which I think mentioned before, but we have seen success in Europe and Alan’s team in Japan and Asian market outside of China and Japan had some fairly good success also in raising prices.

The coconut market is one that we participate in as a distributor. They’re pricing probably actually is a little bit on the down trend. There is over capacity right now in the coconut carbon manufacturing area. There is probably 78 unique or distinct manufacturers of coconut carbon in the globe and when they get to bump crop of coconuts the pricing coconut activated carbon actually goes down a little bit. So that’s probably the only market where we’ve seen some price decreases, but then for us, our costs also will go down to because we are distributing or purchasing.

Unidentified Analyst

Okay. One last one you took us through I guess on the six items on the innovation front, could you sort of help by handicapping for us which in terms of timing and potential size from a dollar perspective what we should be – what you were all be expecting over the next three to five years? And show people that slide up again on the innovation and if you could guide us through there.

Stevan R. Schott

I think the first one is Ultracaps and correct me Bill if I’m wrong, I would say right now it is about a $40 million a year, market, a little high on that. And our share was pretty low. It is actually dominated. There is a one manufacturer in Japan now, who essentially controls most of the markets, so we are trying to enter as to – as number two, right. And so we are in the phase where we are selling, I’m saying large test quantities of product to people. We clearly believe we are number two, but we are by now we are pretty away back number two in that market.

But certainly, we believe the manufacturers in that space what options are they don’t want a single source manufacturing. So we’ve been working hard to try and get ourselves in a position to capture share there, so it is about $40 million a year, market now and depending who you talk to it could be huge right. It has been growing at about 20% to 30% per year if it is eventually adopted by all the automotive companies when the market skyrockets.

We can’t really predict that, we are working to try and get the cost of making – the cost of the carbon and the performance of the carbon to help you Ultracap manufacturers get their cost, so that’s a product that can be used everywhere, and that is one of the challenges that suppliers face one of the challenges the ultra capacitor manufacturers face. So it has been growing a 20% depending, we talked to could be a unbelievably large market.

Okay, well I think let’s take the first three. And then VSDN, globally, that also is around the same amount that’s probably around a $40 million a year, market right now for continuing supply and the occasional new project that comes online and that has to be the carbon has to be filled. This is an area sort of the opposite of our advanced products. This is a relatively low quality product from a activity standpoint. In this application it has to be very hard because it’s moving around their system.

Long term what we hope to bring is to do the same thing with in this market that we are able to do in the mercury market which has continued to use our R&D resources to make better products to provide better value. So far in the TSTN [ph] application carbon is relatively more activity surface area, it is also capacity has made this technology successful again in a number of markets. And our long term goal would be to able to apply our R&D technology to make better products that require much generation, require much carbon to be on stream make it more attractive technology before for future customers than existing customers.

So that growth rate to be very high I don’t really have a good feeling for what the growth should be, but if the licensees of the technology is successful and developing in the U.S. that also can be very, very high growth market.

Robert P. O'Brien

Let me just add to that perhaps not previously discussed this was one of the key technologies that attracted us to Calgon Carbon, Japan, give their capability to particularly from this market.

John Platz

Yeah, I can say if my experience in the bio based chemical, this is going to be huge and you driving the market and it’s effort out there to replace as much and petroleum base chemicals with this. And the problem this is a long time to develop is a lot of startup companies that are out there today we’re trying to get into not only the buyers it is the gas and lactic acid, but butane dial and whole myriad of chemicals. So I’ve challenged our team, we should recently folks to go out to make sure that they truly understand where the leader, but they also are able to educate the folks that there is reactivation strategy and boy it really makes good sense. These are excellent products with your application.

Christopher Butler – Sidoti & Company

Hi, Chris Bulter with Sidoti & Company circling back to the MLP question. I am understanding that its under review again at this point, but looking back to the year ago the tax advantages are fairly easy to understand, but could you give us with the mitigating factors that would brought your attention that eventually led Morgan Stanley to not advice you to do this?

John Platz

Sure, it was relatively simple at the time and that was simply led by in their view and large and using data that we pull together that was not something that would add values. So, when you took our entity as its constructed currently you switched it to an MLP and you consider the relative valuation of what we would look like with the portion of our carbon and perhaps service businesses being contributed and put into an MLP, when you look at the aggregate value for our shareholders that was not increased by virtue of those actions.

And so that really was the key fundamental, I don’t think there is a question anymore about whether or not would qualify. We believe we will how much of our business would qualify remains a question and we haven’t sort yet legal opinions. I think we’ll get through this next evaluation. Talk about those results when they are ready and then we can discuss again what those factors would be that would make it attractive or perhaps not and wait for conclusion.

Christopher Butler – Sidoti & Company

So even in a cost income situation to undertake these actions not for free and they are not tankers I should say, undertaking to form an MLP so, it’s truly we will give you see financial benefits in the annual report.

Robert P. O'Brien

And I think if we look at the MLP versus our currently situated would need to see a benefit, if it’s a push relative to valuation there is a lot of heavy lifting that would go on to become an MLP. And so we would have to see a net value of some degree before we would make that change, but we are receptive and we look forward to the results of the review that is being undertaken there.

Christopher Butler – Sidoti & Company

I had a couple of reactivation questions I might have missed it the slides, but I didn’t see what the mix is of reactivation within your carbon business currently and where you would like that to go. And can you just talk about the margins there I think at one point the margins were quite a bit higher converging and I’m not sure if that is still the case?

Robert P. O'Brien

It’s about the same in the margin basis, but in terms of mix we normally don’t breakout, the reactivation volume in pounds, it is part of our service, carbon service business.

John Platz

Right, we don’t disclose how robust those sort of this relative to the aggregate of carbon and services as a segment. But we have said we have capacity both in industrial and [indiscernible] certainly one of our strategies is to flow that capacity and we offer some of the innovation opportunities that can help with that and as well the going water market particularly in the U.S. as a way to further fill our fleet and then by doing so, improve our margins because we’re able to better absorb the overhead that we are bearing now anyway. So that’s clearly part of our ongoing strategy.

Robert P. O'Brien

If I can add to that and we talked a lot today about that the fact that every time I make and then we sell the more customers that today aren’t using reactivation they could and we can work them in doing so, that freeze up that version capacity that you either sell to perhaps a [Indiscernible] market or another granular application.

Christopher Butler – Sidoti & Company

And I know you’ve been excited about this. You’ve been talking about it for a long time, but can you just give a little more of a sense to how it’s going. I mean I think you mentioned in the slides converting 70 customers or you’ll be adding 1,000 there or have you pitched 100s and only 70 that taken you upon it?

Randall S. Dearth

Bob will address.

Robert P. O'Brien

All right. I think we are doing well from the standpoint that when we can get a customer to consider customer reactivation then we are certainly getting the vast majority of the bids when they come out in that direction. So part of it is a – the water industry is a extremely conservative industry. So change is not something that they necessarily like to do, but obviously from the financial pressures that municipalities and water systems are under today, reactivation becoming more and more, more and more attractive.

So there are a very few that I think would say we are not going to consider reactivation. Some of them that we’re seeing now are saying bids reactivate a couple of my filters, may be have a plan with 14 filters right. Let’s reactivate 2 to 3, so that I can see the benefit before I make a commitment to do all the rest. So we have some of that going on. Some of that takes the water customers that were reactivating, I mentioned nearly change your carbon maybe over three or four years.

Some of them were still coming up, but I think we are moving along at a pretty good phase. So in general, I think we are already happy with the way we’ve been able to grow that market. Again in the U.S., it’s a new market for portable reactivation. In Europe, we’ve done portable reactivation for the last 35 years and in Japan, and in a China we also have the capabilities to do that there also

Randall S. Dearth

Steve, your question.

Unidentified Analyst

Steve Watts for Sinalysis [Ph]. While we are on reactivation, you highlighted on one of the slides that it tends to be local not global in terms of competition. Can you talk a little bit about your competition in reactivation, and along those lines what the barriers to entry are or what your competitive advantages are?

Robert P. O'Brien

The competitive landscape depends on where you are at, which country you are at. In the U.S. we have a couple of competitors in the industrial market and only limited competition at this stage in the portable water market. And our biggest competitor in the industrial area is Siemens Water Technologies, which is in the process of being sold. They have three reactivation plants in the U.S. but far we have the most capacity in the U.S. for both portable and industrial reactivation.

We are by far the largest reactivator in the world with our capacity. So certainly competition in the U.S., limited although. In Europe, we face some more competitive landscape. There are probably five or six reactivators that we compete against on the continent. We have – there are fewer reactivators in the U.K., so we have pretty competitive position in the U.K.

In Japan, there are like 23 reactivators in Japan, all of them small and our facilities also relatively small. So that’s an opportunity for us to consider, how we grow the business in Japan. In China, we are certainly the first from a, let’s call it, a modern well run reactivation facility, and so we have – in China, we have both the abilities to do industrial and food grade reactivation at that facility. So we have comps. We are starting to fill up the industrial account and we are making progress to get more of the municipalities there, the water treatment systems to consider reactivation.

So there are some competitors in Japan, but they tend to be smaller and they tend to be older facilities. So we – certainly part of our strategy there is we’re bringing in the local environmental regulators, and we have done that showing them what we have and spent carbon that’s brought into facility is process in a very environmentally safe manner; environmentally friendly manner.

So the competition, our strengths are we know how to handle the spent carbon, we have all the permits to transport as it is ways around the various areas, U.S., Europe, and we certainly learnt the hard way how difficult it is transport it around China, [indiscernible], and so we think that learning that gives us some advantage in the marketplace. Environmental regulations are somewhat difficult where you site a plant, not everybody wants a reaction plant in their backyard, you may find that’s why we have ours in Gila Bend, Arizona in middle of the desert, which can take a scenario to get there.

Because we didn’t think we wanted to put it in the middle of Scottsdale or Phoenix, but those can be overcome with proper design of the systems and we know how to do – we know how to do that. So understanding the market, trying to have investments that are there first, right, which sometimes maybe we could get ahead of the market in our desire to be in a location first, but eventually we know those investments will payoff.

Randall S. Dearth

And right after that we have complementary equipment offerings for the use of carbon, we have those around the world, differing by virtue what regions we’re in, and we have an outstanding field services team and we have those teams around the country. So we and try to make this [indiscernible] for our customers, we can handle it from delivering it to them to taking it back and reactivating it, and trying to make it easy, and frankly our reactivation customers, tend to be sticky, and they are with us for a long time, because it’s an excellent offering.

Unidentified Analyst

If I can add to that one more point, I was asked a question last night in terms of you –would you consider buying assets, and Bob talked about lot of smaller assets around the world, absolutely we look at that, so sorry.

Randall S. Dearth

On affordable…?

Robert P. O'Brien


Unidentified Analyst

Right. Are there equivalent limitations…?

Robert P. O'Brien


Randall S. Dearth

Well, in the U.S. we have retro certification in our Neville Island and Big Sandy reactivation facilities. So it allows us to handle retro as it is waste, which probably 40%, 50% of our business. So that’s another distinguishing factor that in order to process waste that have been in the U.S. to have industry classifications as a retro here to be able to facility that is served by the way able to handle those front.

In China, we’re basically all industry carbons are classified hazardous. Our facility is approved to handle those hazardous waste, so we have to go through permitting process in order to get that. And I’m sure it’s somewhere in near, it somewhere in Europe and that Europe moving carbon from a transportation standpoint and learning moving in spent carbon through all the different countries is an issue that we weren’t to have a deal with it and overcome. So I’ve wanted to move it around Europe and across the various states in the U.S.

China, the Chinese provinces operate more like individual countries. Moving material around China is not the same as moving around the United States. Each province operates their own – their own basically set of rules and regulation. So morning I had a deal with that even though it’s painful first. In the end, we’ll make us – give us leg up on the competition.

Unidentified Analyst

Okay. Can you talk about the difference between your food pack product mine versus what you’re competitors have to offer?

Robert P. O'Brien

My mind will be, if I told you too much detail, I have to kill you.

Randall S. Dearth

While we looked and trying to understand the surface areas of the carbon, we’ve looked at various impregnates and how those impregnates can be applied. And so with that mix I think if you look at some of the things we said we have patterned it that we give you an idea of some of the technology that we think we build into the products, rather I really don’t want to talk about the details, because frankly that’s the mystery that makes us successful in that marketplace.

Unidentified Analyst

I’m not really going for the details and I’m trying to get a sense for how high up to technology curve your products are versus your competitors?

Robert P. O'Brien

Well, I think I try to give some examples of what could be the delta and now I can’t say that same model of different of bias at every power plant because they do have those different conditions, but we again have to demonstrate that our carbons going to work two to three times better in order to be able to create a successful car savings for them to want to take our product, do you rebuild.

So we’re in, we’re going at our perspective customers, trying to demonstrate to them that type of improvement is there, right. And that again if they willing to conduct tests, they will see it and they will be able to make a good purchase than when they actually go out for bids where they actively occur.

Unidentified Analyst

Okay, can you give me a sense for the – in dollars and pounds the initial Silo fill per either power generating unit or utility customer?

Robert P. O'Brien

I'm going to debate that one to Bill.

Stevan R. Schott

It sort of a difficult question depends on the size of the facility and the type of carbon that they choose, it’s some of the information that Bob presented earlier is pretty dramatic in terms of difference in the excepted consumption of activated carbon and we’ve even had some issues with some of the utilities having to retrofit screws and the field equipment of – the usage rates are so low that the original equipment that they install wasn't appropriate to be able to feed carbon as lower rate as they now can feel to achieve their performance.

My expectation would be even that moving forward some of the facilities maybe able to get away with the simple bag feeder as opposed to a very large Silo capable of holding say up to a £0.25 million. So it's going to be highly variable depend on the nature of the generating unit. The smallest as I said could box section. A truckload of carbon could last them – that maybe more of an initial, enough after an initial fill. In some cases I would say the larger consumption would be on the order of billing Silo or multiple Silos.

Unidentified Analyst

Just have a couple more. John, can you just talk about the go to market strategy for Ballast Water and then I think in the presentation you talked about a 12% share of units shipped to date, you expect to maintain that share going forward?

Stevan R. Schott

Starting with the second question, I think I mentioned there were some 35 IMP type approval systems out there. There are many more systems working their way through the development pipeline, certainty we don't prognosticated the level of detail suggesting a market share going forward, but it’s going to be very complex and very difficult competitive environment. There will be more suppliers early, then there will be some fall as the quality of their supply is shown to be deficient towards the some mergers or combination of entities going forward. So it's very difficult to project, but the number of systems coming out I feel comfortable saying that I personally don't expect to maintain 12%, but we are going to do very well in this market.

And then as far as go to market there is a number of decision-makers throughout the process of selecting and purchasing Ballast Water equipment. The owners themselves they may or may not have their own technical expertise, their own engineering department all over the map. There is shipyard for new builds, there is repair yards for retrofits, there is engineering community, there is consulting engineers much like there is in the municipal business, but to a much smaller extent. And there is various sundry, other consultants and companies that do nothing, but retrofit activities and so on. Through the last four years that we’ve been involved with Hyde Marine, we’ve been talking to all of them and working to discern at different stages where the decisions are made.

I look forward to answering this question again in a year as the market continues to come into focus, but we are talking to all of the aforementioned types of influencers and working hard developing partnerships with repair yards. We’ve announced a few developing partnerships with consulting firms who can determine how retrofits will be affected and yes, more to come.

Randall S. Dearth

Dan has been waiting over here patiently, so I’ll come back to you. Dan you ask.

Unidentified Analyst

First a couple of questions on mercury, so I guess to Bob, when you look at the current market, how much of any risk do you see from some of the litigation around MATS and does that play at all into the timing of potential orders that maybe you are looking at from our – from some of your facilities.

Robert P. O'Brien

Well I think the timing of the orders would more depend on how they view the – any legal challenges that are still out there. I don’t think we’re – I think and again all of this comes from my conversations with Bill, certainly there are many different things that are affecting the power industry right now, and they are taking your attention regulations [Indiscernible] to regulations, price of natural gas, right, all those go into their decision making process, and how they are going to operate their units, I don’t – I think the least of their worry is really is activated carbon for mercury control and so I don’t think the regulatory climate relative to – the few pending regulations are reflecting those decisions. Bill, continue.

Unidentified Analyst

I think that's an accurate statement Bob. I think Dan and I talked briefly at the break, there is certainly a – this is an unprecedented time of uncertainty for the electric utilities, mercury and MATS is just one issue and quite frankly the smaller of the several issues that they have to deal with, is specific to MATS litigation and the battle that is going on right now. I think our internal and external council has provided guidance that this process has to play out and they like most legal councils will give you our best 50-50, 60-40 sort of response. So I’m trying to focus myself and my team on the things that we can control and remain hopeful that the regulations will stay as is with the current timeline. And I think the marketplace is in fact acting, so that's going to have growth, except of those who have decided they were going to file for an extension and got them.

Unidentified Analyst

Great. One more follow-up on the mercury side, when you look at the success you’ve had with your products in terms of the low usage rates, can you contrast that a bit with, number one the over capacity on the patent side and then your long-term yield about growth and demand, I mean is it possible, your success ends up maybe cutting back on the industry growth rate to some degree like kind of 10.8% CAGR you’re talking about.

Robert P. O'Brien

Well yes, depends whether you’re talking about dollars or pounds right. And so that's one of the things I want to just to try and explain. Our view is not necessarily to make the market a lot smaller from a dollar standpoint, but if we can make it smaller from the pound standpoint then we’re successful. So there would be some impact on again on capacity. If we are extremely successful and getting car industry to purchase our products to view that they are expectable, that will have impact. The competitions plans for mercury, tend to make products that are lower in activity levels from an Idaho number standpoint, which is one of the things the industry uses to measure, how much George capacity reactivated carbon have.

So overcapacity in that market lower level doesn’t necessarily directly impact us on products that we make at [indiscernible] they tend to go after a higher activity level in a granular. So if we are successful and they have the impact on them depending on how many plants actually go online, but it should be pretty big enough market that all companies there evolving space will benefit.

Unidentified Analyst

Got it. And then since I’ve got Mike, I’m going to ask one more. This is more for John.

Robert P. O'Brien


Unidentified Analyst

Yeah, I’ll leave you one for Bob. So quickly for John, you’ve talked about in $28 billion total potential spend. And then you also kind of stratify the market a little bit looks like UVs better position for maybe the smaller ships, which are larger number. Can you break the dollars out maybe a little bit to give us a flavor for the different in scale from the smaller ship to larger of that $28 billion what’s your sweet spot maybe versus some of the other technologies?

Robert P. O'Brien

Take Schott.

Stevan R. Schott

$28 billion 64,000 vessels, I think it was our estimate depending on worries draw line. It’s almost a classic, Mike.

Robert P. O'Brien

Kind of dynamic 80% of the vessels are in depending again where you draw the line in the smaller side, you saw that number of vessels by flow rate, very, very few. But nonetheless, the dollars a yard system could cause this metal was $1,500 the very, very slowest flow rates 60 cubic meters in hour.

At other end of the spectrum you could be looking an excess around $4 million that a very, very high end. So the numbers are in the smaller flow, there is high dollars per each in higher, and as I mentioned we have sold up to 6,000 cubic meters in hour ships that. It was more than one system, but nonetheless on one ship that kind of flow rates. But as time is gone on I think your assessment is good, there are sweet spot ends below 6,000 above we still anticipate sales of that end. Yeah, it’s difficult to get too much more explosive on the dollar breakdown, because we’re in addressable line, but the number favor the smaller systems and if you draw the line it maybe 3,000 and up, there is probably more dollars in the high end, its close.

Unidentified Analyst

Okay. Thanks.

Robert P. O'Brien

Question here for John.

Unidentified Analyst

Yeah, so a couple of questions, the first one was on the time line of the process for the MLP and capital, capital spends and new plans versus solar capital return. So our two reviews independent the subcommittee that you mentioned is just on the MLP, and rest the decision whether to expand capacity, or you know some capital something that rests on you or…?

Robert P. O'Brien

Your first part of the question in terms of when the timing is to be done as I said probably from the next two months, you hope to have recommendation back. That is again is a totally different entity that the Board shows and somebody who has enough experience.

In terms of who is helping us evaluate, in terms of what option to go with we are going to experts to give us some insight as to what others are doing and what effect if we do this and that. There are people who know this far better than we do and we are very much into and listening their ideas and understanding those. In terms of looking ahead, looking at that left side of the quadrant, expansions and such, its mostly us looking at the market conditions, talking to our global team, many of whom are in the room and truly understanding, first, what are the markets.

We clearly understand the markets and the opportunities we have. And as Bob said, what products we’re going make, where we’re going to make it there is a lot of variables and factors and we have a lot of the expertise in house to at least build a good foundation for that. I’ll stress again. We’re at homework stage right now with a lot of work ahead of us.

If at some point we need to bring in an expert once we have data around that in terms of the type of margins and such, I think it’s going to be a whole picture. I said it’s a balance of that whole graph that I showed you. At that point we’ll get an outside opinion to say given the data what do you think.

Unidentified Analyst

So does it mean that in terms of timeline we probably should expect answer on the MUV before you basically have stand [ph] on what you expect to do with the extended credit facility, what you want to return capital and extend capacity, what you want to one versus the other ?

Randall S. Dearth

That’s fair. Like we said within the few months we’ll have that answer, and as we said, whether it be in an analyst call, we’ll get that information to you in terms of what their results are. Again, if it creates value we’re not going to sit, put it in the drawer and say, we don’t like that. Hopefully you are getting the sense. You have a management team sitting up here whose goal is to do whatever we can to make sure that this company grows and is able to capitalize on this market, but ultimately create the highest possible value we can. That’s our mission and we’re not stopping.

Unidentified Analyst

Understood. And the same question is on balanced quarter. So I think, John, you mentioned the margins on the balanced quarter are expected to be lower as the business grow. So can you give us an idea of where you are in terms of the SG&A support that you will need once that group for fraternity [ph] materializes, do you expect to have lot of positive operating leverage, in other words do you think you have – we should expect SG&A OpEx expense to expand materially or you have basically the reason why that business, the equipment business is not profitable now because you have most of the SG&A that you will to monitor business grow at any place?

Randall S. Dearth

I think I understand your margin. I think it was Steve’s comment about OpEx as a percent, right, being higher for the equipment business, which certain is and justify at least so. If you look at benchmarks for engineered equipment businesses, they’re certainly going to run a higher cost ratio than high volume product like a carbon facility. We have absolutely anticipate a significant drop off in our percent SG&A relative to sales as we go forward and take a big bite out of that demand curve, a significant reduction in SG&A. Whether it will get us far down as a mass producer of a carbon type operation, it would seem hard to get that low, but without a doubt we are driving our business to more of a product focused manufacturing and away from an engineer to order type of an operation that we’ve been focused on in municipal UV and then even early stage balanced quarter. So, yes, there will be significant improvements in the cost ratio. Any other questions? I know we’re getting close to some on the line, okay, and sorry who – Dave, I am sorry we forgot.

Robert P. O'Brien

Okay. This one sort of just going back to the capacity addition thought or…

Stevan R. Schott


Robert P. O'Brien

Concept homework. I guess given that regulations seem to take longer in this business seems to push things out, sort of beyond what you initially expected. Why not maybe do a share buyback first sort of put the capacity expansion, push it out to a later date to get a better sense for the market and sort of as you said before be a sort of carbon outsource or trader to some degree. I mean, yes, it’s lower margin but it’s higher return on capital.

Stevan R. Schott

To bringing up the great concept, I mean there is absolutely nothing wrong with your thinking and that’s an option, many options we’re looking that we could do, you are absolutely right in terms of building any capacity and with that understanding that risk would be there, would have be an extremely smart and really focused on what those – deals are. So a lot of that’s going into our equation. But to say and again we have nothing against share buyback and we’ve done and we could do it again and that could be sooner than later.

Robert P. O'Brien


Stevan R. Schott

Okay. Any other questions?

Robert P. O'Brien

I have two, I guess they came from the internet. The first one I will read…

Unidentified Analyst

[Question Inaudible]

Robert P. O'Brien

Okay, limited variations of [indiscernible] carbon need to be developed and as Calgon working on a unique – for each co-brand power facility, if you right to the formulation.

Stevan R. Schott

No, we’re not going to make on limited variations that would be just unfeasible for us to be able to do. I mean at the end as we get more experience we will narrow it down to a – to distinct number of products which we think will have the best actability across the range of power plants. So there won’t be a specific cocktail made for customer A or customer B. We just could not operate a facility in high volume in that manner. But we will have enough products that we think will provide value to the majority of the customers in that market.

Robert P. O'Brien

I think one question online.

Stevan R. Schott

One more Bill [indiscernible], is removal of emission disruptors on emerging market for – so I am gong to read this is removal of – disruptors and water treatment is granular carbon more effective than powder carbon, right. And in almost any application granular carbon can be – will be more effective than powder carbon.

You will be able to achieve lower resolving amounts of contaminate in the water down to non-deductible and use less carbon. Powder carbon tends to be used in applications like in drinking water where it’s seasonal. So for example taste another I mean as the water plant that two weeks out of the year there is in my source water the way, so other than that, I have great water and don’t have the need for anything. So for those two weeks it’s more cost effective to feed powder carbon to control the taste in order to put in granular carbon. Even there of course we do try to make the case there to run through all the economics, by hydrocarbon tends to be used in intermittent applications, batch applications where a better granular requirement if the customer was making chemicals and they are switching from one product to another. They couldn’t switch and run the different chemicals through a better carbon, because they have contamination, so private carbon tend to be using those.

Certainly in Mercury, granular activated carbon could work remotely controlled, but it would be very expensive, because it have to build filters and it have crusher drop showing the gas through a better activated carbon and overall just will not be economic. So from an emerging disruptors of pharmaceuticals, much more effective to use granular product than to continuing ongoing feed product.

Randall S. Dearth

Okay. There are no more questions. I know we have a tight schedule. I got three announcements to make. First, I would like you to join congratulate Bob O’Brien, he just celebrated his 40th year with Calgon Carbon a few weeks ago, so congratulations Bob.

Robert P. O'Brien

I think major beyond I get a discount on contract [ph] now.

Randall S. Dearth

I think you will see and would agree with me that having Bob on the team and somebody with his knowledge is a great asset. And also the gentlemen sitting next to me was awarded last night, CFO of the year by the Pittsburgh Business Times for the publicly traded companies. So join me congratulating Steve for his awards.

And the third announcement, what’s going to happen next. So at 11.30, the bus will be departing outside the front of the convention center, so that gives you about 20 minutes or so to evacuate your rooms if you need to check out, grab something to drink and there will be box lunches available right at the bus I believe Joe. So feel free to take a box lunch and keep it and do whatever. At that point, the bus is on its way. If there is special arrangements for anybody else, I know few people can’t, everybody going in the bus?

Unidentified Company Representative

Everyone who is going in the bus and we do have a special arrangements for pickups at Scottville and Allen County. See you at the airport.

Randall S. Dearth

Let me just conclude, I do appreciate you all taking the time to be here today. Hopefully we were informative about our company and the opportunities we have ahead of us. There is always Gail is available for something you would like to further follow up on. Please contact Gail and she will get with one of us who can answer your question. Thank you again for attending.

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