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Calgon Carbon Corporation (NYSE:CCC)

Q4 2013 Earnings Conference Call

February 19, 2014 2:00 PM ET

Executives

Gail Gerono – VP, IR

Randy Dearth – President and CEO

Steve Schott – SVP and CFO

Bob O’Brien – EVP and COO

Analysts

Kevin Maczka – BB&T Capital Markets

Michael Gaugler – Brean Capital

Ben Kallo – Robert Baird

David Rose – Wedbush Securities

Steve Schwartz – First Analysis

Dan Mannes – Avondale Partners

Christopher Butler – Sidoti & Company

Jinming Liu – Ardour Capital

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Calgon Carbon Corporation’s Fourth Quarter 2013 Results Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

Thank you. I will now turn the call over to Gail Gerono, Vice President of Investor Relations. Please go ahead.

Gail Gerono

Thanks very much. Good afternoon and thank you for joining us. Our speakers today are Randy Dearth, Calgon Carbon’s CEO, who, as we announced yesterday, will add Chairman of the Board to his title on May 1st; Bob O’Brien, our Chief Operating Officer; and Steve Schott, our CFO.

The presentations will follow our standard format, opening remarks from Randy review of the third quarter financials by Steve. And operations report from Bob, then Q&A.

Before we begin, please be advised of the Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. Today’s presentations or perhaps some of the comments that Calgon Carbon’s executives make during the Q&A may contain statements that are forward-looking.

Forward-looking statements typically contain words such as expect, believe, estimate, anticipate, or similar words indicating that future outcomes are uncertain. Statements looking forward in time including statements regarding future growth and profitability, price increases, cost savings, product lines, enhanced competitive posture and acquisitions are included in the company’s most recent Annual Report pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

They involve known and unknown risks and uncertainties that may cause the company’s actual results in future periods to be materially different from any future performance suggested during this webcast. Further, the company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the company’s control.

Some of the factors that could affect future performance of the company or changes in or delays in the implementation of regulations that cause the market for our products, acquisitions, higher energy and raw materials costs, costs of imports and related tariffs, labor relations, capital and environmental requirements, changes in foreign currency exchange rates, borrowing restrictions, validity of patents and other intellectual property, and pension costs.

In the context of the forward-looking information provided in this call and webcast, please refer to the discussions of risk factors and other information detailed in, as well as the other information contained in the company’s most recent Annual Report. Randy?

Randy Dearth

Thanks, Gail and good afternoon, everyone. Calgon Carbon’s solid financial results for both the fourth quarter of 2013 and the full year, were driven primarily by the successful implementation of our 2013 initiatives, including our global cost and efficiency improvement program.

Although we were successful in improving various metrics, I am particularly pleased with the increasing gross margin percentage over the past year. In the first quarterly conference call after joining Calgon Carbon, I told you that I was unhappy with the decline in the company’s gross margin, and I subsequently made margin improvement a top priority at Calgon Carbon.

The sequential increase in the fourth quarter gross margin from 33.3%, to 34.3% represents the fifth consecutive quarter of improvement in that metric. During my first quarter as CEO, our margins were 27.3%. And comparing that with most – our most recent results, shows an increase of 700 basis points.

We have made excellent progress in this area, and margin expansion will continue to be a priority in our long term strategy for profitable improvement.

In addition to the benefits derived from the cost improvement and efficiency program, process improvements made last year at our Pearl River plant, also had a positive impact on the results for the year, including lower operating expenses, and realization of the approximate 8 million pounds of additional virgin carbon capacity.

Our product rationalization program which eliminated 45% of our SKUs, also contributed to lower operating cost at our carbon manufacturing facilities.

Let’s talk about revenue for the year. When comparing 2013 to 2012, we note that we had lower sales at Hyde Marine, lower pricing in the mercury market, and unfavorable foreign exchange which totaled approximately $39 million.

These losses were partially offset by our approximate $10 dollar price increase in our Carbon and Service segment as well as growth primarily in our CNS segment.

We will continue to review the sales-margin relationship, but in the short term, we remain focused on sales that improve margins, especially those based on the carbon that we manufacture.

The improvement in other metrics clearly demonstrates that our success in 2013 was not limited to margin improvement.

For example, operating expense year-over-year decreased by $10.4 million. As a result, operating expense as a percent of sales, improved from 16.6% in 2012, to 15.1% in 2013.

EBITDA as a percentage of sales, increased from 11.3% to 17.6%. And of course, 2013’s net income of $45.7 million compared very favorably with the $23.3 million for 2012.

I will be back later in the call to discuss certain strategic opportunities. In the meantime, Steve will present a summary of the financial results for the fourth quarter, and Bob will provide a review of operations. Steve?

Steve Schott

Thanks, Randy. Good afternoon, everyone. Total sales for the fourth quarter of 2013 were $133.1 million, versus $141.8 million in the fourth quarter of 2012, a decrease of $8.7 million or 6.1%.

Currency translation had a negative impact of $1.6 million for the fourth quarter of 2013 due to the weaker Yen.

Regarding our segments, sales in the activated Carbon and Service segment decreased $10.9 million, or 8.6% for the fourth quarter of 2013 compared to 2012’s fourth quarter.

The decrease was primarily due to several factors including lower demand for granular activated carbon for municipal drinking water in Asia, of approximately $9 million, that resulted from a large 2012 carbon fill and earlier than expected 2013 deliveries to our customers in Japan.

In addition, pricing for powdered activated carbon for U.S. mercury removal, stemming from the 2012 renegotiation of a prior five-year contract, reduced our fourth quarter 2013 revenue by $3.2 million.

Finally, currency translation had a negative impact of $1.6 million on sales for the fourth quarter due to the weaker Yen.

Partially offsetting these declines, was an increase in demand for activated carbon products and services in the environmental water treatment market.

Equipment sales increased $1.5 million, or 12.4$ for the fourth quarter of 2013, as compared to 2012’s fourth quarter, primarily due to higher revenue for traditional carbon equipment of $1.9 million partially offset by lower revenue for ballast water treatment systems.

Sales for the consumer segment increased approximately $700,000 or 25.1% for the fourth quarter of 2013 compared to 2012’s fourth quarter.

Net sales less cost of products sold before depreciation and amortization, as a percentage of net sales, was 34.3% in the fourth quarter of 2013, compared to 31.2% in the fourth quarter of 2012, an increase of 3.1 percentage points.

The increase was in the activated Carbon and Service segment, due to improved plant performance, ongoing cost improvement initiatives, and our 2013 price increase.

Depreciation and amortization expense was $7.5 million in the fourth quarter of 2013, compared to $6.6 million in the fourth quarter of 2012. The increase was due to increased depreciation related to the company’s new Gila Bend, Arizona facility that was placed into service in the second quarter of 2013 as well as for capital improvements at the company’ Pearl River facility that were finalized in early 2013.

Regarding our Pearl River plant, the carbonation of better year-over-year performance, coupled with the plant’s increased capacity of 8 million pounds, collectively provided us with an additional 13 million virgin carbon pounds of production in 2013 compared to 2012.

Selling, administrative, and research expenses were $22.2 million during the fourth quarter of 2013, versus $20.5 million in 2012, an increase of $1.7 million or 8.4%. The 2013 fourth quarter increase was due to several factors, higher employee incentive compensation expense, which increased $1.1 million, due to our strong 2013 performance.

In addition, cost for strategic initiatives in the fourth quarter of 2013 totaled approximately $400,000 and related to our study of a possible master limited partnership formation and associated impacts.

Finally, we had approximately $300,000 of pension settlement charges in Europe that are not expected to recur.

As a reminder, during the fourth quarter of 2012, the company recorded $2.3 million of restructuring charges primarily for U.S. pension settlement charges, and all within the Carbon and Service segment.

2013’s other income and expense benefited from a $500,000 reduction to a previously recorded acquisition earn out liability.

The income tax rate for the fourth quarter of 2013 was 30.8% while the company’s full year 2013 tax rate was 32%.

In summary, our net income for the fourth quarter, was $11 million or $0.20 per diluted share, versus $9.1 million or $0.16 per diluted share in 2012.

Turning briefly to our company’s business segment. The activated Carbon and Service segment recognized approximately $23 million in operating income before depreciation and amortization and restructuring in the fourth quarter of 2013 compared to $22 million in the fourth quarter of 2012.

The increase was due to the previously discussed improved virgin carbon manufacturing plant performance, and cost improvements, as well as a favorable product mix. Higher pricing on certain activated Carbon and Services also contributed to the increase.

The Equipment segment recognized a $300,000 operating loss before depreciation and amortization in the fourth quarter of 2013 compared to a $1.2 million operating loss in the fourth quarter of 2012.

Losses in this segment are driven in part by our level or preparedness for the expected growth from ballast water treatment.

We are committed to improving the profitability of this business segment, whether or not additional sales of ballast water treatment system are realized in 2014.

Our backlog at December 31, 2013 is only $19.4 million. And while ballast water treatment interest remains high, sales have not materialized as quickly as desired in the absence of the IMO ratification and other issues related to the U.S. Coast Guard and EPA.

The consumer segment recognized $800,000 in operating income before depreciation and amortization in the fourth quarter of 2013, compared to $600,000 in the fourth quarter of 2012. Our carbon cloth business continues to yield positive results.

Regarding our balance sheet, cash increased during 2013 and at December 31, 2013, we had approximately $33 million of cash. Receivables were $97 million as of December 31st, which was $4.9 million lower than year end 2012 driven by the fourth quarter sales in 2013.

Inventories were $109.5 million as of December 31, 2013 which were $2.3 million higher than year end 2012.

Earlier in 2013, we elected to maintain a higher level of high quality co-inventory during our pursuit of new long term coal contracts.

With those contracts now executed, we expect this inventory will decrease in 2014 and coupled with favorable impacts from our products rationalization initiative, we are targeting consolidated inventories of less than $100 million by year end 2014.

As of December 31, 2013, the company had total debt outstanding of $34.3 million which represents a decrease of nearly $30 million from year end 2012, and relates the repayments for borrowings at both Calgon Carbon Japan, and those under our new U.S. credit facility.

Operating cash flow during the fourth quarter of 2013 was strong, and totaled $27.6 million. Capital expenditures remained low, totaling only approximately $8 million.

Our capital spending for the full year 2013 was approximately $30 million. However, as Bob will discuss, we have identified numerous capital improvement and expansion projects that we expect to undertake in 2014 and our spending for organic growth opportunities will increase significantly.

Finally, with an incremental $100 million board authorized share repurchase authorization made in mid-December, we embark on an open market share repurchase program.

Through this program’s scheduled termination on February 12th, we acquired 928,700 shared deploying approximately $19 million.

I will now turn it back over to Gail.

Gail Gerono

Thanks very much, Steve. Next, Bob will present the operations review for the quarter. Bob?

Bob O’Brien

Thanks, Gail. Let me start with our manufacturing area where we have a number of activities underway.

First, our virgin carbon production facilities, Big Sandy, Kentucky, and Pearl River, Mississippi continue to operate well in Q4, producing a full capacity.

The investments that we made at our Pearl River facility in 2012 are performing at or above our expectations.

In 2013, as part of our cost improvement and efficiency programs, we initiated a number of capital projects at our Big Sandy plant. Many of these projects which included investments to improve the consistency of our steam supply and increase our coal handling capabilities, will also increase our capacity by approximately 5 million pound per year.

Further, building on the success of our Pearl River expansion, the board has also recently approved a $17 million capital upgrade to one of our three existing Big Sandy production lines which is again targeted to reduce costs while increasing our production by an additional 9 million pounds per year. This important project is expected to be completed in early 2016.

In addition to our capital investments, our operational excellence program where we have engaged an outside consultant to critique, challenge, and modify our operating methods and procedures, is proceeding as planned. The work of the consultant will wrap up in Q2 of 2014.

Further it should be also noted that during the fourth quarter, we successfully negotiated two 3-year coal contracts that should provide significant savings per ton going forward. We now have 70% of our coal needs under long term contracts.

With our expectations for future growth in the activated carbon market, in the Americas and in the rest of the world, we are continuing to explore additional options for expanding our virgin carbon production capabilities.

One option under consideration is the construction of a second production line at our Pearl River facility.

We have initiated an engineering project to complete the basic process design, confirm capital and operating costs, and initiate environmental permitting efforts for this new line. The engineering project will be completed in 2014.

On the reactivation side, we are in the process of starting up our new potable water reactivation facility in North Tonawanda, New York.

We expect it to be fully operational shortly, in time to hand our potable water reactivation demand which typically increases in the spring.

We have also commenced work on a $30 million project to modernize and upgrade by more than 40%, the capacity of our industrial reactivation facility on Neville Island.

Again, this project which we expect to complete in 2015, will also generate operating cost savings.

Finally, the modernization and expansion of our potable water reactivation facility at Tipton in UK, is proceeding on schedule with the startup of phase one expected in Q4, 2014.

Shifting to the commercial side, in the U.S. municipal water, disinfection by-product market, new projects continue to develop.

In Q4 of 2013, we identified and are pursuing 11 projects having an initial equipment in carbon supply opportunity of $4 million.

Recently, the chemical spill into the Elk River, near Charleston, West Virginia which affected the drinking water supply of hundreds of thousands of people, highlighted another major benefit that granular activated carbon can provide to the water treatment industry.

This benefit is especially meaningful to those water facilities that obtain their source water from a river or lake which is subject to industrial activity.

The U.S. EPA toxic release inventory, as reported by the Bloomberg, indicates that there were 1,374 spills of 287 difference chemicals into the U.S. water waste in 2011 by industrial facilities.

Approximately 25 years ago, the city of Cincinnati, Ohio recognized the vulnerability of their water facility to chemical spills based upon their location on the Ohio River. Therefore, they designed and installed a perfectly sized activated carbon filters and reactivation equipment which provide protection to their customers from chemical spills as well as a number of other additional treatment benefits all at a very affordable cost.

Based on the ongoing operational success at Cincinnati, we are working to explain the benefits and advantages of granular activated carbon treatment to state and federal law makers and regulators who are interested in finding ways to prevent chemical spills from seriously affecting other communities.

Shifting to the mercury control opportunity in the U.S., as expected, bidding activity was slow in Q4. We do not believe the activity level will increase until at least Q2 of 2014.

It appears the EPA has granted one year extensions to approximately 170 coal fire generating units out of a population of over 900. This number is in line with our expectations.

Our advanced products continue to perform very well during the plant trials conducted in Q4. We are currently scheduled to participate in trials at seven utilities over the next four months.

Our R&D efforts remain focused on improving the performance of our products and reducing their manufacturing costs.

In the ballast water treatment market, we received 14 orders for new systems in Q4 for a total of 64 orders in 2013. The order level in 2013 was consistent with the orders received in 2012.

The average order value in 2013 was slightly lower than that in 2012 as the equipment size were slightly smaller.

The number of request for proposals that we received has been increasing specially for retro fit opportunities.

It is our understanding that at this time, no ballast water treatment system supplier has officially submitted in the application to begin testing to obtain U.S. coast guard type approval.

We do believe the EPA and the U.S. Coast Guard technical panel is continuing to make progress in the development of a test protocol for UV filtration based systems that would become the basis for type approval testing and certification. We, along with other suppliers of UV systems, are actively providing information to the panel.

Since no U.S. type approved systems are currently available in the market place, the Coast Guard has been favorably responding to ship owners’ requests for extension to their ballast water treatment compliant states.

On their website, the Coast Guard has officially listed 17 extensions to a date of January 1, 2016. We expect there will be more.

In spite of the availability of AMS systems like our Hyde GUARDIAN, these extensions will have a negative effect on the immediate market for ballast water treatment systems. And we are monitoring the situation closely to determine the actual effect.

As it has for many months, ratification of the IMO ballast water treatment regulations remains very close.

We remain optimistic that the ratification will occur in 2014, perhaps as early as the second quarter.

We continue to work to improve our product offerings to the market, and in Q4, I introduced the gold product line. This new line utilizes screen filters which require significantly less force space that our disc based filtration systems to treat a given flow rate.

This available space in the ships is highly priced specially on existing ships, we believe this additional product line will find favor among many ship owners. The feedback from the market place to date has been positive.

That concludes my remarks. I will now turn the call back to Gail.

Gail Gerono

Thanks, Bob. Next, Steve will comment on the outlook for the first quarter. Steve?

Steve Schott

Thanks, Gail. Sales, our first quarter sales are expected to decline slightly sequentially.

Net sales less cost of products sold as a percentage of net sales, while expected to continue to improve for the full year of 2014, is expected to be flat or show only a modest increase sequentially. Operating expenses are expected to increase slightly sequentially.

In January, we launched our SAP re-engineering project. This is a significant project aimed at substantially improving our ERP system functionality.

We estimate this project may increase our operating expenses by as much as $1 million in each quarter of 2014.

Finally, we expect our 2014 full year tax rate to approximately 34%.

Gail Gerono

Thanks, Steve. Next, Randy will discuss certain strategic opportunities.

Randy Dearth

In our investor day, Steve spoke about our strong financial profile. And I identified four different strategic opportunities to increase value through deployment of our balance sheet.

These include M&A, investing in existing plants, investing in new production facilities, and returning value to shareholders.

Let’s discuss M&A first. I have nothing to announce today, but identifying acquisition candidates is an ongoing effort with a focus on strengthening our activated carbon and related service business. We do have a team in place that is evaluating various candidates.

Next, investing in existing plants. At investor day, I reported that demand for activated carbon is expected to grow at a 10.8% compounded annual growth rate from 2012 through 2017.

In order to capitalize on this significant increase in demand, we must consider expanding our virgin carbon production capacity.

In his remarks, Bob mentioned capital improvement projects under way that will also incrementally increase virgin production capacity.

In fact, we expect to realize more than 18 million pounds of virgin capacity in 2016 as a result of these projects.

Let me note that these incremental pounds are in our cost improvement program which I will address shortly.

We will continue to look for, and invest in projects that both improve the cost and efficiencies of our existing plants, and at the same time, add incremental production capacity.

However, in order to take full advantage of the projected increase in demand for virgin carbon in the coming years, we must look to another source for additional capacity.

As I discussed at investor day, selling more outsourced product is a possible solution that this approach would dilute our margins.

So that brings us to our third option for utilizing our balance sheet to create value. Building a new carbon manufacturing facility.

Over the past 18 months, we had given serious consideration to building the Greenfield facility. Preliminary cost assessments are higher than we expected, but we will continue to explore this option.

In the meantime, as Bob said in his remarks, we are beginning an engineering study to determine the feasibility of adding another line at our Pearl River plant that could increase our annual virgin granular production capacity by more than 50 million pounds.

We will also continue our efforts to increase the amount of virgin carbon available for sale by converting U.S. municipal customers who currently use only virgin carbon to customer reactivation.

This frees up virgin capacity that can be sold to newer existing customers. As a reminder, to date, we have been successful in converting more than 70 water treatment facilities to customer reactivation in the U.S.

The fourth opportunity to create value by utilizing our balance sheet, is to return capital to our shareholders.

Since November of 2012, we have completed two share repurchase programs, a $50 million ASR and a $90 million open market repurchase program that we completed last week.

We intend to continue repurchasing shares, having the authority for over $130 million of additional purchases.

The investments in our plans in the two stock repurchase programs, clearly demonstrate our commitment to use our balance sheet to enhance shareholder value.

We intend to continue to do so, keeping in mind the importance of finding the proper balance between investing to strengthen our company’s position in the market place, and returning capital to our shareholders.

As I conclude, let me provide you with an update on our cost improvement program. Phases one and two are complete, and for 2014, will contribute not less than $20 million of benefits.

Phase three initiatives are well underway and should being providing most of the savings in 2015 and 2016.

Let me remind you that the phase three initiatives include benefits from our new investment projects, full implementation of our long term coal contracts and efficiency improvements through our plant optimization project.

We will now take your questions.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from the line of Kevin Maczka of BB&T Capital Markets.

Kevin Maczka – BB&T Capital Markets

Thank you. Randy, first question. You’ve obviously been making great progress on the cost side, but I want to start with the top line. You’re mentioning again the 10% CAGR forecast that we see and I’m just trying to square that with our activated carbon revenues being flat or slightly down the last two years and I guess we’re forecasting down again as we go into Q1.

Can you just talk a little bit about the core business x mercury and how did we do in 2013 from a volume and price standpoint? And if we freed up, I think Bob said 13 million of additional pounds, how are we not getting more volume left?

Randy Dearth

Yes, good afternoon, Kevin. Let me start first by talking a little bit about revenue and the 10.8% CAGR. The 10.8% CAGR is represented to you in Phoenix, really focused on the fact that the mercury market will be developing in 2015 after the MATS rolling takes effect, and also the fact that we see tremendous opportunity growing in China in the coming years.

Okay, so that addresses the 10.8. When you look again at our revenue, year-over-year, let’s break that down again, Hyde Marine for instance, you know, we’re looking a number there, year-over-year, of $15.5 million difference from 2013 to 2012.

As Steve pointed out, the exchange rate, again, year-over-year, $11.6 million, not insignificant. And then we mentioned the mercury market, indeed that is one customer within the mercury market that year-over-year not because of volume, but strictly because of pricing, was down $11.7 million.

So those three in and of themselves, you know, is a $39 million year-over-year decrease. Bob, you want to comment on the capacity?

Bob O’Brien

Well, I think, to your point, we are growing the Carbon and Service business, but it’s being masked by those three negatives, or headwinds that we faced in 2013.

So we are seeing growth now as we explained, I think when we were in Phoenix, capacity is tight on our virgin carbon plants, so we are making sure, number one, that we are selling those products to the people who are willing to pay us frankly, the most money and see the value of the products that we deliver.

And we’re continuing to look at ways to incrementally increase that capacity. And certainly, we talked about that today.

In the short term, besides those actions, we need to continue to look to fill up the capacity that we have in our reactivation facilities, and we are making progress there across the world, our capacity percent utilization is increasing in Europe, it’s increasing in the U.S., and it’s increasing in China. So we’re making headway there.

We need – in the short term, to be a better distributor of products that we purchase from Asia, and that’s one of our focuses in 2014 and we’re doing that. So we think we are growing in the Carbon and Service market in 2014 and certainly then in anticipation of bigger growth rates in 2015 with the mercury market taking hold.

Kevin Maczka – BB&T Capital Markets

We’ve always described the core business as kind of a GDP type grower. Did we – again, when you back out in mercury and Hyde, and just think about the core carbon business, did we have that kind of experience in ‘13 and is that again the way to think about it? Is that what you’re describing, Bob for ‘14?

Bob O’Brien

Yes, I think you know, the core business does grow relatively around the GDPs and then the – I’ll use the word kicker, it’s based on regulations because a lot of our business is environmentally oriented. So if there are new regulations that are adopted in a given country that affect drinking water standards, or waste water standards, or air standards, that can be a significant boost to our opportunities.

And of course, that’s what we’re looking for in the U.S., in the mercury market and which we’ve been seeing in the water treatment market and those – by-products for the last few years.

So I think our core business is strong, is growing relative to the GDPs of the various markets that we’re in and then the – any changes in regulations or additional regulations give us the opportunity to grow in the environmental markets.

Randy Dearth

And Kevin, if I can jump in again and just to add on what Bob said, and I’ve said this many times to our shareholders, is that, you know, 2013, 2014, we have been looking at our traditional business and looking at the margin improvement knowing that mercury is in 2015 is out there. We’re at the footholds of that right now, and I’m really pleased despite these three major revenue headwinds if you will, I’m really proud of the fact that our team focused on the margin, taking out the products we took out, really focus on higher-end customers and end markets and I think that – I’m really proud and successful that we’ve been able to do that.

And now with our advanced FLUEPAC products, we’re really positioning ourselves for the mercury space and that excites us quite a bit.

Kevin Maczka – BB&T Capital Markets

Right, and just the final follow up for me on that point, I guess, so if we’re running effectively sold out in Pearl River and Sandy, I mean, the way that you can sell more in a core business is you add in capacity, raise price or maybe even do more outsourcing, which I guess, you would probably not be the first choice. But new capacity, it sounds like you’re evaluating but that’s a slow process to bring on board.

Price increase, as you’ve already done some of that and you’re not very keen on further outsourcing, so again, revenues down sequentially in Q1, is that kind of the way to think about the core business for, at least, for the next few quarters?

Bob O’Brien

Well, I think you may have miscast our desire to sell outsource products. I mean, I think, that is part of our strategy and if demand increases in the US as we expect, what we’ll be doing is keep more of our production capacity or keeping more of the product that we make in the US, in the Americas, and we will shift more of our business in Europe and Asia to outsource.

So, selling more outsource product is one of our growth strategies. As Randy mentioned, we would sell that at a lower margin, but its still would be an attractive sale for the company. It would increase our top line and also increase our bottom line. So I think you should think in the short term, again, that keeping the products that we make in the US at home and looking to sell more outsource product in Asia and in Europe is the way we’re going to grow in the carbon and service business. Along with filling up our reactivation capacity, because that is an area where we do have adequate capacity to increase sales in all regions of the world.

Kevin Maczka – BB&T Capital Markets

Okay, got it. I will get back in line.

Operator

Your next question comes from the line of Michael Gaugler of Brean Capital.

Michael Gaugler – Brean Capital

Afternoon, everyone.

Bob O’Brien

Hey, Mike.

Randy Dearth

Hi, Mike.

Michael Gaugler – Brean Capital

Just some housekeeping items, on the gross margin, did you get a bump basically due to the decline in sales in Japan?

Randy Dearth

Yes; modest but yes.

Michael Gaugler – Brean Capital

Okay, and then the other item. I knew you had guided to a slightly higher tax rate, I think, as recently as last quarter and it came in a little better than anticipated. Was there anything behind that?

Randy Dearth

Mike, just some – I’ll call them housekeeping items when we filed our 2012 tax return, we noticed an incremental benefit to some of our assumptions we had made around the domestic manufacturing deduction and so with that recognized in the third quarter we did adjust in Q4 slightly to reflect the appropriate 2013 benefit.

The lower sales in Japan also helped, that’s our highest tax jurisdiction at over 40%. So, there were a combination of factors. In the full year, at 32%, benefited approximately two full percentage points from the Datong sale that we had in the first quarters; so taking them out, you normalize the 34 and that’s what we think the rate will be in 2014 as well.

Michael Gaugler – Brean Capital

Okay. Thanks, guys. Appreciate it.

Randy Dearth

Sure.

Operator

Your next question comes from the line of Ben Kallo of Robert Baird.

Ben Kallo – Robert Baird

All right. Thanks for taking my question. As far as capacity expansion goes, you talked about Greenfield and then moving on past that to Brownfield Pearl River, and I remember talking about expanding Pearl River six or seven years ago. Why even look at a Greenfield there? Are there obstacles at Brownfield at Pear River? And when you decide you [ph] green light, how long does it take to get that up and running? Is there still permitting there to do.

Bob O’Brien

We’re trying to find the long-term, having the production in place in the right area that would allow us to make product competitively for the next 20 or 30 years. So having the plant situated where we think we can have good coal supplies that allow us to make products which are very competitive in the marketplace is a consideration.

So, as we’re looking at how we expand or where we expand, that is a big part of our decision, where do we think we can have good coals in competitive cost. So we’ve looked at a number of couple – a number of different sites. And at least, at this stage, Pearl River seems like it could be an attractive market. We still have – an attractive area.

You call it a Brownfield site, I mean, it’s an existing plant location, right? When we built the Pearl River facility, in 1991, we laid it out actually to be able to have three production sites. So the infrastructure is in place to allow it to be expanded, relatively, economically – and much more economically compared to a Greenfield site, so that’s one of the things that we are taking in to consideration.

Ben Kallo – Robert Baird

And as far as timing, when is – you have a green light there if you decided to move forward?

Bob O’Brien

It would be close to three years from now, two and a half to three years from now.

Ben Kallo – Robert Baird

Okay, and then – thank you. On the react side, it looks like you’re building out – continue to build out capacity on react. Can you talk about why that is, what’s driving that decision and then, we talked about for a long time moving the virgin to react – free up virgin capacity. Is there any way you can quantify how much of that has actually been done so far?

Bob O’Brien

Okay, your first question on industrial capacity. Our big reactivation capacity – our big reactivation facilities industrial in the US or at Neville Island, just outside of Pittsburgh here and at our Catlettsburg Kentucky facility, both of those furnaces are fairly old and go back into the 1970s. So, both of them are in need of some major upgrade from a maintenance standpoint.

So we decided that the Neville Island site was the best one to make first investment from a modernization and we also looked at what we can do from a capacity standpoint and for relatively small amount of money, we were able to have a fairly significant increasing capacity. So we’re actually planning for the future, and if the market doesn’t really grow, we’ll be able to handle the majority of our needs at the Neville Island facility and drive our cost down.

So we basically made a strategic decision. We had to spend money there and adding a little bit more capacity just seemed like a pretty good decision to make.

Ben Kallo – Robert Baird

Great. And my last question, Bob; when you look at just the overall market and capacity out there, could you just update us where we are on – and I know each market is different but maybe just focus on the mercury market where we are on supply and demand and where you expect that to shake out in a year if new capacity is coming online anywhere that you see. Any thoughts you have there. Thanks.

Bob O’Brien

Yeah. I don’t think we’re aware of any new capacity coming online in the US for any virgin carbon product targeted for the mercury market or not. I think we’ve continued to say the range for carbon supply in the mercury market could be – correct me like [ph] –

Steve Schott

400 million to 700 million.

Bob O’Brien

400 million to 700 million at the upside, and I think that that’s probably still a good estimate. So based on available capacity in the US, it should be tight in the future 2015, 2016, and 2017. I will just comment though, again, that our development efforts have been aimed at trying to make products that work better in the power plant, so actually, from a pound standpoint, if more utilities would adopt our products, the actual pound sold into the market would go down. It doesn’t mean the value of the market would go down because our products would be more expensive but they would provide a benefit we believe to the utility.

So that number, 400 million to 700 million not only is affected by the various operations at the plants but it’s also somewhat affected by who they choose to be their carbon supplier and if they choose us, which we would certainly hope they will, the actual pounds usage would be lower.

Operator

Your next question comes from the line of David Rose of Wedbush Securities.

David Rose – Wedbush Securities

Good afternoon. I was wondering if we can follow up on some of the potential headwinds on the revenue so I just get a little bit more clarity on the delta in revenues. If we look at DB2 or revenues from DB2 and revenues from Long Term 2 Enhanced Rule, how much would you say came in on both of those respectively for 2013 and what’s sense of the outlook for that comparison for 2014?

Steve Schott

David, I don’t think we have that in front of us for 2013. I think our – I can tell you our outlook for ‘14 is growth. But to be honest and I apologize, we don’t have the 2013 for your information with us.

David Rose – Wedbush Securities

But that number should – but the revenue opportunity from DB2 should step down, shouldn’t it, from 2014?

Steve Schott

Well, we still have the smaller utilities remaining to adopt the Disinfection Byproduct Rule, so no, we still expect some growth. I can tell you that we still expect growth for next year.

David Rose – Wedbush Securities

Okay. And then on the UV side, from Long Term 2, same sort of forecast growth from that business as well?

Randy Dearth

On the UV side, oh.

David Rose – Wedbush Securities

Yeah.

Randy Dearth

Yeah, we do expect – we’re continuing to have opportunities for UV treatment in the US driven by the rule that you quote and we still have opportunities that are global in nature, in Asia, in Australia and the Middle East, so we’re pursuing opportunities in drinking water standpoint on a global basis. And we do – although I can’ quantify it at this point, we do continue to expect to see a reuse market developing in the US for those areas of the country that are short on water and reusing the waste water, turning it into a higher quality product either for use in irrigation or in some places actually all the way to completely turning it into a drinking water system. So that remains another opportunity for the standard UV treatment.

David Rose – Wedbush Securities

Have you seen increase in floatation [ph] as a result of your Title 22 approval in California?

Randy Dearth

I don’t have that information with me, so we’d have to check on that for you. We can make it into [indiscernible].

David Rose – Wedbush Securities

Okay. Then, lastly, on CapEx, do you need additional CapEx and outer years [ph] to achieve that 10% CAGR? Or that basically cover you for the next three, four years, how should we think about CapEx?

Steve Schott

We’ll decide whether we quote, unquote, “need it”. Under an assumption, we could outsource, then we would evaluate the outsourcing assumption particularly in Europe and Asia as Bob mentioned against building and expanding where we would get a significantly enhanced margin. And so we’re always evaluating against our growth assumptions, how we can expand and you hear us today talk about several small projects to incrementally debottleneck and expand, and then we’ll evaluate and/or evaluating whether or not, a new site, whether it’d Greenfield, Brownfield or otherwise should be constructed so that we have a balance between what we’ll outsource and what we’ll manufacture.

Randy Dearth

Let me just add to that, David, I mean, this is a huge priority for us right now in Bob’s engineering teams, in our marketing teams and the finance group, really trying to understand as Steve just said, the best way to go. I mean, we’re really looking at this seriously with a lot of detail and we have some various options. We presented a need [ph] to you here today.

So, in terms of – is this is enough capital? I can’t answer that and we’ll have to keep looking at our strategy.

David Rose – Wedbush Securities

Okay, and then – I’m sorry, one last one, Randy, if I may. Given where Hyde is today, the delay you had, I guess, alluded to some changes that will be made at Hyde in terms of managing cost, should we expect some restructuring cost in Q1 and Q2?

Randy Dearth

No.

David Rose – Wedbush Securities

Okay.

Randy Dearth

[Indiscernible].

David Rose – Wedbush Securities

Okay, great. Thank you very much.

Operator

Your next question comes from the line of Steve Schwartz of First Analysis.

Steve Schwartz – First Analysis

Well, good afternoon, everybody.

Steve Schott

Hey, Steve.

Randy Dearth

Hi, Steve.

Steve Schwartz – First Analysis

With respect to reactivation capacity, how much right now would you say is unutilized?

Steve Schott

Well, we don’t typically disclose that number.

Bob O’Brien

Comparatively, we probably have the most unutilized in the United States. China’s facility is very small. Europe is becoming more fully utilized each and every year, so we’re pleased with the progress we made there but we don’t disclose that number for competitive reasons.

Steve Schwartz – First Analysis

Okay. Understandable. I guess, to add to that, how much of your virgin production could be moved into your unutilized reactivation capacity? Could you fill that unutilized capacity with virgin if your conversion – customer conversion program were to be 100% effective?

Bob O’Brien

I don’t think it would fill it all. We would come close but if we project growth in the marketplace, then coupled with our conversion, we get a lot closer to filling our capacity.

Steve Schwartz – First Analysis

Okay. The context of that question is, Randy, when you talked about the four opportunities for capital deployment, you talk about the expansions at 18 million additional pounds in ‘16, and then there’s Greenfield greater than 50 million pounds. So I’m just trying to figure out just how much capacity you could have coming online in all facets.

Randy Dearth

Yeah, and again, just to add on to Bob, I mean, obviously, there will be some of that and we’re just going to continue to understand and continue to push reactivation where we can.

Steve Schwartz – First Analysis

Okay. And then if I could ask about, in the press release you talked about pricing for mercury removal pack and in your comments, I think, your prepared remarks talked a little bit about the renewal of older contracts. I just want to confirm that the weaker pricing there is on the renewal of existing business or is this on new business you’re getting.

Randy Dearth

Well, the weaker pricing, the specific one that we mentioned where pricing went down by $11 million for us, that was within existing customer that the contract with them ended, right?

Steve Schwartz – First Analysis

Okay.

Randy Dearth

There really hasn’t been much actual bidding as I mentioned in Q4 for new opportunities. So there’s really no way to specifically measure any changes in the pricing in the marketplace. I think it’s still – until we start to see more of the utilities actually starting to place orders for their 2015 needs, we’ll have a better handle. Again, we are targeting as much as we can, let’s say, focusing on our advanced products. We have product line that’s competitive in all areas but we’re really targeting the advanced products and they sell at a higher price based in standard products because they perform better.

Steve Schwartz – First Analysis

And so it doesn’t concern you that you’re expecting this big rush in just a matter of one or two quarters but at this point you’re seeing so very little activity? It seems like that’s an awful steep ramp –

Randy Dearth

Yeah.

Steve Schwartz – First Analysis

– given that the horizon out there is pretty well understood. I mean, with the exception of these 170 units that got the one year extension but –

Randy Dearth

Well, if you’d ask – if I had my druthers, I wish people would be placing orders right now. But we know that there is a vibrant market for the carbon injection equipment and utilities are purchasing that. So we know that they are preparing to get it to – to get their systems ready, to get their plants ready to feed activated carbon. And I think they’re just trying to make the best decisions too.

We strongly encourage utilities to test not just by on specs or products but to test and so that they can know that they’re making the best decisions for their facility. So, we like people to be buying quicker. It would make my life easier in dealing with Randy, I can tell you that, but it’s coming and we’re confident that it’s coming.

Steve Schwartz – First Analysis

Okay. And then if I could ask just one more, and I think you touched on this in responding to David’s questions, but as far as the virgin GAC capacity, I mean, we know the powder for mercury removal is a growth opportunity out there. What do you expect is going to drive virgin GAC demand?

Bob O’Brien

Well I think, yes, I answered that earlier. This is Bob again. I mean we do get growth in carbon sales, granular carbon sales basically in line with economy growth.

Steve Schwartz – First Analysis

Right.

Bob O’Brien

And we expect to see that worldwide. And we also grow or the market activated carbon grows in relation to new regulations or either on water or air pollution. And so there haven’t been that many new regulations in Europe. There haven’t been many regulations in the U.S. which are driving demand.

And every one [ph] forecast I think that there will be regulations taking place in China, they’re going to be spending more money for controlling environmental pollution. India is also another market where we expect there’ll be activated carbon growth. So those developing countries, those areas that are heavily polluted, there are regulations being placed on the books or contemplated that should drive the use of activated carbon.

Brazil is a market where we think there’re opportunities. And we’re looking to do more from reactivation standpoint.

Randy Dearth

Hey, Steve, this is Randy. Can I add just a little bit to that?

Steve Schwartz – First Analysis

Sure.

Randy Dearth

We presented you today with the issue with West Virginia. We know of three pretty strong emerging markets and you know them quite well too. I am looking out into the future and there’s going to be, when you look at air and water, there has to be more regulations and Bob just pointed to the global. But even to the United States that is still out there that potentially could come down to path.

And I think a Company like ours needs to be well positioned, having the right discussions and being able to provide a solution for what was a very bad problem. And so I believe that beyond, where we’re already aware of today, there could be more in the future.

Steve Schwartz – First Analysis

And do you think those opportunities that you’re referring to right now are as well developed as you expect the expansion of disinfection byproducts to be? Because you’ve talked about that these facilities that are not yet using carbon for disinfection byproducts but you expect that regulation to expand.

So do you think these other opportunities in from emerging markets and what have you are as far along, have as high a probability as what you think that probability is for DBPs?

I guess I’m trying to gauge the strength of the pipeline of opportunities.

Bob O’Brien

I’m not sure it’s as strong as the disinfection byproduct market because that is a regulation that’s in place, has been in place with part of the compliance state. So that would have to be the strongest.

The other growth areas outside the U.S. we’ve mentioned such as China, such as India, such as Brazil, those governments particularly China have made commitments to spending more money for pollution control. And talking to our sales people who are on the ground in China and in India, and they definitely see that there are things changing, that there are opportunities developing.

I can’t say that I would classify them in the same – at the same level that we would – that the DBP market, but we do think the opportunities are there.

Randy Dearth

Steve, I was in the meeting with the EPA. I think it was three weeks ago now in D.C. and [indiscernible] disinfection byproducts which would be the disinfection byproducts formed when you use chloramines instead of chlorine that’s definitely on their radar. So they were asking us a lot of questions about activated carbon and its role in here, so.

Steve Schwartz – First Analysis

Okay, that’s great. Hey, thank you for your time.

Operator

Your next question comes from the line of Dan Mannes of Avondale Partners.

Dan Mannes – Avondale Partners

Hey, good afternoon, everyone.

Gail Gerono

Hi.

Bob O’Brien

Hi, Dan.

Randy Dearth

Hi, Dan.

Dan Mannes – Avondale Partners

I just want to follow up on a couple of these lines of questioning. First, as it relates to, number one, the I guess I’ll call them throughput expansions and the number two, the broader capacity expansions, I just want to make sure this jives with the way you’re talking about in market growth particularly in the context of a lot of underutilized capacity in react.

Randy, when you talked about end market growth you really focused, number one, on mercury in the U.S. which is primarily a powder product and then two of emerging markets. And then I contrast that with your discussion of not just the potential expansion of Big Sandy but I meant a whole new line at Pearl River.

And I’m trying to understand if you’re talking about building new capacity in the right market or should I be thinking that you’re building capacity somewhere else? Because I guess I’m not putting together the supply and the demand.

Bob O’Brien

So you’re talking about building capacity outside of the U.S., is that your question versus the U.S.?

Dan Mannes – Avondale Partners

Yes. I mean basically, I’m trying to understand why you’d be focused on building a new line at either Big Sandy or Pearl River when most of the domestic demand is going to come from mercury which is number one, a powder product, which historically you have wanted [ph] that capacity to meet. And two, you can also free up capacity from your existing plants by shifting from virgin to react and a lot of the excess demand is coming from the rest of the world. So why would you want to build a lot of new granular capacity in the U.S. is basically what I’m asking?

Bob O’Brien

Well, I think there is a demand in the mercury market that we have to evaluate how best that we can fill that need. And again as our products hopefully are accepted by the marketplace, there will be demand there. But I think your point is well taken that why we haven’t made a firm decision yet as to exactly where we would add larger amounts of capacity.

We certainly think it makes good economic sense to debottleneck and increase the capacity of our existing production lines. There, we know we get a better return from the standpoint. We usually get more capacity for lower capital dollars. And then also we’re able to drive down operating cost when we do that. So that is almost a no brainer for us as far as that’s the direction to go.

When it comes to a major expansion, it’s going to be a lot of dollars and that’s something that Randy just mentioned we are taking seriously. So we are evaluating, do we want to be in the U.S.? We certainly are considering what are our options in places like China? We talked to people there all the time. And so that’s one of the reasons. We’re just trying to get all of our ducks in a row so whenever we make a decision, it will be the right decision for the long term.

Dan Mannes – Avondale Partners

So putting aside sort of a whole brand new line and just looking at sort of what I’ll call I guess debottlenecking and improved efficiencies, can you get an attractive return on capital just through the lower cost structure of the plant vis-à-vis buying back stock or do you really need to see the increase demand side to make those economics work?

And this is just for the throughput, just the operational improvements you’re talking about, like what you did at Pearl River.

Randy Dearth

We did a positive return from that, just from the cost savings and if we did no more than just used our production in lieu of outsourced product.

Dan Mannes – Avondale Partners

Okay.

Randy Dearth

More handsome returns are provided if we’re providing these products in the new markets, but no, they’re fine. There’s a lot of cost savings with these, better overheard absorption, better efficiencies et cetera.

Bob O’Brien

And we learned a tremendous amount at Pearl River that we’re excited to take to Big Sandy. And that’s happening even as we speak.

Dan Mannes – Avondale Partners

Okay. The second question I have is as it relates to the buyback, the $20 million was purchased between I guess mid-December and mid-February. Number one, can you indicate where your share count was actually at the end of the year? And two, with still $130 million of authorization but at the same time, a pretty sizable capital plant for ‘14, how should we think through your capital spend or your – any buybacks as we look to ‘14?

Randy Dearth

Let me start with that part of the question first as Steve is looking up our end of year – end of year share count.

Dan Mannes – Avondale Partners

Sure.

Randy Dearth

So in terms – and I think we’ve laid it out pretty clearly and you’ve heard me say many times, it’s going to be a balance. We’re constantly balancing this balance sheet with where the best returns are going to be for shareholders. And quite honestly, you’re seeing that somewhat of a combination.

And we’re constantly recording and be looking at this and in looking at what we want to do. And we will continue with the share repurchase program.

Bob O’Brien

Dan, relative to share count, our fourth quarter in the press release had just over $55 million shares for the weighted average for Q4. We didn’t – the buyback started near the end of that quarter. So the most of the $900,000 plus shares we bought would have been in Q1.

Dan Mannes – Avondale Partners

Got it. And then just one last question as it relates to the mercury market, you talked about, I guess almost a $12 million, I think you said $11.7 million reduction in revenue and I assume that’s primarily from the one renegotiated contract in Illinois. Do you have any other material contracts left from that legacy pricing or have you already experienced all the potential step down given the change in market from I guess 2008 and 2009 to now?

Bob O’Brien

Yes. We have no further legacy contracts where pricing is not consistent, let’s say, with the existing marketplace. So there’s no big – there’s no big surprise out there like we saw with that one customer.

Steve Schott

Yes. And Dan just to take the opportunity, this is Steve Schott. That was one customer, price changed, we kept the business under a new contract. So our margin improvement had to overcome that entire price decline. So just to further how well we did this year, we overcame that entire deficit and improved as much as we already talked about.

Dan Mannes – Avondale Partners

Got it. And if you’ll indulge me with one last one. It looked like on the international front, obviously currency was a pretty big headwind in Japan. I was wondering, is there any other major changes in either Japan or the Asian market in terms of the demand side and that’s not withstanding the, I guess, the early fill I guess in Q3 in Japan. Any other material going on there or is that market been steady?

Randy Dearth

It’s pretty steady. I’ll give my thoughts and let Bob chime in. As it relates to Japan, they actually grew in local currency. So they did increase their volume. There were just a tremendous amount of headwinds from an FX perspective. And probably when we get to the end of the first quarter comparing it to the year ago, there will be a little bit more because I think the end weakened even further from where it was a year ago.

I guess I’ll provide my commentary that I’d like to see us grow more in all of Asia and particularly China. We made some progress in filling our Soguo [ph] Plant, but we’re operating it. It’s still a fraction of its capacity and we have ways to go.

Dan Mannes – Avondale Partners

Okay.

Bob O’Brien

And I think in the Asian market, we’ll probably see some ups and downs because a fair amount of our business there has been tied to relatively large municipal fills. So the quarter, we get a big municipal fill, sales go up and then in the next quarter if we’re not able to duplicate that, sales are down in year-to-year comparison.

So we’ve had some big fills and frankly and hopefully that those will continue.

Steve Schott

And let me talk administratively because as you know over the past couple of years, we talked about Japan and how unhappy things were there. I’m very pleased to report that with new management and new focus on the business and how we do things, I’m quite pleased with how that’s developed. I’m very pleased with the head person we have there.

As you know we announced a new head of China and he now is getting very active in the Chinese market and looking at opportunities and running our plant. So I think we’re making the right decisions to secure our Asian business and grow into the future.

Dan Mannes – Avondale Partners

Sounds good. Thanks.

Operator

Your next question comes from the line of Christopher Butler of Sidoti & Company.

Christopher Butler – Sidoti & Company

Hi, good afternoon, everyone.

Bob O’Brien

Hey, Chris.

Randy Dearth

Hi, Chris.

Christopher Butler – Sidoti & Company

A lot of good questions so far. The one thing that you said that still lives me a little bit confused was this ballast water. You had mentioned that regardless of whether or not demand improves this year, you’re going to have improvements to that business. What is the back-up plan should demand not work out at least somewhat the way you think it is?

Bob O’Brien

Well, then we will take as many initiatives as we can to reduce our cost whether it’s fewer consultants, lower other operating cost, we’ll be as aggressive as we can in managing our operating expenses.

We have stood fully ready now for a series of years for our market that is not quite here. And we appreciate fully that that has burdened our equipment segment performance to where we’ve had quarterly losses. And we acknowledged that that cannot be the long-term rate. We are optimistic that the IMO will get approved this year and that this is a relatively temporary situation. But we want our investors to know that we’re cognizant at this and we’re going to do the best we can to manage to do breakeven or profitable any and every way we can.

Christopher Butler – Sidoti & Company

And just a quick sec on you, you had mentioned that the maintenance in this quarter the fourth quarter was less year-over-year. Could you quantify that and give us a sense on what’s typical for our fourth quarter maintenance?

Randy Dearth

No, I would only – what I’ll add to that is only that it was more a function of how unusually high the 2012 period was because we had tremendous difficulties at our Pearl River facility. We had undergone a significant expansion which we worked our way through only to be hit by a hurricane as I recall near at the end of the third quarter. And we had a tremendous amount of difficulty there in particular.

It wasn’t so much a function of this year’s being unusual but rather what it happened in 2012.

Christopher Butler – Sidoti & Company

Got you. I appreciate it.

Randy Dearth

You’re welcome.

Operator

Your next question comes from the line of Jinming Liu of Ardour Capital.

Jinming Liu – Ardour Capital

Thanks for taking my question.

Bob O’Brien

Yes, sure.

Jinming Liu – Ardour Capital

Yes. First with regarding the carbon sale [ph] decrease, [indiscernible] decrease in sales, with a price increase and the stronger U.S. dollar, have you see any loss of customers especially in Europe?

Randy Dearth

No. Actually our business in my view has been, in Europe, has been a pleasant surprise, we’ve done pretty well. We’ve grown our business and we expect to continue to grow our business in Europe, so that has not been an issue.

Jinming Liu – Ardour Capital

Okay, good to hear. I’m still – throughout the question, I’m still confused by your strategy in emerging market. If you believe the potential future growth will come from emerging markets, but along there, what other high new diversity [ph] in Datong facility not that long ago, so are you [indiscernible] or source a contract production somewhere in Asia just to service that market? I’m a bit confused there.

Bob O’Brien

Well this is Bob. Again, we shut down the Datong facility for a number of reasons. Frankly it’s not economic for us to operate it. If and when the mercury market develops in China, we do expect to develop. Timing is really the issue. I don’t think we would expect that we would ship product from the U.S. and be competitive in China. We would identify manufacturers to work with in China and use our technology in some fashion, right, whether we would have a stronger relationship with them or they would manufacture products for us.

Those are the types of things we’ll be evaluating. But supply to the Chinese market for most products, will be made by – will be produced in China.

Jinming Liu – Ardour Capital

Okay, got that. Thanks.

Operator

There are no further questions at this time. I will now return the call to Randy Dearth for any additional or closing remarks.

Randy Dearth

Thank you very much. And thank you all for some very great questions.

So let me conclude by saying today that Calgon Carbon’s results for 2013 demonstrates significant progress in achieving our strategic objectives and that includes improving profitability which we talked a lot about today and enhancing shareholder value.

In 2014, we’re going to intend to build on that success that we had last year and we’re going to continue to implement our global cost improvement program and by further strengthening our position to capitalize on our two major growth opportunities and again, we talked a lot about mercury and ballast water.

We’re going to intend to make significant investments in our activated carbon production facilities, in our SAP system that Steve talked about and in other areas of the company.

So I look forward to sharing our progress to you in future calls. Thank you for joining us today.

Operator

Thank you for participating in the Calgon Carbon Corporation fourth quarter 2013 results conference call. You may now disconnect.

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