Ladies and gentlemen, thank you for standing by and welcome to the Calgon Carbon Corporation Second Quarter 2014 Results Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator instructions) It is now my pleasure to turn the floor over to Gail Gerono, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us. Our speakers today are Randy Dearth, Calgon Carbon’s Chairman, President and CEO; Bob O’Brien, our Chief Operator Officer; and Steve Schott, our CFO. Before we begin, I’d like to remind you that 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, broader 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 material 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?

Thanks, Gail, and good morning everyone. In the second quarter, we continue to make progress in building a stronger Calgon Carbon and I’m pleased with the results. Both top and bottom line showed improvement sequentially and quarter-over-quarter. In fact, as noted in the news release that we issued earlier this morning, we had one of the best sales quarters in our company’s history. I am extremely pleased with our efforts to consistently expand gross margin which increased quarter-over-quarter by 1.4 percentage points and year-over-year by 1.7 percentage points. In fact, we have improved gross margin in six of the last seven quarters. On a year-to-date basis, both operating income and EBITDA improved by approximately 5% as compared to the same period in 2013. Our aggressive cost improvement program has been a major factor in our success. We are on track to reach our goal of $40 million on an annual basis by the end of 2016. And we continue to look for additional opportunities to improve cost. Our success has not been limited to improving results. Our investments in new product development have positioned Calgon Carbon to take full advantage of opportunities provided by two regulatory driven emerging markets – mercury removable and ballast water treatment. There were some important developments in each of these markets during the second quarter which I would like to report on today. First, mercury removable. In April, the U.S. Court of Appeals upheld MATS concluding that the regulation was appropriate and necessary. In July, the plaintiffs announced that they would petition the U.S. Supreme Court to review the lower court’s decision. There is no deadline for the Supreme Court to decide whether or not it will review the lower court’s ruling. If the Supreme Court decides to review the case, we believe it should…

Thanks, Randy. Good morning everyone. Total sales for the second quarter of 2014 were $145.1 million versus $140.4 million in the second quarter of 2013, an increase of $4.7 million or 3.3%. Currency translation had a positive impact of $1.7 million primarily on Activated Carbon and Service and consumer sales for the second quarter of 2014 due to the stronger British pound sterling and euro. Regarding our segments. Sales in the Activated Carbon and Service segment increased $6 million or 4.8% for the second quarter of 2014 compared to 2013’s second quarter. The increase in sales is principally due to higher demand in the environmental water market of $5.3 million which includes sales of $3.2 million to a water remediation customer in the Americas region. Sales were higher in the industrial process market by $2.8 million which was driven by volume increases primarily in Europe. Also contributing to the increase was higher demand in the food market of $1.6 million primarily for sweetener customers in the Americas. Partially offsetting these increases was lower volume in the specialty carbon market of $3.6 million which was primarily due to lower demand in the Americas region for respirator carbon products as a result of a slowdown in U.S. government purchases. Equipment sales declined $2.5 million or 17.2% for the second quarter of 2014 compared to 2013’s second quarter. The decrease was due to lower sales of ion exchange systems of $2 million and traditional UB systems of $2.1 million as a result of several large contracts that were completed during the quarter ended June 30, 2013. Partially offsetting these decreases was an increase in sales for the company’s traditional carbon adsorption equipment and ballast water treatment systems of $1.4 million and $700,000 respectively as a result of new contracts that were awarded in…

Thanks, Steve. Bob O’Brien is next with the operations review. Bob? Bob O’Brien: Thanks, Gail, and good morning everyone. I would like to begin by commenting on the performance of our plants in the second quarter. Production in our virgin carbon manufacturing plants slightly exceeded last year’s second quarter volume despite a 21-day maintenance turnaround with our Pearl River facility. The increase was due to productivity improvements from capital investments made in 2012 and 2013 and the implementation of recommendations on operating methods and procedures from consultants that we engaged last year. We are very pleased with our progress in reducing costs and improving yields but we continue to be capacity-constrained and expect in the future to utilize more outsource products to meet demand in Europe and Asia. On our call to discuss fourth quarter results, I spoke about some major projects underway at our Big Sandy Kentucky plant to improve our manufacturing efficiency, reduce costs and at the same time increase virgin carbon production by approximately 19 million pounds of granular and powdered products. I would like to review the status of two of those projects. First, we’re implementing a project to improve the consistency of our steam supply which will increase annual production of virgin carbon by approximately 1.5 million pounds. Construction is underway and the project should be complete by the end of this year. Next, building on the success of the modifications to our Pearl River Mississippi plant in 2012, we were upgrading one of the three existing production lines at Big Sandy in order to continue to reduce costs and increase production by approximately 8 million pounds per year. The project will be executed in two phases with the final phase being completed by mid-2015. In addition to these Big Sandy projects, we continue to…

Thanks, Bob. Next, Steve will make some comments about the third quarter.

Thanks, Gail. Following our strong sales in the second quarter, typically our best sales quarter, we believe that our third quarter sales could decline sequentially by approximately 2% or 3%. Margins. Our net sales less cost of products sold before depreciation and amortization is expected to increase sequentially to approximately 35%. In the second quarter, we did not quite achieve the margin improvement that we had expected. This was due primarily to temporarily higher natural gas prices in the latter part of the first quarter that caused an unexpected increase on our inventory costs which in turn impacted the second quarter cost of sales. Operating expense. We expect a small increase in these costs sequentially. Finally, our income tax rate is expected to be approximately 34% in the third quarter.

Thanks, Steve. Next we’ll hear from Randy.

Thanks, Gail. Calgon Carbon has been selling activated carbon products in Central and South America for decades through agents and distributors. A few years ago, we decided to look more closely at the market there to determine if we could significantly increase our sales, particularly in Brazil, which is the region’s largest economy. The current market for activated carbon in Brazil is approximately 75 million pounds and a high percentage is powdered product. This provides the opportunity for us to introduce the use of granular activated carbon with reactivation in our service model. We now have in place the key components to successfully conduct business in Brazil, which includes the hiring of the Director of Business Development who has a proven track record for growing businesses in Central America and South America as well as Brazil. With our experience in activated carbon and a business plan that focuses on making the activated carbon technology both easy to use and cost-effective, we believe that the South and Central American regions, especially Brazil, will provide an excellent environment in which to grow our core business. We are now ready to take your questions.

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

Thanks, good morning.

Good morning, Kevin.

Good morning, Kevin.

Randy, can we just go back to mercury and your comment about the Supreme Court there? I guess just to be clear, how does this change, if at all, you’re thinking about the April deadline? And you mentioned maybe as much of the year processed here if in fact that the court takes up the case, I guess I’d like to get a little more clarity on your thoughts there and how that’s impacting how your customers are planning to treat with a deadline just about eight months away now.

Well, Kevin, as noted, we’re looking at this as a long-term issue, if an issue at all. And we do not believe that that’s playing into the decisions of the end users, the power utilities in terms of what carbons and how much carbon they need. So to go back to my comments, we’re not too concerned that this is going to be a short-term issue.

And so then I guess as a follow-up, how do you see this playing out? It sounds like you had a little bit better order rates coming in, you’ve all along been thinking Q4 is when that would really take off. Is that still how you see this playing out – the customers don’t need to procure the product sooner than that given again that we’re eight months out from having to treat? Bob O’Brien: Right. This is Bob O’Brien. I think the market is moving along the way we expected. We’re working actively with a number of utilities that have issued request for quotes. We are seeing that they are taking a lot of time to make decisions. I mean they’re really doing their homework. They’re evaluating our products and I’m assuming that the competition as well. So I think the number of projects that we’re involved with is in line with our expectations, perhaps a little bit surprised that it is taking the utilities as long as it’s taking them to make a decision. But we think we’re basically following the track that we expected.

Okay, Bob, and just finally is pricing in line with your expectations as well and your win rates as well? Bob O’Brien: Well, I’m not going to comment on pricing because we’re in the middle of a number of discussions so I don’t think it’s really prudent for me to say anything. I think there really haven’t been decisions made. So there really is no track record on a win or loss at this point to say whether it’s meeting or not meeting our expectations.

Okay. All right, I’ll get back in queue. Thank you.

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

Good morning. I was hoping you can possibly work through on a margin expectations on the equipment side. And you’ve been struggling to get the profitability on this and given the ramp, I would have expected to see a little bit more profitability. And maybe you can help me understand what are the puts and takes and what the expectations for the back half of the year.

Hi David, yes, this is Steve. And I think when you look at the revenue from the equipment segment, it remains relatively low this year compared to last year and the year before. We do expect to ramp up in the second half the year. And I hope by year’s end we can get that revenue number close to where we were a year ago. So that would suggest a fairly significant improvement. And as I indicated in my prepared remarks, we’ve certainly seen some good activity in the early part of July. As for margins –

So can you get the profitability? Oh, sorry.

I think we can be close. I think if you look at having lost $1 million or so in the first quarter that has dropped to $600,000 in the second quarter. And as we mentioned, I think on the first quarter probably have a number of cost improvement issues directed really at our Hyde and UB business which we believe will take effect in the second half of the year. So could we get the profitability? Yes, I think it will be certainly an improving scenario as we look out the second half of the year.

Okay. And then my follow up question is on the opportunities in South America particularly Brazil. You talked about serving that market but at the same time I understand that you’d still have to outsource more products. So your commentary around Europe margins are probably going to go down because we have to outsource more product, how do supply Brazil if you don’t have product?

Well I think, David, we’re looking at a longer-term approach to this. We realize we’re not going to walk in and have this business overnight. As I mentioned in my remarks, there’s not a lot of granulated activated carbon today that’s being sold. So we have to develop the market, we have to hire the staff, we have to really understand and sell the value of activated carbon, granular activated carbon and reactivation. That’s not going to happen right away. You tie that to our other comments, looking at our capacity going forward, as you know that’s a discussion that we have quite a bit here internally. And so anything we do in Brazil obviously would play into that.

So on a margin comment from or at least the implications on margins from outsourcing, you should see more margin pressure as your outsource more product to sort of the European market, is that right?

That is true, yes.

Okay. All right, thank you.

Thank you.

Your next question comes from the line of Hasan Doza of Water Asset Management.

Good morning, Randy. How are you?

Hey, good morning. How are you?

Hi, just a follow up on your third quarter commentary. Did you have estimates for your gross margins in the third quarter?

Yes, we did. We suggested it would be about 35%. So a slight improvement, a little over 50 basis points from the second quarter.

And can you explain to me how the increase in net debt price – net debt prices led to your higher inventory cost in the second quarter?

I’d be happy to – and that’s a comment made against our own expectations. And I think in the February and March timeframe, the polar vortex caused gas prices – the prolonged cold winter caused gas prices to rise somewhat at least for us unexpectedly. While we didn’t see that in the first quarter results, those gas prices were incurred in the production of our inventory which then was sold in the second quarter. And so we simply had a higher cost of sales than we had forecasted to have. Pleased to report that’s stabilized since and that is not an ongoing issue.

Got it. Thank you.

You’re welcome.

(Operator instruction) Your next question comes from the line of Dan Mannes of Avondale.

Hey, good morning everyone.

Good morning, Dan.

First maybe more of a comment. I guess I’m surprised that you’re surprised that utilities are taking their time.

Okay.

But I do want to – I would like to touch first – and I apologize I missed the first couple of minutes of the call. Can you maybe go back in your commentaries that relates to ballast waters orders? And also if you can just remind me on the current status of the regulations because our understanding is IMO is still kind of up in the air, though it seemed like some progress was made in terms of reviving the timeline to make it a little more achievable. But if you can kind of remind me of where that stands, I’d appreciate that.

Well, today, in 2014 we’ve received 59 orders, okay? And as I mentioned in my comments earlier, that’s really the largest number orders at any two-quarter period which is very encouraging to us. So we’re excited things are moving in the right direction. We’re continually marketing as much as we can market globally to make sure that we’re positioned for the retrofit market, position also with the new builds which we’ve been successful. And we’re waiting for the IMO to get closer. And I know you’ve heard us say that quarter after quarter. And we’re just optimistic at some point in time that this ballast water will go over the hurdle and we’ll able to sell products.

But given I think some of the changes to the IMO before ratification, what is the new expected timeline in terms of installations and how stretched out if at all will it be versus maybe what you previously expected? Bob O’Brien: Well, I think – this is Bob. I think it’s still the same timeframe. It’s just a matter of when that timeframe starts. And again as Randy mentioned, you’ve heard others and ourselves make projections of when the IMO is going to get ratified. Things were adhering, could make that as early as the end of the year. And then the talk would start about a year after that. So if it would be the end of this year, we would expect to see then orders starting right at the beginning of 2016 and probably with something like a seven-year timeframe to have all the ships equipped.

And then if you’ll indulge me, I was going to ask one more question on mercury. Given the amount of time utilities had to kind of look at things, we continue to see new products and solutions come out of the woodwork. Whether they’d be kind of fixed bed like lagores [ph] product or other sorbents like silicates, not to mention other activated carbon sources from the biomass sources. So again I’m just wondering – I don’t know if you can frame any changes in terms of the mercury market from maybe what you previously expected? Or do you still – your pack [ph] number one is the primary solution and all these other things are kind of just sidelines? Bob O’Brien: This is Bob again. I think I would say, we would be in line with your latter comment. We believe that powdered activated carbon is going to be the dominant or the most utilized technology I’ll say in meeting the mercury issue. And there are other people that look to enter the market because it is a large market. I think our expectation is there will be people who will try and enter it with different technologies. But at this point, we still feel very convinced that activated carbon, powdered activated carbon is going to be the solution. And we continue to be convinced our products will have value in the marketplace and we’ll get a good share about this [ph].

Sounds good. Thank you very much.

Thank you.

(Operator instructions) Your next question comes from the line of JinMing Liu of Ardour Capital.

Yes, just a quick follow up on the metro gas [ph] cost impact now on your margins in the second and first quarter, I mean I’m just trying to get some idea how big the impact metro gas [ph] have on the cost of activated [ph] carbon production. And also do you currently have on the [indiscernible] in place on metro gas [ph].

We do hedge. We don’t necessarily discuss how much we hedge. But we do have hedges that go out 18 months. The impact, JinMing Liu, on the second quarter cost was over $0.5 million and if we look at the aggregate impact of natural gas, it in terms of our product cost, it impacts reactivation as a percent of total cost more than it does virgin carbon. But it’s important to both but it’s less than a third of the cost of coal. So to be sure, it’s not by any means the largest input factor. But we did see an unexpected increase at the end of the first quarter which impacted Q2, as I noted. And then as I also noted, that will not continue for the rest of the year. It has stabilized.

Okay. My next question just relate to your work in the granular capacity with your capacity [ph] constraint, is there anything given [ph] for you to build a new larger working capacity?

We are. Yes, and I think in our prepared remarks we talked about the fact that we continue to look at that. We focus mostly at the moment on expanding our Pearl River production capacity by potentially adding another line. And in the meantime, we’re making some fairly significant capital investments to, as Bob O’Brien mentioned in his remarks, add as much as 19 million pounds of capacity over the next year or two by expanding some of our virgin production principally at our Big Sandy plant.

[Indiscernible]

Well, the –

I’m sorry, go ahead.

Yes, well I was – because before you mentioned that potentially greenfield or brownfield, they have working capacities on this, is that still on the table?

Yes, right now, I mean we’re spending a tremendous amount of time both at the management level as well as in the engineering side looking at all of our options around the world, looking at greenfield sites, looking at expansion of existing sites, looking at debottlenecking. This is a very high priority for us. We want to make sure that we have the right product at the right place, at the right time. And like you said, we’ll continue to focus on that. We’ll announce to you as we can announce whether it be a debottlenecking project or perhaps even in the future a greenfield. But at the moment, we’re just continuing our analysis and doing the work we need to do.

Okay, got that. Thanks.

Thank you.

At this time, there are no further questions. I will now return the call to management for any additional or closing remarks.

No, let me just say thank you all for joining us today for our Q2 call. We do look forward to hearing – for you to hear again from us in the fall about what’s happening with Calgon Carbon as we continue to build a strong company. Thank you all for joining us and have a great weekend.

Thank you. That does conclude today’s Calgon Carbon Corporation Second Quarter 2014 Results Conference Call. You may now disconnect.