Ladies and gentlemen, thank you for standing by and welcome to Calgon Carbon's Third Quarter 2014 Earnings Conference Call. At this time, all participant lines have been placed on mute to prevent any background noise. After the Company's prepared remarks, there will be a question-and-answer session. It is now my pleasure to turn the call over to Gail Gerono, Vice President of Investor Relations. Gail?

Thank you, Maria. Good morning. Thank you for joining us. Our speakers today are Randy Dearth, Calgon Carbon’s Chairman, President and CEO; Bob O’Brien, our Chief Operating Officer; and Steve Schott, our CFO. Before we begin the formal presentations, I would like to remind you that the Private Securities Litigation Reform Act of 1995 provides the 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 are changes in or delays in the implementation of regulations because of 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 the risk factors and other information detailed in as well as the other information contained in the Company’s most recent Annual Report. Randy?

Gail, thank you very much, and good morning everybody. As I said in this morning's news release, we had a pretty solid quarter. There were sequential increases in gross margin before depreciation and amortization, operating income, net income and earnings per share which were $0.23 on a fully diluted basis, and operating expenses increased by only $200,000 sequentially despite $1.1 million in expenses related to our SAP re-implementation project. This exemplifies our ongoing emphasis on expense control. Let's talk about some of the key highlights in the third quarter. First, we continue to reap the benefits from our global cost improvement program including savings in the coal cost due to favorable pricing in the five-year coal contracts that we negotiated late last year. Comparison of quarter-over-quarter coal cost should be favorable going forward. We expect to realize our goal of improving cost by $40 million on an annual basis beginning in 2016, and as I've said before we'd like to surpass that number. Another highlight of the third quarter which should contribute to revenue growth is the recent award of significant contracts in our traditional markets, including an initial fill of 7.2 million pounds of granular activated carbon for a drinking water treatment plant in Korea which we've been pursuing for several months. Delivery of the carbon is expected to begin in December and conclude in the second quarter of 2015. I want to point out again that this is our second major Korean contract in the past eight months. Also, it is worth noting that we were awarded six contracts related to compliance with the EPA's Disinfection Byproducts Rule; 1.6 million pounds for a new fill in Texas and five contracts for carbon exchanges totaling 2.6 million pounds. In addition, we continue to make progress in converting U.S. municipal…

Thanks, Randy. Good morning, everyone. Total sales for the third quarter of 2014 were $137.7 million versus $139.4 million in the third quarter of 2013, a decrease of $1.7 million or 1.2%. Currency translation had a positive impact of $600,000, primarily on Activated Carbon and Service and Consumer sales for the third quarter of 2014 due to the British pound sterling. Regarding our segments, sales in the Activated Carbon and Service segment increased $1.3 million or 1.1% for the third quarter of 2014 compared to 2013's third quarter. The increase in sales is principally due to higher sales in the industrial process market of $2.1 million driven by an increase in volume of approximately 12%, which was primarily in Europe and Asia. Also contributing to the increase were higher sales in the environmental water market of $800,000 related to a water remediation customer in the Americas region. Partially offsetting these increases was lower volume in the specialty carbon market of $1.6 million, which was primarily due to lower demand for metal recovery products as sales in 2013 did not repeat in 2014. Equipment sales declined $2.6 million or 19.5% for the third quarter of 2014 compared to 2013's third quarter. The decrease was due to lower sales of both traditional carbon adsorption and traditional UV systems of $2.4 million and $1.1 million respectively, as a result of several large contracts that were completed during the third quarter of 2013 that more than offset new contracts in 2014. Partially offsetting these decreases was an increase in sales for ballast water treatment systems of $600,000, resulting from new contracts that were awarded in 2014. Net sales for the quarter ended September 30, 2014 for the Consumer segment declined approximately $400,000 or 13.8% as compared to the third quarter of 2013 due to…

Thanks, Steve. First I would like to address the tariff on coal-based activated carbons imported to the U.S. from China. On November 19, the Department of Commerce will announce final tariff rates covering a period from April 1, 2012 to March 31, 2013. These rates will also become the deposit rates for future imports. The preliminary average tariff which was announced in May was $1.42 per pound. This was the highest rate tariff since tariffs were first imposed in 2006. Calgon Carbon will be assigned the average tariff rate. Next I would like to provide an update on our initiatives to increase our virgin carbon supply to meet the demands of our traditional and emerging applications, particularly those high growth opportunities such as the control of mercury that have developed in U.S. market. First, expansion of our U.S. production. As I said on our last call, we have a number of capital projects underway at our Big Sandy plant which will increase our virgin carbon production capacity as well as reduce costs. The project to improve and increase the steam supply will be completed in early 2015 and add approximately 1.5 million pounds per year of capacity. Another major project to increase the capacity at one of our three lines by 8 million pounds per year was initiated with the first phase of this project being completed in Q3 of this year. The entire project will be completed by the end of 2015. For the period of 2014 through 2017, we estimate that our debottlenecking and operational improvement projects at Big Sandy and Pearl River will add approximately 20 million pounds of granular activated carbon to our annual production, and we aren't stopping there. We are continuing to investigate and develop additional production enhancement ideas. We have also now completed…

Thanks Bob. Next, Steve will provide some additional comments on our quarter and provide commentary on the fourth quarter.

Thanks, Gail. First, regarding our reported third quarter results, beginning with revenue, the revenue we achieved was at least $3 million less than we had anticipated at the time of our second quarter earnings call. There were several reasons for this shortfall. First, our Equipment business sales in the third quarter were $3 million less than we had expected. Order intake and backlog had since improved. In particular, Hyde Marine's order intake has been very strong and backlog has increased from $6.5 million at June 30 to $8.1 million at September 30, an increase of $1.6 million. In addition, our own exchange business has also been seeing a recent improvement. Second, the dollar strengthened more than anticipated against both the euro and the yen. We estimate this caused our revenue to be at least $700,000 less than we had forecasted. Third and finally, our Americas municipal group had several significant initial fills of virgin granular activated carbon pushed out of the third quarter as the underlying construction projects were delayed. These revenues will be realized later this year or early in 2015. Gross margins pre depreciation and amortization; we had expected our margins to improve to 35% but fell just short at 34.6%. Our overall margin performance in the third quarter was burdened by our Equipment business as well as increased competition in Japan from carbon manufactured in China. Nevertheless, we are pleased with our overall progress having improved this metric in seven of the last eight quarters. Going forward, we believe we will achieve margins of 35% or more as our cost savings initiatives provide their anticipated benefits. Now looking ahead to the fourth quarter; revenue; we expect our fourth quarter revenue to improve by several million dollars sequentially. The improvement is expected to come from a portion of the South Korean virgin carbon contract announced last week as well as from the municipal water sales that moved from the third to the fourth quarter. Compared to 2013's fourth quarter, the anticipated sales levels should represent an improvement of at least 5%. Gross margins pre depreciation and amortization; we expect our gross margins will show continued modest sequential improvement for the fourth quarter. Operating expenses; we expect our operating expenses to increase sequentially to approximately 16% of revenue. This increase is likely to result from several corporate initiatives, including our SAP re-implementation project. In addition, as our U.S. pension plans have become more fully funded, we are beginning a process to mitigate our pension risk by offering a select group of former employees the opportunity to receive their defined pension benefits currently in cash. It is too early to determine the non-cash settlement charge that may result from this initiative. Income taxes; we expect our fourth quarter income tax rate to approximate 34%.

Thanks, Steve. Before we go to Q&A, Randy will make some concluding remarks. Randy?

Thank you, Gail. As we conclude, I just want to say a few things. Now first I want to say I'm pleased with how things are developing at Calgon Carbon, especially what we've achieved this year. And as I've said to many of you, we are improving how we do business to prepare the Company for future growth, both in the regulation driven as well as our traditional markets. I am confident that we will be announcing some mercury contracts within the next few months which will play a big role in transforming our Company. So, with margins expanding, which you will recall was a key initiative of mine, we can now put more focus on our next key initiative and that's going to be global revenue growth. So, we thank you for your attention and we will now open it up for questions.

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

Randy, can we start with revenue? Based on the guidance that Steve just gave for Q4, were looking like minimal revenue growth for the year after a slightly down 2013, I'm just wondering you're winning a number of awards, you're converting customers to reactivation to free up capacity, you're doing other things to expand your virgin capacity, but this will be two years in a row of really minimal revenue growth, and I know mercury is still mostly ahead of us, but can you just address that and when do you think we might see more robust revenue growth actually showing up here, should that start to happen in the first half of '15?

A lot of our focus on, as I ended my comments with, is how can we now position Calgon Carbon to really capitalize on opportunities, not only domestically but around the world. You heard me talk last quarter about opportunities we potentially see in South America. I'm happy to say we have a team in place, they are actually here in the United States training, they're here in Pittsburgh. So I'm confident that that perhaps could happen quicker than we had thought. A big focus, and you heard it in our results, is around our Equipment business. So we're putting a lot of effort now in terms of understanding what opportunities are ahead of us. For instance in our carbon adsorption business, we're looking at DBP conversions with smaller utilities next year and they really could benefit from our equipment. So we are looking at upticks in that. As we said our Hyde Marine orders, we hope to increase, it's on an upswing. Our ISEP business, although it's a bit smaller, we're focused on how we can improve that. And we're really focused on non-traditional UV. You know last year we had an LA contract that did not repeat itself and that's a big contributor why year-over-year we haven't been able to match that number. So looking with our UV folks at how we can find those next large UV installation that we could benefit from. In terms of our carbon and service reactivation, I think Bob said it well, I mean we're still looking at a large number of customers that have yet to convert to react. We have the capacity, we have the units over the last couple of years that we've installed. That's going to be a strategy as well to convert those to the benefits of reactivation. So there's a lot ahead of us but as I said this is a key, key focus for us and you will hear more. Mercury, I think we are on that pretty clearly, we hope to have a decent market share and see that grow not only into 2015 but into 2016 and 2017.

You've mentioned a 30% market share number on the mercury side. That's been your experience to date. Is that kind of what you're expecting going forward as well as this starts to really mature, because I think you made a comment about expecting to announce a number of awards in the not-too-distant future?

Let me try to put that into perspective for you. So we've said this to the market in the past. Currently of our Carbon and Service revenue, about 5% we can attribute to this market, and we expect to double that. So I think that puts into perspective for 2015.

And again that's a specific 2015 goal, Randy, to double that 5% based on mercury?

Exactly. In dollars, in revenue.

Right. And just finally for me, any update in terms of the end mercury customers here in terms of the numbers that are either getting to one year delay or doing other things like considering converting to gas or closing altogether?

I'm going to defer to Bob and he can give you an update on what our knowledge tells us from the market.

I think we reported last quarter, certainly there are utilities that have either shut down their operations or are planning to convert to gas. It's still a very large market and that's why even though we have a range we still expect a lot of activated carbon to be used. Starting in 2015, we'd probably say about two-thirds of the utilities that will be required to use activated carbon to control their mercury will actually come online, so about two-thirds of the market by 2015 and the remaining third starting to inject in 2016.

Okay, got it. Thank you.

Our next question comes from the line of Ben Kallo of Baird.

Randy, when you look ahead to capacity expansions, the potential capacity expansion you're adding to the line, maybe Bob also, what is the go/no-go decision and how quickly can you guys move forward with that and is there any kind of risk that when you decide to move forward that you're late to the game and maybe you could just wrap in the competitive environment out there with the other players and their capacity situation? And then also my second question is on the front of ballast water. It's taken a couple of years for the IMO to get in gear here. How has the competitive market changed, if it has changed, over that timeframe leading up to the approval or the ratification there?

Let's talk about capacity, and again I want to point out that we've been looking at capacity for the last few years. We expanded Pearl River in 2012 by 8 million pounds. Bob laid out about 20 million pounds of standard granular product that we hope to have by next year. So we haven't been asleep at the wheel, we've been the most cost-effective way we can in expanding capacity. That being said, your question, as Bob said, probably in the first half of 2015 we will evaluate every piece of data that we have in terms of outsourcing availability, looking at how we've been able to increase our capacity and quite honestly product mix. And just to define that is that my capacity changes if I'm producing 100% granular activated carbon versus 100% powder, I can get more throughput the more powder I produce. So that's going to play into our decision as well looking at again how much of our capacity we need for particularly [indiscernible]. We are looking at other agreements and types of relationships around the world, Bob pointed that out, all over the Asia-Pacific region where we believe there is activated carbon that meets our high standards, and that as well can provide us with some leeway in terms of future expansion. So we have a lot on our plate in terms of data and we need to make the right decisions going to create the best value going forward. In terms of the IMO, I think your question was, Ben, has it changed?

My question was how the competitive market changed over the three years since we expect it to be ratified?

I'm going to have Bob answer that.

Ben, it's certainly an evolving situation. I mean we've had new competitors under the market, we've had some competitors leave the market because frankly that has some staying power to be able to continue to serve this market. So I think we still believe we're in a leadership position, we think we've sold the most systems, we think we've established good relationships with many of the ship owners, we have systems that have been put online and are running with minimal, minimal issues, they are running fine. So we think we're in a pretty good position relative to the competition. Obviously there's going to be a lot of business. There will be business from many manufacturers and just like mercury we think we're going to get a good share in the ballast water treatment sector.

And again I want to reiterate what we said in our comments and you also saw this in the press release a few months ago, but the relationship now with Edison Chouest I think is clearly a vote of confidence that we have the system that indeed works and the whole concept of the fact now that we have ship owners and yards that just want to deal with one supplier, minimize their training, minimize their spare parts, I mean that's a good thing.

Great. Thank you very much.

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

Looking through some of Bob's comments earlier, debottlenecking and expansion at Pearl River, totaling all that up in terms of capacity, it sounds like the building of a greenfield plant probably off the table. Is that correct?

That is a correct assumption, Mike.

Okay. Otherwise rest of my questions have already been answered. Thank you.

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

Couple of follow-up questions, and I guess starting with pricing environment, you commented about the pricing benefits that you had in March and as we look to next year and we kind of think about volumes, implicit in the growth rate this year volumes are down, I would assume flattish to downish, so next year how do you think about the headwinds that you might face in pricing? I mean you had a nice increase this year. Is there room for you to do that next year or should we expect a pricing headwind?

I'm going to give you my perspective and I'm going to turn it over to Bob who runs the businesses and he can give you his, but we're constantly going to be looking at our value proposition across all of our products, all of our markets around the world. I mean that's part of our responsibility. And to answer that question, I mean we will look at the situations as they evolve and make our decisions accordingly. Bob, you want to add to that?

I don't know that I really have too much to add to that, Randy. I think we continue to evaluate the competitive landscape in the U.S. and in Europe and in Asia. I think that we have I'd say less headwinds. I think we have some opportunities for next year and we will be certainly evaluating with the amount that we can get, but we're certainly going to be cascading our commercial people to see how we can maximize the pricing going forward.

Okay. And then on backlog, I think in the last quarter you expected backlog would increase 15% in July. So just to be clear, the shortfall in that backlog number that didn't materialize in the quarter, was that Hyde or was it the traditional systems, just to be clear?

I think it's more the traditional UV systems and to a certain extent also our traditional carbon adsorption systems. So those were the two areas where we're not seeing the rate of backlog intake that we would want at this point. We do think they will improve but for the third quarter clearly net-net we didn't move the backlog number up.

Okay, Steve, that's helpful. And then just a clarification. I understood in Randy's comments that this was the best quarter in terms of orders for Hyde, but I think the last quarter you were at 27 orders if I'm not mistaken and this quarter you were at 24. Did I misunderstand something?

I have to go back and check, I don't have the second quarter with me.

Actually he was referring to all three months, not just one month. Right?

The quarter.

Yes.

I know. Sorry, David, I don't think any of us have that number. So I apologize if we weren't accurate with it, just don't have it in front of us to comment.

Okay, that's fine. I mean I can follow up with you. And then lastly, if you can comment, just paint some preliminary thoughts about CapEx for next year and maybe kind of give us a ballpark high and low end of what you're thinking?

We're going to go through our planning process in the next month or so. So it would be premature. I will say we have under-spent this year clearly probably by $10 million to $15 million, and the nature of the projects are such that they will roll into next year because a lot of what we're doing right now are these capacity enhancements, not to mention that we're spending in reactivation improvements both at Neville Island and at our Tipton, U.K. facility. So I would expect that our capital for next year will remain relatively high, but to put ranges around that I think it's a bit premature. So I'd ask you to be patient. We'll give an update when we finalize our plan in early next year.

Okay, great, thank you and I'll get back in the queue.

Our next question comes from the line of JinMing Liu of Ardour Capital.

First question is about your CCJ, the Japan subsidiary. We haven't talked about that for some time. So what's going on there? Also for the third quarter, how much [indiscernible] was from Japan?

The third quarter definitely was a challenge for that business. We've seen more influx of Chinese carbons serving that market, and while we still get good value for our U.S. carbons we're certainly seeing some pressure. I think our margin points were down perhaps 12 full percentage points in the third quarter. We don't expect that to continue, but it was a challenge, and couple that with the weaker yen and clearly the sales that we're deriving from that entity are less. It's something that we're focused on, we expect it will improve from where we were in the third quarter but it is a challenge for us. We had absolutely righted the operations, we right-sized the organization for the business we were enjoying, but there has been a dip and we're going to be taking a careful look at it.

I think one point I would like to add to that, I think it's evident in Korea with our two contracts and in Japan [where you see] (ph) the same, there is a tremendous value in American produced granular activated carbon especially in the water space and we will continue to capitalize, as Steve said, where we can, especially in the Japanese market. The competition in some of the other areas where that perhaps isn't the key attribute of the decision is tougher, no question.

Okay. So if I understand correctly, you didn't use, source carbon from China, your Chinese sub there but actually exported from U.S. to Japan?

It depends on the market. Some of the markets that we serve, and the large particular market in Japan and in Asia which is serviced out of Japan, is for the control of SOx and NOx emissions which uses large pellet, and we have a lot of technical expertise in that area, we are the leader in the market, but that is a product that we actually buy from China and then provide to our customers, and that's a particular area that has come under some price pressure. So in supplying the Japanese market, we both supply product from the U.S. and we purchase product from manufacturers in China and in Southeast Asia, and it's probably the latter that has come under more price pressure than the former, the U.S. product, but it is a more competitive market in the last six to nine months.

Okay. Let's speak to the possible second line Pearl River. Did you give us a potential CapEx number for that or you have not decided on that yet?

I would say we haven't decided yet. We've always gone with a metric for our investors that is $2 per installed pound of production. Bob referenced potentially a 60 million pound line. So that would suggest $120 million. But ultimately it will depend on all the bells and whistles that go with the plant, but it's going to be well over $100 million to the extent we build a plant the size of which – a production line the size of which we discussed today.

I agree with that, and again, there's still a lot of data points that we want to evaluate before we would make a decision to do that.

Okay. Lastly your ballast water equivalent sales, for that specific product line what is the gross margin, whether it's comparable to your traditional UV or [indiscernible] has the lower margin?

We don't tend to give business unit detail within the Equipment business. In general it's been fairly comparable with the other pieces of our Equipment business.

Okay, got that. Thanks a lot.

Our next question comes from the line of Christopher Butler of Sidoti & Co.

Just wanted to be clear on the expectations on PAC demand going into 2015 and 2016. You had indicated that you thought two thirds of the utilities would need to comply next year with an additional third in 2016. One of your peers seem to indicate sort of a flip-flop of those numbers.

I don't know, it's not the number of utilities, it's the pounds represented by the utilities who are to comply, just to be clear.

I see. So maybe an apples and oranges comparison.

It could be.

Yes, I would say that, yes.

And as we look at the profitability, the mix of added PAC sales next year, is it going to be comparable to the 5% that you're doing now?

Yes, I think that would be our expectation, yes.

Shifting over to ballast water, I had heard some rumblings that there may be some possible changes to the regulation in order to kind of speed up ratification. Could you speak to that and expectations on how that may affect you?

I don't really know that there is any substantive changes to the regulations. I know that the IMO is looking at the type approval process that they have in place and they may be looking along with to align it more closely with what the U.S. Coast Guard has set for their type approval system. So there may be a merging from that standpoint. Other than the regulations and the timing, I think the timing remains relatively in place somewhat dependent on when they finally ratify the regulation, but I think the timing is set, and I think the only change what I mentioned perhaps in aligning of the approval process, type approval process more closely with the U.S. Coast Guard.

I appreciate the details. Thanks for your time.

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

Couple of follow-ups. First, as it relates to the guidance for the fourth quarter, can you talk at all about the impact on currency? I mean obviously we've seen some real strength into the dollar versus both yen and euro. Is that fully encompassed in your numbers or is that a potential headwind that we should be thinking about?

Factored in, Dan. It's a headwind but it's factored in. So it would have been better were it not for that.

Okay. And the second part of that is, given the fact that you produce a lot of the products domestically and ship overseas, how much is that playing in or is that something you can hedge out fairly effectively at least for already contracted product?

We hedge out 18 months, not a 100% of what we provision but we do hedge it out 18 months. And frankly that becomes less of an issue going forward as we expect to retain more of the U.S. product in the U.S. to serve the mercury market. So there will still be an ongoing impact to be sure but it should get lessened by virtue of our strategic decisions.

This is Bob, Dan. The other thing to consider is that when we ship our product to Europe, if there is competition there it's product that was imported from China and they are seeing the same effect of currency in that the Chinese currency is strengthening versus the euro. So there are cost pressures from the currency standpoint in both the U.S. but also the other sources of activated carbon supply.

Got it. Real quick on the repurchase program, you weren't active during the third quarter. Any specific reason for that, whether it's stock price related, cash flow related, any more color you can give us there?

Just that when we embarked on the program for this year we had some targets in mind as part of our annual planning process and we were ahead of our pace through six months, so we paused for a quarter, no more than that.

Got it. And then lastly on mercury, I appreciate your comments in terms of your confidence, you've been picking up some awards, I was wondering maybe if you can comment at all on the pricing that's been experienced today because a couple of your peers have picked up some awards. And then number two, your positioning as it relates to any regions or anything like that where maybe you are better positioned versus peers given your product mix?

I certainly don't think it's appropriate to comment on pricing right now because we're in the middle of negotiations with a number of utilities and I prefer just to stay away from that. Relative to where we, let's say where we think our product shined and where we've done very well at testing, again utilities that burn coal that has relatively high sulfur content makes it difficult for mercury to be removed. Our products did very well there. Utilities where when the plant was built, the contact time between where a carbon can be injected and where it would be removed in a baghouse or an electrostatic precipitator, that [short] (ph) our products tend to do very well. Utilities that are looking to start to require the injection of other dry adsorbents to either remove other contaminants or improve the operation of their electrostatic precipitators, our material tends to perform very well on those applications. And so there are quite a number of situations where we think our advanced products really shine and many of those are being tested, and again at the end of the day we are pretty confident we're going to get a good share of the market.

Got it. If you will indulge me one more quick one on mercury, one of the end markets historically has been coal plants that already have scrubbers. Have you seen activity from the already scrubbed plants in terms of looking for activated carbon to reduce mercury re-emission or is that market basically spoken for in terms of their current equipment?

We haven't seen a lot of requests for quotations from plants that already have scrubbers. Frankly we do expect I think at the end of the day that there will be a number of plants that have scrubbers that will have to use activated carbon, not as much as an unscrubbed plant, but they will have to use activated carbon. So we expect to see more but we haven't seen it really to date.

Got it. Thanks much.

Our next question comes from the line of Ben Kallo of Baird.

Most of my questions have been answered, but a quick follow-up. As far as Europe goes, can you talk about any weakness there and the overall business environment and how that could impact you on both Equipment and on AC?

Let me start on an overall comment. I mean we're very pleased with Europe this year and how they've been able to manage their business despite the difficulties in some of the various regions of Europe. So we expect that to continue into 2015 in a positive way. Steve, you want to add to that?

And just to give you – no, it's been a very pleasant part of our outcomes for this year. Through September in local currency we're up 12%. so Europe has been a definite bright spot, our team there has done very well in a difficult environment and we're very happy with the results we've been achieving.

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

Bob, in your prepared remarks you made some, I just want to clarify one comment. It sounds like you are looking at potentially using Asian suppliers to serve Europe and that would free up your virgin capacity in the U.S. for North America. Is that correct?

Correct.

Okay. And just as a follow on regarding mercury removal, just regarding the timing of when the mandate starts to April, and if I do some basic calculations, these are just using some basic numbers you offered today plus what's in your filings, you are already maybe shipping 40 million pounds a year. It looks like next year that could go up to 90 million pounds. If that is in fact the case, do you have the capacity to supply that, because your virgin capacity right now is 100% utilized, is that correct?

We're basically selling what we can make, yes. We are continuing, as I mentioned, to have projects come to fruition that will allow us to expand capacity. So we will be having more capacity as we go on. We are shifting, again as I mentioned in my remarks, we're shifting more of the carbon that we typically would supply to municipal drinking water plants to reactivation. So that frees up some virgin incapacity. And as you just asked, more of the carbon that we sell in Asia and in Europe, we're expecting to in the short term outsource. So I think Randy mentioned, it's reasonable for us to expect we're going to double our business in the mercury market in 2015 from this year, and yes, we believe we have the capacity available to meet that expectation.

And I reiterate that. That's right now not the concern we're looking at. We can service this market, no question.

Are you at all concerned with the April deadline? That's also the start of your seasonal uptick for municipal. Do you expect any kind of crunch to maybe occur in the first or second quarter of next year?

Frankly we hope we have that problem to worry. But we're all over it. We are spending a lot of time looking at the logistics of being able to supply the mercury market and our traditional markets and we're convinced we'll be able to do it.

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

Two quick questions. One is, would you be able to quantify even at a high level to the best extent possible as to what was the extent of the pricing competition from these Chinese players in Japan, in terms of like what is the price discount they are offering?

I'll say and then I'll turn it over to Steve, but again I'll reiterate what Bob said, we're really not going to get into pricing on this discussion in terms of what type of pricing is being offered by our competition whether domestic or international. Do you have anything to add to that?

No, nothing specific on pricing. We believe the quality of our product tends to be better. There are instances where a lesser product can be used that comes with a lower price and it's just an influx of competition we are seeing, but I'm not going to comment specifically on pricing differences.

No, actually that's not what I meant. I meant more like if you can give maybe like an order of magnitude, was the pricing like 3% to 5% lower, 5% to 10% lower than what you expected? I was hoping kind of an order of magnitude in terms of the percentage decline as opposed to specific numbers, if that helps at all.

I don't have that data to be able to tell it to you accurately. So I couldn't relay it even if I wanted to, I'm sorry.

Okay. And second question on this topic, is that a function of when we have tariffs implemented in U.S., basically that extra Chinese carbon basically gets shipped to Japan, so is that going to be an issue for next year as well, something we should kind of consider?

I don't necessarily think that's a big consideration because one of the factors that's occurring is the overall demand for carbon in China is increasing too. So a lot of the – more of the capacity that is in China for the production of carbon is going to be going to serve the Chinese market. And the situation on the tariff really isn't much different than it's been for the last five, six, seven years. So I don't think that there's any dynamic that's happening in the market relative to the tariff if it is going to change where the Chinese would be marketing their products.

Okay. And the last question, Steve, just to follow up on the question about the FX assumption, you mentioned you had incorporated some FX into your fourth quarter outlook. My question was, would you be able to quantify as to what is the specific exchange rate you're assuming for both the euro and the yen versus the U.S. dollar for the fourth quarter?

I don't have it in front of me but I'll go from memory. I think we were about a euro equalling $1.26, and in Japan I think we were around $1 equalling 110 yen.

So that's what you are using for your fourth quarter revenue forecast?

That's correct.

Okay, perfect. Thank you so much, Steve, appreciate it.

Our next question comes from the line of Christopher Butler of Sidoti & Co.

Thanks for taking my quick follow-up. I'm sorry if I missed it but did you give any indication on the appeal process on MATS and how that seems to be working out?

Good question, Chris. We have no knowledge that things are proceeding. Now obviously there is an open period that that could still come back into play, but what we know right now there is no challenges to the ruling.

That's all I have. Thanks.

That was our final question. I would now like to turn the floor back over to management for any additional or closing remarks.

We'd just like to thank you for joining us today and we'll be available for follow-up questions if you have any during the day. Thank you very much.

Thank you for joining Calgon Carbon's third quarter results call. You may disconnect your lines at this time and have a wonderful day.