Welcome to the fourth quarter and year-end 2008 Fuel Tech Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Ms. Tracy Krumme, Vice President of Investor Relations and Corporate Communications of Fuel Tech. Please proceed.

Thank you. Good morning and thank you for participating on today’s conference call to discuss our fourth quarter and year end results. Joining me on the call is John Norris, President and Chief Executive Officer; John Graham, Senior Vice President and Chief Financial Officer and Ellen Albrecht, Vice President and Controller. As a reminder, the matters discussed in this conference call except for historical information are forward-looking statements that are subject to certain risk and uncertainties that could cause actual results to differ materially from those set forth in our forward-looking statements. The factors that could cause results to differ materially are included in our filings with the SEC. The information contained in this call is accurate only as of the date discussed and investors should not assume that statements made in this call remain operative at a later date. Fuel Tech undertakes no obligation to update any information discussed in this call and as a reminder this conference call is being broadcast over the Internet and can be accessed at our website, www.ftek.com. With that said, I would now like to turn the call over to John Norris. John, please go ahead.

Thanks Tracy and good morning everyone. We appreciate all of you joining us on this call. Our results for the fourth quarter include revenues of $18.1 million, slightly above our guidance range but 44% below last year’s record fourth quarter revenues. Net income for the quarter was a loss of $0.6 million or $0.02 per share, in line with our guidance. Of note is that our fourth quarter operating income and EBIT, earnings before interest and taxes, were both positive $0.2 million but a higher than anticipated U.S. tax provision made necessary by losses in our international operations took us to an after-tax loss. Revenues for the full year were a record high $81.1 million, slightly above our guidance range but this was only up a small amount from the prior record year of $80.3 million. Net income for the full year of 2008 was $3.6 million or $0.15 per diluted share, in our guidance range but well below the $7.2 million or $0.29 per diluted share in 2007. Our CFO, John Graham, will discuss our financial results in much greater detail in a few minutes including the impact of various tax and other charges including 123R stock compensation expenses. John will also cover our balance sheet which remains very strong with end-of-year cash and cash equivalents of $28.1 million. This is especially noteworthy since in 2008 we completed the purchase and outfitting of our new office building which was considerably less expensive to buy than alternative lease options and we invested about $4 million to acquire the assets of TackTicks and FlowTack. Our business model remains strong with expectations of good earnings growth and positive cash flow. Now I’d like to tell you about the company business behind those financial numbers. As most of you know, Fuel Tech is…

Thanks John. Good morning everyone. As John mentioned consolidated revenues for the fourth quarter were $18.1 million, down from the record levels experienced in the fourth quarter of 2007 at $32.6 million. Consolidated annual revenues were $81.1 million, a slight increase from our previous record level of $80.3 million experienced in full-year 2007. I would like to provide additional detail behind those numbers for each of our business segments. In the FUEL CHEM segment, fourth quarter FUEL CHEM segment revenues of $9.4 million included $7.8 million from coal units, a 20% increase versus the coal unit revenue reported in the fourth quarter 2007. For the first time in several quarters, quarterly revenues from non-coal fired units of $1.6 million were up 13% versus the prior-year quarter driven by the recent decline in the price of crude oil resulting in oil fired units being more profitable for utilities to run and experienced an increase in operation. Overall, FUEL CHEM segment revenues increased 19% versus the fourth quarter of 2007. For the full year 2008 our FUEL CHEM revenues of $36.7 million were up 13% from $32.6 million recognized in the full year 2007. Again, this number alone must be further segmented into revenue for coal and non-coal units to further clarify the true growth of the underlying business. For fiscal 2007 of the $32.6 million in total FUEL CHEM Segment revenues, $26.2 million were from coal fired units and $6.4 million were from non-coal fired units. For fiscal 2008 the $36.7 million in FUEL CHEM Revenues, $31.6 million were from coal fired units, an increase of 20% for the full year over 2007 while revenues from non-coal fired units declined 20% to $5.1 million. The large reduction in FUEL CHEM revenues from non-coal fired units year-over-year was due to the high…

Thanks John. With that operator let’s open up the call to questions.

(Operator Instructions) The first question comes from John Quealy - Canaccord Adams.

On the FUEL CHEM side if we could, India, China and the additional spending there if I back into the numbers for the quarter and the increased margin was the addition of about $2.5 million of costs in the quarter allocated for those India and China demonstrations. Is that reconciled to John’s comments about 51% x China full year?

You have to add in the other demonstrations. I was pulling out not only India and China but also the other 11 demonstrations that are going on. So India and China were…

I don’t want to open up full robe here but you are looking at a fourth quarter charge for India and China which would be to date un-reversed costs. There is potential of some funds to come back but that depends on the success of the program as viewed by the client of about $1.1 million in the fourth quarter. Another just under $400,000 in fourth quarter costs for what I would call traditional domestic FUEL CHEM demonstration programs. Now a lot of the domestic funds once the program goes commercial would then come back to Fuel Tech but there is a timing difference related to that which we have to use a clean cut off at 12/31/08.

In terms of the China or Asia related business how many quarters do you think you are going to be running at those costs and when do you think those demonstrations will flip on to commercial customers?

Those are ending now. The India demonstration on a major industrial customer there was going great but the problem with India was the demo was in Mumbai. If you remember the riots in Mumbai, we actually had to evacuate our personnel there. I think there may have been even a shot in his hotel room. That interrupted it and then it restarted early this year and with the client about doing a bit of an extension but without us investing more than our typical 50/50 kind of arrangement. In China the injections have stopped. The client is right now, they were here early last week and mostly last week, visiting places like Santee Cooper and Western Farmers and before they go back and make a final presentation the third party evaluator, if you recall we had on that, there is going to be a big meeting very shortly where they make their decision of go/no go on commercial status. So there really won’t be any more major expenditures on that one. We do have one we have already signed and others we are looking at where we may still do better and may have to invest more, which is better, on these demos but nothing like we had to invest on the one in India and China, especially in India. The Indian one was the one that cost us the most.

The first ones in these contracts are going to run the highest as you basically learn how to do business there because these products have not been sold there historically. The other mitigating effect we will have going forward is as we continue to qualify local chemical source in those countries we will not then be required to fund those demonstrations per se with U.S. based chemical that is shipped over which also increases the cost of the program. Regardless, you will not see that large of an expense in a single demo respectively that we incurred in India. That truly was an anomalous type of expense made one time to get the investment because the potential this particular client holds.

Just as an added color on that, we have had to ship wet chemicals, fully diluted in the past. Our supplier has just now developed the ability to ship dry and mix locally. That is a huge cost savings. So there is a couple of 2-3 different factors, local supply and a better way to get stuff overseas and the chemical is our largest cost.

Broadly as we look at the FUEL CHEM line in total, how do you sort of risk adjust your expectations where domestically we have lower power sales, coal prices are lower…how does that sort of found your expectations for that business for existing customers in terms of how much chemical they use this year? How are you going about that?

It is a good question. In some areas it is going to have a pretty definitive effect on our customers in the Detroit area, as an example, where the automakers are having a tough time. In other areas we have clients looking at burning [peat coat] which is even cheaper. From those clients’ point of view I know one of them recently told a group we are saving them 5% of their overall operating costs, fuel and O&M which is huge since I think theirs is north of $600 million. We have our newest client that the conversations said we have high expectations on you. If you can deliver what we think you can from what we have looked at it will not only be a success here but a success for others. People are looking at that pay back. FUEL CHEM is about pay back. You do have some markets and we looked at it. I think the plusses are going to outweigh the minuses for us on FUEL CHEM and I do expect this to continue growing. There is no doubt some clients are depressed but you know that happened to us in the fourth quarter. A number of those things happened early in the fourth quarter as they started throttling back and yet we still saw 20% up on the coal units. That is a pretty strong indicator.

On the APC side, it certainly seems like the new administration is going after some old, new source review lawsuits pretty aggressively and litigation is picking up there. Can you comment on you have got more products in the flat form cycle, when do you think people start getting some clarity and capital dollars to spend on these solutions?

They are coming to that pretty rapidly. Even without the lawsuits, CARE is pushing them in there. Even though the CARE price and NOx prices have come tumbling down from the first of the year they are still over $2,000 a ton. The biggest single issue and the biggest single issue on the guidance is really as we look at units and we are in discussions with folks and they say yes we are going to use you, the next question is what outage are you going to deploy this stuff on? One tactic that utilities use around the nation is to defer outages. A unit can defer an outage one year to another. There are some consequences to that. You could have a catastrophe on your turbine and that sort of stuff, but you can probably push out about $2-2.5 million of cost just overall for a utility if they deferred outage from one year into the next. So, do they do the installation outage this year or is it going to be done next spring? That timing, if we sign stuff over the next…if they are going to do it this fall then we will sign stuff over the next three months at a pretty good clip and we will have a very good year revenue and profit this year. If they are looking to deploy it in April, if they are going to move the outages from the fall into April then you will see a large contract signing with us in the third quarter and we will be able to recognize maybe half of that. But it will move more revenues from 2009 into 2010. That is really the unknown for us right now. It looks like a good year but we are just uncertain as to when some of these outages are going to be with customers we are talking with.

The next question comes from Ron Oster – Broadpoint AmTech. Ron Oster – Broadpoint AmTech : I can appreciate the limited visibility on the capital project side of the business but I am wondering if you look at your FUEL CHEM business, somewhat stable stream here, I’m wondering if you can provide with the transparency you provided last quarter it seems like you can get to a mid-$40 million range revenue run rate pretty easily in the back half of 2009. Is there any guidance you can provide to that side of the business given a little better visibility?

Some. As you are seeing, our run rates when we were running the first part of last year at $8 million a quarter run rate, then it moved up to $8.5 million and as you saw in the fourth quarter it got up to over $9 million a quarter. That puts you at $36 million or so for the year kind of run rate already. As units come off and we have 13 coal units in demo right now. As units come off they are going to start generating at an average of about $1 million per unit per year. So you should see as those come off and you will be able to tell every quarter that run rate should go to $10 million a quarter hopefully by the third quarter of this year and then grow beyond that. At a run rate of $10 million that puts you in at the $40 million. Run rate of $11 million puts you in at $44 million. We are hoping and expect that we will see revenues north of $40 million this year on that side of the equation with normal movement from demo. Exactly how high above that depends on when they go commercial and how much they are using us. Ron Oster – Broadpoint AmTech : Can you provide a little color on that front in terms of where they are in the demo process in terms of early, mid or late stage among the 13 out there?

Most of them are just, half of those are just now being installed. The outages got pushed back from the fourth quarter into the first part of this year and they are going in right now. Everything we just announced, like the lignite and the great big one won’t start up before about May of this year. So a lot of them are going to be done in the second quarter. The demo’s are actually going to be performed in the second quarter of this year. It only takes 60-90 days to do a demo once they are installed. The delay is really getting them installed. That is why we went to that double list because we were just having a hard time predicting outages. Ron Oster – Broadpoint AmTech : On the ACT acquisition in terms of revenue stream from that business in 2008 I think you provided the 2007 numbers when you announced the acquisition. Any update you can provide in terms of what their revenues looked like year-over-year in 2008?

I can confirm back what they did in 2007 with the rev level in the low $20 million range. This was a smaller company and they used QuickBooks. They did their accounting on more of a cash basis. Because of the size of the acquisition relative to Fuel Tech under the 305 Rule in the SEC we have to go back and have three years of their financial statements audited and we will be publishing those in an 8K filing in March and also showing the pro forma impact of what their financials would have done to Fuel Tech’s in our first quarter Q. Until I get those numbers back from our auditors and given the quite expansive re-shooting of their numbers to confirm their cash accounting to percentage of completion I’m going to hold back commenting on where 2008 came in. I will tell you one anomaly relative to us is that they had an inordinate amount of their revenues, upwards of 25% in some years, that were totally zero margin installation based so when we do provide the revenue clarity for 2008 with respect to ACT and the prior years we will also try to break out how much of that revenue was base product, i.e. margin generating, and then how much was pure installation. The nature of their business being ¾ combustion modification, burners and over fire lends itself to having a much higher percentage of that revenue as installation based work. So we will try to break that out. If you can just sit back for a week or ten days until I get these numbers done and this 8K filed with that I think that will give you all the information you need. Ron Oster – Broadpoint AmTech : A modeling question on the SG&A and R&D front, is the 4Q run rate for SG&A a good run rate to look for in 2009? Should we expect it to increase as we progress through the year?

I think the fourth quarter SG&A we have some costs we incurred during 2008 that were annualized, i.e. an employee that we hired mid-year is a full year salary in 2009 versus six months in 2008 but we have also taken some steps to attrition these positions and we are not filling and our other costs are coming down so for now it is a fairly good proxy to look at that going into full year 2009 with the factors we currently have in our overall budget. Let me go back to the ACT comment. One last point I want to make on that is when you take a look at their historical growth even though their accounting method may have been very, very simplistic relative to a publicly held company they did experience a very good growth from 2005, 2006, 2007 and 2008. They never had a down year and one of the items we liked about their company when we did their due diligence and ultimately culminated in the acquisition was their ever increasing market penetration, new products coming on, and the acceptance of their products in the trade. So you will see some fairly decent growth with respect to their numbers when we file the 8K.

The next question comes from Michael Carboy - Signal Hill.

Could you talk a little bit about ACT for a minute? I understand what they are doing or what they can do here, do you see the risk of a rating issue facing utilities as they go ahead and put low NOx burners in and that has been in the context of a new source review concern?

Not really. One of the things that low NOx burners…spread the flame out as you probably know. They spread the flame out so it doesn’t get quite as hot at the center and you don’t create the NOx in the first place. Over fire air is a continuation of that. The ACT low NOx burners are the best in the business by comparisons we have seen with some of the major players. They are lower cost and better performance. It is usually the first thing and sometimes you can get some pretty phenomenal reduction like 50% from the low NOx burners and over fire air combo if you don’t have either of those. That is usually the first step people do. There is an operational issue but it is not usually much on the de-rate problem. Where they do have a de-rate, if you have that, is because you get slag because you spread the hot part out and sometimes you can move it on up to the tube area. Our FUEL CHEM does a really good job of helping that. No, I have been on the other end at AP of receiving a lot of those notice of violations in the fleet there from lawsuits from the EPA. Typically those take a long time to get resolved and utilities will go about their NOx control efforts and then when there is final court resolution the utility has done most of the things they were going to do anyway and there may be one or two adders. So that is usually the way those things evolve.

On this issue of potential delays and outages or deferrals I should say, do you have any sort of comparative metrics you could share? Do you usually see 1-2 of those a year and now you are seeing 3-4? How do you think about this? Is this a risk or are you actually materially seeing these delays at this point?

We saw some in the fourth quarter of last year move into this year as utilities were going. Most of the time when you move an outage it will be the fall outage. You can move it five months. If you can get the labor you can move it out five months and it goes into a different budget year. This is nothing new. It is typically what utilities do, having I think it was almost an annual exercise we always had. You would have an outage planned and then the company needs $10 million more in earnings so you move outages. Now there is a big risk. Again probably the biggest single thing is turbines although you can get a lot more tube leaks and maybe hurt people in the process. Utilities don’t do that willy-nilly. It is a practice. Knowing that, not what they told us but just knowing that causes us to be a bit more cautious about that.

With regard to the dwell period between the completion of a demonstration to the commercial turn on of FUEL CHEM situations, certainly China is taking much, much longer to move from demo to commercial. What is the dwell period you are seeing here in the U.S. right now?

Usually zero. These particular units, the two that we had here, one of them right as we were finishing the demo they were able to buy some very good quality for that boiler design, it was actually coal that the unit was specifically designed to burn, their coal buyer found some on the spot market that were going to cover them through much of 2009. They said, “Hey, you did good and we really liked the service but we got a load of really good coal here and while there might be some benefit we are just not going to go forward at this time. Stand by because this coal is going to run out.” The other one they really liked the run. It was much the same thing. Got better coal. Reduced load. They paid us the success fee. Everything is installed. They said stand by for operation and because we didn’t inject immediately right away or that was a very recent decision or situation we didn’t put it on the list. We are trying to keep that list pure because it is for your benefit. I fully expect to see that one go on the list here in the next time or two we look at it. They are in discussions with us about putting FUEL CHEM on another one or more of their units. They were very pleased. So it is nothing with our performance. Most of the ones we see don’t have any delay. They just go directly as a continuation and they just say fine here is your success fee. Keep it coming.

I wanted to make sure we weren’t starting to see extended analysis periods between the completion of the demo and the beginning of the commercial operations starting to pop up in the U.S.

That is not the trend in the U.S. In China I think in the future we are not going to see that but this particular one there was one of those where they wanted their third party to evaluate it and then they wanted a big meeting with their execs and everything because going forward they will be going forward hopefully on a number of units and that sort of thing. Any time you get a third party government entity, which that one is…it is a national lab kind of thing, you got to make sure your calculations and their calculations all jive. From the data it looks like we have given them a heck of a benefit in one of the most difficult evaluations I have ever seen in my life. You and I are both engineers but I got to tell you they had I think three typhoons hit during our demo period so the coal pile was more of a lake at the time. They were being cycled up and down from minimum power to maximum power several times a day. How do you calculate efficiency gains across that? It is very difficult. You can do it but it is very difficult.

DSO’s obviously ticked up from 97 days to 116 and inventory turn is slowed from 11 to 8 turns. Any commentary and color there? Lastly, I would like you to elaborate a little bit more on this international tax issue. If I understood your remarks correctly, you said you generated a loss in Beijing and that resulted in a higher tax rate here in the U.S.? I’m trying to make sense out of that.

Let me take the tax issue first. We had international at a loss in Beijing. We expected a profit which would have allowed us to take that at a 25% tax rate. We just started that operation up and when the loss was generated because there is valuation allowance to an extent we are required to put up against that it is not really the deductible per se. So what we have had to do was we put up this valuation allowance. So mechanically when you look at the calculation when you back out the losses from overseas from the pre-tax number and then take the provision which really relates only to the U.S. against that pre-tax number you get an effective tax rate in the low 40 range.

Then you pull the loss back in so the pre-tax number looks smaller and that is the rate higher.

Exactly. Mechanically it looks higher. We are certainly not paying 48.5% tax domestically. That’s why I said as those kick profitable which are budgeted in 2009 we get back down to the 40 or below effective tax rate. From a DSO standpoint what I watch more closely are the DSO’s on FUEL CHEM because it is more of a regular billing cycle. Those have stayed current. We don’t have any customers that are egregiously late. We have no bad debt exposure. We took no write offs for FUEL CHEM other than a single issue from Mexico that was truly anomalous. When you take a look at the APC it is difficult to calculate a DSO on APC orders because you could have very large billings at the end of a quarter based upon the achievement project milestones that artificially drive that up which would not be perhaps representative of when you recognize those revenues. So in a percentage of completion, DSO is not a metric I watch for the company. What I do watch and what we report on weekly are the individual account balances for our APC customers and FUEL CHEM customers and I watch the sheets with respect to what are the amounts due and how many are past due. So it is more on an account by account and just dating kind of metric as opposed to an overall DSO because that calculation can be very misleading.

The next question comes from Graham Mattison - Lazard Capital Markets.

One quick follow-up on the tax rate. So your expectation is that the tax rate for 2009 is going to be about 40%? Was I correct in hearing that?

Yes. I would expect we will return to a 40 or below. 40% is a safe number to use. We will provide additional clarity on that as the year progresses. Right now we are budgeting our international operations as they grow and we introduce ATC products and further educate on the FUEL CHEM and other clients over there look for the lower cost solutions to drive both entities into a profitable state, which would have a dilutive impact on the rate you saw in 4Q. The U.S. rate is going to pretty much hold. We do have some tax planning strategies ongoing but I would counsel you to use 40% for now if you are modeling and then we will provide additional clarity as the situation unfolds.

As the sales sort of roll out and you see more of a pick up in the U.S. could that rate trend…a year out or two years out where do you see that rate trending?

I would think on a long-term sustainable basis we would be in that 36-38% range depending on the attraction our domestic state tax planning vehicles can get. A lot of states of course in this time are looking to de-couple from certain rules and take away some of the more advantageous tax planning we can do. Long-term in that 36-38% range. From a foreign standpoint when you start looking out at cash taxes paid excluding the provision rates we certainly do expect to be able to utilize the NOL’s we generate over there respectively.

You comment that your expectations of revenues and earnings in 2009 will be higher than 2008. What is really driving that? Is that mostly we are going to see an up tick in foreign sales? Do you think what you are basing that on is more you are starting to see a recovery in the second half in the U.S.?

I think it is a combination of items. As John mentioned from a FUEL CHEM standpoint because the use of that program is pretty much ROI based from a customer standpoint, there is no regulatory requirement they do that, it is a cash flow generator for them. We do expect to see the growth we experienced in 2008 continue into 2009 and beyond. We are announcing the new demonstration units we are winning and what not. From an APC standpoint it is not as much a case of is the work there. It is more of a case of when will the work occur. Given the regulatory landscape, the tight credit markets and the positioning that Fuel Tech has in that marketplace with the lower cost capital solutions and alternatives to larger SCR’s for example is really going to be a case of when will the utilities be in a position to have that capital. When are their outages scheduled so we can get in there and deploy it. The growth of this we are very confident that is going to occur. What we are dealing with right now really is just a case of timing.

The next question comes from Rick Hoss – Ross Capital. Rick Hoss – Ross Capital : First, on FUEL CHEM and I think this really goes back to I think the first question that you had the demo periods we had the demo announcement in January of 2008 so we are over a year on the China one as well as the India one, right? So what sort of time frame can we expect this to compress to? Obviously I don’t expect the next demo to be 13+ months long but what do you think is a realistic expectation here?

Most of them get in a lot quicker. The demo period for both India and China both ran 90 days. The problem was they didn’t get in until the fall. They were [progged] to go in earlier and that is just when it was done. The most recent China announcement that we had on the small unit should start up I think May of this year. As an example, in the U.S. the one we just announced in February installation is happening now or next week. It is very soon and it is expecting a May start up. I think the longer, drawn out period before they start and before we get them installed hopefully we are going to see that greatly shorten. Rick Hoss – Ross Capital : Secondly, can you give me an appreciation of the urgency in utilities as far as compliance with CARE? You vacated and then eight days before the original start date you reinstated. Obviously it is unreasonable to expect everybody can get their ducks in a row and comply immediately. Can you just give me sort of the anecdotal information you see out there as far as what their mindset is and really the constraints of CapEx this year considering the economy?

What clients have asked us, and this is actually they would probably not have asked us except for now we have Volker and the ACT folks in but we have more than one client that has come in and asked us for a system-wide NOx analysis and helping them develop an overall plan. These two units are going to put low NOx burners over fire air. These ones will put low NOx burners over fire air, plus SNCR. Then for these two over here they are going to switch and go Cascade instead of SCR’s. I think the biggest thing on the market is that if it is an SCR and it hasn’t already been contracted we see a lot of those coming off the table and folks looking at Cascades where we can get darn near the same amount. Now if they are under some court order that would be the difference if the court has already mandated an SCR they may not try to fight that and go back for a cheaper version. For those utilities that are not under a mandate I don’t think I’ve seen one that said we haven’t contracted this SCR, we have it in our plan and we are going to go forward with that. In almost every case they are saying whoa, wait a second. In fact, I was meeting with one executive VP who is a good friend of mine recently and we were telling him what we can do and he asked me to repeat twice, you can give me almost SCR level performance at less than 1/10 the price? Are you kidding me? I said, yes that is what we are saying. It is really us involved in their planning process for the first time. In a number of these utilities it gives us the insight into what we think they are going to award us and when. That gives us the belief that it is going to be a good year. Rick Hoss – Ross Capital : So really there is no confusion about the demand? I think it has been pretty consistent. There has been no confusion about needing these systems and the activity out there? It is just exactly what can these utilities afford and what can people do as far as securing funding and being able to put these systems in place? That is the question mark?

It absolutely is. And what is going on in the market. You are seeing, I think you saw in Texas recently where 4,000 megawatts of gas fired generation was taken off. That will probably mean the coal units in Texas are probably going to run a bit harder in that market. It depends on what units are coming on. New coal units it is real tough if they are not already under construction for them to go forward. Folks are having to look at deploying controls on units they may not have planned to control in the past.

The next question comes from Rich Wesolowski - Sidoti & Co. Rich Wesolowski - Sidoti & Co.: Now that you have the pre-combustion products to go along with your heritage NOxOut businesses, and it is one procurement, why would a utility that is informed on both your products and SCR see the advantage in going with a bigger capital investment?

They wouldn’t I don’t think. In the past having been on the utility side, utilities liked big capital projects. They could borrow the money at 7.5%. They earned 10.5-11% according to what is in their rate base and that was a good thing. So when you came in there and said we have a low cost capital option they would politely nod and say that is really nice and then go back and say hey capital is good. Now that is not the case. Markets are tight and they are really scrambling if they look at earnings and their dividend ratio. Utilities never generated enough cash to pay their dividends and their capital projects so they were always borrowing money for the capital projects. Now can they even raise enough earnings to cover their dividends alone much less their capital? It is the most different dynamic I have seen in my career for utilities. I guess the comparison would be back in the 70’s and 80’s when the interest rates were at 17% and they were scrambling so capital…it has been that time since the Jimmy Carter era. We are kind of back into it right now. It really is a different dynamic. I hope that helps in the answer. Rich Wesolowski - Sidoti & Co.: Are you investing more in the average FUEL CHEM demo now than you have in the past?

The cost for demo, just because we are trying to put a broader spread of injectors so they can burn a broader range of coals, our costs are probably up to $200,000 versus about $150,000 on a medium sized unit. Bigger units take more and smaller units take less. Rich Wesolowski - Sidoti & Co.: So on your FUEL CHEM margin of course you are forecasting more orders which means more demonstration costs but also more eventual commercial product. So the best guess for segment margin is still high 40 range isn’t it?

For operational it will be in the low 50’s. Rich Wesolowski - Sidoti & Co.: What did you guys report?

Right now…okay you are talking about with demonstrations and everything? Rich Wesolowski - Sidoti & Co.: Right.

It is probably right now with the large number of demonstrations relative to the number of operational units it is high 40’s. That is exactly right. Rich Wesolowski - Sidoti & Co.: You mentioned the slagging issue somewhere in the Q&A with the pre-combustion APC technologies. I recall from a call way back a customer had removed a FUEL CHEM in order to install over fire air. Are those two technologies compatible on the same unit?

Oh yes. Absolutely. If they did that when they go in and put low NOx burners in over fire air they are using locations, right? Especially the over fire air the burners go in the same spot but the over fire air is going to go above the burners and might go in right where we had injectors and then they are going to see how those things run and on what fuel. Those are absolutely, in fact most folks who have low NOx burners and over fire air get a better benefit from our FUEL CHEM because they are driving the flame up closer to that tube bundle and it will be hotter up there. Rich Wesolowski - Sidoti & Co.: Looking back over the last three years you had about 75% of your TIFI orders in the first half of the year. Is there any reason for that and would you expect that to hold for this year again?

No there is no reason for it nowadays. It used to be they would order it and install it real quickly before the spring outage. We have seen their procurement cycle now, as you saw it last year, just kind of run throughout the whole year. You will see some in the spring. You don’t sign as many in the middle of the summer but the rest of the year you just see them coming in along.

The next question comes from Scott Reynolds – Thomas Weisel Partners. Scott Reynolds – Thomas Weisel Partners: Back in the 2Q and 3Q you guys talked about $6 million in back log for 2009. I would imagine that is still around. Do you have any idea of when you hope to recognize that?

We ended 2008 with $9 million in back log. Most all of that will be done this year. I don’t think anything goes beyond that. There is one maybe partial on one of the China installations I think on a new unit is the first part of 2010. I think the vast majority of the $9 million we have and certainly everything ACT has in their back log will be done this year. Scott Reynolds – Thomas Weisel Partners: On the ACT backlog how do you see that being recognized over the year? Should it be in the first six months?

Their stuff tends to be quicker. Most of that stuff is going to be done in the first half of the year.

The next question comes from [Sunio Seabot] – Natixis. [Sunio Seabot] – Natixis : I was hoping I could get a little bit more clarity on the Chinese front. I know you mentioned in your remarks you might have already started working on some projects for which you have not yet announced formal contracts. I was wondering if you could provide a little bit more color on that market in terms of what you see in 2009 and 2010? Also if there is any big impact you see from the Chinese stimulus especially on the environmental side?

That is a really good question. They are just announcing more of that. We do anticipate that a certain portion of their stimulus is going to be used to clean up the air in China. They are moving to get more of that done and as they do that we start the process of getting bids out and the whole shooting match which is why we have an unprecedented for us amount of bids, proposals, and discussions going on in China right now. The Chinese style is that they will tell you that you have won. They will give you a due date that you want your engineering done and up front and they have to be ordering equipment. They expect you to start work on it and they will get you a contract later. We will start work but we won’t deliver results to them until we get a contract. We won’t start work unless we are sure we’ve got it. We are not going to start delivering engineering work to anybody. That really is our leverage to get the final contracts signed. It is just a fact that it takes longer even after you know you have won something to finally get a document. [Sunio Seabot] – Natixis : So how does that basically flow into your revenues in that case?

You aren’t going to recognize any of that until you have got a contract. We won’t have any of that. That is on our risk for the amount you are doing that. It is usually not very long. Six weeks, maybe two months on the outside you might know you won something before you finally get a contract. You will never see that. That will be just costs we are eating until we get a contract and can charge it to the project. [Sunio Seabot] – Natixis : So previously you had talked about $100 million of proposals you had made over a period of weeks or months. So how much of that do you think you are seeing active discussions with your Chinese counter parts?

I’m not sure I caught the amount you said. I think I said something in the past about over $100 million of stuff out there. In any case there is still a vast amount of work that we are bidding on and in discussions with. It is a different process over there. We try to put ourselves in the best position to win. If we are going to go out for a bid and they are going to qualify four major Chinese architect engineering firms to bid on it then we will try to align ourselves with all four of those so whether we win or not is not so much in doubt but rather who it is we will be working with is what is in doubt. That is our preferred mode. Actually we are successful at that more than not. It is never a done deal until the contract is signed. Great opportunities. I think you will see 2009 as better than 2008, hopefully for us and for the overall Chinese environmental market. 2010 should be better than that and the mother lode for their retrofit work is going to start in 2011.

The next question comes from Brian Shore - Avondale Partners.

If I think back to the spring when CARE was vacated it seemed to me that you at least at the time, I don’t want to say downplayed but kind of noted that ruling wouldn’t necessarily have a dramatic impact on APC order generation. It seems like maybe the tenor is a little bit different in this case. Is there any sort of reconciliation there?

Yes. It happened two months later. You are exactly right. We don’t get to make that call as to whether utilities are going. We actually had a little press conference about that and based on our discussions with our clients at that time in the latter part of July they were looking at business as usual. We are going forward. Two months or a month and a half after those discussions starting in September and accelerating in October when the financial crisis hit all bets were off. They came back and said oh no all those projects are completely deferred. In fact, utilities issued orders within their ranks that no discretionary capital could be deployed. If it wasn’t required by regulation at the time none could be spent. That is the thing that totally changed. That is why they got totally caught off guard as a Christmas present from the Court when it was reinstated and you saw the price for NOx go to over $5,000 per ton because everybody is short. It has moderated back as the economy has come down and there is not a lot of trades out there right now but that is what happened.

With CARE sort of being in a temporary state now until a more stringent rule comes into place I guess is there any risk that the more stringent regulations once they come into place, I don’t want to say make your products obsolete but have a detrimental impact and require utilities to sort of put the maximum on?

We can get to the maximum. The secret now is we can do just about what you can do with a combination of all of that. You can get to just about that same level. To put it in perspective, the CARE takes you down to 0.15 pounds per million BTU of NOx. Then later in 2015 is going to ratchet that down to 0.125 instead of 0.15. So it will come down partially. Our technologies in combination can get you below 0.1. I don’t think anybody out there believes there is going to be a NOx regulation coming out even with this administration that will be less than 0.1 on a complete average basis. While we talk sometimes in percentages of reduction the real number is what is your absolute you can drag it down to. We can drag it down to below where anybody is going to need to be.

In China and India any impact I guess from the global economic slow down there in terms of bid activity?

In China it is going up because they got a stimulus and in India I have never seen them have any concern over NOx or SOx or any other air pollution. We haven’t made any sales or have any force going in there for India other than FUEL CHEM. They have a great interest in that because that can lower their fuel costs. They can burn really crummy coal without taking all the outages and getting more generation from their existing units. They are short a generation. Theirs is all about being able to burn slaggy coal and efficiency which lowers their fuel costs. It really is a cost reduction but air pollution I’m not seeing anything. On China they are really interested in both.

The next question comes from Carter Shoop - Deutsche Bank.

Can you discuss what the acquisition related revenue was in the fourth quarter and also highlight what your outlook is for future acquisitions?

Acquisition revenue was very damned little.

It was several hundred thousand dollars as it relates to the Tackticks FlowTack acquisition. Respectively as it relates to acquisitions the company’s even with the acquisition of ACT that we funded in the first part of January this year and have done primarily with cash on hand we expect to have our balance sheet again clean of debt when we announce first quarter results. The acquisition pipeline of course is smaller because we bought one of our primary competitors that provides us some complementary technology but we are not adverse to that. We have mostly fully integrated ACT. We certainly have done so administratively and financially and I think operationally it is about done as well. We would not…the digestion period so to speak we are sort of over that. I would never like to buy companies of that size relative to our own until we have sort of digested what we have eaten so to speak. The pipeline, companies are out there and technologies are out there. We will be prudent about it.

Just note, and you ought to know enough about me and I think about John, I am not real keen on debt. I don’t really want to go there. I would like to replenish our coffers with cash before we start taking on anything else. I’d like to do what we do out of cash. There may be an opportunity that comes up out there that we might consider some other alternative method of funding it versus just using our cash but there is nothing on the plate right now in that regard and it would take a good bit for me to get over that aversion to debt.

So we can say less than $500,000 in revenue in the fourth quarter from acquisitions? Is that a safe assumption?

Yes.

When we look at 2009 if we back out ACT do you still expect to see growth in sales and earnings?

We are not going to give that guidance yet right now. It is hard to back out ACT because we are selling whatever works right now for the client. We might have competed with them in some areas like SNCR’s, whichever is the best. So there is no way of knowing whether that sale would have gone ACT or FUEL CHEM and we are not going to try and determine that.

When we look at the base business excluding ACT and maybe the transition into India and China we haven’t really seen any growth since 2006. If that base business doesn’t grow in 2009 that will be roughly three years. Do you feel the North American market is still a growth market for FUEL CHEM? For FUEL CHEM products and also for APC?

You talking about FUEL CHEM hasn’t seen growth?

I meant Fuel Tech, the overall company hasn’t seen much growth since 2006.

You are right. It is a tough market to be projecting outrageous growth in which is why we are not giving guidance right now. I think we have got the key tools that we were looking for to expand our technology side on the ACT side and on the FUEL CHEM side it is market acceptance and we have seen that grow. We ought to be able to see top and bottom line growth for this company.

To specifically answer the one point you made, when you take a look at the U.S. and Chinese markets you are dealing with two of the most robust APC markets let alone FUEL CHEM in the world. With the acquisition of ACT I can’t think of another company out there that is better positioned in terms of on-ground presence or product offering than Fuel Tech is as these markets continue to evolve and the air pollution control requirements really start to take some traction.

Can you comment about how the competitive dynamics have changed over the past year in the FUEL CHEM business?

Not much. The FUEL CHEM remains a return on investment kind of thesis when we go into a client to present a program to them and to get them to accept it. We have been growing pretty steadily in that going from six wins to eight wins to thirteen wins to fifteen wins in the last four years. There is nobody else out there growing. It is not really about competition. It is about market acceptance although there are people that try to compete in that. That market acceptance we believe is growing. We have to see that continue. It is a tough economic time and the client has to be really convinced these days you can provide them a good value but they are looking for good values. I guess that concludes it operator. Thank you very much for everybody tuning in. We look forward to seeing you on future conference calls.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.