Fuel Tech Inc (FTEK) 2003 Q4 法說會逐字稿

Welcome to the Fuel Tech fourth quarter and year end conference call. My name is Rhoda (ph) and I will be your coordinator for today. At this time all participants are in listen-only mode and we will be facilitating a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to your host for today's call, Ms. Tracy Krumme, Director of Investor Relations.

Welcome to Fuel Tech's fourth quarter and year end conference call. By now all of you should have received a copy of today's release. If you have not, please call us at 203-425-9830 and we will be happy to send you one. Joining me on the call this morning is Ralph Bailey, Chairman and CEO, who will be available for the Q&A session; Steve Argabright, President and COO; and Vince Arnone, Chief Financial Officer. As a reminder the matters discussed in this conference call except for historical information are forward looking statements that are subject to certain risks 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 are included in our filings with the SEC. The information contained in this call is accurate as of the date discussed and investors should not assume that the statements made in this call remain operative at a later time. Fuel Tech undertakes no obligation to update any information discussed in this call and as a reminder, this call is being broadcast over the Internet and can be accessed at our website, www.FuelTechNV.com. With that said, I would now like to turn the call over to Steve.

Good morning, everyone, and thank you for joining us today to review our financial and operating results for the fourth quarter and full year 2003. As you know we reported (technical difficulty) cent per diluted share for the fourth quarter and earnings of 5 cents per diluted share for the full year. This compares to earnings of 6 cents and 14 cents per diluted share for the fourth quarter and year end 2002, respectively. Reported net sales for the quarter of 7.6 million and net sales for the year of 35.7 million, up 10 percent from last year's 32.6.

During the year we saw significant growth from our FUEL CHEM business as revenues were up 43 percent in the fourth quarter from last year and 45 percent year-over-year. This was attributable to our increased penetration of the Western coal fired utility market as well as an increase in our more traditional oil fired business. We continue to be extremely excited about the growth opportunities in our FUEL CHEM business. As we have stated in the past we have identified several large utilities that we believe are important in achieving critical mass.

We have identified these utilities as high priority prospects due to the leadership positions they enjoy as well as the revenue opportunities available to provide our Targeted-In-Furnace-Injection technology to multiple units within their facilities. We are very pleased that within the last two months we have announced demonstrations at two of these major utilities. These two demonstrations will be on the largest boilers that we have installed our technology on to date. Successful demonstrations at these major utilities should lead to increased penetration of our technology, both within these utilities and at new customers.

We are in discussions with several other key prospects and are optimistic that we will have an order for a third demonstration in the near future. We also recently announced a three-year contract with Western Farmers Hugo Station (ph), a 475 MW coal-fired unit in Oklahoma. This application started in May 2003 and the signing of a contract demonstrates our success at their facility. Western Farmers has been a truly excellent customer. They have served as references for other utilities and have allowed those who are interested to visit the station and see the results firsthand.

This has proven to be very valuable in securing other customers. Also we continue to penetrate within our existing customer base and expect to have additional units operating at previously sold sites next quarter. On the marketing side, we continue to feel that major coal companies are potentially valuable resources and are currently in discussions with two large suppliers of Western coals. We're also continuing our dialogue with the Electric Power Research Institute about a joint project and to further enhance our credibility, we will be presenting a joint paper owner process with Western Farmers personnel at a major conference next month.

During the quarter we acquired Martin Marietta's direct fuel treatment chemical business and signed a long-term agreement for their magnesia (ph) based chemical products used in our FUEL CHEM business. Martin Marietta is the largest leading U.S. producer of these chemicals and as a result, this agreement will allow us to continue to provide our customers with the highest quality chemicals at favorable prices. We will also benefit from additional revenue and market intelligence from their former oil fired customer base.

We're pleased to report that this integration is going extremely well and that we are being successful in penetrating additional oil fired business with our unique approach. Internationally we are in discussions with a potential partner in Mexico. Mexico has experienced a shortage of reliable electric power and is looking to increase production capacity significantly over the next ten years. In the short-term, we feel that we can provide low-cost megawatts by improving the efficiency and reliability of existing facilities.

We're also pursuing business in Europe, primarily in Italy and Spain, through our Italian subsidiary. Although our primary focus continues to be the (indiscernible) business, we are continuing organic development of additional technologies as natural spinoffs of the current Targeted-In-Furnace Injection process. We have already applied for two patents based on this work and expect to demonstrate the new approaches in the near future. Also in our continuing investigation into improving our technology we have discovered that because of our unique application techniques, our chemical injection results in articles that are so small that we are in the nanotechnology range, defined as smaller than 100 nm or 0.1 microns.

This knowledge has helped us to better understand the process and provides food for thought as to further improvements. Turning to the air pollution control business, revenues for the year were at the same level as the prior year while revenues for the fourth quarter were down 50 percent from the previous year. This shortfall in the fourth quarter is due primarily to reasons we have discussed in the past which include recent rulings and uncertainty regarding new source review, financial issues and constraints at utility companies, mild summer and winter weather that has led to power generation -- excuse me, lower power generation and lower emissions and lower NOx allowance pricing in 2004 which provides utilities with a short term alternative for meeting requirements.

The NOx prices so far this year have been virtually flat for 2003 at around $2,300 to $2,400 a ton. However, allowances for 2005 are currently trading at a significant premium at close to $4,000 a ton while those for 2006 have recently increased 25 percent to around $3,000. This confirms our belief that bookings and equipment releases will pick up in the second half of this year and be strong into 2005 and 2006. As we have said before our air pollution control revenues are not going away, they are merely being postponed.

We recently announced orders for air pollution control projects totaling $2 million which included a NOxOUT system on a 550 MW utility boiler in the Eastern U.S., an order for process engineering and licensing of another NOxOUT system on a utility boiler in the Eastern U.S. and a NOxOUT system for a new industrial boiler being built in the Southeast. In addition during the quarter we announced air pollution control projects totaling 2.2 million and large utility placed multiple design engineering orders totaling 1.2 million for the future installation of NOxOUT systems.

Two NOxOUT demonstrations were booked on very large coal fired boilers both of which will expand the penetration of the technology. Design engineering orders were also received for two additional utility units and two industrial units. In Europe orders were received for the following: an installation of a NOxOUT system on a MSW Municipal solid waste incinerator in Spain, a demonstration at a cement plant and design engineering orders for additional industrial units. We continue to work on alliances with several major utilities to complement the two we already have in place. AEP which we announced in the year 2000 and another large utility about the same time frame.

Going forward we see additional drivers for the air pollution control business that start late in the decade. EPA has recently issued the draft of a transport rule which will take the place of the administration's Clear Skies bill which stalled in Congress. This bill will bring ten more states into the (indiscernible) zone by the end of the decade. Turning to our software business, we continue to look for alliances and strategic partners and pursue commercial applications for our Computational Fluid Dynamics visualization package, ACUITIV software.

We have recently received two new commercial orders and look forward to the release of a major development scheduled to be completed at the end of this quarter which we expect to further increase our addressable market. Additionally during the quarter we announced the stock repurchase program authorizing the use of $1 million to repurchase our stock. On September 29, we bought back 274,000 shares at a price up $3.40 for a total of about $940,000.

Given our financial strength, the growth opportunities available to the company and the valuation of our stock at the time we believe this was an attractive investment that demonstrates our confidence and our strategy in growth going forward. I will now turn the call over to Vince for a financial review.

Good morning, everyone. As Steven mentioned, we reported net sales for the quarter ended December 31, of $7.6 million, down 33 percent from 11.4 million last year. Net sales for the year were 35.7 million, up ten percent from last year's 32.6 million. The decrease in fourth quarter net sales is the result of a slowdown in air pollution control revenues which were partially offset by increased FUEL CHEM revenues. The growth in our annual sales was driven primarily by strong FUEL CHEM revenues, which as Steve said previously, were up 43 percent in the fourth quarter versus last year and up 45 percent year-over-year.

This growth was attributable to our strong performance at western coal-fired utilities, an increase in our oil fired business and to a lesser degree the addition of Martin Marietta's retail fuel treatment chemical business which was acquired on September 30. They net loss for the fourth quarter was one cent per diluted share compared to net income of 6 cents per diluted share in the same quarter last year. Net income for the year was 5 cents per diluted share compared to 14 cents per diluted share last year. A shortfall in net income was due primarily to margin erosion on air pollution control projects as turnkey projects represented a greater percentage of the project mix versus the prior year.

As we have mentioned before turnkey projects, which included the installation scope, have higher contract values but lower gross margins and contracts that include just our traditional scope. Gross margins in the fourth quarter were 42 percent, up from last year's 38 percent due primarily to a change in product mix in favor of the higher margin FUEL CHEM business. The FUEL CHEM business which realizes higher gross margins than the air pollution control business comprised 40 percent of the revenue totaled in the fourth quarter of this year versus only 20 percent in the prior year.

On a full year basis gross margins were reduced to 39 percent from 44 percent in the prior year. Although air pollution control revenues comprised a lesser percent of total revenues, 70 percent in 2003 versus 78 percent in 2002, margin erosion in the air pollution control business was the primary driver in reducing overall gross margins. Going forward, as FUEL CHEM sales become a greater percentage of our total business we expect our total gross margins to increase. Adding to the reduction in earnings were higher SG&A costs which were up 23 percent in the fourth quarter versus last year and up 14 percent in the twelve-month period versus last year.

This increase was primarily attributable to the addition of sales resources for the FUEL CHEM business and to revenue related FUEL CHEM selling expenses. As we have stated before, our market penetration of the Targeted-In-Furnace-Injection technology is a strategic priority. Going forward, we anticipate that are SG&A costs will increase as higher sales volumes particularly in the FUEL CHEM business lead to increased selling costs primarily from commissions. We believe that our FUEL CHEM infrastructure is essentially in place to support future growth opportunities. We continue to have a strong balance sheet while we ended the quarter with 7.8 million in cash, working capital of $11 million and no debt.

Cash was up $2 million from third quarter levels, yet down from 10.9 million at the end of last year. The reduction in cash year-over-year was due to the repayment of 1.8 million in debt in May, the purchase of Martin Marietta's fuel treatment chemical business for $1.3 million and the stock buyback program where we spent approximately $900,000 buying back 274,000 shares. Our current backlog for the air pollution control business stands at approximately $5.3 million, up slightly from last quarter's 4.1 million.

As Steve said, and as we have stated before, we have seen a slowing in our air pollution control business and this is likely to last through the first half of this year. Although we expect to receive new contracts during this slower period, we have basically stated that we have done, revenues from our air pollution control business will temporarily be affected and should pick up in the second half of this year and continue into a strong 2005 and 2006. As we have stated before, we expect 2004 to be the year in which we start to see the dramatic growth opportunities from FUEL CHEM.

We expect revenues in this business to increase 75 percent in 2004 from last year and we expect to see further growth in the years that follow. On an overall basis we expect revenues to be flat to slightly improved in 2004 versus 2003 with the air pollution control and FUEL CHEM business revenues contributing at essentially the same level. We will realize an overall improvement in gross margin dollars and in our weighted average gross margin percentage due to the greater contribution from FUEL CHEM. Our bottom line in 2004 will be slightly improved versus 2003 due to the favorable change in product mix.

I want to reiterate that we believe we are on track on the FUEL CHEM side of our business as evidenced by the receipt of technology demonstration orders from two of our major targets in the last 45 days, and we remain confident that our air pollution control business will pick up significantly in the second half of the year resulting in a strong 2005 and beyond. With that, I would like to open the call for questions.

(OPERATOR INSTRUCTIONS). Sheryl Skolnick with Fulcrum Global Partners.

If we could just go over some of the impact of the slowdown in APC on the first half of this year, then in the first quarter -- and also the timing of the start of the contracts that you have recently announced for FUEL CHEM and for the APC. It seems to me that most of those new contracts that you have announced on FUEL CHEM probably don't start to contribute until we get to the second quarter (technical difficulty) for the boilers to be taken down in a regularly scheduled shutdown, is that right?

That is right. We expect both of those that we have announced in the last 60 days to be running by the end of April. They have shut downs in March which is pretty typical of the industry to take shutdowns during the spring and the fall when loads are low and do their maintenance and so forth. That is when our systems will be installed. On the air pollution control side the contracts we have gotten are underway as we speak. So those as we have discussed in the past normally take six months to a year depending on whether it is turnkey or not from beginning to end. So those dollars are being realized now.

So the margin shift that you're talking about probably doesn't really happen terribly much until we get into second quarter and beyond?

That is correct. As the FUEL CHEM business does start to represent a larger portion of our overall revenue base we are going to feel that favorable margin contribution and we will feel it on a pro rated basis as we go forward throughout the year.

Are you seeing any -- separating the businesses into FUEL CHEM and APC for a moment, are you seeing any -- on the APC side, are you seeing any change in the utilities position with respect to maybe seeking a little less reduction in emissions or are they still going for, as you have described before, that there are just simply some boilers where you are going to put more expensive systems in and others boilers where NOxOUT is going to be appropriate? Are you getting the sense that there is any change in that thought process at all? That your solution may be somewhat more desirable or there are competitive products out there that -- or has the competitive landscape not changed, let me put it that way?

It hasn't changed a lot. As we have stated in the past the Cadillac NOx reduction system selective (ph) catalytic reduction has slowed down just like we have. Those units are significantly larger in capital. It could be a couple hundred million dollars and that particular process has seen its peak for the current regulations, whereas I'm not so sure that we have. I think what you will see in the next three years, as we have said, some significant orders.

One of the things we are doing that I think to ensure that is going to happen is looking at alliances. I mentioned that briefly during the prepared statements but I want to build on that a little bit in that we think that getting major utilities in an alliance situation is very good for them and for us because we can optimize our resources significantly when we know in advance that we are going to get units and we know the timing of when we are going to get those units instead of some of the last minute stuff we have experienced in the past. So that approach is a top priority of ours. But long answer to a short question, we really haven't seen that much difference from an approach on how the utilities are thinking compared to a year ago.

Okay. If we can turn for a second to, in my mind more interesting, the FUEL CHEM side of things. You I think had mentioned at one point that there might be a third utility by the end of the first quarter. Is that still a possibility?

It looks like that one is going to be delayed a little bit. We are still optimistic that we will get it. It probably won't be by the end of the first quarter, more likely mid second quarter or so. We are not giving up with that one and we have got a lot of other ones we are talking to. I did mention again during the prepared remarks that we expect to expand at some previously sold sites as well during the second quarter.

Okay. Do you think you'll be able to actually name what sites those are?

Yes, we hope so. It is certainly a goal of ours as you well know to get names attached to this business and we are continuing to offer incentives like we have in the past, especially to these two large demonstrations that we did speak to. Those are top-notch, very large well-known utilities that is certainly our goal to get that out in the public.

Okay.

As you know, Cheryl, we offer these folks incentives to go public with us as well. So they are definitely incented to do so and our goal obviously is to ensure that we are able to have one of these larger folks go public with us.

Right. That clearly would be helpful to not have to guess who has an 800 MW boiler.

Exactly.

So competitively on FUEL CHEM though, is there any change in the competitive landscape there?

I would have to say there is a little bit. There is a competitor that is attacking the market from a prospective of seeing what we are doing. They've got some 20-year-old technology of blowing dry material into a furnace. So far we have not heard of any great positive results. They have tested this particular approach at one utility that we are aware of with questionable results is our understanding. We are following up on that. We're making sure that we understand what is going on out there because it is very important, but other than that, haven't seen anything.

Can you give me a sense of how many boilers you are actively talking to, not that you talk to a boiler, but how may boilers you are actively talking about with potential customers on the FUEL CHEM side now? An idea, a notion of backlog here?

I guess there is about, as we have said in the past, there is 130 facilities roughly that are burning Western coals. Certainly there is not one of those facilities that is attached to any utility we haven't talked to. I think we have talked to every single utility out there. Certainly we are further down the sales road with some than we are with others. And one thing of interest that I want to point out is that one of these two large units that we just got an order for a demonstration is not burning Western coal. They are burning Eastern coal and they have got an intermittent slagging problem rather than the more typical continuous issues that some of the Western guys have.

So that is an interesting -- it's going to very interesting to us to see and we're very confident it is going to work, but to see what that market potential is. We have called on a lot of these folks but this is the first time we have really gotten a solid order from somebody firing Eastern coal on slag issues. We have got them on other issues but not necessarily slag. We are very excited about that potential. I really can't tell you exactly what that means from a market prospective yet.

Okay, but I am just trying to get a sense of -- given the guidance you have given it sounds like you are going to get pretty close to somewhere around $17 or $18 million of FUEL CHEM revenues in 2004, and of course what is nice is that it is recurring once you start, they sort of can't get off the habit, which is good. So what I'm trying to figure out is sort of where the next 4, 5, 6 million comes from.

I think just based on the size of the ones that we just talked about and the fact that those units are not single unit stations, there are multiple units in these utilities and we plan on expanding into. So if you look at -- if you are talking about the future, if you look at the fact of 75 percent roughly, 75 percent increase in 2004, you can imagine that by December you are running at a rate higher than that.

That bodes well, like you say, because it is recurring revenue. It bodes well for 2005 and beyond. To give you an exact number of units is hard to do and one of the things that should be made clear is that coal fired market is not the only market we are involved in, although it is potentially the largest. We also have some recurring business from oil fired business and we are also continuing to penetrate that against our competition because of our superior process.

Finally, is there anything on the acquisition side that might be of interest to you at this point in time?

Not directly. I think we are always looking for opportunities as you well know, like the Martin Marietta situation. But there is nothing, certainly nothing underway at this point.

Okay, great. Thank you so much.

(OPERATOR INSTRUCTIONS). David Beard from Morgans Waterfall.

Just a couple of questions because I appreciate your trying to give us some more detail on the different business segments, so a bunch of these are just going to be clarifications. Out of the total revenues just split up between the two business, you mentioned that FUEL CHEM is 40 percent of total revenues, is that correct?

That would be for the quarter.

For the quarter.

On an annual basis for '03, approximately 30 percent on the FUEL CHEM side, 70 percent air pollution control.

The second question relates to, if your backlog number went up sequentially in the APC business can we assume the difference between what is reported as revenues and the change in backlog or bookings for the quarter, or is that not accurate?

I would say approximately without being exact on that.

Okay. If we assume a 60 percent gross margin on the FUEL CHEM business, the APC margins were quite a bit lower when I back into that and that seemed lower than normal. Were there any cost overruns in some of your turnkey projects?

No, basically when we talk to the air pollution control business, I mean depending on exactly how the project is structured we can realize a margin range, again depending on how large the turnkey portion of the job is, the overall weighted average margin on an air pollution control project can range from 30 to 50 percent. So they range is quite sizable and from quarter to quarter depending on the mix of projects that we have we can fall anywhere in that range.

Okay. Lastly relative to '04 guidance for total company, was it correct that you would expect the APC revenues to be approximately at the same dollar level as FUEL CHEM and then total company revenues roughly flat year over year?

That is correct, that is correct. That is the way we see things as of today. As we talk to all of a time, a lot of our business in terms of reporting our results is extraordinarily timing related quarter to quarter depending on the start up of either on new FUEL CHEM sites or the timing when we do realize a project booking on the air pollution control side of the business, we can definitely have some shifts in our result. But the way we see things today for '04, basically the full year, we are expecting flat to slightly higher on the revenue line with equal contributions from each of the businesses.

As it relates to the timing of APC bookings and revenues, would you then -- if you are assuming the second half is going to pick up in bookings are those units not going to be installed until the winter or spring downtime, and so that you wouldn't get the revenues from those bookings if they pick up in the second half?

Exactly, that is the way that would work. Again, depending on the timing of when we get the booking, depending on the customer specific requirements for when they're looking to take an outage to have their work done. In all likelihood we would realize some revenues in 2004 from bookings that we receive say early in the third quarter of 2004 but then we would have a good portion also fall into 2005.

Okay, good. Thank you.

David Fondrie from Heartland Funds.

Just talking about the two trials that you are entering into, can you give us some sense of how long you anticipate those trials to continue? Is it like three months for them to establish results, six months?

Typically those demonstrations are set up for 90 days. There's a lot of data to be collected. It is apparent much sooner than that that you're seeing good results. However, to collect all the data necessary and to really put dollars and cents to the whole project, 90 days is pretty typical.

In those demonstrations are you typically bearing the cost of the FUEL CHEM or are you sharing that cost with the utility?

Typically it is a risk share. It can vary 50/50, 60/40. It just depends on the individual situation, but as the technology is not "institutionalized" as of yet, we are still sharing risk but that has been very successful so far in that way we haven't given up any of that risk money.

You mentioned that there were -- that you expect to have units that are operating at a previous customer to come back online.

Actually what I said was we were going to be expanding at some of the sites that we are already into. In other words, one particular site has three units. We are only on two. We plan on being on a third next quarter. So that is really what I meant, from an expansion at existing sites.

Unlike the Western Farmers, are those not under contract to existing sites?

They are but we are expanding, again Western Farmers is unusual in that it is a single unit.

Right, so you are expanding to an additional site. Does that mean -- do they take the boiler down for you install the equipment or is it already installed on that expansion?

Again remember that really the only installation requirement is installing the injector which is a pretty short situation. So everything can be in place, the pumping equipment, storage, etc. can be in place when the unit is running. It takes a very short shutdown. So it isn't like we need a major turnaround to install the equipment. If it is a situation where there is a severe slagging issue and they require a shutdown because of that, that is a perfect time to do it.

So it is a little different than the demo units?

That is right.

Can use tell us, or at least give us some indication, the Martin Marietta acquisition, revenues are being accounted in the FUEL CHEM numbers that you are giving us?

That is correct.

Roughly what was the contribution on the revenue line of the Martin Marietta?

Since we basically started in the fourth-quarter of '03, we really didn't have a large impact from that customer base in '03. Ballpark-ish figure, approximately $300,000 in '03, but we are expecting a significant improvement from Martin Marietta in '04. Our transition with their customer base has gone extremely well and we only expect that to improve.

And Vince, that would suggest that FUEL CHEM revenues were down in the fourth quarter versus the third quarter. Can you give us some sense -- is that just a --.

Basically they were down slightly, yes. Typically what happens is as we move into say the late fall or even springtime is utilities -- will actually take their utilities down for normal maintenance operations, just to go ahead and maintain their facilities to ensure that they operate properly during their peak times. So we did experience a little bit of that in the fourth quarter that impacted the FUEL CHEM business. Again to a small degree I wouldn't say to a large degree.

Great, thank you.

Jim Darling (ph) with Jeffries Capital Partners.

I would just like to ask some variations of the subject matter you have been discussing. If the full year is as you have described, roughly middle 30 million with an equal contribution from each division, what will be -- and given that is parameter number one, what would be the run rate on an annual basis as you go out of the year with each business? And as you think about that, I'm interested in focusing on two big picture questions.

One, I seem to recall that when the APC business finally starts and all of the utilities are meeting the requirements of the legislation, that over a three-year period that market could be as much as $100 to $120 million. Is that still a realistic number? Then on the FUEL CHEM side, looking at all of the boilers, these 130 boilers and some reasonable market share as we go forward, I seem to recall that that market could have been in excess of $100 million. So would you address all of those, please?

Yes, let's start with the air pollution control, and your numbers are correct for the next three years that it could be in the 100 to $120 million range. FUEL CHEM, again, we have estimated, and it is an estimate because it is an unsold market, that the market for this particular business primarily oriented to the Western coal side is roughly 200 million. So it is hard for me to say exactly what the run rate is going to be by the end of 2004, but it will be significantly higher than it is today based on the size of the units that we're going to be demonstrating on and the anticipation of expanding in those facilities.

So I guess -- it is very difficult to predict what 2005, '6, '7 is going to look like, but the potential for significant growth between now and 2008 on both sides of our business is very good.

Is there anything on the APC side since this has been an area that starts and stops and starts and stops largely beyond your control with what's happened coming out of Washington with legislation massaging, is there anything on that front that you can envision that would cause yet another postponement? Or once we start in earnest beginning sometime in the late second quarter that it just will ramp up for the subsequent 36 months?

No, we don't see anything on the horizon, Jim, that is going to interfere with what we see coming in the next three years. What is difficult to predict is, let's say that $100 million that you mentioned that I confirmed, it is hard to say exactly if it is going to be 30, 30, 30. It is hard to say how that is going to fall, but we do not see anything on the legislative side that is going to interfere with what is in place today.

Who knows on this next rule, I mentioned there is a draft that has been put out by the EPA that is going to be the next expansion of the SIP Call late this decade. Who knows exactly what that is going to look like or when it is going to implement. Today it is projected to implement to be a requirement for 2010 which means revenue starts 2008 or so, but who knows. That I don't even want to comment on with any surety, but what is in place today we are very confident that it is going to stay in place.

Okay, one last question. If you mentioned it before I apologize, I missed it. On the technology product side what were the costs that you incurred or how much per share did it cost you to be in this start up phase in 2003?

I would say that in 2003 -- I assume you're referring to the ACUITIV business, correct?

That is correct.

I would say in the three to four cent range is what we are talking about approximately.

And that was for the year?

That is correct.

Thank you very much.

Tony Campbell (ph) from Knott (ph) Partners.

If you commented on this I apologize, but I have been on another conference call. Could you talk about the international marketplace a bit and specifically Mexico? If you have already talked about Mexico I would be glad to do this afterwards.

I would be glad to address it. The only thing I said about Mexico is that we are in discussions with a partner who I am very optimistic about this group being the right people to deal with in Mexico, which is a very important step. As far as the market is concerned there is well over 30,000 megawatts of heavy fuel oil fired capacity in Mexico that if you have looked at the big picture that would be the total market. I think you are probably somewhere between $20 and $35 million if you had the whole thing.

There is severe, severe problems because of the quality or lack thereof of the oil that they burn. It is very high in sulfur. It is high in other materials that cause mopacity (ph) issues, that cause slagging issues. The trick is getting into the marketplace in the right way. We know that we're going to have to go through a partner and we are aggressively pursuing that because the market is very attractive to us. So that's Mexico. I think the rest of international marketplace is something we are also giving a lot of thought to from the perspective of, we know we can't run over to the Pacific and create an infrastructure to take advantage of what we consider to be a very large potential.

It just wouldn't happen. So we are looking again for the right type of partner who has the infrastructure and the reputation in that area that we can partner with to create some kind of an alliance or reseller agreement, or we are pretty wide open as to some ideas, but we are in fact pursuing those options because the market in the Pacific, in South America, in Europe we are really limited to our resources to the southern part of that continent. But there is a lot more there besides that. We're trying to find a global partner that can help us. I couldn't give you an exact dollar figure on what is out there internationally other than I think we are pretty close on Mexico.

Thanks a lot.

(OPERATOR INSTRUCTIONS). David Fondrie with Heartland Funds.

Could you update us at all on your relationship with Peabody and whether or not that has resulted in any opportunities for FUEL CHEM?

Interesting question. So far other than some introductions and I think an enhancement in credibility because of their reputation in the marketplace, there hasn't been a whole lot. However, interesting you should bring that up because within the next few days there are going to be a couple of meetings that are scheduled, that the instigation of those meetings were from Peabody because they are seeing some potential issues where they feel we might be able to help. I can't really give you much more detail than that because I don't know it yet other than that is the call we recently received.

Thank you.

(OPERATOR INSTRUCTIONS). As there are no further questions I will now turn the call back to Steve Argabright for closing comments.

I want to thank everyone who is listening and appreciate your interest in Fuel Tech very much. Thank you again.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.