Fuel Tech Reports Third-Quarter Results; Net Income Doubles on 57% Revenue Gain.

BATAVIA, Ill. -- Fuel Tech, Inc. (Nasdaq: FTEK), a world leader in advanced engineering solutions for the optimization of combustion systems in utility and industrial applications, today reported results for the quarter and nine-month period ended September 30, 2006.

Net sales for the third quarter increased 57% to a record $20.2 million, up $7.4 million from the comparable prior-year quarter. Net income totaled $2.1 million, or $0.09 per diluted share, compared with $1.0 million, or $0.05 per diluted share, in the same year-ago quarter.

Net sales for the nine months rose 56% to $57.1 million, up $20.4 million from the comparable year-earlier period. Pre-tax income totaled $9.4 million, a gain of 97% versus the $4.8 million recorded in the comparable 2005 period. Net income for the nine months totaled $5.4 million, up slightly from the $5.0 million posted a year ago, while net income per diluted share was $0.22, unchanged from the year-earlier period, when there were fewer shares outstanding.

Results for the third quarter and first nine months of 2006 reflect $1.6 million and $4.1 million in income tax expense, respectively, virtually all of which is non-cash. Net income for the first nine months of 2005 was favorably affected by the recording of a one-time $2.2 million non-cash tax benefit related to the anticipated utilization of net operating loss carryforwards.

The increases in net sales for the quarter and nine-month period reflect strong gains in the Company's two technology segments. The air pollution control (APC) technology segment benefited from a step-up in revenues associated with two nitrogen oxide control projects to be installed in the People's Republic of China and from ongoing progress in completing orders for a variety of domestic utility and industrial customers. Quarterly and nine-month sales for the fuel treatment chemicals technology segment also advanced strongly as new customer accounts began to ramp-up at major coal-fired electric utility plants in the Midwest and Southeastern U.S. Partially offsetting these gains was the adverse effect of high crude oil prices, which continues to depress the use of fuel treatment programs at selected oil-fired generating units.

Company-wide gross margins averaged 50% during the third quarter of 2006, unchanged from the prior-year level. Margins for the fuel treatment chemicals segment increased from 49% a year ago to 58% in the current quarter, in part reflecting the timing of revenue recognition on cost-share demonstrations. Margins for the APC segment declined from 51% a year ago to 44% in the current quarter due to shifting project mix.

Selling, general and administrative expenses rose $2.0 million, or 48%, and $5.6 million, or 47%, in the third quarter and first nine months of 2006, respectively. These increases reflect several factors, including greater revenue-related expenses; increased staffing levels and associated costs to support customer requirements; utilization of outside services to assist in the Company's domestication to a U.S. corporation; and the recording of stock-based compensation expense, reflecting the January 1, 2006 adoption of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." Stock compensation expense totaled $287,000 in the third quarter and $1,353,000 for the first nine months.

"This has been another superlative quarter for our Company," commented John F. Norris Jr., President and Chief Executive Officer. "We again achieved record revenues, doing so for a fifth consecutive reporting period. Moreover, our year-to-date revenues and pre-tax income has already surpassed results for all of 2005, our previous best full year. We continue to be extremely active in quoting new business in the United States and abroad and are benefiting particularly from the commencement of new slag and SO3 control programs amongst our growing customer base. Organizationally, we are pleased to have officially become a U.S. company on September 30 and believe this will further broaden our appeal to the investment community."

Mr. Norris concluded, "Based on the current outlook for the balance of the year, we are again raising our revenue guidance for 2006, from $68 - $72 million to $70 - $74 million."

Conference Call

As a reminder, Fuel Tech will host a conference call today at 9:00 AM ET to discuss the results. The call will simultaneously be broadcast over the Internet at www.fueltechnv.com and can be accessed on the Home page under "Quick Links." The call can also be accessed by dialing 866.700.6067 (domestic) or 617.213.8834 (international) and using the passcode "Fuel Tech." A replay of the call will be available on the website and can be accessed by dialing 888.286.8010 (domestic) or 617.801.6888 (international) and using the passcode "12295117". The replay will be available until November 28, 2006.

About Fuel Tech

Fuel Tech is a leading technology company engaged in the worldwide development, commercialization and application of state-of-the-art proprietary technologies for air pollution control, process optimization, and advanced engineering services. These technologies enable customers to produce both energy and processed materials in a cost-effective and environmentally sustainable manner.

The Company's nitrogen oxide (NOx) reduction technologies include the NOxOUT([R]), NOxOUT CASCADE([R]), NOxOUT ULTRA([R]), Rich Reagent Injection (RRI) and NOxOUT-SCR([R]) processes. These technologies have established Fuel Tech as a leader in post-combustion NOx control systems, with installations on over 400 units worldwide, where coal, municipal waste, biomass, and other fuels are utilized.

The Company's FUEL CHEM([R]) technology revolves around the unique application of chemicals to improve the efficiency and reliability of combustion units by controlling slagging, fouling, corrosion and opacity. This technology, in the form of a customizable FUEL CHEM program, is being applied to over 80 combustion units burning a wide variety of fuels including coal, heavy oil, biomass, and municipal waste.

Many of Fuel Tech's products and services rely heavily on the Company's exceptional Computational Fluid Dynamics modeling capabilities, which are enhanced by internally developed, high-end visualization software. These capabilities, coupled with the Company's innovative technologies and multi-disciplined team approach, enable Fuel Tech to provide practical solutions to some of our customers' most challenging problems. For more information, visit Fuel Tech's web site at www.fueltechnv.com.

This press release may contain statements of a forward-looking nature regarding future events. These statements are only predictions and actual events may differ materially. Please refer to documents that Fuel Tech files from time to time with the Securities and Exchange Commission for a discussion of certain factors that could cause actual results to differ materially from those contained in the forward-looking statements.

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Note: Fuel Tech is an integrated company that segregates its financial results into two reportable segments, both providing advanced technology and engineering solutions for the optimization of combustion systems in utility and industrial applications. The "Other" classification includes those profit and loss items not allocated by Fuel Tech to each reportable segment.

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