Note L - Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

Note L:                      Contingencies

Fuel Tech issues a standard product warranty with the sale of its products to customers.  Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.

Changes in the warranty liability for the six months ended June 30, 2011 and 2010 are summarized below:

	Six Months Ended June 30:
	2011			2010
Aggregate product warranty liability at beginning of period	$	215		$	199
Net aggregate expense related to product warranties		100			60
Aggregate reductions for payments		(112	)		(57	)
Aggregate product warranty liability at end of period	$	203		$	202

In 2009 the Company recorded a contingent consideration accrual representing the fair value of the future consideration to be paid in connection with its acquisition of substantially all of the assets of Advanced Combustion Technology, Inc. (ACT).  The contingent consideration arrangement required the Company to pay ACT a pro-rata amount of up to $4,000 annually for the achievement of a minimum annual gross margin dollar level (the Hurdle) of $10,000, $11,000, and $12,000 in fiscal 2009, 2010, and 2011, respectively.  In addition, the agreement required the Company to pay ACT thirty-five percent of all qualifying gross margin dollars above the annual Hurdle rate for each of the three years.  The potential undiscounted amount of all future payments that the Company could be required to make is between $0 and $4,000 in any one year, and $0 and $12,000 in total, not including the amount related to the thirty-five percent sharing of qualifying gross margin dollars above the pre-determined Hurdle.  The fair value of the contingent consideration at inception was $2,307, which was recorded as a liability when the business combination was initially recorded.

The Company periodically evaluates the probability that payment of the contingent consideration accrual is probable based on a range of outcomes and assumptions used to develop the fair value estimate.  Based upon this analysis, management concluded during the quarter ended June 30, 2011 that the payout for 2011 was not probable of being made.  Thus, the Company recorded a gain of $758 from the revaluation of the contingent liability.  A similar adjustment was made in the two preceding years for $781 and $768, respectively. As of June 30, 2011, there is no contingent liability accrual remaining.