UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 000-21724
--------------------
FUEL-TECH N.V.
(Exact name of registrant as specified in its charter)
Netherlands Antilles N.A.
- -------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
Fuel-Tech N.V. Fuel Tech, Inc.
(Registrant) (U.S. Operating Subsidiary)
Castorweg 22-24 Suite 703, 300 Atlantic Street
Curacao, Netherlands Antilles Stamford, CT 06901
(599) 9-461-3754 (203) 425-9830
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
As of July 26,November 1, 2002, there were outstanding 19,525,63519,612,067 shares of Common
Stock, par value $0.01 per share, of the registrant.
===========================================================================================================================================================
FUEL-TECH N.V.
Form 10-Q for the three-month period ended JuneSeptember 30, 2002
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2002 1
and December 31, 2001
Condensed Consolidated Statements of Operations for the Three and Six-Nine- 2
Month Periods Ended JuneSeptember 30, 2002 and 2001
Condensed Consolidated Statements of Cash Flows for the Three and Six-Nine- 3
Month Periods Ended JuneSeptember 30, 2002 and 2001
Notes to the Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUEL-TECH N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share data)
JuneSeptember 30, December 31,
2002 2001
--------------- ---------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,7148,169 $ 9,338
Accounts receivable, net 4,8368,422 5,368
Prepaid expenses and other current assets 1,3371,386 857
------------- ---------------
Total current assets 17,88717,977 15,563
Equipment, net of accumulated depreciation of
$4,739$4,905 and $4,222, respectively 1,7832,034 1,756
Goodwill, net of accumulated amortization of
$924 and $924, respectively 2,126 2,126
Other 820797 883
--------------- ---------------
Total assets $ 22,61622,934 $ 20,328
=============== ===============
Liabilities and stockholders' equity
Current liabilities:
Current portion of note payable $ 2,2502,025 $ 2,700
Accounts payable 3,1243,119 1,978
Deferred revenue -- 319
Accrued expenses 1,8141,950 1,705
--------------- ---------------
Total current liabilities 7,1887,094 6,702
Other liabilities 421383 491
--------------- ---------------
Total liabilities 7,6097,477 7,193
Stockholders' equity:
Common stock, par value $0.01 per share,
authorized 40,000,000 shares, 19,518,63519,612,067
and 18,984,097 shares issued, respectively 195196 190
Additional paid-in capital 90,24890,312 87,720
Accumulated deficit (74,866)(74,487) (76,207)
Accumulated other comprehensive loss (4)income (loss) 2 (68)
Treasury stock (1,098) (1,098)
Nil coupon perpetual loan notes 532 2,598
--------------- ---------------
Total stockholders' equity 15,00715,457 13,135
--------------- ---------------
Total liabilities and stockholders' equity $ 22,61622,934 $ 20,328
=============== ===============
See notes to condensed consolidated financial statements.
1
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of U.S. dollars, except share data)
Three Months Ended SixNine Months Ended
JuneSeptember 30 JuneSeptember 30
2002 2001 2002 2001
---------- ---------- ---------- ------------------------------- ---------------------
Net sales $ 8,0218,033 $ 4,7414,194 $ 13,24221,275 $ 7,89612,090
Costs and expenses:
Cost of sales 4,130 2,225 6,713 3,9424,462 1,984 11,175 5,926
Selling, general and administrative 2,653 2,065 5,008 4,1322,717 2,073 7,725 6,205
Research and development 354 317 647 556
---------- ---------- ---------- -----------394 295 1,041 851
--------- --------- --------- ---------
Operating income (loss) 884 134 874 (734)
Income (loss)460 (158) 1,334 (892)
(Loss) income from equity interest in affiliates (15) (56) 223 (174)(27) (93) 196 (267)
Interest expense (34) (66) (77) (138)(37) (56) (114) (194)
Other (expense) income, net 194 59 271 75
---------- ---------- ---------- -----------(17) 51 254 126
--------- --------- --------- ---------
Income (loss) before taxes 1,029 71 1,291 (971)379 (256) 1,670 (1,227)
Income taxes -- -- 50 --
---------- ---------- ---------- -------------------- --------- --------- ---------
Net income (loss) $ 1,029379 $ 71(256) $ 1,3411,720 $ (971)
========== ========== ========== ===========(1,227)
========= ========= ========= =========
Net income (loss) per common share:
Basic $ .05.02 $ .00(.01) $ .07.09 $ (.05)
========== ========== ========== ===========(.07)
========= ========= ========= =========
Diluted $ .05.02 $ .00(.01) $ .06.08 $ (.05)
========== ========== ========== ===========(.07)
========= ========= ========= =========
Average number of common shares outstanding:
Basic 19,310,000 18,537,000 19,247,000 18,526,00019,454,000 18,558,000 19,299,000 18,530,000
========== ========== ========== ==========
Diluted 22,733,000 20,684,000 22,675,000 18,526,00022,422,000 18,558,000 22,565,000 18,530,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
2
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of U.S. dollars)
SixNine Months Ended
JuneSeptember 30
2002 2001
------------------------------
Operating activities
Net cash (used in) provided by
operating activities $ 2,654(298) $ 1,634
-------------2,216
-------------- -------------
Investing activities
Repayment from/(loan to) affiliate 250 (125)
Proceeds from sale of equipment 17 --
Purchases of equipment and patents (598) (469)(1,026) (608)
-------------- -------------
Net cash used in investing activities (331) (594)(759) (733)
-------------- -------------
Financing activities
Exercise of stock options 465 48530 100
Purchase of treasury shares - (39)
Repayment of borrowings (450) (450)(675) (675)
------------- ---------------------------
Net cash provided by (used in)used in
financing activities 15 (402)
-------------(145) (614)
-------------- --------------
Effect of exchange rate fluctuations on cash 38 (72)33 (12)
------------- --------------
Net (decrease) increase in cash and
cash equivalents 2,376 566(1,169) 857
Cash and cash equivalents at beginning
of period 9,338 8,987
------------- -------------
Cash and cash equivalents at
end of period $ 11,7148,169 $ 9,5539,844
============= =============
See notes to condensed consolidated financial statements.
3
FUEL-TECH N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2002
(Unaudited)
Note A: Basis of Presentation
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the results of operations for the periods covered have been
included. Operating results for the six-monthnine-month period ended JuneSeptember 30, 2002,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The balance sheet at December 31, 2001, has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in Fuel-Tech N.V.'s annual report on Form 10-K
for the year ended December 31, 2001.
Fuel-Tech N.V., including its subsidiaries (the "Company"), is a
technology company active in the business of air pollution control through its
wholly owned subsidiary Fuel Tech, Inc. ("FTI") and its affiliate Clean Diesel
Technologies, Inc. ("CDT"). Fuel-Tech N.V., incorporated in 1987 under the laws
of the Netherlands Antilles, is registered at Castorweg 22--24 in Curacao under
No. 1334/N.V.
Note B: Close of German Subsidiary
In the second quarter of 2000, the Company announced that it would
concentrate its European resources in its Italian company, Fuel Tech Srl, and
shut down Fuel Tech GmbH, a wholly owned subsidiary in Germany. At that time, a
charge of $528,000 was recorded related to the closure of the entity. The charge
included accruals of $343,000 primarily for severance obligations for four
employees, lease termination costs and other costs related to the closure of the
entity. As of June 30, 2002, all closing costs, which approximated the accrual
balance, have been paid.
4
Note C:B: Earnings Per Share Data
Basic earnings per share excludes the dilutive effects of stock options
and warrants and of the nil coupon non-redeemable convertible unsecured loan
notes. Diluted earnings per share includes the dilutive effect of stock options
and warrants and of the nil coupon non-redeemable convertible unsecured loan
notes. The following table sets forth the weighted-average shares (in thousands)
used in calculating the earnings per share for the three and six-monthnine-month periods
ended JuneSeptember 30, 2002 and 2001:
Three months ended SixNine months ended
2002 2001 2002 2001
---------------------- ---------------------------------------- --------------------
Basic weighted-average shares 19,310 18,537 19,247 18,52619,454 18,558 19,299 18,530
Conversion of unsecured loan notes 85 471-- 85 --
Unexercised options and warrants 3,338 1,676 3,3432,883 -- ----------------------3,181 --
--------------------- --------------------
Diluted weighted-average shares 22,733 20,684 22,675 18,526
====================== ===================22,422 18,558 22,565 18,530
===================== ====================
Note D:C: Total Comprehensive Income (Loss)
Total comprehensive income (loss) for the Company is comprised of net
income (loss), the impact of foreign currency translation, and the change in
fair value of the interest rate swap for the three and six-monthnine-month periods ended
March 31 and JuneSeptember 30, 2002 and 2001. Total comprehensive income (loss) was $1,077,000$385,000 and
$38,000$(206,000) for the three-month periods ended JuneSeptember 30, 2002 and 2001,
respectively. Total comprehensive income (loss) was $1,405,000$1,790,000 and $(1,083,000)$(1,289,000)
for the six monthnine-month periods ended JuneSeptember 30, 2002 and 2001, respectively.
For the three months ended June 30 For the sixnine months ended
JuneSeptember 30 September 30
------------------------------------------ ---------------------------------------
2002 2001 2002 2001
------------------ ------------------- ----------------- -----------------
Comprehensive income (loss):
Net income (loss) $ 1,029,000379,000 $ 71,000 $1,341,000(256,000) $1,720,000 $ (971,000)(1,227,000)
Foreign currency translation 36,000 (33,000) 38,000 (72,000)(6,000) 60,000 32,000 (12,000)
Change in fair value of
interest rate swap 12,000 -- 26,000 (40,000)(10,000) 38,000 (50,000)
------------------ ------------------- ----------------- -----------------
$ 1,077,000385,000 $ 38,000 $1,405,000 $(1,083,000)(206,000) $1,790,000 $ (1,289,000)
================== =================== ================= =================
5
Note E:D: Derivative Financial Instruments
Interest Rate Risk Management:
The Company is exposed to interest rate risk due to its long-term debt
arrangement. The Company uses an interest rate derivative instrument (an
interest rate swap) to manage exposure to interest rate changes. The Company has
entered into an interest rate swap transaction that fixes the rate of interest
at 8.91% on approximately 50% of the outstanding principal balance during the
term of the loan. The term of the swap is from October 22, 1999 until October
22, 2002.
At December 31, 2001, the fair value of the interest rate swap was a
credit of approximately $42,000, and was recorded as an "other liability" with a
corresponding decrease to "accumulated other comprehensive income."
As of JuneSeptember 30, 2002 the Company has increased the fair value of
the interest rate swap by $26,000,$38,000, thus decreasing the "other liability" with a
corresponding increase to "accumulated other comprehensive income" for this
amount. The impact of the ineffectiveness calculation for all periods presented
was immaterial.
Foreign Currency Risk Management:
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. The Company does not enter into
foreign currency forward contracts or into foreign currency option contracts to
manage this risk due to the immaterial nature of the transactions involved.
6
Note F:E: Accounting for Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted FASB (Financial
Accounting Standards Board) Statement No. 142, "Goodwill and Other Intangible
Assets." Under the guidance of this statement, goodwill and indefinite-lived
intangible assets are no longer amortized, but are reviewed for impairment
annually, or more frequently, if impairment indicators arise. For the sixnine
months ended JuneSeptember 30, 2001, the Company recorded goodwill amortization of
$167,000.$250,000.
For the sixnine months ended
JuneSeptember 30
------------------------------------------
2002 2001
------------------ -------------------
Reported net income (loss) $ 1,341,000 $ (971,000)$1,720,000 $(1,227,000)
Add back: Goodwill amortization -- 167,000250,000
------------------ -------------------
Adjusted net income (loss) $1,341,000 $(804,000)$1,720,000 $ (977,000)
================== ===================
Basic earnings per share:
Reported net income (loss) $ .07.09 $ (.05)(.07)
Add back: Goodwill amortization -- .01.02
------------------ -------------------
Adjusted net income (loss) $ .07.09 $ (.04)(.05)
================== ===================
Diluted earnings per share:
Reported net income (loss) $ .06.08 $ (.05)(.07)
Add back: Goodwill amortization -- .01.02
------------------ -------------------
Adjusted net income (loss) $ .06.08 $ (.04)(.05)
================== ===================
The Company has completed Step 1 of the transitional goodwill
impairment test as of January 1, 2002, and there is no evidence of impairment.
Further, the estimated amortization expense related to the Company's
intangible patent assets is expected to approximate $40,000 per year for the
five-year period ending December 31, 2006.
Note G:F: Debt
Fuel Tech, Inc. (FTI) has a $6.0 million revolving credit facility
expiring January 31, 2003, which is collateralized by all personal property
owned by FTI. FTI can use this facility for cash advances and standby letters of
credit. Cash advances under this facility bear interest at the bank's prime
rate, or at an optional rate that can be selected by FTI which is based on the
bank's Interbank Offering Rate plus 2.25%.
Also, FTI has entered into a term loan agreement with the same bank for
a total principal balance of $4.5 million. The principal balance was to be
repaid in quarterly installments of $225,000 commencing on December 31, 1999,
with a final principal payment of $1,575,000 due on January 31, 2003. Further,
FTI entered into an interest rate swap transaction that fixes the rate of
interest at 8.91% on approximately 50% of the outstanding principal balance
during the term of the loan. This swap expired on October 22, 2002. The
remaining principal balance bears interest at the bank's prime rate, or an
optional rate that can be selected by FTI, and is based on the bank's Interbank
Offering Rate plus 2.25%. The borrowings under this facility are collateralized
by all personal property owned by FTI.
7
Note H:G: Business Segment and Geographic Disclosures
The Company operates in one business segment providing air pollution
control chemicals and equipment.
Information concerning the Company's operations by geographic area is
provided below. Operating earnings represent sales less cost of products sold
and operating expenses. Foreign operating expenses include direct expenses
incurred outside of the United States by foreign corporations controlled by the
Company plus an allocation of selling and general expenses incurred in the
United States that are directly related to the foreign operations. Assets are
those directly associated with operations in the geographic area.
For the three months ended June 30 For the sixnine months ended
JuneSeptember 30 September 30
------------------------------------------ ---------------------------------------
2002 2001 2002 2001
------------------ ------------------- ----------------- ------------------
Revenues:
United States $ 7,375,0007,176,000 $ 3,597,000 $11,978,000 $6,077,0003,287,000 $19,154,000 $ 9,364,000
Foreign 646,000 1,144,000 1,264,000 1,819,000857,000 907,000 2,121,000 2,726,000
------------------ ------------------- ----------------- ------------------
$ 8,021,0008,033,000 $ 4,741,000 $13,242,000 $7,896,0004,194,000 $21,275,000 $12,090,000
================== =================== ================= ==================
Operating Earnings:
United States $ 1,037,000517,000 $ (50,000)(150,000) $ 1,041,000 $ (899,000)1,558,000 $(1,049,000)
Foreign (153,000) 184,000 (167,000) 165,000(57,000) (8,000) (224,000) 157,000
------------------ ------------------- ----------------- ------------------
$ 884,000460,000 $ 134,000(158,000) $ 874,0001,334,000 $ (734,000)(892,000)
================== =================== ================= ==================
JuneSeptember 30, December 31,
2002 2001
------------------ -------------------
Assets:
United States $21,206,000$21,031,000 $18,952,000
Foreign 1,410,0001,903,000 1,376,000
------------------ -------------------
$22,616,000$22,934,000 $20,328,000
================== ===================
8
FUEL-TECH N.V.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the three months ended JuneSeptember 30, 2002 and 2001 were
$8,021,000$8,033,000 and $4,471,000,$4,194,000, respectively, while net sales for the sixnine months
ended JuneSeptember 30, 2002 and 2001 were $13,242,000$21,275,000 and $7,896,000,$12,090,000,
respectively. The improvement is attributable to the increase in domestic NOx
reduction industrial
and utility project revenues, as project bookings in the fourth quarter of
2001 and the first quarter of 2002 are generating revenues during their earlyvarious
phases of completion. NOx reduction utility revenue in 2001 had been negatively
impacted by the delay in obtaining a final ruling on the Environmental
Protection Agency's (EPA) SIP (State Implementation Plan) Call regulation. As
discussed further below, the uncertainty regarding this regulation has been
lifted and the Company expects demand for its NOx reduction technologies to
continue to increase significantly during the next few years. Fuel treatment
chemical revenues for the six-monthnine-month period ended JuneSeptember 30, 2002 werecontinued
to be favorably impacted by shipments to utilities burning Western coals. The
Company believes that utilities burning Western coals represent the largest
market opportunity for its fuel treatment chemical business and that penetration
into this market is a priority. In addition to shipments to PacifiCorp, the
Company's strategic agreement partner, there was a successful demonstration on an additionala
midwestern coal-fired utility boiler. This demonstration has thus far
successfully proven its effectiveness on Powder River Basin coal, andboiler is now in a long-term optimization phase. Further,phase,
and an additional demonstrationsdemonstration on another midwestern coal-fired utility boilers in the West and Midwest are expected to commenceboiler
commenced before the end of the third quarter. All of these utilities are using
the Company's patented Targeted-In-Furnace-Injection (TIFI) process to control
the formation of slag deposits in boilers burning western coals. Offsetting the
strong performance in the Western coals segment of the fuel treatment chemical
market, was athe continued deterioration in the oil-fired business as the high
price of oil vis a vis natural gas has caused customers in this segment to
switch fuels, negatively impacting results.
The "SIP Call" is the federal mandate that, when introduced in 1998,
required 22 states to reduce NOx emissions by May 2003. This mandate was an
extension of Phase II of Title I of the CAAA. In May 1999 a stay was imposed on
this regulation. On March 3, 2000, an appellate court of the D.C. Circuit upheld
the validity of the SIP Call for 19 of the 22 states and, on June 22, 2000, the
same court made a final ruling upholding the EPA's SIP call regulation and
denying the appeal of the states and utilities. Subsequent to this court ruling,
the stay on the SIP Call was lifted. Although the NOx reduction requirement date
was moved back one year to May of 2004, nineteen states were required to
complete and issue their State Implementation Plans for NOx reduction by October
of 2000. These plans, which the EPA had until October 2001 to approve, will
potentially impact 700 to 800 utility boilers and 400 to 500 large industrial
units.
In February 2001, the United States Supreme Court, in a unanimous
decision, upheld EPA's authority to revise the National Ambient Air Quality
Standard for ozone to 0.080 parts per million averaged through an eight-hour
period from the current 0.120 parts per million for a one-hour period. This more
stringent standard provides clarity and impetus for air pollution control
efforts well beyond the current ozone attainment requirement of 2007. In keeping
with this trend, the Supreme Court, only days later, denied industry's attempt
to again stay the SIP Call, effectively exhausting all means of appeal.
Based on these regulatory developments, the Company is enjoying
accelerated interest in its programs that have led to significant project
bookings late in 2001 and early in 2002, and anticipates strong demand for its
air pollution control technologies over the next several years.
Cost of sales, as a percentage of net sales deteriorated slightly for the secondthird quarter and
for the first half of the year versusnine-month periods ended September 30, 2002, is greater than the same periods of
the prior year. This simplyThe increase reflects a change in product mix in favor of the
lower margin NOx reduction project business.business versus the prior year.
9
Selling, general and administrative expenses were $2,653,000$2,717,000 and
$2,065,000,$2,073,000, respectively, for the three months ended JuneSeptember 30, 2002 and
2001, and were $5,008,000$7,725,000 and $4,132,000,$6,205,000, respectively for the sixnine months ended
JuneSeptember 30, 2002 and 2001. The increase is due primarily to revenue-related
expenses, as revenue increased significantly from the prior year, and
secondarily to the additionaladdition of sales personnel for the fuel treatment chemical
business. As noted above, proliferationmarket penetration of the Company's TIFI technology is
a strategic priority.
Research and development expenses for the quarter and sixnine months ended
JuneSeptember 30, 2002 increased over the first six monthssimilar periods of 2001 as the Company
continues to pursue commercial applications for its technologies outside of its
traditional markets, with a particular focus on its Virtual Vantage(TM) advanced
visualization software and its NOxOUT Ultra process. On June 6, 2002, theThe Virtual Vantage
software product was commercially introduced. Theintroduced on June 6, 2002, and the Company
recently received its first commercial order for the software from one of its
beta sites. Although this confirms the validity of the product, the Company does
not expect revenues related to this product to be material infor the second halfremainder of
the year.
The Company recorded losses of $27,000 and $54,000, respectively, for
the quarter and nine months ended September 30, 2002 on its investment in Fuel
Tech CS GmbH (FTCS), a 49 percent-owned entity. For the quarter ended March 31,
2002, the Company recognized a gain of $250,000 on its equity investment in
Clean Diesel Technologies, Inc. (CDT), its 1615 percent-owned affiliate. The gain
resulted from CDT's repayment of the full principal amount of loans made by the
Company to CDT in 2000 and 2001. Because of the continuing losses incurred by
CDT, the carrying value of the loans was reduced to zero as of December 31,
2001, based on the Company's pro-rata share of the losses incurred. In addition, the Company recorded losses of $15,000 and
$27,000, respectively, for the quarter and six months ended June 30, 2002 on its
investment in Fuel Tech CS GmbH (FTCS), a 49 percent-owned entity. During the
quarter and sixnine months end Juneended September 30, 2001, the Company recognized losses
of $56,000$17,000 and $49,000,$66,000, respectively on its equity investment in FTCS. A lossFTCS, while
losses of $125,000 was$76,000 and $211,000 were recorded in the first quarter of 2001 on the Company's investment in CDTI.CDT
for the similar periods.
Interest expense for the second quarter and sixnine months ended JuneSeptember 30,
2002 was reduced from the comparable periods in 2001, the decrease being
attributable to a reduction in the average outstanding principal balance on the
Company's term loan, as well as to a reduction in short term interest rates.
The decline in other income and (expense) for the quarter ended
September 30, 2002 was due primarily to a reduction in interest income from the
similar period of the prior year resulting from the decrease in short-term rates
noted above. The increase in other income infor the second quarter and sixnine months ended JuneSeptember
30, 2002 fromversus the comparable periodsperiod in 2001 stems largely from the elimination
of goodwill amortization effective January 1, 2002.2002, which has been offset
somewhat by reductions in interest income.
An income tax benefit of $50,000 was recorded in the first quarter of
2002, which represented a reduction in the reserve for prior years' state income
tax refunds receivable. No provision for federal or state income taxes was
recorded in any period due to the existence of net operating loss carryforwards.
Liquidity and Sources of Capital
For the sixnine months ended JuneSeptember 30, 2002, the Company providedused cash fromfor
operating activities in the amount of $2,654,000,$(298,000), while $1,634,000$2,216,000 was provided
by operating activities infor the first half ofsame period in 2001. The slight use of cash generationfor
operating activities in the
first half of 2002 stems largely from the strong operating resultstiming of completion of the
business.NOx reduction projects. Although the Company recognizes revenue using the
percentage of completion method of accounting for long-term contracts, the
invoicing of customers typically occurs when specified contractual milestones
are achieved. The correlation between the two acts can vary from project to
project.
At JuneSeptember 30, 2002 and December 31, 2001, the Company had cash and
cash equivalents of $11,714,000$8,169,000 and $9,338,000, respectively, while working
capital for the same two periods of time was $10,699,000$10,883,000 and $8,861,000,
respectively.
As mentioned in Note F, the final principal payment on FTI's term
loan of $1,575,000 is due on January 31, 2003. FTI intends to repay or finance
this amount on terms favorable to the Company.
10
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See "Risk Factors of the Business" in Item 1, "Business," and also
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Company's Form 10-K for the year ended December 31, 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Please refer to Note D.
Item 4. Controls and Procedures
Within 90 days prior to the filing date of this report, the Company's
certifying officers performed an evaluation of the effectiveness of the
Company's disclosure controls and procedures. The disclosure controls and
procedures were determined to be sufficient to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which this quarterly report is being prepared.
There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual general meeting of the Company, held on June 5, 2002,
14,916,553 common shares, par $0.01 per share, or 77.33% of the issued and
outstanding common shares of the Company as of the record date, were represented
in person or by proxy, and:
(i) The proposal to approve the Report of Management of the Company for
the year ended December 31, 2001 was approved by a vote of 14,880,393 shares
cast for, 8,530 against and 27,630 abstaining;
(ii) The proposal to approve the Financial Statements of the Company
for the year ended December 31, 2001 was approved by a vote of 14,885,193 shares
cast for, 5,530 against and 25,830 abstaining;
(iii) The proposal to elect the eight nominees as Managing Directors
and to fix their compensation was approved by a vote with respect to each
individual nominee, as follows:
---------------------------------------------------------------------------------------------------
Name Votes for Votes Withheld
----------------------------------------------------------------------------------------------------
Douglas G. Bailey 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Ralph E. Bailey 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Miguel Espinosa 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Charles W. Grinnell 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Samer S. Khanachet 14,903,258 13,295
----------------------------------------------------------------------------------------------------
John R. Selby 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Thomas S. Shaw 14,903,258 13,295
----------------------------------------------------------------------------------------------------
Tarma Trust Management N.V. 14,435,058 481,495
----------------------------------------------------------------------------------------------------
(iv) The proposal to approve the appointment of Ernst & Young LLP as
independent auditors for the year 2002 and to authorize the Managing Directors
to approve their compensation was approved by a vote of 14,892,553 shares cast
for, 7,780 against and 16,221 abstaining.None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
12
FUEL-TECH N.V.
SIGNATURES & CERTIFICATESCERTIFICATIONS
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The undersigned in their capacities as Chief Executive Officer and
Chief Financial Officer of the Registrant do hereby certify that:
(i) this report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(ii) information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant as of, and for, the periods presented in the report.
Date: August 6,November 1, 2002 By: /s/ Ralph E. Bailey
-------------------------------------------------
Ralph E. Bailey
Chairman, Managing Director
and Chief Executive Officer
Date: August 6,November 1, 2002 By: /s/ Scott M. Schecter
---------------------------------------------------
Scott M. Schecter
Chief Financial Officer,
Vice President and
Treasurer
I, Ralph E. Bailey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fuel-Tech N.V.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules l3a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
13
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 1, 2002 By: /s/ Ralph E. Bailey
-------------------
Ralph E. Bailey
Chairman, Managing Director
and Chief Executive Officer
I, Scott M. Schecter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fuel-Tech N.V.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules l3a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
14
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 1, 2002 By: /s/ Scott M. Schecter
---------------------
Scott M. Schecter
Chief Financial Officer,
Vice President and
Treasurer
15