January 12, 2007
Securities and Exchange Commission
Washington D.C. 20549-7010
Attn: | Rufus Decker |
Accounting Branch Chief
Mail Stop 7010
Gus Rodriguez
Staff Accountant
Re: | (1) Fuel Tech, Inc. File No. 1-33059 |
(2) Commission Correspondence dated December 19, 2006
(3) Phone discussion with Gus Rodriguez, Staff Accountant, on January 12, 2007
(4) Form 10-K for the fiscal year ended December 31, 2005
(5) Forms 10-Q for the quarters ended March 31, June 30 and September 30, 2006
Ladies and Gentlemen:
This letter is in response to the Staff comments in References (2) and (3) above. This letter has been filed by Fuel Tech, Inc. as an EDGAR correspondence file.
The paragraph numbers in this response below correspond directly to the comment numbers in the Commission Correspondence dated December 19, 2006.
FORM 10K FOR YEAR ENDED DECEMBER 31, 2005
1. Consolidated Statements of Income, page 19
SEC Staff Comment from Commission Correspondence dated December 19, 2006.
As noted on page 23, amortization of intangible assets are included in operating income. However, you excluded impairment losses of your intangible assets of $30,000 in 2005 and $113,000 in 2004 from operating income. Please tell us how you determined that it was appropriate to exclude the impairment losses from your operating income given the guidance of paragraph 42 of SFAS 142, paragraph 25 of SFAS 144 and Question 2 of SAB Topic 5:P.3.
SEC Staff Comment from Phone discussion on January 12, 2007
Please provide an example of the prospective disclosure that will be provided for the reclassification of the impairment losses in Fuel Tech’s 2006 report on form 10K.
Fuel Tech Response
Based on the guidance of Paragraph 25 of SFAS 144 and Question 2 of SAB Topic 5.P, Fuel Tech will reclassify on a prospective basis, commencing with Fuel Tech’s 2006 report on form 10K, the impairment losses recognized in 2005 and 2004 in the amounts of $30,000 and $113,000, respectively, in the consolidated statements of income from the line item “Other (expense) income, net” to the “Operating income” line item.
The table on the next page shows the before and after reclassification consolidated statements of income for the years ended December 31, 2005 and 2004, respectively. The numbers that are highlighted are those impacted by the reclassification.
In addition to the reclassification in the statements of income, Fuel Tech’s “Note 1: Organization and Significant Accounting Policies,” under the heading Goodwill and Other Intangibles, will be modified to read as follows:
“The impact of impairment losses on Fuel Tech was $xx, $30,000 and $113,000 for the years ended December 31, 2006, 2005 and 2004, respectively, and such amounts are recorded in the “Research and development” line item in the consolidated statements of income.
Historical Presentation | After Reclassification | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
FOR THE YEARS ENDED DECEMBER 31 | |||||||||||||
Net sales | $ | 52,928 | $ | 30,832 | $ | 52,928 | $ | 30,832 | |||||
Costs and expenses: | |||||||||||||
Cost of sales | 27,118 | 16,566 | 27,118 | 16,566 | |||||||||
Selling, general and administrative | 17,414 | 12,775 | 17,414 | 12,775 | |||||||||
Research and development | 1,211 | 1,242 | 1,241 | 1,355 | |||||||||
45,743 | 30,583 | 45,773 | 30,696 | ||||||||||
Operating income | 7,185 | 249 | 7,155 | 136 | |||||||||
Interest expense | - | - | - | - | |||||||||
Other (expense) income, net | (16 | ) | (83 | ) | 14 | 30 | |||||||
Income before taxes | 7,169 | 166 | 7,169 | 166 | |||||||||
Income tax benefit | 419 | 1,406 | 419 | 1,406 | |||||||||
Net income | $ | 7,588 | $ | 1,572 | $ | 7,588 | $ | 1,572 | |||||
Net income per Common Share | |||||||||||||
Basic | $ | 0.38 | $ | 0.08 | $ | 0.38 | $ | 0.08 | |||||
Diluted | $ | 0.33 | $ | 0.07 | $ | 0.33 | $ | 0.07 | |||||
Average number of Common Shares outstanding | |||||||||||||
Basic | 20,043,000 | 19,517,000 | 20,043,000 | 19,517,000 | |||||||||
Diluted | 23,066,000 | 22,155,000 | 23,066,000 | 22,155,000 |
Sincerely,
Vincent J. Arnone
Chief Financial Officer, Senior Vice President and Treasurer