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 September 30, 2003
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
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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
-- --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 under the Securities Exchange Act of 1934).
Yes X No
-- --
As of October 24, 2003, there were outstanding 19,895,503 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 September 30, 2003
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2003 1
and December 31, 2002
Condensed Consolidated Statements of Operations for the Three and 2
Nine Month Periods Ended September 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows for the Nine 3
Month Periods Ended September 30, 2003 and 2002
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 12
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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)
September 30, December 31,
2003 2002
--------------- --------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 5,791 $ 10,939
Accounts receivable, net. . . . . . . . . . . . . . . . . . 9,661 8,849
Prepaid expenses and other current assets . . . . . . . . . 1,456 1,164
--------------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . 16,908 20,952
Equipment, net of accumulated depreciation of
5,867 and $5,118, respectively . . . . . . . . . . . . . . 2,182 2,123
Goodwill, net of accumulated amortization of $924 2,119 2,119
Other intangible assets. . . . . . . . . . . . . . . . . . . 1,298 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 675
--------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 23,180 $ 25,869
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . $ 2,684 $ 5,065
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . 1,733 1,940
--------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . 4,417 7,005
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . - 1,800
Other liabilities . . . . . . . . . . . . . . . . . . . . . 260 259
--------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 4,677 9,064
Stockholders' equity:
Common stock, par value $0.01 per share,
authorized 40,000,000 shares, 19,895,503
and 19,613,817 shares issued, respectively. . . . . . . . 199 196
Additional paid-in capital. . . . . . . . . . . . . . . . . 90,636 90,315
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (71,753) (73,150)
Accumulated other comprehensive income. . . . . . . . . . . 22 10
Treasury stock. . . . . . . . . . . . . . . . . . . . . . . (1,133) (1,098)
Nil coupon perpetual loan notes . . . . . . . . . . . . . . 532 532
--------------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . . . 18,503 16,805
--------------- --------------
Total liabilities and stockholders' equity. . . . . . . . . $ 23,180 $ 25,869
=============== ==============
See notes to condensed consolidated financial statements.
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of U.S. dollars, except share data)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
--------------- -------------- ------------ ------------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 10,178 $ 8,033 $ 28,182 $ 21,275
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 5,592 4,462 17,412 11,175
Selling, general and administrative . . . . . . . . . . . 2,961 2,717 8,565 7,725
Research and development. . . . . . . . . . . . . . . . . 314 394 920 1,041
--------------- -------------- ------------ ------------
Operating income. . . . . . . . . . . . . . . . . . . . . 1,311 460 1,285 1,334
(Loss) income from equity interest in affiliates. . . . . - (27) - 196
Interest expense. . . . . . . . . . . . . . . . . . . . . - (37) (25) (114)
Other income, net . . . . . . . . . . . . . . . . . . . . 6 (17) 140 254
--------------- -------------- ------------ ------------
Income before taxes . . . . . . . . . . . . . . . . . . . 1,317 379 1,400 1,670
Income taxes. . . . . . . . . . . . . . . . . . . . . . . - - - 50
--------------- -------------- ------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 1,317 $ 379 $ 1,400 $ 1,720
=============== ============== ============ ============
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . $ .07 $ .02 $ .07 $ .09
=============== ============== ============ ============
Diluted. . . . . . . . . . . . . . . . . . . . . . . $ .06 $ .02 $ .06 $ .08
=============== ============== ============ ============
Average number of common shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . . 19,744,000 19,454,000 19,629,000 19,299,000
=============== ============== ============ ============
Diluted. . . . . . . . . . . . . . . . . . . . . . . 22,748,000 22,422,000 22,325,000 22,565,000
=============== ============== ============ ============
See notes to condensed consolidated financial statements.
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of U.S. dollars)
Nine Months Ended
September 30
2003 2002
--------- --------
OPERATING ACTIVITIES
Net cash used in
operating activities . . . . . . . . . . . . . . . . . $ (1,520) $ (298)
--------- --------
INVESTING ACTIVITIES
Repayment from affiliate. . . . . . . . . . . . . . . . . - 250
Proceeds from sale of equipment . . . . . . . . . . . . . - 17
Acquisition of fuel additive business . . . . . . . . . . (1,348) -
Purchases of equipment and patents. . . . . . . . . . . . (780) (1,026)
--------- --------
Net cash used in investing activities . . . . . . . . . . (2,128) (759)
--------- --------
FINANCING ACTIVITIES
Exercise of stock options . . . . . . . . . . . . . . . . 323 530
Purchase of treasury shares . . . . . . . . . . . . . . . (35) -
Repayment of borrowings . . . . . . . . . . . . . . . . . (1,800) (675)
Net cash used in --------- --------
financing activities . . . . . . . . . . . . . . . . . (1,512) (145)
--------- --------
Effect of exchange rate fluctuations on cash. . . . . . . 12 33
--------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . (5,148) (1,169)
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . . . . . . . . 10,939 9,338
--------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . . . $ 5,791 $ 8,169
========= ========
See notes to condensed consolidated financial statements.
FUEL-TECH N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(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 nine-month period ended September 30, 2003,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
The balance sheet at December 31, 2002, 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, 2002.
Fuel-Tech N.V. through its subsidiaries (the "Company"), is a technology
company active in the business of air pollution control. The Company,
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: 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 nine-month periods ended
September 30, 2003 and 2002:
Three months ended Nine months ended
2003 2002 2003 2002
---------- --------- -------- ---------
Basic weighted-average shares 19,744 19,454 19,629 19,299
Conversion of unsecured loan notes 85 85 85 85
Unexercised options and warrants 2,919 2,883 2,611 3,181
---------- --------- -------- ---------
Diluted weighted-average shares 22,748 22,422 22,325 22,565
========== ========= ======== =========
NOTE C: TOTAL COMPREHENSIVE INCOME
Total comprehensive income for the Company is comprised of net income, the
impact of foreign currency translation, and in 2002, the change in fair value of
the interest rate swap. Total comprehensive income was $1,331,000 and $385,000
for the three-month periods ended September 30, 2003 and 2002, respectively.
Total comprehensive income was $1,412,000 and $1,790,000 for the nine-month
periods ended September 30, 2003 and 2002, respectively.
For the three months ended For the nine months ended
September 30 September 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Comprehensive income:
Net income $ 1,317,000 $ 379,000 $1,400,000 $ 1,720,000
Foreign currency translation 14,000 (6,000) 12,000 32,000
Change in fair value of interest rate swap - 12,000 - 38,000
----------- ------------- ---------- -----------
$ 1,331,000 $ 385,000 $1,412,000 $ 1,790,000
=========== ============= ========== ===========
NOTE D: DERIVATIVE FINANCIAL INSTRUMENTS
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.
NOTE E: STOCK-BASED COMPENSATION
Fuel Tech accounts for stock option grants in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under Fuel Tech's current plan, options may be granted at not less
than the fair market value on the date of grant, and therefore, no compensation
expense is recognized for the stock options granted.
If compensation expense for Fuel Tech's plans had been determined based on
the fair value at the grant dates for awards under its plans, consistent with
the method described in SFAS No. 123, "Accounting for Stock-Based Compensation,"
Fuel Tech's net income (loss) and income (loss) per share would have been
adjusted as follows for the three and nine-month periods ended September 30,
2003 and 2002:
For the three months For the nine months
(in thousands) ended September 30 ended September 30
2003 2002 2003 2002
-------------------------------------------
Net income (loss)
As reported . . . . . . . . . . . . . . . $ 1,317 $ 379 $1,400 $1,720
As adjusted . . . . . . . . . . . . . . . 1,172 186 833 946
Basic and diluted income (loss) per share:
Basic - as reported . . . . . . . . . . . $ .07 $ .02 $ .07 $ .09
Basic - as adjusted . . . . . . . . . . . $ .06 $ .01 $ .04 $ .05
Diluted - as reported . . . . . . . . . . $ .06 $ .02 $ .06 $ .08
Diluted - as adjusted . . . . . . . . . . $ .05 $ .01 $ .04 $ .04
In accordance with the provisions of SFAS No. 123, the "As adjusted"
disclosures include only the effect of stock options granted after 1994. The
application of the "As adjusted" disclosures presented above are not
representative of the effects SFAS No. 123 may have on such operating results in
future years due to the timing of stock option grants and considering that
options vest over a period of immediately to five years.
NOTE F: DEBT
Fuel Tech, Inc. (FTI) has a $10.0 million revolving credit facility
expiring July 31, 2004, 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%.
During the quarter ended June 30, 2003, FTI repaid all outstanding
borrowings on the revolving credit facility.
NOTE G: BUSINESS SEGMENT AND GEOGRAPHIC DISCLOSURES
The Company operates in one business segment providing technology
solutions, including equipment and specialty chemicals, to operators of utility
and industrial boilers that improve boiler performance and reduce emissions of
nitrogen oxides.
Information concerning the Company's operations by geographic area is
provided below. Operating income (loss) represents 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 For the nine months ended
September 30 September 30
-------------------------- -------------------------
2003 2002 2003 2002
------------- ----------- ----------- ------------
Revenues:
United States. . . . . . $ 8,924,000 $ 7,176,000 $24,782,000 $19,154,000
Foreign. . . . . . . . . 1,254,000 857,000 3,400,000 2,121,000
------------- ------------ ------------ -----------
$ 10,178,000 $ 8,033,000 $28,182,000 $21,275,000
============= ============ ============ ===========
Operating income (loss):
United States. . . . . . $ 1,171,000 $ 517,000 $ 1,268,000 $1,558,000
Foreign. . . . . . . . . 140,000 (57,000) 17,000 (224,000)
------------ ------------ ------------ -----------
$ 1,311,000 $ 460,000 $ 1,285,000 $1,334,000
============= ============ ============ ===========
September 30, December 31,
2003 2002
Assets:
United States. . . . . . $ 21,455,000 $ 24,393,000
Foreign. . . . . . . . . 1,725,000 1,476,000
------------- -------------
$ 23,180,000 $ 25,869,000
============= ============
NOTE H: ACQUISITION OF FUEL ADDITIVE BUSINESS
On September 30, 2003, the Company's wholly-owned subsidiary, Fuel Tech,
Inc. (FTI), acquired the fuel additive business of Martin Marietta Magnesia
Specialties, LLC (MMMS). The Company believes that this acquired business is an
excellent strategic fit with its fuel treatment chemical business. In addition,
the Company believes that that it will be able to leverage its technology with
the MMMS customer base which will improve program results and increase revenues
from these accounts. Concurrently with this transaction, FTI entered into a
long-term chemical supply agreement with MMMS.
The acquisition of the fuel additive business from MMMS had no impact on
the Company's operating results for the quarter ended September 30, 2003. If
the business had been acquired at January 1, 2003, the impact on the financial
results of the Company on a year to date basis would not have been material.
The aggregate purchase price was $1,348,000, paid in cash. The following
table summarizes the estimated fair values of the assets acquired.
Asset Classification Value Assigned
===============
Equipment $ 50,000
Intangible assets subject to amortization 1,298,000
---------------
Total $ 1,348,000
===============
The intangible assets listed above consist primarily of customer contracts
And relationships acquired as part of the transaction. The customer intangible
will be amortized over a period of fifteen years.
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 September 30, 2003 and 2002 were
$10,178,000 and $8,033,000, respectively, while net sales for the nine months
ended September 30, 2003 and 2002 were $28,182,000 and $21,275,000,
respectively. Revenues for the three month period increased primarily due to a
90% increase in fuel treatment chemical revenues.
The increase in revenues for the nine months ended September 30, 2003, is
attributable to an increase in both our NOx reduction business and our fuel
treatment chemical product line. Domestic NOx reduction utility project
revenues increased 33% during this period as project bookings from 2002 and 2003
generated revenues from their various phases of completion. NOx reduction
utility revenue in 2002 and 2003 has been favorably impacted by the
Environmental Protection Agency's (EPA) SIP (State Implementation Plan) Call
regulation (discussed further below) that requires utilities and large
industrial facilities in 19 states to reduce NOx emissions by May 31, 2004.
Fuel treatment chemical revenues reached a record quarterly level for the
third quarter ended September 30, as revenue derived from Western coal-fueled
utility boilers was strong. In addition, positive contributions were attained
from utilities burning oil, both in the United States and in foreign locations.
The Company believes that its success on several Western coal-fueled utility
boilers, along with intensely focused sales and marketing efforts and the
utilization of strategic partners, will lead to further penetration of the
Western coal-fueled utility market in the near future. This market represents
the largest market opportunity for the fuel treatment chemical business and
penetration into this market is a priority. The Company's TIFI
(Targeted-In-Furnace-Injection) technology alleviates the slagging and fouling
issues associated with burning coals that are high in low-melting-point ash
constituents, such as sodium. The Company expects additional demonstrations of
this technology to commence in the latter part of this year and into 2004.
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 31, 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.
Even with the SIP Call in place, two factors have led to a recent slowing
of equipment orders in the air pollution control business. First, recent
rulings related to New Source Review have caused our utility customers to
reassess their SIP Call compliance plans to ensure that they will meet their
overall NOx reduction requirements in the most cost-effective manner. Although
the Company expects this recent ruling to benefit business in the future, the
impact in the near-term is a delay in the receipt of orders. Second, many
utilities are experiencing significant capital constraints. This, coupled with
depressed NOx allowance prices, the result of mild weather and weak demand for
power, has caused some utilities to delay capital spending and to meet their
requirements on a short-term basis through the purchase of allowances and other
temporary means. Based on these market factors, the air pollution control
business has weakened but is expected to pick up in the second half of 2004 and
be strong in 2005 and 2006. The Company continues to work cooperatively with
our customers as they finalize their compliance plans.
Cost of sales as a percentage of net sales for the three-month period ended
September 30, 2003 was 55%, which approximated the level of a year ago. For the
nine-month period ended September 30, 2003, the percentage increased to 62% from
53% versus the same period of the prior year. This increase reflects a change
in product mix within the NOx reduction project business. A significantly
larger percentage of the revenues for the first nine months of 2003 were
generated by turnkey projects versus the comparable period in 2002. When the
Company is responsible for the turnkey installation of the equipment as part of
the project scope, the overall project margin becomes diluted. Installation
scope carries a significantly lower margin than the Company's traditional scope.
At the end of the second quarter of 2003, most of the work related to turnkey
projects was completed, and this accounts for the lower cost of sales percentage
in the third quarter, as compared to the first 2 quarters of 2003.
Selling, general and administrative expenses were $2,961,000 and
$2,717,000, respectively, for the three months ended September 30, 2003 and
2002, and were $8,565,000 and $7,725,000 respectively for the nine months ended
September 30, 2003 and 2002. The increase is due primarily to the addition of
sales resources for the fuel treatment chemical business and, to a lesser
degree, to the addition of resources in support of the marketing and development
of the Company's ACUITIV advanced visualization software.
Research and development expenses for the quarter and nine months ended
September 30, 2003 were slightly lower than the levels of the prior year. The
Company continues to pursue commercial applications for its technologies outside
of its traditional markets, with a particular focus on its ACUITIV advanced
visualization software. The ACUITIV software product was commercially
introduced in June 2002, and the Company has two commercial orders for the
software. The software is currently being demonstrated at several sites, and
ACUITIV version 3.3 was recently released. This new release adds significant
functionality which is expected to broaden market acceptance. Although the
validity of the product has been confirmed, the Company does not expect revenues
related to this product to be material for the remainder of the year.
In the third quarter of 2002, the Company recognized a loss of $27,000 on
its 49 percent ownership interest in Fuel Tech CS Gmbh (FTCS). Through the
first nine months of 2002, the Company recognized income of $250,000 on its
equity investment in Clean Diesel Technologies, Inc. (CDT), its 15 percent-owned
affiliate, which was partially offset by a loss of $54,000 that was realized on
its 49 percent ownership interest in FTCS. The income in 2002's first quarter
from CDT resulted from CDT's repayment of loans made by the Company to CDT in
2000 and 2001. Because the Company's pro-rata share of CDT's losses reduced the
carrying value of the loans to zero at December 31, 2001, the entire loan
repayment was recorded as equity income in the first quarter of 2002.
In the first nine months of 2003, the Company did not recognize any income
or loss from its equity investments. In the quarter ended September 30, 2003
the Company transferred to FTCS its 49 percent ownership interest in that
company, in connection with the collection of a related receivable from FTCS.
This transaction had no significant impact on the Company's financial
statements. The carrying value of the equity investment in CDT is zero at
September 30, 2003.
Interest expense for the nine month period ended September 30, 2003 was
reduced from the comparable period in 2002. In the second quarter of the year,
the Company paid off the entirety of its outstanding debt balance.
The decline in other income and (expense) for the nine months ended
September 30, 2003 versus the prior year was due primarily to a reduction in
interest income resulting from the decrease in short-term rates.
No provision for federal or state income taxes was recorded during the
three and nine-month periods ended September 30, 2003 due to the existence of
net operating loss carryforwards. In the first quarter of 2002, an income tax
benefit of $50,000 was recorded which represented a reduction in the reserve for
prior years' state income tax refunds receivable.
LIQUIDITY AND SOURCES OF CAPITAL
For the nine months ended September 30, 2003, the Company used cash for
operating activities in the amount of $1,520,000, while $298,000 was used by
operating activities for the same period in 2002. The use of cash for operating
activities in 2003 stems largely from a reduction in accounts payable and
accrued expenses, which was partially offset by the Company's net income.
At September 30, 2003 and December 31, 2002, the Company had cash and cash
equivalents of $5,791,000 and $10,939,000, respectively, while working capital
for the same two periods was $12,491,000 and $13,947,000, respectively. The
decline in cash and working capital from December 31, 2002 was driven by the
repayment of $1,800,000 in long-term debt, the reduction in accounts payable and
accrued expenses, and by the acquisition of a fuel additive business for
$1,348,000. By repaying the debt, the Company's availability under its credit
facility increased by $1,800,000.
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, 2002.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Please refer to Note D.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company's management,
with the participation of its principal executive and financial officers, has
evaluated the effectiveness of the Company's disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-Q. The
Company's principal executive and financial officers have concluded, based on
such evaluation, that such disclosure controls and procedures were effective for
the purpose for which they were designed as of the end of such period.
There was no change in the Company's internal control over financial
reporting that was identified in connection with such evaluation that occurred
during the period covered by this Quarterly Report on Form 10-Q that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 31.1 and 31.2 are filed herewith
Exhibit 32 is furnished herewith
b. Reports on Form 8-K
The Company filed form 8-K on July 29, 2003. This filing
included the Company's second quarter 2003 earnings press release.
FUEL-TECH N.V.
SIGNATURES
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.
Date: November 7, 2003 By: /s/ Ralph E. Bailey
----------------------
Ralph E. Bailey
Chairman, Managing Director
and Chief Executive Officer
Date: November 7, 2003 By: /s/ Scott M. Schecter
------------------------
Scott M. Schecter
Chief Financial Officer,
Vice President and
Treasurer