<PAGE>
================================================================================
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 June 30, 2000
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)
Netherland 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 August 2, 2000, there were outstanding 18,484,472 shares of Common Stock,
par value $0.01 per share, of the registrant.
================================================================================
<PAGE>
FUEL-TECH N.V.
Form 10-Q for the three and six month periods ended June 30, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2000 1
and December 31, 1999
Condensed Consolidated Statements of Operations for the 2
Three and Six Month Periods Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the Six 3
Month Periods Ended June 30, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
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)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,916 $ 8,959
Accounts receivable, net 5,572 9,636
Prepaid expenses and other current assets 1,021 698
------------- ---------------
Total current assets 16,509 19,293
Equipment, net of accumulated depreciation of
$4,171 and $3,948, respectively 1,538 1,428
Goodwill, net of accumulated amortization of
$423 and $256, respectively 2,616 2,784
Other intangibles, net of accumulated amortization of
$850 and $826, respectively 565 579
Other 845 380
--------------- ---------------
Total assets $ 22,073 $ 24,464
=============== ===============
Liabilities and stockholders' equity
Current liabilities:
Current portion of note payable $ 900 $ 900
Accounts payable 2,396 4,077
Accrued expenses 1,322 2,190
--------------- ---------------
Total current liabilities 4,618 7,167
Note payable 2,925 3,375
Other liabilities 1,006 231
Stockholders' equity:
Common Stock, par value $0.01 per share,
authorized 40,000,000 shares, 18,476,972 and
18,328,673 shares issued and outstanding, respectively 185 182
Additional paid-in capital 86,013 85,693
Accumulated deficit (75,612) (74,989)
Accumulated other comprehensive income (loss) 180 (25)
Treasury stock (1,058) (1,058)
Nil coupon perpetual loan notes 3,816 3,888
--------------- ---------------
Total liabilities and stockholders' equity $ 22,073 $ 24,464
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of U.S. dollars, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 5,851 $ 8,414 $ 10,306 $ 17,180
Costs and expenses:
Cost of sales 3,271 4,465 6,048 10,162
Selling, general and administrative 1,973 2,098 3,606 4,248
Research and development 235 105 476 280
Closing costs related to German subsidiary 528 -- 528 --
------------ ------------ ------------ ------------
Operating (loss) income (156) 1,746 (352) 2,490
Loss from equity interest in affiliate (126) -- (126) --
Interest expense (93) (69) (183) (143)
Other income (expense):
Gain on sale of German subsidiary's chemical business 269 -- 269 --
Cumulative translation loss related to
German subsidiary (231) -- (231) --
Other income, net 12 20 2 54
------------ ------------ ------------ ------------
(Loss) income before taxes (325) 1,697 (621) 2,401
Income taxes -- (344) -- (675)
------------ ------------ ------------ ------------
Net (loss) income $ (325) $ 1,353 $ (621) $ 1,726
============ ============ ============ ============
Net (loss) income per common share:
Basic $ (.02) $ .08 $ (.03) $ .10
============ ============ ============ ============
Diluted $ (.02) $ .07 $ (.03) $ .09
============ ============ ============ ============
Average number of common shares outstanding:
Basic 18,383,000 17,417,000 18,370,000 17,417,000
============ ============ ============ ============
Diluted 18,383,000 18,596,000 18,370,000 18,702,000
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
------- -------
<S> <C> <C>
Operating activities
Net cash provided by operating activities $ 1,801 $ 1,858
------- -------
Investing activities
Investment in affiliate (225) --
Purchases of equipment and patents (392) (438)
------- -------
Net cash used in investing activities (617) (438)
------- -------
Financing activities
Exercise of stock options 249 --
Purchase and retirement of nil coupon loan notes -- (444)
Repayment of borrowings (450) (250)
------- -------
Net cash used in financing activities (201) (694)
------- -------
Effect of exchange rate fluctuations on cash (26) (168)
------- -------
Net increase in cash and cash equivalents 957 558
Cash and cash equivalents at beginning
of period 8,959 5,792
------- -------
Cash and cash equivalents at
end of period $ 9,916 $ 6,350
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FUEL-TECH N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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 month period ended June 30, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The balance sheet at December 31, 1999, 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, 1999.
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
The Company's net loss on a consolidated basis for three and the six months
ended June 30, 2000 includes a net charge of $490,000 related to the
restructuring of its European operations in an effort to consolidate its
business and enhance profitability in this market. In the second quarter, 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. As part of the restructure, the following transactions
have taken place:
Fuel Tech GmbH's NOxOUT chemical business has been sold to a new entity in
Germany in which the Company will retain a 49% ownership interest. The selling
price is dependent on future results of the chemical business, but will not be
less than 1,250,000 Deutchmarks (approximately $600,000), paid out over 3 years.
The gain on this transaction of $269,000 has been recorded in other income and
expense in the condensed consolidated statement of operations.
Fuel Tech GmbH has recorded a charge of $528,000 related to the closure of
the entity. The charge includes accruals of $343,000 primarily for severance
obligations for four employees, lease termination costs and other costs related
to the closure of the entity. This charge has been recorded as part of operating
income in the condensed consolidated statement of operations.
Lastly, the cumulative foreign currency translation loss related to Fuel
Tech GmbH of $231,000, which is a non-cash charge, was recognized as other
income and expense in the condensed consolidated statement of operations.
4
<PAGE>
Note C: Earnings Per Share Data
Basic earnings (loss) per share excludes the dilutive effects of stock
options and warrants and of the nil coupon non-redeemable convertible unsecured
loan notes. Diluted earnings (loss) 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 (loss) per share for the three
and six month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Six months ended
2000 1999 2000 1999
---------------------- -------------------
<S> <C> <C> <C> <C>
Basic weighted-average shares 18,383 17,417 18,370 17,417
Conversion of unsecured loan notes -- 1,166 -- 1,166
Unexercised options and warrants -- 13 -- 119
---------------------- -------------------
Diluted weighted-average shares 18,383 18,596 18,370 18,702
====================== ===================
</TABLE>
Diluted weighted-average shares are the same as basic weighted-average
shares in 2000 because the conversion of the loan notes and exercise of the
options and warrants would have been antidilutive.
Note D: Total Comprehensive (Loss) Income
Total comprehensive (loss) income for the Company is comprised of net
(loss) income and the impact of foreign currency translation for the three and
six month periods ended June 30, 2000 and 1999. Total comprehensive (loss)
income was $(67,000) and $1,275,000 for the three month periods ended June 30,
2000 and 1999, respectively. The foreign currency translation adjustment
component of total comprehensive (loss) income was $27,000 and $(78,000) for the
three month periods ended June 30, 2000 and 1999, respectively. Accumulated
other comprehensive income on the condensed consolidated balance sheet increased
by $231,000 during the second quarter to reflect the transfer to income of the
cumulative foreign currency loss on the German subsidiary.
Total comprehensive (loss) income was $(416,000) and $1,558,000 for the six
month periods ended June 30, 2000 and 1999, respectively. The foreign currency
translation adjustment component of total comprehensive (loss) income was
$(26,000) and $(168,000) for the six month periods ended June 30, 2000 and 1999,
respectively.
<TABLE>
<CAPTION>
For the three months ended June 30 For the six months ended June 30
---------------------------------- --------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Comprehensive (loss) income:
Net income $ (325,000) $ 1,353,000 $ (621,000) $ 1,726,000
Foreign currency translation 27,000 (78,000) (26,000) (168,000)
Foreign currency loss on German
subsidiary 231,000 -- 231,000 --
----------- ----------- ----------- -----------
$ (67,000) $ 1,275,000 $ (416,000) $ 1,558,000
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
Note E: 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 of foreign corporations controlled by the
Company plus an allocation of domestic selling and general expenses directly
related to the foreign operations. Assets are those directly associated with
operations of the geographic area.
<TABLE>
<CAPTION>
For the three months ended June 30 For the six months ended June 30
----------------------------------- -----------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Domestic $ 5,286,000 $ 5,834,000 $ 9,003,000 $ 11,910,000
Foreign 565,000 2,580,000 1,303,000 5,270,000
------------ ------------ ------------ ------------
$ 5,851,000 $ 8,414,000 $ 10,306,000 $ 17,180,000
============ ============ ============ ============
Operating Earnings:
Domestic $ 666,000 $ 1,092,000 $ 589,000 $ 1,596,000
Foreign (822,000) 654,000 (941,000) 894,000
------------ ------------ ------------ ------------
$ (156,000) $ 1,746,000 $ (352,000) $ 2,490,000
============ ============ ============ ============
June 30, December 31,
2000 1999
------------ -----------
Assets:
Domestic $19,092,000 $22,020,000
Foreign 2,981,000 2,444,000
------------ ------------
$22,073,000 $24,464,000
============ ============
</TABLE>
6
<PAGE>
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 second quarter of 2000 and 1999 were $5,851,000 and
$8,414,000, respectively while net sales for the six months ended June 30, 2000
and 1999 were $10,306,000 and $17,180,000, respectively. The decline is
primarily attributable to the expected decrease in domestic NOx reduction
utility project revenue due to the delay in obtaining a final ruling on the
Environmental Protection Agency's (EPA) SIP Call regulation. As discussed
further below, most of the uncertainty regarding this regulation has now been
removed. High crude oil prices have continued to negatively impact revenues
derived from the sale of fuel treatment chemicals in the United States. The
slight decline noted recently in fuel oil pricing has not been steep enough for
some of the Company's customers to justify switching fuels from natural gas to
oil. Offsetting these declines was the strong performance in domestic NOx
reduction industrial project revenue. The Company has continued to focus its
efforts on the industrial sector of the market with emphasis on municipal solid
waste facilities.
The "SIP Call" is the federal mandate introduced in 1998 to further reduce
NOx in 22 states by May 2003. This mandate was an extension of Phase II of Title
I of the Clean Air Act Amendments of 1990 (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 finally, 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. Nineteen states
must now complete and issue their State Implementation Plans for NOx reduction
by late October. These plans will potentially impact seven to eight hundred
utility boilers and four to five hundred industrial units. The Company expects
to see project bookings from utilities resume towards the end of 2000 and
beyond.
Towards the end of the second quarter, the Company announced that it had
obtained a worldwide license agreement with SFA International, Inc., a producer
of high purity specialty chemicals, for that entity's intellectual property
related to the manufacturing of liquid petroleum fuel additives. This agreement
is expected to strengthen the Company's fuel treatment chemical business
internationally.
Cost of sales for the second quarter of 2000 reflected a decline that was
associated with the revenue shortfall noted above. Gross margin percentages
declined slightly in the second quarter of 2000 versus the prior year due to the
lack of higher margin fuel treatment chemical business in the Caribbean. Full
year margin percentages remain slightly ahead of prior year driven by the cost
performance of domestic NOx reduction industrial projects.
Selling, general and administrative expenses decreased to $1,973,000 in the
second quarter of 2000 from $2,098,000 in the comparable period in 1999. For the
six months ended June 30, 2000 and 1999, administrative expenses declined to
$3,606,000 from $4,248,000. The decrease is due primarily to a reduction in
sales related expenses and to a reduction in administrative expenses.
Research and development expenses increased to $235,000 in the second
quarter of 2000 from $105,000 in the comparable period in 1999. This increase,
and the increase on a year to date basis, is due to work performed on the
Company's advanced computing and visualization technologies. The Company is
actively pursuing commercial applications for its technologies outside of its
traditional markets of NOx reduction systems and fuel treatment chemicals.
In the second quarter of 2000, the Company made an investment of $225,000
in Clean Diesel Technologies, Inc., maintaining its ownership interest in this
company at 21.8%. In the second quarter of 2000 the Company recorded a loss of
$126,000 related to this equity investment.
7
<PAGE>
Interest expense increased to $93,000 in the second quarter of 2000 from
$69,000 in the comparable period in 1999. For the six months ended June 30, 2000
and 1999, interest expense increased to $183,000 from $143,000. The increase is
attributable to the take down of a $4.5 million term loan from the Company's
existing bank on September 1, 1999, which was used to satisfy the Company's
remaining obligations to the Nalco Chemical Company ("Nalco"). Refer to the
Company's annual report on Form 10K for information regarding this transaction.
Among the obligations repaid was a $2.5 million loan due to Nalco, as well as a
contingent payment obligation.
Income tax expense was not recorded in either the second or first quarter
of 2000 due to the recognition of net operating loss carryforwards. The 1999
expense for the three and six months ended June 30, 1999 was $344,000 and
$675,000 respectively. This expense is largely a non-cash charge because the
Company effected a quasi-reorganization on March 31, 1985, and reduced the value
of certain assets. Tax benefits resulting from the utilization of tax loss
carryforwards existing as of the date of the quasi-reorganization are required
to be excluded from the Company's results of operations and recorded as an
increase to additional paid-in capital when realized. In 1999, the Company
utilized the remaining tax loss carryforwards that were generated in periods
prior to the Company's quasi-reorganization.
Liquidity and Sources of Capital
For the six months ended June 30, 2000 and 1999, the Company generated cash
of $1,801,000 and $1,858,000, respectively, from operating activities.
At June 30, 2000 and December 31, 1999, the Company had cash and cash
equivalents of $9,916,000 and $8,959,000, respectively. The cash increase during
the first half of the year stems largely from working capital management as
several large projects reached critical milestones during the first half of the
year.
Working capital decreased marginally to $11,891,000 at June 30, 2000 from
$12,126,000 at December 31, 1999.
Derivative Financial Instruments
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.
The Company is also exposed to changes in interest rates primarily due to
its long-term debt arrangement. The Company uses interest rate derivative
instruments (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. A hypothetical 100 basis point adverse move
in interest rates along the entire interest rate yield curve would not have had
a materially adverse effect on interest expense during the quarter ended June
30, 2000.
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, 1999.
8
<PAGE>
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 23, 2000,
10,931,040 common shares, par $.01 per share, or 59.18% 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, 1999 was approved by a vote of 10,916,440
in favor, 10,880 votes against and 3,720 abstaining.
(ii) The proposal to approve the Financial Statements of the Company for
the year ended December 31, 1999 was approved by a vote of 10,917,620
in favor, 10,500 against and 2,920 abstaining.
(iii) The proposal to approve the election of eight nominees as a group as
Managing Directors of the Company and to fix their compensation was
approved with 10,916,635 shares cast for and 14,405 withheld, and with
respect to each of the nominees, as follows:
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------- -------------------------
Name Votes for Votes Withheld
--------------------------------------- ---------------------------------- -------------------------
<S> <C> <C>
Douglas G. Bailey 10,916,635 14,405
--------------------------------------- ---------------------------------- -------------------------
Ralph E. Bailey 10,916,635 14,405
--------------------------------------- ---------------------------------- -------------------------
John A. de Havilland 10,914,035 17,005
--------------------------------------- ---------------------------------- -------------------------
Charles W. Grinnell 10,910,135 20,905
--------------------------------------- ---------------------------------- -------------------------
Jeremy D. Peter-Hoblyn 10,892,135 38,905
--------------------------------------- ---------------------------------- -------------------------
John R. Selby 10,916,635 14,405
--------------------------------------- ---------------------------------- -------------------------
Tarma Trust Management N.V. 10,873,535 57,505
--------------------------------------- ---------------------------------- -------------------------
James M. Valentine 10,908,635 22,405
--------------------------------------- ---------------------------------- -------------------------
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
9
<PAGE>
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: August 2, 2000 By: /s/Ralph E. Bailey
------------------
Ralph E. Bailey
Chairman, Managing Director
and Chief Executive Officer
Date: August 2, 2000 By: /s/Scott M. Schecter
--------------------
Scott M. Schecter
Chief Financial Officer,
Vice President and Treasurer
10
