<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 March 31, 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 May 12, 2000, there were outstanding 18,471,243 shares of Common Stock,
par value $0.01 per share, of the registrant.
================================================================================
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FUEL-TECH N.V.
Form 10-Q for the three month period ended March 31, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2000 1
and December 31, 1999
Condensed Consolidated Statements of Operations for the Three 2
Month Period Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the Three 3
Month Period Ended March 31, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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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>
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,689 $ 8,959
Accounts receivable, net 8,103 9,636
Inventories 176 227
Prepaid expenses and other current assets 778 471
--------- --------
Total current assets 16,746 19,293
Equipment, net of accumulated depreciation of
$4,035 and $3,948, respectively 1,453 1,428
Goodwill, net of accumulated amortization of
$340 and $256, respectively 2,700 2,784
Other intangibles, net of accumulated amortization of
$838 and $826, respectively 575 579
Other 375 380
--------- --------
Total assets $ 21,849 $ 24,464
========= ========
Liabilities and stockholders' equity
Current liabilities:
Current portion of note payable $ 900 $ 900
Accounts payable 2,747 4,077
Accrued expenses 1,242 2,190
--------- --------
Total current liabilities 4,889 7,167
Note payable 3,150 3,375
Other liabilities 219 231
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 (75,287) (74,989)
Accumulated other comprehensive loss (78) (25)
Treasury stock (1,058) (1,058)
Nil coupon perpetual loan notes 3,816 3,888
--------- --------
Total liabilities and stockholders' equity $ 21,849 $ 24,464
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
1
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FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of U.S. dollars, except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
------- -------
<S> <C> <C>
Net sales $ 4,455 $ 8,766
Costs and expenses:
Cost of sales 2,777 5,697
Selling, general and administrative 1,633 2,150
Research and development 241 175
---------- ----------
Operating (loss) income (196) 744
Interest expense (90) (74)
Other (expense) income, net (10) 34
---------- ----------
(Loss) income before taxes (296) 704
---------- ----------
Income taxes -- (331)
---------- ----------
Net (loss) income $ (296) $ 373
========== ==========
Net (loss) income per common share:
Basic $ (.02) $ 0.02
========== ==========
Diluted $ (.02) $ 0.02
========== ==========
Average number of common shares outstanding:
Basic 18,358,000 17,417,000
========== ==========
Diluted 18,358,000 19,362,000
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
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FUEL-TECH N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
-------- --------
<S> <C> <C>
Operating activities
Net cash used in operating activities $ (1,078) $ (563)
-------- --------
Investing activity
Purchases of equipment and patents (163) (81)
-------- --------
Net cash used in investing activity (163) (81)
-------- --------
Financing activities
Exercise of stock options 249 --
Repayment of borrowings (225) (250)
-------- --------
Net cash provided by (used in) financing
activities 24 (250)
-------- --------
Effect of exchange rate fluctuations on cash (53) (89)
-------- --------
Net decrease in cash and cash equivalents (1,270) (983)
Cash and cash equivalents at beginning
of period 8,959 5,792
-------- --------
Cash and cash equivalents at
end of period $ 7,689 $ 4,809
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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FUEL-TECH N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three month period ended March 31, 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: 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
month periods ended March 31:
2000 1999
--------------------
Basic weighted-average shares 18,358 17,417
Conversion of unsecured loan notes -- 1,441
Unexercised options and warrants -- 504
--------------------
Diluted weighted-average shares 18,358 19,362
====================
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.
4
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Note C: 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 month
periods ended March 31, 2000 and 1999. Total comprehensive (loss) income was
$(349,000) and $284,000 for the three month periods ended March 31, 2000 and
1999, respectively. The foreign currency translation adjustment component of
total comprehensive (loss) income was $(53,000) and $(89,000) for the three
month periods ended March 31, 2000 and 1999, respectively.
Note D: Business Segment and Geographic Disclosures
The Company's business is organized into one operating 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.
For the three months ended March 31: 2000 1999
------------ -----------
Revenues:
Domestic $ 3,717,000 $ 6,076,000
Foreign 738,000 2,690,000
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$ 4,455,000 $ 8,766,000
=========== ===========
Operating Earnings:
Domestic $ (77,000) $ 504,000
Foreign (119,000) 240,000
----------- -----------
$ (196,000) $ 744,000
========== ===========
March 31 December 31
2000 1999
----------- -----------
Assets:
Domestic $19,407,000 $22,020,000
Foreign 2,442,000 2,444,000
----------- -----------
$21,849,000 $24,464,000
=========== ===========
5
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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 first quarter of 2000 and 1999 were $4,455,000 and
$8,766,000, respectively. The decrease is primarily attributable to the expected
reduction in domestic NOx utility project revenue due to the delay in obtaining
a final ruling on the Environmental Protection Agency's SIP Call legislation.
Also contributing to the decline was the impact high crude oil prices are having
on revenues derived from the sale of fuel treatment chemicals in the United
States. Due to the high oil prices, some of the Company's customers have
switched fuels to natural gas. It is expected that as oil prices decline and
natural gas prices increase, some of these customers will switch back to oil and
therefore resume ordering the Company's fuel treatment chemicals. Lastly, the
year on year change was further negatively impacted by a large one-time Asian
project that was in process during the first quarter of 1999.
The "SIP Call" is the federal mandate 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). 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. The
same court must now decide if they will hear the appeals of some states and
utilities "en banc," meaning that the entire court of eleven judges will hear
the case. If the court decides not to hear the appeal, project bookings are
expected to significantly increase in the second half of this year; if the court
decides to hear the appeal, project bookings from utilities will likely be
delayed until early 2001. In either case, once the new requirements are firmly
in place, 19 states will be required to create State Implementation Plans for
NOx reduction that will potentially impact seven to eight hundred utility
boilers and four to five hundred industrial units.
Cost of sales for the first quarter of 2000 reflected a decline that was
associated with the revenue shortfall noted above. However, gross margin
percentages were slightly favorable at the end of the first quarter of 2000
versus the prior year due to improved air pollution control industrial project
margin performance in the United States.
Selling, general and administrative expenses decreased to $1,633,000 in
the first quarter of 2000 from $2,150,000 in the comparable period in 1999. The
decrease is due primarily to a reduction in sales related expenses and to the
elimination of certain European administrative expenses related to a business
operation that was closed in early 1999.
Research and development expenses increased to $241,000 in the first
quarter of 2000 from $175,000 in the comparable period in 1999. The increase in
2000 is due to the increase in 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.
Interest expense increased to $90,000 in the first quarter of 2000 from
$74,000 in the comparable period in 1999. 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 dollar loan that was due to Nalco.
6
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Income tax expense was not recorded in the first quarter of 2000 due to
the realized net loss. The 1999 expense of $331,000 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.
Consequently, additional paid-in capital was increased by $331,000 and the total
equity position of the Company was unaffected by the income tax charge in the
statement of operations for the period ended March 31, 1999. 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 three months ended March 31, 2000 and 1999, the Company used cash
of $1,078,000 and $563,000, respectively, in operating activities.
At March 31, 2000 and December 31, 1999, the Company had cash and cash
equivalents of $7,689,000 and $8,959,000, respectively. The cash decline during
the first quarter of the year stems largely from the reduction in accounts
payable and accrued liabilities that were in existence at December 31, 1999 for
several large projects and for certain employee liabilities. In addition, the
Company funded its annual insurance program during the first quarter of the
year.
Working capital decreased marginally to $11,857,000 at March 31, 2000
from $12,126,000 at December 31, 1999, due primarily to the small loss realized
in the period.
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 March
31, 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.
7
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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
None
b. Reports on Form 8-K
None
8
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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: May 9, 2000 By: /s/ Ralph E. Bailey
-----------------------
Ralph E. Bailey
Chairman, Managing Director and Chief
Executive Officer
Date: May 9, 2000 By: /s/ Scott M. Schecter
-----------------------
Scott M. Schecter
Chief Financial Officer, Vice President
and Treasurer
9
