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, 2014
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: 001-33059
 ________________________________
FUEL TECH, INC.
(Exact name of registrant as specified in its charter)
  ________________________________
Delaware
 
20-5657551
(State or other jurisdiction of
incorporation of organization)
 
(I.R.S. Employer
Identification Number)
Fuel Tech, Inc.
27601 Bella Vista Parkway
Warrenville, IL 60555-1617
630-845-4500
www.ftek.com
(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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  
Large accelerated filer
 
¨
Accelerated filer
 
x
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
On August 11, 2014 there were outstanding 22,835,325 shares of Common Stock, par value $0.01 per share, of the registrant.
 



FUEL TECH, INC.
Form 10-Q for the six -month period ended June 30, 2014
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013
 
 
 
 
Consolidated Statements of Operations for the Three- and Six-Month Periods Ended June 30, 2014 and 2013
 
 
 
 
Consolidated Statements of Comprehensive Loss for the Three- and Six-Month Periods Ended June 30, 2014 and 2013
 
 
 
 
Consolidated Statements of Cash Flows for the Three- and Six-Month Periods Ended June 30, 2014 and 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I.        FINANCIAL INFORMATION

Item 1.        Financial Statements

FUEL TECH, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
 
 
 
June 30,
2014
 
December 31,
2013
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
16,906

 
$
27,738

Marketable securities
 
54

 
30

Accounts receivable, net of allowance for doubtful accounts of $1,266 and $1,189, respectively
 
36,344

 
36,974

Inventories
 
1,360

 
443

Prepaid expenses and other current assets
 
2,959

 
2,196

Prepaid income taxes
 
1,935

 
1,407

Deferred income taxes
 
771

 
477

Total current assets
 
60,329

 
69,265

Property and equipment, net of accumulated depreciation of $21,014 and $20,077, respectively
 
13,407

 
13,027

Goodwill
 
28,519

 
21,051

Other intangible assets, net of accumulated amortization of $5,498 and $5,108, respectively
 
4,063

 
4,305

Other assets
 
1,871

 
2,410

Total assets
 
$
108,189

 
$
110,058

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
2,355

 
$
1,636

Accounts payable
 
8,509

 
9,920

Accrued liabilities:
 
 
 
 
Employee compensation
 
1,758

 
4,460

Other accrued liabilities
 
7,172

 
4,630

Total current liabilities
 
19,794

 
20,646

Deferred income taxes
 
144

 
59

Other liabilities
 
509

 
730

Total liabilities
 
20,447

 
21,435

Shareholders’ equity:
 
 
 
 
Common stock, $.01 par value, 40,000,000 shares authorized, 22,993,435 and 22,701,613 shares issued, and 22,835,325 and 22,592,956 shares outstanding, respectively
 
230

 
227

Additional paid-in capital
 
134,328

 
132,796

Accumulated deficit
 
(45,833
)
 
(44,027
)
Accumulated other comprehensive (loss) income
 
(306
)
 
37

Nil coupon perpetual loan notes
 
76

 
76

Treasury stock, 158,110 and 108,657 shares in 2014 and 2013, respectively, at cost
 
(753
)
 
(486
)
Total shareholders’ equity
 
87,742

 
88,623

Total liabilities and shareholders’ equity
 
$
108,189

 
$
110,058

See notes to consolidated financial statements.

1


FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per-share data)
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues
 
$
20,190

 
$
29,092

 
$
38,851

 
$
51,576

Costs and expenses:
 

 
 
 
 
 
 
Cost of sales
 
11,677

 
17,227

 
22,487

 
30,279

Selling, general and administrative
 
8,959

 
9,307

 
17,703

 
17,765

Research and development
 
225

 
430

 
469

 
1,363

 
 
20,861

 
26,964

 
40,659

 
49,407

Operating (loss) income
 
(671
)
 
2,128

 
(1,808
)
 
2,169

Interest expense
 
(34
)
 
(10
)
 
(63
)
 
(10
)
Interest income
 
6

 
14

 
17

 
29

Other expense
 
(39
)
 
(129
)
 
(69
)
 
(209
)
(Loss) income before income taxes
 
(738
)
 
2,003

 
(1,923
)
 
1,979

Income tax benefit (expense)
 
18

 
(767
)
 
117

 
(764
)
Net (loss) income
 
$
(720
)
 
$
1,236

 
$
(1,806
)
 
$
1,215

Net (loss) income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.03
)
 
$
0.06

 
$
(0.08
)
 
$
0.05

Diluted
 
$
(0.03
)
 
$
0.05

 
$
(0.08
)
 
$
0.05

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
22,814,000

 
22,197,000

 
22,728,000

 
22,155,000

Diluted
 
22,814,000

 
23,295,000

 
22,728,000

 
23,133,000

See notes to consolidated financial statements.

2


FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
2014
 
2013
Net (loss) income
 
$
(720
)
 
$
1,236

 
$
(1,806
)
 
$
1,215

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
151

 
540

 
(358
)
 
277

Unrealized (losses) gains from marketable securities, net of tax
 
(13
)
 
(12
)
 
15

 
(12
)
Total other comprehensive income (loss)
 
138

 
528

 
(343
)
 
265

Comprehensive (loss) income
 
$
(582
)
 
$
1,764

 
$
(2,149
)
 
$
1,480

See notes to consolidated financial statements.

3


FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
Operating Activities
 
 
 
 
Net (loss) income
 
$
(1,806
)
 
$
1,215

Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation
 
944

 
1,105

Amortization
 
390

 
422

Allowance for doubtful accounts
 
85

 
152

Deferred income taxes
 
(141
)
 
613

Stock-based compensation
 
1,225

 
665

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable
 
2,584

 
(11,084
)
Inventories
 
(856
)
 
(202
)
Prepaid expenses, other current assets and other non-current assets
 
(229
)
 
2,584

Accounts payable
 
(2,451
)
 
221

Accrued liabilities and other non-current liabilities
 
(1,656
)
 
3,817

Net cash used in operating activities
 
(1,911
)
 
(492
)
Investing Activities
 
 
 
 
Purchases of property, equipment and patents
 
(1,193
)
 
(1,326
)
Payment for acquisitions, net of cash acquired
 
(8,079
)
 
—

Net cash used in investing activities
 
(9,272
)
 
(1,326
)
Financing Activities
 
 
 
 
Proceeds on short-term borrowings
 
732

 
799

Proceeds from exercises of stock options
 
298

 
—

Excess tax benefit from exercises of stock options
 
7

 
—

Treasury shares withheld
 
(267
)
 
(351
)
Net cash provided by financing activities
 
770

 
448

Effect of exchange rate fluctuations on cash
 
(419
)
 
30

Net decrease in cash and cash equivalents
 
(10,832
)
 
(1,340
)
Cash and cash equivalents at beginning of period
 
27,738

 
24,453

Cash and cash equivalents at end of period
 
$
16,906

 
$
23,113

See notes to consolidated financial statements.

4


FUEL TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)
(in thousands, except share and per-share data)
 
Note A:        Nature of Business
Fuel Tech, Inc. (Fuel Tech or the Company or “we”, “us”, or “our”) is a fully integrated company that uses a suite of advanced technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Originally incorporated in 1987 under the laws of the Netherlands Antilles as Fuel-Tech N.V., Fuel Tech became domesticated in the United States on September 30, 2006, and continues as a Delaware corporation with its corporate headquarters at 27601 Bella Vista Parkway, Warrenville, Illinois, 60555-1617. Fuel Tech maintains an Internet website at www.ftek.com . Fuel Tech’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as amended (Exchange Act), are made available through our website as soon as reasonably practical after electronically filed or furnished to the Securities and Exchange Commission. Also available on Fuel Tech’s website are the Company’s Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors. All of these documents are available in print without charge to stockholders who request them. Information on our website is not incorporated into this report.
Fuel Tech’s special focus is the worldwide marketing of its nitrogen oxide (NO x ) reduction and FUEL CHEM ® processes. The Air Pollution Control (APC) technology segment reduces NO x emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources by utilizing combustion optimization techniques and Low NO x and Ultra Low NO x Burners; Over-Fire Air systems, NO x OUT ® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate ASCR™ (Advanced Selective Catalytic Reduction) technologies including NO x OUT-CASCADE ® , ULTRA™ and NO x OUT-SCR ® processes, Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG™), as well as Electrostatic Precipitator rebuilds and Flue Gas Conditioning systems to control particulate emissions. The FUEL CHEM ® technology segment improves the efficiency, reliability and environmental status of combustion units by controlling slagging, fouling and corrosion, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter (PM 2.5 ), carbon dioxide, NO x and unburned carbon in fly ash through the addition of chemicals into the fuel or via TIFI ® Targeted In-Furnace Injection™ programs. Fuel Tech has other technologies, both commercially available and in the development stage, all of which are related to APC and FUEL CHEM technology segments or are similar in their technological base. We have expended significant resources in the research and development of new technologies in building our proprietary portfolio of air pollution control, fuel and boiler treatment chemicals, computer modeling and advanced visualization technologies. Fuel Tech’s business is materially dependent on the continued existence and enforcement of worldwide air quality regulations.
 
Note B:        Basis of Presentation
The accompanying unaudited 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 of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the balance sheet and results of operations for the periods covered have been included and all significant intercompany transactions and balances have been eliminated.
The balance sheet at December 31, 2013 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’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission.
 
Note C:        Revenue Recognition Policy
Revenues from the sales of chemical products are recorded when title transfers, either at the point of shipment or at the point of destination, depending on the contract with the customer.
Fuel Tech uses the percentage of completion method of accounting for equipment construction and license contracts that are sold within the Air Pollution Control technology segment. Under the percentage of completion method, revenues are recognized as work is performed based on the relationship between actual construction costs incurred and total estimated costs at completion. Construction costs include all direct costs such as materials, labor, and subcontracting costs, and indirect costs allocable to the particular contract such as indirect labor, tools and equipment, and supplies. Revisions in completion estimates and contract values are made in the period in which the facts giving rise to the revisions become known and can influence the timing of when revenues

5


are recognized under the percentage of completion method of accounting. Such revisions have historically not had a material effect on the amount of revenue recognized. The completed contract method is used for certain contracts that are not long-term in nature or when reasonably dependable estimates of the percentage of completion cannot be made. When the completed contract method is used, revenue and costs are deferred until the contract is substantially complete, which usually occurs upon customer acceptance of the installed product. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. As of June 30, 2014 and December 31, 2013 , the Company had one and three contracts in progress, respectively, that were identified as a loss contracts and a provision for loss in the amount of $25 and $68 , respectively, were recorded in other accrued liabilities on the consolidated balance sheets.
Fuel Tech’s APC contracts are typically eight to sixteen months in length. A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings. At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.
As part of most of its contractual APC project agreements, Fuel Tech will agree to customer-specific acceptance criteria that relate to the operational performance of the system that is being sold. These criteria are determined based on mathematical modeling that is performed by Fuel Tech personnel, which is based on operational inputs that are provided by the customer. The customer will warrant that these operational inputs are accurate as they are specified in the binding contractual agreement. Further, the customer is solely responsible for the accuracy of the operating condition information; typically all performance guarantees and equipment warranties granted by us are voidable if the operating condition information is inaccurate or is not met.
Accounts receivable includes unbilled receivables, representing revenues recognized in excess of billings on uncompleted contracts under the percentage of completion method of accounting. At June 30, 2014 and December 31, 2013 , unbilled receivables were approximately $13,302 and $12,599 , respectively, and are included in accounts receivable on the consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts were $1,600 and $1,206 , at June 30, 2014 and December 31, 2013 , respectively. Such amounts are included in other accrued liabilities on the consolidated balance sheets.
Fuel Tech has installed over 800 units with APC technology and normally provides performance guarantees to our customers based on the operating conditions for the project. As part of the project implementation process, we perform system start-up and optimization services that effectively serve as a test of actual project performance. We believe that this test, combined with the accuracy of the modeling that is performed, enables revenue to be recognized prior to the receipt of formal customer acceptance.
 
Note D:        Cost of Sales
Cost of sales includes all internal and external engineering costs, equipment and chemical charges, inbound and outbound freight expenses, internal and site transfer costs, installation charges, purchasing and receiving costs, inspection costs, warehousing costs, project personnel travel expenses and other direct and indirect expenses specifically identified as project- or product line-related, as appropriate (e.g., test equipment depreciation and certain insurance expenses). Certain depreciation and amortization expenses related to tangible and intangible assets, respectively, are also allocated to cost of sales.
 
Note E:        Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily include the following categories except where an allocation to the cost of sales line item is warranted due to the project- or product-line nature of a portion of the expense category: salaries and wages, employee benefits, non-project travel, insurance, legal, rent, accounting and auditing, recruiting, telephony, employee training, Board of Directors’ fees, auto rental, office supplies, dues and subscriptions, utilities, real estate taxes, commissions and bonuses, marketing materials, postage and business taxes. Departments comprising the selling, general and administrative line item primarily include the functions of executive management, finance and accounting, investor relations, regulatory affairs, marketing, business development, information technology, human resources, sales, legal and general administration.

Note F:        Available-for-Sale Marketable Securities
At the time of purchase, marketable securities are classified as available-for-sale as management has the intent and ability to hold such securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell available-for-sale securities would be based on various factors, including, but not limited to asset/liability management strategies, changes in interest rates or prepayment risks, and liquidity needs. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related deferred income taxes, recorded in equity as a separate component of other comprehensive income (OCI). Our marketable securities consist of a single equity investment with a fair value of $ 54 and $ 30 and no cost basis at June 30, 2014 and December 31, 2013 , respectively.
Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in other income/(expense) in the Consolidated Statements of Operations. The cost of securities sold is based on the specific identification method. On a quarterly basis, we make an assessment to determine if there have been any events or circumstances to indicate

6


whether a security with an unrealized loss is impaired on an other-than-temporary (OTTI) basis. This determination requires significant judgment. OTTI is considered to have occurred (1) if management intends to sell the security; (2) if it is more likely than not we will be required to sell the security before recovery of its amortized cost basis; or (3)the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. The credit-related OTTI, represented by the expected loss in principal, is recognized in non-interest income, while noncredit-related OTTI is recognized in OCI. For securities which we do expect to sell, all OTTI is recognized in earnings. Presentation of OTTI is made in the income statement on a gross basis with a reduction for the amount of OTTI recognized in OCI. Once an other-than-temporary impairment is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security. We have not experienced any other-than-temporary impairments during the periods ended June 30, 2014 and 2013 .

Note G:        Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive (loss) income by component were as follows:  
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2014
2013
 
2014
2013
Foreign currency translation
 
 
 
 
 
 
Balance at beginning of period
 
$
(491
)
$
(682
)
 
$
18

$
(419
)
Other comprehensive loss:
 
 
 
 
 
 
Foreign currency translation adjustments (1)
 
151

540

 
(358
)
277

Balance at end of period
 
$
(340
)
$
(142
)
 
$
(340
)
$
(142
)
Available-for-sale marketable securities
 
 
 
 
 
 
Balance at beginning of period
 
$
47

$
27

 
$
19

$
27

Other comprehensive income:
 
 
 
 
 
 
Net unrealized holding gain (2)
 
(22
)
(20
)
 
24

(20
)
Deferred income taxes (2)
 
9

8

 
(9
)
8

Total other comprehensive income
 
(13
)
(12
)
 
15

(12
)
Balance at end of period
 
$
34

$
15

 
$
34

$
15

Total accumulated other comprehensive loss
 
$
(306
)
$
(127
)
 
$
(306
)
$
(127
)

(1)
In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
(2)
In all periods presented, there were no realized holding gains or losses and therefore no amounts were reclassified to earnings.

Note H:        Treasury Stock
Common stock held in treasury totaled 158,110 and 108,657 with a cost of $753 and $486 at June 30, 2014 and December 31, 2013 , respectively. These shares were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock units that vested during 2014 and 2013 .


7


Note I:        Earnings per Share Data
Basic earnings per share excludes the dilutive effects of stock options, restricted stock units (RSUs), and the nil coupon non-redeemable convertible unsecured loan notes. Diluted earnings per share includes the dilutive effect of the nil coupon non-redeemable convertible unsecured loan notes, RSUs, and unexercised in-the-money stock options, except in periods of net loss where the effect of these instruments is antidilutive. Out-of-money stock options are excluded from diluted earnings per share because they are anti-dilutive. At June 30, 2014, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards and convertible loan notes are considered anti-dilutive during periods of net loss. The following table sets forth the weighted-average shares used in calculating the earnings per share for the three and six- month periods ended June 30, 2014 and 2013 .
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
2014
 
2013
Basic weighted-average shares
 
22,814,000

 
22,197,000

 
22,728,000

 
22,155,000

Conversion of unsecured loan notes
 
—

 
7,000

 
—

 
7,000

Unexercised options and unvested RSUs
 
—

 
1,091,000

 
—

 
971,000

Diluted weighted-average shares
 
22,814,000

 
23,295,000

 
22,728,000

 
23,133,000

 
Fuel Tech had 1,434,000 and 1,658,000 weighted average equity awards outstanding at June 30, 2014 and 2013 , respectively, that were not dilutive for the purposes of inclusion in the calculation of diluted earnings per share but could potentially become dilutive in future periods.

Note J:        Stock-Based Compensation

Fuel Tech’s 2014 Long-term Incentive Plan (2014 Plan) was adopted in May 2014, and replaced our prior incentive plan which was first approved by our stockholders in 1993 and subsequently amended and approved by our stockholders in 2004 (FTIP). No further grants will be made from the FTIP. The 2014 Plan and FTIP are referred to collectively as the Incentive Plans.

The 2014 Plan permits grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (in the form of equity or cash bonuses), dividend equivalents on full value awards and other awards (which may be based in whole or in part on the value of our common stock or other property). Directors, salaried employees, and consultants of Fuel Tech and its commonly-controlled affiliates are eligible to participate in the 2014 Plan. The number of shares originally reserved for share-based awards under the 2014 Plan equaled 2,000,000 shares, less the number of share-based awards made under the FTIP between December 31, 2013 and the effectiveness of the 2014 Plan. As of June 30, 2014 , Fuel Tech had 1,437,150 shares available for share-based awards under the 2014 Plan.
Stock-based compensation is included in selling, general, and administrative costs in our Consolidated Statements of Operations. The components of stock-based compensation for the three and six - month periods ended June 30, 2014 and 2013 were as follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
2013
 
2014
2013
Stock options and restricted stock units
 
$
801

$
336

 
$
1,225

$
665

Tax benefit of stock-based compensation expense
 
(309
)
(122
)
 
(472
)
(242
)
After-tax effect of stock-based compensation
 
$
492

$
214

 
$
753

$
423

As of June 30, 2014 , there was $4,091 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plans.
Stock Options
Stock options granted to employees under the Incentive Plans have a 10 -year life and they vest as follows: 50% after the second anniversary of the award date, 25% after the third anniversary, and the final 25% after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over the four -year service period of the award. Stock options granted to members of our board of directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately.

8


Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: (1) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility – an estimate based on the historical volatility of Fuel Tech’s Common Stock for a period equal to the expected life of the option; and (3) expected life of the option – an estimate based on historical experience including the effect of employee terminations.
Stock option activity for Fuel Tech’s Incentive Plans for the six - months ended June 30, 2014 was as follows:
 
 
Number
of
Options
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding on January 1, 2014
 
1,688,500

 
$
11.88

 
 
 
 
Granted
 
94,500

 
5.22

 
 
 
 
Exercised
 
(60,000
)
 
4.96

 
 
 
 
Expired or forfeited
 
(5,000
)
 
22.63

 
 
 
 
Outstanding on June 30, 2014
 
1,718,000

 
$
11.73

 
3.71
 
$
417

Exercisable on June 30, 2014
 
1,708,000

 
$
11.76

 
3.69
 
$
417

Non-vested stock option activity for the six months ended June 30, 2014 was as follows:
 
 
Non-Vested Stock
Options
Outstanding
 
Weighted-Average
Grant Date
Fair Value
Outstanding on January 1, 2014
 
10,000

 
$
6.10

Granted
 
94,500

 
5.20

Vested
 
(94,500
)
 
5.20

Forfeited
 
—

 
—

Outstanding on June 30, 2014
 
10,000

 
$
6.10

As of June 30, 2014 , there was $6 of total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans. This cost is expected to be recognized during 2014.
Restricted Stock Units
Restricted stock units (RSUs) granted to employees vest over time based on continued service (typically vesting over a three year period in equal installments). Such time-vested RSUs are valued at fair value based on the closing price on the date of grant using the intrinsic value method. Compensation cost, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service period.
In addition to the time vested RSUs described above, commencing in 2011, on an annual basis the Company entered into performance-based RSU agreements (the Agreements) with each of the Company’s President/Chief Executive Officer, Treasurer/Chief Financial Officer, Executive Vice President of Marketing & Sales, and Executive Vice President and Chief Operating Officer. Commencing in 2013, the Company’s Senior Vice President, General Counsel, and Secretary also entered into an agreement. The Agreements provide each participating executive the opportunity to earn three types of awards with each award type specifying a targeted number of RSUs that may be granted to each executive based on either the individual performance of the executive or the Company’s relative performance compared to a peer group, as determined by the award type. The Compensation Committee of our Board of Directors (the Committee) determines the extent to which, if any, RSUs will be granted based on the achievement of the applicable performance criteria specified in the Agreement. This determination will be made following the completion of the applicable performance period (each a Determination Date). Such performance based awards include the following:
•
The first type of award is based on individual performance during the respective calendar year as determined by the Committee based on performance criteria specified in the Agreement. These awards will vest over a three year period beginning on the Determination Date. We estimated the fair value of these performance-based RSU awards on the date of the Agreement using the trading price of the Company’s stock and our estimate of the probability that the specified performance criteria will be met. The fair value measurement and probability estimate will be re-measured each reporting date until the Determination Date, at which time the final award amount will be known. For these job performance-based awards, we amortize compensation costs over the requisite service period, adjusted for estimated forfeitures, for each separately vesting tranche of the award.

9


•
The second type of RSU award contains a targeted number of RSUs to be granted based on the Company’s revenue growth relative to a specified peer group during a period of two calendar years. These awards vest 67% on the second anniversary of the Agreement date and 33% on the third anniversary of the Agreement date. We estimated the fair value of these performance-based RSU awards on the Agreement date using the trading price of the Company’s stock on the date of determination and our estimate of the probability that the specified performance criteria will be met. For these revenue growth performance-based awards, we amortize compensation costs over the requisite service period, adjusted for estimated forfeitures, for each separately vesting tranche of the award.
•
The third type of RSU award contains a targeted number of RSUs to be granted based on the total shareholder return (TSR) of the Company’s common stock relative to a specified peer group during a period of two calendar years. These awards vest 67% on the second anniversary of the Agreement date and 33% on the third anniversary of the Agreement date. We estimated the fair value of these market-based RSU awards on the Agreement date using a Monte Carlo valuation methodology and amortize the fair value over the requisite service period for each separately vesting tranche of the award. The principal variable assumptions utilized in valuing these RSUs under this valuation methodology include the risk-free interest rate, stock volatility, and correlations between our stock price and the stock prices of a peer group of companies.
At June 30, 2014 , there is $4,085 of unrecognized compensation costs related to restricted stock unit awards to be recognized over a weighted average period of 2.09 years.
A summary of restricted stock unit activity for the six -month period ended June 30, 2014 is as follows:
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
Unvested restricted stock units at January 1, 2014
 
772,016

 
$
5.35

Granted
 
484,450

 
5.44

Forfeited
 
(14,515
)
 
5.16

Vested
 
(230,507
)
 
5.68

Unvested restricted stock units at June 30, 2014
 
1,011,444

 
$
5.32

Deferred Directors Fees
In addition to the Incentive Plans, Fuel Tech has a Deferred Compensation Plans for Directors (Deferred Plan). Under the terms of the Deferred Plan, Directors can elect to defer Directors’ fees for shares of Fuel Tech Common Stock that are issuable at a future date as defined in the agreement. In accordance with ASC 718, Fuel Tech accounts for these awards as equity awards. In the six -month periods ended June 30, 2014 and 2013 , Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.
 
Note K:        Debt
On June 30, 2013, Fuel Tech amended its existing revolving credit facility (the Facility) with JPMorgan Chase Bank, N.A (JPM Chase) to extend the maturity date through June 30, 2015. The total borrowing base of the facility is $15,000 and contains a provision to increase the facility up to a total principal amount of $25,000 upon approval from JPM Chase. The Facility is unsecured, bears interest at a rate of LIBOR plus a spread range of 250 basis points to 375 basis points , as determined by a formula related to the Company’s leverage ratio, and has the Company’s Italian subsidiary, Fuel Tech S.r.l., as a guarantor. Fuel Tech can use this Facility for cash advances and standby letters of credit. As of June 30, 2014 and December 31, 2013 , there were no outstanding borrowings on the credit facility.
The Facility contains several debt covenants with which the Company must comply on a quarterly or annual basis, including a maximum Funded Debt to EBITDA Ratio (or “Leverage Ratio”, as defined in the Facility) of 2.0 : 1.0 based on the four trailing quarterly periods. Maximum funded debt is defined as all borrowed funds, outstanding standby letters of credit and bank guarantees. EBITDA includes after tax earnings with add backs for interest expense, income taxes, depreciation and amortization, and stock-based compensation expenses. In addition, the Facility covenants include an annual capital expenditure limit of $10,000 and a minimum tangible net worth of $55,000 , adjusted upward for 50% of net income generated and 100% of all capital issuances. At June 30, 2014 , the Company was in compliance with all financial covenants specified by the Facility.
At June 30, 2014 and December 31, 2013 , the Company had outstanding standby letters of credit and bank guarantees totaling approximately $3,863 and $3,478 , respectively, on its domestic credit facility in connection with contracts in process. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments. At June 30, 2014 and December 31, 2013 , there were no cash borrowings under the domestic revolving credit facility and approximately $11,137 and $11,522 , respectively, was available for future borrowings. The Company pays a commitment fee of 0.25%  per year on the unused portion of the revolving credit facility.

10


On June 27, 2014, Beijing Fuel Tech Environmental Technologies Company, Ltd. (Beijing Fuel Tech), a wholly-owned subsidiary of Fuel Tech, entered into a new revolving credit facility (the China Facility) agreement with JPM Chase for RMB 35 million (approximately $5,684 ), which expires on June 26, 2015. This credit facility replaced the previous RMB 35 million facility that expired on June 27, 2014. The facility is unsecured, bears interest at a rate of 125% of the People’s Bank of China (PBOC) Base Rate, and is guaranteed by Fuel Tech. Beijing Fuel Tech can use this facility for cash advances and bank guarantees. As of June 30, 2014 and December 31, 2013 , Beijing Fuel Tech has borrowings outstanding in the amount of $2,355 and $1,636 , respectively. These borrowings were subject to interest rates of approximately 7.0% at June 30, 2014 and December 31, 2013 , respectively.
At June 30, 2014 and December 31, 2013 , the Company had outstanding standby letters of credit and bank guarantees totaling approximately $916 and $646 , respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At June 30, 2014 and December 31, 2013 , approximately $2,413 and $3,443 was available for future borrowings.
In the event of default on either the domestic facility or the China facility, the cross default feature in each allows the lending bank to accelerate the payments of any amounts outstanding and may, under certain circumstances, allow the bank to cancel the facility. If the Company were unable to obtain a waiver for a breach of covenant and the bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment.
Interest payments in the amount of $63 and $10 were made during the six -month periods ended June 30, 2014 and 2013 .
 
Note L:        Business Segment and Geographic Disclosures
Fuel Tech segregates its financial results into two reportable segments representing two broad technology segments as follows:
•
The Air Pollution Control technology segment includes technologies to reduce NO x emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources. These include Low and Ultra Low NO x Burners (LNB and ULNB), Over-Fire Air (OFA) systems, NO x OUT ® and HERT™ Selective Non-Catalytic Reduction (SNCR) systems, and Advanced Selective Catalytic Reduction (ASCR™) systems. The ASCR system includes ULNB, OFA, and SNCR components, along with a downsized SCR catalyst, Ammonia Injection Grid (AIG), and Graduated Straightening Grid (GSG™) systems to provide high NO x reductions at significantly lower capital and operating costs than conventional SCR systems. The NO x OUT CASCADE ® and NO x OUT-SCR ® processes are basic types of ASCR systems, using just SNCR and SCR catalyst components. ULTRA™ technology creates ammonia at a plant site using safe urea for use with any SCR application. Also included in this technology segment are Electrostatic Precipitator (ESP) rebuilds and retrofits and Flue Gas Conditioning systems, which are chemical injection systems used to enhance ESP and fabric filter performance in controlling particulate emissions.
•
The FUEL CHEM ® technology segment, which uses chemical processes in combination with advanced Computational Fluid Dynamics (CFD) and Chemical Kinetics Modeling (CKM) boiler modeling, for the control of slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in furnaces and boilers through the addition of chemicals into the furnace using TIFI ® Targeted In-Furnace Injection™ technology.
The “Other” classification includes those profit and loss items not allocated by Fuel Tech to each reportable segment. Further, there are no intersegment sales that require elimination.
Fuel Tech evaluates performance and allocates resources based on reviewing gross margin by reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (Note 1 in our annual report on Form 10-K). Fuel Tech does not review assets by reportable segment, but rather, in aggregate for Fuel Tech as a whole.

11


Information about reporting segment net sales and gross margin are provided below:  
Three months ended June 30, 2014
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
11,304

 
$
8,886

 
$
—

 
$
20,190

Cost of sales
 
(7,688
)
 
(3,989
)
 
—

 
(11,677
)
Gross margin
 
3,616

 
4,897

 
—

 
8,513

Selling, general and administrative
 
—

 
—

 
(8,959
)
 
$
(8,959
)
Research and development
 
—

 
—

 
(225
)
 
$
(225
)
Operating income (loss)
 
$
3,616

 
$
4,897

 
$
(9,184
)
 
$
(671
)
 
Three months ended June 30, 2013
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
20,239

 
$
8,853

 
$
—

 
$
29,092

Cost of sales
 
(13,083
)
 
(4,144
)
 
—

 
(17,227
)
Gross margin
 
7,156

 
4,709

 
—

 
11,865

Selling, general and administrative
 
—

 
—

 
(9,307
)
 
$
(9,307
)
Research and development
 
—

 
—

 
(430
)
 
$
(430
)
Operating income (loss)
 
$
7,156

 
$
4,709

 
$
(9,737
)
 
$
2,128

Six months ended June 30, 2014
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
22,038

 
$
16,813

 
$
—

 
$
38,851

Cost of sales
 
(14,718
)
 
(7,769
)
 
—

 
(22,487
)
Gross margin
 
7,320

 
9,044

 
—

 
16,364

Selling, general and administrative
 
—

 
—

 
(17,703
)
 
$
(17,703
)
Research and development
 
—

 
—

 
(469
)
 
$
(469
)
Operating income (loss)
 
$
7,320

 
$
9,044

 
$
(18,172
)
 
$
(1,808
)
Six months ended June 30, 2013
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
33,186

 
$
18,390

 
$
—

 
$
51,576

Cost of sales
 
(21,666
)
 
(8,613
)
 
—

 
(30,279
)
Gross margin
 
11,520

 
9,777

 
—

 
21,297

Selling, general and administrative
 
—

 
—

 
(17,765
)
 
$
(17,765
)
Research and development
 
—

 
—

 
(1,363
)
 
$
(1,363
)
Operating income (loss)
 
$
11,520

 
$
9,777

 
$
(19,128
)
 
$
2,169











12



Information concerning Fuel Tech’s operations by geographic area is provided below. Revenues are attributed to countries based on the location of the customer. Assets are those directly associated with operations of the geographic area.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
United States
$
13,734

 
$
17,244

 
$
22,963

 
$
30,110

Foreign
6,456

 
11,848

 
15,888

 
21,466

 
$
20,190

 
$
29,092

 
$
38,851

 
$
51,576


 
 
June 30,
2014
 
December 31,
2013
Assets:
 
 
 
 
United States
 
$
79,377

 
$
83,464

Foreign
 
28,812

 
26,594

 
 
$
108,189

 
$
110,058

 
Note M:        Contingencies
Fuel Tech issues a standard product warranty with the sale of its products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.
Changes in the warranty liability for the six months June 30, 2014 , and 2013 , are summarized below:
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
Aggregate product warranty liability at beginning of period
 
$
596

 
$
776

Net aggregate expense related to product warranties
 
(75
)
 
98

Aggregate reductions for payments
 
(22
)
 
(72
)
Aggregate product warranty liability at end of period
 
$
499

 
$
802

 

Note N:        Income Taxes
The Company’s effective tax rate of 6% and 39% for the six-month periods ended June 30, 2014 and 2013 , respectively, differs from the statutory federal tax rate of 34% due primarily to state taxes, differences between U.S. and foreign tax rates, foreign losses incurred with no related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses.

13


Fuel Tech had unrecognized tax benefits as of June 30, 2014 and December 31, 2013 in the amount of $65 , respectively, all of which, if ultimately recognized, will reduce Fuel Tech's annual effective tax rate.  

Note O:        Goodwill and Other Intangibles
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. Fuel Tech has two reporting units which are reported in the FUEL CHEM ® technology segment and the APC technology segment. At June 30, 2014 and December 31, 2013 , goodwill allocated to the FUEL CHEM technology segment was $1,723 and $1,723 , respectively, while goodwill allocated to the APC technology segment was $26,796 and $19,328 , respectively. The $7,468 increase in goodwill in the APC technology segment is due to the acquisitions of Cleveland Roll Forming Environmental Division, Inc. d/b/a PECO ("PECO"), and FGC, Inc. ("FGC") on April 30, 2014. The increase includes both amounts attributable to goodwill and to other finite-lived intangible assets because the allocation of the purchase price to the acquired assets and assumed liabilities is not yet completed due to the fact that the fair values of any potential finite-lived intangibles and other tangible assets is not yet known. Once the fair value measurements and purchase price allocation are
completed, the amounts attributed to goodwill and other intangibles assets will change. Refer to Note R to the consolidated financial statements for additional details.
Goodwill is allocated to each of our reporting units after considering the nature of the net assets giving rise to the goodwill and how each reporting unit would enjoy the benefits and synergies of the net assets acquired. Our last annual fair value measurement test, performed as of October 1, 2013 revealed no indications of impairment. There were no indications of goodwill impairment in the six -month periods ended June 30, 2014 and 2013 .
Fuel Tech reviews other intangible assets, which include customer lists and relationships, covenants not to compete, patent assets, tradenames, and acquired technologies, for impairment on a recurring basis or when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated. There were no indications of intangible asset impairment in the six -month periods ended June 30, 2014 and 2013 .

Note P:        Fair Value
The Company applies authoritative accounting guidance for fair value measurements of financial and nonfinancial assets and liabilities. This guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis and clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
•
Level 1 – Observable inputs to the valuation methodology such as quoted prices in active markets for identical assets or liabilities
•
Level 2 – Inputs to the valuation methodology including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets of liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means
•
Level 3 – Significant unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own estimates and assumptions or those expected to be used by market participants. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, option pricing models, and other commonly used valuation techniques
The fair value of our marketable securities was $ 54 and $ 30 at June 30, 2014 and December 31, 2013 , respectively, and was determined using quoted prices in active markets for identical assets (Level 1 fair value measurements). Transfers between levels of the fair value hierarchy are recognized based on the actual date of the event or change in circumstances that caused the transfer. We had no assets or liabilities that were valued using level 2 or level 3 inputs and therefore there were no transfers between levels of the fair value hierarchy during the six -month periods ended June 30, 2014 and 2013 .
The carrying amount of our short-term debt and revolving line of credit approximates fair value due to its short-term nature and because the amounts outstanding accrue interest at variable market-based rates.
 
Note Q:        Recently Added and Pending Accounting Pronouncements
On January 1, 2014, Fuel Tech adopted changes issued by the Financial Accounting Standards Board (FASB) to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. The adoption of these changes had no impact on the Consolidated Financial Statements, as Fuel Tech does not currently have any such arrangements.
On January 1, 2014, Fuel Tech adopted changes issued by the FASB to a parent entity’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign

14


entity. A parent entity is required to release any related cumulative foreign currency translation adjustment from accumulated other comprehensive income into net income in the following circumstances: (i) a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided; (ii) a partial sale of an equity method investment that is a foreign entity; (iii) a partial sale of an equity method investment that is not a foreign entity whereby the partial sale represents a complete or substantially complete liquidation of the foreign entity that held the equity method investment; and (iv) the sale of an investment in a foreign entity. The adoption of these changes had no impact on the Consolidated Financial Statements. This guidance will need to be considered in the event Fuel Tech initiates any of the transactions described above.
On January 1, 2014, Fuel Tech adopted changes issued by the FASB to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. Previously, there was diversity in practice as no explicit guidance existed. The adoption of these changes did not result in a significant impact on the Consolidated Financial Statements.
In April 2014, the FASB issued changes to reporting discontinued operations and disclosures of disposals of components of an entity. These changes require a disposal of a component to meet a higher threshold in order to be reported as a discontinued operation in an entity’s financial statements. The threshold is defined as a strategic shift that has, or will have, a major effect on an entity’s operations and financial results such as a disposal of a major geographical area or a major line of business. Additionally, the following two criteria have been removed from consideration of whether a component meets the requirements for discontinued operations presentation: (i) the operations and cash flows of a disposal component have been or will be eliminated from the ongoing operations of an entity as a result of the disposal transaction, and (ii) an entity will not have any significant continuing involvement in the operations of the disposal component after the disposal transaction. Furthermore, equity method investments now may qualify for discontinued operations presentation. These changes also require expanded disclosures for all disposals of components of an entity, whether or not the threshold for reporting as a discontinued operation is met, related to profit or loss information and/or asset and liability information of the component. These changes become effective for Fuel Tech on January 1, 2015. Management has determined that the adoption of these changes will not have an immediate impact on the Consolidated Financial Statements. This guidance will need to be considered in the event Fuel Tech initiates a disposal transaction.
In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective for Fuel Tech on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.

Note R:        Business Acquisitions

On April 30, 2014 Fuel Tech acquired 100% of the capital stock of Cleveland Roll Forming Environmental Division, Inc. d/b/a PECO (“PECO”), and FGC, Inc. ("FGC"), both Ohio corporations. Pursuant to the stock purchase agreements, PECO and FGC became wholly owned subsidiaries of Fuel Tech. Fuel Tech paid to the sellers total net cash consideration of $8,079 , which consists of the agreed upon purchase price of $8,250 plus a working capital adjustment of $391 , less cash acquired of $562 . The stock purchase agreements contains customary representations, warranties and indemnities.

PECO specializes in electrostatic precipitator (ESP) rebuilds, retrofits and associated products and services. FGC specializes in flue gas conditioning to enhance electrostatic precipitator and fabric filter performance in boilers. These acquisitions broaden our APC product portfolio and grants us immediate access into the fast-growing particulate control market, creating opportunities both domestically and abroad.


15


The PECO and FGC acquisitions is being accounted for using the acquisition method of accounting whereby the total purchase price is allocated to tangible and intangible assets and liabilities based on their estimated fair market values on the date of acquisition. These fair value estimates will be based on a third party valuation that is expected to be finalized in the third or forth quarter of 2014.
The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of acquisition. The approximate fair value of the assets and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as we finalize the valuations of these assets and liabilities. Such changes could result in material variances between the Company's future financial results and the amounts presented in the unaudited pro forma information, including variances in estimated purchase price, fair values recorded, and expenses associated with these items.
 
 
Estimated Fair Values April 30, 2014
 
 
 
Current assets
 
$
2,365

Property, plant and equipment
 
281

Current liabilities assumed
 
(2,035
)
Total identifiable net assets acquired
 
611

Goodwill and other intangible assets
 
7,468

     Total assets acquired
 
$
8,079


Included in current assets is the estimated fair value of accounts receivable of $2,215 . Goodwill and other intangible assets recorded in connection with the above acquisition is primarily attributable to the synergies expected to arise after the Company's acquisition of the businesses, customer relationships, backlog associated with construction-type contracts in process, trade names, and the assembled workforce of the acquired businesses. The goodwill will be attributed to our APC technology segment and is not expected to be deductible for tax purposes.

The following table summarizes the net sales and earnings before income taxes of PECO and FGC since the acquisition date, April 30, 2014, which is included in the consolidated statement of operations for the three and six months ended June 30, 2014:
 
 
Three and Six Months Ended June 30, 2014
Revenue
 
$
2,639

Net income
 
734

 
 
 
Net income per Common Share
 
 
      Basic
 
$
0.03

      Diluted
 
$
0.03


The following unaudited pro forma information represents the Company's results of operations as if the acquisition date had occurred on January 1, 2013:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
2014
 
2013
Revenue
 
$
21,906

 
$
31,181

 
$
44,548

 
$
57,099

Net income / (loss)
 
(295
)
 
1,044

 
(525
)
 
1,468

 
 
 
 
 
 
 
 
 
Net income / (loss) per Common Share
 
 
 
 
 
 
 
 
      Basic
 
$
(0.01
)
 
$
0.05

 
$
(0.02
)
 
$
0.07

      Diluted
 
$
(0.01
)
 
$
0.04

 
$
(0.02
)
 
$
0.06


The pro forma results have been prepared for informational purposes only and include adjustments to eliminate acquisition related expenses, intercompany transactions, and to record the income tax consequences of the pro forma adjustments. The pro forma results do not include any adjustments to amortized acquired intangible assets with finite lives because the fair value of these

16


intangibles is not yet known. These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchases been made as of the beginning of the periods presented or of the results of operations that may occur in the future.
The Company recognized approximately $48 of acquisition-related costs that were expensed during the three months ended June 30, 2014. These acquisition costs are included in general and administrative expenses in the Consolidated Statement of Operations for the three and six months ended June 30, 2014.
FUEL TECH, INC.

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations    
Results of Operations
Revenues for the three- and six-months ended June 30, 2014 and 2013 were $20,190 and $29,092 and $38,851 and $51,576 , respectively, representing a 31% and 25% respective decrease versus the same periods last year.
The Air Pollution Control (APC) technology segment generated revenues of $11,304 and $22,038 for the three- and six -month periods ending June 30, 2014 , respectively, a decrease of $8,935 or 44% , and $11,148 or 34% from the prior period amounts of $20,239 and $33,186 , respectively.
Consolidated APC backlog at June 30, 2014 was $17,682 versus backlog at June 30, 2013 of $45,135. Our current backlog consists of US domestic projects totaling $9,046 and international projects totaling $8,636 .
The FUEL CHEM ® technology segment generated revenues of $8,886 and $16,813 for the three- and six -months ended June 30, 2014 , respectively. For the three-month period this represents a modest increase of $33 versus the prior year amount of $8,853 . For the six-month period ended June 30, 2014 this represents a decrease of $1,577 or 9% compared to the prior year period amount of $18,390 . This segment continues to be affected by the soft electric demand market and low natural gas prices, which leads to fuel switching, unscheduled outages, and combustion units operating less than capacity.

Consolidated gross margin percentage for both the three- and six month periods ended June 30, 2014 and 2013 was 42% and 41% , respectively. The gross margin percentage for the APC technology segment decreased to 32% from 35% in the comparable three-month prior-year period. For the FUEL CHEM technology segment, the gross margin percentage increased to 55% from 53% in the comparable prior-year quarter. For the six-month period, the gross margin percentage for the APC technology segment decreased to 33% from 35% compared to the prior-year period, and for the FUEL CHEM technology segment the gross margin percentage increased to 54% from 53% in the comparable prior-year period.

Selling, general and administrative expenses (SG&A) for the three- and six-month periods ended June 30, 2014 were $8,959 and $17,703 , respectively, and for the same periods in 2013 were $9,307 and $17,765 , respectively. For the three-month period this represents a twelve point increase in SG&A as a percentage of revenues to 44% from 32% , and for the six-month period this represents a twelve point increase as a percentage of revenues to 46% from 34% . These increases in SG&A percentages are attributed to lower overall revenues and relatively flat spending levels in the current periods compared to the prior periods. On a total dollar basis, SG&A for the six month period ended June 30, 2014 has decreased slightly by $62 , which was primarily the result of decreases in employee related costs of $1,386 partially offset by increases in stock compensation of $560, professional fees of $264, former leased office expenses of $300, depreciation of $146, and administrative costs associated with our foreign operations of $49.

Research and development expenses for the six -month periods ended June 30, 2014 and 2013 were $469 and $1,363 , respectively. Although our annual R&D spending has decreased, the Company plans to continue to pursue new commercial applications for technologies outside of our traditional markets and in the development and analysis of new technologies that could represent incremental market opportunities.

Interest expense for the three- and six -month periods ended June 30, 2014 and 2013 were $34 and $10 , and $63 and $10 , respectively. This interest expense relates to borrowings made under the Beijing Fuel Tech credit facility.

Income tax benefit (expense) for the three- and six -months ended ended June 30, 2014 and 2013 were $18 and $(767) , and $117 and $(764) respectively, and reflective of the Company's net loss for the respective quarters. The Company is projecting a consolidated effective tax rate of 7% for 2014.

17


Liquidity and Sources of Capital

At June 30, 2014 , Fuel Tech had cash and cash equivalents and short-term investments on hand of $16,960 and working capital of $40,535 versus $27,768 and $48,619 at December 31, 2013 , respectively.

Operating activities used cash of $1,911 during the six -month period ended June 30, 2014 . This decrease in cash from operations was due to cash used by our net loss of $1,806 , an increase in inventories and prepaid expenses of $1,085 and a decrease in the outstanding accounts payable and accrued liabilities balances of $4,107 , offset by non-cash expenses of $2,503 , and a decrease in accounts receivable of $2,584 .

Investing activities used cash of $9,272 during the six -month period ended June 30, 2014 and related to net cash used for the PECO and FGC acquisitions of $8,079 and purchases of equipment and patents of $1,193 .

Financing activities provided cash of $770 as a result of cash proceeds from short term borrowings of $732 and the cash proceeds and excess tax benefits from the exercise of stock options of $305 , offset by cash used of $267 for the acquisition of common shares held in treasury that were withheld for taxes due by employees upon lapsing of restricted stock units.
On June 30, 2013, Fuel Tech amended its existing revolving credit facility (the Facility) with JPMorgan Chase Bank, N.A (JPM Chase) to extend the maturity date through June 30, 2015. The total borrowing base of the facility is $15,000 and contains a provision to increase the facility up to a total principal amount of $25,000 upon approval from JPM Chase. The Facility is unsecured, bears interest at a rate of LIBOR plus a spread range of 250 basis points to 375 basis points , as determined by a formula related to the Company’s leverage ratio, and has the Company’s Italian subsidiary, Fuel Tech S.r.l., as a guarantor. Fuel Tech can use this Facility for cash advances and standby letters of credit. As of June 30, 2014 and December 31, 2013 , there were no outstanding borrowings on the credit facility.
The Facility contains several debt covenants with which the Company must comply on a quarterly or annual basis, including a maximum Funded Debt to EBITDA Ratio (or “Leverage Ratio”, as defined in the Facility) of 2.0 : 1.0 based on the four trailing quarterly periods. Maximum funded debt is defined as all borrowed funds, outstanding standby letters of credit and bank guarantees. EBITDA includes after tax earnings with add backs for interest expense, income taxes, depreciation and amortization, and stock-based compensation expenses. In addition, the Facility covenants include an annual capital expenditure limit of $10,000 and a minimum tangible net worth of $55,000 , adjusted upward for 50% of net income generated and 100% of all capital issuances. At June 30, 2014 , the Company was in compliance with all financial covenants specified by the Facility.
At June 30, 2014 and December 31, 2013 , the Company had outstanding standby letters of credit and bank guarantees totaling approximately $3,863 and $3,478 , respectively, on its domestic credit facility in connection with contracts in process. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments. At June 30, 2014 and December 31, 2013 , there were no cash borrowings under the domestic revolving credit facility and approximately $11,137 and $11,522 , respectively, was available for future borrowings. The Company pays a commitment fee of 0.25%  per year on the unused portion of the revolving credit facility.
On June 27, 2014, Beijing Fuel Tech Environmental Technologies Company, Ltd. (Beijing Fuel Tech), a wholly-owned subsidiary of Fuel Tech, entered into a new revolving credit facility (the China Facility) agreement with JPM Chase for RMB 35 million (approximately $5,684 ), which expires on June 26, 2015. This credit facility replaced the previous RMB 35 million facility that expired on June 27, 2014. The facility is unsecured, bears interest at a rate of 125% of the People’s Bank of China (PBOC) Base Rate, and is guaranteed by Fuel Tech. Beijing Fuel Tech can use this facility for cash advances and bank guarantees. As of June 30, 2014 and December 31, 2013 , Beijing Fuel Tech has borrowings outstanding in the amount of $2,355 and $1,636 , respectively. These borrowings were subject to interest rates of approximately 7.0% at June 30, 2014 and December 31, 2013 , respectively.
At June 30, 2014 and December 31, 2013 , the Company had outstanding standby letters of credit and bank guarantees totaling approximately $916 and $646 , respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At June 30, 2014 and December 31, 2013 , approximately $2,413 and $3,443 was available for future borrowings.
In the event of default on either the domestic facility or the China facility, the cross default feature in each allows the lending bank to accelerate the payments of any amounts outstanding and may, under certain circumstances, allow the bank to cancel the facility. If the Company were unable to obtain a waiver for a breach of covenant and the bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment.
Contingencies and Contractual Obligations
Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note M. The warranty liability balance during the six -months ended June 30, 2014 decreased by approximately $97.

18


Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2013 in Item 1A under the caption “Risk Factors,” which could cause Fuel Tech’s actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in Fuel Tech’s filings with the Securities and Exchange Commission.

Item 3.        Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk Management
Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.
Fuel Tech is also exposed to changes in interest rates primarily due to its debt facilities (refer to Note K to the consolidated financial statements). A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not have a materially adverse effect on interest expense during the upcoming year ended December 31, 2014 .
 
Item 4.        Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Fuel Tech maintains disclosure controls and procedures and internal controls designed to ensure (a) that information required to be disclosed in Fuel Tech’s filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) that such information is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. Fuel Tech’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d -15(e) of the Exchange Act, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were changes as described below in Fuel Tech's internal control over financial reporting during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect Fuel Tech's internal control over financial reporting.
During the first quarter of 2014, Fuel Tech implemented a series of Epicor ERP modules, including a new general ledger and chart of accounts, new reporting and accounts payable and new procurement and materials management modules. The introduction of these ERP modules and the related workflow capabilities resulted in changes to Fuel Tech's financial reporting controls and procedures, with such changes identified during the implementation of the ERP modules. Therefore, as appropriate, Fuel Tech is modifying the design and documentation of internal control process and procedures relating to the new system to supplement and complement existing internal controls over financial reporting. The system changes were undertaken to integrate systems and consolidate information, and were not undertaken in response to any actual or perceived deficiencies in Fuel Tech's control over financial reporting.

19


PART II. OTHER INFORMATION

Item 1.    Legal Proceedings
We are from time to time involved in litigation incidental to our business. We are not currently involved in any litigation in which we believe an adverse outcome would have a material effect on our business, financial conditions, results of operations, or prospects.
 
Item 1A.        Risk Factors
The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2013 have not materially changed.
 
Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

None

20


Item 6.        Exhibits
a.
Exhibits (all filed herewith)
 
 
 
 
 
4.1
 
Form of 2014 Fuel Tech, Inc. Long-Term Incentive Plan Time-Vested Restricted Stock Unit Agreement
 
 
 
 
 
4.2
 
Form of 2014 Fuel Tech, Inc. Long-Term Incentive Plan Non-Employee Director Stock Option Agreement
 
 
 
 
 
31.1
 
Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
 
 
 
 
31.2
 
Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
 
 
 
 
32
 
Certification of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002
 
 
 
 
101.1
 
INSXBRL Instance Document
 
 
 
 
101.2
 
SCHXBRL Taxonomy Extension Schema Document
 
 
 
 
101.3
 
CALXBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
101.4
 
DEFXBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
101.5
 
LABXBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
101.6
 
PREXBRL Taxonomy Extension Prevention Linkbase Document


21


FUEL TECH, INC.
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 11, 2014
By:
/s/ Douglas G. Bailey
 
 
Douglas G. Bailey
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)

Date: August 11, 2014
By:
/s/ David S. Collins
 
 
David S. Collins
 
 
Senior Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)


22



RESTRICTED STOCK UNIT AGREEMENT
TIME VESTING
This Restricted Stock Unit Agreement (the “ Agreement ”) is hereby entered into effective as of ________________, 2014 (the “ Award Date ”), by and between Fuel Tech, Inc. (the “ Company ”), and _________________ (the “ Participant ”). Any term capitalized but not defined in this Agreement will have the meaning set forth in the Fuel Tech, Inc. 2014 Long-Term Incentive Plan, as may be amended, modified or restated from time to time (the “ Plan ”).
1. Award of Restricted Stock Units . In accordance with the terms of the Plan and subject to the terms and conditions of this Agreement, the Company hereby awards the Participant ________________ Restricted Stock Units (“ RSUs ”), effective as of the Award Date. Each vested RSU entitles the Participant to receive one Share on the Distribution Date (as defined below).
2. Vesting of RSUs . All RSUs awarded to the Participant hereunder will vest according to the following schedule:
(a) one-third of the RSUs shall vest on the date that is thirteen (13) months from the Award Date, subject to the Participant’s Continuous Service through that date (“ First Vesting Period ”);
(b) an additional one-third of the RSUs shall vest on the second anniversary of the Award Date, subject to the Participant’s Continuous Service through that date; and
(c) a final one-third of the RSUs shall vest on the third anniversary of the Award Date, subject to the Participant’s Continuous Service through that date.
Each of the periods described in subsections (a), (b) and (c) above is referred to in this paragraph as a “ Vesting Period ”. Notwithstanding the foregoing subsections (a), (b) and (c), in the event the Participant retires on or after reaching age 66, the RSU’s that were scheduled to vest at the end of the Vesting Period in which the Participant retires (i.e., subject to the Participant’s Continuous Service through the end of such Vesting Period) shall vest on a pro-rata basis based on the number of days from the beginning of such Vesting Period through the day on which the Participant’s Continuous Service ends due to the Participant’s retirement, divided by the total number of days in such Vesting Period.
3. Termination of Continuous Service . Upon the termination of the Participant’s Continuous Service:
(a) The Participant will forfeit any RSUs that have not vested under Section 2 above; and
(b) The Company will distribute to the Participant Shares equal to the number of RSUs already vested regardless of whether or not the Participant had elected to defer under Section 4 below.
Notwithstanding anything in this Agreement to the contrary, if the Participant’s Continuous Service is terminated by the Company for Cause (as defined below), the Participant shall forfeit all RSUs that have not vested under Section 2 above and all RSUs that the Participant has elected to defer under Section 4 below.
4. Deferral of Award . The Participant may elect to defer the receipt of Shares beyond the vesting date of the underlying RSUs. Any deferral period must be expressed as a number of whole years, not less than five (5) or more than ten (10), beginning on the Award Date and any deferral election must be made within thirty (30) days of the Award Date). If a Participant elects a deferral period but thereafter the Participant’s Continuous Service terminates after the RSU vests but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 3 and 8 , share distribution for the Participant’s vested RSUs will occur within thirty (30) days after the date the Participant’s Continuous Service terminates, subject to Section 20(b) herein. This deferral period will apply only to deferral elections made on the Company’s then-current Deferral Election Form (the “ Deferral Election ”). Any such Deferral Election shall apply to receipt of all Shares underlying the entire Award; for example, a deferral period of seven (7) years would result in the Participant receiving Shares underlying the entire Award seven (7) years from the Award Date regardless of the fact that the RSUs may have vested at differing times. Notwithstanding the foregoing, if the Participant has reached or reaches age 66 before or during the Initial Vesting Period, the Participant shall not be eligible to defer the receipt of Shares pursuant to this Agreement and, to the extent any Deferral Election is made, it shall be void,




ab initio . The Participant acknowledges and agrees that the above deferral restriction is due to the combination of the favorable vesting provisions upon reaching age 66 and the resulting limitations placed on deferrals due to Section 409A of the Code.
5. Distribution of Shares . As soon as practicable after the Participant’s Distribution Date, the Company may either (i) issue to the Participant or the Participant’s personal representative a Share certificate or (ii) deposit Shares with an online broker or other service provider contracted by the Company for such purpose, subject to Section 8 below and compliance to the satisfaction of the Committee with all requirements under applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan. The Company will pay to the Participant in cash an amount in lieu of any fractional RSU, based on the Fair Market Value per Share of the fractional Share. Until such time as Shares have been issued to the Participant under this Section, the Participant shall not have any rights as a holder of the Shares underlying this Award including but not limited to voting rights or dividends, if and when the Company declares same. RSUs represent only hypothetical Shares and, therefore, the Participant is not entitled to any of the rights or benefits generally accorded to stockholders with respect thereto until such time as the Shares have been issued.
6. Changes in Capital or Corporate Structure . In the event of changes in the outstanding Shares or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Award Date, the RSUs granted hereunder will be equitably adjusted or substituted pursuant to Section 13 of the Plan.
7. Nontransferability . RSUs awarded under this Agreement, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than as set forth in Section 22.2 of the Plan.
8. Non-Competition and Non-Solicitation Restrictive Covenants . In order to protect the Confidential Information (as defined below), customer relationships, and other legitimate business interests of the Company, during the Participant’s Continuous Service and for twelve (12) months following the termination of his or her Continuous Service, the Participant will not, directly or indirectly, as an employee, agent, member, director, partner, consultant or contractor or in any other individual or representative capacity: (a) solicit any Protected Individual (as defined below) for other employment or engagement, induce or attempt to induce any Protected Individual to terminate his or her employment or service relationship with the Company, hire or engage any Protected Individual, or otherwise interfere or attempt to interfere in any way in the relationship between the Company and such Protected Individual; or (b) solicit or provide competitive products or services to any Customer (as defined below) or Prospective Customer (as defined below) or otherwise interfere or attempt to interfere in any way in the relationship between the Company and any Customer or Prospective Customer. Because the Company’s business is global in scope, the Participant understands and agrees that these restrictions apply worldwide.
The Participant agrees that in the event of a breach or threatened breach of any of the covenants contained in this Section 8 , in addition to any other penalties or restrictions that may apply under any employment agreement, state law, or otherwise, the Participant shall forfeit, upon written notice to such effect from the Company: (i) any and all RSUs awarded to him or her under the Plan and this Agreement, including vested RSUs or Shares; (ii) any Shares acquired under this Award, and (iii) any profit the Participant has realized on the vesting or sale of any Shares acquired under this Award, which Participant shall be required to repay to the Company). The forfeiture provisions of this Section 8 shall continue to apply, in accordance with their terms, after the provisions of any employment or other agreement between the Company and the Participant have lapsed. The Participant consents and agrees that if the Participant violates or threatens to violate any provisions of this Section 8 , the Company or its successors in interest shall be entitled, in addition to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent jurisdiction restraining the Participant from committing or continuing any violation of this Section 8 . In the event that the Participant is found to have breached any provision set forth in this Section 8 or elsewhere in this Agreement, the time period provided for in that provision shall be deemed tolled ( i.e., it will not continue to run) for so long as the Participant was in violation of that provision.
9. Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
10. Tax Consequences and Withholding . Nothing contained herein shall be construed as a promise, guarantee, or other representation by the Company of any particular tax effect nor shall the Company be liable for any




taxes, penalties, or other amounts incurred by the Participant. Without limiting the terms and conditions set forth in Section 16 of the Plan, the Company may withhold from any Shares that it is required to deliver under this Agreement the number of Shares sufficient to satisfy applicable withholding requirements under any applicable federal, state, local or foreign law, rule or regulation if any. The Participant acknowledges that he/she has had sufficient opportunity to review with his/her own tax advisors the federal, state, local, and foreign tax consequences of the transactions contemplated by the Award Agreement. The Participant acknowledges he/she must rely solely on such advisors and not on any statement or representations of the Company or any of its agents. The Participant understands that he/she (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by the Agreement.
11. No Limitation on the Company’s Rights . The granting of RSUs shall not in any way affect the Company’s right or power to make adjustments, reclassifications or changes in its capital or business structure or to merge, consolidate, reincorporate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
12. Plan and Agreement Not a Contract of Employment or Service . Without limiting the terms and conditions set forth in Section 15 of the Plan, neither the Plan nor this Agreement is a contract of employment or service, and no terms of the Participant's employment or service will be affected in any way by the Plan, this Agreement or related instruments, except to the extent specifically expressed therein. Neither the Plan nor this Agreement will be construed as conferring any legal rights to the Participant to continue in service with the Company or any subsidiary or affiliate thereof.
13. Entire Agreement and Amendment . This Agreement is the entire Agreement between the parties to it, and all prior oral and written representations are merged in this Agreement. This Agreement may be amended, modified or terminated only by written agreement between the Participant and the Company, provided, that the Company may amend this Agreement without further action by the Participant as set forth in Section 20 of the Plan.
14. Headings . The headings in this Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent, or intent of this Agreement or any provision hereof.
15. Notices . Notices given pursuant to this Agreement shall be in writing and shall be deemed received when personally delivered, or on the date of written confirmation of receipt by (i) overnight carrier, (ii) facsimile, (iii) registered or certified mail, return receipt requested, addressee only, postage prepaid, or (iv) such other method of delivery that provides a written confirmation of delivery. Notice to the Company shall be directed to:
16.
Fuel Tech, Inc.
27601 Bella Vista Parkway
Warrenville, Illinois 60555
Attention: General Counsel
Notices to or with respect to the Participant will be directed to the Participant, or to the Participant’s executors, personal representatives or distributees, if the Participant is deceased, or the assignees of the Participant, at the Participant’s most recent home address on the records of the Company. The Company or the Participant may change the person and/or address to which the other party must give notice under this Section 15 by giving the other party written notice of such change, in accordance with the procedures described above.
16 .     Compliance with Laws . Without limiting the terms and conditions set forth in Section 19 of the Plan, no certificate for Shares distributable pursuant to the Plan or this Agreement shall be issued and delivered unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended from time to time or any successor statute, the Exchange Act and the requirements of the exchanges on which Shares may, at the time, be listed, and the provisions of any foreign securities laws or the rules of foreign securities exchanges, where applicable.
17. Failure to Enforce Not a Waiver . The failure of the Company to enforce at any time any provision of the Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.
18. Incorporation of the Plan . The Plan, as it exists on the date of the Agreement and as amended from time to time, is hereby incorporated by reference and made a part hereof, and the Award and the Agreement shall be subject to all terms and conditions of the Plan. In the event of any conflict between the provisions of the Agreement




and the provisions of the Plan, the terms of the Plan shall control, except as set forth in Section 2 herein (regarding vesting).
19. Governing Law; Venue . The laws of the State of Delaware shall govern the validity, interpretation, construction, and performance of this Agreement, without regard to the conflict of laws principles thereof that would cause another jurisdiction’s laws to be applied. The Company and the Participant hereby irrevocably and unconditionally submit, for themselves and their property, to the nonexclusive jurisdiction of any Illinois State court or federal court of the United States of America sitting in the Northern District of Illinois and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and the Company and the Participant hereby irrevocably and unconditionally agree that all claims in respect of any such action or proceeding may be heard and determined in any such Illinois State court or, to the extent permitted by law, in such federal court.
20. Code Section 409A . It is intended that this Agreement and the Plan be designed and operated within the requirements of Code Section 409A (including any applicable exemptions). Any provision in the Plan or Agreement that is determined to violate the requirements of Section 409A shall be void and without effect. Any provision that is required by Section 409A to appear in the Plan or Agreement that is not expressly set forth therein shall be deemed to be set forth therein, and the Plan shall be administered in all respects as if such provision was expressly set forth herein. Any reference in the Plan or Agreement to Section 409A or a Treasury Regulation Section shall be deemed to include any similar or successor provisions thereto.
(a) Each Award is intended to be exempt from Code Section 409A under the short-term deferral exception set forth in Code Section or, in the alternative, to comply with the requirements of Section 409A.
(b) Notwithstanding anything in the Plan or Agreement to the contrary, if the Participant should become subject to the 6-month delay rule of Treasury Regulation Section 1.409A-1(c)(3)(v), then to the extent that an Award is subject to Section 409A and the Participant is a Specified Employee (as defined below) as of the date of Separation From Service (as defined below), distributions with respect to any RSUs that have been deferred until such Separation From Service (or a specified period of time following such Separation From Service) may not be made before the date that is six (6) months after the date of Separation From Service or, if earlier, the date of the Participant’s death.
(c) Whenever a payment or distribution under this Agreement specifies a payment or distribution period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date the Participant’s employment terminates”), the actual date of payment within the specified period shall be within the sole discretion of the Company.
(d) Whenever a payment or distribution under this Agreement specifies a payment or distribution “as soon as practicable” following a payment or distribution event, such payment or distribution shall be made as soon as practicable after such event, but not later than the fifteenth day of the third month following the calendar year in which such event occurred, and the actual date of payment within such period shall be within the sole discretion of the Company.
21. Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement.
22. Definitions . Where used in this Agreement, the following capitalized terms shall have the following meanings:
(a) “ Confidential Information ” means any information (whether or not specifically labeled or identified as “confidential”), in any form or medium, that is disclosed to, developed, or learned by the Participant during his/her Continuous Service, that relates to the business, services, techniques, know-how, processes, methods, formulations, investments, finances, operations, plans, research or development of the Company, and that is not generally known outside of the Company. Confidential Information includes, but is not limited to: the identity and information concerning the needs and preferences of current, former, and prospective customers; performance, compensation, and other personnel data concerning employees of the Company; business plans and strategies; plans for recruiting and hiring new personnel; trade secrets; and pricing strategies and policies. Confidential Information does not include the general skills, knowledge, and experience gained during the Participant’s Continuous Service and common to others in the industry or information that is or becomes publicly available without any breach by the Participant of this Agreement. The Participant agrees that at all times both during his/her Continuous Service and after his/her Continuous Service terminates, the Participant will not, without the Company’s express written permission,




use Confidential Information for the Participant’s own benefit or the benefit of any other person or entity or disclose Confidential Information to any person other than (i) in the case of disclosures made during Participant’s Continuous Service, to persons to whom disclosure is required in connection with the performance of Participant’s duties for the Company or (ii) any disclosure requested by a court or regulatory authority with jurisdiction over the subject matter, in which event Participant agrees promptly to notify the Company in advance of and cooperate with the Company in any efforts to suppress or limit such disclosure.
(b) “ Customer ” means any Person (as defined below) who or which is or was a customer of the Company and with whom the Participant had business contact during his or her tenure as a Participant hereunder or about whom the Participant received Confidential Information; provided that a former customer will only be considered a “Customer” for twelve (12) months after the last date on which the Company provided products or services to such Person.
(c) “ Distribution Date ” means the date on which the Shares represented by vested RSUs shall be deemed to be distributed to the Participant, which is the date on which an RSU vests; provided that, the Distribution Date for a Participant who elects to defer the distribution of his or her Shares will be the earlier of (i) the date the Participant’s Continuous Service terminates (subject to Section 20(c) herein) or (ii) the end of the deferral period specified by the Participant in his/her Deferral Election.
(d) “ Person ” means an individual or any type of business entity.
(e) “ Prospective Customer ” means any Person, other than a Customer, toward whom or which the Company directed specific and material business development efforts, such as, but not limited to, a detailed proposal or bid, and with whom the Participant had business contact during his or her tenure as a Participant hereunder or about whom the Participant received Confidential Information; provided that such Person will only be considered a “Prospective Customer” for twelve (12) months after the last date on which such efforts were undertaken by the Company.
(f) “ Protected Individual ” means an individual who is or was an employee, consultant or advisor of the Company and with whom the Participant had business contact at any time during the Participant’s employment or other retention by the Company or about whom the Participant received Confidential Information; provided that such a former employee, consultant or advisor will only be considered a “Protected Individual” for six (6) months after the last date he or she was employed by or provided services to the Company.
(g) “ Restricted Stock Unit ” or “ RSU ” means a Restricted Stock Unit as defined in the Plan that is payable only in Shares.
(h) “ Separation From Service ” shall have the meaning given in Code Section 409A, and references to termination of employment shall be deemed to refer to a Separation From Service. In accordance with Treasury Regulation §1.409A-1(h)(1)(ii) (or any similar or successor provisions), a Separation From Service shall be deemed to occur, without limitation, if the Company and the Participant reasonably anticipate that the level of bona fide services the Participant will perform after a certain date (whether as an employee or as an independent contractor) will permanently decrease to less than fifty percent (50%) of the average level of bona fide services provided in the immediately preceding thirty-six (36) months. All references in this Agreement to “termination of Continuous Service” or “termination of employment” or “employment termination” shall be deemed to refer to a Separation From Service.
(i) “ Specified Employee ” has the meaning given to that term in Code Section 409A and Treasury Regulation §1.409A-1(i) (or any similar or successor provisions).
In Witness Whereof, the parties have executed this Agreement effective as of the date first above written.
 
Fuel Tech, Inc.
_______________________________
Participant
By:
Its:







RESTRICTED STOCK UNIT AGREEMENT
DEFERRAL ELECTION FORM
Deferral election must be made within thirty (30) days of the Award Date
This Restricted Stock Unit (“ RSU ”) Award Agreement Deferral Election Form (“ Deferral Election Form ”) is entered into by and between Fuel Tech, Inc. (the “ Company ”) and _________________ (the “ Participant ”), who received an Award of RSUs under the Fuel Tech, Inc. 2014 Long-Term Incentive Plan, as amended (the “Plan”) and a Restricted Stock Unit Agreement (the “ Agreement ”), which Agreement was legally effective ___________, 2014. The provisions of the Plan and the Agreement are incorporated herein by reference in their entirety and supersede any conflicting provisions contained in this Deferral Election Form. Neither this Deferral Election Form nor the Plan or the Agreement shall be construed as giving Participant any right to continue to be employed by or perform services for the Company or any subsidiary or affiliate thereof.
23. Deferral of Restricted Stock Units
Any deferral period must be expressed as a number of whole years, not less than five (5) or more than ten (10), beginning on the Award Date.
Any such deferral must apply to receipt of all Shares underlying the entire Award ; for example, a deferral period of seven (7) years would result in the Participant receiving Shares underlying the entire Award seven (7) years from the Award Date regardless of the fact that the RSUs may have vested at differing times.
If no deferral period is specified on the Deferral Election Form or if the Company does not receive from Participant, her/his signed and dated Deferral Election Form within the required election period, Shares will be issued as described in the Agreement as soon as practicable upon vesting of the RSUs.
□
No deferral. I wish to receive Shares upon vesting of each installment of RSUs.
□
I wish to defer receipt of all Shares until ____ years (minimum of 5) after the Award Date.     
24. Deferral Election Effective Date, Revision of Election During Election Period
This Deferral Election Form must be received by the Company no later than thirty (30) days after the Award Date set forth in the Agreement, i.e., _________________, and will become irrevocable on such date. The Participant may revise this Deferral Election with respect to the deferral period no later than such due date, by contacting the Corporate Controller of the Company in writing in accordance with the Notice provision set forth in Section 15 of the Agreement.
______________________________________        
PARTICIPANT
Date:         _________________________





FUEL TECH, INC.
2014 LONG-TERM INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR’S STOCK OPTION AWARD AGREEMENT
This STOCK OPTION AWARD AGREEMENT (this “ Agreement ”) is made as of [DATE] (the “ Grant Date ”) between Fuel Tech, Inc., a Delaware corporation, (the “ Company ”) and [NAME] (the “ Participant ”). Capitalized terms not defined herein shall have the meanings set forth in the Plan;
WHEREAS, the Company desires to afford to the Participant an opportunity to purchase Shares pursuant to the grant of a non-qualified stock option award under the Company’s 2014 Long-Term Incentive Plan (as may be amended, modified or restated from time to time, the “ Plan ”); and
WHEREAS, the Participant desires to obtain such opportunity.
NOW THEREFORE, the parties agree, as follows:
1.      Option Grant . The Company grants to the Participant as of the Grant Date the right to purchase (the “ Option ”) [NUMBER] shares of common stock of the Company, par value $0.01 per share (the “ Option Shares ”) at the exercise price per share of U.S.$___. The Option and any Shares acquired through the exercise of the Option are subject, in all respects, to the terms and conditions of the Plan and to the following terms and conditions.
2.      Term . The Option shall terminate and shall no longer be exercisable ten years from the Grant Date.
3.      Vesting . The Option shall be immediately exercisable, in whole or in part, with respect to all of the Option Shares.
4.      Method of Exercise . The Option may be exercised only by one or more notices from time to time in writing of the Participant’s intent to exercise the Option, or a portion thereof, delivered to the Equity Administration Department of the Company accompanied by the Participant’s check in the amount of the exercise price.
5.      Notices . Notices given pursuant to this Agreement shall be in writing and shall be deemed received when personally delivered, or on the date of written confirmation of receipt by (i) overnight carrier, (ii) facsimile, (iii) registered or certified mail, return receipt requested, addressee only, postage prepaid, or (iv) such other method of delivery that provides a written confirmation of delivery. Notice to the Company shall be directed to:
Fuel Tech, Inc.
27601 Bella Vista Parkway
Warrenville, Illinois 60555
Attention: General Counsel
Notices to or with respect to the Participant will be directed to the Participant, or to the Participant’s executors, personal representatives or distributees, if the Participant is deceased, or the assignees of the Participant, at the Participant’s most recent home address on the records of the Company. The Company or the Participant may change the person and/or address to which the other party must give notice under this Section 5 by giving the other party written notice of such change, in accordance with the procedures described above.
6.      Governing Law; Venue . This Agreement shall be governed by the laws of the State of Delaware, without regard to conflicts of laws principles that would cause another jurisdiction’s laws to be applied. The Company and the Participant hereby irrevocably and unconditionally submit, for themselves and their property, to the nonexclusive jurisdiction of any Illinois State court or federal court of the United States of America sitting in the Northern District of Illinois and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or for recognition or enforcement of any judgment, and the Company and the Participant




hereby irrevocably and unconditionally agree that all claims in respect of any such action or proceeding may be heard and determined in any such Illinois State court or, to the extent permitted by law, in such federal court.
7.      Entire Agreement; Counterparts . The terms of this Agreement and the Plan constitute the entire agreement between the Company and the Participant with respect to the subject matter hereof and supersede any and all previous agreements between the Company and the Participant. This Agreement may be signed in counterparts.
IN WITNESS WHEREOF, the Company and the Participant have each executed this Agreement, all as of the day and year first above written.

FUEL TECH, INC.
                                
By:      [NAME]

Title: Secretary      Participant







Exhibit 31.1
I, Douglas G. Bailey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 11, 2014
By:
/s/ Douglas G. Bailey
 
 
Douglas G. Bailey
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)





Exhibit 31.2

I, David S. Collins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 11, 2014
By:
/s/ David S. Collins
 
 
David S. Collins
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)





Exhibit 32
The undersigned in their capacities as Chief Executive Officer and Principal 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 11, 2014
By:
/s/ Douglas G. Bailey
 
 
Douglas G. Bailey
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
Date: August 11, 2014
By:
/s/ David S. Collins
 
 
David S. Collins
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (the “Act”) this certification accompanies the Report and shall not, except to the extent required by the Act, be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Fuel Tech, Inc. and will be retained by Fuel Tech, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.