Fuel Tech Reports Third-Quarter Results

Fuel Tech, Inc. (Nasdaq: FTEK), a world leader in advanced engineering solutions for the optimization of combustion systems in utility and industrial applications, today reported results for the quarter and nine-month period ended September 30, 2007. Revenues for the third quarter totaled $15.2 million, down 24% from the comparable prior-year quarter. Net income was $0.9 million, or $0.04 per diluted share, compared with $2.1 million, or $0.09 per diluted share, in the same year-ago quarter. Revenues for the first nine months were $47.7 million, down 16% from the comparable year-earlier period. Net income for the nine months totaled $2.0 million, or $0.08 per diluted share, compared with $5.4 million, or $0.22 per diluted share, in the same year-ago period. "The effects of delayed orders are evident in our results thus far this year,” commented John F. Norris Jr., President and Chief Executive Officer. "However, an unparalleled surge in third-quarter contract announcements, coupled with the receipt of significant new business as we move through the fourth quarter, bode well for our financial performance in future periods.” Revenues for the Air Pollution Control (APC) business segment for the third quarter and the first nine months declined 39% and 37%, respectively, from comparable year-ago levels. These declines primarily reflect the timing of new orders in the United States as well as the winding down of two APC projects in the People’s Republic of China (PRC), which had contributed heavily to 2006 sales. Mr. Norris continued, "The full spectrum of our nitrogen oxide (NOx) control technologies are in much demand domestically and internationally. In the United States, utilities are now moving aggressively to install systems that meet the new NOx emission reduction requirements of the Clean Air Interstate Rule, which commences in 2009. Internationally, our new entity, Beijing Fuel Tech Environmental Technologies Co., Ltd., is in active discussions and bids with a large number of major utilities for NOx control projects to help improve the air quality in that region. In Eastern Europe, there are opportunities to help utilities and industries meet the NOx reduction requirements associated with entering the European Union. In the third quarter alone, we booked a record $24.7 million in new business, which contributed to a Company backlog as of September 30, 2007 of approximately $28 million, equaling a record high level. Since October 1, we have signed $15.6 million in new orders, resulting in total contract awards of $51.2 million during 2007, which exceeds any prior full year in our history. We expect additional contract awards to be announced this quarter.” The fuel treatment chemical technology segment realized a nine-month sales gain of 21% relative to the comparable year-earlier period, although a 7% quarterly sales decline was recorded versus a year ago. The reduction in third-quarter sales versus the third quarter of 2006 reflects reduced chemical requirements at several coal-fired utility units, due in part to plant outages, operational issues and reduced electrical demand. Also affecting nine-month and third-quarter results were delays in revenue generation for the eight new FUEL CHEM® programs at coal-fired utility boilers announced during the first nine months of this year, as only two of these eight were installed and pumping chemical by the end of the third quarter. Chemical injection at these units, plus a ninth unit recently announced last week, is expected to be underway during the fourth quarter. Mr. Norris continued, "In our FUEL CHEM business, a number of coincidental, unrelated factors have resulted in delayed implementation of numerous demonstration programs, but we believe these issues are largely behind us and expect to enter 2008 with an accelerating revenue run rate. The outlook for securing our initial FUEL CHEM demonstration in the PRC is also very encouraging given the level of interest expressed by prospective customers approached by ITOCHU under our teaming agreement. Additionally, there is continued interest in other international markets, especially India and Mexico. Lastly, today we have posted on our website a detailed breakdown of our current contracted FUEL CHEM customer units. We hope that this analysis, which will be updated on a prospective basis, will be of benefit to our shareholders.” The declines in quarterly and nine-month net income were due to the aforementioned reduction in revenues and to the recording of higher stock-based compensation expense which, on an after-tax basis, totaled $0.7 million and $2.4 million during the third quarter and first nine months of 2007, respectively, versus $0.2 million and $1.0 million during the comparable prior-year periods. Mr. Norris concluded, "In light of the longer than expected delays in signing new APC orders and in implementing recently signed FUEL CHEM orders, we are adjusting our revenue guidance for the full year 2007 to a range of $76 - $79 million.” Conference Call As a reminder, Fuel Tech will host a conference call today at 9:00 AM ET to discuss the results. The call will simultaneously be broadcast over the Internet at www.ftek.com and can be accessed on the Home page under "Quick Links.” The call can also be accessed by dialing 800-299-9086 (domestic) or 617-786-2903 (international) and using the passcode "Fuel Tech.” A replay of the call will be available on the website and can be accessed by dialing 888.286.8010 (domestic) or 617.801.6888 (international) and using the passcode "91307105.” The replay will be available until December 1, 2007. About Fuel Tech Fuel Tech is a leading technology company engaged in the worldwide development, commercialization and application of state-of-the-art proprietary technologies for air pollution control, process optimization, and advanced engineering services. These technologies enable customers to produce both energy and processed materials in a cost-effective and environmentally sustainable manner. The Company’s nitrogen oxide (NOx) reduction technologies include the NOxOUT®, NOxOUT CASCADE®, NOxOUT ULTRA®, Rich Reagent Injection (RRI) and NOxOUT-SCR® processes. These technologies have established Fuel Tech as a leader in post-combustion NOx control systems, with installations on over 450 units worldwide, where coal, municipal waste, biomass, and other fuels are utilized. The Company’s FUEL CHEM® technology revolves around the unique application of chemicals to improve the efficiency, reliability, fuel flexibility and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and acid plume, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter (PM2.5), carbon dioxide and NOx. This technology, in the form of a customizable FUEL CHEM program, is being applied to over 85 combustion units burning a wide variety of fuels including coal, heavy oil, biomass, and municipal waste. A breakdown of the nature of these customer units is posted on the Company’s website. Many of Fuel Tech’s products and services rely heavily on the Company’s exceptional Computational Fluid Dynamics modeling capabilities, which are enhanced by internally developed, high-end visualization software. These capabilities, coupled with the Company’s innovative technologies and multi-disciplined team approach, enable Fuel Tech to provide practical solutions to some of our customers’ most challenging problems. For more information, visit Fuel Tech’s web site at www.ftek.com. This press release may contain statements of a forward-looking nature regarding future events. These statements are only predictions and actual events may differ materially. Please refer to documents that Fuel Tech files from time to time with the Securities and Exchange Commission for a discussion of certain factors that could cause actual results to differ materially from those contained in the forward-looking statements. FUEL TECH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of dollars, except share and per-share data)     September 30, 2007   December 31,2006 (Unaudited) Assets Current assets: Cash and cash equivalents $ 33,506 $ 24,405 Short-term investments - 8,000 Accounts receivable, net of allowances for doubtful accounts of $150   16,330 16,724 Inventories 343 203 Deferred income taxes 4,043 4,972 Prepaid expenses and other current assets   1,256     1,916   Total current assets 55,478 56,220   Equipment, net of accumulated depreciation of $10,588 and $8,845, respectively 4,889 4,051 Goodwill 2,119 2,119 Other intangible assets, net of accumulated amortization of $1,289 and $1,205, respectively   1,092 1,156 Deferred income taxes 2,261 885 Other assets   2,473     1,229   Total assets $ 68,312   $ 65,660     Liabilities and Shareholders’ Equity   Current liabilities: Short-term debt $ 1,330 $ - Accounts payable 4,921 7,632 Accrued liabilities   4,015     9,873   Total current liabilities 10,266 17,505   Other liabilities   1,274     500   Total liabilities 11,540 18,005   Shareholders' equity: Common stock, $.01 par value, 40,000,000 shares authorized, 22,400,602 and 22,086,728 shares issued, respectively   223 221 Additional paid-in capital 110,259 103,122 Accumulated deficit (54,124 ) (56,044 ) Accumulated other comprehensive income 142 79 Nil coupon perpetual loan notes   272     277   Total shareholders' equity   56,772     47,655   Total liabilities and shareholders' equity $ 68,312   $ 65,660   FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of dollars, except share and per-share data)       Three Months Ended September 30 Nine Months Ended September 30 2007   2006 2007   2006   Net sales $ 15,246 $ 20,173 $ 47,718 $ 57,053   Costs and expenses: Cost of sales 8,018 10,042 26,058 29,210 Selling, general and administrative 5,656 6,106 18,125 17,569 Research and development   541     617     1,652     1,467     14,215     16,765     45,835     48,246     Operating income 1,031 3,408 1,883 8,807   Interest income 417 268 1,253 665 Other income (expense)   50     (14 )   (21 )   (33 ) Income before taxes 1,498 3,662 3,115 9,439   Income tax expense   (571 )   (1,602 )   (1,114 )   (4,071 )   Net income $ 927   $ 2,060   $ 2,001   $ 5,368     Net income per Common Share: Basic $ 0.04   $ 0.09   $ 0.09   $ 0.25   Diluted $ 0.04   $ 0.09   $ 0.08   $ 0.22     Weighted-average number of Common Shares outstanding: Basic   22,390,000     21,721,000     22,239,000     21,348,000   Diluted   24,769,000     24,123,000     24,718,000     24,045,000   FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars)     Nine Months Ended September 30 2007   2006 Operating activities Net cash (used in) provided by operating activities $ (1,127 ) $ 3,426     Investing activities Sales (purchases) of short-term investments 8,000 (4,000 ) Purchases of equipment and patents   (2,617 )   (1,699 ) Net cash provided by (used in) investing activities   5,383     (5,699 )   Financing activities Proceeds from short-term borrowings 1,330 - Proceeds from exercise of stock options 870 3,058 Issuance of deferred shares of stock 1,130 - Income tax benefit from exercise of stock options   1,451     4,465   Net cash provided by financing activities   4,781     7,523     Effect of exchange rate fluctuations on cash   64     84     Net increase in cash and cash equivalents 9,101 5,334   Cash and cash equivalents at beginning of period   24,405     10,375     Cash and cash equivalents at end of period $ 33,506   $ 15,709    FUEL TECH, INC. BUSINESS SEGMENT FINANCIAL DATA (Unaudited) (in thousands of dollars)   Three months ended September 30, 2007   Nitrogen Oxide Reduction   Fuel Treatment Chemical   Other   Total Net sales from external customers   $ 6,868   $ 8,378   $ -     $ 15,246 Cost of sales     3,906     4,105     7       8,018 Gross margin     2,962     4,273     (7 )     7,228 Selling, general and administrative     -     -     5,656       5,656 Research and development     -     -     541       541 Operating income (loss)   $ 2,962   $ 4,273   $ (6,204 )   $ 1,031   Three months ended September 30, 2006   Nitrogen Oxide Reduction   Fuel Treatment Chemical   Other   Total Net sales from external customers   $ 11,197   $ 8,976   $ -     $ 20,173 Cost of sales     6,270     3,730     42       10,042 Gross margin     4,927     5,246     (42 )     10,131 Selling, general and administrative     -     -     6,106       6,106 Research and development     -     -     617       617 Operating income (loss)   $ 4,927   $ 5,246   $ (6,765 )   $ 3,408   Nine months ended September 30, 2007   Nitrogen Oxide Reduction   Fuel Treatment Chemical   Other   Total Net sales from external customers   $ 23,125   $ 24,593   $ -     $ 47,718 Cost of sales     13,678     12,304     76       26,058 Gross margin     9,447     12,289     (76 )     21,660 Selling, general and administrative     -     -     18,125       18,125 Research and development     -     -     1,652       1,652 Operating income (loss)   $ 9,447   $ 12,289   $ (19,853 )   $ 1,883   Nine months ended September 30, 2006   Nitrogen Oxide Reduction   Fuel Treatment Chemical   Other   Total Net sales from external customers   $ 36,717   $ 20,336   $ -     $ 57,053 Cost of sales     20,418     8,658     134       29,210 Gross margin     16,299     11,678     (134 )     27,843 Selling, general and administrative     -     -     17,569       17,569 Research and development     -     -     1,467       1,467 Operating income (loss)   $ 16,299   $ 11,678   $ (19,170 )   $ 8,807   Note:  Fuel Tech is an integrated company that segregates its financial results into two reportable segments, both providing advanced technology and engineering solutions for the optimization of combustion systems in utility and industrial applications. The "Other” classification includes those profit and loss items not allocated by Fuel Tech to each reportable segment. GEOGRAPHIC INFORMATION (Unaudited) (in thousands of dollars)     Three months ended September 30   Nine months ended September 30 2007   2006 2007   2006 Net sales: United States $ 11,907 $ 15,396 $ 37,498 $ 41,595 Foreign   3,339   4,777   10,220   15,458 $ 15,246 $ 20,173 $ 47,718 $ 57,053