10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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 May 8, 2012 there were outstanding 23,309,665 shares of Common Stock, par value $0.01 per share, of the registrant.

FUEL TECH, INC.

Form 10-Q for the three-month period ended March 31, 2012

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		1
	Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2012 and 2011		2
	Consolidated Statements of Comprehensive Income for the Three-Month Periods Ended March 31, 2012 and 2011		3
	Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2012 and 2011		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		17
Item 4.	Controls and Procedures		17
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		18
Item 1A.	Risk Factors		18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 6.	Exhibits		18
SIGNATURES			19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FUEL TECH, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	31,055		$	28,229
Marketable securities		81			57
Accounts receivable, net of allowance for doubtful accounts of $429 and $430, respectively		26,307			34,346
Inventories		330			311
Prepaid expenses and other current assets		1,779			2,026
Prepaid income taxes		506			1,124
Deferred income taxes		241			163
Total current assets		60,299			66,256
Property and equipment, net of accumulated depreciation of $18,810 and $18,239, respectively		13,716			13,625
Goodwill		21,051			21,051
Other intangible assets, net of accumulated amortization of $3,611 and $3,385, respectively		5,362			5,442
Deferred income taxes		3,726			3,798
Other assets		2,960			2,818
Total assets	$	107,114		$	112,990
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	1,188		$	1,181
Accounts payable		9,221			10,476
Accrued liabilities:
Employee compensation		1,973			4,902
Other accrued liabilities		4,444			6,071
Total current liabilities		16,826			22,630
Other liabilities		1,362			1,347
Total liabilities		18,188			23,977
Shareholders’ equity:
Common stock, $.01 par value, 40,000,000 shares authorized, 23,309,665 and 23,644,301 shares issued and outstanding, respectively		233			237
Additional paid-in capital		132,560			132,350
Accumulated deficit		(44,373	)		(44,031	)
Accumulated other comprehensive income		430			381
Nil coupon perpetual loan notes		76			76
Total shareholders’ equity		88,926			89,013
Total liabilities and shareholders’ equity	$	107,114		$	112,990

See notes to consolidated financial statements.

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FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per-share data)

	Three Months Ended March 31,
	2012			2011
Revenues	$	25,212		$	22,622
Costs and expenses:
Cost of sales		13,220			11,466
Selling, general and administrative		8,994			7,951
Research and development		506			402
		22,720			19,819
Operating income		2,492			2,803
Interest expense		(25	)		(40	)
Interest income		—			1
Other income (expense)		21			(40	)
Income before income taxes		2,488			2,724
Income tax expense		(945	)		(1,385	)
Net income	$	1,543		$	1,339
Net income per common share:
Basic	$	0.07		$	0.06
Diluted	$	0.06		$	0.05
Weighted-average number of common shares outstanding:
Basic		23,591,000			24,214,000
Diluted		24,261,000			24,669,000

See notes to consolidated financial statements.

2

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2012		2011
Net income	$	1,543	$	1,339
Other comprehensive income:
Foreign currency translation adjustments		34		61
Unrealized gain from marketable securities, net of tax		15		—
Total other comprehensive income		49		61
Comprehensive income	$	1,592	$	1,400

See notes to consolidated financial statements.

3

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2012			2011
Operating Activities
Net income	$	1,543		$	1,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		552			760
Amortization		226			223
Provision for doubtful accounts		(1	)		—
Deferred income taxes		(15	)		120
Stock based compensation		210			637
Changes in operating assets and liabilities:
Accounts receivable		8,145			(938	)
Inventories		(18	)		(177	)
Prepaid expenses, other current assets and other noncurrent assets		118			(239	)
Accounts payable		(651	)		(1,380	)
Accrued liabilities and other noncurrent liabilities		(4,634	)		(2,274	)
Net cash provided by (used in) operating activities		5,475			(1,929	)
Investing Activities
Purchases of property, equipment and patents		(788	)		(841	)
Net cash (used in) investing activities		(788	)		(841	)
Financing Activities
Payments to repurchase common stock		(1,889	)		—
Proceeds from exercise of stock options		—			54
Net cash (used in) provided by financing activities		(1,889	)		54
Effect of exchange rate fluctuations on cash		28			57
Net increase (decrease) in cash and cash equivalents		2,826			(2,659	)
Cash and cash equivalents at beginning of period		28,229			30,524
Cash and cash equivalents at end of period	$	31,055		$	27,865

See notes to consolidated financial statements.

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FUEL TECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

(in thousands, except share and per-share data)

Note A: Nature of Business

Fuel Tech 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. Our 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 are made available through our website as soon as reasonably practical after we electronically file or furnish the reports to the Securities and Exchange Commission. Also available on our 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^® technologies. 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; NO_xOUT^® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate Advanced SCR (ASCR™) and NO_xOUT CASCADE^® technologies, ULTRA™ and NO_xOUT-SCR^® technologies; and Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG™) technologies. Fuel Tech’s APC technology business is materially dependent on the continued existence and enforcement of worldwide air quality regulations. 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, 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 processes 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 results of operations of all acquired businesses have been consolidated for all periods subsequent to the date of acquisition.

The balance sheet at December 31, 2011 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, 2011 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.

5

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 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 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 March 31, 2012, the Company had one contract in progress that was identified as a loss contract and a provision for loss in the amount of $38 was recorded in the three-month period then ended.

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; all performance guarantees and equipment warranties granted by us are void 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 March 31, 2012 and December 31, 2011, unbilled receivables were approximately $12,685 and $7,262, respectively, and are included in accounts receivable on the consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts were $2,214 and $3,895, at March 31, 2012 and December 31, 2011, respectively. Such amounts are included in other accrued liabilities on the consolidated balance sheets.

Fuel Tech has installed over 700 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.

6

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 $81 and no cost basis at March 31, 2012.

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 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 March 31, 2012 and 2011.

Note G: 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 stock options, restricted stock units, and of the nil coupon non-redeemable convertible unsecured loan notes. The following table sets forth the weighted-average shares used in calculating the earnings per share for the three-month periods ended March 31, 2012 and 2011.

	Three Months Ended March 31:
	2012		2011
Basic weighted-average shares		23,591,000		24,214,000
Conversion of unsecured loan notes		7,000		7,000
Unexercised options		118,000		299,000
Unvested restricted stock units		545,000		149,000
Diluted weighted-average shares		24,261,000		24,669,000

Note H: Stock-Based Compensation

Fuel Tech has a stock-based employee compensation plan, referred to as the Fuel Tech, Inc. Incentive Plan (Incentive Plan), under which awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units (RSUs), Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plan may be Fuel Tech’s directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of Fuel Tech’s business. The amount of shares that may be issued or reserved for awards to participants under a 2004 amendment to the Incentive Plan is 12.5% of outstanding shares calculated on a diluted basis. At March 31, 2012, Fuel Tech had approximately 682,000 equity awards available for issuance under the Incentive Plan.

7

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-month periods ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March  31:
	2012			2011
Stock options and restricted stock units	$	193		$	617
Deferred directors fees		17			20
Total stock-based compensation expense		210			637
Tax benefit of stock-based compensation expense		(72	)		(195	)
After-tax effect of stock-based compensation	$	138		$	442

As of March 31, 2012, there was $3,927 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan.

Stock Options

Stock options granted to employees under the Incentive Plan 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.

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 Plan for the three months ended March 31, 2012 was as follows:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding on January 1, 2012		1,902,000		$	11.51
Granted		—			—
Exercised		—			—
Expired or forfeited		(15,000	)	$	5.98
Outstanding on March 31, 2012		1,887,000		$	11.55		4.7 years	$	415
Exercisable on March 31, 2012		1,711,812		$	11.78		4.4 years	$	415

8

Non-vested stock option activity for the three months ended March 31, 2012 was as follows:

	Non-Vested Stock Options Outstanding			Weighted- Average Grant Date Fair Value
Outstanding on January 1, 2012		183,938		$	5.56
Granted		—			—
Vested		(8,750	)		7.62
Forfeited		—			—
Outstanding on March 31, 2012		175,188		$	5.46

As of March 31, 2012, there was $740 of total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan. That cost is expected to be recognized over a weighted average period of 1.2 years.

Restricted Stock Units

Restricted stock units (RSUs) granted to employees vest over time based on continued service (typically vesting over a period between one to three years in equal installments). Such time-vested RSUs are valued at 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, in March 2012 and 2011, 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 Marketing & Sales and Executive Vice President, Worldwide Operations. 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 and Nominating 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 intrinsic value method 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.

• 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 intrinsic value method 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.

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At March 31, 2012, there is $3,187 of unrecognized compensation costs related to restricted stock unit awards to be recognized over a weighted average period of 2.5 years.

A summary of restricted stock unit activity for the three-month period ended March 31, 2012 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2011		487,165	$	7.59
Granted		256,500	$	5.52
Forfeited		—		—
Vested		—		—
Unvested restricted stock units at March 31, 2012		743,665	$	6.88

Deferred Directors Fees

In addition to the Incentive Plan, Fuel Tech has a Deferred Compensation Plan 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 as opposed to liability awards. In the three-month periods ended March 31, 2012 and 2011, Fuel Tech recorded $17 and $20, respectively, of stock-based compensation expense under the Deferred Plan.

At March 31, 2012, Fuel Tech had 1,478,000 weighted-average stock awards outstanding that were not dilutive for the purpose of inclusion in the calculation of diluted earnings per share but could potentially become dilutive in future periods.

Note I: Debt

On June 30, 2011, 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, 2013. The amendment decreases the total borrowing base of the facility to $15,000 from $25,000 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 under 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 March 31, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facilities.

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 1.5:1.0 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 $50,000, adjusted upward for 50% of net income generated and 100% of all capital issuances. At March 31, 2012, the Company was in compliance with all financial covenants specified by the Facility.

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,054 and $1,374, 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 March 31, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,946 and $13,626, 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 30, 2011, 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 $5,545), which expires on June 29, 2012. This new credit facility replaced the previous RMB 45 million facility that expired on June 30, 2011. 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 March 31, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,188 and $1,181, respectively. These borrowings were subject to interest rates of approximately 8.2% and 7.6% at March 31, 2012 and December 31, 2011, respectively.

10

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $467 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At March 31, 2012 and December 31, 2011, approximately $3,890 and $3,580 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 $25 and $40 were made during the three-month periods ended March 31, 2012 and 2011, respectively.

Note J: 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_xOUT^® 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_xOUT CASCADE^® and NO_xOUT-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. Flue Gas Conditioning systems are chemical injection systems offered in markets outside the U.S. and Canada to enhance electrostatic precipitator 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:

		(11,466)			(11,466)			(11,466)			(11,466)
Three months ended March 31, 2012	Air Pollution Control Segment			FUEL CHEM Segment			Other			Total
Revenues from external customers	$	15,714		$	9,498		$	—		$	25,212
Cost of sales		(8,751	)		(4,469	)		—			(13,220	)
Gross margin		6,963			5,029			—			11,992
Selling, general and administrative		—			—			(8,994	)		(8,994	)
Research and development		—			—			(506	)		(506	)
Operating income	$	6,963		$	5,029		$	(9,500	)	$	2,492

		(11,466)			(11,466)			(11,466)			(11,466)
Three months ended March 31, 2011	Air Pollution Control Segment			FUEL CHEM Segment			Other			Total
Revenues from external customers	$	11,092		$	11,530		$	—		$	22,622
Cost of sales		(5,553	)		(5,913	)		—			(11,466	)
Gross margin		5,539			5,617			—			11,156
Selling, general and administrative		—			—			(7,951	)		(7,951	)
Research and development		—			—			(402	)		(402	)
Operating income	$	5,539		$	5,617		$	(8,353	)	$	2,803

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 March 31,
	2012		2011
Revenues:
United States	$	22,944	$	19,618
Foreign		2,268		3,004
	$	25,212	$	22,622

	March 31, 2012		December 31, 2011
Assets:
United States	$	93,874	$	99,601
Foreign		13,240		13,389
	$	107,114	$	112,990

Note K: 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.

12

Changes in the warranty liability, which is included in other accrued liabilities on the accompanying balance sheets, for the three months March 31, 2012, and 2011, are summarized below:

	Three Months Ended March 31,
	2012			2011
Aggregate product warranty liability at beginning of period	$	313		$	215
Net aggregate expense related to product warranties		120			30
Aggregate reductions for payments		(100	)		(33	)
Aggregate product warranty liability at end of period	$	333		$	212

Note L: Income Taxes

The Company’s effective tax rates of 38.0% and 50.8% for the three-month periods ended March 31, 2012 and 2011 differs from the statutory federal tax rate of 34% due primarily to state taxes, stock-based compensation, differences between U.S. and foreign tax rates, foreign losses incurred with no related tax benefit, changes in state tax rates, tax credits, and non-deductible meals and entertainment expenses.

Fuel Tech had unrecognized tax benefits of $667, including penalties and interest, as of March 31, 2012 and December 31, 2011, all of which, if ultimately recognized, will reduce Fuel Tech’s annual effective tax rate.

Note M: 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 March 31, 2012 and December 31, 2011, goodwill allocated to the FUEL CHEM technology segment was $1,723 while goodwill allocated to the APC technology segment was $19,328.

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 fair value measurement test, performed annually as of October 1, revealed no indications of impairment. There were no indications of goodwill impairment in the three-month periods ended March 31, 2012 and 2011.

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 three-month periods ended March 31, 2012 and 2011.

Note N: 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

13

• 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 $81 and $57 at March 31, 2012 and December 31, 2011, 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 three-month periods ended March 31, 2012 and 2011.

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 O: Recently Adopted and Pending Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued amended disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. In addition, in December 2011, the FASB issued an amendment to this accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. This guidance was effective as of the beginning of our 2012 fiscal year. Accordingly, we have presented the components of net income and other comprehensive income for the three month periods ending March 31, 2012 and 2011 as two separate but consecutive statements. We will continue to monitor the FASB’s activities related to the deferral of the presentation and disclosure of reclassification adjustments from other comprehensive income to net income, but it will only affect our financial statement presentation and will have no impact to our consolidated financial results.

Note P: Share Repurchase Program

In August 2011, Fuel Tech’s Board of Directors authorized the repurchase of up to $6 million of its outstanding common shares through December 31, 2012. This program was completed in the quarter ended March 31, 2012. The share repurchase program was funded through the Company’s existing cash on hand. Purchases made pursuant to the program were made in the open market. The timing, manner, price and amount of any repurchases was determined by the Company in its discretion and was subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase program, Fuel Tech repurchased an aggregate of 1,036,350 common shares for a total cost of approximately $6,000 including commissions of approximately $38. These acquired shares have been retired and are no longer shown as issued or outstanding shares. The following table summarizes our share repurchase program since its inception:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Cost		Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
August 25, 2011 through September 30, 2011		571,554	$	5.89	$	3,367	$	2,633
October 1, 2011 through December 31, 2011		130,160		5.71		744		1,889
January 1, 2012 through March 31, 2012		334,636		5.64		1,889		—
Total		1,036,350	$	5.79	$	6,000	$	—

14

FUEL TECH, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Revenues for the three months ended March 31, 2012 and 2011 were $25,212 and $22,622, respectively, representing an 11% increase in consolidated revenue for our first quarter of 2012.

The Air Pollution Control (APC) technology segment generated revenues of $15,714 for the three months ended March 31, 2012, an increase of $4,622 or 42% from the prior year. This increase is due to higher contract bookings during the third and fourth quarter of 2011 and reflects work progress on those construction projects during the first quarter of 2012.

Consolidated APC backlog at March 31, 2012 was $22,200 versus backlog at March 31, 2011 of $14,500. Our current backlog consists of US domestic projects totaling $16,500 and international projects totaling $5,700. A majority of the backlog as of March 31, 2012 should be recognized as revenue in fiscal 2012, although the timing of such revenue recognition in 2012 is subject to the timing of the expenses incurred on existing projects.

The FUEL CHEM^® technology segment generated revenues of $9,498 for the three months ended March 31, 2012, a decrease of $2,032 or 18%, versus the prior year. This decrease is due to attrition at existing customer accounts in part due to the soft electric demand market and low natural gas prices. These factors led to unscheduled outages and combustion units operating at less than full capacity which resulted in a corresponding decrease in our quarter over quarter revenue. Also contributing to the decrease was a non-recurring sale of low margin installation-related work totaling $1,000 in the first quarter of 2011.

Cost of sales as a percentage of revenue for the quarters ended March 31, 2012 and 2011 was 52% and 51%, respectively. The cost of sales percentage for the APC technology segment increased to 56% from 50% in the comparable prior-year period, primarily due to product mix. For the FUEL CHEM technology segment, the cost of sales percentage decreased to 47% from 51% in the comparable prior-year quarter due to the mix of customer business and the low margin installation work mentioned above.

Selling, general and administrative expenses (SG&A) for the quarters ended March 31, 2012 and 2011 were $8,994 and $7,951, respectively. Of the $1,043 increase in SG&A for the current quarter $402 is due to employee related expenses, $574 is due to higher commission and bonus accruals resulting from increased revenue, $344 is due to consulting and professional fee increases, and the remaining amount of $150 is due to miscellaneous offsetting items which are not material. Offsetting these amounts was a $427 decrease in stock compensation expense due to the vesting of options granted in earlier periods with a comparatively higher grant date fair value than more recent grants and a forfeiture true-up adjustment for unvested, forfeited options.

Research and development expenses for the quarters ended March 31, 2012 and 2011 were $506 and $402, respectively. The Company plans to continue focusing on increased R&D efforts in the pursuit of commercial applications for its technologies outside of its traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities.

Interest expense for the three-month period ended March 31, 2012 and 2011 totaled $25 and $40, respectively, and relates to borrowings under the Beijing Fuel Tech Facility.

Income tax expense for the quarters ended March 31, 2012 and 2011 was $945 and $1,385, respectively, and reflective of the Company’s net income for the respective quarters. The Company is projecting a consolidated effective tax rate of 38.0% for 2012.

Liquidity and Sources of Capital

At March 31, 2011, Fuel Tech had cash and cash equivalents and short-term investments on hand of $31,136 and working capital of $43,473 versus $28,286 and $43,626 at December 31, 2011, respectively.

Operating activities provided cash of $5,475 during the three-month period ended March 31, 2012. This increase in cash from operations was due to cash generation of $10,660 resulting from net income plus non-cash expenses of $2,515 and collection of outstanding accounts receivable balances of $8,145, offset by payments of outstanding accounts payable balances, accrued expenses and other items of $5,185. Investing activities used cash of $788 during the three-month period ended March 31, 2012 due to purchases of property, equipment, and patents. Financing activities used cash of $1,889 for the repurchase of common stock.

15

On June 30, 2011, 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, 2013. The amendment decreases the total borrowing base of the facility to $15,000 from $25,000 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 under 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 March 31, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facilities.

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 1.5:1.0 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 $50,000, adjusted upward for 50% of net income generated and 100% of all capital issuances. At March 31, 2012, the Company was in compliance with all financial covenants specified by the Facility.

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,054 and $1,374, 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 March 31, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,946 and $13,626, 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 30, 2011, 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 $5,545), which expires on June 29, 2012. This new credit facility replaced the previous RMB 45 million facility that expired on June 30, 2011. 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 March 31, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,188 and $1,181, respectively. These borrowings were subject to interest rates of approximately 8.2% and 7.6% at March 31, 2012 and December 31, 2011, respectively.

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $467 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At March 31, 2012 and December 31, 2011, approximately $3,890 and $3,580 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.

In the opinion of management, Fuel Tech’s expected near-term revenue growth will be driven by the timing of penetration of the utility marketplace via utilization of its TIFI technology, by utility and industrial entities’ adherence to the NO_x reduction requirements of the various domestic environmental regulations, and by the expansion of both business segments in non-U.S. geographies. Fuel Tech expects its liquidity requirements to be met by the operating results generated from these activities.

Contingencies and Contractual Obligations

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note K. The warranty liability balance during the three months ended March 31, 2012 increased by approximately $20.

16

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, 2011 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 I 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, 2012.

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 has been no change in the Company’s internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

17

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.

In 2011, Fuel Tech filed a series of civil actions in the Second People’s Intermediate Court of Beijing against Liu Minghui, Zhu Limin and related parties who formerly worked with Fuel Tech (collectively, the Defendants.) In the actions, Fuel Tech seeks damages and equitable relief based upon alleged unfair competition due to misappropriation of Fuel Tech’s property and trade secrets and other misconduct in China by the Defendants, and Fuel Tech also has asserted prior ownership rights over Chinese patents filed in China by certain of the Defendants pertaining to air pollution control technologies. Certain of the Defendants have filed actions before the Chinese Patent Review Board seeking to invalidate two China patents held by Fuel Tech for use in China relating to its ULTRA™ product line. These actions are in various stages, but management does not currently believe that based on the facts at hand that resolution of the actions would have a material adverse impact on Fuel Tech’s business in China.

Item 1A. Risk Factors

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2011 have not materially changed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In August 2011, Fuel Tech’s Board of Directors authorized the repurchase of up to $6 million of its outstanding common shares through December 31, 2012. This program was completed in the quarter ended March 31, 2012. The share repurchase program was funded through the Company’s existing cash on hand. Purchases made pursuant to the program were made in the open market. The timing, manner, price and amount of any repurchases was determined by the Company in its discretion and was subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase program, Fuel Tech repurchased an aggregate of 1,036,350 common shares for a total cost of approximately $6,000 including commissions of approximately $38. These acquired shares have been retired and are no longer shown as issued or outstanding shares. The following table summarizes our share repurchase program since its inception:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Cost		Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
August 25, 2011 through September 30, 2011		571,554	$	5.89	$	3,367	$	2,633
October 1, 2011 through December 31, 2011		130,160		5.71		744		1,889
January 1, 2012 through March 31, 2012		334,636		5.64		1,889		—
Total		1,036,350	$	5.79	$	6,000	$	—

Item 6. Exhibits

a. Exhibits (all filed herewith)

4.1	Fuel Tech, Inc. Form of 2012 Executive Performance RSU Award Agreement
4.2	Fuel Tech, Inc. 2012 Executive Officer Incentive Plan
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

18

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: May 8, 2012	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: May 8, 2012	By:	/s/ David S. Collins
		David S. Collins
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

19

EX-4.1

Exhibit 4.1

2012 EXECUTIVE PERFORMANCE RSU AWARD AGREEMENT

This Executive Performance RSU Award Agreement (the “Agreement”) is hereby entered effective as of March 9, 2012 (the “Effective Date”), by and between Fuel Tech, Inc. (the “Company” or “Fuel Tech” or “FTI”), and                      (the “Participant”). Any term capitalized but not defined in this Agreement will have the meaning set forth in the Fuel Tech, Inc. Incentive Plan, as amended (the “Plan”).

1. Purpose. The purpose of this Agreement is, among other things, to align the Participant’s interests with the interests of the Company and its stockholders in the long-term growth of the Company and to reward the Participant for his continued employment and service to the Company in the future and his compliance with the Company’s policies (including, without limitation, the Company’s Code of Business Ethics and Conduct), to protect the Company’s interests in non-public, confidential and/or proprietary information, products, trade secrets, customer relationships, and other legitimate business interests. In view of these purposes, this Agreement, issued pursuant to Section 6.6 of the Plan, provides the Participant the opportunity to receive an executive performance RSU award in the manner and on the terms, conditions and amounts set forth in this Agreement (“Executive Performance RSU”).

2. Executive Performance RSU Award. For purposes of the Executive Performance RSU Award calculations set forth below in this Agreement, the Company’s Compensation Committee (the “Committee”), in the exercise of its business judgment under the Plan, approved a total target number of executive performance RSUs made up of three target RSU amount components. The three components of the Executive Performance RSU Award (each of them an Award under the Plan) are: Look-Back RSUs, Revenue Growth RSUs, and TSR Performance RSUs (as each of those terms are defined below).

3. Look-Back RSUs. For purposes of this Agreement, the Committee approved a Target Look-Back RSU Amount of                      (            ) RSUs. No later than ninety (90) days after the end of the Performance Period, the Committee, in its sole discretion, shall award the Participant a number of RSUs of between zero and the Target Look-Back RSU Amount (“Look-Back RSUs”), on the Determination Date (as defined below).

(a) Performance Assessment. The Committee, in its business judgment, may approve the Company awarding none, some or all of the Target Look-Back RSU Amount to the Participant based on the Committee’s subjective, qualitative assessment of the Participant’s overall performance during the Performance Period. The determination and approval by the Committee of what portion, if any, of the Target Look-Back RSU Amount shall be awarded to the Participant may include a variety of factors considered by the Committee in its sole discretion, including one or more of the equity award determination factors listed in Exhibit A to this Agreement.

(b) Determination Date. All Look-Back RSU Awards will be made on the Determination Date, subject to the terms and conditions of the Plan and this Agreement, including the vesting schedule set forth in Section 3(d) below, provided that the Participant’s status as a Participant under this Agreement has not terminated before the Determination Date.

(c) Employment Termination. If the Participant’s status as a Participant under this Agreement (e.g., termination of employment with the Company) terminates for any reason before the Determination Date, other than death or becoming Totally Disabled, no Look-Back RSUs will be awarded to the Participant, except as provided in Section 3(e) below. If the Participant’s status as a Participant under this Agreement terminates before the Determination Date due to death or becoming Totally Disabled, the Committee shall determine, in its sole discretion, whether to award none, some or all of the Target Look-Back RSUs to the Participant. If the Participant’s status as a Participant under this Agreement terminates on or after the Determination Date, but before the Look-Back RSUs have fully vested under Section 3(d) or (e) below:

(i) If the Participant’s employment is terminated by the Company for Cause (as defined below), the Participant will forfeit all Look-Back RSUs, including any Look-Back RSUs that have vested under Section 3(d);

(ii) If the Participant terminates employment due to death or becoming Totally Disabled, the Participant will vest in any Look-Back RSUs that have not vested under Section 3(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the full number of Look-Back RSUs that were awarded to the Participant, regardless of whether or not the Participant had elected to defer under Section 3(f) below;

(iii) If the Participant’s employment is terminated other than (A) due to death or becoming Totally Disabled, or (B) by the Company for Cause, the Participant will forfeit any Look-Back RSUs that have not vested under Section 3(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the number of Look-Back RSUs that already have vested, regardless of whether or not the Participant had elected to defer under Section 3(f) below.

(d) Installment Vesting. Any Look-Back RSUs awarded on the Determination Date shall vest in three installments, as follows: (i) one-third of the total Look-Back RSUs awarded shall vest thirteen (13) months after the Determination Date, (ii) one-third shall vest on the second anniversary of the Determination Date, and (iii) the remaining one-third shall vest on the third anniversary of the Determination Date, in each case, provided that the Participant’s status as a Participant under this Agreement has not terminated before the applicable vesting date.

(e) Change in Control. In the event of a Change of Control before the Determination Date for Look-Back RSUs, the Committee shall determine, in its sole discretion, whether to award none, some or all the Target Look-Back RSUs to the Participant under this Agreement and whether to accelerate the vesting of those Look-Back RSUs it so awards. In the event of a Change of Control on or after the Determination Date for Look-Back RSUs, but before the Look-Back RSUs awarded to the Participant, if any, have fully vested under Sections 3(c) or (d), if the Participant’s status as a Participant under this Agreement has not terminated before the effective date

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of the Change in Control, the Look-Back RSUs awarded to the Participant will fully vest on a date before the effective date of the Change in Control, determined by the Committee or Board, as applicable, unless (i) the Company is the surviving entity and any adjustments necessary to preserve the value of the Participant’s outstanding Look-Back RSUs have been made, or (ii) the Company’s successor at the time of the Change in Control irrevocably assumes the Company’s obligations under the Plan and this Agreement or replaces the Participant’s outstanding Look-Back RSUs with an award of equal or greater value and having terms and conditions no less favorable to the Participant than those applicable to the Participant’s Look-Back RSUs immediately prior to the Change in Control; provided, that, if the Participant’s status as a Participant under this Agreement has not terminated before the effective date of the Change in Control and the Participant’s Look-Back RSUs do not become fully vested upon the Change of Control because of the foregoing provisions of this paragraph (e), the Participant’s Look-Back RSUs nonetheless will become fully vested if, within two years after the effective date of the Change of Control, the Company or its successor terminates the Participant’s employment other than for Cause or the Participant terminates his employment for Good Reason (as defined below). If the Participant terminates employment following a Change in Control due to death or becoming Totally Disabled, the Participant will vest in any Look-Back RSUs that have not previously vested. On a date determined by the Committee or Board, as applicable, within thirty (30) days of the Change of Control, the Company will distribute Shares to the Participant equal to the number of any Look-Back RSUs that are or have become vested, regardless of whether or not the Participant had elected to defer under Section 3(f) below.

(f) Deferral of Share Distribution. The Participant may elect to defer the receipt of Shares beyond the vesting date of the underlying Look-Back RSUs in Section 3(d) above, by written election on the Company’s then-current Deferral Election Form, filed no earlier than the Determination Date and no later than thirty (30) days after the Determination Date for the Look-Back 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 Determination Date. Any such deferral election shall apply to the receipt of all Shares underlying the Look-Back RSUs under this Agreement; for example, a deferral period of seven (7) years would result in the Participant receiving all Shares underlying the vested Look-Back RSUs seven (7) years from the Determination Date regardless of the fact that the Look-Back RSUs under this Agreement may have vested at differing times. If a Participant elects a deferral period but thereafter the Participant’s status as a Participant terminates after the Look-Back RSUs vest but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the Look-Back RSUs will occur within thirty (30) days after the date the Participant’s status as such terminates. If a Participant elects a deferral period but thereafter a Change in Control occurs after the Look-Back RSUs vest but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the Look-Back RSUs will occur on a date to be determined by the Committee or the Board, as applicable, immediately prior to the effective time of the Change in Control.

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4. Revenue Growth RSUs. For purposes of this Agreement, the Committee approved a Target Revenue Growth RSU Amount of                      (            ) RSUs. After the completion of the Performance Period the Committee shall award the Participant a number of RSUs of between zero and up to 150% of the Target Revenue Growth RSU Amount (“Revenue Growth RSUs”), on the Determination Date.

(a) Revenue Growth Measurement. During the Performance Period, the Company’s Revenue Growth will be measured against the Revenue Growth of the Peer Group Companies. As soon as practicable after the Peer Group Companies have reported their Revenue Growth for the Performance Period, the Committee shall compare the Company’s Revenue Growth for the Performance Period with that of the Peer Group Companies. The Peer Group Companies will be ranked by Revenue Growth and then divided into four quartiles. The Committee will evaluate the Company’s Revenue Growth performance in light of those rankings and shall approve the issuance to the Participant a number of Revenue Growth RSUs determined as follows:

(i) if the Company’s Revenue Growth performance places it in the fourth (lowest) quartile of the Peer Group Companies, no RSUs will be awarded;

(ii) if the Company’s Revenue Growth performance places it in the third quartile of the Peer Group Companies, then a number of RSUs equal to 50% of the Target Revenue Growth RSU Amount will be awarded;

(iii) if the Company’s Revenue Growth performance places it in the second quartile of the Peer Group Companies, then a number of RSUs equal to 100% of the Target Revenue Growth RSU Amount will be awarded; and

(iv) if the Company’s Revenue Growth performance places it in the first (highest) quartile of the Peer Group Companies, then a number of RSUs equal to 150% of the Target Revenue Growth RSU Amount will be awarded.

(b) Determination Date. Any Revenue Growth RSU awards made as a result of the Company’s Revenue Growth performance will be made on the Determination Date, subject to the terms and conditions of the Plan and this Agreement, including the vesting schedule set forth in Section 4(d) below, provided that the Participant’s status as a Participant under this Agreement has not terminated before the Determination Date.

(c) Employment Termination. If the Participant’s status as a Participant under this Agreement terminates for any reason before the Determination Date, other than the Participant’s (i) termination by the Company without Cause, (ii) death, or (iii) becoming Totally Disabled, no Revenue Growth RSUs will be awarded to the Participant, except as provided in Section 4(e) below. If, before the Determination Date, the Participant’s status as a Participant under this Agreement is terminated by the Company without Cause, or due to death or becoming Totally Disabled, the Participant will be awarded a number of vested Revenue Growth RSUs, determined as follows: (A) the Company shall determine the number of Revenue Growth RSUs that would have been awarded to the Participant as a percentage of the Target Revenue Growth RSU Amount, based on the Company’s Revenue Growth as of his employment termination measured against the Revenue

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Growth of the Peer Group Companies on that date, according to the metrics of Section 4(a) above, then (B) the Company shall multiply that number by a fraction, the numerator of which is the number of months of employment during the Performance Period the Participant had completed as of the date of his employment termination and the denominator of which is thirty-six (36). If the Participant’s status as a Participant under this Agreement terminates on or after the Determination Date, but before the Revenue Growth RSUs have fully vested under Section 4(d) or (e) below:

(i) If the Participant’s employment is terminated by the Company for Cause, the Participant will forfeit all Revenue Growth RSUs, including any Revenue Growth RSUs that have vested under Section 4(d);

(ii) If the Participant terminates employment due to death or becoming Totally Disabled, the Participant will vest in any Revenue Growth RSUs that have not vested under Section 4(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the full number of Revenue Growth RSUs that were awarded to the Participant, regardless of whether or not the Participant had elected to defer under Section 4(f) below;

(iii) If the Participant’s employment is terminated other than (A) due to death or becoming Totally Disabled, or (B) by the Company for Cause, the Participant will forfeit any Revenue Growth RSUs that have not vested under Section 4(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the number of Revenue Growth RSUs that already have vested, regardless of whether or not the Participant had elected to defer under Section 4(f) below.

(d) Installment Vesting. Any Revenue Growth RSUs awarded on the Determination Date shall vest in two installments, as follows: (i) two-thirds of the total Revenue Growth RSUs awarded shall immediately vest on the Determination Date, and (ii) the remaining one-third shall vest on the first anniversary of the Determination Date, in each case provided that the Participant’s status as a Participant under this Agreement has not terminated before the applicable vesting date.

(e) Change in Control. In the event of a Change of Control before the Determination Date for Revenue Growth RSUs, the Committee shall determine, in its sole discretion, whether to award none, some or all of the Target Revenue Growth RSU Amount to the Participant under this Agreement and whether to accelerate the vesting of those Revenue Growth RSUs it so awards; provided that, in no event shall the Participant be awarded a number of vested Revenue Growth RSUs that is less than the number determined as follows: (A) the Company shall determine the number of Revenue Growth RSUs that would have been awarded to the Participant as a percentage of the Target Revenue Growth RSU Amount, based on the Company’s Revenue Growth as of the date of the Change in Control measured against the Revenue Growth of the Peer Group Companies on that date, according to the metrics of Section 4(a) above, then (B) the Company shall multiply that number by a fraction, the numerator of which is the number

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of months of employment during the Performance Period the Participant had completed as of the date of the Change in Control and the denominator of which is thirty-six (36). In the event of a Change of Control on or after the Determination Date, but before the Revenue Growth RSUs awarded to the Participant, if any, have fully vested under Sections 4(c) or (d), if the Participant’s status as a Participant under this Agreement has not terminated before the effective date of the Change in Control, the Revenue Growth RSUs awarded to the Participant will fully vest on a date before the effective date of the Change in Control, determined by the Committee or Board, as applicable, unless (i) the Company is the surviving entity and any adjustments necessary to preserve the value of the Participant’s outstanding Revenue Growth RSUs have been made, or (ii) the Company’s successor at the time of the Change in Control irrevocably assumes the Company’s obligations under the Plan and this Agreement or replaces the Participant’s outstanding Revenue Growth RSUs with an award of equal or greater value and having terms and conditions no less favorable to the Participant than those applicable to the Participant’s Revenue Growth RSUs immediately prior to the Change in Control; provided, that, if the Participant’s status as a Participant under this Agreement has not terminated before the effective date of the Change in Control and the Participant’s Revenue Growth RSUs do not become fully vested upon the Change of Control because of the foregoing provisions of this paragraph (e), the Participant’s Revenue Growth RSUs nonetheless will become fully vested if, within two years after the effective date of the Change of Control, the Company or its successor terminates the Participant’s employment other than for Cause or the Participant terminates his employment for Good Reason (as defined below). If the Participant terminates employment following a Change in Control due to death or becoming Totally Disabled, the Participant will vest in any Revenue Growth RSUs that have not previously vested.

(f) Deferral of Share Distribution. The Participant may elect to defer the receipt of Shares beyond the vesting date of the underlying Revenue Growth RSUs in Section 4(d) above, by written election on the Company’s then-current Deferral Election Form, filed no earlier than the Determination Date and no later than thirty (30) days after the Determination Date for the Revenue Growth 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 Determination Date. Any such deferral election shall apply to the receipt of all Shares underlying the Revenue Growth RSUs under this Agreement; for example, a deferral period of seven (7) years would result in the Participant receiving all Shares underlying the vested Revenue Growth RSUs seven (7) years from the Determination Date regardless of the fact that the Revenue Growth RSUs under this Agreement may have vested at differing times. If a Participant elects a deferral period but thereafter the Participant’s status as a Participant terminates after the Revenue Growth RSUs vest but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the Revenue Growth RSUs will occur within thirty (30) days after the date the Participant’s status as such terminates. If a Participant elects a deferral period but thereafter a Change in Control occurs after the Revenue Growth RSUs vest but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the Revenue Growth RSUs will occur on a date to be determined by the Committee or the Board, as applicable, immediately prior to the effective time of the Change in Control.

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5. TSR Performance RSUs. For purposes of this Agreement, the Committee approved a Target TSR Performance RSU Amount of                      (            ) RSUs. After the completion of the Performance Period the Committee shall award the Participant a number of RSUs of between zero and up to 150% of the Target TSR Performance RSU Amount (“TSR Performance RSUs”), on the Determination Date (as defined below).

(a) TSR Performance Measurement. During the Performance Period, the Company’s TSR performance will be measured against the TSR performance of the Peer Group Companies. As soon as practicable after the Peer Group Companies have reported their TSR performance for the Performance Period, the Committee shall compare the Company’s TSR performance for the Performance Period with that of the Peer Group Companies. The Peer Group Companies will be ranked by TSR performance, and then divided into four quartiles. The Committee will evaluate the Company’s TSR performance in light of those rankings and shall approve the issuance to the Participant a number of TSR performance RSUs determined as follows:

(i) if the Company’s TSR performance places it in the fourth (lowest) quartile of the Peer Group Companies, no RSUs will be awarded;

(ii) if the Company’s TSR performance places it in the third quartile of the Peer Group Companies, then a number of RSUs equal to 50% of the Target TSR Performance RSU Amount will be awarded;

(iii) if the Company’s TSR performance places it in the second quartile of the Peer Group Companies, then a number of RSUs equal to 100% of the Target TSR Performance RSU Amount will be awarded; and

(iv) if the Company’s TSR performance places it in the first (highest) quartile of the Peer Group Companies, then a number of RSUs equal to 150% of the Target TSR Performance RSU Amount will be awarded.

(b) Determination Date. Any TSR Performance RSU awards made as a result of the Company’s TSR performance will be made on the Determination Date, subject to the terms and conditions of the Plan and this Agreement, including the vesting schedule set forth in Section 5(d) below, provided that the Participant’s status as a Participant under this Agreement has not terminated before the Determination Date.

(c) Employment Termination. If the Participant’s status as a Participant under this Agreement terminates for any reason before the Determination Date, other than the Participant’s (i) termination by the Company without Cause, (ii) death, or (iii) becoming Totally Disabled, no TSR Performance RSUs will be awarded to the Participant, except as provided in Section 5(e) below. If, before the Determination Date, the Participant’s status as a Participant under this Agreement is terminated by the Company without Cause, or due to death or becoming Totally Disabled, the Participant will be awarded a number of vested TSR Performance RSUs, determined as follows: (A) the Company shall determine the number of RSUs that would have been awarded to the Participant as a

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percentage of the Target TSR Performance RSU Amount, based on the Company’s TSR Performance as of his employment termination measured against the TSR Performance of the Peer Group Companies on that date, according to the metrics of Section 5(a) above, then (B) the Company shall multiply that number by a fraction, the numerator of which is the number of months of employment during the Performance Period the Participant had completed as of the date of his employment termination and the denominator of which is thirty-six (36). If the Participant’s status as a Participant under this Agreement terminates on or after the Determination Date, but before the TSR Performance RSUs have fully vested under Section 5(d) or (e) below:

(i) If the Participant’s employment is terminated by the Company for Cause, the Participant will forfeit all TSR Performance RSUs, including any TSR Performance RSUs that have vested under Section 5(d);

(ii) If the Participant terminates employment due to death or becoming Totally Disabled, the Participant will vest in any TSR Performance RSUs that have not vested under Section 5(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the full number of TSR Performance RSUs that were awarded to the Participant, regardless of whether or not the Participant had elected to defer under Section 5(f) below;

(iii) If the Participant’s employment is terminated other than (A) due to death or becoming Totally Disabled, or (B) by the Company for Cause, the Participant will forfeit any TSR Performance RSUs that have not vested under Section 5(d) or (e), and on a date within thirty (30) days of the employment termination, determined by the Committee or Board, as applicable, the Company will distribute Shares to the Participant equal to the number of TSR Performance RSUs that already have vested, regardless of whether or not the Participant had elected to defer under Section 5(f) below.

(d) Installment Vesting. Any TSR Performance RSUs awarded on the Determination Date shall vest in two installments, as follows: (i) two-thirds of the total TSR Performance RSUs awarded shall immediately vest on the Determination Date, and (ii) the remaining one-third shall vest on the first anniversary of the Determination Date, in each case, provided that the Participant’s status as a Participant under this Agreement has not terminated before the applicable vesting date.

(e) Change in Control. In the event of a Change of Control before the Determination Date for TSR Performance RSUs, the Committee shall determine, in its sole discretion, whether to award none, some or all of the Target TSR Performance RSU Amount to the Participant under this Agreement, and whether to accelerate the vesting of those TSR Performance RSUs it so awards; provide that, in no event shall the Participant be awarded a number of vested TSR Performance RSUs that is less than the number determined as follows: (A) the Company shall determine the number of TSR Performance RSUs that would have been awarded to the Participant as a percentage of the Target TSR Performance RSU Amount, based on the Company’s TSR Performance as

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of the date of the Change in Control measured against the TSR Performance of the Peer Group Companies on that date, according to the metrics of Section 5(a) above, then (B) the Company shall multiply that number by a fraction, the numerator of which is the number of months of employment during the Performance Period the Participant had completed as of the date of the Change in Control and the denominator of which is thirty-six (36). In the event of a Change of Control on or after the Determination Date, but before the TSR Performance RSUs awarded to the Participant, if any, have fully vested under Sections 5(c) or (d), if the Participant’s status as a Participant under this Agreement has not terminated before the effective date of the Change in Control, the TSR Performance RSUs awarded to the Participant will fully vest on a date before the effective date of the Change in Control, determined by the Committee or Board, as applicable, unless (i) the Company is the surviving entity and any adjustments necessary to preserve the value of the Participant’s outstanding TSR Performance RSUs have been made, or (ii) the Company’s successor at the time of the Change in Control irrevocably assumes the Company’s obligations under the Plan and this Agreement or replaces the Participant’s outstanding TSR Performance RSUs with an award of equal or greater value and having terms and conditions no less favorable to the Participant than those applicable to the Participant’s TSR Performance RSUs immediately prior to the Change in Control; provided, that, if the Participant’s status as a Participant under this Agreement has not terminated before the effective date of the Change in Control and the Participant’s TSR Performance RSUs do not become fully vested upon the Change of Control because of the foregoing provisions of this paragraph (e), the Participant’s TSR Performance RSUs nonetheless will become fully vested if, within two years after the effective date of the Change of Control, the Company or its successor terminates the Participant’s employment other than for Cause or the Participant terminates his employment for Good Reason. If the Participant terminates employment following a Change in Control due to death or becoming Totally Disabled, the Participant will vest in any TSR Performance RSUs that have not previously vested.

(f) Deferral of Share Distribution. The Participant may elect to defer the receipt of Shares beyond the vesting date of the underlying TSR Performance RSUs in Section 5(d) above, by written election on the Company’s then-current Deferral Election Form, filed no earlier than the Determination Date and no later than thirty (30) days after the Determination Date for the TSR Performance 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 Determination Date. Any such deferral election shall apply to the receipt of all Shares underlying the TSR Performance RSUs under this Agreement; for example, a deferral period of seven (7) years would result in the Participant receiving all Shares underlying the vested TSR Performance RSUs seven (7) years from the Determination Date regardless of the fact that the TSR Performance RSUs under this Agreement may have vested at differing times. If a Participant elects a deferral period but thereafter the Participant’s status as a Participant terminates after the TSR Performance RSUs vest but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the TSR Performance RSUs will occur within thirty (30) days after the date the Participant’s status as such terminates. If a Participant elects a deferral period but thereafter a Change in Control occurs after the TSR Performance RSUs vest but before

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the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, distribution of the Participant’s Shares underlying the TSR Performance RSUs will occur on a date to be determined by the Committee or the Board, as applicable, immediately prior to the effective time of the Change in Control.

6. 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, (ii) deposit Shares with an online broker or other service provider contracted by the Company for such purpose, or (iii) handle such Shares according to the terms of a Change in Control, subject to Sections 7 and 10 below, but each such issuance subject to 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. Until Shares have been issued to the Participant under this Section, the Participant shall not have any rights as a holder of the Shares underlying any component of this Executive Performance RSU Award including but not limited to voting rights or dividends, if and when the Company declares same.

7. Adjustment of Executive Performance RSU Award. In the event that the Company or one or more of the Peer Group Companies is required to prepare an accounting restatement due to the material noncompliance with any financial reporting requirement under the federal securities laws the Committee, in good faith and subject to its sole discretion, may reduce or increase the number of RSUs awarded to the Participant under this Agreement to reflect the number of RSUs that would have been awarded to the Participant under the accounting restatement. At all times and regardless of the date of adoption any RSU target amounts established, RSUs awarded and Shares distributed under this Agreement shall be subject to any compensation recovery policy adopted by the Company to comply with applicable law or to comport with good corporate governances practices as determined by the Committee in its sole discretion, as such policy may be amended from time to time. The Company’s remedies and rights under this Section 7 shall be in addition to any other remedies or rights that the Company shall have, and any penalties or restrictions that may apply, under state or federal law, or any employment or other agreement.

8. Changes in Capital or Corporate Structure. In the event of any change in the outstanding shares of common stock of the Company by reason of a recapitalization, reclassification, reorganization, stock split, reverse stock split, combination of shares, stock dividend or similar transaction the Committee or Board, as applicable, shall proportionately adjust, in a manner deemed equitable by the Committee or Board, as applicable, in its sole discretion, the number of RSUs held by the Participant under this Agreement, in accordance with the Plan.

9. Nontransferability. A Participant’s rights under this Agreement, RSUs awarded under this Agreement and any rights and privileges pertaining to either of them, may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent and distribution, and shall not be subject to execution, attachment or similar process.

10. Non-Competition and Non-Solicitation Restrictive Covenants. In order to protect the Confidential Information (as defined below), customer relationships, and other legitimate

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business interests of the Company, during the Participant’s status as such under this Agreement and for twelve (12) months following the termination of his or her status as a Participant under this Agreement (e.g., termination of employment with the Company) 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, 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 10, 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 rights to receive an Executive Performance RSU Award under this Agreement, (ii) any and all RSUs awarded to him or her under the Plan and this Agreement, including vested RSUs or Shares; (iii) any Shares acquired under this Award, and (iv) any profit the Participant has realized on the vesting or sale of any Shares acquired under this Award, which the Participant may be required to repay to the Company). The forfeiture provisions of this Section 10 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 10, 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 10. In the event that the Participant is found to have breached any provision set forth in this Section 10 or elsewhere in this Agreement, the time period provided for in that provision shall be deemed tolled (i.e., it will not begin to run) for so long as the Participant was in violation of that provision.

11. 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.

12. 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. 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 this Agreement. The Participant acknowledges he/she must rely solely on such advisors and not on

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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.

13. No Limitation on the Company’s Rights. The awarding 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. The terms and provisions of this Agreement that provide for the Participant to forfeit Executive Performance RSUs in the event of a termination for Cause, shall be in addition to any other remedies or rights that the Company shall have, and any penalties or restrictions that may apply, under state or federal law, or any employment or other agreement.

14. Plan and Agreement Not a Contract of Employment or Service. 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 the employment or service with the Company or any subsidiary or affiliate thereof.

15. 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 if such amendment is deemed by the Company to be advisable or necessary to comply with Code Section 409A. 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. Each party has cooperated in the preparation of this Agreement. As a result, this Agreement shall not be construed against any party on the basis that the party was the draftsperson.

16. 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: Equity Administration Department

The Company may change the person and/or address to which the Participant must give notice under this Section 16 by giving the Participant written notice of such change, in accordance with the procedures described above. 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.

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17. Compliance with Laws. 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.

18. 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.

19. 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 Executive Performance RSU 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 expressly stated otherwise.

20. Governing Law. The laws of the State of New York shall govern the validity, interpretation, construction, and performance of this Agreement, without regard to the conflict of laws principles thereof. Any dispute concerning the interpretation or effect of this Agreement or of the Plan or the rights of the Participant under the Agreement (other than the Company’s right to seek an injunction under Section 10 above) shall be resolved according to the arbitration rules under Section 14.5 of the Plan.

21. 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) and, in the event of any inconsistency between any provision of the Plan or this Agreement and Section 409A, the provisions of Section 409A shall control. 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) The Executive Performance RSU Award including each component RSU Award part thereof 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 the Executive Performance RSU award, in whole or in part, 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 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.

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22. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement.

23. Definitions. Where used in this Agreement, the following capitalized terms shall have the following meanings:

(a) “Cause” shall have the meaning set forth in any employment, consulting, or other written agreement between the Participant and the Company. In addition, if there is no employment, consulting, or other written agreement between the Company and the Participant or if such agreement does not define “Cause” to the extent provided for below then for purposes of this Agreement, “Cause” both thereunder and under this Agreement shall mean, as determined by the Committee in its sole judgment, conviction of the Participant under, or a plea of guilty by the Participant to any state or federal felony charge (or the equivalent thereof outside of the United States); any instance of fraud, embezzlement, self-dealing, insider trading or similar malfeasance with respect to the Company or its affiliates regardless of amount; substance or alcohol abuse; or other conduct for which dismissal has been identified in the Company’s Code of Business Ethics and Conduct or the applicable Employee Handbook of the Company or its affiliates, or any successor manual, as a potential disciplinary measure.

In addition, the Participant’s employment or service shall be deemed to have terminated for Cause if, after the Participant’s employment or service has terminated, facts and circumstances are discovered that would have justified a termination for Cause. For purposes of this Plan, no act or failure to act on the Participant’s part shall be considered “willful” unless it is done, or omitted to be done, by him or her in bad faith or without reasonable belief that his or her action or omission was in the best interests of the Company.

(b) “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 status as a Participant, 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 status as a Participant 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 this Agreement and after his/her status as a Participant under this Agreement terminates, the Participant will not, without the Company’s express written permission, use Confidential Information for the Participant’s own benefit or the benefit

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of any other person or entity or disclose Confidential Information to any person other than (i) in the case of disclosures made while the Participant maintained his/her status as such hereunder, to persons to whom disclosure is required in connection with the performance of the 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 the Participant agrees promptly to notify the Company in advance of and cooperate with the Company in any efforts to suppress or limit such disclosure.

(c) “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 (including, without limitation, marketing services, as determined by the Company in its sole discretion) to such Person.

(d) “Determination Date” means the actual date on which the Company awards RSUs to the Participant under this Agreement after completion of the applicable Performance Period.

(e) “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 a RSU vests; provided that, the Distribution Date for a Participant who elects to defer the distribution of his or her Shares beyond the date on which the applicable RSU vests will be the earliest of (i) the date the Participant’s status as a Participant under this Agreement terminates, or (ii) the end of the deferral period specified by the Participant. Additionally, if the Participant elects to defer the distribution of his Shares beyond the date on which the applicable RSUs vests, but a Change in Control occurs after the applicable RSUs vest, but before the elected deferral period expires, then, subject to the forfeiture provisions of Sections 7 and 10, the Participant’s Distribution Date will occur on a date to be determined by the Committee or Board, as applicable, immediately prior to the effective time of the Change in Control.

(f) “Good Reason” shall have the meaning set forth in any employment, consulting, or other written agreement between the Participant and the Company and, if there is no employment, consulting, or other written agreement between the Company and the Participant or if such agreement does not define “Good Reason” then for purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following, without the Participant’s prior written consent:

(i) Any material diminution in the Participant’s assigned duties, responsibilities and/or authority;

(ii) Any material reduction in the Participant’s base compensation;

(iii) The Company requires the Participant to be based at a location that is more than thirty-five (35) miles further from the Participant’s residence than the location of the Participant’s principal job location or office immediately prior to

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the Change in Control (except for required travel on Company’s business to an extent substantially consistent with the Participant’s then present business travel obligations); or

(iv) Any other action or inaction that constitutes a material breach by the Company of any agreement under which the Participant provides services to the Company.

Notwithstanding the foregoing, Good Reason shall not exist unless the Participant gives the Company written notice thereof within sixty (60) days after its occurrence and the Company shall not have remedied the action or omission within thirty (30) days after such written notice.

(g) “Peer Group Companies” means, as of the first day of the Performance Period, the following companies:

A123 Systems, Active Power, ADA-ES, American Superconductor, Amerigon, Ballard Power Systems, Capstone Turbine, CECO Environmental, Clean Energy Fuels, Energy Conversion Devices, FuelCell Energy, Fuel Systems Solutions, Peerless Manufacturing, Plug Power, Power Integrations, Quantum Fuel Systems, RenTech, Syntroleum

During the Performance Period, the Committee shall review the companies in the Peer Group Companies and the Committee may remove any company from the category of Peer Group Companies if the Committee determines, in good faith and subject to its sole discretion, that such company should no longer be part of the Peer Group Companies due to merger, acquisition, disposition, change in ownership, growth, contraction, or any other event or circumstance affecting the Company or one of the Peer Group Companies, which the Committee determines, in good faith and subject to its sole discretion, is appropriate.

(h) “Performance Period” means, for the Look-Back RSUs, the 2012 calendar year, and for the Revenue Growth RSUs and the TSR Performance RSUs, the two-year period commencing January 1, 2012 and ending December 31, 2014.

(i) “Person” means an individual or any type of business entity.

(j) “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.

(k) “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

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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.

(l) “Restricted Stock Unit” or “RSU” means a notional account established pursuant to an Award granted to a Participant under this Agreement, which is (i) valued solely by reference to Shares, (ii) subject to restrictions specified in the Agreement, and (iii) payable only in Shares.

(m) “Revenue Growth” means, with respect to the Company and each of the Peer Group Companies, the Revenue Growth reported on Form 10-K for the Company and each of the Peer Group Companies, respectively, coinciding with the Performance Period.

(n) “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 employment” or “employment termination” or “termination of status as a Participant under this Agreement” shall be deemed to refer to a Separation from Service.

(o) “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).

(p) “Total Shareholder Return” or “TSR” means, with respect to the Company and each of the Peer Group Companies, the reporting company’s total return to stockholders per share of stock as reported on Form 10-K for the Company and each of the Peer Group Companies, respectively, coinciding with the Performance Period.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date.

	FUEL TECH, INC.
	By:
PARTICIPANT	Its:

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Exhibit A

to

2011 Executive Performance RSU Award Agreement

Equity Award Factors

The determination and approval of proposed equity awards by the Company’s Compensation Committee are based on a variety of factors that may include:

• historical equity awards, by employee, by year;

• intrinsic values for each equity award, or, when applicable, the fair value of each equity award using the Black-Scholes option pricing model;

• the number of equity award units available for issuance under the Plan;

• supervisor recommendations for employee equity awards;

• the estimate of expected intrinsic value (e.g., equity award compensation expense) of the aggregate equity award;

• Fuel Tech’s financial performance in light of market conditions and operational considerations, which may be quantitative, qualitative or both;

• achievement of individual or company operational objectives;

• exceptional and innovative individual performance;

• individual contribution to a strategic goal;

• teamwork;

• leadership accomplishments; and

• employee job level

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EXECUTIVE PERFORMANCE RSU DEFERRAL ELECTION FORM

This Executive Performance RSU Deferral Election Form (“Deferral Election Form”) is entered into by and between Fuel Tech, Inc. (the “Company”) and                                          ( “the Participant” or “you”), who became eligible to receive an award of Look-Back RSUs, Revenue Growth RSUs and/or TSR Performance RSUs under the Fuel Tech, Inc. Incentive Plan, as amended (the “Plan”) and a 2012 Executive Performance RSU Award Agreement (the “Agreement”), which Agreement was legally effective March 9, 2012. 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 the Participant any right to continue to be employed by or perform services for the Company or any subsidiary or affiliate thereof.

1. Deferral of RSUs

You may file a separate deferral election with respect to each form of RSUs you may be awarded under the Agreement; that is, a deferral election for any Look-Back RSUs, a deferral election for any Revenue Growth RSUs, and/or a deferral election for any TSR Performance 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 Determination Date.

Deferral election must be made no earlier than the Determination Date for the form of RSUs involved and no later than thirty (30) days after the Determination Date applicable to the form a RSUs you are electing to defer.

Any such deferral must apply to receipt of all Shares underlying that form of RSU award; for example, if you were to elect a deferral period of seven (7) years for any Revenue Growth RSUs, this would result in you receiving Shares underlying the entire Revenue Growth RSUs award seven (7) years from the Determination Date regardless of the fact that the Revenue Growth 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 you, a signed and dated Deferral Election Form within the required election period applicable to any form of RSUs, Shares underlying those RSUs 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 underlying any Look-Back RSUs until          years (minimum of 5) after the Determination Date.

¨ I wish to defer receipt of all Shares underlying any Revenue Growth RSUs until          years (minimum of 5) after the Determination Date.

¨ I wish to defer receipt of all Shares underlying any TSR Performance RSUs until          years (minimum of 5) after the Determination Date.

2. 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 Determination Date applicable to the form a RSUs you are electing to defer and will become irrevocable on such date. You may revise this Deferral Election with respect to the deferral period no later than this due date, by contacting the Company’s Equity Administration Department in writing in accordance with the Notice provision set forth in Section 16 of the Agreement.

	Date:             , 201
Participant

EX-4.2

Exhibit 4.2

FUEL TECH, INC.

2012 Executive Officer Incentive Plan

1. THE PLAN

1.1 Objectives. The Executive Officer Incentive Plan (“EOIP”) of Fuel Tech, Inc., a Delaware corporation, (the “Company”), is designed to provide each Participant with financial incentives based upon Company financial results, measured in terms of Adjusted EBITDA, Revenues and APC Bookings. The EOIP is an annual bonus plan based on successive fiscal year performance periods commencing January 1, 2012, with payouts based on each fiscal year’s performance. Capitalized terms not otherwise defined shall have the meanings set forth in Section 4 below.

1.2 Plan Supersedes All Prior Incentive Compensation Programs. This EOIP supersedes and replaces all prior cash incentive compensation programs for all Participants.

2. ELIGIBILITY

2.1 Participants. The Company’s Chief Executive Officer, Chief Financial Officer, Executive Vice President of Marketing and Sales and Executive Vice President of Worldwide Operations shall each be a Participant in the EOIP. The Committee, in its business discretion, may subjectively decide to designate additional full-time senior management employees of the Company to be Participants in the EOIP after consideration of the recommendations of the Company’s Chief Executive Officer. The addition of new full-time senior management employees to the EOIP would require modification to the EOIP’s formulaic funding or payout mechanics, subject to approval by the Committee.

Participants must be employed on the last day of a fiscal year (December 31) in order to be eligible for a payout under the EOIP based on that fiscal year’s performance. No amounts will be deemed earned or payable under the EOIP by any Participant whose employment with the Company ends on or before the last day of the fiscal year. A Participant deemed to be eligible for a payout in accordance with the provisions of the EOIP for a given fiscal year, need not be employed on the day of a bonus payout under this EOIP for such fiscal year in order to be eligible for the payout.

2.2 Involuntary Termination of Employment. Notwithstanding the preceding paragraph, if, during a fiscal year in which the EOIP is in effect, a Participant’s employment with the Company is involuntarily terminated: (a) not for cause by the Company, or (b) on account of the Participant’s death, or (c) on account of the Participant’s disability (as that term is defined below), then to the extent and at the time the Company determines there shall be a payout for that fiscal year under the EOIP, the affected Participant shall be eligible for a pro rata EOIP payment (or, in the case of death, to that employee’s estate) in accordance with the applicable calculations of Section 4, “EOIP Payouts” and subject to all the other provisions of the EOIP; provided, however, that only the normal employee wages paid to the affected employee (as determined by the Company in its sole discretion and excluding bonuses, allowances, paid leave, vacation or severance payments) through that Participant’s separation date from the Company shall be used in such pro rata allocations.

Any funds not paid out to a Participant under the EOIP, whether due to voluntary termination of employment, termination of employment for cause or otherwise, will automatically revert back to the Company.

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3. EOIP Payouts

3.1 Incentive Pool. EOIP payouts are based on the Company’s performance for three financial metrics – Adjusted EBITDA, Revenues and APC Bookings. An “Incentive Pool” may or may not be created dependent on the Company’s financial performance pertaining to all or some of those metrics during the fiscal year. If the Incentive Pool is created, each Participant is then awarded that Participant’s designated portion of the Incentive Pool on or before March 31, 2012. The methodology for calculating EOIP payouts to Participants is more fully described below.

3.2 Minimum Adjusted EBITDA Threshold. No amounts shall be payable under this EOIP for any fiscal year unless the Company has achieved the established minimum threshold of Adjusted EBITDA for such fiscal year. Accordingly, if the Company’s financial performance for the fiscal year falls below the established minimum threshold of Adjusted EBITDA, there is no payout under the EOIP of any kind, regardless of the annual Revenue or annual APC Bookings amounts achieved.

3.3 Funding and Payout.

3.3.1 A percentage of Adjusted EBITDA is set aside in an Incentive Pool with respect to each fiscal year to provide for bonus payments under this EOIP based on performance in the following three categories: (i) Adjusted EBITDA, (ii) Revenue and (iii) APC Bookings. The percentage of Adjusted EBITDA that is set aside based on the Company’s actual level attained in each of these three categories shall be determined by the Committee after consideration of the recommendations of the Company’s Chief Executive Officer.

3.3.2 Once the Company’s minimum threshold of Adjusted EBITDA is met, the percentage of Adjusted EBITDA set aside in the Incentive Pool rises pro rata incrementally based on actual Company performance in each of the Adjusted EBITDA, Revenues, and APC Bookings financial metrics subject to an overall Incentive Pool funding percentage upper limit cap, all as shown in the chart below. The payout formula for a Participant is shown in the chart below.

Executive Officer Incentive Plan Mechanics

						Increment
	Minimums		Funding %			Value		Incremental %			% Cap
Adjusted EBITDA, as defined	$	14,500		1.80	%	$	500		0.0583	%		2.50	%
Revenue	$	88,000		0.60	%	$	2,500		0.0250	%		0.90	%
APC Bookings	$	45,000		0.60	%	$	2,500		0.0375	%		0.90	%
				1.75	%							4.30	%

Executive Officer Plan Incentive Summary

Title	Percentage of Pool
Chief Executive Officer		38.0	%
Chief Financial Officer		20.0	%
EVP, Marketing & Sales		20.0	%
EVP, Worldwide Operations		22.0	%
		100.0	%

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4. DEFINITIONS

“Adjusted EBITDA” – means generally earnings before interest expense, taxes, depreciation and amortization, profit sharing plan contributions, legal expenses out of the ordinary course of the Company’s business and incentive pay (excluding sales commissions), but shall be as determined by the Company, in its sole discretion, with the assistance of its accountants.

“APC Bookings” – means generally to revenue (a) to which the Company has a legally binding, contractual right pursuant to a Sales Contract signed after December 31, 2010, and (b) which involves the sale of equipment or services associated the Company’s APC product line, all as determined by the Company, in its sole discretion. For purposes of clarity, it is understood that APC Bookings shall not include revenue (i) for equipment or services included in the scope of work of contracts executed and entered into prior to January 1, 2012 and restated in newly executed contracts; (ii) revenues relating to work for which authorization to proceed from the customer is required but has not been obtained in writing; or (iii) revenues relating to any equipment or services the delivery of which has been cancelled by the customer.

“Committee” – means the Compensation & Nominating Committee of the Company’s Board of Directors or such other committee as may from time to time succeed or perform the functions of that Committee.

“Disability” – means that a Participant, after exhausting any applicable leave available under the Company’s policies, is unable because of physical or mental condition to perform the essential functions of such Participant’s position, with or without a reasonable accommodation.

“Revenue” – means the Company’s net sales, as determined by the Company in its sole discretion.

“Sales Contract” – means a comprehensive set of executed, legally binding documents between the Company and a customer, in form and substance acceptable to the Company.

5. OTHER CONDITIONS

5.1 No Alienation of Awards. Payouts under this EOIP may not be assigned or alienated, except that payouts earned and payable may be assigned under the laws of descent and distribution of the Participant’s domicile.

5.2 No Right of Employment. Neither the EOIP nor any action taken under the EOIP shall be construed, expressly or by implication, as either giving to any Participant the right to be retained in the employ of the Company or any affiliate, or altering or limiting the employment-at-will relationship between the Company and any Participant.

5.3 Taxes, Withholding. The Company or any affiliate shall have the right to deduct from any payout under the EOIP any applicable federal, state or local taxes or other amounts required by applicable law, rule, or regulation to be withheld with respect to such payment.

5.4 Code Section 409A. The EOIP is intended to be exempt from or comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

5.5 Plan Administration; Effectiveness for any Fiscal Year. The EOIP shall be administered by or under the authority of the Committee which shall have the full discretionary power to administer and interpret this EOIP and to establish rules for its administration. The EOIP will not be deemed effective for any fiscal year until such time, if any, as the determination of the EOIP Adjusted EBITDA, Revenues, and APC Bookings minimum targets and Incentive Pool funding percentage amounts contemplated by Paragraph 3 above have been released for communication to EOIP participants, which date shall be no later than March 31^st of each fiscal year.

3

5.6 Reservation of Rights; Governing Law; Contract Disclaimer. The Company reserves the right to amend or cancel the EOIP in whole or in part at any time without notice. There can be no guaranty that the EOIP will be in effect in any subsequent fiscal year. The Company also reserves the right to decide all questions and issues arising under the EOIP and its decisions are final. The EOIP shall be construed in accordance with and governed by the laws of the State of Illinois. The EOIP is a statement of the Company’s intentions and does not constitute a guarantee that any particular EOIP payment amount will be paid. It does not create a contractual relationship or any contractually enforceable rights between the Company or its wholly owned subsidiaries and the Participant.

4

EX-31.1

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: May 8, 2012	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

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: May 8, 2012	By:	/s/ David S. Collins
		David S. Collins
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

EX-32

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: May 8, 2012	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: May 8, 2012	By:	/s/ David S. Collins
		David S. Collins
		Senior Vice President, Treasurer and Chief Financial Officer
		(Principal Financial 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.

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Note C - Revenue Recognition Policy

3 Months Ended

Mar. 31, 2012

Revenue Recognition, Policy [Policy Text Block]

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, supplies, and depreciation.  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 are recognized under the percentage of completion method of accounting.  The completed contract method is used for certain contracts 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.  As of March 31, 2012, the Company had one contract in progress that was identified as a loss contract and a provision for loss in the amount of $38 was recorded in the three-month period then ended.

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; all performance guarantees and equipment warranties granted by us are void 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 March 31, 2012 and December 31, 2011, unbilled receivables were approximately $12,685 and $7,262, respectively, and are included in accounts receivable on the consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts were $2,214 and $3,895, at March 31, 2012 and December 31, 2011, respectively. Such amounts are included in other accrued liabilities on the consolidated balance sheets.

Fuel Tech has installed over 700 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.

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Note B - Basis of Presentation

3 Months Ended

Mar. 31, 2012

Basis of Accounting [Text Block]

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 results of operations of all acquired businesses have been consolidated for all periods subsequent to the date of acquisition.

The balance sheet at December 31, 2011 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, 2011 as filed with the Securities and Exchange Commission.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 31,055	$ 28,229
Marketable securities	81	57
Accounts receivable, net of allowance for doubtful accounts of $429 and $430, respectively	26,307	34,346
Inventories	330	311
Prepaid expenses and other current assets	1,779	2,026
Prepaid income taxes	506	1,124
Deferred income taxes	241	163
Total current assets	60,299	66,256
Property and equipment, net of accumulated depreciation of $18,810 and $18,239, respectively	13,716	13,625
Goodwill	21,051	21,051
Other intangible assets, net of accumulated amortization of $3,611 and $3,385, respectively	5,362	5,442
Deferred income taxes	3,726	3,798
Other assets	2,960	2,818
Total assets	107,114	112,990
Current liabilities:
Short-term debt	1,188	1,181
Accounts payable	9,221	10,476
Accrued liabilities:
Employee compensation	1,973	4,902
Other accrued liabilities	4,444	6,071
Total current liabilities	16,826	22,630
Other liabilities	1,362	1,347
Total liabilities	18,188	23,977
Common stock, $.01 par value, 40,000,000 shares authorized, 23,309,665 and 23,644,301 shares issued and outstanding, respectively	233	237
Additional paid-in capital	132,560	132,350
Accumulated deficit	(44,373)	(44,031)
Accumulated other comprehensive income	430	381
Nil coupon perpetual loan notes	76	76
Total shareholders' equity	88,926	89,013
Total liabilities and shareholders' equity	$ 107,114	$ 112,990

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities
Net income	$ 1,543	$ 1,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	552	760
Amortization	226	223
Provision for doubtful accounts	(1)
Deferred income taxes	(15)	120
Stock based compensation	210	637
Changes in operating assets and liabilities:
Accounts receivable	8,145	(938)
Inventories	(18)	(177)
Prepaid expenses, other current assets and other noncurrent assets	118	(239)
Accounts payable	(651)	(1,380)
Accrued liabilities and other noncurrent liabilities	(4,634)	(2,274)
Net cash provided by (used in) operating activities	5,475	(1,929)
Investing Activities
Purchases of property, equipment and patents	(788)	(841)
Net cash (used in) investing activities	(788)	(841)
Financing Activities
Payments to repurchase common stock	(1,889)
Proceeds from exercise of stock options		54
Net cash (used in) provided by financing activities	(1,889)	54
Effect of exchange rate fluctuations on cash	28	57
Net increase (decrease) in cash and cash equivalents	2,826	(2,659)
Cash and cash equivalents at beginning of period	28,229	30,524
Cash and cash equivalents at end of period	$ 31,055	$ 27,865

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Note P - Share Repurchase Program

3 Months Ended

Mar. 31, 2012

Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]

Note P:                      Share Repurchase Program

In August 2011, Fuel Tech’s Board of Directors authorized the repurchase of up to $6 million of its outstanding common shares through December 31, 2012.  This program was completed in the quarter ended March 31, 2012. The share repurchase program was funded through the Company’s existing cash on hand.  Purchases made pursuant to the program were made in the open market. The timing, manner, price and amount of any repurchases was determined by the Company in its discretion and was subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase program, Fuel Tech repurchased an aggregate of 1,036,350 common shares for a total cost of approximately $6,000, including commissions of approximately $38. These acquired shares have been retired and are no longer shown as issued or outstanding shares.   The following table summarizes our share repurchase program since its inception:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Cost		Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
August 25, 2011 through September 30, 2011		571,554	$	5.89	$	3,367	$	2,633
October 1, 2011 through December 31, 2011		130,160		5.71		744		1,889
January 1, 2012 through March 31, 2012		334,636		5.64		1,889		-
Total		1,036,350	$	5.79	$	6,000	$	-

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Note A - Nature of Business

3 Months Ended

Mar. 31, 2012

Nature of Operations [Text Block]

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 and Compensation & 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 (NOx) reduction and FUEL CHEM® technologies.  The Air Pollution Control (APC) technology segment reduces NOx emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources by utilizing combustion optimization techniques and Low NOx and Ultra Low NOx Burners; NOxOUT® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate Advanced SCR (ASCR™) and NOxOUT CASCADE® technologies, ULTRA™and NOxOUT-SCR® technologies; and Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG™) technologies. Fuel Tech's APC technology business is materially dependent on the continued existence and enforcement of worldwide air quality regulations.  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 (PM2.5), carbon dioxide, 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 processes 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.

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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 429	$ 430
Accumulated depreciation (in Dollars)	18,810	18,239
Accumulated amortization (in Dollars)	$ 3,611	$ 3,385
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	23,309,665	23,644,301
Common stock outstanding	23,309,665	23,644,301

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Note K - Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

Note K:                      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, which is included in other accrued liabilities on the accompanying balance sheets, for the three months March 31, 2012, and 2011, are summarized below:

	Three Months Ended March 31,
	2012			2011
Aggregate product warranty liability at beginning of period	$	313		$	215
Net aggregate expense related to product warranties		120			30
Aggregate reductions for payments		(100	)		(33	)
Aggregate product warranty liability at end of period	$	333		$	212

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Document And Entity Information	3 Months Ended
	Mar. 31, 2012	May 08, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	FUEL TECH, INC.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		23,309,665
Amendment Flag	false
Entity Central Index Key	0000846913
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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Note L - Income Taxes

3 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Text Block]

Note L:                      Income Taxes

The Company’s effective tax rates of 38.0% and 50.8% for the three-month periods ended March 31, 2012 and 2011 differs from the statutory federal tax rate of 34% due primarily to state taxes, stock-based compensation, differences between U.S. and foreign tax rates, foreign losses incurred with no related tax benefit, changes in state tax rates, tax credits, and non-deductible meals and entertainment expenses.

Fuel Tech had unrecognized tax benefits of $667, including penalties and interest, as of March 31, 2012 and December 31, 2011, all of which, if ultimately recognized, will reduce Fuel Tech’s annual effective tax rate. 

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues	$ 25,212	$ 22,622
Costs and expenses:
Cost of sales	13,220	11,466
Selling, general and administrative	8,994	7,951
Research and development	506	402
	22,720	19,819
Operating income	2,492	2,803
Interest expense	(25)	(40)
Interest income		1
Other income (expense)	21	(40)
Income before income taxes	2,488	2,724
Income tax expense	(945)	(1,385)
Net income	$ 1,543	$ 1,339
Net income per common share:
Basic (in Dollars per share)	$ 0.07	$ 0.06
Diluted (in Dollars per share)	$ 0.06	$ 0.05
Weighted-average number of common shares outstanding:
Basic (in Shares)	23,591,000	24,214,000
Diluted (in Shares)	24,261,000	24,669,000

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Note F - Available-for-Sale Marketable Securities

3 Months Ended

Mar. 31, 2012

Marketable Securities, Available-for-sale Securities, Policy [Policy Text Block]

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 $81 and no cost basis at March 31, 2012.

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 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 March 31, 2012 and 2011.

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Note E - Selling, General and Administrative Expenses

3 Months Ended

Mar. 31, 2012

Selling, General and Administrative Expenses, Policy [Policy Text Block]

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.

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Note M - Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

Note M:                      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 March 31, 2012 and December 31, 2011, goodwill allocated to the FUEL CHEM technology segment was $1,723 while goodwill allocated to the APC technology segment was $19,328. 

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 fair value measurement test, performed annually as of October 1, revealed no indications of impairment.  There were no indications of goodwill impairment in the three-month periods ended March 31, 2012 and 2011.

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 three-month periods ended March 31, 2012 and 2011.

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Note I - Debt

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Text Block]

Note I:                      Debt

On June 30, 2011, 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, 2013.  The amendment decreases the total borrowing base of the facility to $15,000 from $25,000 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 under 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 March 31, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facilities. 

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 1.5:1.0 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 $50,000, adjusted upward for 50% of net income generated and 100% of all capital issuances. At March 31, 2012, the Company was in compliance with all financial covenants specified by the Facility.

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,054 and $1,374, 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 March 31, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,946 and $13,626, 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 30, 2011, 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 $5,545), which expires on June 29, 2012.  This new credit facility replaced the previous RMB 45 million facility that expired on June 30, 2011.  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 March 31, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,188 and $1,181, respectively. These borrowings were subject to interest rates of approximately 8.2% and 7.6% at March 31, 2012 and December 31, 2011, respectively. 

At March 31, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $467 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process.  At March 31, 2012 and December 31, 2011, approximately $3,890 and $3,580 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 $25 and $40 were made during the three-month periods ended March 31, 2012 and 2011, respectively.

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Note G - Earnings per Share Data

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Text Block]

Note G:                      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 stock options, restricted stock units, and of the nil coupon non-redeemable convertible unsecured loan notes.  The following table sets forth the weighted-average shares used in calculating the earnings per share for the three-month periods ended March 31, 2012 and 2011.

	Three Months Ended March 31:
	2012		2011
Basic weighted-average shares		23,591,000		24,214,000
Conversion of unsecured loan notes		7,000		7,000
Unexercised options		118,000		299,000
Unvested restricted stock units		545,000		149,000
Diluted weighted-average shares		24,261,000		24,669,000

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Note H - Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note H:                      Stock-Based Compensation

Fuel Tech has a stock-based employee compensation plan, referred to as the Fuel Tech, Inc. Incentive Plan (Incentive Plan), under which awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units (RSUs), Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof.  Participants in the Incentive Plan may be Fuel Tech’s directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of Fuel Tech’s business.  The amount of shares that may be issued or reserved for awards to participants under a 2004 amendment to the Incentive Plan is 12.5% of outstanding shares calculated on a diluted basis.  At March 31, 2012, Fuel Tech had approximately 682,000 equity awards available for issuance under the Incentive 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-month periods ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31:
	2012			2011
Stock options and restricted stock units	$	193		$	617
Deferred directors fees		17			20
Total stock-based compensation expense		210			637
Tax benefit of stock-based compensation expense		(72	)		(195	)
After-tax effect of stock-based compensation	$	138		$	442

As of March 31, 2012, there was $3,927 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan.

Stock Options

Stock options granted to employees under the Incentive Plan 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.

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 Plan for the three months ended March 31, 2012 was as follows:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding on January 1, 2012		1,902,000		$	11.51
Granted		-			-
Exercised		-			-
Expired or forfeited		(15,000	)	$	5.98
Outstanding on March 31, 2012		1,887,000		$	11.55	4.7 years	$	415
Exercisable on March 31, 2012		1,711,812		$	11.78	4.4 years	$	415

Non-vested stock option activity for the three months ended March 31, 2012 was as follows:

	Non-Vested Stock Options Outstanding			Weighted-Average Grant Date Fair Value
Outstanding on January 1, 2012		183,938		$	5.56
Granted		-			-
Vested		(8,750	)		7.62
Forfeited		-			-
Outstanding on March 31, 2012		175,188		$	5.46

As of March 31, 2012, there was $740 of total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan.  That cost is expected to be recognized over a weighted average period of 1.2 years.

Restricted Stock Units

Restricted stock units (RSUs) granted to employees vest over time based on continued service (typically vesting over a period between one to three years in equal installments).  Such time-vested RSUs are valued at 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, in March 2012 and 2011, 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 Marketing & Sales and Executive Vice President, Worldwide Operations.  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 and Nominating 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 intrinsic value method 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.

· 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 intrinsic value method 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.

At March 31, 2012, there is $3,187 of unrecognized compensation costs related to restricted stock unit awards to be recognized over a weighted average period of 2.5 years.

A summary of restricted stock unit activity for the three-month period ended March 31, 2012 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2011		487,165	$	7.59
Granted		256,500	$	5.52
Forfeited		-		-
Vested		-		-
Unvested restricted stock units at March 31, 2012		743 ,665	$	6.88

Deferred Directors Fees

In addition to the Incentive Plan, Fuel Tech has a Deferred Compensation Plan 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 as opposed to liability awards.  In the three-month periods ended March 31, 2012 and 2011, Fuel Tech recorded $17 and $20, respectively, of stock-based compensation expense under the Deferred Plan.

At March 31, 2012, Fuel Tech had 1,478,000 weighted-average stock awards outstanding that were not dilutive for the purpose of inclusion in the calculation of diluted earnings per share but could potentially become dilutive in future periods.

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Note J - Business Segment and Geographic Disclosures

3 Months Ended

Mar. 31, 2012

Segment Reporting Disclosure [Text Block]

Note J:                      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 NOx emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources.   These include Low and Ultra Low NOx Burners (LNB and ULNB), Over-Fire Air (OFA) systems, NOxOUT® 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 NOx reductions at significantly lower capital and operating costs than conventional SCR systems.  The NOxOUT CASCADE® and NOxOUT-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.  Flue Gas Conditioning systems are chemical injection systems offered in markets outside the U.S. and Canada to enhance electrostatic precipitator 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.

Information about reporting segment net sales and gross margin are provided below:

Three months ended March 31, 2012	Air Pollution Control Segment			FUEL CHEM Segment			Other			Total
Revenues from external customers	$	15,714		$	9,498		$	-		$	25,212
Cost of sales		(8,751	)		(4,469	)		-			(13,220	)
Gross margin		6,963			5,029			-			11,992
Selling, general and administrative		-			-			(8,994	)		(8,994	)
Research and development		-			-			(506	)		(506	)
Operating income	$	6,963		$	5,029		$	(9,500	)	$	2,492

Three months ended March 31, 2011	Air Pollution Control Segment			FUEL CHEM Segment			Other			Total
Revenues from external customers	$	11,092		$	11,530		$	-		$	22,622
Cost of sales		(5,553	)		(5,913	)		-			(11,466	)
Gross margin		5,539			5,617			-			11,156
Selling, general and administrative		-			-			(7,951	)		(7,951	)
Research and development		-			-			(402	)		(402	)
Operating income	$	5,539		$	5,617		$	(8,353	)	$	2,803

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 March 31,
	2012		2011
Revenues:
United States	$	22,944	$	19,618
Foreign		2,268		3,004
	$	25,212	$	22,622
	March 31, 2012		December 31, 2011
Assets:
United States	$	93,874	$	99,601
Foreign		13,240		13,389
	$	107,114	$	112,990

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Note O - Recently Adopted and Pending Accounting Pronouncements

3 Months Ended

Mar. 31, 2012

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

Note O:                      Recently Adopted and Pending Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued amended disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements.  In addition, in December 2011, the FASB issued an amendment to this accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. This guidance was effective as of the beginning of our 2012 fiscal year.  Accordingly, we have presented the components of net income and other comprehensive income for the three month periods ending March 31, 2012 and 2011 as two separate but consecutive statements. We will continue to monitor the FASB’s activities related to the deferral of the presentation and disclosure of reclassification adjustments from other comprehensive income to net income, but it will only affect our financial statement presentation and will have no impact to our consolidated financial results.

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Net income	$ 1,543	$ 1,339
Other comprehensive income:
Foreign currency translation adjustments	34	61
Unrealized gain from marketable securities, net of tax	15
Total other comprehensive income	49	61
Comprehensive income	$ 1,592	$ 1,400

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Note D - Cost of Sales

3 Months Ended

Mar. 31, 2012

Cost of Sales, Policy [Policy Text Block]

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.

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Note N - Fair Value

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Text Block]

Note N:                      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 $81 and $57 at March 31, 2012 and December 31, 2011, 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 three-month periods ended March 31, 2012 and 2011.

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.