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 September 30, 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 Web site, 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 November 5, 2012 there were outstanding 22,039,425 shares of Common Stock, par value $0.01 per share, of the registrant.

FUEL TECH, INC.

Form 10-Q for the nine-month period ended September 30, 2012

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011		1
	Consolidated Statements of Operations for the Three- and Nine-Month Periods Ended September 30, 2012 and 2011		2
	Consolidated Statements of Comprehensive Income for the Three- and Nine-Month Periods Ended September 30, 2012 and 2011		3
	Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2012 and 2011		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19
Item 4.	Controls and Procedures		19
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		20
Item 1A.	Risk Factors		20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		20
Item 6.	Exhibits		20
SIGNATURES			21

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FUEL TECH, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,483		$	28,229
Marketable securities		57			57
Accounts receivable, net of allowance for doubtful accounts of $317 and $430, respectively		29,586			34,346
Inventories		957			311
Prepaid expenses and other current assets		1,522			2,026
Prepaid income taxes		1,400			1,124
Deferred income taxes		411			163
Total current assets		58,416			66,256
Property and equipment, net of accumulated depreciation of $19,880 and $18,239, respectively		13,824			13,625
Goodwill		21,051			21,051
Other intangible assets, net of accumulated amortization of $4,064 and $3,385, respectively		4,990			5,442
Deferred income taxes		3,663			3,798
Other assets		2,578			2,818
Total assets	$	104,522		$	112,990
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	1,184		$	1,181
Accounts payable		9,825			10,476
Accrued liabilities:
Employee compensation		3,014			4,902
Other accrued liabilities		5,147			6,071
Total current liabilities		19,170			22,630
Other liabilities		952			1,347
Total liabilities		20,122			23,977
Shareholders’ equity:
Common stock, $.01 par value, 40,000,000 shares authorized, 22,039,425 and 23,644,301 shares issued and outstanding, respectively		221			237
Additional paid-in capital		133,137			132,350
Accumulated deficit		(49,099	)		(44,031	)
Accumulated other comprehensive income		65			381
Nil coupon perpetual loan notes		76			76
Total shareholders’ equity		84,400			89,013
Total liabilities and shareholders’ equity	$	104,522		$	112,990

See notes to consolidated financial statements.

1

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	24,907		$	24,023		$	71,030		$	65,666
Costs and expenses:
Cost of sales		14,671			13,050			39,771			35,069
Selling, general and administrative		8,064			7,701			24,932			23,618
Gain on revaluation of ACT liability		—			—			—			(758	)
Research and development		569			358			2,044			1,075
		23,304			21,109			66,747			59,004
Operating income		1,603			2,914			4,283			6,662
Interest expense		(16	)		(47	)		(90	)		(125	)
Interest income		16			14			56			19
Other expense		(27	)		(57	)		(78	)		(252	)
Income before income taxes		1,576			2,824			4,171			6,304
Income tax expense		(382	)		(169	)		(1,366	)		(1,880	)
Net income	$	1,194		$	2,655		$	2,805		$	4,424
Net income per common share:
Basic	$	0.05		$	0.11		$	0.12		$	0.18
Diluted	$	0.05		$	0.11		$	0.12		$	0.18
Weighted-average number of common shares outstanding:
Basic		22,105,000			24,322,000			22,932,000			24,269,000
Diluted		23,022,000			24,850,000			23,749,000			24,881,000

See notes to consolidated financial statements.

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FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income	$	1,194		$	2,655		$	2,805		$	4,424
Other comprehensive income:
Foreign currency translation adjustments		(420	)		(5	)		(316	)		94
Unrealized gains/(losses) from marketable securities, net of tax		11			(35	)		—			33
Total other comprehensive income		(409	)		(40	)		(316	)		127
Comprehensive income	$	785		$	2,615		$	2,489		$	4,551

See notes to consolidated financial statements.

3

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2012			2011
Operating Activities
Net income	$	2,805		$	4,424
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,644			2,251
Amortization		680			677
Gain on equipment disposals		—			(2	)
Gain on revaluation of ACT liability		—			(758	)
Deferred income taxes		(170	)		410
Stock based compensation		844			2,197
Bad debt write-off (recovery)		(113	)		32
Changes in operating assets and liabilities:
Accounts receivable		4,890			(6,502	)
Inventories		(646	)		(44	)
Prepaid expenses, other current assets and other noncurrent assets		741			199
Accounts payable		(653	)		846
Accrued liabilities and other noncurrent liabilities		(3,488	)		(666	)
Net cash provided by operating activities		6,534			3,064
Investing Activities
Proceeds from the sale of equipment		—			2
Purchases of property, equipment and patents		(2,071	)		(1,700	)
Net cash used in investing activities		(2,071	)		(1,698	)
Financing Activities
Proceeds from exercise of stock options		—			336
Payments to repurchase common stock		(7,889	)		(3,367	)
Excess income tax benefits from exercise of stock options		—			74
Net cash used in financing activities		(7,889	)		(2,957	)
Effect of exchange rate fluctuations on cash		(320	)		65
Net decrease in cash and cash equivalents		(3,746	)		(1,526	)
Cash and cash equivalents at beginning of period		28,229			30,524
Cash and cash equivalents at end of period	$	24,483		$	28,998

See notes to consolidated financial statements.

4

FUEL TECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

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

Note A: Nature of Business

Fuel Tech, Inc. (Fuel Tech or the Company or “we”, “us”, or “our”) is a fully integrated company that uses a suite of advanced technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Originally incorporated in 1987 under the laws of the Netherlands Antilles as Fuel-Tech N.V., Fuel Tech became domesticated in the United States on September 30, 2006, and continues as a Delaware corporation with its corporate headquarters at 27601 Bella Vista Parkway, Warrenville, Illinois, 60555-1617. Fuel Tech maintains an Internet website at www.ftek.com. Fuel Tech’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as amended (Exchange Act), are made available through our website as soon as reasonably practical after electronically filed or furnished to the Securities and Exchange Commission. Also available on Fuel Tech’s website are the Company’s Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors. All of these documents are available in print without charge to stockholders who request them. Information on our website is not incorporated into this report.

Fuel Tech’s special focus is the worldwide marketing of its nitrogen oxide (NO_x) reduction and FUEL CHEM^® processes. The Air Pollution Control (APC) technology segment reduces NO_x emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources by utilizing combustion optimization techniques and Low NO_x and Ultra Low NO_x Burners; Over-Fire Air systems, NO_xOUT^® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate ASCR™ (Advanced Selective Catalytic Reduction) technologies including NO_xOUT-CASCADE^®, ULTRA^™ and NO_xOUT-SCR^® processes, Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG™). The FUEL CHEM^® technology segment improves the efficiency, reliability and environmental status of combustion units by controlling slagging, fouling and corrosion, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter (PM_2.5), carbon dioxide, NO_x and unburned carbon in fly ash through the addition of chemicals into the fuel or via TIFI^® Targeted In-Furnace Injection™ programs. Fuel Tech has other technologies, both commercially available and in the development stage, all of which are related to APC and FUEL CHEM technology segments or are similar in their technological base. We have expended significant resources in the research and development of new technologies in building our proprietary portfolio of air pollution control, fuel and boiler treatment chemicals, computer modeling and advanced visualization technologies. Fuel Tech’s business is materially dependent on the continued existence and enforcement of worldwide air quality regulations.

Note B: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the balance sheet and results of operations for the periods covered have been included and all significant intercompany transactions and balances have been eliminated.

The balance sheet at December 31, 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.

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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. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. As of September 30, 2012, the Company had three contracts in progress that were identified as loss contracts and a provision for losses in the amount of $498 was recorded as of September 30, 2012 in other accrued liabilities on the Consolidated Balance Sheets.

Fuel Tech’s APC contracts are typically eight to sixteen months in length. A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings. At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.

As part of most of its contractual APC project agreements, Fuel Tech will agree to customer-specific acceptance criteria that relate to the operational performance of the system that is being sold. These criteria are determined based on mathematical modeling that is performed by Fuel Tech personnel, which is based on operational inputs that are provided by the customer. The customer will warrant that these operational inputs are accurate as they are specified in the binding contractual agreement. Further, the customer is solely responsible for the accuracy of the operating condition information; 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 September 30, 2012 and December 31, 2011, unbilled receivables were approximately $12,127 and $11,334, respectively, and are included in accounts receivable on the consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts were $1,517 and $3,895 at September 30, 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.

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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 $57 and no cost basis at September 30, 2012.

Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in other 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 September 30, 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- and nine-month periods ended September 30, 2012 and 2011.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Basic weighted-average shares		22,105		24,322		22,932		24,269
Conversion of unsecured loan notes		7		7		7		7
Unexercised options and RSUs		910		521		810		605
Diluted weighted-average shares		23,022		24,850		23,749		24,881

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 September 30, 2012, Fuel Tech had approximately 507,000 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- and nine-month periods ended September 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,						Nine Months Ended September  30,
	2012			2011			2012			2011
Stock options and restricted stock units	$	460		$	493		$	800		$	2,148
Deferred directors fees		12			12			44			49
Total stock-based compensation expense		472			505			844			2,197
Tax benefit of stock-based compensation expense		(173	)		(168	)		(302	)		(733	)
After-tax effect of stock-based compensation	$	299		$	337		$	542		$	1,464

As of September 30, 2012, there was $2,777 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan.

Stock Option Exchange Program

On June 1, 2011, the Company commenced an exchange offer that offered to certain employees the right to exchange eligible options to purchase shares of common stock of the Company for a lesser number of replacement awards of restricted stock units. The exchange offer expired on June 29, 2011. Pursuant to the exchange offer, 814,500 eligible options were tendered and the Company granted 267,372 restricted stock units in exchange for those options. As a result of the exchange, which is deemed a modification of the original stock option awards under generally accepted accounting principles, additional stock-based compensation of approximately $252 will be recognized over the two year vesting period associated with the replacement awards commencing June 30, 2011. The Company recognized $31 of additional stock-based compensation during the three- and nine-month period ended September 30, 2011 as a result of the stock option exchange program. Additional information regarding the stock option exchange program may be found on the Company’s Tender Offer Statement on Schedule TO filed with the SEC on June 1, 2011.

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.

Based on the results of the model, the weighted-average fair value of the stock options granted during the nine-month period ended September 30, 2012 was $1.72 per option using the following assumptions:

Expected dividend yield	0.0	%
Risk-free interest rate	0.67	%
Expected volatility	58.6	%
Expected life of option	4.8 years

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Stock option activity for Fuel Tech’s Incentive Plan for the nine months ended September 30, 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		70,000			3.55
Converted to RSUs		—
Exercised		—
Expired or forfeited		(58,000	)		6.33
Outstanding on September 30, 2012		1,914,000		$	11.38		4.5 years	$	95
Exercisable on September 30, 2012		1,822,312		$	11.48		4.3 years	$	95

Non-vested stock option activity for the nine months ended September 30, 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		70,000			1.72
Vested		(161,500	)		4.00
Forfeited		(750	)		5.18
Outstanding on September 30, 2012		91,688		$	5.39

As of September 30, 2012, there was $377 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 0.9 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 and four years). 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 2011 and 2012, the Company entered into performance-based RSU agreements (the Agreements) with each of the Company’s President/Chief Executive Officer, Treasurer/Chief Financial Officer, Executive Vice President of Marketing & Sales, and Executive Vice President of 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 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.

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• 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 September 30, 2012, there is $2,400 of unrecognized compensation costs related to restricted stock unit awards to be recognized over a weighted average period of 2.3 years.

A summary of restricted stock unit activity for the nine-month period ended September 30, 2012 is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2011		487,165		$	7.59
Granted		349,000			4.82
Forfeited		(11,355	)		7.18
Vested		—			—
Unvested restricted stock units at September 30, 2012		824,810		$	6.42

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 nine-month periods ended September 30, 2012 and 2011, Fuel Tech recorded $44 and $49, respectively, of stock-based compensation expense under the Deferred Plan.

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 September 30, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facility.

The Facility contains several debt covenants with which the Company must comply on a quarterly or annual basis, including a maximum Funded Debt to EBITDA Ratio (or Leverage Ratio, as defined in the Facility) of 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 September 30, 2012, the Company was in compliance with all financial covenants specified by the Facility.

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At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,439 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 September 30, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,561 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 29, 2012, 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 $5,526), which expires on June 30, 2013. This new credit facility replaced the previous RMB 35 million facility that expired on June 28, 2012. 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 September 30, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,184 and $1,181, respectively. These borrowings were subject to interest rates of approximately 7.3% and 7.6% at September 30, 2012 and December 31, 2011, respectively.

At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $1,006 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At September 30, 2012 and December 31, 2011, approximately $3,336 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 $90 and $125 were made during the nine-month periods ended September 30, 2012 and 2011.

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.

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

Three months ended September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	15,432	$	9,475	$	—		$	24,907
Cost of sales		10,282		4,389		—			14,671
Gross margin		5,150		5,086		—			10,236
Selling, general and administrative		—		—		(8,064	)		(8,064	)
Research and development		—		—		(569	)		(569	)
Operating income (loss)		5,150		5,086		(8,633	)		1,603
Three months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	12,223	$	11,800	$	—		$	24,023
Cost of sales		7,539		5,511		—			13,050
Gross margin		4,684		6,289		—			10,973
Selling, general and administrative		—		—		(7,701	)		(7,701	)
Research and development		—		—		(358	)		(358	)
Operating income (loss)	$	4,684	$	6,289	$	(8,059	)	$	2,914
Nine months ended September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	43,964	$	27,066	$	—		$	71,030
Cost of sales		26,984		12,787		—			39,771
Gross margin		16,980		14,279		—			31,259
Selling, general and administrative		—		—		(24,932	)		(24,932	)
Research and development		—		—		(2,044	)		(2,044	)
Operating income (loss)	$	16,980	$	14,279	$	(26,976	)	$	4,283
Nine months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	32,959	$	32,707	$	—		$	65,666
Cost of sales		18,338		16,731		—			35,069
Gross margin		14,621		15,976		—			30,597
Selling, general and administrative		—		—		(23,618	)		(23,618	)
Gain from revaluation of contingent performance obligation		—		—		758			758
Research and development		—		—		(1,075	)		(1,075	)
Operating income (loss)	$	14,621	$	15,976	$	(23,935	)	$	6,662

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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 September 30,				Nine months ended September 30
	2012		2011		2012		2011
Revenues:
United States	$	16,609	$	19,121	$	57,519	$	54,268
Foreign		8,298		4,902		13,511		11,398
	$	24,907	$	24,023	$	71,030	$	65,666

	September 30, 2012		December 31, 2011
Assets:
United States	$	85,338	$	99,601
Foreign		19,184		13,389
	$	104,522	$	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.

Changes in the warranty liability, which is included in other accrued liabilities on the accompanying balance sheets, for the nine months ended September 30, 2012, and 2011, are summarized below:

	Nine Months Ended September 30,
	2012			2011
Aggregate product warranty liability at beginning of period	$	313		$	215
Net aggregate expense related to product warranties		710			620
Aggregate reductions for payments		(240	)		(390	)
Aggregate product warranty liability at end of period	$	783		$	445

In 2009, the Company recorded a contingent consideration accrual representing the fair value of the future consideration to be paid in connection with its acquisition of substantially all of the assets of Advanced Combustion Technology, Inc. (ACT). The contingent consideration arrangement required the Company to pay ACT a pro rata amount of up to $4,000 annually for the achievement of a minimum annual gross margin dollar level (the Hurdle) of $10,000, $11,000, and $12,000 in fiscal 2009, 2010, and 2011, respectively. In addition, the agreement required the Company to pay ACT thirty-five percent of all qualifying gross margin dollars above the annual Hurdle rate for each of the three years. The potential undiscounted amount of all future payments that the Company could be required to make is between $0 and $4,000 in any one year, and $0 and $12,000 in total, not including the amount related to the thirty-five percent sharing of qualifying gross margin dollars above the pre-determined Hurdle. The fair value of the contingent consideration at inception was $2,307, which was recorded as a liability when the business combination was initially recorded.

The Company periodically evaluated the probability that payment of the contingent consideration accrual was probable based on a range of outcomes and assumptions used to develop the fair value estimate. Based upon this analysis, management concluded during the quarter ended June 30, 2011 that the payout for 2011 was not probable of being made. Thus, the Company recorded a gain of $758 from the revaluation of the contingent liability. A similar adjustment was made in the two preceding years for $781 and $768, respectively. As of September 30, 2012, there is no contingent liability accrual remaining.

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Note L: Income Taxes

The Company’s effective tax rates of 32.7% and 29.8% for the nine-month periods ended September 30, 2012 and 2011, respectively, differ 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 rate rates, non-deductible meals and entertainment expenses, and the tax benefit recorded in the three-month period ended September 30, 2012 described below.

Fuel Tech had unrecognized tax benefits as of December 31, 2011 in the amount of $667 all of which, if ultimately recognized, will reduce Fuel Tech’s annual effective tax rate. During the quarter ended September 30, 2012, the Company reduced its accrual for unrecognized tax benefits to $198 and recognized a tax benefit of $369 as a result of no longer being subject to tax examination for the 2008 tax year. This discrete tax item reduced our effective tax rate by 6% in the quarter ended September 30, 2012.

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 September 30, 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- and nine-month periods ended September 30, 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- and nine-month periods ended September 30, 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.

• 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 $57 at September 30, 2012 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- and nine-month periods ended September 30, 2012.

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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- and nine-month periods ending September 30, 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 initial program was completed in the quarter ended March 31, 2012. In May 2012, the Board of Directors authorized a second repurchase program allowing the Company to repurchase up to an additional $6 million of its outstanding common shares through June 30, 2013 and this repurchase program was completed September 2012. The share repurchase programs were funded through the Company’s existing cash on hand. Purchases made pursuant to the programs are made in the open market. The timing, manner, price and amount of any repurchases are determined by the Company in its discretion and are subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase programs, Fuel Tech repurchased an aggregate of 2,306,590 common shares for a total cost of approximately $12,000 including commissions of approximately $76. These acquired shares have been retired and are no longer shown as issued or outstanding shares.

The following table summarizes our share repurchase programs since their 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
Phase One 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		—
Phase Two Program
April 1, 2012 through June 30, 2012		1,124,797		4.70		5,290		710
July 1, 2012 through September 30, 2012		145,443		4.88		710		—
Total		2,306,590	$	5.20	$	12,000	$	—

15

FUEL TECH, INC.

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

Results of Operations

Consolidated revenues for the three months ended September 30, 2012 and 2011 were $24,907 and $24,023 respectively, while consolidated revenues for the nine months ended September 30, 2012 and 2011 were $71,030 and $65,666, respectively. These represent increases of $884, or 4%, and $5,364, or 8%, from the prior year three- and nine-month periods.

The Air Pollution Control (APC) technology segment generated revenues of $15,432 and $43,964 for the three and nine months ended September 30, 2012, respectively, an increase of $3,209 or 26%, and $11,005, or 33%, from the prior-year periods due to increased orders for APC primarily in foreign markets and the timing and recognition of work in progress on those APC. The Company expects demand for its APC products to remain strong based on new and existing air pollution control regulations around the world, particularly in China.

Consolidated APC backlog at September 30, 2012 was $52,310 versus backlog at September 30, 2011 of approximately $22,890. Although projects in this segment are typically completed within eight to sixteen months, the amount of revenue recognition in the final quarter of 2012 and beyond is subject to the timing of the expenses incurred on existing projects.

The FUEL CHEM technology segment generated revenues of $9,475 and $27,066 for the three- and nine-months ended September 30, 2012, a decrease of $2,325, or 20%, and $5,641, or 17%, from the respective prior-year periods. The decrease is due to decreased sales volume at existing customer accounts in part due to the lower demands for electricity and fuel switching by customers to take advantage of of low natural gas prices. These factors led to coal combustion units operating at less than full capacity which resulted in a corresponding decrease in our quarter-over-quarter and overall year-to-date revenue. Another factor contributing to the decrease in overall year-to-date revenues for 2012 was a non-recurring sale of installation-related work totaling $1.3 million that occurred in 2011.

Consolidated gross margin percentage for the quarters ended September 30, 2012 and 2011 were 41.1% and 44.5%, respectively. The gross margin percentage for the APC technology segment decreased to 33.4% from 45.6% in the comparable prior-year period, primarily due to an increase in lower margin international projects. For the FUEL CHEM technology segment, the gross margin percentage increased to 53.7% from 53.3% in the comparable prior-year quarter primarily due to a higher margin mix of customer orders.

Consolidated gross margin percentage for the nine months ended September 30, 2012 and 2011 was 44.0% and 46.6%, respectively. The cost of sales for the APC technology segment decreased to 38.6% from 44.4% due to the aforementioned increase in APC international projects. For the FUEL CHEM technology segment, the gross margin percentage increased to 52.8% from 48.8% due to a higher margin mix of customer orders and the non-recurring sale of lower margin installation work recognized in the first two quarters of 2011, which diluted the margin percentage for that year-to-date period.

Selling, general and administrative expenses (SG&A) for the quarters ended September 30, 2012 and 2011 were $8,064 and $7,701, respectively. The quarter-over-quarter increase is primarily attributed to spending on employee-related and other international costs of $877 to position ourselves for current and future sales demands, offset by a decrease in commissions of $277 as a result of lower domestic sales bookings in 2012 compared to 2011. SG&A for the nine-month periods ended September 30, 2012 and 2011 were $24,932 and $23,618, respectively. The increase of $1,314 was primarily related to increases in employee-related costs of $1,254.

The Company recorded a gain during the quarter ended June 30, 2011 of $758 from the revaluation of the contingent liability recorded in connection with the ACT acquisition in January 2009. The $758 had been initially recorded in the first quarter of 2009 as part of a $2,307 contingent consideration accrual representing the fair value, weighted-average probability of future consideration expected to be paid in connection with the ACT acquisition. In the year ended December 31, 2011, management concluded that the earnout payment related to the ACT acquisition for fiscal 2011 is not probable, thus the remaining $758 portion of the total contingent liability was reversed.

Research and development expenses for the three- and nine-month periods ended September 30, 2012 were $569 and $2,044, respectively, and $358 and $1,075, respectively, for the comparable prior year periods. The Company has increased its 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.

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Interest expense for the three- and nine-month periods ended September 30, 2012 totaled $16 and $90, respectively, and $47 and $125, respectively, for the same periods in the prior year. Interest expense relates to borrowings under the Beijing Fuel Tech Facility.

Income tax expense for the three- and nine-months ended September 30, 2012 was $382 and $1,366, respectively, and $169 and $1,880 for the comparable periods in 2011. The 2012 effective tax rate of 33% for the nine-month period was lower than the 38% rate used in the six-month period ended June 30, 2012 primarily due to a reduction in our accrual for uncertain tax positions. This reduction is the result of no longer being subject to tax examination for the 2008 tax year.

Liquidity and Sources of Capital

At September 30, 2012, Fuel Tech had cash and cash equivalents and short-term investments on hand of $24,540 and working capital of $39,246 versus $28,286 and $43,626 at December 31, 2011, respectively.

Operating activities provided cash of $6,534 during the nine-month period ended September 30, 2012, primarily due to cash generated by our net income of $2,805, a net decrease in our accounts receivable, prepaid expenses, and other assets balances of $5,631, depreciation and amortization of $2,324, and stock compensation of $844. Partially offsetting these items were a net decrease in our accounts payable and accrued liabilities of $4,141 and an increase in our inventory by $646.

Investing activities used cash of $2,071 during the nine-month period ended September 30, 2012 for purchases of property, equipment, and patent expenditures.

Financing activities used cash of $7,889 due entirely to payments made under our share repurchase program.

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 September 30, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facility.

The Facility contains several debt covenants with which the Company must comply on a quarterly or annual basis, including a maximum Funded Debt to EBITDA Ratio (or Leverage Ratio, as defined in the Facility) of 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 September 30, 2012, the Company was in compliance with all financial covenants specified by the Facility.

At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,439 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 September 30, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,561 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 29, 2012, 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 $5,526), which expires on June 30, 2013. This new credit facility replaced the previous RMB 35 million facility that expired on June 28, 2012. 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 September 30, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,184 and $1,181, respectively. These borrowings were subject to interest rates of approximately 7.3% and 7.6% at September 30, 2012 and December 31, 2011, respectively.

At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $1,006 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At September 30, 2012 and December 31, 2011, approximately $3,336 and $3,580 was available for future borrowings.

17

In the event of default on either the domestic facility or the China facility, the cross default feature in each allows the lending bank to accelerate the payments of any amounts outstanding and may, under certain circumstances, allow the bank to cancel the facility. If the Company were unable to obtain a waiver for a breach of covenant and the bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment.

Contingencies and Contractual Obligations

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note K. The warranty liability balance during the nine months ended September 30, 2012 and 2011 increased by approximately $470 and $230, respectively.

18

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 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 long-term debt arrangement (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.

19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time involved in litigation incidental to our business. We are not currently involved in any litigation in which we believe an adverse outcome would have a material effect on our business, financial conditions, results of operations, or prospects.

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 initial program was completed in the quarter ended March 31, 2012. In May 2012, the Board of Directors authorized a second repurchase program allowing the Company to repurchase up to an additional $6 million of its outstanding common shares through June 30, 2013 and this repurchase program ended in September 2012. The share repurchase programs were funded through the Company’s existing cash on hand. Purchases made pursuant to the programs are made in the open market. The timing, manner, price and amount of any repurchases are determined by the Company in its discretion and are subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase programs, Fuel Tech repurchased an aggregate of 2,306,590 common shares for a total cost of approximately $12,000 including commissions of approximately $76. These acquired shares have been retired and are no longer shown as issued or outstanding shares.

The following table summarizes our share repurchase programs since their 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
Phase One 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		—
Phase Two Program
April 1, 2012 through June 30, 2012		1,124,797		4.70		5,290		710
July 1, 2012 through September 30, 2012		145,443		4.88		710		—
Total		2,306,590	$	5.20	$	12,000	$	—

Item 6. Exhibits

a. Exhibits (all filed herewith)

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

20

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: November 5, 2012	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: November 5, 2012	By:	/s/ David S. Collins
		David S. Collins
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

21

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: November 5, 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: November 5, 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: November 5, 2012	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: November 5, 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 J - Business Segment and Geographic Disclosures (Detail) - Reporting Segment Net Sales and Gross Margin (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues from external customers	$ 24,907	$ 24,023	$ 71,030	$ 65,666
Cost of sales	14,671	13,050	39,771	35,069
Gross margin	10,236	10,973	31,259	30,597
Selling, general and administrative	(8,064)	(7,701)	(24,932)	(23,618)
Gain from revaluation of contingentperformance obligation		758		758
Research and development	(569)	(358)	(2,044)	(1,075)
Operating income	1,603	2,914	4,283	6,662
Air Pollution Control Segment [Member]
Revenues from external customers	15,432	12,223	43,964	32,959
Cost of sales	10,282	7,539	26,984	18,338
Gross margin	5,150	4,684	16,980	14,621
Operating income	5,246	4,684	16,980	14,621
Fuel Chem Segment [Member]
Revenues from external customers	9,475	11,800	27,066	32,707
Cost of sales	4,389	5,511	12,787	16,731
Gross margin	5,086	6,289	14,279	15,976
Operating income	4,990	6,289	14,279	15,976
Other Segments [Member]
Selling, general and administrative	(8,064)	(7,701)	(24,932)	(23,618)
Gain from revaluation of contingentperformance obligation		758		758
Research and development	(569)	(358)	(2,044)	(1,075)
Operating income	$ (8,633)	$ (8,059)	$ (26,976)	$ (23,935)

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Note P - Share Repurchase Program (Detail) (USD $)	1 Months Ended		3 Months Ended	14 Months Ended
	May 31, 2012	Aug. 31, 2011	Sep. 30, 2012	Sep. 30, 2012
Stock Repurchase Program, Authorized Amount	$ 6,000,000	$ 6,000,000
Stock Repurchased During Period, Shares (in Shares)			2,306,590	2,306,590
Stock Repurchased and Retired During Period, Shares (in Shares)				12,000
Sales Commissions and Fees				$ 76

XML

Note H - Stock-Based Compensation (Detail) - Weighted Average Fair Value Assumptions	9 Months Ended
	Sep. 30, 2012
Expected dividend yield	0.00%
Risk-free interest rate	0.67%
Expected volatility	58.60%
Expected life of option (years)	4 years 292 days

XML

Note J - Business Segment and Geographic Disclosures (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Three months ended September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	15,432	$	9,475	$	-		$	24,907
Cost of sales		10,282		4,389		-			14,671
Gross margin		5,150		5,086		-			10,236
Selling, general and administrative		-		-		(8,064	)		(8,064	)
Research and development		-		-		(569	)		(569	)
Operating income (loss)		5,246		4,990		(8,633	)		1,603

Three months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	12,223	$	11,800	$	-		$	24,023
Cost of sales		7,539		5,511		-			13,050
Gross margin		4,684		6,289		-			10,973
Selling, general and administrative		-		-		(7,701	)		(7,701	)
Research and development		-		-		(358	)		(358	)
Operating income (loss)	$	4,684	$	6,289	$	(8,059	)	$	2,914

Nine months ended September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	43,964	$	27,066	$	-		$	71,030
Cost of sales		26,984		12,787		-			39,771
Gross margin		16,980		14,279		-			31,259
Selling, general and administrative		-		-		(24,932	)		(24,932	)
Research and development		-		-		(2,044	)		(2,044	)
Operating income (loss)	$	16,980	$	14,279	$	(26,976	)	$	4,283

Nine months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	32,959	$	32,707	$	-		$	65,666
Cost of sales		18,338		16,731		-			35,069
Gross margin		14,621		15,976		-			30,597
Selling, general and administrative		-		-		(23,618	)		(23,618	)
Gain from revaluation of contingentperformance obligation		-		-		758			758
Research and development		-		-		(1,075	)		(1,075	)
Operating income (loss)	$	14,621	$	15,976	$	(23,935	)	$	6,662

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three months ended September 30,				Nine months ended September 30
	2012		2011		2012		2011
Revenues:
United States	$	16,609	$	19,121	$	57,519	$	54,268
Foreign		8,298		4,902		13,511		11,398
	$	24,907	$	24,023	$	71,030	$	65,666

	September 30, 2012		December 31, 2011
Assets:
United States	$	85,338	$	99,601
Foreign		19,184		13,389
	$	104,522	$	112,990

XML

Note K - Contingencies (Detail) - Warranty Liability (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Aggregate product warranty liability at beginning of period	$ 313	$ 215
Net aggregate expense related to product warranties	710	620
Aggregate reductions for payments	(240)	(390)
Aggregate product warranty liability at end of period	$ 783	$ 445

XML

Note I - Debt (Detail) In Thousands, unless otherwise specified	1 Months Ended	6 Months Ended		9 Months Ended
	Jun. 30, 2011	Jun. 30, 2012 USD ($)	Jun. 30, 2011 USD ($)	Sep. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Jun. 30, 2011 Amended Amount [Member] USD ($)	Jun. 30, 2011 Original Amount [Member] USD ($)	Jun. 30, 2011 Minimum [Member]	Jun. 30, 2011 Maximum [Member]	Jun. 30, 2011 People's Bank of China Base Rate [Member] China Facility [Member]	Jun. 30, 2011 Amount Available for Increase Upon Approval of Lender [Member] USD ($)	Sep. 30, 2012 China Facility [Member] USD ($)	Jun. 30, 2012 China Facility [Member] USD ($)	Jun. 28, 2012 China Facility [Member] USD ($)	Jun. 28, 2012 China Facility [Member] CNY	Dec. 31, 2011 China Facility [Member] USD ($)	Jun. 30, 2011 China Facility [Member] CNY
Line of Credit Facility, Expiration Date	Jun. 30, 2013
Line of Credit Facility, Maximum Borrowing Capacity						$ 15,000	$ 25,000				$ 25,000			$ 5,526	35,000		35,000
Debt Instrument, Basis Spread on Variable Rate								250.00%	375.00%	125.00%
Annual Capital Expenditure Limit				10,000
Minimum Tangible Net Worth				50,000
Percentage of Net Income				50.00%
Percentage of Capital Issuances				100.00%
Letters of Credit Outstanding, Amount				2,439	1,374							1,006				750
Line of Credit Facility, Remaining Borrowing Capacity				12,561	13,626								3,336			3,580
Line of Credit Facility, Commitment Fee Percentage				0.25%
Line of Credit Facility, Amount Outstanding													1,184			1,181
Line of Credit Facility, Interest Rate at Period End				7.30%												7.60%
Interest Expense, Debt		$ 90	$ 125

XML

Note P - Share Repurchase Program (Detail) - Share Repurchase Programs (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	14 Months Ended	1 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011 August 25 2011 Through September 30 2011 [Member]	Dec. 31, 2011 October 1 2011 Through December 31 2011 [Member]	Mar. 31, 2012 January 1 2012 Through March 31 2012 [Member]	Jun. 30, 2012 April 1 2012 Through June 30 2012 [Member]	Sep. 30, 2012 July 1 2012 through September 30 2012 [Member]
Total Number Of Shares Purchased (in Shares)	2,306,590	2,306,590	571,554	130,160	334,636	1,124,797	145,443
Average Price Paid Per Share (in Dollars per share)	$ 5.20	$ 5.20	$ 5.89	$ 5.71	$ 5.64	$ 4.70	$ 4.88
Total Cost	$ 12,000		$ 3,367	$ 744	$ 1,889	$ 5,290	$ 710
Maximum Dollar Value Of Shares That May Yet Be Purchased Under The Program			$ 2,633	$ 1,889		$ 710

XML

Note C - Revenue Recognition Policy

9 Months Ended

Sep. 30, 2012

Revenue Recognition [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.  Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined.  As of September 30, 2012, the Company had three contracts in progress that were identified as loss contracts and a provision for losses in the amount of $498 was recorded as of September 30, 2012 in other accrued liabilities on the Consolidated Balance Sheets.

Fuel Tech’s APC contracts are typically eight to sixteen months in length.  A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings.  At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.

As part of most of its contractual APC project agreements, Fuel Tech will agree to customer-specific acceptance criteria that relate to the operational performance of the system that is being sold.  These criteria are determined based on mathematical modeling that is performed by Fuel Tech personnel, which is based on operational inputs that are provided by the customer.  The customer will warrant that these operational inputs are accurate as they are specified in the binding contractual agreement.  Further, the customer is solely responsible for the accuracy of the operating condition information; 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 September 30, 2012 and December 31, 2011, unbilled receivables were approximately $12,127 and $11,334, respectively, and are included in accounts receivable on the consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts were $1,517 and $3,895 at September 30, 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 L - Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Effective Income Tax Rate		32.70%	29.80%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate		34.00%
Unrecognized Tax Benefits (in Dollars)				$ 667
Unrecognized Tax Benefits, Period Increase (Decrease) (in Dollars)	198
Recognized Tax Benefit (in Dollars)	$ 369
Effective Income Tax Rate, Continuing Operations	6.00%

XML

Note F - Available-for-Sale Marketable Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Marketable Securities, Current	$ 57	$ 57

XML

Note C - Revenue Recognition Policy (Detail) (USD $)	3 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Loss on Contract Termination	$ 498
Unbilled Receivables, Current	12,127	11,334
Billings in Excess of Cost, Current	$ 1,517	$ 3,895
Minimum [Member]
Contract Term	8 months
Maximum [Member]
Contract Term	16 months

XML

Note M - Goodwill and Other Intangibles (Detail) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Goodwill	$ 21,051,000	$ 21,051,000
Fuel Chem Technology Segment [Member]
Goodwill	1,723,000	1,723
APC Technology Segment [Member]
Goodwill	$ 19,328,000	$ 19,328

XML

Note G - Earnings per Share Data (Detail) - Basic Earnings Per Share	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic weighted-average shares	22,105,000	24,322,000	22,932,000	24,269,000
Conversion of unsecured loan notes	7,000	7,000	7,000	7,000
Unexercised options and RSUs	910,000	521,000	810,000	605,000
Diluted weighted-average shares	23,022,000	24,850,000	23,749,000	24,881,000

XML

Note H - Stock-Based Compensation (Detail) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended		15 Months Ended
	Jun. 29, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012
Maximum Percent of Shares Allowable In Incentive Plan		12.50%		12.50%		12.50%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in Shares)		507,000		507,000		507,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized		$ 2,777,000		$ 2,777,000		$ 2,777,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in Shares)	814,500			0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in Shares)	267,372
Share-based Compensation				844,000	2,197,000	252
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				10 years		2 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)				$ 1.72
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition				328 days
Allocated Share-based Compensation Expense		472,000	505,000	844,000	2,197,000
Non-Vested Stock Options [Member]
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized		377		377		377
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in Shares)				70,000
Restricted Stock Units (RSUs) [Member] | Second Anniversary of Award Date [Member]
Percent of Options Vesting		67.00%		67.00%		67.00%
Restricted Stock Units (RSUs) [Member] | Third Anniversary of Award Date [Member]
Percent of Options Vesting		33.00%		33.00%		33.00%
Restricted Stock Units (RSUs) [Member]
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized		2,400,000		2,400,000		2,400,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition				2 years 109 days
Deferred Directors Fees [Member]
Allocated Share-based Compensation Expense				44	49
Stock Option Exchange Plan [Member]
Share-based Compensation			$ 31		$ 31
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				5 years
Second Anniversary of Award Date [Member]
Percent of Options Vesting		50.00%		50.00%		50.00%
Third Anniversary of Award Date [Member]
Percent of Options Vesting		25.00%		25.00%		25.00%
Fourth Anniversary of Award Date [Member]
Percent of Options Vesting		25.00%		25.00%		25.00%

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Note B - Basis of Presentation

9 Months Ended

Sep. 30, 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 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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Note H - Stock-Based Compensation (Detail) - Stock-Based Compensation (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allocated share based compensation	$ 472,000	$ 505,000	$ 844,000	$ 2,197,000
Tax benefit of stock-based compensation expense	(173,000)	(168,000)	(302,000)	(733,000)
After-tax effect of stock-based compensation	299,000	337,000	542,000	1,464,000
Stock Options and Restricted Stock Units [Member]
Allocated share based compensation	460,000	493,000	800,000	2,148,000
Deferred Directors Fees [Member]
Allocated share based compensation	$ 12,000	$ 12,000	$ 44,000	$ 49,000

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Note J - Business Segment and Geographic Disclosures (Detail) - Operations by Geographic Area (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Revenues	$ 24,907	$ 24,023	$ 71,030	$ 65,666
Assets	104,522		104,522		112,990
United States [Member]
Revenues	16,609	19,121	57,519	54,268
Assets	85,338		85,338		99,601
Foreign [Member]
Revenues	8,298	4,902	13,511	11,398
Assets	$ 19,184		$ 19,184		$ 13,389

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 24,483	$ 28,229
Marketable securities	57	57
Accounts receivable, net of allowance for doubtful accounts of $317 and $430, respectively	29,586	34,346
Inventories	957	311
Prepaid expenses and other current assets	1,522	2,026
Prepaid income taxes	1,400	1,124
Deferred income taxes	411	163
Total current assets	58,416	66,256
Property and equipment, net of accumulated depreciation of $19,880 and $18,239, respectively	13,824	13,625
Goodwill	21,051	21,051
Other intangible assets, net of accumulated amortization of $4,064 and $3,385, respectively	4,990	5,442
Deferred income taxes	3,663	3,798
Other assets	2,578	2,818
Total assets	104,522	112,990
Current liabilities:
Short-term debt	1,184	1,181
Accounts payable	9,825	10,476
Accrued liabilities:
Employee compensation	3,014	4,902
Other accrued liabilities	5,147	6,071
Total current liabilities	19,170	22,630
Other liabilities	952	1,347
Total liabilities	20,122	23,977
Common stock, $.01 par value, 40,000,000 shares authorized, 22,039,425 and 23,644,301 shares issued and outstanding, respectively	221	237
Additional paid-in capital	133,137	132,350
Accumulated deficit	(49,099)	(44,031)
Accumulated other comprehensive income	65	381
Nil coupon perpetual loan notes	76	76
Total shareholders' equity	84,400	89,013
Total liabilities and shareholders' equity	$ 104,522	$ 112,990

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Note N - Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Marketable Securities, Current	$ 57	$ 57

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Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating Activities
Net income	$ 2,805,000	$ 4,424,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,644,000	2,251,000
Amortization	680,000	677,000
Gain on equipment disposals		(2,000)
Gain on revaluation of ACT liability		(758,000)
Deferred income taxes	(170,000)	410,000
Stock based compensation	844,000	2,197,000
Bad debt write-off (recovery)	(113,000)	32,000
Changes in operating assets and liabilities:
Accounts receivable	4,890,000	(6,502,000)
Inventories	(646,000)	(44,000)
Prepaid expenses, other current assets and other noncurrent assets	741,000	199,000
Accounts payable	(653,000)	846,000
Accrued liabilities and other noncurrent liabilities	(3,488,000)	(666,000)
Net cash provided by operating activities	6,534,000	3,064,000
Investing Activities
Proceeds from the sale of equipment		2,000
Purchases of property, equipment and patents	(2,071,000)	(1,700,000)
Net cash used in investing activities	(2,071,000)	(1,698,000)
Financing Activities
Proceeds from exercise of stock options		336,000
Payments to repurchase common stock	(7,889,000)	(3,367,000)
Excess income tax benefits from exercise of stock options		74,000
Net cash used in financing activities	(7,889,000)	(2,957,000)
Effect of exchange rate fluctuations on cash	(320,000)	65,000
Net decrease in cash and cash equivalents	(3,746,000)	(1,526,000)
Cash and cash equivalents at beginning of period	28,229,000	30,524,000
Cash and cash equivalents at end of period	$ 24,483,000	$ 28,998,000

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Note H - Stock-Based Compensation (Detail) - Non-vested Stock Option Activity (USD $)	1 Months Ended	9 Months Ended
	Jun. 29, 2011	Sep. 30, 2012	Dec. 31, 2011
Non-Vested Stock Options Outstanding		824,810	487,165
Weighted Average Grant Date Fair Value (in Dollars per share)		$ 6.42	$ 7.59
Granted	267,372
Granted (in Dollars per share)		$ 0
Vested		0
Vested (in Dollars per share)		$ 0
Forfeited		(11,355)
Forfeited (in Dollars per share)		$ 7.18
Non-Vested Stock Options [Member] | End of Period [Member]
Non-Vested Stock Options Outstanding			183,938
Weighted Average Grant Date Fair Value (in Dollars per share)			$ 5.56
Non-Vested Stock Options [Member] | Beginning of Period [Member]
Non-Vested Stock Options Outstanding		91,688
Weighted Average Grant Date Fair Value (in Dollars per share)		$ 5.39
Non-Vested Stock Options [Member]
Granted		70,000
Granted (in Dollars per share)		$ 1.72
Vested		(161,500)
Vested (in Dollars per share)		$ 4.00
Forfeited		(750)
Forfeited (in Dollars per share)		$ 5.18

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Note P - Share Repurchase Program

9 Months Ended

Sep. 30, 2012

Treasury Stock [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 initial program was completed in the quarter ended March 31, 2012.  In May 2012, the Board of Directors authorized a second repurchase program allowing the Company to repurchase up to an additional $6 million of its outstanding common shares through June 30, 2013 and this repurchase program was completed September 2012.  The share repurchase programs were funded through the Company’s existing cash on hand.  Purchases made pursuant to the programs are made in the open market. The timing, manner, price and amount of any repurchases are determined by the Company in its discretion and are subject to economic and market conditions, stock price, applicable legal requirements, and other factors.

During the course of the share repurchase programs, Fuel Tech repurchased an aggregate of 2,306,590 common shares for a total cost of approximately $12,000 including commissions of approximately $76. These acquired shares have been retired and are no longer shown as issued or outstanding shares.

The following table summarizes our share repurchase programs since their 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
Phase One 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		-
Phase Two Program
April 1, 2012 through June 30, 2012		1,124,797		4.70		5,290		710
July 1, 2012 through September 30, 2012		145,443		4.88		710		-
Total		2,306,590	$	5.20	$	12,000	$	-

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Note H - Stock-Based Compensation (Detail) - Restricted Stock Unit Activity (USD $)	1 Months Ended	9 Months Ended
	Jun. 29, 2011	Sep. 30, 2012
Unvested restricted stock units at December 31, 2011		487,165
Unvested restricted stock units at December 31, 2011 (in Dollars per share)		$ 7.59
Granted	267,372
Granted (in Dollars per share)		$ 0
Forfeited		(11,355)
Forfeited (in Dollars per share)		$ 7.18
Vested		0
Vested (in Dollars per share)		$ 0
Unvested restricted stock units at September 30, 2012		824,810
Unvested restricted stock units at September 30, 2012 (in Dollars per share)		$ 6.42
Restricted Stock [Member]
Granted		349,000
Granted (in Dollars per share)		$ 4.82

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Note H - Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Stock options and restricted stock units	$	460		$	493		$	800		$	2,148
Deferred directors fees		12			12			44			49
Total stock-based compensation expense		472			505			844			2,197
Tax benefit of stock-based compensation expense		(173	)		(168	)		(302	)		(733	)
After-tax effect of stock-based compensation	$	299		$	337		$	542		$	1,464

Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Method Used

Expected dividend yield	0.0	%
Risk-free interest rate	0.67	%
Expected volatility	58.6	%
Expected life of option (years)	4.8

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding on January 1, 2012		1,902,000		$	11.51
Granted		70,000			3.55
Converted to RSUs		-
Exercised		-
Expired or forfeited		(58,000	)		6.33
Outstanding on September 30, 2012		1,914,000		$	11.38		4.5	$	95
Exercisable on September 30, 2012		1,822,312		$	11.48		4.3	$	95

Schedule of Nonvested Share Activity [Table Text Block]

	Non-Vested Stock Options Outstanding			Weighted-Average Grant Date Fair Value
Outstanding on January 1, 2012		183,938		$	5.56
Granted		70,000			1.72
Vested		(161,500	)		4.00
Forfeited		(750	)		5.18
Outstanding on September 30, 2012		91,688		$	5.39

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2011		487,165		$	7.59
Granted		349,000			4.82
Forfeited		(11,355	)		7.18
Vested		-			-
Unvested restricted stock units at September 30, 2012		824,810		$	6.42

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Note A - Nature of Business

9 Months Ended

Sep. 30, 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, 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 (NOx) reduction and FUEL CHEM® processes.  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; Over-Fire Air systems, NOxOUT® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate ASCR™ (Advanced Selective Catalytic Reduction) technologies includingNOxOUT-CASCADE®, ULTRA™ and NOxOUT-SCR® processes, Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG™).  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, NOx and unburned carbon in fly ash through the addition of chemicals into the fuel or via TIFI® Targeted In-Furnace Injection™ programs.  Fuel Tech has other technologies, both commercially available and in the development stage, all of which are related to APC and FUEL CHEM technology segments or are similar in their technological base.  We have expended significant resources in the research and development of new technologies in building our proprietary portfolio of air pollution control, fuel and boiler treatment chemicals, computer modeling and advanced visualization technologies. Fuel Tech's business is materially dependent on the continued existence and enforcement of worldwide air quality regulations.

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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 317	$ 430
Accumulated depreciation (in Dollars)	19,880	18,239
Accumulated amortization (in Dollars)	$ 4,064	$ 3,385
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in Shares)	40,000,000	40,000,000
Common stock, shares issued (in Shares)	22,039,425	23,644,301
Common stock outstanding (in Shares)	22,039,425	23,644,301

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Note K - Contingencies

6 Months Ended

Jun. 30, 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 nine months ended September 30, 2012, and 2011, are summarized below:

	Nine Months Ended September 30,
	2012			2011
Aggregate product warranty liability at beginning of period	$	313		$	215
Net aggregate expense related to product warranties		710			620
Aggregate reductions for payments		(240	)		(390	)
Aggregate product warranty liability at end of period	$	783		$	445

In 2009, the Company recorded a contingent consideration accrual representing the fair value of the future consideration to be paid in connection with its acquisition of substantially all of the assets of Advanced Combustion Technology, Inc. (ACT). The contingent consideration arrangement required the Company to pay ACT a pro rata amount of up to $4,000 annually for the achievement of a minimum annual gross margin dollar level (the Hurdle) of $10,000, $11,000, and $12,000 in fiscal 2009, 2010, and 2011, respectively. In addition, the agreement required the Company to pay ACT thirty-five percent of all qualifying gross margin dollars above the annual Hurdle rate for each of the three years. The potential undiscounted amount of all future payments that the Company could be required to make is between $0 and $4,000 in any one year, and $0 and $12,000 in total, not including the amount related to the thirty-five percent sharing of qualifying gross margin dollars above the pre-determined Hurdle. The fair value of the contingent consideration at inception was $2,307, which was recorded as a liability when the business combination was initially recorded.

The Company periodically evaluated the probability that payment of the contingent consideration accrual was probable based on a range of outcomes and assumptions used to develop the fair value estimate.  Based upon this analysis, management concluded during the quarter ended June 30, 2011 that the payout for 2011 was not probable of being made.  Thus, the Company recorded a gain of $758 from the revaluation of the contingent liability.  A similar adjustment was made in the two preceding years for $781 and $768, respectively.  As of September 30, 2012, there is no contingent liability accrual remaining.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 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		22,039,425
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	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Note L - Income Taxes

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Text Block]

Note L:                      Income Taxes

The Company’s effective tax rates of 32.7% and 29.8% for the nine-month periods ended September 30, 2012 and 2011, respectively, differ 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 rate rates, non-deductible meals and entertainment expenses, and the tax benefit recorded in the three-month period ended September 30, 2012 described below.

Fuel Tech had unrecognized tax benefits as of December 31, 2011 in the amount of $667 all of which, if ultimately recognized, will reduce Fuel Tech’s annual effective tax rate.  During the quarter ended September 30, 2012, the Company reduced its accrual for unrecognized tax benefits to $198 and recognized a tax benefit of $369 as a result of no longer being subject to tax examination for the 2008 tax year.  This discrete tax item reduced our effective tax rate by 6% in the quarter ended September 30, 2012.

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 24,907	$ 24,023	$ 71,030	$ 65,666
Costs and expenses:
Cost of sales	14,671	13,050	39,771	35,069
Selling, general and administrative	8,064	7,701	24,932	23,618
Gain on revaluation of ACT liability				(758)
Research and development	569	358	2,044	1,075
	23,304	21,109	66,747	59,004
Operating income	1,603	2,914	4,283	6,662
Interest expense	(16)	(47)	(90)	(125)
Interest income	16	14	56	19
Other expense	(27)	(57)	(78)	(252)
Income before income taxes	1,576	2,824	4,171	6,304
Income tax expense	(382)	(169)	(1,366)	(1,880)
Net income	$ 1,194	$ 2,655	$ 2,805	$ 4,424
Net income per common share:
Basic (in Dollars per share)	$ 0.05	$ 0.11	$ 0.12	$ 0.18
Diluted (in Dollars per share)	$ 0.05	$ 0.11	$ 0.12	$ 0.18
Weighted-average number of common shares outstanding:
Basic (in Shares)	22,105,000	24,322,000	22,932,000	24,269,000
Diluted (in Shares)	23,022,000	24,850,000	23,749,000	24,881,000

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Note F - Available-for-Sale Marketable Securities

9 Months Ended

Sep. 30, 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 $57 and no cost basis at September 30, 2012.

Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in other 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 September 30, 2012 and 2011.

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Note E - Selling, General and Administrative Expenses

9 Months Ended

Sep. 30, 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 G - Earnings per Share Data (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Basic weighted-average shares		22,105		24,322		22,932		24,269
Conversion of unsecured loan notes		7		7		7		7
Unexercised options and RSUs		910		521		810		605
Diluted weighted-average shares		23,022		24,850		23,749		24,881

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Note M - Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 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 September 30, 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- and nine-month periods ended September 30, 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- and nine-month periods ended September 30, 2012 and 2011.

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Note I - Debt

9 Months Ended

Sep. 30, 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 September 30, 2012 and December 31, 2011, there were no outstanding borrowings on the amended or previous credit facility. 

The Facility contains several debt covenants with which the Company must comply on a quarterly or annual basis, including a maximum Funded Debt to EBITDA Ratio (or Leverage Ratio, as defined in the Facility) of 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 September 30, 2012, the Company was in compliance with all financial covenants specified by the Facility.

At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $2,439 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 September 30, 2012 and December 31, 2011, there were no cash borrowings under the domestic revolving credit facility and approximately $12,561 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 29, 2012, 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 $5,526), which expires on June 30, 2013.  This new credit facility replaced the previous RMB 35 million facility that expired on June 28, 2012.  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 September 30, 2012 and December 31, 2011, Beijing Fuel Tech has borrowings outstanding in the amount of $1,184 and $1,181, respectively. These borrowings were subject to interest rates of approximately 7.3% and 7.6% at September 30, 2012 and December 31, 2011, respectively. 

At September 30, 2012 and December 31, 2011, the Company had outstanding standby letters of credit and bank guarantees totaling approximately $1,006 and $750, respectively, on its Beijing Fuel Tech revolving credit facility in connection with contracts in process. At September 30, 2012 and December 31, 2011, approximately $3,336 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 $90 and $125 were made during the nine-month periods ended September 30, 2012 and 2011.

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Note G - Earnings per Share Data

9 Months Ended

Sep. 30, 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- and nine-month periods ended September 30, 2012 and 2011.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Basic weighted-average shares		22,105		24,322		22,932		24,269
Conversion of unsecured loan notes		7		7		7		7
Unexercised options and RSUs		910		521		810		605
Diluted weighted-average shares		23,022		24,850		23,749		24,881

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Note H - Stock-Based Compensation

9 Months Ended

Sep. 30, 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 September 30, 2012, Fuel Tech had approximately 507,000 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- and nine-month periods ended September 30, 2012 and 2011 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Stock options and restricted stock units	$	460		$	493		$	800		$	2,148
Deferred directors fees		12			12			44			49
Total stock-based compensation expense		472			505			844			2,197
Tax benefit of stock-based compensation expense		(173	)		(168	)		(302	)		(733	)
After-tax effect of stock-based compensation	$	299		$	337		$	542		$	1,464

As of September 30, 2012, there was $2,777 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan.

Stock Option Exchange Program

On June 1, 2011, the Company commenced an exchange offer that offered to certain employees the right to exchange eligible options to purchase shares of common stock of the Company for a lesser number of replacement awards of restricted stock units.  The exchange offer expired on June 29, 2011.  Pursuant to the exchange offer, 814,500 eligible options were tendered and the Company granted 267,372 restricted stock units in exchange for those options. As a result of the exchange, which is deemed a modification of the original stock option awards under generally accepted accounting principles, additional stock-based compensation of approximately $252 will be recognized over the two year vesting period associated with the replacement awards commencing June 30, 2011.  The Company recognized $31 of additional stock-based compensation during the three- and nine-month period ended September 30, 2011 as a result of the stock option exchange program.  Additional information regarding the stock option exchange program may be found on the Company’s Tender Offer Statement on Schedule TO filed with the SEC on June 1, 2011.

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.

Based on the results of the model, the weighted-average fair value of the stock options granted during the nine-month period ended September 30, 2012 was $1.72 per option using the following assumptions:

Expected dividend yield	0.0	%
Risk-free interest rate	0.67	%
Expected volatility	58.6	%
Expected life of option (years)	4.8

Stock option activity for Fuel Tech’s Incentive Plan for the nine months ended September 30, 2012 was as follows:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding on January 1, 2012		1,902,000		$	11.51
Granted		70,000			3.55
Converted to RSUs		-
Exercised		-
Expired or forfeited		(58,000	)		6.33
Outstanding on September 30, 2012		1,914,000		$	11.38		4.5	$	95
Exercisable on September 30, 2012		1,822,312		$	11.48		4.3	$	95

Non-vested stock option activity for the nine months ended September 30, 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		70,000			1.72
Vested		(161,500	)		4.00
Forfeited		(750	)		5.18
Outstanding on September 30, 2012		91,688		$	5.39

As of September 30, 2012, there was $377 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 0.9 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 and four years).  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 2011 and 2012, the Company entered into performance-based RSU agreements (the Agreements) with each of the Company’s President/Chief Executive Officer, Treasurer/Chief Financial Officer, Executive Vice President of Marketing & Sales, and Executive Vice President of 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 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 September 30, 2012, there is $2,400 of unrecognized compensation costs related to restricted stock unit awards to be recognized over a weighted average period of 2.3 years.

A summary of restricted stock unit activity for the nine-month period ended September 30, 2012 is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2011		487,165		$	7.59
Granted		349,000			4.82
Forfeited		(11,355	)		7.18
Vested		-			-
Unvested restricted stock units at September 30, 2012		824,810		$	6.42

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 nine-month periods ended September 30, 2012 and 2011, Fuel Tech recorded $44 and $49, respectively, of stock-based compensation expense under the Deferred Plan.

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Note J - Business Segment and Geographic Disclosures

9 Months Ended

Sep. 30, 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 September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	15,432	$	9,475	$	-		$	24,907
Cost of sales		10,282		4,389		-			14,671
Gross margin		5,150		5,086		-			10,236
Selling, general and administrative		-		-		(8,064	)		(8,064	)
Research and development		-		-		(569	)		(569	)
Operating income (loss)		5,246		4,990		(8,633	)		1,603

Three months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	12,223	$	11,800	$	-		$	24,023
Cost of sales		7,539		5,511		-			13,050
Gross margin		4,684		6,289		-			10,973
Selling, general and administrative		-		-		(7,701	)		(7,701	)
Research and development		-		-		(358	)		(358	)
Operating income (loss)	$	4,684	$	6,289	$	(8,059	)	$	2,914

Nine months ended September 30, 2012	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	43,964	$	27,066	$	-		$	71,030
Cost of sales		26,984		12,787		-			39,771
Gross margin		16,980		14,279		-			31,259
Selling, general and administrative		-		-		(24,932	)		(24,932	)
Research and development		-		-		(2,044	)		(2,044	)
Operating income (loss)	$	16,980	$	14,279	$	(26,976	)	$	4,283

Nine months ended September 30, 2011	Air Pollution Control Segment		FUEL CHEM Segment		Other			Total
Revenues from external customers	$	32,959	$	32,707	$	-		$	65,666
Cost of sales		18,338		16,731		-			35,069
Gross margin		14,621		15,976		-			30,597
Selling, general and administrative		-		-		(23,618	)		(23,618	)
Gain from revaluation of contingentperformance obligation		-		-		758			758
Research and development		-		-		(1,075	)		(1,075	)
Operating income (loss)	$	14,621	$	15,976	$	(23,935	)	$	6,662

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 September 30,				Nine months ended September 30
	2012		2011		2012		2011
Revenues:
United States	$	16,609	$	19,121	$	57,519	$	54,268
Foreign		8,298		4,902		13,511		11,398
	$	24,907	$	24,023	$	71,030	$	65,666

	September 30, 2012		December 31, 2011
Assets:
United States	$	85,338	$	99,601
Foreign		19,184		13,389
	$	104,522	$	112,990

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Note H - Stock-Based Compensation (Detail) - Stock Option Activity (USD $)	1 Months Ended	9 Months Ended
	Jun. 29, 2011	Sep. 30, 2012
Outstanding on January 1, 2012		1,902,000
Outstanding on January 1, 2012 (in Dollars per share)		$ 11.51
Granted		70,000
Granted (in Dollars per share)		$ 3.55
Converted to RSUs		0
Converted to RSUs (in Dollars per share)		$ 0
Exercised	814,500	0
Exercised (in Dollars per share)		$ 0
Expired or forfeited		(58,000)
Expired or forfeited (in Dollars per share)		$ 6.33
Outstanding on September 30, 2012		1,914,000
Outstanding on September 30, 2012 (in Dollars per share)		$ 11.38
Outstanding on September 30, 2012		4 years 6 months
Exercisable on September 30, 2012		1,822,312
Exercisable on September 30, 2012 (in Dollars per share)		$ 11.48
Exercisable on September 30, 2012		4 years 109 days

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Note O - Recently Adopted and Pending Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

New Accounting Pronouncements, Policy [Policy 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- and nine-month periods ending September 30, 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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Note K - Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Product Warranty Liability [Table Text Block]

	Nine Months Ended September 30,
	2012			2011
Aggregate product warranty liability at beginning of period	$	313		$	215
Net aggregate expense related to product warranties		710			620
Aggregate reductions for payments		(240	)		(390	)
Aggregate product warranty liability at end of period	$	783		$	445

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Note K - Contingencies (Detail) (USD $)	3 Months Ended			9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2009	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Sep. 30, 2012 Annual [Member] Minimum [Member]	Sep. 30, 2012 Annual [Member] Maximum [Member]	Sep. 30, 2012 Total [Member] Minimum [Member]	Sep. 30, 2012 Total [Member] Maximum [Member]
Business Acquisition, Contingent Consideration, Potential Cash Payment							$ 4,000	$ 0	$ 4,000	$ 0	$ 12,000
Business Acquisition, Preacquisition Contingency, Amount					12,000	11,000	10,000
Loss Contingency, Estimate of Possible Loss							2,307
undefined	$ (758,000)	$ 768,000	$ 781,000	$ (758,000)

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 1,194	$ 2,655	$ 2,805	$ 4,424
Other comprehensive income:
Foreign currency translation adjustments	(420)	(5)	(316)	94
Unrealized gains/(losses) from marketable securities, net of tax	11	(35)		33
Total other comprehensive income	(409)	(40)	(316)	127
Comprehensive income	$ 785	$ 2,615	$ 2,489	$ 4,551

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Note D - Cost of Sales

6 Months Ended

Jun. 30, 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 P - Share Repurchase Program (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Treasury Stock by Class [Table Text Block]

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
Phase One 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		-
Phase Two Program
April 1, 2012 through June 30, 2012		1,124,797		4.70		5,290		710
July 1, 2012 through September 30, 2012		145,443		4.88		710		-
Total		2,306,590	$	5.20	$	12,000	$	-

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Note J - Business Segment and Geographic Disclosures (Detail)	9 Months Ended
	Sep. 30, 2012
Number of Reportable Segments	2

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Note N - Fair Value

9 Months Ended

Sep. 30, 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 $57 at September 30, 2012 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- and nine-month periods ended September 30, 2012.  

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.