FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period ended ___________________________________________
Commission File Number 1-7211
Ionics, Incorporated
(Exact name of registrant as specified in it charter)
Massachusetts 04-2068530
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
65 Grove Street, Watertown, Massachusetts 02172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-926-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
The aggregate market value of the voting stock held by non-affiliates as of
March 18, 1994 was $320,445,029 (6,658,598 shares at $48 1/8 per share)
(includes shares owned by a trust for the indirect benefit of a non-employee
director, and by a trust for the indirect benefit of a spouse of a non-employee
director).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of March 18,
1994, 6,949,406 shares of Common Stock, $1 par value, were issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of 1993 Annual Report to Stockholders Parts I, II and IV
Portions of Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held
on May 5, 1994 Part III
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PART I
Item 1. BUSINESS
Ionics, Incorporated ("Ionics," the "Company," or the "Registrant") is
a leading water purification company engaged worldwide in the supply of
water and of water treatment equipment through the use of proprietary
separations technologies and systems. Ionics' products and services are
used by the Company or its customers to desalt brackish water and seawater,
to purify and supply bottled water, to treat water in the home, to
manufacture and supply water treatment chemicals and ultrapure water, to
recycle and reclaim process water and wastewater, and to measure levels of
water-borne contaminants and pollutants. The Company's customers include
industrial companies, consumers, municipalities and utilities.
The Company's business activities are divided into three segments:
membranes and related equipment, water and chemical supply, and consumer
water products, which in 1993 accounted for approximately 53%, 29% and 18%
of revenues, respectively. Since 1985, the Company has pursued a strategy
of expanding beyond its traditional focus of selling desalination plants
and equipment by owning and operating its own equipment to produce and sell
water and chemicals. Approximately 45% of the Company's 1993 revenues were
derived from foreign sales or operations.
Over forty years ago, the Company pioneered the development of the
ion-exchange membrane and the electrodialysis process. Since that time,
the Company has expanded its separations technology base to include the
electrodialysis reversal (EDR), reverse osmosis (RO), ultrafiltration (UF)
and microfiltration (MF) membrane processes, as well as related processes
such as electrodeionization (EDI), ion exchange and carbon adsorption.
With its acquisition of the business of Resources Conservation Company
(RCC) at the end of 1993, the Company's separations technology base now
includes thermal processes such as evaporation and crystallization. The
Company believes that it is the world's leading manufacturer of ion-
exchange membranes and of membrane-based systems for the desalination of
water.
The Company was incorporated in Massachusetts in 1948. The Company's
principal executive offices are located at 65 Grove Street, Watertown,
Massachusetts 02172.
Financial Information About Business Segments
The information contained in Note 14 of Notes to Consolidated
Financial Statements contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1993 is incorporated herein by
reference.
Membranes and Related Equipment
The Company's membranes and related equipment business segment, which
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accounted for approximately 53% of revenues in 1993, currently encompasses
the following products: electrodialysis reversal systems; reverse osmosis
systems; microfiltration systems; non-membrane water and wastewater
treatment equipment; other separations technology products; instruments for
monitoring and on-line detection of pollution levels; fabricated products;
and brine concentrators, evaporators and crystallizers utilizing thermal
separations processes.
EDR Systems
The Company's AquamiteR desalination systems utilize Ionics' EDR
process to treat brackish water and produce potable water for commercial,
municipal, and a variety of industrial purposes.
The Company has built and installed approximately 2,000 systems and
plants utilizing its ED and EDR technology. Today, the Company sells,
under the Aquamite name, a number of standardized versions of EDR
equipment, which are designed for ease of installation and low maintenance
and have production capacities ranging from 500 gallons to 1.5 million
gallons per day. Multiple unit configurations are used for systems of
larger capacities.
Customers for water purification systems increasingly have requested
the Company to supply complete turnkey plants. For such customers, Ionics
provides basic Aquamite equipment, peripheral water treatment equipment,
complete engineering services, process and equipment design, project
engineering, commissioning, operator training and field service.
RO Systems
The Company manufactures seawater desalination plants as well as
systems for the production of ultrapure water which utilize RO membrane
technology. The Company owns and operates seawater desalination plants in
Grand Canary, Spain, Santa Barbara, California, and at the Diablo Canyon
Power Plant in California. See "Water and Chemical Supply."
MF Systems
Utilizing the Company's proprietary Aqua-PoreR microfiltration
membranes, the Company's EnviromatR Integrated Membrane Filtration System
removes toxic contaminants such as lead, nickel and other materials from
industrial wastewaters and enables manufacturers to meet stringent
regulations for effluent compliance.
Non-Membrane Water and Wastewater Treatment Equipment
Through its wholly owned Italian subsidiary, Ionics Italba, S.p.A.,
Ionics designs, engineers and constructs customized systems for wastewater
and municipal water treatment. These include ion-exchange systems which
provide purified water for power stations, chemical and petrochemical
plants, metalworking and automobile factories, textile manufacture and a
variety of other industrial applications. Other systems neutralize and
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filter industrial wastewater, separate suspended solids and, in some cases,
recover chemicals. Ionics Italba also provides custom municipal and
packaged sewage treatment systems. Ionics Italba generally subcontracts
the construction activities associated with its projects.
Through its Resources Conservation Company (RCC) business unit, Ionics
designs, engineers and constructs brine concentrators, evaporators and
crystallizers which are used to clean, recover and recycle wastewater,
particularly in zero liquid discharge industrial uses. RCC also developed,
and holds an exclusive license for, a patented solvent extraction
technology known as B.E.S.T. (Basic Extractive Sludge Technology), which
separates contaminated sludges, sediments and soils into oil, water and
solids, and has potential use for the cleanup of toxic organic materials at
Superfund Sites.
Other Separations Technology Products
Using its separations technology, Ionics manufactures, markets or
supplies products which are used in the recovery and recycling of selected
components from process streams, the manufacture of commodity and specialty
compounds and the purification of valuable fluids. The Company's
ElectromatR system is used in the demineralization of cheese whey to
produce a major component utilized extensively in infant formula products.
A similar Ionics system is used to deacidify fruit juices for a
manufacturer of canned fruit products. The Company's food product revenues
have been derived from three sources: the design and construction of the
system, the manufacture and sale of replacement membranes used in the
system, and in certain applications a royalty (based on Ionics' U.S.
patents) on the throughput of product.
At the end of 1993, the Company obtained an additional source of food
produce revenues by entering into an agreement with a major U.S. dairy
cooperative to oversee whey processing activities at plants owned by the
cooperative, for which the Company will receive a processing fee based on
the production of demineralized whey.
Other Ionics process systems include the ChemomatR system to generate
organic acids and to recover, recycle, remove and separate metals and other
components from industrial wastewaters, and the CloromatR system for the
production of sodium hypochlorite and related chlor-alkali chemicals.
Instruments for Monitoring and On-Line Detection of Pollution Levels
The Company designs, manufactures and sells equipment to measure the
quality of treated or untreated water. Its products, which are used by
industrial and governmental customers to measure organic and toxic
contaminants in water and chemical process streams, include process and
laboratory instruments to measure total carbon, total organic carbon,
chemical oxygen demand and total oxygen demand. The Company recently
expanded the monitoring capabilities of its instruments with the
introduction of analyzers to measure concentrations at the parts per
billion level of dissolved metals such as copper, lead, iron, mercury, and
arsenic and specific chemical analyzers for ammonia, phosphates, nitrates,
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and chlorine. The process systems provide real-time measurement of the
level of contaminants in active waste streams. Another product, the
DigichemR, sold principally to the printed circuit board, pulp and paper,
and chemical and petrochemical industries, functions as a "robot chemist"
capable of performing automatically "wet chemistry" analyses traditionally
done manually.
Fabricated Products
At its Bridgeville, Pennsylvania facility, the Company fabricates
specially designed products for defense-related and industrial
applications. The Company's experience and expertise in design, welding,
machining and assembly to meet exceptionally fine tolerances have been
utilized to fabricate products ranging from intricate small parts to very
large 35-ton assemblies.
Water and Chemical Supply
The water and chemical supply business segment accounted in 1993 for
approximately 29% of the Company's revenues. The Company's strategy is to
sell, where appropriate, water and chemicals produced by its membrane-based
equipment, rather than selling the equipment itself. The water and
chemical supply business segment can be divided into three categories:
sale of desalted water for municipal and industrial use; sale of ultrapure
water for electronics and other industries; and sale of bleach and related
chemicals.
Sale of Desalted Water for Municipal and Industrial Use
Ionics' position in water supply as a seller of purified or treated
water has evolved from its traditional role as a supplier of water
treatment equipment. In certain situations, opportunities are available
for the Company to provide a complete service package involving financing,
construction, operation and maintenance of water treatment facilities.
Ionics, through its wholly owned subsidiary, Ionics Iberica, S.A.,
owns and operates a 5.5 million gallon per day capacity brackish water EDR
facility and a 2.0 million gallon per day RO seawater facility on Grand
Canary Island, Spain. Under long-term contracts, the Company is selling
the desalted water from both facilities to the local water utility for
distribution.
The Company's wholly owned subsidiary, Ionics (Bermuda) Ltd., operates
a 600,000 gallon per day EDR brackish water desalting plant on the island
of Bermuda. This plant supplies fresh water under a long-term contract
with Watlington Waterworks Ltd., a Bermuda corporation partially owned by
Ionics.
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The Company financed and constructed, and owns and operates, an RO
desalination facility in Santa Barbara, California. The facility began
operation in March 1992, has the capacity to produce 7,500 acre-feet per
year (approximately 6.7 million gallons per day) of desalinated water, and
is expandable to 10,000 acre-feet per year. Under the terms of the
Company's contract with the City, the City can either purchase water from
the Company or, under conditions in which the City deems it unnecessary to
purchase water, pay the Company a "stand-by fee" during the contract's
five-year term and, if the City elects to continue, a five-year extension
term. The City has placed the facility on "stand-by" status because of the
alleviation of the area's drought. At the end of the initial five-year
term, the City will have the right to renew the contract for another five-
year term, purchase the facility from the Company, or direct the Company to
remove the facility (most of which is housed in trailers) from its site.
In the event the City purchases the facility, the City must reimburse the
Company for all costs not previously recovered from operations, plus a
factor to cover general and administrative expenses and profit.
Sale of Ultrapure Water for Electronics and Other Industries
In industries from biotechnology and chemical processing to
pharmaceuticals and semiconductors, ultrapure water (water in which the
impurities have been reduced to concentrations of less than several parts
per billion) is critical to product quality and yield. In the electric
power industry, ultrapure boiler feedwater minimizes corrosion,
inefficiency and downtime in steam boilers and turbines. Depending on the
composition and quantity of the impurities to be removed or treated, any
one of several membrane separations methods can be utilized to provide
ultrapure water to the customer. Ionics has pioneered in the application
of three membrane technologies (EDR, RO and UF) combined together in a
mobile system called the "triple membrane" trailer, which the Company
believes to be the most advanced technology used in the commercial
processing of ultrapure water. Ionics provides ultrapure water services
through the sale of ultrapure water in 6,000 gallon tank trucks and the
production and sale of ultrapure water from trailer-mounted units at the
customer sites.
In 1992, Ionics announced the commercial implementation of its new
electrodeionization (EDI) technology in the production of ultrapure water.
EDI is a continuous, electrically driven, membrane-based water purification
process which produces ultrapure water without the use of the strong
chemical regenerants, such as sulfuric acid and caustic soda, which are
commonly required. In 1993, trailers utilizing EDI technology were in
service at sites in Florida, Arkansas and Mississippi.
In March 1992, the Company began a ten-year, $20 million contract to
provide process water and ultrapure boiler feedwater to Pacific Gas and
Electric's Diablo Canyon Power Plant on the central coast of California.
In 1993, ten-year ultrapure water contracts were obtained from Florida
Power and Light for its Turkey Point fossil fuel power plant near Florida
City, and for the Seabrook Nuclear Station in Seabrook, New Hampshire.
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The Company serves the ultrapure water market from its headquarters
facilities in Watertown, Massachusetts, through the Ionics Pure Solutions
Division in Phoenix, Arizona, and through the following subsidiaries:
Ionics Ultrapure Water Corporation, Campbell, California; Ionics (U.K.)
Limited, London, England; Ionics Italba, S.p.A., Milan, Italy; and Eau et
Industrie, Paris, France.
Sale of Bleach and Related Chemicals
In the chemical supply area, the Company uses its CloromatR technology
to produce sodium hypochlorite (household bleach) and related chlor-alkali
chemicals in a membrane-based process that principally relies on water and
salt as raw materials. The Company's wholly owned Australian subsidiary,
Elite Chemicals Pty. Ltd., utilizes Cloromat systems to produce sodium
hypochlorite on-site in Brisbane, for sale to the bulk market.
In 1993, the Company's wholly owned English subsidiary, Ionics (U.K.)
Limited, commenced bulk bleach sales at a new Cloromat facility in
Bridgwater, England. A large portion of the facility's output is being
sold to Courtaulds Films (Holdings) Limited for use in cellophane
manufacture, and the balance is being sold to the regional market.
In the United States, the Company's Elite Chemicals New England
division operates a Cloromat facility in Springfield, Massachusetts which
produces and distributes bleach-based products for the consumer market,
primarily one-gallon bleach products under private label or under the
Company's own "Elite" brand. In September 1993, the Company contracted to
purchase a larger manufacturing facility, located in Ludlow, Massachusetts.
The Company intends to pursue a strategy of utilizing Cloromat equipment
and technology at Company-owned facilities to produce high quality bleach
and other chlor-alkali products at selected regional sites in the United
States and overseas.
Consumer Water Products
Ionics' consumer water products business segment accounted for
approximately 18% of the Company's revenues in 1993. The Company's
consumer water products include bottled water, over and under-the-sink
point-of-use devices, and point-of-entry systems for treating the entire
home water supply.
Aqua CoolR Pure Bottled Water
Ionics entered the bottled water business in 1984. The Company's
strategy is to utilize its proprietary desalination and purification
technology to create a brand of drinking water, named Aqua Cool Pure
Bottled Water, which can be reproduced with uniform consistency and high
quality at numerous locations around the world. Distribution operations
have been established to serve the areas in and around London and
Manchester, England; Boston, Washington and Baltimore in the United States;
and, through joint ventures, in Bahrain, Kuwait and Saudi Arabia. The
Company's business focuses on the sale of Aqua Cool in five-gallon bottles
to a variety of customers including banks, office buildings, commercial
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establishments, hospitals and private homes. The Company also manufactures
coolers in a wide variety of colors which offer options for hot, cold and
room temperature water.
In 1989, the Company entered into agreements with Aqua Cool
Enterprises, Inc. (ACE), a newly formed, independently owned corporation,
which established ACE as a marketer and distributor of Aqua Cool in 10
eastern states and the District of Columbia, and provided for Ionics'
supply to ACE of products, management services and operational support. In
May 1993, the Company loaned $8.25 million to ACE which was used by ACE to
redeem debt and preferred stock of ACE held by Westinghouse Credit
Corporation. In June 1993, the Company's loan was converted into preferred
stock, and as a result of these transactions, the Company now consolidates
the operating results of ACE.
ACE operates eight distribution centers in Massachusetts, Connecticut,
New York, New Jersey, Pennsylvania and Virginia, which augment the
Company's distribution network. At the end of 1993, there were a total of
17 Aqua Cool distribution centers in the United States and overseas,
supplied with Aqua Cool by five regional water purification and bottling
facilities which are owned and operated by the Company. Construction was
being completed of a new, larger bottling facility located outside
Washington, D.C., and plans were being prepared to construct a third U.S.
bottling facility in northern New Jersey. In January 1994, the Company
announced plans to begin distribution of Aqua Cool in the Cincinnati, Ohio
area.
Aqua Cool's focus has been in particular to obtain large commercial or
governmental supply contracts for five-gallon delivery, such as the
estimated $2 million, two-year contract awarded in 1993 by the City of New
York Department of General Services.
Point-of-Use Devices
The Company participates in the "point-of-use" market for over and
under-the-sink water purifiers through the manufacture and sale of HYgeneR,
a proprietary, EPA-registered, silver-impregnated activated carbon
filtering media, and through the sale of reverse osmosis and activated
carbon-based filtering devices. The Company incorporates HYgene, which is
designed to prevent bacterial build-up while providing the capability of
removing undesirable tastes and odors from the water supply, into its own
bacteriostatic water conditioners and also sells HYgene to manufacturers of
household point-of-use water filters. In 1993, a substantial decline in
HYgene sales to other manufacturers continued as a result of lack of
business from the largest of the Company's HYgene customers.
Point-of-Entry Systems
Ionics' point-of-entry water products include ion-exchange water
conditioners to "soften" hard water, and chemicals and media for filtration
and treatment. The Company sells its products, under the General Ionics
brand, through both independent distributorships and wholly owned sales and
service dealerships. For water conditioners sold by the latter, the
Company provides customer financing.
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Raw Materials and Sources of Supply
All raw materials essential to the business of the Company can
normally be obtained from more than one source. In those few instances
where raw materials are being supplied by only one source, the current
supplier has given the Company a lead time for cancellation, which the
Company believes is sufficient to enable it to obtain other suppliers. In
addition, the Company maintains inventories of single source items which it
believes are adequate under the circumstances.
The Company produces the membranes required for its equipment and
systems that use the ED, EDR, MF, and EDI processes. Membranes used for
the RO and UF processes are purchased from outside suppliers, and are
normally available from multiple sources.
Patents and Trademarks
The Company believes that its products, know-how, servicing network
and marketing skills are more significant to its business than trademark or
patent protection of its technology. Nevertheless, the Company has a
policy of applying for patents both in the United States and abroad on
inventions made in the course of its research and development work for
which a commercial use is considered likely. The Company owns numerous
United States and foreign patents and trademarks and has issued licenses
thereunder, and currently has additional pending patent applications. Of
the 107 active U.S. patents held by the Company, a substantial portion
involves membranes, membrane technology and related separations processes
such as electrodialysis and electrodialysis reversal, reverse osmosis,
ultrafiltration and electrodeionization. The Company believes that none of
its individual patents or groups of related patents, nor any of its
trademarks, is of sufficient importance for its termination or abandonment,
or cancellation of licenses extending rights thereunder, to have a material
adverse effect on the Company.
Seasonality
The activities of the Company's businesses are not of a seasonal
nature, except that bottled water sales and bleach products for swimming
pool use tend to increase during the summer months. Also, the Company's
Elite Chemicals New England Facility produces windshield wash solution, for
which sales levels increase in the winter months.
Customers
The nature of the Company's business is such that it frequently has in
progress large contracts with one or more customers for specific projects;
however, there is no one customer whose purchases account for 10% or more
of the Company's consolidated revenues and whose loss would have a material
adverse effect on the Company and its subsidiaries taken as a whole.
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Backlog
The Company's backlog of firm orders was $129,271,000 at December 31,
1993 and $125,506,000 at December 31, 1992. In the case of multi-year
contracts entered into through June 30, 1991, the Company initially
included in reported backlog only the revenues expected from the first four
years of the contract. For multi-year contracts entered into after that
date, the Company has initially included in reported backlog the revenues
associated with the first five years of the contract. Also, the Company
now includes in backlog up to one year of revenues relating to multi-year
contracts which are not otherwise included in backlog. Ionics expects to
fill approximately 75% of its December 31, 1993 backlog during 1994. The
Company does not believe that there are any seasonal aspects to these
backlog figures.
Government Contracts
The Company does not believe that any of its sales under U.S.
Government contracts or subcontracts during 1993 are subject to
renegotiation. The Company has not had adjustments to its negotiated
contract prices, nor are any proceedings pending for such adjustments.
Research and Development
Since the development of the ion exchange membrane and the EDR
process, Ionics has continued its commitment to research and development
directed toward products for use in water purification, processing and
measurement, and separations technology. The Company's research and
development expenses were approximately $3,678,000 in 1993, $3,084,000 in
1992, and $2,886,000 in 1991.
Competition
The Company experiences competition from a variety of sources with
respect to virtually all of its products, systems and services, although
the Company knows of no single entity that competes with it across the full
range of its products and services. Competition in the markets served by
the Company is based on a number of factors, which may include price,
technology, applications experience, know-how, availability of financing,
reputation, product warranties, reliability, service and distribution.
With respect to the Company's membrane and related equipment business
segment, there are a number of companies, including several sizable
chemical companies, that manufacture membranes, but not equipment. There
are numerous smaller companies, primarily fabricators, that build water
treatment and desalination equipment, but which generally do not have their
own proprietary membrane technology. A limited number of companies
manufacture both membranes and equipment. The Company has numerous
competitors in its conventional water treatment, instruments and fabricated
products business lines.
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In 1992, the International Desalination Association released a report
providing data regarding the manufacturers of desalination equipment.
According to the report, which covered land-based water desalination plants
delivered or under construction as of December 1991, with a capacity to
produce 100 cubic meters (approximately 25,000 gallons) or more of fresh
water daily, Ionics ranked first in terms of the cumulative number of such
plants sold, having sold 1,127 plants of such capacity, more than the next
three manufacturers combined. When compared only to manufacturers of
membrane-type desalination equipment, Ionics ranked first in both number of
units sold and the total capacity of units sold.
With respect to the water and chemical supply business segment, the
Company competes with regional suppliers of ultrapure water services, and
with other manufacturers of membrane-related equipment. In the chemical
supply activity, the Company competes with manufacturers and distributors
of bleach and water treatment chemicals.
With respect to the Company's consumer water products business
segment, there are numerous bottled water companies which compete with the
Company, including several which are much larger than the Company. Most of
the Company's competitors in point-of-entry and point-of-use products for
the home are small assemblers, serving local or regional markets. However,
there are also several large companies competing nationally in these
markets. In the case of its silver-impregnated activated carbon product
lines, the Company knows of two competitors with which it competes on a
national basis.
The Company is unable to state with certainty its relative market
position in all aspects of its business. Many of its competitors have
financial and other resources greater than those of the Company.
Environmental Matters
Continued compliance by the Company or by its subsidiaries with
federal, state and local provisions regulating the discharge of materials
into the environment or otherwise relating to the protection of the
environment is expected to have no material effect upon capital
expenditures, earnings or the competitive position of the Company or any of
its subsidiaries.
The Company is one of more than 200 potentially responsible parties
(PRPs) in connection with the Silresim Superfund Site in Lowell,
Massachusetts. Under the Comprehensive Environmental Response Compensation
and Liability Act (CERCLA or Superfund), the U.S. Environmental Protection
Agency (EPA) has the authority to undertake remedial action at a Superfund
site and hold responsible parties liable, on a joint and several basis and
without regard to fault or negligence for costs incurred. Under the terms
of a 1992 Settlement Agreement among the PRPs, EPA and the Commonwealth of
Massachusetts, Ionics paid $381,000 as a settlement amount to the site
settlement trust fund, representing the Company's approximately 1%
volumetric contribution of wastes to the site. This fund will be used by
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the EPA to clean up the Silresim Site. The amount paid by Ionics had been
fully reserved at December 31, 1991, and the payment had no material
adverse impact on the Company. Because the pollution problems at the site
have been extensively studied and because the funds collected from the
settling PRPs by the site settlement trust fund substantially exceeds the
EPA's own estimate of remediation costs, the Company believes that it is
highly unlikely that it will incur any further monetary obligations with
respect to this site, other than site access costs that will be incurred by
the EPA in connection with its remediation activities. The Company's share
of these site access costs is expected to be $30,000 to $40,000 over the
next several years.
The Company was notified in June 1992 that it is a PRP at another
Superfund site, Solvent Recovery Service of New England, in Southington,
Connecticut (the "SRS Site"). The EPA has not yet completed its remedial
investigation or issued a record of decision specifying estimated clean-up
costs, and therefore it is too early to determine what the Company's
liability might be with respect to the SRS Site. However, based upon the
very large number of PRPs identified with respect to the SRS Site (over
1,000), the Company's small volumetric ranking in comparison to the total
volume of wastes brought to the SRS Site (just under 0.5%), and the
identities of the larger generators, which include many substantial
companies, the Company believes that its liability in this matter will not
have a material effect on the Company or its financial results. The
Company's intention is to participate in the settlement agreement finally
structured for the Site, so long as such agreement is fair to the parties.
The Company has never had a product liability claim grounded in
environmental liability, and believes that the nature of its products and
business makes such a claim unlikely.
Employees
The Company and its consolidated subsidiaries employ approximately
1,300 full-time persons, none of whom are represented by unions except for
the employees of the Company's Australian subsidiary and certain employees
of the Company's Spanish subsidiary. The Company considers its relations
with its employees to be good.
Foreign Operations
The Company's sales to customers in foreign countries primarily
involve desalination systems, water and wastewater treatment systems and
related products and services. The Company seeks to minimize financial
risks relating to its international operations. Wherever possible, the
Company obtains letters of credit or similar payment assurances denominated
in dollars. If dollar payments cannot be secured, the Company, where
appropriate, enters into foreign currency hedging transactions. The
Company also uses foreign sources for equipment parts and may borrow funds
in local (foreign) currency to offset the asset risk of foreign currency
devaluation. Net foreign currency transaction gains included in income
before taxes totalled $157,000 in 1993, $587,000 in 1992, and $180,000 in
1991.
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Ionics engages in certain foreign operations both directly and through
the following wholly owned subsidiaries: Ionics (Bermuda) Ltd.; Ionics
Iberica, S.A.; Ionics (U.K.) Limited; Ionics Italba, S.p.A.; Ionics
Nederland N.V.; Global Water Services, S.A.; Elite Chemicals Pty. Ltd.; Eau
et Industrie; Resources Conservation Co. International; and Ionics Foreign
Sales Corporation Limited.
The Company engages in various foreign operations through investments
in affiliated companies and joint venture relationships. The activities
include the production, sale and distribution of bottled water through a
40% owned affiliate in Bahrain, a 40% owned affiliate in Saudi Arabia and a
49% owned affiliate in Kuwait.
In addition, the Company has a 23% ownership interest in Watlington
Waterworks Ltd. in Bermuda. Watlington collects, treats and distributes
water throughout Bermuda for both potable and non-potable uses. The
Company also has a 50% ownership interest in Yuasa-Ionics Co., Ltd., Tokyo,
Japan, which among its other activities serves as a distributor of certain
of the Company's products in Japan.
Further geographical and financial information concerning the
Company's foreign operations appears in Notes 1, 5, 8, 12, and 14 to the
Company's Consolidated Financial Statements included as part of the
Company's 1993 Annual Report to the Stockholders, which Notes are
incorporated herein by reference.
Financial Information About Foreign and
Domestic Operations and Export Sales
The information contained in Note 14 of Notes to Consolidated
Financial Statements contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1993 is incorporated herein by
reference.
Item 2. PROPERTIES
The Company owns or leases and occupies various manufacturing and
office facilities in the United States and abroad. The principal
facilities owned by the Company include two buildings in Watertown,
Massachusetts housing the executive offices, laboratories and manufacturing
and assembly operations; and facilities in Bridgeville, Pennsylvania;
Phoenix, Arizona; Lorton, Virginia; Elkridge, Maryland; and Milan, Italy,
for various operations relating to the design and manufacture of water
purification and treatment equipment or water-related services.
The two buildings in Watertown, Massachusetts which are owned by the
Company and together contain approximately 250,000 square feet, are the
subject of a mortgage securing the Company's guaranty with respect to
industrial revenue bond financing of such facilities. The industrial
revenue bond indebtedness will be discharged in 1994.
/14
I-12
<PAGE>
The other major facility owned by the Company is its Bridgeville,
Pennsylvania facility, consisting of two buildings containing approximately
77,000 square feet and housing manufacturing operations for home water
conditioners and stainless steel fabrication.
The Company considers the business facilities that it utilizes to be
adequate for the uses to which they are being put.
Item 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation in the normal
course of its business. At the present, the Company believes that there is
no pending or threatened litigation the result of which would have a
material adverse effect on the Company's earnings or financial position.
See "BUSINESS - Environmental Matters."
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
/15
I-13
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Reference is made to the Company's Annual Report to Stockholders for
the year ended December 31, 1993. The information set forth on page 32
entitled "Common Stock Price Range" and the inside back cover of such
Annual Report is hereby incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the Company's Annual Report to Stockholders for
the year ended December 31, 1993. The information set forth on page 32 of
such Annual Report entitled "Selected Quarterly Financial Data (unaudited)"
is hereby incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Company's Annual Report to Stockholders for
the year ended December 31, 1993. The information set forth on pages 17
through 19 of such Annual Report entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is hereby
incorporated by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Company's Annual Report to Stockholders for
the year ended December 31, 1993. The consolidated balance sheets of the
Registrant as of December 31, 1993 and 1992, the related consolidated
statements of operations, cash flows and stockholders' equity for the years
ended December 31, 1993, 1992 and 1991, and the related notes with the
opinion thereon of Coopers & Lybrand, independent accountants, on pages 20
through 31, and Selected Quarterly Financial Data (unaudited) on page 32,
are hereby incorporated by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable to the Company.
/16
II-1
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to Directors is
hereby incorporated by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 5, 1994 to
be filed with the Securities and Exchange Commission on or about March 30,
1994.
The information regarding executive and other officers is as follows:
Age as of Positions
Name March 1, 1994 Presently Held
Executive Officers:
Arthur L. Goldstein* 58 President, Chief Executive Officer
and Director since 1971; Chairman
of the Board since 1990
Kachig Kachadurian 44 Senior Vice President since 1991 and
Vice President since 1983, Director
since 1986
William E. Katz 69 Executive Vice President since
1983 and Director since 1961
Robert J. Halliday 39 Vice President, Finance and Accounting
since December 1990; Chief Financial
Officer since August 1992.
Stephen Korn 48 Vice President, General Counsel
and Clerk since September 1989
Theodore G. Papastavros 60 Vice President since 1975 and
Treasurer since February 1990
Other Officers:
Alan M. Crosby 41 Vice President, Corporate Quality
Programs and Watertown Operations
since 1991
Edward P. Geishecker 58 Vice President, United States and Canada
Sales and Marketing, Water Systems
Division since 1991
William B. Iaconelli 60 Vice President, Separations Technology
since 1983
Patrick K. Lam 54 Vice President, Project Management and
International Subsidiaries since 1991
Joseph M. Loftis 52 Vice President, Fabricated Products
since 1986 and General Manager,
Bridgeville
Leon Mir 55 Vice President, Research and Development
since September 1992
Ark W. Pang 44 Vice President, International Sales and
Marketing, Water Systems Division
since 1991
Walter J. Polens 72 Vice President, Household Water
Conditioning since 1968
___________________
* Member of Executive Committee
There are no family relationships between any of the officers or
directors. Officers of the Registrant are elected each year at the annual
meeting of Directors.
/17
III-1
<PAGE>
All of the above executive officers have been employed by the Registrant in
various capacities for more than five years, except for Messrs. Halliday and
Korn. Prior to joining the Company in December 1990, Mr. Halliday served from
April 1987 to December 1990 as Corporate Controller of Alliant Computer Systems
Corporation, a manufacturer of mini-supercomputers, and between September 1984
and April 1987 as Assistant Controller and Controller of Symbolics, Inc., a
developer and manufacturer of symbolic processing computers. Prior to joining
the Company in 1989, Mr. Korn served as Vice President/General Counsel and
Secretary of Symbolics, Inc. from July 1986 to August 1989. Prior to joining
Symbolics, Mr. Korn had been a member of the Boston law firm of Widett, Slater
and Goldman, P.C. for more than five years.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held May 5, 1994 to be filed with the Securities and
Exchange Commission on or about March 30, 1994.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held May 5, 1994 to be filed with the Securities and
Exchange Commission on or about March 30, 1994.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is hereby incorporated by reference
from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held May 5, 1994 to be filed with the Securities and
Exchange Commission on or about March 30, 1994.
/18
III-2
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Statements and Financial Statement
Schedules on page IV-7. The Financial Statement Schedules are
filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules
See Index to Financial Statements and Financial Statement
Schedules on page IV-7.
3. Exhibits
Exhibit Page
No. Description No.
3.0 Articles of Organization and By-Laws
3.1 Restated Articles of Organization (filed *
as Exhibit 3(a) to Form 10-K for year
ended December 31, 1986).
3.1(a) Amendment to the Restated Articles of *
Organization (filed as Exhibit 3(b) to
Form 10-K for year ended December 31, 1987).
3.1(b) Amendment to Restated Articles of *
Organization (filed as Exhibit 3.1(b) to
Registration Statement No. 33-38290 on
Form S-2 effective January 24, 1991).
3.2 By-Laws, as amended (filed as Exhibit 19 to *
Form 10-Q for the quarter ended September 30,
1989).
4.0 Instruments defining the rights of security holders,
including indentures
4.1 Industrial Revenue Bond issued by the Town **
of Watertown, Massachusetts in the amount of
$3,000,000 guaranteed by Registrant, and
related documents.
4.2 Agreement for a loan payable by a consolidated **
subsidiary to a bank in Australia in the principal
amount of 725,000 Australian dollars guaranteed
by Registrant, and related documents.
/19
IV-1
<PAGE>
4.3 Rights Agreement, dated as of December 22, 1987, *
as amended and restated as of August 15, 1989,
between Registrant and The First National Bank
of Boston (filed as Exhibit 1 to Registrant's
Current Report on Form 8-K dated August 30, 1989).
4.4 Indenture, dated as of December 22, 1987, between *
Registrant and The First National Bank of Boston,
relating to Rights Agreement (filed as Exhibit 2
to Registrant's Current Report on Form 8-K dated
December 22, 1987).
4.5 Form of Common Stock Certificate (filed as Exhibit *
4.10 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990).
10. Material Contracts
10.1 1979 Stock Option Plan, as amended through
February 17, 1994.
10.2 1986 Stock Option Plan for Non-Employee Directors, *
as amended though February 18, 1992 (filed as
Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.3 Amended and Restated Credit Agreement between *
Registrant and The First National Bank of Boston
dated as of December 31, 1992 (filed on Exhibit
10.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
10.4 Operating Agreement dated as of September 27, *
1989 between Registrant and Aqua Cool Enter-
prises, Inc. (filed as Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.5 Term Lease Master Agreement dated as of *
September 27, 1989 between Registrant and
Aqua Cool Enterprises, Inc. (filed as Exhibit
10.5 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.6 Option Agreement dated as of September 27, 1989 *
among Registrant, Aqua Cool Enterprises, Inc.
and the other parties named therein (filed as
Exhibit 10.6 to Registrant's registration
statement on Form S-2, No. 33-38290,
effective January 24, 1991).
10.7 Agreement for Privatization of Water Supplies *
dated as of September 18, 1990 between the
Company and the City of Santa Barbara,
California (filed as Exhibit 10.7 to
Registrant's registration statement on Form S-2,
No. 33-38290, effective January 24, 1991).
/20
IV-2
<PAGE>
10.8 Amendment No. 1, dated as of January 3, 1992, to *
Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.8 to Registrant's annual report on
Form 10-K for the year ended December 31, 1991).
10.9 Amendment No. 2, dated as of January 19, 1993, *
to Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.9 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992).
10.10 Asset Purchase Agreement Among the Company, *
Resources Conservation Company, Resources
Conservation Co. International and Halliburton
NUS Corporation dated December 30, 1993 (filed as
Exhibit 2 to Registrant's current report on
Form 8-K dated February 7, 1994 and filed
electronically on the same date).
11. Statement re Computation of Earnings Per Share.
13. Annual Report to Stockholders of the Registrant for
the year ended December 31, 1993 (only pages 17
through 32 and the inside back cover constitute an
exhibit to this report).
22. Subsidiaries of the Registrant.
24. Consents
24.1 Consent of Coopers & Lybrand to incorporation
by reference of that firm's report dated
February 22, 1994, which is included on page 31 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1993.
25. Power of Attorney.
________________________________
* incorporated herein by reference
** copies of which will be filed by Registrant with
the Securities and Exchange Commission upon its
request
/21
IV-3
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
last quarter of fiscal 1993.
Undertaking
For purposes of complying with the amendments to the rules governing
Form S-8 effective July 13, 1990 under the Securities Act of 1933, the
undersigned hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's registration statements on
Form S-8 Nos. 33-14194, 33-5814, 33-2092, 2-72936, 2-82780, 2-64255,
33-41598, and 33-54400.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
/22
IV-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IONICS, INCORPORATED
(Registrant)
By/s/ Arthur L. Goldstein
Arthur L. Goldstein, Chairman
of the Board, President and
Chief Executive Officer
Date: March 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1994 By/s/ Arthur L. Goldstein
Arthur L. Goldstein, Chairman
of the Board, President and
Chief Executive Officer
(principal executive officer)
and Director
Date: March 28, 1994 By/s/ Robert J. Halliday
Robert J. Halliday, Vice President,
Finance and Accounting and Chief
Financial Officer (principal
financial and accounting officer)
/23
IV-5
<PAGE>
Date: March 28, 1994 By/s/ William L. Brown
William L. Brown, Director
Date: March 28, 1994 By Arnaud de Vitry d'Avaucourt
Arnaud de Vitry d'Avaucourt,
Director
Date: March 28, 1994 By/s/ Lawrence E. Fouraker
Lawrence E. Fouraker, Director
Date: March 28, 1994 By/s/ Samuel A. Goldblith
Samuel A. Goldblith, Director
Date: March 28, 1994 By/s/ Kachig Kachadurian
Kachig Kachadurian, Director
Date: March 28, 1994 By/s/ William E. Katz
William E. Katz, Director
Date: By/s/
Robert B. Luick, Director
Date: By/s/
John J. Shields, Director
DATE: March 28, 1994 By/s/ Mark S. Wrighton
Mark S. Wrighton, Director
Date: March 28, 1994 By/s/ Allen S. Wyett
Allen S. Wyett, Director
By/s/
Stephen Korn
Attorney-in-fact
/24
IV-6
<PAGE>
IONICS, INCORPORATED
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGES
Report of Independent Accountants 31*
Financial Statements:
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991 20*
Consolidated Balance Sheets as of December 31,
1993 and 1992 21*
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1992 and 1991 22*
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1993, 1992 and 1991 23*
Notes to Consolidated Financial Statements 24-31*
Supporting Financial Statement Schedules for the years Ended December 31,
1993, 1992 and 1991:
Schedule I - Marketable Securities and Other Short-Term
Investments IV-8
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters and Employees other than
Related Parties IV-9
Schedule V - Property, Plant and Equipment IV-10
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment IV-11
Schedule VIII - Valuation and Qualifying Accounts IV-12
Schedule IX - Short-Term Borrowings IV-13
Report of Independent Accountants on Financial Statement
Schedules IV-14
__________________
All other schedules are omitted because the amounts are immaterial, the
schedules are not applicable or the required information is shown in the
financial statements or the notes thereto.
* Page references are to the Annual Report to Stockholders of the Company
for the year ended December 31, 1993, which pages are incorporated herein
by reference.
/25
IV-7
<PAGE>
IONICS, INCORPORATED
SCHEDULE I - MARKETABLE SECURITIES AND OTHER SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
Amount at
Market Value Which
Issue is
Name of Issuer and Principal Amount of Cost of Each of Each Issue
Carried on
Title of Each Issue Short-Term Investment Issue @ 12/31/93 Balance
Sheet
<S> <C> <C> <C> <C>
U.S. Government:
Treasury Notes $2,000,000 $2,000,000 $2,002,500
$2,000,000
Treasury Bills 3,935,742 3,935,742 3,982,940
3,935,742
Foreign Government
Securities held by
Subsidiaries (A) 2,667,859 2,827,031 2,753,761
2,667,859
$8,603,601 $8,762,773 $8,739,201
$8,603,601
<FN>
(A) Foreign currencies are translated at the exchange rates in effect at the
time of the purchase
in determining the cost of each issue. Foreign currencies carried on the
Balance Sheet are
translated at the rates in effect at December 31, 1993.
</TABLE>
/26
IV-8
<PAGE>
IONICS, INCORPORATED
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Balance at Deductions Balance at
End of Period
Beginning Amounts Amounts
Name of Debtor of Period Additions Collected Written Off Current
Non-current
<S> <C> <C> <C> <C> <C>
<C>
Year ended
December 31, 1993:
Arthur L. Goldstein $ 85,940(1) $ - $ 85,940 $ - $ -
$ -
Arthur L. Goldstein $ 55,620(2) $ - $ 55,620 $ - $ -
$ -
Year ended
December 31, 1992:
Arthur L. Goldstein $ 93,323(1) $ - $ 7,383 $ - $7,759
$ 78,181
Arthur L. Goldstein $ 60,237(2) $ - $ 4,617 $ - $4,853
$ 50,767
Year ended
December 31, 1991:
Arthur L. Goldstein $100,345(1) $ - $ 7,022 $ - $7,382
$ 85,941
Arthur L. Goldstein $ 64,629(2) $ - $ 4,392 $ - $4,617
$ 55,620
<FN>
(1)(2) The debt was evidenced by two notes which were secured by the pledge of
Ionics,
Incorporated common stock. The obligations were being repaid in monthly
principal and
interest installments of $990 and $627, respectively, and were originally
scheduled to
mature in January and April 1988, respectively. On February 26, 1987,
the Compensation
Committee of the Board of Directors authorized a six-year extension of
the maturity
date of the notes. The interest rate was 5%. During December 1993, both
notes were
repaid, including outstanding principal and interest.
</TABLE>
/27
IV-9
<PAGE>
IONICS, INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at
Other
Beginning Additions
Changes Balance at
Classification of Year (at Cost)(A) Retirements
Add(Deduct)(B) End of Year
<S> <C> <C> <C>
Year ended December 31, 1993:
Land $ 1,278,496 $ 305,713 $ 70,000
$ (253,685) $ 1,260,524
Buildings 13,752,453 858,111 746,124
(35,635) 13,828,805
Machinery and equipment 110,382,066 21,025,897 3,792,602
(5,822,658) 121,792,703
Other 13,348,083 7,883,123 1,594,201
(718,947) 18,918,058
$138,761,098 $30,072,844 $6,202,927
$(6,830,925) $155,800,090
Year ended December 31, 1992:
Land $ 917,373 $ 352,329 $ -
$ 8,794 $ 1,278,496
Buildings 13,250,946 1,751,592 577,349
(672,736) 13,752,453
Machinery and equipment 97,948,099 22,236,885 2,716,347
(7,086,571) 110,382,066
Other 12,074,621 2,353,627 474,546
(605,619) 13,348,083
$124,191,039 $26,694,433 $3,768,242
$(8,356,132) $138,761,098
Year ended December 31, 1991:
Land $ 852,337 $ 71,341 $ -
$ (6,305) $ 917,373
Buildings 13,116,653 605,175 412,697
(58,185) 13,250,946
Machinery and equipment 68,139,382 33,399,814 1,949,033
(1,642,064) 97,948,099
Other 9,944,812 2,601,705 1,576,251
1,104,355 12,074,621
$ 92,053,184 $36,678,035 $3,937,981
$ (602,199) $124,191,039
<FN>
(A) Additions include opening balances of newly consolidated companies of
$11,508,734 and $435,649 in 1993 and 1992, respectively.
(B) Other changes include net currency translation losses of $6,830,925,
$8,356,132
and $602,199 for the years 1993, 1992 and 1991, respectively. Also
included in
other changes are transfers between classifications.
</TABLE>
/28
IV-10
<PAGE>
IONICS, INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Other
Beginning Costs and
Changes Balance at
Classification of Year Expenses_ Retirements
Add(Deduct)(A) End of Year
<S> <C> <C> <C>
Year ended December 31, 1993:
Buildings $ 5,164,921 $ 613,386 $ 221,289
$ (102,762) $ 5,454,256
Machinery and equipment 28,636,884 12,639,660 2,182,638
177,618 39,271,524
Other 7,157,859 2,012,486 254,953
1,713,948 10,629,340
$40,959,664 $15,265,532 $2,658,880
$ 1,788,804 $55,355,120
Year ended December 31, 1992:
Buildings $ 4,774,547 $ 615,242 $ 112,059
$ (112,809) $ 5,164,921
Machinery and equipment 22,067,678 10,001,000 1,653,459
(1,778,335) 28,636,884
Other 6,028,357 1,677,018 416,773
(130,743) 7,157,859
$32,870,582 $12,293,260 $2,182,291
$(2,021,887) $40,959,664
Year ended December 31, 1991:
Buildings $ 4,254,157 $ 610,172 $ 87,859
$ (1,923) $ 4,774,547
Machinery and equipment 18,670,744 5,960,823 1,552,097
(1,011,792) 22,067,678
Other 3,881,638 1,598,377 498,331
1,046,673 6,028,357
$26,806,539 $ 8,169,372 $2,138,287
$ 32,958 $32,870,582
<FN>
(A) Other changes include opening balances of newly consolidated companies of
$3,891,723 and $294,607 in 1993 and 1992, respectively. Other changes
also include net foreign exchange (losses) and gains of $(2,102,919),
$(2,316,494) and $32,958 for the years 1993, 1992 and 1991, respectively.
Also included in other changes are transfers between classifications.
</TABLE>
/29
IV-11
<PAGE>
IONICS, INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Due to
Beginning Costs and Acquired
Balance at
Description of Year Expenses Businesses(A) Deductions(B)
End of Year
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts and notes
receivable:
Years ended:
December 31, 1993 $2,694,200 $390,489 $(124,000) $ 938,621
$2,022,068
December 31, 1992 $2,510,588 $944,203 $ 190,200 $ 950,791
$2,694,200
December 31, 1991 $1,752,260 $923,029 -None- $ 164,701
$2,510,588
<FN>
(A) 1993 amount includes reductions of $413,000 resulting from the
consolidation of ACE.
(B) Deductions result primarily from the write-off of accounts.
</TABLE>
/30
IV-12
<PAGE>
IONICS, INCORPORATED
SCHEDULE IX - SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Weighted
Weighted
Average Maximum Average
Average
Interest Amount Amount
Interest
Balance Rate at Outstanding Outstanding
Rate
Category of Aggregate at End of End of During the During the
During the
Short-Term Borrowings Period Period (A) Period Period (B)
Period (C)
<S> <C> <C> <C> <C> <C>
Notes payable to banks:
Years ended:
December 31, 1993 $ 153,000 10.32% $ 7,395,000 $ 1,429,000
7.18%
December 31, 1992 $ 434,000 11.86% $ 3,174,000 $ 1,290,000
13.26%
December 31, 1991 $ 692,000 15.13% $25,345,000 $ 4,079,000
13.76%
<FN>
(A) The base interest rate charged on notes, exclusive of commitment fee.
(B) The average amount outstanding during the period was computed on a weighted
average monthly amount.
(C) The weighted average interest rate during the period was computed by
dividing the
actual interest expense by the average monthly loan balance outstanding.
</TABLE>
/31
IV-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Ionics, Incorporated:
Our report on the consolidated financial statements of Ionics,
Incorporated as of December 31, 1993 and 1992 and for each of the three years
in the period ended December 31, 1993 has been incorporated by reference in
this Form 10-K from page 31 of the 1993 Annual Report to Stockholders of
Ionics, Incorporated. In connection with our audits of such financial
statements, we have also audited the related financial statement schedules
listed in the Index on page IV-7 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Boston, Massachusetts
February 22, 1994
/32
IV-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit
Numbered
No. Description Page
No.
<S> <C> <C>
3.0 Articles of Organization and By-Laws
3.1 Restated Articles of Organization (filed *
as Exhibit 3(a) to Form 10-K for year
ended December 31, 1986).
3.1(a) Amendment to the Restated Articles of *
Organization (filed as Exhibit 3(b) to
Form 10-K for year ended December 31, 1987).
3.1(b) Amendment to Restated Articles of *
Organization (filed as Exhibit 3.1(b) to
Registration Statement No. 33-38290 on
Form S-2 effective January 24, 1991).
3.2 By-Laws, as amended (filed as Exhibit 19 to *
Form 10-Q for the quarter ended September 30,
1989).
4.0 Instruments defining the rights of security holders,
including indentures
4.3 Rights Agreement, dated as of December 22, 1987, *
as amended and restated as of August 15, 1989,
between Registrant and The First National Bank
of Boston (filed as Exhibit 1 to Registrant's
current Report on Form 8-K dated August 30, 1989).
4.4 Indenture, dated as of December 22, 1987, between *
Registrant and The First National Bank of Boston,
relating to Rights Agreement (filed as Exhibit 2
to Registrant's Current Report on Form 8-K dated
December 22, 1987).
4.5 Form of Common Stock Certificate (filed as Exhibit *
4.10 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990).
10. Material Contracts
10.1 1979 Stock Option Plan, as amended 36
through February 17, 1994.
</TABLE>
/33
<PAGE>
10.2 1986 Stock Option Plan for Non-Employee Directors, *
as amended though February 18, 1992 (filed as
Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.3 Amended and Restated Credit Agreement between *
Registrant and The First National Bank of Boston
dated as of December 31, 1993.
10.4 Operating Agreement dated as of September 27, *
1989 between Registrant and Aqua Cool Enter-
prises, Inc. (filed as Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.5 Term Lease Master Agreement dated as of *
September 27, 1989 between Registrant and
Aqua Cool Enterprises, Inc. (filed as Exhibit
10.5 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.6 Option Agreement dated as of September 27, 1989 *
among Registrant, Aqua Cool Enterprises, Inc.
and the other parties named therein (filed as
Exhibit 10.6 to Registrant's registration
statement on Form S-2, No. 33-38290,
effective January 24, 1991).
10.7 Agreement for Privatization of Water Supplies *
dated as of September 18, 1990 between the
Company and the City of Santa Barbara,
California (filed as Exhibit 10.7 to
Registrant's registration statement on Form S-2,
No. 33-38290, effective January 24, 1991).
10.8 Amendment No. 1, dated as of January 3, 1992, to *
Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.8 to Registrant's annual report on
Form 10-K for the year ended December 31, 1991).
10.9 Amendment No. 2, dated as of January 19, 1993, *
to Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.9 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992).
10.10 Asset Purchase Agreement among the Company, *
Resources Conservation Company, Resources
Conservation Co. International and Halliburton
NUS Corporation dated December 30, 1993 (filed
as Exhibit 2 to Registrant's current report on
Form 8-K dated February 7, 1994 and filed
electronically on the same date).
/34
<PAGE>
11. Statement re Computation of Earnings Per Share. 47
13. Annual Report to Stockholders of the Registrant for 48
the year ended December 31, 1993 (only pages 17
through 32 and the inside back cover constitute an
exhibit to this report).
22. Subsidiaries of the Registrant. 81
24.1 Consent of Coopers & Lybrand to incorporation 82
by reference of that firm's report dated
February 22, 1994, which is included on page 31 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1993.
25. Power of Attorney. 83
* incorporated herein by reference
/35
EXHIBIT 10.1
IONICS, INCORPORATED
1979 Stock Option Plan
As Amended through February 17, 1994
1. Purposes of Plan.
This 1979 Stock Option Plan (hereinafter called the "Plan") of Ionics,
Incorporated (hereinafter called the "Company") is intended to advance the
interests of the Company (and its subsidiaries) by providing a means whereby
key employees of the Company, that is, those who are largely responsible for
its management and its technical and business success, and are expected to
continue in this role, may be offered incentives in addition to the other
incentives which they may hold, such as pensions, etc.
2. Definitions.
2.1 "Subsidiaries" or "Subsidiary" shall mean a corporation,
partnership or other entity whose controlling stock or other ownership
interest is owned directly or indirectly by the Company.
2.2 A "key employee" shall mean an employee of the Company or of any
of its Subsidiaries who is engaged in an important executive, administrative
or technical function who is classified by the Administrators of the Plan as
such within the purposes of the Plan.
3. Effective Date and Duration.
The Plan will become effective immediately upon its adoption by the
Board of Directors of the Company, subject, however, to approval by the
holders of a majority of the outstanding shares of its capital stock having
voting rights present at the meeting when the matter was acted upon. The
Plan shall remain in effect until the close of business on February 15, 1997
(the "Termination Date").
4. Stock Subject to the Plan.
Subject to adjustment as provided hereinbelow, the total aggregate
number of shares of Common Stock, One Dollar ($1) per share par value
(hereinafter "Common Stock"), of the Company which are to be issued and
delivered upon exercise of options granted pursuant to this Plan
(hereinafter called the "Options" and each singly an "Option") or pursuant
to the earn out of Performance Units under this Plan, shall not exceed
1,455,000 shares of said Common Stock. Such shares may either be authorized
and unissued shares of Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company and held as treasury shares. In
the event that any Options granted under the Plan shall be surrendered to
the Company or shall terminate, lapse or expire for any reason without
having been exercised in full, the shares not purchased under such Options
shall be available again for the purposes of issuance pursuant to the Plan.
In the event that the outstanding shares of the Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares, or other securities of the Company
or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in stock, corresponding
adjustments as determined by the Board of Directors in their sole discretion
to be appropriate shall forthwith be made in the Option price and in the
number and kind of shares for the purchase of which Options may theretofore
or thereafter be granted under the Plan; provided, however, the aggregate
total Option price of Options then outstanding and unexercised shall not be
changed thereby.
5. Administration of the Plan.
The Plan shall be administered by the Board of Directors of the Company
or such committee composed of its Directors as may be delegated this duty
and function by resolution of the Board of Directors (said Board or said
Committee, as the case may be, being hereinafter referred to as the
"Administrators"). The Administrators shall be comprised of, to the extent
required by applicable regulations under Section 162(m) of the Code, two or
more outside Directors as defined in applicable regulations thereunder and,
to the extent required by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 or any successor provision, disinterested Directors. A
majority of the Administrators acting upon a particular matter shall have no
personal interest in the Option or matter with which they are concerned.
Subject to the express provisions of the Plan, the Administrators
acting by a majority of their number at a meeting or by written consent
shall have plenary authority in their discretion to grant Options under the
Plan, and in relation thereto to determine from time to time those officers
or employees of the Company or of its Subsidiaries who are to receive
Options, the number of shares to be optioned to each, the Option price
(which shall not be less than the par value of the stock subject to the
Option) and the terms and conditions upon which the Options are to be
granted, which need not be identical; including, without limitation,
requirements that an exercise of the Option may be conditioned in whole or
in part upon duration of the optionee's employment, his attainment of
specified performance criteria, his refraining from competitive activities
and other conditions. Options may be granted at any time prior to
termination of the Plan and the Options granted may extend beyond the
Termination Date.
Subject to the express provisions of the Plan, the Administrators may
(1) construe the respective stock Option agreements and the Plan, prescribe,
amend, and rescind rules and regulations relating to the Plan and make all
other determinations necessary or advisable for administering the Plan, and
(2) correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any stock Option agreement and in the manner and to the
extent they shall deem expedient to carry it into effect and (3) constitute
and appoint a person or persons selected by them to execute and deliver in
the name and on behalf of the Administrators all such agreements,
instruments and other documents (including without limitation of the
- 2 -
generality of the foregoing documents evidencing amendments of individual
stock Options and other actions delegated to the Administrators by the votes
of the Board of Directors adopted at their meeting on February 18, 1982,
relating to "incentive stock options").
The Administrators shall have the authority in their discretion to
determine from time to time those officers or employees of the Company or of
its Subsidiaries who are eligible to receive Performance Units, as
hereinafter defined. In connection therewith the Administrators shall have
the authority to prescribe the number of Performance Units to be granted to
any key employee and all terms thereof and to adopt, amend and rescind rules
and regulations for the administration of Performance Units.
6. Persons to whom Options and Performance Units may be Granted.
Only persons who are officers of, or who are "key employees" of the
Company or any of its Subsidiaries, and who accept an Option or Performance
Unit granted hereunder, as the case may be, and subject to all of the terms
and conditions of this Plan, may be granted any Options or Performance Units
under this Plan. During any one-year period, no individual shall be granted
Options and/or Performance Units which could result in the issuance to such
individual of more than 100,000 shares of Common Stock.
7. The Option Price.
The price payable upon exercise of an Option granted hereunder (the
"Option Price") shall be an amount as specified by the Administrators which
shall not be less than the par value of the stock which is subject to the
Option and which shall be paid upon exercise of the Option (1) in cash, (2)
with shares of the Company of the same class as the shares issuable upon
exercise of the Option, previously acquired by the optionee and having an
aggregate fair market value equal to the aggregate Option Price payable, or
(3) in any combination of cash and of such shares so valued. In the event
such shares are delivered to pay all or a portion of the Option Price -
(a) such shares shall be valued at the closing price for such stock on
the American Stock Exchange or other exchanges or markets where
such shares are primarily traded, as reported on the date of such
delivery of the shares, and
(b) a number of the shares being issued upon exercise of the Option
which is equal to the number of shares of such stock delivered in
payment of the Option Price shall be issued free from repurchase
rights of the Company under said Plan or stock Option agreement
evidencing the Option.
8. The Duration of the Options.
The duration of the Options granted hereunder shall be as determined by
the Administrators but shall not exceed a period of ten years from the date
of grant. Notwithstanding the preceding sentence, the duration of Options
not designated as Incentive Stock Options pursuant to Section 17 may be a
period of ten years and one day from the date of grant.
- 3 -
9. Nontransferability of Options.
No Option granted under the Plan shall be encumbered, assigned, or
otherwise transferred, and an Option may be exercised during the lifetime of
the Optionee only by such person, and the stock Option agreement covering
the Option shares shall so provide.
10. Exercise of Options.
The exercise, in whole or in part, of any Option granted under the Plan
shall be :
(a) subject to compliance of all conditions or restrictions stated in
Section 11 of this Plan or imposed at the time the Option is
granted, and
(b) exercisable only by the employee to whom granted and while he
remains in the employment of the Company or any of its
Subsidiaries, except that -
(1) if the employee holding the Option ceases to remain in such
employment for any reason other than his or her voluntary
termination or his or her being terminated by the Company (or
its Subsidiary employing said employee) because of his
malfeasance, violation of this or any other agreement with
the Company (or its employing Subsidiary), or other like
justifiable cause, the employee shall have the right within
thirty (30) days after said termination to exercise the
Option to the extent it would have been exercisable by the
employee immediately before the employee's termination, and
(2) if the employee holding the Option shall die while in said
employment or within said 30-day period after its termination
as described in sub-paragraph (1) above, the Option, to the
extent exercisable by said employee at the time of his death,
may be exercised within ninety (90) days after his death by
the executor or administrator of the employee's estate.
Options shall be exercised in each instance by the person entitled to
exercise them by giving written notice of exercise to the Company (to its
Treasurer) substantially in the form of Exhibit A annexed hereto and
tendering payment of the entire Option Price payable.
Unless the shares deliverable upon exercise of Options are registered
or qualified for public sale by an effective Registration Statement of the
Company under the Securities Act of 1933, as amended (or any superseding
law) and are registered or qualified for sale under all applicable state
securities laws, the person to whom the stock is issued and delivered
hereunder shall confirm to the Company that the recipient is purchasing the
shares for investment and not with a view to effecting any distribution or
resale of the shares.
In no instance may an Option be exercised for less than one full share
of the stock.
- 4 -
11. Restrictions Applicable to Stock Issued and Delivered Under the Plan.
11.1 The Company may elect in granting an Option to include a provision
that during the period of five years from the date of grant of the
Option, the Company shall have the right to repurchase stock
acquired by exercise of the Option, at a price payable in cash
equal to the price which the Company received upon its issuance,
to the following extent
If the Repurchase right Portion of the Shares
arises prior to Subject to Repurchase
the end of first year All
the end of the second year the excess of 20% of the
Option shares held
the end of the third year the excess of 40% of the
Option shares held
the end of the fourth year the excess of 60% of the
Option shares held
the end of the fifth year the excess of 80% of the
Option shares held
After the fifth year of None
holding
and upon the following events:
(a) if the employee issued the Option shall cease to be an employee of
the Company or of any of its Subsidiaries because of the
employee's voluntary termination of said employment or his being
terminated therefrom because of his malfeasance, violation of this
or any other agreement with the Company or said Subsidiary for
like justifiable cause, and/or
(b) before the participant may sell or transfer the stock in any
manner, whether voluntarily, by action of law or otherwise.
Said right of the Company to repurchase the stock may be exercised
by the Company at any time within thirty (30) days after it has
notice of any such event. At the closing of said purchase (which
shall be held on the fifth business day following the Company's
delivery of written notice to the holder that the Company has
elected to so purchase the shares) the Company shall pay the
purchase price to the holder against its receipt of delivery of
the stock certificates representing the stock being purchased,
duly endorsed or with duly executed stock powers to effect
transfer of the stock to the Company. If the Company doers not
elect to exercise said repurchase right within said period, the
holder shall be free to sell or transfer the stock free of such
- 5 -
restriction, but unless said stock has been registered or
qualified for public sale under an effective Registration
Statement or other authorization under the Securities Act of 1933,
as amended (or under any superseding law) and qualified for public
sale under any applicable state securities laws, the holder shall
not so sell or transfer without prior written notice to the
Company and furnishing to the Company an opinion of legal counsel
or of said regulatory authority, satisfactory to the Company, that
no such registration or qualification of the stock is required in
the circumstances.
11.2 Each stock certificate representing stock issued upon exercise of
an Option hereunder shall bear such legend referring to these
restrictions as the Company may require, and it shall not transfer
ownership of such stock on its records except upon compliance with
these restrictions.
12. Stock Option Agreement Required.
Each stock Option granted under the Plan shall be evidenced by a "Stock
Option Agreement" between the Company and the employee granted the Option,
to be in such form as the Administrators in granting the Option shall
determine, provided that said Stock Option Agreement shall in any event
include an undertaking on the part of the Employee to whom the Option is
granted (the "Optionee") that in consideration for the grant of such Option,
the Optionee will not at any time during his employment by the Company or by
any of its Subsidiaries (as defined in the Plan) or within two (2) years
following the date of termination of said employment, without the written
consent of the Company, directly or indirectly, accept employment from, or
engage in any work or activities as an employee, officer, Director, agent,
consultant, partner, proprietor or principal stockholder for any other
corporation, person or entity which is substantially competitive to the
business in which the Company or its Subsidiaries are then engaged.
13. Effect of the Option.
The grant of an Option under the Plan shall not entitle the Optionee to
have or claim any rights of a stockholder of the Company (whether as to
dividends, voting rights or otherwise).
Neither the grant of an Option nor the making of any Stock Option
Agreement under this Plan shall confirm upon the Optionee any right with
respect to continuation of his or her employment nor shall it affect or
restrict the right of the Company, any Subsidiary of it, or any assuming
Company, or any successor of either of them employing the Optionee to
terminate such employment at any time.
14. Termination, Suspension, Amendment or Modification of the Plan.
The Board of Directors of the Company may at any time amend, alter,
suspend or terminate the Plan provided that:
(a) No change shall be made which, in the judgment of its Board of
Directors, will have a material adverse effect upon any Option
previously granted under this Plan unless the consent of the
Optionee is obtained in writing.
- 6 -
(b) Without the approval by the holders of a majority of the
outstanding shares of its capital stock having voting rights,
(1) the maximum number of shares reserved for issuance upon the
exercise of Options under the Plan may not be changed; and
(2) the classes of employees to whom Options may be granted under
the Plan may not be changed.
15. Merger, Consolidation or Sale of the Entire Business of the Company.
If, prior to the expiration of the Plan, or the period of restriction
during which the Company may have or may obtain rights to repurchase stock
issued hereunder pursuant to Section 11 of the Plan, the Company shall merge
with, consolidate in or with, or sell all or substantially all of its assets
and business to another corporation or entity (other than a company or
entity which continues under the control of the same persons who were the
stockholders or owners of the Company immediately prior to the event), all
Options then outstanding shall become subject to exercise in full and all of
said repurchase rights of the Company shall terminate as of the effective
date of said transaction.
16. Optionee Shall Comply with Applicable Laws and Regulations upon
Exercise.
Upon exercise of any Option granted hereunder, the person exercising
the Option shall file any and all reports if any, required of such person
under the Securities Exchange Act of 1934, as amended, or otherwise.
17. Incentive Stock Options.
The special terms and conditions of this Section 17 shall apply to
Stock Options granted hereunder which meet any of the following requirements
("Incentive Stock Options"):
(a) Options considered under the Internal Revenue Code to have
been granted on or after January 1, 1981, and before August
14, 1981, as to which the Optionee consents in writing to the
application of this Section 17; and
(b) Options granted on or after August 14, 1981, and before
February 18, 1982, which the Administrators designate in the
Stock Option Agreement as Incentive Stock Options, and as to
which the Optionee consents in writing to the application of
this Section 17; and
(c) Options granted on or after February 18, 1982, which the
Administrators designate in the Stock Option Agreement as
Incentive Stock Options.
The following special terms and conditions (in all of which, any
reference to the date of grant of a Stock Option shall mean the date on
which the Stock Option is considered to have been granted under Sections 421
- 7 -
through 425 of the Internal Revenue Code and the regulations issued
thereunder) shall apply to all Incentive Stock Options:
17.1 Option Price. The Option Price shall be not less than the fair
market value of the stock covered by the Option, determined as of
the date of grant of the Option.
17.2 Prior Outstanding Option. No Incentive Stock Option may be
exercised while there remains outstanding, within the meaning of
Section 422A(c)(7) of the Internal Revenue Code, any other
Incentive Stock Option which was granted at an earlier date to the
Optionee to purchase stock in this Corporation or in any other
corporation which is on the date of grant of the later Option
either a parent or subsidiary corporation of this Corporation, or
a predecessor corporation of any of such corporations. The Stock
Option Agreement for every Incentive Stock Option shall include a
provision to this effect. The two preceding sentences shall have
no application to any Incentive Stock Option granted after
December 31, 1986.
17.3 No Further Grants. No Option granted after February 15, 1989,
shall be designated an Incentive Stock Option.
17.4 Ten Percent Stockholder. If any Optionee to whom an Incentive
Stock Option is to be granted pursuant to the provisions of the
Plan is on the date of grant the owner (as determined under
Section 424(d) of the Internal Revenue Code) of stock possessing
more than 10% of the total combined voting power of all classes of
stock of this Corporation or any of its subsidiaries, then the
following special provisions shall be applicable to the Option
granted to such individual:
(i) The Option Price per share of stock subject to such Incentive
Stock Option shall not be less than 110% of the fair market
value of one share of stock on the date of grant; and
(ii) The Option shall not have a term in excess of five (5) years
from the date of grant.
Except as modified by the preceding provisions of this Section 17, all
the provisions of the Plan shall be applicable to the Incentive Stock
Options granted hereunder.
18. Special Bonus Grants. The Administrators may, but shall not be
required to, grant in connection with any Option which is not designated an
Incentive Stock Option a special bonus in cash in an amount not to exceed
the combined federal and state income tax liability incurred by the Option
holder as a consequence of his acquisition of stock pursuant to the exercise
of the Option, and payment of the bonus; payable, at the discretion of the
Administrators, in whole or in part to federal and state taxing authorities
for the benefit of the Option holder at such time or times as withholding
payments of such income tax may be required, and the remainder, if any, to
be paid in cash to the Optionee at the time or times at which he is required
to make payment of such tax. In the event that an Option with respect to
- 8 -
which a special bonus has been granted becomes exercisable by the personal
representative of the estate of the Optionee in accordance with Section 10,
the bonus shall be payable to or for the benefit of the estate in the same
manner and to the same extent as it would have been payable to or for the
benefit of the Optionee had he survived to the date of exercise. A special
bonus may be granted simultaneously with a related Option, or granted
separately with respect to an outstanding Option granted at an earlier date.
In the case of an Optionee who is an officer or a director of the Company,
an Option with respect to which a special bonus is granted may be exercised:
(a) no earlier than six months after the date on which the bonus is
granted; provided, however, that this limitation shall not apply
in the event that the Optionee dies or becomes disabled before the
expiration of six months after the date on which the bonus is
granted; and
(b) only within one of the following:
(i) a period beginning on the third business day and ending on
the twelfth business day following the release for
publication by the Company of a quarterly or annual summary
statement of its sales and earnings; or
(ii) a period beginning on the first day and ending on the
thirtieth day following the date of approval by the
stockholders of the Company of (x) any consolidation or
merger of the Company in which the Company does not survive
as an independent, publicly owned corporation, or pursuant
to which shares of Common Stock would be converted into
cash, securities, or other property (other than a merger in
which the holders of Common Stock immediately before the
merger have the same proportionate ownership of common stock
of the surviving corporation after the merger), or (y) a
transfer of all or substantially all of the assets of the
Company (other than a transfer to a subsidiary corporation
controlled by the Company), or (z) the liquidation or
dissolution of the Company; or
(iii) a period beginning on the first day and ending on the
thirtieth day following (x) the acquisition of beneficial
ownership of thirty percent (30%) or more of the outstanding
voting shares of the Company, whether in one transaction or
a series of transactions, by another corporation, entity or
person or group of corporations, entities or persons
theretofore beneficially owning less than thirty percent
(30%) of such shares, or (y) the first purchase of shares
pursuant to a tender or exchange offer (other than one made
by the Company) for voting shares of the Company or
securities convertible into voting shares, after which offer
the offeror, if successful, will become the beneficial owner
of at least 30% of the outstanding voting shares of the
Company.
For purposes of this Section 18, the income tax liability incurred by
the Option holder shall be calculated as described in the attached appendix
- 9 -
A, as of the date on which an amount is includible in the Option holder's
income pursuant to Section 83 of the Internal Revenue Code of 1986 as a
consequence of his acquisition of stock pursuant to the exercise of an
Option. The fair market value of the Option stock shall be its closing
price on the American Stock Exchange or other exchanges or markets where
such shares are permanently traded, for the date in question, and the tax
rate applicable to an Option holder shall be the single rate or the highest
graduated rate (exclusive of surtax) applied to earned income by a relevant
taxing jurisdiction.
19. Performance Units. All Performance Units granted under the Plan shall
be on the following terms and conditions (and such other terms and
conditions that the Administrators may establish which are consistent with
the Plan):
(a) A Performance Unit is defined as the right of a key employee who
has been granted the same to receive cash and/or Common Stock
and/or Options conditioned upon and measured by the attainment of
financial goals set by the Administrators. Performance Units
granted under the Plan shall be evidenced by agreements in such
form and containing such terms and conditions, not inconsistent
with the Plan, as the Administrators may approve.
(b) The Administrators shall determine the number of Performance Units
to be granted to each key employee selected for an award and may
establish a stated value (the "Stated Value") of each Performance
Unit.
(c) Payment of Performance Units shall be made by the Company to the
extent that such Performance Units are earned out by attainment of
the performance objectives set for such Performance Units by the
Administrators pursuant to subsection (d) below. Such payment may
be in the form of the grant of Options, or, if made in cash or
shares of Common Stock, shall have a value equal to the dollar
value of the Performance Units earned out. Subject to the
provisions of Section 5, payment of the amounts to which
participants are entitled to be paid in respect of Performance
Units as provided above shall be made in cash, shares of Common
Stock or Options, or in some combination thereof, as the
Administrators may determine. The Administrators, in their sole
discretion, may defer distribution of one-half of the amount of
the payment for a period up to twelve months following the date in
which the decision as to entitlement to payment is made.
(d) The award period ("Award Period") in respect of any Performance
Units shall be a period set by the Administrators. At the time
each grant of Performance Units is made, the Administrators shall
establish performance objectives to be attained within the Award
Period as a condition of such Performance Units being earned out.
The performance objectives shall be based on a specific dollar
amount of growth or on a percentage rate of improvement in such
elements as the Company's (or a subsidiary's) earnings per share,
income, return on equity or such other measures related to growth
or improvement of the Company (or its Subsidiaries) as the
- 10 -
Administrators shall determine. The Administrators shall
determine whether the performance objectives in respect of an
Award Period have been attained, as well as the value of the
Performance Units consequently earned out.
(e) In the event that recipient of a grant of Performance Units ceases
to be a key employee prior to the end of the Award Period by
reason of disability or death, his Performance Units if ultimately
earned out shall be payable at the end of the Award Period in
proportion to the active service of the key employee during the
Award Period, as determined by the Committee. Upon any other
termination of employment, Performance Units and all rights
associated therewith shall terminate unless the Administrators in
their discretion shall determine otherwise. For purposes of this
subsection, the term "disability" means disability as defined in
any disability program maintained by the Company or a subsidiary.
(f) Performance Units may not be transferred otherwise than by will or
the laws of descent.
(g) If, as a result of any change in accounting principles or
practices or the method of their application or in any tax or
other laws or regulations, the earnings per share or other
established criteria of the Company or its Subsidiaries as
reported in the Company's annual report to stockholders differs
materially from the earnings per share or other such criteria
which would have been reported absent such change, the
Administrators may, in their discretion, equitably adjust the
reported earnings per share or other such criteria used in
determining the attainment of any performance objectives
previously established by the Administrators as a condition of
earning out Performance Units.
(h) In the event of a stock dividend or other transaction described in
the last paragraph of Section 4, the Administrators may make
appropriate adjustments in performance objectives, such as
earnings per share, for outstanding Performance Units. In the
event of a merger, consolidation, acquisition or liquidation
described in the Section 15, all outstanding Performance Units and
all rights relating thereto shall terminate, except as otherwise
determined by the Administrators.
(i) No payments will be made with respect to Performance Units unless
arrangements satisfactory to the Administrators are made for any
federal income tax withholding or other withholding required.
(j) Unless Shares deliverable upon earn out of Performance Units are
registered or qualified for public sale by an effective
Registration Statement of the Company under the Securities Act of
1933, as amended (or any superseding law) and are registered or
qualified for sale under all applicable state securities laws, the
person to whom the Common Stock is delivered shall confirm to the
Company that such recipient is purchasing the Shares for
investment and not with a view to effecting any distribution or
resale of the Shares.
- 11 -
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1992 1991
<S> <C> <C> <C>
Net Income $13,807,000 $12,820,000 $8,278,000
Calculation of primary earnings per
share:
Weighted average common shares outstanding 6,935,000 6,756,000 5,568,000
Increase from assumed exercise of
stock options and investment of pro-
ceeds in treasury stock, based upon
average market prices 125,000 163,000 135,000
Weighted average number of common and
common equivalent shares outstanding 7,060,000 6,919,000 5,703,000
Earnings per common and common
equivalent share $1.96 $1.85 $1.45
Calculation of fully diluted earnings per
share:
Weighted average common and common equivalent
shares outstanding used in calculation
of primary earnings per share 7,060,000 6,919,000 5,703,000
Increase from assumed exercise of stock
options and investment of proceeds in
treasury stock, based upon year-end
market price 4,000 12,000 6,000
Weighted average number of common and
common equivalent shares used to calculate
fully diluted earnings per share 7,064,000 6,931,000 5,709,000
Earnings per common and common
equivalent share assuming full dilution $1.95(A) $1.85 $1.45
(A) Dilution is less than 3% so the primary
basis was used for per share calculations.
</TABLE>
/47
<PAGE>
EXHIBIT 13
IONICS, INCORPORATED
ANNUAL REPORT TO STOCKHOLDERS OF
IONICS, INCORPORATED FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1993
(Only pages 17 through 32 and the inside back cover
constitute an Exhibit to Form 10-K)
/48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
In 1993, Ionics continued to improve its financial performance
with a 13% growth in revenues and a 6% improvement in earnings
per share. The profit improvement was driven primarily by the
continued success of "own and operate" and service-based
activities relating to the Water and Chemical Supply and Consumer
Water Products business segments which combined to produce an
improvement over 1992 in earnings before interest and taxes of
42%. This improvement more than offset a decline in the
profitability of the Membranes and Related Equipment segment
which was caused primarily by a slowdown in bookings and the
acceptance and execution of orders at lower than normal margins.
Total revenues were $175.3 million in 1993, compared with
$155.2 million in the prior year. Revenues increased for all
business segments with the largest growth in the Membranes and
Related Equipment segment. Revenue growth in this segment was due
to sales of ultrapure water systems, particularly to the
semiconductor industry. A portion of the increase in 1993
revenues was attributable to the acquisition of the French
subsidiary, Eau et Industrie, in December 1992, and Resources
Conservation Company (RCC) in December 1993. Revenues from the
Water and Chemical Supply business segment increased as large
Company-owned plants, which commenced operations in the first
quarter of 1992, operated for the entire period in 1993, and as
domestic chemicals sales grew. Consumer Water Products revenues
increased with the further development of the bottled water
business and the consolidation of Aqua Cool Enterprises, Inc.
(ACE), our domestic distributor, as of May 26, 1993. The
increases in domestic equipment revenues, the expansion of the
domestic chemical business, and the additions of ACE and RCC were
responsible for the 21% growth in the U.S. geographic segment.
Total revenues were $155.2 million in 1992, compared with
$138.1 million in the prior year. The primary reason for the
growth in 1992 over 1991 was the Company's increased investment
in own and operate facilities, including those brought on line
for the City of Santa Barbara and for the Diablo Canyon Power
Plant of Pacific Gas and Electric. These facilities were also
primarily responsible for the 48% growth in revenues of the Water
and Chemical Supply business segment and the 20% growth in
revenues of the U.S. geographic segment. The Membranes and
Related Equipment segment realized a 6% sales increase in 1992
primarily due to sales of membrane systems for water and food
processing applications. The Consumer Water Products segment's
1992 revenues declined 9% from 1991. This decline was largely
caused by reduced sales of our HYgeneR silver-impregnated
activated carbon filtering media to our largest HYgene customer
due to depressed economic conditions.
/49
<PAGE>
Cost of sales as a percentage of revenues were 66.8%, 64.4%,
and 65.4% in 1993, 1992 and 1991, respectively. Cost of sales as
a percentage of revenues increased for the Membranes and Related
Equipment segment while it held steady or declined for the Water
and Chemical Supply and the Consumer Water Products segments,
respectively. The increase in the Membranes and Related Equipment
segment reflected greater than anticipated costs on several
sizable capital equipment sales. The Consumer Water Products
segment showed an improvement in the cost of sales percentage
primarily due to a steady decline in the Company's unit costs to
manufacture and distribute bottled water and coolers resulting
from significant increases in volume, route density and operating
efficiencies.
The improvement in 1992 compared to 1991 was due primarily to
reduced costs as a percentage of sales for membrane-based
equipment and bottled water products. Water and Chemical Supply
costs as a percentage of sales increased partially because of
start-up costs and initial excess capacity in connection with the
Company's expansion of its Elite Chemicals New England plant, and
because nearly all of the costs associated with the Santa
Barbara desalination plant are classified as cost of product,
resulting in superior operating margins but below average gross
margins.
Operating expenses as a percentage of revenues were 23.5% in
1993, down from 26.1% in 1992 and 27.2% in 1991. The improvement
in 1993 reflected the absorption of relatively fixed operating
expenses by increased sales volume, with further reductions
achieved through expense controls. The decrease in 1992 compared
to 1991 reflected the low operating expenses associated with
large own and operate facilities.
Interest income in 1993 was $1.8 million compared to $2.1
million in 1992 and $1.5 million in 1991. The decrease in 1993
was due to lower average interest rates combined with reduced
investments as a result of the 1993 purchase of ACE's preferred
stock, the 1992 acquisitions, and additions to property, plant
and equipment. The increase in 1992 compared to 1991 reflected
higher average invested balances due to the remaining proceeds of
the Company's public offerings of common stock in 1992 and 1991.
The Company had virtually no interest expense in either 1993 or
1992 after interest expense of $1.4 million in 1991. This
decrease primarily resulted from the repayment of debt with
public offering proceeds and cash from operations.
/50
<PAGE>
The Company's effective tax rate was 30% in 1993, 29% in 1992
and 28% in 1991. The increase in the effective tax rate for both
1993 and 1992 was largely due to changes in the mix of earnings
and effective tax rates among the different jurisdictions in
which the Company operates, as well as a proportionately lower
benefit from the Company's foreign sales corporation. The
increase in 1992 was partially offset by a benefit from tax-
exempt interest and a lower state tax rate due to proportionately
lower domestic income.
Net income increased 7.7% to $13.8 million in 1993 compared to
$12.8 million in 1992. Net income in 1992 was 54.9% higher than
1991 net income of $8.3 million. Net income as a percentage of
revenues was 7.9% in 1993 compared to 8.3% in 1992 and 6.0% in
1991.
The Company adopted Financial Accounting Standards Board
(FASB) Statement No. 109 " Accounting for Income Taxes" for the
year 1993, with no material effect on its financial statements.
LEGAL PROCEEDINGS
The Company has been named as one of many potentially
responsible parties (PRPs) in connection with two Superfund
sites. During 1992, the Company paid $381,000 to the settlement
trust fund for the Silresim Site in Lowell, Massachusetts. The
Company was also notified during 1992 that it is one of more than
1,000 PRPs at a Superfund site in Southington, Connecticut. The
Company's volumetric share at this site is just under 0.5%, and a
remediation plan has not yet been adopted.
The Company's volumetric contribution at these sites is low
and there are many PRPs that are larger, financially sound
corporations with higher volumetric levels. The Company accrues
for estimated expenses as facts become known during these
proceedings. Based upon facts presently known, management
believes that the Company's liability in connection with these
sites will not have a material adverse impact on its results of
operations or financial condition.
/51
<PAGE>
FINANCIAL CONDITION
At December 31, 1993, the Company had total assets of $249.6
million compared to total assets of $224.6 million at December
31, 1992 and $178.0 million at December 31, 1991. The major
components of the increase in 1993 related to: (1) the
consolidation of ACE in May 1993 and the acquisition of RCC in
December 1993, and (2) expenditures for property, plant and
equipment primarily relating to expansions of the Company's
bleach production and distribution operations; bottled water
operations; and triple-membrane trailers for the production of
ultrapure water. The major components of the 1992 increase were:
property, plant and equipment, due to expenditures for the
California projects for the City of Santa Barbara and the Diablo
Canyon Power Plant; triple membrane ultrapure water trailers; and
the expansion of the Company's bleach business. In addition, cash
and short-term investments increased due to the Company's
February 1992 public offering of common stock.
Working capital in 1993 decreased by $14.4 million and the
Company's current ratio decreased to 2.4 in 1993 from 3.6 in
1992. Capital expenditures totaled $14.7 million, $24.7 million,
and $34.9 million in 1993, 1992 and 1991, respectively. Cash paid
for the 1993 purchase of ACE's preferred stock and 1992
acquisitions, net of cash acquired, was $8.0 million and $2.4
million, respectively. Funds for these expenditures were provided
in 1993 through cash from operations and the sale of short-term
investments and in 1992 through the sale of common stock and cash
from operations.
Net cash generated by operating activities decreased by $2.3
million in 1993 with higher net income and depreciation offset by
increases in operating assets, primarily in accounts receivable,
and decreases in liabilities primarily in accounts payable and
accrued expenses, excluding those obtained through the
consolidation of ACE and acquisition of RCC. Net cash used by
investing activities decreased by $52.2 million in 1993 as
compared to 1992. During 1993, cash used for investments in
property, plant and equipment and for the purchase of ACE's
preferred stock was funded primarily by the sale of short- term
investments and partially by cash provided by operations. In
1992, purchases of short-term investments were funded primarily
by the sale of common stock and partially by cash provided by
operations. In 1993, net cash provided by financing activities
decreased by $47.7 million as no public offering of common stock
occurred in 1993. During 1992, cash of $54.0 million was provided
from the sale of common stock. Net payments of debt decreased to
$0.9 million in 1993 compared to $7.4 million in 1992.
/52
<PAGE>
Significant expenditures in 1994 will include: payment for the
purchase of RCC; capital for ultrapure water trailers; expansion
of the bottled water and bleach businesses; and improvements to
manufacturing equipment. The Company maintains several lines of
credit, including unused domestic lines totaling $35 million,
which are available to meet working capital needs. In addition,
the Company has several facilities to accommodate its foreign
trade and exchange requirements. The Company believes that its
cash and short-term investments of $30.1 million at the beginning
of 1994, cash from operations, lines of credit and foreign
exchange facilities are adequate to meet its currently
anticipated needs.
Inflationary increases in material and labor costs remained
moderate during the last three years , and to the extent
permitted by the competitive environment, the Company has raised
prices to cover those inflationary increases.
/53
<PAGE>
Consolidated Statements of Operations Ionics, Incorporated
<TABLE>
<CAPTION>
For the years ended December 31
Dollars in thousands, except
per share amounts 1993 1992 1991
<S> <C> <C> <C>
Net revenue :
Membranes and related equipment $ 92,352 $ 81,019 $ 76,267
Water and chemical supply 51,513 46,698 31,491
Consumer water products 31,408 27,523 30,362
175,273 155,240 138,120
Costs and expenses:
Cost of membranes and related equipment 65,890 52,352 51,610
Cost of water and chemical supply 36,035 32,594 21,312
Cost of consumer water products 15,078 14,985 17,387
Research and development 3,678 3,084 2,886
Selling, general and administrative 37,432 37,409 34,743
158,113 140,424 127,938
Income from operations 17,160 14,816 10,182
Interest income 1,789 2,092 1,491
Interest expense - (5) (1,436)
Equity income 775 1,281 1,412
Income before income taxes
and minority interest 19,724 18,184 11,649
Provision for income taxes 5,917 5,273 3,262
Income before minority interest 13,807 12,911 8,387
Minority interest's share of income - (91) (109)
Net income $ 13,807 $ 12,820 $ 8,278
Earnings per share $ 1.96 $ 1.85 $ 1.45
Shares used in earnings per
share calculations 7,060,000 6,919,000 5,703,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
/54
<PAGE>
Consolidated Balance Sheets Ionics, Incorporated
<TABLE>
<CAPTION>
December 31
Dollars in thousands 1993 1992
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,534 $ 13,535
Short-term investments 8,603 28,281
Notes receivable, current 2,505 3,195
Accounts receivable 57,214 43,640
Receivables from affiliated companies 2,944 4,096
Inventories 13,926 12,314
Other current assets 3,231 3,696
Total current assets 109,957 108,757
Notes receivable, long-term 4,919 10,156
Investments in affiliated companies 4,989 4,279
Property, plant and equipment, net 100,445 97,801
Other assets 29,252 3,597
Total assets $249,562 $224,590
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current
portion of long-term debt $ 326 $ 975
Accounts payable 12,496 12,272
Other current liabilities 32,332 16,060
Taxes on income 928 1,192
Total current liabilities 46,082 30,499
Long-term debt and notes payable 109 439
Deferred income taxes 2,699 2,777
Other liabilities 591 535
Commitments - -
Stock holders' equity:
Common stock, par value $1, authorized shares:
30,000,000 in 1993 and 1992;
issued: 6,945,805 in 1993 and
6,908,513 in 1992 6,946 6,909
Additional paid-in capital 124,189 123,148
Retained earnings 75,574 61,767
Cumulative translation adjustments (6,628) (1,484)
Total stockholders' equity 200,081 190,340
Total liabilities and
stockholdersU equity $249,562 $224,590
</TABLE>
The accompanying notes are an integral part of these financial statements.
/55
<PAGE>
Consolidated Statements of Cash Flows Ionics, Incorporated
<TABLE>
<CAPTION>
For the years ended December 31
Dollars in thousands 1993 1992 1991
<S> <C> <C> <C>
Operating activities:
Net income $ 13,807 $ 12,820 $ 8,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,463 12,588 8,530
Provision for losses on accounts
and notes receivable 390 944 923
Deferred income tax provision (benefit) 1,589 562 (571)
Changes in assets and liabilities, net of effects
of businesses acquired:
Notes receivable (1,175) (2,699) (2,489)
Accounts receivable (7,332) (2,209) (5,989)
Inventories (1,509) (748) 2,594
Other current assets 498 (2,016) 282
Investments in affiliates (641) (250) (263)
Accounts payable and accrued expenses (7,432) (1,819) 6,129
Income taxes (987) (2,481) 472
Other (825) (567) 276
Net cash provided by operating
activities 11,846 14,125 18,172
Investing activities:
Additions to property, plant and
equipment (14,667) (24,698) (34,862)
Sale/(Purchase) of short-term
investments 19,129 (28,623) -
Acquisitions, net of cash acquired (7,959) (2,352) -
Net cash used by investing
activities (3,497) (55,673) (34,862)
Financing activities:
Principal payments on current debt (8,845) (3,601) (34,250)
Proceeds from issuance of current debt 8,176 682 9,745
Principal payments on long-term debt (506) (4,717) (778)
Proceeds from issuance of
long-term debt 256 235 1,655
Proceeds from stock option plans 1,078 1,227 419
Sale of common stock - 53,991 43,827
Net cash provided by
financing activities 159 47,817 20,618
Effect of exchange rate changes on cash (509) (574) (33)
Net change in cash and cash equivalents 7,999 5,695 3,895
Cash and cash equivalents at
beginning of year 13,535 7,840 3,945
Cash and cash equivalents at end of year $ 21,534 $ 13,535 $ 7,840
</TABLE>
The accompanying notes are an integral part of these financial statements.
/56
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity Ionics, Incorporated
<CAPTION>
Common Stock Additional Cumulative Total
Par Paid-in Retained Translation Stockholders'
Dollars in thousands Shares Value Capital Earnings Adjustments Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1990 4,172,020 $4,172 $ 26,421 $40,669 $ 4,352 $ 75,614
Sale of common stock 1,495,000 1,495 42,332 - - 43,827
Stock options exercised 41,349 41 189 - - 230
Tax benefit of stock option activity - - 189 - - 189
Translation adjustments, net of
income taxes of $55 - - - - (207) (207)
Net income - - - 8,278 - 8,278
Balance December 31, 1991 5,708,369 5,708 69,131 48,947 4,145 127,931
Sale of common stock 1,150,000 1,151 52,840 - - 53,991
Stock options exercised 50,144 50 497 - - 547
Tax benefit of stock option activity - - 680 - - 680
Translation adjustments, net of
income taxes of $746 - - - - (5,629) (5,629)
Net income - - - 12,820 - 12,820
Balance December 31, 1992 6,908,513 6,909 123,148 61,767 (1,484) 190,340
Stock options exercised 37,292 37 465 - - 502
Tax benefit of stock option activity - - 576 - - 576
Translation adjustments, net of
income taxes of $1,165 - - - - (5,144) (5,144)
Net income - - - 13,807 - 13,807
Balance December 31, 1993 6,945,805 $6,946 $124,189 $75,574 $(6,628) $200,081
</TABLE>
The accompanying notes are an integral part of these financial statements.
/57
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly and majority-owned subsidiaries and Aqua Cool
Enterprises, Inc., a controlled affiliate. All significant intercompany
accounts and transactions have been eliminated.
Investments in affiliated companies, representing non-majority
ownership interests, are accounted for under the equity method.
Revenue Recognition
Product revenues are recorded upon shipment, and service revenues are
recorded as the services are performed. Interest revenues on consumer
water equipment loans are recognized over the life of the loans.
Most equipment leases to customers are accounted for as operating
leases wherein rental revenues are recognized over the life of the lease
and the cost of the equipment is depreciated over its useful life. Some
leases are accounted for as sales-type leases wherein the present value of
the lease revenues and costs are recognized at the time of shipment of the
product.
Revenues from large contracts are recognized using the percentage
completion method of accounting in the proportion that costs incurred bear
to total estimated costs at completion. Losses, if any, are provided for
in the period in which the loss is determined.
Interest earned on notes receivable, totaling $1,277,000, $1,643,000
and $1,309,000 in 1993, 1992 and 1991, respectively, is included in
revenues.
Cash Equivalents
Short-term investments with a maturity of 90 days or less from date of
acquisition a reclassified as cash equivalents.
Inventories
Inventories are carried at the lower of cost or market, principally on
the first-in, first-out basis. The Company had no deferred production
costs which exceeded the aggregate estimated cost of long-term sales
contracts.
/58
<PAGE>
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. When an asset is
retired or sold, any resulting gain or loss is included in the results of
operations. Interest capitalized as property, plant and equipment a
mounted to $177,000, $709,000 and $703,000 in 1993, 1992 and 1991,
respectively. Depreciation is computed on a straight-line basis over the
expected lives of the assets, as follows:
Classification Depreciation Lives
Buildings and improvements 10-40 years
Machinery and equipment, including
water supply equipment 3-25 years
Other 3-12 years
The Company's policy is to depreciate desalination plants, other than
leased equipment, over the shorter of their useful lives or the term of
the corresponding water supply contracts.
Goodwill
Goodwill is included in other assets and represents the unamortized
difference between acquisition cost and the fair value of net assets
acquired in the purchase of various entities. Goodwill is amortized on a
straight-line basis for up to 40 years.
Foreign Exchange
Assets and liabilities of foreign affiliates and subsidiaries are
translated at year-end exchange rates, and the related statements of
operations are translated at average exchange rates for the year.
Translation gains and losses are accumulated net of income tax as a
separate component of stockholdersU equity.
Some transactions of the Company and its subsidiaries are made in
currencies different from their own. Gains and losses from these
transactions are included in income as they occur. Net foreign currency
transaction gains included in income before taxes totaled $157,000,
$587,000 and $180,000 for 1993, 1992 and 1991, respectively.
Income Taxes
Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts. Earnings per Share Earnings per
share is computed based on the weighted average number of common and
common equivalent shares outstanding. Common equivalent shares result from
the assumed exercise of dilutive stock options. Fully diluted earnings per
share is substantially the same as earnings per share.
/59
<PAGE>
NOTE 2. CONSOLIDATED BALANCE SHEET DETAILS
Dollars in thousands 1993 1992
Raw materials $ 9,541 $ 7,949
Work in process 3,016 2,928
Finished goods 1,369 1,437
Inventories $ 13,926 $ 12,314
Land $ 1,261 $ 1,279
Buildings 13,829 13,752
Machinery and equipment 121,792 110,382
Other, including furniture, fixtures
and vehicles 18,918 13,348
155,800 138,761
Accumulated depreciation (55,355) (40,960)
Property, plant and equipment, net $100,445 $ 97,801
Goodwill $ 25,660 $ 4,849
Accumulated amortization (1,608) (1,252)
Other 5,200 -
Other assets $ 29,252 $ 3,597
Obligation for purchase of RCC $ 10,974 $ -
Customer deposits 5,668 4,288
Accrued commissions 1,733 1,778
Accrued expenses 13,957 9,994
Other current liabilities $ 32,332 $ 16,060
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
Dollars in thousands 1993 1992 1991
Cash payments for interest and income taxes:
Interest $ 150 $ 783 $3,320
Taxes $ 4,403 $7,374 $3,119
Liabilities assumed in conjunction with
acquisitions and ACE preferred stock purchase:
Fair value of assets consolidated $47,825 $2,609
Net cash paid (7,959) (375)
Liability associated with purchase of
Resources Conservation Co. (net
of cash acquired) (10,488) -
Liabilities assumed $29,378 $2,234
/60
<PAGE>
NOTE 4. ACCOUNTS RECEIVABLE
Dollars in thousands 1993 1992
Billed receivables $36,819 $29,068
Unbilled receivables 21,715 16,208
Allowance for doubtful accounts (1,320) (1,636)
Accounts receivable $57,214 $43,640
Unbilled receivables represent the excess of revenues recognized on
percentage of completion contracts over amounts billed. These amounts will
become billable as the Company achieves contractual milestones.
Substantially all of the unbilled amounts at December 31, 1993 are
expected to be billed during 1994.
Billed receivables include retainage amounts of $3,054,000 and
$1,626,000 at December 31, 1993 and 1992, respectively. Substantially all
retainage amounts are collectible within one year.
NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES
The Company's investments in the following foreign affiliates are
accounted for under the equity method. The principal business activities
of these foreign affiliates involve the production, sale and distribution
of bottled and treated water and the sale of equipment and replacement
parts.
Ownership
Affiliate Percentage
Aqua Cool Kuwait - Kuwait 49%
Aqua Cool Saudi Arabia - Saudi Arabia 40%
Jalal-Ionics, Ltd. - Bahrain 40%
Watlington Waterworks Limited - Bermuda 23%
Yuasa-Ionics Co., Ltd. - Japan 50%
The Company's percentage ownership interest in a foreign affiliate may
vary from its interest in the earnings of such affiliate.
Activity in investments in affiliated companies:
Dollars in thousands 1993 1992 1991
Investments at beginning of year $4,279 $ 4,008 $ 3,720
Equity in earnings 775 1,281 1,412
Distributions received (134) (1,058) (1,211)
Additional investment
made during the year - 27 62
Cumulative translation adjustments 69 21 25
Investments at end of year $4,989 $ 4,279 $ 4,008
At December 31, 1993, the Company's equity in the total assets and in
the total liabilities of its foreign affiliates was $10,480,000 and
$5,491,000, respectively. The Company's equity in the 1993 total revenues
of these affiliates was $9,094,000.
/61
<PAGE>
Summarized data for foreign affiliates follows:
Dollars in thousands 1993 1992 1991
Current assets $ 9,056 $ 8,622 $ 7,773
Property and equipment, net 8,169 7,848 5,262
Current liabilities 7,069 7,505 4,479
Long-term debt 424 584 652
Revenues 15,288 14,724 13,387
Gross profit 6,701 6,929 6,312
Net income 1,364 2,076 1,981
NOTE 6. CONTINGENT LIABILITIES
The Company is from time to time involved in litigation in the normal
course of its business. None of these litigation matters is believed to be
material to the financial position or business of the Company.
Under the terms of a 1992 Settlement Agreement among the potentially
responsible parties (PRPs), the Environmental Protection Agency (EPA) and
the Commonwealth of Massachusetts, the Company paid $381,000 as a
settlement amount to the Silresim Superfund Site settlement trust fund,
representing the Company's approximately 1% volumetric contribution of
wastes to the site. This fund, which contains in excess of $40 million,
will be used by the EPA to clean up the Silresim Site in Lowell,
Massachusetts. The amount paid by the Company had been fully reserved at
December 31, 1991, and the payment had no material adverse impact on the
Company. Because the pollution problems at the site have been extensively
studied and because the funds collected from the settling PRPs by the site
settlement trust fund substantially exceed the EPA's own estimate of
remediation costs, the Company believes that it is unlikely that it will
incur any further monetary obligations with respect to this site, other
than site access costs that will be incurred by the EPA in connection with
its remediation activities. The Company's share of these site access costs
is expected to be $30,000 to $40,000 over the next several years.
The Company was notified in June, 1992 that it is a PRP at another
Superfund site, Solvent Recovery Service of New England in Southington,
Connecticut (the "SRS Site"). The EPA has not yet completed its remedial
investigation or issued a record of decision specifying estimated clean-up
costs, and therefore it is too early to determine what the Company's
liability might be with respect to the SRS Site. However, based upon the
very large number of PRPs identified (over 1,000), the Company's small
volumetric ranking in comparison to the total volume of wastes (less than
0.5%) and the identities of the larger PRPs, which include many
substantial companies, the Company believes that its liability in this
matter will not have a material effect on the Company or its financial
position.
/62
<PAGE>
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE
Dollars in thousands 1993 1992
6 3/4% Industrial Revenue Bond
due 1994, in equal quarterly
installments $120 $360
9% mortgage note payable to bank due in
equal monthly installments - 198
Other credits 162 422
282 980
Less installments due within one year 173 541
Long-term debt and notes payable $109 $439
The Industrial Revenue Bond is a limited obligation of the Industrial
Development Financing Authority Board of the Town of Watertown,
Massachusetts, guaranteed by the Company and collateralized by property,
plant and equipment with a net book value of approximately $1,965,000 at
December 31, 1993.
Maturities of long-term debt and notes payable for the five years
ending December 31, 1994 to 1998 are approximately $173,000, $22,000,
$19,000, $8,000 and $7,000, respectively.
The Company has domestic credit arrangements with various banks under
which it can borrow up to an aggregate of approximately $35 million, at
the prime rate or the London Interbank Offered Rate plus 1/2%, at the
Company's option. There were no borrowings outstanding under these lines
of credit at December 31, 1993 or 1992.
The Company utilizes short-term bank loans to finance working capital
requirements for certain business units. During 1993 and 1992, the
weighted average amount of such borrowings was approximately $1,429,000
and $1,290,000, respectively, and the maximum short-term borrowings under
these arrangements in 1993 and 1992 were approximately $7,395,000 and
$3,174,000, respectively. The Company's various loan and note agreements
contain certain financial covenants typical to such agreements relating to
working capital and to consolidated tangible net worth.
NOTE 8. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required
by Financial Accounting Standard No. 109 (FAS 109). As permitted under the
new rule, prior years' financial statements have not been restated. The
cumulative effect of adopting this Statement as of January 1, 1993 was
immaterial to net income.
The Company has elected not to provide tax on certain undistributed
earnings of its foreign subsidiaries which it considers to be permanently
reinvested. The cumulative amount of such unprovided taxes was
approximately $369,000, $30,000 and $1,418,000 as of December 31, 1993,
1992 and 1991, respectively. Reduced tax payments resulting from
allocating tax benefits associated with the exercise of stock options
directly to additional paid-in capital totaled $576,000, $680,000 and
$189,000 in 1993, 1992 and 1991, respectively.
/63
<PAGE>
The following is a summary of U.S. and non-U.S. income before income
taxes and minority interest, the components of the provisions for income
taxes and deferred income taxes and a reconciliation of the U.S. statutory
income tax rate to the effective income tax rate.
Income before income taxes and minority interest:
Dollars in thousands 1993 1992 1991
U.S. $10,902 $ 9,753 $ 5,867
Non-U.S. 8,822 8,431 5,782
Income before income taxes and
minority interest $19,724 $18,184 $11,649
Income tax provisions (benefits) consist of the following:
Dollars in thousands 1993 1992 1991
Federal $2,124 $2,121 $ 2,603
Foreign 1,729 2,290 755
State 475 300 475
Current provision 4,328 4,711 3,833
Federal 528 (441) (1,061)
Foreign 1,013 976 625
State 48 27 (135)
Deferred provision (benefit) 1,589 562 (571)
Provision for income taxes $5,917 $5,273 $ 3,262
Deferred tax provisions (benefits) consist of the following:
Dollars in thousands 1993 1992 1991
U.S. tax on unremitted earnings
(net of foreign tax credit ) $ 335 $ - $ -
Use of installment method - - (744)
Use of different book/tax contract
accounting methods 257 (94) (1,090)
Net reversal of deferred profit on
sales to foreign subsidiaries 71 44 33
Use of accelerated depreciation 651 672 970
DISC dividend (197) (197) (197)
Bad debt reserve activity 87 (76) 126
Other, net 385 213 331
Deferred tax provision (benefit) $1,589 $ 562 $ (571)
/64
<PAGE>
The United States statutory corporate tax rate is reconciled to the
Company's effective tax rate as follows:
1993 1992 1991
U.S. Federal statutory rate 34.0% 34.0% 34.0%
Foreign Sales Corporation (1.9) (2.2) (4.4)
Tax exempt interest income (3.5) (3.7) -
Provision on undistributed
foreign earnings - 7.8 -
Timing items completely reversed - (7.5) -
State income taxes,
net of federal tax benefit 1.8 1.2 1.9
Foreign income taxed at different rates (1.3) .3 (3.8)
Other, net .9 (.9 ) .3
Effective tax rate 30.0% 29.0% 28.0%
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At
December 31, 1993 the temporary differences are:
Deferred Deferred tax
Dollars in thousands tax assets liabilities
Depreciation $ - $ 2,992
Inventory valuation 257 -
Unremitted earnings - 512
Bad debt reserves 224 -
Sales to foreign subsidiaries 1,150 -
Insurance reserves 234 -
Pensions 298 -
Sale versus lease 1,186 -
Foreign withholding taxes on
undistributed earnings - 1,333
Foreign deferred liabilities - 1,524
Net operating loss carryforwards 6,340 -
Miscellaneous 1,103 1,162
10,792 7,523
Valuation allowance for deferred
tax assets (1,800) -
Deferred income taxes $ 8,992 $ 7,523
At December 31, 1993, the Company had unused tax loss carryforward
benefits of $6,340,000 (expiring in fiscal years 2004 to 2008). Because
certain provisions of the tax law may limit the utilization of these
benefits, the Company has established a $1,800,000 valuation allowance at
December 31, 1993. The net unused tax loss carryforward benefit of
$4,540,000 has been included in other assets.
/65
<PAGE>
NOTE 9. STOCKHOLDERS' EQUITY
The Company maintains two stock option plans. Under its 1979 Stock
Option Plan (the "1979 Plan"), options may be granted to officers and
other employees of the Company (either as non-qualified options or until
February 15, 1989, as incentive stock options) and are exercisable at a
price of not less than $1.00 per share. Any difference between the option
price and the fair market value at the date of grant is charged to
operations over the expected period of benefit to the Company. No
additional shares of common stock were authorized for issuance as options
during 1993. At December 31, 1993, 12,754 shares were reserved for
issuance of additional options under the 1979 Plan.
During 1992, an additional 70,000 shares of common stock were
authorized for issuance as options under the 1986 Stock Option Plan for
Non-Employee Directors (the "1986 Plan"). These options may be granted at
a price not less than fair market value at the date of grant. No
additional shares of common stock were authorized for issuance as options
under the 1986 Plan during 1993. As of December 31, 1993, 67,000 shares
were reserved for issuance of additional options under the 1986 Plan.
The Company has also reserved 45,600 shares for options granted in
1990 to certain non-employees in exchange for a previously granted option
to purchase 50% of the shares of Osmomar S.A., a Spanish subsidiary of the
Company which was merged with Ionics Iberica, S.A. in 1992.
<TABLE>
A summary of changes in the total amount of outstanding options for
the three years ended December 31, 1993 follows:
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Shares under option,
beginning of year 530,375 555,780 361,769
Options granted 350,250 31,750 245,500
Options exercised (39,839) (55,480) (51,489)
Options cancelled (8,000) (1,675) -
Shares under option,
end of year 832,786 530,375 555,780
Shares exercisable 800,866 493,895 514,740
Price range of
options granted $39.50-48.75 $ 1.00-60.75 $40.13-46.25
Price range of
options exercised $ 1.00-54.00 $11.00-43.00 $ 1.00-24.50
Price range of
options exercisable $ 1.00-60.75 $ 1.00-60.75 $ 1.00-46.25
The Company also has a Section 401(k) stock savings plan under which 75,000 shares
have been registered with the Securities and Exchange Commission for purchase on behalf
of employees. Shares will normally be acquired for the plan in the open market. However,
the Board of Directors has reserved an additional 60,000 shares for issuance by the
Company from authorized but unissued shares if required. Through December 31, 1993, no
shares had been issued under the plan.
</TABLE>
/66
<PAGE>
The Company has adopted a Stockholder Rights Plan designed to protect
stockholders against abusive takeover tactics. Rights were distributed as a
dividend at the rate of one right for each share of the Company's stock. Each
right entitles the holder to purchase from the Company one unit, consisting
initially of one-fifth share of common stock and one note in principal amount
equal to four-fifths of the current market price of the common stock on the
date of exercise, at a purchase price of $50 subject to adjustment. In certain
circumstances, rights cease to be exercisable for a unit and become
exercisable for $100 worth of common stock (or a combination of cash, property
or other securities of the Company) for $50.
The rights are not exercisable until: (i) 10 days following a public
announcement that a person or group has acquired 20 percent or more of the
Company's common stock; or (ii) 10 business days following the commencement
of a tender offer that could result in the person or group owning at least
30 percent of the Company's stock; or (iii) immediately after a declaration
by the Company's independent directors that a person is an "Adverse Person,"
as defined in the Rights Plan.
Subject to possible extension, the rights may be redeemed by the Company
at $.01 per right at any time until 10 days after a public announcement that
20 percent or more of the Company's outstanding common stock has been acquired
by a person or group. Unless redeemed earlier, the rights, which have no
voting power, expire on December 31, 1997.
NOTE 10. OPERATING LEASES
The Company leases equipment, primarily triple-membrane trailers and
bottled water coolers, to customers through operating leases. The original
cost of this equipment was $37,555,000 and $27,657,000 at December 31, 1993
and 1992, respectively. The accumulated depreciation for such equipment was
$9,914,000 and $6,173,000 at December 31, 1993 and 1992, respectively.
At December 31, 1993, future minimum rentals receivable under
noncancelable operating leases in the years 1994 through 1998 and later were
approximately $5,582,000, $5,019,000, $4,019,000, $3,329,000, $2,705,000 and
$7,745,000, respectively.
NOTE 11. PROFIT SHARING AND PENSION PLANS
The Company has a contributory profit-sharing plan covering substantially
all of the employees of its Bridgeville, Pennsylvania operations and certain
related operations. Company contributions are made from pre-tax profits and
may vary from 8% to 15% of participants' compensation and are allocated to
participantsU accounts in proportion to each participants' respective
compensation. Company contributions were $381,000, $372,000 and $387,000 in
1993, 1992 and 1991, respectively.
The Company also has a contributory defined benefit pension plan for its
Watertown-based employees as well as personnel at Ionics Pure Solutions in
Arizona, Ionics Ultrapure Water Corporation in California and Resources
Conservation Company in Washington. The benefits are based on years of service
and the employee's average compensation. The Company's funding policy is to
contribute annually an amount that can be deducted for federal income tax
purposes.
/67
<PAGE>
<TABLE>
The following table sets forth the pension plan's funded status and amounts
recognized in the Company's balance sheets at December 31, 1993 and 1992:
Dollars in thousands 1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$6,447 and $5,734, respectively $6,778 $5,957
Projected benefit obligation for service
rendered to date $7,736 $6,678
Plan assets at fair value 6,615 5,829
Projected benefit obligation in excess
of plan assets 1,121 849
Unrecognized net loss (508) (287)
Unrecognized prior service cost (120) (130)
Unrecognized net assets being amortized
over approximately 17 years 520 573
Accrued pension cost at December 31 $1,013 $1,005
</TABLE>
<TABLE>
Net pension cost included the following components:
<CAPTION>
Dollars in thousands 1993 1992 1991
<S> <C> <C> <C>
Service cost $568 $482 $386
Interest cost 556 512 478
Return on plan assets (632) (380) (886)
Net amortization (deferral) 50 (137) 416
Net periodic pension cost $542 $477 $394
The discount rates used in determining the projected benefit obligation
are 7.5% in 1993 and 8% in 1992. The rate of increase in compensation
levels used is 6%. The expected long-term rate of return on assets was 9%.
Plan assets consist primarily of money market, equity and fixed income
securities and are administered by an independent trustee.
The Company does not provide post-retirement health care to its employees or any
other significant post-retirement benefits other than those described above.
NOTE 12. FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
The Company issues letters of credit as guarantees for various performance and bid
obligations. Approximately $19.2 million and $5.2 million of these letters were
outstanding at December 31, 1993 and 1992, respectively. Approximately 11% of the
letters of credit outstanding at December 31, 1993 are scheduled to expire in 1994. The
Company periodically enters into foreign exchange contracts to hedge certain operational
and balance sheet exposures against changes in foreign currency exchange rates. Because
the impact of movements in currency exchange rates on foreign exchange contracts offsets
the related impact on the underlying items being hedged, these instruments do not
subject the Company to risk that would otherwise result from changes in
currency exchange rates. The Company had no foreign exchange contracts
outstanding at December 31, 1993 and 1992.
</TABLE>
/68
<PAGE>
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments, trade accounts receivable and notes receivable. The credit risk
of cash equivalents and investments is low as the funds are primarily invested
in U.S. government securities and with major financial institutions. The
Company's concentrations of credit risk with respect to trade accounts
receivable and notes receivable is considered low. The Company's customer base
is spread across many different industries and geographies and the Company
obtains guaranteed letters of credit for many of its foreign orders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents and investments closely
approximates their fair values as these items have relatively short maturities
and are highly liquid. Based on market information, the carrying amounts of
notes receivable and debt approximates their fair values.
INVESTMENTS IN SECURITIES
In May 1993, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the expanded use of fair value accounting
for certain investments in debt and equity securities. The Statement is
effective for fiscal years beginning after December 15, 1993. The impact of
adoption on the Company's financial position is not expected to be material.
NOTE 13. CONSOLIDATION AND ACQUISITION
AQUA COOL ENTERPRISES, INC.
Prior to May 26, 1993, Aqua Cool Enterprises, Inc. ("ACE") was an
independently owned distributor of the Company's Aqua Cool bottled water
products. The Company sold bottled water and related supplies to ACE; leased
coolers and vehicles to ACE; and provided management services and operational
support to ACE. In addition to equipment lease financing it received from the
Company, ACE had received $12.5 million in debt and preferred equity financing
from Westinghouse Credit Corporation ("Westinghouse") over a three- year
period beginning in 1989.
Effective May 26, 1993, the Company loaned $8.25 million to ACE with
which ACE subsequently redeemed the outstanding senior note and preferred
stock of ACE held by Westinghouse. On June 10, 1993, the Company exchanged
its $8.25 million loan to ACE for ACE preferred stock. The Company holds an
option to acquire the outstanding common stock of ACE for a nominal amount.
As a result of these transactions, the Company has consolidated the
operating results of ACE as if ACE were a wholly owned subsidiary. ACE's
results of operations are included in the Company's consolidated financial
statements from May 26, 1993. The combination has been accounted for under
the purchase method with goodwill of $12.2 million, net of federal income
tax benefits of $4.5 million, being amortized on a straight-line basis over
40 years.
/69
<PAGE>
<TABLE>
For purposes of presenting the following unaudited pro forma
consolidated results all transactions between the Company and ACE have
been eliminated as if the consolidation had occurred on January 1, 1992.
The pro forma results also reflect adjustments that are attributable to
the consolidation such as interest expense, goodwill amortization,
operational efficiencies, asset revaluations and related tax effects.
<CAPTION>
Twelve Months Ended December 31 (unaudited)
1993 1992
<S> <C> <C>
Net revenues $174,400 $155,569
Income before extraordinary items $ 12,702 $ 10,401
Net income $ 12,702 $ 10,401
Earnings per share $ 1.80 $ 1.50
RESOURCES CONSERVATION COMPANY
Effective December 1, 1993, the Company acquired a substantial portion of the assets and
liabilities of Resources Conservation Company (RCC) for approximately $10.9 million. RCC
designs, engineers and installs wastewater treatment systems.
The acquisition was accounted for under the purchase method with the results of RCC
included from December 1, 1993. Goodwill of $8.3 million is being amortized on a
straight-line basis over 40 years. Pro forma results of operations have not been
presented as the effect of this acquisition on the financial statements was immaterial.
Fiscal 1993 RCC revenues for the period prior to December 1, 1993 were approximately
$25.3 million.
Payment of the RCC purchase price of $10.9 million plus related interest expense of
approximately $100,000 occurred on January 27, 1994. The obligation for payment plus
related accrued interest was included in other current liabilities at December 31, 1993.
NOTE 14. SEGMENT INFORMATION
Business Segments The Company conducts its business in three business segments:
Membranes and Related Equipment - electrodialysis reversal systems; reverse osmosis
systems; microfiltration systems; conventional water and wastewater treatment equipment;
other separations technology products; zero liquid discharge systems; instruments for
monitoring and on-line detection of pollution levels; and fabricated products.
Water and Chemical Supply - water and chemicals produced by the Company's membrane-
based equipment, including desalted water for municipal and industrial use; ultrapure
water for electronics and other industries; and bleach and related chemicals.
Consumer Water Products - bottled water; over and under-the-sink point of use
devices; carbon filtering media; and point-of-entry systems for treating the entire home
water supply.
</TABLE>
/70
<PAGE>
<TABLE>
A summary of the Company's operations by business segment follows on the next page:
<CAPTION>
Membranes Water and Consumer Corporate
and Related Chemical Water and
Dollars in thousands Equipment Supply Products Other Total
<S> <C> <C> <C> <C> <C>
1993
Revenue - unaffiliated customers $92,352 $51,513 $31,408 $ - $175,273
Intersegment transfers 1,165 574 9 (1,748) -
Income from operations 4,850 8,629 4,679 (998) 17,160
Equity income (195) 155 815 - 775
Earnings before interest and taxes (EBIT) 4,655 8,784 5,494 (998) 17,935
EBIT % of total EBIT 26% 49% 31% (6%) 100%
Identifiable assets 78,341 88,094 54,533 23,605 244,573
Investments in affiliated companies 338 1,108 3,543 - 4,989
Depreciation and amortization 2,159 10,431 2,662 211 15,463
Capital expenditures 2,605 9,470 2,092 500 14,667
1992
Revenue - unaffiliated customers $81,019 $46,698 $27,523 $ - $155,240
Intersegment transfers 1,939 597 3 (2,539) -
Income from operations 7,540 7,585 1,013 (1,322) 14,816
Equity income (185) 158 1,308 - 1,281
Earnings before interest and taxes (EBIT) 7,355 7,743 2,321 (1,322) 16,097
EBIT % of total EBIT 46% 48% 14% (8%) 100%
Identifiable assets 55,833 92,906 35,377 36,195 220,311
Investments in affiliated companies 463 981 2,835 - 4,279
Depreciation and amortization 1,957 8,212 2,113 306 12,588
Capital expenditures 1,548 19,467 3,069 614 24,698
1991
Revenue - unaffiliated customers $76,267 $31,491 $30,362 $ - $138,120
Intersegment transfers 1,231 780 - (2,011) -
Income from operations 4,653 5,022 1,699 (1,192) 10,182
Equity income (19) 116 1,315 - 1,412
Earnings before interest and taxes (EBIT) 4,634 5,138 3,014 (1,192) 11,594
EBIT % of total EBIT 40% 44% 26% (10%) 100%
Identifiable assets 53,628 86,891 32,572 880 173,971
Investments in affiliated companies 628 829 2,551 - 4,008
Depreciation and amortization 1,968 3,758 2,483 321 8,530
Capital expenditures 1,802 30,797 2,006 257 34,862
</TABLE>
/71
<PAGE>
<TABLE>
Geographic Segments
Sales are reflected in the segment from which the sales are made. Transfers between
areas are generally made at cost plus a markup which approximates prices charged to
unaffiliated customers. Certain corporate expenses are included with the elimination of
intersegment profit in the "Corporate and Eliminations" segment. Identifiable corporate
assets, which are net of eliminations, consist primarily of cash and short-term
investments. Information about the Company's operations by geographic segment follows:
<CAPTION> Corporate
United Other and
Dollars in thousands States Europe International Eliminations Total
<S> <C> <C> <C> <C> <C>
1993
Revenue - unaffiliated customers $123,599 $42,571 $ 9,103 $ - $175,273
Intersegment transfers 9,375 420 2,824 (12,619) -
Income from operations 10,968 5,417 985 (210) 17,160
Identifiable assets 171,483 42,041 11,771 19,278 244,573
1992 Revenue - unaffiliated customers $102,498 $41,992 $10,750 $ - $155,240
Intersegment transfers 7,033 223 1,731 (8,987) -
Income from operations 8,852 6,546 907 (1,489) 14,816
Identifiable assets 137,562 41,580 10,387 30,782 220,311
1991
Revenue Q unaffiliated customers $ 85,427 $40,754 $11,939 $ - $138,120
Intersegment transfers 8,581 1,342 2,049 (11,972) -
Income from operations 5,234 4,910 947 (909) 10,182
Identifiable assets 113,237 55,383 10,066 (4,715) 173,971
Included in the United States segment are export sales of approximately 22%, 27% and 26% for 1993, 1992 and 1991,
respectively. Including these U.S. export sales, the percent ages of total revenues attributable to activities outside
the U.S. were 45%, 52% and 54% in 1993, 1992 and 1991, respectively.
</TABLE>
/72
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Ionics, Incorporated:
We have audited the consolidated balance sheets of Ionics, Incorporated at
December 31, 1993 and 1992 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years
in the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ionics,
Incorporated as of December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
Boston, Massachusetts February 22, 1994
/73
<PAGE>
<TABLE>
Selected Financial Data Ionics, Incorporated
Statement of Operations Data
Dollars in thousands, except
per share amounts 1993 % 1992 % 1991 % 1990 % 1989 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $175,273 100.0 $155,240 100.0 $138,120 100.0 $128,408 100.0 $108,915 100.0
Income before income taxes 19,724 11.3 18,184 11.7 11,649 8.4 6,442 5.0 5,310 4.9
Net income 13,807 7.9 12,820 8.3 8,278 6.0 4,727 3.7 3,590 3.3
EarnEarnings per share 1.96 1.85 1.45 1.10 .85
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
Dollars in thousands 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Current assets $109,957 $108,757 $ 72,334 $ 66,572 $ 67,018
Current liabilities 46,082 30,499 36,528 51,716 44,833
Working capital 63,875 78,258 35,806 14,856 22,185
Total assets 249,562 224,590 177,979 143,759 134,874
Long-term debt and notes payable 109 439 5,579 8,027 14,419
Stockholders' equity 200,081 190,340 127,931 75,614 68,102
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (unaudited)
Dollars in thousands, Earnings Earnings
except per Gross Net per Gross Net per
share amounts Revenues Profit Income Share Revenues Profit Income Share
1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 41,158 $13,911 $ 3,364 .48 First Quarter $ 36,248 $13,182 $ 2,607 $ .40
Second Quarter 45,618 15,080 3,520 .50 Second Quarter 40,063 14,183 3,183 .45
Third Quarter 42,791 14,314 3,516 .50 Third Quarter 37,111 13,620 3,372 .48
Fourth Quarter 45,706 14,965 3,407 .48 Fourth Quarter 41,818 14,324 3,658 .52
$175,273 $58,270 $13,807 $1.96 $155,240 $55,309 $12,820 $1.85
</TABLE>
<TABLE>
<CAPTION>
Common Stock Price Range High Low High Low
1993 1992
<S> <C> <C> <C> <C> <C>
First Quarter $67 7/8 $53 1/2 First Quarter $67 1/2 $42 1/4
Second Quarter $56 3/8 $39 Second Quarter $59 7/8 $51
Third Quarter $50 $38 1/2 Third Quarter $57 1/2 $50
Fourth Quarter $52 3/8 $46 3/4 Fourth Quarter $68 1/2 $51 3/4
</TABLE>
/74
<PAGE>
Board of Directors
ARTHUR L. GOLDSTEIN u
Chairman of the Board,
President and Chief
Executive Officer
Ionics, Incorporated
WILLIAM L. BROWN s n
Retired Chairman of the
Board, The First National
Bank of Boston
ARNAUD DE VITRY D'AVAUCOURT s n
Engineering Consultant
and Director of Various
Organizations
LAWRENCE E. FOURAKER u s n
Trustee and Director of
Various Organizations
SAMUEL A. GOLDBLITH u s n
Professor Emeritus
Massachusetts Institute
of Technology, and
Consultant
K. KACHADURIAN
Senior Vice President
Ionics, Incorporated
WILLIAM E. KATZ
Executive Vice President
Ionics, Incorporated
ROBERT B. LUICK
Of Counsel, Sullivan and
Worcester, Attorneys
JOHN J. SHIELDS s n
President and Chief
Executive Officer
King's Point
Holdings Incorporated
MARK S. WRIGHTON
Provost and Professor of Chemistry,
Massachusetts Institute of Technology
/75
<PAGE>
ALLEN S. WYETT s n
President, Wyett
Consulting Group, Inc.
u Member of Executive
Committee
s Member of Audit
Committee
n Member of Compensation
Committee
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<PAGE>
Corporate Officers
ARTHUR L. GOLDSTEIN
Chairman of the Board,
President and Chief
Executive Officer
WILLIAM E. KATZ
Executive Vice President
K. KACHADURIAN
Senior Vice President
ROBERT J. HALLIDAY
Vice President
Finance and Accounting
and Chief Financial
Officer
STEPHEN KORN
Vice President, General
Counsel and Clerk
THEODORE G. PAPASTAVROS
Vice President
Strategic Planning
and Treasurer
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<PAGE>
Principal Offices,
Affiliates &
Subsidiaries
Ionics, Incorporated
Bridgeville, Pennsylvania
General Ionics
Cuyahoga Falls, Ohio
Ionics Pure Solutions
Phoenix, Arizona
Elite Chemicals N.E.,
Springfield, Massachusetts
Ionics Ultrapure Water Corp.
Campbell, California
Resources Conservation Co.
Bellevue, Washington
Resources Conservation Co. International
Bellevue, Washington
Ionics Italba, S.p.A.
Milan, Italy
Ionics Iberica, S.A.
Grand Canary, Spain
Ionics Nederland, B.V.
Maastricht, the Netherlands
Ionics
(UK) Ltd.
London, England
Global Water Services, S.A.
Panama City, Panama
Ionics, Incorporated
Hong Kong
Ionics (Bermuda) Ltd.
Hamilton, Bermuda
Elite Chemicals Pty. Ltd.
Brisbane, Qld. Australia
/78
<PAGE>
Eau et Industrie
Paris, France
Watlington Waterworks Ltd.
Devonshire, Bermuda
Jalal-Ionics, Ltd.
Manama, Bahrain
Aqua Cool Saudi Arabia
Dammam, Saudi Arabia
Aqua Cool Kuwait
Kuwait City, Kuwait
Aqua Cool Enterprises, Inc.
Watertown, Massachusetts
Yuasa-Ionics Co., Ltd.
Tokyo,
Japan
Corporate Headquarters
Ionics, Incorporated
Watertown, Massachusetts
Investor Information
The Annual Meeting of Ionics'
shareholders will be held
Thursday, May 5, 1994 at
2:00 P.M. at Bank of Boston
100 Federal Street,
Boston, Massachusetts
Ionics' common stock is traded
on the New York Stock Exchange under
the symbol ION. As of March 18, 1994
there were approximately
1,800 shareholders of record. No cash
dividends were paid in either 1993 or
1992 pursuant to Ionics' current policy to
retain earnings for use in its business.
For information or assistance
regarding individual stock
records, transactions or
certificates, please call the
Transfer Agent's Telephone
Response Center: (617)575-2900 between 8 A.M. and 7 P.M.
/79
<PAGE>
A copy of Ionics' Annual
Report on Form 10-K, which
is filed with the Securities and
Exchange Commission, will be
sent to any shareholder upon
request directed to Investor
Relations, Ionics, Incorporated,
P.O. Box 9131, Watertown, Massachusetts
02272-9131,
or by calling (617)926-2510
ext. 874.
TRANSFER AGENT
& REGISTRAR
The First National Bank of
Boston, Boston, Massachusetts
AUDITORS
Coopers & Lybrand
Boston, Massachusetts
/80
EXHIBIT 22
IONICS, INCORPORATED
SUBSIDIARIES OF THE REGISTRANT
State or Other Jurisdiction
Name of Incorporation
Ionics Foreign Sales Corporation Limited Jamaica
Global Water Services, S.A. Panama
Ionics Italba, S.p.A. Italy
Ionics Iberica, S.A. Spain
Ionics Nederland B.V. The Netherlands
Ionics Ultrapure Water Corporation California
Ionics Securities Corporation Massachusetts
Ionics (U.K.) Limited United Kingdom
Ionics (Bermuda) Ltd. Bermuda
Elite Chemicals Pty. Ltd. Australia
Eau et Industrie France
Resources Conservation Co. International Delaware
/81
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements for the Ionics 1979 Stock Option Plan on Form S-8 (Registration
Nos. 33-41598, 33-5814, 33-14194, 2-64255, 2-72936 and 2-82780; in the
registration statement for the Ionics Section 401(k) Stock Savings Plan on
Form S-8 (Registration No. 33-2092); and in the Registration Statement for
the Ionics 1986 Stock Option Plan for Non-Employee Directors (Registration
No. 33-54400), of our reports dated February 22, 1994, on our audits of
the consolidated financial statements and the financial statement
schedules of Ionics, Incorporated as of December 31, 1993 and 1992 and for
each of the three years in the period ended December 31, 1993, which are
included or incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Boston, Massachusetts
March 28, 1994
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EXHIBIT 25
POWER OF ATTORNEY
We, the undersigned officers and directors of Ionics, Incorporated (the
"Company"), hereby severally constitute Arthur L. Goldstein and Stephen
Korn, and each of them, to sign for us, and in our names in the capacities
indicated below, the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1993, and any and all amendments to such
Annual Report, hereby ratifying and confirming our signatures as they may be
signed by our attorneys to such Annual Report and any and all amendments
thereto.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/William L. Brown Director March 28, 1994
William L. Brown
/s/Arnaud de Vitry d'Avaucourt Director March 28, 1994
Arnaud de Vitry
d'Avaucourt
/s/Lawrence E. Fouraker Director March 28, 1994
Lawrence E. Fouraker
/s/Samuel A. Goldblith Director March 28, 1994
Samuel A. Goldblith
/s/Arthur L. Goldstein Chairman of the Board March 28, 1994
Arthur L. Goldstein of Directors, Chief
Executive Officer and
President (Principal
Executive Officer)
/s/Kachig Kachadurian Director March 28, 1994
Kachig Kachadurian
/s/William E. Katz Director March 28, 1994
William E. Katz
Director
Robert B. Luick
Director
John J. Shields
/s/Mark S. Wrighton Director March 28, 1994
Mark S. Wrighton
/s/Allen S. Wyett Director March 28, 1994
Allen S. Wyett
/83
