<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7211
IONICS, INCORPORATED
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2068530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Grove Street, Watertown, Massachusetts 02172
(Address of principal executive offices)
(Zip Code)
(617) 926-2500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1994
Common Stock, Par Value $1 6,962,106 Shares
/1
<PAGE>
IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED JUNE 30, 1994
INDEX
Page No.
Part I - Financial Information
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Results
of Operations and Financial Condition 6
Part II - Other Information 8
Signatures 10
Exhibit Index 11
Exhibit 10.1 - Amendment No. 3, dated
June 28, 1994, to Agreement for Privatization
of Water Supplies dated as of September 18, 1990
between the Company and the City of
Santa Barbara. 12
Exhibit 11 - Computation of Earnings Per Share 16
- 1 -
/2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net revenue:
Membranes and related equipment $25,800 $24,447 $54,334 $45,426
Water, food and chemical supply 14,790 12,495 30,844 25,638
Consumer water products 9,238 8,676 17,685 15,712
49,828 45,618 102,863 86,776
Costs and expenses:
Cost of membranes and related equipment 19,283 17,561 41,545 31,987
Cost of water, food and chemical supply 10,246 8,732 21,347 18,068
Cost of consumer water products 4,410 4,245 8,385 7,730
Research and development 857 982 1,660 1,886
Selling, general and administrative 10,211 9,731 20,461 18,622
45,007 41,251 93,398 78,293
Income from operations 4,821 4,367 9,465 8,483
Interest income 296 521 529 1,075
Equity income 151 140 269 276
Income before income taxes 5,268 5,028 10,263 9,834
Provision for income taxes 1,686 1,508 3,284 2,950
Net income $ 3,582 $ 3,520 6,979 $ 6,884
Earnings per share $ .51 $ .50 $ .99 $ .98
Shares used in earnings per
share calculations 7,065,000 7,041,000 7,067,000 7,054,000
The accompanying notes are an integral part of these financial statements.
-2-
/3
</TABLE>
<PAGE>
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,092 $ 21,534
Short-term investments 7,563 8,603
Notes receivable, current 2,632 2,505
Accounts receivable 52,429 57,214
Receivables from affiliated companies 3,381 2,944
Inventories:
Raw materials 9,165 9,541
Work in process 4,999 3,016
Finished goods 1,785 1,369
15,949 13,926
Other current assets 5,046 3,231
Total current assets 107,092 109,957
Notes receivable, long-term 5,001 4,919
Investments in affiliated companies 5,080 4,989
Property, plant and equipment:
Land 1,833 1,261
Buildings 18,365 13,829
Machinery and equipment 132,503 121,792
Other, including furniture, fixtures and vehicles 21,022 18,918
173,723 155,800
Less accumulated depreciation (64,898) (55,355)
108,825 100,445
Other assets 28,989 29,252
Total assets $254,987 $249,562
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 29 $ 326
Accounts payable 14,228 12,496
Obligation for purchase of Ionics RCC - 10,974
Customer deposits 10,745 5,668
Accrued commissions 1,606 1,733
Accrued expenses 13,214 13,957
Taxes on income 2,561 928
Total current liabilities 42,383 46,082
Long-term debt and notes payable 110 109
Deferred income taxes 3,290 2,699
Other liabilities 703 591
Stockholders' equity:
Common stock, par value $1, 30,000,000 authorized shares;
issued: 6,962,106 in 1994 and 6,945,805 in 1993 6,962 6,946
Additional paid-in capital 124,473 124,189
Retained earnings 82,553 75,574
Cumulative translation adjustments (5,487) (6,628)
Total stockholders' equity 208,501 200,081
Total liabilities and stockholders' equity $254,987 $249,562
The accompanying notes are an integral part of these financial statements.
-3-
/4
</TABLE>
<PAGE>
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
1994 1993
<S> <C> <C>
Operating activities:
Net income $ 6,979 $ 6,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,073 7,337
Provision for losses on accounts and notes receivable 238 613
Changes in assets and liabilities:
Notes receivable (68) 6,358
Accounts receivable 4,736 (10,552)
Inventories (1,884) (2,085)
Other current assets (1,706) 2,024
Investments in affiliates (43) (156)
Accounts payable and accrued expenses 4,696 (6,186)
Income taxes 1,446 781
Other 115 (6,822)
Net cash provided (used) by operating activities 23,582 (1,804)
Investing activities:
Additions to property, plant and equipment (15,422) (7,484)
Sale of short-term investments 1,327 10,488
Payment for RCC acquisition (11,000) -
Acquisitions, net of cash - (7,959)
Net cash used by investing activities (25,095) (4,955)
Financing activities:
Principal payments on current debt (320) (1,996)
Proceeds from issuance of current debt 10 8,083
Principal payments on long-term debt (247) (179)
Proceeds from issuance of long-term debt - 104
Proceeds from stock option plans 300 898
Net cash (used) provided by financing activities (257) 6,910
Effect of exchange rate changes on cash 328 (98)
Net change in cash and cash equivalents (1,442) 53
Cash and cash equivalents at beginning of period 21,534 13,535
Cash and cash equivalents at end of period $ 20,092 $ 13,588
The accompanying notes are an integral part of these financial statements.
-4- /5
</TABLE>
<PAGE>
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal, recurring accruals) necessary to present fairly
the consolidated financial position of the Company as of June
30, 1994 and December 31, 1993, the consolidated results of
its operations for the three and six months ended June 30,
1994 and 1993 and the consolidated cash flows for the six
months then ended.
2. The consolidated results of operations of the Company for the
three and six months ended June 30, 1994 and 1993 are not
necessarily indicative of the results of operations to be
expected for the full year.
3. Reference is made to the Notes to Consolidated Financial
Statements appearing in the Company's 1993 Annual Report as
filed on Form 10-K with the Securities and Exchange
Commission. There have been no significant changes in the
information reported in those Notes, other than from the
normal business activities of the Company, and there have been
no changes which would, in the opinion of Management, have a
materially adverse effect upon the Company.
-5-
/6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three and Six Months Ended June 30, 1994 with the
Three and Six Months Ended June 30, 1993
Revenues for the second quarter of 1994 increased 9.2% to $49.8
million from $45.6 million in 1993. Revenues for the six-month period
increased 18.5% to $102.9 million from $86.8 million in the comparable
period in 1993. Revenues were higher in all three business segments
for both the three and six-month periods. The largest increase in
revenue for the second quarter was in the Water, Food and Chemical
Supply segment, while the largest increase in revenue in the six-month
period was in the Membranes and Related Equipment segment.
Revenues within the Membranes and Related Equipment segment increased
during both periods due primarily to the acquisition of Resources
Conservation Company (Ionics RCC), effective December 1, 1993. This
increase was partially offset by lower sales of other traditional
capital equipment.
Revenues within the Water, Food and Chemical Supply segment increased
during both periods due to the commencement, in the first quarter of
1994, of a contract to provide whey processing equipment and services
to Mid-America Dairymen, Inc. Revenues also increased due to strong
demand for consumer products produced by the Elite Chemicals Division
in New England, Australia and in the United Kingdom, where the
Company's newest bleach manufacturing facility began operating in the
fourth quarter of 1993. Growth was also experienced in the Ionics
Ultrapure Water subsidiary due to the strength of service business
activities related to the regeneration of ion-exchange resins and the
sale of spare parts.
Revenues within the Consumer Water Products segment increased during
both periods due to higher volumes of bottled water and other product
sales.
Cost of sales as a percentage of revenues for the second quarter was
68.1% in 1994 and 66.9% in 1993. For the six-month period, cost of
sales as a percentage of revenues was 69.3% in 1994 and 66.6% in 1993.
The increase in 1994 in both periods occurred in the Membranes and
Related Equipment business. This increase resulted from certain jobs,
undertaken as a result of the acquisition of Ionics RCC, which
experienced gross margins (and operating expenses) below those for the
traditional Membranes and Related Equipment segment, and from a less
favorable mix between capital equipment and spare parts revenues.
Furthermore, reduced sales of other traditional capital equipment
noted above resulted in an increase in manufacturing overhead costs as
a percentage of revenues.
Reductions in cost of sales as a percentage of revenues in both
periods in the Water, Food and Chemical Supply segment and the
Consumer Water Products segment partially offset such increases in the
-6-
/7
<PAGE>
Membranes and Related Equipment segment. The improvement in the
Water, Food and Chemical Supply segment was primarily attributable to
the commencement of the whey processing operations noted above. The
improvement in the Consumer Water Products segment resulted from lower
unit costs of manufacturing due to increased volume and operating
efficiencies in the Aqua Cool business.
Operating expenses as a percentage of revenues were 22.2% in the
second quarter of 1994, down from 23.5% in 1993. For the six-month
period, operating expenses as a percentage of revenues decreased to
21.5% in 1994 compared to 23.6% in 1993. Improvement in both periods
was due in part to the fact that Ionics RCC's operating expenses as a
percentage of revenues were lower than that of the traditional
Membranes and Related Equipment segment. Furthermore, the improvement
reflected the absorption of relatively fixed operating expenses by
increased sales volume and continued emphasis on expense controls.
Interest income decreased in the second quarter and six-month periods
due to lower invested balances, resulting from payment of the Ionics
RCC acquisition obligation in the first quarter of 1994, and increased
capital spending during both periods.
Financial Condition
Working capital increased by $0.8 million during the first six months
of 1994 and the Company's current ratio increased to 2.5 at June 30,
1994 from 2.4 at December 31, 1993. Cash provided from net income,
depreciation, collection of accounts receivable and an increase in
accounts payable totaled $25.5 million in the first six months of
1994, while the primary uses of cash were for the payment of the
Ionics RCC acquisition obligation and capital expenditures.
Significant capital expenditures were made for bottled water
operations, bleach operations, trailers and other "own and operate"
facilities.
At June 30, 1994 the Company had $27.7 million in cash and short-term
investments, a decrease of $2.5 million from December 31, 1993. The
Company believes that its cash and short-term investments, cash from
operations, lines of credit and foreign exchange facilities are
adequate to meet its currently anticipated needs.
-7-
/8
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 5, 1994.
(b) Arnaud de Vitry d'Avaucourt, Kachig Kachadurian, William E. Katz
and Mark S. Wrighton were each re-elected as a Class II Director
for a three-year term. Continuing as Class I Directors until the
1996 Annual Meeting are Lawrence E. Fouraker, Samuel A. Goldblith
and Arthur L. Goldstein. Continuing as Class III Directors until
the 1995 Annual Meeting are William L. Brown, Robert B. Luick,
John J. Shields and Allen S. Wyett.
The tabulation of votes for all nominees is as follows:
Votes for: 5,670,340
Votes withheld: 146,844
(c) The other matters submitted for stockholder approval were:
(i) an amendment to the Corporation's 1979 Stock Option Plan to
increase the number of shares of Common Stock available for
issuance under the Plan by 325,000 shares:
Votes for: 5,218,640
Votes against: 529,601
Abstentions and
broker non-votes: 68,907
(ii) an amendment to the Corporation's 1979 Stock Option Plan to
limit the number of shares of Common Stock underlying options or
Performance Units granted to any participant in any year to no
more than 100,000 shares, in compliance with Internal Revenue
Code Section 162(m):
Votes for: 5,675,003
Votes against: 80,929
Abstentions and
broker non-votes: 61,116
(iii) the selection of Coopers & Lybrand as the Company's
auditors for 1994:
Votes for: 5,766,498
Votes against: 33,855
Abstentions and
broker non-votes: 16,765
-8-
/9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11- Computation of Net Earnings Per Share (included on
Page 16 of this report).
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1994.
All other items reportable under Part II have been omitted as
inapplicable or because the answer is negative, or because the
information was previously reported to the Securities and
Exchange Commission.
-9-
/10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: August 12, 1994 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: August 12, 1994 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance and
Accounting (chief financial officer)
-10-
/11
<PAGE>
EXHIBIT INDEX
Exhibit Page
10 Material Contracts
10.1 Amendment No. 3, dated June 28, 1994,
to Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California 12
11 Computation of Earnings Per Share 16
-11-
/12
<PAGE>
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994_ 1993_ 1994 1993
<S> <C> <C> <C> <C>
Net income $3,582 $3,520 $6,979 $6,884
Earnings per common and common
equivalent share:
Weighted average number of shares
outstanding 6,953 6,937 6,950 6,927
Incremental shares for stock options
under treasury stock method 112 104 117 127
Weighted average number of common and
common equivalent shares outstanding 7,065 7,041 7,067 7,054
Earnings per common and common
equivalent share $ .51 $ .50 $ .99 $ .98
Earnings per common and common equivalent
share - assuming full dilution:
Weighted average number of shares
outstanding 6,953 6,937 6,950 6,927
Incremental shares for stock options
under treasury stock method 112 104 122 127
Weighted average number of common and
common equivalent shares outstanding -
assuming full dilution 7,065 7,041 7,072 7,054
Earnings per common and common
equivalent share - assuming $ .51 $ .50 $ .99 $ .98
full dilution
-16-
/17
</TABLE>
<PAGE>
Exhibit 10.1
filed as
City Agreement No. 17,458
THIRD AMENDMENT TO AGREEMENT
FOR DESALINATED WATER SUPPLIES
THIS THIRD AMENDMENT TO AGREEMENT No. 15,671, is made
and entered into this June 28th, 1994, by and between the
CITY OF SANTA BARBARA, a municipal corporation hereinafter
referred to as "City, and IONICS, INCORPORATED, a
MASSACHUSETTS CORPORATION, herein referred to as "Water
Provider" or "Ionics".
R E C I T A L S
A. City and Ionics entered into Agreement No. 15,671
on September 18, 1990 (with two later amendments) for the
construction of, and for the sale and purchase of water
from, a Temporary Emergency Desalination Facility
(hereinafter referred to as "the Facilities" and "TED
Facility").
B. The parties have determined that by amending
certain notice provisions for operation of the Facilities,
and with other considerations and modifications to said
Agreement, the parties will substantially reduce costs for
operation and standby.
C. The parties have determined to further amend
Agreement No. 15,671 in order to achieve these cost
reductions.
NOW, THEREFORE, the parties agree to the following
amendments to the Agreement:
1. The parties amend the Long-Term Standby Fee during
the remainder of the first five years (Exhibit S of the
Agreement) to provide such fee in the amount of $103 per
acre foot for the contract year beginning March 1, 1995 and
ending February 28, 1996. Beginning March 1, 1996, the $103
per acre foot Long-Term Standby Fee will be revised based
upon any changes in the Los Angeles Consumer Price Index
reported for January 1, 1995, as provided in Amended Exhibit
P.
2. The base Long Term Standby Fee for the second five
year period will remain at $103, adjusted according to the
Los Angeles Consumer Price Index reported for January 1,
1995, as provided in Amended Exhibit P.
3. Article 1.22 shall be amended to provide:
-12-
/13
<PAGE>
1.22 "Long-Term Standby" means a period of time during
which the Project has ceased producing Finished Water
pursuant to the request of the City, and during which Water
Provider, through reduction in workforce and other measures,
has ceased its preparedness to produce Finished Water
pursuant to the Agreement. The City shall give Water
Provider no less than 12 months' notice to resume Finished
Water deliveries (Water Provider having agreed to use its
best efforts to commence Finished Water deliveries as soon
as possible after such notice from the City in the event the
City requests more rapid delivery of Finished Water). City
shall continue to pay Water Provider a Long-Term Standby Fee
until 90 days before delivery of Finished Water and a Short-
Term Standby Fee for 90 days before delivery of Finished
Water.
EXHIBIT AMENDMENTS
EXHIBITS S & P are amended to provide as appears on the
Exhibits Amended P and Amended S, attached to this
Amendment.
Except as expressly amended by this Second Amendment to
the Agreement, the Agreement shall remain unchanged and in
full force and effect.
CITY OF SANTA BARBARA IONICS, INCORPORATED
By: /s/Hal Conklin By: /s/William E. Katz
Mayor, William E. Katz,
City Hall, Executive Vice President
P.O. Box 1990 65 Grove Street
Santa Barbara, California 93102 Watertown, Massachusetts 02172
ATTEST: ATTEST:
CITY CLERK
/s/Lily Rossi, Chief /s/Stephen Korn
Deputy City Clerk Stephen Korn, Clerk
APPROVED AS TO CONTENT:
/s/D. H. Johnson
APPROVED AS TO FORM:
Daniel J. Wallace, City Attorney
By: /s/Daniel J. Wallace
-13-
/14
<PAGE>
Amended Exhibit S (1994)
LONG-TERM STANDBY FEE
A C R E F E E T P E R Y E A R
(1st 3 YEARS) 7,500
Capital Facilities
Component $1,054.73
Long-Term
Standby Component 179.00(1)
TOTAL FEE/AF $1,233.73
(Years 4 and 5)
Capital Facilities
Component $1,054.73
Long-Term
Standby Component 103.00(2)
TOTAL FEE/AF $1,157.73
(Year 6 and thereafter)
Long-Term
Standby Component (total) $103.00(2)
During the first five years, the Long Term Standby Fee will
consist of a Capital Facilities Component and a Long Term Standby
Component.
1 During the first three years, the Long Term Standby
Component, at the beginning of each contract and renewal year
following the Completion Date, will be escalated by 100% of
the percentage increase in the ratio of the Consumer Price
Index for All Urban Consumers, All Items, for Los Angeles -
Anaheim - Riverside (1982-84=100) two months prior to the
beginning of each contract year to the same index at July 1,
1991.
2 As negotiated, the Long-Term Standby Component, will be
$103 per acre foot from March 1, 1995 until February 28,
1996. Beginning March 1, 1996, the Long-Term Standby
Component will be escalated by 100% of the percentage
increase in the ratio of the Consumer Price Index for All
Urban Consumers, All Items, for Los Angeles - Anaheim -
Riverside (1982-84=100) according to the U.S. Dept. of Labor
reports issued two months prior to March 1, 1996 to that same
index at January 1, 1995, and is subject to annual
adjustments thereafter, as provided for in Exhibit P.
Amended Exhibit S (1994)
-14-
/15
<PAGE>
Amended Exhibit P (1994)
AMENDED WATER DELIVERY COMPONENT, CAPITAL FACILITIES COMPONENT,
SHORT TERM STANDBY FEE AND
LONG TERM STANDBY FEE ADJUSTMENT FORMULAS
1. Water Delivery Component at the beginning of each contract
year following the Completion Date will be escalated by 75%
of the percentage increase in the ratio of the Index for All
Urban Consumers, All Items, for Los Angeles - Anaheim -
Riverside (1982-84 = 100) according to U.S. Dept. of Labor
reports two months prior to the beginning of each contract
year to that same index at July 1, 1991.
2. Short-Term Standby Fee will consist of the Capital Facilities
Component and the Short Term Standby Component to be
escalated as described below. The Short-Term Standby
Component, at the beginning of each contract and renewal year
following the Completion Date will be escalated by 100% of
the percentage increase in the ratio of the Consumer Price
Index for all Urban Consumers, All Items, for Los Angeles -
Anaheim - Riverside (1982-84 = 100) according to U.S. Dept.
of Labor reports issued two months prior to the beginning of
each contract year to that same index at July 1, 1991.
3. Long Term Standby Fee will consist of the Capital Facilities
Component and the Long Term Standby Component to be escalated
as described below. The Long Term Standby Component, at the
beginning of each contract and renewal year after 1995, will
be escalated by 100% of the percentage increase in the ratio
of the the Consumer Price Index for all Urban Consumers, All
Items, for Los Angeles - Anaheim - Riverside (1982-84 = 100)
according to U.S. Dept. of Labor reports issued two months
prior to the beginning of each contract year to that same
index at January 1, 1995.
4. Water Provider has allowed $4 per Acre Foot for local
Property tax in its Capital Facilities Component assuming
1.03% of $1,000,00 assessed valuation per 2500 AF. The
Capital Facilities Component is subject to adjustment (up or
down) depending on actual property tax payments.
5. All of the price components and fees exclude any State of
California or local sales or use taxes on Finished Water or
on termination or purchase which will be billed separately to
the extent they are due and payable.
6. All adjustments will be rounded to the nearest whole dollar.
Amended Exhibit P (1994)
-15-
/16
