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, 1995
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. [X]
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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 15, 1996 was $585,000,113 (14,355,831
shares at $40.75 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 15, 1996, 14,961,285 shares of
Common Stock, $1 par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of 1995 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 2, 1996 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 process food products,
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, Food and
Chemical Supply, and Consumer Products, which in 1995 accounted
for approximately 52%, 26% and 22% of revenues, respectively.
Approximately 39% of the Company's 1995 revenues were derived
from foreign sales or operations. 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, food and
chemicals. In 1995, the Water, Food and Chemical Supply and
Consumer Products business segments accounted for 63% of the
Company's earnings before interest and taxes.
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 a number of
membrane and non-membrane-based separations processes which the
Company refers to as "The Ionics ToolboxSM." These separations
processes include electrodialysis reversal (EDR), reverse
osmosis (RO), ultrafiltration (UF) and microfiltration (MF),
electrodeionization (EDI), electrolysis, ion-exchange, carbon
adsorption, and thermal processes such as evaporation and
crystallization, as well as solvent extraction and recovery
processes. 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.
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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,
1995 is incorporated herein by reference.
Membranes and Related Equipment
The Company's Membranes and Related Equipment business
segment, which accounted for approximately 52% of revenues in
1995 and provides membrane-based and other advanced technology
systems to the municipal and industrial markets, is divided
into three market areas: desalination and related water
treatment equipment; wastewater treatment equipment; and
ultrapure water equipment.
1. Desalination and Related Water Treatment Equipment
Opportunities for the sale of desalination and related
water treatment equipment arise from changes in the needs of
people and municipalities, from industrial shifts and growth,
and from a need to avert environmental concerns. With less
than 1% of the total water on the planet fresh and usable,
desalination has played an important role in creating new water
sources.
The Company sells a wide spectrum of products and systems
to serve this market which utilize technologies including
electrodialysis reversal, ion exchange, electrodeionization,
reverse osmosis, ultrafiltration and carbon adsorption.
Depending on the customers needs, the Company provides
standardized versions of systems utilizing one or more of the
technologies mentioned or can supply complete turnkey plants
that may include standardized models as well as peripheral
water treatment equipment, complete engineering services,
process and equipment design, project engineering,
commissioning, operator training and field service.
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2. Wastewater Treatment Equipment
The market for wastewater treatment, recycle and reuse has
shown significant growth as world demand for water of specified
quality continues to increase and as regulations limiting waste
discharges to the environment continue to mount. The
wastewater market is increasingly driven by the concept of
Total Water ManagementSM, which involves the recognition that
the water streams which enter, leave or become part of a
process can be managed to achieve overall economic
efficiencies. Ionics services the wastewater market with brine
concentrators and crystallizers, traditional wastewater
treatment equipment, special electrodialysis reversal membrane-
based concentrators for recycle and reuse, and pollution-
monitoring analyzers for measurement of water contaminants.
The Company 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. Such systems may also
incorporate electrodialysis reversal membrane systems as
preconcentrators. Ionics also holds an exclusive license for a
patented solvent extraction technology known as B.E.S.T. (Basic
Extraction Sludge Technology), which separates contaminated
sludges, sediments and soils into oil, water and solids and has
potential use for cleanup of toxic organic materials
at contaminated sites.
Ionics also designs, engineers and constructs customized
systems for industrial wastewater customers which may include
conventional treatment systems as well as advanced separation
technologies such as electrodialysis reversal, reverse osmosis,
electrolysis and microfiltration. Typical industrial customers
are power stations, chemical and petrochemical plants,
metal-working and automobile factories, textile manufacture and
a variety of other industrial applications. The Company also
provides custom and packaged sewage treatment systems for
municipalities.
The Company sells instruments to measure water quality for
industrial and government customers. The products which are
used both in the laboratory and on-line measure total carbon,
total organic carbon, chemical oxygen demand and total oxygen
demand. The Company also sells instruments for measurement of
dissolved metals which are sensitive to the part-per-billion
range and specific chemical analyzers for ammonia, phosphates,
nitrates and chlorine.
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3. Ultrapure Water Equipment
Ultrapure water, which has been purified by a series of
processes to the degree that remaining impurities are measured
in parts per billion or trillion, is required by the
semiconductor industry and for other specialized industrial
uses. The demand for technologically advanced ultrapure water
equipment and systems has increased as the industries which use
ultrapure water have become more knowledgeable about their
quality requirements. The semiconductor industry in particular
has increasingly demanded higher purity water as the circuits
on silicon wafers have become more densely packed.
The recent increasing worldwide demand for computer chips
has sparked a worldwide boom in the construction of fabrication
facilities and the associated need for ultrapure water
equipment. The Company supplies sophisticated ultrapure water
systems to the semiconductor, electronics and power industries
which utilize a combination of electrodialysis reversal, ion
exchange, electrodeionization, reverse osmosis and
ultrafiltration technologies. These systems are either
trailer-mounted or land-based and vary from standardized
modules to large multimillion dollar systems depending on the
customer's requirements.
Water, Food and Chemical Supply
The Water, Food and Chemical Supply business segment
accounted in 1995 for approximately 26% of the Company's
revenues (commencing in 1994, revenues from the sale of bleach
and bleach-based cleaning products for the consumer market have
been moved from this segment to the Consumer Products segment.
As a result, certain prior year amounts in the financial
statements have been reclassified to conform to the current
year's presentation). The Company's strategy is to sell, where
appropriate, water, food products and chemicals produced by its
membrane-based equipment, rather than selling the equipment
itself. The water, food and chemical supply business segment
can be divided into four market areas: ultrapure water supply;
municipal water supply; chemical supply; and food processing.
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1. Ultrapure Water Supply
In industries such as power generation, semiconductors,
pharmaceuticals and biotechnology, ultrapure water (water in
which the impurities have been reduced to concentrations as low
as 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 and
the production and sale of ultrapure water from trailer-mounted
units at the customer sites.
Ionics has also commercially implemented 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. The Company's new TMT-II trailers utilize a
combination of EDI, RO and UF technologies to produce ultrapure
water.
At the end of 1995, the Company had a total capacity,
installed or under construction, of approximately 9,000 gallons
per minute for the production of ultrapure water under long-
term contracts with various industries.
In January 1996, the Company acquired Apollo Ultrapure
Water Systems, Inc., based in Pico Rivera, California, just
outside of Los Angeles. This acquisition will permit the
Company to provide additional resources to service the growing
Southern California ultrapure water market.
The Company serves the ultrapure water market from its
headquarters facilities in Watertown, Massachusetts, through
the Ionics Pure Solutions division in Phoenix, Arizona, the
Ionics Ahlfinger Water Company division in Dallas, Texas; and
through the following subsidiaries: Ionics Apollo Ultrapure
Water Systems, Inc., Pico Rivera, California; 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.
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2. Municipal Water Supply
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 an 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. In
1995, the Company contracted with the water utility to expand
its seawater RO facility from a capacity of approximately 2.2
million gallons per day to approximately 3.6 million gallons
per day.
The Company's wholly owned subsidiary, Ionics (Bermuda)
Ltd., owns and 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.
The Company financed, constructed, owns and operates a
seawater 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.
In 1994, the City approved a two-year extension of the
Company's current operation and maintenance contract into 1997.
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3. Chemical Supply
In the chemical supply area, the Company uses its
CloromatR technology to produce sodium hypochlorite and related
chlor-alkali chemicals for industrial, commercial and other
non-consumer applications, utilizing a membrane-based process.
The Company's wholly owned Australian subsidiary, Elite
Chemicals Pty. Ltd., utilizes Cloromat systems to produce
sodium hypochlorite on-site in Brisbane for industrial,
commercial and janitorial supply of bleach products. In 1994,
the Australian subsidiary signed a five-year contract to supply
sodium hypochlorite to treat the City of Brisbane's drinking
water supply, and in 1995 expanded its bleach-manufacturing
capacity by one-third.
The Company's wholly owned English subsidiary, Ionics
(U.K.) Limited, engages in bulk bleach sales at a Cloromat
facility in Bridgwater, England. A large portion of the
facility's output is being sold to an English manufacturer for
use in cellophane manufacture, and the balance is being sold to
the regional market. In 1995, a second major Cloromat facility
in England owned and operated by Ionics (U.K.) Limited
commenced bulk bleach sales to a leading English manufacturer
of household cleaning products and to the regional market being
served by the plant.
4. Food Processing
In 1994, the Company commenced operations under an
agreement with a major U.S. dairy cooperative overseeing whey
processing activities at two plants owned by the cooperative.
Included in the equipment being utilized by the Company at
these plants are its ElectromatR electrodialysis systems. The
Company receives a processing fee based on the production of
demineralized whey for its services. In 1995, the cooperative
authorized the Company to increase the amount of demineralized
whey being produced at the two plants.
Consumer Products
Ionics' consumer products business segment accounted for
approximately 22% of the Company's revenues in 1995. The
Company's consumer products serve the bottled water, home water
purification and consumer bleach products market areas.
1. 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
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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,
Manchester, Birmingham, Bristol and Leeds, England; a number of
metropolitan areas in the eastern, southeastern and central
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 commercial
and residential customers. The Company also manufactures
coolers in a wide variety of colors which offer options for
hot, cold and room temperature water.
At the end of 1995, there were a total of 25 Aqua Cool
distribution centers in the United States and overseas,
supplied with Aqua Cool by six regional water purification and
bottling facilities, supplying a customer base of approximately
80,000.
2. Home Water Purification Systems
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.
Point of Entry Devices
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 and other brands, through
both independent distributorships and wholly owned sales and
service dealerships. The Company recently introduced new
marketing assistance programs, including retail financing, to
its independent distributors, and also increased its base of
independent distributors.
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3. Bleach-Based Consumer Products
The Company's Elite Chemicals New England division
operates a Cloromat facility to produce and distribute bleach-
based products for the consumer market, primarily one-gallon
bleach products under private label or under the Company's own
"EliteR", "Super ValueTM" and "UltraPureTM" brands, and methanol-
based automobile windshield wash solution. In 1994, to expand these
operations, the Company purchased a 129,000 square foot
manufacturing facility, located in Ludlow, Massachusetts, which
has now commenced operations. In 1995, the Company purchased a
facility in Elkton, Maryland, to serve as the Mid-Atlantic
regional manufacturing and distribution center for bleach-based
and related consumer products.
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, UF and EDI
processes. Membranes used for the RO process 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 92 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
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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, other than certain activities of the Consumer
Products segment. Bottled water sales and bleach products for
swimming pool use tend to increase during the summer months.
Also, sales levels for automobile windshield wash solution
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.
Backlog
The Company's backlog of firm orders was $173,734,000 at
December 31, 1995 and $152,340,000 at December 31, 1994. For
multi-year contracts, the Company includes in reported backlog
the revenues associated with the first five years of the
contract. For multi-year contracts which are not otherwise
included in backlog, the Company includes in backlog up to one
year of revenues. Ionics expects to fill approximately 74% of
its December 31, 1995 backlog during 1996. 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 1995 are
subject to renegotiation. The Company has not had adjustments
to its negotiated contract prices, nor are any proceedings
pending for such adjustments.
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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 $3,432,000 in 1995, $3,372,000 in 1994 and
$3,678,000 in 1993.
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 Membranes 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.
In 1994, 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 1993, 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 1,244 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.
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With respect to the Water, Food 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
sodium hypochlorite and water treatment chemicals.
With respect to the Company's Consumer 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 competes with many suppliers of bleach and
bleach-based cleaning products and automobile windshield wash
for the consumer market, a number of which are much larger than
the Company.
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 approximately 1,000 PRP's at a
Superfund site at Solvent Recovery Source of New England in
Southington, Connecticut (the "SRS Site"). The Company's
volumetric ranking in comparison to the total volume of wastes
treated on the SRS Site is approximately 0.522%. A non-time
critical removal action, consisting of containment, pumping,
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and treatment of the most heavily contaminated non-bedrock
groundwater, was commenced in 1995. The Company's share of the
total cost of this action, which is estimated at $7.75 million
including operation and maintenance through 1997, will be
$40,400, of which $30,384 has been paid to date.
The PRP Group will conduct a second non-time critical
removal action which will cause the installation of an asphalt
cap on the site and bedrock groundwater wells to contain, pump
and treat the bedrock groundwater. The Company's share of the
total cost for this work, which is estimated to be $5.55
million, will be approximately $29,000.
It is too soon to predict the scope and cost of the final
clean-up remedy that the EPA will select. However, based on
its small volumetric ranking and the identities of the larger
PRP's, 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.
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 1,350 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, sodium hypochlorite, Cloromat systems,
related products and services, and bottled water. 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
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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 $58,000 in 1995,
$23,000 in 1994 and $157,000 in 1993.
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 B.V.; Global Water
Services, S.A.; Elite Chemicals Pty. Ltd.; Eau et Industrie;
Resources Conservation Co. International; and Ionics Foreign
Sales Corporation Limited. In early 1996, Ionics acquired a
number of entities incorporated in various Caribbean
jurisdictions which are engaged in seawater desalination
operations.
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; and a 49% ownership
interest in Ionics-Mega s.r.o, a limited liability company of
the Czech Republic established to pursue water treatment
opportunities in that country.
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 1995 Annual Report to the
Stockholders, which Notes are incorporated herein by reference.
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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,
1995 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, containing
approximately 250,000 square feet and housing executive
offices, laboratories and manufacturing and assembly
operations; a 234,000 square foot facility in Elkton, Maryland
which will be utilized primarily for consumer bleach-based
product manufacturing, and distribution; a 129,000 square foot
facility in Ludlow, Massachusetts which is utilized primarily
for consumer bleach-based product manufacturing; two buildings
in Bridgeville, Pennsylvania containing approximately 77,000
square feet and housing manufacturing operations for home water
treatment equipment and fabricated products; and other
facilities in Phoenix, Arizona; Pico Rivera, California;
Lorton, Virginia; Union, New Jersey; Fairfield, Ohio; London,
England; Thetford, England; Brisbane, Australia; and Milan,
Italy, for various operations relating to the business of the
Company.
The Company makes use primarily of leased facilities for
its Aqua Cool bottled water distribution center at 25 locations
in the U.S. and overseas.
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 involved in the normal course of its
business in various litigation matters. Although the Company's
counsel is unable to determine at the present time whether the
Company will have any liability in any of the pending matters,
some of which are in the early stages of pretrial discovery,
the Company believes it has meritorious defenses and that none
of the pending matters will have an outcome material to the
financial condition or business of the Company.
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.
17/
I-15
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, 1995. 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, 1995. 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, 1995. The
information set forth on pages 16 through 18 of such Annual
Report entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition" 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, 1995. The
consolidated balance sheets of the Registrant as of December
31, 1995 and 1994, the related consolidated statements of
operations, cash flows and stockholders' equity for the years
ended December 31, 1995, 1994 and 1993, and the related notes
with the opinion thereon of Coopers & Lybrand L.L.P.,
independent accountants, on pages 19 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.
18/
II-1
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 2, 1996 to be filed with the
Securities and Exchange Commission on or about March 29, 1996.
The information regarding executive officers is as
follows:
<TABLE>
<CAPTION>
Age as of Positions
Name March 1, 1996 Presently Held
<S> <C> <C>
Executive Officers:
Arthur L. Goldstein* 60 President, Chief Executive Officer
and Director since 1971; Chairman
of the Board since 1990
Kachig Kachadurian 46 Executive Vice President since 1994,
Senior Vice President from 1991 to
1994 and Vice President from 1983 to
1991; Director since 1986
William E. Katz 71 Executive Vice President since 1983;
Director since 1961
Robert J. Halliday 41 Vice President, Finance and Accounting
since December 1990; Chief Financial
Officer since August 1992
Stephen Korn 50 Vice President, General Counsel
and Clerk since September 1989
Theodore G. Papastavros 62 Vice President since 1975 (currently
Vice President, Strategic Planning)
and Treasurer since February 1990
___________________
* Member of Executive Committee
</TABLE>
There are no family relationships between any of the
officers or directors. Officers of the Company are elected each
year at the annual meeting of Directors.
All of the above executive officers have been employed by
the Company in various capacities 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 2, 1996 to be
filed with the Securities and Exchange Commission on or about
March 29, 1996.
19/
III-1
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 2, 1996 to be
filed with the Securities and Exchange Commission on or about
March 29, 1996.
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 2, 1996 to be
filed with the Securities and Exchange Commission on or about
March 29, 1996.
20/
III-2
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
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <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
4.1 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.
4.2 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).
21/
IV-1
4.3 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).
4.4 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 22, 1996.
10.2 1986 Stock Option Plan for Non-Employee Directors,
as amended through August 22, 1995.
10.3 Amended and Restated Credit Agreement between *
Registrant and the First National Bank of Boston
dated as of December 31, 1992 (filed as Exhibit
10.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
10.3(1) Amendment Agreement No. 1, dated as of
December 31, 1995, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston.
10.4 Operating Agreement dated as of September 27, *
1989 between Registrant and Aqua Cool
Enterprises, 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
22/
IV-2
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 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 (filed electronically as
Exhibit 10.1 to the Registrant's Form 10-Q for the
period ended June 30, 1994).
10.11 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).
10.12 1994 Restricted Stock Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
March 30, 1995 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, 1995 (only pages 16
through 32 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant.
23. Consents
23.1 Consent of Coopers & Lybrand L.L.P. to incorporation
by reference of that firm's report dated
February 20, 1996, which is included on page 31 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1995.
24. Power of Attorney.
27. Financial Data Schedule ***
________________________________
* incorporated herein by reference
** copies of which will be filed by Registrant with the
Securities and Exchange Commission upon its request
*** for electronic purposes only
</TABLE>
23/
IV-3
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the last quarter of fiscal 1995.
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, 33-54293, 33-59051 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.
24/
IV-4
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 29, 1996
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 29, 1996 By/s/Arthur L. Goldstein
Arthur L. Goldstein,
Chairman of the Board,
President and
Chief Executive Officer
(principal executive
officer) and Director
Date: March 29, 1996 By/s/Robert J. Halliday
Robert J. Halliday,
Vice President, Finance
and Accounting and Chief
Financial Officer
(principal financial and
accounting officer)
25/
IV-5
Date: March 29, 1996 By/s/William L. Brown
William L. Brown, Director
Date: March 29, 1996 By/s/Arnaud de Vitry d'Avaucourt
Arnaud de Vitry d'Avaucourt,
Director
Date: March 29, 1996 By/s/Lawrence E. Fouraker
Lawrence E. Fouraker, Director
Date: March 29, 1996 By/s/Samuel A. Goldblith
Samuel A. Goldblith, Director
Date: March 29, 1996 By/s/Kachig Kachadurian
Kachig Kachadurian, Director
Date: March 29, 1996 By/s/William E. Katz
William E. Katz, Director
Date: March 29, 1996 By/s/Robert B. Luick______________
Robert B. Luick, Director
Date: March 29, 1996 By/s/John J. Shields
John J. Shields, Director
Date: March 29, 1996 By/s/Carl S. Sloane
Carl S. Sloane, Director
DATE: March 29, 1996 By/s/Mark S. Wrighton
Mark S. Wrighton, Director
Date: March 29, 1996 By/s/Allen S. Wyett
Allen S. Wyett, Director
26/
IV-6
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, 1995, 1994 and 1993 19*
Consolidated Balance Sheets as of
December 31, 1995 and 1994 20*
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993 21*
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1995, 1994 and 1993 22*
Notes to Consolidated Financial Statements 23-31*
Supporting Financial Statement Schedules for the years Ended
December 31, 1995, 1994 and 1993:
Schedule II - Valuation and Qualifying Accounts IV-8
Report of Independent Accountants on Financial Statement
Statement Schedule IV-9
__________________
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, 1995, which pages
are incorporated herein by reference.
27/
IV-7
<TABLE>
IONICS, INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<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> <C>
Allowance for doubtful
accounts and uncollectible
notes receivable:
Years ended:
December 31, 1995 $2,197,170 $563,458 $ 0 $ 371,272 $2,389,356
December 31, 1994 $2,022,068 $535,200 $ 0 $ 360,098 $2,197,170
December 31, 1993 $2,694,200 $390,489 $(124,000) $ 938,621 $2,022,068
<FN1>
(A) 1993 amount includes reductions of $413,000 resulting from the consolidation of ACE.
<FN2>
(B) Deductions result primarily from the write-off of accounts.
</TABLE>
28/
IV-8
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, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995
has been incorporated by reference in this Form 10-K from page
31 of the 1995 Annual Report to Stockholders of Ionics,
Incorporated. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule listed in the Index on page IV-7 of this Form 10-K.
In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/S/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1996
29/
IV-9
<TABLE>
EXHIBIT INDEX
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page No.
<S> <C> <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
4.2 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).
4.3 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).
4.4 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 33
February 22, 1996.
10.2 1986 Stock Option Plan for Non-Employee Directors, 49
as amended through February 18, 1992 as amended
through August 22, 1995.
30/
10.3 Amended and Restated Credit Agreement between *
Registrant and The First National Bank of Boston
dated as of December 31, 1992 (filed as Exhibit
10.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
10.3(1) Amendment Agreement No. 1, dated as of 59
December 31, 1995, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston.
10.4 Operating Agreement dated as of September 27, *
1989 between Registrant and Aqua Cool
Enterprises, 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).
31/
10.10 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 (filed electronically
as Exhibit 10.1 to the Registrant's Form 10-Q
for the period ended June 30, 1994).
10.11 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).
10.12 1994 Restricted Stock Plan (filed as Exhibit *
10.12 to Registrant's Annual Report on Form 10-K
dated March 30, 1995 and filed electronically
on the same date).
11. Statement re Computation of Earnings Per Share. 65
13. Annual Report to Stockholders of the Registrant for 66
the year ended December 31, 1995 (only pages 16
through 32 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant. 99
23.1 Consent of Coopers & Lybrand L.L.P. to incorporation 100
by reference of that firm's report dated
February 20, 1996, which is included on page 31 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1995.
24. Power of Attorney. 101
27. Financial Data Schedule (for electronic
purposes only)
* incorporated herein by reference
</TABLE>
32/
Exhibit 10.1
IONICS, INCORPORATED
1979 Stock Option Plan
As Amended through February 22, 1996
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
Februry 15, 1999 (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
33/
(hereinafter called the "Options" and each singly an
"Option") or pursuant to the earn out of Performance Units
under this Plan, shall not exceed 3,610,000 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.
34/
- 2 -
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 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.
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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
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designated as Incentive Stock Options pursuant to Section 17
may be a period of ten years and one day from the date of
grant.
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.
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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.
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
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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 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.
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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:
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(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.
(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"):
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(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 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.
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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 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
43/
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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
44/
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(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 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.
45/
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(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
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.
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(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.
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(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.
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Exhibit 10.2
IONICS, INCORPORATED
1986 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As amended through August 22, 1995)
1. Purpose of Plan.
This 1986 Stock Option Plan for Non-Employee Directors
(hereinafter called the "Plan") of Ionics, Incorporated
(hereinafter called the "Company") is intended to advance the
interests of the Company by providing a means of attracting
capable and qualified persons to serve as independent Directors,
and encouraging such persons to continue to serve as Directors,
through ownership of Common Stock of the Company.
2. Definitions.
2.1 "Optionee" shall mean a person to whom a stock option
has been granted under the Plan.
2.2 "Subsidiary" shall mean a corporation, partnership or
other entity whose controlling stock or other ownership interest
is owned directly or indirectly by the Company.
3. Effective Date.
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 and present at the
meeting when the matter is acted upon.
4. Stock Subject to the Plan.
Subject to adjustment as provided hereinbelow, the total
number of shares of Common Stock, one dollar ($1.00) per share
par value (hereinafter "Common Stock"), of the Company for which
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options may be granted pursuant to the Plan (hereinafter called
the "Options" and each singly an "Option") shall not exceed
200,000 shares in the aggregate. Such shares may either be
authorized and unissued shares of Common Stock or issued shares
of Common Stock which 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 purpose of issuance pursuant to
the Plan.
Each eligible Director shall be granted an Option to acquire
2,000 shares of Common Stock as provided in Section 6, subject to
adjustment as provided hereinbelow, for each year of service as a
Director of the Company.
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 be made in the number
and kind of shares as to which outstanding Options (or portions
thereof then unexercised) and Options to be issued in the future
pursuant to the terms of this Plan shall be exercisable, such
that the proportionate interest of each Optionee shall be
maintained as before the occurrence of such event. Such
adjustments in outstanding Options shall be made without change
in the aggregate total option price of Option then outstanding
and unexercised, but with a corresponding adjustment in the
option price per share.
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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"). 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 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 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.
6. Eligibility; Grant of Options.
Only persons who hold office as Directors of the Company and
who are not otherwise employees of the Company or of any of its
Subsidiaries may be granted an Option under this Plan. Each
Director of the Company who is not otherwise an employee of the
Company or any Subsidiary shall be granted an Option to acquire
2,000 shares under the Plan with respect to his election to
office, and to each year that he continues to serve as a Director
of the Company. Each such Director shall be entitled to receive
an Option to acquire 2,000 shares under the Plan immediately
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after the annual meeting of the stockholders at which he is first
elected, and an additional Option to acquire 2,000 shares
immediately upon completion of each next successive year in
office. A Director who assumes office at a time other than an
annual meeting of stockholders shall be entitled to receive his
initial Option to acquire 2,000 shares under the Plan immediately
after the annual meeting of stockholders next following his
assumption of office. For purposes of the Plan, a Director shall
be considered to have completed a "year in office" on the date of
each annual meeting of stockholders while he continues in office;
provided, however, that if the interval between any two such
annual meetings is greater than 395 days, a Director shall be
considered to have completed a "year in office" for purposes of
the Plan on the 395th day after the preceding year's annual
meeting of stockholders, rather than on the date of the second of
the two such annual meetings.
7. The Option Price.
The price payable upon exercise of an Option granted
hereunder shall be the fair market value at the date of grant of
the shares covered by the Option. For purposes of the Plan, if
the Common Stock of the Company is listed for trading on the New
York Stock Exchange (or any other registered stock exchange), the
fair market value of the shares shall be equal to the last sale
price for the Common Stock on such exchange on the trading day
next preceding the date of grant of an Option.
The Option exercise price shall be paid (1) in cash, (2) in
shares of the Common Stock of the Company already owned by the
person exercising the Option, or (3) in any combination of cash
and of such shares. In the event that such shares are delivered
to pay for all or a portion of the Option exercise price, they
shall be valued at the last sale price for the Common Stock on
the New York Stock Exchange (or other registered stock exchange)
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as reported on the date of delivery of the shares in exercise of
the Option, and any shares delivered in payment of the Option
exercise price shall be free and clear from all restrictions on
transfer, claims or purchase rights, except as the Administrators
may affirmatively allow.
8. Nontransferability of Options.
No Option granted under the Plan shall be encumbered,
assigned, or otherwise transferred, otherwise than by will or the
laws of descent and distribution, and an Option may be exercised
during the lifetime of an Optionee only by him.
9. Duration of Options.
Each Option shall expire not more than ten (10) years from
its date of grant, but shall be subject to earlier termination:
(a) in the event that the Optionee ceases to be a Director
of the Company, an Option may thereafter be exercised
by him only to the extent that under Section 10, the
right to exercise the Option has accrued and is in
effect, and only within the period of thirty (30) days
after the Optionee ceases to be a Director; or
(b) in the event that the Optionee dies while holding
office as a Director or within the 30-day period
described in paragraph (a), an Option granted to him
may thereafter be exercised by his estate or by any
person or persons who acquired the right to exercise
the Option by bequest or by inheritance or by reason of
the death of the Optionee, to the extent of the full
number of shares covered by the Option, regardless of
whether the Optionee at the time of this death was
entitled to exercise the Option in full, but only
within the period of ninety (90) days after his death.
53/
-6-
10. Time and Manner of Exercise.
Options granted under the Plan shall not be exercisable for
a period of six (6) months after their date of grant, but shall
be immediately exercisable in full thereafter; provided, however,
that (i) options may be exercised only during the periods
beginning on the third business day following the date on which
the Company releases for publication its annual or quarterly
financial reports and ending on the twelfth business day
following such date and (ii) no Option shall be exercisable after
ten (10) years from the date on which it was granted.
To the extent that the right to exercise an Option has
accrued and is in effect, the Option may be exercised in full at
one time or in part from time to time by giving written notice,
signed by the person or persons exercising the Option, to the
Company, stating the number of shares with respect to which the
Option is being exercised, and accompanied by payment in full for
such shares in accordance with Section 7. There shall be no such
exercise at any one time as to fewer than two hundred (200)
shares or all of the remaining shares then purchaseable by the
person or persons exercising the Option, if fewer than two
hundred (200) shares. Upon such exercise, delivery of a
certificate for paid-up non-assessable shares shall be made at
the principal Massachusetts office of the Company to the person
or persons exercising the Option at such time, during ordinary
business hours, after fifteen (15) days but not more than thirty
(30) days from the date of receipt of the notice by the Company,
as shall be designated in such notice, or at such time, place or
manner as may be agreed upon by the Company and the person or
persons exercising the Option. Notwithstanding the foregoing,
the Company may delay issuance of shares pursuant to an Option
until the person exercising the Option has complied with all of
the terms and conditions of the Plan and the applicable stock
option agreement.
54/
-7-
11. Stock Option Agreement Required.
Each Option granted under the Plan shall be evidenced by a
written option agreement (the "Agreement") between the Company
and the Optionee, in such form as the Administrators shall
determine, which Agreements may but need not be identical, and
which shall (i) comply with and be subject to the terms and
conditions of the Plan and (ii) provide that the Optionee agrees
to continue to serve as a Director of the Company during the term
for which he was elected, and that during such term he will not,
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 having business substantially
competitive to the business in which the Company or its
Subsidiaries are then engaged. Any Agreement may contain such
other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrators. No Option shall
be granted within the meaning of the Plan, and no purported grant
of any Option shall be effective, until such an Agreement shall
have been duly executed on behalf of the Company and the Director
to whom the Option is to be granted.
12. Purchase for Investment; Rights of Holder of Subsequent
Registration.
Unless the shares to be issued upon exercise of an Option
have been effectively registered under the Securities Act of 1933
as now in force or hereafter amended, the Company shall be under
no obligation to issue any shares covered by any Option unless
the person who exercises such Option, in whole or in part, shall
give a written representation and undertaking to the Company
which is satisfactory in form and scope to counsel to the Company
and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he is acquiring the shares issued to him
pursuant to such exercise of the Option for his own account as an
investment and not with a view to, or for sale in connection
with, the distribution of any such shares, and that he will make
55/
-8-
no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if
shares are issued without such registration, a legend to this
effect may be endorsed upon the securities so issued. In the
event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other
applicable statutes any shares with respect to which an Option
shall have been exercised, or to qualify any such shares for
exemption from the Securities Act of 1933 or other applicable
statutes, then the Company shall take such action at its own
expense and may require reasonable indemnity to the Company and
its officers and Directors from such holder against all losses,
claims, damages and liabilities arising from such use of the
information so furnished and caused by any untrue statement of
any material fact therein, or caused by omission to state a
material fact required to be stated therein or necessary to make
the statement therein not misleading in light of the
circumstances under which they were made.
13. Listing of Option Stock.
So long as the Common Stock of the Company is listed on the
New York Stock Exchange or any other stock exchange, the Company
shall take necessary steps so that the shares to be issued upon
exercise of an Option are listed by such exchange, or will be so
listed, upon notice of issuance.
14. Effect of Option.
The grant of an Option 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 Agreement under the Plan shall
confirm upon the Optionee any right with respect to continuation
of his Directorship, nor shall it affect or restrict the right of
the Company or any assuming or succeeding Company to terminate
such Directorship at any time.
56/
-9-
15. Termination, Suspension, Amendment or Modification of the
Plan.
Unless sooner terminated as hereinafter provided, the Plan
will terminate at the close of business on May 7, 2002.
The Board may at any time terminate or suspend the Plan or
make such modification or amendment thereof as it deems
advisable, provided, however, that the Board may not, without
approval by the affirmative vote of the holders of a majority of
the securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the Commonwealth of Massachusetts, (i)
materially increase the benefits accruing to participants under
the Plan; (ii) materially increase the number of shares for
which Options may be granted under the Plan; or (iii) materially
modify the requirements as to eligibility for participation in
the Plan. In no event, however, may any provision of this Plan
specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) of the Securities Exchange Act of 1934
(including without limitation, provisions as to eligibility and
who may participate in the Plan, the amount and price of shares
for which Options may be granted or the timing of awards), be
amended more than once every six months, other than to comport
with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
Termination or any modification or amendment of the Plan shall
not, without consent of a participant, affect his rights under an
Option previously granted to him.
16. Merger, Consolidation or Sale of the Entire Business of the
Company.
If before the expiration 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
57/
-10-
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 as of the
effective date of said transaction.
17. Compliance with Applicable Laws and Regulations.
Upon exercise of any Option granted hereunder, the person
exercising the Option shall file any and all reports required of
him under the Securities Exchange Act of 1934, as amended, or
otherwise.
58/
Exhibit 10.3(1)
AMENDMENT AGREEMENT NO. 1
to that certain
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
Dated as of December 31, 1992
This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), is made as of
December 31, 1995, by and among IONICS, INCORPORATED (the
"Borrower"), a Massachusetts corporation having its principal
place of business at 65 Grove Street, Watertown, Massachusetts
02172, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), 100 Federal
Street, Boston, Massachusetts 02110, and such other banks that
are or may become parties to this Agreement from time to time in
accordance with the provisions hereof (FNBB and such other banks
being collectively referred to herein as the "Banks" and each a
"Bank") and THE FIRST NATIONAL BANK OF BOSTON as Agent for the
Banks (the "Agent").
WHEREAS, the Borrower, the Banks and the Agent are parties
to that certain Amended and Restated Revolving Credit Agreement,
dated as of December 31, 1992 (as amended and in effect from time
to time, the "Credit Agreement"), pursuant to which the Banks,
upon certain terms and conditions, have made loans to the
Borrower; and
WHEREAS, the Borrower has requested and the Banks and the
Agent have agreed, on the terms and subject to the conditions set
forth herein, to amend the Credit Agreement to (a) extend the
maturity of the Loans and (b) modify certain covenants and
provisions;
NOW, THEREFORE, the parties hereto hereby agree as follows:
'1. Defined Terms. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement
shall have the same meanings herein as in the Credit Agreement.
'2. Amendment of Credit Agreement.
(a) Section 1.1 of the Credit Agreement is hereby
amended by deleting the reference to the date "December 31, 1995"
therein and substituting therefor the date "December 31, 1998".
59/
-2-
(b) Section 1.2 of the Credit Agreement is hereby
amended as follows:
(i) by deleting each reference to the date
"December 31, 1995" therein and substituting for each reference
therefor the date "December 31, 1998";
(ii) by deleting the reference to the date "April
1, 1996" therein and substituting therefor the date "April 1,
1999"; and
(iii) by deleting the reference to the date
"December 31, 1996" therein and substituting therefor the date
"December 31, 1999".
(c) Section 1.2.1(a) of the Credit Agreement is hereby
amended by deleting the words "Not less than three (3) nor more
than five (5) Business Days" in the first line of such subsection
and substituting therefor the words "Not less than two (2) nor
more than five (5) Business Days".
(d) Section 1.2.1(a)(1)(B) of the Credit Agreement is
hereby amended by deleting the words "a minimum amount of
$1,000,000" therein and substituting therefor the words "a
minimum amount of $500,000".
(e) Section 1.2.1(a)(1)(C) of the Credit Agreement is
hereby amended by deleting the words "a minimum amount of
$500,000 and even multiples of $250,000" therein and substituting
therefor the words "a minimum amount of $250,000 and even
multiples of $100,000".
(f) Section 1.2.2 of the Credit Agreement is hereby
amended as follows:
(i) by inserting in the second sentence thereof,
immediately before the reference to "one (1)", the phrase "seven
(7) days or";
(ii) by inserting in the third sentence thereof,
immediately before the reference to "seven (7)", the phrase "one
(1) day or";
(iii) by deleting the reference to the date
"December 31, 1995" from the fourth sentence thereof and
substituting therefor the date "December 31, 1998"; and
60/
-3-
(iv) by deleting the date "December 31, 1998" from
the fourth sentence thereof and substituting therefor the date
"December 31, 2001".
(g) Section 1.3 of the Credit Agreement is hereby
amended as follows:
(i) by deleting in the fifth sentence thereof,
the words "at least five (5)" and substituting therefor the words
"at least three (3)";
(ii) by deleting in the seventh sentence thereof,
the phrase "Eurodollar Loan(s) shall be in an aggregate principal
amount of $250,000" and substituting therefor the phrase
"Eurodollar Loan(s) shall be in an aggregate principal amount of
$100,000"; and
(iii) by deleting in the eighth sentence
thereof the words "principal amount of $1,000,000" and
substituting therefor the words "principal amount of $500,000".
(h) The definition of Interest Period contained within
Section 2 of the Credit Agreement is hereby amended as follows:
(i) by inserting immediately before the reference
to "one (1), two (2)", the phrase "seven (7) days or";
(ii) by inserting immediately before the reference
to "seven (7), thirty (30)", the phrase "one (1) day or";
(i) Section 5.6 of the Credit Agreement is hereby
amended as follows:
(i) by deleting the number "$150,000,000" and
substituting therefor the number "$163,000,000"; and
(ii) by deleting the reference to the date "June
30, 1992" and substituting therefor the date "September 30,
1995".
(j) Exhibit A to the Credit Agreement is hereby
amended by deleting the reference to the date "December 31, 1995"
and substituting therefor the date "December 31, 1998".
61/
-4-
(k) Exhibit B to the Credit Agreement is hereby
amended by deleting the reference to the date "April 1, 1996" and
substituting therefor the date "April 1, 1999".
'3. Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions:
(a) Delivery. The Borrower, the Banks and the Agent
shall have executed and delivered this Amendment.
(b) Loan Note. The Borrower shall have executed and
delivered an amended and restated Loan Note in substantially the
form of Exhibit A to the Credit Agreement, dated as of December
31, 1995 and completed with the appropriate insertions.
(c) Proceedings and Documents. All proceedings in
connection with the transactions contemplated by this Amendment
and all documents incident thereto shall be reasonably
satisfactory in substance and form to the Banks and the Agent,
and the Agent shall have received all information and such
counterpart originals or certified or other copies of such
documents as the Agent may reasonably request.
'4. Representations and Warranties. The Borrower
represents and warrants to the Banks and the Agent as follows:
(a) Representations and Warranties in Credit
Agreement. The representations and warranties of the Borrower
contained in the Credit Agreement, (i) were true and correct in
all material respects when made, and (ii) except to the extent
such representations and warranties by their terms are made
solely as of a prior date, continue to be true and correct in all
material respects on the date hereof.
(b) Authority, Etc. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of
all of its agreements and obligations under this Amendment (i)
are within the corporate authority of the Borrower, (ii) have
been duly authorized by all necessary corporate proceedings by
the Borrower, (iii) do not conflict with or result in any breach
or contravention of any provision of law, statute, rule or
regulation to which the Borrower is subject or any judgment,
order, writ, injunction, license or permit applicable to the
Borrower, and (iv) do not conflict with any provision of the
corporate charter or by-laws of, or any agreement or other
instrument binding upon, the Borrower.
62/
-5-
(c) Enforceability of Obligations. This Amendment,
and the Credit Agreement as amended hereby, constitute the legal,
valid and binding obligations of the Borrower enforceable against
in accordance with their respective terms. Immediately prior to
and after giving effect to this Amendment, no Default or Event of
Default exists under the Credit Agreement or any other Loan
Document.
'5. No Waiver. Except as otherwise expressly provided for
in this Amendment, nothing in this Amendment shall extend to or
affect in any way any of the Borrower's obligations or any of the
rights and remedies of the Banks or the Agent in respect of the
Credit Agreement arising on account of the occurrence of any
Event of Default, all of which are expressly preserved.
'6. Miscellaneous Provisions. (a) Except as otherwise
expressly provided by this Amendment, all of the terms,
conditions and provisions of the Credit Agreement shall remain
the same. It is declared and agreed by each of the parties
hereto that the Credit Agreement, as amended hereby, shall
continue in full force and effect, and that this Amendment and
the Credit Agreement shall be read and construed as one
instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN
AGREEMENT UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute
but one instrument. In making proof of this Amendment it shall
not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) The Borrower hereby agrees to pay to the Agent, on
demand by the Agent, all reasonable out-of-pocket costs and
expenses incurred or sustained in connection with the preparation
of this Amendment (including reasonable legal fees).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
63/
-6-
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as an agreement under seal of the date first written
above.
IONICS, INCORPORATED
By:/s/Robert J. Halliday
Name: Robert J. Halliday
Title: V.P. Finance
THE FIRST NATIONAL BANK
OF BOSTON, individually and as Agent
By:/s/Henry L. Petrillo
Name: Henry L. Petrillo
Title: Vice President
64/
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
Net Income $19,682,000 $15,448,000 $13,807,000
Calculation of primary earnings per
common and common equivalent share:
Weighted average common shares outstanding 14,098,000 13,926,000 13,870,000
Increase from assumed exercise of
stock options and investment of pro-
ceeds in treasury stock, based upon
average market prices 532,000 272,000 250,000
Weighted average number of common and
common equivalent shares outstanding 14,630,000 14,198,000 14,120,000
Earnings per common and common
equivalent share $1.35 $1.09 $ .98
Calculation of fully diluted earnings per
common and common equivalent share:
Weighted average common and common equivalent
shares outstanding used in calculation
of primary earnings per common and
common equivalent share 14,630,000 14,198,000 14,120,000
Increase from assumed exercise of stock
options and investment of proceeds in
treasury stock, based upon year-end
market price 67,000 42,000 8,000
Weighted average number of common and
common equivalent shares used to calculate
fully diluted earnings per common and
common equivalent share 14,697,000 14,240,000 14,128,000
Earnings per common and common
equivalent share assuming full dilution $1.34 $1.08 $ .98
</TABLE>
65/
EXHIBIT 13
IONICS, INCORPORATED
ANNUAL REPORT TO STOCKHOLDERS OF
IONICS, INCORPORATED FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995
(Only pages 16 through 32 and the inside back cover
constitute an Exhibit to Form 10-K)
/66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The financial performance of Ionics continued to improve in
1995 with a 12% growth in revenues and a 27% improvement in net
income. The profit improvement resulted primarily from increased
sales of capital equipment and spare parts in the Membranes and
Related Equipment segment and from the continued success of our
"own and operate" and service-based activities relating to the
Water, Food and Chemical Supply segment. These two segments
experienced improvements over 1994 in earnings before interest
and taxes of 136% and 14%, respectively. The earnings before
interest and taxes of the Consumer Products segment decreased 19%
due to softness in demand for certain products, particularly
automobile windshield wash solution, and variability in related
product costs.
Total revenues were $248.6 million in 1995, compared with
$222.4 million in 1994. Revenues were higher in all three
business segments, with the largest growth occurring in the
Water, Food and Chemical Supply segment.
The Membranes and Related Equipment segment revenues in 1995
grew due to increased sales of capital equipment, including
equipment for water desalination and treatment and wastewater
treatment, and related spare parts. In addition to domestic
revenue increases, other growth markets included Asia, South
America and Eastern Europe.
Growth in the Water, Food and Chemical Supply segment was
primarily due to increased revenues related to ownership and
operation of ultrapure water systems. Growth also resulted from
increased sale of municipal water and increased demand for
chemical supply products produced by the Elite Chemicals
businesses in Australia and the United Kingdom. Revenue
increases were also experienced by our cheese whey processing
facilities for Mid-America Dairymen, Inc.
Consumer Products revenues increased primarily through the
sale of higher volumes of bottled water by existing Aqua Cool
locations and through new distribution facilities in Charlotte
and Greensboro, North Carolina, Richmond, Virginia and Leeds and
Bristol, England. These volume increases have been supported by
a doubling of bottling capacity in 1995 in the United Kingdom and
through domestic expansion during the prior year. Home water
67/
product sales increased as the Company shipped additional water
conditioning units through its independent dealer network and
through Company-owned sales offices. These increases were
partially offset by softness in sales of other consumer products,
particularly automobile windshield wash solution due to limited
snowfall in the Northeastern U.S. during the winter season ending
in March 1995.
Total revenues were $222.4 million in 1994, compared with
$175.3 million in 1993. Each business segment experienced
improved revenues with the largest growth occurring in the
Membranes and Related Equipment segment. This growth was
primarily due to the acquisition of Resources Conservation
Company (Ionics RCC) effective December 1, 1993 and to growth in
the sales of ultrapure water systems, particularly to the
semiconductor industry. Revenues from the Water, Food and
Chemical Supply business segment increased as Ionics initiated
operation of two cheese whey processing facilities, expanded its
ownership and operation of ultrapure water systems and increased
sales of chemical supply products in Australia and the United
Kingdom. Consumer Products revenues increased with strong demand
for automobile windshield wash solution and bleach products.
Bottled water volume increased as new distribution facilities
were opened and production capacity was increased. Home water
product sales increased with an expanded network of independent
and Company-owned dealers.
Cost of sales as a percentage of revenues were 68.2%, 69.3%,
and 66.8% in 1995, 1994 and 1993, respectively.
Cost of sales as a percentage of revenues declined during 1995
for the Membranes and Related Equipment segment and increased for
the Water, Food and Chemical Supply and Consumer Products
segments. The decrease in the Membranes and Related Equipment
segment was due to a more favorable mix between capital equipment
and spare parts revenues and to a decrease in manufacturing
overhead costs as a percentage of revenues. This decrease
resulted from increased sales of traditional capital equipment
and spares, and the achievement of certain operational
efficiencies.
The increase in cost of sales as a percentage of revenues in
the Water, Food and Chemical Supply segment primarily reflected a
different mix of own and operate contracts. The increase in cost
of sales as a percentage of revenues in the Consumer Products
segment resulted from variability in certain product costs
(particularly methanol), competitive market conditions related to
certain products and a change in the mix of products sold.
68/
Cost of sales as a percentage of revenues increased in 1994
from 1993 for the Membranes and Related Equipment segment as
there was a less favorable mix of capital equipment and spare
parts revenues and an increase in manufacturing overhead as a
percentage of revenues resulting from reduced sales of
traditional capital equipment. The acquisition of Ionics RCC also
contributed to the increase because cost of sales is a larger
percentage of Ionics RCC's total costs than is the case for other
elements of the Company's Membranes and Related Equipment
business. The Water, Food and Chemical Supply segment showed
improvement in the cost of sales percentage due to operational
efficiencies achieved at certain own and operate sites. The
increase in the cost of sales as a percentage of revenues for the
Consumer Products segment resulted from a fluctuation in the mix
of sales of individual consumer products.
Operating expenses as a percentage of revenues were 20.6% in
1995, down from 21.2% in 1994 and 23.5% in 1993. The decrease
in operating expenses as a percentage of revenues in 1995, both
overall and in the Membranes and Related Equipment segment, and
in 1994 in all three business segments, was due to the absorption
of relatively fixed operating expenses by increased sales volume
and continued emphasis on expense controls. Consumer Products
operating expenses as a percentage of revenues increased in 1995
from 1994, due primarily to costs associated with the start-up of
new bottled water sales and distribution offices in the United
Kingdom.
Interest income in 1995 was $1.0 million compared to $1.1
million in 1994 and $1.8 million in 1993. The decrease in 1995
was due to lower invested balances resulting from increased
capital spending, partially offset by higher average interest
rates. The decrease in 1994 occurred due to lower invested
balances resulting from the payment for Ionics RCC in the first
quarter of 1994 and increased capital spending.
The Company's effective tax rate was 33.5% in 1995, 32% in
1994 and 30% in 1993. The increase in the effective tax rate for
1995 was due to a reduction in the benefit from tax-exempt
interest and to changes in the mix of earnings and effective tax
rates among the different jurisdictions in which the Company
operates. This increase was partially offset by a lower
effective state tax rate resulting from state tax incentive
credits, as well as a proportionately greater benefit from the
Company's foreign sales corporation. The increase in 1994 was
due to a higher applicable statutory rate, a higher state tax
rate resulting from proportionately greater domestic income and a
reduction in the benefit from tax-exempt interest, partially
offset by other miscellaneous items.
69/
Net income increased 27.4% to $19.7 million in 1995 compared
to $15.4 million in 1994. Net income in 1994 was 11.9% higher
than 1993 net income of $13.8 million.
The Company will adopt Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" in 1996.
This Statement requires recognition, under a three-step approach,
of impairment losses pertaining to long-term assets based upon
the excess of the carrying amount of such assets over their fair
values. The Company does not believe that adoption will have a
material effect on its financial statements.
The Company will adopt Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" in
1996. This Statement defines a fair value-based method of
accounting for employee stock options. The compensation expense
arising from this method of accounting can be reflected in the
financial statements or alternatively, the pro forma net income
and earnings per share effect of the fair value-based accounting
can be disclosed in the financial statement footnotes. The
Company expects to adopt the footnote disclosure alternative.
Legal Proceedings
The Company is involved in the normal course of its business
in various litigation matters. Although the Company's counsel is
unable to determine at the present time whether the Company will
have any liability in any of these pending matters, some of which
are in the early stages of pre-trial discovery, the Company
believes it has meritorious defenses and that none of the pending
matters will have an outcome material to the financial condition
or business of the Company.
Financial Condition
At December 31, 1995 the Company had total assets of $317.2
million compared to total assets of $277.2 million at December
31, 1994 and $249.6 million at December 31, 1993. The major
components of the increase in 1995 and 1994 were for property,
plant and equipment related to the Company's bottled water
operations, membrane production, bleach production and
distribution facilities, trailers and other own and operate
facilities. In addition, during 1995 accounts receivable
increased, reflecting higher revenues from capital equipment
projects and related retainage amounts.
70/
Working capital in 1995 increased by $1.5 million and the
Company's current ratio decreased to 2.0 in 1995 from 2.1 in
1994. Capital expenditures totaled $49.1 million, $38.2 million,
and $14.7 million in 1995, 1994 and 1993, respectively.
Additionally, $10.5 million of cash was paid in 1994 for Ionics
RCC. Funds for these expenditures were provided in both years
through cash from operations, the sale of short-term investments,
proceeds from stock option exercises and the issuance of current
debt.
Net cash provided by operating activities decreased by $9.8
million in 1995, with higher net income and depreciation offset
by increases in operating assets, primarily in accounts
receivable, and a decrease in accounts payable and accrued
expenses. The increase in 1994 of $25.3 million as compared to
1993 resulted as higher net income, depreciation and an increase
in accounts payable and accrued expenses were partially offset by
increases in inventory and accounts receivable. Net cash used
for investing activities decreased by $2.0 million in 1995 from
1994 after having increased by $42.0 million in 1994 from 1993.
In 1995 and 1994, net cash provided by financing activities
increased by $7.8 million and $1.3 million, respectively. These
increases resulted primarily from increases in debt and proceeds
from stock option exercises.
Significant expenditures in 1996 are anticipated to include
the expansion of bottled water operations, bleach manufacturing,
own and operate facilities and improvements to manufacturing
equipment.
The Company maintains several lines of credit, including
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 of $8.1 million
at the beginning of 1996, 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. The Company has worked to
offset such cost increases by redesigning its equipment to reduce
costs. To the extent permitted by the competitive environment,
the Company has raised prices where appropriate.
71/
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, 1995 and 1994 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of
the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/S/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1996
72/
-5-
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS Ionics, Incorporated
<CAPTION>
For the years ended December 31
Dollars in thousands, except share amounts 1995 1994 1993
<S> <C> <C> <C>
Net revenue:
Membranes and related equipment $128,159 $119,426 $ 92,352
Water, food and chemical supply 65,985 53,894 45,584
Consumer products 54,473 49,056 37,337
248,617 222,376 175,273
Costs and expenses:
Cost of membranes and related equipment 94,300 90,672 65,890
Cost of water, food and chemical supply 44,266 35,881 31,127
Cost of consumer products 30,929 27,640 19,986
Research and development 3,432 3,372 3,678
Selling, general and administrative 47,706 43,770 37,432
220,633 201,335 158,113
Income from operations 27,984 21,041 17,160
Interest income 963 1,057 1,789
Equity income 642 619 775
Income before income taxes 29,589 22,717 19,724
Provision for income taxes 9,907 7,269 5,917
Net income $ 19,682 $ 15,448 $ 13,807
Earnings per share $ 1.35 $ 1.09 $ 0.98
Shares used in earnings per
share calculations 14,630,000 14,198,000 14,120,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
73/
-6-
<TABLE>
CONSOLIDATED BALANCE SHEETS Ionics, Incorporated
<CAPTION>
December 31
Dollars in thousands, except share amounts 1995 1994
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,086 $ 14,966
Short-term investments - 5,617
Notes receivable, current 4,529 3,126
Accounts receivable 76,986 61,675
Receivables from affiliated companies 1,421 2,170
Inventories 19,208 19,405
Other current assets 7,978 6,518
Total current assets 118,208 113,477
Notes receivable, long-term 5,792 5,246
Investments in affiliated companies 4,874 5,419
Property, plant and equipment, net 155,358 124,093
Other assets 32,996 28,929
Total assets $317,228 $277,164
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 4,884 $ 370
Accounts payable 27,387 30,317
Other current liabilities 24,822 22,218
Taxes on income 1,049 1,972
Total current liabilities 58,142 54,877
Long-term debt and notes payable 182 99
Deferred income taxes 7,785 2,928
Other liabilities 759 650
Commitments - -
Stockholders' equity:
Common stock, par value $1, authorized shares:
30,000,000 in 1995 and 1994;
issued and outstanding: 14,353,972 in 1995 and 13,989,896 in 1994 14,354 13,990
Additional paid-in capital 136,436 125,529
Retained earnings 103,709 84,027
Cumulative translation adjustments (3,671) (4,936)
Unearned compensation (468) -
Total stockholders' equity 250,360 218,610
Total liabilities and stockholders' equity $317,228 $277,164
The accompanying notes are an integral part of these financial statements.
</TABLE>
74/<TABLE>
-7-
CONSOLIDATED STATEMENTS OF CASH FLOWS Ionics, Incorporated
<CAPTION>
For the years ended December 31
Dollars in thousands _____________________________________ 1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income $ 19,682 $ 15,448 $ 13,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,598 18,092 15,463
Provision for losses on accounts and notes receivable 564 535 390
Deferred income tax provision 4,309 2,051 1,589
Compensation expense on restricted stock awards 72 - -
Changes in assets and liabilities, net of effects
of businesses acquired:
Notes receivable (1,636) (889) (1,175)
Accounts receivable (14,525) (3,634) (7,332)
Inventories 305 (5,296) (1,509)
Other current assets (1,398) (3,199) 498
Investments in affiliates 545 (386) (641)
Accounts payable and accrued expenses (791) 16,998 (7,432)
Income taxes (206) (1,787) (987)
Other (110) (738) (825)
Net cash provided by operating activities 27,409 37,195 11,846
Investing activities:
Additions to property, plant and equipment (49,083) (38,220) (14,667)
Sale and maturity of short-term investments 5,617 3,222 19,129
Acquisitions, net of cash acquired - (10,488) (7,959)
Net cash used by investing activities (43,466) (45,486) (3,497)
Financing activities:
Principal payments on current debt (11,197) (325) (8,845)
Proceeds from issuance of current debt 15,533 347 8,176
Principal payments on long-term debt - - (506)
Proceeds from issuance of long-term debt - - 256
Proceeds from stock option plans 4,838 1,389 1,078
Net cash provided by financing activities 9,174 1,411 159
Effect of exchange rate changes on cash 3 312 (509)
Net change in cash and cash equivalents (6,880) (6,568) 7,999
Cash and cash equivalents at beginning of year 14,966 21,534 13,535
Cash and cash equivalents at end of year $ 8,086 $ 14,966 $ 21,534
The accompanying notes are an integral part of these financial statements.
</TABLE>
75/
-8-
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Ionics, Incorporated
<CAPTION>
Common Stock Additional Cumulative Total
Par Paid-in Retained Translation Unearned Stockholders'
Dollars in thousands Shares Value Capital Earnings Adjustments Compensation Equity T
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 13,817,026 $13,817 $123,148 $ 54,859 $(1,484) $ - $190,340
Stock options exercised 74,584 75 465 (38) - - 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 13,891,610 13,892 124,189 68,628 (6,628) - 200,081
Stock options exercised 98,286 98 896 (49) - - 945
Tax benefit of stock option activity - - 444 - - - 444
Translation adjustments, net
of income taxes of $(872) - - - - 1,692 - 1,692
Net income - - - 15,448 - - 15,448
Balance December 31, 1994 13,989,896 13,990 125,529 84,027 (4,936) - 218,610
Stock options exercised 199,575 199 3,330 - - - 3,529
Tax benefit of stock option activity - - 1,309 - - - 1,309
Translation adjustments, net
of income taxes of $180 - - - - 1,265 - 1,265
Acquisition of Ahlfinger Water Co. 144,679 145 5,748 - - - 5,893
Shares issued under restricted
stock plan 19,822 20 520 - - (540) -
Amortization of unearned compensation - - - - - 72 72
Net income - - - 19,682 - - 19,682
Balance December 31, 1995 14,353,972 $14,354 $136,436 $103,709 $(3,671) $(468) $250,360
The accompanying notes are an integral part of these financial statements.
</TABLE>
76/
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is involved worldwide in the manufacture and sale of membranes
and related equipment for the purification, concentration, treatment and
analysis of water and wastewater, in the supply of purified water, food
and chemical products, and in the sale of bottled water and home water
purifiers. Principal markets include the United States and Europe as well
as other international markets.
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. Interest
earned on customer notes receivable, totaling $1,076,000, $989,000 and
$1,277,000 in 1995, 1994 and 1993, respectively, is included in revenues.
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.
CASH EQUIVALENTS
Short-term investments with a maturity of 90 days or less from date of
acquisition are classified as cash equivalents.
INVESTMENTS
Management determines the appropriate classification of its investment in
debt securities at the time of purchase. Debt securities which the
Company has the ability and positive intent to hold to maturity are
classified accordingly and carried at cost. All other investments are
classified as available for sale and carried at fair value with unrealized
gains and losses, net of tax, reported in a separate component of
stockholders' equity. The Company is not involved in activities
classified as the trading of investments.
77/
-10-
NOTES RECEIVABLE
Notes receivable have been reported at their estimated realizable value.
The allowance for uncollectible notes receivable totaled $685,000 and
$839,000 at December 31, 1995 and 1994, respectively.
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.
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
amounted to $268,000, $104,000 and $177,000 in 1995, 1994 and 1993,
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.
The Company will adopt Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" in 1996. This Statement requires recognition of
impairment losses pertaining to long-term assets based upon the excess of
the carrying amount of such assets over their fair values. The Company
does not believe that adoption will have a material effect on its
financial statements.
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 over its estimated useful life but not in excess of 40
years. The Company continually evaluates the realizability of goodwill
based upon expectations of non-discounted cash flows and operating income
for each subsidiary having a material goodwill balance.
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 during the year.
Translation gains and losses are accumulated net of income tax as a
separate component of stockholders' 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 $58,000, $23,000
and $157,000 for 1995, 1994 and 1993, respectively.
78/
-11-
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 using enacted rates in effect for
the year in which the differences are expected to reverse.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding after giving retroactive
effect for a 2-for-1 stock split (Note 9) for all periods presented.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<TABLE>
NOTE 2. CONSOLIDATED BALANCE SHEET DETAILS
<CAPTION>
Dollars in thousands 1995 1994
<S> <C> <C>
Raw materials $ 12,236 $ 11,088
Work in process 4,856 5,964
Finished goods 2,116 2,353
Inventories $ 19,208 $ 19,405
Land $ 3,270 $ 2,584
Buildings 25,920 23,621
Machinery and equipment 191,195 148,881
Other, including furniture, fixtures and vehicles 26,015 22,122
246,400 197,208
Accumulated depreciation (91,042) (73,115)
Property, plant and equipment, net $155,358 $124,093
Goodwill $ 30,632 $ 25,927
Accumulated amortization (2,966) (2,312)
Other______________________________________________ 5,330 5,314
Other assets $ 32,996 $ 28,929
Customer deposits $ 3,131 $ 4,959
Accrued commissions 2,102 1,852
Accrued expenses 19,589 15,407
Other current liabilities $ 24,822 $ 22,218
</TABLE>
79/
-12-
<TABLE>
NOTE 3. SUPPLEMENTAL SCHEDULE OF CASH AND NON-CASH FLOW INFORMATION
<CAPTION>
Dollars in thousands __________________________ 1995 1994 1993
<S> <S> <S> <S>
Cash payments for interest and income taxes:
Interest $ 354 $ 159 $ 150
Taxes $ 7,138 $ 6,628 $ 4,403
Restricted stock compensation credited to
paid-in capital $ (540) $ - $ -
Liabilities assumed in conjunction with
acquisitions and ACE consolidation:
Fair value of assets consolidated $ 6,196 $ - $47,825
Net cash received/(paid) 207 (10,488) (7,959)
Common stock issued (5,893) - -
Liability associated with purchase of Ionics RCC
(net of cash acquired) - 10,488 (10,488)
Liabilities assumed $ 510 $ - $29,378
</TABLE>
NOTE 4. ACCOUNTS RECEIVABLE
Dollars in thousands 1995 1994
Billed receivables $52,815 $49,529
Unbilled receivables 25,875 13,504
Allowance for doubtful accounts (1,704) (1,358)
Accounts receivable $76,986 $61,675
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, 1995 are expected
to be billed during 1996.
Billed receivables include retainage amounts of $1,609,000 and $3,355,000 at
December 31, 1995 and 1994, 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.
80/
-13-
<TABLE>
<CAPTION>
Ownership
Affiliate Percentage
<S> <C>
Aqua Cool Kuwait - Kuwait 49%
Aqua Cool Saudi Arabia - Saudi Arabia 40%
Ionics-Mega s.r.o. - Czech Republic 49%
Jalal-Ionics, Ltd. - Bahrain 40%
Watlington Waterworks Limited - Bermuda 23%
Yuasa-Ionics Co., Ltd. - Japan 50%
</TABLE>
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 1995 1994 1993
Investments at beginning of year $ 5,419 $ 4,989 $ 4,279
Equity in earnings 642 619 775
Distributions received (1,187) (233) (134)
Cumulative translation adjustments - 44 69
Investments at end of year $ 4,874 $ 5,419 $ 4,989
At December 31, 1995, the Company's equity in the total assets and in the
total liabilities of its foreign affiliates was $8,929,000 and $4,055,000,
respectively. The Company's equity in the 1995 total revenues of these
affiliates was $8,351,000.
NOTE 6. CONTINGENT LIABILITIES
The Company is involved in the normal course of its business in various
litigation matters. Although the Company's counsel is unable to determine
at the present time what the Company's ultimate liability will be in any
of the pending matters, some of which are in the early stages of pretrial
discovery, the Company believes it has meritorious defenses and that none
of the pending matters will have an outcome material to the financial
condition or business of the Company.
The Company was notified in 1992 that it is a potentially responsible
party (PRP) at a Superfund site, Solvent Recovery Services of New England
in Southington, Connecticut (the "SRS Site"). The original estimate of
clean-up costs based upon the Environmental Protection Agency's (EPA)
preliminary investigation was $30 million of which the Company's share
approximates $160,000. A non-time critical removal action was
successfully completed in 1995. The Company's share of the total cost of
$7.75 million will be $40,400, of which $30,384 has been paid to date.
The PRP group to which the Company belongs will conduct a second non-time
critical removal action and finish the Remedial Investigation and
Feasibility Study of the site. The Company's share of the estimated total
cost of $5.55 million for this work will be $29,000. While it is too soon
to predict the scope and cost of the final remedy that the EPA will
select, 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 (approximately 0.522%) 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.
81/
-14-
During 1995, the Company acquired certain real property in Maryland to
accommodate expansion of the Elite Chemicals business. Prior to its
acquisition by the Company, the property had been determined to have some
contamination of soil and groundwater. In conjunction with the purchase,
the Company has been working closely with the Maryland Department of the
Environment and, based upon an environmental study completed by a third
party consultant, has reached a preliminary agreement regarding treatment.
Based upon the costs of treatment identified by the consultant, the
Company has provided a conservative accrual, recorded as part of the cost
of the property, as of December 31, 1995. The Company believes that
additional liability associated with treatment of the property, if any,
will not have a material effect on the Company or its financial condition.
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE
Dollars in thousands 1995 1994
Borrowings outstanding $5,066 $ 469
Less installments due within one year 4,884 370
Long-term debt and notes payable $ 182 $ 99
Maturities of long-term debt and notes payable for the five years ending
December 31, 1996 to 2000 are approximately $4,884,000, $116,000, $8,230,
$8,230 and $8,230, 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% (6.25% at December 31,
1995), at the Company's option. The Company had outstanding borrowings of
$1,499,813 against this line of credit at December 31, 1995.
The Company utilizes short-term bank loans to finance working capital
requirements for certain business units. 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. The weighted average interest rate on these borrowings at December
31, 1995 was approximately 10%.
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 Standards No. 109. The cumulative effect of
adopting this Statement as of January 1, 1993 was immaterial to net
income.
The following is a summary of U.S. and non-U.S. income before income
taxes, 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.
82/
-15-
Income before income taxes:
<TABLE>
<CAPTION>
Dollars in thousands 1995 1994 1993
<S> <C> <C> <C>
U.S. $20,818 $15,022 $10,902
Non-U.S. 8,771 7,695 8,822
Income before income taxes $29,589 $22,717 $19,724
Income tax provisions consist of the following:
Dollars in thousands 1995 1994 1993
Federal $ 4,824 $ 3,575 $ 2,124
Foreign 437 926 1,729
State 337 717 475
Current provision 5,598 5,218 4,328
Federal 3,201 225 528
Foreign 569 1,625 1,013
State 539 201 48
Deferred provision 4,309 2,051 1,589
Provision for income taxes $ 9,907 $ 7,269 $ 5,917
</TABLE>
<TABLE>
<CAPTION>
The United States statutory corporate tax rate is reconciled to the Company's
effective tax rate as follows:
1995 1994 1993
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 34.0%
Foreign Sales Corporation (2.1) (1.8) (1.9)
Tax exempt interest income (1.2) (2.4) (3.5)
State income taxes, net of federal tax benefit 1.9 2.6 1.8
Foreign income taxed at different rates - (1.1) (1.3)
Other, net (.1) (.3) .9
Effective tax rate 33.5% 32.0% 30.0%
</TABLE>
83/
-16-
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, 1995 the tax effects of the temporary differences are:
<TABLE>
<CAPTION>
Deferred Deferred Tax
Dollars in thousands Tax Assets Liabilities
<S> <C> <C>
Depreciation $ - $4,747
Inventory valuation 129 -
Bad debt reserves 260 -
Profit on sales to foreign subsidiaries 930 -
Insurance accruals 625 -
U.S. tax on unrepatriated earnings - 2,458
Pensions 274 -
Sale versus lease 295 -
Foreign withholding taxes on undistributed earnings - 2,657
Foreign deferred liabilities, net - 1,342
Tax effect of current translation loss 1,544 -
Net operating loss carryforwards 6,063 -
Miscellaneous 1,462 543
11,582 11,747
Valuation allowance for deferred tax assets (1,800) -
Deferred income taxes $ 9,782 $11,747
</TABLE>
At December 31, 1995, the Company had unused tax loss carryforward
benefits of $6,063,000 (expiring in fiscal years 2004 to 2009). Because
certain provisions of the tax law may limit the utilization of these
benefits, the Company has established $1,800,000 as a valuation allowance
at December 31, 1995 and 1994. The remaining unreserved portion is
considered to be realizable. $4,263,000 of the net unused tax loss
carryforward benefit has been included in other assets at December 31,
1995.
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 $682,000, $627,000 and $369,000 as of December 31, 1995,
1994 and 1993, respectively.
NOTE 9. STOCKHOLDERS' EQUITY
On November 2, 1995 the Company issued 144,679 shares of common stock as
consideration for the acquisition of Ahlfinger Water Company. Subsequent
to December 31, 1995, the Company issued 222,977 and 331,567 shares of
common stock in exchange for more than 90% of the outstanding common stock
of Aqua Design, Inc. and Apollo Ultrapure Water Systems, Inc., respectively
(Note 13).
In November 1994, the Company's Board of Directors declared a 2-for-1 stock
split to be effected by a 100% stock dividend which was paid January 6,
1995 to shareholders of record on December 14, 1994. All share and option
amounts, related prices and other stockholders' equity information have
been adjusted for all periods presented to give retroactive effect to this
split.
84/
-17-
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. At December 31, 1995 and 1994,
90,758 and 62,408 shares, respectively, were reserved for issuance of
additional options under the 1979 Plan.
Under the 1986 Stock Option Plan for Non-Employee Directors (the "1986
Plan"), options may be granted at a price not less than the fair market
value at the date of grant. As of December 31, 1995 and 1994, 116,500 and
123,000 shares, respectively, were reserved for issuance of additional
options under the 1986 Plan.
The Company has reserved 91,200 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. During 1995,
an additional 30,000 options were granted to the same persons in connection
with an increase in production capacity and projected increases in the sale
of water under a long-term water sale agreement between Ionics Iberica,
S.A. and the local water utility. The fair value of these options will be
charged to operations over the 10 year vesting period.
A summary of changes in the total amount of outstanding options for the
three years ended December 31, 1995 follows:
1995 1994 1993
Shares under option,
beginning of year 2,184,944 1,665,572 1,060,750
Options granted 39,500 642,000 700,500
Options exercised (204,138) (104,728) (79,678)
Options cancelled (31,350) (17,900) (16,000)
Shares under option,
end of year 1,988,956 2,184,944 1,665,572
Shares exercisable 1,913,356 2,130,224 1,601,732
Price range of options
granted $27.25-27.50 $22.56-24.31 $19.75-24.38
Price range of options
exercised $ 5.63-27.00 $ 1.00-24.38 $ 1.00-27.00
Price range of options
exercisable $ 5.63-30.38 $ 5.63-30.38 $ 1.00-30.38
The Company has adopted a restricted stock plan (the "1994 Plan") under
which shares of common stock may be granted to certain officers and other
key employees of the Company. Restrictions on the sale of such common
stock typically lapse over a five year vesting period. During 1995, 19,822
shares were issued under the Plan and 280,178 additional shares have been
reserved for issuance. The fair value of $540,000 has been recorded as
unearned compensation to be charged to operations over the vesting period.
85/
-18-
The Company has a Section 401(k) stock savings plan under which 150,000
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 120,000 shares for issuance by the Company from authorized but
unissued shares, if required. Through December 31, 1995, no shares had
been issued under the plan.
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.
As a result of the 100% stock dividend distributed on January 6, 1995, each
share of common stock now carries one-half right.
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.
The Company will adopt Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" in 1996. The Statement defines a
fair value-based method of accounting for employee stock options. The
compensation expense arising from this method of accounting can be
reflected in the financial statements or alternatively, the pro forma net
income and earnings per share effect of the fair value-based accounting can
be disclosed in the financial statement footnotes. The Company expects to
adopt the footnote disclosure alternative. The impact of adoption cannot
be determined at this time.
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 $58,033,000 and $46,038,000 at December 31, 1995 and
1994, respectively. The accumulated depreciation for such equipment was
$18,311,000 and $14,134,000 at December 31, 1995 and 1994, respectively.
At December 31, 1995, future minimum rentals receivable under noncancelable
operating leases in the years 1996 through 2000 and later were approximately
$9,717,000, $8,157,000, $6,807,000, $5,141,000, $3,448,000 and $30,645,000,
respectively.
86/
-19-
NOTE 11. PROFIT-SHARING AND PENSION PLANS
The Company has a contributory profit-sharing plan (defined contribution
plan) which covered substantially all of the employees of its Bridgeville,
Pennsylvania operations and certain related operations during 1994 and 1993.
Effective July 1, 1995 all such employees, except those who are members of
the Fabricated Products Group, became members of the Company's defined
benefit pension plan described below. Company contributions to the defined
contribution plan are made from pre-tax profits, and may vary from 8% to 15%
of participants' compensation, and are allocated to participants' accounts
in proportion to each participant's respective compensation. Company
contributions were $188,000, $360,000 and $381,000 in 1995, 1994 and 1993,
respectively.
The Company also has a contributory defined benefit pension plan (defined
benefit plan) for its Watertown-based employees, as well as employees of its
other domestic divisions and subsidiaries. During 1995, specified groups of
employees from its Bridgeville, Pennsylvania and related operations became
eligible to participate in the defined benefit plan, as described above.
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.
87/
-20-
<TABLE>
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the Company's balance sheet at December 31, 1995 and
1994:
<CAPTION>
Dollars in thousands 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $8,082 and $5,226, respectively $(8,822) $(5,712)
Projected benefit obligation for service
rendered to date (9,696) (6,740)
Plan assets at fair value 7,103 5,763
Projected benefit obligation in excess of plan assets (2,593) (977)
Unrecognized net loss 1,282 348
Unrecognized prior service cost 559 76
Unrecognized net assets being amortized
over approximately 17 years (415) (468)
Adjustment for additional minimum liability (552) -
Accrued pension cost at December 31 $(1,719) $(1,021)
Net pension cost included the following components:
Dollars in thousands 1995 1994 1993
Service cost $ 706 $ 652 $ 568
Interest cost 658 636 556
Return on plan assets (1,157) 46 (632)
Net amortization and deferral 588 (703) 50
Net periodic pension cost $ 795 $ 631 $ 542
</TABLE>
The discount rates used in determining the projected benefit obligation
were 7.25% in 1995 and 8.5% in 1994. The rate of increase in compensation
levels used was 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 Ionics Section 401(k) stock savings plan is available to employees of
the Company and its domestic subsidiaries. The Company matches 50% of
employee contributions allocated to the Company's common stock up to 6% of
their salary. The Company recognized expense of $512,228, $375,682 and
$306,987 in 1995, 1994 and 1993, respectively, under this plan.
The Company does not provide post-retirement health care to its employees
or any other significant post-retirement benefits other than those
described above.
88/
-21-
NOTE 12. FINANCIAL INSTRUMENTS
OFF-BALANCE-SHEET RISK
The Company issues letters of credit as guarantees for various performance
and bid obligations. Approximately $18.9 million and $28.0 million of
these letters were outstanding at December 31, 1995 and 1994, respectively.
Approximately 40% of the letters of credit outstanding at December 31, 1995
are scheduled to expire in 1996. 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 not
otherwise result from changes in currency exchange rates. The Company had
no foreign exchange contracts outstanding at December 31, 1995 and 1994.
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. The Company has an unbilled receivable of
approximately $7 million from the Czech Government under its Diamo
contract. In accordance with the terms of the contract, this will be
billed as the appropriate contract milestones are achieved.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents and investments closely
approximate 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 approximate their fair
values.
INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Realized gains and losses from the sale of such
investments during fiscal 1995 and 1994 were not significant.
Long-term investments, maturing in 1998 and 2001, which the Company intends
to hold to maturity have been recorded at a net cost of $1,219,000 and
$1,127,000 at December 31, 1995 and 1994, respectively. At December 31,
1994, the Company also had $643,000 of short-term investments which were
held to maturity. These investments were comprised of Spanish Government
bonds and their recorded amounts approximated fair market value.
At December 31, 1994, all other investments, totaling $4,974,000, were
considered to be available for sale and were recorded at fair market value,
which approximated amortized cost, based primarily upon reports received
from an outside investment service. These investments were classified as
short-term investments as discussed in Note 1.
89/
-22-
NOTE 13. CONSOLIDATION AND ACQUISITION
AHLFINGER WATER COMPANY
On November 2, 1995, the Company acquired substantially all of the assets
and liabilities of Ahlfinger Water Company (Ionics Ahlfinger) for $5.9
million through the issuance of 144,679 shares of common stock. Ionics
Ahlfinger, based in Dallas, is an ion-exchange and reverse osmosis water
treatment service company.
The acquisition was accounted for under the purchase method with the
results of Ionics Ahlfinger included from November 2, 1995. Goodwill of
$4.7 million is being amortized on a straight-line basis over 30 years.
Pro forma results of operations have not been presented, as the effect of
this acquisition on the financial statements was not material.
IONICS RESOURCES CONSERVATION COMPANY
Ionics Resources Conservation Company (Ionics RCC) designs, engineers and
installs wastewater treatment systems. Effective December 1, 1993, the
Company acquired a substantial portion of the assets and liabilities of
Ionics RCC for approximately $10.9 million. The acquisition was accounted
for under the purchase method with the results of Ionics RCC included from
December 1, 1993. Goodwill of $8.5 million is being amortized on a
straight-line basis over 40 years. Fiscal 1993 Ionics RCC revenues for the
period prior to December 1, 1993 were approximately $25.3 million. Payment
of the Ionics RCC purchase price of $10.9 million plus related interest
expense of approximately $100,000 occurred on January 27, 1994.
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. Effective May 26, 1993, the Company provided a loan to ACE for
the redemption of debt and preferred equity financing previously provided
to ACE by Westinghouse Credit Corporation. Subsequently, the Company
exchanged its loan to ACE for ACE preferred stock. As the Company holds an
option to acquire the outstanding common stock of ACE for a nominal amount,
the Company has consolidated the operating results of ACE as if ACE were a
wholly owned subsidiary since May 26, 1993. Under the purchase method of
accounting, goodwill of $12.2 million, net of federal income tax benefits
of $4.3 million, is being amortized on a straight-line basis over 40 years.
SUBSEQUENT BUSINESS COMBINATIONS
Subsequent to December 31, 1995, the Company completed separate combination
transactions with Aqua Design, Inc. (Aqua Design) on January 3, 1996 and
Apollo Ultrapure Water Systems, Inc. (Apollo) on January 10, 1996. Under
the terms of each agreement, the Company issued 222,977 and 331,567 shares
of common stock, respectively, in exchange for more than 90% of the
outstanding common stock of each company. Each transaction will be
accounted for as a pooling of interests. Because the operating results
from prior years of Aqua Design and Apollo were not material, both
individually and in the aggregate, compared to those of the Company, these
transactions will be recorded by restatement of retained earnings as of
January 1, 1996. Accordingly, no restatement of prior-period statements of
operations will be made.
Aqua Design owns and operates membrane-based seawater desalination systems
to generate drinking and process water primarily for hotels and
municipalities in the Caribbean. Total 1995 revenues were approximately
$10.0 million. Apollo sells ultrapure water and related services to a
variety of industrial and commercial users in southern California. Total
1995 revenues were approximately $11.0 million.
90/
-23-
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, ultrafiltration 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, Food and Chemical Supply - water, food 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;
reduced mineral whey for food applications; and bleach and related
chemicals.
Consumer Products - bottled water, over and under-the-sink point of use
devices, carbon filtering media, point-of-entry systems for treating the
entire home water supply, household bleach and other cleaning products.
91/
-24-
<TABLE>
The following table summarizes the Company's operations by the three business segments and "Corporate and
Other." Corporate and Other includes corporate-sponsored research and development programs and certain
employee bonuses and insurance costs.
<CAPTION>
Membranes Water, Food Corporate
and Related and Chemical Consumer and
Equipment Supply Products Other Total
Dollars in thousands
<S> <C> <C> <C> <C> <C>
1995
Revenue - unaffiliated customers $128,159 $ 65,985 $ 54,473 $ - $248,617
Intersegment transfers 6,202 2,422 - (8,624) -
Income from operations 11,964 13,521 5,657 (3,158) 27,984
Equity income (loss) (49) 57 634 - 642
Earnings before interest and taxes (EBIT) 11,915 13,578 6,291 (3,158) 28,626
EBIT % of total EBIT, after allocation
of Corporate and Other 37% 43% 20% - 100%
Identifiable assets 118,373 101,302 94,977 (2,298) 312,354
Investments in affiliated companies - 1,218 3,656 - 4,874
Depreciation and amortization 2,779 11,644 5,972 203 20,598
Capital expenditures 12,692 15,103 21,138 150 49,083
1994
Revenue - unaffiliated customers $119,426 $ 53,894 $ 49,056 $ - $222,376
Intersegment transfers 1,718 615 - (2,333) -
Income from operations 5,407 11,742 6,884 (2,992) 21,041
Equity income (loss) (349) 124 844 - 619
Earnings before interest and taxes (EBIT) 5,058 11,866 7,728 (2,992) 21,660
EBIT % of total EBIT, after allocation
of Corporate and Other 21% 48% 31% - 100%
Identifiable assets 88,010 83,043 85,667 15,025 271,745
Investments in affiliated companies 34 1,211 4,174 - 5,419
Depreciation and amortization 2,503 10,911 4,567 111 18,092
Capital expenditures 8,048 13,223 16,589 360 38,220
1993
Revenue - unaffiliated customers $ 92,352 $ 45,584 $ 37,337 $ - $175,273
Intersegment transfers 1,165 574 9 (1,748) -
Income from operations 4,850 8,234 5,074 (998) 17,160
Equity income (loss) (195) 155 815 - 775
Earnings before interest and taxes (EBIT) 4,655 8,389 5,889 (998) 17,935
EBIT % of total EBIT, after allocation
of Corporate and Other 25% 44% 31% - 100%
Identifiable assets 78,341 80,778 61,849 23,605 244,573
Investments in affiliated companies 338 1,108 3,543 - 4,989
Depreciation and amortization 2,159 10,041 3,052 211 15,463
Capital expenditures 2,605 8,520 3,042 500 14,667
</TABLE>
/92
-25-
<TABLE>
GEOGRAPHIC SEGMENTS
Revenues 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, comprise primarily 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>
1995
Revenue - unaffiliated customers $197,600 $39,824 $11,193 $ - $248,617
Intersegment transfers 8,343 1,655 2,935 (12,933) -
Income from operations 21,153 6,424 1,467 (1,060) 27,984
Identifiable assets 230,422 74,161 16,708 (8,937) 312,354
1994
Revenue - unaffiliated customers $172,864 $38,948 $10,564 $ - $222,376
Intersegment transfers 11,969 1,606 1,764 (15,339) -
Income from operations 16,229 4,679 1,046 (913) 21,041
Identifiable assets 193,832 53,941 14,664 9,308 271,745
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
Included in the United States segment are export sales of approximately 23%, 19% and 14% for
1995, 1994 and 1993, respectively. Including these U.S. export sales, the percentages of total
revenues attributable to activities outside the U.S. were 39%, 37% and 40% in 1995, 1994 and
1993, respectively.
</TABLE>
93/
-26-
<TABLE>
SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA
<CAPTION>
Dollars in thousands,
except per share amounts 1995 % 1994 % 1993 % 1992 % 1991 %
<S> <C> <C> <C> <C> <C>
Revenues $248,617 100.0 $222,376 100.0 $175,273 100.0 $155,240 100.0 $138,120 100.0
Income before income taxes 29,589 11.9 22,717 10.2 19,724 11.3 18,184 11.7 11,649 8.4
Net income 19,682 7.9 15,448 6.9 13,807 7.9 12,820 8.3 8,278 6.0
Earnings per share 1.35 1.09 .98 .93 .73
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
Dollars in thousands 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Current assets $118,208 $113,477 $109,957 $108,757 $ 72,334
Current liabilities 58,142 54,877 46,082 30,499 36,528
Working capital 60,066 58,600 63,875 78,258 35,806
Total assets 317,228 277,164 249,562 224,590 177,979
Long-term debt and notes
payable 182 99 109 439 5,579
Stockholders' equity 250,360 218,610 200,081 190,340 127,931
</TABLE>
94/
-27-
<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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994
First Quarter $ 56,873 $18,192 $ 4,128 $ .29 First Quarter $ 53,035 $ 15,697 $ 3,397 $ .24
Second Quarter 56,542 18,798 4,618 .32 Second Quarter 49,828 15,889 3,582 .26
Third Quarter 62,948 19,705 5,281 .36 Third Quarter 56,450 17,346 4,172 .29
Fourth Quarter 72,254 22,427 5,655 .38 Fourth Quarter 63,063 19,251 4,297 .30
$248,617 $79,122 $19,682 $1.35 $222,376 $ 68,183 $15,448 $1.09
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE
High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1994
First Quarter $30 1/2 $26 1/4 First Quarter $25 3/8 $21 7/8
Second Quarter 34 3/4 26 5/8 Second Quarter 23 3/4 21 3/8
Third Quarter 42 33 5/8 Third Quarter 27 1/8 21 3/4
Fourth Quarter 45 1/2 39 5/8 Fourth Quarter 31 3/8 23 11/16
</TABLE>
95/
-28-
BOARD OF CORPORATE PRINCIPAL U.S. CORPORATE
DIRECTORS OFFICERS OFFICES, HEADQUARTERS
AFFILIATES &
ARTHUR L. ARTHUR L. SUBSIDIARIES Ionics,
GOLDSTEIN * GOLDSTEIN Incorporated
Chairman of the Chairman of the Aqua Cool Pure 65 Grove Street
Board, President Board, President Bottled Water Watertown,
and Chief and Chief Watertown, Massachusetts
Executive Executive Officer Massachusetts 02172
Officer
Ionics, K. KACHADURIAN Elite INVESTOR
Incorporated Executive Vice Chemicals, N.E. INFORMATION
President Ludlow, MA
WILLIAM L. BROWN #+ The Annual
Retired Chairman WILLIAM E. KATZ General Ionics Meeting of
of the Board, Executive Vice Cuyahoga Falls, Ionics'
The First President Ohio shareholders
National Bank of will be held
Boston ROBERT J. Ionics Thursday, May
HALLIDAY Ahlfinger Water 2, 1996 at 2:00
ARNAUD DE VITRY Vice President, Dallas, P.M. at Bank of
D'AVAUCOURT #+ Finance and Texas Boston, 100
Engineering Accounting and Federal Street,
Consultant and Chief Financial Ionics Apollo Boston,
Director of Officer Ultrapure Massachusetts
Various Pico Rivera,
Organizations STEPHEN KORN California Ionics' common
Vice President, stock is traded
LAWRENCE E. General Counsel Ionics Aqua on the New York
FOURAKER *#+ and Clerk Design Stock exchange
Retired Trustee Campbell, under the
and Director of THEODORE G. California symbol ION. As
Various PAPASTAVROS of March 15,
Organizations Vice President, Ionics, 1996 there were
Strategic Incorporated approximately
SAMUEL A. Planning and Bridgeville, 1,800
GOLDBLITH *#+ Treasurer Pennsylvania shareholders of
Professor record. No
Emeritus, Ionics Pure cash dividends
Massachusetts Solutions were paid in
Institute of Phoenix, either 1995 or
Technology, and Arizona 1994 pursuant
Consultant to Ionics'
Ionics current policy
K. KACHADURIAN Resources to retain
Executive Vice Conservation earnings for
President Bellevue, use in its
Ionics, Washington business.
Incorporated
Ionics Ultrapure
Water
Campbell,
California
/96
PRINCIPAL For information
OVERSEAS or assistance
WILLIAM E. KATZ OFFICES, regarding
Executive Vice AFFILIATES & individual
President SUBSIDIARIES stock records,
Ionics, transactions or
Incorporated Eau et certificates,
Industrie please call the
ROBERT B. LUICK Paris, Transfer
Of Counsel, France Agent's
Sullivan and Telephone
Worcester, Elite Response
Attorneys Chemicals Pty. Center: 1-800-
Ltd. 426-5523
JOHN J. SHIELDS #+ Brisbane, Qld. between 9 A.M.
President and Australia and 5 P.M.
Chief Executive
Officer, King's Global Water Ionics' Annual
Point Holdings Services, S.A. Report on Form 10-K
Incorporated Panama City, and other corporate
Panama information may be
CARL S. SLOANE #+ obtained on Ionics'
Ernest L. Ionics(Bermuda) home page on the
Arbuckle Ltd. Worldwide Web at:
Professor of Hamilton, http://www.ionics.com
Business Bermuda
Administration, A copy of
Harvard Ionics Ionics' Annual
University Iberica, S.A. Report on Form
Graduate School Grand Canary, 10-K, which is
of Business Spain filed with the
Administration Securities and
Ionics, Exchange
MARK S. WRIGHTON #+ Incorporated Commission,
Chancellor Hong Kong will be sent to
Washington University any shareholder
Ionics Italba, upon request
ALLEN S. WYETT #+ S.p.A. directed to
President, Wyett Milan, Italy Investor
Consulting Group, Inc. Relations,
Ionics Ionics,
Nederland, B.V. Incorporated,
Maastricht, P.O. Box 9131,
the Netherlands Watertown,
Massachusetts
Ionics (UK) 02272-9131, or
Ltd. by calling:
London, England (617)926-2510
ext. 874
TRANSFER AGENT
& REGISTRAR
State Steet
Bank and Trust
Company, Boston,
Massachusetts
97/
AUDITORS
*Member of
Executive Aqua Cool Coopers &
Committee Kuwait Lybrand L.L.P.
Kuwait City, Boston,
#Member of Audit Kuwait Massachusetts
Committee
Aqua Cool
+Member of Saudi Arabia
Compensation Dammam, Saudi
Committee Arabia
Ionics-Mega
s.r.o.
Prague,
Czech Republic
Jalal-Ionics,
Ltd.
Manama,
Bahrain
Watlington
Waterworks Ltd.
Devonshire,
Bermuda
Yuasa-Ionics
Co., Ltd.
Tokyo, Japan
/98
EXHIBIT 21
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
Apollo Ultrapure Water Systems, Inc. California
Aqua Design, Inc. California
99/
EXHIBIT 23.1
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. 33-54293, 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); in the registration statement
for the Ionics 1994 Restricted Stock Plan (No. 33-509051); 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 20, 1996, on our audits of the consolidated financial statements
and the financial statement schedule of Ionics, Incorporated as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, which are included or incorporated by reference
in this Annual Report on Form 10-K.
/S/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 29, 1996
100/
X
EXHIBIT 24
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, 1995, 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 29, 1996
William L. Brown
/s/Arnaud de Vitry d'Avaucourt Director March 29, 1996
Arnaud de Vitry
d'Avaucourt
/s/Lawrence E. Fouraker Director March 29, 1996
Lawrence E. Fouraker
/s/Samuel A. Goldblith Director March 29, 1996
Samuel A. Goldblith
/s/Arthur L. Goldstein Chairman of the Board March 29, 1996
Arthur L. Goldstein of Directors, Chief
Executive Officer and
President (Principal
Executive Officer)
/s/Kachig Kachadurian Director March 29, 1996
Kachig Kachadurian
/s/William E. Katz Director March 29, 1996
William E. Katz
/s/Robert B. Luick Director March 29, 1996
Robert B. Luick
/s/John J. Shields Director March 29, 1996
John J. Shields
/s/Carl S. Sloane Director March 29, 1996
Carl S. Sloane
/s/Mark S. Wrighton Director March 29, 1996
Mark S. Wrighton
/s/Allen S. Wyett Director March 29, 1996
Allen S. Wyett
101/
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,086
<SECURITIES> 0
<RECEIVABLES> 83,647
<ALLOWANCES> 2,132
<INVENTORY> 19,208
<CURRENT-ASSETS> 118,208
<PP&E> 246,400
<DEPRECIATION> 91,042
<TOTAL-ASSETS> 317,228
<CURRENT-LIABILITIES> 58,142
<BONDS> 0
<COMMON> 14,354
0
0
<OTHER-SE> 236,006
<TOTAL-LIABILITY-AND-EQUITY> 317,228
<SALES> 248,617
<TOTAL-REVENUES> 248,617
<CGS> 169,495
<TOTAL-COSTS> 169,495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 564
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,947
<INCOME-TAX> 9,907
<INCOME-CONTINUING> 19,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,682
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.34
</TABLE>
