FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7211
IONICS, INCORPORATED
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2068530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Grove Street, Watertown, Massachusetts 02172
(Address of principal executive offices)
(Zip Code)
(617) 926-2500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
Common Stock, Par Value $1 15,690,355 Shares
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IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page No.
Part I - Financial Information
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Results of Operations and Financial Condition 6
Part II - Other Information 9
Signatures 10
Exhibit Index 11
Exhibit 11 - Computation of Earnings Per Share 12
Exhibit 27 - Financial Data Schedule 13
(for electronic
purposes only)
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<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenue:
Membranes and related equipment $37,113 $33,350 $109,006 $ 92,962
Water, food and chemical supply 29,810 16,686 79,470 49,086
Consumer products 17,588 15,148 48,780 40,280
84,511 65,184 237,256 182,328
Costs and expenses:
Cost of membranes and related equipment 26,280 23,910 77,453 66,590
Cost of water, food and chemical supply 20,781 11,173 53,892 32,505
Cost of consumer products 10,095 9,018 27,473 22,955
Research and development 1,256 1,030 3,701 3,054
Selling, general and administrative 16,036 12,034 46,491 35,870
74,448 57,165 209,010 160,974
Income from operations 10,063 8,019 28,246 21,354
Interest income 61 245 353 751
Equity income 104 170 323 417
Income before income taxes 10,228 8,434 28,922 22,522
Provision for income taxes 3,375 2,765 9,544 7,545
Net income $ 6,853 $ 5,669 $ 19,378 $ 14,977
Earnings per share $ .43 $ .37 $ 1.21 $ 1.00
Shares used in earnings per
share calculations 16,044 15,153 16,042 14,990
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share amounts)
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,262 $ 9,479
Notes receivable, current 3,637 4,529
Accounts receivable 87,072 78,376
Receivables from affiliated companies 2,085 1,421
Inventories:
Raw materials 13,984 12,640
Work in process 7,799 5,411
Finished goods 2,849 2,513
24,632 20,564
Other current assets 9,433 8,018
Total current assets 138,121 122,387
Notes receivable, long-term 7,687 5,813
Investments in affiliated companies 4,215 4,874
Property, plant and equipment:
Land 3,561 3,270
Buildings 30,033 26,018
Machinery and equipment 225,683 191,195
Other, including furniture, fixtures and vehicles 35,359 26,772
294,636 247,255
Less accumulated depreciation (113,957) (91,369)
180,679 155,886
Other assets 37,413 33,084
Total assets $368,115 $322,044
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 16,068 $ 4,884
Accounts payable 21,807 28,089
Customer deposits 4,803 3,131
Accrued commissions 2,268 2,184
Accrued expenses 25,505 20,384
Taxes on income 6,465 1,607
Total current liabilities 76,916 60,279
Long-term debt and notes payable 2,325 182
Deferred income taxes 5,816 7,780
Other liabilities 2,088 759
Stockholders' equity:
Common stock, par value $1, 30,000,000 authorized shares;
issued: 15,690,355 in 1996 and 14,801,230 in 1995 15,690 14,801
Additional paid-in capital 145,950 137,587
Retained earnings 123,103 104,795
Cumulative translation adjustments (3,386) (3,671)
Unearned compensation (387) (468)
Total stockholders' equity 280,970 253,044
Total liabilities and stockholders' equity $368,115 $322,044
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 19,378 $ 14,977
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,007 15,154
Provision for losses on accounts and notes receivable 700 477
Compensation expense on restricted stock awards 81 45
Changes in assets and liabilities:
Notes receivable (1,074) (583)
Accounts receivable (5,829) (4,921)
Inventories (3,668) (2,183)
Other current assets (709) (561)
Investments in affiliates 658 487
Accounts payable and accrued expenses (8,830) (3,626)
Income taxes 6,053 2,238
Other 1,950 (802)
Net cash provided by operating activities 27,717 20,702
Investing activities:
Additions to property, plant and equipment (36,797) (37,767)
Purchase of long-term investments - (3,000)
Sale of short-term investments - 4,047
Net cash used by investing activities (36,797) (36,720)
Financing activities:
Principal payments on current debt (10,445) (12,499)
Proceeds from issuance of current debt 20,385 17,303
Principal payments on long-term debt (2,340) -
Proceeds from stock option plans 3,330 2,959
Net cash provided by financing activities 10,930 7,763
Effect of exchange rate changes on cash (67) (2)
Net change in cash and cash equivalents 1,783 (8,257)
Cash and cash equivalents at beginning of period 9,479 15,062
Cash and cash equivalents at end of period $ 11,262 $ 6,805
The accompanying notes are an integral part of these financial statements.
</TABLE>
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IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal, recurring accruals) necessary to present fairly
the consolidated financial position of the Company as of
September 30, 1996 and December 31, 1995, the consolidated
results of its operations for the three and nine months ended
September 30, 1996 and 1995 and the consolidated cash flows
for the nine months then ended.
2. The consolidated results of operations of the Company for the
three and nine months ended September 30, 1996 and 1995 are
not necessarily indicative of the results of operations to be
expected for the full year.
3. Reference is made to the Notes to Consolidated Financial
Statements appearing in the Company's 1995 Annual Report as
filed on Form 10-K with the Securities and Exchange
Commission. There have been no significant changes in the
information reported in those Notes, other than from the
normal business activities of the Company, and there have been
no changes which would, in the opinion of Management, have a
materially adverse effect upon the Company.
4. Certain prior year amounts have been reclassified to conform
to the current year presentation with no impact on net income.
5. In July 1996, the Company acquired 100% of the stock of
Separation Technology, Inc. (STI) for approximately $2.5
million through the issuance of 58,000 shares of common stock.
STI is a leading supplier of membrane-based purification
equipment and related services to the food industry with
particular emphasis on dairy and beverage applications.
The acquisition was accounted for under the purchase method
with the results of STI included from July 1, 1996. Goodwill
of approximately $4 million is being amortized on a straight-
line basis over twenty years. Pro forma results of operations
have not been presented, as the effect of this acquisition on
the financial statements was not material.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 1996 with
the Three and Nine Months Ended September 30, 1995
Revenues for the third quarter of 1996 increased 29.6% to $84.5
million from $65.2 million in 1995. Revenues for the nine-month
period increased 30.1% to $237.3 million from $182.3 million in the
comparable period in 1995. Revenues were higher in all three business
segments for both the three and nine-month periods. The largest
increase in revenues for both the third quarter and the nine-month
period was in the Water, Food and Chemical Supply segment.
Revenues from the Membranes and Related Equipment segment grew in both
the third quarter and the nine-month period due primarily to
continuing strength in the sale of ultrapure water systems to the
semiconductor market. Growth was also experienced through increased
sales of instrumentation and water desalting equipment during both
periods. The increase in this segment was partially offset by a
decrease in revenues from the sale of wastewater treatment equipment
during both the quarter and nine-month period.
Revenues from the Water, Food and Chemical Supply segment increased in
both periods due primarily to strength in the ultrapure water supply
business. The Company's internal growth in ultrapure water supply was
augmented by the acquisitions of Ahlfinger Water Company in November 1995
and Apollo Ultrapure Water Systems in January 1996. Revenues also
increased in the municipal water supply and food processing businesses
during both periods, primarily due to the acquisitions of Aqua Design,
Inc. in January 1996 and Separation Technology, Inc. in July 1996.
Consumer Products revenues increased in both the third quarter and the
nine-month period. Revenues increased in the bottled water, home
water purification and bleach-based consumer products businesses
during each period. These increases resulted from both increases in
the customer base and the openings of three new bottled water
distribution facilities in Richmond, Virginia; Cleveland, Ohio; and
Providence, Rhode Island.
Cost of sales as a percentage of revenues for the third quarter was
67.6% in 1996 and 67.7% in 1995. For the nine-month period, cost of
sales as a percentage of revenues was 66.9% both in 1996 and in 1995.
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In the Membranes and Related Equipment segment, the gross margin
percentage improved in both the third quarter and the nine-month
period. This primarily reflected an improvement in the mix of
contracts, particularly within the wastewater treatment and
instrumentation businesses, partially offset by a change in the mix of
ultrapure water equipment contracts.
In the Water, Food and Chemical Supply segment, cost of goods sold
increased as a percentage of revenues during both periods. This
increase reflected the acquisition of Separation Technology, Inc.
whose manufacturing costs have not yet reflected the synergies which
we believe will be available through continued integration with the
other businesses within this segment. This increase also reflected
increased competitive pressure within the industrial bleach
market in the United Kingdom.
The Consumer Products segment experienced improvement in the gross
margin percentage in both the third quarter and nine-month period.
This improvement primarily reflected the achievement of certain
product cost reductions, price increases and an overall improvement in
the mix of consumer products sold.
Operating expenses as a percentage of revenues increased slightly in
the third quarter to 20.5% in 1996 from 20.0% in 1995, reflecting a
change in the mix of various selling expenses. For the nine-month
period, operating expenses as a percentage of revenues of 21.2% in
1996 were approximately the same as 1995.
Interest income decreased during both the third quarter and nine-month
period. This was a result of lower average invested cash balances for
both periods.
Financial Condition
Working capital decreased by $0.9 million during the first nine months
of 1996 and the current ratio decreased to 1.8 at September 30, 1996
from 2.0 at December 31, 1995. Cash provided from net income and
depreciation totaled $38.4 million during the first nine months of
1996, while the primary uses of cash were for additions to property,
plant and equipment and for payments on current debt. Significant
capital expenditures were incurred to support growth in bottled water
operations, bleach operations, trailers and other "own and operate"
facilities.
At September 30, 1996, the Company had $11.3 million in cash and cash
equivalents, an increase of $1.8 million from December 31, 1995. This
increase was, however, offset by an increase in short-term borrowings
of $11.2 million over the corresponding period. The Company believes
that its cash and cash equivalent balances, cash from operations,
lines of credit and foreign exchange facilities are adequate to meet
its currently anticipated needs.
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Forward-Looking Information
The Company's future results of operations, as well as statements
contained in this Management's Discussion and Analysis which are
forward-looking statements, depend upon a number of factors that could
cause actual results to differ materially from management's current
expectations. Among these factors are business conditions and the
general economy; competitive factors, such as acceptance of new
products and price pressures; risk of nonpayment of accounts
receivable; risks associated with foreign operations; and regulations
and laws affecting business in each of the Company's markets.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share (included on Page
12 of this report).
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended September 30, 1996.
All other items reportable under Part II have been omitted as
inapplicable or because the answer is negative, or because the
information was previously reported to the Securities and
Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: November 13, 1996 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: November 13, 1996 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance
(chief financial officer)
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
11 Computation of Earnings Per Share 13
27 Financial Data Schedule 14
(for electronic
purposes only)
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<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except earnings per share)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $ 6,853 $ 5,669 $19,378 $14,977
Earnings per common and common
equivalent share:
Weighted average number of shares
outstanding 15,563 14,537 15,467 14,490
Incremental shares for stock options
under treasury stock method 481 616 575 500
Weighted average number of common and
common equivalent shares outstanding 16,044 15,153 16,042 14,990
Earnings per common and common
equivalent share $ .43 $ .37 $ 1.21 $ 1.00
Earnings per common and common equivalent
share - assuming full dilution:
Weighted average number of shares
outstanding 15,563 14,537 15,467 14,490
Incremental shares for stock options
under treasury stock method 554 677 609 583
Weighted average number of common and
common equivalent shares outstanding -
assuming full dilution 16,117 15,214 16,076 15,073
Earnings per common and common
equivalent share - assuming
full dilution $ .43 $ .37 $ 1.21 $ .99
</TABLE>
/13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 11,262
<SECURITIES> 0
<RECEIVABLES> 92,838
<ALLOWANCES> 2,129
<INVENTORY> 24,632
<CURRENT-ASSETS> 138,121
<PP&E> 294,636
<DEPRECIATION> 113,957
<TOTAL-ASSETS> 368,115
<CURRENT-LIABILITIES> 76,916
<BONDS> 0
<COMMON> 15,690
0
0
<OTHER-SE> 265,280
<TOTAL-LIABILITY-AND-EQUITY> 368,115
<SALES> 237,256
<TOTAL-REVENUES> 237,256
<CGS> 158,818
<TOTAL-COSTS> 158,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,599
<INCOME-TAX> 9,544
<INCOME-CONTINUING> 19,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,378
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
