FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1996
Common Stock, Par Value $1 15,499,963 Shares
/1
IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED JUNE 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 8
Signatures 10
Exhibit Index 11
Exhibit 3 - Amendment to the Restated Articles
of Organization 12
Exhibit 11 - Computation of Earnings Per Share 16
Exhibit 27 - Financial Data Schedule (for electronic
purposes only)
- 1 -
/2
<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenue:
Membranes and related equipment $33,980 $29,912 $ 71,893 $ 59,612
Water, food and chemical supply 25,171 16,041 49,660 32,400
Consumer products 15,751 12,658 31,192 25,132
74,902 58,611 152,745 117,144
Costs and expenses:
Cost of membranes and related equipment 23,520 21,076 51,173 42,680
Cost of water, food and chemical supply 16,845 10,608 33,111 21,332
Cost of consumer products 8,565 6,939 17,378 13,937
Research and development 1,199 1,042 2,445 2,024
Selling, general and administrative 15,488 11,885 30,455 23,836
65,617 51,550 134,562 103,809
Income from operations 9,285 7,061 18,183 13,335
Interest income 116 272 292 506
Equity income 143 104 219 247
Income before income taxes 9,544 7,437 18,694 14,088
Provision for income taxes 3,104 2,519 6,169 4,780
Net income $ 6,440 $ 4,918 $ 12,525 $ 9,308
Earnings per share $ .40 $ .33 $ .78 $ .62
Shares used in earnings per
share calculations 16,097 14,931 16,041 14,907
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
/3
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value)
<CAPTION>
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,388 $ 9,479
Notes receivable, current 3,441 4,529
Accounts receivable 82,600 78,376
Receivables from affiliated companies 1,781 1,421
Inventories:
Raw materials 13,509 12,640
Work in process 6,892 5,411
Finished goods 2,512 2,513
22,913 20,564
Other current assets 7,776 8,018
Total current assets 131,899 122,387
Notes receivable, long-term 7,347 5,813
Investments in affiliated companies 4,502 4,874
Property, plant and equipment:
Land 3,523 3,270
Buildings 29,193 26,018
Machinery and equipment 220,419 191,195
Other, including furniture, fixtures and vehicles 33,904 26,772
287,039 247,255
Less accumulated depreciation (107,703) (91,369)
179,336 155,886
Other assets 33,080 33,084
Total assets $ 356,164 $322,044
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 19,526 $ 4,884
Accounts payable 25,091 28,089
Customer deposits 2,907 3,131
Accrued commissions 1,921 2,184
Accrued expenses 23,817 20,384
Taxes on income 3,797 1,607
Total current liabilities 77,059 60,279
Long-term debt and notes payable 2,124 182
Deferred income taxes 7,153 7,780
Other liabilities 949 759
Stockholders' equity:
Common stock, par value $1, 30,000,000 authorized shares;
issued: 15,499,963 in 1996 and 14,801,230 in 1995 15,500 14,801
Additional paid-in capital 140,865 137,587
Retained earnings 116,250 104,795
Cumulative translation adjustments (3,322) (3,671)
Unearned compensation (414) (468)
Total stockholders' equity 268,879 253,044
Total liabilities and stockholders' equity $ 356,164 $322,044
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
/4
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 12,525 $ 9,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,364 9,971
Provision for losses on accounts and notes receivable 329 383
Compensation expense on restricted stock awards 54 18
Changes in assets and liabilities:
Notes receivable (510) (82)
Accounts receivable (2,586) 6,547
Inventories (2,023) (125)
Other current assets 278 (601)
Investments in affiliates 372 85
Accounts payable and accrued expenses (3,999) (8,826)
Income taxes 4,319 1,564
Other 686 (11)
Net cash provided by operating activities 21,809 18,231
Investing activities:
Additions to property, plant and equipment (30,525) (27,567)
Sale of short-term investments - 1,203
Purchase of long-term investments - (3,000)
Net cash used by investing activities (30,525) (29,364)
Financing activities:
Principal payments on current debt (3,541) (12,492)
Proceeds from issuance of current debt 16,984 14,322
Principal payments on long-term debt (2,418) -
Proceeds from stock option plans 1,639 763
Net cash provided by financing activities 12,664 2,593
Effect of exchange rate changes on cash (39) (28)
Net change in cash and cash equivalents 3,909 (8,568)
Cash and cash equivalents at beginning of period 9,479 15,062
Cash and cash equivalents at end of period $ 13,388 $ 6,494
The accompanying notes are an integral part of these financial statements.
</TABLE>
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/5
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal,
recurring accruals) necessary to present fairly the consolidated
financial position of the Company as of June 30, 1996 and December 31,
1995, the consolidated results of its operations for the three and six
months ended June 30, 1996 and 1995 and the consolidated cash flows for
the six months then ended.
2. The consolidated results of operations of the Company for the three and
six months ended June 30, 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. On May 31, 1996, the Company completed a combination with Sievers
Instruments, Inc. (Sievers). Sievers manufactures instruments designed
to measure extremely low levels of organic contaminants in ultrapure
water for customers in the pharmaceutical and semiconductor industries.
Under the terms of the agreement, the Company issued 447,258 shares of
common stock in exchange for 100% of the outstanding common stock of
Sievers. The transaction was accounted for as a pooling of interests.
Accordingly, the accompanying financial statements have been restated
to include the accounts and operations of Sievers for all periods prior
to the merger. Intercompany transactions between the combining
entities, which were not significant, have been eliminated. Separate
results of the combining entities prior to the combination, which have
been included in the restated results, were as follows:
Three months
ended
March 31, 1996
Net revenue:
Ionics $74,157
Sievers 3,686
$77,843
Net income:
Ionics $ 5,572
Sievers 513
$ 6,085
6. In July 1996, the Company acquired all of the outstanding common stock
of Separation Technology, Inc. (STI) in exchange for 58,000 shares of
the Company's stock. The total purchase price approximated $2.5
million. The transaction will be accounted for as a purchase. Because
the operating results of STI from periods prior to the acquisition were
not material compared to those of the Company, pro forma combined
results of operations for such prior periods will not be presented.
Total 1995 revenues for STI were approximately $9 million. STI is a
leading supplier of membrane-based purification equipment to the dairy
and beverage industries.
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/6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three and Six Months Ended June 30, 1996 with the
Three and Six Months Ended June 30, 1995
Revenues for the second quarter of 1996 increased 27.8% to $74.9
million from $58.6 million in 1995. Revenues for the six-month period
increased 30.4% to $152.7 million from $117.1 million in the
comparable period in 1995. Revenues were higher in all three business
segments for both the three and six-month periods. The largest
increase in revenues for both the second quarter and the six-month
period was in the Water, Food and Chemical Supply segment.
Revenues from the Membranes and Related Equipment segment grew in both
the second quarter and the six-month period due primarily to
continuing strength in the sale of ultrapure water systems,
particularly to the semiconductor industry. In addition, sales of
instrumentation and water desalting equipment increased during both
periods. This increase was partially offset by a decline in revenues
from the sale of wastewater equipment during both periods.
Revenues from the Water, Food and Chemical Supply segment increased in
both periods due to continuing strength in the performance of the
ultrapure water supply business. Strong internal growth coupled with
the acquisitions of Ahlfinger Water Company in November 1995 and
Apollo Ultrapure Water Systems in January 1996 fueled the growth in
this business. Revenues also increased in the municipal water supply
business due to activities in the Caribbean market resulting from the
acquisition of Aqua Design, Inc. in January 1996. The chemical supply
business grew during both periods as well, reflecting higher sales in
the United Kingdom and in Australia.
Consumer Products revenues increased during both periods reflecting
higher revenues from bottled water, home water products and consumer
bleach, primarily as a result of increases in the related installed
customer bases. In addition, during the six-month period, automotive
windshield wash revenues increased reflecting tough winter conditions
in New England.
Cost of sales as a percentage of revenues for the second quarter was
65.3% in 1996 and 65.9% in 1995. For the six-month period, cost of
sales as a percentage of revenues was 66.6% in 1996 and 66.5% in 1995.
The improved gross margins, during both periods, in the Membranes and
Related Equipment segment reflected changes in the mix between
instrumentation and wastewater equipment sales and a more favorable
mix between capital equipment and spare parts revenues within the
water desalting and related equipment business. This was partially
offset by a change in the mix of various projects within the ultrapure
water equipment business.
-6-
/7
The increase in cost of sales as a percentage of revenues during both
periods in the Water, Food and Chemical Supply segment resulted from a
change in the mix of revenues between the ultrapure water, municipal
water and chemical supply business.
The improvement during the second quarter in cost of sales as a
percentage of revenues in the Consumer Products segment reflected an
increase in the absorption of manufacturing overhead costs resulting
from higher sales volume, the achievement of certain cost reductions,
and a more favorable pricing mix.
Operating expenses as a percentage of revenues increased slightly
during the second quarter to 22.3% in 1996 from 22.1% in 1995. For
the six-month period, operating expenses as a percentage of revenues
decreased to 21.5% in 1996 from 22.1% in 1995 due to higher absorption
of relatively fixed operating costs by increased sales volume.
Interest income decreased during both the second quarter and the six-
month period due primarily to lower average invested cash balances
over the corresponding periods.
Financial Condition
Working capital decreased by $7.3 million during the first six months
of 1996 and the current ratio decreased to 1.7 at June 30, 1996 from
2.0 at December 31, 1995. Cash provided from net income and
depreciation totaled $24.9 million during the first six months of 1996
while the primary uses of cash were for additions to property, plant
and equipment and for payment of accounts payable. Significant
capital expenditures were incurred to support growth in the bottled
water operations, bleach operations, trailers and other "own and
operate" facilities.
At June 30, 1996, the Company had $13.4 million in cash and cash
equivalents, an increase of $3.9 million from December 31, 1995. This
increase was, however, offset by an increase in short-term borrowings
of $14.6 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.
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.
-7-
/8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 2, 1996.
(b) Samuel A. Goldblith, Arthur L. Goldstein, and Carl S. Sloane were
re-elected as Class I Directors for a three-year term. Douglas
R. Brown was elected as a Class I Director to fill the vacancy
created by the retirement of Lawrence E. Fouraker. Continuing as
Class II Directors until the 1997 Annual Meeting are Arnaud de
Vitry d'Avaucourt, Kachig Kachadurian, William E. Katz and Mark
S. Wrighton. Continuing as Class III Directors until the 1998
Annual Meeting are William L. Brown, Robert B. Luick, John J.
Shields and Allen S. Wyett.
The tabulation of votes for all nominees is as follows:
Votes for: 12,621,169
Votes withheld: 163,839
(c) The other matters submitted for stockholder approval were:
(i) Approval of certain amendments to the Corporation's 1986
Stock Option Plan for Non-employee Directors.
Votes for: 12,128,192
Votes against: 570,912
Abstentions and
broker non-votes: 85,905
(ii) Approval of an amendment to the Corporation's 1979 Stock
Option Plan to increase the number of shares available for
issuance by 700,000.
Votes for: 9,941,844
Votes against: 2,767,779
Abstentions and
broker non-votes: 75,385
(iii) The selection of Coopers & Lybrand L.L.P. as the Company's
auditors for 1996.
Votes for: 12,708,962
Votes against: 47,375
Abstentions and
broker non-votes: 28,671
-8-
/9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3 - Amendment to the Restated Articles of Organization
(included on Page 12 of this report).
Exhibit 11- Computation of Earnings Per Share (included on Page
16 of this report).
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 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.
-9-
/10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: August 14, 1996 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and
Chief Executive Officer
(duly authorized officer)
Date: August 14, 1996 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance and Accounting
and Chief Financial Officer
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/11
EXHIBIT INDEX
Sequential
Exhibit Page No.
3.0 Articles of Organization and By-Laws
3.1 Amendment to Restated Articles of
Organization filed with the Commonwealth
of Massachusetts on May 8, 1992 13
11. Computation of Earnings Per Share 17
27. Financial Data Schedule (for electronic
purposes only)
-11-
/12
Exhibit 3.1
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT Federal Identification
General Laws, Chapter 156B, Section 72 No. 04-2068530
We Arthur L. Goldstein President
Stephen Korn Clerk of
Ionics, Incorporated
_____________________________________________________________
(EXACT Name of Corporation)
located at: 65 Grove Street, Watertown
_____________________________________________________________
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting
Articles NUMBERED:
________________________3____________________________________
(Number those articles 1,2,3,4,5 and/or 6 being amended hereby)
Restated
of the /Articles of Organization were duly adopted at a meeting
held on May 7 1992, by vote of:
4,997,715 shares of Common Stock out of 6,868,283 shares outstanding,
type, class & series,(if any)
shares of out of shares outstanding, and
type, class & series,(if any)
shares of out of shares outstanding,
type, class & series,(if any)
CROSS OUT being at least a majority of each type, class or series
INAPPLI- outstanding and entitled to vote thereon:-(1)
CABLE being at least two-thirds of each type, class or series
CLAUSE outstanding and entitled to vote thereon and of each type,
class or series of stock whose rights are adversely affected
thereby:-(2)
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this
form is insufficient, additions shall be set forth on separate
8 1/2 x 11 sheets of paper leaving a left-hand margin of at
least 1 inch for binding. Additions to more than one Amendment
may be continued on a single sheet so long as each amendment
requiring each such addition is clearly indicated.
/13
To CHANGE the number of shares and the par value (if any) of any type,
class or series of stock which the corporation is authorized to issue,
fill in the following:
<TABLE>
The total presently authorized is:
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
_____________________________ ______________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
_____________________________ ______________________________________
COMMON: None COMMON: 18,000,000 $1
.......................... ....................................
.......................... ....................................
_____________________________ ______________________________________
PREFERRED: None PREFERRED: None
.......................... ....................................
.......................... ....................................
_____________________________ ______________________________________
</TABLE>
<TABLE>
CHANGE the total authorized to:
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
_____________________________ ______________________________________
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
_____________________________ ______________________________________
COMMON: None COMMON: 30,000,000 $1
.......................... ....................................
.......................... ....................................
_____________________________ ______________________________________
PREFERRED: None PREFERRED: None
.......................... ....................................
.......................... ....................................
_____________________________ ______________________________________
</TABLE>
/14
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The
General Laws unless these articles specify, in accordance with the vote
adopting the amendment, a later effective date not more than thirty days
after such filing, in which event the amendment will become effective on
such later date. EFFECTIVE DATE:_______________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto
signed our names this 7th day of May, in the year 1992.
/s/Arthur L. Goldstein President
/s/Stephen Korn Clerk
/15
[STAMP] SECRETARY OF
COMMONWEALTH
592 MAY -8 PM 12:21
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
I hereby approve the within articles of amendment
and the filing fee in the amount of $12,000.00 having
been paid, said articles are deemed to have been filed
with me this 8th day of May, 1992.
/s/Michael J. Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Stephen Korn, Vice President and General Counsel
Ionics, Incorporated
65 Grove Street, Watertown, MA 02172
Telephone: (617)926-2500, Ext. 450
/16
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except earnings per share)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $ 6,440 $ 4,918 $12,525 $ 9,308
Earnings per common and common
equivalent share:
Weighted average number of shares
outstanding 15,459 14,481 15,418 14,466
Incremental shares for stock options
under treasury stock method 638 450 623 441
Weighted average number of common and
common equivalent shares outstanding 16,097 14,931 16,041 14,907
Earnings per common and common
equivalent share $ .40 $ .33 $ .78 $ .62
Earnings per common and common equivalent
share - assuming full dilution:
Weighted average number of shares
outstanding 15,459 14,481 15,418 14,466
Incremental shares for stock options
under treasury stock method 646 601 638 536
Weighted average number of common and
common equivalent shares outstanding -
assuming full dilution 16,105 15,082 16,056 15,002
Earnings per common and common
equivalent share - assuming
full dilution $ .40 $ .33 $ .78 $ .62
</TABLE>
/17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 13,388
<SECURITIES> 0
<RECEIVABLES> 88,128
<ALLOWANCES> (2,087)
<INVENTORY> 22,913
<CURRENT-ASSETS> 131,899
<PP&E> 287,039
<DEPRECIATION> (107,703)
<TOTAL-ASSETS> 356,164
<CURRENT-LIABILITIES> 77,059
<BONDS> 0
<COMMON> 15,500
0
0
<OTHER-SE> 253,379
<TOTAL-LIABILITY-AND-EQUITY> 356,164
<SALES> 152,745
<TOTAL-REVENUES> 152,745
<CGS> 101,662
<TOTAL-COSTS> 101,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 329
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,475
<INCOME-TAX> 6,169
<INCOME-CONTINUING> 12,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,525
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
