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, 1996
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 its 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]
1
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 21, 1997 was $715,710,320 (15,559,320
shares at $46 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 21, 1997, 15,913,621 shares of
Common Stock, $1 par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Stockholders. Parts I, II
(for Item 201
information)
and IV
Portions of the Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held
on May 8, 1997. 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 1996 accounted
for approximately 46%, 34% and 20% of revenues, respectively.
Approximately 36% of the Company's 1996 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 1996,
the Water, Food and Chemical Supply and Consumer Products business
segments accounted for 66% of the Company's earnings before
interest and taxes.
Currently, the Company's three business segments encompass
ten business areas or applications described by the Company as its
"Ten-Cylinder EngineSM" strategy. The description of the
Company's business segments under this Item is further divided
into a description of these business areas.
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), 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, 1996 is incorporated
herein by reference.
Membranes and Related Equipment
The Company's Membranes and Related Equipment business
segment, which accounted for approximately 46% of revenues in 1996
and provides membrane-based and other advanced technology systems
to the municipal and industrial markets, is divided into four
market areas: desalination and related water treatment equipment;
wastewater treatment equipment; instruments; 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.
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, and special electrodialysis reversal
membrane-based concentrators for recycle and reuse.
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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 a 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 manufacturers
and a variety of other industrial applications. The Company
also provides custom and packaged sewage treatment systems for
municipalities.
3. Instruments
The Company sells instruments to measure water quality for
industrial and government customers. In 1996, the Company
acquired Sievers Instruments, Inc. (Sievers), located in
Boulder, CO. Sievers manufactures, among other instruments,
total organic carbon (TOC) monitors used primarily in ultrapure
water applications in the semiconductor and pharmaceutical
industries, which complement the Company's existing TOC monitor
line for process water and wastewater applications. The
Company's instrument products, which are used both in the
laboratory and on-line, measure and detect, among other things,
total carbon, TOC, nitric oxide, chemical oxygen demand and
total oxygen demand. The Company also sells instruments for
the measurement of dissolved metals which are sensitive to the
part-per-billion range and specific chemical analyzers for
ammonia, phosphates, nitrates and chlorine.
4(a). 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 for 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. Ultrapure
water needs are particularly important in the semiconductor,
pharmaceutical, petroleum and power generation industries. The
semiconductor industry in particular has increasingly demanded
higher purity water as the circuits on silicon wafers have
become more densely packed.
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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 1996 for approximately 34% of the Company's
revenues. 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;
drinking water supply; chemical supply; and food processing.
4(b). Ultrapure Water Supply
In industries such as power generation, semiconductors,
pharmaceuticals and biotechnology, ultrapure water is critical
to product quality and yield. 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 for use 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 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 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 and represent what
the Company believes to be the most advanced technology used in
the commercial processing of ultrapure water.
At the end of 1996, the Company had a total capacity,
installed or under construction, of approximately 13,000
gallons per minute for the production of ultrapure water under
long-term contracts with various industries.
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In January 1996, the Company acquired Apollo Ultrapure
Water Systems, Inc., based near Los Angeles, enabling the
Company to provide additional resources to service the growing
Southern California ultrapure water market.
One of the Company's important ultrapure water service
activities is ion exchange regeneration services, which are
provided at four U.S. locations. The Company also provides
system sanitization and high-flow deionization services at
customer sites.
5. Drinking Water Supply
Ionics' position as a seller of purified or treated water
has evolved from its traditional role as a supplier of water
treatment equipment. In certain situations, opportunities are
available for the Company to provide a complete service package
involving financing, construction, operation and maintenance of
water treatment facilities.
Ionics, through its wholly owned subsidiary, Ionics
Iberica, S.A., owns and operates a 5.5 million gallon per day
capacity brackish water EDR facility and a 3.6 million gallon
per day RO seawater facility on Grand Canary Island, Spain.
Under long-term contracts, the Company is selling the desalted
water from both facilities to the local water utility for
distribution.
The Company's wholly owned subsidiary, Ionics (Bermuda)
Ltd., 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.
Through its acquisition of Aqua Design, Inc. in January
1996, the Company owns and operates approximately 35
desalination plants on a number of Caribbean islands, which
provide drinking water to hotels, resorts and governmental
entities.
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6. Chemical Supply
In the chemical supply area, the Company uses its
CloromatR electrolytic membrane-based technology to produce
sodium hypochlorite and related chlor-alkali chemicals for
industrial, commercial and other non-consumer applications.
The Company's wholly owned Australian subsidiary, Elite
Chemicals Pty. Ltd., utilizes Cloromat systems to produce
sodium hypochlorite on-site in Brisbane for the industrial,
commercial and janitorial supply of bleach products, and to
supply sodium hypochlorite to treat the City of Brisbane's
drinking water supply under a five-year contract.
The Company's wholly owned English subsidiary, Ionics
(U.K.) Limited, engages in sales of bulk bleach produced by
Cloromat facilities in Bridgwater and Thetford, England. These
facilities supply bleach directly to manufacturers of
cellophane and household cleaning products, respectively, and
also supply bleach in bulk form to the regional market.
7. 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 for its services based on the
production of demineralized whey.
In July 1996, the Company acquired Separation Technology,
Inc. (STI), with headquarters in St. Paul, MN. STI is a
supplier of membrane-based purification equipment and services
to the food industry. Systems built by STI are used primarily
for the concentration, clarification or fractionation of fluid
food products or food plant effluents. Representative uses
include the concentration of cheese whey, milk and juice, the
production of whey protein concentrates, and the clarification
of brine for reuse and recovery of spent caustic.
Consumer Products
The Company's Consumer Products business segment accounted
for approximately 20% of the Company's revenues in 1996. The
Company's consumer products serve the bottled water, home water
purification and consumer bleach product market areas.
8. 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 produce 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.
At the end of 1996, there were a total of 27 Aqua Cool
distribution centers in the United States and overseas,
supplied with Aqua Cool by seven regional water purification
and bottling facilities, supplying a customer base of
approximately 100,000.
9. 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 medium, 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 brand names,
through both independent distributorships and wholly owned
sales and service dealerships.
10. Bleach-Based Consumer Products
The Company's Elite 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. These
operations are conducted in a 129,000 square foot manufacturing
facility, located in Ludlow, Massachusetts. A recently
purchased facility in Elkton, Maryland will serve as the Mid-
Atlantic regional manufacturing and distribution center for
bleach-based and related consumer products.
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Raw Materials and Sources of Supply
All raw materials essential to the business of the Company
can normally be obtained from more than one source. In those
few instances where raw materials are being supplied by only
one source, the current supplier has given the Company a lead
time for cancellation, which the Company believes is sufficient
to enable it to obtain other suppliers. In addition, the
Company maintains inventories of single source items which it
believes are adequate under the circumstances.
The Company produces the membranes required for its
equipment and systems that use the ED, EDR, MF, 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 trademarks 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 99 outstanding 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 does not believe that any of its individual patents or
groups of related patents, nor any of its trademarks, is of
sufficient importance that its termination or abandonment, or
the cancellation of licenses extending rights thereunder, would
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.
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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 $210,505,000 at
December 31, 1996 and $175,409,000 at December 31, 1995. 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 76% of
its December 31, 1996 backlog during 1997. 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 1996 are
subject to renegotiation. The Company has not had adjustments
to its negotiated contract prices, nor are any proceedings
pending for such adjustments.
Research and Development
Since the development of the ion exchange membrane and the
EDR process, Ionics has continued its commitment to research
and development directed toward products for use in water
purification, processing and measurement, and separations
technology. The Company's research and development expenses
were approximately $5,108,000 in 1996, $4,180,000 in 1995, and
$3,372,000 in 1994.
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.
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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 1996, 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 1995, 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 1,414 plants
of such capacity, more than the next three manufacturers
combined. When compared only to manufacturers of membrane-type
desalination equipment, Ionics ranked first in both number of
units sold and the total capacity of units sold.
With respect to the Water, 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.
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Environmental Matters
Continued compliance by the Company and 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 potentially
responsible parties (PRPs) at a Superfund site at Solvent
Recovery Services of New England in Southington, Connecticut
(the "SRS Site"). The Company's volumetric ranking in
comparison to the total volume of wastes treated at the SRS
Site is approximately 0.5%. A non-time critical removal
action, consisting of containment, pumping, and treatment of
the most heavily contaminated non-bedrock groundwater, was
completed in 1995. Combined assessments to date against all
PRPs for non-time critical removal actions and other work total
$9.73 million. The Company's share of these assessments is
approximately $51,000. The ultimate site cleanup cost is
currently not expected to exceed $59 million, of which the
Company's share would not exceed $308,000 including the amounts
already assessed against the Company. While it is too soon to
predict the scope and cost of the final clean-up remedy that
the EPA will select, based on the Company's small volumetric
ranking 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.
During 1995, the Company acquired certain real property in
Maryland to accommodate expansion of the Elite bleach-based
consumer 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 worked closely with the Maryland
Department of the Environment and, based upon an environmental
study completed by a third party consultant, 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. 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.
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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 1,850 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 related to the foregoing systems,
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 U.S. dollars. If U.S. dollar
payments cannot be secured, the Company, where appropriate,
enters into foreign currency hedging transactions. The Company
also uses foreign sources for equipment parts and may borrow
funds in local (foreign) currencies to offset the asset risk of
foreign currency devaluation. Net foreign currency transaction
gains included in income before taxes totalled $548,000 in
1996, $58,000 in 1995 and $23,000 in 1994.
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; Ionics (Korea) Ltd.;
and Ionics Foreign Sales Corporation Limited. In January 1996,
Ionics acquired Aqua Design, Inc., which has a number of
subsidiaries and affiliates 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.
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In addition, the Company has a 19% 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 activities serves as a distributor of certain
of the Company's products in Japan; 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; and a 20% interest in Aguas Tratadas de
Cadereyta, S.A. de C.V., a company organized to provide water
treatment services in Mexico.
Further geographical and financial information concerning
the Company's foreign operations appears in Notes 1, 5, 8, 9,
12, 13 and 14 to the Company's Consolidated Financial
Statements included as part of the Company's 1996 Annual Report
to Stockholders, which Notes are incorporated herein by
reference.
Financial Information About Foreign and
Domestic Operations and Export Sales
The information contained in Note 14 of Notes to
Consolidated Financial Statements contained in the Company's
Annual Report to Stockholders for the year ended December 31,
1996 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 and
automobile windshield wash product packaging and distribution;
a 129,000 square foot facility in Ludlow, Massachusetts which
is utilized primarily for packaging and distribution of
consumer bleach and windshield wash products; 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 the U.S. and overseas 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 centers at 27
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.
15
I-13
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 pre-trial discovery,
the Company believes generally that 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.
16
I-14
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, 1996. The
information set forth on page 32 entitled "Common Stock Price
Range" and on the inside back cover of such Annual Report is
hereby incorporated by reference.
During 1996, the Company issued a total of 1,062,277
shares of Common Stock to the stockholders of four closely held
corporations that were acquired by the Company during the year,
and to the principal of a proprietorship, the assets of which
were acquired by a subsidiary of the Company during the year.
The details of these transactions are as follows:
Agreed 1933 Act
Shares Value Exemption
Acquisition Date Issued Per Share Relied Upon
Aqua Design, Inc. and 1/3/96 222,977 $44.29 Section 4(2)
related companies
(stock)
Apollo Ultrapure Water 1/10/96 331,567 $42.00 Section 4(2)
Systems, Inc. and
related companies (stock)
and real estate
Sievers Instruments, Inc. 5/31/96 447,258 $47.06 Rule 506
(stock)
Separation Technology, Inc. 7/25/96 58,000 $42.00 Section 4(2)
(stock)
Mark Keenan (assets) 12/6/96 2,475 $48.48 Section 4(2)
In each case, the Company's Common Stock was offered to the
stockholders of the company being acquired or to the seller of the
assets being purchased. The Common Stock was valued in each case as
an average of the last sales prices of the Common Stock as reported
on the New York Stock Exchange over a stated number of days
preceding either the closing date or the date of the purchase
agreement.
17
II-1
With respect to the Sievers acquisition, the Company met all the
requirements for compliance with a Rule 506 offering. The other
acquisitions all involved either small numbers of sophisticated
investors and/or non-U.S. residents, the shares issued were legended
and made the subject of "stop transfer" instructions, and the only
permitted sales to date have been made pursuant to resale
registration statements prepared and filed pursuant to the exercise
of certain registration rights granted to such stockholders.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the Company's Annual Report to Stockholders
for the year ended December 31, 1996. 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 RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to the Company's Annual Report to Stockholders
for the year ended December 31, 1996. 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, 1996. The consolidated balance
sheets of the Registrant as of December 31, 1996 and 1995, the
related consolidated statements of operations, cash flows and
stockholders' equity for the years ended December 31, 1996, 1995 and
1994, and the related notes with the opinion thereon of Coopers &
Lybrand L.L.P., independent accountants, on pages 18 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-2
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 8,
1997 to be filed with the Securities and Exchange Commission on or
about March 28, 1997.
<TABLE>
The information regarding executive officers is as follows:
<CAPTION>
Age as of Positions
Name March 1, 1997 Presently Held
<S> <C> <C>
Arthur L. Goldstein* 61 President, Chief Executive Officer
and Director since 1971; Chairman
of the Board since 1990
William E. Katz 72 Executive Vice President since 1983;
Director since 1961
Robert J. Halliday 42 Vice President, Finance and Accounting
since December 1990; Chief Financial
Officer since August 1992
Stephen Korn 51 Vice President, General Counsel
and Clerk since September 1989
Theodore G. Papastavros 63 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 8, 1997 to be
filed with the Securities and Exchange Commission on or about
March 28, 1997.
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 8, 1997 to be
filed with the Securities and Exchange Commission on or about
March 28, 1997.
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 8, 1997 to be
filed with the Securities and Exchange Commission on or about
March 28, 1997.
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.
<TABLE>
3. Exhibits
<CAPTION>
Exhibit
No. Description
<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).
3.1(c) Amendment to Restated Articles of *
Organization (filed as Exhibit 3.1 to
Form 10-Q for quarterly period ending
June 30, 1996).
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 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
4.2 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).
4.3 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, 33
as amended through February 19, 1997.
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, 1996, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston (filed as Exhibit
10.3(1) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
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).
22
IV-2
10.7 Agreement for Privatization of Water Supplies *
dated as of September 18, 1990 between the
Company and the City of Santa Barbara,
California (filed as Exhibit 10.7 to
Registrant's registration statement on Form S-2,
No. 33-38290, effective January 24, 1991).
10.8 Amendment No. 1, dated as of January 3, 1992, to *
Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.8 to Registrant's annual report on
Form 10-K for the year ended December 31, 1991).
10.9 Amendment No. 2, dated as of January 19, 1993, *
to Agreement for Privatization of Water Supplies
dated as of September 18, 1990 between the Company
and the City of Santa Barbara, California (filed as
Exhibit 10.9 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992).
10.10 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 as Exhibit 10.1
to the Registrant's Form 10-Q for the period ending
June 30, 1994).
10.11 1994 Restricted Stock Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
March 30, 1995).
10.12 1997 Stock Incentive Plan. 43
11. Statement re: Computation of Earnings Per Share. 59
13. Annual Report to Stockholders of the Registrant for 60
the year ended December 31, 1996 (only pages 16
through 32 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant. 95
23. Consents
23.1 Consent of Coopers & Lybrand L.L.P. to incorporation 96
by reference of that firm's report dated
February 18, 1997, which is included on page 18 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1996.
24. Power of Attorney. 97
27. Financial Data Schedule. **
________________________________
* incorporated herein by reference
** 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 1996.
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, 333-05225 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 27, 1997
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 27, 1997 By/s/Arthur L. Goldstein
Arthur L. Goldstein,
Chairman of the Board,
President and
Chief Executive Officer
(principal executive
officer) and Director
Date: March 27, 1997 By/s/Robert J. Halliday
Robert J. Halliday,
Vice President, Finance
and Chief Financial
Officer (principal
financial and principal
accounting officer)
25
IV-5
Date: March 27, 1997 By/s/Douglas R. Brown
Douglas R. Brown, Director
Date: March 27, 1997 By/s/William L. Brown
William L. Brown, Director
Date: March 27, 1997 By/s/Arnaud de Vitry d'Avaucourt
Arnaud de Vitry d'Avaucourt,
Director
Date: March 27, 1997 By/s/William E. Katz
William E. Katz, Director
Date: March 27, 1997 By/s/Robert B. Luick______________
Robert B. Luick, Director
Date: March 27, 1997 By/s/John J. Shields
John J. Shields, Director
Date: March 27, 1997 By/s/Carl S. Sloane
Carl S. Sloane, Director
DATE: March 27, 1997 By/s/Mark S. Wrighton
Mark S. Wrighton, Director
Date: March 27, 1997 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 18*
Financial Statements:
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 19*
Consolidated Balance Sheets as of
December 31, 1996 and 1995 20*
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 21*
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994 22*
Notes to Consolidated Financial Statements 23-31*
Supporting Financial Statement Schedules for the years Ended
December 31, 1996, 1995 and 1994:
Schedule II - Valuation and Qualifying Accounts IV-8
Report of Independent Accountants on Financial
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, 1996, 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
End of Costs and Acquired Balance at
Description Prior Year Expenses Businesses Deductions(A) End of Year
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts and uncollectible
notes receivable:
Years ended:
December 31, 1996 $2,410,000 $1,011,000 $ 286,000 $ 849,000 $2,858,000
December 31, 1995 $2,197,000 $ 579,000 $ 21,000 $ 387,000 $2,410,000
December 31, 1994 $2,022,000 $ 535,000 $ 0 $ 360,000 $2,197,000
<FN>
(A) 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, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996
has been incorporated by reference in this Form 10-K from page
18 of the 1996 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 18, 1997
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).
3.1(c) Amendment to Restated Articles of *
Organization (filed as Exhibit 3.1 to
Form 10-Q for quarterly period ending
June 30, 1996).
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 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).
4.2 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).
4.3 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, 33
as amended through February 19, 1997.
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 *
December 31, 1996, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston (filed as Exhibit
10.3(1) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
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 as Exhibit 10.1
to the Registrant's Form 10-Q for the period ended
June 30, 1994).
10.11 1994 Restricted Stock Plan (filed as Exhibit *
10.12 to Registrant's Annual Report on Form 10-K
dated March 30, 1995).
10.12 1997 Stock Incentive Plan. 43
11. Statement re: Computation of Earnings Per Share. 59
13. Annual Report to Stockholders of the Registrant for 60
the year ended December 31, 1996 (only pages 18
through 31 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant. 95
23. Consents
23.1 Consent of Coopers & Lybrand L.L.P. to 96
incorporation by reference of that firm's report
dated Februry 18, 1997, which is included on
page 18 of the Registrant's Annual Report to
Stockholders for the year ended December 31, 1996.
24. Power of Attorney. 97
27. Financial Data Schedule. (for electronic
purposes only)
* incorporated herein by reference
</TABLE>
32
Exhibit 10.2
IONICS, INCORPORATED
1986 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As amended through February 19, 1997)
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
33
-2-
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.
34
-3-
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
35
-4-
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)
36
-5-
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.
Except as otherwise provided in this Section, 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. The Administrators may, in their
discretion, authorize all or a portion of the Options granted or
to be granted to an Optionee to be on terms which permit transfer
by such Optionee to (i) the spouse, children or grandchildren of
the Optionee ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or
(iii) a partnership in which such Immediate Family Members are
the only partners, provided that (x) the stock option agreement
pursuant to which such Options are granted must be approved by
the Committee, and must expressly provide for transferability in
as manner consistent with this Section, and (y) subsequent
transfers of transferred Options shall be prohibited otherwise
than by will or the laws of descent and distribution.
Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of
Section 2.1 hereof, the term "Optionee" shall be deemed to refer
to the transferee. The provisions regarding duration of Options
in Section 9 hereof shall continue to apply with respect to the
original Optionee as to all Options granted to such Optionee,
whether or not transferred pursuant to this Section.
37
-6-
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.
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
38
-7-
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.
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.
39
-8-
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
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.
40
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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.
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.
41
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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
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.
42
A-13
IONICS, INCORPORATED
1997 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to enable officers
and other key employees of, and consultants to, Ionics,
Incorporated (the "Company") and any present or future parent
or subsidiary of the Company (collectively, "Related
Corporations") to (i) own shares of Stock in the Company,
(ii) participate in the shareholder value which has been
created, (iii) have a mutuality of interest with other
shareholders and (iv) enable the Company to attract, retain
and motivate key employees and consultants of particular
merit. As used herein, the terms "parent" and "subsidiary"
mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of
the Code.
2. Definitions. For the purposes of the Plan, the
following terms shall have the meanings set forth below:
(a) Award means the grant or sale pursuant to the Plan of
any Stock Options and Long-Term Performance Awards.
(b) Board means the Board of Directors of the Company.
(c) Code means the Internal
Revenue Code of 1986, as amended from time to time, or any
statute successor thereto, and any regulations issued from
time to time thereunder.
(d) Company means Ionics, Incorporated, a corporation
organized under the laws of the Commonwealth of
Massachusetts (or any successor corporation).
(e) Disability means "permanent and total
disability" as defined under Section 22(e)(3) of the Code
or any successor statute.
(f) Effective Date means the date that the Plan is approved
by both the Board of Directors of the Company and the
stockholders of the Company, and if not approved on the same
day, the date of the last approval.
(g) Fair Market Value means, as of any given date, the last
reported sales price of the Stock as reported in The Wall
Street Journal for such date, or if no such sale is reported
on the last preceding trade date to the sales date, or if the
Stock is not publicly traded on or as of such date, the fair
market value of the Stock as determined by the Committee in
good faith based on the available facts and circumstances at
the time.
(i) Incentive Stock Option means any Stock Option intended
to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code.
(j) Long-Term Performance Award means an Award made pursuant
to Section 7 below that is payable in cash and/or Stock in
accordance with the terms of the grant, based on Company,
business unit and/or individual performance over a period of
at least one year.
(k) Non-Qualified Stock Option means any Stock Option that
is not an Incentive Stock Option.
(l) Participant means an employee or consultant to whom an
Award is granted pursuant to the Plan.
(m) Plan means the Ionics, Incorporated 1997 Stock Incentive
Plan, as set forth herein and as it may be amended from time
to time.
(n) Retirement means a termination of employment, for
reasons other than death, which satisfies the requirements
for normal, early, late or disability retirement in
accordance with the Ionics, Incorporated Retirement Plan
or any successor plan.
(o) Stock means the common stock, $1.00 par value per
share, of the Company.
(p) Stock Option or Option means any option to
purchase shares of Stock granted pursuant to Section 6
below.
In addition the term Change in Control shall have meaning
set forth in Section 8.2.
3. Administration
(a) Board or Committee Administration. The Plan shall be
administered by the Board or, subject to paragraph 3(d)
(relating to compliance with Section 162(m) of the Code), by
a committee appointed by the Board (the "Committee"), which
shall initially be the Compensation Committee of the Board.
Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each
Award by the Board (if so required by applicable state law),
and subject to the terms of the Plan, the Committee shall
have the authority to (i) determine to whom (from among the
class of employees eligible under Section 5 to receive
Incentive Stock Options) Incentive Stock Options shall be
granted, and to whom (from among the class of individuals and
entities eligible under Section 5 to receive Non-Qualified
Stock Options and Long-Term Performance Awards) Non-Qualified
Stock Options and Long-Term Performance Awards may be
granted, (ii) determine the time or times at which Awards
shall be granted; (iii) determine the purchase price of
shares subject to each Option, which prices shall not be less
than the minimum price specified in Section 6.2(a); (iv)
determine whether each Option granted shall be an Incentive
Stock Option or a Non-Qualified Stock Option; (v) determine
(subject to Sections 6.2(b) and 6.2(c)) the time or times
when each Option shall become exercisable and the duration of
the exercise period; (vi) extend the period during which
outstanding Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be imposed on
shares subject to Awards and the nature of such restrictions,
if any; and (viii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Stock Option,
it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Non-Qualified Stock Option is
not treated as an Incentive Stock Option. The interpretation
and construction by the Committee of any provisions of the
Plan or of any Award granted under it shall be final unless
otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying
out the Plan as it may deem advisable. No member of the
Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or
any Award granted under it.
(b) Committee Actions. The Committee may select one of its
members as its chairman, and shall hold meetings at such time
and places as it may determine. A majority of the Committee
shall constitute a quorum and acts of a majority of the
members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer
the Plan.
(c) Grant of Awards to Board Members. Awards may be granted
to members of the Board who are otherwise eligible to receive
Awards under the Plan. All grants of Awards to members of
the Board shall in all respects be made in accordance with
the provisions of this Plan applicable to other eligible
persons. Members of the Board who either (i) are eligible to
receive grants of Awards pursuant to the Plan or (ii) have
been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of any Awards
pursuant to the Plan, except that no such member shall act
upon the granting to himself or herself of Awards, but any
such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is
taken with respect to the granting to such member of Awards.
(d) Performance-Based Compensation. The Board, in its
discretion, may take such action as may be necessary to
ensure that Stock Options granted under the Plan qualify as
"qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation").
Such action may include, in the Board's discretion, some or
all of the following: (i) if the Board determines that Stock
Options granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Options
to constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in applicable regulations promulgated under Section
162(m) of the Code); and (ii) Stock Options and Stock Grants
granted under the Plan may be subject to such other terms and
conditions as are necessary for compensation recognized in
connection with the exercise or disposition of such Stock
Option or the disposition of Stock acquired pursuant to such
Stock Option to constitute Performance-Based Compensation.
4. Shares of Stock Subject to the Plan.
(a) Stock. The Stock subject to Awards shall be authorized
but unissued shares of Stock or shares of Stock reacquired by
the Company in any manner. Subject to adjustment as provided
in subsection (c) of this Section 4, the aggregate number of
shares of Stock that may be issued pursuant to the Plan shall
be (i) 750,000 (which number includes the aggregate number of
shares with respect to which no options have been granted
under the 1979 Stock Option Plan on the Effective Date), plus
(ii) such number of shares as to which options granted under
the 1979 Stock Option Plan terminate or expire without being
fully exercised, plus (iii) effective as of January 1, 1998
and each of the three successive years thereafter, a number
of shares of Stock equal to two percent (2%) of the total
number of shares of Stock issued and outstanding as of the
close of business on December 31 of the preceding year.
Subject to adjustment as provided in subsection (c) of this
Section 4, no more than an aggregate of 750,000 shares of
Stock may be issued pursuant to the exercise of Incentive
Stock Options granted under the Plan (including shares issued
pursuant to the exercise of Incentive Stock Options granted
under the Plan that are the subject of disqualifying
dispositions within the meaning of Sections 421, 422 and 424
of the Code and the regulations thereunder); and no more than
an aggregate of 150,000 shares of Stock may be issued in
connection with Long-Term Performance Awards granted under
this Plan. If any Award granted under the Plan shall expire
or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject to such Award
shall again be available for grants of Awards under the Plan.
No employee of the Company or any Related Corporation may
be granted Options (or any other Award) to acquire, in the
aggregate, more than 200,000 shares of Stock during any 12-
month period under the Plan. If any Option granted under
the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, the
unpurchased shares subject to such Option shall be
included in the determination of the aggregate number of
shares of Stock deemed to have been granted to such
employee under the Plan.
(b) Computation of Available Shares. For the purpose of
computing the total number of shares of Stock available for
Plan purposes at any time during which the Plan is in effect,
there shall be debited against the total number of shares
determined to be available pursuant to paragraphs (a) and (c)
of this Section 4 the maximum number of shares of Stock
subject to issuance upon exercise of Options or upon
settlement of other Awards theretofore made under the Plan.
In addition, however, shares related to the unexercised or
undistributed portion of any terminated, expired or forfeited
Award for which no material benefit was received by a
Participant (e.g. dividends, but not including voting
rights), or to the portion of any Award settled in cash,
shall be recredited to the number remaining upon such
termination, expiration or forfeiture and thereafter again be
available for distribution in connection with future Awards
under the Plan.
(c) Other Adjustment. In the event of any merger,
reorganization, consolidation, recapitalization, Stock
dividend, or other change in corporate structure affecting
the Stock, such substitution or adjustment shall be made
in the aggregate number of shares reserved for issuance
under the Plan, and in the number and option price of
shares subject to outstanding Options and other Stock-
based Awards granted under the Plan, as may be determined
to be appropriate by the Committee in its sole discretion
provided that the number of shares subject to any Award
shall always be a whole number.
5. Eligibility. Incentive Stock Options may be granted
only to employees of the Company and any Related Corporation.
Officers and other key employees of or consultants to the
Company, who are responsible for or contribute to, as
determined by the Committee in its sole discretion, the
management, growth and/or profitability of the business of
the Company and/or any Related Corporation are eligible for
Awards under the Plan.
6. Stock Options.
6.1 Provision for Grant. Stock Options may be granted
alone, in addition to or in tandem with other Awards under
the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee
who is an employee of the Company, or of any Related
Corporation, Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock
Option, it shall constitute a separate Non-Qualified Stock
Option. In the case of any other person eligible for an
Award under the Plan, any Stock Option granted under the Plan
shall be a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no
term of this Plan relating to Incentive Stock Options
shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under
such Section 422.
6.2 Terms and Conditions. Options granted under the Plan
shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee
shall deem appropriate:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the
Committee at the time of grant but shall be not less than
100% of the Fair Market Value of the Stock at the time of
grant. However, any Incentive Stock Option granted to any
optionee who, at the time the option is granted, owns more
than 10% of the voting power of all classes of stock of the
Company or of a parent or subsidiary corporation (in each
case as defined in Section 424 of the Code) shall have an
exercise price no less than 110% of Fair Market Value per
share on date of the grant.
(b) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Stock Option shall be
exercisable more than ten years after the date on which the
Option is granted. However, any Incentive Stock Option
granted to any optionee who, at the time the Option is
granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a parent or subsidiary
corporation (in each case as defined in Section 424 of the
Code) may not have a term of more than five years. No Stock
Option may be exercised by any person after expiration of the
term of the Option.
(c) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions
as shall be determined by the Committee at or after grant,
provided, however, that, except as provided in Sections
6.2(f), 6.2(g) and 8, unless otherwise determined by the
Committee at or after grant, no Stock Option shall be
exercisable during the six months following the date of the
granting of the Option. If the Committee provides, in its
discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall
determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise provisions apply pursuant to Section 6.2(c), Stock
Options may be exercised in whole or in part at any time and
from time to time during the option period, by giving written
notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by certified or
bank check, or such other instrument as the Committee may
accept. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in
the form of unrestricted Stock already owned by the optionee
(based, in each case, on the Fair Market Value of the Stock
on the date the option is exercised, as determined by the
Committee); provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the
form of already owned shares may be authorized only at the
time the Option is granted.
If payment of the Option exercise price of a Stock
Option is made in whole or in part in the form of
unrestricted Stock already owned by the Participant, the
Company may require that the Stock has been owned by the
Participant for a specified minimum period of time, for
the purpose of avoiding any charge to the Company's
earnings, limiting the pyramiding of Stock Option
exercises, or such other purposes as the Company deems
appropriate.
No shares of Stock shall be issued until full payment
therefor has been made. An optionee shall generally
have the rights to dividends or other rights of a
shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has
given the representation described in Section 11.1.
(e) Transferability. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the
optionee, provided, however, the Committee may grant Non-
Qualified Stock Options that are transferable, without
payment of consideration, to immediate family members of the
optionee or to trusts for such family members, or to
partnerships in which such immediate family members are the
only parties, subject to such limits as the Committee may
establish, and the transferee shall remain subject to all of
the terms and conditions applicable to such Non-Qualified
Stock Options prior to such transfer.
(f) Termination by Reason of Death. If an optionee's
employment by or association with the Company or any Related
Corporation terminates by reason of death, any Stock Option
held by such optionee may thereafter be exercised, to the
extent then exercisable at the time of death, or on such
accelerated basis as the Committee may determine at or after
grant, by the legal representative of the estate or by the
legatee of the optionee under the will of the optionee, for a
period of 90 days (or such shorter period as the Committee
may specify at grant) from the date of such death or until
the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability or Retirement. If
an optionee's employment by or association with the Company
or any Related Corporation terminates by reason of Disability
or Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, or on such
accelerated basis as the Committee may determine at or after
grant, for a period of 90 days (or such shorter period as the
Committee may specify at grant) from the date of such
termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the
shorter; provided, however, that, if the optionee dies within
such 90-day period (or such shorter period as the Committee
shall specify at grant), any unexercised Stock Option held by
such optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period
of 90 days from the date of such death or until the
expiration of the stated term of such Stock Option, whichever
period is the shorter.
(h) Other Termination. Unless otherwise determined by the
Committee at grant, if an optionee's employment by or
association with the Company or any Related Corporation
terminates for any reason other than death, Disability or
Retirement, the Stock Option shall thereupon terminate,
except that in the Committee's sole discretion, based upon
such factors as the Committee may deem appropriate, the
Committee may specify that such Stock Option may be
exercised, to the extent exercisable at termination, or on
such accelerated basis as the Committee may determine at or
after grant, for a period of 90 days (or such shorter period
as the Committee shall specify at grant) from the date of
such termination or until the expiration of the stated term
of such Stock Option, whichever period is shorter.
(i) Incentive Stock Option Limitations. To the extent
required for "incentive stock option" status under Section
422 of the Code, the aggregate Fair Market Value (determined
as of the time of grant) of the Stock with respect to which
Incentive Stock Options granted are exercisable for the first
time by the optionee during any calendar year under the Plan
and/or any other stock option plan of the Company and any
parent or subsidiary corporation (within the meaning of
Section 424 of the Code) shall not exceed $100,000. The
Company intends to designate any Options granted in excess of
the $100,000 limitation as Non-Qualified Stock Options, and
the Company shall issue certificates to the optionee with
respect to the Options that are Non-Qualified Options and
Options that are Incentive Stock Options.
(j) Cashless Exercise; Satisfaction of Tax Withholdings. To
the extent permitted under applicable laws and regulations,
at the request of a Participant, the Company agrees to
cooperate in a "cashless exercise" of an Option. The
cashless exercise shall be effected by the Participant
delivering to a registered securities broker acceptable to
the Company instructions to sell a sufficient number of
shares of Stock for which such Option is then exercisable to
cover the costs and expenses associated with such exercise
and sale. Under any Option, the Committee may permit a
Participant to pay any applicable withholding taxes by
delivering a sufficient number of previously owned shares of
Common Stock to the Company to satisfy such taxes.
7. Long-Term Performance Awards
7.1 Provision for Grant. Long-Term Performance Awards
may be awarded either alone or in addition to other Awards
granted under the Plan. The Committee shall determine the
nature, length and starting date of the performance period
(the "Performance Period") for each Long-Term Performance
Award, which subject to Section 8 below shall be a period
of at least one year, and shall determine the performance
objectives to be used in valuing Long-Term Performance
Awards and determining the extent to which such Long-Term
Performance Awards have been earned. Performance
objectives may vary from Participant to Participant and
between groups of Participants and shall be based upon
such Company, business unit and/or individual performance
factors and criteria as the Committee may deem
appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may
overlap and Participants may participate simultaneously
with respect to Long-Term Performance Awards that are
subject to different Performance Periods and/or different
performance factors and criteria.
7.2 Periodical Determination of Performance. At the
beginning of each Performance Period, the Committee shall
determine for each Long-Term Performance Award subject to
such Performance Period the range of dollar values or
number of shares of Stock to be awarded to the Participant
at the end of the Performance Period if and to the extent
that the relevant measure(s) of performance for such Long-
Term Performance Award is (are) met. Such dollar values
or number of shares of Stock may be fixed or may vary in
accordance with such performance and/or other criteria as
may be specified by the Committee, in its sole discretion.
7.3 Adjustment of Awards. In the event of special or
unusual events or circumstances affecting the application
of one or more performance objectives to a Long-Term
Performance Award, the Committee may revise the
performance objectives and/or underlying factors and
criteria applicable to the Long-Term Performance Awards
affected, to the extent deemed appropriate by the
Committee, in its sole discretion, to avoid unintended
windfalls or hardship.
7.4 Termination of Employment. Subject to Section 8
below and unless otherwise provided in the applicable
Award agreement(s), if a Participant terminates employment
or other association with the Company or any Related
Corporation during a Performance Period because of death,
Disability or Retirement, such Participant shall be
entitled to a payment with respect to each outstanding
Long-Term Performance Award at the end of the applicable
Performance Period (i) based, to the extent relevant under
the terms of the award, upon the Participant's performance
for the portion of such Performance Period ending on the
date of termination and the performance of the applicable
business unit(s) for the entire Performance Period, and
(ii) prorated, where deemed appropriate by the Committee,
for the portion of the Performance Period during which the
Participant was employed by or associated with the Company
and any Related Corporation, all as determined by the
Committee, in its sole discretion. However, the Committee
may provide for an earlier payment in settlement of such
award in such amount and under such terms and conditions
as the Committee deems appropriate.
Subject to Section 8 below, if a Participant
terminates employment by or association with the Company
and any Related Corporation during a Performance Period
for any other reason, then such Participant shall not be
entitled to any payment with respect to Long-Term
Performance Awards subject to such Performance Period,
unless the Committee shall otherwise determine, in its
sole discretion.
7.5 Form of Payment. The earned portion of a Long-Term
Performance Award may be paid currently or on a deferred
basis with such interest or earnings equivalent as may be
determined by the Committee, in its sole discretion.
Payment shall be made in the form of cash or whole shares
of Stock, either in a lump sum payment or in annual
installments commencing as soon as practicable after the
end of the relevant Performance Period, all as the
Committee shall determine at or after grant.
8. Change in Control Provisions.
8.1 Consequences of Event. In the event of a Change in
Control, in addition to the adjustment provided for in
Section 4(c), the Committee may in its discretion
determine whether, with respect to all Stock Options
granted and Awards made before the Change in Control, the
following acceleration and valuation provisions shall
apply:
(a) Any Stock Options awarded under the Plan not previously
exercisable shall thereupon become fully exercisable.
(b) Any outstanding Long-Term Performance Awards shall be
paid out in cash within thirty days following the Change in
Control based on prorated target results for the Performance
Periods in question.
In case of any reorganization, merger or consolidation
of the Company into or with another company or in the case
of any sale or conveyance to another company or entity of
the property of the Company as a whole or substantially as
a whole, each Stock Option shall be automatically
converted into a stock option or other award which covers
shares of stock or other securities equivalent in kind and
value to the shares or other securities the optionee or
holder would have held if the Stock Option or other Award
had been exercised or received in full prior to such
reorganization, merger, consolidation, sale or conveyance
and no disposition thereof had subsequently been made, and
the option price under each Stock Option shall be
proportionately adjusted.
8.2 Change in Control. For purposes of this Plan, a
"Change in Control" means the happening of any of the
following:
(a) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section
12(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Company Voting Securities"); provided,
however, that any acquisition by (x) any noncorporate
shareholder of the Company as of the effective date of the
initial registration of an offering of Stock under the
Securities Act of 1933, (y) the Company or any of its
subsidiaries, or any employee benefit plan (or related trust)
sponsored or maintained by the Company or any of its
subsidiaries, or (z) any corporation with respect to which,
following such acquisition, more than 60% of, respectively,
the then outstanding shares of common stock of such
corporation and combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Company Voting Securities immediately prior to such
acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Company Voting
Securities, as the case may be, shall not constitute a Change
in Control of the Company; or
(b) Continuing Directors constitute less than a majority of
the Board, where a Continuing Director is (i) each person who
was a director of the Company on January 2, 1997, and (ii)
each person who subsequently becomes a director of the
Company and whose election or nomination was approved by a
vote of at least a majority of the Continuing Directors in
office at the time of the election or nomination unless that
person became a director in connection with an actual or
threatened election contest; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business
Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were
the respective beneficial owners of the Outstanding Company
Common Stock and Company Voting Securities immediately prior
to such Business Combination do not own beneficially,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination in substantially the same proportion as
their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and
Company Voting Securities, as the case may be; or
(d) a complete liquidation or dissolution of the Company or
a sale or other disposition of all or substantially all of
the assets of the Company other than to a corporation with
respect to which, following such sale or disposition, more
than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors is then owned beneficially,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Company Voting Securities immediately prior to such sale or
disposition in substantially the same proportion as their
ownership of the Outstanding Company Common Stock and Company
Voting Securities, as the case may be, immediately prior to
such sale or disposition.
9. Amendment and Termination. The Board may terminate or
amend the Plan at any time and from time to time; provided,
however, that the Board may not, without approval of the
shareholders of the Company, increase the maximum number of
shares of Stock issuable under the Plan or change the
description of the individuals eligible to receive Awards.
No termination of or amendment to the Plan may adversely
affect the rights of a Participant with respect to any Award
theretofore granted under the Plan without such Participant's
consent.
The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but, subject to
Section 4 above, no such amendment shall (i) decrease the
exercise price of an outstanding Stock Option, or (ii) effect
the simultaneous cancellation of an outstanding Stock Option
and new grant of a replacement Stock Option, or (iii) without
the Participant's consent, impair the rights of any
Participant.
10. Unfunded Status of Plan. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than
those of any other general creditor of the Company. In its
sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or
with respect to Awards hereunder; provided, however, unless
the Committee otherwise determines with the consent of the
affected Participant, the existence of such trusts or other
arrangements shall be consistent with the "unfunded" status
of the Plan.
11. General Provisions.
11.1 Investment Representation. The Committee may
require each person acquiring shares pursuant to an Award
under the Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares
for investment without a view to distribution thereof.
The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates for shares of
Stock or other securities delivered under the Plan shall
be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under
the rules, regulations, and other requirements of any
stock exchange upon which the Stock is then listed, and
any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such
restrictions.
11.2 Adoption of Other Plans. Nothing contained in this
Plan shall prevent the Board of Directors from adopting
other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and
such arrangements may be either generally applicable or
applicable only in specific cases.
11.3 No Employment Rights. Neither the establishment or
continuation of the Plan, nor the grant of any Award
hereunder, shall confer upon any employee or consultant of
the Company or any Related Corporation any right to
continued employment or association with the Company and
any Related Corporation, nor shall it interfere in any way
with the right of the Company and any Related Corporation
to terminate the employment or association of any of its
employees or consultants at any time.
11.4 Participant Not to Compete. In consideration of the
Company's grant of an Award, a Participant shall agree in
the agreement setting forth the terms of such Award that
during the period of his employment by or other service
with the Company or any Related Corporation, and for a
period of at least two (2) years after the date such
employment or service terminates, he will not without the
consent of the Board accept or perform work for any entity
whose business is competitive with the business carried on
by the Company and any Related Corporation, or engage in
activities which are significantly competitive with the
business of the Company and any Related Corporation. In
the event a Participant breaches such agreement, the
Participant shall forfeit all rights to any unexercised
Options or unearned Awards held as of the date of such
breach.
11.5 Tax Withholding. No later than the date as of which
an amount first becomes includible in the gross income of
the Participant for Federal income tax purposes with
respect to any Award, the Participant shall pay to the
Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or
local taxes of any kind required by law to be withheld
with respect to such amount. Unless otherwise determined
by the Committee, the minimum required withholding
obligations may be settled with Stock. The obligations of
the Company under the Plan shall be conditional on such
payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the
Participant.
11.6 Payments on Death. The Committee shall establish
such procedures as it deems appropriate for a Participant
to designate a beneficiary to whom any amounts payable in
the event of the Participant's death are to be paid.
11.7 Governing Law. The Plan and all Awards and actions
taken thereunder shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws
principles thereof.
12. Term of Plan. The Plan shall become effective upon the
approval of the Plan by the shareholders of the Company. No
Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the Plan's approval by shareholders, but
Awards theretofore granted may extend beyond that date.
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Net Income $26,503,000 $21,025,000 $15,448,000
Calculation of primary earnings per
common and common equivalent share:
Weighted average common shares outstanding 15,542,000 14,545,000 13,926,000
Increase from assumed exercise of
stock options and investment of pro-
ceeds in treasury stock, based upon
average market prices 564,000 540,000 272,000
Weighted average number of common and
common equivalent shares outstanding 16,106,000 15,085,000 14,198,000
Earnings per common and common
equivalent share $1.65 $1.39 $1.09
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 16,106,000 15,085,000 14,198,000
Increase from assumed exercise of stock
options and investment of proceeds in
treasury stock, based upon year-end
market price 19,000 67,000 42,000
Weighted average number of common and
common equivalent shares used to calculate
fully diluted earnings per common and
common equivalent share 16,125,000 15,152,000 14,240,000
Earnings per common and common
equivalent share assuming full dilution $1.64 $1.39 $1.08
</TABLE>
59
EXHIBIT 13
IONICS, INCORPORATED
ANNUAL REPORT TO STOCKHOLDERS OF
IONICS, INCORPORATED FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996
(Only pages 16 through 32 and the inside back cover
constitute an Exhibit to Form 10-K)
60
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Results of Operations
The financial performance of Ionics in 1996 showed a 27% growth in revenues
and a 26% improvement in net income. The profit growth reflected increases
in earnings before interest and taxes of 20%, 27% and 28% in the Membranes
and Related Equipment; Water, Food and Chemical Supply; and Consumer
Products segments, respectively. Particular strength was shown by the
ultrapure water supply business within the Water, Food and Chemical Supply
segment.
Total revenues were $326.7 million in 1996, compared with $257.3
million in 1995. Revenues were higher in all three business segments, with
the largest growth occurring in Water, Food and Chemical Supply.
Membranes and Related Equipment revenues in 1996 grew due to continuing
strength in the sale of ultrapure water systems to the semiconductor
market. Growth also resulted from additional sales of instrumentation to
the pharmaceutical and semiconductor markets, but was partially offset by a
reduction in revenues from the sale of wastewater systems, particularly
related to zero liquid discharge applications.
Growth in the Water, Food and Chemical Supply segment was primarily due
to increased revenues related to ownership and operation of ultrapure water
systems. This growth included revenues from the acquisitions of Ahlfinger
Water Company in November 1995 and Apollo Ultrapure Water Systems, Inc. in
January 1996. Revenue growth also occurred in the municipal water supply
and food processing businesses due primarily to the acquisitions of Aqua
Design, Inc. in January 1996 and Separation Technology, Inc. (STI) in July
1996.
Consumer Products revenues increased through the sale of higher volumes
of bottled water by existing Aqua Cool locations and through new
distribution facilities near Cleveland, Ohio and Providence, Rhode Island.
Revenues also increased in the consumer chemicals business due to increased
sales of automobile windshield wash solution and bleach products. Home
water product sales also increased in 1996.
Total revenues were $257.3 million in 1995, compared with $222.4
million in 1994. Revenues were higher in all three business segments, with
the largest increase occurring in Membranes and Related Equipment.
Revenues in 1995 in this segment grew due to increased sales of capital
equipment, including equipment for water desalination and treatment and
wastewater treatment, and related spare parts. The acquisition of Sievers
Instruments, Inc. also contributed to growth in this segment.
61
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 sales of municipal water and
increased demand for chemical supply products produced by the Elite
Chemicals businesses in Australia and the United Kingdom. Revenue increases
also were generated 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. Home water 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.
Cost of sales as a percentage of revenues was 67.3%, 67.2% and 69.3% in
1996, 1995 and 1994, respectively.
Cost of sales as a percentage of revenues declined during 1996 for the
Membranes and Related Equipment segment and Consumer Products segment, and
increased for the Water, Food and Chemical Supply segment. The decrease in
the Membranes and Related Equipment segment reflected an improvement in the
mix of wastewater treatment contracts and instrumentation sales, partially
offset by a change in the mix of ultrapure water equipment contracts. The
Consumer Products segment decrease resulted primarily from the achievement
of certain product cost reductions and an improvement in product mix.
In the Water, Food and Chemical Supply segment, cost of sales increased
as a percentage of revenues during 1996. This increase reflected the
acquisition of STI, whose manufacturing costs do not yet reflect the
synergies we believe will be available through continued integration with
the other businesses in this segment. This increase also reflected
increased competitive pressure within the industrial bleach market in the
United Kingdom.
Cost of sales as a percentage of revenues declined during 1995 from
1994 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 operating efficiencies.
62
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.
Operating expenses as a percentage of revenues were 20.9% in 1996, down
from 21.1% in 1995 and 21.2% in 1994. The decrease in operating expenses
as a percentage of revenues in 1996 and in 1995 reflects the absorption of
relatively fixed operating expenses by increased sales volume and the
continued emphasis on expense controls.
Interest income in 1996 was $0.5 million compared to $1.0 million in
1995 and $1.1 million in 1994. The decrease in 1996 was due primarily to
lower average invested cash balances. The decrease in 1995 was due to
increased capital spending, partially offset by higher average interest
rates.
The Company's effective tax rate was 33.0% in 1996, 33.5% in 1995 and
32.0% in 1994. The decrease in the effective tax rate for 1996 was due
primarily to an improvement in the mix of earnings and effective tax rates
among the different tax jurisdictions in which the Company operates. This
was partially offset by a decrease in the benefit from tax-exempt interest
income, a higher state tax rate resulting from a change in the composition
of domestic income by state and a proportionately smaller benefit from the
Company's foreign sales corporation. The increase in the effective tax rate
for 1995 was due to a reduction in the benefit from tax-exempt interest
income 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.
Net income increased 26.1% to $26.5 million in 1996 compared to $21.0
million in 1995. Net income in 1995 was 36.1% higher than 1994 net income
of $15.4 million.
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 generally that 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.
63
Financial Condition
At December 31, 1996 the Company had total assets of $378.6 million
compared to total assets of $322.0 million at December 31, 1995 and $277.2
million at December 31, 1994. The major components of the increase in 1996
and in 1995 were property, plant and equipment related to the Company's
bottled water operations, bleach production and distribution facilities,
trailers and other "own and operate" facilities. In addition, during both
1996 and 1995, accounts receivable increased, reflecting higher revenues
from capital equipment projects and related retainage amounts.
Working capital in 1996 increased by $14.1 million and the Company's
current ratio increased to 2.1 from 2.0 in 1995. Capital expenditures
totaled $46.0 million, $49.6 million, and $38.2 million in 1996, 1995 and
1994, respectively. Also, $10.5 million of cash was paid in 1994 to settle
the payment obligation arising from the acquisition of Ionics RCC in late
1993. Funds for these expenditures were provided in both years through
cash from operations, proceeds from stock option exercises and the issuance
of current debt. In 1995, funds were also provided through the sale of
short-term investments.
Net cash provided by operating activities increased by $10.4 million in
1996, with higher net income, depreciation, and income taxes partially
offset by a decrease in accounts payable and accrued expenses. The
decrease in 1995 of $6.7 million compared to 1994 resulted as higher net
income, depreciation, and deferred taxes were more than offset by an
increase in accounts receivable. Net cash used for investing activities
increased by $2.1 million in 1996 after having decreased by $1.5 million in
1995 from 1994. In 1996, net cash provided by financing activities
remained substantially consistent with 1995. In 1995, net cash provided by
financing activities increased by $6.6 million, primarily from increases in
debt and proceeds from stock option exercises.
Significant expenditures in 1997 are anticipated to include the
expansion of bottled water operations, 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
$12.3 million at the beginning of 1997, cash from operations, lines of
credit and foreign exchange facilities are adequate to meet its currently
anticipated needs.
64
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.
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.
65
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, 1996 and 1995 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of
the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 18, 1997
66
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS Ionics, Incorporated
<CAPTION>
For the years ended December 31
Amounts in thousands, except per share amounts 1996 1995 1994
<S> <C> <C> <C>
Net revenue:
Membranes and related equipment $148,213 $132,673 $113,928
Water, food and chemical supply 112,305 69,321 58,268
Consumer products 66,144 55,299 50,180
326,662 257,293 222,376
Costs and expenses:
Cost of membranes and related equipment 105,037 94,991 87,255
Cost of water, food and chemical supply 76,855 45,924 38,274
Cost of consumer products 37,956 32,085 28,664
Research and development 5,108 4,180 3,372
Selling, general and administrative 63,118 50,123 43,770
288,074 227,303 201,335
Income from operations 38,588 29,990 21,041
Interest income 527 977 1,057
Equity income 441 642 619
Income before income taxes 39,556 31,609 22,717
Provision for income taxes 13,053 10,584 7,269
Net income $ 26,503 $ 21,025 $ 15,448
Earnings per share $ 1.65 $ 1.39 $ 1.09
Shares used in earnings per
share calculations 16,106 15,085 14,198
The accompanying notes are an integral part of these financial statements.
</TABLE>
67
<TABLE>
CONSOLIDATED BALANCE SHEETS Ionics, Incorporated
<CAPTION>
December 31
Dollars in thousands, except share amounts 1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,269 $ 9,479
Notes receivable, current 3,496 4,529
Accounts receivable 91,392 78,376
Receivables from affiliated companies 2,999 1,421
Inventories 26,000 20,564
Other current assets 8,266 8,018
Total current assets 144,422 122,387
Notes receivable, long-term 7,737 5,813
Investments in affiliated companies 2,908 4,874
Property, plant and equipment, net 185,817 155,886
Other assets 37,705 33,084
Total assets $378,589 $322,044
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 11,513 $ 4,884
Accounts payable 28,988 28,089
Other current liabilities 27,672 25,699
Taxes on income - 1,607
Total current liabilities 68,173 60,279
Long-term debt and notes payable 2,132 182
Deferred income taxes 14,422 7,780
Other liabilities 1,645 759
Commitments - -
Stockholders' equity:
Common stock, par value $1, authorized shares:
30,000,000 in 1996 and 1995;
issued and outstanding: 15,823,205 in 1996 and 14,801,230 in 1995 15,823 14,801
Additional paid-in capital 149,337 137,587
Retained earnings 130,228 104,795
Cumulative translation adjustments (2,811) (3,671)
Unearned compensation (360) (468)
Total stockholders' equity 292,217 253,044
Total liabilities and stockholders' equity $378,589 $322,044
The accompanying notes are an integral part of these financial statements.
</TABLE>
68
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Ionics, Incorporated
<CAPTION>
For the years ended December 31
Dollars in thousands _____________________________________ 1996 1995 1994
<S> <C> <C>
Operating activities:
Net income $ 26,503 $ 21,025 $ 15,448
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,162 20,717 18,092
Provision for losses on accounts and notes receivable 1,011 579 535
Deferred income tax provision 4,085 4,263 2,051
Compensation expense on restricted stock awards 108 72 -
Changes in assets and liabilities, net of effects
of businesses acquired:
Notes receivable (1,557) (1,636) (889)
Accounts receivable (10,863) (14,474) (3,634)
Inventories (3,259) (300) (5,296)
Other current assets 449 (1,425) (3,199)
Investments in affiliates 758 545 (386)
Accounts payable and accrued expenses (7,011) (290) 16,998
Income taxes 4,678 1,816 (1,343)
Other 296 28 (738)
Net cash provided by operating activities 41,360 30,920 37,639
Investing activities:
Additions to property, plant and equipment (46,003) (49,565) (38,220)
Sale and maturity of short-term investments - 8,617 3,222
Purchase of long-term investments - (3,000) -
Acquisitions, net of cash acquired - - (10,488)
Net cash used by investing activities (46,003) (43,948) (45,486)
Financing activities:
Principal payments on current debt (22,259) (11,524) (325)
Proceeds from issuance of current debt 27,149 15,533 347
Principal payments on long-term debt (3,236) - -
Proceeds from stock option plans 5,731 3,529 945
Net cash provided by financing activities 7,385 7,538 967
Effect of exchange rate changes on cash 48 3 312
Net change in cash and cash equivalents 2,790 (5,487) (6,568)
Cash and cash equivalents at end of prior year 9,479 14,966 21,534
Cash and cash equivalents at end of current year $ 12,269 $ 9,479 $ 14,966
The accompanying notes are an integral part of these financial statements.
</TABLE>
69
<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
<S> <C> <C> <C> <C> <C> <C> <C>
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
Restatement for pooling 447,258 447 1,151 (257) - - 1,341
Balance January 1, 1995 14,437,154 14,437 126,680 83,770 (4,936) - 219,951
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
Issuance for acquisition 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 - - - 21,025 - - 21,025
Balance December 31, 1995 14,801,230 14,801 137,587 104,795 (3,671) (468) 253,044
Restatement for poolings 554,544 555 (460) (1,070) - - (975)
Balance January 1, 1996 15,355,774 15,356 137,l27 103,725 (3,671) (468) 252,069
Stock options exercised 406,956 407 5,324 - - - 5,731
Tax benefit of stock option activity - - 4,390 - - - 4,390
Translation adjustments, net
of income taxes of $(93) - - - - 860 - 860
Issuance for acquisitions 60,475 60 2,496 - - - 2,556
Amortization of unearned compensation - - - - - 108 108
Net income - - - 26,503 - - 26,503
Balance December 31, 1996 15,823,205 $15,823 $149,337 $130,228 $ (2,811) $ (360) $292,217
The accompanying notes are an integral part of these financial statements.
</TABLE>
70
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.
BASIS OF PRESENTATION
Certain prior year amounts have been restated to conform to the current
year presentation with no impact on net income. Consolidated results have
been restated to include the pooling of Sievers Instruments, Inc. (NOTE
13).
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 $1,181,000, $1,076,000 and
$989,000 in 1996, 1995 and 1994, 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 the 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
71
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.
NOTES RECEIVABLE
Notes receivable have been reported at their estimated realizable value.
The allowance for uncollectible notes receivable totaled $591,000 and
$685,000 at December 31, 1996 and 1995, 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 $1,169,000, $268,000 and $104,000 in 1996, 1995 and 1994,
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
supply equipment 3 - 25 years
Other 3 - 12 years
The Company's policy is to depreciate processing plants, other than leased
equipment, over the shorter of their useful lives or the term of the
corresponding supply contracts.
The Company has adopted 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 adoption
of this statement has had no material effect on the financial statements
of the Company.
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.
72
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 $548,000,
$58,000 and $23,000 for 1996, 1995 and 1994, respectively.
INCOME TAXES
Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts 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 to a 2-for-1 stock split in 1995 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.
73
<TABLE>
NOTE 2. CONSOLIDATED BALANCE SHEET DETAILS
<CAPTION>
Dollars in thousands 1996 1995
<S> <C> <C>
Raw materials $ 15,028 $ 12,640
Work in process 8,120 5,411
Finished goods 2,852 2,513
Inventories $ 26,000 $ 20,564
Land $ 3,602 $ 3,270
Buildings 33,157 26,018
Machinery and equipment 233,077 191,195
Other, including furniture, fixtures and vehicles 36,834 26,772
306,670 247,255
Accumulated depreciation (120,853) (91,369)
Property, plant and equipment, net $185,817 $155,886
Goodwill $ 35,067 $ 30,632
Accumulated amortization (3,922) (2,966)
Other______________________________________________ 6,560 5,418
Other assets $ 37,705 $ 33,084
Customer deposits $ 7,147 $ 3,131
Accrued commissions 2,402 2,184
Accrued expenses 18,123 20,384
Other current liabilities $ 27,672 $ 25,699
</TABLE>
74
<TABLE>
NOTE 3. SUPPLEMENTAL SCHEDULE OF CASH AND NON-CASH FLOW INFORMATION
<CAPTION>
Dollars in thousands __________________________ 1996 1995 1994
<S> <C> <C> <C>
Cash payments for interest and income taxes:
Interest $ 1,338 $ 360 $ 159
Taxes $ 4,264 $ 7,150 $ 6,628
Restricted stock compensation credited to
paid-in capital $ - $ (540) $ -
Liabilities assumed in conjunction with
acquisitions:
Fair value of assets purchased $ 8,452 $ 6,196
Book value of assets pooled 8,592 2,632
Retained deficit pooled 1,070 257
Net cash received 89 207
Value of common stock issued (2,530) (7,491)
Liabilities assumed $15,673 $ 1,801
</TABLE>
<TABLE>
NOTE 4. ACCOUNTS RECEIVABLE
<CAPTION>
Dollars in thousands 1996 1995
<S> <C> <C>
Billed receivables $68,775 $54,226
Unbilled receivables 24,884 25,875
Allowance for doubtful accounts (2,267) (1,725)
Accounts receivable $91,392 $78,376
</TABLE>
Unbilled receivables represent the excess of revenues recognized on
percentage 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, 1996 are expected
to be billed during 1997.
Billed receivables include retainage amounts of $4,378,000 and $1,609,000 at
December 31, 1996 and 1995, respectively. Substantially all retainage
amounts are collectible within one year.
75
<TABLE>
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.
<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%
Yuasa-Ionics Co., Ltd. - Japan 50%
Aguas Tratadas de Cadereyta S.A. de C.V. - Mexico 20%
Aqua Design Ltd. - Cayman Islands 39%
</TABLE>
The Company's percentage ownership interest in a foreign affiliate may vary
from its interest in the earnings of such affiliate.
<TABLE>
Activity in investments in affiliated companies:
<CAPTION>
Dollars in thousands 1996 1995 1994
<S> <C> <C> <C>
Investments at end of prior year $ 4,874 $ 5,419 $ 4,989
Equity in earnings 441 642 619
Distributions received (1,254) (1,187) (233)
Cumulative translation adjustments - - 44
Reclassification of Watlington
Waterworks, Ltd. to other assets
resulting from ownership dilution (1,208) - -
Other investment 55 - -
Investments at end of current year $ 2,908 $ 4,874 $ 5,419
</TABLE>
At December 31, 1996, the Company's equity in the total assets and in the
total liabilities of its foreign affiliates was $5,023,000 and $2,115,000,
respectively. The Company's equity in the 1996 total revenues of these
affiliates was $4,411,000.
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
76
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 pre-trial
discovery, the Company believes generally that 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"). Combined assessments to
date against all PRPs total $9.73 million. Ionics' share of these
assessments totals $51,000. The ultimate site clean-up cost is currently
not expected to exceed $59 million, of which the Company's share would not
exceed $308,000 including the amounts already assessed against the
Company. While it is too soon to predict the scope and cost of the final
remedy that the EPA will select, based upon the large number of PRPs
identified, the Company's small volumetric ranking (approximately 0.5%)
and the identities of the larger PRPs, the Company believes that its
liability in this matter will not have a material effect on the Company or
its financial position.
<TABLE>
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE
<CAPTION>
Dollars in thousands 1996 1995
<S> <C> <C>
Borrowings outstanding $13,645 $5,066
Less installments due within one year 11,513 4,884
Long-term debt and notes payable $ 2,132 $ 182
</TABLE>
Maturities of borrowings outstanding for the five years ending December 31,
1997 through 2001 are approximately $11,513,000, $2,063,000, $16,000,
$9,000 and $9,000, respectively.
77
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 (8.25% at December 31, 1996), the money market rate (7.25% at December
31, 1996) or the London Interbank Offered Rate plus 1/2% (6.25% at December
31, 1996), at the Company's option. The Company had outstanding borrowings
of $9,387,000 against these lines of credit at December 31, 1996.
Included in the credit lines is a $25 million credit line with a
commercial bank which includes a commitment fee of 1/8 of 1% per annum on
the unused average daily amount.
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, 1996 and 1995 was approximately 8% and 10%, respectively.
<TABLE>
NOTE 8. INCOME TAXES
The components of domestic and foreign income before income taxes were as
follows:
<CAPTION>
Dollars in thousands 1996 1995 1994
<S> <C> <C> <C>
U.S. $29,017 $22,838 $15,022
Non-U.S. 10,539 8,771 7,695
Income before income taxes $39,556 $31,609 $22,717
The provision for income taxes consisted of the following:
Dollars in thousands 1996 1995 1994
Federal $ 7,919 $ 5,407 $ 3,575
Foreign 793 437 926
State 256 477 717
Current provision 8,968 6,321 5,218
Federal 1,671 3,164 225
Foreign 1,047 569 1,625
State 1,367 530 201
Deferred provision 4,085 4,263 2,051
Provision for income taxes $13,053 $10,584 $ 7,269
</TABLE>
78
<TABLE>
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, 1996 the tax effects of the temporary differences were:
<CAPTION>
Deferred Deferred Tax
Dollars in thousands Tax Assets Liabilities
<S> <C> <C>
Depreciation $ - $ 8,463
Goodwill amortization - 365
Inventory valuation 1,332 -
Bad debt reserves 372 -
Accrued commissions 559 -
Profit on sales to foreign subsidiaries 1,217 -
Insurance accruals 682 -
U.S. tax on unrepatriated earnings - 2,675
Pensions - 416
Royalties 850 -
Sale versus lease 293 -
Foreign withholding taxes on undistributed earnings - 2,671
Foreign deferred liabilities, net - 3,389
Tax effect of current translation loss 1,033 -
Net operating loss carryforwards 5,686 -
Miscellaneous 1,522 842
13,546 18,821
Valuation allowance for deferred tax assets (1,800) -
Deferred income taxes $11,746 $18,821
</TABLE>
<TABLE>
The United States statutory corporate tax rate is reconciled to the
Company's effective tax rate as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Foreign Sales Corporation (1.6) (2.1) (1.8)
Tax exempt interest income (.5) (1.2) (2.4)
State income taxes, net of federal tax benefit 2.7 1.9 2.6
Foreign income taxed at different rates (2.0) - (1.1)
Other, net (.6) (.1) (.3)
Effective tax rate 33.0% 33.5% 32.0%
At December 31, 1996, the Company had unused tax loss carryforward benefits of
$5,686,000 (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, 1996 and 1995.
The remaining unreserved portion is considered to be realizable. $3,886,000 of
the net unused tax loss carryforward benefit has been included in other assets
at December 31, 1996.
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 $1,538,000,
$682,000 and $627,000 as of December 31, 1996, 1995 and 1994, respectively.
</TABLE>
79
NOTE 9. STOCKHOLDERS' EQUITY
During 1996 and 1995, the Company issued 1,062,277 shares (including shares
for Sievers Instruments, Inc.) and 144,679 shares, respectively, in
conjunction with acquisition related activity (NOTE 13).
The Company has adopted Statement of Financial Accounting Standards (FAS) No.
123 "Accounting for Stock-Based Compensation" in 1996. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions used for grants in 1996 and 1995:
expected volatility of 23.1%, risk-free interest rates ranging from 5.87% to
6.94% and expected lives of 5 years. The weighted average fair value of
options granted during 1996 and 1995 was $15.17 and $10.02, respectively.
At December 31, 1996, the Company had three stock-based compensation plans
which are described below. The Company applies Accounting Principles Board
Opinion 25 in accounting for its plans. Accordingly, any difference between
the option price and the fair market value of the stock at the date of grant
is charged to operations over the expected period of benefit to the Company.
Had compensation cost for the Company's plans been determined based on the
fair value of the options at the grant dates for awards under those plans
consistent with the method of FAS 123, the Company's net income and earnings
per share would have been adjusted. On a pro forma basis, net income as
reported for 1996 of $26.5 million would have been $25.9 million and 1995 net
income of $21.0 million would have been unchanged. Earnings per share as
reported for 1996 of $1.65 would have been $1.61 and 1995 earnings per share
of $1.39 would have been unchanged. The effects of applying FAS123 in this
pro forma disclosure are not indicative of future awards, which are
anticipated. FAS123 does not apply to awards prior to 1995.
Under its 1979 Stock Option Plan (the "1979 Plan"), options may be granted to
officers and other key employees of the Company (only as non-qualified options
since February 1989) and are exercisable at a price of not less than $1.00 per
share. It has been the general policy of the Compensation Committee of the
Board of Directors, which administers the 1979 Plan, to issue non-qualified
options with an exercise price equal to the fair market value of the stock.
At December 31, 1996 and 1995, 132,519 and 90,758 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 of the
stock at the date of grant. As of December 31, 1996 and 1995, 98,500 and
116,500 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 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 is being charged to operations over the 10-year vesting
period.
80
<TABLE>
A summary of the status of the Company's stock option plans as of December 31, 1996, 1995
and 1994 and changes during the years ending on those dates is presented below:
<CAPTION>
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
(Options Exercise Exercise Exercise
in thousands) Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at end
of prior year 1,989 $ 20.30 2,185 $ 19.98 1,666 $ 17.67
Granted 744 42.51 39 27.48 642 24.23
Exercised (465) 17.15 (204) 18.11 (105) 8.99
Canceled (68) 23.06 (31) 21.85 (18) 21.53
Outstanding at end
of current year 2,200 $ 28.39 1,989 $ 20.30 2,185 $ 19.98
Options exercisable
at year-end 2,137 1,913 2,130
</TABLE>
<TABLE>
The following table summarizes the information about stock options outstanding
at December 31, 1996:
<CAPTION>
(Options in
thousands) Options Outstanding Options Exercisable
<S> <C> <C> <C> <C> <C>
Weighted-
Average Weighted- Number Weighted-
Number Remaining Average Exercisable Average
Range of Outstanding Contract Exercise at Exercise
Exercise Prices at 12/31/96 Years Price 12/31/96 Price
$ 4.29 - $ 5.63 20 1.9 $ 4.74 20 $ 4.74
7.38 - 8.82 6 1.3 8.13 6 8.13
11.88 - 12.94 146 3.4 12.12 110 12.08
15.25 - 22.56 703 6.0 20.34 703 20.34
23.13 - 30.38 595 7.6 24.64 568 24.50
43.13 - 47.75 730 9.7 43.26 730 43.26
$ 4.29 - $47.75 2,200 7.4 $28.39 2,137 $28.68
</TABLE>
The Company has adopted a restricted stock plan (the "1994 Plan") under
which shares of common stock may be granted to officers and other key
employees of the Company. Restrictions on the sale of such common stock
typically lapse over a five-year vesting period. No shares were issued
under the Plan in 1996. During 1995, 19,822 shares were issued under the
Plan. 280,178 additional shares have been reserved for issuance. The
fair value of $540,000 was recorded as unearned compensation and is being
charged to operations over the vesting period.
81
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 are normally acquired for the
plan in the open market. Through December 31, 1996, no shares had been
issued under the plan.
The Company has adopted a Stockholder Rights Plan designed to protect
stockholders against abusive takeover tactics. Each share of common stock
now carries one-half right. Each right entitles the holder to purchase
from the Company one unit, consisting initially of one-fifth share of
common stock and one note in principal amount equal to four-fifths of the
current market price of the common stock on the date of exercise, at a
purchase price of $50 subject to adjustment. In certain circumstances,
rights cease to be exercisable for a unit and become exercisable for $100
worth of common stock (or a combination of cash, property or other
securities of the Company) for $50.
The rights are not exercisable until the occurrence of certain events 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 unless certain
events occur. Unless redeemed earlier, the rights, which have no voting
power, expire on December 31, 1997.
In November 1994, the Company's Board of Directors declared a 2-for-1
stock split, 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.
NOTE 10. OPERATING LEASES
The Company leases equipment, primarily for industrial water purification
and bottled water coolers, to customers through operating leases. The
original cost of this equipment was $86,656,000 and $64,125,000 at December
31, 1996 and 1995, respectively. The accumulated depreciation for such
equipment was $28,347,000 and $19,242,000 at December 31, 1996 and 1995,
respectively.
At December 31, 1996, future minimum rentals receivable under noncancelable
operating leases in the years 1997 through 2001 and later were approximately
$22,273,000, $18,137,000, $14,334,000, $10,437,000, $6,863,000 and
$32,024,000, respectively.
The Company leases facilities and personal property under various operating
leases. Future minimum payments due under lease arrangements are as
follows: $2,429,000 in 1997, $1,746,000 in 1998, $913,000 in 1999, $650,000
in 2000, and $309,000 in 2001. Rent expense under these leases was
approximately $4,188,000, $3,538,000 and $3,249,000 for 1996, 1995 and 1994,
respectively.
82
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.
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 pretax profits, 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 $249,000, $188,000 and $360,000 in 1996, 1995 and 1994,
respectively.
The Company also has a contributory defined benefit pension plan (defined
benefit plan) for its Watertown-based employees and employees of its other
domestic divisions and subsidiaries. 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.
83
<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, 1996 and
1995:
<CAPTION>
Dollars in thousands 1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $8,996 and $8,082, respectively $(10,003) $(8,822)
Projected benefit obligation for service
rendered to date (10,883) (9,696)
Plan assets at fair value 8,577 7,103
Projected benefit obligation in excess of plan assets (2,306) (2,593)
Unrecognized net loss 993 1,282
Unrecognized prior service cost 523 559
Unrecognized net assets being amortized
over approximately 17 years (362) (415)
Adjustment for additional minimum liability (273) (552)
Accrued pension cost at December 31 $ (1,425) $(1,719)
</TABLE>
<TABLE>
<CAPTION>
Net pension cost included the following components:
Dollars in thousands 1996 1995 1994
<S> <C> <C> <C>
Service cost $ 1,026 $ 706 $ 652
Interest cost 780 658 636
Return on plan assets (908) (1,157) 46
Net amortization and deferral 265 588 (703)
Net periodic pension cost $ 1,163 $ 795 $ 631
</TABLE>
The discount rate used in determining the projected benefit obligation was
7.25% in 1996 and 1995. The rate of increase in compensation levels used
was 5% in 1996 and 6% in 1995. 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.
84
The Ionics Section 401(k) stock savings plan is available to substantially
all employees of the Company and its domestic subsidiaries. Employees may
contribute from 1% to 12% of compensation subject to certain limits. 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
$655,000, $512,000 and $376,000 in 1996, 1995 and 1994, 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.
NOTE 12. FINANCIAL INSTRUMENTS
OFF-BALANCE-SHEET RISK
The Company issues letters of credit as guarantees for various performance
and bid obligations. Approximately $22.0 million and $18.9 million of
these letters were outstanding at December 31, 1996 and 1995, respectively.
Approximately 51% of the letters of credit outstanding at December 31, 1996
are scheduled to expire in 1997. These instruments were executed with
creditworthy institutions. 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, 1996 and 1995.
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 Spanish Government securities and with major financial
institutions. The Company's concentrations of credit risk with respect to
trade accounts receivable and notes receivable is considered low. The
Company's customer base is spread across many different industries and
geographies and the Company obtains guaranteed letters of credit for many
of its foreign orders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents and investments closely
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
Realized gains and losses from the sale of debt and equity securities
during fiscal 1996 and 1995 were not significant.
85
Long-term investments, maturing in 1998 and 2001, which the Company intends
to hold to maturity have been recorded at a net cost of $1,144,000 and
$1,219,000 at December 31, 1996 and 1995, respectively. These costs
approximate fair value.
During 1996, the Company's investment in Watlington Waterworks Limited
(Watlington) of Bermuda decreased from 23% to 19% as a result of the
issuance by Watlington of additional shares. Accordingly, the $1,208,000
carrying value of this investment, previously accounted for under the
equity method, has been reclassified to other assets at December 31, 1996
and is accounted for under the cost method. This investment, which
approximates the current market value, is considered to be available for
sale.
NOTE 13. CONSOLIDATION AND ACQUISITION
AQUA DESIGN, INC.
The Company completed a pooling with Aqua Design, Inc. (Aqua Design) on
January 3, 1996 and issued 222,977 shares of common stock in exchange for
more than 90% of the outstanding common stock of Aqua Design. Because the
operating results from prior years were not material, both individually and
in the aggregate, compared to those of the Company, the transaction has
been recorded by restatement of retained earnings as of January 1, 1996,
and no restatement of prior-period financial statements has been made.
Aqua Design owns and operates membrane-based seawater desalination systems
to produce drinking and process water primarily for hotels and
municipalities in the Caribbean.
APOLLO ULTRAPURE WATER SYSTEMS, INC.
The Company completed a pooling with Apollo Ultrapure Water Systems, Inc.
(Apollo) on January 10, 1996, and issued 331,567 shares of common stock in
exchange for 100% of the outstanding common stock of Apollo. Because the
operating results from prior years were not material, both individually and
in the aggregate, compared to those of the Company, the transaction has
been recorded by restatement of retained earnings as of January 1, 1996,
and no restatement of prior-period financial statements has been made.
Apollo sells ultrapure water and related services to a variety of
industrial and commercial users primarily in southern California.
SIEVERS INSTRUMENTS
On May 31, 1996, the Company completed a pooling with Sievers Instruments,
Inc. (Sievers), and issued 447,258 shares of common stock in exchange for
100% of the outstanding common stock of Sievers. The accompanying
financial statements have been restated to include the accounts and
operations of Sievers for all periods beginning as of January 1, 1995,
since results of operations prior to this date are immaterial in relation
to the results of the Company as a whole. Intercompany transactions
between the combining entities, which were not significant, have been
eliminated. Sievers manufactures instruments designed to measure extremely
low levels of organic contaminants in ultrapure water for customers in the
pharmaceutical, semiconductor and other industries.
86
Separate results of the combining entities prior to the combination, which
have been included in the restated results, were as follows:
Three Months Twelve Months
Dollars in thousands Ended Ended
(1996 UNAUDITED) March 31, 1996 December 31, 1995
Net revenue:
Ionics $74,157 $248,617
Sievers (Unaudited) 3,686 8,676
$77,843 $257,293
Net income:
Ionics $ 5,572 $ 19,682
Sievers (Unaudited) 513 1,343
$ 6,085 $ 21,025
SEPARATION TECHNOLOGY, INC.
In July 1996, the Company purchased 100% of the stock of Separation
Technology, Inc. (STI) for approximately $2.4 million through the issuance
of 58,000 shares of common stock. The results of STI have been included
in the Company's financial statements from July 1, 1996. Goodwill of
approximately $4.4 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. STI is a supplier of membrane-based purification equipment and
related services to the food industry with particular emphasis on dairy and
beverage applications.
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 a water treatment services company
specializing in ion-exchange and reverse osmosis solutions to customer
needs.
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.
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
analysis, monitoring and on-line detection of pollution levels, and
fabricated products.
87
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 semiconductor 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.
88
<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
Dollars in Thousands Equipment Supply Products Other Total
<S> <C> <C> <C> <C> <C>
1996
Revenue - unaffiliated customers $148,213 $112,305 $ 66,144 $ - $326,662
Inter-segment transfers 3,277 761 - (4,038) -
Income from operations 15,775 18,437 6,730 (2,354) 38,588
Equity income - 22 419 - 441
Earnings before interest and taxes (EBIT) 15,775 18,459 7,149 (2,354) 39,029
EBIT % of total EBIT, after allocation
of Corporate and Other 38% 45% 17% - 100%
Identifiable assets 128,200 125,513 117,947 4,021 375,681
Investments in affiliated companies 57 30 2,821 - 2,908
Depreciation and amortization 3,740 15,102 7,075 245 26,162
Capital expenditures 7,280 16,250 22,305 168 46,003
1995
Revenue - unaffiliated customers $132,673 $ 69,321 $ 55,299 $ - $257,293
Inter-segment transfers 6,202 2,422 - (8,624) -
Income from operations 13,249 14,486 4,967 (2,712) 29,990
Equity income (loss) (49) 57 634 - 642
Earnings before interest and taxes (EBIT) 13,200 14,543 5,601 (2,712) 30,632
EBIT % of total EBIT, after allocation
of Corporate and Other 39% 44% 17% - 100%
Identifiable assets 120,699 103,643 95,126 (2,298) 317,170
Investments in affiliated companies - 1,218 3,656 - 4,874
Depreciation and amortization 2,878 11,663 5,973 203 20,717
Capital expenditures 13,088 15,189 21,138 150 49,565
1994
Revenue - unaffiliated customers $113,928 $ 58,268 $ 50,180 $ - $222,376
Inter-segment transfers 1,718 615 - (2,333) -
Income from operations 4,996 12,881 6,444 (3,280) 21,041
Equity income (loss) (349) 124 844 - 619
Earnings before interest and taxes (EBIT) 4,647 13,005 7,288 (3,280) 21,660
EBIT % of total EBIT, after allocation
of Corporate and Other 19% 52% 29% - 100%
Identifiable assets 85,771 85,064 85,885 15,025 271,745
Investments in affiliated companies 34 1,211 4,174 - 5,419
Depreciation and amortization 2,483 10,928 4,570 111 18,092
Capital expenditures 7,897 13,374 16,589 360 38,220
</TABLE>
89
<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, consist primarily of cash and short-term investments. Included in the United States
segment are export sales of approximately 18%, 23% and 19% for 1996, 1995 and 1994, respectively.
Including these U.S. export sales, the percentages of total revenues attributable to activities
outside the U.S. were 36%, 39% and 37% in 1996, 1995 and 1994, respectively. 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>
1996
Revenue - unaffiliated customers $256,486 $ 48,692 $ 21,484 $ - $326,662
Inter-segment transfers 10,255 1,385 3,002 (14,642) -
Income from operations 31,529 5,870 3,260 (2,071) 38,588
Identifiable assets 281,624 73,505 20,340 212 375,681
1995
Revenue - unaffiliated customers $206,276 $ 39,824 $ 11,193 $ - $257,293
Inter-segment transfers 8,343 1,655 2,935 (12,933) -
Income from operations 23,159 6,424 1,467 (1,060) 29,990
Identifiable assets 235,238 74,161 16,708 (8,937) 317,170
1994
Revenue - unaffiliated customers $172,864 $ 38,948 $ 10,564 $ - $222,376
Inter-segment 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
</TABLE>
90
<TABLE>
SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA
<CAPTION>
Dollars in thousands,
except per share amounts 1996 % 1995 % 1994 % 1993 % 1992 %
<S> <C> <C> <C> <C> <C>
Revenues $326,662 100.0 $257,293 100.0 $222,376 100.0 $175,273 100.0 $155,240 100.0
Income before income taxes 39,556 12.1 31,609 12.3 22,717 10.2 19,724 11.3 18,184 11.7
Net income 26,503 8.1 21,025 8.2 15,448 6.9 13,807 7.9 12,820 8.3
Earnings per share 1.65 1.39 1.09 .98 .93
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
Dollars in thousands 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Current assets $144,422 $122,387 $113,477 $109,957 $108,757
Current liabilities 68,173 60,279 54,877 46,082 30,499
Working capital 76,249 62,108 58,600 63,875 78,258
Total assets 378,589 322,044 277,164 249,562 224,590
Long-term debt and notes
payable 2,132 182 99 109 439
Stockholders' equity 292,217 253,044 218,610 200,081 190,340
</TABLE>
91
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
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>
1996 1995
First Quarter $ 77,843 $ 25,111 $ 6,085 $ .38 First Quarter $ 58,533 $ 19,207 $ 4,390 $ .30
Second Quarter 74,902 25,972 6,440 .40 Second Quarter 58,611 19,988 4,918 .33
Third Quarter 84,511 27,355 6,853 .43 Third Quarter 65,184 21,083 5,669 .37
Fourth Quarter 89,406 28,376 7,125 .44 Fourth Quarter 74,965 24,015 6,048 .39
$326,662 $106,814 $ 26,503 $ 1.65 $257,293 $ 84,293 $ 21,025 $ 1.39
</TABLE>
<TABLE>
COMMON STOCK PRICE RANGE
<CAPTION>
1996 High Low 1995 High Low
<S> <C> <C> <C> <C> <C>
First Quarter $43 1/2 $38 1/8 First Quarter $30 1/2 $26 1/4
Second Quarter 51 1/4 40 1/2 Second Quarter 34 3/4 26 5/8
Third Quarter 47 7/8 40 Third Quarter 42 33 5/8
Fourth Quarter 50 45 1/2 Fourth Quarter 45 1/2 39 5/8
</TABLE>
92
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS PRINCIPAL OVERSEAS CORPORATE
OFFICES, AFFILIATES HEADQUARTERS
& SUBSIDIARIES
<S> <C> <C> <C>
ARTHUR L. GOLDSTEIN * ARTHUR L. GOLDSTEIN
Chairman of the Board, Chairman of the Board, Ionics, Incorporated
President and President and Eau et Industrie 65 Grove Street,
Chief Executive Officer Chief Executive Officer Paris, France Watertown,
Ionics, Incorporated Massachusetts 02172
WILLIAM E. KATZ Elite Chemicals Pty. Ltd.
DOUGLAS R. BROWN # Executive Vice President Brisbane, Qld. Australia INVESTOR INFORMATION
President and Chief
Executive Officer, ROBERT J. HALLIDAY Global Water Services,S.A. The Annual Meeting of
Advent International Vice President, Finance Panama City, Panama Ionics' shareholders
Corp. and Accounting and will be held
Chief Financial Officer Ionics (Bermuda) Ltd. Thursday, May 8, 1997
WILLIAM L. BROWN # Hamilton, Bermuda at 2:00 P.M. at
Retired Chairman of the STEPHEN KORN BankBoston,
Board, The First Vice President, Ionics Iberica, S.A. 100 Federal Street,
National Bank of General Counsel and Grand Canary Spain Boston, Massachusetts
Boston Clerk
Ionics, Incorporated Ionics' common stock is
ARNAUD DE VITRY THEODORE G. PAPASTAVROS Hong Kong traded on the New York
D'AVAUCOURT # Vice President, Stock Exchange under the
Engineering Consultant Strategic Planning and Ionics Italba, S.p.A. symbol ION. As of
and Director of Various Treasurer Milan, Italy March 21, 1997 there
Organizations were approximately 1,800
PRINCIPAL U.S. Ionic Nederland, B.V. shareholders of record.
WILLIAM E. KATZ OFFICES, AFFILIATES Maastricht the Netherlands No cash dividends were
Executive Vice & SUBSIDIARIES paid in either 1996 or
President Ionics (UK) Ltd. 1995 pursuant to Ionics'
Ionics, Incorporated Aqua Cool Pure Bottled London, England current policy to retain
Watertown, Massachusetts earnings for use in its
ROBERT B. LUICK business.
Of Counsel, Sullivan Elite New England
and Worcester, Ludlow, Massachusetts Aqua Cool Kuwait
Attorneys Kuwait City, Kuwait For information or
General Ionics assistance regarding
JOHN J. SHIELDS *+ Cuyahoga Falls, Ohio Aqua Cool Saudi Arabia individual stock
President and Chief Dammam, Saudi Arabia records, transactions or
Executive Officer, Ionics Ahlfinger Water certificates, please
King's Point Holdings Dallas, Texas Ionics-Mega s.r.o. call the Transfer
Incorporated Prague, Czech Republic Agent's Telephone
Ionics Apollo Ultrapure Response Center:
CARL S. SLOANE *+ Pico Rivera, California Jalal-Ionics, Ltd. 1-800-426-5523 between
Ernest L. Arbuckle Manama, Bahrain 9 A.M. and 5 P.M.
Professor of Business Ionics Aqua Design
Administration, Campbell, California Yuasa-Ionics Co., Ltd. Ionics' Annual Report on
Harvard University Tokyo, Japan Form 10-K and other
Graduate School of Ionics, Incorporated corporate information
Business Administration Bridgeville, Pennsylvania may be obtained on
93
Ionics' home page on the
MARK S. WRIGHTON + Ionics Pure Solutions Worldwide Web at
Chancellor Phoenix, Arizona http://www.ionics.com
Washington University
Ionics Resources Conservation A copy of Ionics' Annual
ALLEN S. WYETT + Bellevue, Washington Report on Form 10-K,
President, Wyett which is filed with the
Consulting Group, Inc. Securities and Exchange
Commission, will be sent
Ionics Separation Technology to any shareholder upon
St. Paul, Minnesota request directed to
Investor Relations,
Ionics Sievers Instruments Ionics, Incorporated,
Boulder, Colorado P.O. Box 9131,
Watertown, Massachusetts
Ionics Ultrapure Water 02272-9131, or by
Campbell, CA calling (617)926-2510
ext. 874.
TRANSFER AGENT
& REGISTRAR
State Street Bank and
Trust Company, Boston,
Massachusetts
AUDITORS
Coopers & Lybrand L.L.P.
Boston, Massachusetts
* Member of Executive Committee
# Member of Audit Committee
+ Member of Compensation Committee
Covering the Waterfront, The Ionics Toolbox, and Ten-Cylinder Engine are service marks; Aqua Cool,
Cloromat, Chemomat, Electromat, Elite, and HYgene are registered trademarks; and Ultrapure and
SuperValue are trademarks of Ionics, Incorporated.
</TABLE>
94
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
Separation Technology, Inc.** Minnesota
Ionics (Korea) Ltd. Delaware
Sievers Instruments, Inc. Colorado
* The Registrant, either directly, through Aqua Design, Inc. or
through Ionics (Bermuda) Ltd., wholly owns nine subsidiary
corporations incorporated in various Caribbean jurisdictions.
These subsidiary corporations own and operate, or operate and
maintain, desalination plants for the supply of potable water
to resorts, hotels and municipalities.
** Owns a U.K. subsidiary, SeparaTech Limited.
95
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. 333-05225, 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-
59051); 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 18, 1997, on our audits of the consolidated
financial statements and the financial statement schedule of Ionics,
Incorporated as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996, which are included or
incorporated by reference in this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1997
96
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, 1996, 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/Douglas R. Brown Director March 27, 1997
Douglas R. Brown
/s/William L. Brown Director March 27, 1997
William L. Brown
/s/Arnaud de Vitry d'Avaucourt Director March 27, 1997
Arnaud de Vitry
d'Avaucourt
/s/Arthur L. Goldstein Chairman of the Board March 27, 1997
Arthur L. Goldstein of Directors, Chief
Executive Officer and
President (Principal
Executive Officer)
/s/William E. Katz Director March 27, 1997
William E. Katz
/s/Robert B. Luick Director March 27, 1997
Robert B. Luick
/s/John J. Shields Director March 27, 1997
John J. Shields
/s/Carl S. Sloane Director March 27, 1997
Carl S. Sloane
/s/Mark S. Wrighton Director March 27, 1997
Mark S. Wrighton
/s/Allen S. Wyett Director March 27, 1997
Allen S. Wyett
97
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,269
<SECURITIES> 0
<RECEIVABLES> 93,659
<ALLOWANCES> (2,267)
<INVENTORY> 26,000
<CURRENT-ASSETS> 144,422
<PP&E> 306,670
<DEPRECIATION> (120,853)
<TOTAL-ASSETS> 378,589
<CURRENT-LIABILITIES> 68,173
<BONDS> 0
<COMMON> 15,823
0
0
<OTHER-SE> 276,394
<TOTAL-LIABILITY-AND-EQUITY> 378,589
<SALES> 326,662
<TOTAL-REVENUES> 326,662
<CGS> 219,848
<TOTAL-COSTS> 219,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,011
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,115
<INCOME-TAX> 13,053
<INCOME-CONTINUING> 26,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,503
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.64
</TABLE>
