FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7211
IONICS, INCORPORATED
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2068530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Grove Street, Watertown, Massachusetts 02172
(Address of principal executive offices)
(Zip Code)
(617) 926-2500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
Common Stock, Par Value $1 15,943,997 Shares
IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED JUNE 30, 1997
INDEX
Page No.
Part I - Financial Information
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Part II - Other Information 10
Signatures 12
Exhibit Index 13
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule (for electronic
purposes only)
- 1 -
<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenue:
Membranes and related equipment $ 37,454 $34,639 $ 77,287 $ 73,261
Water, food and chemical supply 31,562 24,512 61,715 48,292
Consumer products 18,095 15,751 35,211 31,192
87,111 74,902 174,213 152,745
Costs and expenses:
Cost of membranes and related equipment 26,079 24,003 53,879 52,194
Cost of water, food and chemical supply 22,648 16,362 44,112 32,090
Cost of consumer products 9,772 8,565 19,555 17,378
Research and development 1,282 1,199 2,584 2,445
Selling, general and administrative 16,717 15,488 33,228 30,455
76,498 65,617 153,358 134,562
Income from operations 10,613 9,285 20,855 18,183
Interest income 274 432 562 745
Interest expense (227) (316) (463) (453)
Equity income 192 143 301 219
Income before income taxes 10,852 9,544 21,255 18,694
Provision for income taxes 3,583 3,104 7,014 6,169
Net income $ 7,269 $ 6,440 $ 14,241 $ 12,525
Earnings per share $ .44 $ .40 $ .87 $ .78
Shares used in earnings per
share calculations 16,448 16,097 16,426 16,041
The accompanying notes are an integral part of these financial statements.
</TABLE>
-2-
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value)
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,466 $ 12,269
Notes receivable, current 3,533 3,496
Accounts receivable 88,997 91,392
Receivables from affiliated companies 2,985 2,999
Inventories:
Raw materials 15,549 15,028
Work in process 8,544 8,120
Finished goods 2,700 2,852
26,793 26,000
Other current assets 5,494 8,266
Total current assets 148,268 144,422
Notes receivable, long-term 7,914 7,737
Investments in affiliated companies 3,011 2,908
Property, plant and equipment:
Land 3,948 3,602
Buildings 32,837 33,157
Machinery and equipment 241,240 233,077
Other, including furniture, fixtures and vehicles 38,016 36,834
316,041 306,670
Less accumulated depreciation (130,776) (120,853)
185,265 185,817
Other assets 37,470 37,705
Total assets $381,928 $378,589
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 5,654 $ 11,513
Accounts payable 23,045 28,988
Customer deposits 7,884 7,147
Accrued commissions 2,375 2,402
Accrued expenses 20,549 18,123
Taxes on income 4,859 -
Total current liabilities 64,366 68,173
Long-term debt and notes payable 85 2,132
Deferred income taxes 8,742 14,422
Other liabilities 1,297 1,645
Stockholders' equity:
Common stock, par value $1, 30,000,000 authorized shares;
issued: 15,943,997 in 1997 and 15,823,205 in 1996 15,944 15,823
Additional paid-in capital 153,055 149,337
Retained earnings 144,469 130,228
Cumulative translation adjustments (5,724) (2,811)
Unearned compensation (306) (360)
Total stockholders' equity 307,438 292,217
Total liabilities and stockholders' equity $381,928 $378,589
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $14,241 $12,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,881 12,364
Provision for losses on accounts and notes receivable 784 329
Compensation expense on restricted stock awards 54 54
Changes in assets and liabilities:
Notes receivable (1,151) (510)
Accounts receivable 592 (2,586)
Inventories (894) (2,023)
Other current assets 2,774 278
Investments in affiliates (103) 372
Accounts payable and accrued expenses (2,033) (3,999)
Income taxes 2,758 4,319
Other (509) 686
Net cash provided by operating activities 30,394 21,809
Investing activities:
Additions to property, plant and equipment (16,093) (30,525)
Net cash used by investing activities (16,093) (30,525)
Financing activities:
Principal payments on current debt (7,847) (3,541)
Proceeds from issuance of current debt 207 16,984
Principal payments on long-term debt (28) (2,418)
Proceeds from stock option plans 1,954 1,639
Net cash (used)/provided by financing activities (5,714) 12,664
Effect of exchange rate changes on cash (390) (39)
Net change in cash and cash equivalents 8,197 3,909
Cash and cash equivalents at beginning of period 12,269 9,479
Cash and cash equivalents at end of period $20,466 $13,388
The accompanying notes are an integral part of these financial statements.
</TABLE>
-4-
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only
normal, recurring accruals) necessary to present fairly the
consolidated financial position of the Company as of June 30, 1997
and December 31, 1996, the consolidated results of its operations
for the three and six months ended June 30, 1997 and 1996 and the
consolidated cash flows for the six months then ended.
2. The consolidated results of operations of the Company for the three
and six months ended June 30, 1997 and 1996 are not necessarily
indicative of the results of operations to be expected for the full
year.
3. Reference is made to the Notes to Consolidated Financial Statements
appearing in the Company's 1996 Annual Report as filed on Form 10-K
with the Securities and Exchange Commission. There have been no
significant changes in the information reported in those Notes,
other than from the normal business activities of the Company, and
there have been no changes which would, in the opinion of
Management, have a materially adverse effect upon the Company.
4. Certain prior year amounts have been reclassified to conform to the
current year presentation with no impact on net income.
5. In 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128 ("SFAS128"),
"Earnings per Share." SFAS128 simplifies the standards for
computing earnings per share ("EPS") and makes them comparable to
international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods. SFAS128 requires restatement of all
prior-period EPS data presented. Neither basic nor diluted EPS
computed in accordance with SFAS128 would be materially different
from the Company's primary EPS presented in the financial
statements.
In 1997, the FASB released Statement of Financial Accounting
Standards No. 130 ("SFAS130"), "Reporting Comprehensive Income."
SFAS130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements.
SFAS130 is effective for fiscal years beginning after December 15,
1997. This Statement is a disclosure-only statement.
-5-
Also in 1997, the FASB released Statement of Financial Accounting
Standards No. 131 ("SFAS131"), "Disclosures About Segments of an
Enterprise and Related Information." SFAS131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS131 is
effective for fiscal years beginning after December 15, 1997. This
Statement is a disclosure-only statement.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three and Six Months Ended June 30, 1997 with the
Three and Six Months Ended June 30, 1996
Revenues for the second quarter of 1997 increased 16.3% to $87.1
million from $74.9 million in 1996. Revenues for the six-month period
increased 14.1% to $174.2 million from $152.7 million in the
comparable period in 1996. Revenues were higher in all three business
segments for both the three and six-month periods. The largest
increase in revenues for both the second quarter and the six-month
period was in the Water, Food and Chemical Supply segment.
Revenues from the Membranes and Related Equipment segment grew in both
the second quarter and the six-month period due primarily to
continuing strength in the sale of ultrapure water systems,
particularly to the semiconductor industry. In addition, sales of
instrumentation and water desalting equipment increased during both
periods. This increase was partially offset by a decline in revenues
from the sale of wastewater equipment during both periods.
Revenues from the Water, Food and Chemical Supply segment increased in
both periods due primarily to the continuing growth of the ultrapure
water supply business. Revenue growth also occurred in the food
processing business due to the acquisition of Separation Technology,
Inc. (STI) in July 1996.
Consumer Products revenues increased during both periods, reflecting
higher revenues from bottled water and home water conditioners.
During the six-month period, revenues from the sales of automobile
windshield wash solution decreased as a result of the relatively mild
winter in the northeastern United States.
Cost of sales as a percentage of revenues for the second quarter was
67.2% in 1997 and 65.3% in 1996. For the six-month period, cost of
sales as a percentage of revenues was 67.5% in 1997 and 66.6% in 1996.
In the Membranes and Related Equipment segment, cost of sales
increased slightly for the second quarter due primarily to increased
competitive pressure within the water desalting and related equipment
business. For the six-month period, cost of sales as a percentage of
revenues decreased due to improvements in the mix of contracts in the
ultrapure equipment, wastewater and instrumentation businesses.
The increase in the cost of sales as a percentage of revenues during
both periods in the Water, Food and Chemical Supply segment resulted
primarily from changes in the mix of revenues from contracts within
the ultrapure water supply business. The increase also reflected the
acquisition of STI, whose manufacturing costs do not yet reflect the
synergies we believe will be available through continued integration
with other businesses. Cost of sales in the Water, Food and Chemical
Supply segment also increased due to continued competitive pressure
within the industrial bleach market in the United Kingdom.
-7-
Operating expenses as a percentage of revenues decreased during the
second quarter to 20.7% in 1997 from 22.3% in 1996. For the six-month
period, operating expenses as a percentage of revenues decreased to
20.6% in 1997 from 21.5% in 1996. The improvement during both periods
reflected higher absorption of relatively fixed operating costs by
increased sales volume.
Interest expense decreased in the second quarter due to lower
borrowings outstanding. The increase in interest expense for the six-
month period resulted from a reduction in the amount of capitalized
interest costs.
Interest income decreased for the second quarter and six-month period
due primarily to lower average interest rates and foreign exchange
fluctuations.
Financial Condition
Working capital increased by $7.7 million during the first six months
of 1997 and the current ratio increased to 2.3 at June 30, 1997 from
2.1 at December 31, 1996. Cash provided from net income and
depreciation totaled $28.1 million during the first six months of 1997
while the primary uses of cash were for additions to property, plant
and equipment and principal payments on current debt. Significant
capital expenditures were incurred to support growth in bottled water
operations, trailers and other "own and operate" facilities.
At June 30, 1997, the Company had $20.5 million in cash and cash
equivalents, an increase of $8.2 million from December 31, 1996. In
addition, short-term borrowings decreased by $5.9 million during the
same period. The Company believes that its cash and cash equivalent
balances, cash from operations, lines of credit and foreign exchange
facilities are adequate to meet its currently anticipated needs.
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128 ("SFAS128"),
"Earnings per Share." SFAS128 simplifies the standards for computing
earnings per share ("EPS") and makes them comparable to international
EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and
diluted EPS on the face of the income statement. SFAS128 is effective
for financial statements issued for periods ending after December 15,
1997, including interim periods. Neither basic nor diluted EPS
computed in accordance with SFAS128 would be materially different from
the Company's primary EPS presented in the financial statements.
-8-
In 1997, the FASB released Statement of Financial Accounting Standards
No. 130 ("SFAS130"), "Reporting Comprehensive Income." SFAS130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a
full set of general-purpose financial statements. SFAS130 is
effective for fiscal years beginning after December 15, 1997. This
Statement is a disclosure-only statement.
Also in 1997, the FASB released Statement of Financial Accounting
Standards No. 131 ("SFAS131"), "Disclosures About Segments of an
Enterprise and Related Information." SFAS131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. SFAS131 is effective for fiscal years beginning
after December 15, 1997. This Statement is a disclosure-only
statement.
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.
-9-
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 8, 1997.
(b) Arnaud de Vitry d'Avaucourt, William E. Katz and Mark S. Wrighton
were re-elected as Class II Directors for a three-year term, and
Daniel I.C. Wang was newly elected as a Class II Director for a
three-year term. Continuing as Class III Directors until the
1998 Annual Meeting are William L. Brown, Robert B. Luick, John
J. Shields and Allen S. Wyett. Continuing as Class I Directors
until the 1999 Annual Meeting are Douglas R. Brown, Arthur L.
Goldstein and Carl S. Sloane.
Each of the Class II Directors received at least the following
votes "for" election and no more than the following votes
withheld:
Votes for: 13,679,772
Votes withheld: 112,113
(c) The other matters submitted for stockholder approval were:
(i) Approval and adoption of the Ionics, Incorporated 1997 Stock
Incentive Plan, which replaces the 1979 Stock Option Plan as the
primary employee stock incentive plan.
Votes for: 9,489,811
Votes against: 1,338,449
Abstentions and
broker non-votes: 2,963,625
(ii) Approval of an amendment to the Corporation's 1986 Stock Option
Plan for Non-employee Directors to provide for limited
transferability of options granted under such Plan.
Votes for: 13,038,797
Votes against: 637,865
Abstentions and
broker non-votes: 115,223
(iii) The selection of Coopers & Lybrand L.L.P. as the Company's
auditors for 1997.
Votes for: 13,729,678
Votes against: 30,099
Abstentions and
broker non-votes: 32,107
-10-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11- Computation of Earnings Per Share (included on Page 14 of
this report).
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 1997.
All other items reportable under Part II have been omitted as
inapplicable or because the answer is negative, or because the
information was previously reported to the Securities and Exchange
Commission.
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: August 14, 1997 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and
Chief Executive Officer
(duly authorized officer)
Date: August 14, 1997 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance and
Chief Financial Officer
-12-
EXHIBIT INDEX
Sequential
Exhibit Page No.
11. Computation of Earnings Per Share 15
27. Financial Data Schedule (for electronic
purposes only)
-13-
<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except earnings per share)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $ 7,269 $ 6,440 $14,241 $12,525
Earnings per common and common
equivalent share:
Weighted average number of shares
outstanding 15,925 15,459 15,895 15,418
Incremental shares for stock options
under treasury stock method 523 638 531 623
Weighted average number of common and
common equivalent shares outstanding 16,448 16,097 16,426 16,041
Earnings per common and common
equivalent share $ .44 $ .40 $ .87 $ .78
Earnings per common and common equivalent
share - assuming full dilution:
Weighted average number of shares
outstanding 15,925 15,459 15,895 15,418
Incremental shares for stock options
under treasury stock method 523 646 531 638
Weighted average number of common and
common equivalent shares outstanding
- assuming full dilution 16,448 16,105 16,426 16,056
Earnings per common and common
equivalent share - assuming
full dilution $ .44 $ .40 $ .87 $ .78
</TABLE>
-14-
/15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 20,466
<SECURITIES> 0
<RECEIVABLES> 94,978
<ALLOWANCES> 2,448
<INVENTORY> 26,793
<CURRENT-ASSETS> 148,268
<PP&E> 316,041
<DEPRECIATION> 130,776
<TOTAL-ASSETS> 381,928
<CURRENT-LIABILITIES> 64,366
<BONDS> 0
<COMMON> 15,944
0
0
<OTHER-SE> 291,494
<TOTAL-LIABILITY-AND-EQUITY> 381,928
<SALES> 174,213
<TOTAL-REVENUES> 174,213
<CGS> 117,546
<TOTAL-COSTS> 117,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 784
<INTEREST-EXPENSE> 463
<INCOME-PRETAX> 20,954
<INCOME-TAX> 7,014
<INCOME-CONTINUING> 14,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,241
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
