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 March 31, 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 March 31, 1997
Common Stock, Par Value $1 15,914,821 Shares
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IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED MARCH 31, 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 6
Part II - Other Information 8
Signatures 9
Exhibit Index 10
Exhibit 11 - Computation of Earnings Per Share 11
Exhibit 27 - Financial Data Schedule 12
(for electronic
purposes only)
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<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Net revenue:
Membranes and related equipment $39,833 $38,622
Water, food and chemical supply 30,153 23,780
Consumer products 17,116 15,441
87,102 77,843
Costs and expenses:
Cost of membranes and related equipment 27,800 28,191
Cost of water, food and chemical supply 21,464 15,728
Cost of consumer products 9,783 8,813
Research and development 1,302 1,246
Selling, general and administrative 16,511 14,967
76,860 68,945
Income from operations 10,242 8,898
Interest income 288 313
Interest expense (236) (137)
Equity income 109 76
Income before income taxes 10,403 9,150
Provision for income taxes 3,431 3,065
Net income $ 6,972 $ 6,085
Earnings per share $ .43 $ .38
Shares used in earnings per
share calculations 16,402 15,942
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share amounts)
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,313 $ 12,269
Notes receivable, current 3,329 3,496
Accounts receivable 83,473 91,392
Receivables from affiliated companies 3,032 2,999
Inventories:
Raw materials 16,449 15,028
Work in process 8,284 8,120
Finished goods 2,882 2,852
27,615 26,000
Other current assets 7,726 8,266
Total current assets 141,488 144,422
Notes receivable, long-term 7,905 7,737
Investments in affiliated companies 2,969 2,908
Property, plant and equipment:
Land 3,564 3,602
Buildings 33,030 33,157
Machinery and equipment 235,833 233,077
Other, including furniture, fixtures and vehicles 36,961 36,834
309,388 306,670
Less accumulated depreciation (124,946) (120,853)
184,442 185,817
Other assets 37,659 37,705
Total assets $ 374,463 $ 378,589
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 5,962 $ 11,513
Accounts payable 25,642 28,988
Customer deposits 6,856 7,147
Accrued commissions 2,139 2,402
Accrued expenses 18,616 18,123
Taxes on income 1,532 -
Total current liabilities 60,747 68,173
Long-term debt and notes payable 100 2,132
Deferred income taxes 12,187 14,422
Other liabilities 1,595 1,645
Stockholders' equity:
Common stock, par value $1, 30,000,000 authorized shares;
issued: 15,914,821 in 1997 and 15,823,205 in 1996 15,915 15,823
Additional paid-in capital 152,188 149,337
Retained earnings 137,200 130,228
Cumulative translation adjustments (5,136) (2,811)
Unearned compensation (333) (360)
Total stockholders' equity 299,834 292,217
Total liabilities and stockholders' equity $ 374,463 $ 378,589
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 6,972 $ 6,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,855 6,156
Provision for losses on accounts and notes receivable 371 232
Compensation expense on restricted stock awards 27 27
Changes in assets and liabilities:
Notes receivable (1,119) 1,043
Accounts receivable 6,738 (7,727)
Inventories (1,685) (2,940)
Other current assets 494 (9)
Investments in affiliates (61) 131
Accounts payable and accrued expenses (2,772) 2,446
Income taxes 2,190 2,533
Other (149) 440
Net cash provided by operating activities 17,861 8,417
Investing activities:
Additions to property, plant and equipment (7,796) (13,562)
Sale of short-term investments - -
Purchase of long-term investments - -
Net cash used by investing activities (7,796) (13,562)
Financing activities:
Principal payments on current debt (7,363) (1,882)
Proceeds from issuance of current debt 356 9,030
Principal payments on long-term debt - (2,335)
Proceeds from stock option plans 1,335 619
Net cash (used)/provided by financing activities (5,672) 5,432
Effect of exchange rate changes on cash (349) (24)
Net change in cash and cash equivalents 4,044 263
Cash and cash equivalents at beginning of period 12,269 9,479
Cash and cash equivalents at end of period $ 16,313 $ 9,742
The accompanying notes are an integral part of these financial statements.
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</TABLE>
5/
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal, recurring accruals) necessary to present fairly
the consolidated financial position of the Company as of March
31, 1997 and December 31, 1996, the consolidated results of
its operations for the three months ended March 31, 1997 and
1996 and the consolidated cash flows for the three months then
ended.
2. The consolidated results of operations of the Company for the
three months ended March 31, 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
("SFAS 128"), "Earnings per Share". SFAS 128 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.
SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim
periods. SFAS 128 requires restatement of all prior-period
EPS data presented. Neither basic nor diluted EPS computed in
accordance with SFAS 128 would be materially different from
the Company's primary EPS presented in the financial
statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three Months Ended March 31, 1997
with the Three Months Ended March 31, 1996
Revenues for the first quarter of 1997 increased 11.9% to $87.1
million from $77.8 million in 1996. Revenues were higher in all
three business segments with the largest increase occurring in
the Water, Food and Chemical Supply segment. This was primarily
due to the strong performance within our 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.
Membranes and Related Equipment revenues grew due to continued
strength in the sale of ultrapure water systems to the
semiconductor market, partially offset by a reduction in revenues
in the sale of wastewater systems. Revenues also increased in
the Consumer Products segment due to increased sales of bottled
water and home water conditioners. This was partially offset by
a reduction in revenues from the sale of automobile windshield
wash solution due to the relatively mild winter in the
northeastern United States.
Cost of sales as a percentage of revenues was 67.8% in 1997 as
compared to 67.7% in 1996. In the Membranes and Related
Equipment segment, cost of sales decreased as a percentage of
revenues as a result of improvements in the mix of contracts
within the ultrapure equipment, wastewater and instrumentation
businesses. Cost of sales as a percentage of revenues increased
within the Water, Food and Chemical Supply segment resulting
primarily from a different mix of revenues among own and operate
contracts within the ultrapure water business. This 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. Water, Food
and Chemical Supply cost of sales also increased due to continued
competitive pressure within the industrial bleach market in the
United Kingdom.
Operating expenses as a percentage of revenues were 19.0% in the
first quarter of 1997, down from 19.2% in the first quarter of
1996. This decrease reflected the absorption of relatively fixed
operating expenses by increased sales volume and relatively
favorable employee benefit costs as a percentage of labor.
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Interest expense increased during the first quarter despite a
reduction in total interest costs incurred. This resulted from a
reduction in the amount of capitalized interest costs.
Financial Condition
Working capital increased $4.5 million during the first three
months of 1997, while the Company's current ratio increased to
2.3 at March 31, 1997 from 2.1 at December 31, 1996. Cash
provided from net income, depreciation and a reduction in
accounts receivable totaled $20.6 million in the first three
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 made for the
Company's bottled water operations, trailers and other "own and
operate" facilities.
At March 31, 1997 the Company had $16.3 million in cash and cash
equivalents, an increase of $4.0 million from December 31, 1996.
Notes payable and long-term debt decreased $7.6 million in the
same period. The Company believes that its cash, 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 ("SFAS 128"),
"Earnings per Share". SFAS 128 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. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS 128 requires
restatement of all prior-period EPS data presented. Neither basic nor
diluted EPS computed in accordance with SFAS 128 would be materially
different from the Company's primary EPS presented in the financial
statements.
Forward-Looking Information
The Company's future results of operations, as well as statements
contained in this Management's Discussion and Analysis which are
forward-looking statements, depend upon a number of factors that could
cause actual results to differ materially from management's current
expectations. Among these factors are business conditions and the
general economy; competitive factors, such as acceptance of new
products and price pressures; risk of nonpayment of accounts
receivable; risks associated with foreign operations; and regulations
and laws affecting business in each of the Company's markets.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
(c) During the quarter ended March 31, 1997, the Company issued a
total of 19,366 shares of Common Stock to Personnel Hygiene
Services Limited, an English corporation (PHS), in consideration
of the purchase by the Company's English subsidiary of the assets
of PHS's bottled water division, for a sale price of
approximately $989,000. The sale took place on March 10, 1997,
and the shares were valued at $51.09 per share. The sale was
effected in reliance upon the exemption contained in Section 4(2)
of the Securities Act of 1933, as amended. The shares issued to
PHS were legended and made the subject of "stop transfer"
instructions, and the shares were subsequently sold pursuant to a
resale registration statement prepared and filed in accordance
with registration rights granted to PHS.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11- Computation of Earnings Per Share (included on Page
11 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 March 31, 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: May 14, 1997 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: May 14, 1997 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance
(chief financial officer)
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
11 Computation of Earnings Per Share 12
27 Financial Data Schedule 13
(for electronic
purposes only)
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<TABLE>
EXHIBIT 11
IONICS, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands, except earnings per share)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Net income $ 6,972 $ 6,085
Earnings per common and common
equivalent share:
Weighted average number of shares
outstanding 15,864 15,333
Incremental shares for stock options
under treasury stock method 538 609
Weighted average number of common and
common equivalent shares outstanding 16,402 15,942
Earnings per common and common
equivalent share $ .43 $ .38
Earnings per common and common equivalent
share - assuming full dilution:
Weighted average number of shares
outstanding 15,864 15,333
Incremental shares for stock options
under treasury stock method 538 629
Weighted average number of common and
common equivalent shares outstanding -
assuming full dilution 16,402 15,962
Earnings per common and common
equivalent share - assuming
full dilution $ .43 $ .38
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,313
<SECURITIES> 0
<RECEIVABLES> 85,688
<ALLOWANCES> (2,215)
<INVENTORY> 27,615
<CURRENT-ASSETS> 141,488
<PP&E> 309,388
<DEPRECIATION> (124,946)
<TOTAL-ASSETS> 374,463
<CURRENT-LIABILITIES> 60,747
<BONDS> 0
<COMMON> 15,915
0
0
<OTHER-SE> 283,919
<TOTAL-LIABILITY-AND-EQUITY> 374,463
<SALES> 87,102
<TOTAL-REVENUES> 87,102
<CGS> 59,047
<TOTAL-COSTS> 59,047
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,294
<INCOME-TAX> 3,431
<INCOME-CONTINUING> 6,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,972
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
