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, 1999
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 02472
(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, 1999
Common Stock, Par Value $1 16,135,609 Shares
<PAGE>
IONICS, INCORPORATED
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1999
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 8
Part II - Other Information 13
Signatures 14
Exhibit Index 15
Exhibit 27 - Financial Data Schedule 16
(for electronic
purposes only)
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<PAGE>
<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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenue:
Equipment Business Group $30,740 $30,413 $ 65,179 $ 64,171
Ultrapure Water Group 23,292 21,076 47,825 39,858
Consumer Water Group 23,672 20,117 45,531 38,613
Instrument Business Group 6,864 8,661 13,449 16,599
84,568 80,267 171,984 159,241
Costs and expenses:
Cost of sales of Equipment Business Group 21,736 22,689 46,451 46,120
Cost of sales of Ultrapure Water Group 17,448 16,026 35,686 30,032
Cost of sales of Consumer Water Group 12,851 11,182 25,134 21,480
Cost of sales of Instrument Business Group 2,864 3,549 5,880 6,503
Research and development 1,771 1,739 3,639 3,383
Selling, general and administrative 20,616 18,277 40,725 36,154
77,286 73,462 157,515 143,672
Income from operations 7,282 6,805 14,469 15,569
Interest income 404 150 512 301
Interest expense (205) (72) (335) (191)
Equity income 216 147 379 258
Income before income taxes
and minority interest 7,697 7,030 15,025 15,937
Provision for income taxes 2,479 2,222 4,861 5,118
Income before minority interest 5,218 4,808 10,164 10,819
Minority interest expense 114 188 388 191
Net income $ 5,104 $ 4,620 $ 9,776 $ 10,628
Basic earnings per share $ 0.32 $ 0.29 $ 0.61 $ 0.66
Diluted earnings per share $ 0.31 $ 0.28 $ 0.60 $ 0.65
Shares used in basic earnings
per share calculation 16,133 16,074 16,130 16,051
Shares used in diluted earnings
per share calculation 16,374 16,459 16,238 16,435
The accompanying notes are an integral part of these financial
statements.
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</TABLE>
<PAGE>
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share and par value amounts)
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,187 $ 28,770
Short-term investments 192 359
Notes receivable, current 3,769 4,144
Accounts receivable 109,897 111,844
Receivables from affiliated companies 1,544 2,329
Inventories:
Raw materials 21,146 19,164
Work in process 6,950 8,523
Finished goods 4,206 3,862
32,302 31,549
Other current assets 7,963 8,098
Total current assets 174,854 187,093
Notes receivable, long-term 8,788 8,824
Investments in affiliated companies 8,267 7,057
Property, plant and equipment:
Land 8,351 8,194
Buildings 45,756 41,594
Machinery and equipment 270,745 259,885
Other, including furniture, fixtures and vehicles 45,177 44,267
370,029 353,940
Less accumulated depreciation (166,646) (158,257)
203,383 195,683
Other assets 61,798 53,466
Total assets $457,090 $452,123
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 13,546 $ 6,873
Accounts payable 27,566 37,361
Customer deposits 3,614 3,965
Accrued commissions 1,955 2,203
Accrued expenses 34,461 31,884
Taxes on income 6,454 3,648
Total current liabilities 87,596 85,934
Long-term debt and notes payable 1,797 1,519
Deferred income taxes 13,737 17,036
Other liabilities 2,419 2,036
Stockholders' equity:
Common stock, par value $1, 55,000,000 authorized shares;
issued: 16,135,609 in 1999 and 16,116,649 in 1998 16,136 16,117
Additional paid-in capital 158,020 157,571
Retained earnings 189,719 179,943
Accumulated other comprehensive income (12,244) (7,889)
Unearned compensation (90) (144)
Total stockholders' equity 351,541 345,598
Total liabilities and stockholders' equity $457,090 $452,123
The accompanying notes are an integral part of these financial
statements.
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</TABLE>
<PAGE>
<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
Operating activities:
Net income $ 9,776 $10,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,107 13,284
Provision for losses on accounts and notes receivable 193 477
Compensation expense on restricted stock awards 54 54
Changes in assets and liabilities:
Notes receivable (450) (111)
Accounts receivable 2,101 474
Inventories (1,572) (3,258)
Other current assets 121 (451)
Investments in affiliates (1,580) (1,058)
Accounts payable and accrued expenses (8,170) 520
Income taxes 1,792 622
Other (2,175) (2,628)
Net cash provided by operating activities 14,197 18,553
Investing activities:
Additions to property, plant and equipment (22,143) (16,878)
Disposals of property, plant and equipment 936 578
Acquisitions, net of cash acquired (8,394) -
Sale/(purchase) of short-term investments 167 (487)
Net cash used by investing activities (29,434) (16,787)
Financing activities:
Principal payments on current debt (6,715) (11,718)
Proceeds from issuance of current debt 13,096 2,519
Principal payments on long-term debt (672) (5)
Proceeds from issuance of long term debt 355 274
Proceeds from stock option plans 402 2,019
Net cash provided/(used) by financing
activities 6,466 (6,911)
Effect of exchange rate changes on cash (812) (135)
Net change in cash and cash equivalents (9,583) (5,280)
Cash and cash equivalents at beginning of period 28,770 25,787
Cash and cash equivalents at end of period $19,187 $20,507
The accompanying notes are an integral part of these financial
statements.
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</TABLE>
<PAGE>
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Ionics, Incorporated (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, 1999 and December 31, 1998, the
consolidated results of its operations for the three months and
six months ended June 30, 1999 and 1998 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, 1999 and 1998 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 1998 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. Earnings per share (EPS) calculations:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
For the three months ended June 30,
_ 1999 _ 1998
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 5,104 16,133 $ 0.32 $ 4,620 16,074 $ 0.29
Effect of dilutive
stock options - 241 - 385
Diluted EPS $ 5,104 16,374 $ 0.31 $ 4,620 16,459 $ 0.28
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30,
1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
Basic EPS
Income available to
common stockholders $ 9,776 16,130 $ 0.61 $10,628 16,051 $ 0.66
Effect of dilutive
stock options - 108 - 384
Diluted EPS $ 9,776 16,238 $ 0.60 $10,628 16,435 $ 0.65
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</TABLE>
<PAGE>
6. Comprehensive Income
The Company has adopted the Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of
comprehensive income and its components in general purpose
financial statements for the year ended December 31, 1998.
The table below sets forth "comprehensive income" as defined
by SFAS No. 130 for the three month and six month periods
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $ 5,104 $ 4,620 $ 9,776 $10,628
Other comprehensive income,
net of tax:
Translation adjustments (1,405) (289) (4,355) (483)
Comprehensive income $ 3,699 $ 4,331 $ 5,421 $10,145
</TABLE>
7. In 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." At the end
of 1998, the Company changed from three reportable segments
to four reportable "business group" segments corresponding
to a "business group" structure which was put into place in
the latter part of 1998. Segment information for the prior
year has been restated to reflect this change. As of June 30,
1999, no changes have been made to the basis of segmentation
or the measurement of profit or loss from that which was
reported in the Company's 1998 Annual Report as filed on
Form 10-K with the Securities and Exchange Commission, and
there were no material changes to total assets by segment.
The following table summarizes the Company's operations by
the four business group segments and "Corporate."
<TABLE>
<CAPTION>
For the three months ended June 30,
Equipment Ultrapure Consumer Instrument
Business Water Water Business
(Dollars in thousands) Group Group Group Group Corporate Total
<S> <C> <C> <C> <C> <C> <C>
1999
Revenue - unaffiliated customers $ 30,740 $ 23,292 $ 23,672 $ 6,864 $ - $ 84,568
Inter-segment transfers 546 - - 383 (929) -
Gross profit 9,004 5,844 10,821 4,000 - 29,669
Research and development (1,771)
Selling, general and administrative (20,616)
Interest income 404
Interest expense (205)
Equity income 216
Income before income taxes
and minority interest 7,697
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the three months ended June 30,
Equipment Ultrapure Consumer Instrument
Business Water Water Business
(Dollars in thousands) Group Group Group Group Corporate Total
<S> <C> <C> <C> <C> <C> <C>
1998
Revenue - unaffiliated customers $ 30,413 $ 21,076 $ 20,117 $ 8,661 $ - $80,267
Inter-segment transfers 462 602 - 367 (1,431) -
Gross profit 7,724 5,050 8,935 5,112 - 26,821
Research and development (1,739)
Selling, general and administrative (18,277)
Interest income 150
Interest expense (72)
Equity income 147
Income before income taxes
and minority interest 7,030
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30,
Equipment Ultrapure Consumer Instrument
Business Water Water Business
(Dollars in Thousands) Group Group Group Group Corporate Total
<S> <C> <C> <C> <C> <C> <C>
1999
Revenue - unaffiliated customers $65,179 $47,825 $45,531 $13,449 $ - $171,984
Inter-segment transfers 865 197 - 577 (1,639) -
Gross profit 18,728 12,139 20,397 7,569 - 58,833
Research and development (3,639)
Selling, general and administrative (40,725)
Interest income 512
Interest expense (335)
Equity income 379
Income before income taxes
and minority interest 15,025
1998
Revenue - unaffiliated customers $64,171 $39,858 $38,613 $16,599 $ - $159,241
Inter-segment transfers 1,208 679 - 563 (2,450) -
Gross profit 18,051 9,826 17,133 10,096 - 55,106
Research and development (3,383)
Selling, general and administrative (36,154)
Interest income 301
Interest expense (191)
Equity income 258
Income before income taxes
and minority interest 15,937
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</TABLE>
<PAGE>
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, 1999_with
the Three and Six Months Ended June 30, 1998
Revenues for the second quarter of 1999 increased 5.4% to $84.6
million from $80.3 million in 1998. Revenues for the first six-
month period of 1999 increased 8.0% to $172.0 million from $159.2
million in the comparable 1998 period. Revenues during 1999 were
higher during the second quarter and the six-month period,
compared to the respective periods in 1998, in the Equipment
Business Group, the Ultrapure Water Group and the Consumer Water
Group. The Instrument Business Group's revenues were lower in the
second quarter and first half of 1999 than in the second quarter
and first half of 1998. The Company's three acquisitions made at
the beginning of the first quarter of 1999 did not provide
significant revenues in the second quarter or in the six-month
period of 1999 as these businesses were added to provide the
Company with access to new markets rather than significant
initial sales volume.
Within the Equipment Business Group, the modest increase in
revenues during the second quarter and the first six-month period
of 1999, compared to the same periods in 1998, came from
relatively strong international sales of desalination equipment,
partially offset by a slight decline in revenue from the
Equipment Business Group's water supply business.
The Ultrapure Water Group's revenues increased by $2.2 million or
10.5% in the second quarter of 1999, as compared to the second
quarter of 1998, due primarily to stronger sales activity in
Asia. In addition, revenues increased by $8.0 million or 20.0%
in the first half of 1999 compared to the first half of 1998.
Revenues for this Group were down significantly in 1998 primarily
due to a slowdown in capital spending by the microelectronics
industry.
Revenues from the Consumer Water Group increased $3.6 million, or
17.7%, in the second quarter of 1999 compared to the second
quarter of 1998. The Consumer Water Group's revenues also
increased $6.9 million, or 17.9%, in the first six months of 1999
from the first half of 1998. These increases were due to growth
in both the bottled water and home water businesses.
The Instrument Business Group's revenues declined $1.8 million
and $3.2 million in the second quarter and first six months of
1999, respectively, as compared to the same periods in 1998.
This Group benefited from strong demand in the first part of 1998
due to the implementation of United States Pharmacopoeial
Convention's USP 23 which mandated the monitoring of Total
Organic Carbon (TOC) in water processed by the pharmaceutical
industry.
Cost of sales as a percentage of revenues for the second quarter
was 64.9% in 1999 and 66.6% in 1998. For the six-month period,
cost of sales as a percentage of revenues was 65.8% in 1999 and
65.4% in 1998.
Cost of sales as a percentage of revenues decreased for the
Equipment Business Group, the Ultrapure Water Group and the
Consumer Water Group for both the second quarter and six-month
periods. The Instrument Business Group's cost of sales as a
percentage of revenues increased in the second quarter and first
half of 1999 compared to the second quarter and first half of
1998. The decrease in this percentage for the Equipment Business
Group primarily reflected a shift in the mix of contracts to
higher margin capital equipment projects and a greater volume of
higher margin spare parts sales. The Ultrapure Water Group's
decrease in cost of sales as a percentage of revenues reflects a
more favorable mix of jobs for
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<PAGE>
the first two quarters of 1999 than in the first two quarters of
1998. Cost of sales as a percentage of revenue decreased for the
Consumer Water Group in the second quarter and first half of
1999, as compared to the second quarter and first half of 1998,
due to greater sales volume of bottled water and to price
increases in the Home Water business. These decreases were
offset by an increase in the Instrument Business Group's cost of
sales as a percentage of revenues. The Instrument Business
Group's increase in the cost of sales as a percentage of revenues
was due to an increase in manufacturing overhead, including
relocation to a larger facility, as well as a higher portion of
revenues for the quarter and the first half derived from lower
margin service business.
Operating expenses as a percentage of revenues increased during
the second quarter to 26.5% in 1999 from 24.9% in 1998. For the
six-month period, operating expenses as a percentage of revenues
increased to 25.8% in 1999 from 24.8% in 1998. The increase in
operating expenses as a percentage of revenues primarily
reflected the more rapid growth in the Consumer Water Group,
which generally has higher operating expenses and higher gross
margins than do the capital equipment businesses. The Consumer
Water Group also had higher operating expenses in the first half
of 1999 due to start-up expenses related to expansion into the
French bottled water market and expenses for a major computer
system implementation for the Aqua Cool business in the United
States. In addition, operating expenses increased due to the
decline in sales in the Instrument Business Group. Expanded
marketing initiatives as well as the Company's continued
commitment to investment in its research and development programs
also contributed to the increase in operating expenses as a
percentage of revenues.
Interest income of $0.4 million and interest expense of $0.2
million during the second quarter of 1999 were higher than
interest income of $0.2 million and interest expense of $0.1
million in 1998, reflecting overall higher average interest
rates. During the six-month period, interest income of $0.5
million and interest expense of $0.3 million also were higher
than interest income of $0.3 million and interest expense of $0.2
million in 1998 for the same reason.
Financial Condition
Working capital decreased $13.9 million during the first six
months of 1999 while the Company's current ratio decreased to 2.0
at June 30, 1999 from 2.2 at December 31, 1998. Cash provided
from net income and depreciation totaled $23.9 million during the
first six months of 1999 while the primary uses of cash were for
additions to property, plant and equipment, three acquisitions at
the beginning of the first quarter of 1999 and a significant
reduction in accounts payable. Significant capital expenditures
were incurred to support growth in the bottled water operations,
for new manufacturing and distribution facilities and for "own
and operate" facilities.
At June 30, 1999, the Company had $19.2 million in cash and cash
equivalents, a decrease of $9.6 million from December 31, 1998.
Accounts payable decreased by $9.8 million and other assets
increased by $8.3 million. Notes payable and long-term debt
increased by $7.0 million. The Company believes that its cash
and cash equivalents balances, cash from operations, lines of
credit and foreign exchange facilities are adequate to meet its
currently anticipated needs.
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<PAGE>
Year 2000 Readiness Disclosure and Related Information
The Company's State of Readiness
The Company has undertaken a program to assure that its computer
software and systems (including information technology (IT) and
manufacturing systems), facilities and products will be able to
distinguish 21st century dates from 20th century dates (so-called
"Year 2000 (Y2K) Compliance or Compliant"). The Company's
program is divided into the following three phases:
Phase One - Inventory and Planning
The Company completed this phase in July 1998. In this phase,
the Company inventoried all hardware and software that
potentially is susceptible to Y2K problems, prepared plans for
assessing compliance and completing remediation, and prepared
vendor compliance letters.
Phase Two - Assessment
In this phase, the Company is assessing which of its systems and
products are Y2K Compliant. The Company has requested compliance
statements from hardware and software vendors, supply
manufacturers and providers of services to the Company, has
received responses from many vendors and service providers and
has not discovered any significant compliance problems. This
phase also includes the planning for remediation of non-compliant
systems. The Company had anticipated that this phase would be
completed by the end of the first quarter of 1999. This phase has
been substantially completed.
The Company's assessment plan includes assessment of Y2K
Compliance of non-information technology (non-IT) components
including the Company's membrane-related equipment, "own and
operate" equipment, other products, manufacturing equipment and
facilities. This assessment has also been substantially
completed.
The Company is obtaining compliance statements from vendors of
both IT and non-IT systems and is revising its vendors' status on
an on-going basis based upon information it is receiving. The
Company is working with its most important vendors to resolve
remediation and compliance problems as they are identified.
Phase Three - Remediation and Testing
In this phase, the Company is deploying plans for elimination,
upgrade, replacement or modification of non-compliant systems and
products and is testing Y2K Compliance. The Company has
scheduled completion of this phase by the end of the third
quarter of 1999.
Approximately 90% of non-IT components within the Company's "own
and operate" facilities and its products and systems are Y2K
Compliant. The remediation of the remaining 10% is under way and
completion is expected by the end of the third quarter of 1999.
The Company's core operating (IT and manufacturing) system for
its headquarters operations is not yet Y2K Compliant. To date,
the Company has completed modifications and unit testing of the
system, and full implementation is expected by the end of the
third quarter of 1999. The Company's bottled water accounting
system in the United States is not yet fully Y2K Compliant. The
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<PAGE>
Company has purchased a new integrated distribution and
accounting system, which management believes will significantly
enhance its bottled water operations. This new system is Y2K
Compliant and its installation is approximately 70% complete,
with the remaining sites scheduled to be fully operational before
year-end. Individual bottled water business locations are
running this new system as it is implemented, which the Company
believes should reduce the risks associated with potential Y2K
non-compliance in the event implementation is not fully completed
by the end of 1999.
The Company's other IT systems are not uniform across all
operations and locations. The systems for all non-headquarters
operations have been reviewed. The Company is currently
implementing new Y2K Compliant IT systems at two major locations
in the U.S. Completion of implementation of these systems was
expected by mid-1999, and is now expected by the end of the third
quarter of 1999. The Company has either completed remediation or
implemented new IT systems which are Y2K Compliant at its other
significant non-headquarters operations.
Remediation or replacement of IT systems at other locations is
under way and was expected to be completed by mid-1999; the
Company now expects completion of this work by the end of the
third quarter of 1999. The Company believes that failure of
these systems to become Y2K Compliant would be unlikely to have a
material impact on the Company due to the relatively small size
of these operations and the opportunity to perform relevant tasks
manually.
Costs to Address Y2K Issues
The Company's assessment and remediation of Y2K Compliance issues
is anticipated to cost approximately $1.5 million, excluding the
cost of new systems implementation. Expenses to date of
approximately $1.1 million are consistent with such expectations.
The Company does not currently expect that actual Y2K expenses
finally incurred will materially exceed its estimate.
Risk of the Company's Y2K Issues
If the Company fails to achieve Y2K Compliance in all its
systems, the Company could lose the ability to process certain of
its customers' orders, manufacture products or provide services
to customers until compliance is achieved or a means to work
around the failure is implemented. However, most of the
Company's businesses process a small number of relatively large
transactions, mitigating the short-term dependence on information
systems. Also, because the Company's systems are not uniform
across the Company, it is anticipated that any failure would not
be Company-wide. Furthermore, a failure to fill an order may not
necessarily result in complete loss of the order. Some orders
could be filled through alternative methods within a relatively
short period. Nevertheless, any disruption in order fulfillment,
manufacturing or the provision of services to customers could
result in some loss of revenue or claims against the Company.
Moreover, there is uncertainty as to whether the Company may
experience any disruption in these areas as a result of
uncertainty concerning the Y2K readiness of third-party vendors.
If disruption in any of these areas resulting from Y2K non-
compliance is greater than anticipated, the loss of revenue could
be material.
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<PAGE>
Contingency Plans
The Company has commenced a process for preparing contingency
plans and expects to complete contingency plans early in the
fourth quarter of 1999 to deal with possible failures in systems
which it determines may not achieve Y2K Compliance on a timely
basis.
Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments and Market Risk
There has been no material change in the information reported in
the Company's 1998 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission with respect to these risk
matters.
Forward-Looking Information
Safe Harbor Statement under Private Securities Litigation Reform
Act of 1996
The Company's future results of operations and certain statements
contained in this report, including, without limitation,
"Management's Discussion and Analysis of Results of Operations
and Financial Condition," constitute forward-looking statements.
Such statements are based on management's current views and
assumptions and involve risks, uncertainties and other 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; the ability of the Company to achieve Y2K Compliance
in accordance with its current program, including the ability of
the Company to ascertain and plan for compliance issues of third-
party vendors; risks involved in litigation; regulations and laws
affecting business in each of the Company's markets; market risk
factors, as described above under "Derivative Instruments and
Market Risk"; and other risks and uncertainties described from
time to time in the Company's filings with the Securities and
Exchange Commission.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 9, 1999, the Company was served with a summons and
complaint in connection with a lawsuit captioned United States
Filter Corporation, U.S. Filter/Ionpure, Inc. and IP Holding
Company v. Ionics, Incorporated, Millipore Corporation and
Millipore Investment Holdings Limited, filed in the U.S. District
Court, District of Massachusetts (Boston). In this litigation,
plaintiffs allege that the Company is infringing six patents
relating to electrodeionization (EDI) technology. This lawsuit is
the second patent infringement suit brought by the plaintiffs
against the Company; a pending lawsuit filed by the plaintiffs
against the Company in March 1998 alleges infringement of a
certain reissue patent also involving EDI technology. The
Company, which pioneered the development of the EDI process over
30 years ago and holds a number of patents related to EDI
technology, believes that it has valid defenses to the
plaintiffs' infringement claims in both lawsuits and intends
vigorously to defend itself against the infringement charges.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 6, 1999.
(b) Douglas R. Brown, Kathleen F. Feldstein, Arthur L. Goldstein
and Carl S. Sloane were re-elected as Class I Directors for a
three-year term. Continuing as Class II Directors until the
2000 Annual Meeting are Arnaud de Vitry d'Avaucourt,
William E. Katz, Mark S. Wrighton and Daniel I.C. Wang.
Continuing as Class III Directors until the 2001 Annual
Meeting are William L. Brown, John J. Shields and Allen S.
Wyett. Each of the Class I Directors received at least the
following votes "for" election and no more than the following
votes withheld:
Votes for: 11,982,524
Votes withheld: 1,684,454
(c) The other matter submitted for stockholder approval was the
selection of PricewaterhouseCoopers LLP as the Company
auditors for 1999. The following votes were cast:
Votes for: 13,627,168
Votes against: 21,557
Abstentions: 18,253
Item 6. Exhibits and Reports on Form 8-K
(a) 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, 1999.
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.
- 13 -
<PAGE>
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 13, 1999_ By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and
Chief Executive Officer
(duly authorized officer)
Date: August 13, 1999_ By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance and
Chief Financial Officer
- 14 -
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Page
Exhibit
27.0 Financial Data Schedule 16
(for electronic purposes only)
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,187
<SECURITIES> 192
<RECEIVABLES> 116,495
<ALLOWANCES> ( 2,829)
<INVENTORY> 32,302
<CURRENT-ASSETS> 174,854
<PP&E> 370,029
<DEPRECIATION> (166,646)
<TOTAL-ASSETS> 457,090
<CURRENT-LIABILITIES> 87,596
<BONDS> 0
0
0
<COMMON> 16,136
<OTHER-SE> 335,405
<TOTAL-LIABILITY-AND-EQUITY> 457,090
<SALES> 171,984
<TOTAL-REVENUES> 171,984
<CGS> 113,151
<TOTAL-COSTS> 113,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 193
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> 14,646
<INCOME-TAX> 4,861
<INCOME-CONTINUING> 9,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,776
<EPS-BASIC> .61
<EPS-DILUTED> .60
</TABLE>
