UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
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 (IRS Employer Identification Number)
incorporation) or organization)
65 Grove Street
Watertown, Massachusetts 02472
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 926-2500
Former name, former address and former fiscal year,
if changed since last report: None
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.
At June 30, 2000 the Company had 16,220,390 shares of Common Stock, par value $1
per share, outstanding.
1
<PAGE>
IONICS, INCORPORATED
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2000
INDEX
Page Number
Part I Financial Information
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
Part II Other Information 13
Signatures 14
Exhibit Index 15
Exhibit 27 - Financial Data Schedule (for electronic purposes
only)
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment Business Group $ 42,405 $ 30,740 $ 83,761 $ 65,179
Ultrapure Water Group 26,558 23,292 54,304 47,825
Consumer Water Group 26,933 23,672 53,352 45,531
Instrument Business Group 6,908 6,864 14,182 13,449
------------ ------------ ----------- ------------
102,804 84,568 205,599 171,984
------------ ------------ ----------- ------------
Costs and expenses:
Cost of sales of Equipment Business Group 31,079 21,736 62,484 46,451
Cost of sales of Ultrapure Water Group 21,378 17,448 43,243 35,686
Cost of sales of Consumer Water Group 14,899 12,851 30,600 25,134
Cost of sales of Instrument Business Group 2,761 2,864 6,039 5,880
Research and development 1,827 1,771 3,648 3,639
Selling, general and administrative 24,086 20,616 47,060 40,725
------------ ------------ ----------- ------------
96,030 77,286 193,074 157,515
------------ ------------ ----------- ------------
Income from operations 6,774 7,282 12,525 14,469
Interest income 318 404 585 512
Interest expense (1,202) (205) (1,926) (335)
Equity income 639 216 971 379
------------ ------------ ----------- ------------
Income before income taxes and minority interest 6,529 7,697 12,155 15,025
Provision for income taxes 2,221 2,479 4,134 4,861
------------ ------------ ----------- ------------
Income before minority interest 4,308 5,218 8,021 10,164
Minority interest expense 93 114 244 388
------------ ------------ ----------- ------------
Net income $ 4,215 $ 5,104 $ 7,777 $ 9,776
============ ============ =========== ============
Basic earnings per share $ 0.26 $ 0.32 $ 0.48 $ 0.61
============ ============ =========== ============
Diluted earnings per share $ 0.26 $ 0.31 $ 0.47 $ 0.60
============ ============ =========== ============
Shares used in basic earnings per share calculations 16,216 16,133 16,213 16,130
============ ============ =========== ============
Shares used in diluted earnings per share calculations 16,429 16,374 16,417 16,238
============ ============ =========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share and par value amounts)
June 30, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 19,344 $ 13,169
Short-term investments 376 195
Notes receivable, current 4,525 5,374
Accounts receivable 138,464 120,407
Receivables from affiliated companies 102 1,231
Inventories:
Raw materials 20,725 20,216
Work in process 13,096 8,913
Finished goods 5,643 4,751
---------------- ---------------
39,464 33,880
Other current assets 13,487 14,816
Deferred income taxes 4,730 4,730
---------------- ---------------
Total current assets 220,492 193,802
Notes receivable, long-term 10,847 10,027
Investments in affiliated companies 9,363 10,752
Property, plant and equipment:
Land 8,499 8,352
Buildings 46,583 44,858
Machinery and equipment 309,291 299,303
Other, including furniture, fixtures and vehicles 52,107 49,119
---------------- ---------------
416,480 401,632
Less accumulated depreciation (182,527) (174,382)
---------------- ---------------
233,953 227,250
Other assets 62,591 59,075
---------------- ---------------
Total assets $ 537,246 $ 500,906
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current portion of long-term debt $ 54,309 $ 25,514
Accounts payable 39,351 41,867
Customer deposits 3,780 2,671
Accrued commissions 1,589 2,362
Accrued expenses 30,067 27,061
Taxes on income 826 -
---------------- ---------------
Total current liabilities 129,922 99,475
Long-term debt and notes payable 11,956 8,351
Deferred income taxes 24,261 26,803
Other liabilities 4,567 4,425
Stockholders' equity:
Common stock, par value $1, authorized
shares: 55,000,000; issued: 16,220,390 in 2000 and 16,201,483 in 1999 16,220 16,201
Additional paid-in capital 159,720 159,288
Retained earnings 207,081 199,304
Accumulated other comprehensive income (16,481) (12,905)
Unearned compensation - (36)
---------------- ---------------
Total stockholders' equity 366,540 361,852
---------------- ---------------
Total liabilities and stockholders' equity $ 537,246 $ 500,906
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Six Months Ended
June 30,
--------------------------------------
Operating activities: 2000 1999
------------- ------------
<S> <C> <C>
Net income $ 7,777 $ 9,776
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 14,925 14,107
Provision for losses on accounts and notes receivable 1,261 193
Compensation expense on restricted stock awards 36 54
Changes in assets and liabilities:
Notes receivable (700) (450)
Accounts receivable (19,971) 2,101
Inventories (5,942) (1,572)
Other current assets 1,162 121
Investments in affiliates 1,135 (1,580)
Accounts payable and accrued expenses (53) (8,170)
Income taxes 302 1,792
Other (1,275) (2,175)
------------- ------------
Net cash (used) provided by operating activities (1,343) 14,197
------------- ------------
Investing activities:
Additions to property, plant and equipment (21,218) (22,143)
Disposals of property, plant and equipment 888 936
Acquisitions, net of cash acquired (4,250) (8,394)
(Purchase) sale of short-term investments (158) 167
------------- ------------
Net cash used by investing activities (24,738) (29,434)
------------- ------------
Financing activities:
Principal payments on current debt (37,660) (6,715)
Proceeds from borrowings of current debt 65,756 13,096
Principal payments on long-term debt (492) (672)
Proceeds from borrowings of long-term debt 3,946 355
Proceeds from stock option plans 454 402
------------- ------------
Net cash provided by financing activities 32,004 6,466
------------- ------------
Effect of exchange rate changes on cash 252 (812)
------------- ------------
Net change in cash and cash equivalents 6,175 (9,583)
Cash and cash equivalents at beginning of period 13,169 28,770
------------- ------------
Cash and cash equivalents at end of period $ 19,344 $ 19,187
============= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the management of Ionics, Incorporated (the "Company"),
all adjustments have been made that are necessary to present fairly the
consolidated financial position of the Company, the consolidated results
of its operations and the consolidated cash flows for each period
presented. The consolidated results of operations for the interim periods
are not necessarily indicative of the results of operations to be
expected for the full year. These financial statements should be read in
conjunction with the Company's 1999 Annual Report as filed on Form 10-K
with the Securities and Exchange Commission. Other than noted below,
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.
2. Earnings per share (EPS) calculations:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
For the three months ended June 30,
---------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ---------------------------------------------
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 $ 4,215 16,216 $ 0.26 $ 5,104 16,133 $ 0.32
Effect of dilutive
stock options - 213 - - 241 (0.01)
------------ ------------ ------------ ------------ ------------ --------------
Diluted EPS $ 4,215 16,429 $ 0.26 $ 5,104 16,374 $ 0.31
============ ============ ============ ============ ============ ==============
For the six months ended June 30,
---------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ---------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------ ------------ ------------ --------------
Basic EPS
Income available to
common stockholders $ 7,777 16,213 $ 0.48 $ 9,776 16,130 $ 0.61
Effect of dilutive
stock options - 204 (0.01) - 108 (0.01)
------------ ------------ ------------ ------------ ------------ --------------
Diluted EPS $ 7,777 16,417 $ 0.47 $ 9,776 16,238 $ 0.60
============ ============ ============ ============ ============ ==============
</TABLE>
The effect of dilutive stock options excludes those stock options for
which the impact would have been antidilutive based on the exercise price
of the options. The number of options that were antidilutive at the three
months ended June 30, 2000 and 1999 was 1,715,684 and 725,750,
respectively. The number of options that were antidilutive at the six
months ended June 30, 2000 and 1999 were 1,665,084 and 725,750,
respectively.
6
<PAGE>
3. 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. The table below sets forth "comprehensive income" as defined
by SFAS No. 130 for the three month and six month periods ended June 30,
2000 and 1999.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 4,215 $ 5,104 $ 7,777 $ 9,776
Other comprehensive income,
net of tax:
Translation adjustments (1,166) (1,405) (3,576) (4,355)
------------- ------------ ------------- -------------
Comprehensive income $ 3,049 $ 3,699 $ 4,201 $ 5,421
============= ============ ============= =============
</TABLE>
4. 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. As of June 30, 2000, 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 1999 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" (Corporate includes the
elimination of intersegment transfers).
<TABLE>
<CAPTION>
For the three months ended June 30, 2000
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Revenue - unaffiliated
customers $ 42,405 $ 26,558 $ 26,933 $ 6,908 $ - $ 102,804
Inter-segment transfers 456 1,339 - 986 (2,781) -
Gross profit 11,326 5,180 12,034 4,147 - 32,687
For the three months ended June 30, 1999
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
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
For the six months ended June 30, 2000
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
Revenue - unaffiliated
customers $ 83,761 $ 54,304 $ 53,352 $ 14,182 $ - $ 205,599
Inter-segment transfers 2,038 1,564 - 1,372 (4,974) -
Gross profit 21,277 11,061 22,752 8,143 - 63,233
For the six months ended June 30, 1999
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
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
</TABLE>
7
<PAGE>
5. Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 44, Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25 (FIN No. 44).
This interpretation, which is generally effective July 1, 2000,
clarifies, among other issues, the definition of employee for the
purposes of applying the provisions of APB Opinion No. 25, the criteria
for determining whether a plan qualifies as a noncompensatory plan, and
the accounting consequence of various modifications to the terms of a
previously fixed stock option or award. The adoption of FIN No. 44 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133,
(SFAS 137). SFAS 137 amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which was issued in June 1998. SFAS
137 defers the effective date of SFAS 133 to all fiscal years beginning
after June 15, 2000. SFAS 133 requires that all derivatives be recognized
as either assets or liabilities at estimated fair value. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, which is an amendment of SFAS No. 133. This accounting
standard amended the accounting and reporting standards of SFAS No. 133
for certain derivative instruments and hedging activities. The adoption
of SFAS No. 133, as amended, is not expected to have a material effect on
the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101), which among other guidance, clarifies certain
conditions to be met in order to recognize revenue. In June 2000, the SEC
issued Staff Accounting Bulletin No. 101B which delayed the
implementation of SAB 101 until the fourth quarter of fiscal years
beginning after December 15, 1999. The implementation of SAB 101 is not
expected to have a material effect on the Company's financial position or
results or operations.
8
<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, 2000 with the Three and
Six Months Ended June 30, 1999
Revenues for the second quarter of 2000 increased 21.6% while net income
decreased by 17.4%, compared to the results of the second quarter of 1999.
Similarly, revenues for the first six-month period of 2000 increased 19.5% while
net income decreased by 20.4% from the comparable six-month period in 1999.
Gross profit was $32.7 million in the second quarter of 2000 compared to $29.7
million in the second quarter of 1999. For the first six-month period of 2000,
gross profit was $63.2 million compared to $58.8 million for the first six-month
period of 1999. Gross profit increased in the second quarter and first six-month
period for the Equipment Business Group (EBG), Consumer Water Group (CWG) and
Instrument Business Group (IBG). The Ultrapure Water Group's (UWG) gross profit
decreased in the second quarter and first six-month period of 2000 from the
comparable periods in 1999. This decrease was primarily due to continued
competitive pricing pressures in several markets, particularly in the
microelectronic industry.
Total revenues for the second quarter of 2000 increased 21.6% to $102.8 million
from $84.6 million in 1999. Revenues for the first six-month period of 2000
increased 19.5% to $205.6 million from $172.0 million in the comparable 1999
period. Revenues during 2000 were higher in the second quarter and the six-month
period, compared to the respective periods in 1999, in all four business groups.
EBG revenues increased 37.9% in the second quarter and increased 28.5% in the
first six-month period of 2000, as compared with the same respective periods of
1999. These increases came primarily from higher capital equipment sales,
particularly for zero liquid discharge equipment, the commencement of operations
at water supply plants in Barbados and Curacao, and continuing work on a
contract to manufacture storage systems to manage the containment of spent
nuclear fuels.
The revenues of UWG increased by $3.3 million and $6.5 million for the second
quarter and six-month periods of 2000, respectively, compared to the respective
second quarter and six-month periods of 1999. These increases were due primarily
to higher sales to the microelectronics and power industries.
Revenues of CWG increased 13.8% in the second quarter of 2000 compared to the
second quarter of 1999. CWG's revenues also increased 17.2% in the first
six-month period of 2000 compared to the first six-month period of 1999. These
increases were due to growth in both bottled water and home water products,
particularly the foreign operations of both businesses.
IBG revenues increased by approximately 1.0% and 5.5% in the second quarter and
first six months of 2000, respectively, as compared to the same periods in 1999.
These increases resulted primarily from sales of total organic carbon (TOC)
instruments due to new European pharmaceutical regulations.
Cost of sales as a percentage of revenues for the second quarter was 68.2% in
2000 and 64.9% in 1999. For the six-month period, cost of sales as a percentage
of revenue was 69.2% in 2000 and 65.8% in 1999.
9
<PAGE>
Cost of sales as a percentage of revenues increased for EBG, UWG and CWG for
both the second quarter and six-month periods of 2000, as compared to the
respective periods in 1999. IBG's cost of sales as a percentage of revenues
decreased in the second quarter and first half of 2000 compared to the second
quarter and first half of 1999. The increases in this percentage for EBG
primarily reflected a shift in the mix of contracts to lower margin equipment
business. UWG's increases in cost of sales as percentage of revenues reflect the
continued competitive environment in the microelectronics industry for ultrapure
water capital equipment in the first two quarters of 2000. Cost of sales as a
percentage of revenue increased for CWG in the second quarter and first half of
2000, as compared to the second quarter and first half of 1999, due to higher
distribution expenses, particularly increases in fuel and labor costs. These
increases were partially offset by decreases in cost of sales for IBG in the
second quarter and first six months of 2000, compared to the second quarter and
first six months of 1999. These decreases were the result of a more favorable
mix of sales.
Operating expenses as a percentage of revenues decreased during the second
quarter to 25.2% in 2000 from 26.5% in 1999. For the six-month period, operating
expenses as a percentage of revenues decreased to 24.7% in 2000 from 25.8% in
1999. The decreases in operating expenses as a percentage of revenues primarily
reflected higher revenue growth in EBG and UWG which generally have lower
selling costs relative to revenues than do the other business groups.
Interest income of $0.3 million for the second quarter of 2000 decreased
slightly from interest income of $0.4 million for the second quarter of 1999.
Interest income of $0.6 million for the first half of 2000 increased from
interest income of $0.5 million for the first half of 1999. Interest expense of
$1.2 million and $1.9 million for the second quarter and first half of 2000,
respectively, increased from $0.2 million and $0.3 million for the second
quarter and first half of 1999, respectively. The increases in interest expense
in 2000 were due to higher average borrowings by the Company.
Financial Condition
Working capital decreased $3.8 million during the first six months of 2000 while
the Company's current ratio decreased to 1.7 at June 30, 2000 from 2.0 at
December 31, 1999. At June 30, 2000, the Company had $19.3 million in cash and
cash equivalents, an increase of $6.2 million from December 31, 1999. Notes
payable and the current portion of long-term debt increased by $28.8 million,
and accounts receivable increased by $18.0 million.
Cash used by operating activities totaled $1.3 million during the first six
months of 2000. The primary uses of cash for investing purposes were for
additions to property, plant and equipment and for acquisitions. Significant
capital expenditures were made for "own and operate" facilities and to expand
the Company's bottled water operations. Net cash provided by financing
activities was $32.0 million for the first half of 2000 primarily due to
short-term and long-term borrowings.
At June 30, 2000, the Company had incurred approximately $3.2 million in costs
relating primarily to providing assistance to a project company in obtaining
financing for, and project management and design work on, a major seawater
desalination project in Trinidad announced in September, 1999. The project
company has obtained a source of bridge financing for the project, subject to
the fulfillment of certain conditions, and anticipates that it will soon obtain
funds from such source. Should funds not be obtained, the costs incurred by the
company would be expensed. The Company anticipates that funds will become
available to the project company in the third quarter of 2000. The Company may
incur additional expenditures related to this project prior to such time.
The Company believes that its cash and cash equivalents, cash from operations,
lines of credit and foreign exchange facilities are adequate to meet its
currently anticipated needs.
10
<PAGE>
Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25 (FIN No. 44). This
interpretation, which is generally effective July 1, 2000, clarifies, among
other issues, the definition of employee for the purposes of applying the
provisions of APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, and the accounting consequence of various
modifications to the terms of a previously fixed stock option or award. The
adoption of FIN No. 44 is not expected to have a material effect on the
Company's financial position or results of operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133, (SFAS 137). SFAS 137 amends SFAS
133, Accounting for Derivative Instruments and Hedging Activities, which was
issued in June 1998. SFAS 137 defers the effective date of SFAS 133 to all
fiscal years beginning after June 15, 2000. SFAS 133 requires that all
derivatives be recognized as either assets or liabilities at estimated fair
value. In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, which is an amendment of SFAS No. 133. This accounting standard
amended the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and hedging activities. The adoption of SFAS No. 133, as
amended, is not expected to have a material effect on the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), which among other guidance, clarifies certain conditions to be met in
order to recognize revenue. In June 2000, the SEC issued Staff Accounting
Bulletin No. 101B which delayed the implementation of SAB 101 until the fourth
quarter of fiscal years beginning after December 15, 1999. The implementation of
SAB 101 is not expected to have a material effect on the Company's financial
position or results or operations.
Year 2000 (Y2K) Disclosure
The Company undertook a program in years 1998 and 1999 to assure the ability of
its information and manufacturing systems to properly recognize and process
date-sensitive information beginning on January 1, 2000. To date, the Company
has completed the transition from calendar 1999 to 2000 with no reported
significant impact to operations. The Company will continue to monitor Y2K
related matters at suppliers and customers, as well as the Company's systems,
facilities and products, to ensure that latent defects do not manifest
themselves over the next several months.
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
1999 Annual Report as filed on Form 10-K with the Securities and Exchange
Commission with respect to these risk matters.
11
<PAGE>
Forward-Looking Information
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
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; risks of latent Y2K defects; 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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
The investigation conducted by the Attorney General of the Commonwealth of
Massachusetts into certain former operations of a division of the Company during
portions of the years 1991 through 1995, first reported in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1998, has been
settled. Pursuant to the settlement agreement entered in civil proceedings on
August 2, 2000, in which the Company did not admit to any liability, the Company
will pay a civil penalty of $425,000 to the Commonwealth of Massachusetts to
settle claims of violations of certain industrial waste discharge regulations,
and will in addition make a contribution of $110,000 to fund a watershed
protection plan for the Connecticut River basin.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
a) The Annual Meeting of the Stockholders was held on May 2, 2000.
Arnaud de Vitry d'Avaucourt, William E. Katz, Daniel I. C. Wang and Mark S.
Wrighton were reelected as Class II Directors for a three-year term. Continuing
as Class I Directors until the 2002 Annual Meeting are Douglas R. Brown,
Kathleen F. Feldstein, Arthur L. Goldstein and Carl S. Sloane. 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 II Directors received at least the
following votes "for" election and no more than the following votes withheld:
Votes for: 12,860,448
Votes withheld: 116,790
b) The other matter submitted for stockholder approval was ratification of the
selection of PricewaterhouseCoopers LLP as the Company auditors for 2000. The
following votes were cast:
Votes for: 12,902,884
Votes against: 50,987
Abstentions: 23,367
Item 5. Other Information
-------------------------
On May 23, 2000, the Board of Directors expanded the total number of Class III
director positions to five, and elected Stephen L. Brown and William K. Reilly
as Class III Directors. As such, they will serve until the 2001 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
Exhibit 10 - Material Contracts
10.1 Second Amended and Restated Credit Agreement dated as of July 28,
2000, among the Company, Fleet National Bank and Fleet National Bank as
agent.
10.2 Shareholders' Agreement dated as of May 12, 2000, among the Company,
Hafeez Karamath Engineering Services Limited and Desalination Company of
Trinidad and Tobago Limited, as amended on June 16, 2000.
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 14, 2000 By: /s/Arthur L. Goldstein
--------------- ---------------------------------------
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: August 14, 2000 By: /s/Robert J. Halliday
--------------- --------------------------------------
Robert J. Halliday
Executive Vice President
Chief Operating Officer and
Chief Financial Officer
(principal financial officer)
14
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
------- ---------------
10.1 Second Amended and Restated Revolving Credit 16
Agreement dated as of July 28, 2000, among the
Company, Fleet National Bank and Fleet National
Bank as agent.
10.2 Shareholders' Agreement dated as of May 12, 2000, 109
among the Company, Hafeez Karamath Engineering
Services Limited and Desalination Company of
Trinidad and Tobago Limited, as amended on June
16, 2000.
27.0 Financial Data Schedule (for electronic
purposes only)
15
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