-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OpxFkbBZ33k2iJz+g70txp4YKocmNqS1uO+FZM0Gq5djjxEcX7H2LnlJ2crmCYEb aT3CrvNl/G6jVLzl5MYkDw== 0000052466-96-000006.txt : 19960401 0000052466-96-000006.hdr.sgml : 19960401 ACCESSION NUMBER: 0000052466-96-000006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IONICS INC CENTRAL INDEX KEY: 0000052466 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 042068530 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07211 FILM NUMBER: 96540977 BUSINESS ADDRESS: STREET 1: 65 GROVE ST CITY: WATERTOWN STATE: MA ZIP: 02172 BUSINESS PHONE: 6179262500 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period ended Commission File Number 1-7211 Ionics, Incorporated (Exact name of registrant as specified in it charter) Massachusetts 04-2068530 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification Number) 65 Grove Street, Watertown, Massachusetts 02172 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 617-926-2500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 1/ State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. The aggregate market value of the voting stock held by non- affiliates as of March 15, 1996 was $585,000,113 (14,355,831 shares at $40.75 per share) (includes shares owned by a trust for the indirect benefit of a non-employee director, and by a trust for the indirect benefit of a spouse of a non-employee director). (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 15, 1996, 14,961,285 shares of Common Stock, $1 par value, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of 1995 Annual Report to Stockholders Parts I, II and IV Portions of Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 2, 1996 Part III 2/ PART I Item 1. BUSINESS Ionics, Incorporated ("Ionics," the "Company," or the "Registrant") is a leading water purification company engaged worldwide in the supply of water and of water treatment equipment through the use of proprietary separations technologies and systems. Ionics' products and services are used by the Company or its customers to desalt brackish water and seawater, to purify and supply bottled water, to treat water in the home, to manufacture and supply water treatment chemicals and ultrapure water, to process food products, recycle and reclaim process water and wastewater, and to measure levels of water-borne contaminants and pollutants. The Company's customers include industrial companies, consumers, municipalities and utilities. The Company's business activities are divided into three segments: Membranes and Related Equipment, Water, Food and Chemical Supply, and Consumer Products, which in 1995 accounted for approximately 52%, 26% and 22% of revenues, respectively. Approximately 39% of the Company's 1995 revenues were derived from foreign sales or operations. Since 1985, the Company has pursued a strategy of expanding beyond its traditional focus of selling desalination plants and equipment by owning and operating its own equipment to produce and sell water, food and chemicals. In 1995, the Water, Food and Chemical Supply and Consumer Products business segments accounted for 63% of the Company's earnings before interest and taxes. Over forty years ago, the Company pioneered the development of the ion-exchange membrane and the electrodialysis process. Since that time, the Company has expanded its separations technology base to include a number of membrane and non-membrane-based separations processes which the Company refers to as "The Ionics ToolboxSM." These separations processes include electrodialysis reversal (EDR), reverse osmosis (RO), ultrafiltration (UF) and microfiltration (MF), electrodeionization (EDI), electrolysis, ion-exchange, carbon adsorption, and thermal processes such as evaporation and crystallization, as well as solvent extraction and recovery processes. The Company believes that it is the world's leading manufacturer of ion-exchange membranes and of membrane-based systems for the desalination of water. The Company was incorporated in Massachusetts in 1948. The Company's principal executive offices are located at 65 Grove Street, Watertown, Massachusetts 02172. 3/ I-1 Financial Information About Business Segments The information contained in Note 14 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to Stockholders for the year ended December 31, 1995 is incorporated herein by reference. Membranes and Related Equipment The Company's Membranes and Related Equipment business segment, which accounted for approximately 52% of revenues in 1995 and provides membrane-based and other advanced technology systems to the municipal and industrial markets, is divided into three market areas: desalination and related water treatment equipment; wastewater treatment equipment; and ultrapure water equipment. 1. Desalination and Related Water Treatment Equipment Opportunities for the sale of desalination and related water treatment equipment arise from changes in the needs of people and municipalities, from industrial shifts and growth, and from a need to avert environmental concerns. With less than 1% of the total water on the planet fresh and usable, desalination has played an important role in creating new water sources. The Company sells a wide spectrum of products and systems to serve this market which utilize technologies including electrodialysis reversal, ion exchange, electrodeionization, reverse osmosis, ultrafiltration and carbon adsorption. Depending on the customers needs, the Company provides standardized versions of systems utilizing one or more of the technologies mentioned or can supply complete turnkey plants that may include standardized models as well as peripheral water treatment equipment, complete engineering services, process and equipment design, project engineering, commissioning, operator training and field service. 4/ I-2 2. Wastewater Treatment Equipment The market for wastewater treatment, recycle and reuse has shown significant growth as world demand for water of specified quality continues to increase and as regulations limiting waste discharges to the environment continue to mount. The wastewater market is increasingly driven by the concept of Total Water ManagementSM, which involves the recognition that the water streams which enter, leave or become part of a process can be managed to achieve overall economic efficiencies. Ionics services the wastewater market with brine concentrators and crystallizers, traditional wastewater treatment equipment, special electrodialysis reversal membrane- based concentrators for recycle and reuse, and pollution- monitoring analyzers for measurement of water contaminants. The Company designs, engineers and constructs brine concentrators, evaporators and crystallizers which are used to clean, recover and recycle wastewater, particularly in zero liquid discharge industrial uses. Such systems may also incorporate electrodialysis reversal membrane systems as preconcentrators. Ionics also holds an exclusive license for a patented solvent extraction technology known as B.E.S.T. (Basic Extraction Sludge Technology), which separates contaminated sludges, sediments and soils into oil, water and solids and has potential use for cleanup of toxic organic materials at contaminated sites. Ionics also designs, engineers and constructs customized systems for industrial wastewater customers which may include conventional treatment systems as well as advanced separation technologies such as electrodialysis reversal, reverse osmosis, electrolysis and microfiltration. Typical industrial customers are power stations, chemical and petrochemical plants, metal-working and automobile factories, textile manufacture and a variety of other industrial applications. The Company also provides custom and packaged sewage treatment systems for municipalities. The Company sells instruments to measure water quality for industrial and government customers. The products which are used both in the laboratory and on-line measure total carbon, total organic carbon, chemical oxygen demand and total oxygen demand. The Company also sells instruments for measurement of dissolved metals which are sensitive to the part-per-billion range and specific chemical analyzers for ammonia, phosphates, nitrates and chlorine. 5/ I-3 3. Ultrapure Water Equipment Ultrapure water, which has been purified by a series of processes to the degree that remaining impurities are measured in parts per billion or trillion, is required by the semiconductor industry and for other specialized industrial uses. The demand for technologically advanced ultrapure water equipment and systems has increased as the industries which use ultrapure water have become more knowledgeable about their quality requirements. The semiconductor industry in particular has increasingly demanded higher purity water as the circuits on silicon wafers have become more densely packed. The recent increasing worldwide demand for computer chips has sparked a worldwide boom in the construction of fabrication facilities and the associated need for ultrapure water equipment. The Company supplies sophisticated ultrapure water systems to the semiconductor, electronics and power industries which utilize a combination of electrodialysis reversal, ion exchange, electrodeionization, reverse osmosis and ultrafiltration technologies. These systems are either trailer-mounted or land-based and vary from standardized modules to large multimillion dollar systems depending on the customer's requirements. Water, Food and Chemical Supply The Water, Food and Chemical Supply business segment accounted in 1995 for approximately 26% of the Company's revenues (commencing in 1994, revenues from the sale of bleach and bleach-based cleaning products for the consumer market have been moved from this segment to the Consumer Products segment. As a result, certain prior year amounts in the financial statements have been reclassified to conform to the current year's presentation). The Company's strategy is to sell, where appropriate, water, food products and chemicals produced by its membrane-based equipment, rather than selling the equipment itself. The water, food and chemical supply business segment can be divided into four market areas: ultrapure water supply; municipal water supply; chemical supply; and food processing. 6/ I-4 1. Ultrapure Water Supply In industries such as power generation, semiconductors, pharmaceuticals and biotechnology, ultrapure water (water in which the impurities have been reduced to concentrations as low as several parts per billion) is critical to product quality and yield. In the electric power industry, ultrapure boiler feedwater minimizes corrosion, inefficiency and downtime in steam boilers and turbines. Depending on the composition and quantity of the impurities to be removed or treated, any one of several membrane separations methods can be utilized to provide ultrapure water to the customer. Ionics has pioneered in the application of three membrane technologies (EDR, RO and UF) combined together in a mobile system called the "triple membrane" trailer, which the Company believes to be the most advanced technology used in the commercial processing of ultrapure water. Ionics provides ultrapure water services and the production and sale of ultrapure water from trailer-mounted units at the customer sites. Ionics has also commercially implemented its new electrodeionization (EDI) technology in the production of ultrapure water. EDI is a continuous, electrically driven, membrane-based water purification process which produces ultrapure water without the use of the strong chemical regenerants, such as sulfuric acid and caustic soda, which are commonly required. The Company's new TMT-II trailers utilize a combination of EDI, RO and UF technologies to produce ultrapure water. At the end of 1995, the Company had a total capacity, installed or under construction, of approximately 9,000 gallons per minute for the production of ultrapure water under long- term contracts with various industries. In January 1996, the Company acquired Apollo Ultrapure Water Systems, Inc., based in Pico Rivera, California, just outside of Los Angeles. This acquisition will permit the Company to provide additional resources to service the growing Southern California ultrapure water market. The Company serves the ultrapure water market from its headquarters facilities in Watertown, Massachusetts, through the Ionics Pure Solutions division in Phoenix, Arizona, the Ionics Ahlfinger Water Company division in Dallas, Texas; and through the following subsidiaries: Ionics Apollo Ultrapure Water Systems, Inc., Pico Rivera, California; Ionics Ultrapure Water Corporation, Campbell, California; Ionics (U.K.) Limited, London, England; Ionics Italba, S.p.A., Milan, Italy; and Eau et Industrie, Paris, France. 7/ I-5 2. Municipal Water Supply Ionics' position in water supply as a seller of purified or treated water has evolved from its traditional role as a supplier of water treatment equipment. In certain situations, opportunities are available for the Company to provide a complete service package involving financing, construction, operation and maintenance of water treatment facilities. Ionics, through its wholly owned subsidiary, Ionics Iberica, S.A., owns and operates a 5.5 million gallon per day capacity brackish water EDR facility and an RO seawater facility on Grand Canary Island, Spain. Under long-term contracts, the Company is selling the desalted water from both facilities to the local water utility for distribution. In 1995, the Company contracted with the water utility to expand its seawater RO facility from a capacity of approximately 2.2 million gallons per day to approximately 3.6 million gallons per day. The Company's wholly owned subsidiary, Ionics (Bermuda) Ltd., owns and operates a 600,000 gallon per day EDR brackish water desalting plant on the island of Bermuda. This plant supplies fresh water under a long-term contract with Watlington Waterworks Ltd., a Bermuda corporation partially owned by Ionics. The Company financed, constructed, owns and operates a seawater RO desalination facility in Santa Barbara, California. The facility began operation in March 1992, has the capacity to produce 7,500 acre-feet per year (approximately 6.7 million gallons per day) of desalinated water, and is expandable to 10,000 acre-feet per year. Under the terms of the Company's contract with the City, the City can either purchase water from the Company or, under conditions in which the City deems it unnecessary to purchase water, pay the Company a "stand-by fee" during the contract's five-year term and, if the City elects to continue, a five-year extension term. The City has placed the facility on "stand-by" status because of the alleviation of the area's drought. At the end of the initial five-year term, the City will have the right to renew the contract for another five-year term, purchase the facility from the Company, or direct the Company to remove the facility (most of which is housed in trailers) from its site. In the event the City purchases the facility, the City must reimburse the Company for all costs not previously recovered from operations, plus a factor to cover general and administrative expenses and profit. In 1994, the City approved a two-year extension of the Company's current operation and maintenance contract into 1997. 8/ I-6 3. Chemical Supply In the chemical supply area, the Company uses its CloromatR technology to produce sodium hypochlorite and related chlor-alkali chemicals for industrial, commercial and other non-consumer applications, utilizing a membrane-based process. The Company's wholly owned Australian subsidiary, Elite Chemicals Pty. Ltd., utilizes Cloromat systems to produce sodium hypochlorite on-site in Brisbane for industrial, commercial and janitorial supply of bleach products. In 1994, the Australian subsidiary signed a five-year contract to supply sodium hypochlorite to treat the City of Brisbane's drinking water supply, and in 1995 expanded its bleach-manufacturing capacity by one-third. The Company's wholly owned English subsidiary, Ionics (U.K.) Limited, engages in bulk bleach sales at a Cloromat facility in Bridgwater, England. A large portion of the facility's output is being sold to an English manufacturer for use in cellophane manufacture, and the balance is being sold to the regional market. In 1995, a second major Cloromat facility in England owned and operated by Ionics (U.K.) Limited commenced bulk bleach sales to a leading English manufacturer of household cleaning products and to the regional market being served by the plant. 4. Food Processing In 1994, the Company commenced operations under an agreement with a major U.S. dairy cooperative overseeing whey processing activities at two plants owned by the cooperative. Included in the equipment being utilized by the Company at these plants are its ElectromatR electrodialysis systems. The Company receives a processing fee based on the production of demineralized whey for its services. In 1995, the cooperative authorized the Company to increase the amount of demineralized whey being produced at the two plants. Consumer Products Ionics' consumer products business segment accounted for approximately 22% of the Company's revenues in 1995. The Company's consumer products serve the bottled water, home water purification and consumer bleach products market areas. 1. Aqua CoolR Pure Bottled Water Ionics entered the bottled water business in 1984. The Company's strategy is to utilize its proprietary desalination and purification technology to create a brand of drinking water, named Aqua Cool Pure Bottled Water, which can be 9/ I-7 reproduced with uniform consistency and high quality at numerous locations around the world. Distribution operations have been established to serve the areas in and around London, Manchester, Birmingham, Bristol and Leeds, England; a number of metropolitan areas in the eastern, southeastern and central United States; and, through joint ventures, in Bahrain, Kuwait and Saudi Arabia. The Company's business focuses on the sale of Aqua Cool in five-gallon bottles to a variety of commercial and residential customers. The Company also manufactures coolers in a wide variety of colors which offer options for hot, cold and room temperature water. At the end of 1995, there were a total of 25 Aqua Cool distribution centers in the United States and overseas, supplied with Aqua Cool by six regional water purification and bottling facilities, supplying a customer base of approximately 80,000. 2. Home Water Purification Systems Point-of-Use Devices The Company participates in the "point-of-use" market for over and under-the-sink water purifiers through the manufacture and sale of HYgeneR, a proprietary, EPA-registered, silver- impregnated activated carbon filtering media, and through the sale of reverse osmosis and activated carbon-based filtering devices. The Company incorporates HYgene, which is designed to prevent bacterial build-up while providing the capability of removing undesirable tastes and odors from the water supply, into its own bacteriostatic water conditioners and also sells HYgene to manufacturers of household point-of-use water filters. Point of Entry Devices Ionics' point-of-entry water products include ion-exchange water conditioners to "soften" hard water, and chemicals and media for filtration and treatment. The Company sells its products, under the General Ionics and other brands, through both independent distributorships and wholly owned sales and service dealerships. The Company recently introduced new marketing assistance programs, including retail financing, to its independent distributors, and also increased its base of independent distributors. 10/ I-8 3. Bleach-Based Consumer Products The Company's Elite Chemicals New England division operates a Cloromat facility to produce and distribute bleach- based products for the consumer market, primarily one-gallon bleach products under private label or under the Company's own "EliteR", "Super ValueTM" and "UltraPureTM" brands, and methanol- based automobile windshield wash solution. In 1994, to expand these operations, the Company purchased a 129,000 square foot manufacturing facility, located in Ludlow, Massachusetts, which has now commenced operations. In 1995, the Company purchased a facility in Elkton, Maryland, to serve as the Mid-Atlantic regional manufacturing and distribution center for bleach-based and related consumer products. Raw Materials and Sources of Supply All raw materials essential to the business of the Company can normally be obtained from more than one source. In those few instances where raw materials are being supplied by only one source, the current supplier has given the Company a lead time for cancellation, which the Company believes is sufficient to enable it to obtain other suppliers. In addition, the Company maintains inventories of single source items which it believes are adequate under the circumstances. The Company produces the membranes required for its equipment and systems that use the ED, EDR, MF, UF and EDI processes. Membranes used for the RO process are purchased from outside suppliers, and are normally available from multiple sources. Patents and Trademarks The Company believes that its products, know-how, servicing network and marketing skills are more significant to its business than trademark or patent protection of its technology. Nevertheless, the Company has a policy of applying for patents both in the United States and abroad on inventions made in the course of its research and development work for which a commercial use is considered likely. The Company owns numerous United States and foreign patents and trademarks and has issued licenses thereunder, and currently has additional pending patent applications. Of the 92 active U.S. patents held by the Company, a substantial portion involves membranes, membrane technology and related separations processes such as electrodialysis and electrodialysis reversal, reverse osmosis, ultrafiltration and electrodeionization. The Company believes that none of its individual patents or groups of related patents, nor any of its trademarks, is of sufficient importance 11/ I-9 for its termination or abandonment, or cancellation of licenses extending rights thereunder, to have a material adverse effect on the Company. Seasonality The activities of the Company's businesses are not of a seasonal nature, other than certain activities of the Consumer Products segment. Bottled water sales and bleach products for swimming pool use tend to increase during the summer months. Also, sales levels for automobile windshield wash solution increase in the winter months. Customers The nature of the Company's business is such that it frequently has in progress large contracts with one or more customers for specific projects; however, there is no one customer whose purchases account for 10% or more of the Company's consolidated revenues and whose loss would have a material adverse effect on the Company and its subsidiaries taken as a whole. Backlog The Company's backlog of firm orders was $173,734,000 at December 31, 1995 and $152,340,000 at December 31, 1994. For multi-year contracts, the Company includes in reported backlog the revenues associated with the first five years of the contract. For multi-year contracts which are not otherwise included in backlog, the Company includes in backlog up to one year of revenues. Ionics expects to fill approximately 74% of its December 31, 1995 backlog during 1996. The Company does not believe that there are any seasonal aspects to these backlog figures. Government Contracts The Company does not believe that any of its sales under U.S. Government contracts or subcontracts during 1995 are subject to renegotiation. The Company has not had adjustments to its negotiated contract prices, nor are any proceedings pending for such adjustments. 12/ I-10 Research and Development Since the development of the ion-exchange membrane and the EDR process, Ionics has continued its commitment to research and development directed toward products for use in water purification, processing and measurement, and separations technology. The Company's research and development expenses were approximately $3,432,000 in 1995, $3,372,000 in 1994 and $3,678,000 in 1993. Competition The Company experiences competition from a variety of sources with respect to virtually all of its products, systems and services, although the Company knows of no single entity that competes with it across the full range of its products and services. Competition in the markets served by the Company is based on a number of factors, which may include price, technology, applications experience, know-how, availability of financing, reputation, product warranties, reliability, service and distribution. With respect to the Company's Membranes and Related Equipment business segment, there are a number of companies, including several sizable chemical companies, that manufacture membranes, but not equipment. There are numerous smaller companies, primarily fabricators, that build water treatment and desalination equipment, but which generally do not have their own proprietary membrane technology. A limited number of companies manufacture both membranes and equipment. The Company has numerous competitors in its conventional water treatment, instruments and fabricated products business lines. In 1994, the International Desalination Association released a report providing data regarding the manufacturers of desalination equipment. According to the report, which covered land-based water desalination plants delivered or under construction as of December 1993, with a capacity to produce 100 cubic meters (approximately 25,000 gallons) or more of fresh water daily, Ionics ranked first in terms of the cumulative number of such plants sold, having sold 1,244 plants of such capacity, more than the next three manufacturers combined. When compared only to manufacturers of membrane-type desalination equipment, Ionics ranked first in both number of units sold and the total capacity of units sold. 13/ I-11 With respect to the Water, Food and Chemical Supply business segment, the Company competes with regional suppliers of ultrapure water services, and with other manufacturers of membrane-related equipment. In the chemical supply activity, the Company competes with manufacturers and distributors of sodium hypochlorite and water treatment chemicals. With respect to the Company's Consumer Products business segment, there are numerous bottled water companies which compete with the Company, including several which are much larger than the Company. Most of the Company's competitors in point-of-entry and point-of use products for the home are small assemblers, serving local or regional markets. However, there are also several large companies competing nationally in these markets. In the case of its silver-impregnated activated carbon product lines, the Company knows of two competitors with which it competes on a national basis. The Company competes with many suppliers of bleach and bleach-based cleaning products and automobile windshield wash for the consumer market, a number of which are much larger than the Company. The Company is unable to state with certainty its relative market position in all aspects of its business. Many of its competitors have financial and other resources greater than those of the Company. Environmental Matters Continued compliance by the Company or by its subsidiaries with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment is expected to have no material effect upon capital expenditures, earnings or the competitive position of the Company or any of its subsidiaries. The Company is one of approximately 1,000 PRP's at a Superfund site at Solvent Recovery Source of New England in Southington, Connecticut (the "SRS Site"). The Company's volumetric ranking in comparison to the total volume of wastes treated on the SRS Site is approximately 0.522%. A non-time critical removal action, consisting of containment, pumping, 14/ I-12 and treatment of the most heavily contaminated non-bedrock groundwater, was commenced in 1995. The Company's share of the total cost of this action, which is estimated at $7.75 million including operation and maintenance through 1997, will be $40,400, of which $30,384 has been paid to date. The PRP Group will conduct a second non-time critical removal action which will cause the installation of an asphalt cap on the site and bedrock groundwater wells to contain, pump and treat the bedrock groundwater. The Company's share of the total cost for this work, which is estimated to be $5.55 million, will be approximately $29,000. It is too soon to predict the scope and cost of the final clean-up remedy that the EPA will select. However, based on its small volumetric ranking and the identities of the larger PRP's, which include many substantial companies, the Company believes that its liability in this matter will not have a material effect on the Company or its financial position. The Company has never had a product liability claim grounded in environmental liability, and believes that the nature of its products and business makes such a claim unlikely. Employees The Company and its consolidated subsidiaries employ approximately 1,350 full-time persons, none of whom are represented by unions except for the employees of the Company's Australian subsidiary and certain employees of the Company's Spanish subsidiary. The Company considers its relations with its employees to be good. Foreign Operations The Company's sales to customers in foreign countries primarily involve desalination systems, water and wastewater treatment systems, sodium hypochlorite, Cloromat systems, related products and services, and bottled water. The Company seeks to minimize financial risks relating to its international operations. Wherever possible, the Company obtains letters of credit or similar payment assurances denominated in dollars. If dollar payments cannot be secured, the Company, where appropriate, enters into foreign currency hedging transactions. The Company 15/ I-13 also uses foreign sources for equipment parts and may borrow funds in local (foreign) currency to offset the asset risk of foreign currency devaluation. Net foreign currency transaction gains included in income before taxes totalled $58,000 in 1995, $23,000 in 1994 and $157,000 in 1993. Ionics engages in certain foreign operations both directly and through the following wholly owned subsidiaries: Ionics (Bermuda) Ltd.; Ionics Iberica, S.A.; Ionics (U.K.) Limited; Ionics Italba, S.p.A.; Ionics Nederland B.V.; Global Water Services, S.A.; Elite Chemicals Pty. Ltd.; Eau et Industrie; Resources Conservation Co. International; and Ionics Foreign Sales Corporation Limited. In early 1996, Ionics acquired a number of entities incorporated in various Caribbean jurisdictions which are engaged in seawater desalination operations. The Company engages in various foreign operations through investments in affiliated companies and joint venture relationships. The activities include the production, sale and distribution of bottled water through a 40% owned affiliate in Bahrain, a 40% owned affiliate in Saudi Arabia and a 49% owned affiliate in Kuwait. In addition, the Company has a 23% ownership interest in Watlington Waterworks Ltd. in Bermuda. Watlington collects, treats and distributes water throughout Bermuda for both potable and non-potable uses. The Company also has a 50% ownership interest in Yuasa-Ionics Co., Ltd., Tokyo, Japan, which among its other activities serves as a distributor of certain of the Company's products in Japan; and a 49% ownership interest in Ionics-Mega s.r.o, a limited liability company of the Czech Republic established to pursue water treatment opportunities in that country. Further geographical and financial information concerning the Company's foreign operations appears in Notes 1, 5, 8, 12, and 14 to the Company's Consolidated Financial Statements included as part of the Company's 1995 Annual Report to the Stockholders, which Notes are incorporated herein by reference. 16/ I-14 Financial Information About Foreign and Domestic Operations and Export Sales The information contained in Note 14 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to Stockholders for the year ended December 31, 1995 is incorporated herein by reference. Item 2. PROPERTIES The Company owns or leases and occupies various manufacturing and office facilities in the United States and abroad. The principal facilities owned by the Company include two buildings in Watertown, Massachusetts, containing approximately 250,000 square feet and housing executive offices, laboratories and manufacturing and assembly operations; a 234,000 square foot facility in Elkton, Maryland which will be utilized primarily for consumer bleach-based product manufacturing, and distribution; a 129,000 square foot facility in Ludlow, Massachusetts which is utilized primarily for consumer bleach-based product manufacturing; two buildings in Bridgeville, Pennsylvania containing approximately 77,000 square feet and housing manufacturing operations for home water treatment equipment and fabricated products; and other facilities in Phoenix, Arizona; Pico Rivera, California; Lorton, Virginia; Union, New Jersey; Fairfield, Ohio; London, England; Thetford, England; Brisbane, Australia; and Milan, Italy, for various operations relating to the business of the Company. The Company makes use primarily of leased facilities for its Aqua Cool bottled water distribution center at 25 locations in the U.S. and overseas. The Company considers the business facilities that it utilizes to be adequate for the uses to which they are being put. Item 3. LEGAL PROCEEDINGS The Company is involved in the normal course of its business in various litigation matters. Although the Company's counsel is unable to determine at the present time whether the Company will have any liability in any of the pending matters, some of which are in the early stages of pretrial discovery, the Company believes it has meritorious defenses and that none of the pending matters will have an outcome material to the financial condition or business of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 17/ I-15 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Reference is made to the Company's Annual Report to Stockholders for the year ended December 31, 1995. The information set forth on page 32 entitled "Common Stock Price Range" and the inside back cover of such Annual Report is hereby incorporated by reference. Item 6. SELECTED FINANCIAL DATA Reference is made to the Company's Annual Report to Stockholders for the year ended December 31, 1995. The information set forth on page 32 of such Annual Report entitled "Selected Quarterly Financial Data (unaudited)" is hereby incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the Company's Annual Report to Stockholders for the year ended December 31, 1995. The information set forth on pages 16 through 18 of such Annual Report entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" is hereby incorporated by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Company's Annual Report to Stockholders for the year ended December 31, 1995. The consolidated balance sheets of the Registrant as of December 31, 1995 and 1994, the related consolidated statements of operations, cash flows and stockholders' equity for the years ended December 31, 1995, 1994 and 1993, and the related notes with the opinion thereon of Coopers & Lybrand L.L.P., independent accountants, on pages 19 through 31, and Selected Quarterly Financial Data (unaudited) on page 32, are hereby incorporated by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable to the Company. 18/ II-1 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 with respect to Directors is hereby incorporated by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 2, 1996 to be filed with the Securities and Exchange Commission on or about March 29, 1996. The information regarding executive officers is as follows:
Age as of Positions Name March 1, 1996 Presently Held Executive Officers: Arthur L. Goldstein* 60 President, Chief Executive Officer and Director since 1971; Chairman of the Board since 1990 Kachig Kachadurian 46 Executive Vice President since 1994, Senior Vice President from 1991 to 1994 and Vice President from 1983 to 1991; Director since 1986 William E. Katz 71 Executive Vice President since 1983; Director since 1961 Robert J. Halliday 41 Vice President, Finance and Accounting since December 1990; Chief Financial Officer since August 1992 Stephen Korn 50 Vice President, General Counsel and Clerk since September 1989 Theodore G. Papastavros 62 Vice President since 1975 (currently Vice President, Strategic Planning) and Treasurer since February 1990 ___________________ * Member of Executive Committee
There are no family relationships between any of the officers or directors. Officers of the Company are elected each year at the annual meeting of Directors. All of the above executive officers have been employed by the Company in various capacities for more than five years. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 2, 1996 to be filed with the Securities and Exchange Commission on or about March 29, 1996. 19/ III-1 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is hereby incorporated by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 2, 1996 to be filed with the Securities and Exchange Commission on or about March 29, 1996. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is hereby incorporated by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 2, 1996 to be filed with the Securities and Exchange Commission on or about March 29, 1996. 20/ III-2 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements See Index to Financial Statements and Financial Statement Schedules on page IV-7. The Financial Statement Schedules are filed as part of this Annual Report on Form 10-K. 2. Financial Statement Schedules See Index to Financial Statements and Financial Statement Schedules on page IV-7. 3. Exhibits
Exhibit No. Description 3.0 Articles of Organization and By-Laws 3.1 Restated Articles of Organization (filed * as Exhibit 3(a) to Form 10-K for year ended December 31, 1986). 3.1(a) Amendment to the Restated Articles of * Organization (filed as Exhibit 3(b) to Form 10-K for year ended December 31, 1987). 3.1(b) Amendment to Restated Articles of * Organization (filed as Exhibit 3.1(b) to Registration Statement No. 33-38290 on Form S-2 effective January 24, 1991). 3.2 By-Laws, as amended (filed as Exhibit 19 to * Form 10-Q for the quarter ended September 30, 1989). 4.0 Instruments defining the rights of security holders, including indentures 4.1 Agreement for a loan payable by a consolidated ** subsidiary to a bank in Australia in the principal amount of 725,000 Australian dollars guaranteed by Registrant, and related documents. 4.2 Rights Agreement, dated as of December 22, 1987, * as amended and restated as of August 15, 1989, between Registrant and The First National Bank of Boston (filed as Exhibit 1 to Registrant's Current Report on Form 8-K dated August 30, 1989). 21/ IV-1 4.3 Indenture, dated as of December 22, 1987, between * Registrant and The First National Bank of Boston, relating to Rights Agreement (filed as Exhibit 2 to Registrant's Current Report on Form 8-K dated December 22, 1987). 4.4 Form of Common Stock Certificate (filed as Exhibit * 4.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10. Material Contracts 10.1 1979 Stock Option Plan, as amended through February 22, 1996. 10.2 1986 Stock Option Plan for Non-Employee Directors, as amended through August 22, 1995. 10.3 Amended and Restated Credit Agreement between * Registrant and the First National Bank of Boston dated as of December 31, 1992 (filed as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.3(1) Amendment Agreement No. 1, dated as of December 31, 1995, to Amended and Restated Credit Agreement between Registrant and The First National Bank of Boston. 10.4 Operating Agreement dated as of September 27, * 1989 between Registrant and Aqua Cool Enterprises, Inc. (filed as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.5 Term Lease Master Agreement dated as of * September 27, 1989 between Registrant and Aqua Cool Enterprises, Inc. (filed as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.6 Option Agreement dated as of September 27, 1989 * among Registrant, Aqua Cool Enterprises, Inc. and the other parties named therein (filed as Exhibit 10.6 to Registrant's registration statement on Form S-2, No. 33-38290, effective January 24, 1991). 10.7 Agreement for Privatization of Water Supplies * dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed as Exhibit 10.7 to Registrant's registration statement on Form S-2, No. 33-38290, effective January 24, 1991). 10.8 Amendment No. 1, dated as of January 3, 1992, to * Agreement for Privatization of Water Supplies dated as of September 18, 1990 between the Company 22/ IV-2 and the City of Santa Barbara, California (filed as Exhibit 10.8 to Registrant's annual report on Form 10-K for the year ended December 31, 1991). 10.9 Amendment No. 2, dated as of January 19, 1993, * to Agreement for Privatization of Water Supplies dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed as Exhibit 10.9 to the Registrant's annual report on Form 10-K for the year ended December 31, 1992). 10.10 Amendment No. 3, dated June 28, 1994, to Agreement * for Privatization of Water Supplies dated as of September 18, 1990, between the Company and the City of Santa Barbara, California (filed electronically as Exhibit 10.1 to the Registrant's Form 10-Q for the period ended June 30, 1994). 10.11 Asset Purchase Agreement among the Company, * Resources Conservation Company, Resources Conservation Co. International and Halliburton NUS Corporation dated December 30, 1993 (filed as Exhibit 2 to Registrant's current report on Form 8-K dated February 7, 1994, and filed electronically on the same date). 10.12 1994 Restricted Stock Plan (filed as Exhibit 10.12 * to Registrant's Annual Report on Form 10-K dated March 30, 1995 and filed electronically on the same date). 11. Statement re Computation of Earnings Per Share. 13. Annual Report to Stockholders of the Registrant for the year ended December 31, 1995 (only pages 16 through 32 and the inside back cover constitute an exhibit to this report). 21. Subsidiaries of the Registrant. 23. Consents 23.1 Consent of Coopers & Lybrand L.L.P. to incorporation by reference of that firm's report dated February 20, 1996, which is included on page 31 of the Registrant's Annual Report to Stockholders for the year ended December 31, 1995. 24. Power of Attorney. 27. Financial Data Schedule *** ________________________________ * incorporated herein by reference ** copies of which will be filed by Registrant with the Securities and Exchange Commission upon its request *** for electronic purposes only
23/ IV-3 (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the last quarter of fiscal 1995. Undertaking For purposes of complying with the amendments to the rules governing Form S-8 effective July 13, 1990 under the Securities Act of 1933, the undersigned hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's registration statements on Form S-8 Nos. 33-14194, 33-5814, 33-2092, 2-72936, 2-82780, 2- 64255, 33-41598, 33-54293, 33-59051 and 33-54400. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 24/ IV-4 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IONICS, INCORPORATED (Registrant) By/s/Arthur L. Goldstein Arthur L. Goldstein, Chairman of the Board, President and Chief Executive Officer Date: March 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 29, 1996 By/s/Arthur L. Goldstein Arthur L. Goldstein, Chairman of the Board, President and Chief Executive Officer (principal executive officer) and Director Date: March 29, 1996 By/s/Robert J. Halliday Robert J. Halliday, Vice President, Finance and Accounting and Chief Financial Officer (principal financial and accounting officer) 25/ IV-5 Date: March 29, 1996 By/s/William L. Brown William L. Brown, Director Date: March 29, 1996 By/s/Arnaud de Vitry d'Avaucourt Arnaud de Vitry d'Avaucourt, Director Date: March 29, 1996 By/s/Lawrence E. Fouraker Lawrence E. Fouraker, Director Date: March 29, 1996 By/s/Samuel A. Goldblith Samuel A. Goldblith, Director Date: March 29, 1996 By/s/Kachig Kachadurian Kachig Kachadurian, Director Date: March 29, 1996 By/s/William E. Katz William E. Katz, Director Date: March 29, 1996 By/s/Robert B. Luick______________ Robert B. Luick, Director Date: March 29, 1996 By/s/John J. Shields John J. Shields, Director Date: March 29, 1996 By/s/Carl S. Sloane Carl S. Sloane, Director DATE: March 29, 1996 By/s/Mark S. Wrighton Mark S. Wrighton, Director Date: March 29, 1996 By/s/Allen S. Wyett Allen S. Wyett, Director 26/ IV-6 IONICS, INCORPORATED INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES PAGES Report of Independent Accountants 31* Financial Statements: Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 19* Consolidated Balance Sheets as of December 31, 1995 and 1994 20* Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 21* Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 22* Notes to Consolidated Financial Statements 23-31* Supporting Financial Statement Schedules for the years Ended December 31, 1995, 1994 and 1993: Schedule II - Valuation and Qualifying Accounts IV-8 Report of Independent Accountants on Financial Statement Statement Schedule IV-9 __________________ All other schedules are omitted because the amounts are immaterial, the schedules are not applicable or the required information is shown in the financial statements or the notes thereto. * Page references are to the Annual Report to Stockholders of the Company for the year ended December 31, 1995, which pages are incorporated herein by reference. 27/ IV-7 IONICS, INCORPORATED SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Additions Balance at Charged to Due to Beginning Costs and Acquired Balance at Description of Year Expenses Businesses(A) Deductions(B) End of Year Allowance for doubtful accounts and uncollectible notes receivable: Years ended: December 31, 1995 $2,197,170 $563,458 $ 0 $ 371,272 $2,389,356 December 31, 1994 $2,022,068 $535,200 $ 0 $ 360,098 $2,197,170 December 31, 1993 $2,694,200 $390,489 $(124,000) $ 938,621 $2,022,068 (A) 1993 amount includes reductions of $413,000 resulting from the consolidation of ACE. (B) Deductions result primarily from the write-off of accounts.
28/ IV-8 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Ionics, Incorporated: Our report on the consolidated financial statements of Ionics, Incorporated as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 has been incorporated by reference in this Form 10-K from page 31 of the 1995 Annual Report to Stockholders of Ionics, Incorporated. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index on page IV-7 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /S/COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 20, 1996 29/ IV-9 EXHIBIT INDEX
Sequentially Exhibit Numbered No. Description Page No. 3.0 Articles of Organization and By-Laws 3.1 Restated Articles of Organization (filed * as Exhibit 3(a) to Form 10-K for year ended December 31, 1986). 3.1(a) Amendment to the Restated Articles of * Organization (filed as Exhibit 3(b) to Form 10-K for year ended December 31, 1987). 3.1(b) Amendment to Restated Articles of * Organization (filed as Exhibit 3.1(b) to Registration Statement No. 33-38290 on Form S-2 effective January 24, 1991). 3.2 By-Laws, as amended (filed as Exhibit 19 to * Form 10-Q for the quarter ended September 30, 1989). 4.0 Instruments defining the rights of security holders, including indentures 4.2 Rights Agreement, dated as of December 22, 1987, * as amended and restated as of August 15, 1989, between Registrant and The First National Bank of Boston (filed as Exhibit 1 to Registrant's current Report on Form 8-K dated August 30, 1989). 4.3 Indenture, dated as of December 22, 1987, between * Registrant and The First National Bank of Boston, relating to Rights Agreement (filed as Exhibit 2 to Registrant's Current Report on Form 8-K dated December 22, 1987). 4.4 Form of Common Stock Certificate (filed as Exhibit * 4.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10. Material Contracts 10.1 1979 Stock Option Plan, as amended through 33 February 22, 1996. 10.2 1986 Stock Option Plan for Non-Employee Directors, 49 as amended through February 18, 1992 as amended through August 22, 1995. 30/ 10.3 Amended and Restated Credit Agreement between * Registrant and The First National Bank of Boston dated as of December 31, 1992 (filed as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.3(1) Amendment Agreement No. 1, dated as of 59 December 31, 1995, to Amended and Restated Credit Agreement between Registrant and The First National Bank of Boston. 10.4 Operating Agreement dated as of September 27, * 1989 between Registrant and Aqua Cool Enterprises, Inc. (filed as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.5 Term Lease Master Agreement dated as of * September 27, 1989 between Registrant and Aqua Cool Enterprises, Inc. (filed as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.6 Option Agreement dated as of September 27, 1989 * among Registrant, Aqua Cool Enterprises, Inc. and the other parties named therein (filed as Exhibit 10.6 to Registrant's registration statement on Form S-2, No. 33-38290, effective January 24, 1991). 10.7 Agreement for Privatization of Water Supplies * dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed as Exhibit 10.7 to Registrant's registration statement on Form S-2, No. 33-38290, effective January 24, 1991). 10.8 Amendment No. 1, dated as of January 3, 1992, to * Agreement for Privatization of Water Supplies dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed as Exhibit 10.8 to Registrant's annual report on Form 10-K for the year ended December 31, 1991). 10.9 Amendment No. 2, dated as of January 19, 1993, * to Agreement for Privatization of Water Supplies dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed as Exhibit 10.9 to the Registrant's annual report on Form 10-K for the year ended December 31, 1992). 31/ 10.10 Amendment No. 3, dated June 28, 1994, to Agreement * for Privatization of Water Supplies dated as of September 18, 1990 between the Company and the City of Santa Barbara, California (filed electronically as Exhibit 10.1 to the Registrant's Form 10-Q for the period ended June 30, 1994). 10.11 Asset Purchase Agreement among the Company, * Resources Conservation Company, Resources Conservation Co. International and Halliburton NUS Corporation dated December 30, 1993 (filed as Exhibit 2 to Registrant's current report on Form 8-K dated February 7, 1994 and filed electronically on the same date). 10.12 1994 Restricted Stock Plan (filed as Exhibit * 10.12 to Registrant's Annual Report on Form 10-K dated March 30, 1995 and filed electronically on the same date). 11. Statement re Computation of Earnings Per Share. 65 13. Annual Report to Stockholders of the Registrant for 66 the year ended December 31, 1995 (only pages 16 through 32 and the inside back cover constitute an exhibit to this report). 21. Subsidiaries of the Registrant. 99 23.1 Consent of Coopers & Lybrand L.L.P. to incorporation 100 by reference of that firm's report dated February 20, 1996, which is included on page 31 of the Registrant's Annual Report to Stockholders for the year ended December 31, 1995. 24. Power of Attorney. 101 27. Financial Data Schedule (for electronic purposes only) * incorporated herein by reference
32/ EX-10 2 Exhibit 10.1 IONICS, INCORPORATED 1979 Stock Option Plan As Amended through February 22, 1996 1. Purposes of Plan. This 1979 Stock Option Plan (hereinafter called the "Plan") of Ionics, Incorporated (hereinafter called the "Company") is intended to advance the interests of the Company (and its subsidiaries) by providing a means whereby key employees of the Company, that is, those who are largely responsible for its management and its technical and business success, and are expected to continue in this role, may be offered incentives in addition to the other incentives which they may hold, such as pensions, etc. 2. Definitions. 2.1 "Subsidiaries" or "Subsidiary" shall mean a corporation, partnership or other entity whose controlling stock or other ownership interest is owned directly or indirectly by the Company. 2.2 A "key employee" shall mean an employee of the Company or of any of its Subsidiaries who is engaged in an important executive, administrative or technical function who is classified by the Administrators of the Plan as such within the purposes of the Plan. 3. Effective Date and Duration. The Plan will become effective immediately upon its adoption by the Board of Directors of the Company, subject, however, to approval by the holders of a majority of the outstanding shares of its capital stock having voting rights present at the meeting when the matter was acted upon. The Plan shall remain in effect until the close of business on Februry 15, 1999 (the "Termination Date"). 4. Stock Subject to the Plan. Subject to adjustment as provided hereinbelow, the total aggregate number of shares of Common Stock, One Dollar ($1) per share par value (hereinafter "Common Stock"), of the Company which are to be issued and delivered upon exercise of options granted pursuant to this Plan 33/ (hereinafter called the "Options" and each singly an "Option") or pursuant to the earn out of Performance Units under this Plan, shall not exceed 3,610,000 shares of said Common Stock. Such shares may either be authorized and unissued shares of Common Stock or issued shares of Common Stock which shall have been reacquired by the Company and held as treasury shares. In the event that any Options granted under the Plan shall be surrendered to the Company or shall terminate, lapse or expire for any reason without having been exercised in full, the shares not purchased under such Options shall be available again for the purposes of issuance pursuant to the Plan. In the event that the outstanding shares of the Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares, or other securities of the Company or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividends payable in stock, corresponding adjustments as determined by the Board of Directors in their sole discretion to be appropriate shall forthwith be made in the Option price and in the number and kind of shares for the purchase of which Options may theretofore or thereafter be granted under the Plan; provided, however, the aggregate total Option price of Options then outstanding and unexercised shall not be changed thereby. 5. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company or such committee composed of its Directors as may be delegated this duty and function by resolution of the Board of Directors (said Board or said Committee, as the case may be, being hereinafter referred to as the "Administrators"). The Administrators shall be comprised of, to the extent required by applicable regulations under Section 162(m) of the Code, two or more outside Directors as defined in applicable regulations thereunder and, to the extent required by Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any successor provision, disinterested Directors. A majority of the Administrators acting upon a particular matter shall have no personal interest in the Option or matter with which they are concerned. 34/ - 2 - Subject to the express provisions of the Plan, the Administrators acting by a majority of their number at a meeting or by written consent shall have plenary authority in their discretion to grant Options under the Plan, and in relation thereto to determine from time to time those officers or employees of the Company or of its Subsidiaries who are to receive Options, the number of shares to be optioned to each, the Option price (which shall not be less than the par value of the stock subject to the Option) and the terms and conditions upon which the Options are to be granted, which need not be identical; including, without limitation, requirements that an exercise of the Option may be conditioned in whole or in part upon duration of the optionee's employment, his attainment of specified performance criteria, his refraining from competitive activities and other conditions. Options may be granted at any time prior to termination of the Plan and the Options granted may extend beyond the Termination Date. Subject to the express provisions of the Plan, the Administrators may (1) construe the respective stock Option agreements and the Plan, prescribe, amend, and rescind rules and regulations relating to the Plan and make all other determinations necessary or advisable for administering the Plan, and (2) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any stock Option agreement and in the manner and to the extent they shall deem expedient to carry it into effect and (3) constitute and appoint a person or persons selected by them to execute and deliver in the name and on behalf of the Administrators all such agreements, instruments and other documents (including without limitation of the generality of the foregoing documents evidencing amendments of individual stock Options and other actions delegated to the Administrators by the votes of the Board of Directors adopted at their meeting on February 18, 1982, relating to "incentive stock options"). The Administrators shall have the authority in their discretion to determine from time to time those officers or employees of the Company or of its Subsidiaries who are eligible to receive Performance Units, as hereinafter defined. In connection therewith the Administrators shall have the authority to prescribe the number of Performance Units to be granted to any key employee and all terms thereof and to adopt, amend and rescind rules and regulations for the administration of Performance Units. 35/ - 3 - 6. Persons to whom Options and Performance Units may be Granted. Only persons who are officers of, or who are "key employees" of the Company or any of its Subsidiaries, and who accept an Option or Performance Unit granted hereunder, as the case may be, and subject to all of the terms and conditions of this Plan, may be granted any Options or Performance Units under this Plan. During any one-year period, no individual shall be granted Options and/or Performance Units which could result in the issuance to such individual of more than 100,000 shares of Common Stock. 7. The Option Price. The price payable upon exercise of an Option granted hereunder (the "Option Price") shall be an amount as specified by the Administrators which shall not be less than the par value of the stock which is subject to the Option and which shall be paid upon exercise of the Option (1) in cash, (2) with shares of the Company of the same class as the shares issuable upon exercise of the Option, previously acquired by the optionee and having an aggregate fair market value equal to the aggregate Option Price payable, or (3) in any combination of cash and of such shares so valued. In the event such shares are delivered to pay all or a portion of the Option Price - (a) such shares shall be valued at the closing price for such stock on the American Stock Exchange or other exchanges or markets where such shares are primarily traded, as reported on the date of such delivery of the shares, and (b) a number of the shares being issued upon exercise of the Option which is equal to the number of shares of such stock delivered in payment of the Option Price shall be issued free from repurchase rights of the Company under said Plan or stock Option agreement evidencing the Option. 8. The Duration of the Options. The duration of the Options granted hereunder shall be as determined by the Administrators but shall not exceed a period of ten years from the date of grant. Notwithstanding the preceding sentence, the duration of Options not 36/ - 4 - designated as Incentive Stock Options pursuant to Section 17 may be a period of ten years and one day from the date of grant. 9. Nontransferability of Options. No Option granted under the Plan shall be encumbered, assigned, or otherwise transferred, and an Option may be exercised during the lifetime of the Optionee only by such person, and the stock Option agreement covering the Option shares shall so provide. 10. Exercise of Options. The exercise, in whole or in part, of any Option granted under the Plan shall be : (a) subject to compliance of all conditions or restrictions stated in Section 11 of this Plan or imposed at the time the Option is granted, and (b) exercisable only by the employee to whom granted and while he remains in the employment of the Company or any of its Subsidiaries, except that - (1) if the employee holding the Option ceases to remain in such employment for any reason other than his or her voluntary termination or his or her being terminated by the Company (or its Subsidiary employing said employee) because of his malfeasance, violation of this or any other agreement with the Company (or its employing Subsidiary), or other like justifiable cause, the employee shall have the right within thirty (30) days after said termination to exercise the Option to the extent it would have been exercisable by the employee immediately before the employee's termination, and (2) if the employee holding the Option shall die while in said employment or within said 30- day period after its termination as described in sub-paragraph (1) above, the Option, to the extent exercisable by said employee at the time of his death, may be exercised within ninety (90) days after his death by the executor or administrator of the employee's estate. 37/ - 5 - Options shall be exercised in each instance by the person entitled to exercise them by giving written notice of exercise to the Company (to its Treasurer) substantially in the form of Exhibit A annexed hereto and tendering payment of the entire Option Price payable. Unless the shares deliverable upon exercise of Options are registered or qualified for public sale by an effective Registration Statement of the Company under the Securities Act of 1933, as amended (or any superseding law) and are registered or qualified for sale under all applicable state securities laws, the person to whom the stock is issued and delivered hereunder shall confirm to the Company that the recipient is purchasing the shares for investment and not with a view to effecting any distribution or resale of the shares. In no instance may an Option be exercised for less than one full share of the stock. 11. Restrictions Applicable to Stock Issued and Delivered Under the Plan. 11.1 The Company may elect in granting an Option to include a provision that during the period of five years from the date of grant of the Option, the Company shall have the right to repurchase stock acquired by exercise of the Option, at a price payable in cash equal to the price which the Company received upon its issuance, to the following extent If the Repurchase right Portion of the Shares arises prior to Subject to Repurchase the end of first year All the end of the second year the excess of 20% of the Option shares held the end of the third year the excess of 40% of the Option shares held the end of the fourth year the excess of 60% of the Option shares held the end of the fifth year the excess of 80% of the Option shares held After the fifth year of None holding 38/ - 6 - and upon the following events: (a) if the employee issued the Option shall cease to be an employee of the Company or of any of its Subsidiaries because of the employee's voluntary termination of said employment or his being terminated therefrom because of his malfeasance, violation of this or any other agreement with the Company or said Subsidiary for like justifiable cause, and/or (b) before the participant may sell or transfer the stock in any manner, whether voluntarily, by action of law or otherwise. Said right of the Company to repurchase the stock may be exercised by the Company at any time within thirty (30) days after it has notice of any such event. At the closing of said purchase (which shall be held on the fifth business day following the Company's delivery of written notice to the holder that the Company has elected to so purchase the shares) the Company shall pay the purchase price to the holder against its receipt of delivery of the stock certificates representing the stock being purchased, duly endorsed or with duly executed stock powers to effect transfer of the stock to the Company. If the Company doers not elect to exercise said repurchase right within said period, the holder shall be free to sell or transfer the stock free of such restriction, but unless said stock has been registered or qualified for public sale under an effective Registration Statement or other authorization under the Securities Act of 1933, as amended (or under any superseding law) and qualified for public sale under any applicable state securities laws, the holder shall not so sell or transfer without prior written notice to the Company and furnishing to the Company an opinion of legal counsel or of said regulatory authority, satisfactory to the Company, that no such registration or qualification of the stock is required in the circumstances. 39/ - 7 - 11.2 Each stock certificate representing stock issued upon exercise of an Option hereunder shall bear such legend referring to these restrictions as the Company may require, and it shall not transfer ownership of such stock on its records except upon compliance with these restrictions. 12. Stock Option Agreement Required. Each stock Option granted under the Plan shall be evidenced by a "Stock Option Agreement" between the Company and the employee granted the Option, to be in such form as the Administrators in granting the Option shall determine, provided that said Stock Option Agreement shall in any event include an undertaking on the part of the Employee to whom the Option is granted (the "Optionee") that in consideration for the grant of such Option, the Optionee will not at any time during his employment by the Company or by any of its Subsidiaries (as defined in the Plan) or within two (2) years following the date of termination of said employment, without the written consent of the Company, directly or indirectly, accept employment from, or engage in any work or activities as an employee, officer, Director, agent, consultant, partner, proprietor or principal stockholder for any other corporation, person or entity which is substantially competitive to the business in which the Company or its Subsidiaries are then engaged. 13. Effect of the Option. The grant of an Option under the Plan shall not entitle the Optionee to have or claim any rights of a stockholder of the Company (whether as to dividends, voting rights or otherwise). Neither the grant of an Option nor the making of any Stock Option Agreement under this Plan shall confirm upon the Optionee any right with respect to continuation of his or her employment nor shall it affect or restrict the right of the Company, any Subsidiary of it, or any assuming Company, or any successor of either of them employing the Optionee to terminate such employment at any time. 14. Termination, Suspension, Amendment or Modification of the Plan. The Board of Directors of the Company may at any time amend, alter, suspend or terminate the Plan provided that: 40/ - 8 - (a) No change shall be made which, in the judgment of its Board of Directors, will have a material adverse effect upon any Option previously granted under this Plan unless the consent of the Optionee is obtained in writing. (b) Without the approval by the holders of a majority of the outstanding shares of its capital stock having voting rights, (1) the maximum number of shares reserved for issuance upon the exercise of Options under the Plan may not be changed; and (2) the classes of employees to whom Options may be granted under the Plan may not be changed. 15. Merger, Consolidation or Sale of the Entire Business of the Company. If, prior to the expiration of the Plan, or the period of restriction during which the Company may have or may obtain rights to repurchase stock issued hereunder pursuant to Section 11 of the Plan, the Company shall merge with, consolidate in or with, or sell all or substantially all of its assets and business to another corporation or entity (other than a company or entity which continues under the control of the same persons who were the stockholders or owners of the Company immediately prior to the event), all Options then outstanding shall become subject to exercise in full and all of said repurchase rights of the Company shall terminate as of the effective date of said transaction. 16. Optionee Shall Comply with Applicable Laws and Regulations upon Exercise. Upon exercise of any Option granted hereunder, the person exercising the Option shall file any and all reports if any, required of such person under the Securities Exchange Act of 1934, as amended, or otherwise. 17. Incentive Stock Options. The special terms and conditions of this Section 17 shall apply to Stock Options granted hereunder which meet any of the following requirements ("Incentive Stock Options"): 41/ - 9 - (a) Options considered under the Internal Revenue Code to have been granted on or after January 1, 1981, and before August 14, 1981, as to which the Optionee consents in writing to the application of this Section 17; and (b) Options granted on or after August 14, 1981, and before February 18, 1982, which the Administrators designate in the Stock Option Agreement as Incentive Stock Options, and as to which the Optionee consents in writing to the application of this Section 17; and (c) Options granted on or after February 18, 1982, which the Administrators designate in the Stock Option Agreement as Incentive Stock Options. The following special terms and conditions (in all of which, any reference to the date of grant of a Stock Option shall mean the date on which the Stock Option is considered to have been granted under Sections 421 through 425 of the Internal Revenue Code and the regulations issued thereunder) shall apply to all Incentive Stock Options: 17.1 Option Price. The Option Price shall be not less than the fair market value of the stock covered by the Option, determined as of the date of grant of the Option. 17.2 Prior Outstanding Option. No Incentive Stock Option may be exercised while there remains outstanding, within the meaning of Section 422A(c)(7) of the Internal Revenue Code, any other Incentive Stock Option which was granted at an earlier date to the Optionee to purchase stock in this Corporation or in any other corporation which is on the date of grant of the later Option either a parent or subsidiary corporation of this Corporation, or a predecessor corporation of any of such corporations. The Stock Option Agreement for every Incentive Stock Option shall include a provision to this effect. The two preceding sentences shall have no application to any Incentive Stock Option granted after December 31, 1986. 42/ - 10 - 17.3 No Further Grants. No Option granted after February 15, 1989, shall be designated an Incentive Stock Option. 17.4 Ten Percent Stockholder. If any Optionee to whom an Incentive Stock Option is to be granted pursuant to the provisions of the Plan is on the date of grant the owner (as determined under Section 424(d) of the Internal Revenue Code) of stock possessing more than 10% of the total combined voting power of all classes of stock of this Corporation or any of its subsidiaries, then the following special provisions shall be applicable to the Option granted to such individual: (i) The Option Price per share of stock subject to such Incentive Stock Option shall not be less than 110% of the fair market value of one share of stock on the date of grant; and (ii) The Option shall not have a term in excess of five (5) years from the date of grant. Except as modified by the preceding provisions of this Section 17, all the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder. 18. Special Bonus Grants. The Administrators may, but shall not be required to, grant in connection with any Option which is not designated an Incentive Stock Option a special bonus in cash in an amount not to exceed the combined federal and state income tax liability incurred by the Option holder as a consequence of his acquisition of stock pursuant to the exercise of the Option, and payment of the bonus; payable, at the discretion of the Administrators, in whole or in part to federal and state taxing authorities for the benefit of the Option holder at such time or times as withholding payments of such income tax may be required, and the remainder, if any, to be paid in cash to the Optionee at the time or times at which he is required to make payment of such tax. In the event that an Option with respect to which a special bonus has been granted becomes exercisable by the personal representative of the estate of the Optionee in accordance with Section 10, the bonus shall be payable to or for the benefit of the estate in the same manner and to the same extent as it would have been payable 43/ - 11 - to or for the benefit of the Optionee had he survived to the date of exercise. A special bonus may be granted simultaneously with a related Option, or granted separately with respect to an outstanding Option granted at an earlier date. In the case of an Optionee who is an officer or a director of the Company, an Option with respect to which a special bonus is granted may be exercised: (a) no earlier than six months after the date on which the bonus is granted; provided, however, that this limitation shall not apply in the event that the Optionee dies or becomes disabled before the expiration of six months after the date on which the bonus is granted; and (b) only within one of the following: (i) a period beginning on the third business day and ending on the twelfth business day following the release for publication by the Company of a quarterly or annual summary statement of its sales and earnings; or (ii) a period beginning on the first day and ending on the thirtieth day following the date of approval by the stockholders of the Company of (x) any consolidation or merger of the Company in which the Company does not survive as an independent, publicly owned corporation, or pursuant to which shares of Common Stock would be converted into cash, securities, or other property (other than a merger in which the holders of Common Stock immediately before the merger have the same proportionate ownership of common stock of the surviving corporation after the merger), or (y) a transfer of all or substantially all of the assets of the Company (other than a transfer to a subsidiary corporation controlled by the Company), or (z) the liquidation or dissolution of the Company; or 44/ - 12 - (iii) a period beginning on the first day and ending on the thirtieth day following (x) the acquisition of beneficial ownership of thirty percent (30%) or more of the outstanding voting shares of the Company, whether in one transaction or a series of transactions, by another corporation, entity or person or group of corporations, entities or persons theretofore beneficially owning less than thirty percent (30%) of such shares, or (y) the first purchase of shares pursuant to a tender or exchange offer (other than one made by the Company) for voting shares of the Company or securities convertible into voting shares, after which offer the offeror, if successful, will become the beneficial owner of at least 30% of the outstanding voting shares of the Company. For purposes of this Section 18, the income tax liability incurred by the Option holder shall be calculated as described in the attached appendix A, as of the date on which an amount is includible in the Option holder's income pursuant to Section 83 of the Internal Revenue Code of 1986 as a consequence of his acquisition of stock pursuant to the exercise of an Option. The fair market value of the Option stock shall be its closing price on the American Stock Exchange or other exchanges or markets where such shares are permanently traded, for the date in question, and the tax rate applicable to an Option holder shall be the single rate or the highest graduated rate (exclusive of surtax) applied to earned income by a relevant taxing jurisdiction. 19. Performance Units. All Performance Units granted under the Plan shall be on the following terms and conditions (and such other terms and conditions that the Administrators may establish which are consistent with the Plan): (a) A Performance Unit is defined as the right of a key employee who has been granted the same to receive cash and/or Common Stock and/or Options conditioned upon and measured by the attainment of financial goals set by the Administrators. Performance Units granted under the Plan shall be evidenced by agreements in such form and containing such terms and conditions, not inconsistent with the Plan, as the Administrators may approve. 45/ - 13 - (b) The Administrators shall determine the number of Performance Units to be granted to each key employee selected for an award and may establish a stated value (the "Stated Value") of each Performance Unit. (c) Payment of Performance Units shall be made by the Company to the extent that such Performance Units are earned out by attainment of the performance objectives set for such Performance Units by the Administrators pursuant to subsection (d) below. Such payment may be in the form of the grant of Options, or, if made in cash or shares of Common Stock, shall have a value equal to the dollar value of the Performance Units earned out. Subject to the provisions of Section 5, payment of the amounts to which participants are entitled to be paid in respect of Performance Units as provided above shall be made in cash, shares of Common Stock or Options, or in some combination thereof, as the Administrators may determine. The Administrators, in their sole discretion, may defer distribution of one-half of the amount of the payment for a period up to twelve months following the date in which the decision as to entitlement to payment is made. (d) The award period ("Award Period") in respect of any Performance Units shall be a period set by the Administrators. At the time each grant of Performance Units is made, the Administrators shall establish performance objectives to be attained within the Award Period as a condition of such Performance Units being earned out. The performance objectives shall be based on a specific dollar amount of growth or on a percentage rate of improvement in such elements as the Company's (or a subsidiary's) earnings per share, income, return on equity or such other measures related to growth or improvement of the Company (or its Subsidiaries) as the Administrators shall determine. The Administrators shall determine whether the performance objectives in respect of an Award Period have been attained, as well as the value of the Performance Units consequently earned out. 46/ - 14 - (e) In the event that recipient of a grant of Performance Units ceases to be a key employee prior to the end of the Award Period by reason of disability or death, his Performance Units if ultimately earned out shall be payable at the end of the Award Period in proportion to the active service of the key employee during the Award Period, as determined by the Committee. Upon any other termination of employment, Performance Units and all rights associated therewith shall terminate unless the Administrators in their discretion shall determine otherwise. For purposes of this subsection, the term "disability" means disability as defined in any disability program maintained by the Company or a subsidiary. (f) Performance Units may not be transferred otherwise than by will or the laws of descent. (g) If, as a result of any change in accounting principles or practices or the method of their application or in any tax or other laws or regulations, the earnings per share or other established criteria of the Company or its Subsidiaries as reported in the Company's annual report to stockholders differs materially from the earnings per share or other such criteria which would have been reported absent such change, the Administrators may, in their discretion, equitably adjust the reported earnings per share or other such criteria used in determining the attainment of any performance objectives previously established by the Administrators as a condition of earning out Performance Units. (h) In the event of a stock dividend or other transaction described in the last paragraph of Section 4, the Administrators may make appropriate adjustments in performance objectives, such as earnings per share, for outstanding Performance Units. In the event of a merger, consolidation, acquisition or liquidation described in the Section 15, all outstanding Performance Units and all rights relating thereto shall terminate, except as otherwise determined by the Administrators. 47/ - 15 - (i) No payments will be made with respect to Performance Units unless arrangements satisfactory to the Administrators are made for any federal income tax withholding or other withholding required. (j) Unless Shares deliverable upon earn out of Performance Units are registered or qualified for public sale by an effective Registration Statement of the Company under the Securities Act of 1933, as amended (or any superseding law) and are registered or qualified for sale under all applicable state securities laws, the person to whom the Common Stock is delivered shall confirm to the Company that such recipient is purchasing the Shares for investment and not with a view to effecting any distribution or resale of the Shares. 48/ - 16 - EX-10 3 Exhibit 10.2 IONICS, INCORPORATED 1986 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (As amended through August 22, 1995) 1. Purpose of Plan. This 1986 Stock Option Plan for Non-Employee Directors (hereinafter called the "Plan") of Ionics, Incorporated (hereinafter called the "Company") is intended to advance the interests of the Company by providing a means of attracting capable and qualified persons to serve as independent Directors, and encouraging such persons to continue to serve as Directors, through ownership of Common Stock of the Company. 2. Definitions. 2.1 "Optionee" shall mean a person to whom a stock option has been granted under the Plan. 2.2 "Subsidiary" shall mean a corporation, partnership or other entity whose controlling stock or other ownership interest is owned directly or indirectly by the Company. 3. Effective Date. The Plan will become effective immediately upon its adoption by the Board of Directors of the Company, subject, however, to approval by the holders of a majority of the outstanding shares of its capital stock having voting rights and present at the meeting when the matter is acted upon. 4. Stock Subject to the Plan. Subject to adjustment as provided hereinbelow, the total number of shares of Common Stock, one dollar ($1.00) per share par value (hereinafter "Common Stock"), of the Company for which 49/ -2- options may be granted pursuant to the Plan (hereinafter called the "Options" and each singly an "Option") shall not exceed 200,000 shares in the aggregate. Such shares may either be authorized and unissued shares of Common Stock or issued shares of Common Stock which have been reacquired by the Company and held as treasury shares. In the event that any Options granted under the Plan shall be surrendered to the Company or shall terminate, lapse or expire for any reason without having been exercised in full, the shares not purchased under such Options shall be available again for the purpose of issuance pursuant to the Plan. Each eligible Director shall be granted an Option to acquire 2,000 shares of Common Stock as provided in Section 6, subject to adjustment as provided hereinbelow, for each year of service as a Director of the Company. In the event that the outstanding shares of the Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares, or other securities of the Company or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividends payable in stock, corresponding adjustments (as determined by the Board of Directors in their sole discretion to be appropriate) shall be made in the number and kind of shares as to which outstanding Options (or portions thereof then unexercised) and Options to be issued in the future pursuant to the terms of this Plan shall be exercisable, such that the proportionate interest of each Optionee shall be maintained as before the occurrence of such event. Such adjustments in outstanding Options shall be made without change in the aggregate total option price of Option then outstanding and unexercised, but with a corresponding adjustment in the option price per share. 50/ -3- 5. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company or such committee composed of its Directors as may be delegated this duty and function by resolution of the Board of Directors (said Board or said Committee, as the case may be, being hereinafter referred to as the "Administrators"). A majority of the Administrators acting upon a particular matter shall have no personal interest in the Option or matter with which they are concerned. Subject to the express provisions of the Plan, the Administrators may (1) construe the respective stock option agreements and the Plan, prescribe, amend, and rescind rules and regulations relating to the Plan and make all other determinations necessary or advisable for administering the Plan, and (2) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any stock option agreement in the manner and to the extent they shall deem expedient to carry it into effect and (3) constitute and appoint a person or persons selected by them to execute and deliver in the name and on behalf of the Administrators all such agreements, instruments and other documents. 6. Eligibility; Grant of Options. Only persons who hold office as Directors of the Company and who are not otherwise employees of the Company or of any of its Subsidiaries may be granted an Option under this Plan. Each Director of the Company who is not otherwise an employee of the Company or any Subsidiary shall be granted an Option to acquire 2,000 shares under the Plan with respect to his election to office, and to each year that he continues to serve as a Director of the Company. Each such Director shall be entitled to receive an Option to acquire 2,000 shares under the Plan immediately 51/ -4- after the annual meeting of the stockholders at which he is first elected, and an additional Option to acquire 2,000 shares immediately upon completion of each next successive year in office. A Director who assumes office at a time other than an annual meeting of stockholders shall be entitled to receive his initial Option to acquire 2,000 shares under the Plan immediately after the annual meeting of stockholders next following his assumption of office. For purposes of the Plan, a Director shall be considered to have completed a "year in office" on the date of each annual meeting of stockholders while he continues in office; provided, however, that if the interval between any two such annual meetings is greater than 395 days, a Director shall be considered to have completed a "year in office" for purposes of the Plan on the 395th day after the preceding year's annual meeting of stockholders, rather than on the date of the second of the two such annual meetings. 7. The Option Price. The price payable upon exercise of an Option granted hereunder shall be the fair market value at the date of grant of the shares covered by the Option. For purposes of the Plan, if the Common Stock of the Company is listed for trading on the New York Stock Exchange (or any other registered stock exchange), the fair market value of the shares shall be equal to the last sale price for the Common Stock on such exchange on the trading day next preceding the date of grant of an Option. The Option exercise price shall be paid (1) in cash, (2) in shares of the Common Stock of the Company already owned by the person exercising the Option, or (3) in any combination of cash and of such shares. In the event that such shares are delivered to pay for all or a portion of the Option exercise price, they shall be valued at the last sale price for the Common Stock on the New York Stock Exchange (or other registered stock exchange) 52/ -5- as reported on the date of delivery of the shares in exercise of the Option, and any shares delivered in payment of the Option exercise price shall be free and clear from all restrictions on transfer, claims or purchase rights, except as the Administrators may affirmatively allow. 8. Nontransferability of Options. No Option granted under the Plan shall be encumbered, assigned, or otherwise transferred, otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of an Optionee only by him. 9. Duration of Options. Each Option shall expire not more than ten (10) years from its date of grant, but shall be subject to earlier termination: (a) in the event that the Optionee ceases to be a Director of the Company, an Option may thereafter be exercised by him only to the extent that under Section 10, the right to exercise the Option has accrued and is in effect, and only within the period of thirty (30) days after the Optionee ceases to be a Director; or (b) in the event that the Optionee dies while holding office as a Director or within the 30-day period described in paragraph (a), an Option granted to him may thereafter be exercised by his estate or by any person or persons who acquired the right to exercise the Option by bequest or by inheritance or by reason of the death of the Optionee, to the extent of the full number of shares covered by the Option, regardless of whether the Optionee at the time of this death was entitled to exercise the Option in full, but only within the period of ninety (90) days after his death. 53/ -6- 10. Time and Manner of Exercise. Options granted under the Plan shall not be exercisable for a period of six (6) months after their date of grant, but shall be immediately exercisable in full thereafter; provided, however, that (i) options may be exercised only during the periods beginning on the third business day following the date on which the Company releases for publication its annual or quarterly financial reports and ending on the twelfth business day following such date and (ii) no Option shall be exercisable after ten (10) years from the date on which it was granted. To the extent that the right to exercise an Option has accrued and is in effect, the Option may be exercised in full at one time or in part from time to time by giving written notice, signed by the person or persons exercising the Option, to the Company, stating the number of shares with respect to which the Option is being exercised, and accompanied by payment in full for such shares in accordance with Section 7. There shall be no such exercise at any one time as to fewer than two hundred (200) shares or all of the remaining shares then purchaseable by the person or persons exercising the Option, if fewer than two hundred (200) shares. Upon such exercise, delivery of a certificate for paid-up non-assessable shares shall be made at the principal Massachusetts office of the Company to the person or persons exercising the Option at such time, during ordinary business hours, after fifteen (15) days but not more than thirty (30) days from the date of receipt of the notice by the Company, as shall be designated in such notice, or at such time, place or manner as may be agreed upon by the Company and the person or persons exercising the Option. Notwithstanding the foregoing, the Company may delay issuance of shares pursuant to an Option until the person exercising the Option has complied with all of the terms and conditions of the Plan and the applicable stock option agreement. 54/ -7- 11. Stock Option Agreement Required. Each Option granted under the Plan shall be evidenced by a written option agreement (the "Agreement") between the Company and the Optionee, in such form as the Administrators shall determine, which Agreements may but need not be identical, and which shall (i) comply with and be subject to the terms and conditions of the Plan and (ii) provide that the Optionee agrees to continue to serve as a Director of the Company during the term for which he was elected, and that during such term he will not, without the written consent of the Company, directly or indirectly, accept employment from, or engage in any work or activities as an employee, officer, director, agent, consultant, partner, proprietor or principal stockholder for any other corporation, person or entity having business substantially competitive to the business in which the Company or its Subsidiaries are then engaged. Any Agreement may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrators. No Option shall be granted within the meaning of the Plan, and no purported grant of any Option shall be effective, until such an Agreement shall have been duly executed on behalf of the Company and the Director to whom the Option is to be granted. 12. Purchase for Investment; Rights of Holder of Subsequent Registration. Unless the shares to be issued upon exercise of an Option have been effectively registered under the Securities Act of 1933 as now in force or hereafter amended, the Company shall be under no obligation to issue any shares covered by any Option unless the person who exercises such Option, in whole or in part, shall give a written representation and undertaking to the Company which is satisfactory in form and scope to counsel to the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that he is acquiring the shares issued to him pursuant to such exercise of the Option for his own account as an investment and not with a view to, or for sale in connection with, the distribution of any such shares, and that he will make 55/ -8- no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act of 1933, or any other applicable law, and that if shares are issued without such registration, a legend to this effect may be endorsed upon the securities so issued. In the event that the Company shall, nevertheless, deem it necessary or desirable to register under the Securities Act of 1933 or other applicable statutes any shares with respect to which an Option shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933 or other applicable statutes, then the Company shall take such action at its own expense and may require reasonable indemnity to the Company and its officers and Directors from such holder against all losses, claims, damages and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein, or caused by omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading in light of the circumstances under which they were made. 13. Listing of Option Stock. So long as the Common Stock of the Company is listed on the New York Stock Exchange or any other stock exchange, the Company shall take necessary steps so that the shares to be issued upon exercise of an Option are listed by such exchange, or will be so listed, upon notice of issuance. 14. Effect of Option. The grant of an Option shall not entitle the Optionee to have or claim any rights of a stockholder of the Company, whether as to dividends, voting rights or otherwise. Neither the grant of an Option nor the making of any Agreement under the Plan shall confirm upon the Optionee any right with respect to continuation of his Directorship, nor shall it affect or restrict the right of the Company or any assuming or succeeding Company to terminate such Directorship at any time. 56/ -9- 15. Termination, Suspension, Amendment or Modification of the Plan. Unless sooner terminated as hereinafter provided, the Plan will terminate at the close of business on May 7, 2002. The Board may at any time terminate or suspend the Plan or make such modification or amendment thereof as it deems advisable, provided, however, that the Board may not, without approval by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the Commonwealth of Massachusetts, (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the number of shares for which Options may be granted under the Plan; or (iii) materially modify the requirements as to eligibility for participation in the Plan. In no event, however, may any provision of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) of the Securities Exchange Act of 1934 (including without limitation, provisions as to eligibility and who may participate in the Plan, the amount and price of shares for which Options may be granted or the timing of awards), be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Termination or any modification or amendment of the Plan shall not, without consent of a participant, affect his rights under an Option previously granted to him. 16. Merger, Consolidation or Sale of the Entire Business of the Company. If before the expiration of the Plan, the Company shall merge with, consolidate in or with, or sell all or substantially all of its assets and business to another corporation or entity (other than a company or entity which continues under the control 57/ -10- of the same persons who were the stockholders or owners of the Company immediately prior to the event), all Options then outstanding shall become subject to exercise in full as of the effective date of said transaction. 17. Compliance with Applicable Laws and Regulations. Upon exercise of any Option granted hereunder, the person exercising the Option shall file any and all reports required of him under the Securities Exchange Act of 1934, as amended, or otherwise. 58/ EX-10 4 Exhibit 10.3(1) AMENDMENT AGREEMENT NO. 1 to that certain AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Dated as of December 31, 1992 This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), is made as of December 31, 1995, by and among IONICS, INCORPORATED (the "Borrower"), a Massachusetts corporation having its principal place of business at 65 Grove Street, Watertown, Massachusetts 02172, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), 100 Federal Street, Boston, Massachusetts 02110, and such other banks that are or may become parties to this Agreement from time to time in accordance with the provisions hereof (FNBB and such other banks being collectively referred to herein as the "Banks" and each a "Bank") and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks (the "Agent"). WHEREAS, the Borrower, the Banks and the Agent are parties to that certain Amended and Restated Revolving Credit Agreement, dated as of December 31, 1992 (as amended and in effect from time to time, the "Credit Agreement"), pursuant to which the Banks, upon certain terms and conditions, have made loans to the Borrower; and WHEREAS, the Borrower has requested and the Banks and the Agent have agreed, on the terms and subject to the conditions set forth herein, to amend the Credit Agreement to (a) extend the maturity of the Loans and (b) modify certain covenants and provisions; NOW, THEREFORE, the parties hereto hereby agree as follows: '1. Defined Terms. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. '2. Amendment of Credit Agreement. (a) Section 1.1 of the Credit Agreement is hereby amended by deleting the reference to the date "December 31, 1995" therein and substituting therefor the date "December 31, 1998". 59/ -2- (b) Section 1.2 of the Credit Agreement is hereby amended as follows: (i) by deleting each reference to the date "December 31, 1995" therein and substituting for each reference therefor the date "December 31, 1998"; (ii) by deleting the reference to the date "April 1, 1996" therein and substituting therefor the date "April 1, 1999"; and (iii) by deleting the reference to the date "December 31, 1996" therein and substituting therefor the date "December 31, 1999". (c) Section 1.2.1(a) of the Credit Agreement is hereby amended by deleting the words "Not less than three (3) nor more than five (5) Business Days" in the first line of such subsection and substituting therefor the words "Not less than two (2) nor more than five (5) Business Days". (d) Section 1.2.1(a)(1)(B) of the Credit Agreement is hereby amended by deleting the words "a minimum amount of $1,000,000" therein and substituting therefor the words "a minimum amount of $500,000". (e) Section 1.2.1(a)(1)(C) of the Credit Agreement is hereby amended by deleting the words "a minimum amount of $500,000 and even multiples of $250,000" therein and substituting therefor the words "a minimum amount of $250,000 and even multiples of $100,000". (f) Section 1.2.2 of the Credit Agreement is hereby amended as follows: (i) by inserting in the second sentence thereof, immediately before the reference to "one (1)", the phrase "seven (7) days or"; (ii) by inserting in the third sentence thereof, immediately before the reference to "seven (7)", the phrase "one (1) day or"; (iii) by deleting the reference to the date "December 31, 1995" from the fourth sentence thereof and substituting therefor the date "December 31, 1998"; and 60/ -3- (iv) by deleting the date "December 31, 1998" from the fourth sentence thereof and substituting therefor the date "December 31, 2001". (g) Section 1.3 of the Credit Agreement is hereby amended as follows: (i) by deleting in the fifth sentence thereof, the words "at least five (5)" and substituting therefor the words "at least three (3)"; (ii) by deleting in the seventh sentence thereof, the phrase "Eurodollar Loan(s) shall be in an aggregate principal amount of $250,000" and substituting therefor the phrase "Eurodollar Loan(s) shall be in an aggregate principal amount of $100,000"; and (iii) by deleting in the eighth sentence thereof the words "principal amount of $1,000,000" and substituting therefor the words "principal amount of $500,000". (h) The definition of Interest Period contained within Section 2 of the Credit Agreement is hereby amended as follows: (i) by inserting immediately before the reference to "one (1), two (2)", the phrase "seven (7) days or"; (ii) by inserting immediately before the reference to "seven (7), thirty (30)", the phrase "one (1) day or"; (i) Section 5.6 of the Credit Agreement is hereby amended as follows: (i) by deleting the number "$150,000,000" and substituting therefor the number "$163,000,000"; and (ii) by deleting the reference to the date "June 30, 1992" and substituting therefor the date "September 30, 1995". (j) Exhibit A to the Credit Agreement is hereby amended by deleting the reference to the date "December 31, 1995" and substituting therefor the date "December 31, 1998". 61/ -4- (k) Exhibit B to the Credit Agreement is hereby amended by deleting the reference to the date "April 1, 1996" and substituting therefor the date "April 1, 1999". '3. Effectiveness. The effectiveness of this Amendment shall be subject to the satisfaction of the following conditions: (a) Delivery. The Borrower, the Banks and the Agent shall have executed and delivered this Amendment. (b) Loan Note. The Borrower shall have executed and delivered an amended and restated Loan Note in substantially the form of Exhibit A to the Credit Agreement, dated as of December 31, 1995 and completed with the appropriate insertions. (c) Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Amendment and all documents incident thereto shall be reasonably satisfactory in substance and form to the Banks and the Agent, and the Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. '4. Representations and Warranties. The Borrower represents and warrants to the Banks and the Agent as follows: (a) Representations and Warranties in Credit Agreement. The representations and warranties of the Borrower contained in the Credit Agreement, (i) were true and correct in all material respects when made, and (ii) except to the extent such representations and warranties by their terms are made solely as of a prior date, continue to be true and correct in all material respects on the date hereof. (b) Authority, Etc. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of all of its agreements and obligations under this Amendment (i) are within the corporate authority of the Borrower, (ii) have been duly authorized by all necessary corporate proceedings by the Borrower, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower, and (iv) do not conflict with any provision of the corporate charter or by-laws of, or any agreement or other instrument binding upon, the Borrower. 62/ -5- (c) Enforceability of Obligations. This Amendment, and the Credit Agreement as amended hereby, constitute the legal, valid and binding obligations of the Borrower enforceable against in accordance with their respective terms. Immediately prior to and after giving effect to this Amendment, no Default or Event of Default exists under the Credit Agreement or any other Loan Document. '5. No Waiver. Except as otherwise expressly provided for in this Amendment, nothing in this Amendment shall extend to or affect in any way any of the Borrower's obligations or any of the rights and remedies of the Banks or the Agent in respect of the Credit Agreement arising on account of the occurrence of any Event of Default, all of which are expressly preserved. '6. Miscellaneous Provisions. (a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and the Credit Agreement shall be read and construed as one instrument. (b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. (c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. (d) The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained in connection with the preparation of this Amendment (including reasonable legal fees). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 63/ -6- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as an agreement under seal of the date first written above. IONICS, INCORPORATED By:/s/Robert J. Halliday Name: Robert J. Halliday Title: V.P. Finance THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By:/s/Henry L. Petrillo Name: Henry L. Petrillo Title: Vice President 64/ EX-11 5 EXHIBIT 11 IONICS, INCORPORATED COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
YEARS ENDED DECEMBER 31 1995 1994 1993 Net Income $19,682,000 $15,448,000 $13,807,000 Calculation of primary earnings per common and common equivalent share: Weighted average common shares outstanding 14,098,000 13,926,000 13,870,000 Increase from assumed exercise of stock options and investment of pro- ceeds in treasury stock, based upon average market prices 532,000 272,000 250,000 Weighted average number of common and common equivalent shares outstanding 14,630,000 14,198,000 14,120,000 Earnings per common and common equivalent share $1.35 $1.09 $ .98 Calculation of fully diluted earnings per common and common equivalent share: Weighted average common and common equivalent shares outstanding used in calculation of primary earnings per common and common equivalent share 14,630,000 14,198,000 14,120,000 Increase from assumed exercise of stock options and investment of proceeds in treasury stock, based upon year-end market price 67,000 42,000 8,000 Weighted average number of common and common equivalent shares used to calculate fully diluted earnings per common and common equivalent share 14,697,000 14,240,000 14,128,000 Earnings per common and common equivalent share assuming full dilution $1.34 $1.08 $ .98
65/ EX-13 6 EXHIBIT 13 IONICS, INCORPORATED ANNUAL REPORT TO STOCKHOLDERS OF IONICS, INCORPORATED FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 (Only pages 16 through 32 and the inside back cover constitute an Exhibit to Form 10-K) /66 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The financial performance of Ionics continued to improve in 1995 with a 12% growth in revenues and a 27% improvement in net income. The profit improvement resulted primarily from increased sales of capital equipment and spare parts in the Membranes and Related Equipment segment and from the continued success of our "own and operate" and service-based activities relating to the Water, Food and Chemical Supply segment. These two segments experienced improvements over 1994 in earnings before interest and taxes of 136% and 14%, respectively. The earnings before interest and taxes of the Consumer Products segment decreased 19% due to softness in demand for certain products, particularly automobile windshield wash solution, and variability in related product costs. Total revenues were $248.6 million in 1995, compared with $222.4 million in 1994. Revenues were higher in all three business segments, with the largest growth occurring in the Water, Food and Chemical Supply segment. The Membranes and Related Equipment segment revenues in 1995 grew due to increased sales of capital equipment, including equipment for water desalination and treatment and wastewater treatment, and related spare parts. In addition to domestic revenue increases, other growth markets included Asia, South America and Eastern Europe. Growth in the Water, Food and Chemical Supply segment was primarily due to increased revenues related to ownership and operation of ultrapure water systems. Growth also resulted from increased sale of municipal water and increased demand for chemical supply products produced by the Elite Chemicals businesses in Australia and the United Kingdom. Revenue increases were also experienced by our cheese whey processing facilities for Mid-America Dairymen, Inc. Consumer Products revenues increased primarily through the sale of higher volumes of bottled water by existing Aqua Cool locations and through new distribution facilities in Charlotte and Greensboro, North Carolina, Richmond, Virginia and Leeds and Bristol, England. These volume increases have been supported by a doubling of bottling capacity in 1995 in the United Kingdom and through domestic expansion during the prior year. Home water 67/ product sales increased as the Company shipped additional water conditioning units through its independent dealer network and through Company-owned sales offices. These increases were partially offset by softness in sales of other consumer products, particularly automobile windshield wash solution due to limited snowfall in the Northeastern U.S. during the winter season ending in March 1995. Total revenues were $222.4 million in 1994, compared with $175.3 million in 1993. Each business segment experienced improved revenues with the largest growth occurring in the Membranes and Related Equipment segment. This growth was primarily due to the acquisition of Resources Conservation Company (Ionics RCC) effective December 1, 1993 and to growth in the sales of ultrapure water systems, particularly to the semiconductor industry. Revenues from the Water, Food and Chemical Supply business segment increased as Ionics initiated operation of two cheese whey processing facilities, expanded its ownership and operation of ultrapure water systems and increased sales of chemical supply products in Australia and the United Kingdom. Consumer Products revenues increased with strong demand for automobile windshield wash solution and bleach products. Bottled water volume increased as new distribution facilities were opened and production capacity was increased. Home water product sales increased with an expanded network of independent and Company-owned dealers. Cost of sales as a percentage of revenues were 68.2%, 69.3%, and 66.8% in 1995, 1994 and 1993, respectively. Cost of sales as a percentage of revenues declined during 1995 for the Membranes and Related Equipment segment and increased for the Water, Food and Chemical Supply and Consumer Products segments. The decrease in the Membranes and Related Equipment segment was due to a more favorable mix between capital equipment and spare parts revenues and to a decrease in manufacturing overhead costs as a percentage of revenues. This decrease resulted from increased sales of traditional capital equipment and spares, and the achievement of certain operational efficiencies. The increase in cost of sales as a percentage of revenues in the Water, Food and Chemical Supply segment primarily reflected a different mix of own and operate contracts. The increase in cost of sales as a percentage of revenues in the Consumer Products segment resulted from variability in certain product costs (particularly methanol), competitive market conditions related to certain products and a change in the mix of products sold. 68/ Cost of sales as a percentage of revenues increased in 1994 from 1993 for the Membranes and Related Equipment segment as there was a less favorable mix of capital equipment and spare parts revenues and an increase in manufacturing overhead as a percentage of revenues resulting from reduced sales of traditional capital equipment. The acquisition of Ionics RCC also contributed to the increase because cost of sales is a larger percentage of Ionics RCC's total costs than is the case for other elements of the Company's Membranes and Related Equipment business. The Water, Food and Chemical Supply segment showed improvement in the cost of sales percentage due to operational efficiencies achieved at certain own and operate sites. The increase in the cost of sales as a percentage of revenues for the Consumer Products segment resulted from a fluctuation in the mix of sales of individual consumer products. Operating expenses as a percentage of revenues were 20.6% in 1995, down from 21.2% in 1994 and 23.5% in 1993. The decrease in operating expenses as a percentage of revenues in 1995, both overall and in the Membranes and Related Equipment segment, and in 1994 in all three business segments, was due to the absorption of relatively fixed operating expenses by increased sales volume and continued emphasis on expense controls. Consumer Products operating expenses as a percentage of revenues increased in 1995 from 1994, due primarily to costs associated with the start-up of new bottled water sales and distribution offices in the United Kingdom. Interest income in 1995 was $1.0 million compared to $1.1 million in 1994 and $1.8 million in 1993. The decrease in 1995 was due to lower invested balances resulting from increased capital spending, partially offset by higher average interest rates. The decrease in 1994 occurred due to lower invested balances resulting from the payment for Ionics RCC in the first quarter of 1994 and increased capital spending. The Company's effective tax rate was 33.5% in 1995, 32% in 1994 and 30% in 1993. The increase in the effective tax rate for 1995 was due to a reduction in the benefit from tax-exempt interest and to changes in the mix of earnings and effective tax rates among the different jurisdictions in which the Company operates. This increase was partially offset by a lower effective state tax rate resulting from state tax incentive credits, as well as a proportionately greater benefit from the Company's foreign sales corporation. The increase in 1994 was due to a higher applicable statutory rate, a higher state tax rate resulting from proportionately greater domestic income and a reduction in the benefit from tax-exempt interest, partially offset by other miscellaneous items. 69/ Net income increased 27.4% to $19.7 million in 1995 compared to $15.4 million in 1994. Net income in 1994 was 11.9% higher than 1993 net income of $13.8 million. The Company will adopt Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1996. This Statement requires recognition, under a three-step approach, of impairment losses pertaining to long-term assets based upon the excess of the carrying amount of such assets over their fair values. The Company does not believe that adoption will have a material effect on its financial statements. The Company will adopt Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" in 1996. This Statement defines a fair value-based method of accounting for employee stock options. The compensation expense arising from this method of accounting can be reflected in the financial statements or alternatively, the pro forma net income and earnings per share effect of the fair value-based accounting can be disclosed in the financial statement footnotes. The Company expects to adopt the footnote disclosure alternative. Legal Proceedings The Company is involved in the normal course of its business in various litigation matters. Although the Company's counsel is unable to determine at the present time whether the Company will have any liability in any of these pending matters, some of which are in the early stages of pre-trial discovery, the Company believes it has meritorious defenses and that none of the pending matters will have an outcome material to the financial condition or business of the Company. Financial Condition At December 31, 1995 the Company had total assets of $317.2 million compared to total assets of $277.2 million at December 31, 1994 and $249.6 million at December 31, 1993. The major components of the increase in 1995 and 1994 were for property, plant and equipment related to the Company's bottled water operations, membrane production, bleach production and distribution facilities, trailers and other own and operate facilities. In addition, during 1995 accounts receivable increased, reflecting higher revenues from capital equipment projects and related retainage amounts. 70/ Working capital in 1995 increased by $1.5 million and the Company's current ratio decreased to 2.0 in 1995 from 2.1 in 1994. Capital expenditures totaled $49.1 million, $38.2 million, and $14.7 million in 1995, 1994 and 1993, respectively. Additionally, $10.5 million of cash was paid in 1994 for Ionics RCC. Funds for these expenditures were provided in both years through cash from operations, the sale of short-term investments, proceeds from stock option exercises and the issuance of current debt. Net cash provided by operating activities decreased by $9.8 million in 1995, with higher net income and depreciation offset by increases in operating assets, primarily in accounts receivable, and a decrease in accounts payable and accrued expenses. The increase in 1994 of $25.3 million as compared to 1993 resulted as higher net income, depreciation and an increase in accounts payable and accrued expenses were partially offset by increases in inventory and accounts receivable. Net cash used for investing activities decreased by $2.0 million in 1995 from 1994 after having increased by $42.0 million in 1994 from 1993. In 1995 and 1994, net cash provided by financing activities increased by $7.8 million and $1.3 million, respectively. These increases resulted primarily from increases in debt and proceeds from stock option exercises. Significant expenditures in 1996 are anticipated to include the expansion of bottled water operations, bleach manufacturing, own and operate facilities and improvements to manufacturing equipment. The Company maintains several lines of credit, including domestic lines totaling $35 million, which are available to meet working capital needs. In addition, the Company has several facilities to accommodate its foreign trade and exchange requirements. The Company believes that its cash of $8.1 million at the beginning of 1996, cash from operations, lines of credit and foreign exchange facilities are adequate to meet its currently anticipated needs. Inflationary increases in material and labor costs remained moderate during the last three years. The Company has worked to offset such cost increases by redesigning its equipment to reduce costs. To the extent permitted by the competitive environment, the Company has raised prices where appropriate. 71/ Report of Independent Accountants To the Board of Directors and Stockholders of Ionics, Incorporated: We have audited the consolidated balance sheets of Ionics, Incorporated at December 31, 1995 and 1994 and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ionics, Incorporated as of December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /S/COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 20, 1996 72/ -5- CONSOLIDATED STATEMENTS OF OPERATIONS Ionics, Incorporated
For the years ended December 31 Dollars in thousands, except share amounts 1995 1994 1993 Net revenue: Membranes and related equipment $128,159 $119,426 $ 92,352 Water, food and chemical supply 65,985 53,894 45,584 Consumer products 54,473 49,056 37,337 248,617 222,376 175,273 Costs and expenses: Cost of membranes and related equipment 94,300 90,672 65,890 Cost of water, food and chemical supply 44,266 35,881 31,127 Cost of consumer products 30,929 27,640 19,986 Research and development 3,432 3,372 3,678 Selling, general and administrative 47,706 43,770 37,432 220,633 201,335 158,113 Income from operations 27,984 21,041 17,160 Interest income 963 1,057 1,789 Equity income 642 619 775 Income before income taxes 29,589 22,717 19,724 Provision for income taxes 9,907 7,269 5,917 Net income $ 19,682 $ 15,448 $ 13,807 Earnings per share $ 1.35 $ 1.09 $ 0.98 Shares used in earnings per share calculations 14,630,000 14,198,000 14,120,000 The accompanying notes are an integral part of these financial statements.
73/ -6- CONSOLIDATED BALANCE SHEETS Ionics, Incorporated
December 31 Dollars in thousands, except share amounts 1995 1994 Assets Current assets: Cash and cash equivalents $ 8,086 $ 14,966 Short-term investments - 5,617 Notes receivable, current 4,529 3,126 Accounts receivable 76,986 61,675 Receivables from affiliated companies 1,421 2,170 Inventories 19,208 19,405 Other current assets 7,978 6,518 Total current assets 118,208 113,477 Notes receivable, long-term 5,792 5,246 Investments in affiliated companies 4,874 5,419 Property, plant and equipment, net 155,358 124,093 Other assets 32,996 28,929 Total assets $317,228 $277,164 Liabilities and Stockholders' Equity Current liabilities: Notes payable and current portion of long-term debt $ 4,884 $ 370 Accounts payable 27,387 30,317 Other current liabilities 24,822 22,218 Taxes on income 1,049 1,972 Total current liabilities 58,142 54,877 Long-term debt and notes payable 182 99 Deferred income taxes 7,785 2,928 Other liabilities 759 650 Commitments - - Stockholders' equity: Common stock, par value $1, authorized shares: 30,000,000 in 1995 and 1994; issued and outstanding: 14,353,972 in 1995 and 13,989,896 in 1994 14,354 13,990 Additional paid-in capital 136,436 125,529 Retained earnings 103,709 84,027 Cumulative translation adjustments (3,671) (4,936) Unearned compensation (468) - Total stockholders' equity 250,360 218,610 Total liabilities and stockholders' equity $317,228 $277,164 The accompanying notes are an integral part of these financial statements.
74/ -7- CONSOLIDATED STATEMENTS OF CASH FLOWS Ionics, Incorporated
For the years ended December 31 Dollars in thousands _____________________________________ 1995 1994 1993 Operating activities: Net income $ 19,682 $ 15,448 $ 13,807 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,598 18,092 15,463 Provision for losses on accounts and notes receivable 564 535 390 Deferred income tax provision 4,309 2,051 1,589 Compensation expense on restricted stock awards 72 - - Changes in assets and liabilities, net of effects of businesses acquired: Notes receivable (1,636) (889) (1,175) Accounts receivable (14,525) (3,634) (7,332) Inventories 305 (5,296) (1,509) Other current assets (1,398) (3,199) 498 Investments in affiliates 545 (386) (641) Accounts payable and accrued expenses (791) 16,998 (7,432) Income taxes (206) (1,787) (987) Other (110) (738) (825) Net cash provided by operating activities 27,409 37,195 11,846 Investing activities: Additions to property, plant and equipment (49,083) (38,220) (14,667) Sale and maturity of short-term investments 5,617 3,222 19,129 Acquisitions, net of cash acquired - (10,488) (7,959) Net cash used by investing activities (43,466) (45,486) (3,497) Financing activities: Principal payments on current debt (11,197) (325) (8,845) Proceeds from issuance of current debt 15,533 347 8,176 Principal payments on long-term debt - - (506) Proceeds from issuance of long-term debt - - 256 Proceeds from stock option plans 4,838 1,389 1,078 Net cash provided by financing activities 9,174 1,411 159 Effect of exchange rate changes on cash 3 312 (509) Net change in cash and cash equivalents (6,880) (6,568) 7,999 Cash and cash equivalents at beginning of year 14,966 21,534 13,535 Cash and cash equivalents at end of year $ 8,086 $ 14,966 $ 21,534 The accompanying notes are an integral part of these financial statements.
75/ -8- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Ionics, Incorporated
Common Stock Additional Cumulative Total Par Paid-in Retained Translation Unearned Stockholders' Dollars in thousands Shares Value Capital Earnings Adjustments Compensation Equity T Balance December 31, 1992 13,817,026 $13,817 $123,148 $ 54,859 $(1,484) $ - $190,340 Stock options exercised 74,584 75 465 (38) - - 502 Tax benefit of stock option activity - - 576 - - - 576 Translation adjustments, net of income taxes of $1,165 - - - - (5,144) - (5,144) Net income____________________________________ -_______ -_________-______ 13,807 - - 13,807 Balance December 31, 1993 13,891,610 13,892 124,189 68,628 (6,628) - 200,081 Stock options exercised 98,286 98 896 (49) - - 945 Tax benefit of stock option activity - - 444 - - - 444 Translation adjustments, net of income taxes of $(872) - - - - 1,692 - 1,692 Net income - - - 15,448 - - 15,448 Balance December 31, 1994 13,989,896 13,990 125,529 84,027 (4,936) - 218,610 Stock options exercised 199,575 199 3,330 - - - 3,529 Tax benefit of stock option activity - - 1,309 - - - 1,309 Translation adjustments, net of income taxes of $180 - - - - 1,265 - 1,265 Acquisition of Ahlfinger Water Co. 144,679 145 5,748 - - - 5,893 Shares issued under restricted stock plan 19,822 20 520 - - (540) - Amortization of unearned compensation - - - - - 72 72 Net income - - - 19,682 - - 19,682 Balance December 31, 1995 14,353,972 $14,354 $136,436 $103,709 $(3,671) $(468) $250,360 The accompanying notes are an integral part of these financial statements.
76/ -9- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company is involved worldwide in the manufacture and sale of membranes and related equipment for the purification, concentration, treatment and analysis of water and wastewater, in the supply of purified water, food and chemical products, and in the sale of bottled water and home water purifiers. Principal markets include the United States and Europe as well as other international markets. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly and majority owned subsidiaries and Aqua Cool Enterprises, Inc., a controlled affiliate. All significant intercompany accounts and transactions have been eliminated. Investments in affiliated companies, representing non-majority ownership interests, are accounted for under the equity method. REVENUE RECOGNITION Product revenues are recorded upon shipment, and service revenues are recorded as the services are performed. Interest revenues on consumer water equipment loans are recognized over the life of the loans. Interest earned on customer notes receivable, totaling $1,076,000, $989,000 and $1,277,000 in 1995, 1994 and 1993, respectively, is included in revenues. Most equipment leases to customers are accounted for as operating leases wherein rental revenues are recognized over the life of the lease and the cost of the equipment is depreciated over its useful life. Some leases are accounted for as sales-type leases wherein the present value of the lease revenues and costs are recognized at the time of shipment of the product. Revenues from large contracts are recognized using the percentage completion method of accounting in the proportion that costs incurred bear to total estimated costs at completion. Losses, if any, are provided for in the period in which the loss is determined. CASH EQUIVALENTS Short-term investments with a maturity of 90 days or less from date of acquisition are classified as cash equivalents. INVESTMENTS Management determines the appropriate classification of its investment in debt securities at the time of purchase. Debt securities which the Company has the ability and positive intent to hold to maturity are classified accordingly and carried at cost. All other investments are classified as available for sale and carried at fair value with unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. The Company is not involved in activities classified as the trading of investments. 77/ -10- NOTES RECEIVABLE Notes receivable have been reported at their estimated realizable value. The allowance for uncollectible notes receivable totaled $685,000 and $839,000 at December 31, 1995 and 1994, respectively. INVENTORIES Inventories are carried at the lower of cost or market, principally on the first-in, first-out basis. The Company had no deferred production costs which exceeded the aggregate estimated cost of long-term sales contracts. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. When an asset is retired or sold, any resulting gain or loss is included in the results of operations. Interest capitalized as property, plant and equipment amounted to $268,000, $104,000 and $177,000 in 1995, 1994 and 1993, respectively. Depreciation is computed on a straight-line basis over the expected lives of the assets, as follows: Classification Depreciation Lives Buildings and improvements 10 - 40 years Machinery and equipment, including water supply equipment 3 - 25 years Other 3 - 12 years The Company's policy is to depreciate desalination plants, other than leased equipment, over the shorter of their useful lives or the term of the corresponding water supply contracts. The Company will adopt Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1996. This Statement requires recognition of impairment losses pertaining to long-term assets based upon the excess of the carrying amount of such assets over their fair values. The Company does not believe that adoption will have a material effect on its financial statements. GOODWILL Goodwill is included in other assets and represents the unamortized difference between acquisition cost and the fair value of net assets acquired in the purchase of various entities. Goodwill is amortized on a straight-line basis over its estimated useful life but not in excess of 40 years. The Company continually evaluates the realizability of goodwill based upon expectations of non-discounted cash flows and operating income for each subsidiary having a material goodwill balance. FOREIGN EXCHANGE Assets and liabilities of foreign affiliates and subsidiaries are translated at year-end exchange rates, and the related statements of operations are translated at average exchange rates during the year. Translation gains and losses are accumulated net of income tax as a separate component of stockholders' equity. Some transactions of the Company and its subsidiaries are made in currencies different from their own. Gains and losses from these transactions are included in income as they occur. Net foreign currency transaction gains included in income before taxes totaled $58,000, $23,000 and $157,000 for 1995, 1994 and 1993, respectively. 78/ -11- INCOME TAXES Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts using enacted rates in effect for the year in which the differences are expected to reverse. EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of common and common equivalent shares outstanding after giving retroactive effect for a 2-for-1 stock split (Note 9) for all periods presented. Common equivalent shares result from the assumed exercise of dilutive stock options. Fully diluted earnings per share is substantially the same as earnings per share. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. CONSOLIDATED BALANCE SHEET DETAILS
Dollars in thousands 1995 1994 Raw materials $ 12,236 $ 11,088 Work in process 4,856 5,964 Finished goods 2,116 2,353 Inventories $ 19,208 $ 19,405 Land $ 3,270 $ 2,584 Buildings 25,920 23,621 Machinery and equipment 191,195 148,881 Other, including furniture, fixtures and vehicles 26,015 22,122 246,400 197,208 Accumulated depreciation (91,042) (73,115) Property, plant and equipment, net $155,358 $124,093 Goodwill $ 30,632 $ 25,927 Accumulated amortization (2,966) (2,312) Other______________________________________________ 5,330 5,314 Other assets $ 32,996 $ 28,929 Customer deposits $ 3,131 $ 4,959 Accrued commissions 2,102 1,852 Accrued expenses 19,589 15,407 Other current liabilities $ 24,822 $ 22,218
79/ -12- NOTE 3. SUPPLEMENTAL SCHEDULE OF CASH AND NON-CASH FLOW INFORMATION
Dollars in thousands __________________________ 1995 1994 1993 Cash payments for interest and income taxes: Interest $ 354 $ 159 $ 150 Taxes $ 7,138 $ 6,628 $ 4,403 Restricted stock compensation credited to paid-in capital $ (540) $ - $ - Liabilities assumed in conjunction with acquisitions and ACE consolidation: Fair value of assets consolidated $ 6,196 $ - $47,825 Net cash received/(paid) 207 (10,488) (7,959) Common stock issued (5,893) - - Liability associated with purchase of Ionics RCC (net of cash acquired) - 10,488 (10,488) Liabilities assumed $ 510 $ - $29,378
NOTE 4. ACCOUNTS RECEIVABLE Dollars in thousands 1995 1994 Billed receivables $52,815 $49,529 Unbilled receivables 25,875 13,504 Allowance for doubtful accounts (1,704) (1,358) Accounts receivable $76,986 $61,675 Unbilled receivables represent the excess of revenues recognized on percentage of completion contracts over amounts billed. These amounts will become billable as the Company achieves contractual milestones. Substantially all of the unbilled amounts at December 31, 1995 are expected to be billed during 1996. Billed receivables include retainage amounts of $1,609,000 and $3,355,000 at December 31, 1995 and 1994, respectively. Substantially all retainage amounts are collectible within one year. NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES The Company's investments in the following foreign affiliates are accounted for under the equity method. The principal business activities of these foreign affiliates involve the production, sale and distribution of bottled and treated water and the sale of equipment and replacement parts. 80/ -13-
Ownership Affiliate Percentage Aqua Cool Kuwait - Kuwait 49% Aqua Cool Saudi Arabia - Saudi Arabia 40% Ionics-Mega s.r.o. - Czech Republic 49% Jalal-Ionics, Ltd. - Bahrain 40% Watlington Waterworks Limited - Bermuda 23% Yuasa-Ionics Co., Ltd. - Japan 50%
The Company's percentage ownership interest in a foreign affiliate may vary from its interest in the earnings of such affiliate. Activity in investments in affiliated companies: Dollars in thousands 1995 1994 1993 Investments at beginning of year $ 5,419 $ 4,989 $ 4,279 Equity in earnings 642 619 775 Distributions received (1,187) (233) (134) Cumulative translation adjustments - 44 69 Investments at end of year $ 4,874 $ 5,419 $ 4,989 At December 31, 1995, the Company's equity in the total assets and in the total liabilities of its foreign affiliates was $8,929,000 and $4,055,000, respectively. The Company's equity in the 1995 total revenues of these affiliates was $8,351,000. NOTE 6. CONTINGENT LIABILITIES The Company is involved in the normal course of its business in various litigation matters. Although the Company's counsel is unable to determine at the present time what the Company's ultimate liability will be in any of the pending matters, some of which are in the early stages of pretrial discovery, the Company believes it has meritorious defenses and that none of the pending matters will have an outcome material to the financial condition or business of the Company. The Company was notified in 1992 that it is a potentially responsible party (PRP) at a Superfund site, Solvent Recovery Services of New England in Southington, Connecticut (the "SRS Site"). The original estimate of clean-up costs based upon the Environmental Protection Agency's (EPA) preliminary investigation was $30 million of which the Company's share approximates $160,000. A non-time critical removal action was successfully completed in 1995. The Company's share of the total cost of $7.75 million will be $40,400, of which $30,384 has been paid to date. The PRP group to which the Company belongs will conduct a second non-time critical removal action and finish the Remedial Investigation and Feasibility Study of the site. The Company's share of the estimated total cost of $5.55 million for this work will be $29,000. While it is too soon to predict the scope and cost of the final remedy that the EPA will select, based upon the very large number of PRPs identified (over 1,000), the Company's small volumetric ranking in comparison to the total volume of wastes (approximately 0.522%) and the identities of the larger PRPs, which include many substantial companies, the Company believes that its liability in this matter will not have a material effect on the Company or its financial position. 81/ -14- During 1995, the Company acquired certain real property in Maryland to accommodate expansion of the Elite Chemicals business. Prior to its acquisition by the Company, the property had been determined to have some contamination of soil and groundwater. In conjunction with the purchase, the Company has been working closely with the Maryland Department of the Environment and, based upon an environmental study completed by a third party consultant, has reached a preliminary agreement regarding treatment. Based upon the costs of treatment identified by the consultant, the Company has provided a conservative accrual, recorded as part of the cost of the property, as of December 31, 1995. The Company believes that additional liability associated with treatment of the property, if any, will not have a material effect on the Company or its financial condition. NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE Dollars in thousands 1995 1994 Borrowings outstanding $5,066 $ 469 Less installments due within one year 4,884 370 Long-term debt and notes payable $ 182 $ 99 Maturities of long-term debt and notes payable for the five years ending December 31, 1996 to 2000 are approximately $4,884,000, $116,000, $8,230, $8,230 and $8,230, respectively. The Company has domestic credit arrangements with various banks under which it can borrow up to an aggregate of approximately $35 million, at the prime rate or the London Interbank Offered Rate plus 1/2% (6.25% at December 31, 1995), at the Company's option. The Company had outstanding borrowings of $1,499,813 against this line of credit at December 31, 1995. The Company utilizes short-term bank loans to finance working capital requirements for certain business units. The Company's various loan and note agreements contain certain financial covenants typical to such agreements relating to working capital and to consolidated tangible net worth. The weighted average interest rate on these borrowings at December 31, 1995 was approximately 10%. NOTE 8. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Financial Accounting Standards No. 109. The cumulative effect of adopting this Statement as of January 1, 1993 was immaterial to net income. The following is a summary of U.S. and non-U.S. income before income taxes, the components of the provisions for income taxes and deferred income taxes, and a reconciliation of the U.S. statutory income tax rate to the effective income tax rate. 82/ -15- Income before income taxes:
Dollars in thousands 1995 1994 1993 U.S. $20,818 $15,022 $10,902 Non-U.S. 8,771 7,695 8,822 Income before income taxes $29,589 $22,717 $19,724 Income tax provisions consist of the following: Dollars in thousands 1995 1994 1993 Federal $ 4,824 $ 3,575 $ 2,124 Foreign 437 926 1,729 State 337 717 475 Current provision 5,598 5,218 4,328 Federal 3,201 225 528 Foreign 569 1,625 1,013 State 539 201 48 Deferred provision 4,309 2,051 1,589 Provision for income taxes $ 9,907 $ 7,269 $ 5,917
The United States statutory corporate tax rate is reconciled to the Company's effective tax rate as follows: 1995 1994 1993 U.S. Federal statutory rate 35.0% 35.0% 34.0% Foreign Sales Corporation (2.1) (1.8) (1.9) Tax exempt interest income (1.2) (2.4) (3.5) State income taxes, net of federal tax benefit 1.9 2.6 1.8 Foreign income taxed at different rates - (1.1) (1.3) Other, net (.1) (.3) .9 Effective tax rate 33.5% 32.0% 30.0%
83/ -16- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1995 the tax effects of the temporary differences are:
Deferred Deferred Tax Dollars in thousands Tax Assets Liabilities Depreciation $ - $4,747 Inventory valuation 129 - Bad debt reserves 260 - Profit on sales to foreign subsidiaries 930 - Insurance accruals 625 - U.S. tax on unrepatriated earnings - 2,458 Pensions 274 - Sale versus lease 295 - Foreign withholding taxes on undistributed earnings - 2,657 Foreign deferred liabilities, net - 1,342 Tax effect of current translation loss 1,544 - Net operating loss carryforwards 6,063 - Miscellaneous 1,462 543 11,582 11,747 Valuation allowance for deferred tax assets (1,800) - Deferred income taxes $ 9,782 $11,747
At December 31, 1995, the Company had unused tax loss carryforward benefits of $6,063,000 (expiring in fiscal years 2004 to 2009). Because certain provisions of the tax law may limit the utilization of these benefits, the Company has established $1,800,000 as a valuation allowance at December 31, 1995 and 1994. The remaining unreserved portion is considered to be realizable. $4,263,000 of the net unused tax loss carryforward benefit has been included in other assets at December 31, 1995. The Company has elected not to provide tax on certain undistributed earnings of its foreign subsidiaries which it considers to be permanently reinvested. The cumulative amount of such unprovided taxes was approximately $682,000, $627,000 and $369,000 as of December 31, 1995, 1994 and 1993, respectively. NOTE 9. STOCKHOLDERS' EQUITY On November 2, 1995 the Company issued 144,679 shares of common stock as consideration for the acquisition of Ahlfinger Water Company. Subsequent to December 31, 1995, the Company issued 222,977 and 331,567 shares of common stock in exchange for more than 90% of the outstanding common stock of Aqua Design, Inc. and Apollo Ultrapure Water Systems, Inc., respectively (Note 13). In November 1994, the Company's Board of Directors declared a 2-for-1 stock split to be effected by a 100% stock dividend which was paid January 6, 1995 to shareholders of record on December 14, 1994. All share and option amounts, related prices and other stockholders' equity information have been adjusted for all periods presented to give retroactive effect to this split. 84/ -17- The Company maintains two stock option plans. Under its 1979 Stock Option Plan (the "1979 Plan"), options may be granted to officers and other employees of the Company (either as non-qualified options or until February 15, 1989, as incentive stock options) and are exercisable at a price of not less than $1.00 per share. Any difference between the option price and the fair market value at the date of grant is charged to operations over the expected period of benefit to the Company. At December 31, 1995 and 1994, 90,758 and 62,408 shares, respectively, were reserved for issuance of additional options under the 1979 Plan. Under the 1986 Stock Option Plan for Non-Employee Directors (the "1986 Plan"), options may be granted at a price not less than the fair market value at the date of grant. As of December 31, 1995 and 1994, 116,500 and 123,000 shares, respectively, were reserved for issuance of additional options under the 1986 Plan. The Company has reserved 91,200 shares for options granted in 1990 to certain non-employees in exchange for a previously granted option to purchase 50% of the shares of Osmomar S.A., a Spanish subsidiary of the Company which was merged with Ionics Iberica, S.A. in 1992. During 1995, an additional 30,000 options were granted to the same persons in connection with an increase in production capacity and projected increases in the sale of water under a long-term water sale agreement between Ionics Iberica, S.A. and the local water utility. The fair value of these options will be charged to operations over the 10 year vesting period. A summary of changes in the total amount of outstanding options for the three years ended December 31, 1995 follows: 1995 1994 1993 Shares under option, beginning of year 2,184,944 1,665,572 1,060,750 Options granted 39,500 642,000 700,500 Options exercised (204,138) (104,728) (79,678) Options cancelled (31,350) (17,900) (16,000) Shares under option, end of year 1,988,956 2,184,944 1,665,572 Shares exercisable 1,913,356 2,130,224 1,601,732 Price range of options granted $27.25-27.50 $22.56-24.31 $19.75-24.38 Price range of options exercised $ 5.63-27.00 $ 1.00-24.38 $ 1.00-27.00 Price range of options exercisable $ 5.63-30.38 $ 5.63-30.38 $ 1.00-30.38 The Company has adopted a restricted stock plan (the "1994 Plan") under which shares of common stock may be granted to certain officers and other key employees of the Company. Restrictions on the sale of such common stock typically lapse over a five year vesting period. During 1995, 19,822 shares were issued under the Plan and 280,178 additional shares have been reserved for issuance. The fair value of $540,000 has been recorded as unearned compensation to be charged to operations over the vesting period. 85/ -18- The Company has a Section 401(k) stock savings plan under which 150,000 shares have been registered with the Securities and Exchange Commission for purchase on behalf of employees. Shares will normally be acquired for the plan in the open market. However, the Board of Directors has reserved an additional 120,000 shares for issuance by the Company from authorized but unissued shares, if required. Through December 31, 1995, no shares had been issued under the plan. The Company has adopted a Stockholder Rights Plan designed to protect stockholders against abusive takeover tactics. Rights were distributed as a dividend at the rate of one right for each share of the Company's stock. Each right entitles the holder to purchase from the Company one unit, consisting initially of one-fifth share of common stock and one note in principal amount equal to four-fifths of the current market price of the common stock on the date of exercise, at a purchase price of $50 subject to adjustment. In certain circumstances, rights cease to be exercisable for a unit and become exercisable for $100 worth of common stock (or a combination of cash, property or other securities of the Company) for $50. As a result of the 100% stock dividend distributed on January 6, 1995, each share of common stock now carries one-half right. The rights are not exercisable until (i) 10 days following a public announcement that a person or group has acquired 20 percent or more of the Company's common stock; or (ii) 10 business days following the commencement of a tender offer that could result in the person or group owning at least 30 percent of the Company's stock; or (iii) immediately after a declaration by the Company's independent directors that a person is an "Adverse Person," as defined in the Rights Plan. Subject to possible extension, the rights may be redeemed by the Company at $.01 per right at any time until 10 days after a public announcement that 20 percent or more of the Company's outstanding common stock has been acquired by a person or group. Unless redeemed earlier, the rights, which have no voting power, expire on December 31, 1997. The Company will adopt Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" in 1996. The Statement defines a fair value-based method of accounting for employee stock options. The compensation expense arising from this method of accounting can be reflected in the financial statements or alternatively, the pro forma net income and earnings per share effect of the fair value-based accounting can be disclosed in the financial statement footnotes. The Company expects to adopt the footnote disclosure alternative. The impact of adoption cannot be determined at this time. NOTE 10. OPERATING LEASES The Company leases equipment, primarily triple-membrane trailers and bottled water coolers, to customers through operating leases. The original cost of this equipment was $58,033,000 and $46,038,000 at December 31, 1995 and 1994, respectively. The accumulated depreciation for such equipment was $18,311,000 and $14,134,000 at December 31, 1995 and 1994, respectively. At December 31, 1995, future minimum rentals receivable under noncancelable operating leases in the years 1996 through 2000 and later were approximately $9,717,000, $8,157,000, $6,807,000, $5,141,000, $3,448,000 and $30,645,000, respectively. 86/ -19- NOTE 11. PROFIT-SHARING AND PENSION PLANS The Company has a contributory profit-sharing plan (defined contribution plan) which covered substantially all of the employees of its Bridgeville, Pennsylvania operations and certain related operations during 1994 and 1993. Effective July 1, 1995 all such employees, except those who are members of the Fabricated Products Group, became members of the Company's defined benefit pension plan described below. Company contributions to the defined contribution plan are made from pre-tax profits, and may vary from 8% to 15% of participants' compensation, and are allocated to participants' accounts in proportion to each participant's respective compensation. Company contributions were $188,000, $360,000 and $381,000 in 1995, 1994 and 1993, respectively. The Company also has a contributory defined benefit pension plan (defined benefit plan) for its Watertown-based employees, as well as employees of its other domestic divisions and subsidiaries. During 1995, specified groups of employees from its Bridgeville, Pennsylvania and related operations became eligible to participate in the defined benefit plan, as described above. The benefits are based on years of service and the employee's average compensation. The Company's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes. 87/ -20- The following table sets forth the defined benefit plan's funded status and amounts recognized in the Company's balance sheet at December 31, 1995 and 1994:
Dollars in thousands 1995 1994 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $8,082 and $5,226, respectively $(8,822) $(5,712) Projected benefit obligation for service rendered to date (9,696) (6,740) Plan assets at fair value 7,103 5,763 Projected benefit obligation in excess of plan assets (2,593) (977) Unrecognized net loss 1,282 348 Unrecognized prior service cost 559 76 Unrecognized net assets being amortized over approximately 17 years (415) (468) Adjustment for additional minimum liability (552) - Accrued pension cost at December 31 $(1,719) $(1,021) Net pension cost included the following components: Dollars in thousands 1995 1994 1993 Service cost $ 706 $ 652 $ 568 Interest cost 658 636 556 Return on plan assets (1,157) 46 (632) Net amortization and deferral 588 (703) 50 Net periodic pension cost $ 795 $ 631 $ 542
The discount rates used in determining the projected benefit obligation were 7.25% in 1995 and 8.5% in 1994. The rate of increase in compensation levels used was 6%. The expected long-term rate of return on assets was 9%. Plan assets consist primarily of money market, equity and fixed income securities and are administered by an independent trustee. The Ionics Section 401(k) stock savings plan is available to employees of the Company and its domestic subsidiaries. The Company matches 50% of employee contributions allocated to the Company's common stock up to 6% of their salary. The Company recognized expense of $512,228, $375,682 and $306,987 in 1995, 1994 and 1993, respectively, under this plan. The Company does not provide post-retirement health care to its employees or any other significant post-retirement benefits other than those described above. 88/ -21- NOTE 12. FINANCIAL INSTRUMENTS OFF-BALANCE-SHEET RISK The Company issues letters of credit as guarantees for various performance and bid obligations. Approximately $18.9 million and $28.0 million of these letters were outstanding at December 31, 1995 and 1994, respectively. Approximately 40% of the letters of credit outstanding at December 31, 1995 are scheduled to expire in 1996. The Company periodically enters into foreign exchange contracts to hedge certain operational and balance sheet exposures against changes in foreign currency exchange rates. Because the impact of movements in currency exchange rates on foreign exchange contracts offsets the related impact on the underlying items being hedged, these instruments do not subject the Company to risk that would not otherwise result from changes in currency exchange rates. The Company had no foreign exchange contracts outstanding at December 31, 1995 and 1994. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, investments, trade accounts receivable and notes receivable. The credit risk of cash equivalents and investments is low as the funds are primarily invested in U.S. Government securities and with major financial institutions. The Company's concentrations of credit risk with respect to trade accounts receivable and notes receivable is considered low. The Company's customer base is spread across many different industries and geographies and the Company obtains guaranteed letters of credit for many of its foreign orders. The Company has an unbilled receivable of approximately $7 million from the Czech Government under its Diamo contract. In accordance with the terms of the contract, this will be billed as the appropriate contract milestones are achieved. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash equivalents and investments closely approximate their fair values as these items have relatively short maturities and are highly liquid. Based on market information, the carrying amounts of notes receivable and debt approximate their fair values. INVESTMENTS IN SECURITIES Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Realized gains and losses from the sale of such investments during fiscal 1995 and 1994 were not significant. Long-term investments, maturing in 1998 and 2001, which the Company intends to hold to maturity have been recorded at a net cost of $1,219,000 and $1,127,000 at December 31, 1995 and 1994, respectively. At December 31, 1994, the Company also had $643,000 of short-term investments which were held to maturity. These investments were comprised of Spanish Government bonds and their recorded amounts approximated fair market value. At December 31, 1994, all other investments, totaling $4,974,000, were considered to be available for sale and were recorded at fair market value, which approximated amortized cost, based primarily upon reports received from an outside investment service. These investments were classified as short-term investments as discussed in Note 1. 89/ -22- NOTE 13. CONSOLIDATION AND ACQUISITION AHLFINGER WATER COMPANY On November 2, 1995, the Company acquired substantially all of the assets and liabilities of Ahlfinger Water Company (Ionics Ahlfinger) for $5.9 million through the issuance of 144,679 shares of common stock. Ionics Ahlfinger, based in Dallas, is an ion-exchange and reverse osmosis water treatment service company. The acquisition was accounted for under the purchase method with the results of Ionics Ahlfinger included from November 2, 1995. Goodwill of $4.7 million is being amortized on a straight-line basis over 30 years. Pro forma results of operations have not been presented, as the effect of this acquisition on the financial statements was not material. IONICS RESOURCES CONSERVATION COMPANY Ionics Resources Conservation Company (Ionics RCC) designs, engineers and installs wastewater treatment systems. Effective December 1, 1993, the Company acquired a substantial portion of the assets and liabilities of Ionics RCC for approximately $10.9 million. The acquisition was accounted for under the purchase method with the results of Ionics RCC included from December 1, 1993. Goodwill of $8.5 million is being amortized on a straight-line basis over 40 years. Fiscal 1993 Ionics RCC revenues for the period prior to December 1, 1993 were approximately $25.3 million. Payment of the Ionics RCC purchase price of $10.9 million plus related interest expense of approximately $100,000 occurred on January 27, 1994. AQUA COOL ENTERPRISES, INC. Prior to May 26, 1993, Aqua Cool Enterprises, Inc. ("ACE") was an independently owned distributor of the Company's Aqua Cool bottled water products. Effective May 26, 1993, the Company provided a loan to ACE for the redemption of debt and preferred equity financing previously provided to ACE by Westinghouse Credit Corporation. Subsequently, the Company exchanged its loan to ACE for ACE preferred stock. As the Company holds an option to acquire the outstanding common stock of ACE for a nominal amount, the Company has consolidated the operating results of ACE as if ACE were a wholly owned subsidiary since May 26, 1993. Under the purchase method of accounting, goodwill of $12.2 million, net of federal income tax benefits of $4.3 million, is being amortized on a straight-line basis over 40 years. SUBSEQUENT BUSINESS COMBINATIONS Subsequent to December 31, 1995, the Company completed separate combination transactions with Aqua Design, Inc. (Aqua Design) on January 3, 1996 and Apollo Ultrapure Water Systems, Inc. (Apollo) on January 10, 1996. Under the terms of each agreement, the Company issued 222,977 and 331,567 shares of common stock, respectively, in exchange for more than 90% of the outstanding common stock of each company. Each transaction will be accounted for as a pooling of interests. Because the operating results from prior years of Aqua Design and Apollo were not material, both individually and in the aggregate, compared to those of the Company, these transactions will be recorded by restatement of retained earnings as of January 1, 1996. Accordingly, no restatement of prior-period statements of operations will be made. Aqua Design owns and operates membrane-based seawater desalination systems to generate drinking and process water primarily for hotels and municipalities in the Caribbean. Total 1995 revenues were approximately $10.0 million. Apollo sells ultrapure water and related services to a variety of industrial and commercial users in southern California. Total 1995 revenues were approximately $11.0 million. 90/ -23- NOTE 14. SEGMENT INFORMATION BUSINESS SEGMENTS The Company conducts its business in three business segments: Membranes and Related Equipment - electrodialysis reversal systems, reverse osmosis systems, microfiltration systems, ultrafiltration systems, conventional water and wastewater treatment equipment, other separations technology products, zero liquid discharge systems, instruments for monitoring and on-line detection of pollution levels, and fabricated products. Water, Food and Chemical Supply - water, food and chemicals produced by the Company's membrane-based equipment, including desalted water for municipal and industrial use; ultrapure water for electronics and other industries; reduced mineral whey for food applications; and bleach and related chemicals. Consumer Products - bottled water, over and under-the-sink point of use devices, carbon filtering media, point-of-entry systems for treating the entire home water supply, household bleach and other cleaning products. 91/ -24- The following table summarizes the Company's operations by the three business segments and "Corporate and Other." Corporate and Other includes corporate-sponsored research and development programs and certain employee bonuses and insurance costs.
Membranes Water, Food Corporate and Related and Chemical Consumer and Equipment Supply Products Other Total Dollars in thousands 1995 Revenue - unaffiliated customers $128,159 $ 65,985 $ 54,473 $ - $248,617 Intersegment transfers 6,202 2,422 - (8,624) - Income from operations 11,964 13,521 5,657 (3,158) 27,984 Equity income (loss) (49) 57 634 - 642 Earnings before interest and taxes (EBIT) 11,915 13,578 6,291 (3,158) 28,626 EBIT % of total EBIT, after allocation of Corporate and Other 37% 43% 20% - 100% Identifiable assets 118,373 101,302 94,977 (2,298) 312,354 Investments in affiliated companies - 1,218 3,656 - 4,874 Depreciation and amortization 2,779 11,644 5,972 203 20,598 Capital expenditures 12,692 15,103 21,138 150 49,083 1994 Revenue - unaffiliated customers $119,426 $ 53,894 $ 49,056 $ - $222,376 Intersegment transfers 1,718 615 - (2,333) - Income from operations 5,407 11,742 6,884 (2,992) 21,041 Equity income (loss) (349) 124 844 - 619 Earnings before interest and taxes (EBIT) 5,058 11,866 7,728 (2,992) 21,660 EBIT % of total EBIT, after allocation of Corporate and Other 21% 48% 31% - 100% Identifiable assets 88,010 83,043 85,667 15,025 271,745 Investments in affiliated companies 34 1,211 4,174 - 5,419 Depreciation and amortization 2,503 10,911 4,567 111 18,092 Capital expenditures 8,048 13,223 16,589 360 38,220 1993 Revenue - unaffiliated customers $ 92,352 $ 45,584 $ 37,337 $ - $175,273 Intersegment transfers 1,165 574 9 (1,748) - Income from operations 4,850 8,234 5,074 (998) 17,160 Equity income (loss) (195) 155 815 - 775 Earnings before interest and taxes (EBIT) 4,655 8,389 5,889 (998) 17,935 EBIT % of total EBIT, after allocation of Corporate and Other 25% 44% 31% - 100% Identifiable assets 78,341 80,778 61,849 23,605 244,573 Investments in affiliated companies 338 1,108 3,543 - 4,989 Depreciation and amortization 2,159 10,041 3,052 211 15,463 Capital expenditures 2,605 8,520 3,042 500 14,667
/92 -25- GEOGRAPHIC SEGMENTS Revenues are reflected in the segment from which the sales are made. Transfers between areas are generally made at cost plus a markup which approximates prices charged to unaffiliated customers. Certain corporate expenses are included with the elimination of intersegment profit in the "Corporate and Eliminations" segment. Identifiable corporate assets, which are net of eliminations, comprise primarily cash and short-term investments. Information about the Company's operations by geographic segment follows:
Corporate United Other and Dollars in thousands States Europe International Eliminations Total 1995 Revenue - unaffiliated customers $197,600 $39,824 $11,193 $ - $248,617 Intersegment transfers 8,343 1,655 2,935 (12,933) - Income from operations 21,153 6,424 1,467 (1,060) 27,984 Identifiable assets 230,422 74,161 16,708 (8,937) 312,354 1994 Revenue - unaffiliated customers $172,864 $38,948 $10,564 $ - $222,376 Intersegment transfers 11,969 1,606 1,764 (15,339) - Income from operations 16,229 4,679 1,046 (913) 21,041 Identifiable assets 193,832 53,941 14,664 9,308 271,745 1993 Revenue - unaffiliated customers $123,599 $42,571 $ 9,103 $ - $175,273 Intersegment transfers 9,375 420 2,824 (12,619) - Income from operations 10,968 5,417 985 (210) 17,160 Identifiable assets 171,483 42,041 11,771 19,278 244,573 Included in the United States segment are export sales of approximately 23%, 19% and 14% for 1995, 1994 and 1993, respectively. Including these U.S. export sales, the percentages of total revenues attributable to activities outside the U.S. were 39%, 37% and 40% in 1995, 1994 and 1993, respectively.
93/ -26- SELECTED FINANCIAL DATA STATEMENT OF OPERATIONS DATA
Dollars in thousands, except per share amounts 1995 % 1994 % 1993 % 1992 % 1991 % Revenues $248,617 100.0 $222,376 100.0 $175,273 100.0 $155,240 100.0 $138,120 100.0 Income before income taxes 29,589 11.9 22,717 10.2 19,724 11.3 18,184 11.7 11,649 8.4 Net income 19,682 7.9 15,448 6.9 13,807 7.9 12,820 8.3 8,278 6.0 Earnings per share 1.35 1.09 .98 .93 .73
BALANCE SHEET DATA Dollars in thousands 1995 1994 1993 1992 1991 Current assets $118,208 $113,477 $109,957 $108,757 $ 72,334 Current liabilities 58,142 54,877 46,082 30,499 36,528 Working capital 60,066 58,600 63,875 78,258 35,806 Total assets 317,228 277,164 249,562 224,590 177,979 Long-term debt and notes payable 182 99 109 439 5,579 Stockholders' equity 250,360 218,610 200,081 190,340 127,931
94/ -27-
SELECTED QUARTERLY FINANCIAL DATA (unaudited) Dollars in thousands, Earnings Earnings except per Gross Net per Gross Net per share amounts Revenues Profit Income Share Revenues Profit Income Share 1995 1994 First Quarter $ 56,873 $18,192 $ 4,128 $ .29 First Quarter $ 53,035 $ 15,697 $ 3,397 $ .24 Second Quarter 56,542 18,798 4,618 .32 Second Quarter 49,828 15,889 3,582 .26 Third Quarter 62,948 19,705 5,281 .36 Third Quarter 56,450 17,346 4,172 .29 Fourth Quarter 72,254 22,427 5,655 .38 Fourth Quarter 63,063 19,251 4,297 .30 $248,617 $79,122 $19,682 $1.35 $222,376 $ 68,183 $15,448 $1.09
COMMON STOCK PRICE RANGE High Low High Low 1995 1994 First Quarter $30 1/2 $26 1/4 First Quarter $25 3/8 $21 7/8 Second Quarter 34 3/4 26 5/8 Second Quarter 23 3/4 21 3/8 Third Quarter 42 33 5/8 Third Quarter 27 1/8 21 3/4 Fourth Quarter 45 1/2 39 5/8 Fourth Quarter 31 3/8 23 11/16
95/ -28- BOARD OF CORPORATE PRINCIPAL U.S. CORPORATE DIRECTORS OFFICERS OFFICES, HEADQUARTERS AFFILIATES & ARTHUR L. ARTHUR L. SUBSIDIARIES Ionics, GOLDSTEIN * GOLDSTEIN Incorporated Chairman of the Chairman of the Aqua Cool Pure 65 Grove Street Board, President Board, President Bottled Water Watertown, and Chief and Chief Watertown, Massachusetts Executive Executive Officer Massachusetts 02172 Officer Ionics, K. KACHADURIAN Elite INVESTOR Incorporated Executive Vice Chemicals, N.E. INFORMATION President Ludlow, MA WILLIAM L. BROWN #+ The Annual Retired Chairman WILLIAM E. KATZ General Ionics Meeting of of the Board, Executive Vice Cuyahoga Falls, Ionics' The First President Ohio shareholders National Bank of will be held Boston ROBERT J. Ionics Thursday, May HALLIDAY Ahlfinger Water 2, 1996 at 2:00 ARNAUD DE VITRY Vice President, Dallas, P.M. at Bank of D'AVAUCOURT #+ Finance and Texas Boston, 100 Engineering Accounting and Federal Street, Consultant and Chief Financial Ionics Apollo Boston, Director of Officer Ultrapure Massachusetts Various Pico Rivera, Organizations STEPHEN KORN California Ionics' common Vice President, stock is traded LAWRENCE E. General Counsel Ionics Aqua on the New York FOURAKER *#+ and Clerk Design Stock exchange Retired Trustee Campbell, under the and Director of THEODORE G. California symbol ION. As Various PAPASTAVROS of March 15, Organizations Vice President, Ionics, 1996 there were Strategic Incorporated approximately SAMUEL A. Planning and Bridgeville, 1,800 GOLDBLITH *#+ Treasurer Pennsylvania shareholders of Professor record. No Emeritus, Ionics Pure cash dividends Massachusetts Solutions were paid in Institute of Phoenix, either 1995 or Technology, and Arizona 1994 pursuant Consultant to Ionics' Ionics current policy K. KACHADURIAN Resources to retain Executive Vice Conservation earnings for President Bellevue, use in its Ionics, Washington business. Incorporated Ionics Ultrapure Water Campbell, California /96 PRINCIPAL For information OVERSEAS or assistance WILLIAM E. KATZ OFFICES, regarding Executive Vice AFFILIATES & individual President SUBSIDIARIES stock records, Ionics, transactions or Incorporated Eau et certificates, Industrie please call the ROBERT B. LUICK Paris, Transfer Of Counsel, France Agent's Sullivan and Telephone Worcester, Elite Response Attorneys Chemicals Pty. Center: 1-800- Ltd. 426-5523 JOHN J. SHIELDS #+ Brisbane, Qld. between 9 A.M. President and Australia and 5 P.M. Chief Executive Officer, King's Global Water Ionics' Annual Point Holdings Services, S.A. Report on Form 10-K Incorporated Panama City, and other corporate Panama information may be CARL S. SLOANE #+ obtained on Ionics' Ernest L. Ionics(Bermuda) home page on the Arbuckle Ltd. Worldwide Web at: Professor of Hamilton, http://www.ionics.com Business Bermuda Administration, A copy of Harvard Ionics Ionics' Annual University Iberica, S.A. Report on Form Graduate School Grand Canary, 10-K, which is of Business Spain filed with the Administration Securities and Ionics, Exchange MARK S. WRIGHTON #+ Incorporated Commission, Chancellor Hong Kong will be sent to Washington University any shareholder Ionics Italba, upon request ALLEN S. WYETT #+ S.p.A. directed to President, Wyett Milan, Italy Investor Consulting Group, Inc. Relations, Ionics Ionics, Nederland, B.V. Incorporated, Maastricht, P.O. Box 9131, the Netherlands Watertown, Massachusetts Ionics (UK) 02272-9131, or Ltd. by calling: London, England (617)926-2510 ext. 874 TRANSFER AGENT & REGISTRAR State Steet Bank and Trust Company, Boston, Massachusetts 97/ AUDITORS *Member of Executive Aqua Cool Coopers & Committee Kuwait Lybrand L.L.P. Kuwait City, Boston, #Member of Audit Kuwait Massachusetts Committee Aqua Cool +Member of Saudi Arabia Compensation Dammam, Saudi Committee Arabia Ionics-Mega s.r.o. Prague, Czech Republic Jalal-Ionics, Ltd. Manama, Bahrain Watlington Waterworks Ltd. Devonshire, Bermuda Yuasa-Ionics Co., Ltd. Tokyo, Japan /98 EX-21 7 EXHIBIT 21 IONICS, INCORPORATED SUBSIDIARIES OF THE REGISTRANT State or Other Jurisdiction Name of Incorporation Ionics Foreign Sales Corporation Limited Jamaica Global Water Services, S.A. Panama Ionics Italba, S.p.A. Italy Ionics Iberica, S.A. Spain Ionics Nederland B.V. The Netherlands Ionics Ultrapure Water Corporation California Ionics Securities Corporation Massachusetts Ionics (U.K.) Limited United Kingdom Ionics (Bermuda) Ltd. Bermuda Elite Chemicals Pty. Ltd. Australia Eau et Industrie France Resources Conservation Co. International Delaware Apollo Ultrapure Water Systems, Inc. California Aqua Design, Inc. California 99/ EX-23 8 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements for the Ionics 1979 Stock Option Plan on Form S-8 (registration nos. 33-54293, 33-41598, 33-5814, 33-14194, 2-64255, 2-72936 and 2-82780); in the registration statement for the Ionics Section 401(k) Stock Savings Plan on Form S-8 (registration no. 33-2092); in the registration statement for the Ionics 1994 Restricted Stock Plan (No. 33-509051); and in the registration statement for the Ionics 1986 Stock Option Plan for Non- Employee Directors (registration no. 33-54400), of our reports dated February 20, 1996, on our audits of the consolidated financial statements and the financial statement schedule of Ionics, Incorporated as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, which are included or incorporated by reference in this Annual Report on Form 10-K. /S/COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 29, 1996 100/ EX-24 9 X EXHIBIT 24 POWER OF ATTORNEY We, the undersigned officers and directors of Ionics, Incorporated (the "Company"), hereby severally constitute Arthur L. Goldstein and Stephen Korn, and each of them, to sign for us, and in our names in the capacities indicated below, the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995, and any and all amendments to such Annual Report, hereby ratifying and confirming our signatures as they may be signed by our attorneys to such Annual Report and any and all amendments thereto. Witness our hands on the respective dates set forth below. Signature Title Date /s/William L. Brown Director March 29, 1996 William L. Brown /s/Arnaud de Vitry d'Avaucourt Director March 29, 1996 Arnaud de Vitry d'Avaucourt /s/Lawrence E. Fouraker Director March 29, 1996 Lawrence E. Fouraker /s/Samuel A. Goldblith Director March 29, 1996 Samuel A. Goldblith /s/Arthur L. Goldstein Chairman of the Board March 29, 1996 Arthur L. Goldstein of Directors, Chief Executive Officer and President (Principal Executive Officer) /s/Kachig Kachadurian Director March 29, 1996 Kachig Kachadurian /s/William E. Katz Director March 29, 1996 William E. Katz /s/Robert B. Luick Director March 29, 1996 Robert B. Luick /s/John J. Shields Director March 29, 1996 John J. Shields /s/Carl S. Sloane Director March 29, 1996 Carl S. Sloane /s/Mark S. Wrighton Director March 29, 1996 Mark S. Wrighton /s/Allen S. Wyett Director March 29, 1996 Allen S. Wyett 101/ EX-27 10
5 1,000 YEAR DEC-31-1995 DEC-31-1995 8,086 0 83,647 2,132 19,208 118,208 246,400 91,042 317,228 58,142 0 14,354 0 0 236,006 317,228 248,617 248,617 169,495 169,495 0 564 0 28,947 9,907 19,682 0 0 0 19,682 1.35 1.34
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