-----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, LnE0fR/cIwZr05c9lScscjYy1ONDLpcjprHa0kxgA4+Gmz/0AWhkeDOmvYgYV2lI yzJxtj/voqWVz4gfCpFdow== 0000052466-98-000005.txt : 19980515 0000052466-98-000005.hdr.sgml : 19980515 ACCESSION NUMBER: 0000052466-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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-Q SEC ACT: SEC FILE NUMBER: 001-07211 FILM NUMBER: 98621044 BUSINESS ADDRESS: STREET 1: 65 GROVE ST CITY: WATERTOWN STATE: MA ZIP: 02172 BUSINESS PHONE: 6179262500 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-7211 IONICS, INCORPORATED (exact name of registrant as specified in its charter) MASSACHUSETTS 04-2068530 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 65 Grove Street, Watertown, Massachusetts 02172 (Address of principal executive offices) (Zip Code) (617) 926-2500 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 1998 Common Stock, Par Value $1 16,057,085 Shares /1 IONICS, INCORPORATED FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 INDEX Page No. Part I - Financial Information Consolidated Statements of Operations 2 Consolidated Balance Sheets 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of Results of Operations and Financial Condition 6 Part II - Other Information 8 Signatures 9 Exhibit Index 10 Exhibit 3.1 - Articles of Amendment to the 11 Restated Articles of Organization dated May 8, 1998. Exhibit 27 - Financial Data Schedule 15 (for electronic purposes only) - 1 - /2 PART I - FINANCIAL INFORMATION IONICS, INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share amounts)
Three Months Ended March 31, 1998 1997 Net revenue: Membranes and related equipment $38,274 $39,833 Water, food and chemical supply 22,204 30,153 Consumer products 18,496 17,116 78,974 87,102 Costs and expenses: Cost of membranes and related equipment 25,294 27,800 Cost of water, food and chemical supply 15,097 21,464 Cost of consumer products 10,298 9,783 Research and development 1,644 1,302 Selling, general and administrative 17,877 16,511 70,210 76,860 Income from operations 8,764 10,242 Interest income 151 288 Interest expense (119) (236) Equity income 111 109 Income before income taxes and minority interest 8,907 10,403 Provision for income taxes 2,896 3,431 Income before minority interest 6,011 6,972 Minority interest expense 3 - Net income $ 6,008 $ 6,972 Basic earnings per share $ .37 $ .44 Diluted earnings per share $ .37 $ .43 Shares used in basic earnings per share calculations 16,027 15,864 Shares used in diluted earnings per share calculations 16,411 16,402 The accompanying notes are an integral part of these financial statements.
-2- /3 IONICS, INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share amounts)
March 31, December 31, 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 22,555 $ 25,787 Short-term investments 794 107 Notes receivable, current 3,903 3,856 Accounts receivable 95,119 98,275 Receivables from affiliated companies 2,673 2,624 Inventories: Raw materials 17,621 17,183 Work in process 9,378 8,773 Finished goods 3,195 2,954 30,194 28,910 Other current assets 6,254 6,291 Total current assets 161,492 165,850 Notes receivable, long-term 8,537 8,349 Investments in affiliated companies 4,643 3,983 Property, plant and equipment: Land 6,941 6,767 Buildings 34,437 34,239 Machinery and equipment 239,573 236,526 Other, including furniture, fixtures and vehicles 42,628 41,397 323,579 318,929 Less accumulated depreciation (143,958) (138,972) 179,621 179,957 Other assets 49,382 48,597 Total assets $ 403,675 $ 406,736 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 3,642 $ 12,084 Accounts payable 23,587 27,099 Customer deposits 3,243 3,685 Accrued commissions 2,425 2,370 Accrued expenses 20,809 20,172 Taxes on income 2,456 602 Total current liabilities 56,162 66,012 Long-term debt and notes payable 1,727 804 Deferred income taxes 15,768 17,783 Other liabilities 2,614 2,478 Stockholders' equity: Common stock, par value $1, 30,000,000 authorized shares; issued: 16,057,085 in 1998 and 16,001,285 in 1997 16,057 16,001 Additional paid-in capital 156,327 154,479 Retained earnings 164,565 158,557 Accumulated other comprehensive income (9,320) (9,126) Unearned compensation (225) (252) Total stockholders' equity 327,404 319,659 Total liabilities and stockholders' equity $ 403,675 $ 406,736 The accompanying notes are an integral part of these financial statements.
-3- /4 IONICS, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Three Months Ended March 31, 1998 1997 Operating activities: Net income $ 6,008 $ 6,972 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,459 6,855 Provision for losses on accounts and notes receivable 167 371 Compensation expense on restricted stock awards 27 27 Changes in assets and liabilities: Notes receivable (341) (1,119) Accounts receivable 2,962 6,738 Inventories (1,128) (1,685) Other current assets 108 494 Investments in affiliates (683) (61) Accounts payable and accrued expenses (3,316) (2,772) Income taxes 1,262 2,190 Other (1,952) (149) Net cash provided by operating activities 9,573 17,861 Investing activities: Additions to property, plant and equipment (6,175) (7,908) Retirements of property, plant and equipment 439 112 Purchase of short-term investments (751) - Net cash used by investing activities (6,487) (7,796) Financing activities: Principal payments on current debt (9,480) (7,363) Proceeds from issuance of current debt 1,205 356 Principal payments on long-term debt (4) - Proceeds from issuance of long-term debt 441 - Proceeds from stock option plans 1,512 1,335 Net cash used by financing activities (6,326) (5,672) Effect of exchange rate changes on cash 8 (349) Net change in cash and cash equivalents (3,232) 4,044 Cash and cash equivalents at beginning of period 25,787 12,269 Cash and cash equivalents at end of period $ 22,555 $ 16,313 The accompanying notes are an integral part of these financial statements.
-4- /5 IONICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of the Company as of March 31, 1998 and December 31, 1997, the consolidated results of its operations for the three months ended March 31, 1998 and 1997 and the consolidated cash flows for the three months then ended. 2. The consolidated results of operations of the Company for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results of operations to be expected for the full year. 3. Reference is made to the Notes to Consolidated Financial Statements appearing in the Company's 1997 Annual Report as filed on Form 10-K with the Securities and Exchange Commission. There have been no significant changes in the information reported in those Notes, other than from the normal business activities of the Company, and there have been no changes which would, in the opinion of Management, have a materially adverse effect upon the Company. 4. Earnings per share (EPS) calculations:
For the period ended March 31, 1998 For the period ended March 31, 1997 Net Per Share Net Per Share Income Shares Amount Income Shares Amount Basic EPS Income available to common $6,008 16,027 $ .37 $6,972 15,864 $ .44 stockholders Effect of dilutive stock options - 384 - 538 ______________________ _______________________ Diluted EPS $6,008 16,411 $ .37 $6,972 16,402 $ .43
5. Comprehensive Income The Company has adopted the Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements for the year ended December 31, 1998. The table below sets forth "comprehensive income" as defined by FAS No. 130 for the three month periods ended March 31, 1998 and 1997.
1998 1997 Net income $6,008 $6,972 Other comprehensive income, net of tax: Translation adjustments (194) (2,325) Comprehensive income $5,814 $4,647
-5- /6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Comparison of the Three Months Ended March 31, 1998 with the Three Months Ended March 31, 1997 Revenues for the first quarter of 1998 decreased 9.3% to $79.0 million from $87.1 million in 1997. Revenues decreased in the Membranes and Related Equipment and Water, Food and Chemical Supply segments and increased in the Consumer Products segment. Membranes and Related Equipment revenues decreased due primarily to a slowdown in sales of ultrapure water systems to the semiconductor industry. This decrease was partially offset by additional sales of instrumentation, particularly to the pharmaceutical industry, and wastewater treatment systems. Water, Food and Chemical Supply revenues decreased due to a reduction in revenue from the ultrapure and municipal water supply businesses. The decrease in municipal water supply was the result of the City of Santa Barbara's buy-out in the second quarter of 1997 of the desalination plant that was constructed and maintained by the Company. Consumer Products revenues in 1998 increased due to higher revenues from bottled water sales. This increase resulted from growth in the customer base in both the United States and the United Kingdom. The increase also reflected an overall average price increase. Cost of sales as a percentage of revenues was 64.2% in 1998 as compared to 67.8% in 1997. Cost of sales as a percentage of revenues decreased in all three business segments. The decrease in the Membranes and Related Equipment segment primarily reflected a shift in the mix of revenues towards the higher margin instrumentation business. In addition, this decrease reflected an improvement in the mix of revenues within the water desalting business and increased unit volume within the instrumentation business which permitted improved absorption of their fixed overhead costs. The decrease in the Water, Food and Chemical Supply segment was the result of a change in the mix of ultrapure water supply contracts. The Consumer Products segment decrease reflected improved absorption of fixed overhead costs and price increases in the bottled water business. Operating expenses as a percentage of revenues were 24.7% in the first quarter of 1998, up from 20.5% in the first quarter of 1997. This increase primarily reflected the decrease in ultrapure water revenues, noted above, which typically carry disproportionately lower selling expenses as a percentage of such revenues than do revenues from other businesses. In addition, operating expenses increased due to expanded marketing initiatives as well as the Company's continued commitment to investment in its research and development programs. -6- /7 Interest income of $0.2 million and interest expense of $0.1 million in 1998 remained relatively consistent with 1997. Financial Condition Working capital increased $5.5 million during the first three months of 1998, while the Company's current ratio increased to 2.9 at March 31, 1998 from 2.5 at December 31, 1997. Cash provided from net income, depreciation and a reduction in accounts receivable totaled $15.4 million in the first three months of 1998 while the primary uses of cash included principal payments on current debt and investments in property, plant and equipment. Significant capital expenditures were made for the Company's bottled water operations and "own and operate" facilities. At March 31, 1998 the Company had $22.6 million in cash and cash equivalents, a decrease of $3.2 million from December 31, 1997. Notes payable and long-term debt decreased $7.5 million during the same period. The Company believes that its cash, cash from operations, lines of credit and foreign exchange facilities are adequate to meet its currently anticipated needs. Forward-Looking Information The Company's future results of operations, as well as statements contained in this Management's Discussion and Analysis which are forward-looking statements, depend upon a number of factors that could cause actual results to differ materially from management's current expectations. Among these factors are business conditions and the general economy; competitive factors, such as acceptance of new products and price pressures; risk of nonpayment of accounts receivable; risks associated with foreign operations; and regulations and laws affecting business in each of the Company's markets. -7- /8 PART II - OTHER INFORMATION Item 1. Legal Proceedings On March 27, 1998, the Company was served with a summons and complaint in connection with a lawsuit captioned United States Filter Corporation and IP Holding Company v. Ionics, Incorporated (98 CV 10541 REK), filed in the U.S. District Court, District of Massachusetts (Boston). Plaintiffs allege that the Company is infringing a certain reissue patent (No. Re 35,741), which issued on March 10, 1998, by making, selling, offering to sell and using the Company's electrodeionization (EDI) systems within the United States. The Company, which pioneered the development of the EDI process over 30 years ago, holds a number of patents related to EDI technology, believes that it has valid defenses to plaintiffs' infringement claim and intends vigorously to defend itself in this litigation, which is in the early pre-discovery stage. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 3.1 Articles of Amendment to the Restated Articles of Organization dated May 7, 1998. (b) Reports on Form 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended March 31, 1998. All other items reportable under Part II have been omitted as inapplicable or because the answer is negative, or because the information was previously reported to the Securities and Exchange Commission. -8- /9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IONICS, INCORPORATED Date: May 14, 1998 By: /s/Arthur L. Goldstein Arthur L. Goldstein Chairman and Chief Executive Officer (duly authorized officer) Date: May 14, 1998 By: /s/Robert J. Halliday Robert J. Halliday Vice President, Finance (chief financial officer) -9- /10 EXHIBIT INDEX Sequentially Numbered Exhibit Page 3.0 Articles of Organization and By-Laws 3.1 Articles of Amendment to the Restated 12 Articles of Organization dated May 8, 1998. 27.0 Financial Data Schedule 16 (for electronic purposes only) -10- /11 EX-3 2 EX-3(A) Exhibit 3.1(a) FEDERAL IDENTIFICATION NO. 04-2068530 THE COMMONWEALTH OF MASSACHUSETTS William Francis Galvin Secretary of the Commonwealth STATE HOUSE, BOSTON, MASS. 02133 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Arthur L. Goldstein President and Stephen Korn Clerk of Ionics, Incorporated _____________________________________________________________ (Name of Corporation) located at 65 Grove Street, Watertown, 02172 _____________________________________________________________ (Exact name of corporation) certify that these Articles of Amendment affecting articles numbered: 3 - ------------------------------------------------------------- (Number those articles 1,2,3,4,5 and/or 6 being amended) Restated of the / Articles of Organization were duly adopted at a meeting held on May 7, 1998, by vote of: 13,097,424 shares of Common Stock of 16,053,335 shares outstanding, __________ ______________ __________ (type, class & series, if any) shares of out of shares outstanding, and (type, class & series, if any) shares of out of shares outstanding, (type, class & series, if any) being at least a majority of each type, class or series outstanding and entitled to vote thereon: /12 To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
___________________________________________________________________________ WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS ___________________________________________________________________________ TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE ___________________________________________________________________________ Common None Common 30,000,000 $1.00 ___________________________________________________________________________ ___________________________________________________________________________ Preferred None Preferred None ___________________________________________________________________________
Change the total authorized to:
___________________________________________________________________________ WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS ___________________________________________________________________________ TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE ___________________________________________________________________________ Common None Common 55,000,000 $1.00 ___________________________________________________________________________ ___________________________________________________________________________ Preferred None Preferred None ___________________________________________________________________________
/13 The foregoing amendment will become effective when these Articles of Amendment are filed in accordance with Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date:______________________ SIGNED UNDER THE PENALTIES OF PERJURY, this 7th day of May, 1998, /s/Arthur L. Goldstein President __________________________________________________________________ /s/Stephen Korn Clerk __________________________________________________________________ /14 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) I hereby approve the within Articles of Amendment and, the filing fee in the amount of $25,000 having been paid, said articles are deemed to have been filed with me this 8th day of May 1998. Effective date: ____________________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF AMENDMENT TO BE SENT TO: ____________________________________ ____________________________________ ____________________________________ ____________________________________ /15 EX-27 3
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 22,555 794 101,166 (2,144) 30,194 161,492 323,579 (143,958) 403,675 56,162 0 16,057 0 0 311,347 403,675 78,974 78,974 50,689 50,689 0 167 (119) 8,796 2,896 6,008 0 0 0 6,008 .37 .37
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