-----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, Wgl62Ow19qZPJ3dSG6sWns92pD+WPEzRlmyffAYNz3/Z0/22QK3peRGyuZAYCmA7 ARjgXqtPXw2vs0C4TMs9yQ== 0000052466-01-500021.txt : 20020410 0000052466-01-500021.hdr.sgml : 20020410 ACCESSION NUMBER: 0000052466-01-500021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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: 1934 Act SEC FILE NUMBER: 001-07211 FILM NUMBER: 1783018 BUSINESS ADDRESS: STREET 1: 65 GROVE ST CITY: WATERTOWN STATE: MA ZIP: 02172 BUSINESS PHONE: 6179262500 10-Q 1 sept200110q.txt SEPTEMBER 30, 2001 10Q [LOGO] IONICS Worldwide Headquarters Ionics, Incorporated 65 Grove Street Watertown, Massachusetts 02472-2882 USA Tel: (617) 926-2500 Fax: (617) 926-3760 www.ionics.com November 13, 2001 Securities and Exchange Commission Filing Desk - Room 1004 450 Fifth Street, N.W. Washington, DC 20549 Re: Ionics, Incorporated (Commission File No. 1-7211) - filing of Form 10-Q for quarter ended September 30, 2001, Account No. 0000052466 Ladies and Gentlemen: I enclose via electronic filing pursuant to the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") System on behalf of Ionics, Incorporated (the "Company"), the Form 10-Q for the quarter ended September 30, 2001. Please acknowledge receipt of this electronic filing by return email to the Company's email address: plynes@ionics.com. A manually signed copy of the Form 10-Q will be kept on file at the offices of the Company. If you have any questions or require further information, please contact the undersigned at 617-926-2510, ext. 450. Very truly yours, /s/Stephen Korn Stephen Korn Vice President and General Counsel Enc. cc: Arthur L. Goldstein, Chairman and Chief Executive Officer Daniel M. Kuzmak, Vice President, Finance and Chief Financial Officer FORM 10-Q ------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 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 of incorporation) (I.R.S. Employer Identification Number) 65 Grove Street Watertown, Massachusetts 02472-2882 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 926-2500 Former name, former address and former fiscal year, if changed since last report: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At October 19, 2001 the Company had 17,467,242 shares of Common Stock, par value $1 per share, outstanding. IONICS, INCORPORATED INDEX Page Number 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 9 PART II Other Information 13 Signatures 14 1
PART I - FINANCIAL INFORMATION IONICS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, ----------------------------- ------------------------------ 2001 2000 2001 2000 -------------- ------------- -------------- -------------- Revenue: Equipment Business Group $ 51,182 $ 48,188 $ 154,933 $ 131,949 Ultrapure Water Group 26,623 40,528 85,685 94,832 Consumer Water Group 34,455 28,389 94,047 81,741 Instrument Business Group 6,033 7,781 20,264 21,963 -------------- ------------- -------------- -------------- 118,293 124,886 354,929 330,485 -------------- ------------- -------------- -------------- Costs and expenses: Cost of sales of Equipment Business Group 40,291 37,107 120,242 99,591 Cost of sales of Ultrapure Water Group 21,628 33,190 67,568 76,433 Cost of sales of Consumer Water Group 19,400 16,993 52,929 47,593 Cost of sales of Instrument Business Group 3,272 3,658 9,701 9,697 Research and development 1,496 1,833 4,795 5,481 Selling, general and administrative 25,655 26,415 81,736 73,475 -------------- ------------- -------------- -------------- 111,742 119,196 336,971 312,270 -------------- ------------- -------------- -------------- Income from operations 6,551 5,690 17,958 18,215 Interest income 176 265 1,147 850 Interest expense (1,221) (1,270) (4,273) (3,196) Equity income 876 289 1,906 1,260 -------------- ------------- -------------- -------------- Income before income taxes and minority interest 6,382 4,974 16,738 17,129 Provision for income taxes 2,170 1,690 5,691 5,824 -------------- ------------- -------------- -------------- Income before minority interest 4,212 3,284 11,047 11,305 Minority interest in (earnings) losses (1) (358) 328 (602) -------------- ------------- -------------- -------------- Net income $ 4,211 $ 2,926 $ 11,375 $ 10,703 ============== ============= ============== ============== Basic earnings per share $ 0.24 $ 0.18 $ 0.67 $ 0.66 ============== ============= ============== ============== Diluted earnings per share $ 0.24 $ 0.18 $ 0.66 $ 0.65 ============== ============= ============== ============== Shares used in basic earnings per share calculations 17,449 16,234 16,983 16,220 ============== ============= ============== ============== Shares used in diluted earnings per share calculations 17,626 16,519 17,132 16,451 ============== ============= ============== ==============
The accompanying notes are an integral part of these financial statements. 2
IONICS, INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share and par value amounts) September 30, December 31, 2001 2000 ---------------- ---------------- Current assets: Cash and cash equivalents $ 23,025 $ 25,497 Short-term investments 602 1,105 Notes receivable, current 5,082 4,741 Accounts receivable 156,146 162,711 Receivables from affiliated companies 1,640 792 Inventories: Raw materials 25,685 21,061 Work in process 10,558 8,264 Finished goods 7,175 5,376 ---------------- ---------------- 43,418 34,701 Other current assets 17,144 16,443 Deferred income taxes 12,749 12,749 ---------------- ---------------- Total current assets 259,806 258,739 Notes receivable, long-term 22,945 17,502 Investments in affiliated companies 24,894 18,310 Property, plant and equipment: Land 8,617 8,738 Buildings 49,028 48,773 Machinery and equipment 323,863 312,138 Other, including furniture, fixtures and vehicles 52,663 48,470 ---------------- ---------------- 434,171 418,119 Less accumulated depreciation (212,261) (195,276) ---------------- ---------------- 221,910 222,843 Other assets 57,389 60,072 ---------------- ---------------- Total assets $ 586,944 $ 577,466 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 60,995 $ 75,045 Accounts payable 41,002 56,014 Customer deposits 3,318 4,883 Accrued commissions 2,538 2,002 Accrued expenses 38,965 35,419 ---------------- ---------------- Total current liabilities 146,818 173,363 Long-term debt and notes payable 10,427 10,911 Deferred income taxes 30,962 30,334 Other liabilities 6,088 5,997 Commitments and contingencies Stockholders' equity: Common stock, par value $1, authorized shares: 55,000,000; issued and outstanding: 17,467,242 in 2001 and 16,369,029 in 2000 17,467 16,369 Additional paid-in capital 187,703 162,114 Retained earnings 208,991 197,616 Accumulated other comprehensive loss (21,512) (19,238) ---------------- ---------------- Total stockholders' equity 392,649 356,861 ---------------- ---------------- Total liabilities and stockholders' equity $ 586,944 $ 577,466 ================ ================
The accompanying notes are an integral part of these financial statements. 3
IONICS, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine Months Ended September 30, ----------------------------------------- Operating activities: 2001 2000 --------------- -------------- Net income $ 11,375 $10,703 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 26,963 24,116 Provision for losses on accounts and notes receivable 2,255 2,479 Equity in earnings of affiliates (1,906) (1,346) Compensation expense on restricted stock awards - 36 Changes in assets and liabilities: Notes receivable (5,988) (2,049) Accounts receivable 2,438 (42,017) Inventories (9,065) (4,780) Other current assets (819) (3,941) Investments in affiliate 903 1,224 Accounts payable and accrued expenses (11,708) 5,990 Income taxes 1,656 298 Other 251 537 --------------- -------------- Net cash provided (used) by operating activities 16,355 (8,750) --------------- -------------- Investing activities: Additions to property, plant and equipment (27,394) (35,822) Disposals of property, plant and equipment 1,617 1,427 Additional investments in affiliates (5,479) (1,136) Acquisitions, net of cash acquired - (4,250) Sale (purchase) of short-term investments 425 (443) --------------- -------------- Net cash used by investing activities (30,831) (40,224) --------------- -------------- Financing activities: Principal payments on current debt (88,569) (61,603) Proceeds from borrowings of current debt 75,137 112,178 Principal payments on long-term debt (1,158) (838) Proceeds from borrowings of long-term debt 250 4,807 Proceeds from issuance of common stock 21,814 - Proceeds from stock option plans 4,872 1,769 --------------- -------------- Net cash provided by financing activities 12,346 56,313 --------------- -------------- Effect of exchange rate changes on cash (342) (64) --------------- -------------- Net change in cash and cash equivalents (2,472) 7,275 Cash and cash equivalents at beginning of period 25,497 13,169 --------------- -------------- Cash and cash equivalents at end of period $ 23,025 $20,444 =============== ==============
The accompanying notes are an integral part of these financial statements. 4 IONICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation In the opinion of the management of Ionics, Incorporated (the "Company"), all adjustments have been made that are necessary for a fair statement of the consolidated financial position of the Company, the consolidated results of its operations and the consolidated cash flows for each period presented. The consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These financial statements should be read in conjunction with the Company's 2000 Annual Report as filed on Form 10-K with the Securities and Exchange Commission. Other than noted below, there have been no significant changes in the information reported in those Notes, other than from the normal business activities of the Company, and there have been no changes which would, in the opinion of management, have a materially adverse effect upon the Company. Certain prior year amounts have been reclassified to conform to the current year presentation with no impact on net income. 2. Earnings per share (EPS) calculations
(Amounts in thousands, except per share amounts) For the three months ended September 30, ------------------------------------------------------------------------------------------------ 2001 2000 ----------------------------------------------- --------------------------------------------- Net Per Share Net Per Share Income Shares Amount Income Shares Amount --------------- ------------ ------------ ------------ ------------ -------------- Income available to common stockholders $ 4,211 17,449 $ 0.24 $ 2,926 16,234 $ 0.18 Effect of dilutive stock options - 177 - - 285 - --------------- ------------ ------------ ------------ ------------ -------------- Diluted EPS $ 4,211 17,626 $ 0.24 $ 2,926 16,519 $ 0.18 =============== ============ ============ ============ ============ ============== For the nine months ended September 30, ------------------------------------------------------------------------------------------------ 2001 2000 ----------------------------------------------- --------------------------------------------- Net Per Share Net Per Share Income Shares Amount Income Shares Amount --------------- ------------ ------------ ------------ ------------ -------------- Basic EPS Income available to common stockholders $ 11,375 16,983 $ 0.67 $ 10,703 16,220 $ 0.66 Effect of dilutive stock options - 149 (0.01) - 231 (0.01) --------------- ------------ ------------ ------------ ------------ -------------- Diluted EPS $ 11,375 17,132 $ 0.66 $ 10,703 16,451 $ 0.65 =============== ============ ============ ============ ============ ==============
The effect of dilutive stock options excludes those stock options for which the impact would have been antidilutive based on the exercise price of the options. The number of options that were antidilutive for the three months ended September 30, 2001 and 2000 was 1,416,317 and 731,750, respectively. The number of options that were antidilutive for the nine months ended September 30, 2001 and 2000 was 1,448,317 and 1,600,084, respectively. 5 3. Comprehensive Income The table below sets forth comprehensive income as defined by Statement of Financial Accounting Standard No. 130 for the three month and nine month periods ended September 30, 2001 and 2000, respectively.
(Amounts in thousands) Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 -------------- ------------- --------------- ------------- Net income $ 4,211 $ 2,926 $ 11,375 $10,703 Other comprehensive income (loss), net of tax: Translation adjustments 2,810 (3,580) (2,274) (7,156) -------------- ------------- --------------- ------------- Comprehensive income $ 7,021 $ (654) $ 9,101 $ 3,547 ============== ============= =============== =============
4. Segment Information The following table summarizes the Company's operations by the four business group segments and "Corporate" (Corporate includes the elimination of intersegment transfers).
For the three months ended September 30, 2001 ---------------------------------------------------------------------------------------- Equipment Ultrapure Consumer Instrument Business Water Water Business Group Group Group Group Corporate Total -------------- ------------- ------------ ------------- ------------ ------------- (Amounts in thousands) Revenue - unaffiliated customers $ 51,182 $ 26,623 $ 34,455 $ 6,033 $ - $ 118,293 Inter-segment transfers 374 470 - 334 (1,178) - Gross profit 10,891 4,995 15,055 2,761 - 33,702 For the three months ended September 30, 2000 ---------------------------------------------------------------------------------------- Equipment Ultrapure Consumer Instrument Business Water Water Business Group Group Group Group Corporate Total -------------- ------------- ------------ ------------- ------------ ------------- (Amounts in thousands) Revenue - unaffiliated customers $ 48,188 $ 40,528 $ 28,389 $ 7,781 $ - $ 124,886 Inter-segment transfers 4,815 1,021 - 444 (6,280) - Gross profit 11,081 7,338 11,396 4,123 - 33,938
6
For the nine months ended September 30, 2001 ---------------------------------------------------------------------------------------- Equipment Ultrapure Consumer Instrument Business Water Water Business Group Group Group Group Corporate Total -------------- ------------- ------------ ------------- ------------ ------------- (Amounts in thousands) Revenue - unaffiliated customers $154,933 $ 85,685 $ 94,047 $ 20,264 $ - $ 354,929 Inter-segment transfers 2,361 2,436 - 1,332 (6,129) - Gross profit 34,691 18,117 41,118 10,563 - 104,489 For the nine months ended September 30, 2000 ---------------------------------------------------------------------------------------- Equipment Ultrapure Consumer Instrument Business Water Water Business Group Group Group Group Corporate Total -------------- ------------- ------------ ------------- ------------ ------------- (Amounts in thousands) Revenue - unaffiliated customers $131,949 $ 94,832 $ 81,741 $ 21,963 $ - $ 330,485 Inter-segment transfers 6,853 2,585 - 1,816 (11,254) - Gross profit 32,358 18,399 34,148 12,266 - 97,171
5. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. Implementation of SFAS No. 141 is required for fiscal years beginning after December 15, 2001. In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of assets (but not those acquired in a business combination) at acquisition. This Statement also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. The provisions of this Statement are required to be applied with fiscal years beginning after December 15, 2001. This Statement is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. SFAS Nos. 141 and 142 were issued recently, and consequently the Company has not yet determined what effect, if any, the adoption of SFAS Nos. 141 and 142 will have on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS No. 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for financial statements for fiscal years beginning after June 15, 2002. Ionics is currently assessing but has not yet determined the impact of SFAS No. 143 on its financial position or results of operations. 7 In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." This accounting standard, which is effective for fiscal years beginning after December 31, 2001, requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The effect of adopting SFAS No. 144 on the Company's financial position and results of operations has not yet been determined. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Comparison of the Three and Nine Months Ended September 30, 2001 with the Three - ------------------------------------------------------------------------------- and Nine Months Ended September 30, 2000 - ---------------------------------------- Revenues for the third quarter of 2001 decreased 5.3% while net income increased 43.9%, compared to the results of the third quarter of 2000. Revenues for the nine-month period of 2001 increased 7.4%, and net income increased by 6.3% from the comparable nine-month period of 2000. Gross profit was $33.7 million in the third quarter of 2001 compared to $33.9 million in the third quarter of 2000. For the nine-month period of 2001, gross profit was $104.5 million compared to $97.2 million for the nine-month period of 2000. Gross profit increased in the third quarter and nine-month period of 2001 for the Consumer Water Group (CWG). The Equipment Business Group's (EBG) gross profit decreased in the third quarter of 2001 but increased for the nine-month period in 2001 from the comparable periods in 2000. Gross profit for the Ultrapure Water Group (UWG) and the Instrument Business Group (IBG) decreased in the third quarter and nine-month period of 2001 from the comparable periods in 2000. Total revenues for the third quarter of 2001 decreased 5.3% to $118.3 million from $124.9 million in 2000. For the third quarter of 2001, revenues were higher in EBG and CWG but lower in UWG and IBG as compared to the same period in 2000. Revenues for the nine-month period of 2001 increased 7.4% to $354.9 million from $330.5 million in the comparable 2000 period. Revenues were higher in both EBG and CWG but lower in UWG and IBG in the nine-month period of 2001, compared to the same period of 2000. EBG revenues increased $3.0 million, or 6.2%, in the third quarter and increased $23.0 million, or 17.4%, in the nine-month period of 2001 as compared with the same respective periods of 2000. These increases resulted primarily from continuing work on a desalination facility in Trinidad. UWG revenues decreased $13.9 million, or 34.3%, in the third quarter of 2001 from the third quarter of 2000. This decrease was due primarily to lower revenues from the Company's domestic operations specifically related to the microelectronics industry and, to a lesser extent, lower revenues from the Company's Far East operations. UWG revenues decreased $9.1 million, or 9.6%, in the nine-month period of 2001 compared to the nine-month period of 2000. This decrease was due primarily to lower revenues from the Company's Far East operations. The revenues of CWG increased $6.1 million, or 21.4%, in the third quarter of 2001 compared to the third quarter of 2000. Similarly, CWG revenues increased $12.3 million, or 15.1%, in the nine-month period of 2001 compared to the nine-month period of 2000. These increases were due to continued growth in both the bottled water business, primarily in the United Kingdom, and home water businesses. IBG revenues decreased $1.7 million, or 22.5%, in the third quarter of 2001 compared to the third quarter of 2000. Revenues for the nine-month period of 2001 also decreased $1.7 million, or 7.7%, as compared to revenues for the nine-month period of 2000. These decreases in revenue reflect lower instrument sales particularly to the microelectronics industry. Total cost of sales as a percentage of revenues for the third quarter was 71.5% in 2001 and 72.8% in 2000. For the nine-month period, cost of sales as a percentage of revenues was 70.6% in 2001 and 2000. Cost of sales as a percentage of revenues increased for EBG and IBG for both the third quarter and nine-month periods of 2001, as compared to the respective periods of 2000. UWG's and CWG's cost of sales as a percentage of revenues decreased in the third quarter and nine-month period of 2001 compared to the third quarter and nine-month period of 2000. EBG's cost of sales percentage 9 increased to 78.7% and 77.6% in the third quarter and nine-month period of 2001, respectively, as compared to 77.0% and 75.5% in the same respective periods in 2000. The increases in this percentage for EGB primarily reflect a shift in business mix to lower margin capital equipment. IBG's cost of sales percentage increased to 54.2% and 47.9% in the third quarter and nine-month period of 2001, respectively, from 47.0% and 44.2% in the third quarter and nine-month period of 2000, respectively. These increases were due to lower sales volume and unabsorbed manufacturing overhead. UWG's cost of sales as a percentage of revenues decreased to 81.2% and 78.9% in the third quarter and nine-month period of 2001, respectively, as compared to 81.9% and 80.6% in the same respective periods in 2000. These decreases were due primarily to the lower volume of revenues in 2001 as compared to 2000. Cost of sales as a percentage of revenues for CWG decreased to 56.3% in both the third quarter and nine-month period of 2001 from 59.9% and 58.2% in the third quarter and nine-month period of 2000, respectively. The decreases for both periods are due to increased sales volume, particularly in the United Kingdom operations, and overall improved operations. The nine-month period decrease also is attributable to a gain recognized on the sale of certain bottled water assets in the second quarter of 2001. Operating expenses, consisting of Research and Development expense and Selling, General and Administrative expense, as a percentage of revenues increased during the third quarter of 2001 to 23.0% from 22.6% in 2000. For the nine-month period, operating expenses as a percentage of revenues increased to 24.4% in 2001 from 23.9% in 2000. The increase in operating expenses as a percentage of revenues primarily reflected the decrease in UWG revenue, which generally has lower selling costs relative to revenues than do CWG and IBG, and the higher revenue growth in CWG, which generally has higher selling costs relative to revenues than do EBG and UWG. Interest income of $0.2 million for the third quarter of 2001 decreased from $0.3 million for the third quarter of 2000. Interest income of $1.1 million for the nine-month period of 2001 increased from $0.9 million for the nine-month period of 2000. Interest expense of $1.2 million for the third quarter of 2001 remained relatively flat with the third quarter of 2000 interest expense of $1.3 million. Interest expense of $4.3 million in the nine-month period of 2001, as compared to interest expense of $3.2 million in the nine-month period of 2000, reflects higher average borrowings in the nine-month period of 2001 than in the same period of 2000. Equity income increased to $0.9 million for the third quarter of 2001 from $0.3 million for the third quarter of 2000. Equity income increased to $1.9 million for the nine-month period of 2001 from $1.3 million for the nine-month period of 2000. These increases are primarily the result of higher equity income from a Mexican investment. The Company's effective tax rate was 34% for both the third quarter and the nine-month period of 2001, as well as for the same respective periods in 2000. Financial Condition Working capital increased $27.6 million during the first nine months of 2001, and the Company's current ratio also increased to 1.8 at September 30, 2001 from 1.5 at December 31, 2000. At September 30, 2001, the Company had $23.0 million in cash and cash equivalents, a decrease of $2.5 million from December 31, 2000. Notes payable and current portion of long-term debt decreased by $14.1 million, and accounts payable decreased by $15.0 million. Accounts receivable decreased by $6.6 million while inventory increased by $8.7 million. Notes receivable, long-term and investments in affiliated companies increased by $5.4 million and $6.6 million, respectively. Cash provided by operating activities totaled $16.4 million for the nine-month period of 2001. The primary uses of cash for investing purposes were additions to property, plant and equipment. Significant capital expenditures were made for "own and operate" facilities and to expand the Company's bottled water operations. Net cash provided by financing activities, $12.3 million for the nine-month period of 2001, was primarily from short-term borrowings and the issuance of common stock. 10 During 2001, construction has been continuing on the Trinidad desalination facility owned by Desalination Company of Trinidad and Tobago Ltd. (Desalcott), in which the Company has a 40% equity interest. The Company has loaned $10 million to the 60% equity owner, Hafeez Karamath Engineering Services Ltd. (HKES), as the source of HKES' equity contribution, in addition to the $10 million contributed by the Company for its 40% equity interest. Desalcott has entered into a "bridge loan" agreement with a Trinidad bank providing $60 million in construction financing. In November 2001, the Bank has increased the amount of the bridge loan to Desalcott from U.S. $60 million to U.S. $77.7 million, subject to certain conditions, including the Company's making a loan of $10 million to Desalcott. Based on current estimates, the augmented bridge loan plus the $20 million in equity provided to Desalcott, and the $10 million loan to be made by the Company should provide sufficient funds to complete construction of the project. In addition, Desalcott has accepted an offer to provide long-term financing from the same bank, subject to certain conditions. The proceeds from the long-term financing as currently proposed should be sufficient to repay the bridge loan and the $10 million loan to be made by the Company to Desalcott. The Company completed a private placement of common stock to Fidelity Management & Research Company (Fidelity), on behalf of funds and accounts managed by Fidelity, in April 2001. 875,000 shares were sold at a price of $24.93 per share, and the total proceeds to the Company were approximately $21.8 million. The proceeds were used to reduce short-term borrowings. The Company filed a registration statement with the Securities and Exchange Commission covering the resale of these shares. The registration statement became effective on June 7, 2001. On June 29, 2001, the Company entered into a Third Amended and Restated Revolving Credit Agreement with Fleet National Bank (as lender and agent) and Bank of America, N.A., the Chase Manhattan Bank, and Mellon Bank, N.A. (the "Credit Agreement"). Under the terms of the Credit Agreement, which supercedes a prior loan agreement with Fleet National Bank, the Company may borrow up to $90 million, subject to terms and financial covenants typical to such loan agreements. The Company believes that its cash and cash equivalents, cash from operations, lines of credit and foreign exchange facilities are adequate to meet its currently anticipated needs. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. Implementation of SFAS No. 141 is required for fiscal years beginning after December 15, 2001. In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of assets (but not those acquired in a business combination) at acquisition. This Statement also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. The provisions of this Statement are required to be applied with fiscal years beginning after December 15, 2001. This Statement is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. SFAS Nos. 141 and 142 were issued recently, and consequently the Company has not yet determined what effect, if any, the adoption of SFAS Nos. 141 and 142 will have on the Company's financial position or results of operations. 11 In August 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS No. 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for financial statements for fiscal years beginning after June 15, 2002. Ionics is currently assessing but has not yet determined the impact of SFAS No. 143 on its financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." This accounting standard, which is effective for fiscal years beginning after December 31, 2001, requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The effect of adopting SFAS No. 144 on the Company's financial position and results of operations has not yet been determined. Quantitative and Qualitative Disclosures about Market Risk Derivative Instruments and Market Risk - -------------------------------------- There has been no material change in the information reported in the Company's 2000 Annual Report as filed on Form 10-K with the Securities and Exchange Commission with respect to these risk matters. Forward-Looking Information Safe Harbor Statement under Private Securities Litigation Reform Act of 1995 - ---------------------------------------------------------------------------- The Company's future results of operations and certain statements contained in this report, including, without limitation, "Management's Discussion and Analysis of Results of Operations and Financial Condition," constitute forward-looking statements. Such statements are based on management's current views and assumptions and involve risks, uncertainties and other factors that could cause actual results to differ materially from management's current expectations. Among these factors are business conditions and the general economy; competitive factors, such as acceptance of new products and price pressures; risk of nonpayment of accounts receivable; risks associated with foreign operations; risks involved in litigation; regulations and laws affecting business in each of the Company's markets; market risk factors, as described above under "Derivative Instruments and Market Risks;" and other risks and uncertainties described from time to time in the Company's filings with the Securities and Exchange Commission. 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Reports on Form 8-K No reports on Form8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2001. All other items reportable under Part II have been omitted as inapplicable or because the answer is negative, or because the information was previously reported to the Securities and Exchange Commission. 13 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: November 13, 2001 By: /s/Arthur L. Goldstein --------------------------------- Arthur L. Goldstein Chairman and Chief Executive Officer (duly authorized officer) Date: November 13, 2001 By: /s/Daniel M. Kuzmak ---------------------------------- Daniel M. Kuzmak Vice President and Chief Financial Officer (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----