[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)