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EXHIBIT 99.2
THE ECOLOCHEM GROUP
Combined Balance Sheets (Unaudited)
DECEMBER 31, SEPTEMBER 30,
2003 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,715,199 4,074,193
Short-term investments 11,386,420 11,379,528
Trade accounts receivable, net 19,941,037 21,879,247
Other receivables 748,215 1,187,092
Inventories 3,791,441 3,436,517
Prepaid expenses 320,816 357,492
------------ -----------
Total current assets 40,903,128 42,314,069
------------ -----------
Property, plant and equipment:
Land 4,557,135 4,417,295
Buildings and improvements 26,441,250 25,987,078
Plant equipment 15,201,392 15,200,807
Processing equipment 112,177,857 109,059,574
Transportation equipment 5,635,494 5,635,494
Furniture and fixtures 4,253,392 4,220,260
Construction in progress 12,473,494 12,176,020
------------ -----------
180,740,014 176,696,528
Less accumulated depreciation 93,786,102 89,818,367
------------ -----------
Net property, plant and equipment 86,953,912 86,878,161
Other assets, net 2,554,745 3,146,229
------------ -----------
$130,411,785 132,338,459
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt 2,013,416 2,098,967
Accounts payable 2,805,947 6,364,166
Accrued expenses 4,050,569 3,644,328
------------ -----------
Total current liabilities 8,869,932 12,107,461
Notes payable 4,350,000 4,800,000
Long-term debt, less current installments 8,700,000 8,700,000
Deferred income taxes 1,438,000 1,438,000
------------ -----------
Total liabilities 23,357,932 27,045,461
------------ -----------
Minority interest 1,365,331 1,329,045
------------ -----------
Stockholders' equity:
Ecolochem, Inc. common stock, $1 par value
Authorized 30,000
shares; issued and outstanding 12,000 shares 12,000 12,000
Ecolochem International, Inc.:
Class A common stock, voting, no par value
Authorized 1,000 shares; issued and outstanding 100 shares -- --
Class B common stock, nonvoting, no par value
Authorized 1,000 shares; issued and outstanding 400 shares -- --
Moson Holdings, L.L.C -- --
Ecolochem S.A.R.L., $13.51 par value. Authorized 1,048 shares;
issued and outstanding 1,048 shares 14,156 14,156
Additional paid-in capital 1,688,316 1,688,316
Retained earnings 101,185,053 101,460,859
Accumulated other comprehensive income 2,788,997 788,622
------------ -----------
Total stockholders' equity 105,688,522 103,963,953
------------ -----------
$130,411,785 132,338,459
============ ===========
See accompanying notes to combined financial statements (unaudited).
1
THE ECOLOCHEM GROUP
Combined Statements of Earnings (Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
---- ----
Sales $ 24,074,065 27,761,096
Cost of goods sold 14,662,490 14,379,279
------------ ----------
Gross profit 9,411,575 13,381,817
Selling, general and administrative
expenses 7,224,944 6,856,184
Loss on sale of property and equipment 99,632 17,043
------------ ----------
Operating income 2,086,999 6,508,590
------------ ----------
Other income (expense):
Interest expense (100,896) (182,847)
Interest income 37,015 30,637
Other, net (note 2) (42,423) 12,987,532
------------ ----------
(106,304) 12,835,322
------------ ----------
Earnings before income taxes 1,980,695 19,343,912
Income taxes 124,500 654,000
------------ ----------
Net earnings $ 1,856,195 18,689,912
============ ==========
See accompanying notes to combined financial statements (unaudited).
2
THE ECOLOCHEM GROUP
Combined Statements of Stockholders' Equity and Comprehensive Income (Unaudited)
Three Months ended December 31, 2003
ECOLOCHEM ECOLOCHEM
INTERNATIONAL, INTERNATIONAL,
ECOLOCHEM, INC. INC. ACCUMULATED
INC. CLASS A CLASS B MOSON ADDITIONAL OTHER TOTAL
COMMON COMMON COMMON HOLDINGS, ECOLOCHEM PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK STOCK L.L.C. S.A.R.L. CAPITAL EARNINGS INCOME (LOSS) EQUITY
----- ----- ----- ------ -------- ------- -------- ------------- ------
Balance at
September 30,
2003 12,000 -- -- -- 14,156 1,688,316 101,460,859 788,622 103,963,953
Net earnings -- -- -- -- -- -- 1,856,195 -- 1,856,195
Unrealized
changes in:
Cash flow
hedging
derivatives -- -- -- -- -- -- -- 53,163 53,163
Cumulative
foreign
currency
translation
adjustments -- -- -- -- -- -- -- 1,947,212 1,947,212
Comprehensive
income 3,856,570
Distributions to
stockholders -- -- -- -- -- -- (2,132,001) -- (2,132,001)
--------- ---------- ---------- -------- ------ --------- ----------- ------------- -----------
Balance at
December 31,
2003 $ 12,000 -- -- -- 14,156 1,688,316 101,185,053 2,788,997 105,688,522
========= ========== ========== ======== ====== ========= =========== ============= ===========
See accompanying notes to combined financial statements (unaudited).
3
THE ECOLOCHEM GROUP
Combined Statements of Cash Flows (Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
Cash flows from operating activities:
Net earnings $ 1,856,195 18,689,912
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,982,947 3,066,768
Loss on sale of property and equipment, net 99,632 17,043
Changes in assets and liabilities increasing (decreasing)
cash flows from operating activities:
Trade accounts receivable, net 1,938,210 405,441
Other receivables 438,877 (36,632)
Inventories (354,924) (141,151)
Prepaid expenses 36,676 (211,847)
Other assets 591,484 220,473
Accounts payable (3,558,219) (824,857)
Accrued expenses 459,404 1,295,899
----------- -----------
Net cash provided by operating activities 4,490,282 22,481,049
----------- -----------
Cash flows from investing activities:
Capital expenditures (3,160,774) (3,837,994)
Proceeds from sale of property and equipment 2,444 24,000
Additions to short-term investments (6,892) (1,615,972)
----------- -----------
Net cash used in investing activities (3,165,222) (5,429,966)
----------- -----------
Cash flows from financing activities:
Principal repayments on debt (85,551) (455,615)
Repayments on notes payable (450,000) (800,000)
Minority interest contributions 36,286 --
Distributions to stockholders (2,132,001) (3,100,000)
----------- -----------
Net cash used in financing activities (2,631,266) (4,355,615)
----------- -----------
Changes due to exchange rate 1,947,212 711,977
----------- -----------
Net increase in cash and cash equivalents 641,006 13,407,445
Cash and cash equivalents at beginning of period 4,074,193 5,005,655
----------- -----------
Cash and cash equivalents at end of period $ 4,715,199 18,413,100
=========== ===========
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $ 56,914 142,205
=========== ===========
Income taxes $ 341,166 574,771
=========== ===========
See accompanying notes to combined financial statements (unaudited).
4
THE ECOLOCHEM GROUP
Notes to Combined Financials Statements (Unaudited)
The accompanying combined financial statements of the Ecolochem
Group have been prepared in accordance with accounting principles
generally accepted in the United States. These accounting principles
were applied on a basis consistent with those of the audited
combined financial statements of the Ecolochem Group for the fiscal
year ended September 30, 2003, contained in the Proxy Statement of
Ionics, Incorporated filed with the Securities and Exchange
Commission on January 9, 2004 (the "Ionics Proxy Statement"). In the
opinion of management, the accompanying unaudited interim combined
financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Ecolochem
Group's financial position as of December 31, 2003, its results of
operations for the three months ended December 31, 2003 and 2002,
and its cash flows for the three months ended December 31, 2003 and
2002. The combined balance sheet of the Ecolochem Group at September
30, 2003 was derived from the audited financial statements of the
Ecolochem Group for the fiscal year ended September 30, 2003 as
filed in the Ionics Proxy Statement. The results of operations for
the interim period are not necessarily indicative of the results of
operations to be expected for the full year or any future period.
The accompanying combined financial statements have been prepared
with the assumption that users of the interim financial information
have either read or have access to the Ecolochem Group's combined
financial statements for the year ended September 30, 2003 contained
in the Ionics Proxy Statement. Accordingly, footnote disclosures
that would substantially duplicate the disclosures contained in the
Ecolochem Group's audited combined financial statements as of and
for the year ended September 30, 2003 have been omitted from these
combined financial statements. These combined financial statements
have been prepared in accordance with the instructions to Form 10-Q
and the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such instructions, rules and regulations. The
accompanying combined financial statements should be read in
conjunction with the Ecolochem Group's audited combined financial
statements for the fiscal year ended September 30, 2003 contained in
the Ionics Proxy Statement.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS
The Ecolochem Group (the Group) provides emergency and supplemental
water treatment services and long-term outsourced industrial water
treatment systems primarily to electric utilities, refineries,
petro-chemical plants, and pulp and paper mills. The Group is
headquartered in the United States with operations also in Mexico,
United Kingdom, France, Brazil, the Philippines, Belgium, Australia
and Singapore.
(B) INCOME TAXES
Ecolochem, Inc. and Ecolochem International, Inc. are treated as S
corporations for federal and certain state income tax purposes.
Moson Holdings, L.L.C. and Ecolochem S.A.R.L. are partnerships for
federal and state income tax purposes. Therefore, earnings of the
Group are taxable to the individual stockholders rather than to the
entities. Certain states and foreign jurisdictions do not recognize
S corporation status; thus, income taxes are reported and paid by
Ecolochem, Inc. and Ecolochem International, Inc. to those states
and foreign jurisdictions. Total foreign and state income tax
expense was approximately $124,500 and $654,000 for the three months
ended December 31, 2003 and 2002, respectively.
Ecolochem, Inc. and Ecolochem International, Inc. file income tax
returns in foreign jurisdictions as may be applicable. Deferred
income taxes have been recorded for temporary differences arising in
those foreign jurisdictions and relate primarily to differences in
depreciation of property, plant and equipment.
5
(2) LITIGATION SETTLEMENT
In December 2002, Ecolochem, Inc. settled a patent infringement suit. The
courts upheld Ecolochem, Inc.'s exclusive patent rights and Ecolochem,
Inc. recovered damages. The damages recovered are included in other income
on the accompanying combined statements of earnings for the three months
ended December 31, 2002.
6