SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 incorporation or organization) (IRS Employer Identification Number)
65 Grove Street 02472
Watertown, Massachusetts (Zip Code)
(Address of principal executive offices)
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 preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act)
Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At June 30, 2002 the registrant had 17,551,779 shares of Common Stock, par
value $1 per share, outstanding.
EXPLANATORY NOTE
Ionics, Incorporated (the "Company") is filing this Amendment No. 1 to Form 10-Q
to amend its quarterly report on Form 10-Q for the quarterly period ended June
30, 2002 to reflect the restatements of its consolidated financial statements
for the three months ended June 30, 2002 and the six months ended June 30, 2002.
These restatements were primarily the result of intercompany transactions,
including transactions between the Company and its French subsidiary that were
erroneously recorded at the subsidiary level. The Company's consolidated
financial statements as of and for the three and six months ended June 30, 2002
contained in this Amendment No. 1 to Form 10-Q reflect the effect of these
restatements. See Note 2 to Notes to Consolidated Financial Statements.
The Company has amended in their entirety Items 1 and 2 of Part I of this
quarterly report to reflect changes resulting from the restatement described
above, and to update the information contained therein to reflect developments
which have occurred subsequent to August 14, 2002, the date on which the Company
filed its quarterly report on Form 10-Q for the quarterly period ended June 30,
2002. In addition, Item 5 has been added to Part II of this Amendment No. 1 to
Form 10-Q. Items 3, 4 and 6 of Part II of this Amendment No. 1 to Form 10-Q are
not amended hereby and only reiterate the information previously disclosed under
those Items in the Company's quarterly report on Form 10-Q for the quarterly
period ended June 30, 2002, which was filed with the Securities and Exchange
Commission on August 14, 2002.
IONICS, INCORPORATED
FORM 10-Q/A
FOR QUARTER ENDED JUNE 30, 2002
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2002 and 2001 2
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 5-13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 14-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21-22
SIGNATURES 23
CERTIFICATIONS 24
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
-------------------------- ----------------------------
2002 2001 2002 2001
----------- ------------ ------------ ------------
Revenues: (as restated) (as restated)
Equipment Business Group $ 35,944 $ 41,708 $ 70,992 $ 81,336
Ultrapure Water Group 25,440 30,818 50,185 71,666
Consumer Water Group 8,726 30,189 19,279 59,429
Instrument Business Group 6,810 6,443 13,354 14,231
Affiliated companies 2,577 4,516 5,692 9,974
----------- ------------ ------------ ------------
79,497 113,674 159,502 236,636
----------- ------------ ------------ ------------
Costs and expenses:
Cost of sales of Equipment Business Group 26,579 31,473 52,176 61,188
Cost of sales of Ultrapure Water Group 18,613 24,385 37,611 55,065
Cost of sales of Consumer Water Group 4,874 15,496 11,704 33,448
Cost of sales of Instrument Business Group 2,584 2,990 5,337 6,429
Cost of sales to affiliated companies 2,279 4,382 5,316 9,719
Research and development 1,594 1,609 3,215 3,299
Selling, general and administrative 21,545 27,580 41,400 56,081
----------- ------------ ------------ ------------
78,068 107,915 156,759 225,229
----------- ------------ ------------ ------------
Income from operations 1,429 5,759 2,743 11,407
Interest income 868 746 1,861 971
Interest expense (376) (1,448) (936) (3,052)
Equity income 782 589 1,674 1,030
----------- ------------ ------------ ------------
Income before income taxes and minority interest 2,703 5,646 5,342 10,356
Provision for income taxes 1,297 1,920 2,173 3,521
----------- ------------ ------------ ------------
Income before minority interest 1,406 3,726 3,169 6,835
Minority interest in (earnings) losses (161) 443 (425) 329
----------- ------------ ------------ ------------
Net income $ 1,245 $ 4,169 $ 2,744 $ 7,164
=========== ============ ============ ============
Basic earnings per share $ 0.07 $ 0.24 $ 0.16 $ 0.43
=========== ============ ============ ============
Diluted earnings per share $ 0.07 $ 0.24 $ 0.15 $ 0.42
=========== ============ ============ ============
Shares used in basic earnings per share calculations 17,547 17,100 17,528 16,746
=========== ============ ============ ============
Shares used in diluted earnings per share calculations 17,707 17,183 17,742 16,886
=========== ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share and par value amounts)
June 30, December 31,
2002 2001
---------------- ----------------
ASSETS (as restated)
Current assets:
Cash and cash equivalents $ 139,127 $ 178,283
Short-term investments - 21
Notes receivable, current 4,347 4,892
Accounts receivable, net 110,935 118,255
Receivables from affiliated companies 24,320 17,199
Inventories:
Raw materials 19,410 20,047
Work in process 9,563 7,547
Finished goods 7,095 5,219
---------------- ----------------
36,068 32,813
Other current assets 11,549 11,031
Deferred income taxes 15,787 16,297
---------------- ----------------
Total current assets 342,133 378,791
Notes receivable, long-term 24,497 23,210
Investments in affiliated companies 22,757 23,798
Property, plant and equipment:
Land 6,382 6,288
Buildings 42,176 41,272
Machinery and equipment 261,683 243,964
Other, including furniture, fixtures and vehicles 30,587 29,938
---------------- ----------------
340,828 321,462
Less accumulated depreciation 168,240 154,430
---------------- ----------------
172,588 167,032
Goodwill 19,215 19,037
Deferred income taxes, long-term 12,643 12,643
Other assets 9,166 8,802
---------------- ----------------
Total assets $ 602,999 $ 633,313
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 9,575 $ 14,257
Accounts payable 26,005 34,640
Customer deposits 4,814 2,159
Accrued commissions 1,688 2,011
Accrued expenses 47,812 58,064
Income taxes payable 24,678 45,735
---------------- ----------------
Total current liabilities 114,572 156,866
Long-term debt and notes payable 11,149 10,126
Deferred income taxes 37,810 34,199
Deferred revenue from affiliated companies 3,508 3,360
Other liabilities 3,514 5,409
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1, authorized shares: 55,000,000;
issued: 17,551,779 in 2002 and 17,477,005 in 2001 17,552 17,477
Additional paid-in capital 190,353 188,555
Retained earnings 245,061 242,317
Accumulated other comprehensive loss (20,520) (24,996)
---------------- ----------------
Total stockholders' equity 432,446 423,353
---------------- ----------------
Total liabilities and stockholders' equity $ 602,999 $ 633,313
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Six months ended
June 30,
-----------------------------------
2002 2001
---------------- ----------------
Operating activities: (as restated)
Net income $ 2,744 $ 7,164
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 11,240 16,167
Amortization of goodwill - 1,509
Provision for losses on accounts and notes receivable 332 2,924
Equity in earnings of affiliates (1,674) (1,030)
Changes in assets and liabilities:
Notes receivable (1,884) (4,467)
Accounts receivable and receivables from
affiliated companies 2,930 (2,337)
Inventories (2,539) (6,291)
Other current assets 329 2,876
Investments in affiliated companies 1,984 72
Accounts payable and accrued expenses (19,939) (12,366)
Income taxes (19,652) 1,686
Other (371) 506
---------------- ----------------
Net cash (used in) provided by operating activities (26,500) 6,413
---------------- ----------------
Investing activities:
Additions to property, plant and equipment (14,113) (18,402)
Disposals of property, plant and equipment 546 1,185
Additional investments in affiliates - (4,487)
Acquisitions, net of cash acquired (635) -
Sale of short-term investments 184 452
---------------- ----------------
Net cash used in investing activities (14,018) (21,252)
---------------- ----------------
Financing activities:
Principal payments on current debt (53,374) (54,222)
Proceeds from borrowings of current debt 48,618 45,918
Principal payments on long-term debt (480) (847)
Proceeds from borrowings of long-term debt 1,135 227
Proceeds from issuance of common stock 60 21,814
Proceeds from issuance of stock under stock option plans 1,654 3,095
---------------- ----------------
Net cash (used in) provided by financing activities (2,387) 15,985
---------------- ----------------
Effect of exchange rate changes on cash 3,749 (788)
---------------- ----------------
Net change in cash and cash equivalents (39,156) 358
Cash and cash equivalents at beginning of period 178,283 25,497
---------------- ----------------
Cash and cash equivalents at end of period $ 139,127 $ 25,855
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated quarterly financial statements of Ionics, Incorporated
(the "Company") are unaudited; however, in the opinion of the management
of 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 or any future period.
The accompanying financial statements have been prepared with the
assumption that users of the interim financial information have either
read or have access to the Company's financial statements for the year
ended December 31, 2001. Accordingly, footnote disclosures that would
substantially duplicate the disclosures contained in the Company's
December 31, 2001 audited financial statements have been omitted from
these financial statements. These 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. These financial statements should be read in
conjunction with the Company's 2001 Annual Report as filed on Form 10-K
(the "2001 Form 10-K") with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to the
current year presentations. As part of the Company's adoption of a matrix
business organization effective January 1, 2002, results associated with
the Company's trailer leasing and non-consumer bleach based chemical
supply businesses are included in the Ultrapure Water Group (UWG)
segment, rather than the Equipment Business Group (EBG) segment where
they had historically been presented. Segment information for all periods
has been presented to reflect these changes. See Note 6 below. In
addition, the consolidated quarterly financial statements now reflect
revenues and cost of sales derived from transactions with affiliated
entities in which the Company maintains less than a majority equity
interest as "affiliated companies" revenues and costs of sales (see Note
5 of Notes to Consolidated Financial Statements of the 2001 Form 10-K).
These amounts had previously been reflected within the reportable
business segments. Shipping and handling costs are included in revenues
and cost of sales. During the three months ended June 30, 2002, the
Company recorded adjustments reflecting immaterial corrections to prior
year periods which resulted in an increase in net income of approximately
$140,000. Such adjustments were recorded in the financial statements for
the three months ended June 30, 2002 as originally reported and as
restated.
In addition, Notes 3, 9 and 11 of the Notes to the Consolidated Financial
Statements contained herein have been updated to reflect developments
which have occurred subsequent to August 14, 2002, the date on which the
Company filed its quarterly report on Form 10-Q for the quarterly period
ended June 30, 2002.
2. Restatement of Quarterly Financial Statements
The Company's consolidated financial statements for the three months
ended June 30, 2002 and the six months period ended June 30, 2002 have
been restated primarily as a result of intercompany transactions,
including transactions between the Company and its French subsidiary that
were erroneously recorded at the subsidiary level. The restatement did
not materially impact any items on the Company's consolidated balance
sheet as of June 30, 2002. The following table presents a summary of the
impact of the restatements on the Company's consolidated statements of
operations for the three and six months ended June 30, 2002:
-5-
(Amounts in thousands, except per share amounts)
Three months ended June 30, 2002
--------------------------------------
As originally
reported As restated
----------------- -----------------
Revenues $ 79,321 $ 79,497
Costs and expenses 77,303 78,068
Income from operations 2,018 1,429
Income before income taxes
and minority interest 3,292 2,703
Provision for income taxes 1,119 1,297
Minority interest in earnings 79 161
Net income 2,094 1,245
Basic earnings per share $ 0.12 $ 0.07
Diluted earnings per share $ 0.12 $ 0.07
Six months ended June 30, 2002
--------------------------------------
As originally
reported As restated
----------------- -----------------
Revenues $ 159,662 $ 159,502
Costs and expenses 155,639 156,759
Income from operations 4,023 2,743
Income before income taxes
and minority interest 6,622 5,342
Provision for income taxes 2,251 2,173
Minority interest in earnings 340 425
Net income 4,031 2,744
Basic earnings per share $ 0.23 $ 0.16
Diluted earnings per share $ 0.23 $ 0.15
"Revenues" and the cost of sales of the Equipment Business Group
component of "Costs and expenses" for the three and six months ended June
30, 2002 as shown under the "As restated" columns in the consolidated
financial statements and above have each been reduced by the amount of
$200,000 from the corresponding numbers shown in (i) Note 8 to the
Company's quarterly report on Form 10-Q for the quarterly period ended
September 30,2002 and filed with the Securities and Exchange Commission
on November 14, 2002, and (ii) the summary restated Consolidated
Statements of Operations for such periods contained in the Company's
November 5, 2002 third quarter results press release. These reductions
resulted from a reclassification of an accounting entry relating to the
Company's French subsidiary. This reclassification did not affect income
from operations or net income.
3. Commitments and Contingencies
Trinidad Project. In the second quarter of 2002, construction was
completed on the first four (out of five) phases of the Trinidad
desalination facility owned by Desalination Company of Trinidad and
Tobago Ltd. ("Desalcott"), in which the Company has a 40% equity
interest, and the facility commenced water deliveries to its customer,
the Water and Sewerage Authority of Trinidad and Tobago. In 2000, the
Company acquired 200 ordinary shares of Desalcott for $10 million and
loaned $10 million to Hafeez Karamath Engineering Services Ltd. ("HKES"),
the founder of Desalcott and promoter of the Trinidad desalination
project, to enable HKES to acquire an additional 200 ordinary shares of
Desalcott. Prior to those investments, HKES owned 100 ordinary shares of
Desalcott. As a result, the Company currently owns a 40% equity interest
in Desalcott, and HKES currently owns a 60% equity interest in Desalcott.
The Company records 100% of any net loss and 40% of any net income
reported by Desalcott. In periods in which Desalcott has an accumulated
loss (as opposed to retained earnings), the Company records 100% of any
net income of Desalcott up to the amount of Desalcott's accumulated loss,
and 40% of any net income thereafter.
-6-
The Company's $10 million loan to HKES is included in long-term notes
receivable on the Company's consolidated balance sheets. The loan bears
interest at a rate equal to 2% above LIBOR, with interest payable
starting October 25, 2002 and every six months thereafter and at
maturity. Prior to maturity, however, accrued interest payments (as well
as principal payments) are payable only to the extent dividends or other
distributions are paid by Desalcott on the ordinary shares of Desalcott
owned by HKES and pledged to the Company. Principal repayment is due in
14 equal installments commencing on April 25, 2004 and continuing
semiannually thereafter. The loan matures and is payable in full on April
25, 2011. The loan is secured by a security interest in the shares of
Desalcott owned by HKES and purchased with the borrowed funds, which is
subordinate to the security interest in those shares in favor of the
Trinidad bank that provided the construction financing for Desalcott. In
addition, any dividends or other distributions paid by Desalcott to HKES
must be applied to loan payments to the Company.
In 2000, Desalcott entered into a "bridge loan" agreement with a Trinidad
bank providing $60 million in construction financing. Effective November
8, 2001, the loan agreement was amended to increase maximum borrowings to
$79.9 million. The Company is obligated to lend up to $10 million to
Desalcott as an additional source of funds for project completion costs
once all bridge loan proceeds have been expended. However, the bridge
loan of $79.9 million and the $20 million equity provided to Desalcott
(together with the additional $10 million dollars the Company is
obligated to lend to Desalcott) have not provided sufficient funds to pay
all of Desalcott's obligations in completing construction and
commissioning of the project prior to receipt of long-term financing.
Included in Desalcott's obligations at June 30, 2002 and September 30,
2002 was approximately $22.3 million and $24.2 million, respectively,
payable to the Company's Trinidad subsidiary for equipment and services
purchased in connection with the construction of the facility. The
Company currently intends to convert $10 million of this amount into a
loan to Desalcott to satisfy the Company's loan commitment described
above. The terms of this loan are currently being negotiated with
Desalcott. The Company currently anticipates that Desalcott will pay its
remaining outstanding obligations to the Company's subsidiary partially
out of cash flow from the sale of water and from the proceeds from new
long-term debt financing. Desalcott has received proposals for new
long-term debt financing, including a term sheet and a draft term loan
agreement from the Trinidad bank which provided the bridge loan, which it
anticipates completing around year-end. Such new long-term debt financing
may not be completed on terms acceptable to Desalcott, or at all.
Moreover, although the Trinidad bank that made the bridge loan to
Desalcott has not required repayment of the bridge loan, which matured on
September 1, 2002, pending completion of the long-term debt financing,
there can be no assurance that the bank will not exercise its rights and
foreclose on its collateral, in which event the Company's equity
investment in, and receivable from, Desalcott as well as the loan
receivable from HKES would be at risk.
Kuwait Project. During 2001, the Company acquired a 25% equity interest
in a Kuwaiti project company, Utilities Development Company W.L.L.
("UDC"), which was awarded a concession agreement by an agency of the
Kuwaiti government for the construction, ownership and operation of a
wastewater reuse facility in Kuwait. During the second quarter of 2002,
UDC entered into agreements for the long-term financing of the project,
and accordingly the Company commenced recognizing revenue in accordance
with American Institute of Certified Public Accountants Statement of
Position No. 81-1, "Accounting for Performance of Construction-Type and
Certain Construction-Type Contracts." At June 30, 2002 and September 30,
2002, the Company had invested a total of $1.6 million in UDC as equity
contributions and subordinated debt. The Company is committed to make
additional contributions of equity or subordinated debt to UDC of $15.9
million over a two to three year period.
Israel Projects. The Company entered into agreements with Kibbutz Ma'agan
Micha'el, an Israeli cooperative society, and I.P.P.S. Infrastructure
Enterprises Ltd., an Israeli corporation, for the establishment of Magan
Desalination Ltd. ("MDL") as an Israeli project company in which the
Company has a 49% equity interest. In August 2002, MDL entered into a
concession contract with a state-sponsored water company for the
construction, ownership and operation of a brackish water desalination
facility in Israel. At June 30, 2002 and September 30, 2002, the Company
had made a nominal equity investment in MDL, and had deferred costs of
approximately $0.6 million and $0.7 million, respectively, relating to
the design and development work on the project. The Company currently
anticipates that it will invest approximately $1 million in MDL for its
49% equity interest. MDL is currently seeking approximately $7.7 million
of debt financing for the project. If MDL is unable to obtain such debt
-7-
financing, the Company would expense all its deferred costs relating to
the project but would incur no other liability, inasmuch as no
performance bond has been issued for the project.
In January 2002, the Company entered into agreements with Baran Group
Ltd. and Dor Chemicals Ltd., both Israeli corporations, giving the
Company the right to a one-third ownership interest in an Israeli project
company, Carmel Desalination Ltd. ("CDL"). On October 28, 2002, CDL was
awarded a concession agreement by the Israeli Water Desalination Agency
(established by the Ministry of Finance and the Ministry of
Infrastructure) for the construction, ownership and operation of a major
seawater desalination facility in Israel. At September 30, 2002, the
Company had not yet made any equity investment in CDL, and had deferred
costs of approximately $0.3 million relating to the engineering design
and development work on the project. No costs had been deferred at June
30, 2002. If CDL obtains long-term project financing, the Company's total
equity investment to be made in CDL would be approximately $8 million.
The timing of such investment will depend upon the terms of the long-term
financing agreement. Although the Company currently anticipates that CDL
will obtain long-term financing for the project by the required date in
April 2003, such financing may not be obtained. If CDL is unable to
obtain such financing, the Company would expense all its deferred costs
relating to the project and any investment the Company may have made in
CDL (estimated to be approximately $0.8 million by the time of the
closing of the long-term financing), and could incur its one-third
proportionate share ($2.5 million) of liability under a $7.5 million
performance bond issued on behalf of CDL.
Aqua Cool Pure Bottled Water Operations Disposition. On December 31,
2001, the Company completed the sale of its Aqua Cool Pure Bottled Water
operations in the United States, United Kingdom and France to affiliates
of Perrier-Vittel S.A., a subsidiary of Nestle S.A. ("Nestle"), for
approximately $220 million, of which $10 million is being held in escrow
pursuant to the terms of the divestiture agreement. The amount of the
purchase price is subject to final adjustment based on the number of
customers and working capital levels of the transferred businesses, in
each case as determined in accordance with the divestiture agreement. The
process for determining the number of customers and working capital
levels, as well as any related purchase price adjustments, is under way.
In addition, Nestle is seeking payment of certain amounts under the
indemnification provisions of the divestiture agreement. While the
ultimate amount of purchase price adjustments or indemnification
payments, if any, cannot yet be determined with certainty, the Company
currently believes that the reserves it has established for purchase
price adjustments and the escrowed amount will be adequate in all
material respects to cover the resolution of these issues. Accordingly,
no additional provision for any liability that might result from any of
these matters has been included in the accompanying financial statements
for the current year.
Litigation. The Company is involved in the normal course of its business
in various litigation matters, some of which are in the pre-trial
discovery stages. The Company believes that none of the pending matters
will have an outcome material to its financial condition or results of
operations.
4. Earnings Per Share (EPS) Calculations
(Amounts in thousands, except per share amounts)
For the three months ended June 30,
----------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------- ---------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
-------------- ------------- ------------ ------------- ------------- -------------
Basic EPS
Income available to
common stockholders $ 1,245 17,547 $ 0.07 $ 4,169 17,100 $ 0.24
Effect of dilutive
stock options - 160 - - 83 -
-------------- ------------- ------------ ------------- ------------- -------------
Diluted EPS $ 1,245 17,707 $ 0.07 $ 4,169 17,183 $ 0.24
============== ============= ============ ============= ============= =============
For the six months ended June 30,
----------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------- ---------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
-------------- ------------- ------------ ------------- ------------- -------------
Basic EPS
Income available to
common stockholders $ 2,744 17,528 $ 0.16 $ 7,164 16,746 $ 0.43
Effect of dilutive
stock options - 214 (0.01) - 140 (0.01)
-------------- ------------- ------------ ------------- ------------- -------------
Diluted EPS $ 2,744 17,742 $ 0.15 $ 7,164 16,886 $ 0.42
============== ============= ============ ============= ============= =============
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 June 30, 2002 and 2001 was 1,409,767 and 1,555,834,
respectively. The number of options that were antidilutive for the six
months ended June 30, 2002 and 2001 was 635,250 and 1,541,234,
respectively.
-8-
5. Comprehensive Income
The Company has adopted the Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income and its
components. The table below sets forth the "comprehensive income" as
defined by SFAS No. 130 for the three months and six months ended June
30, 2002 and 2001, respectively.
(Amounts in thousands)
Three months ended Six months ended
June 30, June 30,
--------------------------------- -------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- -------------
Net income $ 1,245 $ 4,169 $ 2,744 $ 7,164
Other comprehensive income,
net of tax:
Translation adjustments 7,056 (494) 4,476 (5,084)
-------------- ------------- -------------- -------------
Comprehensive income $ 8,301 $ 3,675 $ 7,220 $ 2,080
============== ============= ============== =============
6. Segment Information
The Company has four reportable "business group" segments corresponding
to a "business group" structure. In 2002, the Company instituted a
matrix-type organization. As part of the matrix organization, the
Company's trailer leasing and non-consumer bleach based chemical supply
businesses which were included in the Equipment Business Group in prior
periods now are included in the Ultrapure Water Group. Segment
information for all periods has been presented to reflect these changes.
In addition, (i) the Company's Aqua Cool Pure Bottled Water business,
which had been reported as part of the Consumer Water Group, was sold to
affiliates of Nestle S.A. on December 31, 2001 and therefore does not
appear in 2002 operations; and (ii) the Company's majority-owned
Malaysian subsidiary, which had been reported as part of the Ultrapure
Water Group, was divested in May 2002 and is reflected in 2002 operations
through the divestiture date.
The following table summarizes the Company's operations by the four
business group segments and "Corporate." Corporate includes legal,
research and development expenses not allocated to the business groups,
certain corporate administrative and insurance costs, foreign exchange
gains and losses on corporate assets, as well as the elimination of
intersegment transfers.
-9-
For the three months ended June 30, 2002
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
Revenue - unaffiliated $ 35,944 $ 25,440 $ 8,726 $ 6,810 $ - $ 76,920
Revenue - affiliated 2,575 - 2 - - 2,577
Inter-segment transfers 1,658 163 - 635 (2,456) -
Gross profit - unaffiliated 9,365 6,827 3,852 4,226 - 24,270
Gross profit - affiliated 297 - 1 - - 298
Equity income (loss) 689 9 265 - (181) 782
Income (loss) before interest, tax
and minority interest 2,578 642 (1,314) 1,237 (932) 2,211
Interest income - - - - - 868
Interest expense - - - - - (376)
Income before income taxes
and minority interest - - - - - 2,703
For the three months ended June 30, 2001
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
Revenue - unaffiliated $ 41,708 $ 30,818 $ 30,189 $ 6,443 $ - $ 109,158
Revenue - affiliated 4,458 - 58 - - 4,516
Inter-segment transfers 590 788 - 316 (1,694) -
Gross profit - unaffiliated 10,235 6,433 14,693 3,453 - 34,814
Gross profit - affiliated 105 - 29 - - 134
Equity income (loss) 468 (4) 144 - (19) 589
Income (loss) before interest, tax
and minority interest 3,465 (781) 3,679 557 (572) 6,348
Interest income - - - - - 746
Interest expense - - - - - (1,448)
Income before income taxes
and minority interest - - - - - 5,646
For the six months ended June 30, 2002
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
Revenue - unaffiliated $ 70,992 $ 50,185 $ 19,279 $ 13,354 $ - $ 153,810
Revenue - affiliated 5,690 - 2 - - 5,692
Inter-segment transfers 3,552 311 - 1,112 (4,975) -
Gross profit - unaffiliated 18,816 12,574 7,575 8,017 - 46,982
Gross profit - affiliated 375 - 1 - - 376
Equity income (loss) 1,345 7 503 - (181) 1,674
Income (loss) before interest, tax
and minority interest 4,323 (716) (2,747) 2,014 1,543 4,417
Interest income - - - - - 1,861
Interest expense - - - - - (936)
Income before income taxes
and minority interest - - - - - 5,342
Identifiable assets 296,077 136,134 68,776 28,719 50,536 580,242
Investment in affiliated companies 17,335 - 2,870 - 2,552 22,757
Goodwill 11,209 7,062 944 - - 19,215
For the six months ended June 30, 2001
-------------------------------------------------------------------------------------
Equipment Ultrapure Consumer Instrument
Business Water Water Business
Group Group Group Group Corporate Total
------------- ------------ ------------ ------------- ----------- -------------
(Amounts in thousands)
Revenue - unaffiliated $ 81,336 $ 71,666 $ 59,429 $ 14,231 $ - $ 226,662
Revenue - affiliated 9,811 - 163 - - 9,974
Inter-segment transfers 1,987 1,969 - 998 (4,954) -
Gross profit - unaffiliated 20,148 16,601 25,981 7,802 - 70,532
Gross profit - affiliated 173 - 82 - - 255
Equity income (loss) 839 50 246 - (105) 1,030
Income (loss) before interest, tax
and minority interest 6,366 1,022 4,994 1,708 (1,653) 12,437
Interest income - - - - - 971
Interest expense - - - - - (3,052)
Income before income taxes
and minority interest - - - - - 10,356
Investments in affiliated companies 17,599 38 3,161 - 2,733 23,531
Goodwill 11,245 16,594 20,033 1,830 - 49,702
Identifiable assets at June 30, 2001 did not differ materially from
identifiable assets at December 31, 2001.
-10-
7. Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (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. The Company has determined that SFAS No. 143 will not have a
material impact on its financial position and results of operations.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002." SFAS No. 145 rescinds FASB Statement No.
4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that statement. SFAS No. 145 amends FASB Statement No. 13,
"Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. SFAS No. 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions. SFAS No. 145 is effective for financial statements
for fiscal years beginning after May 15, 2002. The Company does not
believe that SFAS No. 145 will have a material impact on the Company's
financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31,
2002 and accordingly, the Company can only determine prospectively the
impact, if any, SFAS No. 146 would have on the Company's financial
position and results of operations.
-11-
8. Goodwill and Intangible Assets
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This accounting standard addresses financial
accounting and reporting for goodwill and other intangible assets and
requires that goodwill amortization be discontinued and replaced with
periodic tests of impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001, and is required to be applied at the
beginning of the fiscal year. A two-step impairment test is used to first
identify potential goodwill impairment and then measure the amount of
goodwill impairment loss, if any. The first step of the goodwill
impairment test, which must be completed within six months of the
effective date of this standard, identifies any potential goodwill
impairment. As of June 30, 2002, the Company completed the transitional
goodwill impairment test and determined that no adjustment to goodwill
was necessary.
In accordance with SFAS No. 142, amortization of goodwill was
discontinued as of January 1, 2002. All of the Company's intangible
assets are subject to amortization. The Company did not record any
reclassification of amounts of intangible assets into or out of the
amounts previously reported as goodwill.
The following tables reflect the adjustments to selected consolidated
financial information to present pro forma amounts which exclude
amortization of goodwill:
(Amounts in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income $ 1,245 $ 4,169 $ 2,744 $ 7,164
Goodwill amortization, net of tax - 651 - 1,185
---------------------------- -----------------------------
Adjusted net income $ 1,245 $ 4,820 $ 2,744 $ 8,349
============================ =============================
Reported basic earnings per share $ 0.07 $ 0.24 $ 0.16 $ 0.43
Goodwill amortization, net of tax - 0.04 - 0.07
---------------------------- -----------------------------
Adjusted basic earnings per share $ 0.07 $ 0.28 $ 0.16 $ 0.50
============================ =============================
Reported diluted earnings per share $ 0.07 $ 0.24 $ 0.15 $ 0.42
Goodwill amortization, net of tax - 0.04 - 0.07
---------------------------- -----------------------------
Adjusted diluted earnings per share $ 0.07 $ 0.28 $ 0.15 $ 0.49
============================ =============================
(Amounts in thousands, except per share amounts)
For the years ended December 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
Net income (loss) $ 44,701 $ (1,870) $ 19,361
Goodwill amortization, net of tax 2,188 2,228 1,774
------------- ------------- -------------
Adjusted net income $ 46,889 $ 358 $ 21,135
============= ============= =============
Reported basic earnings (loss) per share $ 2.61 $ (0.12) $ 1.20
Goodwill amortization, net of tax 0.13 0.14 0.11
------------- ------------------------------
Adjusted basic earnings per share $ 2.74 $ 0.02 $ 1.31
============= ============= =============
Reported diluted earnings (loss) per share $ 2.59 $ (0.12) $ 1.18
Goodwill amortization, net of tax 0.13 0.14 0.11
------------- ------------------------------
Adjusted diluted earnings per share $ 2.72 $ 0.02 $ 1.29
============= ============= =============
There was no change in the carrying value of goodwill during the quarter
ended June 30, 2002, other than the impact of foreign currency
translation adjustment. As a result of the foreign currency translation
adjustment, the Equipment Business Group's goodwill balance increased
$170,000 and the Ultrapure Water Group's goodwill balance increased by
$8,000 from the respective balances at December 31, 2001.
-12-
The Company's net intangible assets included in other assets in the
Consolidated Balance Sheets consist principally of patents and
trademarks. At June 30, 2002 and December 31, 2001, the net carrying
value of these intangible assets was approximately $0.6 million.
Intangible assets are amortized over a period ranging up to 20 years. All
intangible assets are amortized on a straight-line basis. Amortization
expense for intangible assets is estimated to be approximately $0.1
million for each of the next five years.
9. Acquisition
In June 2002, the Company's Australian subsidiary acquired the business
and assets of Rudd Brothers, an Australian wholesale and retail
distributor of chemical and cleaning products, for approximately $0.6
million in cash. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has
been allocated to the assets acquired based on their estimated fair
values at the date of acquisition. The assets acquired consist primarily
of property, plant and equipment, inventory, certain intangibles and
goodwill. The results of operations of Rudd Brothers have been included
in the Company's statements of operations from the date of acquisition.
Pro forma results of operations have not been presented, as the effect of
this acquisition on the Company's consolidated results of operations was
not material.
10. Divestiture
In May 2002, the Company completed its planned divestiture of its 55%
equity interest in a Malaysian affiliate, which had previously been
treated as "held for sale" and included in "Other current assets."
Included in the Company's first half results were revenues of $4.2
million and a $0.4 million pre-tax loss resulting from Malaysian
operations. For the second quarter of 2002, revenues totaled $1.6 million
and pre-tax profit amounted to $0.2 million, including a gain of
approximately $0.7 million on the sale of the Company's equity interest
in the Malaysian affiliate, which is included in "Selling, general and
administrative" expenses.
11. Subsequent Event
In July 2002, the Company acquired the business and assets of the EnChem
division of Microbar Incorporated. The purchase price was $0.4 million in
cash plus additional contingent payments to be made over a five-year
period based on the profitability of the acquired business. This
acquisition has been accounted for under the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
assets acquired based on their estimated fair values at the date of
acquisition. The assets acquired consist primarily of patents and other
intellectual property, inventory and equipment, and are used for
wastewater treatment in the semiconductor industry. The results of
operations of the EnChem division have been included in the Company's
statements of operations from the date of acquisition. Pro forma results
of operations have not been presented, as the effect of this acquisition
on the Company's consolidated results of operations was not material.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and the related notes thereto included elsewhere in this Amendment
No. 1 to Form 10-Q and the audited consolidated financial statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our Annual Report on Form 10-K for the year
ended December 31, 2001, which has been filed with the Securities and Exchange
Commission. The analysis of results of operations compares the three and six
month periods ended June 30, 2002 with the comparable periods of the prior
fiscal year.
Restatement of Quarterly Financial Statements and Reclassifications
The Company's consolidated financial statements for the three months ended June
30, 2002 and the six months ended June 30, 2002, have been restated primarily as
a result of intercompany transactions, including transactions between the
Company and its French subsidiary that were erroneously recorded at the
subsidiary level. See Note 2 to Notes to Consolidated Financial Statements. The
following discussion of the financial condition and results of operations of the
Company has been amended in its entirety to reflect changes resulting from this
restatement, and to update the information contained therein to reflect
developments which have occurred subsequent to August 14, 2002, the date on
which the Company filed its quarterly report on Form 10-Q for the quarterly
period ended June 30, 2002. In particular, information provided under "Financial
Condition" with respect to the Company's commitments and contingencies, credit
facilities and future capital requirements has been updated. In addition, the
consolidated financial statements and information provided under "Results of
Operations" now reflect revenues and costs of sales derived from transactions
with affiliated entities in which the Company maintains less than a majority
interest as "affiliated companies" revenues and costs of sales. These amounts
had previously been reflected within the four business segments.
As part of the Company's adoption of a matrix business organization structure
effective January 1, 2002, results associated with the Company's trailer leasing
and non-consumer bleach based chemical supply businesses are included in the
Ultrapure Water Group ("UWG") segment, rather than the Equipment Business Group
("EBG") segment where they had historically been presented. Segment information
for all periods have been presented to reflect these changes. Aggregate second
quarter 2002 revenues and gross margin for these businesses were $6.1 million
and $1.6 million, respectively, compared to revenues and gross margin of $5.6
million and $1.5 million, respectively, for the second quarter of 2001.
Aggregate revenues and gross margin for the first six months of 2002 for these
businesses were $13.4 million and $3.7 million, respectively, compared to
revenues and gross margin of $12.6 million and $3.5 million, respectively for
the first six months of 2001.
Results of Operations
Comparison of the Three and Six Month Periods Ended June 30, 2002 with the Three
--------------------------------------------------------------------------------
and Six Month Periods Ended June 30, 2001
-----------------------------------------
The Company reported consolidated revenues of $79.5 million and net income of
$1.2 million for the second quarter of 2002, compared to $113.7 million and $4.2
million, respectively, during the second quarter of 2001. Revenues and net
income during the six months ended June 30, 2002 were $159.5 million and $2.7
million, respectively, compared to revenues and net income of $236.6 million and
$7.2 million, respectively, for the six months ended June 30, 2001. Results for
2001 include the operations of the Aqua Cool Pure Bottled Water business and the
Company's 55% ownership interest in its Malaysian subsidiary which were divested
on December 31, 2001 and May 2002, respectively.
Revenues. Total Company revenues for the second quarter of 2002 decreased 30.1%
to $79.5 million from $113.7 million for the second quarter of 2001. Excluding
the second quarter 2001 Aqua Cool Pure Bottled Water revenues of $19.2 million,
second quarter 2002 revenues decreased $15.0 million, or 15.9%, from the
comparable period of 2001. Revenues for the first six months of 2002 totaled
$159.5 million, compared to $236.6 million for the comparable six month period
of 2001. Total revenue declined $41.0 million, or 20.5%, in the first half of
2002 compared to the same period of 2001, excluding the first half of 2001 Aqua
Cool Pure Bottled Water revenues.
-14-
EBG revenues during the second quarter of 2002 of $35.9 million decreased by
$5.8 million, or 13.8%, compared to revenues of $41.7 million during the second
quarter of 2001. For the six-month period ended June 30, 2002, EBG revenues of
$71.0 million decreased $10.3 million, or 12.7%, compared to the comparable
period in the prior year. The revenue decreases over the year-earlier periods
reflect lower revenue levels from domestic capital equipment sales.
UWG revenues during the second quarter of 2002 of $25.4 million decreased by
$5.4 million, or 17.5%, compared to revenues of $30.8 million in the second
quarter of 2001. During the six-month period ended June 30, 2002, revenues of
$50.2 million decreased $21.5 million, or 30.0%, compared to revenues of $71.7
million for the six months ended June 30, 2001. In both periods ended June 30,
2002, revenue levels were affected by continued softness in the microelectronics
industry, particularly with respect to domestic capital equipment sales.
Consumer Water Group ("CWG") revenues during the second quarter of 2002 of $8.7
million decreased by $21.5 million, or 71.1%, compared to revenues of $30.2
million in the second quarter of 2001. Excluding second quarter 2001 revenues of
$19.2 million associated with the Aqua Cool Pure Bottled Water business,
revenues in the second quarter of 2002 decreased by $2.3 million, or 20.7%,
compared to the year-earlier period. For the six months ended June 30, 2002,
revenues of $19.3 million decreased $40.1 million, or 67.6%, compared to
revenues of $59.4 million for the year-earlier period. Adjusted to exclude 2001
revenues of $36.1 million associated with the Aqua Cool Pure Bottled Water
business, revenues decreased by $4.1 million, or 17.4%. Revenues were affected
by a lower demand for automobile windshield wash solution and consumer bleach
products of the Company's Elite Consumer Products business, and by lower demand
for the Company's home water treatment equipment.
Instrument Business Group ("IBG") revenues of $6.8 million for the second
quarter of 2002 increased $0.4 million, or 5.7%, compared to $6.4 million for
the second quarter of 2001. For the six months ended June 30, 2002, revenues of
$13.4 million decreased $0.9 million, or 6.2%, compared to revenues of $14.2
million for the six months ended June 30, 2001. IBG revenues were also affected
by continued softness in the microelectronics industry, which is an important
customer for the group's instrument products.
Revenues from affiliated companies consist of revenues generated from entities
in which the Company has a less than majority equity interest. These revenues
amounted to $2.6 million for the second quarter of 2002 compared to $4.5 million
for the second quarter of 2001. Revenues from affiliated companies amounted to
$5.7 million for the six months ended June 30, 2002 compared to $10.0 million
for the six months ended June 30, 2001. The decrease in revenues from affiliated
companies from 2001 levels revenues primarily resulted from lower equipment
sales to Desalcott as a result of the substantial completion of the construction
phase of the Trinidad desalination facility.
Cost of sales. The Company's cost of sales as a percentage of revenue for the
second quarter was 69.1% in 2002 and 69.3% in 2001, and resulting gross margin
was 30.9% in the second quarter of 2002 compared to 30.7% in the second quarter
of 2001. For the first half of 2002, cost of sales as a percentage of revenue
was 70.3% as compared to 70.1% in the first half of 2001. For the three and six
months ended June 30, 2002, cost of sales as a percentage of revenue decreased
in the EBG, UWG, and IBG business groups and increased in the CWG segment,
compared to the comparable periods in 2001.
EBG's cost of sales as a percentage of revenue decreased to 73.9% in the second
quarter and 73.5% in the first half of 2002, as compared to 75.5% and 75.2% in
the same respective periods in 2001, reflecting a change in product mix from
lower margin capital equipment revenue to more profitable water supply and other
products. UWG's cost of sales as a percentage of revenue decreased to 73.2% and
74.9% for the second quarter and first half of 2002, respectively, as compared
to 79.1% and 76.8% for the second quarter and first half of 2001, respectively.
The decrease in cost of sales as a percentage of revenue was primarily
attributable to reduced losses in the Company's Malaysian and Australian
subsidiaries, both of which incurred significant charges in 2001 due primarily
to losses on under-performing contracts. The Company's interest in the Malaysian
subsidiary was divested in May 2002. Cost of sales as a percentage of revenue
for CWG increased to 55.9% and 60.7% in the second quarter and first half of
2002, respectively, from 51.3% and 56.3% in the second quarter and first half of
2001, respectively. The increase in cost of sales as a percentage of revenue was
primarily attributable to the exclusion of the Aqua Cool Pure Bottled Water
business, which was divested on December 31, 2001, as well as a gain recognized
on the sale of certain bottled water assets in the second quarter of 2001. IBG's
cost of sales as a percentage of revenue decreased to 37.9% and 40.0% in the
second quarter and first half of 2002, respectively, as compared to 46.4% and
45.2% in the second quarter and first half of 2001, respectively. The decrease
in cost of sales as a percentage of revenue primarily reflected a higher
proportion of more profitable after-market service revenue as compared to lower
margin capital equipment revenue. Cost of sales to affiliated companies as a
-15-
percentage of revenue decreased to 88.4% for the second quarter of 2002 compared
to 97.0% for the second quarter of 2001. Cost of sales to affiliated companies
as a percentage of revenue decreased to 93.4% for the first six months of 2002
compared to 97.4% for the first six months of 2001. These decreases were
primarily due to lower revenues from sales to Desalcott. For accounting
purposes, because the Company is deemed to have provided all of the equity
funding for Desalcott, profit is being deferred and amortized over the balance
of the term of the Trinidad concession agreement, which has resulted in lower
margins on sales to Desalcott.
Operating expenses. Research and development expenses of $1.6 million in the
second quarter of 2002 were unchanged from the second quarter of 2001, while
these expenses decreased 2.5% to $3.2 million in the first six months of 2002
from $3.3 million in the first six months of 2001. Selling, general and
administrative expenses in the second quarter of 2002 decreased 21.9% to $21.5
million from $27.6 million in the second quarter of 2001. Selling, general and
administrative expenses in the first six months of 2002 decreased 26.2% to $41.4
million in the first six months of 2002 from $56.1 million in the first six
months of 2001. These operating expenses increased as a percentage of revenue
during the second quarter of 2002 to 29.0% from 25.7% in the second quarter of
2001. For the six month period, operating expenses as a percentage of revenue
increased to 27.9% in 2002 from 25.1% in 2001. The increases as a percentage of
revenue were primarily a result of lower revenue levels during 2002 compared to
2001. Factors impacting operating expenses during the quarter ended June 30,
2002 included a gain of approximately $0.7 million resulting from the Company's
divestiture of its 55% equity interest in its Malaysian subsidiary, offset by
net foreign exchange losses and certain restructuring charges in the CWG segment
following the Company's divestiture of the Aqua Cool Pure Bottled Water business
on December 31, 2001.
Interest income (expense). For the six months ended June 30, 2002, interest
income increased to $1.9 million compared to $1.0 million for the first six
months of 2001. The increase in interest income reflected investment of the
proceeds from the sale of the Aqua Cool Pure Bottled Water business. Interest
expense of $0.4 million and $0.9 million for the second quarter and first half
of 2002, respectively, decreased from $1.4 million and $3.1 million from the
respective periods in 2001. The decreases in interest expense were primarily
attributable to lower short-term borrowings during the 2002 periods, which
resulted primarily from the application of the proceeds from the sale of the
Aqua Cool Pure Bottled Water business on December 31, 2001.
Equity income. For the first six months of 2002, equity income increased to $1.7
million compared to $1.0 million in the first six months of 2001. This increase
was primarily the result of the Company's equity earnings in its 40% ownership
interest of Desalcott and in two projects located in Mexico in which the Company
has a 20% equity ownership interest. The Company records 100% of any net loss
and 40% of any net income reported by Desalcott. In periods in which Desalcott
has an accumulated loss (as opposed to retained earnings), the Company records
100% of any net income of Desalcott up to the amount of Desalcott's accumulated
loss, and 40% of any net income thereafter.
Taxes. The Company's effective tax rate was 40.7% for the first six months of
2002 compared to 34.0% for the first six months of 2001. The increase in the
overall tax rate was primarily attributable to an increase in forecasted losses
incurred by the Company's French subsidiary for which the Company may not be
able to realize future tax benefits.
Financial Condition
At June 30, 2002, the Company had $139.1 million in cash and cash equivalents
and $227.6 million of working capital. Working capital increased $5.6 million
during the first six months of 2002 while the Company's current ratio of 3.0 at
June 30, 2002 increased from 2.4 at December 31, 2001. Accounts payable and
accrued expenses decreased $19.9 million during the first half of 2002,
reflecting lower revenue levels during the first six months of 2002 compared to
2001. Income taxes payable decreased $19.7 million during the first half of
2002, primarily reflecting tax payments made on the gain from the sale of the
Company's Aqua Cool Pure Bottled Water business.
Net cash used by operating activities amounted to $26.5 million, reflecting cash
used for payments of accounts payable, accrued expenses and current income
taxes, offset by depreciation and amortization charges of $11.2 million. Net
cash used by investing activities amounted to $14.0 million during the first six
months of 2002, reflecting additions to property, plant and equipment, primarily
relating to investments made in the Company's UWG segment for a build, own and
operate facility in the power industry. Net cash used by financing activities
totaled $2.4 million during the first six months of 2002, primarily reflecting
pay-down of the Company's short-term borrowings.
-16-
From time to time, the Company enters into joint ventures with respect to
specific projects, including the projects in Trinidad, Kuwait and Israel
described below. Each joint venture arrangement is independently negotiated
based on the specific facts and circumstances of the project, the purpose of the
joint venture company related to the project, as well as the rights and
obligations of the other joint venture partners. Generally, the Company has
structured its project joint ventures so that the Company's obligation to
provide funding to the underlying project or to the joint venture entity is
limited to its proportional capital contribution, which can take the form of
equity or subordinated debt. Except in situations that are negotiated with a
specific joint venture entity, the Company has no other commitment to provide
for the joint venture's working capital or other cash needs. In addition, the
joint venture entity typically obtains third-party debt financing for a
substantial portion of the project's total capital requirements. In these
situations, the Company is typically not responsible for the repayment of the
indebtedness incurred by the joint venture entity. In connection with certain
joint venture projects, the Company may also enter into contracts for the supply
and installation of the Company's equipment during the construction of the
project, for the operation and maintenance of the facility once it begins
operation, or both. These commercial arrangements do not require the Company to
commit to any funding for working capital or any other requirements of the joint
venture company. As a result, the Company's exposure with respect to its joint
ventures is typically limited to its debt and equity investments in the joint
venture entity, the fulfillment of any contractual obligations it has to the
joint venture entity and the accounts receivable owing to the Company from the
joint venture entity.
In the second quarter of 2002, construction was completed on the first four (out
of five) phases of the Trinidad desalination facility owned by Desalination
Company of Trinidad and Tobago Ltd. ("Desalcott"), in which the Company has a
40% equity interest, and the facility commenced water deliveries to its
customer, the Water and Sewerage Authority of Trinidad and Tobago. In 2000, the
Company acquired 200 ordinary shares of Desalcott for $10 million and loaned $10
million to Hafeez Karamath Engineering Services Ltd. ("HKES"), the founder of
Desalcott and promoter of the Trinidad desalination project, to enable HKES to
acquire an additional 200 ordinary shares of Desalcott. Prior to those
investments, HKES owned 100 ordinary shares of Desalcott. As a result, the
Company currently owns a 40% equity interest in Desalcott, and HKES currently
owns a 60% equity interest in Desalcott. The Company records 100% of any net
loss and 40% of any net income reported by Desalcott. In periods in which
Desalcott has an accumulated loss (as opposed to retained earnings), the Company
records 100% of any net income of Desalcott up to the amount of Desalcott's
accumulated loss, and 40% of any net income thereafter.
The Company's $10 million loan to HKES is included in long-term notes receivable
on the Company's consolidated balance sheets. The loan bears interest at a rate
equal to 2% above LIBOR, with interest payable starting October 25, 2002 and
every six months thereafter and at maturity. Prior to maturity, however, accrued
interest payments (as well as principal payments) are payable only to the extent
dividends or other distributions are paid by Desalcott on the ordinary shares of
Desalcott owned by HKES and pledged to the Company. Principal repayment is due
in 14 equal installments commencing on April 25, 2004 and continuing
semiannually thereafter. The loan matures and is payable in full on April 25,
2011. The loan is secured by a security interest in the shares of Desalcott
owned by HKES and purchased with the borrowed funds, which is subordinate to the
security interest in those shares in favor of the Trinidad bank that provided
the construction financing for Desalcott. In addition, any dividends or other
distributions paid by Desalcott to HKES must be applied to loan payments to the
Company.
In 2000, Desalcott entered into a "bridge loan" agreement with a Trinidad bank
providing $60 million in construction financing. Effective November 8, 2001, the
loan agreement was amended to increase maximum borrowings to $79.9 million. The
Company is obligated to lend up to $10 million to Desalcott as an additional
source of funds for project completion costs once all bridge loan proceeds have
been expended. However, the bridge loan of $79.9 million and the $20 million
equity provided to Desalcott (together with the additional $10 million dollars
the Company is obligated to lend to Desalcott) have not provided sufficient
funds to pay all of Desalcott's obligations in completing construction and
commissioning of the project prior to receipt of long-term financing. Included
in Desalcott's obligations at June 30, 2002 and September 30, 2002 was
approximately $22.3 million and $24.2 million, respectively, payable to the
Company's Trinidad subsidiary for equipment and services purchased in connection
with the construction of the facility. The Company currently intends to convert
$10 million of this amount into a loan to Desalcott to satisfy the Company's
loan commitment described above. The terms of this loan are currently being
negotiated with Desalcott. The Company currently anticipates that Desalcott will
pay its remaining outstanding obligations to the Company's subsidiary partially
out of cash flow from the sale of water and from the proceeds from new long-term
debt financing. Desalcott has received proposals for new long-term debt
financing, including a term sheet and a draft term loan agreement from the
Trinidad bank which provided the bridge loan, which it anticipates completing
-17-
around year-end. Such new long-term debt financing may not be completed on terms
acceptable to Desalcott, or at all. Moreover, although the Trinidad bank that
made the bridge loan to Desalcott has not required repayment of the bridge loan,
which matured on September 1, 2002, pending completion of the long-term debt
financing, there can be no assurance that the bank will not exercise its rights
and foreclose on its collateral, in which event the Company's equity investment
in, and receivable from, Desalcott as well as the loan receivable from HKES
would be at risk.
During 2001, the Company acquired a 25% equity interest in a Kuwaiti project
company, Utilities Development Company W.L.L. ("UDC"), which was awarded a
concession agreement by an agency of the Kuwaiti government for the
construction, ownership and operation of a wastewater reuse facility in Kuwait.
During the second quarter of 2002, UDC entered into agreements for the long-term
financing of the project, and accordingly the Company commenced recognizing
revenue in accordance with American Institute of Certified Public Accountants
Statement of Position No. 81-1, "Accounting for Performance of Construction-Type
and Certain Construction-Type Contracts." At June 30, 2002 and September 30,
2002, the Company had invested a total of $1.6 million in UDC as equity
contributions and subordinated debt. The Company is committed to make additional
contributions of equity or subordinated debt to UDC of $15.9 million over a two
to three year period.
The Company entered into agreements with Kibbutz Ma'agan Micha'el, an Israeli
cooperative society, and I.P.P.S. Infrastructure Enterprises Ltd., an Israeli
corporation, for the establishment of Magan Desalination Ltd. ("MDL") as an
Israeli project company in which the Company has a 49% equity interest. In
August 2002, MDL entered into a concession contract with a state-sponsored water
company for the construction, ownership and operation of a brackish water
desalination facility in Israel. At June 30, 2002 and September 30, 2002, the
Company had made a nominal equity investment in MDL, and had deferred costs of
approximately $0.6 million and $0.7 million, respectively, relating to the
design and development work on the project. The Company currently anticipates
that it will invest approximately $1 million in MDL for its 49% equity interest.
MDL is currently seeking approximately $7.7 million of debt financing for the
project. If MDL is unable to obtain such debt financing, the Company would
expense all its deferred costs relating to the project but would incur no other
liability, inasmuch as no performance bond has been issued for the project.
In January 2002, the Company entered into agreements with Baran Group Ltd. and
Dor Chemicals Ltd., both Israeli corporations, giving the Company the right to a
one-third ownership interest in an Israeli project company, Carmel Desalination
Ltd. ("CDL"). On October 28, 2002, CDL was awarded a concession agreement by the
Israeli Water Desalination Agency (established by the Ministry of Finance and
the Ministry of Infrastructure) for the construction, ownership and operation of
a major seawater desalination facility in Israel. At September 30, 2002, the
Company had not yet made any equity investment in CDL, and had deferred costs of
approximately $0.3 million relating to the engineering design and development
work on the project. No costs had been deferred at June 30, 2002. If CDL obtains
long-term project financing, the Company's total equity investment to be made in
CDL would be approximately $8 million. The timing of such investment will depend
upon the terms of the long-term financing agreement. Although the Company
currently anticipates that CDL will obtain long-term financing for the project
by the required date in April 2003, such financing may not be obtained. If CDL
is unable to obtain such financing, the Company would expense all its deferred
costs relating to the project and any investment the Company may have made in
CDL (estimated to be approximately $0.8 million by the time of the closing of
the long-term financing), and could incur its one-third proportionate share
($2.5 million) of liability under a $7.5 million performance bond issued on
behalf of CDL.
On December 31, 2001, the Company completed the sale of its Aqua Cool Pure
Bottled Water operations in the United States, United Kingdom and France to
affiliates of Perrier-Vittel S.A., a subsidiary of Nestle S.A. ("Nestle"), for
approximately $220 million, of which $10 million is being held in escrow
pursuant to the terms of the divestiture agreement. The amount of the purchase
price is subject to final adjustment based on the number of customers and
working capital levels of the transferred businesses, in each case as determined
in accordance with the divestiture agreement. The process for determining the
number of customers and working capital levels, as well as any related purchase
price adjustments, is under way. In addition, Nestle is seeking payment of
certain amounts under the indemnification provisions of the divestiture
agreement. While the ultimate amount of purchase price adjustments or
indemnification payments, if any, cannot yet be determined with certainty, the
Company currently believes that the reserves it has established for purchase
price adjustments and the escrowed amount will be adequate in all material
respects to cover the resolution of these issues. Accordingly, no additional
provision for any liability that might result from any of these matters has been
included in the accompanying financial statements for the current year.
-18-
The Company has an unsecured domestic revolving credit facility with Fleet
National Bank which expires in March 2003. Under this credit facility, the
Company may borrow up to $30 million. The Company also maintains other domestic
and international unsecured credit facilities under which the Company may borrow
up to an aggregate of $6.0 million. At June 30, 2002, the Company's total
borrowings outstanding under all of its existing credit facilities were $8.6
million.
In the normal course of business, the Company issues letters of credit to
customers, vendors and lending institutions as guarantees for payment,
performance or both under various commercial contracts into which it enters. Bid
bonds are also sometimes issued by the Company as security for the Company's
commitment to proceed with a project if it is the successful bidder. Performance
bonds are typically issued for the benefit of the Company's customers as
financial security for the completion or performance by the Company of its
contractual obligations under certain commercial contracts. These instruments
are not reflected on the Company's balance sheet as a liability because they
will not result in a liability to the Company unless the Company fails to
perform the contractual obligations which are secured by the corresponding
instrument. In the past, the Company has not incurred any significant liability
or expense as a result of the use of these instruments.
The Company believes that its future capital requirements will depend on a
number of factors, including the amount of cash generated from operations and
its capital commitments to new "own and operate" projects, either directly or
through joint venture entities, that the Company may be successful in obtaining.
The Company believes that its existing cash and cash equivalents, cash generated
from operations, lines of credit and foreign exchange facilities will be
sufficient to fund its capital expenditures and working capital requirements at
least through the end of 2003, based on its current business plans and
projections.
Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (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. The Company has determined that SFAS No.
143 will not have a material impact on its financial position and results of
operations.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of
April 2002." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that statement. SFAS
No. 145 amends FASB Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. SFAS No. 145 is effective for financial statements for fiscal years
beginning after May 15, 2002. The Company does not believe that SFAS No. 145
will have a material impact on the Company's financial position and results of
operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002 and accordingly, the Company will prospectively determine the impact,
if any, SFAS No. 146 will have on the Company's financial position and results
of operations.
-19-
Forward-Looking Information
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
----------------------------------------------------------------------------
Certain statements contained in this report, including, without limitation,
statements regarding expectations as to the Company's future results of
operations, statements in the "Notes to the Consolidated Financial Statements"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" constitute forward-looking statements. Such statements are based on
management's current views and assumptions and are neither promises or
guarantees but involve risks, uncertainties and other factors that could cause
actual results to differ materially from management's current expectations as
described in such forward-looking statements. Among these factors are the
matters described under "Risks and Uncertainties" contained in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of the Company's Annual Report on Form 10-K for the year ended December
31, 2001, as well as overall economic and business conditions; competitive
factors, such as acceptance of new products and pricing pressures and
competition from companies larger than the Company; risk of nonpayment of
accounts receivable, including those from affiliated companies; risks associated
with foreign operations; risks associated with joint venture entities, including
their respective abilities to arrange for necessary long-term project financing;
risks involved in litigation; regulations and laws affecting business in each of
the Company's markets; market risk factors, as described below under
"Quantitative And Qualitative Disclosures About Market Risk"; fluctuations in
the Company's quarterly results; and other risks and uncertainties described
from time to time in the Company's filings with the Securities and Exchange
Commission. Readers should not place undue reliance on any such forward looking
statements, which speak only as of the date they are made, and the Company
disclaims any obligation to update, supplement or modify such statements in the
event the facts, circumstances or assumptions underlying the statements change,
or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
----------------------
In 2001, the Company's Italian subsidiary entered into a series of U.S.
dollar/euro options contracts with the intent of offsetting the foreign exchange
risk associated with forecasted cash flows related to an ongoing project. These
options contracts were not entered into for trading purposes. In accordance with
the restrictions set forth in SFAS No. 133, the contracts do not qualify for
hedge accounting treatment. The fair market value of the contracts were recorded
as a liability of $1.2 million in the other current liabilities section of the
Consolidated Balance Sheet at December 31, 2001. End-of-period changes in the
market value of the contracts were reflected in the selling, general and
administrative expenses in the Consolidated Statement of Operations. In
addition, the Company periodically enters into foreign exchange contracts to
hedge certain operational and balance sheet exposures against changes in foreign
currency exchange rates. The Company had no foreign exchange contracts
outstanding at June 30, 2002 and 2001.
Market Risk
-----------
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company's investment portfolio
of cash equivalents is subject to interest rate fluctuations, but the Company
believes this risk is not material due to the short-term nature of these
investments. At June 30, 2002, the Company had $9.6 million of short-term debt
and $11.1 million of long-term debt outstanding. The major portion of this debt
has variable interest rates and, therefore is subject to interest rate risk.
However, a hypothetical increase of 10% in these interest rates for a one-year
period would result in additional interest expense that would not be material in
the aggregate. The Company's net foreign currency exchange gain was
approximately $1.5 million for the six months ended June 30, 2002, compared to
$0.3 million for the six months ended June 30, 2001. The Company's exposure to
foreign currency exchange rate fluctuations is moderated by the fact that the
operations of its international subsidiaries are primarily conducted in their
respective local currencies. Also, in certain situations, the Company will
consider entering into forward exchange contracts to mitigate the impact of
foreign currency exchange fluctuations.
-20-
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of the Stockholders was held on May 8, 2002. Douglas
R. Brown, Kathleen F. Feldstein, Arthur L. Goldstein and Carl S. Sloane
were reelected as Class I Directors for a three-year term. Continuing as
Class II Directors until the 2003 Annual Meeting are Arnaud de Vitry
d'Avaucourt, William E. Katz, Daniel I. C. Wang and Mark S. Wrighton.
Continuing as Class III Directors until the 2004 Annual Meeting are
Stephen L. Brown, William K. Reilly, John J. Shields and Allen S. Wyett.
The numbers of votes cast for the election of the Class I Directors were
as follows:
For Withheld
--- --------
Douglas R. Brown 12,185,123 2,246,851
Kathleen F. Feldstein 12,184,070 2,247,905
Arthur L. Goldstein 12,178,072 2,253,903
Carl S. Sloane 12,183,827 2,248,148
b) The other matters submitted for stockholder approval were (i) approval of
an amendment to the Company's 1997 Stock Incentive Plan to increase the
number of shares available for issue under such Plan by 800,000 shares,
and (ii) the ratification of the selection of PricewaterhouseCoopers LLP
as the Company's auditors for 2002. The following were cast in connection
with these matters:
i) Approval of Amendment to 1997 Stock Incentive Plan
Votes for: 8,844,428
Votes against: 5,498,404
Abstentions: 89,192
ii) Ratification of the selection of PricewaterhouseCoopers LLP as auditors for
2002.
Votes for: 14,071,166
Votes against: 318,749
Abstentions: 42,059
Item 5. Other Information
Amounts shown on the Consolidated Statements of Operations in Part I for
"Revenues" and "Cost of sales of Equipment Business Group" for the three and six
months ended June 30, 2002 each reflect a reduction of $200,000 from the
corresponding numbers shown in (i) Note 8 to the Company's quarterly report on
Form 10-Q for the quarterly period ended September 30, 2002 and filed with the
Securities and Exchange Commission on November 14, 2002, and (ii) the summary
restated Consolidated Statements of Operations for such periods contained in the
Company's November 5, 2002 third quarter results press release. These reductions
resulted from a reclassification of an accounting entry relating to the
Company's French subsidiary. This reclassification did not affect income from
operations or net income. Giving effect to this reclassification to the nine
months ended September 30, 2002, Equipment Business Group revenues decreased
from $112.6 million to $112.4 million and cost of sales of Equipment Business
Group decreased from $83.9 million to $83.7 million. This reclassification does
not effect any changes to the Company's financial statements as of and for the
three months ended September 30, 2002.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
One report on Form 8-K was filed by the Company with the Securities and
Exchange Commission during the three-month period ended June 30, 2002.
This report, filed on June 24, 2002, reported under Item 5 the signing of
certain contracts in connection with a wastewater treatment project in
Kuwait.
-21-
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: December 4, 2002 By: /s/Arthur L. Goldstein
-----------------------------------------
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: December 4, 2002 By: /s/Daniel M. Kuzmak
-----------------------------------------
Daniel M. Kuzmak
Vice President and Chief Financial Officer
(principal financial officer)
-22-
CERTIFICATIONS
I, Arthur L. Goldstein, certify that:
1. I have reviewed this Amendment No. 1 to quarterly report on Form 10-Q of
Ionics, Incorporated;
2. Based on my knowledge, this Amendment No. 1 to
quarterly report on Form 10-Q does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Amendment No. 1 to quarterly report on Form 10-Q;
3. Based on my knowledge, the financial statements, and other financial
information included in this Amendment No. 1 to quarterly report on Form
10-Q, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this Amendment No. 1 to quarterly report on Form 10-Q.
Date: December 4, 2002
/s/Arthur L. Goldstein
----------------------
Arthur L. Goldstein
Chairman and Chief Executive Officer
I, Daniel M. Kuzmak, certify that:
1. I have reviewed this Amendment No. 1 to quarterly report on Form 10-Q of
Ionics, Incorporated;
2. Based on my knowledge, this Amendment No. 1 to
quarterly report on Form 10-Q does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Amendment No. 1 to quarterly report on Form 10-Q;
3. Based on my knowledge, the financial statements, and other financial
information included in this Amendment No. 1 to quarterly report on Form
10-Q, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this Amendment No. 1 to quarterly report on Form 10-Q.
Date: December 4, 2002
/s/Daniel M. Kuzmak
-------------------
Daniel M. Kuzmak
Vice President and Chief Financial Officer