SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-13975
ONIX SYSTEMS INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0546330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22001 North Park Drive
Kingwood, Texas 77339-3804
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 15,606,337
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ONIX SYSTEMS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $44,890
and $19,618 under repurchase agreement
with affiliated company) $ 48,496 $ 24,960
Accounts receivable, less allowances of
$1,939 and $2,155 35,522 32,583
Inventories:
Raw materials and supplies 17,399 18,095
Work in process 9,723 8,033
Finished goods 5,438 6,804
Deferred tax asset and other current assets 5,223 4,563
-------- --------
121,801 95,038
-------- --------
Property, Plant, and Equipment, at Cost 14,887 14,413
Less: Accumulated depreciation and amortization 6,486 5,268
-------- --------
8,401 9,145
-------- --------
Other Assets 320 87
-------- --------
Cost in Excess of Net Assets of Acquired Companies 55,730 55,439
-------- --------
$186,252 $159,709
======== ========
2
<PAGE>
ONIX SYSTEMS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 8,968 $ 12,775
Accrued payroll and employee benefits 3,456 3,811
Accrued income taxes 4,796 3,455
Deferred revenue 2,690 3,624
Other accrued expenses 8,310 9,918
Due to parent company and affiliated companies 2,640 19,508
-------- --------
30,860 53,091
-------- --------
Deferred Income Taxes 1,680 1,680
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.01 par value, 50,000,000
shares authorized; 15,606,337 and 12,306,337
shares issued and outstanding 156 123
Capital in excess of par value 144,121 100,966
Retained earnings 8,570 3,150
Accumulated other comprehensive income (Note 4) 865 699
-------- --------
153,712 104,938
-------- --------
$186,252 $159,709
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ONIX SYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $38,439 $28,962
------- -------
Costs and Operating Expenses:
Cost of revenues 21,930 17,079
Selling, general, and administrative expenses 9,529 6,762
Research and development expenses 2,388 1,550
------- -------
33,847 25,391
------- -------
Operating Income 4,592 3,571
Interest Income 717 -
Interest Expense, Related Party (16) -
------- -------
Income Before Provision for Income Taxes 5,293 3,571
Provision for Income Taxes 2,090 1,436
------- -------
Net Income $ 3,203 $ 2,135
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .21 $ .20
======= =======
Weighted Average Shares (Note 3):
Basic 15,606 10,667
======= =======
Diluted 15,610 10,667
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ONIX SYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $75,583 $55,391
------- -------
Costs and Operating Expenses:
Cost of revenues 43,554 33,082
Selling, general, and administrative expenses 19,162 13,054
Research and development expenses 4,565 2,999
------- -------
67,281 49,135
------- -------
Operating Income 8,302 6,256
Interest Income 976 -
Interest Expense, Related Party (277) -
------- -------
Income Before Provision for Income Taxes 9,001 6,256
Provision for Income Taxes 3,581 2,515
------- -------
Net Income $ 5,420 $ 3,741
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .39 $ .35
======= =======
Weighted Average Shares (Note 3):
Basic 14,065 10,667
======= =======
Diluted 14,070 10,667
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
-------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 5,420 $ 3,741
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,078 1,568
Provision for losses on accounts receivable 127 91
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable (3,024) (759)
Inventories (274) (3,604)
Other current assets (664) (709)
Accounts payable (3,841) (1,252)
Other current liabilities (339) (2,461)
Other (5) 15
-------- --------
Net cash used in operating activities (522) (3,370)
-------- --------
Investing Activities:
Payment to affiliated company for acquired
business (19,117) -
Refund of acquisition purchase price 424 614
Purchases of property, plant, and equipment (769) (853)
Proceeds from sale of property, plant, and
equipment 238 51
-------- --------
Net cash used in investing activities (19,224) (188)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock 43,188 -
Issuance of note payable to parent company 12,000 -
Repayment of note payable to parent company (12,000) -
Net transfers from parent company - 3,448
-------- --------
Net cash provided by financing activities 43,188 3,448
-------- --------
Exchange Rate Effect on Cash 94 106
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 23,536 (4)
Cash and Cash Equivalents at Beginning of Period 24,960 2,386
-------- --------
Cash and Cash Equivalents at End of Period $ 48,496 $ 2,382
======== ========
Noncash Activities:
Transfer of acquired business from parent
company $ - $ 1,913
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ONIX SYSTEMS INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ONIX Systems Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 4, 1998, the results of
operations for the three- and six-month periods ended July 4, 1998, and June 28,
1997, and the cash flows for the six-month periods ended July 4, 1998, and June
28, 1997. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of January 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Registration Statement on Form S-1 (File No. 333-45333), filed with
the Securities and Exchange Commission.
2. Initial Public Offering
On March 30, 1998, the Company sold 3,300,000 shares of its common stock in
an initial public offering at $14.50 per share for net proceeds of $43,188,000.
Following the initial public offering, Thermo Instrument Systems Inc. owned
approximately 68% of the Company's outstanding common stock.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
------------------ ------------------
(In thousands except July 4, June 28, July 4, June 28,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Basic
Net income $ 3,203 $ 2,135 $ 5,420 $ 3,741
------- ------- ------- -------
Weighted average shares 15,606 10,667 14,065 10,667
------- ------- ------- -------
Basic earnings per share $ .21 $ .20 $ .39 $ .35
======= ======= ======= =======
Diluted
Net income $ 3,203 $ 2,135 $ 5,420 $ 3,741
------- ------- ------- -------
Weighted average shares 15,606 10,667 14,065 10,667
Effect of stock options 4 - 5 -
------- ------- ------- -------
Weighted average shares,
as adjusted 15,610 10,667 14,070 10,667
------- ------- ------- -------
Diluted earnings per share $ .21 $ .20 $ .39 $ .35
======= ======= ======= =======
7
<PAGE>
ONIX SYSTEMS INC.
3. Earnings per Share (continued)
The computation of diluted earnings per share for each period excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of July 4, 1998, there were 521,895 of such
options outstanding, with an exercise price of $14.25 per share.
4. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive income. In general,
comprehensive income combines net income and "other comprehensive income," which
represents foreign currency translation adjustments, reported as a component of
shareholders' investment in the accompanying balance sheet. During the second
quarter of 1998 and 1997, the Company's comprehensive income totaled $3,197,000
and $2,239,000, respectively. During the first six months of 1998 and 1997, the
Company's comprehensive income totaled $5,663,000 and $3,933,000, respectively.
5. Subsequent Event
On July 7, 1998, the Company acquired the capital stock of certain
businesses of the Mid-South Companies for $12.7 million in cash. This
acquisition will be accounted for using the purchase method of accounting and
its results will be included in the Company's results from the date of
acquisition. The businesses acquired include Mid-South Controls and Services
Inc., which specializes in the assembly and service of wellhead measurement,
control, and safety shutdown systems that are required by oil and gas companies
operating offshore platforms, and Mid-South Power Systems Inc., which provides
electrical generators, switchgear, and motor control units that are used in a
wide variety of industrial applications.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Risk Factors" in the
Company's Registration Statement on Form S-1 (File No. 333-45333), filed with
the Securities and Exchange Commission.
8
<PAGE>
Overview
The Company designs, develops, markets, and services sophisticated field
measurement instruments and on-line sensors. These products incorporate a range
of advanced measurement technologies to provide real-time data collection,
analysis, and local control functions to enhance production efficiency, improve
process and quality control, ensure regulatory compliance, and increase employee
safety. The Company manufactures field measurement instruments and on-line
sensors in four general product areas: flow instruments, level and density
instruments, composition analysis instruments, and industry-specific sensors and
recording instruments.
The Company's products are sold primarily to participants in process
industries, including oil and gas producers, processors, and distributors, and
chemical companies, as well as water/wastewater, iron, steel, electric utility,
minerals and mining, and pulp and paper companies. In 1997, customers in the oil
and gas industries accounted for approximately 61% of the Company's total
revenues, with such revenues derived from both the production segment and the
refining and petrochemical segments of the industry. Demand for the Company's
products and services within the oil and gas industry is dependent upon the
level of capital spending by oil and gas companies for production and
distribution. This in turn is affected by current and anticipated oil and gas
prices; the discovery rate of new oil and gas reserves; political, regulatory,
and economic conditions; and the ability of oil and gas companies to obtain
capital. Decreases in oil and gas activities could have a significant adverse
effect upon the demand for the Company's products and related services, which
would materially adversely affect the Company's business, financial condition,
and results of operations.
Sales originating outside of the United States and export revenues from the
United States accounted for approximately 25% and 18%, respectively, of total
revenues in 1997. Export sales in 1997 were made primarily to the United
Kingdom, Japan, and South Korea. During 1997, exports from the Company's U.S.
and foreign operations to the Far East were approximately 8% of total revenues.
The Far East is experiencing a severe economic crisis, which has been
characterized by sharply reduced economic activity and liquidity, highly
volatile foreign-currency-exchange and interest rates, and unstable stock
markets. Although the Company's export sales to the Far East have not been
materially affected in the first six months of 1998, such sales could be
adversely affected by the unstable economic conditions there. Although the
Company seeks to charge its customers in the same currency as its operating
costs, the Company's financial performance and competitive position can be
affected by currency exchange rate fluctuations affecting the relationship
between the U.S. dollar and foreign currencies.
9
<PAGE>
Results of Operations
Second Quarter 1998 Compared With Second Quarter 1997
Revenues increased 32% to $38.4 million in the second quarter of 1998 from
$29.0 million in the second quarter of 1997. Revenues increased $7.6 million due
to the inclusion of revenues from acquired businesses, consisting principally of
$4.8 million in revenues from the Peek Measurement Business, acquired in
November 1997, and $2.4 million in revenues from Fluid Data acquired in December
1997. Revenues from existing businesses increased primarily due to higher sales
of industry-specific instruments as a result of an increase in spending by the
production segment of the oil and gas industry and, to a lesser extent,
increased sales of level density instruments.
The gross profit margin increased to 43% in the second quarter of 1998 from
41% in the second quarter of 1997, primarily due to the inclusion of
higher-margin revenues from acquired businesses and, to a lesser extent, an
increase in higher-margin revenues from industry-specific instruments.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in the second quarter of 1998 from 23% in the second quarter of
1997, primarily due to higher selling, general, and administrative expenses as a
percentage of revenues at acquired businesses.
Research and development expenses increased to $2.4 million during the
second quarter of 1998 from $1.6 million in the second quarter of 1997. This
increase was primarily due to acquisitions and, to a lesser extent, an increase
in spending at certain industry-specific instrument and level density
businesses.
Interest income in the second quarter of 1998 primarily represents interest
earned on the invested proceeds from the Company's March 1998 initial public
offering and third quarter 1997 private placement of common stock.
The effective tax rates were 39% and 40% in the second quarter of 1998 and
1997, respectively. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
The arbitration panel, in an arbitration proceeding in which the Company was
involved, rendered its decision in June 1998. Thermo Electron Corporation,
Thermo Instrument, and certain affiliates of Thermo Instrument, including TN
Technologies, a wholly owned subsidiary of the Company, were joint defendants in
this matter. The matter was resolved with no liability for damages on the part
of the Company.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products purchased as well as products sold by the
Company. While there can be no assurance that all problems arising from the year
2000 will be identified and resolved
10
<PAGE>
Second Quarter 1998 Compared With Second Quarter 1997 (continued)
satisfactorily prior to the end of 1999, the Company presently believes that the
year 2000 issue will not pose significant operational problems for the Company
or have a material effect on future results of operations.
First Six Months 1998 Compared With First Six Months 1997
Revenues increased 36% to $75.6 million in the first six months of 1998 from
$55.4 million in the first six months of 1997. Revenues increased $16.6 million
due to the inclusion of revenues from acquired businesses, consisting
principally of $9.7 million in revenues from the Peek Measurement Business and
$5.2 million in revenues from Fluid Data. Revenues from existing businesses
increased primarily due to higher sales of industry-specific instruments as a
result of an increase in spending by the production segment of the oil and gas
industry and, to a lesser extent, increased sales of level density instruments.
The gross profit margin increased to 42% in the first six months of 1998
from 40% in the first six months of 1997, primarily due to the inclusion of
higher-margin revenues from acquired businesses and, to a lesser extent, an
increase in higher-margin revenues from industry-specific instruments.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in the first six months of 1998 from 24% in the first six
months of 1997, primarily due to higher selling, general, and administrative
expenses as a percentage of revenues at acquired businesses.
Research and development expenses increased to $4.6 million during the first
six months of 1998 from $3.0 million in the first six months of 1997. This
increase was primarily due to acquisitions and, to a lesser extent, an increase
in spending at certain industry-specific instrument and level density
businesses.
Interest income in the first six months of 1998 primarily represents
interest earned on the invested proceeds from the Company's March 1998 initial
public offering and third quarter 1997 private placement of common stock.
Interest expense in the first six months of 1998 represents interest on
indebtedness relating to the November 1997 acquisition of the Peek Measurement
Business. In January 1998, the Company paid the $19.1 million purchase price for
the Peek Measurement Business. The Company borrowed $12.0 million from Thermo
Instrument to partially fund the payment. The $12.0 million was repaid in April
1998 following the Company's initial public offering.
The effective tax rate was 40% in the first six months of 1998 and 1997. The
effective tax rate exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes and nondeductible amortization of cost in
excess of net assets of acquired companies.
11
<PAGE>
Liquidity and Capital Resources
Consolidated working capital was $90.9 million as of July 4, 1998, compared
with $41.9 million as of January 3, 1998. Included in working capital are cash
and cash equivalents of $48.5 million as of July 4, 1998, compared with $25.0
million as of January 3, 1998.
During the first six months of 1998, the Company's operating activities used
$0.5 million of cash. Cash flow from the Company's operations was offset by cash
of $3.8 million used to fund a decrease in accounts payable primarily due to the
timing of payments. In addition, the Company used $3.0 million to fund an
increase in accounts receivable primarily due to end of quarter shipments in the
Company's industry-specific and composition product businesses and, to a lesser
extent, the timing of receipts.
The Company used $19.2 million of cash for investing activities during the
first six months of 1998. In January 1998, the Company paid Thermo Power the
purchase price of $19.1 million for the Peek Measurement Business, acquired
effective November 1997. The Company used $0.8 million for purchases of
property, plant, and equipment during the first six months of 1998. The Company
expects to expend approximately $1.0 million for property, plant, and equipment
during the remainder of 1998.
The Company's financing activities provided $43.2 million of cash during the
first six months of 1998. The Company raised this cash from its March 1998
initial public offering of common stock (Note 2). In addition, the Company
borrowed $12.0 million from Thermo Instrument to partially fund the payment for
the Peek Measurement Business. The note to Thermo Instrument was repaid in April
1998, with a portion of the funds received from the Company's initial public
offering.
Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of cash
for the possible acquisition of complementary businesses and technologies. The
Company expects that it will finance these acquisitions through a combination of
internal funds, additional debt or equity financing from the capital markets, or
short-term borrowings from Thermo Instrument or Thermo Electron, although there
is no agreement with these companies to ensure that funds will be available on
acceptable terms or at all. The Company believes that its existing resources are
sufficient to meet the capital requirements of its existing businesses for the
foreseeable future.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2 - Use of Proceeds
The Company sold 3,300,000 shares of common stock, par value $.01 per share,
pursuant to a Registration Statement on Form S-1 (File No. 333-45333), which was
declared effective by the Securities and Exchange Commission on March 24, 1998.
The managing underwriters of the offering were Donaldson, Lufkin & Jenrette
Securities Corporation, Lazard Freres & Co. LLC, and Gruntal & Co., L.L.C. The
aggregate gross proceeds of the offering were $47,850,000. The Company's total
expenses in connection with the offering were $4,662,000, of which $3,349,500
was for underwriting discounts and commissions, $1,195,500 was for other
expenses paid to persons other than directors or officers of the Company,
persons owning more than 10 percent of any class of equity securities of the
Company, or affiliates of the Company (collectively, Affiliates), and $117,000
was paid to Thermo Electron, the Company's ultimate parent company, for certain
corporate services rendered in connection with the offering. The Company's net
proceeds from the offering were $43,188,000. On April 10, 1998, $12,000,000 of
such net proceeds was expended to repay the outstanding indebtedness owed to
Thermo Instrument in connection with the acquisition of the Peek Measurement
Business. As of July 4, 1998, the Company had also expended $363,000 of such net
proceeds for the purchase of property, plant, and equipment, $2,388,000 for
research and development, and $4,859,000 for working capital needs. As of July
4, 1998, the Company had expended an aggregate of $19,610,000 of such net
proceeds. The Company invested the remaining net proceeds pursuant to a
repurchase agreement with Thermo Electron. As of July 4, 1998, the Company had
$48,496,000 of cash and cash equivalents.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
13
<PAGE>
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 as of the 10th day of August 1998.
ONIX SYSTEMS INC.
Paul F. Kelleher
----------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
----------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
14
<PAGE>
ONIX SYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------------
27 Financial Data Schedule.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONIX SYSTEMS
INC.'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 4, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 48,496
<SECURITIES> 0
<RECEIVABLES> 37,461
<ALLOWANCES> 1,939
<INVENTORY> 32,560
<CURRENT-ASSETS> 121,801
<PP&E> 14,887
<DEPRECIATION> 6,486
<TOTAL-ASSETS> 186,252
<CURRENT-LIABILITIES> 30,860
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 153,556
<TOTAL-LIABILITY-AND-EQUITY> 186,252
<SALES> 75,583
<TOTAL-REVENUES> 75,583
<CGS> 43,554
<TOTAL-COSTS> 43,554
<OTHER-EXPENSES> 4,565
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 9,001
<INCOME-TAX> 3,581
<INCOME-CONTINUING> 5,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,420
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
