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 October 3, 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 October 30, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 14,350,524
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ONIX SYSTEMS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
October 3, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $37,523
and $19,618 under repurchase agreement
with affiliated company) $ 41,334 $ 24,960
Accounts receivable, less allowances of $2,695
and $2,155 33,527 32,583
Inventories:
Raw materials and supplies 14,456 18,095
Work in process 11,706 8,033
Finished goods 6,980 6,804
Deferred tax asset and other current assets 4,949 4,563
-------- --------
112,952 95,038
-------- --------
Property, Plant, and Equipment, at Cost 17,292 14,413
Less: Accumulated depreciation and amortization 6,690 5,268
-------- --------
10,602 9,145
-------- --------
Other Assets 298 87
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 66,615 55,439
-------- --------
$190,467 $159,709
======== ========
2
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ONIX SYSTEMS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 3, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 9,894 $ 12,775
Accrued payroll and employee benefits 4,190 3,811
Accrued income taxes 3,399 3,455
Deferred revenue 3,468 3,624
Payable for repurchase of Company common stock 5,198 -
Other accrued expenses (Note 6) 9,691 9,918
Due to parent company and affiliated companies 2,786 19,508
-------- --------
38,626 53,091
-------- --------
Deferred Income Taxes 1,680 1,680
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.01 par value, 50,000,000
shares authorized; 15,606,307 and 12,306,307
shares issued 156 123
Capital in excess of par value 144,121 100,966
Retained earnings 9,684 3,150
Treasury stock at cost, 591,183 shares (5,197) -
Accumulated other comprehensive income (Note 5) 1,397 699
-------- --------
150,161 104,938
-------- --------
$190,467 $159,709
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ONIX SYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $39,851 $29,240
------- -------
Costs and Operating Expenses:
Cost of revenues 25,024 17,285
Selling, general, and administrative expenses 10,024 6,893
Research and development expenses 2,373 1,678
Restructuring costs (Note 6) 1,161 -
------- -------
38,582 25,856
------- -------
Operating Income 1,269 3,384
Interest Income 588 14
------- -------
Income Before Provision for Income Taxes 1,857 3,398
Provision for Income Taxes 743 1,367
------- -------
Net Income $ 1,114 $ 2,031
======= =======
Basic and Diluted Earnings per Share (Note 4) $ .07 $ .19
======= =======
Weighted Average Shares (Note 4):
Basic 15,561 10,715
======= =======
Diluted 15,572 10,715
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ONIX SYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $115,434 $ 84,631
-------- --------
Costs and Operating Expenses:
Cost of revenues 68,578 50,367
Selling, general, and administrative expenses 29,186 19,947
Research and development expenses 6,938 4,677
Restructuring costs (Note 6) 1,161 -
-------- --------
105,863 74,991
-------- --------
Operating Income 9,571 9,640
Interest Income 1,564 14
Interest Expense, Related Party (277) -
-------- --------
Income Before Provision for Income Taxes 10,858 9,654
Provision for Income Taxes 4,324 3,882
-------- --------
Net Income $ 6,534 $ 5,772
======== ========
Basic and Diluted Earnings per Share (Note 4) $ .45 $ .54
======== ========
Weighted Average Shares (Note 4):
Basic 14,564 10,683
======== ========
Diluted 14,570 10,683
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 6,534 $ 5,772
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,232 2,397
Provision for losses on accounts receivable 348 213
Other noncash expenses 180 -
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 1,220 718
Inventories (934) (2,483)
Other current assets (339) (628)
Accounts payable (5,037) (2,816)
Other current liabilities (510) (2,149)
Other (17) 396
-------- --------
Net cash provided by operating activities 4,677 1,420
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 3) (12,509) -
Payment to affiliated company for acquired
business (19,117) -
Refund of acquisition purchase price 424 614
Purchases of property, plant, and equipment (1,157) (1,114)
Proceeds from sale of property, plant, and
equipment 445 59
-------- --------
Net cash used in investing activities (31,914) (441)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock (Note 2) 43,188 19,590
Issuance of note payable to parent company 12,000 -
Repayment of note payable to parent company (12,000) -
Net transfers from parent company prior to
capitalization of Company - (865)
-------- --------
Net cash provided by financing activities 43,188 18,725
-------- --------
Exchange Rate Effect on Cash 423 62
-------- --------
Increase in Cash and Cash Equivalents 16,374 19,766
Cash and Cash Equivalents at Beginning of Period 24,960 2,386
-------- --------
Cash and Cash Equivalents at End of Period $ 41,334 $ 22,152
======== ========
6
<PAGE>
ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ 14,550 $ -
Cash paid for acquired companies (12,624) -
-------- --------
Liabilities assumed of acquired companies $ 1,926 $ -
======== ========
Transfer of acquired business from parent
company $ - $ 1,913
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
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 October 3, 1998, the results of
operations for the three- and nine-month periods ended October 3, 1998, and
September 27, 1997, and the cash flows for the nine-month periods ended October
3, 1998, and September 27, 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. Acquisition
On July 7, 1998, the Company acquired the capital stock of certain
businesses of the Mid-South Companies for $12,624,000 in cash. 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.
The acquisition has been accounted for using the purchase method of
accounting and its results have been included in the accompanying financial
statements from the date of acquisition. The cost of this acquisition exceeded
the estimated fair value of the acquired net assets by $7,300,000, which is
being amortized over 40 years. Allocation of the purchase price was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. The Company has
gathered no information that indicates the final purchase price allocation will
differ materially from the preliminary estimate.
8
<PAGE>
3. Acquisition (continued)
Pro forma data is not presented since this acquisition was not material to
the Company's results of operations.
4. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Nine Months Ended
------------------- -------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Basic
Net Income $ 1,114 $ 2,031 $ 6,534 $ 5,772
------- ------- ------- -------
Weighted Average Shares 15,561 10,715 14,564 10,683
------- ------- ------- -------
Basic Earnings per Share $ .07 $ .19 $ .45 $ .54
======= ======= ======= =======
Diluted
Net Income $ 1,114 $ 2,031 $ 6,534 $ 5,772
------- ------- ------- -------
Weighted Average Shares 15,561 10,715 14,564 10,683
Effect of Stock Options 11 - 6 -
------- ------- ------- -------
Weighted Average Shares,
as Adjusted 15,572 10,715 14,570 10,683
------- ------- ------- -------
Diluted Earnings per Share $ .07 $ .19 $ .45 $ .54
======= ======= ======= =======
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 October 3, 1998, there were 577,563 of such
options outstanding, with exercise prices of $12.45 and $14.25 per share.
5. 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 third
quarter of 1998 and 1997, the Company's comprehensive income totaled $1,646,000
and $1,609,000, respectively. During the first nine months of 1998 and 1997, the
Company's comprehensive income totaled $7,232,000 and $5,471,000, respectively.
9
<PAGE>
6. Restructuring Costs
During the third quarter of 1998, the Company recorded restructuring costs
of $1,161,000 relating to the consolidation of facilities and outsourcing of
certain services. The restructuring costs consist of $912,000 related to
severance costs for approximately 80 employees across all functions, $180,000 to
write-off fixed assets no longer of use, and $69,000 to reserve for
abandoned-facility payments in connection with these activities. The Company
plans to complete implementation of such restructuring plan in early 1999. As of
October 3, 1998, the Company had terminated 19 employees and had expended
$55,000 of the reserve established for severance. The remaining reserve for
severance and abandoned-facility payments of $926,000 is included in other
accrued expenses in the accompanying balance sheet as of October 3, 1998.
7. Proposed Reorganization
On August 12, 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. As part of this reorganization, Thermo Electron announced that the
Company may be merged with two other Thermo Electron subsidiaries to form one
combined majority-owned public subsidiary of Thermo Instrument. The Company's
shareholders would receive shares of the common stock of the combined entity in
exchange for their shares of the Company's common stock. The completion of this
transaction is subject to numerous conditions, including the establishment of
prices or exchange ratios; confirmation of anticipated tax consequences; the
approval of the Board of Directors of the Company, Thermo Instrument, Thermedics
Inc., and each of the other two Thermo Electron subsidiaries proposed to be
merged with the Company, including the independent directors of the Company and
such subsidiaries; the negotiation and execution of a definitive merger
agreement; the receipt of fairness opinions from one or more investment banking
firms on certain financial aspects of the transaction; the approval of Thermo
Electron's Board of Directors; and clearance by the Securities and Exchange
Commission of any necessary documents regarding the proposed transaction.
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.
10
<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 nine 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.
11
<PAGE>
Results of Operations
Third Quarter 1998 Compared With Third Quarter 1997
Revenues increased 36% to $39.9 million in the third quarter of 1998 from
$29.2 million in the third quarter of 1997. Revenues increased $12.3 million due
to the inclusion of revenues from acquired businesses, consisting principally of
$4.6 million in revenues from the Peek Measurement Business (Peek), acquired in
November 1997, $2.1 million in revenues from Fluid Data, acquired in December
1997, and $4.9 million in revenues from Mid-South, acquired in July 1998 (Note
3). Revenues from existing businesses decreased primarily due to the effect of
companies in the process sector reducing discretionary capital spending in
anticipation of difficult market conditions.
The gross profit margin decreased to 37.2% in the third quarter of 1998 from
40.9% in the third quarter of 1997, primarily due to the inclusion of
lower-margin revenues at Mid-South and, to a lesser extent, an increase in
lower-margin revenues from composition analysis instruments.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in the third quarter of 1998 from 24% in the third quarter of
1997, primarily due to the inclusion of higher selling, general, and
administrative expenses as a percentage of revenues at Peek.
Research and development expenses increased to $2.4 million during the third
quarter of 1998 from $1.7 million in the third quarter of 1997, primarily due to
the inclusion of expenses at acquired businesses.
During the third quarter of 1998, the Company recorded restructuring costs
of $1.2 million related to the consolidation of facilities and outsourcing of
certain services (Note 6).
Interest income in the third quarter of 1998 primarily represents interest
earned on the invested net proceeds from the Company's March 1998 initial public
offering and third quarter 1997 private placement of common stock.
The effective tax rate was 40% in the third quarter 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.
First Nine Months 1998 Compared With First Nine Months 1997
Revenues increased 36% to $115.4 million in the first nine months of 1998
from $84.6 million in the first nine months of 1997. Revenues increased $29.0
million due to the inclusion of revenues from acquired businesses, consisting
principally of $14.2 million in revenues from the Peek Measurement Business,
$7.3 million in revenues from Fluid Data, and $4.9 million from Mid-South.
Revenues from existing businesses increased,
12
<PAGE>
First Nine Months 1998 Compared With First Nine Months 1997 (continued)
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.
The gross profit margin remained relatively unchanged at 40.6% in the first
nine months of 1998 and 40.5% in the first nine months of 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in the first nine months of 1998 from 24% in the first nine
months of 1997, primarily due to the inclusion of higher selling, general, and
administrative expenses as a percentage of revenues at Peek.
Research and development expenses increased to $6.9 million during the first
nine months of 1998 from $4.7 million in the first nine months of 1997,
primarily due to the inclusion of expenses from acquired businesses and, to a
lesser extent, an increase in spending at certain industry-specific instrument
and level density businesses.
Interest income in the first nine months of 1998 primarily represents
interest earned on the invested net proceeds from the Company's March 1998
initial public offering and third quarter 1997 private placement of common
stock. Interest expense in the first nine 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 nine 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.
Liquidity and Capital Resources
Consolidated working capital was $74.3 million as of October 3, 1998,
compared with $41.9 million as of January 3, 1998. Included in working capital
are cash and cash equivalents of $41.3 million as of October 3, 1998, compared
with $25.0 million as of January 3, 1998.
During the first nine months of 1998, the Company's operating activities
provided $4.7 million of cash. Cash of $1.2 million was provided from a decrease
in accounts receivable primarily due to increased collection efforts within the
composition analysis segment. Cash of $5.0 million was used to fund a decrease
in accounts payable, primarily due to the timing of payments.
13
<PAGE>
Liquidity and Capital Resources (continued)
The Company's investing activities used $31.9 million of cash during the
first nine months of 1998. The Company expended $12.5 million, net of cash
acquired, for the acquisition of Mid-South (Note 3). In January 1998, the
Company paid the $19.1 million purchase price for the Peek Measurement Business,
acquired in November 1997. The Company used $1.2 million for purchases of
property, plant, and equipment during the first nine months of 1998 and expects
to expend approximately $0.8 million for capital additions during the remainder
of 1998.
The Company's financing activities provided $43.2 million of cash during the
first nine months of 1998, reflecting the Company's March 1998 initial public
offering of common stock (Note 2). The Company borrowed $12.0 million from
Thermo Instrument to partially fund the payment for the Peek Measurement
Business. The $12.0 million note was repaid in April 1998, following the
Company's initial public offering.
In September 1998, the Company's Board of Directors authorized the
repurchase by the Company of up to $10.0 million of its own stock, through
September 25, 1999, in the open market, or in negotiated transactions. Through
October 3, 1998, the Company had committed $5.2 million under this
authorization, which was payable as of October 3, 1998, in settlement of trades
executed prior to that date.
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 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.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading internal business
systems and facilities; (ii) testing and developing necessary upgrades for the
Company's current products and certain discontinued products; (iii) contacting
key suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.
The Company's State of Readiness
The Company has tested and evaluated its critical information
technology systems for year 2000 compliance, including its significant
computer systems, software applications, and related equipment. The
14
<PAGE>
Year 2000 (continued)
Company is currently in the process of upgrading or replacing its noncompliant
systems. In most cases, such upgrades or replacements are being made in the
ordinary course of business. The Company expects that all of its material
information technology systems will be year 2000 compliant by the end of 1999.
The Company is also evaluating the potential year 2000 impact on its facilities,
including its buildings and utility systems. Any problems that are identified
will be prioritized and remediated based on their assigned priority. The Company
will continue periodic testing of its critical internal business systems and
facilities in an effort to minimize operating disruptions due to year 2000
issues.
The Company believes that all of the material products that it currently
manufactures and sells are year 2000 compliant. However, as many of the
Company's products are complex, interact with third-party products, and operate
on computer systems that are not under the Company's control, there can be no
assurance that the Company has identified all of the year 2000 problems with its
current products. The Company believes that certain of its older products, which
it no longer manufactures or sells, may not be year 2000 compliant. The Company
is continuing to test and evaluate such products and may offer upgrades or
alternative products where reasonably practicable.
The Company is in the process of identifying and contacting suppliers,
vendors, and customers that are believed to be significant to the Company's
business operations in order to assess their year 2000 readiness. As part of
this effort, the Company has developed and is distributing questionnaires
relating to year 2000 compliance to its significant suppliers, vendors, and
customers. The Company intends to follow up and monitor the year 2000 compliant
progress of significant suppliers, vendors, and customers that indicate that
they are not year 2000 compliant or that do not respond to the Company's
questionnaires.
Contingency Plan
The Company intends to develop a contingency plan that will allow its
primary business operations to continue despite disruptions due to year 2000
problems. This plan may include identifying and securing other suppliers,
increasing inventories and modifying production facilities and schedules. As the
Company continues to evaluate the year 2000 readiness of its business systems
and facilities, products and significant suppliers, vendors, and customers, it
will modify and adjust its contingency plan as may be required.
Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance.
15
<PAGE>
Year 2000 (continued)
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. If any of the Company's
material suppliers, vendors, or customers experience business disruptions due to
year 2000 issues, the Company might also be materially adversely affected. The
Company's research and development, production, distribution, financial,
administrative, and communications operations might be disrupted. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. Any unexpected costs or delays arising
from the year 2000 issue could have a significant adverse impact on the
Company's business, operations, and financial condition.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
(d) 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 October 3, 1998, the Company had also expended $751,000 of such
net proceeds for the
16
<PAGE>
Item 2 - Changes in Securities and Use of Proceeds (continued)
purchase of property, plant, and equipment; $4,761,000 for research and
development; and $2,317,000 for working capital needs. As of October 3, 1998,
the Company had expended an aggregate of $19,829,000 of such net proceeds. The
Company invested the remaining net proceeds pursuant to a repurchase agreement
with Thermo Electron. As of October 3, 1998, the Company had $41,334,000 of cash
and cash equivalents.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On August 13, 1998, the Company filed a Current Report on Form 8-K dated
August 12, 1998, with respect to a proposed reorganization by the Company's
ultimate parent corporation, Thermo Electron Corporation, involving certain of
Thermo Electron's subsidiaries, including the Company.
On September 30, 1998, the Company filed a Current Report on Form 8-K dated
September 29, 1998, with respect to restructuring costs recorded during the
third quarter of 1998.
17
<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 November 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
18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ----------------------------------------------------------------------------
27 Financial Data Schedule.
<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 OCTOBER 3, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 41,334
<SECURITIES> 0
<RECEIVABLES> 36,222
<ALLOWANCES> 2,695
<INVENTORY> 33,142
<CURRENT-ASSETS> 112,952
<PP&E> 17,292
<DEPRECIATION> 6,690
<TOTAL-ASSETS> 190,467
<CURRENT-LIABILITIES> 38,626
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 150,005
<TOTAL-LIABILITY-AND-EQUITY> 190,467
<SALES> 115,434
<TOTAL-REVENUES> 115,434
<CGS> 68,578
<TOTAL-COSTS> 68,578
<OTHER-EXPENSES> 8,099
<LOSS-PROVISION> 348
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 10,858
<INCOME-TAX> 4,324
<INCOME-CONTINUING> 6,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,534
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
