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 April 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 [ ] No [ X ]
The Registrant became subject to the filing
requirements of the Securities Exchange Act of 1934
on March 24, 1998, the date its Registration
Statement on Form 8-A became effective, and has filed
all reports required to be filed thereunder since
such date.
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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 15,606,337
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
ONIX SYSTEMS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $57,045
and $19,618 under repurchase agreement
with affiliated company) $ 61,091 $ 24,960
Accounts receivable, less allowances of
$1,897 and $2,155 32,640 32,583
Inventories:
Raw materials and supplies 17,645 18,095
Work in process 11,891 8,033
Finished goods 5,374 6,804
Deferred tax asset and other current assets 5,220 4,563
-------- --------
133,861 95,038
-------- --------
Property, Plant, and Equipment, at Cost 14,766 14,413
Less: Accumulated depreciation and
amortization 5,858 5,268
-------- --------
8,908 9,145
-------- --------
Other Assets 329 87
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 55,414 55,439
-------- --------
$198,512 $159,709
======== ========
2PAGE
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ONIX SYSTEMS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
------------------------------------------------------------------------
Current Liabilities:
Note payable to parent company $ 12,000 $ -
Accounts payable 11,897 12,775
Accrued payroll and employee benefits 3,874 3,811
Accrued income taxes 4,256 3,455
Deferred revenue 4,171 3,624
Other accrued expenses 9,024 9,918
Due to parent company and affiliated
companies 1,024 19,508
-------- --------
46,246 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 5,367 3,150
Accumulated other comprehensive income
(Note 4) 942 699
-------- --------
150,586 104,938
-------- --------
$198,512 $159,709
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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ONIX SYSTEMS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
-----------------------------------------------------------------------
Revenues $37,144 $26,429
------- -------
Costs and Operating Expenses:
Cost of revenues 21,624 16,003
Selling, general, and administrative expenses 9,633 6,292
Research and development expenses 2,177 1,449
------- -------
33,434 23,744
------- -------
Operating Income 3,710 2,685
Interest Income 259 -
Interest Expense, Related Party (261) -
------- -------
Income Before Provision for Income Taxes 3,708 2,685
Provision for Income Taxes 1,491 1,079
------- -------
Net Income $ 2,217 $ 1,606
======= =======
Earnings per Share (Note 3):
Basic $ .18 $ .15
======= =======
Diluted $ .18 $ .15
======= =======
Weighted Average Shares (Note 3):
Basic 12,524 10,667
======= =======
Diluted 12,530 10,667
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------
April 4, March 29,
(In thousands) 1998 1997
----------------------------------------------------------------------
Operating Activities:
Net income $ 2,217 $ 1,606
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,036 831
Provision for losses on accounts receivable 65 -
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (7) 1,971
Inventories (2,404) 924
Other current assets (665) (2,547)
Accounts payable (924) (2,114)
Other current liabilities 717 (2,601)
Other (7) 7
-------- --------
Net cash provided by (used in) operating
activities 28 (1,923)
-------- --------
Investing Activities:
Payment to affiliated company for acquired
business (19,117) -
Refund of acquisition purchase price 424 614
Purchases of property, plant, and equipment (406) (316)
Proceeds from sale of property, plant, and
equipment 13 11
-------- --------
Net cash provided by (used in) investing
activities $(19,086) $ 309
-------- --------
5PAGE
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ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
---------------------
April 4, March 29,
(In thousands) 1998 1997
----------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company common
stock $ 43,189 $ -
Net transfers from parent company - 1,303
Net proceeds from issuance of note payable
to parent company 12,000 -
-------- --------
Net cash provided by financing activities 55,189 1,303
-------- --------
Exchange Rate Effect on Cash - (107)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 36,131 (418)
Cash and Cash Equivalents at Beginning of Period 24,960 2,386
-------- --------
Cash and Cash Equivalents at End of Period $ 61,091 $ 1,968
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 April
4, 1998, and the results of operations and the cash flows for the
three-month periods ended April 4, 1998, and March 29, 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 $43,189,000. 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
-------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
----------------------------------------------------------------------
Basic
Net income $ 2,217 $ 1,606
------- -------
Weighted average shares 12,524 10,667
------- -------
Basic earnings per share $ .18 $ .15
======= =======
Diluted
Net income $ 2,217 $ 1,606
------- -------
Weighted average shares 12,524 10,667
Effect of stock options 6 -
------- -------
Weighted average shares, as adjusted 12,530 10,667
------- -------
Diluted earnings per share $ .18 $ .15
======= =======
7PAGE
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ONIX SYSTEMS INC.
4. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) 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 first quarter of 1998 and 1997,
the Company's comprehensive income totaled $2,460,000 and $1,694,000,
respectively.
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.
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 exploration, production,
and distribution. This in turn is affected by current and anticipated oil
8PAGE
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ONIX SYSTEMS INC.
Overview (continued)
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 to customers 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, the
Company had exports from the Company's U.S. and foreign operations to the
Far East of 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.
The Company's export sales to the Far East 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.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues increased 41% to $37.1 million in the first quarter of 1998
from $26.4 million in the first quarter of 1997. Revenues increased $9.0
million due to the inclusion of revenues from acquired businesses. This
consisted primarily of $4.9 million from the Peek Measurement Business
and $2.8 million from Fluid Data. Revenues from existing businesses grew
6%, primarily due to an increase in 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 and density instruments.
The gross profit margin increased to 42% in the first quarter of 1998
from 39% in the first 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 26% in the first quarter of 1998 from 24% in the
first quarter of 1997, primarily due to higher selling, general, and
administrative expenses as a percentage of revenues at acquired
businesses.
9PAGE
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ONIX SYSTEMS INC.
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
Research and development expenses increased to $2.2 million during
first quarter of 1998 from $1.4 million in the first 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
composition analysis businesses.
Interest income in the first quarter of 1998 primarily represents
interest earned on the invested proceeds from the Company's third quarter
1997 private placement of common stock. Interest expense in the first
quarter 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 Systems Inc. to partially fund the payment. The $12.0 million
was repaid in April 1998.
The effective tax rate was 40% in the first quarters of 1998 and
1997. 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 Company is involved in an arbitration proceeding. Thermo Electron
Corporation, Thermo Instrument, and certain affiliates of Thermo
Instrument, including TN Technologies, a wholly owned subsidiary of the
Company, are joint defendants in this matter in which the plaintiffs seek
actual damages of between $27 million and $46 million, punitive damages
of twice actual damages, attorneys' fees and expenses, and pre-judgment
and post-judgment interest. Should an unfavorable decision in the
arbitration include a component of damages based on actions of TN
Technologies, that portion of such total award would be allocated to the
Company and would be charged to the Company's future results of
operations, although the Company would be reimbursed by Thermo Instrument
in the form of a capital contribution for any damages resulting from
alleged actions of the Company prior to its capitalization in August
1997. Thermo Instrument has agreed to bear the cost of the defense of
this matter. The arbitration proceeding is expected to conclude during
the second quarter of 1998.
Liquidity and Capital Resources
Consolidated working capital was $87.6 million as of April 4, 1998,
compared with $41.9 million as of January 3, 1998. Included in working
capital are cash and cash equivalents of $61.1 million as of April 4,
1998, compared with $25.0 million as of January 3, 1998.
During the first quarter of 1998, the Company's operating activities
had substantially no impact on cash. Cash flow from the Company's
operations was offset by cash of $2.4 million used to fund an increase in
inventories primarily due to a buildup in the inventories in the
Company's industry-specific and composition analysis businesses as result
of long lead-time orders.
10PAGE
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ONIX SYSTEMS INC.
Liquidity and Capital Resources (continued)
The Company used $19.1 million of cash for investing activities
during the first quarter 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 $0.4 million
for purchases of property, plant, and equipment during the first quarter
of 1998. The Company expects to expend approximately $1.5 million for
property, plant, and equipment during the remainder of 1998.
The Company's financing activities provided $55.2 million of cash
during the first quarter of 1998. The Company raised $43.2 million of
cash from the 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 bears interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter, and was repaid on April 10, 1998, with a
portion of the funds received from the Company's initial public offering.
The Company has signed a letter of intent to purchase a business for
approximately $12.5 million. The letter of intent is non-binding and is
subject to certain conditions, including the completion of due diligence,
and there can be no assurance that the Company will successfully complete
this proposed acquisition. The Company would finance the acquisition with
internal funds.
The Company and Thermo Instrument are involved in an arbitration
proceeding as discussed above. Thermo Instrument has agreed to indemnify
the Company for any portion of damages arising from an unfavorable
decision in this matter that relate to alleged actions of the Company
prior to its capitalization in August 1997. Accordingly, the Company does
not expect that an unfavorable decision in this matter would materially
affect its liquidity. The Company also believes that an unfavorable
decision would not materially affect its ability to use Thermo Instrument
as a source of capital, as discussed below, based on the relative size of
the damages sought and the current liquidity of Thermo Instrument.
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.
11PAGE
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ONIX SYSTEMS INC.
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 Corp., 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 $4,661,000, of which $3,349,500 was for
underwriting discounts and commissions, $1,242,500 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
$69,000 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 $43,189,000.
As of April 4, 1998, the Company had not expended any of the net
proceeds. Subsequently, on April 10, 1998, $12,000,000 was expended to
repay the outstanding indebtedness owed to Thermo Instrument in
connection with the acquisition of the Peek Measurement Business. The
Company invested the remaining net proceeds pursuant to a repurchase
agreement with Thermo Electron. As of April 4, 1998, the Company had
$61,091,000 of cash and cash equivalents.
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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ONIX SYSTEMS INC.
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 13th day of May 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
13PAGE
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ONIX SYSTEMS INC.
EXHIBIT INDEX
Exhibit
Number Description
------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONIX SYSTEMS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 4, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 61,091
<SECURITIES> 0
<RECEIVABLES> 34,537
<ALLOWANCES> 1,897
<INVENTORY> 34,910
<CURRENT-ASSETS> 133,861
<PP&E> 14,766
<DEPRECIATION> 5,858
<TOTAL-ASSETS> 198,512
<CURRENT-LIABILITIES> 46,246
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 150,430
<TOTAL-LIABILITY-AND-EQUITY> 198,512
<SALES> 37,144
<TOTAL-REVENUES> 37,144
<CGS> 21,624
<TOTAL-COSTS> 21,624
<OTHER-EXPENSES> 2,177
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 261
<INCOME-PRETAX> 3,708
<INCOME-TAX> 1,491
<INCOME-CONTINUING> 1,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,217
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
