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 2, 1999
[ ] 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 Identification No.)
incorporation or organization)
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 29, 1999
Common Stock, $.01 par value 14,357,524
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ONIX SYSTEMS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents (includes $30,743 under repurchase $ 5,743 $33,373
agreements with affiliated company in fiscal 1998)
Advance to affiliate (Note 7) 33,132 -
Accounts receivable, less allowances of $2,571 and $1,941 33,361 34,476
Inventories:
Raw materials and supplies 13,846 13,928
Work in process 11,671 11,596
Finished goods 3,188 6,476
Deferred tax asset 4,753 4,772
Prepaid expenses 1,267 1,241
-------- --------
106,961 105,862
-------- --------
Property, Plant, and Equipment, at Cost 20,449 17,566
Less: Accumulated depreciation and amortization 8,931 7,430
-------- --------
11,518 10,136
-------- --------
Other Assets 276 302
-------- --------
Cost in Excess of Net Assets of Acquired Companies 62,437 64,278
-------- --------
$181,192 $180,578
======== ========
2
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ONIX SYSTEMS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Short-term obligations $ 5,026 $ 1,017
Accounts payable 9,454 9,408
Accrued payroll and employee benefits 4,315 3,981
Accrued installation and warranty costs 1,083 1,294
Accrued income taxes 1,694 1,262
Deferred revenue 505 5,429
Other accrued expenses (Notes 5 and 6) 5,775 7,347
Due to parent company and affiliated companies 1,294 1,281
-------- --------
29,146 31,019
-------- --------
Deferred Income Taxes 2,837 2,837
-------- --------
Other Deferred Items 165 175
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 156 156
15,613,307 and 15,606,307 shares issued
Capital in excess of par value 144,800 144,752
Retained earnings 14,094 11,150
Treasury stock at cost, 1,255,783 shares (9,995) (9,995)
Deferred compensation (37) -
Accumulated other comprehensive items (Note 2) 26 484
-------- --------
149,044 146,547
-------- --------
$181,192 $180,578
======== ========
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 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $34,784 $39,851
------- -------
Costs and Operating Expenses:
Cost of revenues 21,664 25,024
Selling, general, and administrative expenses 9,436 10,024
Research and development expenses 2,684 2,373
Restructuring costs, net (Note 6) (47) 1,161
------- -------
33,737 38,582
------- -------
Operating Income 1,047 1,269
Interest Income 460 588
Interest Expense (67) -
------- -------
Income Before Provision for Income Taxes 1,440 1,857
Provision for Income Taxes 468 743
------- -------
Net Income $ 972 $ 1,114
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .07 $ .07
======= =======
Weighted Average Shares (Note 3):
Basic 14,358 15,561
======= =======
Diluted 14,358 15,572
======= =======
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 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $ 103,519 $115,434
--------- --------
Costs and Operating Expenses:
Cost of revenues 65,335 68,578
Selling, general, and administrative expenses 27,108 29,186
Research and development expenses 7,291 6,938
Restructuring costs, net (Note 6) 234 1,161
--------- --------
99,968 105,863
--------- --------
Operating Income 3,551 9,571
Interest Income 1,245 1,564
Interest Expense (includes $277 to related party in 1998) (123) (277)
--------- --------
Income Before Provision for Income Taxes 4,673 10,858
Provision for Income Taxes 1,729 4,324
--------- --------
Net Income $ 2,944 $ 6,534
========= ========
Basic and Diluted Earnings per Share (Note 3) $ .21 $ .45
========= ========
Weighted Average Shares (Note 3):
Basic 14,357 14,564
========= ========
Diluted 14,357 14,570
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
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ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Operating Activities:
Net income $ 2,944 $ 6,534
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,198 3,232
Noncash restructuring costs (Note 6) 109 180
Provision for losses on accounts receivable 913 348
Changes in current accounts, excluding the effects of acquisition:
Accounts receivable (130) 1,220
Inventories 3,063 (934)
Other current assets (98) (339)
Accounts payable 160 (5,037)
Other current liabilities (5,176) (510)
Other - (17)
-------- --------
Net cash provided by operating activities 4,983 4,677
-------- --------
Investing Activities:
Acquisition, net of cash acquired - (12,509)
Payment to affiliated company for acquired business - (19,117)
Refund of acquisition purchase price - 424
Advances to affiliate, net (Note 7) (33,132) -
Purchases of property, plant, and equipment (3,478) (1,157)
Proceeds from sale of property, plant, and equipment 195 445
-------- --------
Net cash used in investing activities (36,415) (31,914)
-------- --------
Financing Activities:
Increase in short-term obligations 3,926 -
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 cash provided by financing activities 3,926 43,188
-------- --------
Exchange Rate Effect on Cash (124) 423
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (27,630) 16,374
Cash and Cash Equivalents at Beginning of Period 33,373 24,960
-------- --------
Cash and Cash Equivalents at End of Period $ 5,743 $ 41,334
======== ========
6
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ONIX SYSTEMS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Noncash Activities:
Fair value of assets of acquired company $ - $14,550
Cash paid for acquired company - (12,624)
-------- -------
Liabilities assumed of acquired company $ - $ 1,926
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
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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 2, 1999, the results of
operations for the three- and nine-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the nine-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 2, 1999, 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 Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents foreign currency translation adjustments, reported as a
component of shareholders' investment in the accompanying balance sheet. During
the third quarter of 1999 and 1998, the Company's comprehensive income totaled
$1,896,000 and $1,646,000, respectively. During the first nine months of 1999
and 1998, the Company's comprehensive income totaled $2,486,000 and $7,233,000,
respectively.
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3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $ 972 $ 1,114 $2,944 $ 6,534
------ ------- ------ -------
Weighted Average Shares 14,358 15,561 14,357 14,564
------ ------- ------ -------
Basic Earnings per Share $ .07 $ .07 $ .21 $ .45
====== ======= ====== =======
Diluted
Net Income $ 972 $ 1,114 $2,944 $ 6,534
------ ------- ------ -------
Weighted Average Shares 14,358 15,561 14,357 14,564
Effect of Stock Options - 11 - 6
------ ------- ------ -------
Weighted Average Shares, as Adjusted 14,358 15,572 14,357 14,570
------ ------- ------ -------
Diluted Earnings per Share $ .07 $ .07 $ .21 $ .45
====== ======= ====== =======
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 2, 1999, there were 671,000 of such
options outstanding, with exercise prices ranging from $6.93 to $14.25 per
share.
8
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4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Measurement Instruments $ 23,156 $ 24,756 $68,332 $ 80,333
Industry-Specific Systems 11,628 15,095 35,187 35,101
-------- -------- ------- --------
$ 34,784 $ 39,851 $103,519 $115,434
======== ======== ======== ========
Income Before Provision for Income Taxes:
Measurement Instruments (a) $ 976 $ (121) $ 2,930 $ 6,249
Industry-Specific Systems 618 2,258 2,336 5,380
Corporate (b) (547) (868) (1,715) (2,058)
-------- -------- ------- --------
Total operating income 1,047 1,269 3,551 9,571
Interest income, net 393 588 1,122 1,287
-------- -------- ------- --------
$ 1,440 $ 1,857 $ 4,673 $ 10,858
======== ======== ======= ========
(a) Includes restructuring costs of $0.2 million in the nine-month period ended
October 2, 1999, and $0.9 million in the three- and nine-month periods ended
October 3, 1998.
(b) Primarily general and administrative expenses. Also includes restructuring
costs of $0.3 million in the three- and nine-month periods ended October 3,
1998.
5. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels and the abandonment of excess
facilities. In connection with these restructuring activities, as part of the
cost of acquisitions, the Company established reserves, primarily for severance
and excess facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Amounts accrued at October 2, 1999, represent ongoing payments for
abandoned facilities. A summary of the changes in accrued acquisition expenses,
which are included in other accrued expenses in the accompanying balance sheet,
follows:
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<S> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance Facilities Total
- --------------------------------------------------------------- -------------- ------------- -------------
Balance at January 2, 1999 $ 171 $170 $ 341
Usage (69) (148) (217)
Decrease due to finalization of restructuring (100) - (100)
plan, recorded as a decrease to cost in
excess of net assets of acquired companies
Currency translation (2) - (2)
----- ---- -----
Balance at October 2, 1999 $ - $ 22 $ 22
===== ==== =====
9
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6. Restructuring Costs
During 1998, the Company recorded restructuring costs, which were
accounted for in accordance with EITF 94-3, primarily for severance for 90
employees and abandonment of facilities. As of January 2, 1999, the Company had
terminated 46 employees and had $435,000 accrued for severance and
facility-closing costs relating to these activities. During the first nine
months of 1999, the Company terminated 32 additional employees and determined
that the remaining 12 would not be terminated. Accordingly, the Company reversed
the remaining $148,000 of previously established restructuring reserves. During
the first nine months of 1999, the Company incurred restructuring costs of
$398,000, which consisted of $289,000 for severance costs and $109,000 to write
off fixed assets no longer of use. The severance costs were for 23 employees,
primarily in manufacturing positions, and all of whom were terminated as of
October 2, 1999. A summary of the changes in accrued restructuring costs, which
are included in other accrued expenses in the accompanying balance sheet,
follows:
Abandonment
of Excess
(In thousands) Severance Facilities Total
- --------------------------------------------------------------- -------------- ------------- -------------
Balance at January 2, 1999 $ 366 $ 69 $ 435
Charged to expense 289 - 289
Reversal of reserve (148) (16) (164)
Usage (505) (53) (558)
Currency translation (2) - (2)
------ ----- ------
Balance at October 2, 1999 $ - $ - $ -
====== ===== ======
7. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
commenced use of a new domestic cash management arrangement. Under the new
arrangement, amounts advanced to Thermo Electron by the Company for domestic
cash management purposes bear interest at the 30-day Dealer Commercial Paper
Rate plus 50 basis points, set at the beginning of each month. Thermo Electron
is contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
this cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The Company has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
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 "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, filed with the Securities and Exchange
Commission.
10
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Overview
The Company designs, develops, markets, and services sophisticated field
measurement instruments and on-line sensors for the process control industry.
Incorporating advanced measurement technologies, the Company's products 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 in industries where production
processes require continuous monitoring, analysis, and measurement. The
Company's products and services are offered through two segments: Measurement
Instruments, which serve the process analysis and measurement needs of a range
of process industries, and Industry-Specific Systems, which are developed to
meet the specific process measurement and analysis needs of select industries,
principally oil and gas producers.
An element of the Company's strategy is to supplement its internal growth
by acquiring businesses with complementary products and technologies. The
Company has completed several such acquisitions, including the Mid-South
Companies in July 1998.
The Company's products are sold primarily to participants in process
industries, including oil and gas producers, refiners, pipelines, distributors,
and chemical and petrochemical companies, as well as water and wastewater, iron
and steel, semiconductor, minerals and mining, and pulp and paper companies. In
1998, customers in the oil and gas industries accounted for approximately 67% of
the Company's total revenues, with such revenues derived from both the
production and the refining and petrochemical sectors 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. Energy prices declined precipitously in 1998. While prices have
rebounded in 1999, capital equipment spending levels have not returned to prior
levels. The resulting decrease in oil and gas activities adversely affected the
Company's results in 1998 and the first nine months of 1999, and is expected to
continue to have a material adverse effect on the Company's near-term results of
operations.
Sales originating outside of the United States and export revenues from
the United States accounted for approximately 17% and 27%, respectively, of
total revenues in 1998. Export sales in 1998 were made primarily to the United
Kingdom, Mexico, and the Middle East. 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
Third Quarter 1999 Compared With Third Quarter 1998
Revenues decreased to $34.8 million in the third quarter of 1999 from
$39.9 million in the third quarter of 1998. Revenues from the Measurement
Instruments segment decreased $1.6 million to $23.2 million in 1999 from $24.8
million in 1998, primarily due to the effect of companies in the process control
industry reducing discretionary capital spending under difficult market
conditions. In particular, weakness in the petrochemical, oil and gas, and
mining sectors resulted in lower revenues at most of the Company's businesses.
Revenues in the Industry-Specific Systems segment decreased $3.5 million to
$11.6 million in 1999 from $15.1 million in 1998, primarily due to reduced
discretionary capital spending in the oil and gas production sector.
The gross profit margin increased to 38% in the third quarter of 1999 from
37% in the third quarter of 1998. The gross profit margin increased in the
Measurement Instruments segment primarily due to reduced spending on labor and
overhead as a result of restructuring actions commenced in 1998. This increase
was offset in part by excess capacity in the Industry-Specific Systems segment
caused by the difficult market conditions in the oil and gas production sector.
11
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Third Quarter 1999 Compared With Third Quarter 1998 (continued)
Selling, general, and administrative expenses as a percentage of revenues
increased to 27% in the third quarter of 1999 from 25% in the third quarter of
1998, primarily due to lower sales volume in the Industry-Specific Systems
segment and, to a lesser extent, a provision for losses on accounts receivable
of $0.6 million recorded by one of the Measurement Instruments segment's
business units. Selling, general, and administrative expenses decreased to $9.4
million in 1999 from $10.0 million in 1998, primarily in the Measurement
Instruments segment as a result of restructuring actions commenced in 1998,
offset in part by the provision for losses on accounts receivable.
Research and development expenses increased to $2.7 million in the third
quarter of 1999 from $2.4 million in the third quarter of 1998, primarily due to
increased product development activities in the Measurement Instruments segment
and, to a lesser extent, the Industry-Specific Systems segment.
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.
Interest income decreased to $0.5 million in the third quarter of 1999
from $0.6 million in the third quarter of 1998, primarily due to a reduction in
invested balances as a result of the acquisition of the Mid-South Companies in
July 1998. Interest expense in 1999 primarily relates to short-term borrowings
by one of the Company's European subsidiaries.
The effective tax rate was 33% in the third quarter of 1999, compared with
40% in the third quarter of 1998. The effective tax rate decreased in 1999 due
to a change in the Company's estimated effective tax rate as a result of the
favorable resolution of a Company claim for prior-year research and development
tax credits. The effective tax rate exceeded the statutory federal income tax
rate in 1998 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 1999 Compared With First Nine Months 1998
Revenues decreased to $103.5 million in the first nine months of 1999 from
$115.4 million in the first nine months of 1998. Revenues from the Measurement
Instruments segment decreased $12.0 million to $68.3 million in 1999 from $80.3
million in 1998, primarily due to the effect of companies in the process control
industry reducing discretionary capital spending under difficult market
conditions. In particular, weakness in the petrochemical, oil and gas, and
mining sectors resulted in lower revenues at most of the Company's businesses.
Revenues in the Industry-Specific Systems segment were $35.2 million in 1999,
compared with $35.1 million in 1998. An increase in revenues of $6.4 million due
to the inclusion of the Mid-South Companies for the full period in 1999 was
substantially offset by reduced discretionary spending in the oil and gas
production sector.
The gross profit margin decreased to 37% in the first nine months of 1999
from 41% in the first nine months of 1998, primarily due to the inclusion of
lower-margin revenues at the Mid-South Companies in the Industry-Specific
Systems segment for the full period in 1999.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26% in the first nine months of 1999 from 25% in the first nine
months of 1998, primarily due to lower sales volume. Selling, general, and
administrative expenses decreased to $27.1 million in 1999 from $29.2 million in
1998, primarily in the Measurement Instruments segment as a result of
restructuring actions commenced in 1998. The decrease was offset in part by the
inclusion of selling, general, and administrative expenses at the Mid-South
Companies for the full period in 1999 and, to a lesser extent, a provision for
losses on accounts receivable of $0.6 million recorded by one of the Measurement
Instruments segment's business units.
12
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Research and development expenses increased to $7.3 million in the first
nine months of 1999 from $6.9 million in the first nine months of 1998,
primarily due to increased product development activities in both of the
Company's segments.
The Company recorded $0.2 million of net restructuring costs in the first
nine months of 1999 (Note 6). 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.
Interest income decreased to $1.2 million in the first nine months of 1999
from $1.6 million in the first nine months of 1998, due to a reduction in
invested balances as a result of the acquisition of the Mid-South Companies in
July 1998. Interest expense decreased in 1999, primarily due to the April 1998
repayment of indebtedness related to the acquisition of the Peek Measurement
Business.
The effective tax rate was 37% in the first nine months of 1999, compared
with 40% in the first nine months of 1998. The effective tax rate decreased in
1999 due to the reason discussed in the results of operations for the third
quarter. The effective tax rate exceeded the statutory federal income tax rate
in both periods 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 $77.8 million as of October 2, 1999,
compared with $74.8 million as of January 2, 1999. Included in working capital
are cash and cash equivalents of $5.7 million as of October 2, 1999, compared
with $33.4 million as of January 2, 1999. In addition, as of October 2, 1999,
the Company had $33.1 million invested in an advance to affiliate. Prior to the
use of a new domestic cash management arrangement between the Company and Thermo
Electron Corporation (Note 7), which became effective June 1, 1999, amounts
invested with Thermo Electron were included in cash and cash equivalents.
During the first nine months of 1999, the Company's operating activities
provided $5.0 million of cash. A decrease in inventories provided $3.1 million
of cash, primarily resulting from management efforts to decrease inventories as
a result of lower revenues. Cash of $5.2 million was used to fund a decrease in
other current liabilities, consisting primarily of a $4.9 million decrease in
deferred revenue due to the Industry-Specific Systems segment's shipments of
products for which advance payments had been received in the fourth quarter of
1998.
During the first nine months of 1999, the Company's primary investing
activities, excluding advance to affiliate activity (Note 7), included $3.5
million for the purchase of property, plant, and equipment. During the remainder
of 1999, the Company plans to make capital expenditures of approximately $1.0
million.
The Company's financing activities provided $3.9 million of cash during
the first nine months of 1999, due to an increase in short-term borrowings.
In November 1999, the Company's Board of Directors authorized the
repurchase by the Company of up to $5.0 million of its common stock, through
October 29, 2000, in the open market, or in negotiated transactions. Any such
purchases will be funded from working capital.
Although the Company generally expects to have positive cash flow from its
existing operations, the Company may 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 and/or short-term borrowings from Thermo Instrument Systems Inc.
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.
13
<PAGE>
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical non-information technology systems, which efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material non-compliant systems or non-information
technology systems that were identified during phase one are prioritized and
remediated. Based on its evaluations of its critical non-information technology
systems, the Company does not believe any material upgrades or modifications are
required. The Company is currently upgrading or replacing its material
non-compliant information technology systems, and this process was approximately
94% complete as of October 2, 1999. In many cases, such upgrades or replacements
are being made in the ordinary course of business, without accelerating
previously scheduled upgrades or replacements. The Company expects that all of
its remaining material information technology systems will be year 2000
compliant by the end of November 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate 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. The Company is focusing its efforts on products that are
still under warranty and/or are early in their expected life. The Company is
offering upgrades and/or identifying potential solutions where reasonably
practicable.
The Company has also identified and assessed the year 2000 readiness of
key suppliers and vendors that are believed to be significant to the Company's
business operations. As part of this effort, the Company developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. To date, no significant supplier or vendor has indicated
that it believes its business operations will be materially disrupted by the
year 2000 issue. The Company followed-up with its significant suppliers and
vendors that did not respond to the Company's questionnaires. The Company has
substantially completed its assessment of third-party risk.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes 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 and vendors, it will modify and
adjust its contingency plan as may be required.
14
<PAGE>
Year 2000 (continued)
Estimated 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. Year 2000 costs
are funded from working capital. All internal costs and related external costs,
other than capital additions, related to year 2000 remediation have been and
will continue to be expensed as incurred. The Company does not track internal
costs incurred for its year 2000 compliance project. Such costs are principally
the related payroll costs for its information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
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. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected. If
any countries in which the Company operates experience significant year 2000
disruption, the Company could also be materially adversely affected. 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. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. Any unexpected costs or delays
arising from the year 2000 issue could have a material adverse impact on the
Company's business, operations, and financial condition in amounts that cannot
be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates has not changed materially from its exposure at year-end 1998.
15
<PAGE>
PART II - OTHER INFORMATION
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
None.
16
<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 5th day of November 1999.
ONIX SYSTEMS INC.
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27 Financial Data Schedule.
</TABLE>
<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 OCTOBER 2, 1999 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-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 5,743
<SECURITIES> 0
<RECEIVABLES> 35,932
<ALLOWANCES> 2,571
<INVENTORY> 28,705
<CURRENT-ASSETS> 106,961
<PP&E> 20,449
<DEPRECIATION> 8,931
<TOTAL-ASSETS> 181,192
<CURRENT-LIABILITIES> 29,146
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 148,888
<TOTAL-LIABILITY-AND-EQUITY> 181,192
<SALES> 103,519
<TOTAL-REVENUES> 103,519
<CGS> 65,335
<TOTAL-COSTS> 65,335
<OTHER-EXPENSES> 7,525
<LOSS-PROVISION> 913
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 4,673
<INCOME-TAX> 1,729
<INCOME-CONTINUING> 2,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,944
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
