SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 1, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer Identification No.)
22001 North Park Drive
Kingwood, TX 77339-3804
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 28, 2000, was approximately $21,985,000.
As of January 28, 2000, the Registrant had 14,357,524 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
January 1, 2000, are incorporated by reference into Parts I and II.
The information required by Part III of Form 10-K will be filed as part of an
amendment to this Form 10-K no later than 120 days after January 1, 2000, and
such information is incorporated by reference from such filing.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
The businesses of ONIX Systems Inc. (the Company or the Registrant)
operate in two segments: Measurement Instruments and Industry-Specific Systems.
Through its Measurement Instruments segment, the Company manufactures field
measurement instruments and on-line sensors in four general product areas: flow;
level and density; composition analysis; and data acquisition and display
instruments. Flow instruments are designed to measure and control the flow of
liquids and gases. These instruments include gas flow computers, noncontacting
ultrasonic flow meters, turbine flow meters, and air flow measurement systems.
Level and density instruments incorporate sophisticated technologies that
measure and control the level and density of liquid and solid materials and the
density of gaseous materials. These instruments include intelligent point-level
and continuous-level measurement instruments. Composition analysis instruments
are used for on-line analysis of the chemical composition of solids, liquids,
and gases and include sulfur analyzers, infrared and ultraviolet spectrometers,
gas chromatographs, portable elemental analysis instruments, and on-line mass
spectrometers. Data acquisition and display instruments gather information from
process sensors and record, display, and present the information for analysis,
control, and historical data storage. The Company's instruments include strip
chart recorders, paperless recorders, AC harmonic analyzers, and data
acquisition and analysis systems.
Through its Industry-Specific Systems segment, the Company offers
sophisticated sensor systems that are used to provide real-time measurement,
data collection, recording, analysis, and local control of process functions.
These special purpose instruments and sensors include rod pump controllers,
remote terminal units, gas-injection systems, and wellhead safety systems. In
July 1998, this segment acquired certain businesses of the Mid-South Companies
for $12.6 million in cash, including 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.
<TABLE>
The Company was incorporated in August 1997 as a wholly owned subsidiary of Thermo Instrument
Systems Inc. In connection with the Company's incorporation, Thermo Instrument transferred to the
Company all of the stock of CAC Inc., CAC Limited, Flow Automation Inc., Flow Automation U.K. Limited,
VG Gas Analysis Systems Inc., Westronics Inc., Houston Atlas Inc., TN Technologies Inc., and
Kay-Ray/Sensall Inc. in exchange for 10,666,667 shares of the Company's common stock. The Company
acquired the Peek Measurement Business from Thermo Power Corporation, a subsidiary of Thermo Electron
Corporation, effective November 1997, and acquired both the Rustrak Ranger Logger product line from a
subsidiary of Danaher Corporation and the business of Fluid Data, Inc. from Elsag-Bailey, Inc in
December 1997. In July 1998, the Company acquired certain businesses of the Mid-South Companies. 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 $43.7 million. As of January 1, 2000, Thermo Instrument owned
11,524,867 shares of the Company's common stock, representing 80% of such stock outstanding. Thermo
Instrument is an 88%-owned subsidiary of Thermo Electron. As of January 1, 2000, Thermo Electron owned
294,300 of the Company's outstanding common stock representing 2% of such stock outstanding. During
1999*, Thermo Electron purchased 189,600 shares of the Company's common stock in the open market for a
total purchase price of $1.3 million. Thermo Instrument and Thermo Electron develop, manufacture, and
sell measurement and detection instruments used in virtually every industry to monitor, collect, and
analyze data that provide knowledge for the user. For example, Thermo Instrument's and Thermo
Electron's powerful analysis technologies help researchers sift through data to unlock the mysteries of
DNA or develop new drugs; allow manufacturers to fabricate ever-smaller components required to carry
greater amounts of information, faster; or monitor and control industrial processes on-line to ensure
that critical quality standards are met efficiently.
- --------------------
* References to 1999, 1998, and 1997 herein are for the fiscal years ended
January 1, 2000, January 2, 1999, and January 3, 1998, respectively.
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On March 13, 2000, Thermo Instrument commenced a cash tender offer for any
and all of the outstanding shares of the Company's common stock at $9.00 per
share. This action is part of a major reorganization plan under which Thermo
Electron will spin in, spin off, and sell various businesses to focus solely on
its core measurement and detection instruments business. The completion of this
transaction is subject to certain conditions, as outline in Note 13 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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
caption "Forward-looking Statements" in the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 10 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Measurement Instruments
Flow Instruments
The Company designs, develops, markets, and services a broad line of
mechanical and electronic flow instruments that measure and control the flow of
liquids and gases. The Company's flow measurement instruments include
intelligent microprocessor-controlled flow computers, which are remotely
installed electronic flow metering instruments, often solar powered, that are
connected to the primary flow meters installed directly in the customer's
pipeline; noncontacting flow meters that use ultrasonic technology mounted
outside a customer's pipe; in-line turbine meters, which are designed to
function in a wide variety of operating conditions, including corrosive fluids,
high pressure gases, extreme temperatures, and sanitary and hazardous
environments; and insertion turbine meters for use where in-line monitoring is
not economically or operationally viable, such as in large pipelines or where
pressure drop is critical.
The Company's field flow computers are primarily used by customers in the
natural gas industry to monitor, record, and communicate the flow of natural gas
at transfer points in the natural gas distribution chain. The Company's
ultrasonic flow meters, employing both transit time and Doppler technologies,
are sold primarily to customers in the water and wastewater industry for a
variety of applications. The Company believes that it is the world leader in
Doppler ultrasonic flow meters. The Company sells its turbine and impeller
meters to customers throughout the world in a diverse range of industries,
including the oil and gas, chemical processing, petrochemical, pharmaceutical,
semiconductor, pulp and paper, aerospace, automotive, food and beverage, power
generation, and water and wastewater industries. The Company's air flow
measurement systems are used for a variety of air flow applications, including
drying, paint spraying, combustion, and clean room pressurization.
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The Company's flow instruments for the oil and gas industry are primarily
sold through a direct sales force. The Company's flow instruments for other
industries are primarily sold through independent sales representatives or
distributors supported by local sales managers and application specialists.
Level and Density Instruments
The Company designs, develops, markets, and services intelligent
point-level, continuous-level, and density measurement instruments that use a
variety of sophisticated technologies, including gamma, radar, ultrasonic, and
vibrational measurement techniques, to meet the cost and application-specific
requirements of process industry participants within targeted markets. The
Company believes that it is the world leader in level measurement instruments
incorporating gamma technology and point-level measurement instruments employing
ultrasonic technology. The Company's level and density measurement instruments
are designed to ensure increased accuracy and reliability despite harsh process
environments. In addition, they are primarily noncontacting and, therefore,
well-suited for use in industrial processes that involve harmful or toxic
materials, which cause maintenance problems for traditional techniques. The
Company's point-level instruments measure the presence or absence of a
substance, while its continuous-level instruments measure the changing level of
a substance on an ongoing basis.
The Company's level measurement instruments are used by several targeted
industries, including oil and gas, chemical, mineral and mining, iron and steel,
pharmaceutical, water and wastewater, and pulp and paper. Customers in these
industries store large quantities of materials in tanks or other storage vessels
and use the Company's instruments to either continuously measure and monitor
levels of the stored materials or to ensure the presence of either a minimum or
maximum amount of the material. The Company's density measurement products are
used primarily in the paper industry to measure pulp consistency and in the oil
and gas industry by pipeline companies responsible for transporting refined
petroleum products.
The Company's level and density instruments are primarily sold through
independent sales representatives or distributors supported by local sales
managers and application specialists.
Composition Analysis Instruments
The Company designs, develops, markets, and services a variety of
instruments designed to analyze the chemical composition of solids, liquids, and
gases. These products include lead acetate-based and chemiluminescent sulfur
analyzers, which utilize fiber optics and precision colorimetry for field and
on-line measurement of the sulfur content in liquid and gaseous materials; a
photodiode spectrometer used for gasoline blending optimization; on-line gas
chromatographs for content and purity analysis of natural gas and light
hydrocarbon liquids, including butane and propane; portable XRF-elemental
analysis instruments that use proprietary sensors to provide accurate, real-time
analysis of the presence of metals and the composition of alloys; and on-line
mass spectrometers that provide highly accurate, real-time analysis of the type
and content of a variety of gases at multiple points within a customer's
operations. The Company believes that it is a leader in the market for portable
elemental analysis instruments, process sulfur monitors, and on-line mass
spectrometers.
Customers use the Company's portable elemental analysis instruments for
field composition analysis of alloys, analysis of paint for the presence of
lead, and composition analysis of the metallic content of soil, particularly at
Superfund sites. The Company's mass spectrometers are used in a variety of
process industries, including the petrochemical, pharmaceutical, iron and steel,
and semiconductor industries for real-time, ultrasensitive measurement of gases.
The Company's composition analysis instruments are primarily sold through
independent sales representatives or distributors supported by local sales
managers and application specialists.
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Data Acquisition and Display Instruments
The Company also offers data acquisition systems, paper and paperless
strip chart recorders, process alarm monitors, current-to-pressure and
pressure-to-current transducers, and AC-power monitoring instruments to
customers in the power generation and transmission, petrochemical, chemical,
pulp and paper, water and wastewater, and pharmaceutical industries. The
Company's strip chart recorders are designed to continuously and accurately
measure, display, and record critical variables within an industrial or
manufacturing process and provide plant managers with valuable information
regarding flow, level, density, temperature, and pressure. The Company's alarm
monitoring systems provide an interface for sensors that measure or detect
pressure, temperature, vibration, or gas, which in turn allow critical alarm
conditions to be displayed or communicated to a centralized control system. The
Company's current-to-pressure and pressure-to-current transducers are used for
valve positioning in processing plants for the chemical, petrochemical, power
generation, pulp and paper, and pharmaceutical industries.
The Company's data acquisition and display instruments are primarily sold
through independent sales representatives or distributors supported by local
sales managers and application specialists.
Industry-Specific Systems
The Company's Industry-Specific Systems segment specializes in the
development, installation, and service of scalable and redundant rod pump
controllers and RTUs that automate the measurement, control, safety, and
environmental protection needs of onshore and offshore oil and gas production
and pipeline transmission. These products incorporate microprocessor-based,
smart technologies to provide customers with a variety of functions, including
gas flow measurement and custody transfer data.
In addition, the Company offers a range of wellhead safety control
products that monitor, control, and provide failsafe shutdown of oil and gas
production wells. To complement these products, the Company developed a subsea
control system to assist in oil production from reserves below the ocean floor.
The control system, designed to operate at a maximum depth of 3,000 meters,
rests on the ocean floor to monitor, analyze, and locally control the level and
flow of oil in up to four oil wells. It is connected to operations located on
the ocean surface by an umbilical line with electrical and hydraulic
connections. This product is designed to offer a more efficient and
cost-effective alternative to traditional offshore drilling, which requires
substantial time and expense in building and later disassembling surface
drilling platforms. The control system also allows oil companies to access oil
reserves that would otherwise be inaccessible because of either their location
or cost.
The Company's industry-specific systems are primarily sold through a
direct sales force with industry-specific expertise.
(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development and introduction
of new products and improvements to existing products. During 1999, 1998, and
1997, research and development expenses were $9.8 million, $9.2 million, and
$6.8 million, respectively.
(iii)Raw Materials
The Company believes that there is more than one source for the major
components of its products. If, however, the Company were to experience any
shortage in any of the major components of its products due to supply shortages
or other reasons, including reasons beyond its control, the Company's business,
financial condition, and results of operations would be adversely affected.
5
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(iv) Patents, Licenses, and Trademarks
The Company's success depends in part on the strength and protection of
its proprietary methodologies and designs and other proprietary intellectual
rights. The Company relies upon a combination of patent, trade secret,
nondisclosure and other contractual arrangements, and copyright and trademark
laws, to protect its proprietary rights. The Company seeks to limit access to
and distribution of its proprietary information. There can be no assurance that
the steps taken by the Company in this regard will be adequate to deter the
misappropriation of its proprietary information, that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights, or that competitors will not be able to develop
similar technology independently.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales of its
products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii)Dependency on a Single Customer
No single customer represented 10% or more of the Company's total revenues
in any of the past three years.
(viii)Backlog
The Company's backlog of firm orders was as follows:
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Measurement Instruments $18,771 $13,613
Industry-Specific Systems 8,976 10,942
------- -------
$27,747 $24,555
======= =======
The Company includes in its backlog only orders confirmed with a purchase
order for products and related services scheduled to be shipped or rendered
within one year. Certain of such firm orders are cancelable by the customer upon
payment of a cancellation charge. The Company believes that substantially all of
the backlog at January 1, 2000, will be shipped or completed during 2000.
Because of the possibility of customer changes in delivery schedules,
cancellation of orders, and potential delays in product shipments, the Company's
backlog as of any particular date may not be representative of actual sales for
any succeeding period.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company believes that its ability to compete successfully in the
market for field measurement instruments and on-line sensors depends upon a
number of factors both within and beyond its control, including quality and
reliability; technical features; accuracy; ease of use; product pricing;
reputation for aftermarket service; timing of new product releases and
enhancements by the Company and its competitors; name recognition; the
establishment of
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strategic alliances; and industry and general economic trends. In addition, the
Company competes with companies using proprietary technologies that may be
viewed as cost-effective alternatives to the technologies incorporated into the
Company's products.
In both its Measurement Instruments and Industry-Specific Systems
segments, the Company competes with a few large competitors, including
Fisher-Rosemount, a division of Emerson Electric Co., and Asea Brown Boveri
(Holding) Ltd. (ABB). Within its Measurement Instruments segment, the Company
also competes with such large companies as Elsag Bailey Process Automation N.V.,
a division of ABB, and Yokogawa Electric Corporation, as well as smaller
competitors. The field measurement instruments and on-line sensors market
segment of the process control market is highly fragmented and intensely
competitive, and the Company expects competition to continue to increase. The
Company's Industry-Specific Systems segment competes with many companies within
specific industries. As the technologies used within the process measurement
industry continue to develop, the Company expects to face increasing competition
in the future from emerging competitors.
Certain of the Company's current and potential competitors have
significantly greater financial, marketing, technical, and other competitive
resources, as well as greater name recognition, than the Company. As a result,
the Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, and may be able to devote
greater resources to the promotion and sale of their products. There can be no
assurance that the Company will be able to compete successfully with existing or
new competitors. An increase in competition could result in price reductions and
loss of market share, which could have a material adverse effect on the
Company's business, financial condition, or results of operations.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
As of January 1, 2000, the Company employed approximately 800 people.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 10 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, which information is incorporated herein by reference.
</TABLE>
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive Officer)
----------------- --- ---------------------------------------------------------
Dr. William J. Zolner 56 President, Chief Executive Officer, and Director (1997)
C.R. (Neil) Duarte 56 Vice President (1997)
B.C. Holstead 64 Vice President (1997)
Mark Whitman 45 Vice President (1997)
Theo Melas-Kyriazi 40 Chief Financial Officer (1998)
Paul F. Kelleher 57 Chief Accounting Officer (1997)
Each executive officer serves until his successor is chosen or appointed by the Board of Directors
and qualified or until earlier resignation, death, or removal. Dr. Zolner has been President, Chief
Executive Officer, and a Director of the Company since its inception. From March 1995 to October 1997,
Dr. Zolner served as President of CAC. From 1993 to 1995 Dr. Zolner worked for Thermo Instrument
analyzing acquisition opportunities and serving as a technology assistant to Mr. Arvin H. Smith, then
Chief Executive Officer of Thermo Instrument. Mr. Duarte has
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served as Vice President of the Company since its inception and as President of the Company's Flow
Automation subsidiary since 1992. Mr. Holstead has served as Vice President of the Company since its
inception, has served as President of CAC since October 1997, and as President of the Mid-South
Companies since their acquisition in July 1998. Mr. Holstead held various positions with CAC from 1991
to October 1997. Mr. Whitman has served as Vice President of the Company since its inception, President
of TN Technologies since 1994, and in various positions at a number of subsidiaries of the Company since
1981. Mr. Melas-Kyriazi was appointed Chief Financial Officer of the Company and Thermo Electron on
January 1, 1999. He joined Thermo Electron in 1986 as Assistant Treasurer, and became Treasurer in
1988. In 1994, he was named President and Chief Executive Officer of ThermoSpectra Corporation, a
subsidiary of Thermo Instrument. In 1998, he became Vice President of Corporate Strategy for Thermo
Electron. Mr. Melas-Kyriazi remains a Vice President of Thermo Electron. Mr. Kelleher has held
comparable positions for at least five years with Thermo Instrument or Thermo Electron. Messrs.
Melas-Kyriazi and Kelleher are full-time employees of Thermo Electron, but devote such time to the
affairs of the Company as the Company's needs reasonably require.
Item 2. Properties
The location and general character of the Company's principal properties
by segment as of January 1, 2000, are as follows:
Measurement Instruments
The Company owns approximately 67,000 square feet of office, engineering,
and production space in Indiana, which is currently up for sale, and leases
approximately 361,000 square feet of office, engineering, laboratory, and
production space, principally in Texas, Illinois, North Carolina, the United
Kingdom, and Canada, under leases expiring from 2000 to 2006.
Industry-Specific Systems
The Company owns approximately 65,000 square feet of office, engineering,
and production space principally in the United Kingdom and Louisiana, and leases
approximately 73,000 square feet of office, engineering, production, laboratory,
and warehouse space, principally in Texas, New Jersey, Louisiana, and Mexico,
under leases expiring from 2000 to 2007.
The Company believes that its facilities are in good condition and are
suitable and adequate for its present operations and that suitable space is
readily available if any of such leases are not extended. With respect to leases
expiring in the near future, in the event the Company does not renew such
leases, the Company believes suitable alternate space is available for lease on
acceptable terms.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of the Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $.01 par value, and divided policy is included under the sections
labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of January 1, 2000,
and Supplementary Data are included in the Registrant's 1999 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
The information required under Items 10, 11, 12, and 13 of Form 10-K will
be filed as part of an amendment to this Form 10-K no later than 120 days after
January 1, 2000, the end of the Registrant's fiscal year covered by this Form
10-K.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2)The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 16, 2000 ONIX SYSTEMS INC.
By: /s/ William J. Zolner
William J. Zolner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 16, 2000.
Signature Title
By: /s/ William J. Zolner President, Chief Executive Officer, and
William J. Zolner Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ David J. Beaubien Director
David J. Beaubien
By: /s/ Frank Jungers Director
Frank Jungers
By: /s/ Earl R. Lewis Chairman of the Board and Director
Earl R. Lewis
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of ONIX Systems Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in ONIX Systems Inc.'s Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 15, 2000 (except with respect to the
matter discussed in Note 13, as to which the date is March 13, 2000). Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 on page 10 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000
</TABLE>
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SCHEDULE II
ONIX SYSTEMS INC.
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Description Provision Accounts Accounts Other (a) Balance
Balance at Charged to Recovered Written at End
Beginning Expense Off of Year
of Year
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------
Allowance for Doubtful Accounts
Year Ended January 1, 2000 $1,941 $ 943 $ - $ (579) $ 271 $2,576
Year Ended January 2, 1999 $2,155 $ 423 $ 45 $ (926) $ 244 $1,941
Year Ended January 3, 1998 $1,347 $ 674 $ 9 $ (488) $ 613 $2,155
Description Balance at Established Activity Other (c) Balance
Beginning as Cost of Charged to at End
of Year Acquisitions Reserve of Year
- ------------------------------------- ------------- ------------- ------------ ------------- -------------
Accrued Acquisition Expenses (b)
Year Ended January 1, 2000 $ 241 $ - $ (236) $ (2) $ 3
Year Ended January 2, 1999 $ 311 $ 686 $ (656) $ (100) $ 241
Year Ended January 3, 1998 $ 1,396 $ 329 $ (409) $(1,005) $ 311
Description Balance at Net Activity Other (f) Balance
Beginning Provision Charged to at End
of Year Charged to Reserve of Year
Expense (e)
- ------------------------------------- ------------- ------------- ------------ -------------- ------------
Accrued Restructuring Costs (d)
Year Ended January 1, 2000 $ 435 $ 125 $(558) $ (2) $ -
Year Ended January 2, 1999 $ - $ 742 $(310) $ 3 $435
(a) Includes allowances of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders and the effect of foreign currency translation.
(b) The nature of activity in this account is described in Note 2 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(c) Represents reversal of accrued acquisition expenses and corresponding
reduction of cost in excess of net assets of acquired companies resulting
from finalization of restructuring plans and the effect of foreign currency
translation.
(d) The nature of activity in this account is described in Note 9 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(e) Excludes noncash charges of $0.1 million and $0.2 million for fixed asset
write-downs in 1999 and 1998, respectively.
(f) Includes the effect of foreign currency translation.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2 Share Purchase Agreement dated January 29, 1998, between Thermo Power Corporation and the
Registrant relating to the acquisition of the Peek Measurement Business (filed as Exhibit
2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-45333] and
incorporated herein by reference).
3.1 Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-45333] and incorporated herein by
reference).
3.2 By-laws of the Registrant (filed as Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-45333] and incorporated herein by reference).
4 Specimen Common Stock Certificate (filed as Exhibit 4 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-45333] and incorporated herein by reference).
10.1 Corporate Services Agreement dated as of August 21, 1997, between
Thermo Electron Corporation and the Registrant (filed as Exhibit
10.1 to the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-45333] and incorporated herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated effective
January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's
Annual Report on Form 10-K for the fiscal year ended January 3,
1993 [File No. 1-8002] and incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of August 21, 1997, between
Thermo Electron Corporation and the Registrant (filed as Exhibit
10.3 to the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-45333] and incorporated herein by reference).
10.4 Master Cash Management, Guarantee Reimbursement and Loan
Agreement dated as of June 1, 1999, between the Registrant and
Thermo Electron Corporation (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999, and incorporated herein by reference).
10.5 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of
January 5, 1998, between Thermo Instrument Systems Inc. and the Registrant (filed as
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-45333]
and incorporated herein by reference).
10.6 Stock Transfer Agreement dated August 21, 1997, between Thermo Instrument Systems Inc.
and the Registrant (filed as Exhibit 10.7 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-45333] and incorporated herein by reference).
10.7 Indemnification Agreement dated as of August 21, 1997, between Thermo Instrument Systems
Inc. and the Registrant (filed as Exhibit 10.8 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 333-45333] and incorporated herein by reference).
10.8 Form of Indemnification Agreement for Officers and Directors of the Registrant (filed as
Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-45333]
and incorporated herein by reference).
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Exhibit
Number Description of Exhibit
10.9 Lease Agreement dated June 4, 1990, between Crow-Gottesman-Hill
#43, as landlord and TN Technologies Inc., as tenant for property
located in the City of Round Rock, Williamson County, Texas
(filed as Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-45333] and incorporated
herein by reference).
10.10 Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July
3, 1999 and incorporated herein by reference).
10.11 Amended and Restated Equity Incentive Plan of the Registrant.
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron and Thermo Instrument for services rendered to the
Registrant or to such affiliated corporations. The terms of such
plans are substantially the same as those of the Registrant's
Equity Incentive Plan.
10.12 Lease Agreement dated as of November 1, 1997, between Thermo Instrument Systems Inc., as
landlord, and CAC Inc., as tenant (filed as Exhibit 10.24 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-45333] and incorporated herein by
reference).
10.13 Lease Agreement dated as of January 1, 1998, between Peek Traffic
Ltd., as landlord, and Peek Measurement Ltd., as tenant (filed as
Exhibit 10.25 to the Registrant's Registration Statement on Form
S-1 [Reg. No. 333-45333] and incorporated herein by reference).
13 Annual Report to Shareholders for the year ended January 1, 2000
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
ONIX SYSTEMS INC.
EQUITY INCENTIVE PLAN
-------------------------
As amended and restated effective as of June 9, 1999
----------------------------------------------------
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to secure for
ONIX Systems Inc. (the "Company") and its Stockholders the benefits arising from
capital stock ownership by employees and Directors of, and consultants to, the
Company and its subsidiaries or other persons who are expected to make
significant contributions to the future growth and success of the Company and
its subsidiaries. The Plan is intended to accomplish these goals by enabling the
Company to offer such persons equity-based interests, equity-based incentives or
performance-based stock incentives in the Company, or any combination thereof
("Awards").
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company
(the "Board"). The Board shall have full power to interpret and administer the
Plan, to prescribe, amend and rescind rules and regulations relating to the Plan
and Awards, and full authority to select the persons to whom Awards will be
granted ("Participants"), determine the type and amount of Awards to be granted
to Participants (including any combination of Awards), determine the terms and
conditions of Awards granted under the Plan (including terms and conditions
relating to events of merger, consolidation, dissolution and liquidation, change
of control, vesting, forfeiture, restrictions, dividends and interest, if any,
on deferred amounts), waive compliance by a participant with any obligation to
be performed by him or her under an Award, waive any term or condition of an
Award, cancel an existing Award in whole or in part with the consent of a
Participant, grant replacement Awards, accelerate the vesting or lapse of any
restrictions of any Award and adopt the form of instruments evidencing Awards
under the Plan and change such forms from time to time. Any interpretation by
the Board of the terms and provisions of the Plan or any Award thereunder and
the administration thereof, and all action taken by the Board, shall be final,
binding and conclusive on all parties and any person claiming under or through
any party. No Director shall be liable for any action or determination made in
good faith. The Board may, to the full extent permitted by law, delegate any or
all of its responsibilities under the Plan to a committee (the "Committee")
appointed by the Board and consisting of two or more members of the Board, each
of whom shall be deemed a "disinterested person" within the meaning of Rule
16b-3 (or any successor rule) of the Securities Exchange Act of 1934 (the
"Exchange Act").
3. EFFECTIVE DATE
The Plan shall be effective as of the date first approved by the Board
of Directors, subject to the approval of the Plan by the Corporation's
Stockholders. Grants of Awards under the Plan made prior to such approval shall
be effective when made (unless otherwise specified by the
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Board at the time of grant), but shall be conditioned on and subject to such
approval of the Plan.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 10.6, the total number of
shares of Common Stock reserved and available for distribution under the Plan
shall be 1,066,667 shares. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
If any Award of shares of Common Stock requiring exercise by the
Participant for delivery of such shares terminates without having been exercised
in full, is forfeited or is otherwise terminated without a payment being made to
the Participant in the form of Common Stock, or if any shares of Common Stock
subject to restrictions are repurchased by the Company pursuant to the terms of
any Award or are otherwise reacquired by the Company to satisfy obligations
arising by virtue of any Award, such shares shall be available for distribution
in connection with future Awards under the Plan.
5. ELIGIBILITY
Employees and Directors of, and consultants to, the Company and its
subsidiaries, or other persons who are expected to make significant
contributions to the future growth and success of the Company and its
subsidiaries shall be eligible to receive Awards under the Plan. The Board, or
other appropriate committee or person to the extent permitted pursuant to the
last sentence of Section 2, shall from time to time select from among such
eligible persons those who will receive Awards under the Plan.
6. TYPES OF AWARDS
The Board may offer Awards under the Plan in any form of equity-based
interest, equity-based incentive or performance-based stock incentive in Common
Stock of the Company or any combination thereof. The type, terms and conditions
and restrictions of an Award shall be determined by the Board at the time such
Award is made to a Participant; provided however that the maximum number of
shares permitted to be granted under any Award or combination of Awards to any
Participant during any one calendar year may not exceed 250,000 shares of Common
Stock.
An Award shall be made at the time specified by the Board and shall be
subject to such conditions or restrictions as may be imposed by the Board and
shall conform to the general rules applicable under the Plan as well as any
special rules then applicable under federal tax laws or regulations or the
federal securities laws relating to the type of Award granted.
Without limiting the foregoing, Awards may take the following forms and
shall be subject to the following rules and conditions:
6.1 OPTIONS
An option is an Award that entitles the holder on exercise thereof to
purchase Common
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Stock at a specified exercise price. Options granted under the Plan may be
either incentive stock options ("incentive stock options") that meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options that are not intended to meet the requirements of
Section 422 ("non-statutory options").
6.1.1 OPTION PRICE. The price at which Common Stock may be purchased
upon exercise of an option shall be determined by the Board, PROVIDED HOWEVER,
the exercise price shall not be less than the par value per share of Common
Stock.
6.1.2 OPTION GRANTS. The granting of an option shall take place at the
time specified by the Board. Options shall be evidenced by option agreements.
Such agreements shall conform to the requirements of the Plan, and may contain
such other provisions (including but not limited to vesting and forfeiture
provisions, acceleration, change of control, protection in the event of merger,
consolidations, dissolutions and liquidations) as the Board shall deem
advisable. Option agreements shall expressly state whether an option grant is
intended to qualify as an incentive stock option or non-statutory option.
6.1.3 OPTION PERIOD. An option will become exercisable at such time or
times (which may be immediately or in such installments as the Board shall
determine) and on such terms and conditions as the Board shall specify. The
option agreements shall specify the terms and conditions applicable in the event
of an option holder's termination of employment during the option's term.
Any exercise of an option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any additional
documents required by the Board and (2) payment in full in accordance with
Section 6.1.4 for the number of shares for which the option is exercised.
6.1.4 PAYMENT OF EXERCISE PRICE. Stock purchased on exercise of an
option shall be paid for as follows: (1) in cash or by check (subject to such
guidelines as the Company may establish for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing the option (or in the case of a non-statutory option, by
the Board at or after grant of the option), (i) through the delivery of shares
of Common Stock that have been outstanding for at least six months (unless the
Board expressly approves a shorter period) and that have a fair market value
(determined in accordance with procedures prescribed by the Board) equal to the
exercise price, (ii) by delivery of a promissory note of the option holder to
the Company, payable on such terms as are specified by the Board, (iii) by
delivery of an unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price, or (iv) by
any combination of the permissible forms of payment.
6.1.5 BUYOUT PROVISION. The Board may at any time offer to buy out for
a payment in cash, shares of Common Stock, deferred stock or restricted stock,
an option previously granted, based on such terms and conditions as the Board
shall establish and communicate to the option holder at the time that such offer
is made.
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6.1.6 SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. Each provision of the
Plan and each option agreement evidencing an incentive stock option shall be
construed so that each incentive stock option shall be an incentive stock option
as defined in Section 422 of the Code or any statutory provision that may
replace such Section, and any provisions thereof that cannot be so construed
shall be disregarded. Instruments evidencing incentive stock options must
contain such provisions as are required under applicable provisions of the Code.
Incentive stock options may be granted only to employees of the Company and its
subsidiaries. The exercise price of an incentive stock option shall not be less
than 100% (110% in the case of an incentive stock option granted to a more than
ten percent Stockholder of the Company) of the fair market value of the Common
Stock on the date of grant, as determined by the Board. An incentive stock
option may not be granted after the tenth anniversary of the date on which the
Plan was adopted by the Board and the latest date on which an incentive stock
option may be exercised shall be the tenth anniversary (fifth anniversary, in
the case of any incentive stock option granted to a more than ten percent
Stockholder of the Company) of the date of grant, as determined by the Board.
6.2 RESTRICTED AND UNRESTRICTED STOCK
An Award of restricted stock entitles the recipient thereof to acquire
shares of Common Stock upon payment of the purchase price subject to
restrictions specified in the instrument evidencing the Award.
6.2.1 RESTRICTED STOCK AWARDS. Awards of restricted stock shall be
evidenced by restricted stock agreements. Such agreements shall conform to the
requirements of the Plan, and may contain such other provisions (including
restriction and forfeiture provisions, change of control, protection in the
event of mergers, consolidations, dissolutions and liquidations) as the Board
shall deem advisable.
6.2.2 RESTRICTIONS. Until the restrictions specified in a restricted
stock agreement shall lapse, restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of, and upon certain
conditions specified in the restricted stock agreement, must be resold to the
Company for the price, if any, specified in such agreement. The restrictions
shall lapse at such time or times, and on such conditions, as the Board may
specify. The Board may at any time accelerate the time at which the restrictions
on all or any part of the shares shall lapse.
6.2.3 RIGHTS AS A STOCKHOLDER. A Participant who acquires shares of
restricted stock will have all of the rights of a Stockholder with respect to
such shares including the right to receive dividends and to vote such shares.
Unless the Board otherwise determines, certificates evidencing shares of
restricted stock will remain in the possession of the Company until such shares
are free of all restrictions under the Plan.
6.2.4 PURCHASE PRICE. The purchase price of shares of restricted stock
shall be determined by the Board, in its sole discretion, but such price may not
be less than the par value of such shares.
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6.2.5 OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Board may provide
that any or all the Common Stock delivered pursuant to an Award will be
restricted stock.
6.2.6 UNRESTRICTED STOCK. The Board may, in its sole discretion, sell
to any Participant shares of Common Stock free of restrictions under the Plan
for a price determined by the Board, but which may not be less than the par
value per share of the Common Stock.
6.3 DEFERRED STOCK
6.3.1 DEFERRED STOCK AWARD. A deferred stock Award entitles the
recipient to receive shares of deferred stock, which is Common Stock to be
delivered in the future. Delivery of the Common Stock will take place at such
time or times, and on such conditions, as the Board may specify. The Board may
at any time accelerate the time at which delivery of all or any part of the
Common Stock will take place.
6.3.2 OTHER AWARDS SETTLED WITH DEFERRED STOCK. The Board may, at the
time any Award described in this Section 6 is granted, provide that, at the time
Common Stock would otherwise be delivered pursuant to the Award, the Participant
will instead receive an instrument evidencing the right to future delivery of
deferred stock.
6.4 PERFORMANCE AWARDS
6.4.1 PERFORMANCE AWARDS. A performance Award entitles the recipient to
receive, without payment, an amount, in cash or Common Stock or a combination
thereof (such form to be determined by the Board), following the attainment of
performance goals. Performance goals may be related to personal performance,
corporate performance, departmental performance or any other category of
performance deemed by the Board to be important to the success of the Company.
The Board will determine the performance goals, the period or periods during
which performance is to be measured and all other terms and conditions
applicable to the Award.
6.4.2 OTHER AWARDS SUBJECT TO PERFORMANCE CONDITIONS. The Board may, at
the time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 of the
Plan) that performance goals be met prior to the Participant's realization of
any payment or benefit under the Award.
7. PURCHASE PRICE AND PAYMENT
Except as otherwise provided in the Plan, the purchase price of Common
Stock to be acquired pursuant to an Award shall be the price determined by the
Board, provided that such price shall not be less than the par value of the
Common Stock. Except as otherwise provided in the Plan, the Board may determine
the method of payment of the exercise price or purchase price of an Award
granted under the Plan and the form of payment. The Board may determine that all
or any part of the purchase price of Common Stock pursuant to an Award has been
satisfied by
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past services rendered by the Participant. The Board may agree at any time, upon
request of the Participant, to defer the date on which any payment under an
Award will be made.
8. LOANS AND SUPPLEMENTAL GRANTS
The Company may make a loan to a Participant, either on or after the
grant to the Participant of any Award, in connection with the purchase of Common
Stock under the Award or with the payment of any obligation incurred or
recognized as a result of the Award. The Board will have full authority to
decide whether the loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the loan is to be repaid and
the conditions, if any, under which it may be forgiven.
In connection with any Award, the Board may at the time such Award is
made or at a later date, provide for and make a cash payment to the participant
not to exceed an amount equal to (a) the amount of any federal, state and local
income tax or ordinary income for which the Participant will be liable with
respect to the Award, plus (b) an additional amount on a grossed-up basis
necessary to make him or her whole after tax, discharging all the participant's
income tax liabilities arising from all payments under the Plan.
9. CHANGE IN CONTROL
9.1 IMPACT OF EVENT
In the event of a "Change in Control" as defined in Section 9.2, the
following provisions shall apply, unless the agreement evidencing the Award
otherwise provides (by specific explicit reference to Section 9.2 below). If a
Change in Control occurs while any Awards are outstanding, then, effective upon
the Change in Control, (i) each outstanding stock option or other stock-based
Award awarded under the Plan that was not previously exercisable and vested
shall become immediately exercisable in full and will no longer be subject to a
right of repurchase by the Company, (ii) each outstanding restricted stock award
or other stock-based Award subject to restrictions and to the extent not fully
vested, shall be deemed to be fully vested, free of restrictions and no longer
subject to a right of repurchase by the Company, and (iii) deferral limitations
and conditions that relate solely to the passage of time, continued employment
or affiliation will be waived and removed as to deferred stock Awards and
performance Awards; performance of other conditions (other than conditions
relating solely to the passage of time, continued employment or affiliation)
will continue to apply unless otherwise provided in the agreement evidencing the
Award or in any other agreement between the Participant and the Company or
unless otherwise agreed by the Board.
9.2 DEFINITION OF "CHANGE IN CONTROL"
"CHANGE IN CONTROL" means an event or occurrence set forth in any one
or more of subsections (a) through (d) below (including an event or occurrence
that constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
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<PAGE>
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
PROVIDED, HOWEVER, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; PROVIDED, HOWEVER, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting
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power of the then-outstanding securities of such corporation entitled to vote
generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
10. GENERAL PROVISIONS
10.1 DOCUMENTATION OF AWARDS
Awards will be evidenced by written instruments, which may differ among
Participants, prescribed by the Board from time to time. Such instruments may be
in the form of agreements to be executed by both the Participant and the Company
or certificates, letters or similar instruments which need not be executed by
the participant but acceptance of which will evidence agreement to the terms
thereof. Such instruments shall conform to the requirements of the Plan and may
contain such other provisions (including provisions relating to events of
merger, consolidation, dissolution and liquidations, change of control and
restrictions affecting either the agreement or the Common Stock issued
thereunder), as the Board deems advisable.
10.2 RIGHTS AS A STOCKHOLDER
Except as specifically provided by the Plan or the instrument
evidencing the Award, the receipt of an Award will not give a Participant rights
as a Stockholder with respect to any shares covered by an Award until the date
of issue of a stock certificate to the participant for such shares.
10.3 CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Common Stock
pursuant to the Plan or to remove any restriction from shares previously
delivered under the Plan (a) until all conditions of the Award have been
satisfied or removed, (b) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied with, (c)
if the outstanding Common Stock is at the time listed on any stock exchange,
until the shares have been listed or authorized to be listed on such exchange
upon official notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Common Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require, as a condition
to exercise of the Award, such representations or agreements as counsel for the
Company may consider appropriate to avoid violation of such act and may require
that the certificates evidencing such Common Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the participant's legal representative, the
Company will be under no obligation to deliver Common Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
10.4 TAX WITHHOLDING
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The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Common Stock may be
delivered, the Board will have the right to require that the participant or
other appropriate person remit to the Company an amount sufficient to satisfy
the withholding requirements, or make other arrangements satisfactory to the
Board with regard to such requirements, prior to the delivery of any Common
Stock. If and to the extent that such withholding is required, the Board may
permit the participant or such other person to elect at such time and in such
manner as the Board provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Common Stock having a value calculated
to satisfy the withholding requirement.
10.5 TRANSFERABILITY OF AWARDS
Except as may be authorized by the Board, in its sole discretion, no
Award (other than an Award in the form of an outright transfer of cash or Common
Stock not subject to any restrictions) may be transferred other than by will or
the laws of descent and distribution, and during a Participant's lifetime an
Award requiring exercise may be exercised only by him or her (or in the event of
incapacity, the person or persons properly appointed to act on his or her
behalf). The Board may, in its discretion, determine the extent to which Awards
granted to a Participant shall be transferable, and such provisions permitting
or acknowledging transfer shall be set forth in the written agreement evidencing
the Award executed and delivered by or on behalf of the Company and the
Participant.
10.6 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 4
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Awards then outstanding or subsequently granted,
any exercise prices relating to Awards and any other provisions of Awards
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company or any similar transaction, as determined by the
Board, the Board in its discretion may make appropriate adjustments to
outstanding Awards to avoid distortion in the operation of the Plan.
10.7 EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued employment with the Company or any
subsidiary or interfere in any way with
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the right of the Company or subsidiary to terminate any employment relationship
at any time or to increase or decrease the compensation of such person. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profit in Awards granted under the Plan will not
constitute an element of damages in the event of termination of an employment
relationship even if the termination is in violation of an obligation of the
Company to the employee.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Board at the time. For purposes of this Plan, transfer of
employment between the Company and its subsidiaries shall not be deemed
termination of employment.
10.8 OTHER EMPLOYEE BENEFITS
The value of an Award granted to a Participant who is an employee, and
the amount of any compensation deemed to be received by an employee as a result
of any exercise or purchase of Common Stock pursuant to an Award or sale of
shares received under the Plan, will not constitute "earnings" or "compensation"
with respect to which any other employee benefits of such employee are
determined, including without limitation benefits under any pension, stock
ownership, stock purchase, life insurance, medical, health, disability or salary
continuation plan.
10.9 LEGAL HOLIDAYS
If any day on or before which action under the Plan must be taken falls
on a Saturday, Sunday or legal holiday, such action may be taken on the next
succeeding day not a Saturday, Sunday or legal holiday.
10.10 FOREIGN NATIONALS
Without amending the Plan, Awards may be granted to persons who are
foreign nationals or employed outside the United States or both, on such terms
and conditions different from those specified in the Plan, as may, in the
judgment of the Board, be necessary or desirable to further the purpose of the
Plan.
11. TERMINATION AND AMENDMENT
The Plan shall remain in full force and effect until terminated by the
Board. Subject to the last sentence of this Section 11, the Board may at any
time or times amend the Plan or any outstanding Award for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Awards. No amendment of the Plan or any agreement evidencing
Awards under the Plan may adversely affect the rights of any participant under
any Award previously granted without such participant's consent.
10
Exhibit 13
ONIX Systems Inc.
Consolidated Financial Statements
1999
<PAGE>
<TABLE>
<CAPTION>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Statement of Income
<S> <C> <C> <C>
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Revenues (Notes 6 and 9) $139,969 $153,653 $121,525
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 91,353 93,082 72,006
Selling, general, and administrative expenses (Note 6) 36,177 38,870 28,201
Research and development expenses 9,776 9,232 6,830
Restructuring costs, net (Note 9) 234 905 -
Loss on sale of property 135 - -
-------- -------- --------
137,675 142,089 107,037
-------- -------- --------
Operating Income 2,294 11,564 14,488
Interest Income 1,783 1,990 344
Interest Expense (includes $332 and $113 to related (183) (332) (113)
party in 1998 and 1997; Note 2) -------- -------- --------
Income Before Provision for Income Taxes 3,894 13,222 14,719
Provision for Income Taxes (Note 4) 1,575 5,222 5,920
-------- -------- --------
Net Income $ 2,319 $ 8,000 $ 8,799
======== ======== ========
Basic and Diluted Earnings per Share (Note 11) $ .16 $ .55 $ .79
======== ======== ========
Weighted Average Shares (Note 11)
Basic 14,357 14,515 11,083
======== ======== ========
Diluted 14,357 14,520 11,083
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Balance Sheet
<S> <C> <C>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Assets
Current Assets:
Cash and cash equivalents (includes $30,743 under repurchase $ 6,067 $ 33,373
agreements with affiliated company in 1998)
Advance to affiliate 35,879 -
Accounts receivable, less allowances of $2,576 and $1,941 33,761 34,476
Inventories and unbilled contract costs and fees 28,782 32,000
Deferred tax asset (Note 4) 4,623 4,772
Prepaid expenses 1,124 1,241
-------- --------
110,236 105,862
-------- --------
Property, Plant, and Equipment, at Cost, Net 11,080 10,136
-------- --------
Other Assets 284 302
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 61,441 64,278
-------- --------
$183,041 $180,578
======== ========
3
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term obligations (Note 8) $ 6,088 $ 1,017
Accounts payable 9,100 9,408
Accrued payroll and employee benefits 3,995 3,981
Accrued commissions 1,725 1,686
Deferred revenue 900 5,429
Other accrued expenses (Notes 2 and 9) 7,745 8,217
Due to parent company and affiliated companies 1,031 1,281
-------- --------
30,584 31,019
-------- --------
Deferred Income Taxes (Note 4) 2,931 2,837
-------- --------
Other Deferred Items 162 175
-------- --------
Long-term Obligation (Note 8) 1,444 -
-------- --------
Commitments (Note 5)
Shareholders' Investment (Notes 3 and 7):
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 13,469 11,150
Treasury stock at cost 1,255,783 shares (9,995) (9,995)
Deferred compensation (33) -
Accumulated other comprehensive items (477) 484
-------- --------
147,920 146,547
-------- --------
$183,041 $180,578
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Statement of Cash Flows
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- --------- ---------
Operating Activities
Net income $ 2,319 $ 8,000 $ 8,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,359 4,373 3,172
Noncash restructuring costs (Note 9) 109 163 -
Provision for losses on accounts receivable 943 423 674
Deferred income tax expense (benefit) (380) 358 (818)
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable (751) 572 1,746
Inventories and unbilled contract costs and fees 2,879 445 (4,991)
Other current assets 2 (146) (600)
Accounts payable (365) (5,420) (227)
Other current liabilities (3,188) (2,257) 5,248
Other - - 321
--------- -------- ---------
Net cash provided by operating activities 5,927 6,511 13,324
--------- -------- ---------
Investing Activities
Acquisitions, net of cash acquired (Note 2) - (12,509) (9,660)
Payment to affiliated company for acquired business (Note 2) - (19,117) -
Refund of acquisition purchase price - 424 -
Advances to affiliate, net (35,879) - -
Purchases of property, plant, and equipment (3,973) (1,470) (1,868)
Proceeds from sale of property, plant, and equipment 315 445 240
--------- -------- ---------
Net cash used in investing activities (39,537) (32,227) (11,288)
--------- -------- ---------
Financing Activities
Increase in short-term obligations 5,080 994 -
Proceeds from issuance of long-term obligation (Note 8) 1,444 - -
Net proceeds from issuance of Company common stock (Note 7) - 43,684 21,955
Purchases of Company common stock - (9,995) -
Issuance of note payable to parent company (Note 2) - 12,000 -
Repayment of note payable to parent company (Note 2) - (12,000) -
Net transfers to parent company prior to capitalization of the Company - - (865)
--------- -------- ---------
Net cash provided by financing activities 6,524 34,683 21,090
--------- -------- ---------
Exchange Rate Effect on Cash (220) (554) (552)
--------- -------- ---------
Increase (Decrease) in Cash and Cash Equivalents (27,306) 8,413 22,574
Cash and Cash Equivalents at Beginning of Year 33,373 24,960 2,386
--------- -------- ---------
Cash and Cash Equivalents at End of Year $ 6,067 $ 33,373 $ 24,960
========= ======== =========
5
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- --------- ---------
Cash Paid For
Income taxes $ 1,086 $ 6,244 $ 6,341
Interest $ 183 $ 332 $ 113
Noncash Activities
Transfer of acquired businesses from parent company $ - $ - $ 1,913
Fair value of assets of acquired companies $ - $ 14,664 $ 34,989
Cash paid for acquired companies - (12,624) (9,889)
Payable to affiliated company for acquired company - - (19,117)
--------- -------- ---------
Liabilities assumed of acquired companies $ - $ 2,040 $ 5,983
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Comprehensive Income
Net Income $ 2,319 $ 8,000 $ 8,799
---------- --------- -------
Other Comprehensive Items:
Foreign currency translation adjustment (961) (215) 26
--------- -------- -------
$ 1,358 $ 7,785 $ 8,825
========= ======== =======
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 156 $ 123 $ -
Capitalization of the Company - - 107
Net proceeds from issuance of Company common stock (Note 7) - 33 16
--------- -------- -------
Balance at end of year 156 156 123
--------- -------- -------
Capital in Excess of Par Value:
Balance at beginning of year 144,752 100,966 -
Capitalization of the Company - - 79,027
Net proceeds from issuance of Company common stock (Note 7) - 43,651 21,939
Issuance of restricted stock under employees' stock plans (Note 3) 48 - -
Tax benefit related to employees' and directors' stock plans (Note 4) - 135 -
--------- -------- -------
Balance at end of year 144,800 144,752 100,966
--------- -------- -------
Retained Earnings:
Balance at beginning of year 11,150 3,150 -
Net income 2,319 8,000 3,150
--------- -------- -------
Balance at end of year 13,469 11,150 3,150
--------- -------- -------
Treasury Stock:
Balance at beginning of year (9,995) - -
Purchases of Company common stock - (9,995) -
--------- -------- -------
Balance at end of year (9,995) (9,995) -
--------- -------- -------
Deferred Compensation (Note 3):
Balance at beginning of year - - -
Issuance of restricted stock under employees' stock plans (48) - -
Amortization of deferred compensation 15 - -
--------- -------- -------
Balance at end of year $ (33) $ - $ -
--------- -------- -------
7
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of year $ 484 $ 699 $ 673
Other comprehensive items (961) (215) 26
--------- -------- -------
Balance at end of year (477) 484 699
--------- -------- -------
Net Parent Company Investment:
Balance at beginning of year - - 72,437
Net income prior to capitalization of the Company - - 5,649
Transfer of acquired businesses from parent company (Note 2) - - 1,913
Net transfers to parent company prior to capitalization of the Company - - (865)
Capitalization of the Company - - (79,134)
--------- -------- -------
Balance at end of the year - - -
--------- -------- -------
$ 147,920 $146,547 $104,938
========= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
ONIX Systems Inc. (the Company) designs, develops, markets, and services
sophisticated field measurement instruments and on-line sensors for process
control industries. 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.
Relationship With Thermo Instrument Systems Inc. and Thermo Electron Corporation
The Company operated as a division of Thermo Instrument Systems Inc. until
its incorporation as a Delaware corporation in August 1997 as a wholly owned
subsidiary of Thermo Instrument. At that time, Thermo Instrument contributed all
of the stock of CAC Inc., CAC Limited, Flow Automation Inc., Flow Automation
U.K. Limited, TN Technologies Inc., Kay-Ray/Sensall Inc., Houston Atlas Inc.,
Westronics Inc., and VG Gas Analysis Systems Inc. to the Company in exchange for
10,666,667 shares of the Company's common stock. The transfer of stock from
Thermo Instrument was recorded at historical cost. As of January 1, 2000, Thermo
Instrument owned 11,524,867 shares of the Company's outstanding common stock,
representing 80% of such stock outstanding. Thermo Instrument is an 88%-owned
subsidiary of Thermo Electron Corporation. As of January 1, 2000, Thermo
Electron owned 294,300 shares of the Company's common stock, representing 2% of
such stock outstanding.
In January 2000, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company. As
part of the reorganization, Thermo Instrument intends to acquire the publicly
held shares of the Company (Note 13).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal 1997 included 53 weeks.
Revenue Recognition
Generally, the Company recognizes product revenues upon shipment of its
products. The Company provides a reserve for its estimate of warranty costs at
the time of shipment. The Company recognizes service revenues over the term of
the contract. Deferred revenue in the accompanying balance sheet consists of
unearned revenue on service contracts, which is recognized over the life of the
service contract, and advance payments on long-term contracts. Substantially all
of the deferred revenue included in the accompanying 1999 balance sheet will be
recognized within one year. Revenues and profits on long-term contracts are
recognized using the percentage-of-completion method. Revenues recorded under
the percentage-of-completion method were $9,122,000, $8,415,000, and $2,610,000
in 1999, 1998, and 1997, respectively. The percentage of completion is
determined by relating the actual costs incurred to date to management's
estimate of total costs to be incurred on each contract or by applying a
percentage of labor hours completed to total expected hours. If a loss is
indicated on any contract in process, a provision is made currently for the
entire loss. Contracts generally provide for the billing of customers as costs
are incurred or based on the completion of certain events. There are no
significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year, including amounts that
are billed but not paid under retainage provisions.
9
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
Income Taxes
In the periods prior to its initial public offering, the Company
was included in Thermo Electron's consolidated federal and certain state income
tax returns. Subsequent to the Company's initial public offering in March 1998,
Thermo Instrument's equity ownership of the Company fell below 80% and the
Company filed its own federal income tax return until the fourth quarter of
1998, at which time Thermo Electron's and Thermo Instrument's equity ownership
again exceeded 80%. As a result, the Company is included in Thermo Electron's
consolidated tax return as provided for under a tax allocation agreement between
the Company and Thermo Electron. This agreement provides that in years which the
Company has taxable income, it will pay to Thermo Electron amounts comparable to
the taxes the Company would have paid if it had filed separate returns.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings Per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding during the year. Except where the
effect would be antidilutive, diluted earnings per share in 1999 and 1998 have
been computed assuming the exercise of stock options and their related income
tax effect.
Cash and Cash Equivalents
The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a notional pool arrangement with Barclays Bank. Under
this arrangement, Barclays notionally combines the positive and negative cash
balances held by the participants to calculate the net interest yield/expense
for the group. The benefit derived from this arrangement is then allocated based
on balances attributable to the respective participants. The Company has access
to a $6,088,000 line of credit under this arrangement. Thermo Electron
guarantees all of the obligations of each participant in this arrangement. The
Company had invested $1,303,000 at year-end 1999, and had borrowed $6,088,000
and $1,017,000 at year-end 1999 and 1998, respectively, under this arrangement
(Note 8).
The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a cash management arrangement in the Netherlands with
a wholly owned subsidiary of Thermo Electron. Under this arrangement,
participants' balances are pooled for interest calculation purposes. Interest
under this arrangement is based on Euro market rates. Thermo Electron guarantees
all of the obligations of each participant in this arrangement. At year-end
1999, the Company had $771,000 invested under this arrangement.
At year-end 1999 and 1998, the Company's cash equivalents also include
investments in short-term certificates of deposit, which have an original
maturity of three months or less. Cash equivalents are carried at cost, which
approximates market value.
At year-end 1998, $30,454,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. Thermo
Electron maintained possession of the underlying securities and had the right of
substitution at its
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
discretion. The Company's funds subject to the repurchase agreement were readily
convertible into cash by the Company. The repurchase agreement earned a rate
based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at
the beginning of each quarter. Effective June 1999, the Company adopted a new
cash management arrangement with Thermo Electron, described below, that replaces
the repurchase agreement. At year-end 1998, $289,000 was invested in a similar
arrangement in the Netherlands.
Advance to Affiliate
Effective June 1999, the Company and Thermo Electron 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.
</TABLE>
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Raw Materials $13,194 $13,928
Work in Process 12,762 11,596
Finished Goods 2,826 6,476
------- -------
$28,782 $32,000
======= =======
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings, 30 to 40 years; machinery
and equipment, 3 to 10 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset. Property, plant, and equipment
consists of the following:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Buildings $ 4,330 $ 2,605
Machinery, Equipment, and Leasehold Improvements 16,223 14,961
------- -------
20,553 17,566
Less: Accumulated Depreciation and Amortization 9,473 7,430
------- -------
$11,080 $10,136
======= =======
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Cost in Excess of Net Assets of Acquired Companies The excess of cost over the
fair value of net assets of acquired companies is amortized using the
straight-line method over 40 years. Accumulated amortization was $7,042,000 and
$5,263,000 at year-end 1999 and 1998, respectively. The Company assesses the
future useful life of this asset whenever events or changes in circumstances
indicate that the current useful life has diminished. Such events or
circumstances generally include the occurrence of operating losses or a
significant decline in earnings associated with the acquired business or asset.
The Company considers the future undiscounted cash flows of the acquired
companies in assessing the recoverability of this asset. The Company assesses
cash flows before interest charges and when impairment is indicated, writes the
asset down to fair value. If quoted market values are not available, the Company
estimates fair value by calculating the present value of future cash flows. If
impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
Stock Split
All share and per share information was restated in 1998 to reflect a
two-for-three reverse stock split declared and effected in January 1998.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of income and are not material for the three years presented.
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. At
year-end 1999 and 1998, the balance of accumulated other comprehensive items
represents the Company's cumulative translation adjustment.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. The notional amounts
of forward foreign exchange contracts outstanding totaled $400,000 at year-end
1998. The Company had no outstanding forward foreign exchange contracts at
year-end 1999. These contracts principally hedge transactions denominated in
U.S. dollars. The purpose of the Company's foreign currency hedging activities
is to protect the Company's local currency cash flows related to these
commitments from fluctuations in foreign exchange rates. Gains and losses
arising from forward foreign exchange contracts are recognized as offsets to
gains and losses resulting from the transactions being hedged. The Company does
not enter into speculative foreign currency agreements.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, advance to affiliate, accounts receivable, short-term obligations,
accounts payable, due to parent company and affiliated companies, long-term
obligation, and forward foreign exchange contracts. The unrealized gain on
forward foreign exchange contracts at year-end 1998 was $1,000, which is the
estimated amount that the Company would pay upon termination of the contracts,
taking into account the change in foreign currency exchange rates. The carrying
amount of the Company's long-term obligation approximates fair value at year-end
1999. The carrying amounts of the Company's remaining financial instruments
approximate fair value due to their short-term nature.
12
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein during the first quarter of
calendar 2000 through recording a cumulative net of tax effect of the change in
accounting. The Company has not completed the analysis to determine the effect
that SAB 101 will have on its financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation
Certain amounts in 1998 and 1997 have been reclassified to conform to the
presentation in the 1999 financial statements.
2. Acquisitions
In July 1998, the Company acquired the capital stock of certain businesses
of the Mid-South Companies for $12,624,000 in cash. The businesses 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.
On November 6, 1997, Thermo Power Corporation, a wholly owned
subsidiary of Thermo Electron, acquired Peek plc. Thereafter, the Company
acquired from Thermo Power the stock of three businesses comprising the Peek
Measurement Business for $19,117,000. The purchase price was determined based on
the net book value of the Peek Measurement Business at November 6, 1997, a pro
rata allocation of Thermo Power's total cost in excess of net assets acquired
associated with its acquisition of Peek plc, based on 1997 revenues of the Peek
Measurement Business relative to the total revenues of Peek plc, plus an
estimate of Thermo Power's tax liability that arose from the sale of the
business to the Company. The Company believes that this allocation methodology
is reasonable and in accordance with the guidance provided by SAB 55 (Topic
1:B). The Peek Measurement Business manufactures flow and density measurement
systems for use in the water and wastewater and oil and gas industries. The
Company paid the purchase price to Thermo Power in January 1998. The Company
borrowed $12,000,000 from Thermo Instrument to partially fund this payment,
which was subsequently repaid in April 1998.
Because the Company and the Peek Measurement Business were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Electron, the transaction has been accounted for in a manner similar to a
pooling of interests. Accordingly, the accompanying financial statements include
the results of the Peek Measurement Business from November 6, 1997, the date the
Peek Measurement Business was acquired by Thermo Power.
In May 1997, Thermo Instrument acquired the Angus Electronics division of
Eberline Technologies Corporation for $1,913,000 in cash and the assumption of
certain liabilities totaling $823,000, primarily consisting of trade payables
and other accrued expenses. Angus manufactures and distributes analog and
digital data acquisition and recorder products and power measurement
instruments. In December 1997, the Company acquired the assets
13
<PAGE>
2. Acquisitions (continued)
comprising the Rustrak Ranger Logger product line for $1,803,000 and the
assumption of certain liabilities totaling $91,000, primarily consisting of
trade payables and other accrued expenses. Also, in December 1997, the Company
acquired substantially all of the assets of Fluid Data, Inc. for $8,500,000 in
cash and the assumption of certain liabilities totaling $2,661,000, primarily
consisting of trade payables and other accrued expenses, subject to a
post-closing adjustment. Fluid Data manufactures and distributes pyrolysis gas
sampling systems, on-line process gas chromatographs, chemiluminescent sulfur
chromatography systems, and high-speed calorimeters.
These acquisitions, except for the Peek Measurement Business, have been
accounted for using the purchase method of accounting and their results have
been included in the accompanying financial statements from their respective
dates of acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $31,038,000, which is being
amortized over 40 years. Allocation of the purchase price for these acquisitions
was based on estimates of the fair value of the net assets acquired.
The assets and liabilities were recorded at their estimated fair values as
follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(In thousands) Peek Fluid Data Other
Mid-South Measurement
Companies Business
- ------------------------------------------------- -------------- ------------- ------------- -------------
Purchase Price $ 12,624 $19,117 $ 8,500 $ 3,716
-------- ------- ------- --------
Allocation to:
Current assets $ 4,537 $ 6,292 $ 5,665 $ 1,913
Long-lived assets 2,675 1,100 593 1,356
Current liabilities (2,063) (4,287) (3,748) (1,114)
Cost in excess of net assets acquired 7,475 16,012 5,990 1,561
In connection with its acquisitions, the Company has undertaken
restructuring activities at the 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 the acquisitions, the Company
established reserves as detailed below, 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. Accrued acquisition expenses are included in other accrued
expenses in the accompanying balance sheet.
</TABLE>
14
<PAGE>
2. Acquisitions (continued)
A summary of the changes in accrued acquisition expenses for severance is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Peek Total
(In thousands) Measurement Other
Business Acquisitions
- ------------------------------------------------------------- -------------- -------------- --------------
Balance at December 28, 1996 $ - $ 793 $ 793
Reserves established 20 142 162
Usage - (323) (323)
Decrease due to finalization of restructuring (488) (488)
plan, recorded as a decrease to cost in excess ----- ----- ------
of net assets of acquired companies
Balance at January 3, 1998 20 124 144
Reserves established 568 12 580
Usage (459) (94) (553)
Decrease due to finalization of restructuring (100) - (100)
plan, recorded as a decrease to cost in excess ----- ----- ------
of net assets of acquired companies
Balance at January 2, 1999 29 42 71
Usage (27) (42) (69)
Currency translation (2) - (2)
----- ----- ------
Balance at January 1, 2000 $ - $ - $ -
===== ===== ======
The reserve established for severance in 1998 at the Peek Measurement
Business was for nine employees. The reserves established for severance for
other acquisitions were for six employees in 1998 and three employees in 1997.
15
<PAGE>
2. Acquisitions (continued)
A summary of the changes in accrued acquisition expenses for the
abandonment of excess facilities is as follows:
Peek
Measurement Other
(In thousands) Business Acquisitions Total
- ---------------------------------------------------------------- ------------- ------------- -------------
Balance at December 28, 1996 $ - $ 603 $ 603
Reserves established 95 72 167
Usage - (86) (86)
Decrease due to finalization of restructuring plan, - (517) (517)
recorded as a decrease to cost in excess of net assets of ----- ----- ------
acquired companies
Balance at January 3, 1998 95 72 167
Reserves established - 106 106
Usage (15) (88) (103)
----- ----- ------
Balance at January 2, 1999 80 90 170
Usage (80) (87) (167)
----- ----- ------
Balance at January 1, 2000 $ - $ 3 $ 3
===== ===== ======
</TABLE>
The increase in accrued acquisition expenses for the abandonment of excess
facilities in 1998 and 1997 were primarily related to excess capacity at certain
manufacturing facilities in Texas.
Based on unaudited data, the following table presents selected financial
information for the Company, the Peek Measurement Business, and Fluid Data on a
pro forma basis, assuming the companies had been combined since the beginning of
1997. The effect of the acquisitions not included in the pro forma data was not
material to the Company's results of operations.
<TABLE>
<CAPTION>
<S> <C>
(In thousands except per share amounts) 1997
- ------------------------------------------------------------------------- ----------- --------- ----------
Revenues $153,877
Net Income 6,087
Basic and Diluted Earnings per Share .55
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had these acquisitions been made
at the beginning of 1997.
16
<PAGE>
3. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has a stock-based compensation plan for its key employees,
directors, and others. These plans permit the grant of stock and stock-based
awards as determined by the human resources committee of the Company's Board of
Directors (the Board Committee), including restricted stock, stock options,
stock bonus shares, or performance-based shares. The option recipients and the
terms of options granted under this plan were determined by the Board Committee.
Generally, options granted are exercisable immediately, but are subject to
certain transfer restrictions and the right of the Company to repurchase shares
issued upon exercise of the options at the exercise price, upon certain events.
The restrictions and repurchase rights generally lapse ratably over a one- to
ten-year period, depending on the term of the option, which generally ranges
from five to twelve years. Nonqualified stock options may be granted at any
price determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock on the
date of grant. To date, all options have been granted at fair market value. In
addition to the Company's stock-based compensation plan, certain officers and
key employees may also participate in the stock-based compensation plans of
Thermo Instrument and Thermo Electron. Participation in these plans is accounted
for in accordance with APB No. 25.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 213,000 shares at a weighted average exercise price of $14.25 per share
elected to participate in this exchange and, as a result, received options to
purchase 106,000 shares of Company common stock at $6.80 per share, which are
included in the 1998 grants in the table below. The other terms of the new
options are the same as the exchanged options except that the holders could not
sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
In February 1999, the Company awarded 7,000 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$48,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period.
A summary of the Company's stock option activity is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
------------------ -----------------
Weighted Weighted
Average Average
Exercise Exercise
Price Price
Number Number
of of
(Shares in thousands) Shares Shares
- ---------------------------------------------- --------- ------- --------- ---------- ---------- ---------
Options Outstanding, Beginning of Year 659 $11.24 - $ -
Granted 40 6.93 905 12.03
Forfeited (32) 11.17 (33) 13.66
Canceled due to exchange - - (213) 14.25
--- ----
Options Outstanding, End of Year 667 $10.98 659 $11.24
=== ====== ==== ======
Options Exercisable 667 $10.98 659 $11.24
=== ====== ==== ======
Options Available for Grant 392 407
=== ====
17
<PAGE>
</TABLE>
3. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at January 1, 2000,
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Outstanding and Exercisable
----------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ---------------------------------------------- ------------------- -------------------- ------------------
$ 5.89 - $ 7.98 143 7.2 years $ 6.87
7.99 - 10.08 190 3.7 years 8.95
10.09 - 14.28 334 7.0 years 13.94
---
$ 5.89 - $ 14.28 667 6.1 years $10.98
===
Employee Stock Purchase Program
Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase program sponsored by Thermo
Instrument and Thermo Electron. Under this program, shares of Thermo
Instrument's and Thermo Electron's common stock may be purchased at 85% of the
lower of the fair market value at the beginning or end of the period, and the
shares purchased are subject to a one-year resale restriction. Prior to the 1998
program year, the applicable shares of common stock could be purchased at the
end of a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased were subject to a six-month resale restriction.
Shares are purchased through payroll deductions of up to 10% of each
participating employee's gross wages. This program is not being offered with
respect to the Company's shares commencing on November 1, 1999.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for stock-based compensation plans. Had compensation cost for awards granted
after 1994 under stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under SFAS
No. 123, the effect on the Company's net income and earnings per share would
have been as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Net Income:
As reported $2,319 $ 8,000 $8,799
Pro forma 1,612 7,305 8,484
Basic and Diluted Earnings per Share:
As reported .16 .55 .79
Pro forma .11 .50 .77
Pro forma compensation expense for options granted is reflected over the
vesting period; therefore, future pro forma compensation expense may be greater
as additional options are granted.
</TABLE>
18
<PAGE>
3. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was $2.53 and
$4.64 in 1999 and 1998, respectively. The fair value of each option grant was
estimated on the grant date using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
- ----------------------------------------------------------------------- ----------- ----------- ----------
Volatility 30% 28%
Risk-free Interest Rate 5.3% 4.0%
Expected Life of Options 5.0 years 6.0 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
401(k) Savings Plan
The majority of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For these
plans, the Company contributed and charged to expense $617,000, $873,000, and
$727,000 in 1999, 1998, and 1997, respectively.
</TABLE>
4. Income Taxes
The components of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Domestic $ 1,447 $ 10,327 $10,239
Foreign 2,447 2,895 4,480
------- -------- -------
$ 3,894 $ 13,222 $14,719
======= ======== =======
19
<PAGE>
4. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Currently Payable:
Federal $ 912 $3,407 $4,372
State 147 440 909
Foreign 896 1,017 1,457
------ ------ ------
1,955 4,864 6,738
------ ------ ------
Net Deferred (Prepaid):
Federal (343) 255 (740)
State (37) 103 (112)
Foreign - - 34
------ ------ ------
(380) 358 (818)
------ ------ ------
$1,575 $5,222 $5,920
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $135,000
of such benefits that have been allocated to capital in excess of par value in
1998.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes due to the
following:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Provision for Income Taxes at Statutory Rate $1,363 $4,628 $5,152
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 71 353 518
Amortization of cost in excess of net assets of acquired companies 286 318 128
Net foreign losses not benefited and tax rate differential 39 3 (77)
Tax benefit of foreign sales corporation (100) (171) (114)
Other, net (84) 91 313
------ ------ ------
$1,575 $5,222 $5,920
====== ====== ======
20
<PAGE>
</TABLE>
4. Income Taxes (continued)
Deferred tax asset and deferred income taxes in the accompanying balance
sheet consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Deferred Tax Asset:
Inventory basis difference $2,426 $ 2,142
Reserves and accruals 1,331 1,738
Accrued compensation 875 890
Other, net (9) 2
------ -------
$4,623 $ 4,772
====== =======
Deferred Income Taxes:
Intangible assets $2,705 $ 2,642
Depreciation 226 195
------ -------
$2,931 $ 2,837
====== =======
A provision has not been made for U.S. or additional foreign taxes on
$10,448,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas. The Company believes that any
additional U.S. tax liability due upon remittance of such earnings would be
immaterial.
5. Commitments
Operating Leases
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $2,701,000, $2,863,000, and
$2,230,000 in 1999, 1998, and 1997, respectively. Future minimum payments due
under noncancelable operating leases at January 1, 2000, are $1,953,000 in 2000,
$2,000,000 in 2001, $1,617,000 in 2002, $1,397,000 in 2003, $1,060,000 in 2004,
and $1,201,000 in 2005 and thereafter. Total future minimum lease payments are
$9,228,000. See Note 6 for related-party leases.
Sublease Commitments
The Company subleases facility space to third parties under sublease
arrangements that carry commitments of approximately $387,000 in 2000 and
$71,000 in 2001. The accompanying statement of income includes $393,000 and
$310,000 of income from sublease arrangements in 1999 and 1998, respectively.
The operating lease expense and commitments above have not been reduced by
sublease rental income.
21
<PAGE>
6. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues. The Company paid an amount equal to 0.8% and 1.0% of the
Company's revenues in 1998 and 1997, respectively. For these services, the
Company was charged $1,120,000, $1,229,000, and $1,215,000 in 1999, 1998, and
1997, respectively. The fee is reviewed and adjusted annually by mutual
agreement of the parties. The corporate services agreement is renewed annually
but can be terminated upon 30 days' prior notice by the Company or upon the
Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo
Electron Corporate Charter defines the relationship among Thermo Electron and
its majority-owned subsidiaries). Management believes that the service fee
charged by Thermo Electron is reasonable and that such fees are representative
of the expenses the Company would have incurred on a stand-alone basis. For
additional items, such as employee benefit plans, insurance coverage, and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.
Operating Leases
The Company began leasing office and manufacturing space from Thermo Power
on a monthly basis effective November 1997. The Company pays Thermo Power rent
in an amount that is approximately equal to its pro rata share of Thermo Power's
occupancy costs. The Company's expense for this facility totaled $258,000 and
$220,000 in 1999 and 1998, respectively.
In addition, in October 1997, the Company began leasing office and
manufacturing space from Thermo Instrument and is charged its share of occupancy
costs on a monthly basis. The Company's expense for this facility totaled
$186,000, $202,000, and $45,000 in 1999, 1998, and 1997, respectively.
Other Related-party Transactions
The Company sells products in the ordinary course of business to other
subsidiaries of Thermo Electron. Sales of such products to affiliated companies
totaled $1,371,000, $1,858,000, and $2,550,000 in 1999, 1998, and 1997,
respectively.
Cash Management
The Company invests excess cash in arrangements and has the ability to
invest or borrow cash under arrangements with Thermo Electron as discussed in
Note 1.
7. Common Stock
Sale of Common Stock
In March 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 $43,684,000.
In September and October 1997, the Company sold 1,639,640 shares of its
common stock in a private placement at $14.25 per share for net proceeds of
$21,955,000.
Reserved Shares
At January 1, 2000, the Company had reserved 1,084,667 unissued shares of
its common stock for possible issuance under its stock-based compensation plans.
22
<PAGE>
8. Short- and Long-term Obligations
Short-term Obligations
At year-end 1999 and 1998, the Company has borrowings of $6,088,000 and
$1,017,000, respectively, under an arrangement with a wholly owned subsidiary of
Thermo Electron (Note 1). The interest rate for this borrowing was 5.8% and 7.7%
at year-end 1999 and 1998, respectively.
Long-term Obligations
To fund the purchase of a manufacturing facility in 1999, the Company
borrowed $1,471,000 pursuant to a fixed rate mortgage. The mortgage has a 15
year term and has an interest rate of 8%. The annual requirements of this
mortgage as of January 1, 2000, are $57,000 in 2000, $62,000 in 2001, $66,000 in
2002, $72,000 in 2003, and $1,187,000 in 2004 and thereafter.
9. Restructuring Costs
During 1998, the Company recorded net restructuring costs of $905,000
relating to the consolidation of facilities and the outsourcing of certain
services. The restructuring costs, which were accounted for in accordance with
EITF 94-3 and SFAS 121, were recorded by the Measurements Instruments segment
and consisted of $673,000 related to severance costs for approximately 90
employees across all functions, $163,000 to write off fixed assets no longer of
use, and $69,000 for abandoned-facility payments in connection with these
activities. During 1999 and 1998, the Company terminated 32 employees and 46
employees, respectively. In addition, during 1999 the Company determined that
the remaining 12 employees to be terminated under this plan would not be
terminated and, as a result, reversed the remaining $148,000 of previously
established restructuring reserves. During 1999, the Company's Measurement
Instruments segment recorded 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 in 1999. Accrued restructuring costs
are included in other accrued expenses in the accompanying balance sheet. The
Company recorded charges for its restructuring plans as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Abandonment
of Excess
(In thousands) Severance Facilities Total
- --------------------------------------------------------------- -------------- ------------- -------------
Balance at January 3, 1998 $ - $ - $ -
Charged to expense (a) 673 69 742
Usage (310) - (310)
Currency translation 3 - 3
------ ----- ------
Balance at January 2, 1999 366 69 435
Charged to expense (a) 289 - 289
Reversal of reserve (148) (16) (164)
Usage (505) (53) (558)
Currency translation (2) - (2)
------ ----- ------
Balance at January 1, 2000 $ - $ - $ -
====== ===== ======
(a) Excludes noncash write-off of fixed assets of $109,000 and $163,000 in 1999 and 1998, respectively.
23
<PAGE>
10. Business Segments, Geographical Information, and Concentrations of Risk
The Company organizes and manages its businesses by individual functional
operating entity. The Company's businesses operate in two segments: Measurement
Instruments and Industry-Specific Systems. In classifying operational entities
into a particular segment, the Company aggregates businesses with similar
economic characteristics, products and services, production processes,
customers, and methods of distribution.
Through its Measurement Instruments segment, the Company manufactures
field measurement instruments and on-line sensors in four general product areas:
flow; level and density; composition analysis; and data acquisition and display
instruments. Through its Industry-Specific Systems segment, the Company offers
sophisticated sensor systems that are used in specific industries, such as oil
and gas production, to provide real-time measurement, analysis, and local
control of process functions. These special-purpose instruments and sensors
include rod pump controllers, remote terminal units, gas-injection systems, and
wellhead safety systems.
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------- ------------ ----------- -----------
Business Segment Information
Revenues:
Measurement Instruments $ 93,465 $105,113 $ 87,318
Industry-Specific Systems 46,504 48,540 34,207
--------- -------- --------
$ 139,969 $153,653 $121,525
========= ======== ========
Income Before Provision for Income Taxes:
Measurement Instruments (a) $ 4,726 $ 7,180 $ 10,977
Industry-Specific Systems (280) 6,756 5,261
Corporate (b) (2,152) (2,372) (1,750)
--------- -------- --------
Total operating income 2,294 11,564 14,488
Interest income, net 1,600 1,658 231
--------- -------- --------
$ 3,894 $ 13,222 $ 14,719
========= ======== ========
Total Assets:
Measurement Instruments $ 92,231 $ 97,143 $ 98,868
Industry-Specific Systems 51,016 49,189 37,613
Corporate (c) 39,794 34,246 23,228
--------- -------- --------
$ 183,041 $180,578 $159,709
========= ======== ========
Depreciation and Amortization:
Measurement Instruments $ 3,211 $ 3,416 $ 2,341
Industry-Specific Systems 1,148 948 831
Corporate - 9 -
--------- -------- --------
$ 4,359 $ 4,373 $ 3,172
========= ======== ========
24
<PAGE>
10. Business Segments, Geographical Information, and Concentrations of Risk (continued)
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- --------- ---------
Capital Expenditures:
Measurement Instruments $ 1,121 $ 1,039 $ 1,285
Industry-Specific Systems 2,848 388 583
Corporate 4 43 -
--------- -------- --------
$ 3,973 $ 1,470 $ 1,868
========= ======== ========
Geographical Information
Revenues (d):
United States $ 109,279 $127,087 $ 99,144
United Kingdom 28,196 26,789 23,941
Other 10,532 6,936 6,696
Transfers among geographical areas (e) (8,038) (7,159) (8,256)
--------- -------- --------
$ 139,969 $153,653 $121,525
========= ======== ========
Long-lived Assets (f):
United States $ 6,340 $ 7,630 $ 7,115
United Kingdom 4,628 2,415 1,978
Other 112 91 52
--------- -------- --------
$ 11,080 $ 10,136 $ 9,145
========= ======== ========
Export Revenues Included in United States Revenues Above (g) $ 32,171 $ 41,253 $ 19,510
========= ======== ========
(a) Includes net restructuring costs of $0.2 million and $0.9 million in 1999
and 1998, respectively.
(b) Primarily general and administrative expenses.
(c) Primarily advance to affiliate, cash, and cash equivalents.
(d) Revenues are attributed to countries based on selling location.
(e) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(f) Represents property, plant, and equipment, net.
(g) In general, export revenues are denominated in U.S. dollars.
Concentrations of Credit Risk
The Company's Industry-Specific Systems segment sells a majority of its
products and services to customers in the oil and gas industries, while its
Measurement Instruments segment sells products and services to a wider variety
of process industries. The Company does not normally require collateral or other
security to support its accounts receivable. Management does not believe that
this concentration of credit risk has or will have a significant negative effect
on the Company.
25
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Notes to Consolidated Financial Statements
11. Earnings Per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Basic
Net Income $ 2,319 $ 8,000 $ 8,799
------- -------- -------
Weighted Average Shares 14,357 14,515 11,083
------- -------- -------
Basic Earnings per Share $ .16 $ .55 $ .79
======= ======== =======
Diluted
Net Income $ 2,319 $ 8,000 $ 8,799
------- -------- -------
Weighted Average Shares 14,357 14,515 11,083
Effect of Stock Options - 5 -
------- -------- -------
Weighted Average Shares, as Adjusted 14,357 14,520 11,083
------- -------- -------
Diluted Earnings per Share $ .16 $ .55 $ .79
======= ======== =======
Options to purchase 678,000 and 439,000 shares of common stock were not
included in the computation of diluted earnings per share for 1999 and 1998,
respectively, because their effect would have been antidilutive due to the
options' exercise prices exceeding the average market price for the common
stock. There were no outstanding options to purchase shares of common stock in
1997.
</TABLE>
12. Unaudited Quarterly Information
(In thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 First Second (a) Third Fourth (b)
- ------------------------------------------------------------ ---------- ----------- ----------- ----------
Revenues $34,019 $34,716 $34,784 $36,450
Gross Profit 12,180 12,884 13,120 10,432
Net Income (Loss) 1,230 742 972 (625)
Basic and Diluted Earnings per Share .09 .05 .07 (.04)
1998 First Second Third (c) Fourth (d)
- ------------------------------------------------------------ ---------- ----------- ----------- ----------
Revenues $37,144 $38,439 $39,851 $38,219
Gross Profit 15,520 16,509 14,827 13,715
Net Income 2,217 3,203 1,114 1,466
Basic and Diluted Earnings per Share .18 .21 .07 .10
(a) Reflects net restructuring costs of $0.3 million.
(b) Reflects a provision for loss contracts of $1.4 million and the reversal of
$0.1 million of restructuring costs.
(c) Reflects the July 1998 acquisition of the Mid-South Companies and
restructuring costs of $1.2 million.
(d) Reflects the reversal of restructuring costs of $0.3 million.
26
<PAGE>
13. Subsequent Event
On March 13, 2000, Thermo Instrument commenced a cash tender offer for any
and all of the outstanding shares of the Company's common stock at $9.00 per
share. This action is part of a major reorganization plan under which Thermo
Electron will spin in, spin off, and sell various businesses to focus solely on
its core measurement and detection instruments business. Thermo Instrument and
Thermo Electron own approximately 80% and 2% of the outstanding shares of the
Company's common stock, respectively. Thermo Instrument has conditioned the
tender offer on receiving acceptances from holders of enough shares so that its
and Thermo Electron's combined share ownership reaches at least 90%. If Thermo
Instrument and Thermo Electron achieve this 90-percent-ownership threshold,
Thermo Instrument will acquire all remaining outstanding shares of the Company's
common stock through a "short-form" merger in Delaware. Shareholders who do not
tender shares to Thermo Instrument during the tender offer would also receive
$9.00 per share in cash for their stock in the short-term merger. The tender
offer and proposed subsequent short-form merger require a review by the
Securities and Exchange Commission of necessary filings; a short-form merger
would not require the Company's board or shareholder approval. If the tender
offer is successful, the spin-in of the Company is expected to be completed in
the second quarter of 2000.
27
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ONIX Systems Inc.:
We have audited the accompanying consolidated balance sheet of ONIX
Systems Inc. (a Delaware corporation and 80%-owned subsidiary of Thermo
Instrument Systems Inc.) and subsidiaries as of January 1, 2000, and January 2,
1999, and the related consolidated statements of income, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended January 1, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ONIX Systems
Inc. and subsidiaries as of January 1, 2000, and January 2, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended January 1, 2000, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000 (except with respect to the matter
discussed in Note 13, as to which the date is March 13, 2000)
28
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
Overview
ONIX Systems Inc. (the Company) designs, develops, markets, and services
sophisticated field measurement instruments and on-line sensors for process
control industries. 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 (Note 2).
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
1999, customers in the oil and gas industries accounted for approximately 62% of
the Company's total revenues, and were derived from the production, 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. These
activities depend in part on current and anticipated oil and gas prices; the
discovery rate of new oil and gas reserves; local and international political,
regulatory, and economic conditions; and the ability of oil and gas companies to
obtain capital. In 1998, energy prices declined precipitously. While prices
rebounded in 1999, capital equipment spending has not returned to prior levels.
The resulting decrease in oil and gas activities adversely affected the
Company's results in 1999 and 1998, and is expected to continue to adversely
affect the Company's near-term results of operations. In addition, lower prices
for natural resources in the first half of 1999 unfavorably impacted spending in
that industry, which also adversely affected the Company's results in 1999.
Prices for natural resources increased dramatically during the second half of
1999. Despite this increase, capital spending has not significantly improved in
the natural resources industry. Although continued stability in the price of
natural resources may result in additional capital spending in 2000, there can
be no assurance that the unfavorable trend experienced in 1999 will not
continue.
Sales originating outside of the United States and export revenues from
the United States accounted for approximately 22% and 23%, respectively, of
total revenues in 1999. Export sales in 1999 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.
29
<PAGE>
Results of Operations
1999 Compared With 1998
Revenues decreased to $140.0 million in 1999 from $153.7 million in 1998.
Revenues from the Measurement Instruments segment decreased $11.6 million to
$93.5 million in 1999 from $105.1 million in 1998, primarily due to the effect
of a reduction in discretionary capital spending by companies in the process
control industry in light of 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 $46.5 million in 1999, compared with $48.5 million in 1998.
Reduced discretionary spending in the oil and gas production sector was offset
in part by an increase in revenues of $6.4 million due to the inclusion of the
Mid-South Companies for the full period in 1999 (Note 2).
The gross profit margin decreased to 35% in 1999 from 39% in 1998,
primarily due to the inclusion of lower-margin revenues at the Mid-South
Companies for the full period in 1999 and $0.5 million of anticipated losses on
two long-term contracts in the Industry-Specific Systems segment. In addition,
the gross profit margin decreased in both segments due to the effect of lower
revenues as described above, relative to the level of fixed costs.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26% in 1999 from 25% in 1998, primarily due to lower sales volume.
Selling, general, and administrative expenses decreased to $36.2 million in 1999
from $38.9 million in 1998, primarily in the Measurement Instruments segment as
a result of restructuring actions commenced in 1998 (Note 9). 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, which increased costs by
$0.8 million and, to a lesser extent, a provision for losses on accounts
receivable of $0.5 million recorded in 1999 by the Measurement Instruments
segment.
Research and development expenses increased to $9.8 million in 1999 from
$9.2 million in 1998, primarily due to increased product development activities
in both segments.
The Company recorded net restructuring costs of $0.2 million in 1999 (Note
9). During 1998, the Company recorded restructuring costs of $0.9 million
related to the consolidation of facilities and the outsourcing of certain
services (Note 9).
Interest income decreased to $1.8 million in 1999 from $2.0 million in
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 to $0.2 million
in 1999 from $0.3 million in 1998, primarily due to the January 1998 repayment
of indebtedness related to the 1997 acquisition of the Peek Measurement
business.
The effective tax rate was 40% in 1999, compared with 39% in 1998. 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.
1998 Compared With 1997
Revenues increased 26% to $153.7 million in 1998 from $121.5 million in
1997. Revenues increased $33.7 million due to the inclusion of revenues from
acquired businesses, consisting principally of $14.8 million from the Peek
Measurement Business, acquired effective November 1997, $7.6 million from Fluid
Data, acquired in December 1997, and $9.3 million from the Mid-South Companies,
acquired in July 1998. 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 39% in 1998 from 41% in 1997,
primarily due to the inclusion of lower-margin revenues at the Mid-South
Companies in the Industry-Specific Systems segment and, to a lesser extent, an
increase in lower-margin revenues from composition analysis instruments in the
Measurement Instruments segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in 1998 from 23% in 1997, primarily from the Measurement
Instruments segment's inclusion of higher selling, general, and administrative
expenses as a percentage of revenues at the Peek Measurement Business.
30
<PAGE>
1998 Compared With 1997 (continued)
Research and development expenses increased to $9.2 million during 1998
from $6.8 million in 1997, primarily due to the inclusion of expenses at
acquired businesses.
During 1998, the Company recorded restructuring costs of $0.9 million
related to the consolidation of facilities and the outsourcing of certain
services (Note 9).
Interest income increased to $2.0 million in 1998 from $0.3 million in
1997, due to higher invested balances following the Company's March 1998 initial
public offering and third quarter 1997 private placement of common stock.
Interest expense in both periods primarily represents interest on indebtedness
relating to the acquisition of the Peek Measurement Business, which was repaid
in January 1998.
The effective tax rate was 39% in 1998, compared with 40% in 1997. 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 $79.7 million as of January 1, 2000,
compared with $74.8 million as of January 2, 1999. Included in working capital
are cash and cash equivalents of $6.1 million as of January 1, 2000, compared
with $33.4 million as of January 2, 1999. In addition, as of January 1, 2000,
the Company had $35.9 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, which became effective June 1999, amounts invested with
Thermo Electron were included in cash and cash equivalents.
During 1999, the Company's operating activities provided $5.9 million of
cash. A decrease in inventories and unbilled contract costs and fees provided
$2.9 million of cash, primarily resulting from management efforts to decrease
inventories as a result of lower revenues, offset in part by an increase in
unbilled costs and fees in the Industry-Specific Systems segment. Cash of $3.2
million was used to fund a decrease in other current liabilities, consisting
primarily of a $4.8 million decrease in deferred revenue due to shipments of
products for which advance payments had been received in the fourth quarter of
1998 in the Industry-Specific Systems segment.
During 1999, the Company's primary investing activities, excluding advance
to affiliate activity, included $4.0 million for the purchase of property,
plant, and equipment. During 2000, the Company plans to make capital
expenditures of approximately $2.0 million.
The Company's financing activities provided $6.5 million of cash during
1999, primarily due to a $5.1 million increase in short-term obligations. In
addition, the Company received $1.4 million from the issuance of a long-term
obligation and used the proceeds to fund capital expenditures.
In October 1999, the Company's Board of Directors authorized the purchase
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. The Company does not
expect to expend any additional amounts on purchases of its common stock as a
result of Thermo Instrument's plan to purchase the public shares of the Company
(Note 13).
The Company believes that its existing resources are sufficient to meet
the capital requirements of its existing businesses for the foreseeable future.
31
<PAGE>
Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates, which could affect its future results of operations and
financial condition. The Company manages its exposure to these risks through its
regular operating and financing activities. Additionally, the Company uses
short-term forward contracts to manage certain exposures to foreign currencies.
The Company enters into forward foreign exchange contracts to hedge firm
purchase and sale commitments denominated in currencies other than its
subsidiaries' local currencies. The Company does not engage in extensive foreign
currency hedging activities; however, the purpose of the Company's foreign
currency hedging activities is to protect the Company's local currency cash
flows related to these commitments from fluctuations in foreign currency
exchange rates. The Company's forward foreign exchange contracts principally
hedge transactions denominated in U.S. dollars. Gains and losses arising from
forward contracts are recognized as offsets to gains and losses resulting from
the transactions being hedged. The Company does not enter into speculative
foreign currency agreements.
The Company views its investment in its foreign subsidiaries as long-term.
The Company's investment in its foreign subsidiaries is sensitive to
fluctuations in foreign currency exchange rates. The functional currencies of
the Company's foreign subsidiaries are denominated principally in British
sterling. The effect of a change in foreign currency exchange rates on the
Company's net investment in its foreign subsidiaries is reflected in the
"Accumulated other comprehensive items" component of shareholders' investment. A
10% depreciation in year-end 1999 and 1998 functional currencies, relative to
the U.S. dollar, would result in a $2.8 million and $2.7 million, respectively,
reduction of the Company's shareholders' investment.
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives, which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) testing and developing upgrades, where
necessary, for the Company's current products and certain discontinued products;
(iii) assessing the year 2000 readiness of its key suppliers, vendors, and
customers; and (iv) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The costs incurred to date
by the Company in connection with the year 2000 issue have not been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
32
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Dependence on Oil and Gas Industry. Historically, a substantial portion of
the Company's total revenues has been attributable to the sale of products and
related services to customers in the oil and gas industry. In 1999, customers in
the oil and gas industry accounted for approximately 62% of the Company's total
revenues. 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. These activities depend
in part on current and anticipated oil and gas prices; expectations about future
prices; the cost of exploring for, producing, and delivering oil and gas; the
discovery rate of new oil and gas reserves; local and international political,
regulatory, and economic conditions; and the ability of oil and gas companies to
obtain capital. There can be no assurance that current levels of oil and gas
activities will be maintained or that demand for the Company's products and
related services will reflect the level of such activities. 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.
Market Acceptance of New Products. The Company develops products that
represent alternatives to traditional instruments and methods, and as a result,
its products may be slow to achieve, or may not achieve, market acceptance since
customers may seek further validation of the efficiency and efficacy of the
Company's technology before making an investment. This is particularly true
where the purchase of the product requires a significant capital commitment.
Further, because on-line process measurement instruments are incorporated into a
customer's production line, a decision to invest in these instruments involves
significant operating risks if the instrument fails or shuts down. In addition,
the Company believes that, to a significant extent, its growth prospects depend
on its ability to gain acceptance of its technologies and product applications
by a broader group of customers and broader industry segments. There can be no
assurance that the Company will be successful in obtaining broad acceptance of
its products.
Dependence on Capital Spending Policies of Customers. The Company's
customers include oil and gas production, processing, refining and distribution
facilities, and iron and steel, pulp and paper, minerals and mining, water and
wastewater, semiconductor, and petrochemical and chemical companies. The capital
spending policies of these companies can have a significant effect on the demand
for the Company's products. Such policies are based on a wide variety of
factors, including the resources available to make such purchases, the spending
priorities among various types of process control equipment or techniques, and
policies regarding capital expenditures during recessions. For example, lower
prices for natural resources in the first half of 1999 unfavorably impacted
spending in that industry, which also adversely affected the Company's results
in 1999. Prices for natural resources increased dramatically during the second
half of 1999. Despite this increase, capital spending has not significantly
improved in the natural resources industry. Although continued stability in the
price of natural resources may result in additional capital spending in 2000,
there can be no assurance that the unfavorable trend experienced in 1999 will
not continue.
Risks Associated with International Sales. Sales originating outside of
the United States and export revenues from the United States accounted for
approximately 22% and 23%, respectively, of total revenues in 1999. The Company
intends to continue to expand its presence in markets outside of the United
States. International revenues are subject to a number of risks, however,
including the following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign customers
may have longer payment cycles; foreign countries may impose additional
withholding taxes or otherwise tax the Company's foreign income and impose
tariffs or adopt other restrictions on foreign trade; fluctuations in exchange
rates may affect product demand and
33
<PAGE>
adversely affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the Company's
products and services is made in the local currency; U.S. export licenses may be
difficult to obtain or enforce; and intellectual property rights in foreign
countries may be more difficult to enforce. Further, a significant portion of
the Company conducts a large portion of its business in, and exports to, foreign
countries including the United Kingdom, Mexico, Canada, and the United Arab
Emirates. Foreign operations are also subject to various risks, including
potentially unstable economic conditions, unexpected changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and the
existence of different tax structures. Tax rates in certain foreign countries
exceed those in the United States and foreign earnings may be subject to
withholding requirements or the imposition of tariffs, exchange controls, or
other restrictions. There can be no assurance that any of these or other factors
will not have a material adverse effect on the Company's business, financial
condition, and results of operations.
Technological Change and New Products. The markets for the Company's
products are characterized by changing technology, evolving industry standards,
and new product introductions and enhancements. The Company's future success
will depend in part upon its ability to enhance its existing products, to
develop and introduce new products and technologies, and to successfully expand
its aftermarket support services for such new or enhanced products in order to
meet changing customer requirements and serve broader industry segments. The
Company is currently devoting significant resources toward the enhancement of
its existing products, the development of new products and technologies, and the
expansion of its preventive maintenance and aftermarket support activities.
There can be no assurance, however, that the Company will successfully complete
the enhancement and development of these products and the expansion of its
services in a timely fashion or that the Company's current or future products
and services will satisfy the process measurement needs of participants in the
Company's targeted markets.
Intense Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company believes
that its ability to compete successfully in the market for field measurement
instruments and sensors depends upon a number of factors both within and beyond
its control, including quality and reliability; technical features; accuracy;
ease of use; product pricing; reputation for aftermarket service; timing of new
product releases and enhancements by the Company and its competitors; name
recognition; the establishment of strategic alliances; and industry and general
economic trends. In addition, the Company competes with companies utilizing
competing technologies that may be viewed as cost-effective alternatives to the
technologies incorporated into the Company's products. Certain of the Company's
current and potential competitors have significantly greater financial,
marketing, technical and other competitive resources, as well as greater name
recognition, than the Company. As a result, the Company's competitors may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, and may be able to devote greater resources to the
promotion and sale of their products. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors. An
increase in competition could result in price reductions and loss of market
share, which could have a material adverse effect on the Company's business,
financial condition, or results of operations.
Risks of Gamma Technology. Certain of the Company's level and density
measurement instruments incorporate gamma technologies that are subject to
health and safety risks in connection with the use and handling of possible
radioactive emissions associated with gamma materials. The Company believes that
it conducts its operations prudently and the Company maintains both general
liability insurance and nuclear liability insurance in amounts it believes to be
commercially reasonable. However, there can be no assurance that this insurance
will be sufficient to protect the Company from liability claims, or that
liability insurance will continue to be available to the Company at a reasonable
cost, or at all. In addition, the manufacture and sale of products that utilize
gamma technology may subject the Company to extensive federal, state, local, and
foreign regulations that could increase the costs of producing the Company's
products, or otherwise materially adversely affect the demand for the Company's
gamma measurement instruments.
34
<PAGE>
Limited Sources of Supply. The Company currently contracts with local
subcontractors for the manufacture of certain major components incorporated into
its products. The Company has experienced no significant disruption or delay in
obtaining required components for its products, and believes that it could
develop other sources of supply or qualify other suppliers for such components.
A prolonged inability to obtain adequate deliveries, however, could require the
Company to pay more for inventory, parts, and other supplies or to seek
alternative sources of supply, which could delay the Company's ability to ship
its products and could damage its relationships with current and prospective
customers. Any such delay or damage could have a material adverse effect on the
Company's business, financial condition, and results of operations.
Uncertain Protection of Proprietary Rights. Proprietary rights relating to
the Company's products are protected from unauthorized use by third parties only
to the extent that they are covered by valid and enforceable patents or are
maintained in confidence as trade secrets. The Company has several issued U.S.
patents and patent applications pending. The Company also owns corresponding
foreign patents in a number of jurisdictions throughout the world. There can be
no assurance that any patents now or hereafter owned by the Company will afford
protection against competitors. Proceedings initiated by the Company to protect
its proprietary rights could result in substantial costs to the Company. There
can be no assurance that competitors of the Company, some of whom have
substantially greater resources than those of the Company, will not initiate
litigation to challenge the validity of the Company's patents, or that they will
not use their resources to design comparable products that do not infringe the
Company's patents. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any such claims, which could
have a material adverse effect on the Company's business, financial condition,
and results of operations. Furthermore, parties making such claims could secure
a judgment awarding substantial damages, as well as injunctive or other
equitable relief, that could effectively block the Company's ability to make,
use, sell, distribute, or market its products and services in the U.S. and
abroad. There may also be pending or issued patents of which the Company is not
aware held by parties not affiliated with the Company that relate to the
Company's products or technologies. In the event that a claim relating to
proprietary technology or information is asserted against the Company, the
Company may need to acquire licenses to, or contest the validity of, any such
competitor's proprietary technology. It is likely that significant funds would
be required to contest the validity of any such competitor's proprietary
technology. There can be no assurance that any license required under any such
competitor's proprietary technology would be made available on acceptable terms
or that the Company would prevail in any such contest. There can be no assurance
that the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or independent
development by others of similar technology. In addition, the laws of some
jurisdictions do not protect the Company's proprietary rights to the same extent
as the laws of the U.S. and there can be no assurance that the available
protections will be adequate.
The Company also relies on trade secrets and proprietary know-how that it
seeks to protect, in part, by confidentiality agreements with its employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors.
Government Regulations and Approvals. The demand for certain of the
Company's products, both in the United States and abroad, is subject to or
influenced by various domestic and foreign environmental and consumer protection
laws. The Company designs, develops, and markets these products, in part, to
meet customer needs created by existing and anticipated regulations, and any
changes in these regulations may adversely affect consumer demand for the
Company's products. In addition, the manufacture and sale of products that
utilize gamma technology is subject to certain federal, state, local, and
foreign regulations including licensing and other regulatory approvals. In
particular, the Company is required, and has obtained, licenses from the Nuclear
Regulatory Commission (NRC) and the State of Texas for the storage and handling
of the nuclear sources used in its gamma measurement instruments at its Round
Rock, Texas facility. These licenses are subject to periodic review and renewal
and the facility is subject to periodic
35
<PAGE>
inspection. Failure of the Company to maintain such licenses or to comply with
applicable regulations could have a material adverse effect on the Company's
business, financial condition, and results of operations. Further, new or more
stringent regulations may be adopted or imposed by the NRC or other applicable
regulatory authorities and there can be no assurance that the Company will be
able to comply with such changes, the result of which could have a material
adverse effect on the Company's business, financial condition, and results of
operation.
Risks Associated with Cash Management Arrangement with Thermo Electron.
The Company participates in a cash management arrangement with Thermo Electron.
Under this cash management arrangement, the Company lends its excess cash to
Thermo Electron on an unsecured basis. The Company has the contractual right to
withdraw its funds invested in the cash management arrangement upon 30 days'
prior notice. 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 the cash management arrangement by all Thermo
Electron subsidiaries other than wholly owned subsidiaries. The funds are held
on an unsecured basis and therefore are subject to the credit risk of Thermo
Electron. The Company's ability to receive its cash upon notice of withdrawal
could be adversely affected if participants in the cash management arrangement
demand withdrawal of their funds in an aggregate amount in excess of the 50%
reserve required to be maintained by Thermo Electron. In the event of a
bankruptcy of Thermo Electron, the Company would be treated as an unsecured
creditor and its right to receive funds from the bankruptcy estate would be
subordinated to secured creditors and would be treated on a pari passu basis
with all other unsecured creditors. Further, all cash withdrawn by the Company
from the cash management arrangement within one year before the bankruptcy would
be subject to rescission. The inability of Thermo Electron to return the
Company's cash on a timely basis or at all could have a material adverse effect
on the Company's results of operations and financial position.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
ONIX Systems Inc. 1999 Financial Statements
Selected Financial Information
<S> <C> <C> <C> <C> <C>
(In thousands except per share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995
- ------------------------------------------------- ----------- ----------- ---------- ---------- ----------
Statement of Income Data
Revenues $139,969 $ 153,653 $121,525 $ 95,316 $ 72,105
Income Before Provision for Income Taxes 3,894 13,222 14,719 8,098 6,117
Net Income 2,319 8,000 8,799 4,858 3,627
Basic and Diluted Earnings per Share .16 .55 .79 .46 .34
Balance Sheet Data
Working Capital $ 79,652 $ 74,843 $ 41,947 $ 29,873 $ 26,199
Total Assets 183,041 180,578 159,709 97,010 76,221
Long-term Obligation 1,444 - - - -
Shareholders' Investment 147,920 146,547 104,938 73,110 59,791
(a) Reflects net restructuring costs of $0.2 million.
(b) Reflects the July 1998 acquisition of the Mid-South Companies, restructuring
costs of $0.9 million, and the net proceeds of the Company's March 1998
initial public offering.
(c) Reflects the acquisition of the Peek Measurement Business effective November
1997, the December 1997 acquisition of Fluid Data, and the net proceeds of
the Company's September and October 1997 private placements of common stock.
(d) Reflects the October 1996 acquisition of Kay-Ray/Sensall and the March 1996
acquisition of VG Gas Analysis.
37
<PAGE>
ONIX Systems Inc. 1999 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol ONX. The following table sets forth the high and low sale prices of
the Company's common stock since March 25, 1998, the date the Company's common
stock began trading on that exchange, as reported in the consolidated
transaction reporting system.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
--------------------- --------------------
Quarter High Low High Low
- -------------------------------------------------------------- --------- ---------- ----------- --------
First $7 7/8 $5 3/8 $15 3/4 $14 1/2
Second 7 1/8 5 1/8 16 12 15/16
Third 7 5 1/2 12 5/8 6
Fourth 6 3/8 4 1/2 8 3/16 5 1/8
As of January 28, 2000, the Company had 66 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
January 28, 2000, was $8 3/4 per share.
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
As of February 23, 2000, ONIX Systems Inc. owned the following companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME STATE OR JURISDICTION PERCENT OF
OF INCORPORATION OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
Brandt Instruments, Inc. Delaware 100
CAC Inc. Delaware 100
Flow Automation Inc. Texas 100
Lots 82 and 83, Inc. Louisiana 100
Mid-South Power Systems, Inc. Louisiana 100
Mid-South Controls & Services, Inc. Louisiana 100
Thermo Instrument Controls de Mexico, S.A. de C.V. Mexico 100
(1% of which shares are owned directly by ONIX Systems Inc.)
ONIX Process Analysis Inc. Texas 100
OnIX Holdings Limited England 100
CAC UK Limited England 100
ONIX Measurement Limited England 100
ONIX Process Analysis Limited England 100
Polysonics, Inc. Texas 100
TN Spectrace Europe B.V. Netherlands 100
TN Technologies Inc. Texas 100
Kay-Ray/Sensall, Inc. Delaware 100
TN Technologies Canada Inc. Canada 100
Westronics Inc. Texas 100
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 15, 2000 (except with respect to the
matter discussed in Note 13, as to which the date is March 13, 2000), included
in or incorporated by reference into ONIX Systems Inc.'s Annual Report on Form
10-K for the year ended January 1, 2000, into the Company's previously filed
Registration Statement No. 333-79977 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ONIX SYSTEMS INC.'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 6,067
<SECURITIES> 0
<RECEIVABLES> 36,337
<ALLOWANCES> 2,576
<INVENTORY> 28,782
<CURRENT-ASSETS> 110,236
<PP&E> 20,553
<DEPRECIATION> 9,473
<TOTAL-ASSETS> 183,041
<CURRENT-LIABILITIES> 30,584
<BONDS> 1,444
0
0
<COMMON> 156
<OTHER-SE> 147,764
<TOTAL-LIABILITY-AND-EQUITY> 183,041
<SALES> 139,969
<TOTAL-REVENUES> 139,969
<CGS> 91,353
<TOTAL-COSTS> 91,353
<OTHER-EXPENSES> 10,010
<LOSS-PROVISION> 943
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 3,894
<INCOME-TAX> 1,575
<INCOME-CONTINUING> 2,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,319
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
